Table of Contents
As filed with the Securities and
Exchange Commission on March 15,
2010
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF
1933
MAGNACHIP SEMICONDUCTOR
LLC
(to be converted into MagnaChip
Semiconductor Corporation)
(Exact name of Registrant as
specified in its charter)
| Delaware | 3674 | 26-1815025 | ||
|
(State or other jurisdiction
of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
c/o MagnaChip
Semiconductor S.A.
74, rue de Merl, B.P. 709 L-2146
Luxembourg R.C.S.
Luxembourg B97483
(352) 45-62-62
(Address, including zip code,
and telephone number, including area code, of Registrant’s
principal executive offices)
John McFarland
Senior Vice President, General
Counsel and Secretary
c/o MagnaChip
Semiconductor, Inc.
20400 Stevens Creek Boulevard,
Suite 370
Cupertino, CA 95014
Telephone:
(408) 625-5999
Fax:
(408) 625-5990
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
|
Micheal J. Reagan Khoa D. Do Peter M. Astiz DLA Piper LLP (US) 2000 University Avenue East Palo Alto, California 94303 Telephone: (650) 833-2000 Fax: (650) 833-2001 |
Kirk A. Davenport Keith Benson Latham & Watkins LLP 885 Third Avenue New York, NY 10022-4834 Telephone: (212) 906-1200 Fax: (212) 751-4864 |
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
registration statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box: o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering: o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering: o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the
Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
(Do
not check if a smaller reporting company)
CALCULATION OF
REGISTRATION FEE
|
Proposed Maximum |
Amount of |
|||||||||
|
Title of Each Class of |
Aggregate |
Registration |
||||||||
| Securities to be Registered | Offering Price(1) | Fee | ||||||||
|
Common Stock, par value $0.01 per share
|
$ | 250,000,000 | $ | 17,825.00 | ||||||
|
Depositary Shares(2)
|
||||||||||
| (1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o). Includes shares of common stock that the underwriters have an option to purchase. | |
| (2) | All of the shares of common stock sold in this offering will be sold in the form of depositary shares. Each depositary share will be issued under a deposit agreement, will represent an interest in a share of common stock and will be evidenced by a depositary receipt. days after the effective date of this registration statement, each holder of depositary shares will be credited with a number of shares of common stock equal to the number of depositary shares held by such holder on that date, and the depositary shares will be canceled. Until such cancellation of the depositary shares, holders of depositary shares will be entitled to all proportional rights and preferences of the shares of common stock. |
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
Table of Contents
|
The
information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell nor does it seek an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted. |
Subject
to Completion. Dated March 15, 2010
MagnaChip Semiconductor
Corporation
Depositary Shares
Representing Shares
of Common Stock
This is the initial public offering of common stock of MagnaChip
Semiconductor Corporation. MagnaChip Semiconductor Corporation
is
offering shares
of common stock. The selling stockholders identified in this
prospectus are
offering shares
of common stock. We will not receive any of the proceeds from
the sale of the shares by the selling stockholders.
All of the shares of common stock sold in this offering will be
sold in the form of depositary shares. Each depositary share
represents an ownership interest in one share of common stock.
On ,
2010 ( days after the date of this
prospectus), each holder of depositary shares will be credited
with a number of shares of common stock equal to the number of
depositary shares held by such holder on that date, and the
depositary shares will be canceled. Until the cancellation of
the depositary shares
on ,
2010, holders of depositary shares will be entitled to all
proportional rights and preferences of the shares of common
stock.
Prior to this offering, there has been no public market for our
depositary shares or our common stock. We currently estimate
that the initial public offering price per depositary share will
be between $ and
$ . We intend to apply for listing
of the depositary shares and the common stock on the New York
Stock Exchange under the symbol “MX.’’
See “Risk Factors” beginning on page 16 to read
about factors you should consider before buying the depositary
shares and shares of the common stock.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
|
Per |
||||||||||||
|
depositary share
|
Total
|
|||||||||||
|
Initial public offering price
|
$ | $ | ||||||||||
|
Underwriting discounts and commissions
|
$ | $ | ||||||||||
|
Proceeds, before expenses to MagnaChip Semiconductor Corporation
|
$ | $ | ||||||||||
|
Proceeds, before expenses to Selling Stockholders
|
$ | $ | ||||||||||
To the extent that the underwriters sell more
than depositary
shares, the underwriters have the option to purchase up to an
additional depositary
shares from us and up to an
additional depositary
shares from the selling stockholders at the initial public
offering price less the underwriting discount.
The underwriters expect to deliver the depositary shares against
payment in New York, New York
on ,
2010.
| Goldman, Sachs & Co. | Barclays Capital | Deutsche Bank Securities |
|
Citi
|
UBS Investment Bank |
Prospectus
dated ,
2010
Table of Contents
| Mobile Application Television Application Computer Application |
| MagnaChip Everywhere Analog and Mixed Signal Semiconductors and Manufacturing Services for High-Volume Applications |
TABLE OF
CONTENTS
| 1 | ||||||||
| 16 | ||||||||
| 33 | ||||||||
| 33 | ||||||||
| 34 | ||||||||
| 34 | ||||||||
| 34 | ||||||||
| 35 | ||||||||
| 36 | ||||||||
| 38 | ||||||||
| 46 | ||||||||
| 52 | ||||||||
| 79 | ||||||||
| 94 | ||||||||
| 119 | ||||||||
| 124 | ||||||||
| 125 | ||||||||
| 131 | ||||||||
| 134 | ||||||||
| 135 | ||||||||
| 137 | ||||||||
| 140 | ||||||||
| 144 | ||||||||
| 144 | ||||||||
| 144 | ||||||||
| F-1 | ||||||||
| EX-3.1 | ||||||||
| EX-3.2 | ||||||||
| EX-3.3 | ||||||||
| EX-3.4 | ||||||||
| EX-3.5 | ||||||||
| EX-4.1 | ||||||||
| EX-10.1 | ||||||||
| EX-10.2 | ||||||||
| EX-10.3 | ||||||||
| EX-10.4 | ||||||||
| EX-10.5 | ||||||||
| EX-10.6 | ||||||||
| EX-10.7 | ||||||||
| EX-10.8 | ||||||||
| EX-10.9 | ||||||||
| EX-10.10 | ||||||||
| EX-10.11 | ||||||||
| EX-10.12 | ||||||||
| EX-10.13 | ||||||||
| EX-10.14 | ||||||||
| EX-10.15 | ||||||||
| EX-10.16 | ||||||||
| EX-10.17 | ||||||||
| EX-10.18 | ||||||||
| EX-10.19 | ||||||||
| EX-10.20 | ||||||||
| EX-10.21 | ||||||||
| EX-10.22 | ||||||||
| EX-10.23 | ||||||||
| EX-10.24 | ||||||||
| EX-10.25 | ||||||||
| EX-10.26 | ||||||||
| EX-10.27 | ||||||||
| EX-10.28 | ||||||||
| EX-10.29 | ||||||||
| EX-10.30 | ||||||||
| EX-10.31 | ||||||||
| EX-10.32 | ||||||||
| EX-10.33 | ||||||||
| EX-10.34 | ||||||||
| EX-10.35 | ||||||||
| EX-10.36 | ||||||||
| EX-10.37 | ||||||||
| EX-10.38 | ||||||||
| EX-10.39 | ||||||||
| EX-10.40 | ||||||||
| EX-10.41 | ||||||||
| EX-10.42 | ||||||||
| EX-10.43 | ||||||||
| EX-10.44 | ||||||||
| EX-10.45 | ||||||||
| EX-10.46 | ||||||||
| EX-10.47 | ||||||||
| EX-10.48 | ||||||||
| EX-10.49 | ||||||||
| EX-21.1 | ||||||||
| EX-23.1 | ||||||||
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered by this prospectus, but only under circumstances
and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of
its date.
“MagnaChip” is a registered trademark of us and our
subsidiaries and “MagnaChip Everywhere” is our
registered service mark. An application for United States
trademark registration of “MagnaChip Everywhere” is
pending. All other product, service and company names mentioned
in this prospectus are the service marks or trademarks of their
respective owners.
Table of Contents
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the
information that you should consider before deciding to invest
in our common stock. You should read this entire prospectus
carefully, including the “Risk Factors” and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” sections contained in
this prospectus and our consolidated financial statements before
making an investment decision. In this prospectus, unless the
context otherwise requires, the terms “we,”
“us,” “our” and “MagnaChip” refer
to MagnaChip Semiconductor LLC and its consolidated subsidiaries
for the periods prior to the consummation of the corporate
conversion (as described below), and such terms refer to
MagnaChip Semiconductor Corporation and its consolidated
subsidiaries for the periods after the consummation of the
corporate conversion. The term “Korea” refers to the
Republic of Korea or South Korea. All references to shares of
common stock being sold in this offering include shares held in
the form of depositary shares, as described under
“Description of Depositary Shares.”
Immediately prior to the effectiveness of the registration
statement of which this prospectus is a part, we will complete a
number of transactions pursuant to which MagnaChip Semiconductor
Corporation will succeed to the business of MagnaChip
Semiconductor LLC and its consolidated subsidiaries and the
members of MagnaChip Semiconductor LLC will become stockholders
of MagnaChip Semiconductor Corporation. In this prospectus, we
refer to such transactions as the corporate conversion.
Overview
MagnaChip is a Korea-based designer and manufacturer of analog
and mixed-signal semiconductor products for high-volume consumer
applications. We believe we have one of the broadest and deepest
analog and mixed-signal semiconductor technology platforms in
the industry, supported by our
30-year
operating history, large portfolio of approximately 3,600 novel
registered and pending patents and extensive engineering and
manufacturing process expertise. Our business is comprised of
three key segments: Display Solutions, Power Solutions and
Semiconductor Manufacturing Services. Our Display Solutions
products include display drivers for use in a wide range of flat
panel displays and mobile multimedia devices. Our Power
Solutions products include discrete and integrated circuit
solutions for power management in high-volume consumer
applications. Our Semiconductor Manufacturing Services segment
provides specialty analog and mixed-signal foundry services for
fabless semiconductor companies that serve the consumer,
computing and wireless end markets.
Our wide variety of analog and mixed-signal semiconductor
products and manufacturing services combined with our deep
technology platform allows us to address multiple high-growth
end markets and to rapidly develop and introduce new products
and services in response to market demands. Our substantial
manufacturing operations in Korea and design centers in Korea
and Japan place us at the core of the global consumer
electronics supply chain. We believe this enables us to quickly
and efficiently respond to our customers’ needs and allows
us to better service and capture additional demand from existing
and new customers.
We have a long history of supplying and collaborating on product
and technology development with leading innovators in the
consumer electronics market. As a result, we have been able to
strengthen our technology platform and develop products and
services that are in high demand by our customers and end
consumers. We sold over 2,300 distinct products to over 185
customers for the year ended December 31, 2009, with a
substantial portion of our revenues derived from a concentrated
number of customers, including LG Display, Sharp and Samsung.
Our largest semiconductor manufacturing services customers
include some of the fastest growing and leading semiconductor
companies that design analog and mixed-signal products for the
consumer, computing and wireless end markets. For 2009 on an a
combined pro forma basis, we generated net sales of
1
Table of Contents
$560.1 million, income from continuing operations of
$66.0 million, Adjusted EBITDA of $98.7 million and
Adjusted Net Income of $53.0 million. See “Unaudited
Pro Forma Consolidated Financial Information” beginning on
page 46 for an explanation regarding our pro forma
presentation and “— Summary Historical and Unaudited
Pro Forma Consolidated Financial Data,” beginning on
page 8 for an explanation of our use of Adjusted EBITDA and
Adjusted Net Income.
Our business is largely driven by innovation in the consumer
electronics markets and the growing adoption by consumers
worldwide of electronic devices for use in their daily lives.
The consumer electronics market is large and growing rapidly,
largely due to consumers increasingly accessing a wide variety
of available rich media content, such as high definition audio
and video, mobile television and games on advanced consumer
electronic devices. According to Gartner, production of liquid
crystal display, or LCD televisions, smartphones, mobile
personal computers, or PCs, and mini-notebooks is expected to
grow from 2009 to 2013 by a compound annual growth rate of 12%,
36%, 24%, and 20%, respectively. Electronics manufacturers are
continuously implementing advanced technologies in new
generations of electronic devices using analog and mixed-signal
semiconductor components, such as display drivers that enable
display of high resolution images, encoding and decoding devices
that allow playback of high definition audio and video, and
power management semiconductors that increase power efficiency,
thereby reducing heat dissipation and extending battery life.
According to iSuppli Corporation, in 2009, the display driver
semiconductor market was $6.0 billion and the power
management semiconductor market was $21.9 billion.
Our Products and
Services
Our Display Solutions products include source and gate drivers
and timing controllers that cover a wide range of flat panel
displays used in LCD televisions and light emitting diode, or
LED, televisions and displays, mobile PCs and mobile
communications and entertainment devices. Our display solutions
support the industry’s most advanced display technologies,
such as low temperature polysilicon, or LTPS, and active matrix
organic light emitting diode, or AMOLED, as well as high-volume
display technologies such as thin film transistor, or TFT.
We expanded our business and market opportunity by establishing
our Power Solutions business in late 2007. We have introduced a
number of products for power management applications, including
metal oxide semiconductor field effect transistors, or MOSFETs,
analog switches, LED drivers, DC-DC converters and linear
regulators for a range of devices, including LCD and LED digital
televisions, mobile phones, computers and other consumer
electronics products.
We offer semiconductor manufacturing services to fabless analog
and mixed-signal semiconductor companies that require
differentiated, specialty analog and mixed-signal process
technologies. We believe the majority of our top twenty
semiconductor manufacturing services customers use us as their
primary manufacturing source for the products that we
manufacture for them. Our process technologies are optimized for
analog and mixed-signal devices and include standard
complementary metal-oxide semiconductor, or CMOS, high voltage
CMOS, ultra-low leakage high voltage CMOS and bipolar
complementary double-diffused metal oxide semiconductor, or
BCDMOS. Our semiconductor manufacturing services customers use
us to manufacture a wide range of products, including display
drivers, LED drivers, audio encoding and decoding devices,
microcontrollers, electronic tags and power management
semiconductors.
We manufacture all of our products at our three fabrication
facilities located in Korea. We have approximately 200
proprietary process flows we can utilize for our products and
offer to our semiconductor manufacturing services customers. Our
manufacturing base serves both our display driver and power
management businesses and semiconductor manufacturing services
customers, allowing us to optimize our asset utilization and
leverage our investments across our product and service
offerings. Analog and mixed-signal manufacturing facilities and
processes are typically
2
Table of Contents
distinguished by design and process implementation expertise
rather than the use of the most advanced equipment. As a result,
our manufacturing base and strategy does not require substantial
investment in leading edge process equipment, allowing us to
utilize our facilities and equipment over an extended period of
time with moderate required capital investments.
Our Competitive
Strengths
We believe our strengths include:
| • | Broad and advanced analog and mixed-signal semiconductor technology and intellectual property platform that allows us to develop new products and meet market demands quickly; | |
| • | Established relationships and close collaboration with leading global consumer electronics companies, which enhance our visibility into new product opportunities, markets and technology trends; | |
| • | Longstanding presence of our management, personnel and manufacturing base in Asia and proximity to our largest customers and to the core of the global consumer electronics supply chain, which allows us to respond rapidly and efficiently to our customers’ needs; | |
| • | Flexible, service-oriented culture and approach to customers; | |
| • | Distinctive analog and mixed-signal process technology and manufacturing expertise; and | |
| • | Manufacturing facilities with specialty processes and a low-cost operating structure, which allow us to maintain price competitiveness across our product and service offerings. |
Our
Strategy
Our objective is to grow our business and to continue to
strengthen our position as a leading provider of analog and
mixed-signal semiconductor products and services for high-volume
consumer applications. Our business strategy emphasizes the
following key elements:
| • | Leverage our advanced analog and mixed-signal technology platform to continuously innovate and deliver products with high levels of performance and integration, as well as to expand our technology offerings within our target markets, such as our power management products; | |
| • | Increase business with our global customer base of leading consumer electronics original equipment manufacturers, or OEMs, and fabless companies by collaborating on critical design, product and manufacturing process development and leveraging our deep knowledge of customer needs; | |
| • | Broaden our customer base by expanding our global design centers and local application engineering support and sales presence, particularly in China and other high-growth regions; | |
| • | Aggressively grow our power management product portfolio business by introducing new products, expanding distribution and cross-selling products to our existing customers; | |
| • | Drive execution excellence in new product development, manufacturing efficiency and quality, customer service and personnel development; and | |
| • | Optimize asset utilization and return on capital investments by maintaining our focus on specialty process technologies that do not require substantial investment in leading edge |
3
Table of Contents
| process equipment and by utilizing our manufacturing facilities for both our display driver and power management businesses and manufacturing services customers. |
Recent Changes To
Our Business
We have executed a significant restructuring over the last
18 months that refocused our business strategy, enhanced
our operating efficiency and improved our cash flow and
profitability. By closing our Imaging Solutions business,
restructuring our balance sheet and refining our business
processes and strategy, we believe we have made significant
structural improvements to our operating model and have enabled
better flexibility to manage our business through fluctuations
in the economy and our markets.
Specifically, our business optimization initiatives included:
| • | Closing our Imaging Solutions business, which had been a source of substantial ongoing operating losses amounting to $91.5 million and $51.7 million in 2008 and 2007, respectively, and which required substantial ongoing capital investment; | |
| • | Reducing our indebtedness from $845 million immediately prior to the effectiveness of our plan of reorganization to $61.8 million as of December 31, 2009; | |
| • | Streamlining our cost structure to reduce ongoing fixed and variable expenses; | |
| • | Entering into a hedging program to mitigate the impact of currency fluctuation on our financial results; and | |
| • | Focusing on major customers, key product lines, growth segments and areas of competitive differentiation. |
Risks Related to
Our Company
Investing in our company entails a high degree of risk,
including those summarized below and those more fully described
in the “Risk Factors” section beginning on
page 16 of this prospectus. You should consider carefully
these risks before deciding to invest in our common stock.
| • | We have a history of losses and may not be profitable in the future; | |
| • | On June 12, 2009, we filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code and our plan of reorganization became effective on November 9, 2009; | |
| • | In connection with our audit for the ten-month period ended October 25, 2009 and the two-month period ended December 31, 2009, our auditors identified two control deficiencies which represent a material weakness in our internal control over financial reporting; if we fail to effectively remediate this weakness, the accuracy and timing of our financial reporting may be adversely affected; | |
| • | The cyclical nature of the semiconductor industry may limit our ability to maintain or increase net sales and profit levels during industry downturns; | |
| • | If we fail to develop new products and process technologies or enhance our existing products and services in order to react to rapid technological change and market demands, our business will suffer; |
4
Table of Contents
| • | A significant portion of our sales comes from a relatively limited number of customers and the loss of any of such customers or a significant decrease in sales to any of such customers would harm our revenue and gross profit; | |
| • | The average selling prices of our semiconductor products have at times declined rapidly and will likely do so in the future, which could harm our revenue and gross profit; and | |
| • | Upon completion of this offering, our largest stockholder, consisting of affiliated funds of Avenue Capital Management II, L.P., will control approximately % of our outstanding common stock, assuming no exercise by the underwriters of their option to purchase additional shares. |
Corporate
Information
Prior to the closing of this offering, MagnaChip Semiconductor
LLC will convert from a Delaware limited liability company to a
Delaware corporation. We refer to this as the corporate
conversion. In connection with the corporate conversion, each
common unit of MagnaChip Semiconductor LLC will be converted
into shares
of common stock of MagnaChip Semiconductor Corporation, the
members of MagnaChip Semiconductor LLC will become stockholders
of MagnaChip Semiconductor Corporation and MagnaChip
Semiconductor Corporation will succeed to the business of
MagnaChip Semiconductor LLC and its consolidated subsidiaries.
See “Corporate Conversion” for further information
regarding the corporate conversion.
Our principal executive offices are located at:
c/o MagnaChip
Semiconductor S.A., 74, rue de Merl, B.P. 709 L-2146 Luxembourg
R.C.S., Luxembourg B97483, and our telephone number is
(352) 45-62-62.
Our website address is www.magnachip.com. You should not
consider the information contained on our website to be part of
this prospectus or in deciding whether to purchase shares of our
common stock.
Our business was named MagnaChip Semiconductor when it was
acquired from Hynix Semiconductor, Inc., or Hynix, in October
2004. We refer to this acquisition as the Original Acquisition.
On June 12, 2009, MagnaChip Semiconductor LLC, along with
certain of its subsidiaries, including MagnaChip Semiconductor
S.A., filed a voluntary petition for relief in the United States
Bankruptcy Court for the District of Delaware under
Chapter 11 of the United States Bankruptcy Code, which we
refer to as the reorganization proceedings. On November 9,
2009, our plan of reorganization became effective and we emerged
from the reorganization proceedings. On that date, a new board
of directors of MagnaChip Semiconductor LLC was appointed,
MagnaChip Semiconductor LLC’s previously outstanding common
and preferred units, and options were cancelled, MagnaChip
Semiconductor LLC issued approximately 300 million common
units and warrants to purchase 15 million common units to
two classes of creditors and affiliated funds of Avenue Capital
Management II, L.P. became the majority unitholder of MagnaChip
Semiconductor LLC. Our Chapter 11 plan of reorganization
implemented a comprehensive financial reorganization that
significantly reduced our outstanding indebtedness. In this
prospectus, we refer to funds affiliated with Avenue Capital
Management II, L.P. collectively as Avenue.
5
Table of Contents
The
Offering
|
Shares offered by us
|
shares in the form of depositary shares | |
|
Shares offered by selling stockholders
|
shares in the form of depositary shares | |
|
Shares offered by us pursuant to the underwriters’ option
to purchase additional shares
|
shares in the form of depositary shares(1) | |
|
Shares offered by the selling stockholders pursuant to the
underwriters’ option to purchase additional shares
|
shares in the form of depositary shares(1) | |
|
Shares of common stock to be outstanding after this offering
|
shares | |
| Use of proceeds | We intend to use the net proceeds received by us in connection with this offering to make employee incentive payments, to fund working capital and for general corporate purposes. We will not receive any proceeds from the sale of shares of common stock offered by the selling stockholders, including upon the sale of shares if the underwriters exercise their option to purchase additional shares from the selling stockholder in this offering. | |
| Risk factors | See “Risk Factors” and the other information included in this prospectus for a discussion of the factors you should consider carefully before deciding to invest in shares of our common stock. | |
| Dividend policy | We do not anticipate paying any cash dividends on our common stock after this offering. | |
| Depositary shares | All of the shares of common stock sold in this offering will be sold in the form of depositary shares. Each depositary share represents an ownership interest in one share of common stock. On , 2010 ( days after the date of this prospectus), each holder of depositary shares will be credited with a number of shares of common stock equal to the number of depositary shares held by such holder on that date, and the depositary shares will be canceled. Until the cancellation of the depositary shares on , 2010, holders of depositary shares will be entitled to all proportional rights and preferences of the shares of common stock. This offering has been structured using depositary shares to enable the selling stockholders to obtain the preferred income tax treatment for the corporate conversion. For more information regarding the depositary shares, see “Description of Depositary Shares.” | |
| Depositary | American Stock Transfer & Trust Company, LLC | |
|
Proposed New York Stock Exchange symbol
|
MX |
| (1) | We have provided the underwriters an option to purchase up to additional depositary shares and the selling stockholders have provided the underwriters an option to purchase up to |
6
Table of Contents
| additional depositary shares. If the underwriters exercise their option to purchase additional shares, we will not receive any of the proceeds from the additional sale of depositary shares by the selling stockholders. |
The number of shares of our common stock outstanding after this
offering is based on common units of MagnaChip Semiconductor LLC
outstanding as of the date of this prospectus and:
| • | reflects the consummation of the corporate conversion, pursuant to which all of the outstanding common units of MagnaChip Semiconductor LLC will be automatically converted into shares of our common stock at a ratio of and all of the outstanding options and warrants to purchase common units of MagnaChip Semiconductor LLC will be automatically converted into options and warrants to purchase shares of our common stock; | |
| • | excludes shares of our common stock reserved for issuance upon exercise of warrants to purchase common units of MagnaChip Semiconductor LLC outstanding as of at a weighted average exercise price of per share, assuming the conversion of all such warrants into warrants to purchase shares of our common stock at a ratio of ; | |
| • | excludes shares of our common stock reserved for issuance upon exercise of options to purchase common units of MagnaChip Semiconductor LLC outstanding as of at a weighted average exercise price of per share, assuming the conversion of all such options into options to purchase shares of our common stock at a ratio of ; and | |
| • | excludes shares of our common stock reserved as of for issuance pursuant to future grants under our 2010 Equity Incentive Plan and 2010 Employee Stock Purchase Plan, which does not include the additional shares which may become available for issuance pursuant to the automatic share reserve increase provisions of such plans described below. |
The number of shares authorized for future issuance under our
2010 Equity Incentive Plan and our 2010 Employee Stock Purchase
Plan reflected above does not include additional shares that may
become available for future issuance pursuant to the automatic
share reserve increase provisions of these plans. On January 1
of each year from 2011 through 2020, up to 2% and 1%,
respectively, of the shares of our common stock issued and
outstanding on the immediately preceding December 31 or,
in each case, a lesser amount determined by our board of
directors, will be added automatically to the number of shares
remaining available for future grants under the 2010 Equity
Incentive Plan and the 2010 Employee Stock Purchase Plan.
Unless specifically stated otherwise, the information in this
prospectus:
| • | assumes no exercise of the underwriters’ option to purchase up to additional depositary shares from us and up to additional depositary shares from our selling stockholders; and | |
| • | assumes an initial public offering price of $ per depositary share, which is the midpoint of the range set forth on the front cover of this prospectus. |
7
Table of Contents
Summary
Historical and Unaudited Pro Forma Consolidated Financial
Data
The following tables set forth summary historical and unaudited
pro forma consolidated financial data of MagnaChip Semiconductor
LLC (to be converted into MagnaChip Semiconductor Corporation
prior to consummation of this offering) on or as of the dates
and for the periods indicated. The summary historical and
unaudited pro forma consolidated financial data presented below
should be read together with “Selected Historical
Consolidated Financial and Operating Data,” “Unaudited
Pro Forma Consolidated Financial Information,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our consolidated
financial statements, including the notes to those consolidated
financial statements appearing elsewhere in this prospectus.
We have derived the summary historical consolidated financial
data as of December 31, 2009 and 2008, and for the
two-month period ended December 31, 2009, the ten-month
period ended October 25, 2009 and the years ended
December 31, 2008 and 2007 from the historical audited
consolidated financial statements of MagnaChip Semiconductor LLC
prepared in accordance with generally accepted accounting
principles in the United States, or GAAP, included elsewhere in
this prospectus. We have derived the summary historical
consolidated financial data as of December 31, 2007 from
the historical audited financial statements of MagnaChip
Semiconductor LLC not included in this prospectus. The
historical results of MagnaChip Semiconductor LLC for any prior
period are not necessarily indicative of the results to be
expected in any future period.
In connection with our emergence from reorganization
proceedings, we implemented fresh-start reporting, or
fresh-start accounting, in accordance with applicable Accounting
Standards Codification, or ASC 852 governing reorganizations. We
elected to adopt a convenience date of October 25, 2009 (a
month end for our financial reporting purposes) for application
of fresh-start accounting. In accordance with the ASC 852
rules governing reorganizations, we recorded largely non-cash
reorganization income and expense items directly associated with
our reorganization proceedings including professional fees, the
revaluation of assets, the effects of our reorganization plan
and fresh-start accounting and write-off of debt issuance costs.
As a result of the application of fresh-start accounting, our
financial statements prior to and including October 25,
2009 represent the operations of our pre-reorganization
predecessor company and are presented separately from the
financial statements of our post-reorganization successor
company. As a result of the application of fresh-start
accounting, the financial statements prior to and including
October 25, 2009 are not fully comparable with the
financial statements for periods on or after October 26,
2009.
We have prepared the summarized unaudited pro forma financial
data for the year ended December 31, 2009 to give pro forma
effect to the reorganization proceedings and related events and
the corporate conversion, in each case as if they had occurred
at the beginning of the period presented with respect to
consolidated statements of operations data and as of the balance
sheet date with respect to balance sheet data. The summary
unaudited pro forma financial data set forth below are presented
for informational purposes only, should not be considered
indicative of actual results of operations that would have been
achieved had the reorganization proceedings and related events
and the corporate conversion been consummated on the dates
indicated, and do not purport to be indicative of balance sheet
data or results of operations as of any future date or for any
future period.
8
Table of Contents
| Historical | |||||||||||||||||||||
| Pro Forma(1) | Successor | Predecessor | |||||||||||||||||||
|
Two- Month |
Ten- Month |
||||||||||||||||||||
|
Year Ended |
Period Ended |
Period Ended |
Years Ended |
||||||||||||||||||
|
December 31, |
December 31, |
October 25, |
December 31, | ||||||||||||||||||
| 2009 | 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
| (In millions, except per common unit/share data) | |||||||||||||||||||||
| (Unaudited) | (Audited) | (Audited) | |||||||||||||||||||
|
Statements of Operations Data:
|
|||||||||||||||||||||
|
Net sales
|
$ | 560.1 | $ | 111.1 | $ | 449.0 | $ | 601.7 | $ | 709.5 | |||||||||||
|
Cost of sales
|
378.9 | 90.4 | 311.1 | 445.3 | 578.9 | ||||||||||||||||
|
Gross profit
|
181.2 | 20.7 | 137.8 | 156.4 | 130.7 | ||||||||||||||||
|
Selling, general and administrative expenses
|
71.6 | 14.5 | 56.3 | 81.3 | 82.7 | ||||||||||||||||
|
Research and development expenses
|
77.3 | 14.7 | 56.1 | 89.5 | 90.8 | ||||||||||||||||
|
Restructuring and impairment charges
|
0.4 | — | 0.4 | 13.4 | 12.1 | ||||||||||||||||
|
Operating income (loss) from continuing operations
|
31.9 | (8.6 | ) | 25.0 | (27.7 | ) | (54.9 | ) | |||||||||||||
|
Interest expense, net
|
9.4 | 1.3 | 31.2 | 76.1 | 60.3 | ||||||||||||||||
|
Foreign currency gain (loss), net
|
52.8 | 9.3 | 43.4 | (210.4 | ) | (4.7 | ) | ||||||||||||||
|
Reorganization items, net
|
— | — | 804.6 | — | — | ||||||||||||||||
|
|
43.4 | 8.1 | 816.8 | (286.5 | ) | (65.0 | ) | ||||||||||||||
|
Income (loss) from continuing operations before income taxes
|
$ | 75.2 | $ | (0.5 | ) | $ | 841.8 | $ | (314.3 | ) | $ | (120.0 | ) | ||||||||
|
Income tax expenses
|
9.2 | 1.9 | 7.3 | 11.6 | 8.8 | ||||||||||||||||
|
Income (loss) from continuing operations
|
$ | 66.0 | $ | (2.5 | ) | $ | 834.5 | $ | (325.8 | ) | $ | (128.8 | ) | ||||||||
|
Income (loss) from discontinued operations, net of taxes
|
0.5 | 6.6 | (91.5 | ) | (51.7 | ) | |||||||||||||||
|
Net income (loss)
|
(2.0 | ) | 841.1 | (417.3 | ) | (180.6 | ) | ||||||||||||||
|
Dividends accrued on preferred units
|
— | 6.3 | 13.3 | 12.0 | |||||||||||||||||
|
Income (loss) from continuing operations attributable to common
units/shares
|
66.0 | (2.5 | ) | 828.2 | (339.1 | ) | (140.9 | ) | |||||||||||||
|
Per common unit/share data:
|
|||||||||||||||||||||
|
Earnings (loss) from continuing operations per common
unit/share — Basic and diluted
|
$ | (0.01 | ) | $ | 15.65 | $ | (6.43 | ) | $ | (2.69 | ) | ||||||||||
|
Weighted average number of common units/shares — Basic
and diluted
|
300.863 | 52.923 | 52.769 | 52.297 | |||||||||||||||||
|
Consolidated Balance Sheet Data (at period end):
|
|||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 64.9 | $ | 64.9 | $ | 4.0 | $ | 64.3 | |||||||||||||
|
Total assets
|
453.3 | 453.3 | 399.2 | 707.9 | |||||||||||||||||
|
Total indebtedness(2)
|
61.8 | 61.8 | 845.0 | 830.0 | |||||||||||||||||
|
Long-term obligations(3)
|
61.5 | 61.5 | 143.2 | 879.4 | |||||||||||||||||
|
Total unitholders’/stockholders’ equity (deficit)
|
215.7 | 215.7 | (787.8 | ) | (477.5 | ) | |||||||||||||||
|
Supplemental Data (unaudited):
|
|||||||||||||||||||||
|
Adjusted EBITDA(4)
|
98.7 | 22.1 | 76.6 | 59.8 | 111.2 | ||||||||||||||||
|
Adjusted Net Income (Loss)(5)
|
53.0 | 13.3 | 9.3 | (71.7 | ) | (82.6 | ) | ||||||||||||||
9
Table of Contents
| (1) | Gives effect to the reorganization proceedings and related events and the corporate conversion. For details regarding these pro forma adjustments, see the notes to the unaudited pro forma condensed consolidated financial information in “Unaudited Pro Forma Consolidated Financial Information.” | |
| (2) | Total indebtedness is calculated as long and short-term borrowings, including the current portion of long-term borrowings. | |
| (3) | Long-term obligations include long-term borrowings, capital leases and redeemable convertible preferred units. | |
| (4) | We define Adjusted EBITDA as net income (loss) less income (loss) from discontinued operations, net of taxes, adjusted to exclude (i) depreciation and amortization associated with continuing operations, (ii) interest expense, net, (iii) income tax expense, (iv) restructuring and impairment charges, (v) other restructuring charges, (vi) abandoned IPO expenses, (vii) subcontractor claim settlement, (viii) the increase in cost of sales resulting from the fresh-start accounting inventory step-up, (ix) equity-based compensation expense, (x) reorganization items, net, and (xi) foreign currency gain (loss), net. See the footnotes to the table below for further information regarding these items. In the case of pro forma Adjusted EBITDA, we exclude the items above from income (loss) from continuing operations. We present Adjusted EBITDA as a supplemental measure of our performance because: |
| • | Adjusted EBITDA eliminates the impact of a number of items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance; | |
| • | we believe that Adjusted EBITDA is an enterprise level performance measure commonly reported and widely used by analysts and investors in our industry; | |
| • | we anticipate that our investor and analyst presentations after we are public will include Adjusted EBITDA; and | |
| • | we believe that Adjusted EBITDA provides investors with a more consistent measurement of period to period performance of our core operations, as well as a comparison of our operating performance to that of other companies in our industry. |
We use Adjusted EBITDA in a number of ways, including:
| • | for planning purposes, including the preparation of our annual operating budget; | |
| • | to evaluate the effectiveness of our enterprise level business strategies; | |
| • | in communications with our board of directors concerning our consolidated financial performance; | |
| • | in certain of our compensation plans as a performance measure for determining incentive compensation payments; and | |
| • | to measure our compliance with certain covenants in our debt agreements. |
10
Table of Contents
We encourage you to evaluate each adjustment and the reasons we
consider them appropriate. In evaluating Adjusted EBITDA, you
should be aware that in the future we may incur expenses similar
to the adjustments in this presentation. Adjusted EBITDA is not
a measure defined in accordance with GAAP and should not be
construed as an alternative to income from continuing
operations, cash flows from operating activities or net income
(loss), as determined in accordance with GAAP. A reconciliation
of net income (loss) to Adjusted EBITDA is as follows:
| Historical | |||||||||||||||||||||
| Pro Forma | Successor | Predecessor | |||||||||||||||||||
|
Two- Month |
Ten- Month |
||||||||||||||||||||
|
Year Ended |
Period Ended |
Period Ended |
Years Ended |
||||||||||||||||||
|
December 31, |
December 31, |
October 25, |
December 31, | ||||||||||||||||||
|
2009
|
2009
|
2009
|
2008
|
2007
|
|||||||||||||||||
| (In millions) | |||||||||||||||||||||
|
Net income (loss)
|
$ | (2.0 | ) | $ | 841.1 | $ | (417.3 | ) | $ | (180.6 | ) | ||||||||||
|
Less: Income (loss) from discontinued operations, net of taxes
|
0.5 | 6.6 | (91.5 | ) | (51.7 | ) | |||||||||||||||
|
Income (loss) from continuing operations
|
66.0 | (2.5 | ) | 834.5 | (325.8 | ) | (128.8 | ) | |||||||||||||
|
Adjustments:
|
|||||||||||||||||||||
|
Depreciation and amortization associated with continuing
operations
|
50.6 | 11.2 | 37.7 | 63.8 | 152.2 | ||||||||||||||||
|
Interest expense, net
|
9.4 | 1.3 | 31.2 | 76.1 | 60.3 | ||||||||||||||||
|
Income tax expense
|
9.2 | 1.9 | 7.3 | 11.6 | 8.8 | ||||||||||||||||
|
Restructuring and impairment charges(a)
|
0.4 | — | 0.4 | 13.4 | 12.1 | ||||||||||||||||
|
Other restructuring charges(b)
|
13.3 | — | 13.3 | 6.2 | — | ||||||||||||||||
|
Abandoned IPO expenses(c)
|
— | — | — | 3.7 | — | ||||||||||||||||
|
Subcontractor claim settlement(d)
|
— | — | — | — | 1.3 | ||||||||||||||||
|
Reorganization items, net(e)
|
— | — | (804.6 | ) | — | — | |||||||||||||||
|
Inventory
step-up(f)
|
— | 17.2 | — | — | — | ||||||||||||||||
|
Equity-based compensation expense(g)
|
2.4 | 2.2 | 0.2 | 0.5 | 0.6 | ||||||||||||||||
|
Foreign currency gain (loss), net(h)
|
(52.8 | ) | (9.3 | ) | (43.4 | ) | 210.4 | 4.7 | |||||||||||||
|
Adjusted EBITDA
|
$ | 98.7 | $ | 22.1 | $ | 76.6 | $ | 59.8 | $ | 111.2 | |||||||||||
| (a) | This adjustment is comprised of all items included in the restructuring and impairment charges line item on our consolidated statements of operations, and eliminates the impact of restructuring and impairment charges related to (i) for 2009, termination benefits and other related costs, for the ten-month period ended October 25, 2009 in connection with the closure of one of our research and development facilities in Japan, (ii) for 2008, goodwill impairment triggered by the significant adverse change in the revenue of our mobile display solutions, or MDS reporting unit, and a reversal of a portion of the restructuring accrual related to the closure of our Gumi five-inch wafer fabrication facilities in 2007, and (iii) for 2007, the closure of our Gumi five-inch wafer fabrication facilities. We do not believe these restructuring and impairment charges are indicative of our core ongoing operating performance because we do not anticipate similar facility closures and market driven events in our ongoing operations, although we cannot guarantee that similar events will not occur in the future. | |
| (b) | This adjustment relates to certain restructuring charges that are not included in the restructuring and impairment charges line item on our consolidated statements of operations. These items are included in selling, general and administrative expenses in our consolidated statements of operations. These charges are comprised of the following: (i) for 2009, a charge of $13.3 million for restructuring-related professional fees and related expenses and (ii) for 2008, a charge of $6.2 million for restructuring-related professional fees and related expenses. We do not believe these other restructuring charges are indicative of our core ongoing operating performance because these charges were related, in significant part, to actions we took in response to the impacts on our business resulting from the global |
11
Table of Contents
| economic recession that persisted through 2008 and 2009. We cannot guarantee that similar charges will not be incurred in the future. | ||
| (c) | This adjustment eliminates a $3.7 million charge in 2008 related to expenses incurred in connection with our abandoned initial public offering in 2008. We do not believe that these charges are indicative of our core operating performance. We expect to incur similar costs in connection with this offering. | |
| (d) | This adjustment eliminates a $1.3 million charge attributable to a one-time settlement of claims with a subcontractor. We no longer obtain services from this subcontractor and do not expect to incur similar charges in the future. | |
| (e) | This adjustment eliminates the impact of largely non-cash reorganization income and expense items directly associated with our reorganization proceedings from our ongoing operations including, among others, professional fees, the revaluation of assets, the effects of the Chapter 11 reorganization plan and fresh-start accounting principles and the write-off of debt issuance costs. Included in reorganization items, net for the period from January 1 to October 25, 2009 was our predecessor’s gain recognized from the effects of our reorganization proceedings. The gain results from the difference between our predecessor’s carrying value of remaining pre-petition liabilities subject to compromise and the amounts to be distributed pursuant to the reorganization proceedings. The gain from the effects of the reorganization proceedings and the application of fresh-start accounting principles is comprised of the discharge of liabilities subject to compromise, net of the issuance of new common units and new warrants and the accrual of amounts to be settled in cash. For details regarding this adjustment, see note 5 to the consolidated financial statements of MagnaChip Semiconductor LLC for the ten months ended October 25, 2009 and the two months ended December 31, 2009 included elsewhere in this prospectus. We do not believe these items are indicative of our core ongoing operating performance because they were incurred as a result of our Chapter 11 reorganization. | |
| (f) | This adjustment eliminates the one-time impact on cost of sales associated with the write-up of our inventory in accordance with the principles of fresh-start accounting upon consummation of the Chapter 11 reorganization. | |
| (g) | This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-based compensation expenses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these non-cash expenses, as supplemental information. | |
| (h) | This adjustment eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily non-cash gains or losses, as supplemental information. |
Adjusted EBITDA has limitations as an analytical tool, and you
should not consider it in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
| • | Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; | |
| • | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
12
Table of Contents
| • | Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; | |
| • | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; | |
| • | Adjusted EBITDA does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees; | |
| • | Adjusted EBITDA does not reflect the costs of holding certain assets and liabilities in foreign currencies; and | |
| • | other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted EBITDA should not be
considered as a measure of discretionary cash available to us to
invest in the growth of our business. We compensate for these
limitations by relying primarily on our GAAP results and using
Adjusted EBITDA only supplementally.
| (5) | We present Adjusted Net Income as a further supplemental measure of our performance. We prepare Adjusted Net Income by adjusting net income (loss) to eliminate the impact of a number of non-cash expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Net Income is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. |
We present Adjusted Net Income for a number of reasons,
including:
| • | we use Adjusted Net Income in communications with our board of directors concerning our consolidated financial performance; | |
| • | we believe that Adjusted Net Income is an enterprise level performance measure commonly reported and widely used by analysts and investors in our industry; and | |
| • | we anticipate that our investor and analyst presentations after we are public will include Adjusted Net Income. |
Adjusted Net Income is not a measure defined in accordance with
GAAP and should not be construed as an alternative to income
from continuing operations, cash flows from operating activities
or net income (loss), as determined in accordance with GAAP. We
encourage you to evaluate each adjustment and the reasons we
consider them appropriate. Other companies in our industry may
calculate Adjusted Net Income differently than we do, limiting
its usefulness as a comparative measure. In addition, in
evaluating Adjusted Net Income, you should be aware that in the
future we may incur expenses similar to the adjustments in this
presentation. We define Adjusted Net Income as net income (loss)
less income (loss) from discontinued operations, net of taxes,
excluding (i) restructuring and impairment charges, (ii) other
restructuring charges, (iii) abandoned IPO expenses, (vi)
subcontractor claim settlement, (v) reorganization items, net,
(vi) the increase in cost of sales resulting from the
fresh-start accounting inventory step-up, (vii) equity based
compensation expense, (viii) amortization of intangibles
associated with continuing operations, and (ix) foreign currency
gain (loss).
13
Table of Contents
The following table summarizes the adjustments to net income
(loss) that we make in order to calculate Adjusted Net Income
for the periods indicated:
| Historical | |||||||||||||||||||||
| Pro Forma | Successor | Predecessor | |||||||||||||||||||
|
Two- Month |
Ten- Month |
||||||||||||||||||||
|
Year Ended |
Period Ended |
Period Ended |
Years Ended |
||||||||||||||||||
|
December 31, |
December 31, |
October 25, |
December 31, | ||||||||||||||||||
| 2009 | 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
| (In millions) | |||||||||||||||||||||
|
Net income (loss)
|
$ | (2.0 | ) | $ | 841.1 | $ | (417.3 | ) | $ | (180.6 | ) | ||||||||||
|
Less: Income (loss) from discontinued operations, net of taxes
|
0.5 | 6.6 | (91.5 | ) | (51.7 | ) | |||||||||||||||
|
Income (loss) from continuing operations
|
66.0 | (2.5 | ) | 834.5 | (325.8 | ) | (128.8 | ) | |||||||||||||
|
Adjustments:
|
|||||||||||||||||||||
|
Restructuring and impairment charges(a)
|
0.4 | — | 0.4 | 13.4 | 12.1 | ||||||||||||||||
|
Other restructuring charges(b)
|
13.3 | — | 13.3 | 6.2 | — | ||||||||||||||||
|
Abandoned IPO expenses(c)
|
— | — | — | 3.7 | — | ||||||||||||||||
|
Subcontractor claim settlement(d)
|
— | — | — | — | 1.3 | ||||||||||||||||
|
Reorganization items, net(e)
|
— | — | (804.6 | ) | — | — | |||||||||||||||
|
Inventory
step-up(f)
|
— | 17.2 | — | — | — | ||||||||||||||||
|
Equity based compensation expense(g)
|
2.4 | 2.2 | 0.2 | 0.5 | 0.6 | ||||||||||||||||
|
Amortization of intangibles associated with continuing
operations(h)
|
23.6 | 5.6 | 8.8 | 20.0 | 27.5 | ||||||||||||||||
|
Foreign currency gain (loss), net(i)
|
(52.8 | ) | (9.3 | ) | (43.4 | ) | 210.4 | 4.7 | |||||||||||||
|
Adjusted Net income (loss)
|
$ | 53.0 | $ | 13.3 | $ | 9.3 | $ | (71.7 | ) | $ | (82.6 | ) | |||||||||
| (a) | This adjustment is comprised of all items included in the restructuring and impairment charges line item on our consolidated statements of operations, and eliminates the impact of restructuring and impairment charges related to (i) for 2009, termination benefits and other related costs, for the ten-month period ended October 25, 2009 in connection with the closure of one of our research and development facilities in Japan, (ii) for 2008, goodwill impairment triggered by the significant adverse change in the revenue of our MDS reporting unit and a reversal of a portion of the restructuring accrual related to the closure of our Gumi five-inch wafer fabrication facilities in 2007, and (iii) for 2007, the closure of our Gumi five-inch wafer fabrication facilities. We do not believe these restructuring and impairment charges are indicative of our core ongoing operating performance because we do not anticipate similar facility closures and market driven events in our ongoing operations, although we cannot guarantee that similar events will not occur in the future. | |
| (b) | This adjustment relates to certain restructuring charges that are not included in the restructuring and impairment charges line item on our consolidated statements of operations. These items are included in selling, general and administrative expenses in our consolidated statements of operations. These charges are comprised of the following: (i) for 2009, a charge of $13.3 million for restructuring-related professional fees and related expenses, and (ii) for 2008, a charge of $6.2 million for restructuring-related professional fees and related expenses. We do not believe these other restructuring charges are indicative of our core ongoing operating performance because these charges were related, in significant part, to actions we took in response to the impacts on our business resulting from the global economic recession that persisted through 2008 and 2009. We cannot guarantee that similar charges will not be incurred in the future. | |
| (c) | This adjustment eliminates a $3.7 million charge in 2008 related to expenses incurred in connection with our abandoned initial public offering in 2008. We do not believe that these charges are indicative of our core operating performance. We expect to incur similar costs in connection with this offering. | |
| (d) | This adjustment eliminates a $1.3 million charge attributable to a one-time settlement of claims with a subcontractor. We no longer obtain services from this subcontractor and do not expect to incur similar charges in the future. | |
| (e) | This adjustment eliminates the impact of largely non-cash reorganization income and expense items directly associated with our reorganization proceedings from our ongoing operations including, among others, professional fees, the revaluation of assets, the effects of the Chapter 11 reorganization plan and fresh-start accounting principles and the write-off of debt issuance costs. Included in reorganization items, net for the ten-month period ended October 25, 2009 was our predecessor’s gain recognized from the effects of our reorganization proceedings. The gain results from the difference between our predecessor’s carrying value of remaining pre-petition liabilities subject to compromise and the amounts to be distributed pursuant to the reorganization proceedings. The gain from the effects of the reorganization proceedings and the application of fresh-start accounting principles is comprised of the discharge of liabilities subject to compromise, net of the issuance of new common units and new warrants and the accrual of amounts to be settled in cash. For details regarding this adjustment, see note 5 to the consolidated financial statements of MagnaChip Semiconductor LLC for the ten months ended October 25, 2009 and the two months ended December 31, 2009 |
14
Table of Contents
| included elsewhere in this prospectus. We do not believe these items are indicative of our core ongoing operating performance because they were incurred as a result of our reorganization proceedings. | ||
| (f) | This adjustment eliminates the one-time impact on cost of sales associated with the write-up of our inventory in accordance with the principles of fresh-start accounting upon consummation of the Chapter 11 reorganization. | |
| (g) | This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-based compensation expenses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these non-cash expenses, as supplemental information. | |
| (h) | This adjustment eliminates the non-cash impact of amortization expense for intangible assets created as a result of the purchase accounting treatment of the Original Acquisition and other subsequent acquisitions, and from the application of fresh-start accounting in connection with the reorganization proceedings. We do not believe these non-cash amortization expenses for intangibles are indicative of our core ongoing operating performance because the assets would not have been capitalized on our balance sheet but for the application of purchase accounting or fresh-start accounting, as applicable. | |
| (i) | This adjustment eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily non-cash gains or losses, as supplemental information. |
Adjusted Net Income has limitations as an analytical tool, and
you should not consider it in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
| • | Adjusted Net Income does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; | |
| • | Adjusted Net Income does not reflect changes in, or cash requirements for, our working capital needs; | |
| • | Adjusted Net Income does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees; | |
| • | Adjusted Net Income does not reflect the costs of holding certain assets and liabilities in foreign currencies; and | |
| • | other companies in our industry may calculate Adjusted Net Income differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted Net Income should not be
considered as a measure of discretionary cash available to us to
invest in the growth of our business. We compensate for these
limitations by relying primarily on our GAAP results and using
Adjusted Net Income only supplementally.
15
Table of Contents
RISK
FACTORS
You should carefully consider the risk factors set forth
below as well as the other information contained in this
prospectus before investing in our common stock. Any of the
following risks could materially and adversely affect our
business, financial condition or results of operations. In such
a case, the price of our common stock could decline and you
could lose all or part of your investment. Additional risks and
uncertainties not currently known to us or those currently
viewed by us to be immaterial may also materially and adversely
affect our business, financial condition or results of
operations.
Risks Related to
Our Business
We have a
history of losses and may not achieve or sustain profitability
in the future.
Since we began operations as a separate entity in 2004, we have
not generated a profit for a full fiscal year and have generated
significant net losses. As of October 25, 2009, prior to
our emergence from reorganization proceedings, we had an
accumulated deficit of $964.8 million and negative
stockholders’ equity. We may increase spending and we
currently expect to incur higher expenses in each of the next
several quarters to support increased research and development
and sales and marketing efforts. These expenditures may not
result in increased revenue or an increase in the number of
customers immediately or at all. Because many of our expenses
are fixed in the short term, or are incurred in advance of
anticipated sales, we may not be able to decrease our expenses
in a timely manner to offset any shortfall of sales.
We recently
emerged from Chapter 11 reorganization proceedings; because
our consolidated financial statements reflect fresh-start
accounting adjustments, our future financial statements will not
be comparable in many respects to our financial information from
prior periods.
On June 12, 2009, we filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in
order to obtain relief from our debt, which was
$845 million as of December 31, 2008. Our plan of
reorganization became effective on November 9, 2009. In
connection with our emergence from the reorganization
proceedings, we implemented fresh-start accounting in accordance
with ASC 852 effective from October 25, 2009, which
had a material effect on our consolidated financial statements.
Thus, our future consolidated financial statements will not be
comparable in many respects to our consolidated financial
statements for periods prior to our adoption of fresh-start
accounting and prior to accounting for the effects of the
reorganization proceedings. Our past financial difficulties and
bankruptcy filing may have harmed, and may continue to have a
negative effect on, our relationships with investors, customers
and suppliers.
Our
independent registered public accounting firm identified two
control deficiencies which represent a material weakness in our
internal control over financial reporting in connection with our
audits for the ten-month period ended October 25, 2009 and
the
two-month
period ended December 31, 2009. If we fail to effectively
remediate this weakness and maintain effective internal control
over financial reporting in the future, the accuracy and timing
of our financial reporting may be adversely
affected.
In connection with the audit of our consolidated financial
statements for the ten-month period ended October 25, 2009
and the two-month period ended December 31, 2009, our
independent registered public accounting firm reported two
control deficiencies, which represent a material weakness in our
internal control over financial reporting. The two control
deficiencies which represent a material weakness that our
independent registered public accounting firm reported to our
board of directors (as we then did not have a separate audit
committee) are that we do not have a sufficient number of
financial personnel with the requisite financial accounting
experience and that our internal controls over non-routine
transactions are not effective to ensure that accounting
considerations are identified and appropriately recorded.
16
Table of Contents
As we prepare for the completion of this offering, we have
identified and taken steps intended to remediate this material
weakness. Upon being notified of the material weakness, we
retained the services of an international accounting firm to
temporarily supplement our internal resources. We are also in
the process of recruiting a director of financial reporting. Any
inability to recruit, train and retain adequate finance
personnel with requisite technical and public company experience
could have an adverse impact on our ability to accurately and
timely prepare our consolidated financial statements. If our
finance and accounting organization is unable for any reason to
respond adequately to the increased demands that will result
from being a public company, the quality and timeliness of our
financial reporting may suffer, which could result in the
identification of additional material weaknesses in our internal
control. Any consequences resulting from inaccuracies or delays
in our reported financial statements could have an adverse
effect on our business, operating results and financial
condition, our ability to run our business effectively and our
ability to meet our financial reporting requirements, and could
cause investors to lose confidence in our financial reporting.
See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Controls and
Procedures.”
We operate in
the highly cyclical semiconductor industry, which is subject to
significant downturns that may negatively impact our results of
operations.
The semiconductor industry is highly cyclical and is
characterized by constant and rapid technological change and
price erosion, evolving technical standards, short product life
cycles (for semiconductors and for the end-user products in
which they are used) and wide fluctuations in product supply and
demand. From time to time, these and other factors, together
with changes in general economic conditions, cause significant
upturns and downturns in the industry in general and in our
business in particular. Periods of industry downturns, including
the current economic downturn, have been characterized by
diminished demand for end-user products, high inventory levels,
underutilization of manufacturing capacity, changes in revenue
mix and accelerated erosion of average selling prices. We have
experienced these conditions in our business in the past and may
experience renewed, and possibly more severe and prolonged,
downturns in the future as a result of such cyclical changes.
This may reduce our results of operations.
We base our planned operating expenses in part on our
expectations of future revenue, and a significant portion of our
expenses is relatively fixed in the short term. If revenue for a
particular quarter is lower than we expect, we likely will be
unable to proportionately reduce our operating expenses for that
quarter, which would harm our operating results for that quarter.
If we fail to
develop new products and process technologies or enhance our
existing products and services in order to react to rapid
technological change and market demands, our business will
suffer.
Our industry is subject to constant and rapid technological
change and product obsolescence as customers and competitors
create new and innovative products and technologies. Products or
technologies developed by other companies may render our
products or technologies obsolete or noncompetitive, and we may
not be able to access advanced process technologies or to
license or otherwise obtain essential intellectual property
required by our customers.
We must develop new products and services and enhance our
existing products and services to meet rapidly evolving customer
requirements. We design products for customers who continually
require higher performance and functionality at lower costs. We
must, therefore, continue to enhance the performance and
functionality of our products. The development process for these
advancements is lengthy and requires us to accurately anticipate
technological changes and market trends. Developing and
enhancing these products is uncertain and can be time-consuming,
costly and complex. If we do not continue to develop and
maintain process technologies that are in demand by our
semiconductor manufacturing services customers, we may be unable
to maintain existing customers or attract new customers.
17
Table of Contents
Customer and market requirements can change during the
development process. There is a risk that these developments and
enhancements will be late, fail to meet customer or market
specifications or not be competitive with products or services
from our competitors that offer comparable or superior
performance and functionality. Any new products, such as our new
line of power management solutions, which we began marketing in
2008, or product or service enhancements, may not be accepted in
new or existing markets. Our business will suffer if we fail to
develop and introduce new products and services or product and
service enhancements on a timely and cost-effective basis.
We manufacture
our products based on our estimates of customer demand, and if
our estimates are incorrect our financial results could be
negatively impacted.
We make significant decisions, including determining the levels
of business that we will seek and accept, production schedules,
component procurement commitments, personnel needs and other
resource requirements – based on our estimates of customer
demand and expected demand for and success of their products.
The short-term nature of commitments by many of our customers
and the possibility of rapid changes in demand for their
products reduces our ability to estimate accurately future
customer demand for our products. On occasion, customers may
require rapid increases in supply, which can challenge our
production resources and reduce margins. We may not have
sufficient capacity at any given time to meet our
customers’ increased demand for our products. Conversely,
downturns in the semiconductor industry have caused and may in
the future cause our customers to reduce significantly the
amount of products they order from us. Because many of our costs
and operating expenses are relatively fixed, a reduction in
customer demand would decrease our results of operations,
including our gross profit.
Our customers
may cancel their orders, reduce quantities or delay production,
which would adversely affect our margins and results of
operations.
We generally do not obtain firm, long-term purchase commitments
from our customers. Customers may cancel their orders, reduce
quantities or delay production for a number of reasons.
Cancellations, reductions or delays by a significant customer or
by a group of customers, which we have experienced as a result
of periodic downturns in the semiconductor industry or failure
to achieve design wins, have affected and may continue to affect
our results of operations adversely. These risks are exacerbated
because many of our products are customized, which hampers our
ability to sell excess inventory to the general market. We may
incur charges resulting from the write-off of obsolete
inventory. In addition, while we do not obtain long-term
purchase commitments, we generally agree to the pricing of a
particular product over a set period of time. If we
underestimate our costs when determining pricing, our margins
and results of operations would be adversely affected.
We depend on
high utilization of our manufacturing capacity, a reduction of
which could have a material adverse effect on our business,
financial condition and the results of our
operations.
An important factor in our success is the extent to which we are
able to utilize the available capacity in our fabrication
facilities. As many of our costs are fixed, a reduction in
capacity utilization, as well as changes in other factors such
as reduced yield or unfavorable product mix, could reduce our
profit margins and adversely affect our operating results. A
number of factors and circumstances may reduce utilization
rates, including periods of industry overcapacity, low levels of
customer orders, operating inefficiencies, mechanical failures
and disruption of operations due to expansion or relocation of
operations, power interruptions, fire, flood or other natural
disasters or calamities. The potential delays and costs
resulting from these steps could have a material adverse effect
on our business, financial condition and results of operations.
18
Table of Contents
A significant
portion of our sales comes from a relatively limited number of
customers, the loss of which would adversely affect our
financial results.
Historically, we have relied on a limited number of customers
for a substantial portion of our total revenue. If we were to
lose key customers or if customers cease to place orders for our
high-volume products or services, our financial results would be
adversely affected. Net sales to our ten largest customers
represented 66%, 69% and 63% of our net sales for the two-month
period ended December 31, 2009, the ten-month period ended
October 25, 2009 and the year ended December 31, 2008,
respectively. LG Display represented more than 10% of our net
sales and a substantial portion of the net sales generated by
our top ten customers for the combined twelve-month period ended
December 31, 2009, and for the years ended
December 31, 2008 and 2007. Significant reductions in sales
to any of these customers, especially our few largest customers,
the loss of other major customers or a general curtailment in
orders for our high-volume products or services within a short
period of time would adversely affect our business.
The average
selling prices of our semiconductor products have at times
declined rapidly and will likely do so in the future, which
could harm our revenue and gross profit.
The semiconductor products we develop and sell are subject to
rapid declines in average selling prices. From time to time, we
have had to reduce our prices significantly to meet customer
requirements, and we may be required to reduce our prices in the
future. This would cause our gross profit to decrease. Our
financial results will suffer if we are unable to offset any
reductions in our average selling prices by increasing our sales
volumes, reducing our costs or developing new or enhanced
products on a timely basis with higher selling prices or gross
profit.
Our industry
is highly competitive and our ability to compete could be
negatively impacted by a variety of factors.
The semiconductor industry is highly competitive and includes
hundreds of companies, a number of which have achieved
substantial market share both within our product categories and
end markets. Current and prospective customers for our products
and services evaluate our capabilities against the merits of our
competitors. Some of our competitors are well established as
independent companies and have substantially greater market
share and manufacturing, financial, research and development and
marketing resources than we do. We also compete with emerging
companies that are attempting to sell their products in certain
of our end markets and with the internal semiconductor design
and manufacturing capabilities of many of our significant
customers. We expect to experience continuing competitive
pressures in our markets from existing competitors and new
entrants.
Any consolidation among our competitors could enhance their
product offerings and financial resources, further enhancing
their competitive position. Our ability to compete will depend
on a number of factors, including the following:
| • | our ability to offer cost-effective and high quality products and services on a timely basis using our technologies; | |
| • | our ability to accurately identify and respond to emerging technological trends and demand for product features and performance characteristics; | |
| • | our ability to continue to rapidly introduce new products that are accepted by the market; | |
| • | our ability to adopt or adapt to emerging industry standards; | |
| • | the number and nature of our competitors and competitiveness of their products and services in a given market; | |
| • | entrance of new competitors into our markets; | |
| • | our ability to enter the highly competitive power management market; and |
19
Table of Contents
| • | our ability to continue to offer in demand semiconductor manufacturing services at competitive prices. |
Many of these factors are outside of our control. In the future,
our competitors may replace us as a supplier to our existing or
potential customers, and our customers may satisfy more of their
requirements internally. As a result, we may experience
declining revenues and results of operations.
Changes in
demand for consumer electronics in our end markets can impact
our results of operations.
Demand for our products will depend in part on the demand for
various consumer electronics products, in particular, mobile
phones and multimedia devices, digital televisions, flat panel
displays, mobile PCs and digital cameras, which in turn depends
on general economic conditions and other factors beyond our
control. If our customers fail to introduce new products that
employ our products or component parts, demand for our products
will suffer. To the extent that we cannot offset periods of
reduced demand that may occur in these markets through greater
penetration of these markets or reduction in our production and
costs, our sales and gross profit may decline, which would
negatively impact our business, financial condition and results
of operations.
If we fail to
achieve design wins for our semiconductor products, we may lose
the opportunity for sales to customers for a significant period
of time and be unable to recoup our investments in our
products.
We expend considerable resources on winning competitive
selection processes, known as design wins, to develop
semiconductor products for use in our customers’ products.
These selection processes are typically lengthy and can require
us to incur significant design and development expenditures. We
may not win the competitive selection process and may never
generate any revenue despite incurring significant design and
development expenditures. Once a customer designs a
semiconductor into a product, that customer is likely to
continue to use the same semiconductor or enhanced versions of
that semiconductor from the same supplier across a number of
similar and successor products for a lengthy period of time due
to the significant costs associated with qualifying a new
supplier and potentially redesigning the product to incorporate
a different semiconductor. If we fail to achieve an initial
design win in a customer’s qualification process, we may
lose the opportunity for significant sales to that customer for
a number of products and for a lengthy period of time. This may
cause us to be unable to recoup our investments in our
semiconductor products, which would harm our business.
We have
lengthy and expensive
design-to-mass
production and manufacturing process development cycles that may
cause us to incur significant expenses without realizing
meaningful sales, the occurrence of which would harm our
business.
The cycle time from the design stage to mass production for some
of our products is long and requires the investment of
significant resources with many potential customers without any
guarantee of sales. Our
design-to-mass
production cycle typically begins with a
three-to-twelve
month semiconductor development stage and test period followed
by a
three-to-twelve
month end-product qualification period by our customers. The
fairly lengthy front end of our sales cycle creates a risk that
we may incur significant expenses but may be unable to realize
meaningful sales. Moreover, prior to mass production, customers
may decide to cancel their products or change production
specifications, resulting in sudden changes in our product
specifications, increasing our production time and costs.
Failure to meet such specifications may also delay the launch of
our products or result in lost sales.
In addition, we collaborate and jointly develop certain process
technologies and manufacturing process flows custom to certain
of our semiconductor manufacturing services customers. To the
extent that our semiconductor manufacturing services customers
fail to achieve market acceptance for
20
Table of Contents
their products, we may be unable to recoup our engineering
resources commitment and our investment in process technology
development, which would harm our business.
Research and
development investments may not yield profitable and
commercially viable product and service offerings and thus will
not necessarily result in increases in revenues for
us.
We invest significant resources in our research and development.
Our research and development efforts, however, may not yield
commercially viable products or enhance our semiconductor
manufacturing services offerings. During each stage of research
and development there is a substantial risk that we will have to
abandon a potential product or service offering that is no
longer marketable and in which we have invested significant
resources. In the event we are able to develop viable new
products or service offerings, a significant amount of time will
have elapsed between our investment in the necessary research
and development effort and the receipt of any related revenues.
We face
numerous challenges relating to executing our growth strategy,
and if we are unable to execute our growth strategy effectively,
our business and financial results could be materially and
adversely affected.
Our growth strategy is to leverage our advanced analog and
mixed-signal technology platform, continue to innovate and
deliver new products and services, increase business with
existing customers, broaden our customer base, aggressively grow
our power business, drive execution excellence and focus on
specialty process technologies. As part of our growth strategy,
we began marketing a new line of power management semiconductor
products in 2008 and expect to introduce other new products and
services in the future. If we are unable to execute our growth
strategy effectively, we may not be able to take advantage of
market opportunities, execute our business plan or respond to
competitive pressures. Moreover, if our allocation of resources
does not correspond with future demand for particular products,
we could miss market opportunities and our business and
financial results could be materially and adversely affected.
We are subject
to risks associated with currency fluctuations, and changes in
the exchange rates of applicable currencies could impact our
results of operations.
Historically, a portion of our revenues and greater than the
majority of our operating expenses and costs of sales have been
denominated in
non-U.S. currencies,
principally the Korean won, and we expect that this will remain
true in the future. Because we report our results of operations
in U.S. dollars, changes in the exchange rate between the
Korean won and the U.S. dollar could materially impact our
reported results of operations and distort period to period
comparisons. In particular, because of the difference in the
amount of our consolidated revenues and expenses that are in
U.S. dollars relative to Korean won, a depreciation in the
U.S. dollar relative to the Korean won could result in a
material increase in reported costs relative to revenues, and
therefore could cause our profit margins and operating income to
appear to decline materially, particularly relative to prior
periods. The converse is true if the U.S. dollar were to
appreciate relative to the Korean won. Fluctuations in foreign
currency exchange rates also impact the reporting of our
receivables and payables in
non-U.S.
currencies. Foreign currency fluctuations had a materially
beneficial impact on our results of operations in the fiscal
year ended December 31, 2008 relative to the fiscal year
ended December 31, 2007, as well as in the combined
twelve-month period ended December 31, 2009 relative to the
fiscal year ended December 31, 2008. As a result of foreign
currency fluctuations, it could be more difficult to detect
underlying trends in our business and results of operations. In
addition, to the extent that fluctuations in currency exchange
rates cause our results of operations to differ from our
expectations or the expectations of our investors, the trading
price of our stock could be adversely affected.
21
Table of Contents
From time to time, we may engage in exchange rate hedging
activities in an effort to mitigate the impact of exchange rate
fluctuations. For example, in January 2010 our Korean subsidiary
entered into foreign currency option and forward contracts in
order to mitigate a portion of the impact of
U.S. dollar-Korean won exchange rate fluctuations on our
operating results. These option and forward contracts require us
to sell specified notional amounts in U.S. dollars and
provide us the option to sell specified notional amounts in
U.S. dollars during each month of 2010 commencing February
2010 to our counterparty, in each case, in exchange for Korean
won at specified fixed exchange rates. Obligations under these
foreign currency option and forward contracts must be cash
collateralized if our exposure exceeds certain specified
thresholds. These option and forward contracts may be terminated
by the counterparty in a number of circumstances, including if
our long-term debt rating falls below B-/B3 or if our total cash
and cash equivalents is less than $12.5 million at the end
of a fiscal quarter. We cannot assure you that any hedging
technique we implement will be effective. If our hedging
activities are not effective, changes in currency exchange rates
may have a more significant impact on our results of operations.
See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Factors
Affecting our Results of Operations.”
The ongoing
economic downturn and recent financial crisis has negatively
affected our business and continuing poor economic conditions
may negatively affect our future business, results of operations
and financial condition.
The ongoing global recession and recent financial crisis has led
to slower economic activity, increased unemployment, concerns
about inflation and energy costs, decreased business and
consumer confidence, reduced corporate profits and capital
spending, adverse business conditions and lower levels of
liquidity in many financial markets. Consumers and businesses
have deferred purchases in response to tighter credit and
negative financial news, which has in turn negatively affected
product demand and other related matters. The global recession
has led to reduced customer spending in the semiconductor market
and in our target markets, made it difficult for our customers,
our vendors and us to accurately forecast and plan future
business activities, and has caused U.S. and foreign
businesses to slow spending on our products. Prolonged
continuation of this global recession and financial crisis will
likely exacerbate these events and could lead to the insolvency
of key suppliers resulting in product delays, limit the ability
of customers to obtain credit to finance purchases of our
products, lead to customer insolvencies, and also result in
counterparty failures that may negatively impact our treasury
operations. Although recently there have been indications of
improved economic conditions generally and in the semiconductor
industry specifically, there is no assurance of the extent to
which such conditions will continue to improve or whether the
improvement will be sustainable. As a result, our business,
financial condition and result of operations have been
negatively affected and, if the downturn continues, could be
materially adversely affected in future periods.
The loss of
our key employees would materially adversely affect our
business, and we may not be able to attract or retain the
technical or management employees necessary to compete in our
industry.
Our key executives have substantial experience and have made
significant contributions to our business, and our continued
success is dependent upon the retention of our key management
executives, including our Chief Executive Officer and Chairman,
Sang Park. The loss of such key personnel would have a material
adverse effect on our business. In addition, our future success
depends on our ability to attract and retain skilled technical
and managerial personnel. We do not know whether we will be able
to retain all of these employees as we continue to pursue our
business strategy. The loss of the services of key employees,
especially our key design and technical personnel, or our
inability to retain, attract and motivate qualified design and
technical personnel, could have a material adverse effect on our
business, financial condition and results of operations. This
could hinder our research and product development programs or
otherwise have a material adverse effect on our business.
22
Table of Contents
If we
encounter future labor problems, we may fail to deliver our
products and services in a timely manner, which could adversely
affect our revenues and profitability.
As of January 31, 2010, 2,037 employees, or
approximately 64.6% of our employees, were represented by the
MagnaChip Semiconductor Labor Union, which is a member of the
Federation of Korean Metal Workers Trade Unions. We can offer no
assurance that issues with the labor union and other employees
will be resolved favorably for us in the future, that we will
not experience work stoppages or other labor problems in future
years or that we will not incur significant expenses related to
such issues.
We may incur
costs to engage in future business combinations or strategic
investments, and we may not realize the anticipated benefits of
those transactions.
As part of our business strategy, we may seek to enter into
business combinations, investments, joint ventures and other
strategic alliances with other companies in order to maintain
and grow revenue and market presence as well as to provide us
with access to technology, products and services. Any such
transaction would be accompanied by risks that may harm our
business, such as difficulties in assimilating the operations,
personnel and products of an acquired business or in realizing
the projected benefits, disruption of our ongoing business,
potential increases in our indebtedness and contingent
liabilities and charges if the acquired company or assets are
later determined to be worth less than the amount paid for them
in an earlier original acquisition. In addition, our
indebtedness may restrict us from making acquisitions that we
may otherwise wish to pursue.
The failure to
achieve acceptable manufacturing yields could adversely affect
our business.
The manufacture of semiconductors involves highly complex
processes that require precision, a highly regulated and sterile
environment and specialized equipment. Defects or other
difficulties in the manufacturing process can prevent us from
achieving acceptable yields in the manufacture of our products
or those of our semiconductor manufacturing services customers,
which could lead to higher costs, a loss of customers or delay
in market acceptance of our products. Slight impurities or
defects in the photomasks used to print circuits on a wafer or
other factors can cause significant difficulties, particularly
in connection with the production of a new product, the adoption
of a new manufacturing process or any expansion of our
manufacturing capacity and related transitions. We may also
experience manufacturing problems in achieving acceptable yields
as a result of, among other things, transferring production to
other facilities, upgrading or expanding existing facilities or
changing our process technologies. Yields below our target
levels can negatively impact our gross profit and may cause us
to eliminate underperforming products.
We rely on a
number of independent subcontractors and the failure of any of
these independent subcontractors to perform as required could
adversely affect our operating results.
A substantial portion of our net sales are derived from
semiconductor devices assembled in packages or on film. The
packaging and testing of semiconductors require technical skill
and specialized equipment. For the portion of packaging and
testing that we outsource, we use subcontractors located in
Korea, China, Taiwan, Malaysia and Thailand. We rely on these
subcontractors to package and test our devices with acceptable
quality and yield levels. We could be adversely affected by
political disorders, labor disruptions, and natural disasters
where our subcontractors are located. If our semiconductor
packagers and test service providers experience problems in
packaging and testing our semiconductor devices, experience
prolonged quality or yield problems or decrease the capacity
available to us, our operating results could be adversely
affected.
23
Table of Contents
We depend on
successful parts and materials procurement for our manufacturing
processes, and a shortage or increase in the price of these
materials could interrupt our operations and result in a decline
of revenues and results of operations.
We procure materials and electronic and mechanical components
from international sources and original equipment manufacturers.
We use a wide range of parts and materials in the production of
our semiconductors, including silicon, processing chemicals,
processing gases, precious metals and electronic and mechanical
components, some of which, such as silicon wafers, are
specialized raw materials that are generally only available from
a limited number of suppliers. We do not have long-term
agreements providing for all of these materials, thus, if demand
increases or supply decreases, the costs of our raw materials
could significantly increase. For example, worldwide supplies of
silicon wafers, an important raw material for the semiconductors
we manufacture, have been constrained in recent years due to an
increased demand for polysilicon. Polysilicon is also a key raw
material for solar cells, the demand for which has increased in
recent years. If we cannot obtain adequate materials in a timely
manner or on favorable terms for the manufacture of our
products, revenues and results of operations will decline.
We face
warranty claims, product return, litigation and liability risks
and the risk of negative publicity if our products
fail.
Our semiconductors are incorporated into a number of end
products, and our business is exposed to product return,
warranty and product liability risk and the risk of negative
publicity if our products fail. Although we maintain insurance
for product liability claims, the amount and scope of our
insurance may not be adequate to cover a product liability claim
that is asserted against us. In addition, product liability
insurance could become more expensive and difficult to maintain
and, in the future, may not be available on commercially
reasonable terms, or at all.
In addition, we are exposed to the product liability risk and
the risk of negative publicity affecting our customers. Our
sales may decline if any of our customers are sued on a product
liability claim. We also may suffer a decline in sales from the
negative publicity associated with such a lawsuit or with
adverse public perceptions in general regarding our
customers’ products. Further, if our products are delivered
with impurities or defects, we could incur additional
development, repair or replacement costs, and our credibility
and the market’s acceptance of our products could be harmed.
We could
suffer adverse tax and other financial consequences as a result
of changes in, or differences in the interpretation of,
applicable tax laws.
Our company organizational structure was created in part based
on certain interpretations and conclusions regarding various tax
laws, including withholding tax, and other tax laws of
applicable jurisdictions. Our Korean subsidiary, MagnaChip
Semiconductor, Ltd., or MagnaChip Korea, was granted a limited
tax holiday under Korean law in October 2004. This grant
provided for certain tax exemptions for corporate taxes and
withholding taxes until December 31, 2008, and for
acquisition taxes, property and land use taxes and certain other
taxes until December 31, 2013. Our interpretations and
conclusions regarding tax laws, however, are not binding on any
taxing authority and, if these interpretations and conclusions
are incorrect, if our business were to be operated in a way that
rendered us ineligible for tax exemptions or caused us to become
subject to incremental tax, or if the authorities were to
change, modify, or have a different interpretation of the
relevant tax laws, we could suffer adverse tax and other
financial consequences and the anticipated benefits of our
organizational structure could be materially impaired.
24
Table of Contents
The enactment
of legislation implementing changes in U.S. taxation of
international business activities or the adoption of other tax
reform policies could materially impact our financial position
and results of operations.
Several tax bills have been introduced to reform
U.S. taxation of international business activities. If any
of these proposals are enacted into legislation, they could have
material adverse consequences on the amount of tax we pay and
thereby on our financial position and results of operations.
Our ability to
compete successfully and achieve future growth will depend, in
part, on our ability to protect our proprietary technology and
know-how, as well as our ability to operate without infringing
the proprietary rights of others.
We seek to protect our proprietary technologies and know-how
through the use of patents, trade secrets, confidentiality
agreements and other security measures. The process of seeking
patent protection takes a long time and is expensive. There can
be no assurance that patents will issue from pending or future
applications or that, if patents issue, they will not be
challenged, invalidated or circumvented, or that the rights
granted under the patents will provide us with meaningful
protection or any commercial advantage. Some of our technologies
are not covered by any patent or patent application. The
confidentiality agreements on which we rely to protect these
technologies may be breached and may not be adequate to protect
our proprietary technologies. There can be no assurance that
other countries in which we market our services will protect our
intellectual property rights to the same extent as the United
States.
Our ability to compete successfully depends on our ability to
operate without infringing the proprietary rights of others. We
have no means of knowing what patent applications have been
filed in the United States until they are published. In
addition, the semiconductor industry is characterized by
frequent litigation regarding patent and other intellectual
property rights. We may need to file lawsuits to enforce our
patents or intellectual property rights, and we may need to
defend against claimed infringement of the rights of others. Any
litigation could result in substantial costs to us and divert
our resources. Despite our efforts in bringing or defending
lawsuits, we may not be able to prevent third parties from
infringing upon or misappropriating our intellectual property.
In the event of an adverse outcome in any such litigation, we
may be required to:
| • | pay substantial damages or indemnify customers or licensees for damages they may suffer if the products they purchase from us or the technology they license from us violate the intellectual property rights of others; | |
| • | stop our manufacture, use, sale or importation of infringing products; expend significant resources to develop or acquire non-infringing technologies; | |
| • | discontinue processes; or | |
| • | obtain licenses to the intellectual property we are found to have infringed. |
There can be no assurance that we would be successful in such
development or acquisition or that such licenses would be
available under reasonable terms, or at all. The termination of
key third party licenses relating to the use of intellectual
property in our products and our design processes, such as our
agreements with Silicon Works Co., Ltd. and ARM Limited, would
materially and adversely affect our business.
Our competitors may develop, patent or gain access to know-how
and technology similar to our own. In addition, many of our
patents are subject to cross licenses, several of which are with
our competitors. The noncompetition arrangement agreed to by
Hynix in connection with the Original Acquisition expired on
October 1, 2007. Under that arrangement, Hynix retained a
perpetual license to use the intellectual property that we
acquired from Hynix in the Original Acquisition. Now that these
noncompetition restrictions have expired, Hynix and its
subsidiaries are free to develop products that may incorporate
or embody intellectual property developed by us prior to October
2004.
25
Table of Contents
Our expenses
could increase if Hynix were unwilling or unable to provide
certain services related to our shared facilities with Hynix,
and if Hynix were to become insolvent, we could lose certain of
our leases.
We are party to a land lease and easement agreement with Hynix
pursuant to which we lease the land for our facilities in
Cheongju, Korea. If this agreement were terminated for any
reason, including the insolvency of Hynix, we would have to
renegotiate new lease terms with Hynix or the new owner of the
land. We cannot assure you that we could negotiate new lease
terms on favorable terms or at all. Because we share certain
facilities with Hynix, several services that are essential to
our business are provided to us by or through Hynix under our
general service supply agreement with Hynix. These services
include electricity, bulk gases and de-ionized water, campus
facilities and housing, wastewater and sewage management,
environmental safety and certain utilities and infrastructure
support services. If any of our agreements with Hynix were
terminated or if Hynix were unwilling or unable to fulfill its
obligations to us under the terms of these agreements, we would
have to procure these services on our own and as a result may
experience an increase in our expenses.
We are subject
to many environmental laws and regulations that could affect our
operations or result in significant expenses.
We are subject to requirements of environmental, health and
safety laws and regulations in each of the jurisdictions in
which we operate, governing air emissions, wastewater
discharges, the generation, use, handling, storage and disposal
of, and exposure to, hazardous substances (including asbestos)
and wastes, soil and groundwater contamination and employee
health and safety. These laws and regulations are complex,
change frequently and have tended to become more stringent over
time. There can be no assurance that we have been, or will be,
in compliance with all such laws and regulations or that we will
not incur material costs or liabilities in connection with these
laws and regulations in the future. The adoption of new
environmental, health and safety laws, the failure to comply
with new or existing laws, or issues relating to hazardous
substances could subject us to material liability (including
substantial fines or penalties), impose the need for additional
capital equipment or other process requirements upon us, curtail
our operations or restrict our ability to expand operations.
If our Korean
subsidiary is designated as a regulated business under Korean
environmental law, such designation could have an adverse effect
on our financial position and results of
operation.
In February 2010, the Korean government pre-announced the draft
Enforcement Decree to the Framework Act on Low Carbon Green
Growth, or the Enforcement Decree. If approved, the Enforcement
Decree will become effective in April 2010. According to the
Enforcement Decree, businesses that exceed 25,000 tons of
greenhouse gas emissions and 100 terajoules of energy
consumption for the prior three years will be subject to
regulation and will be required to submit plans to reduce
greenhouse emissions and energy consumption as well as
performance reports and will be subject to government
requirements to take further action. If MagnaChip Korea is
designated as a regulated business under the Enforcement Decree,
we could be subject to additional and potentially costly
compliance or remediation expenses which could adversely affect
our financial position and results of operations.
We will likely
need additional capital in the future, and such capital may not
be available on acceptable terms or at all, which would have a
material adverse effect on our business, financial condition and
results of operations.
We will likely require more capital in the future from equity or
debt financings to fund operating expenses, such as research and
development costs, finance investments in equipment and
infrastructure, acquire complimentary businesses and
technologies, and respond to competitive pressures and potential
strategic opportunities. If we raise additional funds through
further issuances
26
Table of Contents
of equity or other securities convertible into equity, our
existing stockholders could suffer significant dilution, and any
new shares we issue could have rights, preferences or privileges
senior to those of the holders of our common stock, including
the shares of common stock sold in this offering. In addition,
additional capital may not be available when needed or, if
available, may not be available on favorable terms. In addition,
our indebtedness limits our ability to incur additional
indebtedness under certain circumstances. If we are unable to
obtain capital on favorable terms, or if we are unable to obtain
capital at all, we may have to reduce our operations or forego
opportunities, and this may have a material adverse effect on
our business, financial condition and results of operations.
Our business
depends on international customers, suppliers and operations in
Asia, and as a result we are subject to regulatory, operational,
financial and political risks, which could adversely affect our
financial results.
We rely on, and expect to continue to rely on, suppliers,
subcontractors and operations located primarily in Asia. As a
result, we face risks inherent in international operations, such
as unexpected changes in regulatory requirements, tariffs and
other market barriers, political, social and economic
instability, adverse tax consequences, war, civil disturbances
and acts of terrorism, difficulties in accounts receivable
collection, extended payment terms and differing labor
standards, enforcement of contractual obligations and protection
of intellectual property. These risks may lead to increased
costs or decreased revenue growth, or both. Although we do not
derive any revenue from, nor sell any products in, North Korea,
any future increase in tensions between South Korea and North
Korea that may occur, such as an outbreak of military
hostilities, would adversely affect our business, financial
condition and results of operations.
You may be
unable to enforce judgments obtained in United States courts
against us or our subsidiaries organized in jurisdictions other
than the United States.
Most of our subsidiaries are organized or incorporated outside
of the United States and most of our and our subsidiaries’
assets are located outside of the United States. Accordingly,
any judgment obtained in the United States against us or our
subsidiaries may not be collectible in the United States.
In addition, some of our directors and executive officers are
not residents of the United States. It may be difficult to
enforce civil liabilities in United States courts against these
non-resident directors and officers.
Investor
confidence may be adversely impacted if we are unable to comply
with Section 404 of the Sarbanes-Oxley Act of 2002, and as
a result, our stock price could decline.
We will be subject to rules adopted by the Securities Exchange
Commission, or SEC, pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, which require
us to include in our Annual Report on
Form 10-K
our management’s report on, and assessment of the
effectiveness of, our internal controls over financial
reporting. Beginning with our fiscal year ending
December 31, 2011, our independent auditors will be
required to attest to and report on the effectiveness of our
internal control over financial reporting. In connection with
audits of our consolidated financial statements for the
ten-month period ended October 25, 2009 and two-month
period ended December 31, 2009, our independent registered
public accounting firm has reported two control deficiencies
that existed prior to their review, which represent a material
weakness in our internal control over financial reporting. The
two control deficiencies which represent a material weakness
that our independent registered public accounting firm reported
to our board of directors are that we do not have a sufficient
number of financial personnel with the requisite financial
accounting experience and that our controls over non-routine
transactions are not effective to ensure that accounting
considerations are identified and appropriately recorded. If we
fail to achieve and maintain the adequacy of our internal
controls, there is a risk that we will not comply with all of
the requirements imposed by Section 404. Moreover,
effective internal controls, particularly those related to
revenue recognition, are necessary for us to produce reliable
financial reports and are important to helping
27
Table of Contents
prevent financial fraud. Any of these possible outcomes could
result in an adverse reaction in the financial marketplace due
to a loss of investor confidence in the reliability of our
consolidated financial statements and could result in
investigations or sanctions by the SEC, the New York Stock
Exchange, or NYSE, or other regulatory authorities or in
stockholder litigation. Any of these factors ultimately could
harm our business and could negatively impact the market price
of our securities. Ineffective control over financial reporting
could also cause investors to lose confidence in our reported
financial information, which could adversely affect the trading
price of our common stock.
Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives. However, our
management, including our principal executive officer and
principal financial officer, does not expect that our disclosure
controls and procedures will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of
a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of
fraud, if any, have been detected.
We may need to
incur impairment and other restructuring charges, which could
materially affect our results of operations and financial
conditions.
During industry downturns and for other reasons, we may need to
record impairment or restructuring charges. From April 4,
2005 through December 31, 2009, we recognized aggregate
restructuring and impairment charges of $63.7 million,
which consisted of $58.1 million of impairment charges and
$5.6 million of restructuring charges. In the future, we
may need to record additional impairment charges or to further
restructure our business or incur additional restructuring
charges, any of which could have a material adverse effect on
our results of operations or financial condition.
We are subject
to litigation risks, which may be costly to defend and the
outcome of which is uncertain.
All industries, including the semiconductor industry, are
subject to legal claims, with and without merit, that may be
particularly costly and which may divert the attention of our
management and our resources in general. We are involved in a
variety of legal matters, most of which we consider routine
matters that arise in the normal course of business. These
routine matters typically fall into broad categories such as
those involving customers, employment and labor and intellectual
property. Even if the final outcome of these legal claims does
not have a material adverse effect on our financial position,
results of operations or cash flows, defense and settlement
costs can be substantial. Due to the inherent uncertainty of the
litigation process, the resolution of any particular legal claim
or proceeding could have a material effect on our business,
financial condition, results of operations or cash flows.
Risks Related to
Our Common Stock
The price of
our depositary shares and common stock may be volatile and you
may lose all or a part of your investment.
Prior to this offering, there has not been a public market for
our depository shares or common stock. Even though we anticipate
that our shares will be quoted on the New York Stock Exchange,
an active trading market for our depositary shares or common
stock may not develop following this offering. You may not be
able to sell your shares quickly or at the current market price
if trading in our depositary shares or common stock is not
active. The initial public offering price for the shares will be
determined by negotiations between the underwriters, the selling
stockholders and us, and may not be indicative of prices that
will prevail in the trading market.
28
Table of Contents
In addition, the trading price of our depositary shares and
common stock might be subject to wide fluctuations. Factors,
some of which are beyond our control, that could affect the
trading price of our depositary shares or common stock may
include:
| • | actual or anticipated variations in our results of operations from quarter to quarter or year to year; | |
| • | announcements by us or our competitors of significant agreements, technological innovations or strategic alliances; | |
| • | changes in recommendations or estimates by any securities analysts who follow our securities; | |
| • | addition or loss of significant customers; | |
| • | recruitment or departure of key personnel; | |
| • | changes in economic performance or market valuations of competing companies in our industry; | |
| • | price and volume fluctuations in the overall stock market; | |
| • | market conditions in our industry, end markets and the economy as a whole; | |
| • | subsequent sales of stock and other financings; | |
| • | litigation, legislation, regulation or technological developments that adversely affect our business; and | |
| • | the expiration of contractual lock-up agreements with our executive officers, directors and greater than 1% stockholders. |
In the past, following periods of volatility in the market price
of a public company’s securities, securities class action
litigation often has been instituted against the public company.
Regardless of its outcome, this type of litigation could result
in substantial costs to us and a likely diversion of our
management’s attention. You may not receive a positive
return on your investment when you sell your shares, and you
could lose some or the entire amount of your investment.
Control by
principal stockholders could adversely affect our other
stockholders.
Based upon the MagnaChip Semiconductor LLC units outstanding as
of December 31, 2009, our executive officers, directors and
greater than 5% unitholders collectively beneficially owned
approximately 86% of the common units of MagnaChip Semiconductor
LLC, excluding units issuable upon exercise of outstanding
options and warrants, and 86% of the common units, including
units issuable upon exercise of outstanding options and warrants
that are exercisable within sixty days of December 31,
2009. After giving effect to the corporate conversion and the
sale of shares in this offering, our executive officers,
directors and greater than 5% stockholders, collectively, would
have owned approximately % of our
common stock as of December 31, 2009, assuming no exercise
of the underwriters’ option to purchase additional shares
from us or the selling stockholders. On the same adjusted basis,
and assuming exercise of the underwriters’ option to
purchase an
additional shares
from us
and shares
from the selling stockholders, our executive officers, directors
and greater than 5% stockholders, collectively, would have owned
approximately % of our common stock
as of December 31, 2009. In addition, Avenue has three
designees serving as members of our seven-member board of
directors. Therefore, Avenue will continue to have significant
influence over our affairs for the foreseeable future, including
influence over the election of directors and significant
corporate transactions, such as a merger or other sale of our
company or our assets.
Our concentration of ownership will limit the ability of other
stockholders to influence corporate matters and, as a result, we
may take actions that our non-sponsor stockholders do not view
as beneficial. For example, our concentration of ownership could
have the effect of delaying or preventing a change in control or
otherwise discouraging a potential acquirer from attempting to
obtain control of
29
Table of Contents
us, which in turn could cause the market price of our common
stock to decline or prevent our stockholders from realizing a
premium over the market price for their shares of our common
stock.
Under our certificate of incorporation, our non-employee
directors and non-employee holders of five percent or more of
our outstanding common stock do not have a duty to refrain from
engaging in a corporate opportunity in the same or similar
activities or lines of business as those engaged in by us, our
subsidiaries and other related parties. Also, we have renounced
any interest or expectancy in such business opportunities even
if the opportunity is one that we might reasonably have pursued
or had the ability or desire to pursue if granted an opportunity
to do so.
The future
sale of significant amounts of our common stock may negatively
affect our stock price, even if our business is doing
well.
Sales of substantial amounts of shares of our common stock in
the public market, or the prospect of such sales, could
adversely affect the market price of our common stock. After
giving effect to the corporate conversion and the sale of shares
in this offering, we would have
had shares
of common stock outstanding as of December 31, 2009, based
on the number of MagnaChip Semiconductor LLC units outstanding
as of that date. More than % of the
shares outstanding prior to this offering are subject to
lock-up
agreements under which the holders of such shares have agreed
not to sell or otherwise dispose of any of their shares for a
period of 180 days after the date of this prospectus
without the prior written consent of Goldman, Sachs &
Co., and Barclays Capital Inc., other than any shares such
holders may sell to the underwriters in this offering after the
date of this prospectus pursuant to the underwriters’
option to purchase up
to
additional shares of our common stock from us
and
shares from the selling stockholders; provided, that these
agreements do not restrict the ability of the stockholders party
to the registration rights agreement to cause a resale
registration statement to be filed in accordance with the demand
registration rights described under “Description of Capital
Stock — Registration Rights.” After the
180-day
period, based upon the MagnaChip Semiconductor LLC units
outstanding as of December 31, 2009, and the assumed
exchange rate of MagnaChip Semiconductor LLC units for MagnaChip
Semiconductor
Corporation shares, shares
held by current unitholders will be eligible for sale from time
to time in the future under Rule 144, Rule 701 or
Section 4(1) of the Securities Act with respect to shares
covered by Section 1145 of the U.S. Bankruptcy Code.
Goldman, Sachs & Co. and Barclays Capital Inc. can
together waive the restrictions of the
lock-up
agreements at an earlier time without prior notice or
announcement and allow stockholders to sell their shares. As
restrictions on resale end, the market price of our common stock
could drop significantly if the holders of the restricted shares
sell such restricted shares or are perceived by the market as
intending to sell such restricted shares.
Provisions in
our charter documents and Delaware Law may make it difficult for
a third party to acquire us and could depress the price of our
common stock.
Provisions in our certificate of incorporation and bylaws may
have the effect of delaying or preventing a change of control or
changes in our management. Among other things, our certificate
of incorporation and bylaws:
| • | authorize our board of directors to issue, without stockholder approval, preferred stock with such terms as the board of directors may determine; | |
| • | divide our board of directors into three classes so that only approximately one-third of the total number of directors is elected each year; | |
| • | permit directors to be removed only for cause by a majority vote; | |
| • | prohibit action by written consent of our stockholders; |
30
Table of Contents
| • | prohibit any person other than our board of directors, the chairman of our board of directors, our Chief Executive Officer or holders of at least 25% of the voting power of all then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors to call a special meeting of our stockholders; and | |
| • | specify advance notice requirements for stockholder proposals and director nominations. |
In addition, following this offering, we will be subject to the
provisions of Section 203 of the Delaware General
Corporation Law, or DGCL, regulating corporate takeovers and
which has an anti-takeover effect with respect to transactions
not approved in advance by our board of directors, including
discouraging takeover attempts that might result in a premium
over the market price for shares of our common stock. In
general, those provisions prohibit a Delaware corporation from
engaging in any business combination with any interested
stockholder for a period of three years following the date that
the stockholder became an interested stockholder, unless:
| • | the transaction is approved by the board of directors before the date the interested stockholder attained that status; | |
| • | upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or | |
| • | on or after such date, the business combination is approved by the board of directors and authorized at a meeting of stockholders, and not by written consent, by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. |
In general, Section 203 defines a business combination to
include the following:
| • | any merger or consolidation involving the corporation and the interested stockholder; | |
| • | any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; | |
| • | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; | |
| • | any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or | |
| • | the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by any such
entity or person.
A Delaware corporation may opt out of this provision by express
provision in its original certificate of incorporation or by
amendment to its certificate of incorporation or bylaws approved
by its stockholders. However, we have not opted out of, and do
not currently intend to opt out of, this provision.
We may apply
the proceeds of this offering to uses that do not improve our
operating results or increase the value of your
investment.
We intend to use the net proceeds from this offering to pay
certain employee incentive payments payable upon the closing of
this offering, to pay certain expenses of this offering, and for
general corporate purposes, including working capital and
capital expenditures. We may also use a portion of the net
proceeds to acquire or invest in companies and technologies that
we believe will complement our business although we have no
specific plans at this time to do so. However, we will have
broad
31
Table of Contents
discretion in how we use the net proceeds of this offering.
These proceeds could be applied in ways that do not improve our
operating results or increase the value of your investment.
Until the net proceeds are used, they may be placed in
investments that do not produce income or that lose value.
You will incur
immediate and substantial dilution and may experience further
dilution immediately upon the sale of our common stock in this
offering.
The initial public offering price of our common stock is
substantially higher than $ , the
net tangible book value per share of our common stock as of
December 31, 2009, calculated on a pro forma basis as
adjusted for the sale of shares in this offering. Therefore, if
you purchase our common stock in this offering, you will incur
an immediate dilution of $ in net
tangible book value per share from the price you paid, based on
the assumed initial offering price of
$ per share. The exercise of
outstanding options and warrants to purchase shares of our
common stock at a weighted average exercise price of
$ and
$ per share, respectively (assuming
a conversion ratio
of between
the common units of MagnaChip Semiconductor LLC and our shares
of common stock), will result in further dilution.
We will incur
increased costs as a result of being a publicly listed company,
and these additional costs could harm our business and results
of operations.
The Sarbanes-Oxley Act, as well as rules promulgated by the SEC
and the NYSE, require us to adopt corporate governance practices
applicable to U.S. public companies. These rules and
regulations will increase our legal and financial compliance
costs and make certain compliance and reporting activities more
time-consuming. We also expect it to be more difficult and more
expensive for us to obtain and maintain director and officer
liability insurance, which may cause us to accept reduced policy
limits and reduced coverage or to incur substantially higher
costs to obtain the same or similar coverage. As a result, it
may be more difficult for us to attract and retain qualified
persons to serve on our board of directors or as executive
officers. We cannot predict or estimate the amount of additional
costs we may incur, but these additional costs and demands on
management time and attention may harm our business and results
of operations.
We do not
intend to pay dividends for the foreseeable future after this
offering, and therefore, investors should rely on sales of their
common stock as the only way to realize any future gains on
their investments.
We do not intend to pay any cash dividends in the foreseeable
future after this offering. The payment of cash dividends on
common stock is restricted under the terms of our senior secured
credit agreement. We anticipate that we will retain all of our
future earnings after this offering for use in the development
of our business and for general corporate purposes. Any
determination to pay dividends in the future will be at the
discretion of our board of directors. Accordingly, investors
must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize
any future gains on their investments.
32
Table of Contents
INDUSTRY AND
MARKET DATA
In this prospectus, we rely on and refer to information
regarding the semiconductor market from iSuppli Corporation, or
iSuppli, and Gartner, Inc., or Gartner. Market data attributed
to iSuppli is from “Display Driver ICs Q4 2009 Market
Tracker” and “Power Management Q4 2009 Market
Tracker” and market data attributed to Gartner is from
“Semiconductor Forecast Worldwide: Forecast Database,
24 Feb 2010.” Although we believe that this
information is reliable, we have not independently verified it.
We do not have any obligation to announce or otherwise make
publicly available updates or revisions to forecasts contained
in these documents. In addition, in many cases, we have made
statements in this prospectus regarding our industry and our
position in the industry based on our experience in the industry
and our own investigation of market conditions.
SPECIAL
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS
Information concerning us and this offering is subject to risks
and uncertainties. Forward-looking statements give our current
expectations and projections relating to our financial
condition, results of operations, plans, objectives, future
performance and business. These statements can be identified by
the fact that they do not relate strictly to historical or
current facts. These statements may include words such as
“anticipate,” “estimate,”
“expect,” “project,” “intend,”
“plan,” “believe” and other words and terms
of similar meaning in connection with any discussion of the
timing or nature of future operating or financial performance or
other events. All statements other than statements of historical
facts included in this prospectus that address activities,
events or developments that we expect, believe or anticipate
will or may occur in the future are forward-looking statements.
These forward-looking statements are largely based on our
expectations and beliefs concerning future events, which reflect
estimates and assumptions made by our management. These
estimates and assumptions reflect our best judgment based on
currently known market conditions and other factors relating to
our operations and business environment, all of which are
difficult to predict and many of which are beyond our control.
Although we believe our estimates and assumptions to be
reasonable, they are inherently uncertain and involve a number
of risks and uncertainties that are beyond our control. In
addition, management’s assumptions about future events may
prove to be inaccurate. Management cautions all readers that the
forward-looking statements contained in this prospectus are not
guarantees of future performance, and we cannot assure any
reader that those statements will be realized or the
forward-looking events and circumstances will occur. Actual
results may differ materially from those anticipated or implied
in the forward-looking statements due to the factors listed in
the “Risk Factors,” “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” and “Business” sections and elsewhere
in this prospectus.
All forward-looking statements speak only as of the date of this
prospectus. We do not intend to publicly update or revise any
forward-looking statements as a result of new information or
future events or otherwise, except as required by law. These
cautionary statements qualify all forward-looking statements
attributable to us or persons acting on our behalf.
33
Table of Contents
USE OF
PROCEEDS
We estimate that our net proceeds from the sale of the common
stock that we are offering will be approximately
$ million, after deducting
the underwriting discounts and commissions and the estimated
offering expenses payable by us (assuming an initial public
offering price of $ per share, the
midpoint of the range set forth on the cover page of this
prospectus). We will not receive any of the proceeds from the
sale of our common stock by the selling stockholders.
We intend to use the net proceeds to us from this offering as
follows:
| • | approximately $12 million to fund incentive payments to all of our employees; and | |
| • | approximately $ million to fund working capital and for general corporate purposes. |
Pending such uses, we intend to invest the net proceeds of this
offering in short-term, investment-grade, interest-bearing
securities.
If we raise more or fewer proceeds from this offering than
anticipated, we expect to increase or reduce the amount that we
use to fund working capital and for general corporate purposes
by a commensurate amount.
DIVIDEND
POLICY
We do not intend to pay any cash dividends on our common stock
in the foreseeable future after this offering. We anticipate
that we will retain all of our future earnings after this
offering for use in the development of our business and for
general corporate purposes. Any determination to pay dividends
in the future will be at the discretion of our board of
directors. The payment of cash dividends on our common stock is
restricted under the terms of our senior secured credit
agreement.
CORPORATE
CONVERSION
In connection with this offering, our board of directors will
elect to convert MagnaChip Semiconductor LLC from a Delaware
limited liability company to a Delaware corporation. In order to
consummate such a conversion, a certificate of conversion will
be filed with the Secretary of State of the State of Delaware
prior to the closing of this offering. In connection with the
corporate conversion, outstanding common units of MagnaChip
Semiconductor LLC will be automatically converted into shares of
common stock of MagnaChip Semiconductor Corporation, outstanding
options to purchase common units of MagnaChip Semiconductor LLC
will be automatically converted into options to purchase shares
of common stock of MagnaChip Semiconductor Corporation and
outstanding warrants to purchase common units of MagnaChip
Semiconductor LLC will be automatically converted into warrants
to purchase shares of common stock of MagnaChip Semiconductor
Corporation, all at a ratio
of .
34
Table of Contents
CAPITALIZATION
The following table sets forth the following information:
| • | the actual capitalization of MagnaChip Semiconductor LLC as of December 31, 2009; and | |
| • | our pro forma capitalization as of December 31, 2009 after giving effect to (i) the corporate conversion, as adjusted for (ii) the sale of shares of our common stock in this offering at an initial public offering price of $ per share (the midpoint of the range set forth on the front cover of this prospectus), after the deduction of the underwriting discounts and commissions and the estimated offering expenses payable by us, and the application of the related proceeds as described under “Use of Proceeds.” |
This table should be read together with “Use of
Proceeds,” “Selected Historical Consolidated Financial
and Operating Data,” “Unaudited Pro Forma Consolidated
Financial Information,” “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and
related notes included elsewhere in this prospectus.
| As of December 31, 2009 | ||||||||
| (in millions) | ||||||||
|
Pro Forma |
||||||||
|
Actual
|
as Adjusted
|
|||||||
|
Total indebtedness (including current portion of senior secured
credit facility)
|
$ | 61.8 | $ | 61.8 | ||||
|
Stockholders’ equity:
|
||||||||
|
Common units, no par value; 375,000,000 units authorized,
307,083,996 issued and outstanding, actual; and no units
issued and outstanding, pro forma as adjusted
|
55.1 | — | ||||||
|
Preferred stock, $0.01 par value, no shares authorized,
issued and outstanding,
actual; shares
authorized, no shares issued and outstanding, pro forma as
adjusted.
|
||||||||
|
Common stock, par value $0.01 per
share; shares
authorized, no shares issued and outstanding, actual;
and shares
issued and outstanding, pro forma as adjusted
|
— | |||||||
|
Additional paid-in capital
|
168.7 | |||||||
|
Accumulated deficit
|
(2.0 | ) | ||||||
|
Accumulated other comprehensive loss
|
(6.2 | ) | ||||||
|
Total unitholders’ / stockholders’ equity
|
215.7 | |||||||
|
Total capitalization
|
$ | 277.4 | ||||||
| (1) | A $1.00 decrease or increase in the assumed initial public offering price would result in approximately a $ million decrease or increase in each of pro forma as adjusted additional paid-in capital, total stockholders’ equity and total capitalization, assuming the total number of shares offered by us remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
35
Table of Contents
DILUTION
Our net tangible book value as of December 31, 2009, on a
pro forma basis, was approximately
$ million, or
$ per share of our common stock.
Pro forma net tangible book value per share represents our total
tangible assets reduced by our total liabilities and divided by
the number of shares of common stock outstanding. Dilution in
net tangible book value per share represents the difference
between the amount per share that you pay in this offering and
the net tangible book value per share immediately after this
offering.
After giving effect to the receipt of the estimated net proceeds
from the sale by us
of shares,
our net tangible book value at December 31, 2009 on the pro
forma basis would have been approximately
$ , or
$ per share of common stock. This
represents an immediate increase in pro forma net tangible book
value per share of $ to existing
stockholders and an immediate decrease in pro forma net tangible
book value per share of $ to you.
The following table illustrates the dilution.
|
Assumed initial public offering price per share
|
$ | |||||||
|
Net pro forma tangible book value per share as of
December 31, 2009
|
$ | |||||||
|
Increase in pro forma net tangible book value per share
attributable to new investors
|
$ | |||||||
|
Pro forma net tangible book value per share after giving effect
to this offering
|
||||||||
|
Dilution per share to new investors
|
$ | |||||||
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease the pro forma net tangible book value
per share after giving effect to this offering by
$ per share and would increase or
decrease the dilution in pro forma net tangible book value per
share to investors in this offering by
$ per share. This calculation
assumes that the number of shares offered by us, as set forth on
the cover page of this prospectus, remains the same and reflects
the deduction of the underwriting discounts and commissions and
estimated expenses of this offering.
The following table sets forth, as of December 31, 2009, on
the pro forma basis as adjusted to give effect to this offering,
the differences between the amounts paid or to be paid by the
groups set forth in the table with respect to the aggregate
number of shares of our common stock acquired or to be acquired
by each group.
|
Shares |
Total |
Average |
||||||||||||||||||
| Purchased | Consideration |
Price |
||||||||||||||||||
|
Number
|
%
|
Amount
|
%
|
Per Share
|
||||||||||||||||
| (In millions, except share and % data) | ||||||||||||||||||||
|
Existing stockholders
|
% | $ | % | $ | ||||||||||||||||
|
New investors(1)
|
||||||||||||||||||||
|
Total
|
% | $ | % | $ | ||||||||||||||||
| (1) | Before deduction of the underwriting discounts and commissions and estimated offering expenses payable by us. |
36
Table of Contents
If the underwriters’ option to purchase additional shares
from us and the selling stockholders is exercised in full, the
number of shares of common stock held by existing stockholders
will be reduced to ,
or % of the aggregate number of
shares of common stock outstanding after this offering, and the
number of shares of common stock held by new investors will be
increased to ,
or % of the aggregate number of
shares of common stock outstanding after this offering.
To the extent that any outstanding options and warrants to
purchase shares of our common stock are exercised, investors in
this offering will experience further dilution. The table below
sets forth the matters described with respect to the table above
and assumes the exercise of all options and warrants outstanding
or exercisable as of December 31, 2009. Assuming such
exercise, the total number of shares purchased would be
increased as a result of the additional shares underlying the
options and warrants being issued. Therefore the percentage of
shares purchased by the existing stockholders and new investors
relative to all three groups would be decreased. Similarly, as a
result of the option and warrant exercises, the total
consideration to be received by us would be increased because of
the additional cash received by us from option and warrant
exercises. Such increase in total consideration would have the
effect of decreasing the percentage of total consideration paid
by the existing stockholders and new investors relative to all
three groups. The average price per share for the existing
stockholders and new investors would remain unchanged.
|
Average |
||||||||||||||||||||
|
Shares |
Total |
Price |
||||||||||||||||||
| Purchased | Consideration |
Per |
||||||||||||||||||
| Number | % | Amount | % | Share | ||||||||||||||||
| (In millions, except share and % data) | ||||||||||||||||||||
|
Existing stockholders
|
% | $ | % | $ | ||||||||||||||||
|
New investors(1)
|
||||||||||||||||||||
|
Option and warrant holders(2)
|
||||||||||||||||||||
|
Total
|
% | $ | % | $ | ||||||||||||||||
| (1) | Before deduction of the underwriting discounts and commissions and estimated offering expenses payable by us. | |
| (2) | Includes shares of common stock issuable upon exercise of options previously granted to our officers, directors and employees and warrants issued in connection with our reorganization proceedings. |
If the underwriters’ option to purchase additional shares
from us and the selling stockholders is exercised in full, the
number of shares of common stock held by existing stockholders
will be reduced
to ,
or % of the aggregate number of
shares of common stock outstanding after this offering, and the
number of shares of common stock held by new investors will be
increased to ,
or % of the aggregate number of
shares of common stock outstanding after this offering.
37
Table of Contents
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth selected historical consolidated
financial data of MagnaChip Semiconductor LLC (to be converted
into MagnaChip Semiconductor Corporation in connection with this
offering) on or as of the dates and for the periods indicated.
The selected historical consolidated financial data presented
below should be read together with “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements,
including the notes to those consolidated financial statements,
appearing elsewhere in this prospectus.
We have derived the selected consolidated financial data as of
December 31, 2009 and 2008 and for the two-month period
ended December 31, 2009, the ten-month period ended
October 25, 2009 and the years ended December 31, 2008
and 2007 from the historical audited consolidated financial
statements of MagnaChip Semiconductor LLC included elsewhere in
this prospectus. We have derived the selected consolidated
financial data as of December 31, 2007, 2006 and 2005 and
for the years ended December 31, 2006 and 2005 from the
historical audited consolidated financial statements of
MagnaChip Semiconductor LLC not included in this prospectus. The
historical results of MagnaChip Semiconductor LLC for any prior
period are not necessarily indicative of the results to be
expected in any future period.
In connection with our emergence from reorganization
proceedings, we implemented fresh-start accounting in accordance
with applicable ASC 852 governing reorganizations. We
elected to adopt a convenience date of October 25, 2009 (a
month end for our financial reporting purposes) for application
of fresh-start accounting. In accordance with the ASC 852
governing reorganizations, we recorded largely non-cash
reorganization income and expense items directly associated with
our reorganization proceedings including professional fees, the
revaluation of assets, the effects of our reorganization plan
and fresh-start accounting and write-off of debt issuance costs.
As a result of the application of fresh-start accounting, our
financial statements prior to and including October 25,
2009 represent the operations of our pre-reorganization
predecessor company and are presented separately from the
financial statements of our post-reorganization successor
company. As a result of the application of fresh-start
accounting, the financial statements prior to and including
October 25, 2009 are not fully comparable with the
financial statements for periods on or after October 25,
2009.
38
Table of Contents
| Successor(1) | Predecessor | ||||||||||||||||||||||||
|
Two- Month |
Ten- Month |
||||||||||||||||||||||||
|
Period Ended |
Period Ended |
Years Ended |
|||||||||||||||||||||||
|
December 31, |
October 25, |
December 31, | |||||||||||||||||||||||
| 2009 | 2009 |
2008
|
2007
|
2006
|
2005
|
||||||||||||||||||||
|
(Audited) |
|||||||||||||||||||||||||
| (In millions, except per common unit data) | |||||||||||||||||||||||||
|
Statements of Operations Data:
|
|||||||||||||||||||||||||
|
Net sales
|
$ | 111.1 | $ | 449.0 | $ | 601.7 | $ | 709.5 | $ | 683.9 | $ | 774.3 | |||||||||||||
|
Cost of sales
|
90.4 | 311.1 | 445.3 | 578.9 | 580.4 | 591.1 | |||||||||||||||||||
|
Gross profit
|
20.7 | 137.8 | 156.4 | 130.7 | 103.4 | 183.2 | |||||||||||||||||||
|
Selling, general and administrative expenses
|
14.5 | 56.3 | 81.3 | 82.7 | 76.1 | 119.4 | |||||||||||||||||||
|
Research and development expenses
|
14.7 | 56.1 | 89.5 | 90.8 | 87.2 | 96.1 | |||||||||||||||||||
|
Restructuring and impairment charges
|
— | 0.4 | 13.4 | 12.1 | 1.7 | 36.1 | |||||||||||||||||||
|
Operating income (loss) from continuing operations
|
(8.6 | ) | 25.0 | (27.7 | ) | (54.9 | ) | (61.6 | ) | (68.4 | ) | ||||||||||||||
|
Interest expense, net
|
1.3 | 31.2 | 76.1 | 60.3 | 57.2 | 57.2 | |||||||||||||||||||
|
Foreign currency gain (loss), net
|
9.3 | 43.4 | (210.4 | ) | (4.7 | ) | 50.9 | 16.5 | |||||||||||||||||
|
Reorganization items, net
|
— | 804.6 | — | — | — | — | |||||||||||||||||||
| 8.1 | 816.8 | (286.5 | ) | (65.0 | ) | (6.3 | ) | (40.7 | ) | ||||||||||||||||
|
Income (loss) from continuing operations before income taxes
|
(0.5 | ) | 841.8 | (314.3 | ) | (120.0 | ) | (67.9 | ) | (109.1 | ) | ||||||||||||||
|
Income tax expenses
|
1.9 | 7.3 | 11.6 | 8.8 | 9.1 | 2.0 | |||||||||||||||||||
|
Income (loss) from continuing operations
|
(2.5 | ) | 834.5 | (325.8 | ) | (128.8 | ) | (76.9 | ) | (111.1 | ) | ||||||||||||||
|
Income (loss) from discontinued operations, net of taxes
|
0.5 | 6.6 | (91.5 | ) | (51.7 | ) | (152.4 | ) | 10.2 | ||||||||||||||||
|
Net income (loss)
|
$ | (2.0 | ) | $ | 841.1 | $ | (417.3 | ) | $ | (180.6 | ) | $ | (229.3 | ) | $ | (100.9 | ) | ||||||||
|
Dividends accrued on preferred units
|
— | 6.3 | 13.3 | 12.0 | 10.9 | 9.9 | |||||||||||||||||||
|
Income (loss) from continuing operations attributable to common
units
|
(2.5 | ) | 828.2 | (339.1 | ) | (140.9 | ) | (87.9 | ) | (121.1 | ) | ||||||||||||||
|
Net income (loss) attributable to common units
|
$ | (2.0 | ) | $ | 834.8 | $ | (430.6 | ) | $ | (192.6 | ) | $ | (240.2 | ) | $ | (110.8 | ) | ||||||||
|
Per unit data:
|
|||||||||||||||||||||||||
|
Earnings (loss) from continuing operations per common
unit — Basic and diluted
|
(0.01 | ) | 15.65 | (6.43 | ) | (2.69 | ) | (1.66 | ) | (2.29 | ) | ||||||||||||||
|
Earnings (loss) from discontinued operations per common
unit — Basic and diluted
|
— | 0.12 | (1.73 | ) | (0.99 | ) | (2.88 | ) | 0.19 | ||||||||||||||||
|
Earnings (loss) per common unit — Basic and diluted
|
(0.01 | ) | 15.77 | (8.16 | ) | (3.68 | ) | (4.54 | ) | (2.10 | ) | ||||||||||||||
|
Weighted average number of common units — Basic and
diluted
|
300.863 | 52.923 | 52.769 | 52.297 | 52.912 | 52.898 | |||||||||||||||||||
|
Balance Sheet Data (at period end):
|
|||||||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 64.9 | $ | 4.0 | $ | 64.3 | $ | 89.2 | $ | 86.6 | |||||||||||||||
|
Total assets
|
453.3 | 399.2 | 707.9 | 770.1 | 1,040.6 | ||||||||||||||||||||
|
Total indebtedness(2)
|
61.8 | 845.0 | 830.0 | 750.0 | 750.0 | ||||||||||||||||||||
|
Long-term obligations(3)
|
61.5 | 143.2 | 879.4 | 867.4 | 856.7 | ||||||||||||||||||||
|
Unitholders’ equity
|
215.7 | (787.8 | ) | (477.5 | ) | (284.5 | ) | (46.5 | ) | ||||||||||||||||
|
Supplemental Data (unaudited):
|
|||||||||||||||||||||||||
|
Adjusted EBITDA(4)
|
22.1 | 76.6 | 59.8 | 111.2 | |||||||||||||||||||||
|
Adjusted Net Income (Loss)(5)
|
13.3 | 9.3 | (71.7 | ) | (82.6 | ) | |||||||||||||||||||
39
Table of Contents
| (1) | As of October 25, 2009, the fresh-start adoption date, we adopted fresh-start accounting for our consolidated financial statements. Because of the emergence from reorganization proceedings and adoption of fresh-start accounting, the historical financial information for periods after October 25, 2009 is not fully comparable to periods before October 25, 2009. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Changes to Our Business.” | |
| (2) | Total indebtedness is calculated as long and short-term borrowings, including the current portion of long-term borrowings. | |
| (3) | Long-term obligations include long-term borrowings, capital leases and redeemable convertible preferred units. | |
| (4) | We define Adjusted EBITDA as net income (loss) less income (loss) from discontinued operations, net of taxes, adjusted to exclude (i) depreciation and amortization associated with continuing operations, (ii) interest expense, net, (iii) income tax expenses, (iv) restructuring and impairment charges, (v) other restructuring charges, (vi) abandoned IPO expenses, (vii) subcontractor claim settlement, (viii) the increase in cost of sales resulting from the fresh-start inventory accounting step-up, (ix) equity-based compensation expense, (x) reorganization items, net and (xi) foreign currency gain (loss), net. See the footnotes to the table below for further information regarding these items. We present Adjusted EBITDA as a supplemental measure of our performance because: |
| • | Adjusted EBITDA eliminates the impact of a number of items that may be either one time or recurring items that we do not consider to be indicative of our core ongoing operating performance; | |
| • | we believe that Adjusted EBITDA is an enterprise level performance measure commonly reported and widely used by analysts and investors in our industry; | |
| • | we anticipate that our investor and analyst presentations after we are public will include Adjusted EBITDA; and | |
| • | we believe that Adjusted EBITDA provides investors with a more consistent measurement of period to period performance of our core operations, as well as a comparison of our operating performance to that of other companies in our industry. |
We use Adjusted EBITDA in a number of ways, including:
| • | for planning purposes, including the preparation of our annual operating budget; | |
| • | to evaluate the effectiveness of our enterprise level business strategies; | |
| • | in communications with our board of directors concerning our consolidated financial performance; | |
| • | in certain of our compensation plans as a performance measure for determining incentive compensation payments; and | |
| • | to measure our compliance with certain covenants in our debt agreements. |
40
Table of Contents
We encourage you to evaluate each adjustment and the reasons we
consider them appropriate. In evaluating Adjusted EBITDA, you
should be aware that in the future we may incur expenses similar
to the adjustments in this presentation. Adjusted EBITDA is not
a measure defined in accordance with GAAP and should not be
construed as an alternative to income from continuing
operations, cash flows from operating activities or net income
(loss), as determined in accordance with GAAP. A reconciliation
of net income (loss) to Adjusted EBITDA is as follows:
| Historical | |||||||||||||||||
| Successor | Predecessor | ||||||||||||||||
|
Two- Month |
Ten- Month |
||||||||||||||||
|
Period Ended |
Period Ended |
Years Ended |
|||||||||||||||
|
December 31, |
October 25, |
December 31, | |||||||||||||||
|
2009
|
2009
|
2008
|
2007
|
||||||||||||||
| (In millions) | |||||||||||||||||
|
Net income (loss)
|
$ | (2.0 | ) | $ | 841.1 | $ | (417.3 | ) | $ | (180.6 | ) | ||||||
|
Less: Income (loss) from discontinued operations, net of taxes
|
0.5 | 6.6 | (91.5 | ) | (51.7 | ) | |||||||||||
|
Income (loss) from continuing operations
|
(2.5 | ) | 834.5 | (325.8 | ) | (128.8 | ) | ||||||||||
|
Adjustments:
|
|||||||||||||||||
|
Depreciation and amortization associated with continuing
operations
|
11.2 | 37.7 | 63.8 | 152.2 | |||||||||||||
|
Interest expense, net
|
1.3 | 31.2 | 76.1 | 60.3 | |||||||||||||
|
Income tax expense
|
1.9 | 7.3 | 11.6 | 8.8 | |||||||||||||
|
Restructuring and impairment charges(a)
|
— | 0.4 | 13.4 | 12.1 | |||||||||||||
|
Other restructuring charges(b)
|
— | 13.3 | 6.2 | — | |||||||||||||
|
Abandoned IPO expenses(c)
|
— | — | 3.7 | — | |||||||||||||
|
Subcontractor claim settlement(d)
|
— | — | — | 1.3 | |||||||||||||
|
Reorganization items, net(e)
|
— | (804.6 | ) | — | — | ||||||||||||
|
Inventory
step-up(f)
|
17.2 | — | — | — | |||||||||||||
|
Equity based compensation expense(g)
|
2.2 | 0.2 | 0.5 | 0.6 | |||||||||||||
|
Foreign currency gain (loss), net(h)
|
(9.3 | ) | (43.4 | ) | 210.4 | 4.7 | |||||||||||
|
Adjusted EBITDA
|
$ | 22.1 | $ | 76.6 | $ | 59.8 | $ | 111.2 | |||||||||
| (a) | This adjustment is comprised of all items included in the restructuring and impairment charges line item on our consolidated statements of operations, and eliminates the impact of restructuring and impairment charges related to (i) for 2009, termination benefits and other related costs, for the ten-month period ended October 25, 2009 in connection with the closure of one of our research and development facilities in Japan, (ii) for 2008, goodwill impairment triggered by the significant adverse change in the revenue of our mobile display solutions, or MDS reporting unit, and a reversal of a portion of the restructuring accrual related to the closure of our Gumi five-inch wafer fabrication facilities in 2007, and (iii) for 2007, the closure of our Gumi five-inch wafer fabrication facilities. We do not believe these restructuring and impairment charges are indicative of our core ongoing operating performance because we do not anticipate similar facility closures and market driven events in our ongoing operations, although we cannot guarantee that similar events will not occur in the future. | |
| (b) | This adjustment relates to certain restructuring charges that are not included in the restructuring and impairment charges line item on our consolidated statements of operations. These items are included in selling, general and administrative expenses in our consolidated statements of operations. These charges are comprised of the following: (i) for 2009, a charge of $13.3 million for restructuring-related professional fees and related expenses, and (ii) for 2008, a charge of $6.2 million for restructuring-related professional fees and related expenses. We do not believe these other restructuring charges are indicative of our core ongoing operating performance because these charges were related, in significant part, to actions we took in response to the impacts on our business resulting from the global economic recession that persisted through 2008 and 2009. We cannot guarantee that similar charges will not be incurred in the future. |
41
Table of Contents
| (c) | This adjustment eliminates a $3.7 million charge in 2008 related to expenses incurred in connection with our abandoned initial public offering in 2008. We do not believe that these charges are indicative of our core operating performance. We expect to incur similar costs in connection with this offering. | |
| (d) | This adjustment eliminates a $1.3 million charge attributable to a one-time settlement of claims with a subcontractor. We no longer obtain services from this subcontractor and do not expect to incur similar charges in the future. | |
| (e) | This adjustment eliminates the impact of largely non-cash reorganization income and expense items directly associated with our reorganization proceedings from our ongoing operations including, among others, professional fees, the revaluation of assets, the effects of the Chapter 11 reorganization plan and fresh-start accounting principles and the write-off of debt issuance costs. Included in reorganization items, net for the ten-month period ended October 25, 2009 was our predecessor’s gain recognized from the effects of our reorganization proceedings. The gain results from the difference between our predecessor’s carrying value of remaining pre-petition liabilities subject to compromise and the amounts to be distributed pursuant to the reorganization proceedings. The gain from the effects of the reorganization proceedings and the application of fresh-start accounting principles is comprised of the discharge of liabilities subject to compromise, net of the issuance of new common units and new warrants and the accrual of amounts to be settled in cash. For details regarding this adjustment, see note 5 to the consolidated financial statements of MagnaChip Semiconductor LLC for the ten months ended October 25, 2009 and the two months ended December 31, 2009 included elsewhere in this prospectus. We do not believe these items are indicative of our core ongoing operating performance because they were incurred as a result of our Chapter 11 reorganization. | |
| (f) | This adjustment eliminates the one-time impact on cost of sales associated with the write-up of our inventory in accordance with the principles of fresh-start accounting upon consummation of the Chapter 11 reorganization. | |
| (g) | This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-based compensation expenses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these non-cash expenses, as supplemental information. | |
| (h) | This adjustment eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily non-cash gains or losses, as supplemental information. |
Adjusted EBITDA has limitations as an analytical tool, and you
should not consider it in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
| • | Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; | |
| • | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; | |
| • | Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; |
42
Table of Contents
| • | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; | |
| • | Adjusted EBITDA does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees; | |
| • | Adjusted EBITDA does not reflect the costs of holding certain assets and liabilities in foreign currencies; and | |
| • | other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted EBITDA should not be
considered as a measure of discretionary cash available to us to
invest in the growth of our business. We compensate for these
limitations by relying primarily on our GAAP results and using
Adjusted EBITDA only supplementally.
| (5) | We present Adjusted Net Income as a further supplemental measure of our performance. We prepare Adjusted Net Income by adjusting net income (loss) to eliminate the impact of a number of non-cash expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Net Income is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. |
We present Adjusted Net Income for a number of reasons,
including:
| • | we use Adjusted Net Income in communications with our board of directors concerning our consolidated financial performance; | |
| • | we believe that Adjusted Net Income is an enterprise level performance measure commonly reported and widely used by analysts and investors in our industry; and | |
| • | we anticipate that our investor and analyst presentations after we are public will include Adjusted Net Income. |
Adjusted Net Income is not a measure defined in accordance with
GAAP and should not be construed as an alternative to income
from continuing operations, cash flows from operating activities
or net income (loss), as determined in accordance with GAAP. We
encourage you to evaluate each adjustment and the reasons we
consider them appropriate. Other companies in our industry may
calculate Adjusted Net Income differently than we do, limiting
its usefulness as a comparative measure. In addition, in
evaluating Adjusted Net Income, you should be aware that in the
future we may incur expenses similar to the adjustments in this
presentation. We define Adjusted Net Income as net income (loss)
less income (loss) from discontinued operations, net of taxes,
excluding (i) restructuring and impairment charges, (ii) other
restructuring charges, (iii) abandoned IPO expenses, (vi)
subcontractor claim settlement, (v) reorganization items, net,
(vi) the increase in cost of sales resulting from the
fresh-start accounting inventory step-up, (vii) equity based
compensation expense, (viii) amortization of intangibles
associated with continuing operations and (ix) foreign currency
gain (loss).
43
Table of Contents
The following table summarizes the adjustments to net income
(loss) that we make in order to calculate Adjusted Net Income
for the periods indicated:
| Historical | |||||||||||||||||
| Successor | Predecessor | ||||||||||||||||
|
Two- Month |
Ten- Month |
||||||||||||||||
|
Period Ended |
Period Ended |
Years Ended |
|||||||||||||||
|
December 31, |
October 25, |
December 31, | |||||||||||||||
| 2009 | 2009 | 2008 | 2007 | ||||||||||||||
| (In millions) | |||||||||||||||||
|
Net income (loss)
|
$ | (2.0 | ) | $ | 841.1 | $ | (417.3 | ) | $ | (180.6 | ) | ||||||
|
Less: Income (loss) from discontinued operations, net of taxes
|
0.5 | 6.6 | (91.5 | ) | (51.7 | ) | |||||||||||
|
Income (loss) from continuing operations
|
(2.5 | ) | 834.5 | (325.8 | ) | (128.8 | ) | ||||||||||
|
Adjustments:
|
|||||||||||||||||
|
Restructuring and impairment charges(a)
|
— | 0.4 | 13.4 | 12.1 | |||||||||||||
|
Other restructuring charges(b)
|
— | 13.3 | 6.2 | — | |||||||||||||
|
Abandoned IPO expenses(c)
|
— | — | 3.7 | — | |||||||||||||
|
Subcontractor claim settlement(d)
|
— | — | — | 1.3 | |||||||||||||
|
Reorganization items, net(e)
|
— | (804.6 | ) | — | — | ||||||||||||
|
Inventory
step-up(f)
|
17.2 | — | — | — | |||||||||||||
|
Equity based compensation expense(g)
|
2.2 | 0.2 | 0.5 | 0.6 | |||||||||||||
|
Amortization of intangibles associated with continuing
operations(h)
|
5.6 | 8.8 | 20.0 | 27.5 | |||||||||||||
|
Foreign currency gain (loss), net(i)
|
(9.3 | ) | (43.4 | ) | 210.4 | 4.7 | |||||||||||
|
Adjusted Net Income (Loss)
|
$ | 13.3 | $ | 9.3 | $ | (71.7 | ) | $ | (82.6 | ) | |||||||
| (a) | This adjustment is comprised of all items included in the restructuring and impairment charges line item on our consolidated statements of operations, and eliminates the impact of restructuring and impairment charges related to (i) for 2009, termination benefits and other related costs, for the ten-month period ended October 25, 2009 in connection with the closure of one of our research and development facilities in Japan, (ii) for 2008, goodwill impairment triggered by the significant adverse change in the revenue of our MDS reporting unit and a reversal of a portion of the restructuring accrual related to the closure of our Gumi five-inch wafer fabrication facilities in 2007, and (iii) for 2007, the closure of our Gumi five-inch wafer fabrication facilities. We do not believe these restructuring and impairment charges are indicative of our core ongoing operating performance because we do not anticipate similar facility closures and market driven events in our ongoing operations, although we cannot guarantee that similar events will not occur in the future. | |
| (b) | This adjustment relates to certain restructuring charges that are not included in the restructuring and impairment charges line item on our consolidated statements of operations. These items are included in selling, general and administrative expenses in our consolidated statements of operations. These charges are comprised of the following: (i) for 2009, a charge of $13.3 million for restructuring-related professional fees and related expenses, and (ii) for 2008, a charge of $6.2 million for restructuring-related professional fees and related expenses. We do not believe these other restructuring charges are indicative of our core ongoing operating performance because these charges were related, in significant part, to actions we took in response to the impacts on our business resulting from the global economic recession that persisted through 2008 and 2009. We cannot guarantee that similar charges will not be incurred in the future. | |
| (c) | This adjustment eliminates a $3.7 million charge in 2008 related to expenses incurred in connection with our abandoned initial public offering in 2008. We do not believe that these charges are indicative of our core operating performance. We expect to incur costs in connection with this offering. | |
| (d) | This adjustment eliminates a $1.3 million charge attributable to a one-time settlement of claims with a subcontractor. We no longer obtain services from this subcontractor and do not expect to incur similar charges in the future. | |
| (e) | This adjustment eliminates the impact of largely non-cash reorganization income and expense items directly associated with our reorganization proceedings from our ongoing operations including, among others, professional fees, the revaluation of assets, the effects of the Chapter 11 reorganization plan and fresh-start accounting principles and the write-off of debt issuance costs. Included in reorganization items, net for the ten-month period ended October 25, 2009 was our predecessor’s gain recognized from the effects of our reorganization proceedings. The gain results from the difference between our predecessor’s carrying value of remaining pre-petition liabilities subject to compromise and the amounts to be distributed pursuant to the reorganization proceedings. The gain from the effects of the reorganization proceedings and the application of fresh-start accounting principles is comprised of the discharge of liabilities subject to compromise, net of the issuance of new common units and new warrants and the accrual of amounts to be settled in |
44
Table of Contents
| cash. For details regarding this adjustment, see note 5 to the consolidated financial statements of MagnaChip Semiconductor LLC for the ten-month period ended October 25, 2009 and the two-month period ended December 31, 2009 included elsewhere in this prospectus. We do not believe these items are indicative of our core ongoing operating performance because they were incurred as a result of our reorganization proceedings. | ||
| (f) | This adjustment eliminates the one-time impact on cost of sales associated with the write-up of our inventory in accordance with the principles of fresh-start accounting upon consummation of the Chapter 11 reorganization. | |
| (g) | This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-based compensation expenses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these non-cash expenses, as supplemental information. | |
| (h) | This adjustment eliminates the non-cash impact of amortization expense for intangible assets created as a result of the purchase accounting treatment of the Original Acquisition and other subsequent acquisitions, and from the application of fresh-start accounting in connection with the reorganization proceedings. We do not believe these non-cash amortization expenses for intangibles are indicative of our core ongoing operating performance because the assets would not have been capitalized on our balance sheet but for the application of purchase accounting or fresh-start accounting, as applicable. | |
| (i) | This adjustment eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily non-cash gains or losses, as supplemental information. |
Adjusted Net Income has limitations as an analytical tool, and
you should not consider it in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
| • | Adjusted Net Income does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; | |
| • | Adjusted Net Income does not reflect changes in, or cash requirements for, our working capital needs; |
| • | Adjusted Net Income does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees; | |
| • | Adjusted Net Income does not reflect the costs of holding certain assets and liabilities in foreign currencies; and | |
| • | other companies in our industry may calculate Adjusted Net Income differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted Net Income should not be
considered as a measure of discretionary cash available to us to
invest in the growth of our business. We compensate for these
limitations by relying primarily on our GAAP results and using
Adjusted Net Income only supplementally.
45
Table of Contents
UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION
We have prepared the unaudited pro forma condensed consolidated
financial information of MagnaChip for the year ended
December 31, 2009 in accordance with Article II of
Regulation S-X. The unaudited pro forma condensed
consolidated statement of operations is derived from the
historical consolidated financial statements of MagnaChip
Semiconductor LLC and gives pro forma effect to the following as
if these events had occurred on January 1, 2009:
| • | the reorganization proceedings and adoption of fresh-start reporting; and | |
| • | the corporate conversion |
The unaudited consolidated pro forma balance sheet as of
December 31, 2009 gives effect to the corporate conversion
as if it occurred on December 31, 2009.
Basis of
Presentation
The following information should be read in conjunction with
“Selected Historical Consolidated Financial and Operating
Data,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” “Risk
Factors,” “Capitalization” and the audited
consolidated financial statements of MagnaChip Semiconductor LLC
and the related notes included elsewhere in this prospectus. The
unaudited pro forma consolidated financial information is not
necessarily indicative of operating results or the financial
position that would have been achieved if the transactions
identified above had occurred on the dates indicated, nor does
it purport to represent the results we will obtain in the future.
Management has prepared the accompanying unaudited pro forma
balance sheet as of December 31, 2009 and consolidated
statement of operations for the year ended December 31,
2009 in accordance with Article 11 of
Regulation S-X
for inclusion in this prospectus.
The accounting policies used in the preparation of the unaudited
pro forma consolidated financial statements are those disclosed
in the audited consolidated financial statements of MagnaChip
Semiconductor LLC for the ten-month period ended
October 25, 2009 and the two-month period ended
December 31, 2009.
The following summary historical and unaudited pro forma
condensed consolidated financial information should be read in
conjunction with “Capitalization,” “Selected
Historical Consolidated Financial and Operating Data,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our consolidated
financial statements, including the notes to those financial
statements, included elsewhere in this prospectus.
The
Reorganization Proceedings and Related Events
On June 12, 2009 MagnaChip Semiconductor LLC, along with
certain of its subsidiaries, including MagnaChip Semiconductor
S.A., filed a voluntary petition for relief in the United States
Bankruptcy Court for the District of Delaware under
Chapter 11 of the United States Bankruptcy Code. On
November 9, 2009, our plan of reorganization became
effective and we emerged from the reorganization proceedings.
In connection with our emergence from the reorganization
proceedings, we implemented fresh-start accounting in accordance
with ASC 852. We elected to adopt a convenience date of
October 25, 2009 (a month end for our financial reporting
purposes) for application of fresh-start accounting. In
accordance with ASC 852, we recorded largely non-cash
reorganization income and expense items directly associated with
our reorganization proceedings including the revaluation of
assets, the effects of our reorganization plan and fresh-start
accounting, the write-off of debt issuance costs and
professional fees.
46
Table of Contents
In implementing fresh-start accounting, we re-measured our asset
values and stated all liabilities, other than deferred taxes and
severance benefits, at fair value or at present values of the
amounts to be paid using appropriate market interest rates. As
of October 25, 2009 the fair value of our assets and the
fair value or present value of our liabilities were as follows:
| Successor | ||||
| October 25, 2009 | ||||
|
Assets:
|
||||
|
Cash and cash equivalents
|
$ | 67.6 | ||
|
Inventories
|
69.3 | |||
|
Other current assets
|
110.5 | |||
|
Property plant and equipment
|
158.4 | |||
|
Intangible assets
|
55.2 | |||
|
Other non-current assets
|
24.5 | |||
|
Total Assets
|
485.5 | |||
|
Liabilities:
|
||||
|
Current portion long term debt
|
0.5 | |||
|
Other current liabilities
|
123.9 | |||
|
Long-term debt
|
61.3 | |||
|
Other non-current liabilities
|
81.5 | |||
|
Total liabilities
|
267.2 | |||
|
Net Assets acquired
|
$ | 218.4 | ||
The intangible assets recognized as part of fresh-start
accounting and the related estimated useful lives are as follows:
|
Estimated |
||||||||
|
Intangible Assets
|
Fair Value | Useful lives | ||||||
|
Technology
|
$ | 14.7 | 1-5 | |||||
|
Customer relationships
|
26.1 | 0.5-5 | ||||||
|
Intellectual property assets
|
4.7 | 4 | ||||||
|
In-process research and development
|
9.7 | |||||||
|
Total Intangible Assets
|
$ | 55.2 | ||||||
The adjustments made for the reorganization proceedings in the
unaudited pro forma condensed consolidated financial information
for the year ended December 31, 2009 assumes the financial
effects on us resulting from the implementation of the
Chapter 11 plan of reorganization and the adoption of
fresh-start accounting as described above.
The Corporate
Conversion
Prior to the closing of this offering, MagnaChip Semiconductor
LLC will convert from a Delaware limited liability company to a
Delaware corporation. The corporate conversion adjustments in
the unaudited pro forma consolidated financial information for
the year ended December 31, 2009 assume (a) the
consummation of the corporate conversion of MagnaChip
Semiconductor LLC and the effectiveness of our certificate of
incorporation, which is expected to occur prior to the closing
of this offering and (b) the automatic conversion of all of
the outstanding common units of MagnaChip Semiconductor LLC for
shares of our common stock at a ratio
of .
No U.S. federal taxable income or taxable gain is expected
to be recognized by MagnaChip Semiconductor Corporation as a
result of our conversion from a limited liability company to a
corporation.
47
Table of Contents
| Audited | Unaudited | |||||||||||||||
| Historical | ||||||||||||||||
| Successor | Predecessor | |||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||
|
Period |
Period |
Pro Forma |
||||||||||||||
|
Ended |
Ended |
Year Ended |
||||||||||||||
|
December 31, |
October 25, |
December 31, |
||||||||||||||
| 2009 | 2009 | Adjustments | 2009 | |||||||||||||
| (In millions, except common unit/share data) | ||||||||||||||||
|
Condensed Pro Forma Statements of Operations:
|
||||||||||||||||
|
Net sales
|
$ | 111.1 | $ | 449.0 | $ | — | $ | 560.1 | ||||||||
|
Cost of sales
|
90.4 | 311.1 | (22.7 | )(1)(2) | 378.9 | |||||||||||
|
Gross profit
|
20.7 | 137.8 | 181.2 | |||||||||||||
|
Selling, general and administrative expenses
|
14.5 | 56.3 | 0.8 | (1) | 71.6 | |||||||||||
|
Research and development expenses
|
14.7 | 56.1 | 6.4 | (1) | 77.3 | |||||||||||
|
Restructuring and impairment charges
|
— | 0.4 | — | 0.4 | ||||||||||||
|
Operating income (loss) from continuing operations
|
(8.6 | ) | 25.0 | — | 31.9 | |||||||||||
|
Interest expense, net
|
1.3 | 31.2 | (23.0 | )(3) | 9.4 | |||||||||||
|
Foreign currency gain, net
|
9.3 | 43.4 | — | 52.8 | ||||||||||||
|
Reorganization items, net
|
— | 804.6 | (804.6 | )(4) | — | |||||||||||
| 8.1 | 816.8 | — | 43.4 | |||||||||||||
|
Income (loss) from continuing operations before income taxes
|
(0.5 | ) | 841.8 | — | 75.2 | |||||||||||
|
Income tax expenses
|
1.9 | 7.3 | — | (5) | 9.2 | |||||||||||
|
Income (loss) from continuing operations
|
(2.5 | ) | 834.5 | — | 66.0 | |||||||||||
|
Dividends accrued on preferred unit
|
— | 6.3 | (6.3 | )(6) | — | |||||||||||
|
Income (loss) from continuing operations attributable to common
unit/share
|
(2.5 | ) | 828.2 | — | 66.0 | |||||||||||
|
Per common unit / share data:(7)
|
||||||||||||||||
|
Earnings (loss) from continuing operations per common unit /
share—Basic and diluted
|
(0.01 | ) | 15.65 | |||||||||||||
|
Weighted average number of common units/shares—Basic and
diluted
|
300.863 | 52.923 | ||||||||||||||
48
Table of Contents
| Audited | Unaudited | |||||||||||
|
Historical |
Pro Forma |
|||||||||||
|
As of |
As of |
|||||||||||
|
December 31, |
December 31, |
|||||||||||
| 2009 | Adjustments |
2009
|
||||||||||
|
(In millions, except common |
||||||||||||
| unit/share data) | ||||||||||||
|
Condensed Pro Forma Balance Sheet:
|
||||||||||||
|
Assets
|
||||||||||||
|
Current assets
|
||||||||||||
|
Cash and cash equivalents
|
$ | 64.9 | — | $ | 64.9 | |||||||
|
Accounts receivables, net
|
74.2 | — | 74.2 | |||||||||
|
Inventories, net
|
63.4 | — | 63.4 | |||||||||
|
Other
|
19.5 | — | 19.5 | |||||||||
|
Total current assets
|
222.1 | 222.1 | ||||||||||
|
Property, plant and equipment, net
|
156.3 | — | 156.3 | |||||||||
|
Intangible assets, net
|
50.2 | — | 50.2 | |||||||||
|
Other non-current assets
|
24.8 | — | 24.8 | |||||||||
|
Total assets
|
$ | 453.3 | $ | 453.3 | ||||||||
|
Liabilities and Unitholders’ / Stockholders’
Equity
|
||||||||||||
|
Current liabilities
|
||||||||||||
|
Accounts payable
|
$ | 59.7 | — | $ | 59.7 | |||||||
|
Other accounts payable
|
7.2 | — | 7.2 | |||||||||
|
Accrued expenses
|
22.1 | — | 22.1 | |||||||||
|
Current portion of long-term debt
|
0.6 | — | 0.6 | |||||||||
|
Other current liabilities
|
3.9 | — | 3.9 | |||||||||
|
Total current liabilities
|
93.6 | — | 93.6 | |||||||||
|
Long-term borrowings
|
61.1 | — | 61.1 | |||||||||
|
Accrued severance benefits, net
|
72.4 | — | 72.4 | |||||||||
|
Other non-current liabilities
|
10.5 | — | 10.5 | |||||||||
|
Total liabilities
|
237.6 | 237.6 | ||||||||||
|
Commitments and contingencies
|
||||||||||||
|
Unitholders’ / stockholders’ equity(8)
|
||||||||||||
|
Common units; 375,000,000 units authorized, 307,083,996
issued and outstanding at December 31, 2009, actual,
0 units issued and outstanding at December 31, 2009,
pro forma
|
55.1 | — | — | |||||||||
|
Common
stock; shares
authorized, 0 shares issued and outstanding at
December 31, 2009,
actual, shares
issued and outstanding at December 31, 2009, pro forma
|
— | |||||||||||
|
Additional paid-in capital
|
168.7 | |||||||||||
|
Accumulated deficit
|
(2.0 | ) | — | (2.0 | ) | |||||||
|
Accumulated other comprehensive (loss)
|
(6.2 | ) | — | (6.2 | ) | |||||||
|
Total unitholders’ / stockholders’ equity
|
215.7 | 215.7 | ||||||||||
|
Total liabilities and unitholders’ /
stockholders’ equity
|
$ | 453.3 | $ | 453.3 | ||||||||
49
Table of Contents
Notes to
Unaudited Pro Forma Consolidated Financial Information
(1) To reflect the net change in historical cost of sales
and selling, general and administrative expenses and research
and development expenses of the predecessor company due to the
application of fresh-start accounting as of January 1, 2009
which resulted in a reduction of $13.9 million of tangible
assets and an increase of $28.3 million in intangible
assets. The corresponding change in depreciation and
amortization would have been a decrease in depreciation expense
for tangible assets by $7.4 million for the ten-month
period ended October 25, 2009 and an increase in
amortization expense for intangible assets by $9.1 million
for the same period. The useful lives were determined for each
tangible asset, which are depreciated on a straight-line basis
and range from two to 35 years with a weighted average useful
life of 14 years. Technology and customer relationships are
amortized on a straight-line basis over one-half to five years
based on expected benefit periods. Patents, trademarks and
property use rights are amortized on a straight-line basis over
the periods of benefits for four years. The estimated
useful life of tangibles and intangibles were determined based
on expected benefits
and/or
economic availability for service periods. The aggregate
depreciation and amortization expense was allocated to cost of
sales and selling, general and administrative expenses and
research and development expenses by ($5.4) million,
$0.8 million, and $6.4 million, respectively, in
respect of the purpose of property, plant and equipment and
intangible assets.
(2) To eliminate the one-time impact on cost of sales
associated with the step up of our inventory of
$17.9 million, of which $17.2 million was charged to
cost of sales during the two-month period ended
December 31, 2009, applying the first in, first out method,
or FIFO. This adjustment is considered a material non-recurring
adjustment and as such is being eliminated from the unaudited
pro forma statements of operations.
(3) To eliminate interest expense of $21.6 million
incurred on our notes of $750.0 million and
$7.2 million incurred on the senior secured credit facility
of $95.0 million which was recognized in the ten-month
period ended October 25, 2009. This adjustment further
eliminates the amortized debt issuance cost of $0.8 million
in relation to this indebtedness which was also recognized in
the ten-month period ended October 25, 2009. In addition,
the pro forma adjustment assumes the outstanding new term loan
of $61.8 million was outstanding as of January 1,
2009. The resulting additional interest expense from our new
term loan would have been $6.6 million using the interest
rate of 12.6%, which represents the 6 month LIBOR rate of
0.6% as of October 26, 2009, the date of our emergence from
bankruptcy plus 12%. If interest rates were one eighth of a
percentage point higher or lower, our pro forma interest expense
would have increased or decreased respectively by
$0.03 million for the ten-month period ended
October 25, 2009.
(4) To reflect the elimination of the impact of the
reorganization items, net recorded in the predecessor period in
accordance with ASC 852 upon emergence from the
reorganization proceedings, assumed to have occurred
January 1, 2009 for the unaudited pro forma statement of
operations. As such no adjustment for reorganization items
should be reflected.
(5) We believe that the pro forma adjustments should not
have an impact on income tax expense for 2009 due to our foreign
subsidiary losses and because MagnaChip Semiconductor
Corporation, as converted, would not have had taxable income
during 2009. With respect to taxable periods after 2009,
MagnaChip Semiconductor Corporation’s corporate status may
result in U.S. federal income tax expense.
(6) To eliminate dividends accrued on preferred units,
cancelled in connection with our emergence from reorganization
proceedings, in the amount of $6.3 million as of
October 25, 2009.
(7) Basic and diluted pro forma income per share reflects
(a) the consummation of the corporate conversion of
MagnaChip Semiconductor LLC and the effectiveness of our
certificate of incorporation, which is expected to occur prior
to the closing of this offering and (b) the automatic
conversion of all of the outstanding common units of MagnaChip
Semiconductor LLC for shares of our common stock
50
Table of Contents
at a ratio
of .
The following table sets forth the computation of unaudited pro
forma basic and diluted income per share:
|
Year Ended |
||||||||
| December 31, 2009 | ||||||||
|
Earnings |
||||||||
|
Common Units/ |
per Common |
|||||||
|
Shares
|
Unit/Share
|
|||||||
|
Weighted average common units — basic and diluted
|
307,083,996 | $ | ||||||
|
Pro forma weighted average shares — basic and diluted
|
$ | |||||||
(8) To reflect the change in the capitalization structure
of MagnaChip Semiconductor LLC upon its conversion to a
corporation by an automatic conversion of all of the outstanding
common units of MagnaChip Semiconductor LLC for shares of our
common stock at a ratio
of ,
upon the corporate conversion.
51
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the “Selected Historical Consolidated
Financial and Operating Data” and our consolidated
financial statements and the related notes included elsewhere in
this prospectus. This discussion and analysis contains, in
addition to historical information, forward-looking statements
that include risks and uncertainties. Our actual results may
differ materially from those anticipated in these
forward-looking statements as a result of certain factors,
including those set forth under the heading “Risk
Factors” and elsewhere in this prospectus.
Overview
We are a Korea-based designer and manufacturer of analog and
mixed-signal semiconductor products for high-volume consumer
applications. We believe we have one of the broadest and deepest
analog and mixed-signal semiconductor technology platforms in
the industry, supported by our
30-year
operating history, large portfolio of approximately 3,600 novel
registered and pending patents and extensive engineering and
manufacturing process expertise. Our business is comprised of
three key segments: Display Solutions, Power Solutions and
Semiconductor Manufacturing Services. Our Display Solutions
products include display drivers for use in a wide range of flat
panel displays and multimedia devices. Our Power Solutions
products include discrete and integrated circuit solutions for
power management in high-volume consumer applications. Our
Semiconductor Manufacturing Services segment provides specialty
analog and mixed-signal foundry services for fabless
semiconductor companies that serve the consumer, computing and
wireless end markets.
Our wide variety of analog and mixed-signal semiconductor
products and manufacturing services combined with our deep
technology platform allows us to address multiple high-growth
end markets and to rapidly develop and introduce new products
and services in response to market demands. Our substantial
manufacturing operations in Korea and design centers in Korea
and Japan place us at the core of the global consumer
electronics supply chain. We believe this enables us to quickly
and efficiently respond to our customers’ needs and allows
us to better service and capture additional demand from existing
and new customers.
To maintain and increase our profitability, we must accurately
forecast trends in demand for consumer electronics products that
incorporate semiconductor products we produce. We must
understand our customers’ needs as well the likely end
market trends and demand in the markets they serve. We must
balance the likely manufacturing utilization demand of our
product businesses and foundry business to optimize our
facilities utilization. We must also invest in relevant research
and development activities and manufacturing capacity and
purchase necessary materials on a timely basis to meet our
customers’ demand while maintaining our target margins and
cash flow.
The semiconductor markets in which we participate are highly
competitive. The prices of our products tend to decrease
regularly over their useful lives, and such price decreases can
be significant as new generations of products are introduced by
us or our competitors. We strive to offset the impact of
declining selling prices for existing products through cost
reductions and the introduction of new products that command
selling prices above the average selling price of our existing
products. In addition, we seek to manage our inventories and
manufacturing capacity so as to mitigate the risk of losses from
product obsolescence.
Demand for our products and services is driven primarily by
overall demand for consumer electronics products and can be
adversely affected by periods of weak consumer spending or by
market share losses by our customers. To mitigate the impact of
market volatility on our business, we seek to address market
segments and geographies with higher growth rates than the
overall consumer electronics industry. For example, in recent
years, we have experienced increasing demand from OEMs and
consumers in China and Taiwan relative to overall demand for our
products and
52
Table of Contents
services. We expect to derive a meaningful portion of our growth
from growing demand in such markets. We also expect that new
competitors will emerge in these markets that may place
increased pressure on the pricing for our products and services,
but we believe that we will be able to successfully compete
based upon our higher quality products and services and that the
impact from the increased competition will be more than offset
by increased demand arising from such markets. Further, we
believe we are well-positioned competitively as a result of our
long operating history, existing manufacturing capacity and our
Korea-based operations.
Within our Display Solutions and Power Solutions segments, net
sales are driven by design wins in which we or another company
is selected by an electronics OEM or other potential customer to
supply its demand for a particular product. A customer will
often have more than one supplier designed in to multi-source
components for a particular product line. Once designed in, we
often specify the pricing of a particular product for a set
period of time, with periodic discussions and renegotiations of
pricing with our customers. In any given period, our net sales
depend heavily upon the end-market demand for the goods in which
our products are used, the inventory levels maintained by our
customers and in some cases, allocation of demand for components
for a particular product among selected qualified suppliers.
Within the Semiconductor Manufacturing Services business, net
sales are driven by customers’ decisions on which
manufacturing services provider to use for a particular product.
Most of our semiconductor manufacturing services customers are
fabless and depend upon service providers like us to manufacture
their products. A customer will often have more than one
supplier of manufacturing services; however, they tend to
allocate a majority of manufacturing volume to one of their
suppliers. We strive to be the primary supplier of manufacturing
services to our customers. Once selected as a primary supplier,
we often specify the pricing of a particular service on a per
wafer basis for a set period of time, with periodic discussions
and renegotiations of pricing with our customers. In any given
period, our net sales depend heavily upon the end-market demand
for the goods in which the products we manufacture for customers
are used, the inventory levels maintained by our customers and
in some cases, allocation of demand for manufacturing services
among selected qualified suppliers.
Our products and services require investments in capital
equipment. Analog and mixed-signal manufacturing facilities and
processes are typically distinguished by the design and process
implementation expertise rather than the use of the most
advanced equipment. As a result, our manufacturing base and
strategy does not require substantial investment in leading edge
process equipment, allowing us to utilize our facilities and
equipment over an extended period of time with moderate required
capital investments. Generally, incremental capacity expansions
in our segment of the market result in more moderate industry
capacity expansion as compared to leading edge processes. As a
result, this market, and we, specifically, are less likely to
experience significant industry overcapacity, which can cause
product prices to plunge dramatically. In general, we seek to
invest in manufacturing capacity that can be used for multiple
high-value applications over an extended period of time. We
believe this capital investment strategy enables us to optimize
our capital investments and facilitates deeper and more
diversified product and service offerings.
Our success going forward will depend upon our ability to adapt
to future challenges such as the emergence of new competitors
for our products and services or the consolidation of current
competitors. Additionally, we must innovate to remain ahead of,
or at least rapidly adapt to, technological breakthroughs that
may lead to a significant change in the technology necessary to
deliver our products and services. We believe that our
established relationships and close collaboration with leading
customers, such as LG Display, Sharp, and Samsung, enhance our
visibility into new product opportunities, market and technology
trends and improve our ability to meet these challenges
successfully. In our Semiconductor Manufacturing Services
business, we strive to maintain competitiveness and our position
as a primary manufacturing services provider to our customers by
offering high value added, unique processes, high flexibility
and excellent service.
53
Table of Contents
In connection with the audits of our consolidated financial
statements for the ten-month period ended October 25, 2009
and two-month period ended December 31, 2009, our
independent registered public accounting firm has reported two
control deficiencies which represent a material weakness in our
internal control over financial reporting. The two control
deficiencies that our independent registered public accounting
firm reported to our board of directors (as we then did not have
a separate audit committee), are that we do not have a
sufficient number of financial personnel with requisite
financial accounting experience, and that our internal controls
over non-routine transactions are not effective to ensure that
accounting considerations are identified and appropriately
recorded.
Recent Changes
to Our Business
Beginning in the second half of 2008, we began to take steps to
refocus our business strategy, enhance our operating efficiency
and improve our cash flow and profitability. We restructured our
continuing operations by reducing our cost structure, increasing
our focus on our core, profitable technologies, products and
customers, and implemented various initiatives to lower our
manufacturing costs and improve our gross margins. In connection
with these initiatives, we closed our Imaging Solutions business
segment, which had been a source of substantial ongoing
operating losses amounting to $91.5 million and
$51.7 million in 2008 and 2007, respectively, and which
required substantial ongoing capital investment. Our employee
headcount has declined from 3,648 as of the end of July 2008 to
3,156 at the end of 2009.
On June 12, 2009, we filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in
order to address the growing demands on our cash flow resulting
from our long-term indebtedness. Our plan of reorganization went
effective and we emerged from the reorganization proceeding on
November 9, 2009. As a result of the plan of
reorganization, our indebtedness was reduced from
$845.0 million immediately prior to the effectiveness of
our plan of reorganization to $61.8 million as of
December 31, 2009.
During the first half of 2009, we instituted company-wide salary
reductions, which resulted in one-time savings for our
continuing operations during 2009 and which in turn contributed
to the decrease in salaries and related expenses in 2009
relative to 2008. We reinstated salaries to prior levels in July
2009.
In connection with our emergence from reorganization
proceedings, we implemented fresh-start accounting in accordance
with ASC 852 governing reorganizations. We elected to adopt
a convenience date of October 25, 2009 (a month end for our
financial reporting purposes) for application of fresh-start
accounting. In accordance with ASC 852 governing
reorganizations, we recorded largely non-cash reorganization
income and expense items directly associated with our
reorganization proceedings including professional fees, the
revaluation of assets, the effects of our reorganization plan
and fresh-start accounting, and write-off of debt issuance costs.
In implementing fresh-start accounting, we re-measured our asset
values and stated all liabilities, other than deferred taxes and
severance benefits, at fair value or at the present values of
the amounts to be paid using appropriate market interest rates.
Our reorganization value was determined based on consideration
of numerous factors and various valuation methodologies,
including discounted cash flows, believed by management and our
financial advisors to be representative of our business and
industry. Information regarding the determination of the
reorganization value and application of fresh-start accounting
is included in note 3 to the consolidated financial
statements of MagnaChip Semiconductor LLC for the ten
months ended October 25, 2009 and the two months ended
December 31, 2009 included elsewhere in this prospectus. In
addition, under fresh-start accounting, accumulated deficit and
accumulated other comprehensive income were eliminated.
Under fresh-start accounting, our inventory, net, and intangible
assets, net, increased by $17.9 million and
$28.3 million, respectively, and property, plant and
equipment decreased by
54
Table of Contents
$13.9 million, in each case to reflect the estimated fair
value as of our emergence from our reorganization proceedings.
As a result, our cost of sales for the two-month period ended
December 31, 2009 included approximately $17.2 million
of additional costs from the inventory step-up. This resulted in
our gross margin for the two-month period ended
December 31, 2009 being significantly lower than for the
ten-month period ended October 25, 2009 and prior periods.
The increase in intangible assets results in higher amortization
expenses following our emergence from our reorganization
proceedings which are included in cost of sales, selling general
and administrative expenses and research and development
expenses. The decrease in property and plant and equipment
results in lower depreciation expenses, which are included in
cost of sales, selling general and administrative expenses and
research and development expenses following our emergence from
our reorganization proceedings.
As a result of the application of fresh-start accounting, our
consolidated financial statements prior to and including
October 25, 2009 represent the operations of our
pre-reorganization predecessor company and are presented
separately from the consolidated financial statements of our
post-reorganization successor company. For the purposes of our
discussion and analysis of our results of operations, we often
refer to results of operations for 2009 on a combined basis,
including both the period before (predecessor company) and after
(successor company) effectiveness of the plan of reorganization.
We believe this comparison provides useful information as the
principal impact of the plan of reorganization was on our debt
and capital structure and not on our core operations; and many
of the steps taken to improve our core operations had commenced
prior to the commencement of our reorganization proceedings.
Business
Segments
We report in three separate business segments because we derive
our revenues from three principal business lines: Display
Solutions, Power Solutions, and Semiconductor Manufacturing
Services. We have identified these segments based on how we
allocate resources and assess our performance.
| • | Display Solutions: Our Display Solutions products include source and gate drivers and timing controllers that cover a wide range of flat panel displays used in LCD televisions and LED televisions and displays, mobile PCs and mobile communications and entertainment devices. Our display solutions support the industry’s most advanced display technologies, such as LTPS and AMOLED, as well as high-volume display technologies such as TFT. | |
| • | Power Solutions: Our Power Solutions segment produces power management semiconductor products including discrete and integrated circuit solutions for power management in high-volume consumer applications. These products include MOSFETs, LED drivers, DC-DC converters, analog switches and linear regulators, such as low-dropout regulators, or LDOs. Our power solutions products are designed for applications such as mobile phones, LCD televisions, and desktop computers, and allow electronics manufacturers to achieve specific design goals of high efficiency and low standby power consumption. Going forward, we expect to continue to expand our power management product portfolio. | |
| • | Semiconductor Manufacturing Services: Our Semiconductor Manufacturing Services segment provides specialty analog and mixed-signal foundry services to fabless semiconductor companies that serve the consumer, computing and wireless end markets. We manufacture wafers based on our customers’ product designs. We do not market these products directly to end customers but rather supply manufactured wafers and products to our customers to market to their end customers. We offer approximately 200 process flows to our manufacturing services customers. We also often partner with key customers to jointly develop or customize specialized processes that enable our customers to improve their products and allow us to develop unique manufacturing expertise. Our manufacturing services are targeted at customers who require differentiated, specialty analog and mixed-signal process technologies |
55
Table of Contents
| such as high voltage CMOS, embedded memory and power. These customers typically serve high-growth and high-volume applications in the consumer, computing and wireless end markets. |
Additional
Business Metrics Evaluated by Management
Adjusted
EBITDA and Adjusted Net Income
We use the terms Adjusted EBITDA and Adjusted Net Income
throughout this prospectus. Adjusted EBITDA, as we define it, is
a non-GAAP measure. We define Adjusted EBITDA as net income
(loss) less income (loss) from discontinued operations, net of
taxes excluding (i) depreciation and amortization
associated with continuing operations, (ii) interest
expense, net, (iii) income tax expense,
(iv) restructuring and impairment charges, (v) other
restructuring charges, (vi) abandoned IPO expenses,
(vii) subcontractor claim settlement,
(viii) reorganization items, net, (ix) the increase in
cost of sales resulting from the fresh-start inventory
accounting
step-up,
(x) equity-based compensation expense, and
(xi) foreign currency gain (loss), net. We define Adjusted
Net Income as net income (loss) less income (loss) from
discontinued operations, net of taxes excluding
(i) restructuring and impairment charges, (ii) other
restructuring charges, (iii) reorganization items, net,
(iv) the increase in cost of sales resulting from the
fresh-start inventory accounting
step-up,
(v) equity-based compensation expense,
(vi) amortization of intangibles, and (vii) foreign
currency gain (loss).
We present Adjusted EBITDA as a supplemental measure of our
performance because:
| • | Adjusted EBITDA eliminates the impact of a number of items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance; | |
| • | we believe that Adjusted EBITDA is an enterprise level performance measure commonly reported and widely used by analysts and investors in our industry; | |
| • | we anticipate that our investor and analyst presentations after we are public will include Adjusted EBITDA; and | |
| • | we believe that Adjusted EBITDA provides investors with a more consistent measurement of period to period performance of our core operations, as well as a comparison of our operating performance to companies in our industry. |
We use Adjusted Net Income for a number of reasons, including:
| • | we use Adjusted Net Income in communications with our board of directors concerning our consolidated financial performance; | |
| • | we believe that Adjusted Net Income is an enterprise level performance measure commonly reported and widely used by analysts and investors in our industry; and | |
| • | we anticipate that our investor and analyst presentations after we are public will include Adjusted Net Income. |
In evaluating Adjusted EBITDA and Adjusted Net Income, you
should be aware that in the future we may incur expenses similar
to the adjustments in our presentation of Adjusted EBITDA. Our
presentation of Adjusted EBITDA and Adjusted Net Income should
not be construed as an inference that our future results will be
unaffected by unusual or non-recurring items. Adjusted EBITDA
and Adjusted Net Income are not measures defined in accordance
with GAAP and should not be construed as an alternative to
operating income, cash flows from operating activities or net
income (loss), as determined in accordance with GAAP. For
additional information regarding how we calculate Adjusted
EBITDA and Adjusted Net Income, please see “Prospectus
Summary — Summary Historical and Unaudited Pro Forma
Consolidated Financial Data.”
On a pro forma basis, our Adjusted EBITDA and Adjusted Net
Income for the year ended December 31, 2009 were
$98.7 million and $53.0 million, respectively. Our
Adjusted EBITDA and Adjusted Net Income for the year ended
December 31, 2008 were $59.8 million and a loss of
56
Table of Contents
$71.7 million, respectively. This improvement resulted from
the appreciation of the Korean won against the U.S. dollar as
described below, our restructuring efforts and improvements in
market conditions.
Factors Affecting
Our Results of Operations
Net Sales. We derive a majority of our
sales (net of sales returns and allowances) from three
reportable segments: Display Solutions, Power Solutions and
Semiconductor Manufacturing Services. Our product inventory is
primarily located in Korea and is available for drop shipment
globally. Outside of Korea, we maintain limited product
inventory, and our sales representatives generally relay orders
to our factories in Korea for fulfillment. We have strategically
located our sales and technical support offices near
concentrations of major customers. Our sales offices are located
in Hong Kong, Japan, Korea, Taiwan, China, the United Kingdom
and the United States. Our network of authorized agents and
distributors consists of agents in the United States and Europe
and distributors and agents in the Asia Pacific region. Our net
sales from All other consist principally of rental income and,
for 2007 and to a limited extent in 2008, semiconductor
processing services for one customer where we completed a
limited number of process steps, rather than the entire
production process, which we refer to as unit processing.
We recognize revenue when risk and reward of ownership passes to
the customer either upon shipment, upon product delivery at the
customer’s location or upon customer acceptance, depending
on the terms of the arrangement. For the year ended
December 31, 2009, we sold products to over 185 customers,
and our net sales to our ten largest customers represented
approximately 69% of our aggregate 2009 net sales. We have
a combined production capacity of over 131,000 eight-inch
equivalent semiconductor wafers per month. We believe our
large-scale, cost-effective fabrication facilities enable us to
rapidly adjust our production levels to meet shifts in demand by
our end customers.
Gross Profit. Our overall gross profit
generally fluctuates as a result of changes in overall sales
volumes and in the average selling prices of our products and
services. Other factors that influence our gross profit include
changes in product mix, the introduction of new products and
services and subsequent generations of existing products and
services, shifts in the utilization of our manufacturing
facilities and the yields achieved by our manufacturing
operations, changes in material, labor and other manufacturing
costs and variation in depreciation expense.
Average Selling Prices. Average selling
prices for our products tend to be highest at the time of
introduction of new products which utilize the latest technology
and tend to decrease over time as such products mature in the
market and are replaced by next generation products. We strive
to offset the impact of declining selling prices for existing
products through our product development activities and by
introducing new products that command selling prices above the
average selling price of our existing products. In addition, we
seek to manage our inventories and manufacturing capacity so as
to preclude losses from product and productive capacity
obsolescence.
Material Costs. Our cost of sales
consists of costs of raw materials, such as silicon wafers,
chemicals, gases and tape, packaging supplies, equipment
maintenance and depreciation expenses. We use processes that
require specialized raw materials, such as silicon wafers, that
are generally available from a limited number of suppliers. If
demand increases or supplies decrease, the costs of our raw
materials could significantly increase.
Labor Costs. A significant portion of
our employees are located in Korea. Under Korean labor laws,
most employees and certain executive officers with one or more
years of service are entitled to severance benefits upon the
termination of their employment based on their length of service
and rate of pay. As of December 31, 2009, approximately 98%
of our employees were eligible for severance benefits. We have
in the past implemented temporary reductions in salaries to
manage through downturns in the industry. We expect to and have
reversed such temporary reductions when business conditions
improve.
57
Table of Contents
Depreciation Expense. We periodically
evaluate the carrying values of long-lived assets, including
property, plant and equipment and intangible assets, as well as
the related depreciation periods. At December 31, 2009, we
depreciated our property, plant and equipment using the
straight-line method over the estimated useful lives of our
assets. Depreciation rates vary from
30-40 years
on buildings to five years for certain equipment and assets. Our
evaluation of carrying values is based on various analyses
including cash flow and profitability projections. If our
projections indicate that future undiscounted cash flows are not
sufficient to recover the carrying values of the related
long-lived assets, the carrying value of the assets is impaired
and will be reduced, with the reduction charged to expense so
that the carrying value is equal to fair value.
Selling Expenses. We sell our products
worldwide through a direct sales force as well as a network of
sales agents and representatives to OEMs, including major
branded customers and contract manufacturers, and indirectly
through distributors. Selling expenses consist primarily of the
personnel costs for the members of our direct sales force, a
network of sales representatives and other costs of
distribution. Personnel costs include base salary, benefits and
incentive compensation. As incentive compensation is tied to
various net sales goals, it will increase or decrease with net
sales.
General and Administrative
Expenses. General and administrative expenses
consist of the costs of various corporate operations, including
finance, legal, human resources and other administrative
functions. These expenses primarily consist of payroll-related
expenses, consulting and other professional fees and office
facility-related expenses. Historically, our selling, general
and administrative expenses have remained relatively constant as
a percentage of net sales, and we expect this trend to continue
in the future.
Research and Development. The rapid
technological change and product obsolescence that characterize
our industry require us to make continuous investments in
research and development. Product development time frames vary
but, in general, we incur research and development costs one to
two years before generating sales from the associated new
products. These expenses include personnel costs for members of
our engineering workforce, cost of photomasks, silicon wafers
and other non-recurring engineering charges related to product
design. Additionally, we develop base-line process technology
through experimentation and through the design and use of
characterization wafers that help achieve commercially feasible
yields for new products. The majority of research and
development expenses are for process development that serves as
a common technology platform for all of our product segments.
Consequently, we do not allocate these expenses to individual
segments. Although our research and development expenses
declined significantly from 2008 to 2009, we expect such
expenses to increase in 2010 and future periods and to remain a
relatively constant percentage of our net sales as we continue
to increase our investments in research and development to
develop additional products and expand our business.
Restructuring and Impairment
Charges. We evaluate the recoverability of
certain long-lived assets on a periodic basis or whenever events
or changes in circumstances indicate that the carrying value may
not be recoverable. In our efforts to improve our overall
profitability in future periods, we have closed or otherwise
impaired, and may in the future close or impair, facilities that
are underutilized and that are no longer aligned with our
long-term business goals. For example, in 2007 we closed our
five-inch fabrication facilities in Gumi, Korea and in 2008 we
discontinued our Imaging Solutions business segment.
Interest Expense, Net. Our interest
expense is incurred under the Predecessor Company’s senior
secured credit facility, the Predecessor Company’s second
priority senior secured notes and senior subordinated notes and
the Successor Company’s new term loan under the Successor
Company. Our new term loan bears interest at six-month LIBOR
plus 12%, and was minimally offset by interest income on cash
balances. As a result of our reorganization, we expect that our
interest expense will decrease in amount and as a percentage of
net sales relative to historical periods.
58
Table of Contents
Impact of Foreign Currency Exchange Rates on Reported
Results of Operations. Historically, a
portion of our revenues and greater than the majority of our
operating expenses and costs of sales have been denominated in
non-U.S. currencies,
principally the Korean won, and we expect that this will remain
true in the future. Because we report our results of operations
in U.S. dollars, changes in the exchange rate between the
Korean won and the U.S. dollar could materially impact our
reported results of operations and distort period to period
comparisons. In particular, because of the difference in the
amount of our consolidated revenues and expenses that are in
U.S. dollars relative to Korean won, depreciation in the
U.S. dollar relative to the Korean won could result in a
material increase in reported costs relative to revenues, and
therefore could cause our profit margins and operating income
(loss) from continuing operations to appear to decline
materially, particularly relative to prior periods. The converse
is true if the U.S. dollar were to appreciate relative to
the Korean won. As a result of such foreign currency
fluctuations, it could be more difficult to detect underlying
trends in our business and results of operations. In addition,
to the extent that fluctuations in currency exchange rates cause
our results of operations to differ from our expectations or the
expectations of our investors, the trading price of our stock
could be adversely affected.
For periods ending on or prior to October 25, 2009, we
converted our
non-U.S. revenues
and expenses into U.S. dollars based on cumulative average
exchange rates over the periods presented. Beginning on
October 25, 2009, we convert our
non-U.S. revenues
and expenses into U.S. dollars based on monthly average
exchange rates. The following table provides the cumulative
average exchange rates that we used to convert Korean won into
U.S. dollars for each of the periods ending on our prior to
October 25, 2009, as well as the monthly average exchange
rates used for the two months ended December 31, 2009:
|
Period
|
Rate | |||
|
Year ended December 31, 2007
|
928:1 | |||
|
Year ended December 31, 2008
|
1,098:1 | |||
|
Ten months ended October 25, 2009
|
1,302:1 | |||
|
Two months ended December 31, 2009
|
||||
|
November
|
1,172:1 | |||
|
December
|
1,165:1 | |||
As a result of the depreciation of the Korean won against the
U.S. dollar from 2007 to 2008 and from 2008 to 2009,
foreign currency fluctuations generally had a materially
beneficial impact on our reported profit margins and operating
income (loss) from continuing operations for such periods.
From time to time, we may engage in exchange rate hedging
activities in an effort to mitigate the impact of exchange rate
fluctuations. For example, in January 2010 our Korean subsidiary
entered into foreign currency option and forward contracts in
order to mitigate a portion of the impact of
U.S. dollar-Korean won exchange rate fluctuations on our
operating results. These option and forward contracts require us
to sell specified notional amounts in U.S. dollars and
provide us the option to sell specified notional amounts in
U.S. dollars during each month of 2010 commencing February
2010 to our counterparty, in each case, in exchange for Korean
won at specified fixed exchange rates. Obligations under these
foreign currency option and forward contracts must be cash
collateralized if our exposure exceeds certain specified
thresholds. These option and forward contracts may be terminated
by the counterparty in a number of circumstances, including if
our long-term debt rating falls below B-/B3 or if our total cash
and cash equivalents is less than $12.5 million at the end
of a fiscal quarter. For further information regarding the
derivative financial instruments, see note 27 to the
consolidated financial statements of MagnaChip Semiconductor LLC
for the ten-month period ended October 25, 2009 and the
two-month period ended December 31, 2009 elsewhere in this
prospectus.
Foreign Currency Gain or Loss. Foreign
currency translation gains or losses on transactions by us or
our subsidiaries in a currency other than our or our
subsidiaries’ functional currency are
59
Table of Contents
included in our statements of operations as a component of other
income (expense). A substantial portion of this net foreign
currency gain or loss relates to non-cash translation gain or
loss related to the principal balance of intercompany borrowings
at our Korean subsidiary that are denominated in
U.S. dollars. This gain or loss results from fluctuations
in the exchange rate between the Korean won and U.S. dollar.
Income Taxes. We record our income
taxes in each of the tax jurisdictions in which we operate. This
process involves using an asset and liability approach whereby
deferred tax assets and liabilities are recorded for differences
in the financial reporting bases and tax bases of our assets and
liabilities. We exercise significant management judgment in
determining our provision for income taxes, deferred tax assets
and liabilities. We periodically evaluate our deferred tax
assets to ascertain whether it is more likely than not that the
deferred tax assets will be realized. Our income tax expense has
been low in absolute dollars and as a percentage of net sales
principally due to the availability of tax loss carry-forwards
and we expect such rate to remain low for at least the next few
years.
Our operations are subject to income and transaction taxes in
Korea and in multiple foreign jurisdictions. Significant
estimates and judgments are required in determining our
worldwide provision for income taxes. Some of these estimates
are based on interpretations of existing tax laws or
regulations. The ultimate amount of tax liability may be
uncertain as a result.
Capital Expenditures. We invest in
manufacturing equipment, software design tools and other
tangible and intangible assets for capacity expansion and
technology improvement. Capacity expansions and technology
improvements typically occur in anticipation of seasonal
increases in demand. We typically pay for capital expenditures
in partial installments with portions due on order, delivery and
final acceptance.
Inventories. We monitor our inventory
levels in light of product development changes and market
expectations. We may be required to take additional charges for
quantities in excess of demand, cost in excess of market value
and product age. Our analysis may take into consideration
historical usage, expected demand, anticipated sales price, new
product development schedules, the effect new products might
have on the sales of existing products, product age, customer
design activity, customer concentration and other factors. These
forecasts require us to estimate our ability to predict demand
for current and future products and compare those estimates with
our current inventory levels and inventory purchase commitments.
Our forecasts for our inventory may differ from actual inventory
use.
Principles of Consolidation. Our
consolidated financial statements include the accounts of our
company and our wholly-owned subsidiaries. All significant
intercompany transactions and balances are eliminated in
consolidation.
Segments. We operate in three segments:
Display Solutions, Power Solutions and Semiconductor
Manufacturing Services. Our Power Solutions segment began to
generate net sales in the second quarter of 2008. Net sales and
gross profit for the All other category primarily relate to
certain business activities that do not constitute operating or
reportable segments.
60
Table of Contents
Results of
Operations
The following table sets forth, for the periods indicated,
certain information related to our operations, expressed in
U.S. dollars and as a percentage of our net sales:
|
Successor |
Predecessor Company | ||||||||||||||||||||||||||||||||
| Company |
Ten-Month |
||||||||||||||||||||||||||||||||
|
Two-Month |
Period |
||||||||||||||||||||||||||||||||
|
Period |
Ended |
Years Ended |
|||||||||||||||||||||||||||||||
|
Ended December 31, |
October 25, |
December 31, | |||||||||||||||||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | ||||||||||||||||||||||||||||||
|
%of |
%of |
%of |
%of |
||||||||||||||||||||||||||||||
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
net sales
|
||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||
|
Consolidated statements of operations data:
|
|||||||||||||||||||||||||||||||||
|
Net sales
|
$ | 111.1 | 100.0 | % | $ | 449.0 | 100.0 | % | $ | 601.7 | 100.0 | % | $ | 709.5 | 100.0 | % | |||||||||||||||||
|
Cost of sales
|
90.4 | 81.4 | 311.1 | 69.3 | 445.3 | 74.0 | 578.9 | 81.6 | |||||||||||||||||||||||||
|
Gross profit
|
20.7 | 18.6 | 137.8 | 30.7 | 156.4 | 26.0 | 130.7 | 18.4 | |||||||||||||||||||||||||
|
Selling, general and administrative expenses
|
14.5 | 13.1 | 56.3 | 12.5 | 81.3 | 13.5 | 82.7 | 11.7 | |||||||||||||||||||||||||
|
Research and development expenses
|
14.7 | 13.3 | 56.1 | 12.5 | 89.5 | 14.9 | 90.8 | 12.8 | |||||||||||||||||||||||||
|
Restructuring and impairment charges
|
— | — | 0.4 | 0.1 | 13.4 | 2.2 | 12.1 | 1.7 | |||||||||||||||||||||||||
|
Operating income (loss) from continuing operations
|
(8.6 | ) | (7.7 | ) | 25.0 | 5.6 | (27.7 | ) | (4.6 | ) | (54.9 | ) | (7.7 | ) | |||||||||||||||||||
|
Interest expense, net
|
1.3 | 1.1 | 31.2 | 6.9 | 76.1 | 12.7 | 60.3 | 8.5 | |||||||||||||||||||||||||
|
Foreign currency gain (loss), net
|
9.3 | 8.4 | 43.4 | 9.7 | (210.4 | ) | (35.0 | ) | (4.7 | ) | (0.7 | ) | |||||||||||||||||||||
|
Reorganization items, net
|
— | — | 804.6 | 179.2 | — | — | — | — | |||||||||||||||||||||||||
| 8.1 | 7.3 | 816.8 | 181.9 | (286.5 | ) | (47.6 | ) | (65.0 | ) | (9.2 | ) | ||||||||||||||||||||||
|
Income (loss) continuing operations before income taxes
|
(0.5 | ) | (0.5 | ) | 841.8 | 187.5 | (314.3 | ) | (52.2 | ) | (120.0 | ) | (16.9 | ) | |||||||||||||||||||
|
Income tax expenses
|
1.9 | 1.8 | 7.3 | 1.6 | 11.6 | 1.9 | 8.8 | 1.2 | |||||||||||||||||||||||||
|
Income (loss) from continuing operations
|
(2.5 | ) | (2.2 | ) | 834.5 | 185.9 | (325.8 | ) | (54.2 | ) | (128.8 | ) | (18.2 | ) | |||||||||||||||||||
|
Income (loss) from discontinued operations, net of taxes
|
0.5 | 0.5 | 6.6 | 1.5 | (91.5 | ) | (15.2 | ) | (51.7 | ) | (7.3 | ) | |||||||||||||||||||||
|
Net income (loss)
|
$ | (2.0 | ) | (1.8 | )% | $ | 841.1 | 187.3 | % | $ | (417.3 | ) | (69.4 | )% | $ | (180.6 | ) | (25.4 | )% | ||||||||||||||
|
Net Sales:
|
|||||||||||||||||||||||||||||||||
|
Display Solutions
|
$ | 51.0 | 46.0 | % | $ | 231.9 | 51.6 | % | $ | 304.1 | 50.5 | % | $ | 331.7 | 46.7 | % | |||||||||||||||||
|
Power Solutions
|
4.7 | 4.3 | 7.6 | 1.7 | 5.4 | 0.9 | — | — | |||||||||||||||||||||||||
|
Semiconductor Manufacturing Services
|
54.8 | 49.3 | 206.7 | 46.0 | 287.1 | 47.7 | 321.0 | 45.2 | |||||||||||||||||||||||||
|
All other
|
0.5 | 0.5 | 2.8 | 0.6 | 5.0 | 0.8 | 56.8 | 8.0 | |||||||||||||||||||||||||
| $ | 111.1 | 100.0 | % | $ | 449.0 | 100.0 | % | $ | 601.7 | 100.0 | % | $ | 709.5 | 100.0 | % | ||||||||||||||||||
61
Table of Contents
Results of
Operations — Comparison of Years ended
December 31, 2009 and December 31, 2008
The following table sets forth consolidated results of
operations for the two-month period ended December 31,
2009, the ten-month period ended October 25, 2009 and the
year ended December 31, 2008:
|
Successor |
|||||||||||||||||||||||||||||
| Company | Predecessor Company | ||||||||||||||||||||||||||||
|
Two-Month |
Ten-Month |
||||||||||||||||||||||||||||
|
Period |
Period |
Year |
|||||||||||||||||||||||||||
|
Ended |
Ended |
Ended |
|||||||||||||||||||||||||||
|
December 31, |
October 25, |
December 31, |
|||||||||||||||||||||||||||
| 2009 | 2009 | 2008 | |||||||||||||||||||||||||||
|
%of |
%of |
%of |
Change |
||||||||||||||||||||||||||
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
|||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
|
Net sales
|
$ | 111.1 | 100.0 | % | $ | 449.0 | 100.0 | % | $ | 601.7 | 100.0 | % | $ | (41.6 | ) | ||||||||||||||
|
Cost of sales
|
90.4 | 81.4 | 311.1 | 69.3 | 445.3 | 74.0 | (43.7 | ) | |||||||||||||||||||||
|
Gross profit
|
20.7 | 18.6 | 137.8 | 30.7 | 156.4 | 26.0 | 2.1 | ||||||||||||||||||||||
|
Selling, general and administrative expenses
|
14.5 | 13.1 | 56.3 | 12.5 | 81.3 | 13.5 | (10.5 | ) | |||||||||||||||||||||
|
Research and development expenses
|
14.7 | 13.3 | 56.1 | 12.5 | 89.5 | 14.9 | (18.6 | ) | |||||||||||||||||||||
|
Restructuring and impairment charges
|
— | — | 0.4 | 0.1 | 13.4 | 2.2 | (12.9 | ) | |||||||||||||||||||||
|
Operating income (loss) from continuing operations
|
(8.6 | ) | (7.7 | ) | 25.0 | 5.6 | (27.7 | ) | (4.6 | ) | 44.1 | ||||||||||||||||||
|
Interest expense, net
|
1.3 | 1.1 | 31.2 | 6.9 | 76.1 | 12.7 | (43.7 | ) | |||||||||||||||||||||
|
Foreign currency gain (loss), net
|
9.3 | 8.4 | 43.4 | 9.7 | (210.4 | ) | (35.0 | ) | 263.2 | ||||||||||||||||||||
|
Reorganization items, net
|
— | — | 804.6 | 179.2 | — | — | 804.6 | ||||||||||||||||||||||
| 8.1 | 7.3 | 816.8 | 181.9 | (286.5 | ) | (47.6 | ) | 1,111.5 | |||||||||||||||||||||
|
Income (loss) continuing operations before income taxes
|
(0.5 | ) | (0.5 | ) | 841.8 | 187.5 | (314.3 | ) | (52.2 | ) | 1,155.5 | ||||||||||||||||||
|
Income tax expenses
|
1.9 | 1.8 | 7.3 | 1.6 | 11.6 | 1.9 | (2.3 | ) | |||||||||||||||||||||
|
Income (loss) from continuing operations
|
(2.5 | ) | (2.2 | ) | 834.5 | 185.9 | (325.8 | ) | (54.2 | ) | 1,157.9 | ||||||||||||||||||
|
Income (loss) from discontinued operations, net of taxes
|
0.5 | 0.5 | 6.6 | 1.5 | (91.5 | ) | (15.2 | ) | 98.6 | ||||||||||||||||||||
|
Net income (loss)
|
$ | (2.0 | ) | (1.8 | )% | $ | 841.1 | 187.3 | % | $ | (417.3 | ) | (69.4 | )% | $ | 1,256.4 | |||||||||||||
Net
Sales
|
Successor |
|||||||||||||||||||||||||||||
| Company | Predecessor Company | ||||||||||||||||||||||||||||
|
Two-Month |
Ten-Month |
||||||||||||||||||||||||||||
|
Period |
Period |
||||||||||||||||||||||||||||
|
Ended |
Ended |
Year Ended |
|||||||||||||||||||||||||||
|
December 31, |
October 25, |
December 31, |
|||||||||||||||||||||||||||
| 2009 | 2009 | 2008 | |||||||||||||||||||||||||||
|
%of |
%of |
%of |
Change |
||||||||||||||||||||||||||
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
|||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
|
Display Solutions
|
$ | 51.0 | 46.0 | % | $ | 231.9 | 51.6 | % | $ | 304.1 | 50.5 | % | $ | (21.2 | ) | ||||||||||||||
|
Power Solutions
|
4.7 | 4.3 | 7.6 | 1.7 | 5.4 | 0.9 | 6.9 | ||||||||||||||||||||||
|
Semiconductor Manufacturing Services
|
54.8 | 49.3 | 206.7 | 46.0 | 287.1 | 47.7 | (25.7 | ) | |||||||||||||||||||||
|
All other
|
0.5 | 0.5 | 2.8 | 0.6 | 5.0 | 0.8 | (1.7 | ) | |||||||||||||||||||||
| $ | 111.1 | 100.0 | % | $ | 449.0 | 100.0 | % | $ | 601.7 | 100.0 | % | $ | (41.6 | ) | |||||||||||||||
Net sales were $111.1 million for the two-month period
ended December 31, 2009 and $449.0 million for the
ten-month period ended October 25, 2009, or
$560.1 million in aggregate, a
62
Table of Contents
$41.6 million, or 6.9%, decrease, compared to
$601.7 million in 2008. Net sales generated in our three
operating segments during 2009 in aggregate were
$556.7 million, a decrease of $39.9 million, or 6.7%,
from 2008, due to the worldwide economic slowdown that resulted
in lower consumer demand, fewer new customer additions and new
product introductions, fewer design wins and the depreciation of
the Korean won against the U.S. dollar. Among our segments, net
sales decreased for our Display Solutions and our Semiconductor
Manufacturing Service segments which was offset in part by an
increase in net sales from our Power Solutions segment.
Display Solutions. Net sales from
Display Solutions were $51.0 million for the two-month
period ended December 31, 2009 and $231.9 million for
the ten-month period ended October 25, 2009, or
$282.9 million in aggregate, a $21.2 million, or 7.0%,
decrease from $304.1 million for 2008. The decrease
resulted from a 24.9% decrease in average selling prices,
primarily from display driver products for LCD televisions, PC
monitors and mobile devices. The reduction in average selling
prices in 2009 resulted in part from reduced demand for consumer
electronics products generally, and new products in particular,
during the first half of 2009 as a result of the worldwide
economic slowdown. These decreases in average selling prices
were partially offset by a 24.6% increase in sales volume.
Volume increased in the second half of 2009 as the consumer
electronics industry began to recover from the economic slowdown.
Power Solutions. Net sales from Power
Solutions were $4.7 million for the two-month period ended
December 31, 2009 and $7.6 million for the ten-month
period ended October 25, 2009, or $12.4 million in
aggregate, a $6.9 million, or 127.6%, increase from
$5.4 million for 2008. The increase resulted from a 221.3%
increase in sales volume, most of which was attributable to
higher demand for MOSFET products driven by our existing and new
customers. We were able to attract new customers, largely due to
MOSFET products utilized in high voltage technologies and
computing solutions.
Semiconductor Manufacturing
Services. Net sales from Semiconductor
Manufacturing Services were $54.8 million for the two-month
period ended December 31, 2009 and $206.7 million for
the ten-month period ended October 25, 2009, or
$261.4 million in aggregate, a $25.7 million, or 8.9%,
decrease compared to net sales of $287.1 million for 2008.
This decrease was primarily due to a 0.5% decrease in sales
volume and 3.4% decrease in average selling price of eight-inch
equivalent wafers given decreased market demand for such
products.
All other. Net sales from All other
were $0.5 million for the two-month period ended
December 31, 2009 and $2.8 million for the ten-month
period ended October 25, 2009, or $3.3 million in
aggregate compared to $5.0 million for 2008. This decrease
of $1.7 million, or 33.6%, resulted from lower rental
income due to the relocation of one of the lessees of one of our
buildings.
63
Table of Contents
Net Sales by
Geographic Region
The following table sets forth our net sales by geographic
region and the percentage of total net sales represented by each
geographic region for the two-month period ended
December 31, 2009, the ten-month period ended
October 25, 2009 and the year ended December 31, 2008:
|
Successor |
|||||||||||||||||||||||||||||
| Company | Predecessor Company | ||||||||||||||||||||||||||||
|
Two-Month |
Ten-Month |
||||||||||||||||||||||||||||
|
Period |
Period |
||||||||||||||||||||||||||||
|
Ended |
Ended |
Year Ended |
|||||||||||||||||||||||||||
|
December 31, |
October 25, |
December 31, |
|||||||||||||||||||||||||||
| 2009 | 2009 | 2008 | |||||||||||||||||||||||||||
|
%of |
%of |
%of |
Change |
||||||||||||||||||||||||||
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
|||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
|
Korea
|
$ | 62.2 | 56.0 | % | $ | 244.3 | 54.4 | % | $ | 301.0 | 50.0 | % | $ | 5.5 | |||||||||||||||
|
Asia Pacific
|
25.6 | 23.0 | 116.9 | 26.0 | 144.5 | 24.0 | (2.0 | ) | |||||||||||||||||||||
|
Japan
|
6.5 | 5.8 | 31.6 | 7.0 | 79.9 | 13.3 | (41.8 | ) | |||||||||||||||||||||
|
North America
|
14.9 | 13.4 | 48.5 | 10.8 | 61.3 | 10.2 | 2.0 | ||||||||||||||||||||||
|
Europe
|
1.9 | 1.7 | 7.7 | 1.7 | 14.9 | 2.5 | (5.4 | ) | |||||||||||||||||||||
| $ | 111.1 | 100.0 | % | $ | 449.0 | 100.0 | % | $ | 601.7 | 100.0 | % | $ | (41.6 | ) | |||||||||||||||
Net sales in Japan in 2009 declined as a percentage of total net
sales principally as a result of declines in customer sales
relating to electronic games due to the overall slowness in that
market.
Gross
Profit
|
Successor |
|||||||||||||||||||||||||||||
| Company | Predecessor Company | ||||||||||||||||||||||||||||
|
Two-Month |
Ten-Month |
||||||||||||||||||||||||||||
|
Period |
Period |
||||||||||||||||||||||||||||
|
Ended |
Ended |
Year Ended |
|||||||||||||||||||||||||||
|
December 31, |
October 25, |
December 31, |
|||||||||||||||||||||||||||
| 2009 | 2009 | 2008 | |||||||||||||||||||||||||||
|
%of |
%of |
%of |
Change |
||||||||||||||||||||||||||
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
|||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
|
Display Solutions
|
$ | 8.7 | 17.1 | % | $ | 61.8 | 26.6 | % | $ | 57.4 | 18.9 | % | $ | 13.1 | |||||||||||||||
|
Power Solutions
|
0.7 | 15.5 | 1.4 | 18.8 | (4.3 | ) | (78.6 | ) | 6.4 | ||||||||||||||||||||
|
Semiconductor Manufacturing Services
|
10.7 | 19.5 | 71.8 | 34.8 | 98.4 | 34.3 | (15.9 | ) | |||||||||||||||||||||
|
All other
|
0.5 | 100.0 | 2.8 | 100.0 | 4.9 | 97.3 | (1.6 | ) | |||||||||||||||||||||
| $ | 20.7 | 18.6 | % | $ | 137.8 | 30.7 | % | $ | 156.4 | 26.0 | % | $ | 2.1 | ||||||||||||||||
Total gross profit was $20.7 million for the two-month
period ended December 31, 2009 and $137.8 million for
the ten-month period ended October 25, 2009, or
$158.5 million in aggregate as compared to
$156.4 million for 2008, a $2.1 million, or 1.3%,
increase. Gross margin, or gross profit as a percentage of net
sales, in 2009 was 28.3%, an increase of 2.3% from 26.0% for the
year ended December 31, 2008. This increase in gross margin
was attributable to the depreciation of the Korean won against
the U.S. dollar with respect to our costs of sales and an
overall decrease in unit costs. These increases were partially
offset by lower average selling prices and the impact of a $17.2
million increase in our cost of sales as a result of the
write-up of our inventory in accordance with the principles of
fresh-start accounting upon the consummation of our
reorganization proceedings. The decreases in unit costs were
driven by the depreciation of the Korean won against the U.S.
dollar, reduced depreciation expenses, lower overhead costs on a
per unit basis and a decline in materials
64
Table of Contents
prices. Gross margin for the two-month period ended
December 31, 2009 was 18.6% as compared to 30.7% for the
ten-month period ended October 25, 2009. Gross margin was
higher in the ten-month period ended October 25, 2009 compared
to the two-month period ended December 31, 2009 principally due
to a $17.2 million one-time impact on cost of sales which
is recorded in the two-month period ended December 31, 2009
associated with the step up of our inventory as a result of
adoption of fresh-start accounting. As of December 31,
2009, $0.7 million of the total increase in inventory
valuation remained. We expect to include the remaining increase
in inventory valuation in cost of sales for the quarter ending
March 31, 2010. As a result, we expect gross margin in
future periods to return to historical levels, excluding foreign
currency fluctuation impacts.
Display Solutions. Gross margin for
Display Solutions for the combined twelve-month period ended
December 31, 2009 improved to 24.9% compared to 18.9% for
the year ended December 31, 2008 due to the depreciation of
the Korean won against the U.S. dollar, a decrease in unit costs
that resulted from an increase in overall production volume
which offset lower average selling prices and the impact of the
write-up of our inventory in accordance with fresh-start
accounting.
Power Solutions. Gross margin for Power
Solutions for the combined twelve-month period ended
December 31, 2009 improved to 17.5% compared to (78.6)% for
the year ended December 31, 2008 due to the depreciation of
the Korean won against the U.S. dollar, increased volume and
decreases in unit costs offset by the write-up of our inventory
in accordance with fresh-start accounting. Unit cost reductions
were primarily driven by our ability to spread depreciation
expenses over an increased number of units resulting from a
221.3% increase in sales volume. Gross margin was negative in
2008 as we first began operating the segment in late 2007 and
had not yet achieved sales volumes required to generate a
positive gross margin.
Semiconductor Manufacturing
Services. Gross margin for Semiconductor
Manufacturing Services decreased to 31.6% in the combined
twelve-month period ended December 31, 2009 from 34.3% in
the year ended December 31, 2008. This decrease was
primarily due to an overall decrease in production volume and
average selling prices.
All other. Gross margin for All other
for the combined twelve-month period ended December 31,
2009 increased to 100.0% from 97.3% for the year ended
December 31, 2008. All net sales included in All other in
2009 represent rent revenues for which there is no cost of
sales. For 2008, All other included limited revenue from unit
processing which resulted in a gross margin of 97.3%.
Operating
Expenses
Selling, General and Administrative
Expenses. Selling, general, and
administrative expenses were $70.8 million, or 12.6%, of
net sales for the combined twelve-month period ended
December 31, 2009 compared to $81.3 million, or 13.5%,
for 2008. The decrease of $10.5 million, or 12.9%, from the
prior-year period was attributable to the depreciation of the
Korean won against the U.S. dollar, a reduction in headcount and
a short-term decrease in salaries and related expenses in
connection with our cost-reduction efforts in 2009 as well as a
decrease in depreciation and amortization expenses of
$6.5 million. These decreases were partially offset by a
$3.0 million increase in outside service expenses.
Research and Development
Expenses. Research and development expenses
for the combined twelve-month period ended December 31,
2009 were $70.9 million, a decrease of $18.6 million,
or 20.8%, from $89.5 million for the year ended
December 31, 2008. This decrease was due to the
depreciation of the Korean won against the U.S. dollar, a
$5.2 million decrease in salaries and related expenses due
to lower headcount and our short-term decrease in salaries.
Through our cost reduction initiatives, material costs decreased
by $5.3 million and outside service fees decreased by
$3.8 million. The remaining decrease in research and
development expenses was attributable to reductions in various
overhead expenses. Research and development expenses as a
percentage of net sales were 12.7% in 2009, compared to 14.9% in
2008.
65
Table of Contents
Restructuring and Impairment
Charges. Restructuring and impairment charges
decreased by $12.9 million in the combined twelve-month
period ended December 31, 2009 compared to the year ended
December 31, 2008. Restructuring charges of
$0.4 million recorded in the ten-month period ended
October 25, 2009 were related to the closure of one of our
research and development facilities in Japan. Restructuring
charges of $13.4 million for the year ended
December 31, 2008 reflected an impairment charge of
$14.2 million as a result of the significant reduction in
net sales attributable to our Display Solutions products, offset
in part by an $0.9 million reversal of unused accrued
restructuring charges from prior periods.
Other Income
(Expense)
Interest Expense, net. Net interest
expense was $32.4 million during the combined twelve-month
period ended December 31, 2009, a decrease of
$43.7 million compared to $76.1 million for the year
ended December 31, 2008. Interest expense was incurred
under our $750 million principal amount of notes and our
senior secured credit facility. From June 12, 2009, the
date of our initial reorganization filing, to October 25,
2009, we did not accrue interest expenses related to our notes,
which were categorized as liabilities subject to compromise.
Upon our emergence from our reorganization proceedings, our
$750.0 million notes were discharged pursuant to the
reorganization plan. Net interest expense in 2008 included a
write-off of remaining debt issuance costs of $12.3 million
related to our notes since we were not compliant with certain
financial covenants under the terms of our notes and therefore,
amounts outstanding were reclassified as current portion of
long-term debt in our balance sheet as of December 31, 2008.
Foreign Currency Gain (Loss), net. Net
foreign currency gain for the combined twelve-month period ended
December 31, 2009 was $52.8 million, compared to net
foreign exchange loss of $210.4 million for the year ended
December 31, 2008. A substantial portion of our net foreign
currency gain or loss is non-cash translation gain or loss
recorded for intercompany borrowings at our Korean subsidiary
and is affected by changes in the exchange rate between the
Korean won and the U.S. dollar. Foreign currency
translation gain from the intercompany borrowings was included
in determining our consolidated net income since the
intercompany borrowings were not considered long-term
investments in nature because management intended to repay these
intercompany borrowings at their respective maturity dates. The
Korean won to U.S. dollar exchange rates were 1,167.6:1 and
1,262.0:1 using the first base rate as of December 31, 2009
as quoted by the Korea Exchange Bank and the noon buying rate in
effect as of December 31, 2008 as quoted by the Federal
Reserve Bank of New York, respectively. The exchange rate
quotation from the Federal Reserve Bank was available on or
before December 31, 2008.
Reorganization items, net. Net
reorganization gain of $804.6 million in the ten-month
period ended October 25, 2009 represents the impact of
non-cash reorganization income and expense items directly
associated with our reorganization proceedings and primarily
reflects the discharge of liabilities of $798.0 million.
Net reorganization gain also includes professional fees, the
revaluation of assets and the write-off of debt issuance costs.
These items are related primarily to our reorganization
proceedings, and are not the result of our current operations.
Accordingly, we do not expect these items to continue on an
ongoing basis. Further information on reorganization related
items is discussed in note 5 to the consolidated financial
statements of MagnaChip Semiconductor LLC for the ten-month
period ended October 25, 2009 and the two-month period
ended December 31, 2009 included elsewhere in this
prospectus.
Income Tax
Expenses
Income Tax Expenses. Income tax
expenses for the combined twelve-month period ended
December 31, 2009 were $9.2 million, compared to
income tax expenses of $11.6 million for the year ended
December 31, 2008. Income tax expense for 2009 was
comprised of $6.7 million of withholding taxes mostly paid
on intercompany interest payments, $0.8 million of current
income taxes incurred in various jurisdictions in which we
operate and a $1.7 million income tax effect from the change of
66
Table of Contents
deferred tax assets. Due to the uncertainty of the utilization
of foreign tax credits, we did not recognize these withholding
taxes as deferred tax assets.
Income from
discontinued operations, net of tax
Income from discontinued operations, net of
taxes. During 2008, we closed our Imaging
Solutions business segment, recognizing a net loss of
$91.5 million from discontinued operations, of which
$15.9 million was from negative gross margin,
$37.5 million was from research and development cost and
$34.2 million was attributable to restructuring and
impairment charges incurred during the third quarter of 2008.
During the combined twelve-month period ended December 31,
2009, we recognized net income of $7.1 million relating to
our discontinued operations, largely due to the sale of patents
related to our closed Imaging Solutions business segment, which
resulted in a $8.3 million gain.
Results of
Operations — Comparison of Years ended
December 31, 2008 and December 31, 2007
The following table sets forth consolidated results of
operations for the years ended December 31, 2008 and
December 31, 2007:
| Predecessor Company | ||||||||||||||||||||
|
Year Ended |
Year Ended |
|||||||||||||||||||
| December 31, 2008 | December 31, 2007 | |||||||||||||||||||
|
% of |
% of |
Change |
||||||||||||||||||
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Net sales
|
$ | 601.7 | 100.0 | % | $ | 709.5 | 100.0 | % | $ | (107.8 | ) | |||||||||
|
Cost of sales
|
445.3 | 74.0 | 578.9 | 81.6 | (133.6 | ) | ||||||||||||||
|
Gross profit
|
156.4 | 26.0 | 130.7 | 18.4 | 25.8 | |||||||||||||||
|
Selling, general and administrative expenses
|
81.3 | 13.5 | 82.7 | 11.7 | (1.4 | ) | ||||||||||||||
|
Research and development expenses
|
89.5 | 14.9 | 90.8 | 12.8 | (1.4 | ) | ||||||||||||||
|
Restructuring and impairment charges
|
13.4 | 2.2 | 12.1 | 1.7 | 1.3 | |||||||||||||||
|
Operating income (loss) from continuing operations
|
(27.7 | ) | (4.6 | ) | (54.9 | ) | (7.7 | ) | 27.2 | |||||||||||
|
Interest expense, net
|
76.1 | 12.7 | 60.3 | 8.5 | 15.8 | |||||||||||||||
|
Foreign currency gain (loss), net
|
(210.4 | ) | (35.0 | ) | (4.7 | ) | (0.7 | ) | (205.7 | ) | ||||||||||
| (286.5 | ) | (47.6 | ) | (65.0 | ) | (9.2 | ) | (221.5 | ) | |||||||||||
|
Income (loss) continuing operations before income taxes
|
(314.3 | ) | (52.2 | ) | (120.0 | ) | (16.9 | ) | (194.3 | ) | ||||||||||
|
Income tax expenses
|
11.6 | 1.9 | 8.8 | 1.2 | 2.8 | |||||||||||||||
|
Income (loss) from continuing operations,
|
(325.8 | ) | (54.2 | ) | (128.8 | ) | (18.2 | ) | (197.0 | ) | ||||||||||
|
Income (loss) from discontinued operations, net of taxes
|
(91.5 | ) | (15.2 | ) | (51.7 | ) | (7.3 | ) | (39.7 | ) | ||||||||||
|
Net income (loss)
|
$ | (417.3 | ) | (69.4 | )% | $ | (180.6 | ) | (25.4 | )% | $ | (236.7 | ) | |||||||
67
Table of Contents
Net
Sales
| Predecessor Company | ||||||||||||||||||||
|
Year Ended |
Year Ended |
|||||||||||||||||||
|
December 31, |
December 31, |
|||||||||||||||||||
| 2008 | 2007 | |||||||||||||||||||
|
% of |
% of |
Change |
||||||||||||||||||
|
Amount
|
Total
|
Amount
|
total
|
Amount
|
||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Display Solutions
|
$ | 304.1 | 50.5 | % | $ | 331.7 | 46.7 | % | $ | (27.6 | ) | |||||||||
|
Power Solutions
|
5.4 | 0.9 | — | — | 5.4 | |||||||||||||||
|
Semiconductor Manufacturing Services
|
287.1 | 47.7 | 321.0 | 45.2 | (33.9 | ) | ||||||||||||||
|
All other
|
5.0 | 0.8 | 56.8 | 8.0 | (51.8 | ) | ||||||||||||||
| $ | 601.7 | 100.0 | % | $ | 709.5 | 100.0 | % | $ | (107.8 | ) | ||||||||||
Net sales for the year ended December 31, 2008 decreased
$107.8 million, or 15.2%, compared to 2007. Net sales
generated in our three operating segments during the year ended
December 31, 2008 were $596.6 million, a decrease of
$56.1 million, or 8.6%, from the net sales for 2007,
primarily due to a $27.6 million, or 8.3%, decrease in net
sales from our Display Solutions segment and a
$33.9 million, or 10.6%, decrease in net sales from our
Semiconductor Manufacturing Services segment. Net sales from All
other decreased $51.8 million, or 91.2%, compared to the
year ended December 31, 2007. Our Korean-based net sales
were also impacted by the depreciation of the Korean won against
the U.S. dollar.
Display Solutions. Net sales from our
Display Solutions segment for the year ended December 31,
2008 were $304.1 million, a $27.6 million, or 8.3%,
decrease, from $331.7 million for 2007. The decrease
resulted primarily from a 15.6% decline in average selling
prices which was due to a higher percentage of our net sales of
products with lower sales prices.
Power Solutions. Net sales from our
Power Solutions segment for the year ended December 31,
2008 were $5.4 million. No sales occurred for the year
ended December 31, 2007 as our Power Solutions segment was
launched in late 2007 and did not start making sales until 2008.
Semiconductor Manufacturing
Services. Net sales from our Semiconductor
Manufacturing Services segment for the year ended
December 31, 2008 were $287.1 million, a
$33.9 million, or 10.6%, decrease compared to net sales of
$321.0 million for 2007. This decrease was primarily due to
a 5.5% decrease in average selling prices and 3.0% decrease in
sales volume. During the fourth quarter of 2008 our net sales
were adversely impacted by the worldwide economic slowdown.
All other. Net sales from All other for
2008 were $5.0 million compared to $56.8 million for
2007. This decrease of $51.8 million, or 91.2%, represents
the revenue decrease from our unit processing services as such
services were no longer required by our sole customer for the
service.
68
Table of Contents
Net Sales by
Geographic Region
The following table sets forth our net sales by geographic
region and the percentage of total net sales represented by each
geographic region for the years ended December 31, 2008 and
December 31, 2007:
| Predecessor Company | ||||||||||||||||||||
|
Year Ended |
Year Ended |
|||||||||||||||||||
| December 31, 2008 | December 31, 2007 |
Change |
||||||||||||||||||
|
Amount
|
% of Total
|
Amount
|
% of Total
|
Amount
|
||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Korea
|
$ | 301.0 | 50.0 | % | $ | 404.3 | 57.0 | % | (103.3 | ) | ||||||||||
|
Asia Pacific
|
144.5 | 24.0 | 155.5 | 21.9 | (11.0 | ) | ||||||||||||||
|
Japan
|
79.9 | 13.3 | 71.2 | 10.0 | 8.7 | |||||||||||||||
|
North America
|
61.3 | 10.2 | 58.5 | 8.2 | 2.8 | |||||||||||||||
|
Europe
|
14.9 | 2.5 | 20.0 | 2.8 | (5.1 | ) | ||||||||||||||
|
Total net revenues
|
$ | 601.7 | 100.0 | % | $ | 709.5 | 100.0 | % | (107.8 | ) | ||||||||||
Net sales in Korea in 2008 declined as a percentage of total net
sales, principally due to reduced revenue from unit processing
services and the overall slowness in the semiconductor
manufacturing market. The sales were also affected by lower
demand for large display driver products.
Gross
Profit
| Predecessor Company | ||||||||||||||||||||
|
Year Ended |
Year Ended |
|||||||||||||||||||
| December 31, 2008 | December 31, 2007 | |||||||||||||||||||
|
% of |
% of |
Change |
||||||||||||||||||
|
Amount
|
net sales
|
Amount
|
net sales
|
Amount
|
||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Display Solutions
|
$ | 57.4 | 18.9 | % | $ | 41.5 | 12.5 | % | $ | 15.9 | ||||||||||
|
Power Solutions
|
(4.3 | ) | (78.6 | ) | — | — | (4.3 | ) | ||||||||||||
|
Semiconductor Manufacturing Services
|
98.4 | 34.3 | 67.1 | 20.9 | 31.3 | |||||||||||||||
|
All other
|
4.9 | 97.3 | 22.0 | 38.7 | (17.1 | ) | ||||||||||||||
| $ | 156.4 | 26.0 | % | $ | 130.7 | 18.4 | % | $ | 25.8 | |||||||||||
Total gross profit increased $25.8 million for the year
ended December 31, 2008, or 19.7%, compared to the gross
profit generated for the year ended December 31, 2007.
Gross margin for the year ended December 31, 2008 was 26.0%
of net sales, an increase of 7.6% from 18.4% for the year ended
December 31, 2007. This increase in gross margin was
attributable to the depreciation of the Korean won against the
U.S. dollar and an overall decrease in unit costs which offset
lower average sales prices. The decreases in unit costs were
primarily driven by reduced depreciation expenses, lower
overhead costs on a per unit basis and a decline in materials
prices.
Display Solutions. Gross margin for our
Display Solutions segment for the year ended December 31,
2008 increased to 18.9% compared to 12.5% for 2007. This
increase was due to the depreciation of the Korean won against
the U.S. dollar and to a decrease in cost of sales resulting
from an overall decrease in depreciation and amortization
expenses which offset lower average sales prices.
Power Solutions. Gross margin for our
Power Solutions segment for the year ended December 31,
2008 was (78.6)%. This negative gross margin was due to high
fixed production costs
69
Table of Contents
per unit resulting from low production volume as we commenced
sales in our Power Solutions segment in 2008.
Semiconductor Manufacturing
Services. Gross margin for our Semiconductor
Manufacturing Services segment increased to 34.3% in the year
ended December 31, 2008 from 20.9% for 2007. This increase
was due to a decrease in cost of sales, resulting from the
depreciation of the Korean won against the U.S. dollar, an
overall decrease in depreciation and amortization expenses and
an increase in production volume.
All other. Gross margin for All other
for the year ended December 31, 2008 increased to 97.3%
from 38.7% for 2007. The improvement was primarily attributable
to a decrease in sales volume for unit processing while rental
revenue, for which there are no allocated cost of sales,
remained comparable to the prior year.
Operating
Expenses
Selling, General and Administrative
Expenses. Selling, general, and
administrative expenses were $81.3 million, or 13.5%, of
net sales for the year ended December 31, 2008 compared to
$82.7 million, or 11.7%, for 2007. The decrease of
$1.4 million, or 1.7%, was attributable to the depreciation
of the Korean won against the U.S. dollar, a decrease in
salaries, and a decrease in depreciation and amortization
expenses of $6.2 million. These decreases were partially
offset by a $6.9 million increase in outside service fees.
Research and Development
Expenses. Research and development expenses
for the year ended December 31, 2008 were
$89.5 million, a decrease of $1.4 million, or 1.5%,
from $90.8 million for 2007. This decrease was attributable
to the depreciation of the Korean won against the U.S. dollar
and to decreases in overhead expenses.
Restructuring and Impairment
Charges. Restructuring and impairment charges
for the year ended December 31, 2008 included an impairment
charge of $14.2 million related to our Display Solutions
segment. During the three months ended July 1, 2007, we
recognized $2.0 million of restructuring accruals related
to the closure of our five-inch wafer fabrication facilities,
including termination benefits and other associated costs.
Through the first quarter of 2008, actual payments of
$1.1 million were charged against the restructuring
accruals. As of March 30, 2008, the restructuring
activities were substantially completed and we reversed
$0.9 million of unused restructuring accruals.
During the year ended December 31, 2007, we recognized
restructuring and impairment charges of $12.1 million,
which consisted of $10.1 million of impairment charges and
$2.0 million of restructuring charges. The impairment
charges recorded related to the closure of our five-inch wafer
fabrication facility.
Other Income
(Expense)
Interest Expense, net. Net interest
expense was $76.1 million during the year ended
December 31, 2008, compared to $60.3 million for 2007.
Interest expense was incurred to service our notes and our
senior secured credit facility. At December 31, 2008, the
notes and our senior secured credit facility bore interest at a
weighted average interest rate of 7.14% and 7.90%, respectively.
The increase in net interest expense was mainly due to a
write-off of remaining debt issuance costs of $12.3 million
related to our notes as of December 31, 2008 since we were
not in compliance with certain financial covenants under the
terms of our notes and therefore, amounts outstanding were
reclassified as current in our balance sheet as of
December 31, 2008.
Foreign Currency Gain (Loss), net. Net
foreign currency loss for the year ended December 31, 2008
was $210.4 million, compared to net foreign exchange loss
of $4.7 million for the year ended December 31, 2007.
A substantial portion of our net foreign currency gain or loss
is non-cash translation gain or loss recorded for intercompany
borrowings at our Korean subsidiary and is affected by changes
in the exchange rate between the Korean won and the
U.S. dollar. Foreign
70
Table of Contents
currency translation gain from the intercompany borrowings was
included in determining our consolidated net income since the
intercompany borrowings were not considered long-term
investments in nature because management intended to repay these
intercompany borrowings at their respective maturity dates. The
Korean won to U.S. dollar exchange rates were 1,262.0:1 and
935.8:1 using the noon buying rate in effect as of
December 31, 2008 and December 31, 2007, respectively,
as quoted by the Federal Reserve Bank of New York.
Income Tax
Expenses
Income Tax Expenses. Income tax
expenses for the year ended December 31, 2008 were
$11.6 million, compared to income tax expenses of
$8.8 million for 2007. Income tax expenses for 2008 were
comprised of $6.1 million of withholding taxes mostly paid
on intercompany interest payments, $4.0 million of current
income taxes incurred in various jurisdictions in which we
operate and a $1.5 million income tax effect from a change
of deferred tax assets. Due to the uncertainty of the
utilization of foreign tax credits, we did not recognize these
withholding taxes as deferred tax assets.
Loss from
discontinued operations, net of tax
Loss from discontinued operations, net of
taxes. During 2008, we closed our Imaging
Solutions business segment that was classified as a discontinued
operation, recognizing net losses of $91.5 million and
$51.7 million from discontinued operations for 2008 and for
2007, respectively. Of the recorded net loss of
$91.5 million in 2008, $15.9 million was from negative
gross margin, $37.5 million was from research and
development costs and $34.2 million was attributable to
restructuring and impairment charges incurred during the third
quarter of 2008.
Liquidity and
Capital Resources
Our principal capital requirements are to invest in research and
development and capital equipment, to make debt service payments
and to fund working capital needs.
Our principal sources of liquidity are our cash and cash
equivalents, our cash flows from operations and our financing
activities, including a portion of the net proceeds from this
offering. Although we currently anticipate these sources of
liquidity will be sufficient to meet our cash needs through the
next twelve months, we may require or choose to obtain
additional financing. Our ability to obtain financing will
depend, among other things, on our business plans, operating
performance, and the condition of the capital markets at the
time we seek financing. We cannot assure you that additional
financing will be available to us on favorable terms when
required, or at all. If we raise additional funds through the
issuance of equity, equity-linked or debt securities, those
securities may have rights, preferences or privileges senior to
the rights of our common stock, and our stockholders may
experience dilution. If we need to raise additional funds in the
future and are unable to do so or obtain additional financing on
acceptable terms in the future, it is possible we would have to
limit certain planned activities including sales and marketing
and research and development activities. As of December 31,
2009, our cash and cash equivalents balance was
$64.9 million, a $49.1 million increase from
$15.8 million in cash, cash equivalents and restricted cash
as of December 31, 2008. The increase in cash and cash
equivalents for the combined twelve-month period ended
December 31, 2009 was primarily attributable to a cash
inflow of $41.5 million from operating activities, coupled
with a cash inflow of $11.5 million from investing
activities.
Cash Flows
from Operating Activities
Cash flows generated by operating activities totaled
$41.5 million in the combined twelve-month period ended
December 31, 2009, compared to $18.4 million of cash
used in operating activities in 2008. This increase in cash
flows was primarily attributable to income from continuing
operations which improved due to the restructuring of our
operations and our reorganization plan as described
71
Table of Contents
above. The net operating cash inflow for the combined
twelve-month period ended December 31, 2009 principally
reflected our net income of $839.1 million adjusted by
non-cash charges of $799.4 million, which mainly consisted
of non-cash reorganization items derived from our reorganization
plan.
In 2008, cash flows used in operating activities totaled
$18.4 million, compared to $23.7 million in 2007. The
decrease was primarily driven by lower operating results
adjusted by non-cash charges, which mainly consisted of
depreciation and amortization charges and loss on foreign
currency translation.
Our working capital balance as of December 31, 2009 was
$128.5 million, compared to negative $814.5 million as
of December 31, 2008. The significant increase in our
working capital balance was principally due to the discharge of
$750.0 million in debt recorded in current liabilities
resulting from our reorganization plan in 2009 as well as cash
generated from operations and investing activities.
Our working capital balance as of December 31, 2008 was
negative $814.5 million, compared to $55.6 million as
of December 31, 2007. The significant decrease in our
working capital balance was mainly due to the reclassification
of long-term debt to current in 2008. In addition, as a result
of our operating performance in the quarter ended
December 31, 2008, our cash balances, accounts receivable
and inventory were significantly lower as compared to
December 31, 2007.
Cash Flows
from Investing Activities
Cash flows generated by investing activities totaled
$11.5 million in the combined twelve-month period ended
December 31, 2009, compared to $39.6 million of cash
used in investing activities in the 2008. In 2009, we had a
decrease in capital expenditures of $20.5 million from
$29.7 million in 2008 to $9.2 million in the combined
twelve-month period ended December 31, 2009. In 2008, cash
of $11.8 million was restricted pursuant to the terms of a
forbearance agreement in relation to short-term borrowings; in
2009, it was released from restriction in connection with our
reorganization plan. Cash flow from investing activities in 2009
also included cash proceeds of $9.4 million from the sale
of intangible assets.
In 2007, cash flows used in investing activities totaled
$81.8 million, primarily due to capital expenditures of
$86.6 million related to capacity expansion and technology
improvements at a fabrication facility in anticipation of sales
growth in future periods. A significant portion of this capital
investment was originally targeted for use by our discontinued
Imaging Solutions segment and has since been repurposed for the
other segments of our business, allowing us to maintain a
relatively low level of capital investment in 2008 and 2009.
Cash Flows
from Financing Activities
Cash flows provided by financing activities totaled
$2.0 million in the combined twelve-month period ended
December 31, 2009, compared to $14.7 million in 2008.
There were no significant financing activities in 2009 other
than the repayment of short-term borrowings and the issuance of
common units as part of our reorganization in 2009.
During the year ended December 31, 2007, we borrowed
$130.1 million under our senior secured credit facility
which offset repayments under the same facility of
$50.1 million during the same period. At December 31,
2007, we had borrowed $80.0 million under our senior
secured credit facility and had additional letters of credit of
$15.5 million issued under the facility.
Capital
Expenditures
We routinely make capital expenditures to enhance our existing
facilities and reinforce our global research and development
capability.
72
Table of Contents
For the combined twelve-month period ended December 31,
2009, capital expenditures were $9.2 million, a
$20.5 million, or 69.0%, decrease from $29.7 million
in 2008.
For the year ended December 31, 2008, capital expenditures
were $29.7 million, a $56.9 million, or 65.7%,
decrease from $86.6 million in 2007. Significant capital
expenditures in 2007 were used to support capacity expansion and
technology improvements at our fabrication facilities in
anticipation of sales growth in future periods. Since then,
these expenditures have been reduced. This
year-over-year
decrease was a result of managing our capital expenditure timing
in order to better support the growth of our business from new
customers and to optimize asset utilization and return on
capital investments.
Contractual
Obligations
The following summarizes our contractual obligations as of
December 31, 2009:
|
|
|
|
|
|
||||||||||||||||||||||||
| Payments Due by Period | ||||||||||||||||||||||||||||
|
Total
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
|
New term loan(1)(2)
|
$ | 91.6 | $ | 8.5 | $ | 8.4 | $ | 8.3 | $ | 66.4 | $ | — | $ | — | ||||||||||||||
|
Operating lease(3)
|
51.6 | 6.8 | 1.9 | 1.9 | 1.9 | 1.9 | 37.2 | |||||||||||||||||||||
|
Others(4)
|
11.5 | 4.7 | 4.2 | 2.4 | 0.2 | — | — | |||||||||||||||||||||
| (1) | Includes principal as well as interest payments. | |
| (2) | Assumes constant interest rate of 6-month LIBOR + 12% as of December 31, 2009. | |
| (3) | Assumes constant currency exchange rate for Korean won to U.S. dollars of 1,168:1. | |
| (4) | Includes license agreements and other contractual obligations. |
New term loan amounts represent the scheduled maturity of debt
at December 31, 2009, assuming that no early optional
redemptions occur. The amounts presented include mandatory loan
prepayments of $154,000 each quarter from March 31, 2010 to
September 30, 2013. We expect to pay the amounts
outstanding under the new term loan in full upon maturity. Refer
to note 14 to the consolidated financial statements of
MagnaChip Semiconductor LLC for the ten-month period ended
October 25, 2009 and the two-month period ended
December 31, 2009 included elsewhere in this prospectus for
additional information on our debt obligations.
The credit agreement governing the new term loan contains
covenants that limit our ability and that of our subsidiaries to
(i) incur additional indebtedness, (ii) pay dividends
or make other distributions on our capital stock or repurchase,
repay or redeem our capital stock, (iii) make certain
investments, (iv) incur liens, (v) enter into certain
types of transactions with affiliates, (vi) create
restrictions on the payment of dividends or other amounts to us
by our subsidiaries, (vii) sell all or substantially all of
our assets or merge with or into other companies,
(viii) issue specified equity interests, and
(ix) establish, create or acquire any additional
subsidiaries.
We follow ASC guidance on uncertain tax positions. Our
unrecognized tax benefits totaled $2.0 million as of
December 31, 2009. These unrecognized tax benefits have
been excluded from the above table because we cannot estimate
the period of cash settlement with the respective taxing
authorities.
Quantitative and
Qualitative Disclosures about Market Risk
We are exposed to the market risk that the value of a financial
instrument will fluctuate due to changes in market conditions,
primarily from changes in foreign currency exchange rates and
interest rates. In the normal course of our business, we are
subject to market risks associated with interest rate movements
and currency movements on our assets and liabilities.
73
Table of Contents
Foreign
Currency Exposures
We have exposure to foreign currency exchange rate fluctuations
on net income from our subsidiaries denominated in currencies
other than U.S. dollars, as our foreign subsidiaries in
Korea, Taiwan, China, Japan and Hong Kong use local currency as
their functional currency. From time to time these subsidiaries
have cash and financial instruments in local currency. The
amounts held in Japan, Taiwan, Hong Kong and China are not
material in regards to foreign currency movements. However,
based on the cash and financial instruments balance at
December 31, 2009 for our Korean subsidiary, a 10%
devaluation of the Korean won against the U.S. dollar would
have resulted in a decrease of $1.2 million in our
U.S. dollar financial instruments and cash balances. Based
on the Japanese yen cash balance at December 31, 2009, a
10% devaluation of the Japanese yen against the U.S. dollar
would have resulted in a decrease of $0.3 million in our
U.S. dollar cash balance.
Interest Rate
Exposures
Our exposure to interest rate risk relates to interest expenses
incurred by long-term borrowings, including the current portion
of long term debt. The $61.8 million
6-month
LIBOR plus 12% loans under our senior secured credit facility
are subject to changes in fair value due to interest rate
changes. If the interest rate had increased by 10% and all other
variables were held constant from their levels at
December 31, 2009, we estimate that we would have had
additional interest expense costs of $0.8 million (on a
360-day
basis).
Critical
Accounting Policies and Estimates
Preparing financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the
financial statements, the reported amounts of revenues and
expenses during the reporting periods and the related
disclosures in our consolidated financial statements and
accompanying notes.
We believe that our significant accounting policies, which are
described in notes 3 and 4 to the consolidated financial
statements of MagnaChip Semiconductor LLC for the ten-month
period ended October 25, 2009 and the two-month period
ended December 31, 2009 included elsewhere in this
prospectus, are critical due to the fact that they involve a
high degree of judgment and estimates about the effects of
matters that are inherently uncertain. We base these estimates
and judgments on historical experience, knowledge of current
conditions and other assumptions and information that we believe
to be reasonable. Estimates and assumptions about future events
and their effects cannot be determined with certainty.
Accordingly, these estimates may change as new events occur, as
more experience is acquired, as additional information is
obtained and as the business environment in which we operate
changes.
Revenue
Recognition and Accounts Receivable Valuation
Our revenue is primarily derived from the sale of semiconductor
products that we design and the manufacture of semiconductor
wafers for third parties. We recognize revenue when persuasive
evidence of an arrangement exists, the product has been
delivered and title and risk of loss have transferred, the price
is fixed and determinable and collection of resulting
receivables is reasonably assured.
We recognize revenue upon shipment, upon delivery of the product
at the customer’s location or upon customer acceptance
depending on terms of the arrangements, when the risks and
rewards of ownership have passed to the customer. Specialty
semiconductor manufacturing services are performed pursuant to
manufacturing agreements and purchase orders. Standard products
are shipped and sold based upon purchase orders from customers.
All amounts billed to a customer related to shipping and
handling are classified as sales, while all costs incurred by us
for shipping and handling are classified as expenses. We
currently manufacture a substantial portion of our products
internally at our wafer fabrication facilities. In the future,
we expect to rely, to some extent, on outside wafer foundries
for additional capacity and advanced technologies.
74
Table of Contents
We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make
payment. If the financial condition of our customers were to
deteriorate, additional allowances may be required. The
establishment of reserves for sales discounts is based on
management judgments that require significant estimates of a
variety of factors, including forecasted demand, returns and
industry pricing assumptions.
Accrual of
Warranty Cost
We record warranty liabilities for the estimated costs that may
be incurred under limited warranties. Our warranties generally
cover product defects based on compliance with our
specifications and is normally applicable for twelve months from
the date of product delivery. These liabilities are accrued when
revenues are recognized. Warranty costs include the costs to
replace the defective products. Factors that affect our warranty
liability include historical and anticipated rates of warranty
claims on those repairs and the cost per claim to satisfy our
warranty obligations. As these factors are impacted by actual
experience and future expectations, we periodically assess the
adequacy of our recorded warranty liabilities and adjust the
amounts as necessary.
Inventory
Valuation
Inventories are valued at the lower of cost or market, using the
average method, which approximates the first in, first out
method. Because of the cyclical nature of the semiconductor
industry, changes in inventory levels, obsolescence of
technology and product life cycles, we write down inventories to
net realizable value. When there is a difference in the carrying
value and the net realizable value the difference is recognized
as a loss on valuation of inventories within cost of sales. We
estimate the net realizable value for such finished goods and
work-in-progress
based primarily upon the latest invoice prices and current
market conditions.
We employ a variety of methodologies to determine the amount of
inventory reserves necessary. While a portion of the reserve is
determined based upon the age of inventory and lower of cost or
market calculations, an element of the reserve is subject to
significant judgments made by us about future demand for our
inventory. For example, reserves are established for excess
inventory based on inventory levels in excess of six months of
projected demand, as judged by management, for each specific
product. If actual demand for our products is less than our
estimates, additional reserves for existing inventories may need
to be recorded in future periods.
In addition, as prescribed in ASC guidance on inventory costs,
the cost of inventories is determined based on the normal
capacity of each fabrication facility. If the capacity
utilization is lower than a level that management believes to be
normal, the fixed overhead costs per production unit which
exceed those which would be incurred when the fabrication
facilities are running under normal capacity are charged to cost
of sales rather than capitalized as inventories.
Long-Lived
Assets
We assess long-lived assets for impairment when events or
changes in circumstances indicate that the carrying value of the
assets or the asset group may not be recoverable. Factors that
we consider in deciding when to perform an impairment review
include significant under-performance of a business or product
line in relation to expectations, significant negative industry
or economic trends, and significant changes or planned changes
in our use of the assets. Recoverability of assets that will
continue to be used in our operations is measured by comparing
the carrying value of the asset group to our estimate of the
related total future undiscounted net cash flows. If an asset
group’s carrying value is not recoverable through the
related undiscounted cash flows, the asset group is considered
to be impaired. The impairment is measured by the difference
between the asset group’s carrying value and its fair value
determined by either a quoted market price, if any, or a value
determined by utilizing a discounted cash flow technique.
75
Table of Contents
Impairments of long-lived assets are determined for groups of
assets related to the lowest level of identifiable independent
cash flows. We must make subjective judgments in determining the
independent cash flows that can be related to specific asset
groupings. Additionally, an evaluation of impairment of
long-lived assets requires estimates of future operating results
that are used in the preparation of the expected future
undiscounted cash flows. Actual future operating results and the
remaining economic lives of our long-lived assets could differ
from the estimates used in assessing the recoverability of these
assets.
Intangible
Assets
The fair value of our intangible assets was recorded in
connection with fresh-start reporting on October 25, 2009
and was determined based on the present value of each research
project’s projected cash flows using an income approach.
Future cash flows are predominately based on the net income
forecast of each project, consistent with historical pricing,
margins and expense levels of similar products. Revenues are
estimated based on relevant market size and growth factors,
expected industry trends and individual project life cycles. The
resulting cash flows are then discounted at a rate approximating
the Company’s weighted average cost of capital.
In-process research and development, or IPR&D, is
considered an indefinite-lived intangible asset and is not
subject to amortization. IPR&D assets must be tested for
impairment annually or more frequently if events or changes in
circumstances indicate that the assets might be impaired. The
impairment test consists of a comparison of the fair value of
the IPR&D asset with its carrying amount. If the carrying
amount of the IPR&D asset exceeds its fair value, an
impairment loss must be recognized in an amount equal to that
excess. After an impairment loss is recognized, the adjusted
carrying amount of the IPR&D asset will be its new
accounting basis. Subsequent reversal of a previously recognized
impairment loss is prohibited. The initial determination and
subsequent evaluation for impairment of the IPR&D asset
requires management to make significant judgments and estimates.
Once the IPR&D projects have been completed or abandoned,
the useful life of the IPR&D asset is determined and
amortized accordingly.
Technology, customer relationships and intellectual property
assets are considered definite-lived assets and are amortized on
a straight-line basis over their respective useful lives,
ranging from 4 to 10 years.
Income
Taxes
We account for income taxes in accordance with ASC guidance
addressing accounting for income taxes. The guidance requires
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in a company’s financial statements or tax
returns. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial
statement carrying values and the tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense
is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
We regularly review our deferred tax assets for recoverability
considering historical profitability, projected future taxable
income, the expected timing of the reversals of existing
temporary differences and expiration of tax credits and net
operating loss carry-forwards. We established valuation
allowances for deferred tax assets at most of our subsidiaries
since, other than with respect to one particular subsidiary, it
is not probable that a majority of the deferred tax assets will
be realizable. The valuation allowance at this particular
subsidiary was not established since it is more likely than not
that the deferred tax assets at this subsidiary will be
realizable based on the current prospects for its future taxable
income.
76
Table of Contents
Changes in our evaluation of our deferred income tax assets from
period to period could have a significant effect on our net
operating results and financial condition.
In addition, beginning January 1, 2007, we account for
uncertainties related to income taxes in compliance with ASC
guidance on uncertain tax positions. Under this guidance, we
evaluate our tax positions taken or expected to be taken in a
tax return for recognition and measurement on our consolidated
financial statements. Only those tax positions that meet the
“more likely than not” threshold are recognized on the
consolidated financial statements at the largest amount of
benefit that has a greater than 50 percent likelihood of
ultimately being realized. Assumptions, judgment and the use of
estimates are required in determining if the “more likely
than not” standard has been met when developing the
provision for income taxes. A change in the assessment of the
“more likely than not” standard could materially
impact our consolidated financial statements.
Accounting for
Unit-based Compensation
In 2006, we adopted ASC guidance addressing accounting for
unit-based compensation based on a fair value method. Under this
guidance, unit-based compensation cost is estimated at the grant
date based on the fair value of the award and is recognized as
expense over the requisite service period of the award. We use
the Black-Scholes option pricing model to value unit options. In
developing assumptions for fair value calculation under the
guidance, we use estimates based on historical data and market
information. A small change in the assumptions used in the
estimate can cause a relatively significant change in the fair
value calculation.
The determination of the fair value of our common units on each
grant date was a two-step process. First, management estimated
our enterprise value in consultation with such advisers as we
deemed appropriate. Second, this business enterprise value was
allocated to all sources of capital invested in us based on each
type of security’s respective rights and claims to our
total business enterprise value. This allocation included a
calculation of the fair value of our common units on a
non-marketable basis. The business enterprise value was
determined based on an income approach and a market approach
using the revenue multiples of comparable companies, giving
appropriate weight to each approach. The income approach was
based on the discounted cash flow method and an estimated
weighted average cost of capital.
Determination of the fair value of our common units involves
complex and subjective judgments regarding projected financial
and operating results, our unique business risks, the liquidity
of our units and our operating history and prospects at the time
of grant. If we make different judgments or adopt different
assumptions, material differences could result in the amount of
the share-based compensation expenses recorded because the
estimated fair value of the underlying units for the options
granted would be different.
Fresh-Start
Reporting
As required by GAAP, in connection with emergence from
Chapter 11 reorganization proceedings, we adopted the
fresh-start accounting provisions of ASC 852 effective
October 25, 2009. Under ASC 852, the reorganization
value represents the fair value of the entity before considering
liabilities and approximates the amount a willing buyer would
pay for our assets immediately after restructuring. The
reorganization value is allocated to the respective assets.
Liabilities, other than deferred taxes and severance benefits,
are stated at present values of amounts expected to be paid.
Fair values of assets and liabilities represent our best
estimates based on our appraisals and valuations which
incorporated industry data and trends and relevant market rates
and transactions. These estimates and assumptions are inherently
subject to significant uncertainties and contingencies beyond
our reasonable control.
77
Table of Contents
Controls and
Procedures
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and is
effected by the company’s board of directors, management,
and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements in accordance with generally accepted
accounting principles. As a private company we have designed our
internal control over financial reporting to provide reasonable
assurance to our management and board of directors regarding the
preparation and fair presentation of financial statements. As a
public company, under Section 404 of the Sarbanes-Oxley
Act, we will also be required to include a report of management
on our internal control over financial reporting in our Annual
Reports on Form
10-K and the
independent registered public accounting firm auditing our
financial statements must attest to and report on the
effectiveness of our internal control over financial reporting.
This requirement will first apply to our Annual Report on Form
10-K for our
fiscal year ending December 31, 2011. All internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation.
In connection with audits of our consolidated financial
statements for the ten-month period ended October 25, 2009
and two-month period ended December 31, 2009, our
independent registered public accounting firm has reported two
control deficiencies which represent a material weakness in our
internal control over financial reporting. The two control
deficiencies which represent a material weakness that our
independent registered public accounting firm reported to our
board of directors (as we then did not have a separate audit
committee), are that we do not have a sufficient number of
financial personnel with the requisite financial accounting
experience and our controls over non-routine transactions are
not effective to ensure that accounting considerations are
identified and appropriately recorded.
Our management and our board of directors agree that the control
deficiencies identified by our independent registered public
accounting firm represent a material weakness. We have
identified and taken steps intended to remediate this material
weakness. Upon being notified of the material weakness, we
retained the services of an international accounting firm to
temporarily supplement our internal resources. We are also in
the process of recruiting a new director of financial reporting
to replace the supplemental services provided by the
international accounting firm. These actions are subject to
ongoing senior management review, as well as audit committee
oversight. We do not know the specific timeframe needed to
remediate this material weakness. We may incur significant
incremental costs associated with this remediation.
78
Table of Contents
BUSINESS
Our
Business
We are a Korea-based designer and manufacturer of analog and
mixed-signal semiconductor products for high-volume consumer
applications. We believe we have one of the broadest and deepest
analog and mixed-signal semiconductor technology platforms in
the industry, supported by our 30-year operating history, large
portfolio of approximately 3,600 novel registered and pending
patents and extensive engineering and manufacturing process
expertise. Our business is comprised of three key segments:
Display Solutions, Power Solutions and Semiconductor
Manufacturing Services. Our Display Solutions products include
display drivers for use in a wide range of flat panel displays
and mobile multimedia devices. Our Power Solutions products
include discrete and integrated circuit solutions for power
management in high-volume consumer applications. Our
Semiconductor Manufacturing Services segment provides specialty
analog and mixed-signal foundry services for fabless
semiconductor companies that serve the consumer, computing and
wireless end markets.
Our wide variety of analog and mixed-signal semiconductor
products and manufacturing services combined with our deep
technology platform allows us to address multiple high-growth
end markets and to rapidly develop and introduce new products
and services in response to market demands. Our substantial
manufacturing operations in Korea and design centers in Korea
and Japan place us at the core of the global consumer
electronics supply chain. We believe this enables us to quickly
and efficiently respond to our customers’ needs and allows
us to better service and capture additional demand from existing
and new customers.
We have a long history of supplying and collaborating on product
and technology development with leading innovators in the
consumer electronics market. As a result, we have been able to
strengthen our technology platform and develop products and
services that are in high demand by our customers and end
consumers. We sold over 2,300 distinct products to over 185
customers for the year ended December 31, 2009, with a
substantial portion of our revenues derived from a concentrated
number of customers, including LG Display, Sharp and Samsung.
Our largest semiconductor manufacturing services customers
include some of the fastest growing and leading semiconductor
companies that design analog and mixed-signal products for the
consumer, computing, and wireless end markets. For 2009 on an
aggregate pro forma basis, we generated net sales of
$560.1 million, income from continuing operations of
$66.0 million, Adjusted EBITDA of $98.7 million and
Adjusted Net Income of $53.0 million. See “Unaudited
Pro Forma Consolidated Financial Information’’
beginning on page 46 for an explanation regarding our pro
forma presentation and “Selected Historical Consolidated
Financial and Operating Data’’ beginning on
page 8 for an explanation of our use of Adjusted EBITDA and
Adjusted Net Income.
Market
Opportunity
The consumer electronics market is large and growing rapidly.
Growth in this market is being driven by consumers seeking to
enjoy a wide variety of available rich media content, such as
high definition audio and video, mobile television and games.
Consumer electronics manufacturers recognize that the consumer
entertainment experience plays a critical role in
differentiating their products. To address and further stimulate
consumer demand, electronics manufacturers have been driving
rapid advances in the technology, functionality, form factor,
cost, quality, reliability and power consumption of their
products. Electronics manufacturers are continuously
implementing advanced technologies in new generations of
electronic devices using analog and mixed-signal semiconductor
components, such as display drivers that enable display of high
resolution images, encoding and decoding devices that allow
playback of high definition audio and video, and power
management semiconductors that increase power efficiency,
thereby reducing heat dissipation and extending battery life.
These advanced generations of consumer devices are growing
faster than the overall consumer electronics market. For
example, according to Gartner, production of LCD televisions,
79
Table of Contents
smartphones, mobile PCs, and mini-notebooks is expected to grow
from 2009 to 2013 by a compound annual growth rate of 12%, 36%,
24%, and 20%, respectively.
The user experience delivered by a consumer electronic device is
substantially driven by the quality of the display, audio and
video processing capabilities and power efficiency of the
device. Analog and mixed-signal semiconductors enable and
enhance these capabilities. Examples of these analog and
mixed-signal semiconductors include display drivers, timing
controllers, audio encoding and decoding devices, or codecs, and
interface circuits, as well as power management semiconductors
such as voltage regulators, converters, and switches. According
to iSuppli, in 2009, the display driver semiconductor market was
$6.0 billion and the power management semiconductor market
was $21.9 billion.
Requirements of
Leading Consumer Electronics Manufacturers
We believe our target customers view the following
characteristics and capabilities as key differentiating factors
among available analog and mixed-signal semiconductor suppliers
and manufacturing service providers:
| • | Broad Offering of Differentiated Products with Advanced System-Level Features and Functions. Leading consumer electronics manufacturers seek to differentiate their products by incorporating innovative semiconductor products that enable unique system-level functionality and enhance performance. These consumer electronics manufacturers seek to closely collaborate with semiconductor solutions providers that continuously develop new and advanced products, technologies, and manufacturing processes that enable state of the art features and functions, such as bright and thin displays, small form factor and energy efficiency. | |
| • | Fast Time to Market with New Products. As a result of rapid technological advancements and short product lifecycles, our target customers typically prefer suppliers who have a compelling pipeline of new products and can leverage a substantial intellectual property and technology base to accelerate product design and manufacturing when needed. | |
| • | Nimble, Stable and Reliable Manufacturing Services. Fabless semiconductor providers who rely on external manufacturing services often face rapidly changing product cycles. If these fabless companies are unable to meet the demand for their products due to issues with their manufacturing services providers, their profitability and market share can be significantly impacted. As a result, they prefer semiconductor manufacturing services providers who can increase production quickly and meet demand consistently through periods of constrained industry capacity. Furthermore, many fabless semiconductor providers serving the consumer electronics and industrial sectors need specialized analog and mixed-signal manufacturing capabilities to address their product performance and cost requirements. | |
| • | Ability to Deliver Cost Competitive Solutions. Electronics manufacturers are under constant pressure to deliver cost competitive solutions. To accomplish this objective, they need strategic semiconductor suppliers that have the ability to provide system-level solutions, highly integrated products, a broad product offering at a range of price points and have the design and manufacturing infrastructure and logistical support to deliver cost competitive products. | |
| • | Focus on Delivering Highly Energy Efficient Products. Consumers increasingly seek longer run time, environmentally friendly and energy efficient consumer electronic products. In addition, there is increasing regulatory focus on reducing energy consumption of consumer electronic products. For instance, the California Energy Commission recently adopted standards that require televisions sold in California to consume 33% less energy by 2011 and 49% less energy by 2013. As a result of global focus on more environmentally friendly products, our customers are seeking analog and mixed-signal semiconductor suppliers that |
80
Table of Contents
| have the technological expertise to deliver solutions that satisfy these ever increasing regulatory and consumer power efficiency demands. |
Our Competitive
Strengths
Designing and manufacturing analog and mixed-signal
semiconductors capable of meeting the evolving functionality
requirements for consumer electronics devices is challenging. In
order to grow and succeed in the industry, we believe
semiconductor suppliers must have a broad, advanced intellectual
property portfolio, product design expertise, comprehensive
product offerings and specialized manufacturing process
technologies and capabilities. Our competitive strengths enable
us to offer our customers solutions to solve their key
challenges. We believe our strengths include:
| • | Advanced Analog and Mixed-Signal Semiconductor Technology and Intellectual Property Platform. We believe we have one of the broadest and deepest analog and mixed-signal semiconductor technology platforms in the industry. Our long operating history, large patent portfolio, extensive engineering and manufacturing process expertise and wide selection of analog and mixed-signal intellectual property libraries allow us to leverage our technology and develop new products across multiple end markets. Our product development efforts are supported by a team of approximately 391 engineers. Our platform allows us to develop and introduce new products quickly as well as to integrate numerous functions into a single product. For example, we were one of the first companies to introduce a commercial AMOLED display driver for mobile phones. | |
| • | Established Relationships and Close Collaboration with Leading Global Electronics Companies. We have a long history of supplying and collaborating on product and technology development with leading innovators in the consumer electronics market, such as LG Display, Sharp and Samsung. Our close customer relationships have been built based on many years of close collaborative product development which provides us with deep system level knowledge and key insights into our customers’ needs. As a result, we are able to continuously strengthen our technology platform in areas of strategic interest for our customers and focus on those products and services that our customers and end consumers demand the most. | |
| • | Longstanding Presence in Asia and Proximity to Global Consumer Electronics Supply Chain. Our presence in Asia facilitates close contact with our customers, fast response to their needs and enhances our visibility into new product opportunities, markets and technology trends. According to Gartner, semiconductor consumption in Asia, excluding Japan, has increased from 49% of global production in 2004 to 60% in 2009 and is projected to grow to 65% by 2013. Our substantial manufacturing operations in Korea and design centers in Korea and Japan place us close to many of our largest customers and to the core of the global consumer electronics supply chain. We have active applications, engineering, product design, and customer support resources, as well as senior management and marketing resources, in geographic locations close to our customers. This allows us to strengthen our relationship with customers through better service, faster turnaround time and improved product design collaboration. We believe this also helps our customers to deliver products faster than their competitors and to solve problems more efficiently than would be possible with other suppliers. | |
| • | Broad Portfolio of Product and Service Offerings Targeting Large, High-Growth Markets. We continue to develop a wide variety of analog and mixed-signal semiconductor solutions for multiple high-growth consumer electronics end markets. We believe our expanding product and service offerings allow us to provide additional products to new and existing customers and to cross-sell our products and services to our established customers. For example, we have leveraged our technology expertise and customer relationships to develop and grow a new business offering power management solutions to customers. Our power management solutions enable our customers to increase system stability and reduce heat dissipation and |
81
Table of Contents
| energy use, resulting in cost savings for our customers, as well as environmental benefits. We have been able to sell these new products to our existing customers as well as expand our customer base. |
| • | Distinctive Analog and Mixed-Signal Process Technology Expertise and Manufacturing Capabilities. We have developed specialty analog and mixed-signal manufacturing processes such as high voltage CMOS, power and embedded memory. These processes enable us to flexibly ramp mass production of display, power and mixed-signal products, and shorten the duration from design to delivery of highly integrated, high-performance analog and mixed-signal semiconductors. As a result of the depth of our process technology, captive manufacturing facilities and customer support capabilities, we believe the majority of our top twenty manufacturing services customers by revenue currently use us as their primary manufacturing source for the products that we manufacture for them. | |
| • | Highly Efficient Manufacturing Capabilities. Our manufacturing strategy is focused on maintaining the price competitiveness of our products and services through our low-cost operating structure. We believe the location of our primary manufacturing and research and development facilities in Asia and relatively low required ongoing capital expenditures provide us with a number of cost advantages. We offer specialty analog process technologies that do not require substantial investment in leading edge, smaller geometry process equipment. We are able to utilize our manufacturing base over an extended period of time and thereby minimize our capital expenditure requirements. Our internal manufacturing facilities serve both our solutions products and manufacturing services customers, allowing us to optimize our asset utilization and improve our operational efficiency. | |
| • | Strong Financial Model with a Low-Cost Structure. We have executed a significant restructuring over the last 18 months, which combined with our relatively low capital investment requirements, has improved our cash flow and profitability. By closing our Imaging Solutions business, restructuring our balance sheet, and refining our business processes and strategy, we believe we have made significant structural improvements to our operating model and have enabled better flexibility to manage the fluctuations in the economy and our markets. In addition, the long lifecycles of our manufacturing processes, equipment and facilities allow us to keep our new capital requirements relatively low. We believe that our low-cost but highly skilled design and support engineers and manufacturing base position us favorably to compete in the marketplace and provide operating leverage in our operating model. |
Our
Strategy
Our objective is to grow our business, our cash flow and
profitability and to continuously improve our position as a
leading provider of analog and mixed-signal semiconductor
products and services for high-volume markets. Our business
strategy emphasizes the following key elements:
| • | Leverage Our Advanced Analog and Mixed-Signal Technology Platform to Innovate and Deliver New Products and Services. We intend to continue to utilize our extensive patent and technology portfolio, analog and mixed-signal design and manufacturing expertise and specific end-market applications and system-level design expertise to deliver products with high levels of performance by utilizing our systems expertise and leveraging our deep knowledge of our customers’ needs. For example, we have recently utilized our extensive patent portfolio, process technologies and analog and mixed-signal technology platform to develop cost-effective Super Junction MOSFETs as well as low power integrated power solutions for AC-DC offline switchers to address more of our customers’ needs. In Display Solutions, we continue to invest in research and development to introduce new technologies to support our customers’ technology roadmaps such as their transition to 240Hz 3D LED televisions. In Semiconductor Manufacturing Services, we are developing cost-effective processes that substantially reduce die size using deep trench isolation. |
82
Table of Contents
| • | Increase Business with Existing Customers. We have a global customer base consisting of leading consumer electronics OEMs such as LG Display, Sharp and Samsung who sell into multiple end markets. We intend to continue to strengthen our relationships with our customers by collaborating on critical design and product development in order to improve our design win rates. We will seek to increase our customer penetration by more closely aligning our product roadmap with those of our key customers and by taking advantage of our broad product portfolio, our deep knowledge of customer needs and existing relationships to sell more existing and new products. For example, two of our largest display driver customers have display modules in production using our power management products. These power management products have been purchased and evaluated via their key subcontractors for LCD backlight units and LCD integrated power supplies. | |
| • | Broaden Our Customer Base. We expect to continue to expand our global design centers, local application engineering support and sales presence, particularly in China, Hong Kong, Taiwan and Macau, or collectively, Greater China, and other high-growth geographies, to penetrate new accounts. In addition, we intend to introduce new products and variations of existing products to address a broader customer base. In order to broaden our market penetration, we are complementing our direct customer relationships and sales with an expanded base of distributors, especially to aid the growth of our power management business. We expect to continue to expand our distribution channels as we broaden our power management penetration beyond existing customers. | |
| • | Aggressively Grow the Power Business. We have utilized our extensive patent portfolio, process technologies, captive manufacturing facilities and analog and mixed-signal technology platform to develop power management solutions that expand our market opportunity and address more of our customers’ needs. We intend to increase the pace of our new power product introductions by continuing to collaborate closely with our industry-leading customers. For example, we recently began mass production of our first integrated power solution for LCD televisions at one of our major Korean customers. We also intend to capitalize on the market needs and regulatory requirements for power management products that reduce energy consumption of consumer electronic products by introducing products that are more energy efficient than those of competitors. We believe our integrated designs, unique low-cost process technologies and deep customer relationships will enable us to increase sales of our power solutions to our current power solutions customers, and as an extension of our other product offerings, to our other customers. | |
| • | Drive Execution Excellence. We have significantly improved our execution through a number of management initiatives implemented under the direction of our Chief Executive Officer and Chairman, Sang Park. As an example, we have introduced new processes for product development, customer service and personnel development. We expect these ongoing initiatives will continue to improve our new product development and customer service as well as enhance our commitment to a culture of quick action and execution by our workforce. In addition, we have focused on and continually improved our manufacturing efficiency during the past several years. As a result of our focus on execution excellence, we have also meaningfully reduced our time from new product definition to development completion. For example, we have improved our average development turnaround time by over 40% over the last three years for semiconductor manufacturing services by implementing continuous business process improvement initiatives. | |
| • | Optimize Asset Utilization, Return on Capital Investments and Cash Flow Generation. We intend to keep our capital expenditures relatively low by maintaining our focus on specialty process technologies that do not require substantial investment in frequent upgrades to the latest manufacturing equipment. We also believe our power management business should increase our utilization and return on capital as the manufacturing of these products primarily relies on our 0.35µm geometry and low-cost equipment. By utilizing our manufacturing |
83
Table of Contents
| facilities for both our display solutions and power solutions products and our semiconductor manufacturing services customers, we will seek to maximize return on our capital investments and our cash flow generation. |
Our
Technology
We continuously strengthen our advanced analog and mixed-signal
semiconductor technology platform by developing innovative
technologies and integrated circuit building blocks that enhance
the functionality of consumer electronics products through
brighter displays, enhanced image quality, smaller form factor
and longer battery life. We seek to further build our technology
platform through proprietary research and development and
selective licensing and acquisition of complementary
technologies, as well as disciplined process improvements in our
manufacturing operations. Our goal is to leverage our experience
and development initiatives across multiple end markets and
utilize our understanding of system-level issues our customers
face to introduce new technologies that enable our customers to
develop more advanced, higher performance products.
Our display technology portfolio includes building blocks for
display drivers and timing controllers, processor and interface
technologies, as well as sophisticated production techniques,
such as
chip-on-glass,
or COG, which enables the manufacture of thinner displays. Our
advanced display drivers incorporate LTPS and AMOLED panel
technologies that enable the highest resolution displays.
Furthermore, we are developing a broad intellectual property
portfolio to improve the power efficiency of displays, including
the development of our smart mobile luminance control, or SMLC,
algorithm.
We have a long history of specialized process technology
development and have a number of distinctive process
implementations. We have approximately 200 process flows we can
utilize for our products and offer to our semiconductor
manufacturing services customers. Our process technologies
include standard CMOS, high voltage CMOS, ultra-low leakage high
voltage CMOS and BCDMOS. Our manufacturing processes incorporate
embedded memory solutions such as static random access memory,
or SRAM, one-time programmable, or OTP, memory, multiple-time
programmable, or MTP, memory, electronically erasable
programmable read only memory, or EEPROM, and single-transistor
random access memory, or 1TRAM. More broadly, we focus
extensively on processes that reduce die size across all of the
products we manufacture, in order to deliver cost-effective
solutions to our customers.
Expertise in high voltage and deep trench BCDMOS process
technologies, low power analog and mixed-signal design
capabilities and packaging know-how are key requirements in the
power management market. We are currently leveraging our
capabilities in these areas with products such as DC-DC
converters, linear regulators, including LDO, regulators and
analog switches, and power MOSFETs. We believe our system level
understanding of applications such as LCD televisions and mobile
phones will allow us to more quickly develop and customize power
management solutions for our customers in these markets.
Our Products and
Services
Our broad portfolio of products and services addresses multiple
high-growth, consumer-focused end markets. A key component of
our product strategy is to supply multiple related product and
service offerings to each of the end markets that we serve.
Display
Solutions
Display Driver Characteristics. Display
drivers deliver defined analog voltages and currents that
activate pixels to exhibit images on displays. The following key
characteristics determine display driver performance and
end-market application:
| • | Resolution and Number of Channels. Resolution determines the level of detail displayed within an image and is defined by the number of pixels per line multiplied by the number of |
84
Table of Contents
| lines on a display. For large displays, higher resolution typically requires more display drivers for each panel. Display drivers that have a greater number of channels, however, generally require fewer display drivers for each panel and command a higher selling price per unit. Mobile displays, conversely, are typically single chip solutions designed to deliver a specific resolution. We cover resolutions ranging from QVGA (240RGB x 320) to QHD (960RGB x 540). |
| • | Color Depth. Color depth is the number of colors that can be displayed on a panel. For example, for TFT-LCD panels, 262 thousand colors are supported by 6-bit source drivers; 16 million colors are supported by 8-bit source drivers; and 1 billion colors are supported by 10-bit and 12-bit source drivers. | |
| • | Operational Voltage. Display drivers are characterized by input and output voltages. Source drivers typically operate at input voltages from 2.0 to 3.6 volts and output voltages between 4.5 and 18 volts. Gate drivers typically operate at input voltages from 2.0 to 3.6 volts and output voltages of up to 40 volts. Lower input voltage results in lower power consumption and electromagnetic interference, or EMI. | |
| • | Gamma Curve. The relationship between the light passing through a pixel and the voltage applied to the pixel by the source driver is referred to as the gamma curve. The gamma curve of the source driver can correct some imperfections in picture quality in a process generally known as gamma correction. Some advanced display drivers feature up to three independent gamma curves to facilitate this correction. | |
| • | Driver Interface. Driver interface refers to the connection between the timing controller and the display drivers. Display drivers increasingly require higher bandwidth interface technology to address the larger data transfer rate necessary for higher definition images. The principal types of interface technologies are transistor-to-transistor logic, or TTL, reduced swing differential signaling, or RSDS, advance intra panel I/F, or AIPI, and mini-low voltage differential signaling, or m-LVDS. | |
| • | Package Type. The assembly of display drivers typically uses chip-on-film, or COF, tape carrier package, or TCP, and COG package types. |
Large Display Solutions. We provide
display solutions for a wide range of flat panel display sizes
used in LCD televisions, including high definition televisions,
or HDTVs, LED TVs, LCD monitors and mobile PCs.
Our large display solutions include source and gate drivers and
timing controllers with a variety of interfaces, voltages,
frequencies and packages to meet customers’ needs. These
products include advanced technologies such as high channel
count, with products under development to provide up to 960
channels. We also offer a distinctive interface technology known
as LCDS, which supports thinner displays for mobile PCs. Our
large display solutions are designed to allow customers to
cost-effectively
meet the increasing demand for high resolution displays. We
focus extensively on reducing the die size of our large display
drivers and other solutions products, and we have recently
introduced a number of new large display drivers with reduced
die size.
85
Table of Contents
The table below sets forth the features of our products, both in
mass production and in development, for large-sized displays:
|
Product
|
Key Features
|
Applications
|
||
|
TFT-LCD Source Drivers
|
• 480 to 960 output channels | • LCD monitors, including | ||
| • 6-bit (262 thousand colors), | widescreens | |||
| 8-bit (16 million colors), 10-bit | • Mobile PCs, including | |||
| (1 billion colors) | netbooks | |||
| • Output voltage ranging from | • Digital televisions, including | |||
| 3.3V to 18V | LED TVs | |||
| • Low power consumption and | ||||
| low EMI | ||||
| • Supports COF package types | ||||
| • Supports RSDS, m-LVDS, | ||||
| AiPi interface technologies | ||||
| • Geometries of 0.18mum to | ||||
| 0.22µm | ||||
|
TFT-LCD Gate Drivers
|
• 272 to 768 output channels
|
• LCD monitors, including | ||
| • Output voltage ranging up to | widescreens | |||
| 40V | • Mobile PCs, including | |||
| • Supports COF and COG | netbooks | |||
| package types | • Digital televisions, including | |||
| • Geometries of 0.35µm | LED TVs | |||
|
Timing Controllers
|
• Product portfolio supports a |
• LCD monitors, including
|
||
| wide range of resolutions | widescreens | |||
| • Supports m-LVDS interface | • Mobile PCs, including | |||
| technologies | netbooks | |||
| • Input voltage ranging from | ||||
| 2.3V to 3.6V | ||||
| • Geometries of 0.18µm |
Mobile Display Solutions. Our mobile
display solutions incorporate the industry’s most advanced
display technologies, such as LTPS and AMOLED, as well as
high-volume technologies such as a-Si (amorphous silicon) TFT.
Our mobile display products offer specialized capabilities,
including high speed serial interfaces, such as mobile display
digital interface, or MDDI, and mobile industry processor
interface, or MIPI, as well as multi-time programmable, or MTP,
memories, using EEPROM and logic-based OTP memory. Further, we
are building a distinctive intellectual property portfolio that
allows us to provide features that reduce power consumption,
such as SMLC, ambient light-based brightness control, or LABC,
automatic brightness control, or ABC, and automatic current
limit, or ACL. This intellectual property portfolio will also
support our power management product development initiatives, as
we leverage our system level understanding of power efficiency.
86
Table of Contents
The following table summarizes the features of our products,
both in mass production and in development, for mobile displays:
|
Product
|
Key Features
|
Applications
|
||
|
LTPS
|
• Resolutions of QVGA, | • Mobile phones | ||
| WQVGA, VGA, NHD, SVGA | • Digital still cameras | |||
| • Color depth ranging from 262 | ||||
| thousand to 16 million | ||||
| • MDDI, MIPI interface | ||||
| • EEPROM and logic-based | ||||
| OTP, separated gamma | ||||
| control | ||||
|
AMOLED
|
• Resolutions of WQVGA, | • Mobile phones | ||
| HVGA, NHD, WVGA, QHD | • Game consoles | |||
| • Color depth ranging from 262 | • Digital still cameras | |||
| thousand to 16 million | • Personal digital assistants | |||
| • Geometries of 0.11µm to | • Portable media players | |||
| 0.15µm | ||||
| • MDDI, MIPI interface | ||||
| • EEPROM and logic-based | ||||
| OTP | ||||
| • ABC, ACL, Pentile | ||||
|
a-Si TFT
|
• Resolutions of QVGA, | • Mobile phones | ||
| WQVGA, HVGA, WVGA, | • Game consoles | |||
| WSVGA, HD | • Netbooks | |||
| • Color depth ranging from 262 | • Portable navigation devices | |||
| thousand to 16 million | ||||
| • MDDI, MIPI interface | ||||
| • Content adaptive brightness | ||||
| control, or CABC | ||||
| • LVDS, I2C, DCDC | ||||
| • Separated gamma control |
Power
Solutions
We develop, manufacture and market power management solutions
for a wide range of end market customers. The products include
MOSFETs, LED Drivers, DC-DC converters, analog switches and
linear regulators, such as LDOs.
| • | MOSFET. Our MOSFETs include low-voltage Trench MOSFETs, 20V to 100V, and high-voltage Planar MOSFETs, 400V through 600V. MOSFETs are used in applications to switch, shape or transfer electricity under varying power requirements. The key application segments are mobile phones, LCD televisions, desktop computers and power supplies for consumer electronics and industrial equipment. MOSFETs allow electronics manufacturers to achieve specific design goals of high efficiency and low standby power consumption. For example, computing solutions focus on delivering efficient controllers and MOSFETs for power management in VCORE, DDR and chipsets for audio, video and graphics processing systems. | |
| • | LED Drivers. LED driver solutions serve the fast-growing LCD panel backlighting market for LCD televisions and mobile PCs. Our products are designed to provide high efficiency and wide input voltage range as well as PWM dimming for accurate white LED dimming control. | |
| • | DC-DC Converters. We plan to release DC-DC converters targeting mobile applications and high power applications like LCD televisions, set-top boxes, DVD/Blu-ray players and display |
87
Table of Contents
| modules. We expect our DC-DC converters will meet customer green power requirements by featuring wide input voltage ranges, high efficiency and small size. |
| • | Analog Switches and Linear Regulators. We also provide analog switches and linear regulators for mobile applications. Our products are designed for high efficiency and low power consumption in mobile applications. |
Our power management solutions enable customers to increase
system stability and reduce heat dissipation and energy use,
resulting in cost savings for our customers and consumers, as
well as environmental benefits. Our in-house process technology
capabilities and eight-inch wafer production lines increase
efficiency and contribute to the competitiveness of our products.
The following table summarizes the features of our products,
both in mass production and in development:
|
Product
|
Key Features
|
Applications
|
||
|
Low Voltage MOSFET
|
• Vds(V) options of 20V–100V | • Mobile phones | ||
| • Rds(on) options of Max 5m | • Desktop computers | |||
| Ω–50m Ω at 10V | • Mobile PCs | |||
| • Advanced 0.35µm Trench | • Digital TVs | |||
| MOSFET Process | ||||
| • High cell density of | ||||
| 268Mcell/inch2 | ||||
| • Advanced packages to enable | ||||
| reduction of PCB mounting | ||||
| area | ||||
|
High Voltage MOSFET
|
• Voltage options of 400, 500, | • Power supplies for consumer | ||
| and 600V | electronics | |||
| • Drain current options of | • Industrial charger and | |||
| 1A–18A. | adaptors | |||
| • Rds(on) options of 0.22~8.0 | • Lighting (ballast, HID, LED) | |||
| Ω (typical) | • Industrial equipment | |||
| • R2FET (rapid recovery) option | ||||
| to shorten reverse diode | ||||
| recovery time | ||||
| • Zenor FET option for | ||||
| MOSFET protection for | ||||
| abnormal input | ||||
| • Advanced 0.50µm Planar | ||||
| MOSFET Process | ||||
|
LED Drivers
|
• High efficiency, wide input | • LED backlights | ||
| voltage range | ||||
| • Proven 0.35mum BCDMOS | ||||
| process | ||||
| • 40V modular BCDMOS | ||||
| • OCP, SCP, OVP and UVLO | ||||
| protections | ||||
| • Accurate LED current control | ||||
| and multi-channel matching | ||||
| • Programmable current limit, | ||||
| boost up frequency |
88
Table of Contents
|
Product
|
Key Features
|
Applications
|
||
|
DC-DC Converters
|
• High efficiency, wide input voltage range
|
• LCD TVs • Set-top boxes |
||
|
• Proven 0.35µm BCDMOS process
|
• DVD/Blu-ray players | |||
|
• 30V modular BCDMOS
|
||||
|
• Fast load and line regulation
|
||||
|
• Accurate output voltage
|
||||
|
• OCP, SCP and thermal protections
|
||||
|
Analog Switches
|
USB Switches |
• Mobile phones
|
||
|
• Low
Con,
7.0pF (typical) limits signal distortion
|
||||
|
• Low
Ron,
4.0 Ω (typical)
|
||||
| • 0.35µm CMOS process | ||||
| Audio Switches | ||||
|
• Negative Swing Support
|
||||
|
• Low
Ron,
0.4 Ω (typical)
|
||||
|
• High ESD protection, 13kV
|
||||
| • 0.35µm CMOS process | ||||
|
Linear Regulators
|
• Single and dual LDOs
|
• Mobile phones | ||
|
• Low Noise Output Linear µCap LDO
Regulator
|
||||
|
• 2.3V to 5.5V input voltage and 150mA,
300mA output current
|
||||
|
• Small package size of DFN type
|
||||
| • 0.35µm CMOS process |
Semiconductor
Manufacturing Services
We provide semiconductor manufacturing services to analog and
mixed-signal semiconductor companies. We have approximately 200
process flows we offer to our semiconductor manufacturing
services customers. We also often partner with key customers to
jointly develop or customize specialized processes that enable
our customers to improve their products and allow us to develop
unique manufacturing expertise.
Our semiconductor manufacturing services offering is targeted at
customers who require differentiated, specialty analog and
mixed-signal process technologies such as high voltage CMOS,
embedded memory and power. We refer to our approach of
delivering specialized services to our customers as our
application-specific technology, or AS Tech, strategy. We
differentiate ourselves through the depth of our intellectual
property portfolio, ability to customize process technology to
meet the customers’ requirements effectively, long history
in this business and reputation for excellence.
Our semiconductor manufacturing services customers typically
serve high-growth and
high-volume
applications in the consumer, computing and wireless end
markets. We strive to be the primary manufacturing source for
our semiconductor manufacturing services customers.
Process
Technology Overview
| • | Mixed-Signal. Mixed-signal process technology is used in devices that require conversion of light and sound into electrical signals for processing and display. Our mixed-signal processes include advanced technologies such as low noise process using triple gate, which uses less |
89
Table of Contents
| power at any given performance level. MEMS process technology allows the manufacture of components that use electrical energy to generate a mechanical response. For example, MEMS devices are used in the accelerometers and gyroscopes of mobile phones. |
| • | Power. Power process technology, such as BCD, includes high voltage capabilities as well as the ability to integrate functionality such as self-regulation, internal protection, and other intelligent features. The unique process features such as deep trench isolation are suited for chip shrink and device performance enhancement. | |
| • | High Voltage CMOS. High voltage CMOS process technology facilitates the use of high voltage levels in conjunction with smaller transistor sizes. This process technology includes several variations, such as bipolar processes, which use transistors with qualities well suited for amplifying and switching applications, mixed mode processes, which incorporate denser, more power efficient FETs, and thick metal processes. | |
| • | Non-Volatile Memory. Non-volatile memory, or NVM, process technology enables the integration of non-volatile memory cells that allow retention of the stored information even when power is removed from the circuit. This type of memory is typically used for long-term persistent storage. |
The table below sets forth the key process technologies in
Semiconductor Manufacturing Services currently in mass
production or development.
|
Process
|
Technology
|
Device
|
End Markets
|
|||
|
Mixed-signal
|
• 0.13-0.8µm |
• Analog to digital converter
|
• Consumer | |||
|
• Multipurpose
|
• Digital to analog converter | • Wireless | ||||
|
• Low noise
|
• Audio codec | • Computing | ||||
|
• Ultra low power
|
• Chipset | |||||
|
• Triple gate
|
||||||
|
Power
|
• 0.18-0.35µm |
• Power management
|
• Consumer | |||
|
• aBCD
|
• Mobile PMIC | • Wireless | ||||
|
• Deep Trench Isolation
|
• LED drivers | • Computing | ||||
|
• Trench MOSFET
|
||||||
|
• Planar MOSFET
|
||||||
|
• Schottky Diode
|
||||||
|
• Zener Diode
|
||||||
|
High Voltage CMOS
|
• 0.13-2.0µm |
• Display drivers
|
• Consumer | |||
| • 5V-250V |
• CSTN drivers
|
• Wireless | ||||
|
• Bipolar, Thick Metal
|
|
• Computing
|
||||
|
NVM
|
• 0.18-0.5µm |
• Microcontroller
|
• Consumer | |||
|
• EEPROM
|
• Touch screen controller | • Medical | ||||
|
• eFlash
|
• Electronic tag | • Automotive | ||||
|
• OTP
|
• Hearing aid |
Manufacturing and
Facilities
Our manufacturing operations consist of three fabrication
facilities located at two sites in Cheongju and Gumi in Korea.
These sites have a combined capacity of approximately 131,000
eight-inch equivalent wafers per month. We manufacture wafers
utilizing geometries ranging from 0.11 to 2.0 micron. The
Cheongju facilities have three main buildings totaling
164,058 square meters devoted to manufacturing and
development. The Gumi facilities have one main building with
41,022 square meters devoted to manufacturing, testing and
packaging.
In addition to our fabrication facilities, we lease facilities
in Seoul, Korea, Cupertino, California, and Osaka, Japan. Each
of these facilities includes administration, sales and marketing
and research
90
Table of Contents
and development functions. We lease sales and marketing offices
at our subsidiaries in several other countries.
The ownership of our wafer manufacturing assets is an important
component of our business strategy. Maintaining manufacturing
control enables us to develop proprietary, differentiated
products and results in higher production yields, as well as
shortened design and production cycles. We believe our
properties are adequate for the conduct of our business for the
foreseeable future.
We use a combination of in-house and outsourced assembly, test
and packaging services. Our independent providers of these
services are located in Korea, China, Taiwan, Malaysia and
Thailand.
We use processes that require specialized raw materials that are
generally available from a limited number of suppliers. Tape is
one of the process materials required for our display drivers.
We continue to attempt to qualify additional suppliers for our
raw materials.
Although we own our manufacturing facilities, we are party to a
land lease and easement agreement with Hynix pursuant to which
we lease the land for our facilities in Cheongju, Korea from
Hynix for an indefinite term. Because we share certain
facilities with Hynix, several services that are essential to
our business are provided to us by or through Hynix under our
general service supply agreement with Hynix. These services
include electricity, bulk gases and de-ionized water, campus
facilities and housing, wastewater and sewage management,
environmental safety and certain utilities and infrastructure
support services. These services generally continue until the
general service supply agreement is terminated.
Sales and
Marketing
We focus our sales and marketing strategy on creating and
strengthening our relationships with leading consumer
electronics OEMs, such as LG Display, Sharp and Samsung, as well
as analog and mixed-signal semiconductor companies. We believe
our close collaboration with customers allows us to align our
product and process technology development with our
customers’ existing and future needs. Because our customers
often service multiple end markets, our product sales teams are
organized by customers within the major geographies. We believe
this facilitates the sale of products that address multiple
end-market applications to each of our customers. Our
semiconductor manufacturing services sales teams focus on
marketing our services to analog and mixed-signal semiconductor
companies that require specialty manufacturing processes.
We sell our products through a direct sales force and a network
of authorized agents and distributors. We have strategically
located our sales and technical support offices near our
customers. Our direct sales force consists primarily of
representatives co-located with our design centers in Korea and
Japan, as well as our local sales and support offices in Greater
China and Europe. We have a network of agents and distributors
in Korea, Japan, Europe and Greater China. With the expansion of
the Power Solutions division portfolio, we expect to expand our
sales agents and distributor franchises into Europe and the
United States in 2010. On a combined basis for the ten months
ended October 25, 2009 and the two months ended
December 31, 2009, we derived 82% of net sales through our
direct sales force and 18% of net sales through our network of
authorized agents and distributors.
Research and
Development
Our research and development efforts focus on intellectual
property, design methodology and process technology for our
complex analog and mixed-signal semiconductor products and
services. Research and development expenses for the combined
twelve-month period ended December 31, 2009 were
$70.9 million, representing 12.7% of net sales, compared to
$89.5 million, representing 14.9% of net sales for the year
ended December 31, 2008, and $90.8 million,
representing 12.8% of net sales for the year ended
December 31, 2007.
91
Table of Contents
Customers
We sell our display solutions and power solutions products to
consumer electronics OEMs as well as subsystem designers and
contract manufacturers. We sell our semiconductor manufacturing
services to analog and mixed-signal semiconductor companies. For
the year ended December 31, 2009, our ten largest customers
accounted for 69% of our net sales, and we had one customer, LG
Display, representing greater than 10% of our net sales. For the
year December 31, 2009, we received revenues of
$59.0 million from customers in the United States and
$501.1 million from all foreign countries, of which 61.2%
was from Korea, 18.5% from Taiwan, 7.6% from Japan and 9.6% from
China, Hong Kong and Macau.
Intellectual
Property
As of December 31, 2009, our portfolio of intellectual
property assets included approximately 3,600 novel registered
and pending patents. Because we file patents in multiple
jurisdictions, we additionally have approximately 1,000
registered and pending patents that relate to identical
technical claims in our base patent portfolio. Our patents
expire at various times over the next 18 years. While these
patents are in the aggregate important to our competitive
position, we do not believe that any single registered or
pending patent is material to us.
We have entered into exclusive and non-exclusive licenses and
development agreements with third parties relating to the use of
intellectual property of the third parties in our products and
our design processes, including licenses related to embedded
memory technology, design tools, process simulation tools,
circuit designs and processor cores. Some of these licenses,
including our agreements with Silicon Works Co., Ltd. and ARM
Limited, are material to our business and may be terminated
prior to the expiration of these licenses by the licensors
should we fail to cure any breach under such licenses.
Additionally, in connection with the Original Acquisition, Hynix
retained a perpetual license to use the intellectual property
that we acquired from Hynix in the Original Acquisition. Under
this license, Hynix and its subsidiaries are free to develop
products that may incorporate or embody intellectual property
developed by us prior to October 2004.
Competition
We operate in highly competitive markets characterized by rapid
technological change and continually advancing customer
requirements. Although no one company competes with us in all of
our product lines, we face significant competition in each of
our market segments. Our competitors include other independent
and captive manufacturers and designers of analog and
mixed-signal integrated circuits including display driver and
power management semiconductor devices, as well as companies
providing specialty manufacturing services.
We compete based on design experience, manufacturing
capabilities, the ability to service customer needs from the
design phase through the shipping of a completed product, length
of design cycle and quality of technical support and sales
personnel. Our ability to compete successfully will depend on
internal and external variables, both within and outside of our
control. These variables include the timeliness with which we
can develop new products and technologies, product performance
and quality, manufacturing yields, capacity availability,
customer service, pricing, industry trends and general economic
trends.
Employees
Our worldwide workforce consisted of 3,155 employees (full-
and part-time) as of January 31, 2010, of which 391 were
involved in sales, marketing, general and administrative, 391
were in research and development (including 207 with advanced
degrees), 74 were in quality, reliability and assurance and
2,299 were in manufacturing (comprised of 347 in engineering and
1,952 in operations). As of January 31, 2010,
2,037 employees, or approximately 64.6% of our workforce,
were
92
Table of Contents
represented by the MagnaChip Semiconductor Labor Union, which is
a member of the Federation of Korean Metal Workers Trade Unions.
We believe our labor relations are good.
Environmental
Our operations are subject to a variety of environmental, health
and safety laws and regulations in each of the jurisdictions in
which we operate, governing, among other things, air emissions,
wastewater discharges, the generation, use, handling, storage
and disposal of, and exposure to, hazardous substances
(including asbestos) and waste, soil and groundwater
contamination and employee health and safety. These laws and
regulations are complex, constantly changing and have tended to
become more stringent over time. There can be no assurance that
we have been or will be in compliance with all these laws and
regulations, or that we will not incur material costs or
liabilities in connection with these laws and regulations in the
future. The adoption of new environmental, health and safety
laws, any failure to comply with new or existing laws or issues
relating to hazardous substances could subject us to material
liability (including substantial fines or penalties), impose the
need for additional capital equipment or other process
requirements upon us, curtail our operations or restrict our
ability to expand operations.
Legal
Proceedings
We are subject to lawsuits and claims that arise in the ordinary
course of business and intellectual property litigation and
infringement claims. Intellectual property litigation and
infringement claims, in particular, could cause us to incur
significant expenses or prevent us from selling our products. We
are currently not involved in any legal proceedings the outcome
of which we believe would have a material adverse effect on our
business, financial condition or results of operations.
Segments
For a description of our business and the distribution of our
assets by geographic regions and reporting segments, see
note 23 to the consolidated financial statements of
MagnaChip Semiconductor LLC for the ten-month period ended
October 25, 2009 and the two-month period ended
December 31, 2009 included elsewhere in this prospectus.
93
Table of Contents
MANAGEMENT
Directors and
Executive Officers and Corporate Governance.
The following table is a list of the current directors and
executive officers of MagnaChip and their respective ages as of
December 31, 2009:
|
Name
|
Age
|
Position
|
||
|
Sang Park
|
62 | Chairman of the Board of Directors and Chief Executive Officer | ||
|
Tae Young Hwang
|
53 | Chief Operating Officer and President | ||
|
Brent Rowe
|
48 | Senior Vice President, Worldwide Sales | ||
|
Margaret Sakai
|
52 | Senior Vice President and Chief Financial Officer | ||
|
Heung Kyu Kim
|
46 | Senior Vice President and General Manager, Power Solutions Division | ||
|
Tae Jong Lee
|
47 | Senior Vice President and General Manager, Corporate Engineering | ||
|
John McFarland
|
43 | Senior Vice President, General Counsel and Secretary | ||
|
Michael Elkins
|
41 | Director | ||
|
Randal Klein
|
44 | Director | ||
|
R. Douglas Norby
|
74 | Director | ||
|
Gidu Shroff
|
64 | Director | ||
|
Steven Tan
|
33 | Director | ||
|
Nader Tavakoli
|
51 | Director |
Sang Park, Chairman of the Board of Directors and Chief
Executive Officer. Mr. Park became our
Chairman of the board of directors and Chief Executive Officer
on January 1, 2007, after serving as President, Chief
Executive Officer and director since May 2006. Mr. Park
served as an executive fellow for iSuppli Corporation from
January 2005 to May 2006. Prior to joining iSuppli, he was
founder and president of SP Associates, a consulting services
provider for technology companies, from September 2003 to
December 2004. Mr. Park served as Chief Executive Officer
of Hynix from May 2002 to March 2003, and as Chief Operating
Officer and President of the Semiconductor Division of Hynix
from July 1999 to April 2002. Prior to his service at Hynix,
Mr. Park was Vice President of Procurement Engineering at
IBM in New York from 1995 to 1999, and he held various positions
in procurement and operations at Hewlett Packard in California
from 1979 to 1995. Our board of directors has concluded that
Mr. Park should serve as a director and as chairman of the
board of directors based on his extensive experience as an
executive, investor and director in our industry and his
experience and insight as our Chief Executive Officer.
Tae Young Hwang, Chief Operating Officer and
President. Mr. Hwang became our Chief
Operating Officer and President in November 2009. He previously
served as our Executive Vice President, Manufacturing Division,
and General Manager, Display Solutions from January 2007, and
our Executive Vice President of Manufacturing Operations from
October 2004. Prior to that time, Mr. Hwang served as
Hynix’s Senior Vice President of Manufacturing Operations,
System IC, from 2002 to 2003. From 1999 to 2001, he was Vice
President of Cheongju Operations for Hynix. Mr. Hwang holds
a B.S. degree in Mechanical Engineering from Pusan National
University and an M.B.A. from Cheongju University.
Brent Rowe, Senior Vice President, Worldwide
Sales. Mr. Rowe became our Senior Vice
President, Worldwide Sales in April 2006. Prior to joining our
company, Mr. Rowe served at Fairchild Semiconductor
International, Inc., a semiconductor manufacturer, as Vice
President, Americas Sales and Marketing from August 2003 to
October 2005; Vice President, Europe Sales and Marketing from
94
Table of Contents
August 2002 to August 2003; and Vice President, Japan Sales and
Marketing from April 2002 to August 2002. Mr. Rowe holds a
B.S. degree in Chemical Engineering from the University of
Illinois.
Margaret Sakai, Senior Vice President and Chief Financial
Officer. Ms. Sakai became our Senior
Vice President, Finance, on November 1, 2006 and our Chief
Financial Officer on April 10, 2009. Prior to joining our
company, she served as Chief Financial Officer of Asia Finance
and Vice President of Photronics, Inc., a manufacturer of
reticles and photomasks for semiconductor and microelectronic
applications, since November 2003. From June 1999 to October
2003, Ms. Sakai was Executive Vice President and Chief
Financial Officer of PKL Corporation, a photomask manufacturer.
From October 1995 to May 1999, Ms. Sakai served as Director
of Finance of Acqutek International Limited, a lead-frame
manufacturer, and from March 1992 to September 1995,
Ms. Sakai served as Financial Manager at National
Semiconductor Corporation. Ms. Sakai worked as an Audit
Supervisor at Coopers & Lybrand from January 1988 to
March 1992. Ms. Sakai is a Certified Public Accountant in
the State of California and holds a B.A. degree in Accounting
from Babson College.
Heung Kyu Kim, Senior Vice President and General Manager,
Power Solutions Division. Mr. Kim became
our Senior Vice President and General Manager, Power Solutions
Division, in July 2007. Prior to joining our company,
Mr. Kim served at Fairchild Semiconductor International,
Inc., a semiconductor manufacturer, as Vice President of the
Power Conversion Product Line from July 2003 to June 2007, and
as Director of Korea Sales and Marketing from April 1999 to June
2003. Mr. Kim holds a B.S. degree in Metallurgical
Engineering from Korea University.
Tae Jong Lee, Senior Vice President and General Manager,
Corporate Engineering. Mr. Lee became
our Senior Vice President and General Manager, Corporate
Engineering, in August 2009. He previously served as our Vice
President, Corporate Engineering from September 2007. Prior to
joining our company, Mr. Lee served as Director of the
Technology Development Division, Chartered Semiconductor
Manufacturing, in Singapore from 1999 to August 2007.
Mr. Lee holds B.S. and M.S. degrees from Seoul National
University, and a Ph.D in Physics from the University of Texas
at Dallas.
John McFarland, Senior Vice President, General Counsel and
Secretary. Mr. McFarland became our
Senior Vice President, General Counsel and Secretary in April
2006, after serving as Vice President, General Counsel and
Secretary since November 2004. Prior to joining our company,
Mr. McFarland served as a foreign legal consultant at Bae,
Kim & Lee, a law firm, from August 2003 to November
2004 and an associate at Wilson Sonsini Goodrich &
Rosati, P.C., a law firm, from August 2000 to July 2003.
Mr. McFarland holds a B.A. degree in Asian Studies,
conferred with highest distinction from the University of
Michigan, and a J.D. degree from the University of California,
Los Angeles, School of Law.
Michael Elkins,
Director. Mr. Elkins became our director
in November 2009. Mr. Elkins joined Avenue in 2004 and is
currently a Portfolio Manager of the Avenue U.S. Funds. In
such capacity, Mr. Elkins is responsible for assisting with
the direction of the investment activities of the Avenue
U.S. strategy. Prior to joining Avenue, Mr. Elkins was
a Portfolio Manager and Trader with ABP Investments US, Inc.
While at ABP, he was responsible for actively managing high
yield investments using a total return-special situations
overlay strategy. Prior to ABP, Mr. Elkins served as a
Portfolio Manager and Trader for UBK Asset Management, after
joining the company as a High Yield Credit Analyst. Previously,
Mr. Elkins was a Credit Analyst for both
Oppenheimer & Co., Inc. and Smith Barney, Inc.
Mr. Elkins holds a B.A. in Marketing from George Washington
University and an M.B.A. in Finance from the Goizueta Business
School at Emory University. Our board of directors has concluded
that Mr. Elkins should serve on the board based upon his
extensive investing and management experience.
Randal Klein, Director. Mr. Klein
became our director in November 2009. Mr. Klein joined
Avenue in 2004 and is currently a Senior Vice President of the
Avenue U.S. Funds. In such capacity, Mr. Klein is
responsible for identifying, analyzing and modeling investment
opportunities for the Avenue U.S. strategy. Prior to
joining Avenue, Mr. Klein was a Senior Vice President at
Lehman
95
Table of Contents
Brothers, where his responsibilities included restructuring
advisory work, financial sponsors coverage, mergers and
acquisitions and corporate finance. Prior to Lehman,
Mr. Klein worked in sales, marketing and engineering as an
aerospace engineer for The Boeing Company. Mr. Klein holds
a B.S. in Aerospace Engineering, conferred with Highest
Distinction from the University of Virginia, and an M.B.A. in
Finance from the Wharton School of the University of
Pennsylvania. Our board of directors has concluded that
Mr. Klein should serve on the board based upon his
extensive experience in finance, accounting and investing.
R. Douglas Norby, Director and Chairman of the Audit
Committee. Mr. Norby became our director and
Chairman of the Audit Committee in March 2010. Mr. Norby
previously served as our director and Chairman of the Audit
Committee from May 2006 until October 2008. Mr. Norby served as
Senior Vice President and Chief Financial Officer of Tessera
Technologies, Inc., a public semiconductor intellectual property
company, from July 2003 to January 2006. Mr. Norby worked as a
management consultant with Tessera from May 2003 until July
2003. Mr. Norby served as Chief Financial Officer of Zambeel,
Inc., a data storage systems company, from March 2002 until
February 2003, and as Senior Vice President and Chief Financial
Officer of Novalux, Inc., an optoelectronics company, from
December 2000 to March 2002. Prior to his tenure with Novalux,
Inc., Mr. Norby served as Executive Vice President and Chief
Financial Officer of LSI Logic Corporation from November 1996 to
December 2000. Mr. Norby is a director of Alexion
Pharmaceuticals, Inc. and STATS ChipPAC Ltd. Mr. Norby received
a B.A. degree in Economics from Harvard University and an M.B.A.
from Harvard Business School. Our board of directors has
concluded that Mr. Norby should serve on our board based upon
his extensive experience as a chief financial officer, his
extensive experience in accounting and his experience as a
public company director and audit committee chair.
Gidu Shroff, Director. Mr. Shroff
became our director in March 2010. Mr. Shroff served in various
positions at Intel Corporation from 1980 to July 2009. He served
as a Corporate Vice President from January 2002 to July 2009, as
Vice President of Materials from December 1997 to January 2002,
and as General Manager of Outsourcing from January 1990 until
December 1997. Mr. Shroff holds a B.S. in Metallurgy from
Poona Engineering University in India, an M.S. in Materials
Science from Stanford University and an M.B.A. from Santa Clara
University. Our board of directors has concluded that Mr. Shroff
should serve on the board based upon his extensive experience in
the semiconductor industry.
Steven Tan, Director. Mr. Tan
became our director in November 2009. Mr. Tan joined Avenue
in 2005 and is currently a Vice President of the Avenue
U.S. Funds. In such capacity, Mr. Tan is responsible
for identifying and analyzing investment opportunities in the
technology and telecommunications sectors for the Avenue
U.S. strategy. Previously, Mr. Tan was a research analyst
in the Avenue Event Driven Group where he was responsible for
investments related to long/short equity, special situations and
risk arbitrage. Prior to Avenue, Mr. Tan worked at
Wasserstein Perella & Co., an investment and merchant
bank, where he was a Mergers & Acquisitions analyst
with the Industrial Group focusing on the automotive and
industrial sectors. Mr. Tan holds a B.A. in Mathematics and
Economics from Wesleyan University and an M.B.A. from the
Harvard Business School. Our board of directors has concluded
that Mr. Tan should serve on the board based on his
extensive experience in finance and accounting and his
experience as an investor in the technology sector.
Nader Tavakoli,
Director. Mr. Tavakoli became our
director in November 2009. Mr. Tavakoli has been Chairman
and Chief Executive Officer of EagleRock Capital Management, a
private investment firm based in New York City since January
2002. Prior to founding EagleRock, Mr. Tavakoli was a
portfolio manager at Odyssey Partners, Highbridge Capital and
Cowen and Co. Mr. Tavakoli holds a B.A. in History
from Montclair State University and a J.D. from Rutgers School
of Law. Our board of directors has concluded that
Mr. Tavakoli should serve on the board based upon his
extensive investing experience.
96
Table of Contents
Involvement in
Certain Legal Proceedings
Sang Park was the Chairman of our board of directors and Chief
Executive Officer and Tae Young Hwang, Brent Rowe, Margaret
Sakai, Heung Kyu Kim, Tae Jong Lee and John McFarland were each
officers during our Chapter 11 reorganization proceedings. R.
Douglas Norby was one of our directors until September 2008. Mr.
Norby was also an officer of Novalux, Inc., a private company,
which was subject to bankruptcy proceedings in March 2003,
approximately one year after Mr. Norby’s departure from
Novalux, Inc.
Board
Composition
Our bylaws will provide that our board of directors will consist
of seven members. Mr. Park, our Chief Executive Officer, is
the Chairman of our board of directors. Messrs. Elkins,
Klein, and Tan have been designated to serve on our board by our
largest equity holder, which consists of funds affiliated with
Avenue Capital Management II, L.P. Messrs. Norby, Shroff
and Tavakoli serve as independent directors elected by the
affirmative vote of holders of more than 50% of our outstanding
common equity.
Audit
Committee
Our audit committee consists of Mr. Norby as Chairman and
Messrs. Klein and Tavakoli. Our board of directors has
determined that Mr. Norby is an audit committee financial
expert as defined in Item 407(d)(5) of
Regulation S-K
promulgated under the Securities Act. Our board has also
determined that Messrs. Norby and Tavakoli are
“independent” as that term is defined in both
Rule 303A of the NYSE rules and
Rule 10A-3
promulgated under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, and, upon the closing of this
offering, will each be an “independent director” as
that term is defined in Rule 303A of the NYSE rules. In
making this determination, our board of directors considered the
relationships that Messrs. Norby and Tavakoli have with our
company and all other facts and circumstances our board of
directors deemed relevant in determining their independence,
including any beneficial ownership of our equity. In accordance
with applicable rules of the NYSE, we are relying upon an
exception that allows us to phase in our compliance with the
independent audit committee requirement as follows, (i) one
independent member at the time of listing; (ii) a majority
of independent members within 90 days of listing; and
(iii) all independent members within one year of listing.
Compensation
Committee
The compensation committee of the board will be appointed prior
to the closing of this offering. The compensation committee will
have overall responsibility for evaluating and approving our
executive officer and director compensation plans, policies and
programs, as well as all equity-based compensation plans and
policies.
Nominating and
Governance Committee
The nominating and governance committee will be appointed prior
to the closing of this offering. The nominating and governance
committee’s mandate will be to identify qualified
individuals to become members of the board, to oversee an annual
evaluation of the board of directors and its committees, to
periodically review and recommend to the board any proposed
changes to our corporate governance guidelines and to monitor
our corporate governance structure.
Code of Business
Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that
applies to all of our directors, officers and employees. We will
provide a copy of our Code of Business Conduct and Ethics
without charge to any person upon written request made to our
Senior Vice President, General Counsel and Secretary at
c/o MagnaChip
Semiconductor, Ltd., 891 Daechi-dong, Gangnam-gu, Seoul,
135-738,
97
Table of Contents
Korea. Our Code of Business Conduct and Ethics is also available
on our website at www.magnachip.com.
Assessment of
Risk
Our board of directors believes that our compensation programs
are designed such that they will not incentivize unnecessary
risk-taking.
The base salary component of our compensation program is a fixed
amount and does not depend on performance. Our cash incentive
program takes into account multiple metrics, thus diversifying
the risk associated with any single performance metric, and we
believe it does not incentivize our executive officers to focus
exclusively on short-term outcomes. Our equity awards are
limited by the terms of our equity plans to a fixed maximum
specified in the plan, and are subject to vesting to align the
long-term interests of our executive officers with those of our
equityholders.
Compensation
Discussion and Analysis
Executive
Compensation
Compensation
Philosophy and Objectives
The compensation committee of our board of directors, or the
Committee, has overall responsibility for administering our
compensation program for our “named executive
officers.” The Committee’s responsibilities consist of
evaluating, approving and monitoring our executive officer and
director compensation plans, policies and programs, as well as
each of our equity-based compensation plans and policies. Prior
to 2010, compensation decisions were made by the entire board of
directors and for the discussion that follows, references to the
Committee during such period refer to the entire board. For
2009, our named executive officers who continue to serve as
executive officers were:
| • | Sang Park, Chairman of the Board of Directors and Chief Executive Officer; | |
| • | Tae Young Hwang, Chief Operating Officer and President; | |
| • | Brent Rowe, Senior Vice President, Worldwide Sales; | |
| • | Margaret Sakai, Senior Vice President and Chief Financial Officer; and | |
| • | John McFarland, Senior Vice President, General Counsel and Secretary. |
The Committee seeks to establish total compensation for
executive officers that is fair, reasonable and competitive. The
Committee evaluates our compensation packages to ensure that:
| • | we maintain our ability to attract and retain superior executives in critical positions; | |
| • | our executives are incentivized and rewarded for aggressive corporate growth, achievement of long-term corporate objectives and individual performance that meets or exceeds our expectations without encouraging unnecessary risk-taking; and | |
| • | compensation provided to critical executives remains competitive relative to the compensation paid to similarly situated executives of companies in the semiconductor industry. |
The Committee believes that the most effective executive
compensation packages align executives’ interests with
those of our unitholders by rewarding performance that exceeds
specific annual, long-term and strategic goals that are intended
to improve unitholder value. These objectives include the
achievement of financial performance goals and progress on
projects that our board of directors anticipates will lead to
future growth, as discussed more fully below.
The information set forth below in this Compensation Discussion
and Analysis describes the Committee’s general philosophy
and historical approach. However, given our financial
challenges, in
98
Table of Contents
the beginning of 2009, the Committee determined to continue the
arrangements from the prior year and did not perform any in
depth analysis.
Until April 2009, Robert J. Krakauer served as our President,
Chief Financial Officer, and director. In April 2009, we entered
into a Senior Advisor Agreement with Mr. Krakauer pursuant
to which he resigned from his employment and as a director but
remains available to consult with us in a limited capacity until
April 2010 to one year thereafter. Although
Mr. Krakauer is no longer one our executive officers, his
2009 compensation is reported herein in accordance with SEC
rules.
Role of
Executive Officers in Compensation Decisions
For named executive officers other than our chief executive
officer, we have historically sought and considered input from
our chief executive officer in making determinations regarding
executive compensation. Our chief executive officer annually
reviews the performance of our other named executive officers.
Our chief executive officer subsequently presents conclusions
and recommendations regarding such officers, including proposed
salary adjustments and incentive amounts, to the Committee. The
Committee then makes final decisions regarding any adjustments
or awards.
The review of performance by the Committee and our chief
executive officer of other executive officers is both an
objective and subjective assessment of each executive’s
contribution to our performance, leadership qualities, strengths
and weaknesses and the individual’s performance relative to
goals set by the Committee or our chief executive officer, as
applicable. The Committee and our chief executive officer do not
systematically assign a weight to the factors, and may, in their
discretion, consider or disregard any one factor which, in their
sole discretion, is important to or irrelevant for a particular
executive.
The Committee’s annual determinations regarding executive
compensation are subject to the terms of the respective service
agreements between us and the named executive officers (as set
forth in more detail below). In addition to the annual reviews,
the Committee also typically considers compensation changes upon
a named executive officer’s promotion or other change in
job responsibility. Neither our chief executive officer nor any
of our other executives participates in deliberations relating
to their own compensation.
Role of
Compensation Consultants
The Committee has the authority to retain the services of
third-party executive compensation specialists in connection
with the establishment of cash and equity compensation and
related policies. Historically, we have engaged compensation
consultants to provide information and recommendations relating
to executive pay and equity compensation or otherwise obtained
third party compensation surveys. In light of the financial
challenges we were facing, we did not use a compensation
consultant, or review any formal industry data, in connection
with setting 2009 executive compensation. The Committee has not
retained a compensation consultant for 2010.
Timing of
Compensation Decisions
At the end of each fiscal year, our chief executive officer will
review the performance of the other executive officers and
present his conclusions and recommendations to the Committee. At
that time and throughout the year, the Committee will also
evaluate the performance of our chief executive officer, which
is measured in substantial part against our consolidated
financial performance. In January of the following fiscal year,
the Committee will then assess the overall functioning of our
compensation plans against our goals, and determine whether any
changes to the allocation of compensation elements, or the
structure or level of any particular compensation element, are
warranted.
99
Table of Contents
In connection with this process, our Committee generally
establishes the elements of its performance-based cash bonus
plan for the upcoming year. With respect to newly hired
employees, our practice is typically to approve equity grants at
the first meeting of the Committee following such
employee’s hire date. We do not have any program, plan or
practice to time equity award grants in coordination with the
release of material non-public information. From time to time,
additional equity awards may be granted to executive officers
during the fiscal year. For example, in December 2009, our
executive officers were granted restricted unit bonuses and
nonstatutory options for common units, as further described
below.
Elements of
Compensation
In making decisions regarding the pay of the named executive
officers, the Committee looks to set a total compensation
package for each officer that will retain high-quality talent
and motivate executives to achieve the goals set by our board of
directors. Our 2009 compensation package was composed of the
following elements:
| • | annual base salary; | |
| • | short-term cash incentives; | |
| • | long-term equity incentives; | |
| • | a benefits package that is generally available to all of our employees; and | |
| • | expatriate and other executive benefits. |
Determination
of Amount of Each Element of Compensation
General
Background
In 2009, our board of directors assessed the overall functioning
of our compensation plans against our goals, and, due to our
financial condition and impending reorganization proceedings,
determined no changes to the allocation of compensation
elements, or the structure or level of any particular
compensation element, were warranted for 2009.
The Committee seeks to establish a total cash compensation
package for our named executive officers that is competitive and
within the ranges reflected in compensation data reviewed by the
Committee, subject to adjustments based on each executive’s
experience and performance. Historically, based on the
recommendations provided by outside advisors, our review of
industry specific survey data and the professional and market
experience of our board of directors, we measured total cash
compensation for our named executive officers against cash
compensation paid to similarly situated executives in the
semiconductor industry. Base salaries for our named executive
officers were benchmarked to median levels for companies in the
semiconductor industry, and short-term cash incentives were put
in place to raise total cash compensation targets above median
levels if the Committee were to determine that our performance
and that of our named executive officers exceeded expectations
and the goals established by the Committee.
Historically, in determining the total cash and other
compensation for each named executive officer, we benchmarked
compensation based on data from other major Korean semiconductor
companies, including Fairchild Korea, Dongbu Hitek, ChipPac
Korea and Hynix Semiconductor, and
100
Table of Contents
we reviewed compensation data from TowersPerrin Korea, an
independent compensation consultant, which surveyed the
following companies:
|
• Accenture
• Advanced Micro Devices • Applied Materials • ASML • Blizzard • Cisco Systems • CJ Internet |
• CommVerge
• CSR
• Dell
• Electronic Arts
• GCT Semiconductor
• Gravity
• JCEntertainment
• KLA-Tencor
|
• Lam Research
• Lexmark International
• Microsoft
• NCsoft
• Neowiz Games
• NHN Games
• Npluto
|
• NXP Semiconductors
• Orange Business Services
• Sony Computer Entertainment
• Tokyo Electron
• Toshiba Group
• Verizon Business
|
Equity awards are not tied to base salary or cash incentive
amounts and will constitute lesser or greater proportions of
total compensation depending on the fair value of the awards.
The Committee, relying on the professional and market experience
of our Committee members, generally seeks to set equity awards
at levels which are within the ranges offered at other companies
in the semiconductor industry. The Committee does not apply a
formula or assign relative weight in making its determination.
Instead, it makes a subjective determination after considering
all information collectively.
The Committee establishes guidelines regarding the aggregate
actual and expected cash and other compensation for each of our
executive officers. The Committee develops these annual
guidelines based on our annual operating plan, which is adopted
in the December preceding each fiscal year, including the
expected conduct of our business in the coming fiscal year, and
then modifies the guidance as-needed to adjust for changes in
our business during the year. The Committee makes all equity
compensation decisions for our officers based on existing
compensation arrangements for other of our executives at the
same level of responsibility and based on our review of the
market with a view to maintaining internal consistency and
parity. The Committee may make additional equity compensation
grants from time to time in its discretion.
Base
Salary
Base salary is the guaranteed element of an employee’s
annual cash compensation. Increases in base salary reflect the
employee’s long-term performance, skill set and the value
of that skill set, as well as changes to the compensation
arrangements of the companies we benchmark. The Committee
evaluates the performance of each named executive officer on an
annual basis based on the accomplishment of performance
objectives that were established at the beginning of the prior
fiscal year as well as its own subjective evaluation of the
officer’s performance. In making its evaluation, the
Committee determines changes in the base salary of each named
executive officer based on a subjective qualitative assessment
of the officer’s contribution to our performance during the
preceding year, including leadership, success in attaining
particular goals of a division for which that officer has
responsibility, our overall financial performance and such other
criteria as the Committee may deem relevant, including input
from the Company’s Chief Executive Officer. The Committee
then makes a subjective decision based on these factors. The
Committee does not systematically assign weights to any of the
factors it considers, and may, in its discretion, ignore any
factors or deem any one factor to have greater importance for a
particular executive officer.
Based upon our financial condition at the time, the Committee
determined not to change compensation arrangements at the
beginning of 2009. Our employees, including our executive
officers, voluntarily accepted a 20% reduction in base salary
from 2008 levels from January to March 2009, and an additional
10% reduction from April to June 2009, as part of austerity
measures implemented to assist in our recovery. Mr. Park
voluntarily accepted a 40% reduction in base salary from January
to March 2009, and an additional 20% pay reduction from April to
June 2009. We restored salaries to 2008 levels in July 2009. In
December 2009, as a reward for the successful
101
Table of Contents
completion of our reorganization proceedings, our board of
directors granted a one-time incentive of 30% of monthly base
salary to all employees, and granted special discretionary
incentives to Mr. Park, Mr. Hwang, Ms. Sakai and
Mr. McFarland, as described in more detail below.
Cash
Incentives
Short-term cash incentives comprise a significant portion of the
total target compensation package and are designed to reward
executives for their contributions to meeting and exceeding our
goals and to recognize and reward our executives in achieving
these goals. Incentives are designed as a percentage of base
salary and are awarded based on individual performance and our
achievement of the annual, long-term and strategic quantitative
goals set by our Committee.
Given our financial position at the beginning of 2009, we did
not set new targets for our cash incentive plans for 2009. As a
result, our short-term cash incentive plan was effectively
suspended through most of the year. In December 2009, our board
of directors implemented a cash incentive plan effective as of
January 1, 2010, which we call the Profit Sharing Plan.
Each of our employees is eligible to participate in the Profit
Sharing Plan, and our board of directors intends for the Profit
Sharing Plan to incentivize our named executive officers,
officers and employees to exceed expectations throughout our
entire fiscal year. Our board of directors has empowered the
Committee to administer the Profit Sharing Plan.
Under the Profit Sharing Plan, the Committee will review our
business plan in December of each year and determine an annual
consolidated Adjusted EBITDA target, or the Base Target, for the
upcoming fiscal year and set the targeted amount to be awarded
to our named executive officers and employees, or the Profit
Share, for meeting the Base Target and for achievement in excess
of the Base Target.
The Base Target is calculated as a percentage of our forecasted
gross annual revenue for the upcoming fiscal year. We determine
our revenue forecast by looking at several factors, including
existing orders from our customers, quarterly and annual
forecasts from our customers, our product roadmap and how it
corresponds with our projected customer needs, and the overall
industry forecasts for the semiconductor market. The
Committee’s goal is to set a Base Target that is difficult
but not unreasonable to achieve. To determine the percentage of
gross annual revenue for purposes of setting the Base Target,
the Committee, in consultation with our board of directors,
first determines a range of Adjusted EBITDA growth and gross
margin that is competitive and will ensure that we build
unitholder value, then sets a percentage such that the
forecasted Adjusted EBITDA growth and gross margin is within
that range. See “Prospectus Summary — Summary
Historical and Unaudited Pro Forma Consolidated Financial
Data” for a discussion of how we define Adjusted EBITDA. We
believe that Adjusted EBITDA is an appropriate measure of our
performance because Adjusted EBITDA eliminates the impact of a
number of items that we do not consider to be indicative of our
core ongoing operating performance, is an enterprise level
performance measure commonly reported and widely used by
analysts and investors in our industry, and provides a more
consistent measurement of period to period performance of our
core operations, as well as a comparison of our operating
performance to companies in our industry. For additional
information regarding how we calculate Adjusted EBITDA and
Adjusted Net Income, please see “Prospectus
Summary — Summary Historical and Unaudited Pro Forma
Consolidated Financial Data.”
Each named executive officer receives as a Profit Share a set
percentage of their annual base salary once the Base Target is
achieved. For 2010, our Chief Executive Officer is eligible to
receive 40% of annual base salary, our President is eligible to
receive 33.3% of annual base salary, our General Managers are
eligible to receive 26.7% of annual base salary, our Senior Vice
Presidents are eligible to receive 23.3% of annual base salary
and our Vice Presidents are eligible to receive 20% of annual
base salary. In the event we exceed the Base Target, we will pay
to our executive officers and employees an additional Profit
Share of 25% of our annual consolidated Adjusted EBITDA in
excess of the Base Target.
102
Table of Contents
We pay the Profit Share during the normal pay period in the
January following the conclusion of each fiscal year for which
the Profit Share is calculated, and the Profit Share is only
payable to those executives who have been employed by us during
the entire fiscal year for which the Profit Share is calculated
and who are employed by us on the Profit Share payment date,
provided that the Profit Share is payable pro rata to any named
executive officers who begin their employment during the fiscal
year for which the Profit Share is calculated.
The Committee retains the sole discretion to (i) authorize
the payment of the Profit Share in December of the relevant
fiscal year when the Committee believes the Base Target will be
achieved, (ii) pay Profit Shares when we achieve slightly
less than the Base Target, and (iii) make interim Profit
Share payments during the fiscal year. In addition to the Profit
Sharing Plan, the Committee retains the right to grant
discretionary incentives to our named executive officers as a
reward for extraordinary performance. For example, as discussed
above, Mr. Park, Mr. Hwang, Ms. Sakai and
Mr. McFarland were paid a discretionary incentive in
December 2009 in recognition of their role in our successful
reorganization proceedings.
For 2010, the implementation of the Profit Sharing Plan has been
modified to provide our employees with an opportunity to share
in company success earlier in the fiscal year than under the
existing Profit Sharing Plan. In addition to setting the Base
Target, two interim targets for our first and second fiscal
quarters have been set. We will pay a Profit Share distribution
in the first normal pay period following the conclusion of each
fiscal quarter for each interim target that we reach. The total
Profit Share payable for meeting the Base Target will be offset
by any profit share paid in 2010 for reaching either or both of
the interim targets. In addition, for 2010, we will not pay a
Profit Share of 25% of our annual consolidated Adjusted EBITDA
in excess of the Base Target.
Equity
Compensation
In addition to cash incentives, we offer equity incentives as a
way to enhance the link between the creation of unitholder value
and executive incentive compensation and to give our executives
appropriate motivation and rewards for achieving increases in
enterprise value. Under our 2009 Common Unit Plan, our board of
directors granted options to acquire MagnaChip Semiconductor LLC
common units and restricted unit bonus awards. Awards under our
2009 Common Unit Plan will be converted into options for common
stock and restricted common stock of MagnaChip Semiconductor
Corporation upon our corporate conversion. Such options vest in
installments over three years following grant, with
approximately one-third of the restricted unit awards vested at
grant and the remainder vesting in two subsequent annual
installments, as set forth in more detail below.
Under our 2010 Equity Incentive Plan, which will replace the
2009 Common Unit Plan immediately following our corporation
conversion, the Committee may grant participants stock options,
stock appreciation rights, restricted stock, restricted stock
units, performance shares and units, and other stock-based and
cash-based awards. In granting equity awards, the Committee may
establish any conditions or restrictions it deems appropriate.
Stock options and stock appreciation rights must have exercise
prices at least equal to the fair market value of the stock at
the time of their grant pursuant to the 2010 Equity Incentive
Plan. The fair market value of the stock at the time of grant
will generally be the closing price of a share of stock as
quoted on the national or regional securities exchange or
quotation system constituting the primary market for the stock
on the date any grant is made. Prior to the exercise of a stock
option or stock appreciation or settlement of an award
denominated in units, the holder has no rights as a stockholder
with respect to the stock subject to the award, including voting
rights and the right to receive dividends. Participants
receiving restricted stock awards are stockholders and have both
voting rights and the right to receive dividends, except that
dividends paid on unvested shares may remain subject to
forfeiture until vested. Award vesting ceases upon termination
of employment, and vested options and stock appreciation rights
remain exercisable only for a limited period following such
termination.
103
Table of Contents
The Committee considers granting additional equity compensation
in the event of new employment, or a promotion or change in job
responsibility or in its discretion to reward or incentivize
individual officers. The option award levels vary among
participants based on their job grade and position. The
Committee makes subjective determinations regarding award
amounts in light of the available pool, and will provide higher
awards to those executives in positions considered by the
Committee to be more critical to our long-term success. The
Committee will generally maintain substantially equivalent award
levels for executives at equivalent job grades in positions with
no material difference in criticality. Stock option awards are
not tied to base salary or cash incentive amounts.
We generally expect to grant equity compensation in the form of
unit options. However, in December 2009, in recognition of
services provided in guiding us through our reorganization
proceedings, our board of directors granted each of our current
named executive officers a restricted unit bonus in addition to
an option. We granted restricted unit bonuses in order to
provide our executives with an embedded value while still
incentivizing them to contribute toward increasing our
enterprise value. See additional details below in “Grant of
Plan-Based
Awards.” Thirty-four percent of each restricted unit bonus
vested upon grant, with the remaining portion vesting in equal
installments on the first and second anniversary of the grant
date. Thirty-four percent of the common units subject to the
options will vest and become exercisable on the first
anniversary of grant date, with 8 or 9% of the common units
subject to the options vesting on completion of each three-month
period thereafter through December 2012.
Upon the recommendation of our board of directors or chief
executive officer, or otherwise, the Committee may in the future
consider granting additional performance-based equity incentives.
Perquisites and
Other Benefits
We provide the named executive officers with perquisites and
other personal benefits, including expatriate benefits, that the
Committee believes are reasonable and consistent with its
overall compensation program to better enable us to attract and
retain superior employees for key positions. The Committee
determines the level and types of expatriate benefits for the
officers based on local market surveys taken by our human
resources group. Attributed costs of the personal benefits for
the named executive officers are as set forth in the Summary
Compensation Table below.
Mr. Park, Ms. Sakai and Mr. McFarland were
expatriates during all or part of 2009 and received expatriate
benefits commensurate with market practice in Korea. These
perquisites, which were determined on an individual basis,
included housing allowances, relocation allowances, insurance
premiums, reimbursement for the use of a car, home leave
flights, living expenses, tax equalization payments and tax
advisory services, each as we deemed appropriate.
In addition, pursuant to the Employee Retirement Benefit
Security Act, certain executive officers resident in Korea with
one or more years of service are entitled to severance benefits
upon the termination of their employment for any reason. For
purposes of this section, we call this benefit “statutory
severance.” The base statutory severance is approximately
one month of base salary per year of service. Mr. Hwang,
Ms. Sakai and Mr. McFarland accrue statutory severance.
104
Table of Contents
Summary
Compensation Table
The following table sets forth certain information concerning
the compensation earned during the years ended December 31,
2007, 2008 and 2009, of our named executive officers:
|
Change in |
||||||||||||||||||||||||||||||||
|
Pension |
||||||||||||||||||||||||||||||||
|
Value |
||||||||||||||||||||||||||||||||
|
and Non- |
||||||||||||||||||||||||||||||||
|
qualified |
||||||||||||||||||||||||||||||||
|
Deferred |
||||||||||||||||||||||||||||||||
|
Compen- |
All Other |
|||||||||||||||||||||||||||||||
|
Stock |
Option |
sation |
Compen- |
|||||||||||||||||||||||||||||
|
Name and Principal |
Salary |
Bonus |
Awards |
Awards |
Earnings |
sation |
Total |
|||||||||||||||||||||||||
|
Position
|
Year | ($) | ($) | ($)(1) | ($)(1) | ($)(2) | ($) | ($) | ||||||||||||||||||||||||
|
Sang Park
|
2009 | 376,980 | 613,893 | 1,769,600 | 488,070 | 314,785 | (3) | 3,563,328 | ||||||||||||||||||||||||
|
Chairman and
|
2008 | 442,128 | 351,897 | (4) | 794,025 | |||||||||||||||||||||||||||
|
Chief Executive Officer
|
2007 | 450,148 | 309,330 | 244,468 | (5) | 1,003,946 | ||||||||||||||||||||||||||
|
Tae Young Hwang,
|
2009 | 189,748 | 106,544 | 663,600 | 305,044 | 119,541 | 10,884 | (6) | 1,395,361 | |||||||||||||||||||||||
|
Chief Operating
|
2008 | 212,307 | 99,095 | 20,293 | (7) | 331,695 | ||||||||||||||||||||||||||
|
Officer and President
|
2007 | 236,830 | 119,339 | 19,735 | 11,476 | (8) | 387,380 | |||||||||||||||||||||||||
|
Brent Rowe
|
2009 | 293,054 | 176,000 | (9) | 442,400 | 183,026 | 12,231 | (10) | 1,106,711 | |||||||||||||||||||||||
|
Senior Vice President,
|
2008 | 226,308 | 176,000 | (11) | 25,673 | (12) | 427,981 | |||||||||||||||||||||||||
|
Worldwide Sales
|
2007 | 220,846 | 176,000 | (13) | 142,191 | (14) | 539,037 | |||||||||||||||||||||||||
|
Margaret Sakai
|
2009 | 238,347 | 46,549 | 265,440 | 73,211 | 12,143 | 163,668 | (15) | 799,358 | |||||||||||||||||||||||
|
Senior Vice President,
|
2008 | 250,934 | 37,683 | 180,025 | (16) | 468,642 | ||||||||||||||||||||||||||
|
Chief Financial Officer
|
2007 | 250,082 | 21,569 | 24,086 | 167,791 | (17) | 463,528 | |||||||||||||||||||||||||
|
John McFarland,
|
2009 | 172,229 | 44,764 | 265,440 | 48,807 | 14,369 | 99,615 | (18) | 645,224 | |||||||||||||||||||||||
|
Senior Vice President,
|
2008 | 191,147 | 21,492 | 79,790 | (19) | 292,429 | ||||||||||||||||||||||||||
|
General Counsel and
|
2007 | 201,839 | 75,930 | 23,195 | 22,802 | 97,334 | (20) | 421,100 | ||||||||||||||||||||||||
|
Secretary
|
||||||||||||||||||||||||||||||||
|
Robert J. Krakauer,
|
2009 | 467,265 | 176,554 | (21) | 643,819 | |||||||||||||||||||||||||||
|
Former President
|
2008 | 468,426 | 820,236 | (22) | 1,288,662 | |||||||||||||||||||||||||||
|
and Chief Financial Officer
|
2007 | 375,123 | 270,903 | 707,831 | (23) | 1,353,857 | ||||||||||||||||||||||||||
Note: Amounts set forth in the above table that were
originally paid in Korean won from January 1 to October 25,
2009 and during the fiscal years ended December 31, 2008
and 2007 have been converted into U.S. dollars using an
average exchange rates during the respective periods. After
October 25, 2009, a monthly average exchange rate was used.
Footnotes:
| (1) | Represents grant date fair value with respect to the fiscal year determined in accordance with FASB ASC 718. See “Note 4 Summary of Significant Accounting Policies — Unit-Based Compensation,” and “Note 19 Equity Incentive Plans,” to the MagnaChip Semiconductor LLC audited consolidated financial statements for the two months ended December 31, 2009, the ten months ended October 25, 2009 and the years ended 2008 and 2007. | |
| (2) | Consists of statutory severance accrued during the two months ended December 31, 2009, ten months ended October 25, 2009 and the years ended December 31, 2008 and 2007, as applicable. See the section subtitled “Compensation Discussion and Analysis” for a description of the statutory severance benefit. | |
| (3) | Includes the following personal benefits paid to Mr. Park: (a) $125,073 equivalent to one year prepayment of housing expenses for Mr. Park’s amended housing lease; (b) $28,386 for insurance premiums; (c) $48,319 for other personal benefits (including reimbursement of the use of a car, home leave flights, living expenses and personal tax advisory expenses); and (d) $89,252 of reimbursement for the difference between the actual tax Mr. Park already paid and the hypothetical tax he had to pay for the fiscal year 2008; and (e) $23,755 for reimbursement of Korean tax. | |
| (4) | Includes the following personal benefits paid to Mr. Park: (a) $70,838 equivalent to six months from $301,410 for prepayment of Mr. Park’s housing expenses for two years, $82,828 for seven months’ rent for Mr. Park’s new housing lease for two years and $8,192 equivalent to housing expenses for six months calculated from the key money deposit for Mr. Park’s new housing lease for two years; (b) $27,290 for insurance premiums; (c) $35,787 for other personal benefits (including reimbursement of the use of a car, home leave flights and personal tax advisory expenses); (d) $78,913 of reimbursement for the difference between the actual tax Mr. Park already paid and the hypothetical tax he had to pay for the fiscal year 2006 and 2007; (e) $24,962 for Mr. Park’s living expenses; and (f) $23,087 for reimbursement of Korean tax and employee fringe benefits. | |
| (5) | Includes the following personal benefits paid to Mr. Park: (a) $154,798 equivalent to one year prepayment of Mr. Park’s housing expenses for two years; (b) $42,684 for insurance premiums; (c) $31,750 for other personal benefits (including personal tax advisory expenses); (d) $1,188 of reimbursement in relation to a Korean tax payment in 2006; and (e) $14,048 for reimbursement of Korean tax, the employee contribution portion of the Korean national health insurance program and employee fringe benefits. |
105
Table of Contents
| (6) | Includes the following personal benefits paid to Mr. Hwang: (a) $7,832 for reimbursement of the use of a car; and (b) $3,052 for insurance premiums. | |
| (7) | Includes the following personal benefits paid to Mr. Hwang: (a) $9,541 for reimbursement of the use of a car; (b) $9,070 for insurance premiums; and (c) $1,682 for employee fringe benefits. | |
| (8) | Includes the following personal benefits paid to Mr. Hwang: (a) $11,056 for reimbursement of the use of a car; and (b) $420 for employee fringe benefits. | |
| (9) | Under Mr. Rowe’s offer letter (as supplemented), in 2007, Mr. Rowe elected to receive a $528,000 advance on his first three years of potential annual bonus payments at a rate of 80% of base pay. One-third of this amount ($176,000) was earned in 2009. | |
| (10) | Includes the following personal benefits paid to Mr. Rowe: (a) $1,597 for reimbursement of the use of a car; and (b) $10,634 for insurance premiums. | |
| (11) | Under Mr. Rowe’s offer letter (as supplemented), in 2007, Mr. Rowe elected to receive a $528,000 advance on his first three years of potential annual bonus payments at a rate of 80% of base pay. One-third of this amount ($176,000) was earned in 2008. | |
| (12) | Includes the following personal benefits paid to Mr. Rowe: (a) $1,983 for reimbursement of the use of a car; (b) $13,027 for insurance premiums; and (c) $10,663 for personal tax advisory expenses. | |
| (13) | Under Mr. Rowe’s offer letter (as supplemented), in 2007, Mr. Rowe elected to receive a $528,000 advance on his first three years of potential annual bonus payments at a rate of 80% of base pay. One-third of this amount ($176,000) was earned in 2007. | |
| (14) | Includes the following personal benefits paid to Mr. Rowe: (a) $121,826 of Mr. Rowe’s relocation allowance when he returned to the U.S. from an expatriate assignment in Korea; (b) $3,000 for contributions to a pension plan; (c) $4,967 for personal tax advisory expenses; (d) $12,130 for insurance premiums; and (e) $268 for reimbursement of the use of a car. | |
| (15) | Includes the following personal benefits paid to Ms. Sakai: (a) $25,590 for four months’ rent for Ms. Sakai’s new housing lease and $32,650 equivalent to housing expenses for eight months calculated from the key money deposit for Ms. Sakai’s housing lease for two years; (b) $33,735 for reimbursement of tuition expenses for Ms. Sakai’s children; (c) $21,352 for Ms. Sakai’s home leave flights; (d) $28,238 for insurance premiums; (e) $8,568 for other personal benefits (including reimbursement of the use of a car, personal tax advisory expenses, and communication expenses); and (f) $13,535 for reimbursement of Korean tax. | |
| (16) | Includes the following personal benefits paid to Ms. Sakai: (a) $61,438 equivalent to housing expenses for one year calculated from the key money deposit for Ms. Sakai’s housing lease for two years; (b) $38,046 for reimbursement of tuition expenses for Ms. Sakai’s children; (c) $23,420 for Ms. Sakai’s home leave flights; (d) $27,211 for insurance premiums; (e) $21,460 for other personal benefits (including reimbursement of the use of a car, personal tax advisory expenses, and communication expenses); and (f) $8,450 for reimbursement of Korean tax and employee fringe benefits. | |
| (17) | Includes the following personal benefits paid to Ms. Sakai: (a) $72,661 equivalent to housing expenses for one year calculated from the key money deposit for Ms. Sakai’s housing lease for two years; (b) $30,649 for reimbursement of tuition expenses for Ms. Sakai’s children; (c) $18,709 for Ms. Sakai’s home leave flights; (d) $28,140 for insurance premiums; (e) $13,673 for other personal benefits (including reimbursement of the use of a car, personal tax advisory expenses, and communication expenses); and (f) $3,959 for reimbursement of the employee contribution portion of the Korean national health insurance program and employee fringe benefits. | |
| (18) | Includes the following personal benefits paid to Mr. McFarland: (a) $23,351 for reimbursement of tuition expenses for Mr. McFarland’s child; (b) $19,978 of reimbursement for the difference between the actual tax Mr. McFarland already paid and the hypothetical tax he had to pay for the fiscal year 2008; (c) $20,227 for insurance premiums; (d) $1,089 for other personal benefits (including reimbursement of the use of a car and personal tax advisory expenses); and (e) $34,970 for reimbursement of Korean tax. | |
| (19) | Includes the following personal benefits paid to Mr. McFarland: (a) $21,334 for reimbursement of tuition expenses for Mr. McFarland’s child; (b) $13,382 of reimbursement for the difference between the actual tax Mr. McFarland already paid and the hypothetical tax he had to pay for the fiscal year 2007; (c) $19,736 for insurance premiums paid; (d) $12,296 for other personal benefits (including reimbursement of the use of a car and personal tax advisory expenses); and (e) $13,042 for reimbursement of Korean tax and employee fringe benefits. | |
| (20) | Includes the following personal benefits paid to Mr. McFarland: (a) $35,837 for reimbursement of tuition expenses for Mr. McFarland’s child; (b) $20,292 of reimbursement for the difference between the actual tax Mr. McFarland already paid and the hypothetical tax he had to pay for the fiscal year 2006; (c) $23,534 for insurance premiums; (d) $5,050 for other personal benefits (including reimbursement of the use of a car and personal tax advisory expenses); and (e) $12,621 for reimbursement of Korean tax, the employee contribution portion of the Korean national health insurance program and employee fringe benefits. | |
| (21) | Includes the following personal benefits paid to Mr. Krakauer: (a) $145,460 for Mr. Krakauer’s housing expenses; (b) $24,329 for insurance premiums; and (c) $6,765 for other personal benefits (including reimbursement of the use of a car and living expenses). |
106
Table of Contents
| (22) | Includes the following personal benefits paid to Mr. Krakauer: (a) $225,940 for Mr. Krakauer’s housing expenses; (b) $97,827 for reimbursement of living expenses; (c) $29,246 for reimbursement of tuition expenses for Mr. Krakauer’s children; (d) $23,860 for Mr. Krakauer’s home leave flights; (e) $22,842 for insurance premiums; (f) $22,404 for reimbursement of the use of two cars; (g) $49,789 for personal tax advisory expenses; (h) $248,302 of reimbursement for the difference between the actual tax Mr. Krakauer already paid and the hypothetical tax he had to pay for the fiscal year 2006, 2007 and 2008; (i) $29,604 for repatriation allowance paid to Mr. Krakauer; and (j) $70,422 for reimbursement of Korean tax and employee fringe benefits. | |
| (23) | Includes the following personal benefits paid to Mr. Krakauer: (a) $107,088 equivalent to seven months from Mr. Krakauer’s old lease contract and $101,874 equivalent to five months from $697,547 for prepayment of his new lease contract for three years; (b) $30,643 for reimbursement of living expenses; (c) $71,683 for reimbursement of tuition expenses for Mr. Krakauer’s children; (d) $20,242 for Mr. Krakauer’s home leave flights; (e) $43,823 for insurance premiums; (f) $63,791 of reimbursement for all commission and closing costs for the sale of Mr. Krakauer’s house in the United States; (g) $12,581 for personal tax advisory expenses; (h) $21,748 for reimbursement of the use of two cars; (i) $147,490 of reimbursement for the difference between the actual tax Mr. Krakauer already paid and the hypothetical tax he had to pay for the fiscal year 2006; and (j) $86,868 for reimbursement of Korean tax, the employee contribution portion of the Korean national health insurance program and employee fringe benefits. |
107
Table of Contents
Grants of
Plan-Based Awards
The following table sets forth certain information with respect
to stock and option awards and other plan-based awards granted
during the year ended December 31, 2009 to our named
executive officers:
|
All Other |
||||||||||||||||||||
|
All Other |
Option |
|||||||||||||||||||
|
Stock |
Awards: |
Exercise or |
||||||||||||||||||
|
Awards: |
Number of |
Base |
||||||||||||||||||
|
Number of |
Securities |
Price of |
Grant Date Fair |
|||||||||||||||||
|
Shares of |
Underlying |
Option |
Value of Stock |
|||||||||||||||||
|
Stock or |
Options |
Awards |
and Option |
|||||||||||||||||
|
Name
|
Grant Date
|
Units (#)(1)
|
(#)(1)
|
($/sh)(2)
|
Awards ($)(3)
|
|||||||||||||||
|
Sang Park
|
12/08/2009 | 2,240,000 | $ | 1,769,600 | ||||||||||||||||
| 12/08/2009 | 2,240,000 | 1.16 | $ | 488,070 | ||||||||||||||||
|
Tae Young Hwang,
|
12/08/2009 | 840,000 | $ | 663,600 | ||||||||||||||||
| 12/08/2009 | 1,400,000 | 1.16 | $ | 305,044 | ||||||||||||||||
|
Brent Rowe
|
12/08/2009 | 560,000 | $ | 442,400 | ||||||||||||||||
| 12/08/2009 | 840,000 | 1.16 | $ | 183,026 | ||||||||||||||||
|
Margaret Sakai
|
12/08/2009 | 336,000 | $ | 265,440 | ||||||||||||||||
| 12/08/2009 | 336,000 | 1.16 | $ | 73,211 | ||||||||||||||||
|
John McFarland
|
12/08/2009 | 336,000 | $ | 265,440 | ||||||||||||||||
| 12/08/2009 | 224,000 | 1.16 | $ | 48,807 | ||||||||||||||||
| (1) | The vesting schedule applicable to each award is set forth below in the section entitled “Outstanding Equity Awards at Fiscal Year End 2009.” | |
| (2) | Exceeds the per share fair market value of our common stock on the grant date ($0.79), as determined by our board of directors on such date based on various factors, including independent third party valuations of our common stock. | |
| (3) | Represents ASC 718 grant date fair value. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Accounting for Unit-based Compensation” for a description of how we valued our units as a private company. |
| Outstanding Equity Awards at Fiscal Year End 2009(1) | ||||||||||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||||||||||
|
Number of |
Market |
|||||||||||||||||||||||
|
Number of |
Number of |
Shares or |
Value of |
|||||||||||||||||||||
|
Securities |
Securities |
Units of |
Shares or |
|||||||||||||||||||||
|
Underlying |
Underlying |
Stock That |
Units of |
|||||||||||||||||||||
|
Unexercised |
Unexercised |
Option |
Option |
Have Not |
Stock That |
|||||||||||||||||||
|
Options (#) |
Options (#) |
Exercise |
Expiration |
Vested |
Have Not |
|||||||||||||||||||
|
Name
|
Exercisable
|
Unexercisable(2)
|
Price ($)
|
Date
|
(#)(3)
|
Vested ($)(4)
|
||||||||||||||||||
|
Sang Park
|
— | 2,240,000 | 1.16 | 12/8/2019 | 1,478,400 | 1,167,936 | ||||||||||||||||||
|
Tae Young Hwang
|
— | 1,400,000 | 1.16 | 12/8/2019 | 554,400 | 437,976 | ||||||||||||||||||
|
Brent Rowe
|
— | 840,000 | 1.16 | 12/8/2019 | 369,600 | 291,984 | ||||||||||||||||||
|
Margaret Sakai
|
— | 336,000 | 1.16 | 12/8/2019 | 221,760 | 175,190 | ||||||||||||||||||
|
John McFarland
|
— | 224,000 | 1.16 | 12/8/2019 | 221,760 | 175,190 | ||||||||||||||||||
| (1) | All of our outstanding common and preferred units and outstanding options as of November 9, 2009 were terminated as of November 9, 2009 pursuant to our reorganization proceedings. | |
| (2) | An installment of 34% of the common units subject to the options will vest and become exercisable on December 8, 2010, an additional 9% of the options vest on the completion of the next period of three months, an additional 8% of the options vest upon the completion of each of |
108
Table of Contents
| the next three-month periods, an additional 9% of the options vest upon the completion of the next quarter, and an additional 8% of the options vest upon the completion of each of the next three quarters. | ||
| (3) | The restrictions on the units lapse on December 8, 2010 as to 33% of the total amount of restricted common units originally awarded and on December 8, 2011 as to 33% of the total amount of restricted common units originally awarded. | |
| (4) | During fiscal year 2009, there was no established public trading market for our outstanding common equity. The reported value represents the product of multiplying the number of unvested restricted units by the value of our units of $0.79 as of December 31, 2009, the last day of our fiscal year. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Accounting for Unit-based Compensation” for a description of how we valued our units while as a private company. | |
| (5) | Mr. Krakauer resigned as our President, Chief Financial Officer and director on April 10, 2009. |
| Option Exercises and Stock Vested at Fiscal Year End 2009(1) | ||||||||
|
Number of |
||||||||
|
Shares |
||||||||
|
Acquired on |
Value Realized |
|||||||
|
Vesting |
on Vesting |
|||||||
|
Name
|
(#)(2)
|
($)(3)
|
||||||
|
Sang Park
|
761,600 | 601,664 | ||||||
|
Tae Young Hwang
|
285,600 | 225,624 | ||||||
|
Brent Rowe
|
190,400 | 150,416 | ||||||
|
John McFarland
|
114,240 | 90,250 | ||||||
|
Margaret Sakai
|
114,240 | 90,250 | ||||||
| (1) | All of our outstanding common and preferred units and outstanding options as of November 9, 2009 were terminated as of November 9, 2009 pursuant to our reorganization proceedings. | |
| (2) | The restrictions on the units lapsed on December 8, 2009 as to 34% of the total amount of restricted common units originally awarded. | |
| (3) | During fiscal year 2009, there was no established public trading market for our outstanding common equity. The reported value represents the product of multiplying the number of vested units by the value of our units of $0.79 as of the date of vesting. |
MagnaChip
Semiconductor LLC 2009 Common Unit Plan
All of our outstanding common and preferred units and options
and related plans were terminated as of November 9, 2009
pursuant to our reorganization proceedings. Following our
emergence from our reorganization proceedings, in December 2009,
our board of directors adopted, and our equityholders approved,
the MagnaChip Semiconductor LLC 2009 Common Unit Plan, which we
refer to as the 2009 Plan. The 2009 Plan provides for the grant
of nonstatutory options, restricted unit bonus and purchase
right awards, and deferred unit awards to employees and
consultants of the company and its subsidiaries and to members
of our board of directors. However, only options and restricted
unit bonus awards have been granted under the 2009 Plan. Subject
to adjustment in the event of certain changes in capital
structure, the maximum aggregate number of MagnaChip
Semiconductor LLC common units that are available for grant
under the 2009 Plan is 30,000,000. Units subject to awards that
expire, are forfeited or otherwise terminate will again be
available for grant under the 2009 Plan.
In connection with our corporate conversion, we will assume the
rights and obligations of the company under the 2009 Plan and
convert MagnaChip Semiconductor LLC common unit options and
restricted common units outstanding under the 2009 Plan into
options to acquire a number of shares
109
Table of Contents
of our common stock and shares of restricted common stock at a
ratio of on substantially
equivalent terms and conditions. Following the corporate
conversion, a total
of shares
of common stock will be reserved for issuance under the 2009
Plan. As of December 31, 2009, based upon the common units
of the company outstanding as of December 31, 2009, and
after giving effect to the corporate conversion pursuant to
which each common unit will be automatically converted into
shares of our common stock at a ratio
of ,
there would have been outstanding under the 2009 Plan options to
purchase shares
of common stock, at a weighted average exercise price of
$ per share. The 2009 Plan will
terminate immediately following our corporate conversion, and no
additional options or other equity awards may be granted under
the 2009 Plan following its termination. However, options
granted under the 2009 Plan prior to its termination will remain
outstanding until they are either exercised or expire.
The 2009 Plan is administered by the Committee. Subject to the
provisions of the 2009 Plan, the Committee determines in its
discretion the persons to whom and the times at which awards are
granted, the sizes of such awards, and all of their terms and
conditions. All awards are evidenced by a written agreement
between us and the holder of the award. The Committee has the
authority to construe and interpret the terms of the 2009 Plan
and awards granted under it.
In the event of a change in control of our company, the vesting
of all outstanding awards held by participants whose employment
has not previously terminated will accelerate in full. In
addition, the Committee has the authority to require that
outstanding awards be assumed or replaced with substantially
equivalent awards by the successor corporation or to cancel the
outstanding awards in exchange for a payment in cash or other
property equal to the fair market value of restricted units or
the excess, if any, of the fair market value of the shares
subject to an option over the exercise price per share of such
option.
2010 Equity
Incentive Plan
Our 2010 Equity Incentive Plan, or the 2010 Plan, was approved
by our board of directors in March 2010 and will be effective
upon our corporate conversion, subject to its approval by our
equityholders, which is expected prior to the completion of this
offering.
A number of shares of our common stock equal to the total number
of shares of common stock (as adjusted by the conversion ratio
in the corporate conversion) remaining available for grant under
the 2009 Plan upon its termination immediately following the
corporate conversion will be initially authorized and reserved
for issuance under the 2010 Plan. This reserve will
automatically increase on January 1, 2011 and each
subsequent anniversary through 2020, by an amount equal to the
smaller of 2% of the number of shares of common stock issued and
outstanding on the immediately preceding December 31 or an
amount determined by our board of directors. The number of
shares authorized for issuance under the 2010 Plan will also be
increased from time to time by up to that number of shares of
common stock (as adjusted by the conversion ratio in corporate
conversion) remaining subject to options and restricted stock
awards outstanding under the 2009 Plan at the time of its
termination immediately following the corporate conversion that
expire or terminate or are forfeited for any reason after the
effective date of the 2010 Plan. Appropriate adjustments will be
made in the number of authorized shares and other numerical
limits in the 2010 Plan and in outstanding awards to prevent
dilution or enlargement of participants’ rights in the
event of a stock split or other change in our capital structure.
Shares subject to awards granted under our 2010 Plan which
expire, are repurchased, or are cancelled or forfeited will
again become available for issuance under the 2010 Plan. The
shares available will not be reduced by awards settled in cash.
Shares withheld to satisfy tax withholding obligations will not
again become available for grant. The gross number of shares
issued upon the exercise of stock appreciation rights or options
exercised by means of a net exercise or by tender of previously
owned shares will be deducted from the shares available under
the 2010 Plan.
110
Table of Contents
Awards may be granted under the 2010 Plan to our employees,
including officers, directors, or consultants or those of any
present or future parent or subsidiary corporation or other
affiliated entity. While we may grant incentive stock options
only to employees, we may grant nonstatutory stock options,
stock appreciation rights, restricted stock purchase rights or
bonuses, restricted stock units, performance shares, performance
units and cash-based awards or other stock-based awards to any
eligible participant.
The 2010 Plan is administered by the Committee. Subject to the
provisions of the 2010 Plan, the Committee determines in its
discretion the persons to whom and the times at which awards are
granted, the sizes of such awards, and all of their terms and
conditions. All awards are evidenced by a written agreement
between us and the holder of the award. The Committee has the
authority to construe and interpret the terms of the 2010 Plan
and awards granted under it.
In the event of a change in control as described in the 2010
Plan, the acquiring or successor entity may assume or continue
all or any awards outstanding under the 2010 Plan or substitute
substantially equivalent awards. Any awards which are not
assumed or continued in connection with a change in control or
are not exercised or settled prior to the change in control will
terminate effective as of the time of the change in control. The
Committee may provide for the acceleration of vesting of any or
all outstanding awards upon such terms and to such extent as it
determines, except that the vesting of all awards held by
members of our board of directors who are not employees will
automatically be accelerated in full. The 2010 Plan also
authorizes the Committee, in its discretion and without the
consent of any participant, to cancel each or any outstanding
award denominated in shares upon a change in control in exchange
for a payment to the participant with respect to each share
subject to the cancelled award of an amount equal to the excess
of the consideration to be paid per share of common stock in the
change in control transaction over the exercise price per share,
if any, under the award.
2010 Employee
Stock Purchase Plan
Our 2010 Employee Stock Purchase Plan, or the Purchase Plan, was
approved by our board of directors in March 2010 and,
subject to its approval by our equityholders, will become
effective upon the commencement of this offering.
A number of shares of our common stock equal to 2% of the number
of shares of common stock estimated to be outstanding
immediately after completion of this offering, including the
exercise of the underwriters’ option to purchase additional
shares will be initially authorized and reserved for sale under
the Purchase Plan. In addition, the Purchase Plan provides for
an automatic annual increase in the number of shares available
for issuance under the plan on January 1 of each year beginning
in 2011 and continuing through and including January 1,
2020 equal to the lesser of (i) 1% of our then issued and
outstanding shares of common stock on the immediately preceding
December 31, (ii) a number of shares of our common
stock equal to 2% of the number of shares of common stock
estimated to be outstanding immediately after completion of this
offering, including the exercise of the underwriters’
option to purchase additional shares or (c) a number of
shares as our board may determine. Appropriate adjustments will
be made in the number of authorized shares and in outstanding
purchase rights to prevent dilution or enlargement of
participants’ rights in the event of a stock split or other
change in our capital structure. Shares subject to purchase
rights which expire or are canceled will again become available
for issuance under the Purchase Plan.
Our employees and employees of any parent or subsidiary
corporation designated by the Committee are eligible to
participate in the Purchase Plan if they are customarily
employed by us for more than 20 hours per week and more
than five months in any calendar year. However, an employee may
not be granted a right to purchase stock under the Purchase Plan
if: (i) the employee immediately after such grant would own
stock possessing 5% or more of the total combined voting power
or value of all classes of our capital stock or of any parent or
subsidiary corporation, or (ii) the
111
Table of Contents
employee’s rights to purchase stock under all of our
employee stock purchase plans would accrue at a rate that
exceeds $25,000 in value for each calendar year of participation
in such plans.
The Purchase Plan is implemented through a series of sequential
offering periods, generally three months in duration beginning
on the first trading days of February, May, August, and November
each year. However, the Committee may establish an offering
period to commence on the effective date of the Purchase Plan
that will end on a date, on or about July 31, 2010,
determined by the Committee. The Committee is authorized to
establish additional or alternative concurrent, sequential or
overlapping offering periods and offering periods having a
different duration or different starting or ending dates,
provided that no offering period may have a duration exceeding
27 months.
Amounts accumulated for each participant, generally through
payroll deductions, are credited toward the purchase of shares
of our common stock at the end of each offering period at a
price generally equal to 95% of the fair market value of our
common stock on the purchase date. Prior to commencement of an
offering period, the Committee is authorized to change the
purchase price discount for that offering period, but the
purchase price may not be less than 85% of the lower of the fair
market value of our common stock at the beginning of the
offering period or on the purchase date.
No participant may purchase under the Purchase Plan in any
calendar year shares having a value of more than $25,000
measured by the fair market value per share of our common stock
on the first day of the applicable offering period. Prior to the
beginning of any offering period, the Committee may alter the
maximum number of shares that may be purchased by any
participant during the offering period or specify a maximum
aggregate number of shares that may be purchased by all
participants in the offering period. If insufficient shares
remain available under the plan to permit all participants to
purchase the number of shares to which they would otherwise be
entitled, the Committee will make a pro rata allocation of the
available shares. Any amounts withheld from participants’
compensation in excess of the amounts used to purchase shares
will be refunded, without interest.
In the event of a change in control, an acquiring or successor
corporation may assume our rights and obligations under the
Purchase Plan. If the acquiring or successor corporation does
not assume such rights and obligations, then the purchase date
of the offering periods then in progress will be accelerated to
a date prior to the change in control as specified by the
Committee, but the number of shares subject to outstanding
purchase rights shall not be adjusted.
Agreements with
Executives and Potential Payments Upon Termination or Change in
Control
We are obligated to make certain payments to our named executive
officers upon termination or a change in control as further
described below.
Sang Park. We are party to an Amended
and Restated Services Agreement, dated as of May 8, 2008,
with Mr. Park pursuant to which he serves as our Chairman
and Chief Executive Officer. Under the agreement, Mr. Park
was to receive an initial base salary of $450,000 and a one-time
performance bonus payment of $900,000. Mr. Park is also
entitled to an annual incentive award of 100% of his annual
salary based upon the achievement of performance goals, provided
that the actual bonus paid may be higher or lower dependent on
over- or under-achievement of his performance goals, as
determined by the Committee. Mr. Park is entitled to
customary employee benefits and certain expatriate, repatriation
and international service benefits, including relocation
benefits, tax equalization benefits, the cost of housing
accommodations and expenses, transportation benefits and
repatriation benefits. Pursuant to the agreement Mr. Park
was granted options to purchase restricted common units but they
were subsequently terminated in connection with our
reorganization proceedings. The restated service agreement also
contains customary non-competition and non-solicitation
covenants lasting two and three years, respectively, from the
date of termination of employment and confidentiality covenants
of unlimited duration.
112
Table of Contents
If Mr. Park’s employment is terminated without Cause
or if he resigns for good reason, Mr. Park is entitled to
receive (i) payment of all salary and benefits accrued up
to the date of termination, (ii) payment of his
then-current base salary for twelve months, (iii) the
annual incentive award to which Mr. Park would have been
entitled for the year in which his employment terminates,
(iv) twelve months’ accelerated vesting on outstanding
equity awards and a twelve-month post-termination equity award
exercise period, and (v) continued participation for
Mr. Park and his eligible dependents in our benefit plans
for twelve months, including certain international service
benefits.
If such termination occurs within nine months of a change in
control, Mr. Park is entitled to receive (i) payment
of all salary and benefits accrued and unpaid up to the date of
termination, (ii) payment of his then-current base salary
for twenty-four months, (iii) the annual incentive award to
which Mr. Park would have been entitled for the year in
which his employment terminates, (iv) two years’
accelerated vesting on outstanding equity awards, other than
awards granted pursuant to the 2009 Plan, which accelerate in
full, (v) a twelve-month post-termination equity award
exercise period, and (vi) continued participation for
Mr. Park and his eligible dependents in our benefit plans
for two years, including certain international service benefits.
The severance described above payable to Mr. Park upon his
termination without Cause or in connection with a change in
control shall be reduced to the extent that we pay any statutory
severance payments to Mr. Park pursuant to the Korean
Commercial Code or any other statute.
As used in the agreement, the term “Cause” means the
termination of Mr. Park’s employment because of
(i) a failure by Mr. Park to substantially perform his
customary duties (other than such failure resulting from
incapacity due to physical or mental illness);
(ii) Mr. Park’s gross negligence, intentional
misconduct or material fraud in the performance of
Mr. Park’s employment; (iii) Mr. Park’s
conviction of, or plea of nolo contendre to, a felony or to a
crime involving fraud or dishonesty; (iv) a judicial
determination that Mr. Park committed fraud or dishonesty
against any natural person, firm, partnership, limited liability
company, association, corporation, company, trust, business
trust, governmental authority or other entity; or
(v) Mr. Park’s material violation of the
agreement or of one or more of the material policies applicable
to his employment. Resignation for “good reason” means
a resignation upon any of the following events that remains
uncured for 30 days after Mr. Park delivers a demand
to us: (i) a salary reduction other than a reduction of
less than 10% applied to our other officers, (ii) material
reduction in benefits, (iii) failure to provide housing,
(iv) nature or status of Mr. Park’s authorities,
duties or responsibilities are materially and adversely altered,
(v) removal from our board of directors without cause, or
(vi) Mr. Park is not reappointed as Chief Executive
Officer following our initial public offering.
In the event we terminate Mr. Park’s employment due to
Disability, Mr. Park shall be entitled to (i) payment
of his Salary and accrued vacation up to and including the date
of termination, (ii) payment of any unpaid expense
reimbursements, (iii) the prorated amount of any cash
incentive to which Mr. Park would have been entitled, and
(iv) other benefits due to Mr. Park through his
termination date. As used in the agreement, the term
“Disability” means that the we determine that due to
physical or mental illness or incapacity, whether total or
partial, Mr. Park is substantially unable to perform his
duties for a period of 180 consecutive days or shorter periods
aggregating 180 days during any period of 365 consecutive
days.
In the event of Mr. Park’s death while employed by us,
Mr. Park’s estate or named beneficiary shall be
entitled to (i) payment of Mr. Park’s salary and
accrued vacation up to and including the date of termination,
(ii) payment of any unpaid expense reimbursements,
(iii) the prorated amount of any cash incentive to which
Mr. Park would have been entitled, and (iv) other
benefits due to Mr. Park through his termination date.
Tae Young Hwang. We entered into an
Entrustment Agreement with Mr. Hwang, effective as of
October 1, 2004, under which he serves as our Chief
Operating Officer and President, with an initial base salary of
220 million Korean won per year and with a target annual
incentive bonus to be determined by management based on
performance. Mr. Hwang is entitled to customary employee
113
Table of Contents
benefits and expatriate benefits. The agreement also contains
customary non-competition covenants lasting one year from the
date of termination of employment and confidentiality covenants
of unlimited duration.
If Mr. Hwang’s employment is terminated for any
reason, he is entitled to statutory severance payments pursuant
to the Korean Commercial Code.
Brent Rowe. We entered into an Offer
Letter with Mr. Rowe, dated as of March 7, 2006,
pursuant to which Mr. Rowe serves as our Senior Vice
President, Worldwide Sales, with an initial base salary of
$220,000 per year, a sign on bonus of $50,000 and with a target
annual incentive bonus opportunity of 80% of his base salary.
Mr. Rowe is entitled to customary employee benefits.
Pursuant to the Offer Letter, Mr. Rowe received an initial
grant of options to purchase our common units, but the grant was
subsequently terminated in connection with our reorganization
proceedings.
If Mr. Rowe’s employment is terminated without cause,
he is entitled to a severance payment equal to six months’
salary.
Margaret Sakai. We entered into an
Offer Letter with Ms. Sakai, dated as of September 5,
2006, pursuant to which Ms. Sakai served as our Senior Vice
President, Finance, with an initial base salary of $250,000 per
year and with a target annual incentive bonus opportunity of 50%
of her base salary. Ms. Sakai’s title was changed to
Senior Vice President and Chief Financial officer in 2009.
Ms. Sakai is entitled to customary employee benefits and
expatriate benefits. Pursuant to her Offer Letter,
Ms. Sakai received an initial grant of options to purchase
our common units, but the grant was subsequently terminated in
connection with our reorganization proceedings.
If Ms. Sakai’s employment is terminated by us without
cause, Ms. Sakai is entitled to receive payment of all
salary and benefits accrued and unpaid up to the date of
termination, continued payment of her salary for six months at
the rate in effect on the date of termination, payment of a
prorated portion of the annual incentive bonus for the year in
which termination occurs and paid benefits for Ms. Sakai
and her dependents for six months. The severance payable to
Ms. Sakai under her Offer Letter will be reduced to the
extent we make any statutory severance payments to
Ms. Sakai pursuant to the Korean Commercial Code or any
other statute.
John McFarland. We are party to a
Service Agreement, dated as of April 1, 2006, with
Mr. McFarland pursuant to which he serves as our Senior
Vice President, General Counsel and Secretary. Under the
agreement, Mr. McFarland was eligible to receive an initial
base salary of 175 million Korean won per year, with a
target annual incentive bonus opportunity of 50% of his base
salary. Mr. McFarland is entitled to customary employee
benefits and certain expatriate, repatriation and international
service benefits. Mr. McFarland received an initial grant
of options to purchase our common units, but the grant was
subsequently terminated in connection with our reorganization
proceedings. The agreement also contains customary
non-competition and non-solicitation covenants lasting one and
two years, respectively, from the date of termination of
employment and confidentiality covenants of unlimited duration.
Pursuant to the agreement, if Mr. McFarland’s
employment is terminated for any reason other than Disability,
death or Cause, he shall be entitled to (i) payment of all
salary and benefits accrued up to the date of termination,
(ii) a severance payment, consisting of the continuation of
his then current salary for a period of six months,
(iii) six months of paid benefits for Mr. McFarland
and his eligible dependents and (iv) the prorated amount of
any cash incentive to which Mr. McFarland would have been
entitled. The severance payable to Mr. McFarland under his
agreement will be reduced to the extent we make any statutory
severance payments to Mr. McFarland pursuant to the Korean
Commercial Code or any other statute.
In the event we terminate Mr. McFarland’s employment
due to Disability, Mr. McFarland shall be entitled to
(i) payment of his then current salary up to and including
the date of termination, (ii) the dollar value of all
accrued and unused vacation benefits based upon
Mr. McFarland’s most recent level of salary,
(iii) any cash incentive amount actually earned but not
previously paid to
114
Table of Contents
Mr. McFarland, (iv) payment of any unpaid expense
reimbursements, and (v) the prorated amount of any cash
incentive to which Mr. McFarland would have been entitled.
As used in the agreement, the term “Disability” means
that we reasonably determine that due to physical or mental
illness or incapacity, whether total or partial,
Mr. McFarland is substantially unable to perform his duties
for a period of 180 consecutive days or shorter periods
aggregating 180 days during any period of 365 consecutive
days.
In the event of Mr. McFarland’s death while employed
by us, Mr. McFarland’s estate or named beneficiary
shall be entitled to (i) payment of
Mr. McFarland’s then current salary up to and
including the date of termination, (ii) the dollar value of
all accrued and unused vacation benefits based upon
Mr. McFarland’s then current salary, (iii) any
cash incentive amount actually earned but not previously paid to
Mr. McFarland, (iv) payment of any unpaid expense
reimbursements, and (v) the prorated amount of any cash
incentive to which Mr. McFarland would have been entitled.
If Mr. McFarland’s employment is terminated for Cause,
he will be entitled to receive payment of all salary and
benefits and unreimbursed expenses accrued up to the date of
termination and will not be entitled to any other compensation.
As used in the agreement, the term “Cause” has
substantially the same definition as that in
Mr. Park’s agreement.
Robert J. Krakauer. Until
April 10, 2009, Robert J. Krakauer served as our President,
Chief Financial Officer and director. In April 2009, we entered
into a Senior Advisor Agreement with Mr. Krakauer. Under
this agreement, Mr. Krakauer resigned from employment and
as a director with us but remains available to consult with us
on a limited capacity until April 10, 2010. Pursuant to the
Senior Advisor Agreement, Mr. Krakauer is entitled to
payments in the aggregate amount of $375,000, payable over a
one-year period, plus the re-payment of amounts of reduced
salary for the first three months of 2009, in addition to the
continuation of certain benefits and perquisites, including
health insurance benefits, and the continuation of auto lease
payments for a certain number of months. In addition, we waived
any right we had to repurchase any restricted units held by
Mr. Krakauer at the time of his resignation. All common
units held by Mr. Krakauer were terminated in connection
with our reorganization proceedings.
Potential
Payments upon Termination or Change in Control.
Change in Control. In the event of a
change in control of our company, the vesting of all outstanding
awards issued under the 2009 Plan held by participants whose
employment has not previously terminated will accelerate in
full. In addition, the Committee has the authority to require
that outstanding awards be assumed or replaced with
substantially equivalent awards by the successor corporation or
to cancel the outstanding awards in exchange for a payment in
cash or other property equal to the fair market value of
restricted units or the excess, if any, of the fair market value
of the shares subject to an option over the exercise price per
share of such option.
Our named executive officers are eligible to receive certain
payments and benefits in connection with certain events pursuant
to the terms of our employment agreements with them. The terms
“cause,” “change in control” and
“resignation for good reason” used below have the
meanings given to them in the applicable agreements with us.
The following table presents our estimate of the dollar value of
the payments and benefits payable to our named executive
officers upon the occurrence of the following events, assuming
that each such event occurred on December 31, 2009. The
disclosure in the following table does not include:
| • | any accrued benefits that were earned and payable as of December 31, 2009, including any short-term cash incentive amounts earned by, or any discretionary bonus amounts payable to, the executive officer for 2009 performance; or | |
| • | payments and benefits to the extent they are provided generally to all salaried employees and do not discriminate in scope, terms or operation in favor of the named executive officers. |
115
Table of Contents
|
Value of |
||||||||||||||||||||
|
Cash |
Equity |
|||||||||||||||||||
|
Severance |
Continuation |
Award |
||||||||||||||||||
|
Payment |
of Benefits |
Acceleration |
Total |
|||||||||||||||||
|
Name
|
Event | ($)(1) | ($)(2) | ($)(3) | ($) | |||||||||||||||
|
Sang Park
|
(a | )(4) | 450,000 | 314,785 | (5) | 583,968 | 1,348,753 | |||||||||||||
| (b | )(4) | 900,000 | 629,570 | (6) | 1,167,936 | 2,697,506 | ||||||||||||||
| (c | ) | — | — | 1,167,936 | 1,167,936 | |||||||||||||||
|
Tae Young Hwang
|
(c | ) | — | — | 437,976 | 437,976 | ||||||||||||||
|
Brent Rowe
|
(a | ) | 110,000 | — | — | 110,000 | ||||||||||||||
| (c | ) | — | — | 291,984 | 291,984 | |||||||||||||||
|
Margaret Sakai
|
(a | ) | 130,000 | 81,834 | (7) | — | 211,834 | |||||||||||||
| (c | ) | — | — | 175,190 | 175,190 | |||||||||||||||
|
John McFarland
|
(a | ) | 94,210 | 49,808 | (8) | — | 144,018 | |||||||||||||
| (c | ) | — | — | 175,190 | 175,190 | |||||||||||||||
| (a) | Termination without cause in absence of change in control | |
| (b) | Termination without cause within 9 months following a change in control | |
| (c) | Change in control | |
| (1) | Represents cash severance payments payable to our named executive officers pursuant to our employment agreements with them, prior to giving effect to the terms thereof relating to the Employee Retirement Benefit Security Act of Korea. Other than Mr. Rowe, who is entitled to a lump sum cash severance payment, cash severance payments are paid monthly in accordance with our regular payroll procedures. | |
| Pursuant to the Employee Retirement Benefit Security Act, Mr. Hwang, Ms. Sakai and Mr. McFarland are entitled to certain statutory severance benefits from us upon the termination of their employment with us for any reason. See “Management — Compensation Discussion and Analysis — Perquisites and Other Benefits” for additional information. For these executives, the amounts reflected in this column would be reduced to the extent we are obligated to make these statutory severance payments. | ||
| (2) | Calculated assuming the continuation of benefits for the applicable period at the same dollar value of 2009 benefits. | |
| (3) | Reflects the aggregate value of the accelerated vesting of the named executive officer’s unvested stock options and restricted common units, as applicable. | |
| Because all of our options to purchase common units outstanding as of December 31, 2009 have an exercise price greater than the fair market value of our common units of $0.79 as of December 31, 2009, no additional value is represented by the acceleration of outstanding unvested common units subject to such awards and therefore, the value of accelerated vesting of unvested stock options is $0.00. | ||
| Because all of our restricted common units issued under the 2009 Plan outstanding as of December 31, 2009 were issued without any required monetary payment, the amounts were calculated by multiplying (i) the number of outstanding restricted common units subject to award vesting on December 31, 2009 by (ii) the fair market value of our common units of $0.79 as of December 31, 2009. | ||
| (4) | Reflected benefits are also payable in connection with Mr. Park’s resignation for good reason. See “Management — Agreements with Executives and Potential Payments Upon Termination or Change in Control — Sang Park.” |
116
Table of Contents
| (5) | Represents the aggregate value of the continuation of health insurance benefits for Mr. Park and his eligible dependents for twelve months following the date of termination. Mr. Park is also entitled to tax equalization benefits, tax preparation services, the reimbursement of costs associated with one home leave flight and, for a period of twelve months post-termination, international health insurance benefits, paid housing and the use of a car and a driver. | |
| (6) | Represents the aggregate value of the continuation of health insurance benefits for Mr. Park and his eligible dependents for twenty-four months following the date of termination. Mr. Park is also entitled to tax equalization benefits, tax preparation services, the reimbursement of costs associated with two home leave flights and, for a period of twenty-four months post-termination, international health insurance benefits, paid housing and the use of a car and a driver. | |
| (7) | Represents the aggregate value of the continuation of health insurance benefits for Ms. Sakai and her eligible dependents for six months following the date of termination. Ms. Sakai is also entitled to tax equalization benefits, tax preparation services, reimbursement of costs associated with one home leave flight and, for a period of six months post-termination, paid housing, the use of a car and a driver and child tuition benefits. | |
| (8) | Represents the aggregate value of continuation of health insurance benefits for Mr. McFarland and his eligible dependents for six months following the date of termination. Mr. McFarland is also entitled to tax equalization, tax preparation services and, for a period of six months post-termination, child tuition benefits. |
Pension Benefits
for the Fiscal Year Ended December 31, 2009
|
Number |
Present |
Payments |
||||||||||||
|
of Years |
Value of |
During |
||||||||||||
|
of Credited |
Accumulated |
the Last |
||||||||||||
|
Name
|
Plan Name
|
Service (#)
|
Benefit ($)(1)
|
Fiscal Year
|
||||||||||
|
Tae Young Hwang
|
Statutory Severance with | |||||||||||||
| Multiplier for Partial Period | 14 | 686,058 | ||||||||||||
|
Margaret Sakai
|
Statutory Severance | 3 | 68,155 | |||||||||||
|
John McFarland
|
Statutory Severance | 5 | 81,129 | |||||||||||
Footnote:
| (1) | Actual present value of the accumulated benefit, as if the employment of the named executive officer had been terminated on the last day of our fiscal year ended December 31, 2009. |
Nonqualified
Deferred Compensation
We do not maintain any nonqualified deferred compensation plans.
Director
Compensation for the Fiscal Year Ended December 31,
2009
|
Fees |
||||||||||||||||
|
Earned |
||||||||||||||||
|
or Paid |
Option |
All Other |
||||||||||||||
|
in Cash |
Awards |
Compensation |
Total |
|||||||||||||
|
Name
|
($) | ($)(1) | ($) | ($) | ||||||||||||
|
Jerry M. Baker(2)(3)
|
50,000 | — | 25,751(4 | ) | 75,751 | |||||||||||
|
Armando Geday(2)(3)
|
50,000 | — | — | 50,000 | ||||||||||||
|
Michael Elkins(5)
|
— | — | — | — | ||||||||||||
|
Randal Klein(5)
|
— | — | — | — | ||||||||||||
|
Steven Tan(5)
|
— | — | — | — | ||||||||||||
|
Nader Tavakoli(5)
|
— | — | — | — | ||||||||||||
117
Table of Contents
Note: Amounts set forth in the above table that were originally
paid in Korean won have been converted into U.S. dollars at
the exchange rate as of each payment date during the two-month
period ended December 31, 2009 and the ten-month period
ended October 25, 2009.
Footnotes:
| (1) | All of our common and preferred units and outstanding options, including grants made to our directors outstanding prior to the effective date of our Chapter 11 reorganization of November 9, 2009, were terminated as of such date pursuant to our reorganization proceedings. | |
| (2) | Resigned as a director effective November 9, 2009. | |
| (3) | Consists of annual retainer of $50,000 paid to non-employee directors prior to our reorganization proceedings. | |
| (4) | Represents payments for insurance premiums. | |
| (5) | Each of our non-employee directors appointed to our board of directors subsequent to the effective date of our Chapter 11 reorganization did not receive any compensation in 2009. |
Further
Information Regarding Director Compensation Table
Each of our non-employee directors is entitled to receive an
annual fee of $50,000. In addition, the chairman of our audit
committee is entitled to an additional fee of $5,000. We expect
to issue each non-employee director an option to purchase
200,000 common units of MagnaChip Semiconductor LLC, which,
after giving effect to the corporate conversion, will be
automatically converted into shares of our common stock, and
which shall vest on the same terms as option grants to our other
grantees.
Compensation
Committee Interlocks and Insider Participation
The members of the Compensation Committee will be appointed
prior to the completion of this offering. We do not anticipate
that any of the members of the Compensation Committee will have
been an officer or employee of our company during the last
fiscal year. During 2009, decisions regarding executive officer
compensation were made by our full board of directors.
Mr. Sang Park, Chairman of our board of directors and our
Chief Executive Officer, participated in deliberations of our
board of directors regarding the determination of compensation
of our executive officers other than himself. None of our
executive officers currently serves, or in the past has served,
as a member of the board of directors or the compensation
committee of any entity that has one or more executive officers
serving on our board of directors.
118
Table of Contents
PRINCIPAL AND
SELLING STOCKHOLDERS
Selling
Stockholders
The following table and accompanying footnotes set forth
information regarding the beneficial ownership of our common
stock by each of the following selling stockholders based on the
outstanding common units of MagnaChip Semiconductor LLC as of
December 31, 2009 as adjusted to reflect the corporate
conversion.
As of December 31, 2009, MagnaChip Semiconductor LLC’s
outstanding securities consisted of 307,083,996 common units,
options to purchase 15,365,000 common units and warrants to
purchase 15,000,000 common units and, after giving effect to the
corporate conversion, we would have had
outstanding shares
of common stock, options to
purchase shares
of common stock and warrants to
purchase shares
of common stock.
The amounts and percentages of common stock beneficially owned
are reported on the basis of SEC regulations governing the
determination of beneficial ownership of securities. Under SEC
rules, a person is deemed to be a “beneficial owner”
of a security if that person has or shares “voting
power,” which includes the power to vote or to direct the
voting of such security, or “investment power,” which
includes the power to dispose of or to direct the disposition of
such security. A person is also deemed to be a beneficial owner
of any securities of which that person has the right to acquire
beneficial ownership within 60 days. Under these rules,
more than one person may be deemed to be a beneficial owner of
the same securities and a person may be deemed to be a
beneficial owner of securities as to which he or she has no
economic interest.
Except as indicated by footnote, the persons named in the table
below have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them.
Unless otherwise indicated, the address of each person listed in
the table below is
c/o MagnaChip
Semiconductor Ltd., 1 Hyang jeong-dong, Hungduk-gu, Cheongju-si,
361-725,
Korea.
|
Shares of |
Shares of |
|||||||||||||||||||||||||||||||
|
Common Stock |
Common Stock |
|||||||||||||||||||||||||||||||
|
Shares of |
Beneficially |
Beneficially |
||||||||||||||||||||||||||||||
|
Common Stock |
Shares of |
Owned Following |
Owned Following |
|||||||||||||||||||||||||||||
|
Beneficially |
Common |
Offering Assuming |
Offering Assuming |
|||||||||||||||||||||||||||||
|
Owned |
Shares of |
Stock |
No Exercise of |
Exercise of |
||||||||||||||||||||||||||||
|
Prior to |
Common |
Subject to |
Underwriters’ |
Underwriters’ |
||||||||||||||||||||||||||||
|
Name and Address |
Offering(1) |
Stock Being |
Underwriters’ |
Option(1) | Option in Full(1) | |||||||||||||||||||||||||||
|
of Beneficial Owner
|
Amount
|
Percent
|
Offered
|
Option
|
Amount
|
Percent
|
Amount
|
Percent
|
||||||||||||||||||||||||
|
Selling Stockholders
|
||||||||||||||||||||||||||||||||
| * | Less than one percent. | |
| (1) | Includes any outstanding shares of common stock held and, to the extent applicable, shares issuable upon the exercise or conversion of any securities that are exercisable or convertible within 60 days of , 2010. |
Each of the selling stockholders acquired the shares of common
stock to be sold by such stockholders in this offering pursuant
to the conversion of common units of MagnaChip Semiconductor LLC
into common shares of MagnaChip Semiconductor Corporation
pursuant to the corporate conversion, which will occur
immediately prior to the closing of this offering. Such selling
stockholders acquired such common units of MagnaChip
Semiconductor LLC pursuant to our reorganization proceedings on
November 9, 2009.
119
Table of Contents
Principal
Unitholders of MagnaChip Semiconductor LLC
The following table sets forth information regarding the
beneficial ownership of the outstanding equity interests of
MagnaChip Semiconductor LLC as of December 31, 2009 by:
(1) each person or entity known to us to beneficially own
more than 5% of any class of our outstanding securities;
(2) each member of our board of directors; (3) each of
our named executive officers; and (4) all of the members of
our board of directors and executive officers, as a group. As of
December 31, 2009, MagnaChip Semiconductor LLC’s
outstanding securities consisted of 307,083,996 common units,
options to purchase 15,365,000 common units and warrants to
purchase 15,000,000 common units.
The amounts and percentages of equity interests beneficially
owned are reported on the basis of SEC regulations governing the
determination of beneficial ownership of securities. Under SEC
rules, a person is deemed to be a “beneficial owner”
of a security if that person has or shares “voting
power,” which includes the power to vote or to direct the
voting of such security, or “investment power,” which
includes the power to dispose of or to direct the disposition of
such security. A person is also deemed to be a beneficial owner
of any securities of which that person has the right to acquire
beneficial ownership within 60 days. Under these rules,
more than one person may be deemed to be a beneficial owner of
the same securities and a person may be deemed to be a
beneficial owner of securities as to which he or she has no
economic interest.
Except as indicated by footnote, the persons named in the table
below have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them.
Unless otherwise indicated, the address of each person listed in
the table below is
c/o MagnaChip
Semiconductor Ltd., 1 Hyang jeong-dong, Hungduk-gu, Cheongju-si,
361-725,
Korea.
|
Amount and |
||||||||
|
Nature of |
||||||||
|
Name and Address |
Beneficial |
Percent of |
||||||
|
of Beneficial Owner
|
Ownership(1)
|
Class(1)
|
||||||
|
Principal Unitholders
|
||||||||
|
Funds managed by Avenue Capital Management II, L.P(2)
|
218,927,386 | 70.3 | % | |||||
|
Funds and accounts managed by Southpaw Asset Management LP(3)
|
23,555,229 | 7.7 | % | |||||
|
Tennenbaum Multi-Strategy Fund SPV (Cayman) Ltd.(4)
|
20,710,045 | 6.7 | % | |||||
|
Directors and Executive Officers
|
||||||||
|
Sang Park(5)
|
2,240,000 | * | ||||||
|
Tae Young Hwang(6)
|
840,000 | * | ||||||
|
Brent Rowe(7)
|
560,000 | * | ||||||
|
Margaret Sakai(8)
|
336,000 | * | ||||||
|
John McFarland(9)
|
336,000 | * | ||||||
|
Michael Elkins(10)
|
— | * | ||||||
|
Randal Klein(10)
|
— | * | ||||||
|
Steven Tan(10)
|
— | * | ||||||
|
Nader Tavakoli
|
— | * | ||||||
|
R. Douglas Norby
|
— | * | ||||||
|
Gidu Shroff
|
— | * | ||||||
|
Robert Krakauer(11)
|
— | * | ||||||
|
Directors and executive officers as a group (13 persons)(12)
|
4,760,000 | 1.6 | % | |||||
| * | Less than one percent. | |
| (1) | Includes any outstanding common units held and, to the extent applicable, shares issuable upon the exercise or conversion of any securities that are exercisable or convertible within 60 days of December 31, 2009. |
120
Table of Contents
| (2) | The following entities and person are collectively referred to in this table as the “Avenue Capital Group”: (i) Avenue Investments, L.P. (“Avenue Investments”), (ii) Avenue International Master, L.P. (“Avenue International Master”), (iii) Avenue International, Ltd. (“Avenue International”), the sole limited partner of Avenue International Master, (iv) Avenue International Master GenPar, Ltd. (“Avenue International GenPar”), the general partner of Avenue International Master, (v) Avenue Partners, LLC (“Avenue Partners”), the general partner of Avenue Investments and the sole shareholder of Avenue International GenPar, (vi) Avenue-CDP Global Opportunities Fund, L.P. (“CDP Global”), (vii) Avenue Global Opportunities Fund GenPar, LLC (“CDP Global GenPar”), the general partner of CDP Global, (viii) Avenue Special Situations Fund IV, L.P. (“Avenue Fund IV”), (ix) Avenue Capital Partners IV, LLC (“Avenue Capital IV”), the general partner of Avenue Fund IV, (x) GL Partners IV, LLC (“GL IV”), the managing member of Avenue Capital IV, (xi) Avenue Special Situations Fund V, L.P. (“Avenue Fund V”), (xii) Avenue Capital Partners V, LLC (“Avenue Capital V”), the general partner of Avenue Fund V, (xiii) GL Partners V, LLC (“GL V”), the managing member of Avenue Capital V, (xiv) Avenue Capital Management II, L.P. (“Avenue Capital II”), the investment advisor to Avenue Investments, Avenue International Master, CDP Global, Avenue Fund IV and Avenue Fund V (collectively, the “Avenue Funds”), (xv) Avenue Capital Management II GenPar, LLC (“GenPar”), the general partner of Avenue Capital II, and (xvi) Marc Lasry, the managing member of GenPar, GL V, GL IV, CDP Global GenPar and Avenue Partners and a director of Avenue International GenPar. | |
| The Avenue Capital Group beneficially owns 218,927,386 common units, including the 4,447,680 common units the Avenue Capital Group may receive through the exercise of outstanding warrants. | ||
| The Avenue Funds have the sole power to vote and dispose of the common units held by them. Avenue International, Avenue International GenPar, Avenue Partners, CDP Global GenPar, Avenue Capital IV, GL IV, Avenue Capital V, GL V, Avenue Capital II, GenPar and Marc Lasry have the shared power to vote and dispose of the common units held by the Avenue Funds, all of whom disclaim any beneficial ownership except to the extent of their respective pecuniary interest. The address for all of the Avenue Funds is 535 Madison Avenue, New York, NY 10022. | ||
| Avenue Fund V beneficially owns 88,938,119 common units, or 28.8%, which represents 86,756,399 common units and 2,181,720 common units issuable upon the exercise of warrants held by Avenue Fund V. The securities owned by Avenue Fund V may also be deemed to be beneficially owned by Avenue Capital V, its general partner; GL V, the managing member of Avenue Capital V; Avenue Capital II, its investment adviser; GenPar, the general partner of Avenue Capital II; and Mr. Lasry, the managing member of GenPar and GL V; all of whom disclaim any beneficial ownership except to the extent of their respective pecuniary interest. For further information regarding Avenue Fund V, please see above. | ||
| Avenue Fund IV beneficially owns 70,458,255 common units, or 22.8%, which represents 69,186,975 common units and 1,271,280 common units issuable upon the exercise of warrants held by Avenue Fund IV. The securities owned by Avenue Fund IV may also be deemed to be beneficially owned by Avenue Capital IV, its general partner; GL IV, the managing member of Avenue Capital IV; Avenue Capital II, its investment adviser; GenPar, the general partner of Avenue Capital II; and Mr. Lasry, the managing member of GenPar and GL IV; all of whom disclaim any beneficial ownership except to the extent of their respective pecuniary interest. For further information regarding Avenue Fund IV, please see above. | ||
| Avenue International Master beneficially owns 35,568,286 common units, or 11.6%, which represents 35,004,706 common units and 563,580 common units issuable upon the exercise of warrants held by Avenue International Master. The securities owned by Avenue International Master may also be deemed to be beneficially owned by Avenue International, its sole limited partner; Avenue International GenPar, its general partner; Avenue Partners, the sole shareholder of Avenue International GenPar; Avenue Capital II, its investment adviser; GenPar, the general partner of Avenue Capital II; and Mr. Lasry, the managing member of GenPar and Avenue Partners and a director of Avenue International GenPar; all of whom disclaim any beneficial |
121
Table of Contents
| ownership except to the extent of their respective pecuniary interest. For further information regarding Avenue International Master, please see above. | ||
| CDP Global beneficially owns 12,104,679 common units, or 3.9%, which represents 11,862,159 common units and 242,520 common units issuable upon the exercise of warrants held by CDP Global. The securities owned by CDP Global may also be deemed to be beneficially owned by CDP Global GenPar, its general partner; Avenue Capital II, its investment adviser; GenPar, the general partner of Avenue Capital II; and Mr. Lasry, the managing member of GenPar and CDP Global GenPar; all of whom disclaim any beneficial ownership except to the extent of their respective pecuniary interest. For further information regarding CDP Global, please see above. | ||
| Avenue Investments beneficially owns 11,858,047 common units, or 3.9%, which represents 11,669,467 common units and 188,580 common units issuable upon the exercise of warrants held by Avenue Investments. The securities owned by Avenue Investments may also be deemed to be beneficially owned by Avenue Partners, its general partner; Avenue Capital II, its investment adviser; GenPar, the general partner of Avenue Capital II; and Mr. Lasry, the managing member of GenPar and Avenue Partners; all of whom disclaim any beneficial ownership except to the extent of their respective pecuniary interest. For further information regarding Avenue Investments, please see above. | ||
| (3) | Represents 23,555,229 common units that may be deemed to be beneficially owned by Southpaw Asset Management LP (“Southpaw Management”) as it serves as the discretionary investment manager for several funds and accounts (the “Managed Accounts”). The common units deemed beneficially owned by Southpaw Management may be deemed beneficially owned by Southpaw Holdings LLC (“Southpaw Holdings”), which is the general partner of Southpaw Management, and by each of Kevin Wyman and Howard Golden, who are principals of Southpaw Holdings. | |
| Southpaw Credit Opportunity Master Fund, L.P (“Southpaw Master Fund”) beneficially owns 22,885,269 common units. The securities owned by Southpaw Master Fund may also be deemed beneficially owned by Southpaw Management, in its capacity as the investment manager of Southpaw Master Fund, and Southpaw GP LLC (“Southpaw GP”), in its capacity as general partner of Southpaw Master Fund. The shares deemed beneficially owned by Southpaw Management may also be deemed beneficially owned by Southpaw Holdings, which is the general partner of Southpaw Management, and by each of Kevin Wyman and Howard Golden, who are principals of Southpaw Holdings and Southpaw GP. | ||
| The business address of each of Southpaw Master Fund, Southpaw Management, Southpaw GP, Southpaw Holdings, and Messrs. Wyman and Golden is 2 Greenwich Office Park, 1st floor, Greenwich, CT 06831. For the avoidance of doubt, none of Southpaw Management, Southpaw GP, Southpaw Holdings, or Messrs. Wyman and Golden hold common units for their personal accounts, and each reports beneficial ownership of common units held by Southpaw Master Fund and the Managed Accounts due solely to the fact that such persons have the ability to vote and/or dispose of the common units held by Southpaw Master Fund and the Managed Accounts. | ||
| (4) | Represents 20,710,045 common units held by Tennenbaum Multi-Strategy Fund SPV (Cayman) Ltd. (“Tennenbaum Cayman SPV”). Tennenbaum Capital Partners, LLC is the investment manager of Tennenbaum Cayman SPV, and may be deemed to be the beneficial owner of the common units held by such principal unitholders. Tennenbaum Capital Partners, LLC, however, disclaims beneficial ownership of these common units, except to the extent of its pecuniary interest therein. The address for Tennenbaum Cayman SPV is 2951 28th Street, Suite 1000, Santa Monica, CA 90405. | |
| (5) | Represents 2,240,000 common units, of which 1,478,400 are subject to a right of repurchase by MagnaChip. | |
| (6) | Represents 840,000 common units, of which 554,400 are subject to a right of repurchase by MagnaChip. |
122
Table of Contents
| (7) | Represents 560,000 common units, of which 369,600 are subject to a right of repurchase by MagnaChip. | |
| (8) | Represents 336,000 common units, of which 221,760 are subject to a right of repurchase by MagnaChip. | |
| (9) | Represents 336,000 common units, of which 221,760 are subject to a right of repurchase by MagnaChip. | |
| (10) | The address for Messrs. Elkins, Klein and Tan is 535 Madison Avenue, New York, NY 10022. | |
| (11) | Mr. Krakauer resigned as our President, Chief Financial Officer and director on April 10, 2009. | |
| (12) | Represents 4,760,000 common units, of which 3,141,600 are subject to a right of repurchase by MagnaChip. |
123
Table of Contents
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Code of Business
Conduct and Ethics
Under our Code of Business Conduct and Ethics, all conflicts of
interest and related party transactions that are determined to
be material by the Chief Financial Officer must be reviewed and
approved in writing by our audit committee. All conflicts of
interest and related party transactions involving our directors
or executive officers must be reviewed and approved in writing
by our full board of directors. In the approval process, the
approving authority will review all aspects of the conflict of
interest or related party transaction, including but not limited
to: (i) compliance with laws, rules and regulations,
(ii) the adverse affect on our business and results of
operations, (iii) the adverse affect on our relationships
with third parties such as customers, vendors and potential
investors, (iv) the benefit to the director, officer or
employee at issue, and (v) the creation of morale problems
among other employees.
Senior Secured
Facility
Avenue Investments, L.P. (one of the Funds affiliated with
Avenue Capital Management II, L.P., which is, together with
other affiliates, our majority stockholder, and an affiliate of
our directors Messrs. Elkins, Klein and Tan) is a lender
under our senior secured credit facility. On November 6,
2009, in connection with the reorganization proceedings, our
senior secured credit agreement was amended and restated to,
among other things, reduce the outstanding principal amount from
$95 million to $61.8 million, pursuant to which we
repaid $33.2 million in principal, $22.7 million of
which was paid to Avenue Investments, L.P. As of
December 31, 2009, the outstanding indebtedness under our
senior secured credit facility was $61.8 million, of which
$42.1 million is held by Avenue Investments, L.P. As of
December 31, 2009, the interest rate for all borrowings
under the senior secured credit facility was 6 month LIBOR
plus 12% per annum and we accrued $1.2 million in interest
under the senior secured credit facility for the year ended
December 31, 2009, of which $0.8 million was accrued
for Avenue Investments, L.P. Other Funds affiliated with Avenue
Capital Management II, L.P. participate in the loan from Avenue
Investments, L.P. under our senior secured credit agreement
pursuant to a master participation agreement. See
“Description of Certain Indebtedness” for additional
information.
Registration
Rights Agreement
On November 9, 2009, we entered into a registration rights
agreement with the holders of MagnaChip Semiconductor LLC’s
common units issued in our reorganization proceedings, including
Avenue, where we granted them registration rights with respect
to our common stock. See “Description of Capital
Stock — Registration Rights.”
Warrant
Agreement
On November 9, 2009, we entered into a warrant agreement
with American Stock Transfer & Trust Company, LLC
whereby we issued warrants to purchase an aggregate of
15,000,000 common units pursuant to the reorganization
proceedings to certain former creditors, which included Avenue.
124
Table of Contents
DESCRIPTION OF
CAPITAL STOCK
The following description of our capital stock and provisions
of our certificate of incorporation and our bylaws are summaries
and are qualified by reference to the certificate of
incorporation and the bylaws that will be in effect upon the
closing of this offering. We have filed copies of these
documents with the SEC as exhibits to our registration statement
of which this prospectus forms a part. The descriptions of the
common stock and preferred stock reflect changes to our capital
structure that will occur immediately prior to and upon the
closing of this offering.
Upon the closing of this offering, our authorized capital stock
will consist
of shares
of common stock, par value $0.01 per share,
and shares
of undesignated preferred stock, par value $0.01 per share, the
rights and preferences of which may be established from time to
time by our board of directors.
As of December 31, 2009, MagnaChip Semiconductor LLC had
issued and outstanding 307,083,996 common units held by
133 holders of record. As of December 31, 2009,
MagnaChip Semiconductor LLC also had outstanding options to
purchase 15,365,000 common units at a weighted average exercise
price of $1.16 per unit and warrants to purchase 15,000,000
common units at an exercise price of $1.97 per unit.
Prior to the closing of this offering, we will consummate the
corporate conversion. As part of the corporate conversion:
| • | all of the outstanding common units of MagnaChip Semiconductor LLC will be automatically converted into shares of our common stock at a ratio of ; | |
| • | each outstanding option to purchase common units of MagnaChip Semiconductor LLC will be automatically converted into an option to purchase shares of our common stock at an exercise price of $ per share; and | |
| • | each outstanding warrant to purchase common units of MagnaChip Semiconductor LLC will be automatically converted into a warrant to purchase shares of our common stock at an exercise price of $ per share. |
The following description summarizes the terms of our capital
stock. Because it is only a summary, it does not contain all the
information that may be important to you. For a complete
description, you should refer to our certificate of
incorporation and bylaws, as in effect immediately following the
closing of this offering, copies of which have been filed as
exhibits to the registration statement of which this prospectus
is a part.
Common
Stock
Assuming the automatic conversion of all of the common units of
MagnaChip Semiconductor LLC for our common stock immediately
prior to the closing of this offering, there will
be shares
of our common stock outstanding upon the closing of this
offering. MagnaChip Semiconductor LLC has reserved an aggregate
of 30,000,000 common units for issuance to current and future
directors, employees and consultants of MagnaChip Semiconductor
LLC and its subsidiaries pursuant to the MagnaChip Semiconductor
LLC 2009 Common Unit Plan. Of this amount, at December 31,
2009, 15,365,000 common units were subject to outstanding
options, 7,551,000 were available for future issuance and no
common units have been purchased in connection with the exercise
of previously issued options. In connection with the corporate
conversion, the existing options will be automatically converted
into options to
acquire shares
of our common stock and we have
reserved shares
of our common stock for future issuance. In addition, our board
of directors may issue options exercisable for up
to shares
of our common stock under our 2010 Equity Incentive Plan and
2010 Employee Stock Purchase Plan. MagnaChip Semiconductor LLC
issued warrants to purchase an aggregate of 15,000,000 common
units pursuant to the reorganization proceedings, which are
subject to a warrant agreement dated November 9, 2009
between us and
125
Table of Contents
American Stock Transfer & Trust Company, LLC, our
warrant agent. At December 31, 2009, 15,000,000 common
units were subject to outstanding warrants and no common units
had been purchased in connection with the exercise of previously
issued warrants. In connection with the corporate conversion,
the existing warrants will be automatically converted into
warrants to
acquire shares
of our common stock.
Holders of our common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the
stockholders. Our stockholders do not have cumulative voting
rights in the election of directors. Except as required by law
or our certificate of incorporation and bylaws, the vote of a
majority of the shares represented in person or by proxy at any
meeting at which a quorum is present will be sufficient for the
transaction of any business at a meeting. Subject to preferences
held by, or that may be granted to, any outstanding shares of
preferred stock, holders of our common stock will be entitled to
receive ratably those dividends as may be declared by our board
of directors out of funds legally available for such
distributions, as well as any other distributions made to our
stockholders. See “Dividend Policy.” In the event of
our liquidation, dissolution or winding up, holders of our
common stock are entitled to share ratably in all of our assets
remaining after we pay our liabilities and any liquidation
preferences granted to the holders of outstanding shares of
preferred stock. Holders of our common stock have no preemptive
or other subscription or conversion rights. There are no
redemption or sinking fund provisions applicable to our common
stock. All shares of our common stock that will be outstanding
at the time of the completion of the offering will be fully paid
and non-assessable.
Preferred
Stock
Our certificate of incorporation authorizes the issuance of
shares of blank check preferred stock with such designation,
rights and preferences as may be determined from time to time by
our board of directors. No shares of preferred stock are being
issued or registered in this offering. Accordingly, our board of
directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting
or other rights which could adversely affect the voting power or
other rights of the holders of common stock. The preferred stock
could be utilized as a method of discouraging, delaying or
preventing a change in control of us. Although we do not
currently intend to issue any shares of preferred stock, there
can be no assurance that we will not do so in the future.
Registration
Rights
Upon the closing of this offering, holders
of shares
of our common stock will be entitled to certain rights with
respect to the registration of their shares under the Securities
Act.
Demand Registration Rights. Commencing
90 days following the effective date of the registration
statement relating to this prospectus, any holder who is a party
to the registration rights agreement and who holds a minimum of
20% of the common stock covered by the registration rights
agreement, has the right to demand that we file a registration
statement covering the resale of its common stock, subject to a
maximum of four such demands in the aggregate for all holders
and to other specified exceptions. After we become eligible for
the use of SEC
Form S-3,
any holder who is a party to the registration rights agreement,
has the right to demand that we file with the SEC a registration
statement under SEC
Form S-3
or any similar short-form registration statement covering the
shares of common stock held by these stockholders to be offered
to the public, subject to specified exceptions. At the request
of the holders, a demand registration may be a shelf
registration pursuant to Rule 415 of the Securities Act.
The underwriters of any such offerings will have the right to
limit the number of shares to be offered except that if a limit
is imposed, then only shares held by holders who are parties to
the registration rights agreement will be included in such
offering and the number of shares to be included in such
offering will be allocated pro rata among those same parties. In
any event, we will not include any securities of any other
person (including us) in any demand registration statement
without the prior written consent of the holders of a majority
of the shares of common stock covered by such demand
registration statement.
126
Table of Contents
In no event will we be required to effect more than one demand
registration under the registration rights agreement within any
three-month period (or within a given one-month period, in the
case of any registration under
Form S-3
or any similar short-form registration statement), and we will
not be obligated to effect any demand registration unless the
aggregate gross proceeds to be received from the sale of common
stock equals or exceeds $10.0 million (or
$1.0 million, in the case of any registration under
Form S-3
or any similar short-form registration statement).
Piggyback Registration Rights. If we
register any equity securities for our own account for public
sale, stockholders with registration rights will, with specified
exceptions, have the right to include their shares in the
registration statement. The underwriters of any underwritten
offering will have the right to limit the number of such shares
to be included in the registration statement if the inclusion of
all common stock of the holders who are a party to the
registration rights agreement proposed to be included in such
offering would materially and adversely interfere with the
successful marketing of the Company’s securities. Priority
of inclusion in the registration shall be given first to us,
second to stockholders with registration rights, pro rata
on the basis of the relative number of securities requested
to be registered by such stockholder, and third to any other
participating person on such basis as we determine.
Expenses of Registration. Other than
underwriting fees, discounts, commissions, stock transfer taxes
and fees and disbursements of legal counsel to participating
holders (excluding the fees of one firm of legal counsel to all
of the participating holders participating in an underwritten
public offering), we will pay all expenses relating to demand
registrations and all expenses relating to piggyback
registrations.
Indemnification and Contribution. The
registration rights agreement contains indemnification and
contribution arrangements between us and stockholders who are a
party to the registration rights agreement with respect to each
registration statement.
Anti-takeover
Effects of Delaware Law and our Certificate of Incorporation and
Bylaws
The provisions of Delaware law, our certificate of incorporation
and our bylaws described below may have the effect of delaying,
deferring or discouraging another party from acquiring control
of us.
Delaware Law. We will be subject to the
provisions of Section 203 of the DGCL regulating corporate
takeovers. In general, those provisions prohibit a public
Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years
following the date that the stockholder became an interested
stockholder, unless:
| • | the transaction is approved by the board of directors before the date the interested stockholder attained that status; | |
| • | upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or | |
| • | on or after the date the business combination is approved by the board of directors and authorized at a meeting of stockholders, and not by written consent, by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. |
In general, Section 203 defines a business combination to
include the following:
| • | any merger or consolidation involving the corporation and the interested stockholder; | |
| • | any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; | |
| • | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; |
127
Table of Contents
| • | any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or | |
| • | the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by any such
entity or person.
A Delaware corporation may opt out of this provision by express
provision in its original certificate of incorporation or by
amendment to its certificate of incorporation or bylaws approved
by its stockholders. However, we have not opted out of, and do
not currently intend to opt out of, this provision. The statute
could prohibit or delay mergers or other takeover or change in
control attempts and, accordingly, may discourage attempts to
acquire us.
Charter and Bylaws. Our certificate of
incorporation and bylaws contain certain provisions that are
intended to enhance the likelihood of continuity and stability
in the composition of the board of directors and which may have
the effect of delaying, deferring or preventing a future
takeover or change in control of our company unless such
takeover or change in control is approved by the board of
directors, including:
| • | Authorized but Unissued Preferred Stock. Our board of directors is authorized to issue, without stockholder approval, preferred stock with such terms as the board of directors may determine. For more information, see “Description of Capital Stock — Preferred Stock.” | |
| • | Calling Special Stockholder Meetings. Our bylaws provide that special meetings of our stockholders may be called only pursuant to the request of our board of directors, by the chairman of our board of directors, by our chief executive officer or by the holders of at least 25% of the voting power of all then outstanding shares of common stock of the company. In addition, stockholders may not fill vacancies on the board of directors and may not act by written consent. | |
| • | Advanced Notice Procedures. Stockholders must timely provide advance notice, with specific requirements as to form and content, of nominations of directors or the proposal of business to be voted on at an annual meeting. | |
| • | Classified Board of Directors. Our bylaws provide that our board of directors will be divided into three classes of directors, with the classes to be as nearly equal in number as possible. Prior to consummation of this offering, our board will assign each of the current members to their respective class as the board shall determine in its sole discretion, subject to the foregoing requirement that the classes be nearly equal in size. We anticipate we will have a classified board, with two directors in Class I, two directors in Class II and three directors in Class III. The members of each class will serve for a term expiring at the third succeeding annual meeting of stockholders. As a result, approximately one-third of our board will be elected each year. A replacement director shall serve in the same class as the former director he or she is replacing. The classification of our board will have the effect of making it more difficult for stockholders to change the composition of our board. | |
| • | Other Board of Director Requirements. Our authorized number of directors may be changed only by resolution of the board of directors and all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum. In addition, directors may only be removed for cause and then only by a vote of holders of a majority of the shares entitled to vote at an election of directors. |
128
Table of Contents
| • | Conflicts of Interest. Delaware law permits corporations to adopt provisions renouncing any interest or expectancy in certain opportunities that are presented to the corporation or its officers, directors or stockholders. Our certificate of incorporation renounces any interest or expectancy that we have in, or right to be offered an opportunity to participate in, specified business opportunities. Our certificate of incorporation provides that none of our non-employee directors, non-employee 5% or greater stockholders or their affiliates will have any duty to refrain from engaging in a corporate opportunity in the same or similar lines of business in which we or our affiliates now engage or propose to engage. In addition, in the event that any such director, stockholder or affiliate acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for us or our affiliates, such person will have no duty to communicate or offer such transaction or business opportunity to us and may take any such opportunity for themselves or offer it to another person or entity. Our certificate of incorporation does not renounce our interest in any business opportunity that is expressly offered to a director solely in his or her capacity as a director of the company. | |
| • | Director and Officer Indemnification. We will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures. | |
| • | Supermajority Voting Requirements. The affirmative vote of the holders of at least 662/3% in voting power of all shares of our stock entitled to vote generally in the election of directors, voting together as a single class, is required in order for our stockholders to alter, amend or repeal the provisions of our bylaws or amend or repeal of certain provisions of our certificate of incorporation including the following: |
| • | classified board (the election and term of our directors); | |
| • | the resignation and removal of directors; | |
| • | the provisions regarding competition and corporate opportunities; | |
| • | the provisions regarding stockholder action by written consent; | |
| • | the provisions regarding calling special meetings of stockholders; | |
| • | filling vacancies on our board and newly created directorships; | |
| • | the advance notice requirements for stockholder proposals and director nominations; and | |
| • | indemnification provisions. |
In addition, our certificate of incorporation grants our board
the authority to amend and repeal our bylaws without a
stockholder vote in any manner not inconsistent with the laws of
the State of Delaware or our certificate of incorporation.
Limitations on
Liability and Indemnification of Officers and
Directors
The DGCL authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their
stockholders for monetary damages for breaches of
directors’ fiduciary duties. Our certificate of
incorporation includes a provision that eliminates the personal
liability of directors for monetary damages for actions taken as
a director, except to the extent such exemption from liability
is not permitted by the DGCL.
129
Table of Contents
Our certificate of incorporation and bylaws provide that we must
indemnify our directors and officers to the fullest extent
authorized by the DGCL. We are also expressly obligated to
advance certain expenses (including attorneys’ fees and
disbursements and court costs) and carry directors’ and
officers’ insurance providing indemnification for our
directors, officers and certain employees for some liabilities.
We believe that these indemnification provisions and insurance
are useful to attract and retain qualified directors and
executive officers.
The limitation of liability and indemnification provisions in
our certificate of incorporation and bylaws may discourage
stockholders from bringing a lawsuit against directors for
breach of their fiduciary duty. These provisions may also have
the effect of reducing the likelihood of derivative litigation
against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. In
addition, your investment may be adversely affected to the
extent we pay the costs of settlement and damage awards against
directors and officers pursuant to these indemnification
provisions.
Listing
We intend to apply to have our depositary shares and common
stock quoted on the NYSE under the symbol “MX.”
Transfer Agent
and Registrar; Warrant Agent
The transfer agent and registrar for our common stock and the
warrant agent for our warrants is American Stock
Transfer & Trust Company, LLC and its telephone
number is
(800) 937-5449.
130
Table of Contents
DESCRIPTION OF
DEPOSITARY SHARES
General
All of the shares of common stock sold in this offering will be
sold in the form of depositary shares. Each depositary share
represents an ownership interest in one share of common stock
and will be evidenced by a depositary receipt. The shares of
common stock represented by depositary shares will be deposited
under a deposit agreement among MagnaChip Semiconductor LLC,
American Stock Transfer & Trust Company, LLC, as
the depositary, and the holders from time to time of the
depositary receipts evidencing the depositary shares. Subject to
the terms of the deposit agreement, each holder of a depositary
share will be entitled, through the depositary, to all the
rights and preferences of the shares of common stock represented
thereby (including dividend, voting, redemption and liquidation
rights).
To enable the selling stockholders to obtain the preferred
income tax treatment for the corporate conversion, this offering
has been structured so that each purchaser will purchase a
combination of shares sold by us (primary shares) and shares
sold by the selling stockholders (secondary shares) in a
specified ratio. Each depositary share sold in this offering
represents a fraction of a primary share and a fraction of a
secondary share in such specified ratio. The offering of
depositary shares will enable us and the selling stockholders to
establish that each purchaser will purchase such fixed ratio of
primary to secondary shares.
All of the shares of common stock sold in this offering will be
deposited with the depositary prior to the completion of this
offering. The depositary then will issue the depositary shares
to the underwriters. Copies of the forms of the deposit
agreement and the depositary receipt have been filed as exhibits
to the registration statement of which this prospectus is a part.
Cancellation of
Depositary Shares
On ,
2010, each holder of depositary shares will be credited with a
number of shares of common stock equal to the number of
depositary shares held by such holder on that date, and the
depositary shares will be canceled.
For U.S. tax purposes holders of our depositary shares are
treated as if they hold the underlying common shares represented
by the depositary shares. The exchange of depositary shares for
shares of our common stock should not be a taxable event for
U.S. federal income tax purposes.
Fees and
Expenses
Except as described under “Withdrawal,” we will pay
all fees, charges and expenses of the depositary and any agent
of the depositary, including any fees, charges and expenses
payable in connection with the cancellation of the depositary
shares
on ,
2010.
Dividends and
Other Distributions
We do not expect to pay any dividends or other distribution
prior to the cancellation of the depositary shares
on ,
2010.
Listing
We intend to apply to have our depositary shares and our common
stock quoted on the New York Stock Exchange under the symbol
“MX.” Before the cancellation of the depositary shares
on ,
2010, all of the shares of common stock sold in this offering
will be deposited with the depositary, and there will not be any
separate public trading market for our shares of common stock,
except as represented by the depositary shares. After the
cancellation of the depositary shares
on ,
2010, our shares of common stock will be listed on the New York
Stock Exchange under the symbol “MX.”
131
Table of Contents
Withdrawal
Holders of depositary shares have the right to cancel their
depositary shares and withdraw the underlying common shares at
any time subject only to:
| • | temporary delays caused by closing of our or the depositary’s transfer books; | |
| • | the payment of fees, charges, taxes and other governmental charges; or | |
| • | where deemed necessary or advisable by the depositary or us in good faith due to any requirement of any U.S. or foreign laws, government, governmental body or commission, any securities exchange on which the depositary shares are listed or governmental regulations relating to the depositary shares or the withdrawal of the underlying shares of common stock. |
U.S. securities laws provide that this right of withdrawal
may not be limited by any other provision of the deposit
agreement. However,
until
, 2010, our common stock will not be listed on any exchange.
Therefore, until that date, it may be more difficult to dispose
of our shares of common stock than it will be to dispose of our
depositary shares.
If you elect to withdraw the shares of common stock underlying
your depositary shares from the depositary, you will be required
to pay the depositary a fee of up to
$ per depositary share
surrendered, together with expenses incurred by the depositary
and any taxes or charges, such as stamp taxes or stock transfer
taxes or fees, in connection with the withdrawal. We will not
receive any portion of the fee payable to the depositary upon a
withdrawal of shares from the depositary.
Form of
Depositary Shares
The depositary shares shall be issued in book-entry form through
American Stock Transfer & Trust Company, LLC as
depositary. The shares of common stock sold in this offering
will be issued in registered form to the depositary.
Limitations on
Obligations and Liability
The deposit agreement expressly limits our and the
depositary’s obligations and liability.
We and the depositary:
| • | have agreed to perform our respective obligations specifically set forth in the deposit agreement without gross negligence or bad faith; | |
| • | are not liable if either of us by law or circumstances beyond our control is prevented from, or delayed in, performing any obligation under the deposit agreement, including, without limitation, requirements of any present or future law, regulation, governmental or regulatory authority or stock exchange of any applicable jurisdiction, any present or future provision of our certificate of incorporation and bylaws, on account of possible civil or criminal penalties or restraint, any provisions of or governing the deposited securities, any act of God, war or other circumstances beyond each of our control as set forth in the deposit agreement; | |
| • | are not liable if either of us exercises or fails to exercise the discretion permitted under the deposit agreement, the provisions of or governing the deposited shares of common stock or our certificate of incorporation and bylaws; | |
| • | are not liable for any action or inaction on the advice or information of legal counsel, accountants, any person presenting common shares for deposit, holders and beneficial owners (or authorized representatives) of depositary shares, or any person believed in good faith to be competent to give such advice or information; | |
| • | are not liable for the inability of any holder to benefit from any distribution, offering, right or other benefit if made in accordance with the provisions of the deposit agreement; |
132
Table of Contents
| • | have no obligation to become involved in a lawsuit or other proceeding related to any deposited shares of common stock or the depositary shares or the deposit agreement on behalf of holders of depositary shares or on behalf of any other party; | |
| • | may rely upon any documents we believe in good faith to be genuine and to have been signed or presented by the proper party; and | |
| • | shall not incur any liability for any indirect, special, punitive or consequential damages for any breach of the terms of the deposit agreement. |
The depositary and its agents will not incur any liability under
the deposit agreement for the failure to determine that any
action may be lawful or reasonably practicable, allowing any
rights to lapse in accordance with the provisions of the deposit
agreement, the failure or timeliness of any notice from us, the
content of any information submitted to it by us for
distribution to holders of depositary shares, any investment
risk associated with the acquisition of an interest in our
shares of common stock, the validity or worth of the deposited
shares of common stock, any tax consequences that may result
from ownership of depositary shares or shares of common stock,
the creditworthiness of any third party and for any indirect,
special, punitive or consequential damage. We also have agreed
to indemnify the depositary under certain circumstances. The
depositary may own and deal in any class of our securities,
including the depositary shares.
Notwithstanding the foregoing, the deposit agreement does not
limit our liability under federal securities laws.
133
Table of Contents
DESCRIPTION OF
CERTAIN INDEBTEDNESS
The following discussion is a summary and is not complete and is
subject in its entirety by reference to the actual provisions of
the documents referred to below.
On December 23, 2004, MagnaChip Semiconductor LLC and its
subsidiaries entered into a senior secured credit agreement with
a syndicate of banks, financial institutions and other entities,
as lenders, providing for a $100 million senior secured
revolving credit facility. The borrowers under the senior
secured credit facility are MagnaChip Semiconductor S.A. and
MagnaChip Semiconductor Finance Company, two of our wholly-owned
subsidiaries. On November 6, 2009, in connection with the
reorganization proceedings, our senior secured credit agreement
was amended and restated to, among other things, terminate any
unused commitments, reduce the outstanding principal amount to
$61,750,000, redenominate the outstanding revolving loans as
outstanding term loans, and appoint Wilmington Trust FSB as
administrative agent and collateral agent.
MagnaChip Semiconductor LLC and each of its current direct and
indirect subsidiaries are (and each future direct and indirect
subsidiary will be) guarantors of the senior secured credit
facility (except for MagnaChip Semiconductor (Shanghai) Company
Limited). The senior secured credit facility is secured on a
first-priority basis by substantially all of the assets of the
borrowers and guarantors, including but not limited to, pledges
of the equity interests of the subsidiaries of MagnaChip
Semiconductor LLC that are guarantors.
Loans made under the senior secured credit facility bear
interest at the following rates: (i) for base rate loans,
the greater of (A) the corporate base rate determined by the
administrative agent and (B) the Federal Funds Effective
Rate plus 0.50% (such greater interest rate, the
“ABR”), in each case plus 11.0% per annum; and
(ii) for Eurodollar loans, the adjusted LIBOR rate plus 12%
per annum. If at any time an event of default has occurred and
is continuing, all outstanding obligations will bear interest at
the ABR plus 13.0% per annum. Default interest is payable on
demand. All other interest on all loans under the senior secured
credit facility is payable at maturity and, with respect to
Eurodollar loans, at the end of the applicable interest periods
(which may be 1, 2, 3, 6 or, with lender consent,
9 months), but in any event at least every three months,
and with respect to the base rate loans, on the last business
day of each calendar quarter.
The unpaid principal amount of the loans under the senior
secured credit facility is payable at maturity. In addition,
principal installments are to be paid on the last day of each
calendar quarter beginning with the quarter ending
March 31, 2010. Finally, under certain circumstances, loans
outstanding under the senior secured credit facility must be
prepaid in conjunction with excess cash flow, asset sales,
dividend or subordinated debt payments, and casualty events.
The senior secured credit facility agreement contains certain
restrictive covenants, including those with respect to the
future maintenance and conduct of the business, the incurrence
of debt or liens, the making of certain investments, the
repayment of other indebtedness, the issuance of specified
capital stock and the consummation of sale/leaseback
transactions, affiliate transactions, mergers and
consolidations, asset sales, distributions and dividends on
capital stock, and certain acquisitions. The senior secured
credit facility also contains a minimum liquidity financial
covenant.
The senior secured credit facility includes certain events of
default, including payment defaults, breaches of representations
and warranties, covenant defaults, cross-defaults to certain
indebtedness, certain events of bankruptcy, material judgments,
the invalidity of the documentation with respect to the senior
secured credit facility in any material respect, the failure of
the security interests in any material collateral created under
the security documents for the senior secured credit facility to
be enforceable or to have the purported priority thereunder, or
the occurrence of a change of control. If an event of default
occurs (other than in designated cases such as bankruptcy or a
similar proceeding, in which case acceleration of the
indebtedness will be automatic), the senior lenders will be
entitled to take certain actions, including the acceleration of
all amounts due under the senior secured credit facility and all
actions permitted to be taken by a secured creditor.
134
Table of Contents
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for our
common stock, and a significant public market for our common
stock may not develop or be sustained after this offering.
Future sales of significant amounts of our common stock,
including shares of our outstanding common stock and shares of
our common stock issued upon exercise of outstanding options and
warrants, in the public market after this offering could
adversely affect the prevailing market price of our common stock
and could impair our future ability to raise capital through the
sale of securities.
Sale of
Restricted Shares and
Lock-Up
Agreements
Upon the closing of this offering, we will have
outstanding shares
of common stock, based upon the common units of MagnaChip
Semiconductor LLC outstanding as of December 31, 2009 after
giving effect to the corporate conversion pursuant to which each
common unit will be automatically converted into shares of our
common stock at a ratio
of .
Of these shares,
the shares
of common stock sold in this offering,
or shares
if the underwriters exercise their option to purchase additional
shares in full, will be freely tradable without restriction
under the Securities Act, unless purchased by affiliates of our
company, as that term is defined in Rule 144 under the
Securities Act.
Of
the
remaining shares of common
stock,
were converted in the corporate conversion from common units of
MagnaChip Semiconductor LLC issued under Section 1145 of
the U.S. Bankruptcy Code in connection with our
reorganization proceedings and were deemed to have been issued
in a public offering and may be resold as freely tradeable
securities under Section 4(1) of the Securities Act, except
for such shares held by our affiliates or holders deemed to be
“underwriters,” as that term is defined in
Section 1145(b) of the U.S. Bankruptcy Code, who may
be subject to applicable resale limitations under Rule 144;
and shares
of common stock are eligible for public sale if registered under
the Securities Act or sold in accordance with Rule 144 of
the Securities Act. These shares are subject to a registration
rights agreement, an agreement and plan of conversion or
restricted unit agreements that restricts their sale for
180 days after the date of this prospectus unless Goldman,
Sachs & Co. and Barclays Capital Inc., the
representatives of the underwriters, agree to a lesser period.
Furthermore,
of these remaining shares of common stock are held by officers,
directors and existing stockholders who are subject to
lock-up
agreements and other trading restrictions for a period of
180 days after the date of this prospectus. These lock-up
agreements do not restrict the ability of the stockholders party
to the registration rights agreement to cause a resale
registration statement to be filed in accordance with the demand
registration rights described above under “Description of
Capital Stock — Registration Rights.”
Goldman, Sachs & Co. and Barclays Capital Inc., as
representatives of the underwriters, may, at any time without
notice, release all or any portion of the securities subject to
the lock-up
agreements. We have been advised by the representatives of the
underwriters that, when determining whether or not to release
shares from the
lock-up
agreements, the representatives of the underwriters will
consider, among other factors, the stockholder’s reasons
for requesting the release, the number of shares for which the
release is being requested and market conditions at the time.
The representatives of the underwriters have advised us that
they have no present intention to release any of the shares
subject to the
lock-up
agreements prior to the expiration of the
lock-up
period.
Rule 144
In general, Rule 144 allows a stockholder (or stockholders
where shares of common stock are aggregated) who has
beneficially owned shares of our common stock for at least six
months to sell an unlimited number of shares of our common stock
provided current public information about us is available and,
after one year, an unlimited number of shares of our common
stock without restriction. Our affiliates who have beneficially
owned shares of our common stock for at least six months are
135
Table of Contents
entitled to sell within any three-month period commencing
90 days after the date of this prospectus a number of those
shares that does not exceed the greater of:
| • | one percent of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or | |
| • | the average weekly trading volume of the common stock on all national securities exchanges and/or reported through the automated quotation system of a registered securities association during the four calendar weeks preceding the sale. |
Sales under Rule 144 by our affiliates are subject to
specific manner of sales provisions, notice requirements and the
availability of current information about us. We cannot estimate
the number of shares of common stock our existing stockholders
will sell under Rule 144, as this will depend on the market
price for our common stock, the personal circumstances of the
stockholders and other factors.
Options
In addition to
the shares
of common stock outstanding immediately after this offering,
based upon the common units of MagnaChip Semiconductor LLC
outstanding as of December 31, 2009 after giving effect to
the corporate conversion pursuant to which each common unit will
be automatically converted into shares of our common stock at a
ratio
of ,
there were outstanding options to
purchase shares
of our common stock. As soon as practicable after the closing of
this offering, we intend to file a registration statement on
Form S-8
under the Securities Act covering shares of our common stock
reserved for issuance upon exercise of stock options outstanding
as
of
at a weighted average exercise price
of
per share
and shares
of our common stock reserved as
of
for issuance pursuant to future grants under our 2010 Equity
Incentive Plan and 2010 Employee Stock Purchase Plan.
Accordingly, shares of our common stock registered under such
registration statement will be available for sale in the open
market upon exercise by the holders, subject to vesting
restrictions with us, contractual
lock-up
restrictions, our securities trading policy
and/or
market stand-off provisions applicable to each other agreement
that prohibits the sale or other disposition of the shares of
common stock underlying the options for a period of
180 days after the date of this prospectus without the
prior written consent from us or Goldman, Sachs & Co.
and Barclays Capital Inc.
Warrants
In addition to
the shares
of common stock outstanding immediately after this offering
after giving effect to the corporate conversion, as of
December 31, 2009, there were outstanding warrants to
purchase shares
of our common stock. The warrants were issued under
Section 1145 of the U.S. Bankruptcy Code in connection
with our reorganization proceedings and such warrants were
deemed to have been issued, and shares of common stock issued
upon exercise of such warrants will be deemed to be issued, in a
public offering and may be resold as freely tradeable securities
under Section 4(1) of the Securities Act, except for such
warrants and shares of common stock issued upon exercise of such
warrants held by our affiliates or holders deemed to be
“underwriters,” as that term is defined in
Section 1145(b) of the U.S. Bankruptcy Code, who may
be subject to applicable resale limitations under Rule 144.
The warrants and shares of common stock issued upon exercise of
such warrants are subject to a warrant agreement that restricts
their sale for 180 days after the date of this prospectus
unless we and the managing underwriters, agree to a lesser
period.
Registration
Rights
Upon the closing of this offering, certain holders of our shares
of common stock will have the right to register their remaining
shares of common stock pursuant to a registration rights
agreement. In addition, some holders will have certain
“piggyback” registration rights, pursuant to that
agreement. See “Description of Capital Stock.”
136
Table of Contents
MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES
TO NON-U.S. HOLDERS
TO NON-U.S. HOLDERS
The following is a summary of the material U.S. federal
income tax consequences of the ownership and disposition of
shares of our common stock to a
non-U.S. holder
who purchases our common stock in this offering. For purposes of
this discussion, a
non-U.S. holder
is any beneficial owner of our common stock that for
U.S. federal income tax purposes is not a U.S. person
(other than a partnership, as discussed below); the term
U.S. person means:
| • | an individual citizen or resident of the United States; | |
| • | a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States or any state thereof or the District of Columbia; | |
| • | an estate whose income is subject to U.S. federal income tax regardless of its source; or | |
| • | a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a U.S. person. |
If a partnership or other pass-through entity holds common
stock, the tax treatment of a partner or member in the
partnership or other entity will generally depend on the status
of the partner or member and upon the activities of the
partnership or other entity. Accordingly, we urge partnerships
or other pass-through entities which hold shares of our common
stock and partners or members in these partnerships or other
entities to consult their tax advisors.
This discussion assumes that
non-U.S. holders
will hold shares of our common stock issued pursuant to the
offering as a capital asset (generally, property held for
investment). This discussion does not address all aspects of
U.S. federal income taxation that may be relevant in light
of a
non-U.S. holder’s
special tax status or special tax situations.
U.S. expatriates, life insurance companies, tax-exempt
organizations, dealers in securities or currency, banks or other
financial institutions, pension funds and investors that hold
shares of common stock as part of a hedge, straddle or
conversion transaction are among those categories of potential
investors that are subject to special rules not covered in this
discussion. This discussion does not address any non-income tax
consequences or any income tax consequences arising under the
laws of any state, local or
non-U.S. taxing
jurisdiction. Furthermore, the following discussion is based on
current provisions of the Internal Revenue Code, Treasury
Regulations and administrative and judicial interpretations
thereof, all as in effect on the date hereof, and all of which
are subject to change, possibly with retroactive effect.
Additionally, we have not sought any ruling from the Internal
Revenue Service or IRS, with respect to statements made and
conclusions reached in this discussion, and there can be no
assurance that the IRS will agree with these statements and
conclusions. We urge each prospective purchaser to consult a tax
advisor regarding the U.S. federal, state, local and
non-U.S. income
and other tax consequences of acquiring, holding and disposing
of shares of our common stock.
Distributions
If we make distributions on our common stock, those payments
will constitute dividends for U.S. tax purposes to the
extent paid from our current or accumulated earnings and
profits, as determined under U.S. federal income tax
principles. To the extent those distributions exceed our current
and accumulated earnings and profits, the distributions will
first constitute a return of capital and will reduce a
holder’s basis, but not below zero, and then will be
treated as gain from the sale of shares and may be subject to
U.S. federal income tax as described below.
Any distribution that is a dividend, as defined above, paid to a
non-U.S. holder
of common shares generally will be subject to
U.S. withholding tax either at a rate of 30% of the gross
amount of the dividend or such lower rate as may be specified by
an applicable tax treaty. In order to receive a
137
Table of Contents
reduced treaty rate, a
non-U.S. holder
must timely provide us with an IRS
Form W-8BEN
or other appropriate version of IRS
Form W-8
properly certifying qualification for the reduced rate.
Dividends received by a
non-U.S. holder
that are effectively connected with a U.S. trade or
business conducted by the
non-U.S. holder
(and dividends attributable to a
non-U.S. holder’s
permanent establishment in the United States if a tax treaty
applies) are exempt from this withholding tax. In order to
obtain this exemption, a
non-U.S. holder
must timely provide us with an IRS
Form W-8ECI
properly certifying this exemption. Dividends that are so
effectively connected (and, if required by an applicable tax
treaty, attributable to a permanent establishment), although not
subject to withholding tax, are taxed at the same graduated
rates applicable to U.S. persons, net of specified
deductions and credits. In addition, such dividends received by
a corporate
non-U.S. holder
may also be subject to a branch profits tax at a rate of 30% (or
such lower rate as may be specified in a tax treaty).
A
non-U.S. holder
of common stock that is eligible for a reduced rate of
withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts withheld if an appropriate claim for refund
is filed with the IRS.
Gain on
Disposition of Shares of Common Stock
A
non-U.S. holder
generally will not be subject to United States federal income
tax on gain realized upon the sale or other disposition of
shares of our common stock unless:
| • | the gain is effectively connected with a U.S. trade or business of the non-U.S. holder (and attributable to a permanent establishment in the United States if a tax treaty applies); | |
| • | the non-U.S. holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the taxable year in which the sale or disposition occurs and certain other conditions are met; or | |
| • | our common stock constitutes a U.S. real property interest by reason of our status as a “United States real property holding corporation” for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the date of disposition or the holder’s holding period for shares of our common stock. We believe that we will not be, immediately after our conversion to a corporation, and we believe that we will not become, a “United States real property holding corporation” for U.S. federal income tax purposes. If we become a “United States real property holding corporation,” so long as our common stock is “regularly traded” on an established securities market, only a non-U.S. holder who, actually or constructively, holds or held (at any time during the shorter of the five year period preceding the date of disposition or the holder’s holding period) more than 5% of shares of our common stock will be subject to U.S. federal income tax on the disposition of shares of our common stock. |
If the recipient is a
non-U.S. holder
described in the first bullet above, the recipient will be
required to pay tax on the net gain derived from the sale under
regular graduated U.S. federal income tax rates, and
corporate
non-U.S. holders
described in the first bullet above may be subject to the branch
profits tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
Non-U.S. holders
should consult their tax advisors regarding any applicable
income tax treaties that may provide for different rules.
If the recipient is an individual
non-U.S. holder
described in the second bullet above, the recipient will be
required to pay a flat 30% tax on the gain derived from the
sale, which gain may be offset by U.S. source capital
losses provided that the
non-U.S. holder
has timely filed U.S. federal income tax returns with
respect to such losses.
138
Table of Contents
Backup
Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of
dividends paid, the name and address of the recipient, and the
amount, if any, of tax withheld. A similar report is sent to the
holder. Pursuant to tax treaties or other agreements, the IRS
may make its reports available to tax authorities in the
recipient’s country of residence.
Payments of dividends or of proceeds on the disposition of
shares made to a
non-U.S. holder
may be subject to information reporting and backup withholding
at the then effective rate unless the
non-U.S. holder
establishes an exemption, for example, by properly certifying
its
non-U.S. status
on a
Form W-8BEN
or another appropriate version of
Form W-8.
Notwithstanding the foregoing, information reporting and backup
withholding may apply if either we or our paying agent has
actual knowledge, or reason to know, that the holder is a
U.S. person.
Backup withholding is not an additional tax. Rather, the
U.S. income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund or
credit may be obtained, so long as the required information is
furnished to the IRS in a timely manner.
Proposed
Legislation Relating to Foreign Accounts
Legislation has been introduced into the U.S. Congress (and
the U.S. House of Representatives and Senate have passed
versions of this legislation) that would impose withholding
taxes on certain types of payments made to “foreign
financial institutions” and certain other
non-U.S. entities.
If this legislation or other similar legislation is enacted, the
failure to comply with additional certification, information
reporting and other specified requirements could result in
withholding tax being imposed on payments of dividends and sales
proceeds to foreign intermediaries and certain
non-U.S. holders.
Any such legislation could substantially change some of the
rules discussed above relating to certification requirements,
information reporting and withholding. No assurances can be
given whether, or in what form, this legislation will be
enacted. Prospective investors should consult their tax advisors
regarding this legislation and similar proposals.
139
Table of Contents
UNDERWRITING
We, the selling stockholders and the underwriters named below
have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each
underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman,
Sachs & Co. and Barclays Capital Inc. are the
representatives of the underwriters.
|
Number of |
||||
|
Underwriters
|
Shares
|
|||
|
Goldman, Sachs & Co.
|
||||
|
Barclays Capital Inc.
|
||||
|
Deutsche Bank Securities Inc.
|
||||
|
Citigroup Global Markets Inc.
|
||||
|
UBS Securities LLC
|
||||
|
Total
|
||||
The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised. If the underwriters sell more shares than
the total number set forth in the table above, the underwriters
have an option to buy up to an
additional shares
from us
and shares
from the selling stockholders. They may exercise that option in
whole or in part and from time to time for 30 days. If any
shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting
discount to be paid to the underwriters by us and the selling
stockholders. Such amounts are shown assuming both no exercise
and full exercise of the underwriters’ option to
purchase
additional shares.
|
No |
Full |
|||||||
|
Paid by Us
|
Exercise
|
Exercise
|
||||||
|
Per share
|
$ | $ | ||||||
|
Total
|
$ | $ | ||||||
|
No |
Full |
|||||||
|
Paid by the Selling
Stockholders
|
Exercise
|
Exercise
|
||||||
|
Per share
|
$ | $ | ||||||
|
Total
|
$ | $ | ||||||
Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to
$ per share from the initial
public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change
the offering price and the other selling terms. The offering of
the shares by the underwriters is subject to receipt and
acceptance and subject to the underwriters’ right to reject
any order in whole or in part.
We and our officers, directors, selling stockholders and certain
other stockholders have agreed with the underwriters, subject to
certain exceptions, not to dispose of or hedge any of their
common stock or securities convertible into or exchangeable for
shares of common stock during the period from the date of this
prospectus continuing through the date 180 days after the date
of this prospectus, except with the prior written consent of the
representatives; provided, that this agreement does not restrict
the ability of the stockholders party to the registration rights
agreement to cause a resale registration statement to be filed
in accordance with the demand registration rights described
above under “Description of Capital Stock —
Registration Rights.” See “Shares Eligible for
Future Sale” for a discussion of certain transfer
restrictions.
140
Table of Contents
The 180-day
restricted period described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the
180-day
restricted period we issue an earnings release or announce
material news or a material event; or (2) prior to the
expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event.
Prior to the offering, there has been no public market for the
shares. The initial public offering price has been negotiated
among us and the representatives. Among the factors to be
considered in determining the initial public offering price of
the shares, in addition to prevailing market conditions, will be
our historical performance, estimates of our business potential
and earnings prospects, an assessment of our management and the
consideration of the above factors in relation to market
valuation of companies in related businesses.
The Company intends to apply to have its depositary shares and
common stock quoted on the NYSE under the symbol “MX.”
In connection with the offering, the underwriters may purchase
and sell shares of our common stock in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in the offering.
“Covered” short sales are sales made in an amount not
greater than the underwriters’ option to purchase
additional shares from us and the selling stockholders in the
offering. The underwriters may close out any covered short
position by either exercising their option to purchase
additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase additional
shares pursuant to the option granted to them. “Naked”
short sales are any sales in excess of such option. The
underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is
more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock
in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions
consist of various bids for or purchases of common stock made by
the underwriters in the open market prior to the closing of the
offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing
transactions, as well as other purchases by the underwriters for
their own accounts, may have the effect of preventing or
retarding a decline in the market price of our stock, and
together with the imposition of the penalty bid, may stabilize,
maintain or otherwise affect the market price of the common
stock. As a result, the price of our common stock may be higher
than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued at any
time. These transactions may be effected on the NYSE, in the
over-the-counter
market or otherwise.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive, or a Relevant
Member State, each underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State, or the
Relevant Implementation Date, it has not made and will not make
an offer of shares to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive,
141
Table of Contents
except that it may, with effect from and including the Relevant
Implementation Date, make an offer of shares to the public in
that Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
€43 million and (3) an annual net turnover of
more than €50 million, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the representatives
for any such offer; or
(d) in any other circumstances which do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
“offer of shares to the public” in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
Each underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services
Markets Act 2000, or the FSMA) received by it in connection with
the issue or sale of the shares in circumstances in which
Section 21(1) of the FSMA would not, if the issuer was not
an authorized person, apply to the issuer; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
The shares may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to
“professional investors” within the meaning of the
Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
“prospectus” within the meaning of the Companies
Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to “professional
investors” within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional
investor under Section 274 of the Securities and Futures
Act, Chapter 289 of Singapore, or the SFA, (ii) to a
relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in
Section 275 of the SFA or (iii) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA.
142
Table of Contents
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries’ rights and interest in
that trust shall not be transferable for 6 months after
that corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
The securities have not been and will not be registered under
the Securities and Exchange Law of Japan, or the Securities and
Exchange Law, and each underwriter has agreed that it will not
offer or sell any securities, directly or indirectly, in Japan
or to, or for the benefit of, any resident of Japan (which term
as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan),
or to others for re-offering or resale, directly or indirectly,
in Japan or to a resident of Japan, except pursuant to an
exemption from the registration requirements of, and otherwise
in compliance with, the Securities and Exchange Law and any
other applicable laws, regulations and ministerial guidelines of
Japan.
A prospectus in electronic format will be available on the
websites maintained by one or more of the underwriters
participating in this offering. The representatives may agree to
allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be
allocated by the underwriters that make internet distributions
on the same basis as other allocations.
The underwriters do not expect sales to discretionary accounts
to exceed five percent of the total number of shares offered.
We estimate that our share of the total expenses of the
offering, excluding underwriting discount but including the
expenses of the selling stockholders, will be approximately
$ million.
We and the selling stockholders have agreed to indemnify the
several underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, and to contribute
to payments that the underwriters may be required to make for
any such liabilities.
If you purchase shares of common stock offered in this
prospectus, you may be required to pay stamp taxes and other
charges under the laws and practices of the country of purchase,
in addition to the offering price listed on the cover page of
this prospectus.
Certain of the underwriters and their respective affiliates are
full service financial institutions engaged in various
activities, which may include securities trading, commercial and
investment banking, financial advisory, investment management,
principal investment, hedging, financing and brokerage
activities. Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory and investment
banking services for the issuer, for which they received or will
receive customary fees and expenses. Goldman Sachs Credit
Partners LP (an affiliate of Goldman, Sachs & Co.) and
Citicorp North America LLC (an affiliate of Citigroup Global
Markets Inc.) serve as lenders under our senior secured credit
facility for which they receive customary fees and expenses. An
affiliate of Goldman, Sachs & Co. is the counterparty
to our currency hedging transactions. Goldman, Sachs &
Co. and Citigroup Global Markets Inc. are managing underwriters
in this offering.
In the ordinary course of their various business activities,
certain of the underwriters and their respective affiliates may
make or hold a broad array of investments and actively trade
debt and equity securities (or related derivative securities)
and financial instruments (including bank loans) for their own
account and for the accounts of their customers and may at any
time hold long and short positions in such securities and
instruments. Such investment and securities activities may
involve securities and instruments of the issuer.
143
Table of Contents
LEGAL
MATTERS
The validity of our depositary shares and common stock offered
hereby will be passed on for us by DLA Piper LLP (US), East Palo
Alto, California. Certain legal matters in connection with this
offering will be passed on for the underwriters by
Latham & Watkins LLP, New York, New York.
EXPERTS
Our consolidated financial statements as of and for the
two-month period ended December 31, 2009, and consolidated
financial statements as of December 31, 2008 and for the
ten-month period ended October 25, 2009 and for each of the
two years in the periods ended December 31, 2008 and 2007
included in this prospectus have been so included in reliance on
the reports of Samil PricewaterhouseCoopers, an independent
registered public accounting firm, given on the authority of
said firm as experts in accounting and auditing. The address of
Samil PricewaterhouseCoopers is LS Yongsan Tower,
191 Hangangro 2ga, Yongsan-gu, Seoul
140-702,
Korea. Samil PricewaterhouseCoopers is a member of the Korean
Institute of Certified Public Accountants.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act of 1933, covering our common stock to
be issued pursuant to this offering (Registration
No. 333-
). This prospectus, which is a part of the registration
statement, does not contain all of the information included in
the registration statement. Any statement made in this
prospectus concerning the contents of any contract, agreement or
other document is not necessarily complete. For further
information regarding MagnaChip and the depositary shares to be
issued in the offering, please refer to the registration
statement, including its exhibits. If we have filed any
contract, agreement or other document as an exhibit to the
registration statement, you should read the exhibit for a more
complete understanding of the documents or matters involved.
You may read and copy any reports or other information filed by
us at the SEC’s public reference room at
100 F Street N.E., Washington, DC 20549. Copies of
this material can be obtained from the Public Reference Section
of the SEC upon payment of fees prescribed by the SEC. You may
call the SEC at 800-SEC-0350 for further information on the
operation of the public reference room. Our filings will also be
available to the public from commercial document retrieval
services and at the SEC website at “www.sec.gov.” In
addition, you may request a copy of any of these filings, at no
cost, by writing or telephoning us at the following address or
phone number:
c/o MagnaChip
Semiconductor, Inc., 20400 Stevens Creek Boulevard,
Suite 370 Cupertino, CA 95014, attention: Senior Vice
President, General Counsel and Secretary; the telephone number
at that address is
408-625-5999.
144
Table of Contents
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Unitholders of
MagnaChip Semiconductor LLC
In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of operations, of changes in
unitholders’ equity and of cash flows present fairly, in
all material respects, the financial position of MagnaChip
Semiconductor LLC and its subsidiaries (the “Company”)
at December 31, 2009 (Successor Company) and the results of
their operations and their cash flows for the two-month period
ended December 31, 2009 in conformity with accounting
principles generally accepted in the United States of America.
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit. We conducted our audit of these statements in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial
statements, the United States Bankruptcy Court for the District
of Delaware confirmed the Creditors’ Committee’s
reorganization plan (the “Plan”) on September 25,
2009. Confirmation of the Plan resulted in the discharge of all
claims against the Company that arose before June 12, 2009
and substantially terminates all rights and interests of equity
security holders as provided for in the Plan. The Plan was
substantially consummated on November 9, 2009 and the
Company emerged from bankruptcy. In connection with its
emergence from bankruptcy, the Company adopted fresh-start
accounting as of October 25, 2009.
/s/ Samil PricewaterhouseCoopers
Seoul, Korea
March 13, 2010
F-2
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of
Directors and Unitholders of
MagnaChip Semiconductor LLC
MagnaChip Semiconductor LLC
In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of operations, of changes in
unitholders’ equity and of cash flows present fairly, in
all material respects, the financial position of MagnaChip
Semiconductor LLC and its subsidiaries (the “Company”)
at December 31, 2008 (Predecessor Company), and the results
of their operations and their cash flows for the ten-month
period ended October 25, 2009 and for each of the two years
in the period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on
our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting
principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 2 to the consolidated financial
statements, the Company filed a petition on June 12, 2009
with the United States Bankruptcy Court for the District of
Delaware for reorganization under the provisions of
Chapter 11 of the Bankruptcy Code. The Company’s
Creditors’ Committee’s reorganization plan was
substantially consummated on November 9, 2009 and the
Company emerged from bankruptcy. In connection with its
emergence from bankruptcy, the Company adopted fresh-start
accounting.
As discussed in Note 4 to the consolidated financial
statements, the Company changed the manner in which it accounts
for business combinations in 2009.
/s/ Samil
PricewaterhouseCoopers
Seoul, Korea
March 13, 2010
F-3
Table of Contents
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
|
Successor |
Predecessor |
||||||||
|
December 31, |
December 31, |
||||||||
| 2009 | 2008 | ||||||||
| (In thousands of US dollars, except unit data) | |||||||||
|
Assets
|
|||||||||
|
Current assets
|
|||||||||
|
Cash and cash equivalents
|
$ | 64,925 | $ | 4,037 | |||||
|
Restricted cash
|
— | 11,768 | |||||||
|
Accounts receivable, net
|
74,233 | 76,295 | |||||||
|
Inventories, net
|
63,407 | 47,110 | |||||||
|
Other receivables
|
3,433 | 4,701 | |||||||
|
Prepaid expenses
|
12,625 | 9,268 | |||||||
|
Other current assets
|
3,433 | 4,799 | |||||||
|
Total current assets
|
222,056 | 157,978 | |||||||
|
Property, plant and equipment, net
|
156,337 | 183,955 | |||||||
|
Intangible assets, net
|
50,158 | 34,892 | |||||||
|
Long-term prepaid expenses
|
10,542 | 7,714 | |||||||
|
Other non-current assets
|
14,238 | 14,631 | |||||||
|
Total assets
|
$ | 453,331 | $ | 399,170 | |||||
|
Liabilities and Unitholders’ Equity
|
|||||||||
|
Current liabilities
|
|||||||||
|
Accounts payable
|
$ | 59,705 | $ | 70,158 | |||||
|
Other accounts payable
|
7,190 | 15,040 | |||||||
|
Accrued expenses
|
22,114 | 38,554 | |||||||
|
Short-term borrowings
|
— | 95,000 | |||||||
|
Current portion of long-term debt
|
618 | 750,000 | |||||||
|
Other current liabilities
|
3,937 | 3,735 | |||||||
|
Total current liabilities
|
93,564 | 972,487 | |||||||
|
Long-term borrowings
|
61,132 | — | |||||||
|
Accrued severance benefits, net
|
72,409 | 61,939 | |||||||
|
Other non-current liabilities
|
10,536 | 9,874 | |||||||
|
Total liabilities
|
237,641 | 1,044,300 | |||||||
|
Commitments and contingencies
|
|||||||||
|
Series A redeemable convertible preferred units,
$1,000 par value; 60,000 units authorized,
50,091 units issued and 0 unit outstanding at
December 31, 2008
|
— | — | |||||||
|
Series B redeemable convertible preferred units,
$1,000 par value; 550,000 units authorized,
450,692 units issued, 93,997 units outstanding at
December 31, 2008
|
— | 142,669 | |||||||
|
Total redeemable convertible preferred units
|
— | 142,669 | |||||||
|
Unitholders’ equity
|
|||||||||
|
Successor common units, no par value, 375,000,000 units
authorized, 307,083,996 units issued and outstanding at
December 31, 2009
|
55,135 | — | |||||||
|
Predecessor common units, $1 par value;
65,000,000 units authorized, 52,923,483 units issued
and outstanding at December 31, 2008
|
— | 52,923 | |||||||
|
Additional paid-in capital
|
168,700 | 3,150 | |||||||
|
Accumulated deficit
|
(1,963 | ) | (995,007 | ) | |||||
|
Accumulated other comprehensive income (loss)
|
(6,182 | ) | 151,135 | ||||||
|
Total unitholders’ equity (deficit)
|
215,690 | (787,799 | ) | ||||||
|
Total liabilities, redeemable convertible preferred units and
unitholders’ equity
|
$ | 453,331 | $ | 399,170 | |||||
The accompanying notes are an integral part of these
consolidated financial statements
F-4
Table of Contents
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
| Successor | Predecessor | |||||||||||||||||
|
|
Ten-Month |
|||||||||||||||||
|
Two-Month |
Period |
|||||||||||||||||
|
Period Ended |
Ended |
Year Ended |
Year Ended |
|||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||
| (In thousands of US dollars, except unit data) | ||||||||||||||||||
|
Net sales
|
$ | 111,082 | $ | 448,984 | $ | 601,664 | $ | 709,508 | ||||||||||
|
Cost of sales
|
90,408 | 311,139 | 445,254 | 578,857 | ||||||||||||||
|
Gross profit
|
20,674 | 137,845 | 156,410 | 130,651 | ||||||||||||||
|
Selling, general and administrative expenses
|
14,540 | 56,288 | 81,314 | 82,710 | ||||||||||||||
|
Research and development expenses
|
14,741 | 56,148 | 89,455 | 90,805 | ||||||||||||||
|
Restructuring and impairment charges
|
— | 439 | 13,370 | 12,084 | ||||||||||||||
|
Operating income (loss) from continuing operations
|
(8,607 | ) | 24,970 | (27,729 | ) | (54,948 | ) | |||||||||||
|
Other income (expenses)
|
||||||||||||||||||
|
Interest expense, net (contractual interest, net of $47,828 for
the ten-month period ended October 25, 2009)
|
(1,258 | ) | (31,165 | ) | (76,119 | ) | (60,311 | ) | ||||||||||
|
Foreign currency gain (loss), net
|
9,338 | 43,437 | (210,406 | ) | (4,732 | ) | ||||||||||||
|
Reorganization items, net
|
— | 804,573 | — | — | ||||||||||||||
| 8,080 | 816,845 | (286,525 | ) | (65,043 | ) | |||||||||||||
|
Income (loss) from continuing operations before income taxes
|
(527 | ) | 841,815 | (314,254 | ) | (119,991 | ) | |||||||||||
|
Income tax expenses
|
1,946 | 7,295 | 11,585 | 8,835 | ||||||||||||||
|
Income (loss) from continuing operations
|
(2,473 | ) | 834,520 | (325,839 | ) | (128,826 | ) | |||||||||||
|
Income (loss) from discontinued operations, net of taxes
|
510 | 6,586 | (91,455 | ) | (51,724 | ) | ||||||||||||
|
Net income (loss)
|
$ | (1,963 | ) | $ | 841,106 | $ | (417,294 | ) | $ | (180,550 | ) | |||||||
|
Dividends accrued on preferred units (contractual dividends of
$11,819 for the ten-month period ended October 25, 2009)
|
— | 6,317 | 13,264 | 12,031 | ||||||||||||||
|
Income (loss) from continuing operations attributable to common
units
|
$ | (2,473 | ) | $ | 828,203 | $ | (339,103 | ) | $ | (140,857 | ) | |||||||
|
Net income (loss) attributable to common units
|
$ | (1,963 | ) | $ | 834,789 | $ | (430,558 | ) | $ | (192,581 | ) | |||||||
|
Earnings (loss) per common unit from continuing
operations — Basic and diluted
|
$ | (0.01 | ) | $ | 15.65 | $ | (6.43 | ) | $ | (2.69 | ) | |||||||
|
Earnings (loss) per common unit from discontinued
operations — Basic and diluted
|
$ | 0.00 | $ | 0.12 | $ | (1.73 | ) | $ | (0.99 | ) | ||||||||
|
Earnings (loss) per common unit — Basic and diluted
|
$ | (0.01 | ) | $ | 15.77 | $ | (8.16 | ) | $ | (3.68 | ) | |||||||
|
Weighted average number of units — Basic and diluted
|
300,862,764 | 52,923,483 | 52,768,614 | 52,297,192 | ||||||||||||||
The accompanying notes are an integral part of these
consolidated financial statements
F-5
Table of Contents
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS’ EQUITY
|
Accumulated |
||||||||||||||||||||||||
|
Additional |
Other |
|||||||||||||||||||||||
| Common Units |
Paid-In |
Accumulated |
Comprehensive |
|||||||||||||||||||||
| Units | Amount | Capital | deficit | Income (loss) | Total | |||||||||||||||||||
| (In thousands of US dollars, except unit data) | ||||||||||||||||||||||||
|
Balance at January 1, 2007
|
52,720,784 | $ | 52,721 | $ | 2,451 | $ | (370,314 | ) | $ | 30,601 | $ | (284,541 | ) | |||||||||||
|
(Predecessor Company)
|
||||||||||||||||||||||||
|
Exercise of unit options
|
124,938 | 125 | 26 | — | — | 151 | ||||||||||||||||||
|
Repurchase of common units
|
(1,500 | ) | (2 | ) | (4 | ) | — | — | (6 | ) | ||||||||||||||
|
Unit-based compensation
|
— | — | 604 | — | — | 604 | ||||||||||||||||||
|
Dividends accrued on preferred units
|
— | — | — | (12,031 | ) | — | (12,031 | ) | ||||||||||||||||
|
Impact on beginning accumulated deficit upon adoption of
FIN 48
|
— | — | — | (1,554 | ) | — | (1,554 | ) | ||||||||||||||||
|
Comprehensive loss:
|
||||||||||||||||||||||||
|
Net loss
|
— | — | — | (180,550 | ) | — | (180,550 | ) | ||||||||||||||||
|
Fair valuation of derivatives
|
— | — | — | — | (3,477 | ) | (3,477 | ) | ||||||||||||||||
|
Foreign currency translation adjustments
|
— | — | — | — | 3,925 | 3,925 | ||||||||||||||||||
|
Total comprehensive loss
|
(180,102 | ) | ||||||||||||||||||||||
|
Balance at December 31, 2007
|
52,844,222 | $ | 52,844 | $ | 3,077 | $ | (564,449 | ) | $ | 31,049 | $ | (477,479 | ) | |||||||||||
|
(Predecessor Company)
|
||||||||||||||||||||||||
|
Exercise of unit options
|
161,460 | 161 | 22 | — | — | 183 | ||||||||||||||||||
|
Repurchase of common units
|
(82,199 | ) | (82 | ) | (414 | ) | — | — | (496 | ) | ||||||||||||||
|
Unit-based compensation
|
— | — | 465 | — | — | 465 | ||||||||||||||||||
|
Dividends accrued on preferred units
|
— | — | — | (13,264 | ) | — | (13,264 | ) | ||||||||||||||||
|
Comprehensive loss:
|
||||||||||||||||||||||||
|
Net loss
|
— | — | — | (417,294 | ) | — | (417,294 | ) | ||||||||||||||||
|
Fair valuation of derivatives
|
— | — | — | — | (864 | ) | (864 | ) | ||||||||||||||||
|
Foreign currency translation adjustments
|
— | — | — | — | 120,950 | 120,950 | ||||||||||||||||||
|
Total comprehensive loss
|
(297,208 | ) | ||||||||||||||||||||||
|
Balance at December 31, 2008
|
52,923,483 | $ | 52,923 | $ | 3,150 | $ | (995,007 | ) | $ | 151,135 | $ | (787,799 | ) | |||||||||||
|
(Predecessor Company)
|
||||||||||||||||||||||||
|
Unit-based compensation
|
— | — | 233 | — | — | 233 | ||||||||||||||||||
|
Cancellation of the Predecessor Company’s unit options
|
— | — | 166 | — | — | 166 | ||||||||||||||||||
|
Dividends accrued on preferred units
|
— | — | — | (6,317 | ) | — | (6,317 | ) | ||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||
|
Net income
|
— | — | — | 841,106 | — | 841,106 | ||||||||||||||||||
|
Foreign currency translation adjustments
|
— | — | — | — | (30,395 | ) | (30,395 | ) | ||||||||||||||||
|
Unrealized gains on investments
|
— | — | — | — | 340 | 340 | ||||||||||||||||||
|
Total comprehensive income
|
811,051 | |||||||||||||||||||||||
|
Balance at October 25, 2009
|
52,923,483 | $ | 52,923 | $ | 3,549 | $ | (160,218 | ) | $ | 121,080 | $ | 17,334 | ||||||||||||
|
(Predecessor Company)
|
||||||||||||||||||||||||
F-6
Table of Contents
|
Accumulated |
||||||||||||||||||||||||
|
Additional |
Other |
|||||||||||||||||||||||
| Common Units |
Paid-In |
Accumulated |
Comprehensive |
|||||||||||||||||||||
| Units | Amount | Capital | deficit | Income (loss) | Total | |||||||||||||||||||
| (In thousands of US dollars, except unit data) | ||||||||||||||||||||||||
|
Fresh-start adjustments:
|
||||||||||||||||||||||||
|
Cancellation of the Predecessor Company’s common units
|
(52,923,483 | ) | (52,923 | ) | (3,549 | ) | — | — | (56,472 | ) | ||||||||||||||
|
Elimination of the Predecessor Company’s accumulated
deficit and accumulated other comprehensive income
|
— | — | — | 160,218 | (121,080 | ) | 39,138 | |||||||||||||||||
|
Issuance of new equity interests in connection with emergence
from Chapter 11
|
299,999,996 | 49,539 | 166,322 | — | — | 215,861 | ||||||||||||||||||
|
Issuance of new warrants in connection with emergence from
Chapter 11
|
— | — | 2,533 | — | — | 2,533 | ||||||||||||||||||
|
Balance at October 25, 2009
|
299,999,996 | $ | 49,539 | $ | 168,855 | $ | — | $ | — | $ | 218,394 | |||||||||||||
|
(Successor Company)
|
||||||||||||||||||||||||
|
Unit-based compensation
|
7,084,000 | 5,596 | (155 | ) | — | — | 5,441 | |||||||||||||||||
|
Comprehensive income:
|
||||||||||||||||||||||||
|
Net loss
|
— | — | — | (1,963 | ) | — | (1,963 | ) | ||||||||||||||||
|
Foreign currency translation adjustments
|
— | — | — | — | (6,298 | ) | (6,298 | ) | ||||||||||||||||
|
Unrealized gains on investments
|
— | — | — | — | 116 | 116 | ||||||||||||||||||
|
Total comprehensive loss
|
(8,145 | ) | ||||||||||||||||||||||
|
Balance at December 31, 2009
|
307,083,996 | $ | 55,135 | $ | 168,700 | $ | (1,963 | ) | $ | (6,182 | ) | $ | 215,690 | |||||||||||
|
(Successor Company)
|
||||||||||||||||||||||||
The accompanying notes are an integral part of these
consolidated financial statements
F-7
Table of Contents
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Successor | Predecessor | |||||||||||||||||
|
Two-Month |
|
|||||||||||||||||
|
Period |
Ten-Month |
|||||||||||||||||
|
Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||
| (In thousands of US dollars) | ||||||||||||||||||
|
Cash flows from operating activities
|
||||||||||||||||||
|
Net income (loss)
|
$ | (1,963 | ) | $ | 841,106 | $ | (417,294 | ) | $ | (180,550 | ) | |||||||
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
|
||||||||||||||||||
|
Depreciation and amortization
|
11,218 | 38,255 | 71,960 | 163,434 | ||||||||||||||
|
Provision for severance benefits
|
1,851 | 8,835 | 14,026 | 18,834 | ||||||||||||||
|
Amortization of debt issuance costs
|
— | 836 | 16,290 | 3,919 | ||||||||||||||
|
Loss (gain) on foreign currency translation, net
|
(10,077 | ) | (44,224 | ) | 215,571 | 5,398 | ||||||||||||
|
Loss (gain) on disposal of property, plant and equipment, net
|
17 | 95 | (3,094 | ) | (68 | ) | ||||||||||||
|
Loss (gain) on disposal of intangible assets, net
|
5 | (9,230 | ) | — | (3,630 | ) | ||||||||||||
|
Restructuring and impairment charges
|
— | (1,120 | ) | 42,539 | 10,106 | |||||||||||||
|
Unit-based compensation
|
2,199 | 233 | 465 | 604 | ||||||||||||||
|
Cash used for reorganization items
|
4,263 | 1,076 | — | — | ||||||||||||||
|
Noncash reorganization items
|
— | (805,649 | ) | — | — | |||||||||||||
|
Other
|
(667 | ) | 2,722 | (400 | ) | 51 | ||||||||||||
|
Changes in operating assets and liabilities
|
||||||||||||||||||
|
Accounts receivable
|
16,443 | (12,930 | ) | 31,025 | (46,504 | ) | ||||||||||||
|
Inventories
|
6,739 | (1,163 | ) | 11,174 | (18,398 | ) | ||||||||||||
|
Other receivables
|
1,755 | 31 | 1,016 | 971 | ||||||||||||||
|
Deferred tax assets
|
678 | 1,054 | 1,490 | 952 | ||||||||||||||
|
Accounts payable
|
(14,144 | ) | 6,316 | (5,063 | ) | 26,442 | ||||||||||||
|
Other accounts payable
|
(12,511 | ) | (11,452 | ) | (19,887 | ) | (6,021 | ) | ||||||||||
|
Accrued expenses
|
(5,687 | ) | 28,295 | 23,953 | (5,504 | ) | ||||||||||||
|
Long term other payable
|
(877 | ) | 507 | 121 | 114 | |||||||||||||
|
Other current assets
|
3,192 | 5,896 | 7,401 | 9,840 | ||||||||||||||
|
Other current liabilities
|
1,188 | 39 | 1,295 | 5,007 | ||||||||||||||
|
Payment of severance benefits
|
(1,389 | ) | (4,320 | ) | (6,505 | ) | (7,151 | ) | ||||||||||
|
Other
|
(125 | ) | (516 | ) | (4,471 | ) | (1,557 | ) | ||||||||||
|
Net cash provided by (used in) operating activities before
reorganization items
|
2,108 | 44,692 | (18,388 | ) | (23,711 | ) | ||||||||||||
|
Cash used for reorganization items
|
(4,263 | ) | (1,076 | ) | — | — | ||||||||||||
|
Net cash provided by (used in) operating activities
|
(2,155 | ) | 43,616 | (18,388 | ) | (23,711 | ) | |||||||||||
F-8
Table of Contents
| Successor | Predecessor | |||||||||||||||||
|
Two-Month |
|
|||||||||||||||||
|
Period |
Ten-Month |
|||||||||||||||||
|
Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||
| (In thousands of US dollars) | ||||||||||||||||||
|
Cash flows from investing activities
|
||||||||||||||||||
|
Proceeds from disposal of plant, property and equipment
|
37 | 329 | 3,122 | 364 | ||||||||||||||
|
Proceeds from disposal of intangible assets
|
— | 9,375 | — | 4,204 | ||||||||||||||
|
Purchase of plant, property and equipment
|
(1,258 | ) | (7,513 | ) | (28,608 | ) | (85,294 | ) | ||||||||||
|
Payment for intellectual property registration
|
(70 | ) | (366 | ) | (1,052 | ) | (1,256 | ) | ||||||||||
|
Decrease (increase) in restricted cash
|
— | 11,409 | (13,517 | ) | — | |||||||||||||
|
Purchase of short-term financial instruments
|
(329 | ) | — | — | — | |||||||||||||
|
Other
|
23 | (96 | ) | 484 | 176 | |||||||||||||
|
Net cash provided by (used in) investing activities
|
(1,597 | ) | 13,138 | (39,571 | ) | (81,806 | ) | |||||||||||
|
Cash flows from financing activities
|
||||||||||||||||||
|
Proceeds from short-term borrowings
|
— | — | 180,000 | 130,100 | ||||||||||||||
|
Issuance of new common units pursuant to the reorganization plan
|
— | 35,280 | — | — | ||||||||||||||
|
Issuance of old common units
|
— | — | 183 | 151 | ||||||||||||||
|
Repayment of short-term borrowings
|
— | (33,250 | ) | (165,000 | ) | (50,100 | ) | |||||||||||
|
Repurchase of old common units
|
— | — | (496 | ) | (6 | ) | ||||||||||||
|
Net cash provided by financing activities
|
— | 2,030 | 14,687 | 80,145 | ||||||||||||||
|
Effect of exchange rates on cash and cash equivalents
|
1,098 | 4,758 | (17,036 | ) | 544 | |||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(2,654 | ) | 63,542 | (60,308 | ) | (24,828 | ) | |||||||||||
|
Cash and cash equivalents
|
||||||||||||||||||
|
Beginning of the period
|
67,579 | 4,037 | 64,345 | 89,173 | ||||||||||||||
|
End of the period
|
$ | 64,925 | $ | 67,579 | $ | 4,037 | $ | 64,345 | ||||||||||
|
Supplemental cash flow information
|
||||||||||||||||||
|
Cash paid for interest
|
$ | 955 | $ | 7,962 | $ | 39,276 | $ | 57,468 | ||||||||||
|
Cash paid for income taxes
|
$ | 669 | $ | 8,074 | $ | 13,207 | $ | 5,680 | ||||||||||
The accompanying notes are an integral part of these
consolidated financial statements
F-9
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial Statements
(Tabular dollars
in thousands, except unit data)
| 1. | General |
The
Company
MagnaChip Semiconductor LLC (together with its subsidiaries, the
“Company”) is a Korea-based designer and manufacturer
of analog and mixed-signal semiconductor products for
high-volume consumer applications. The Company’s business
is comprised of three key segments: Display Solutions, Power
Solutions and Semiconductor Manufacturing Services. The
Company’s Display Solutions products include display
drivers for use in a wide range of flat panel displays and
mobile multimedia devices. The Company’s Power Solutions
products include discrete and integrated circuit solutions for
power management in high-volume consumer applications. The
Company’s Semiconductor Manufacturing Services segment
provides specialty analog and mixed-signal foundry services for
fabless semiconductor companies that serve the consumer,
computing and wireless end markets.
| 2. | Voluntary Reorganization under Chapter 11 |
On June 12, 2009, MagnaChip Semiconductor LLC (the
“Parent”), MagnaChip Semiconductor B.V., MagnaChip
Semiconductor S.A. and certain other subsidiaries of the Parent
in the U.S. (the “Debtors”), filed a voluntary
petition for relief in the U.S. Bankruptcy Court for the
District of Delaware under Chapter 11 of the
U.S. Bankruptcy Code. The court approved a plan of
reorganization proposed by the Creditors’ Committee on
September 25, 2009 (the “Plan of
Reorganization”), and the Plan of Reorganization became
effective and the Debtors emerged from Chapter 11
reorganization proceedings (the “Reorganization
Proceedings”) on November 9, 2009 (the
“Reorganization Effective Date”). On the
Reorganization Effective Date, the Company implemented
fresh-start reporting in accordance with Accounting Standards
Codification (“ASC”) Topic 852,
“Reorganizations,” formerly the American
Institute of Certified Public Accountants’ Statement of
Position (“SOP”)
90-7,
“Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code” (“ASC 852”).
All conditions required for the adoption of fresh-start
reporting were met upon emergence from the Reorganization
Proceedings on the Reorganization Effective Date. However, in
light of the proximity of that date to the Company’s
October accounting period close, which was October 25,
2009, the Company elected to adopt a convenience date of
October 25, 2009, (the “Fresh-Start Adoption
Date”) for application of fresh-start reporting. The
Company believes the impact of using this convenience date is
not material to the consolidated financial statements. As a
result, the fair value of the Predecessor Company’s assets
became the new basis for the Successor Company’s
consolidated statement of financial position as of the
Fresh-Start Adoption Date, and all operations beginning on or
after October 26, 2009 are related to the Successor Company.
As a result of the application of fresh-start reporting in
accordance with ASC 852, the financial statements prior to and
including October 25, 2009 represent the operations of the
Predecessor Company and are not comparable with the financial
statements for periods on or after October 25, 2009.
References to the “Successor Company” refer to the
Company on or after October 25, 2009, after giving effect
to the application of fresh-start reporting. References to the
“Predecessor Company” refer to the Company prior to
and including October 25, 2009. See “Note 3
Fresh-Start Reporting” for further details.
The Plan of Reorganization provided for the satisfaction of
claims against the Debtors through (i) the issuance of a
new term loan in the amount of approximately $61.8 million
in complete satisfaction of the first lien lender claims arising
from the senior secured credit facility, (ii) the
conversion to Parent equity of all claims arising from the
Second Priority Senior Secured Notes and
F-10
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
Senior Subordinated Notes, (iii) an offering of equity to
the holders of the Second Priority Senior Secured Notes and
(iv) a cash payment to holders of unsecured claims. On the
Reorganization Effective Date, among other events, (i) the
liens and guarantees securing the Second Priority Senior Secured
Notes and Senior Subordinated Notes were released and
extinguished, (ii) funds affiliated with Avenue Capital
Management II, L.P. became the majority unitholder of Parent and
(iii) the new term loan was evidenced by the Amended and
Restated Credit Agreement dated as of November 6, 2009, by
and among MagnaChip Semiconductor S.A., MagnaChip Semiconductor
Finance Company, Parent, the Subsidiary Guarantors, the Lenders
party thereto, and Wilmington Trust FSB, as administrative
agent for the Lenders and collateral agent for the secured
parties.
During the period from the date of its Chapter 11 filing to
the Fresh-Start Adoption Date (the “Pre-Emergence
Period”), the Company recorded interest expense on
pre-petition obligations only to the extent it believed the
interest would be paid during the Reorganization Proceedings.
Had the Company recorded interest expense based on its
pre-petition contractual obligations pursuant to its Second
Priority Senior Notes and Senior Subordinated Notes, interest
expense would have increased by $16,663 thousand during the
ten-month period ended October 25, 2009.
In addition, the Company’s Series B redeemable
convertible preferred units were also subject to compromise and
no dividends were accrued during the Pre-Emergence Period. Had
the Company recorded dividends based on pre-petition contractual
obligations, dividends accrued on preferred units would have
increased by $5,502 thousand during the ten-month period ended
October 25, 2009.
| 3. | Fresh-Start Reporting |
Upon emergence from the Reorganization Proceedings, the Company
adopted fresh-start reporting in accordance with ASC 852. The
Company’s emergence from the Reorganization Proceedings
resulted in a new reporting entity with no retained earnings or
accumulated deficit. Accordingly, the Company’s
consolidated financial statements for periods prior to and
including October 25, 2009 are not comparable to
consolidated financial statements presented on or after
October 25, 2009.
Fresh-start reporting reflects the value of the Company as
determined in the confirmed Plan of Reorganization. Under
fresh-start reporting, the Company’s asset values were
remeasured and allocated in conformity with ASC 805,
“Business Combinations,” formerly Statements of
Financial Accounting Standards (“SFAS”)
No. 141(R) “Business Combinations ”
(“ASC 805”). Fresh-start reporting required that all
liabilities, other than deferred taxes and severance benefits,
be stated at fair value or at the present values of the amounts
to be paid using appropriate market interest rates. Deferred
taxes are determined in conformity with ASC 740, “Income
Taxes,” formerly SFAS No. 109,
“Accounting for Income Taxes” (“ASC
740”).
Estimates of fair value represent the Company’s best
estimates based on its valuation models, which incorporated
industry data and trends and relevant market rates and
transactions. The estimates and assumptions are inherently
subject to significant uncertainties and contingencies beyond
the control of the Company. Accordingly, the Company cannot
provide assurance that the estimates, assumptions and values
reflected in the valuations will be realized, and actual results
could vary materially.
To facilitate the calculation of the enterprise value of the
Successor Company, the Company prepared a valuation analysis for
the Successor Company’s common units as of the
Reorganization Effective Date. The enterprise valuation used a
discounted cash flow analysis which measures the projected
multi-year free cash flows of the Company to arrive at an
enterprise value.
F-11
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
In the course of valuation analysis, financial and other
information, including prospective financial information
obtained from management and from various public, financial and
industry sources was relied upon. The basis of the discounted
cash flow analysis used in developing the total enterprise value
was based on the Company’s prepared projections, which
included a variety of estimates and assumptions. While the
Company considers such estimates and assumptions reasonable,
they are inherently subject to significant business, economic
and competitive uncertainties, many of which are beyond the
Company’s control and, therefore, may not be realized.
Changes in these estimates and assumptions may have had a
significant effect on the determination of the Company’s
fair value. The assumptions used in the calculations for the
discounted cash flow analysis included projected revenue, costs
and cash flows for the period from October 25, 2009 to
December 31, 2009 and for the fiscal years 2010 through
2014, and represented the Company’s best estimates at the
time the analysis was prepared. The Company’s estimates
implicit in the cash flow analysis included a compound annual
net sales growth rate for each reporting unit based on the
Company’s forecast and analysts’ industry outlook and
cost of sales was projected within a range on the basis of
percentage of net sales from 2009 to 2014, considering current
and expected cost structures. Operating expenses were projected
as a percentage of net sales from 2009 to 2014 using a growth
rate at a lower rate than revenue. Income taxes were calculated
based on the effective tax rate, which was estimated based on
the statutory tax rate and the utilization of net operating
losses. The analysis also included anticipated levels of
reinvestment in the Company’s operations through capital
expenditures and working capital investment and incremental
revenue growth over the projection period. In calculating
terminal value, a normalized cash flow was estimated based on
the last year of the projection period and was estimated to grow
in each year beyond the projection period. The discount rate was
determined using the weighted average cost of capital.
The following fresh-start condensed consolidated balance sheet
illustrates the financial effects on the Company resulting from
the implementation of the Plan of Reorganization and the
adoption of fresh-start reporting. This fresh-start condensed
consolidated balance sheet reflects the effect of consummating
the transactions contemplated in the Plan of Reorganization,
including issuance of certain securities, incurrence of new
indebtedness, discharge and repayment of old indebtedness and
other cash payments.
F-12
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
The effects of the Plan of Reorganization and fresh-start
reporting on the Company’s condensed consolidated balance
sheet are as follows:
| Predecessor | Successor (*) | |||||||||||||||
|
October 25, |
Effects of |
Fresh-Start |
October 25, |
|||||||||||||
| 2009 | Plan | Valuation | 2009 | |||||||||||||
|
Assets
|
||||||||||||||||
|
Current assets
|
||||||||||||||||
|
Cash and cash equivalents
|
$ | 14,610 | $ | 52,969 | (a,b,f,j) | $ | — | $ | 67,579 | |||||||
|
Restricted cash
|
52,015 | (52,015 | )(b) | — | — | |||||||||||
|
Accounts receivable, net
|
89,314 | — | — | 89,314 | ||||||||||||
|
Inventories, net
|
51,389 | — | 17,903 | (n) | 69,292 | |||||||||||
|
Other receivables
|
5,189 | — | — | 5,189 | ||||||||||||
|
Other current assets
|
17,477 | (179 | )(c) | (1,233 | )(o) | 16,065 | ||||||||||
|
Total current assets
|
229,994 | 775 | 16,670 | 247,439 | ||||||||||||
|
Property, plant and equipment, net
|
172,358 | — | (13,940 | )(p) | 158,418 | |||||||||||
|
Intangible assets, net
|
26,886 | — | 28,314 | (q) | 55,200 | |||||||||||
|
Other non-current assets
|
23,947 | 235 | (d) | 355 | (r) | 24,537 | ||||||||||
|
Total assets
|
$ | 453,185 | $ | 1,010 | $ | 31,399 | $ | 485,594 | ||||||||
|
Liabilities and Unitholders’ Equity
|
||||||||||||||||
|
Current liabilities
|
||||||||||||||||
|
Accounts payable
|
$ | 77,395 | $ | — | $ | — | $ | 77,395 | ||||||||
|
Other accounts payable
|
13,515 | 506 | (e) | — | 14,021 | |||||||||||
|
Accrued expenses
|
22,621 | 6,383 | (f) | — | 29,004 | |||||||||||
|
Short-term borrowings
|
95,000 | (95,000 | )(a) | — | — | |||||||||||
|
Current portion of long-term debt-new
|
— | 463 | (a) | — | 463 | |||||||||||
|
Other current liabilities
|
3,533 | — | — | 3,533 | ||||||||||||
|
Liabilities subject to compromise
|
798,043 | (798,043 | )(g) | — | — | |||||||||||
|
Total current liabilities
|
1,010,107 | (885,691 | ) | — | 124,416 | |||||||||||
|
Long-term debt-new
|
— | 61,287 | (a) | — | 61,287 | |||||||||||
|
Accrued severance benefits, net
|
71,029 | — | — | 71,029 | ||||||||||||
|
Other non-current liabilities
|
10,468 | — | — | 10,468 | ||||||||||||
|
Total liabilities
|
1,091,604 | (824,404 | ) | — | 267,200 | |||||||||||
F-13
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| Predecessor | Successor (*) | |||||||||||||||
|
October 25, |
Effects of |
Fresh-Start |
October 25, |
|||||||||||||
| 2009 | Plan | Valuation | 2009 | |||||||||||||
|
Commitments and contingencies
|
||||||||||||||||
|
Series A redeemable convertible preferred units
|
— | — | — | — | ||||||||||||
|
Series B redeemable convertible preferred units subject to
compromise
|
148,986 | (148,986 | )(h) | — | — | |||||||||||
|
Total redeemable convertible preferred units
|
148,986 | (148,986 | ) | — | — | |||||||||||
|
Unitholders’ equity
|
||||||||||||||||
|
Common units-old
|
52,923 | (52,923 | )(i) | — | — | |||||||||||
|
Common units-new
|
— | 49,539 | (g,j) | — | 49,539 | |||||||||||
|
Additional paid-in capital
|
3,383 | 166 | (s) | — | — | |||||||||||
| (3,549 | )(i) | — | — | |||||||||||||
| — | 2,533 | (g) | — | — | ||||||||||||
| — | 166,322 | (m) | — | 168,855 | ||||||||||||
|
Retained earnings (accumulated deficit)
|
(964,791 | ) | 160,218 | (k) | — | — | ||||||||||
| — | 773,174 | (l) | 31,399 | (l) | — | |||||||||||
|
Accumulated other comprehensive income
|
121,080 | (121,080 | )(k) | — | — | |||||||||||
|
Total unitholders’ equity
|
(787,405 | ) | 974,400 | 31,399 | 218,394 | |||||||||||
|
Total liabilities, redeemable convertible preferred units and
unitholders’ equity
|
$ | 453,185 | $ | 1,010 | $ | 31,399 | $ | 485,594 | ||||||||
| (a) | To record the issuance of a new term loan in the amount of $61,750 thousand and 35% cash payment of $33,250 thousand in complete satisfaction of the first lien lender claims arising from the senior secured credit facility (short-term borrowings) of $95,000 thousand. The new term loan was accounted for as current portion of long-term debt of $463 thousand and long-term debt of $61,287 thousand. | |
| (b) | Cash in Korea Exchange Bank account of $52,015 thousand, restricted under forbearance agreement, was released from restriction according to the debt restructuring by the Plan of Reorganization. | |
| (c) | To record impairment of remaining capitalized costs of $166 thousand in connection with entering into the senior secured credit facility, impairment of prepaid agency fee of $14 thousand of the senior secured credit facility and capitalization of costs of $1 thousand in connection with the issuance of the new term loan. | |
| (d) | To record capitalization of costs of $235 thousand in connection with the issuance of the new term loan. | |
| (e) | To record capitalization of costs incurred in connection with the issuance of the new term loan of $236 thousand and 10% of the general unsecured claims of $270 thousand to be settled in cash. | |
| (f) | To record professional fees of $7,459 thousand incurred in relation to the Reorganization Proceeding of which $1,076 thousand was paid in cash with the remainder of $6,383 thousand recorded as accrued expenses. |
F-14
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| (g) | To record the discharge of liabilities subject to compromise of $798,043 thousand and the issuances of new common units of $14,259 thousand and new warrants of $2,533 thousand. Current portion of long-term debt of $750,000 thousand and its accrued interest of $45,341 thousand as of October 25, 2009 were discharged in exchange for new common units representing 6% of the Successor Company’s outstanding common units of $14,259 thousand to two classes of creditors of the Company and new warrants representing 5% of the Successor Company’s outstanding common units of $2,533 thousand to two classes of creditors of the Company. General unsecured claims of $2,702 thousand were also discharged in exchange for a cash payment equal to 10% of the allowed claims of $270 thousand. | |
| (h) | To record the retirement of Series B redeemable convertible preferred units of $148,986 thousand without consideration in accordance with the Plan of Reorganization. | |
| (i) | To record the retirement of old equity interests without consideration in accordance with the Plan of Reorganization. | |
| (j) | To record the issuances of new common units of $35,280 thousand. | |
| (k) | To record the elimination of the Predecessor Company’s accumulated deficit of $160,218 thousand and accumulated other comprehensive income of $121,080 thousand. | |
| (l) | To record reorganization items, net of $804,573 thousand. | |
| (m) | To record $166,322 thousand of additional paid-in capital. Reconciliation of total enterprise value to the reorganization value of the Company, determination of goodwill and additional paid-in capital and allocation of the total enterprise value to common unitholders are as below: |
|
Total value attributable to debt and equity (1)
|
$ | 212,564 | ||
|
Plus: cash and cash equivalents
|
67,579 | |||
|
Plus: liabilities
|
205,451 | |||
|
Reorganization value of the Company’s total assets
|
485,594 | |||
|
Fair value of the Company’s total assets
|
485,594 | |||
|
Goodwill
|
$ | — | ||
|
Reorganization value of the Company’s total assets
|
$ | 485,594 | ||
|
Less: liabilities
|
(205,450 | ) | ||
|
Less: new term loan
|
(61,750 | ) | ||
|
New warrants issued
|
2,533 | |||
|
New common units
|
49,539 | |||
|
Additional paid-in capital
|
$ | 166,322 | ||
|
Enterprise value allocated to common unitholders
|
$ | 215,861 |
| (1) | The Plan of Reorganization, which was confirmed by the bankruptcy court, includes an estimated total value attributable to debt and equity of $225.0 million. This amount does not include cash balances and non-financial liabilities as of the Reorganization Effective Date. |
| (n) | To record the fair value of inventories, net, as estimated by the Predecessor Company, fair value of finished goods was estimated by subtracting from average selling prices the sum of costs of disposal and a reasonable profit allowance for the selling effort. Fair value of work-in-process was estimated by subtracting from average selling prices the sum of costs to complete, costs of disposal and a reasonable profit allowance for the completing and selling effort based on profit for similar finished goods. Fair value of raw materials was estimated by current replacement costs. |
F-15
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| (o) | To record the fair value of advance payments as estimated by the Predecessor Company in conjunction with an independent third party valuation specialist. For the value of advance payments, the Orderly Liquidation Value (“OLV”) was estimated using the cost and market approaches. | |
| (p) | To record the fair value of property, plant and equipment, net as estimated by the Predecessor Company in conjunction with an independent third party valuation specialist. For the value of certain fixed assets, the OLV was estimated using the cost and market approaches. This premise of value was chosen given the fact that the Company was just emerging from bankruptcy proceedings. | |
| (q) | To record the fair value of intangible assets, net as estimated by the Predecessor Company. Discrete valuations of each of the reporting units’ identified intangible assets related to technology, contracts, trade names, customer-based intangible assets and acquired in-process research and development (“IPR&D”) were performed using the excess earnings method or the royalty savings method. | |
| (r) | To record the Predecessor Company’s other non-current assets at their estimated fair value using observable market data. | |
| (s) | To record the immediately recognized unit-based compensation of $166 thousand, which is attributable to old unit options which were cancelled without consideration in accordance with the Plan of Reorganization. | |
| (*) | The following table summarizes the allocation of fair value of the assets and liabilities at emergence as shown in the reorganized consolidated balance sheet as of October 25, 2009: |
|
Cash and cash equivalents
|
$ | 67,579 | ||
|
Accounts receivable, net
|
89,314 | |||
|
Inventories, net
|
69,292 | |||
|
Other receivables
|
5,189 | |||
|
Other current assets
|
16,065 | |||
|
Property, plant and equipment, net
|
158,418 | |||
|
Intangible assets, net
|
55,200 | |||
|
Other non-current assets
|
24,537 | |||
|
Total assets
|
485,594 | |||
|
Less: current liabilities (including current portion of
long-term debt)
|
(124,416 | ) | ||
|
Less: long-term debt
|
(61,287 | ) | ||
|
Less: non-current liabilities
|
(81,497 | ) | ||
|
Total liabilities assumed
|
(267,200 | ) | ||
|
Net assets acquired
|
$ | 218,394 | ||
| 4. | Summary of Significant Accounting Policies |
Basis of
Presentation
The consolidated financial statements are presented in
accordance with accounting principles generally accepted in the
United States of America (“GAAP”).
In preparing the consolidated financial statements for the
Predecessor Company and Successor Company, the Company applied
ASC 852, which requires that the financial statements for
periods
F-16
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
subsequent to the Chapter 11 filing distinguish
transactions and events that were directly associated with the
reorganization from the ongoing operations of the business.
Accordingly, certain expenses, realized gains and losses and
provisions for losses that were realized or incurred in the
Reorganization Proceedings were recorded in reorganization
items, net on the accompanying consolidated statements of
operations.
Significant accounting policies followed by the Company in the
preparation of the accompanying consolidated financial
statements are summarized below.
Principles of
Consolidation
The consolidated financial statements include the accounts of
the Company including its wholly-owned subsidiaries. All
significant intercompany transactions and balances are
eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the accompanying consolidated
financial statements and disclosures. The most significant
estimates and assumptions relate to the fair valuation of
acquired assets and assumed liabilities, fair valuation of
common units, the useful life of property, plant and equipment,
allowance for uncollectible accounts receivable, contingent
liabilities, inventory valuation, restructuring accrual and
impairment of long-lived assets. Although these estimates are
based on management’s best knowledge of current events and
actions that the Company may undertake in the future, actual
results may be different from the estimates.
Foreign
Currency Translation
The Company has assessed in accordance with ASC Topic 830,
“Foreign Currency Matters,” formerly
SFAS No. 52, “Foreign Currency
Translation” (“ASC 830”), the functional
currency of each of its subsidiaries in Luxembourg, the
Netherlands and the United Kingdom and has designated the
U.S. dollar to be their respective functional currencies.
The Company and its other subsidiaries are utilizing their local
currencies as their functional currencies. The financial
statements of the subsidiaries in functional currencies other
than the U.S. dollar are translated into the
U.S. dollar in accordance with ASC 830. All the assets and
liabilities are translated to the U.S. dollar at the
end-of-period
exchange rates. Capital accounts are determined to be of a
permanent nature and are therefore translated using historical
exchange rates. Revenues and expenses are translated using
average exchange rates for the respective periods. Foreign
currency translation adjustments arising from differences in
exchange rates from period to period are included in the foreign
currency translation adjustment account in accumulated
comprehensive income (loss) of unitholders’ equity. Gains
and losses due to transactions in currencies other than the
functional currency are included as a component of other income
(expense) in the statement of operations.
Cash and Cash
Equivalents
Cash equivalents consist of highly liquid investments with an
original maturity date of three months or less.
F-17
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
Restricted
Cash
Restricted cash of $11,768 thousand as of December 31, 2008
was cash in Korea Exchange Bank account and restricted in use
according to the forbearance agreement with secured parties in
relation to short-term borrowings of $95,000 thousand. Deposit
accounts maintained with Korea Exchange Bank were subject to a
perfected lien in the name of the collateral trustee for the
benefit of the secured parties and were frozen pursuant to the
terms of an acceleration notice.
According to the debt restructuring by the Plan of
Reorganization as described in Note 3, cash in Korea
Exchange Bank account of $52,015 thousand was released from
restriction on the Reorganization Effective Date.
Accounts
Receivable Reserves
An allowance for doubtful accounts is provided based on the
aggregate estimated uncollectability of the Company’s
accounts receivable. The Company records an allowance for cash
returns, included within accounts receivable, net, based on the
historical experience of the amount of goods that will be
returned and refunded. In addition, the Company also includes in
accounts receivable, an allowance for additional products that
may have to be provided, free of charge, to compensate customers
for products that do not meet previously agreed yield criteria,
the low yield compensative reserve.
Inventories
Inventories are stated at the lower of cost or market, using the
average cost method, which approximates the first in, first out
method (“FIFO”). If net realizable value is less than
cost at the balance sheet date, the carrying amount is reduced
to the realizable value, and the difference is recognized as a
loss on valuation of inventories within cost of sales. Inventory
reserves are established when conditions indicate that the net
realizable value is less than costs due to physical
deterioration, obsolescence, changes in price levels, or other
causes based on individual facts and circumstances. Reserves are
also established for excess inventory based on inventory levels
in excess of six months of projected demand, as judged by
management, for each specific product.
In addition, as prescribed in ASC 330,
“Inventory,” formerly SFAS No. 151
“Inventory costs,” the cost of inventories is
determined based on the normal capacity of each fabrication
facility. In case the capacity utilization is lower than a
certain level that management believes to be normal, the fixed
overhead costs per production unit which exceeds those under
normal capacity are charged to cost of sales rather than
capitalized as inventories.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the
assets as set forth below.
|
Buildings
|
30 - 40 years | |
|
Building related structures
|
10 - 20 years | |
|
Machinery and equipment
|
5 - 10 years | |
|
Vehicles and others
|
5 years |
Routine maintenance and repairs are charged to expense as
incurred. Expenditures that enhance the value or significantly
extend the useful lives of the related assets are capitalized.
F-18
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
Borrowing costs incurred during the construction period of
assets are capitalized as part of the related assets.
Impairment of
Long-Lived Assets
The Company reviews property, plant and equipment and other
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable in accordance with ASC 360, “Property,
Plant and Equipment,” formerly SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets” (“ASC 360”). Recoverability is
measured by comparing its carrying amount with the future net
cash flows the assets are expected to generate. If such assets
are considered to be impaired, the impairment is measured as the
difference between the carrying amount of the assets and the
fair value of assets using the present value of the future net
cash flows generated by the respective long-lived assets.
Restructuring
Charges
The Company recognizes restructuring charges in accordance with
ASC 420, “Exit or Disposal Cost Obligations,”
formerly SFAS No. 146, “Accounting for
Costs Associated with Exit or Disposal Activities”
(“ASC 420”). Certain costs and expenses
related to exit or disposal activities are recorded as
restructuring charges when liabilities for those costs and
expenses are incurred.
Lease
Transactions
The Company accounts for lease transactions as either operating
leases or capital leases, depending on the terms of the
underlying lease agreements. Machinery and equipment acquired
under capital lease agreements are recorded at the lower of the
present value of future minimum lease payments and estimated
fair value of leased property. Property, plant and equipment are
depreciated using the straight-line method over their estimated
useful lives. In addition, the aggregate lease payments are
recorded as capital lease obligations, net of unaccrued
interest. Interest is amortized over the lease period using the
effective interest rate method. Leases that do not qualify as
capital leases are classified as operating leases, and the
related rental payments are expensed on a straight-line basis
over the shorter of the estimated useful lives of leased
property and lease term.
Software
The Company capitalizes certain external costs that are incurred
to purchase and implement internal-use computer software. Direct
costs relating to the development of software for internal use
are capitalized after technological feasibility has been
established, in accordance with ASC 350,
“Intangibles-Goodwill and Other,” formerly
Statements of Position (“SOP”)
No. 98-1,
“Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use”
(“ASC 350”). Depreciation is calculated on a
straight-line basis over the software’s estimated useful
life, which is usually five years.
Intangible
Assets
Intangible assets other than intellectual property include
technology and customer relationships which are amortized on a
straight-line basis over periods ranging from four to eight
years. Other intellectual property assets acquired represent
rights under patents, trademarks and property use rights and are
amortized over the periods of benefit, ranging up to
ten years, on a straight-line basis.
F-19
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
Goodwill
Goodwill is evaluated for impairment by comparing the fair value
and carrying amount of the reporting unit to which the goodwill
relates. Specifically, the Company uses the two-step method for
evaluating goodwill for impairment as prescribed in
ASC 350, “Intangibles-Goodwill and Other,”
formerly SFAS No. 142 “Goodwill and Other
Intangible Assets” (“ASC 350”). In the
first step, the fair value of a reporting unit is compared to
the carrying amount of such reporting unit. If the carrying
amount exceeds the fair value, a potential impairment condition
exists. In the second step, impairment is measured as the excess
of the carrying amount of reporting unit goodwill over the
implied fair value of reporting unit goodwill. If the fair value
of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired, and thus the second
step of the impairment test is unnecessary.
Fair Value
Disclosures of Financial Instruments
The Company has adopted and follows ASC 820, “Fair
Value Measurements and Disclosures”
(“ASC 820”) for measurement and disclosures about
fair value of its financial instruments. ASC 820
establishes a framework for measuring fair value in GAAP, and
expands disclosures about fair value measurements. To increase
consistency and comparability in fair value measurements and
related disclosures, ASC 820 establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels. The fair
value hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs. The
three levels of fair value hierarchy defined by ASC 820 are:
Level 1 — Inputs are unadjusted, quoted prices in
active markets for identical assets or liabilities at the
measurement date.
Level 2 — Inputs (other than quoted market prices
included in Level 1) are either directly or indirectly
observable for the asset or liability through correlation with
market data at the measurement date and for the duration of the
instrument’s anticipated life.
Level 3 — Inputs reflect management’s best
estimate of what market participants would use in pricing the
asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the
risk inherent in the inputs to the model. Valuation of
instruments includes unobservable inputs to the valuation
methodology that are significant to the measurement of fair
value of assets or liabilities.
As defined by ASC 820, the fair value of a financial instrument
is the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a
forced or liquidation sale, which was further clarified as the
price that would be received to sell an asset or paid to
transfer a liability (“an exit price”) in an orderly
transaction between market participants at the measurement date.
The carrying amounts of the Company’s financial assets and
liabilities, such as cash and cash equivalents, accounts
receivable, other receivables, accounts payable and other
accounts payable approximate their fair values because of the
short maturity of these instruments.
The fair value of the Successor Company’s available for
sale securities is based on the quoted prices in an active
market and was $0.7 million as of December 31, 2009.
The estimated fair value of the Predecessor Company’s debt
was $33.5 million as of December 31, 2008. The fair
value estimates presented herein were based on market interest
rates and other market information available to management as of
each balance sheet date presented. The use of different market
assumptions
and/or
estimation methodologies could have a material effect on the
estimated fair value amounts. Approximate fair values do not
take into consideration expenses that could be incurred in an
F-20
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
actual settlement. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company
could realize in a current market exchange.
Accrued
Severance Benefits
The majority of accrued severance benefits is for employees in
the Company’s Korean subsidiary. Pursuant to the Employee
Retirement Benefit Security Act of Korea, most employees and
executive officers with one or more years of service are
entitled to severance benefits upon the termination of their
employment based on their length of service and rate of pay. As
of December 31, 2009, 98% of all employees of the Company
were eligible for severance benefits.
Accrued severance benefits are funded through a group severance
insurance plan. The amounts funded under this insurance plan are
classified as a reduction of the accrued severance benefits.
Subsequent accruals are to be funded at the discretion of the
Company.
In accordance with the National Pension Act of the Republic of
Korea, a certain portion of accrued severance benefits is
deposited with the National Pension Fund and deducted from the
accrued severance benefits. The contributed amount is paid to
employees from the National Pension Fund upon their retirement.
Revenue
Recognition
Revenue is recognized when persuasive evidence of an arrangement
exists, the product has been delivered and title and risk of
loss have transferred, the price is fixed and determinable, and
collection of the resulting receivable is reasonably assured.
Utilizing these criteria, product revenue is recognized either
upon shipment, upon delivery of the product at the
customer’s location or upon customer acceptance, depending
on the terms of the arrangements, when the risks and rewards of
ownership have passed to the customer. In accordance with
revenue recognition guidance, any tax assessed by a governmental
authority that is directly imposed on a revenue-producing
transaction between a seller and a customer is presented in the
statements of income on a net basis (excluded from revenues).
The Company’s customers can return defective products,
including products that do not meet the yield criteria. The
Company accrues for the estimated costs that may be incurred for
the defective products. In addition, the Company offers
discounts to customers who make early payments. The Company
estimates the amount to be paid to customers based on historical
experience and expected rate of discount. The estimated discount
amount is recorded as a deduction from net sales.
All amounts billed to a customer related to shipping and
handling are classified as sales while all costs incurred by the
Company for shipping and handling are classified as selling
expenses. The amounts charged to selling expenses were
$207 thousand, $752 thousand, $1,295 thousand and
$1,407 thousand for the two-month period ended
December 31, 2009, for the ten-month period ended
October 25, 2009 and for the years ended December 31,
2008 and 2007, respectively.
Derivative
Financial instruments
The Company applies the provisions of ASC 815,
“Derivatives and Hedging,” formerly SFAS
No. 133, “Accounting for Derivative Instruments and
Hedging Activities” (“ASC 815”). This
Statement requires the recognition of all derivative instruments
as either assets or liabilities measured at fair value.
F-21
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
Under the provisions of ASC 815, the Company may designate
a derivative instrument as hedging the exposure to variability
in expected future cash flows that are attributable to a
particular risk (a “cash flow hedge”) or hedging the
exposure to changes in the fair value of an asset or a liability
(a “fair value hedge”). Special accounting for
qualifying hedges allows the effective portion of a derivative
instrument’s gains and losses to offset related results on
the hedged item in the consolidated statements of operations and
requires that a company formally document, designate and assess
the effectiveness of the transactions that receive hedge
accounting treatment. Both at the inception of a hedge and on an
ongoing basis, a hedge must be expected to be highly effective
in achieving offsetting changes in cash flows or fair value
attributable to the underlying risk being hedged. If the Company
determines that a derivative instrument is no longer highly
effective as a hedge, it discontinues hedge accounting
prospectively and future changes in the fair value of the
derivative are recognized in current earnings. The Company
assesses hedge effectiveness at the end of each quarter.
In accordance with ASC 815, changes in the fair value of
derivative instruments that are cash flows hedges are recognized
in accumulated other comprehensive income (loss) and
reclassified into earnings in the period in which the hedged
item affects earnings. Ineffective portions of a derivative
instrument’s change in fair value are immediately
recognized in earnings. Derivative instruments that do not
qualify, or cease to qualify, as hedges must be adjusted to fair
value and the adjustments are recorded through net income (loss).
Advertising
The Company expenses advertising costs as incurred. Advertising
expense was approximately $25 thousand, $70 thousand,
$165 thousand and $146 thousand for the two-month
period ended December 31, 2009, for the ten-month period
ended October 25, 2009 and for the years ended
December 31, 2008 and 2007, respectively.
Product
Warranties
The Company records, in other current liabilities, warranty
liabilities for the estimated costs that may be incurred under
its basic limited warranty. This warranty covers defective
products, and related liabilities are accrued when product
revenues are recognized. Factors that affect the Company’s
warranty liability include historical and anticipated rates of
warranty claims and repair costs per claim to satisfy the
Company’s warranty obligation. As these factors are
impacted by actual experience and future expectations, the
Company periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts when necessary.
Research and
Development
Research and development costs are expensed as incurred and
include wafers, masks, employee expenses, contractor fees,
building costs, utilities and administrative expenses. Acquired
IPR&D assets are considered indefinite-lived intangible
assets and are not subject to amortization. An IPR&D asset
must be tested for impairment annually or more frequently if
events or changes in circumstances indicate that the asset might
be impaired. The impairment test consists of a comparison of the
fair value of the IPR&D asset with its carrying amount. If
the carrying amount of the IPR&D asset exceeds its fair
value, an impairment loss must be recognized in an amount equal
to that excess. After an impairment loss is recognized, the
adjusted carrying amount of the IPR&D asset will be its new
accounting basis. Subsequent reversal of a previously recognized
impairment loss is prohibited. The initial determination and
subsequent evaluation for impairment of the IPR&D asset
F-22
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
requires management to make significant judgments and estimates.
Once the IPR&D projects have been completed or abandoned,
the useful life of the IPR&D asset is determined and
amortized accordingly.
Licensed
Patents and Technologies
The Company has entered into a number of royalty agreements to
license patents and technology used in the design and
manufacture of its products. The payments under these agreements
include an initial payment to acquire the rights, and a royalty
payment calculated based upon the sales of the related products.
The initial payments, usually paid in installments, represent a
non-refundable commitment, such that the total present value of
these payments is recorded as a liability upon execution of the
agreement, and the costs are deferred over the period of the
agreement. The royalty payments are charged to the statements of
operations as incurred.
Unit-Based
Compensation
The Company follows the provisions of ASC 718,
“Compensation-Stock Compensation,” formerly
SFAS 123(R), “Share-Based Payment (revised
2004)” (“ASC 718”). Under ASC 718, unit-based
compensation cost is measured at grant date, based on the fair
value of the award, and is recognized as expense over the
requisite service period. As permitted under ASC 718, the
Company elected to recognize compensation expense for all
options with graded vesting based on the graded attribution
method.
The Company uses the Black-Scholes option pricing-model to
measure the grant-date-fair-value of options. The Black-Scholes
model requires certain assumptions to determine an option’s
fair value, including expected term, risk free interest,
expected volatility and fair value of underlying common unit.
The expected term of each option grant was based on
employees’ expected exercises and post-vesting employment
termination behavior and the risk free interest rate was based
on the U.S. Treasury yield curve for the period
corresponding with the expected term at the time of grant. The
expected volatility was estimated using historical volatility of
share prices of similar public entities. No dividends were
assumed for this calculation of option value. The Company
estimates the fair value of the underlying common unit because
there is no public trading market for its common units.
Earnings per
Unit
In accordance with ASC 260, “Earnings Per
Share,” formerly SFAS No. 128,
“Earnings Per Share” (ASC 260), the Company
computes basic earnings from continuing operations per unit and
basic earnings per unit by dividing income from continuing
operations available to common unitholders and net income
available to common unitholders, respectively, by the weighted
average number of common units outstanding during the period
which would include, to the extent their effect is dilutive,
redeemable convertible preferred units, options to purchase
common units and restricted units. Diluted earnings per unit
reflect the dilution of potential common units outstanding
during the period. In determining the hypothetical units
repurchased, the Company uses the average unit price for the
period.
Income
Taxes
MagnaChip Semiconductor LLC has elected to be treated as a
partnership for U.S. federal income tax purposes and
therefore is not subject to income taxes on its income. Taxes on
its income are the responsibility of the individual equity
owners of MagnaChip Semiconductor LLC. The Company operates a
number of subsidiaries that are subject to local income taxes in
those markets.
F-23
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
The Company accounts for income taxes in accordance with
ASC 740, “Income Taxes,” formerly
SFAS No. 109, “Accounting for Income
Taxes” (“ASC 740”). ASC 740 requires
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in a company’s financial statements or tax
returns. Under this method, deferred tax assets and liabilities
are determined based upon the difference between the financial
statement carrying amounts and the tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense
is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
The Company follows Financial Accounting Standards Board
(“FASB”) interpretation No. 48,
“Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement
No. 109,” codified as ASC 740, which prescribes a
recognition threshold and measurement attribute for tax
positions taken or expected to be taken in a tax return. This
interpretation also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. The evaluation of a tax
position in accordance with this interpretation is a two-step
process. In the first step, recognition, the Company determines
whether it is more-likely-than-not that a tax position will be
sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits
of the position. The second step addresses measurement of a tax
position that meets the more-likely-than-not criteria. The tax
position is measured at the largest amount of benefit that has a
likelihood of greater than 50 percent of being realized
upon ultimate settlement. Differences between tax positions
taken in a tax return and amounts recognized in the financial
statements will generally result in (a) an increase in a
liability for income taxes payable or a reduction of an income
tax refund receivable, (b) a reduction in a deferred tax
asset or an increase in a deferred tax liability or
(c) both (a) and (b). Tax positions that previously
failed to meet the more-likely-than-not recognition threshold
should be recognized in the first subsequent financial reporting
period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not
recognition threshold should be de-recognized in the first
subsequent financial reporting period in which that threshold is
no longer met. Use of a valuation allowance as described in ASC
740 is not an appropriate substitute for the de-recognition of a
tax position. The requirement to assess the need for a valuation
allowance for deferred tax assets based on sufficiency of future
taxable income is unchanged by this interpretation.
Segment
Information
The Company has determined, based on the nature of its
operations and products offered to customers, that its
reportable segments are Display Solutions, Semiconductor
Manufacturing Services and Power Solutions. The Display
Solutions segment’s primary products are flat panel display
drivers and the Semiconductor Manufacturing Services segment
provides for wafer foundry services to clients. The Power
Solutions segment’s products are designed for applications
such as mobile phones, LCD televisions and desktop computers,
and allow electronics manufacturers to achieve specific design
goals of high efficiency and low standby power consumption. Net
sales and gross profit for the “All other” category
primarily relate to certain business activities that do not
constitute operating or reportable segments.
The Company’s chief operating decision maker
(“CODM”) as defined by ASC 280, “Segment
Reporting,” formerly SFAS 131, “Disclosure
about Segments of an Enterprise and Related
Information” (“ASC 280”), allocates resources
to and assesses the performance of each segment using
information about its revenue and gross profit. The Company does
not identify or allocate assets by segments, nor does the CODM
evaluate operating segments using discrete asset information. In
F-24
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
addition, the Company does not allocate operating expenses,
interest income or expense, other income or expense, or income
tax expenses to the segments. Management does not evaluate
segments based on these criteria.
On October 6, 2008, the Company announced the closure of
its Imaging Solutions reporting unit. As of December 31,
2008, the Imaging Solutions business segment qualified as a
discontinued operation component of the Company under
ASC 360, “Property, Plant and Equipment,”
formerly SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”
(“ASC 360”). Accordingly, the results of
operations of the Imaging Solutions business and reportable
segment have been classified as discontinued operations. All
prior period information has been reclassified to reflect this
presentation on the statements of operations. Unless noted
otherwise, discussions in these notes pertain to the
Company’s continuing operations.
Concentration
of Credit Risk
The Company performs periodic credit evaluations of its
customers’ financial condition and generally does not
require collateral for customers on accounts receivable. The
Company maintains reserves for potential credit losses, but
historically has not experienced significant losses related to
individual customers or groups of customers in any particular
industry or geographic area. The Company derives a substantial
portion of its revenues from export sales through its overseas
subsidiaries in Asia, North America and Europe.
Recent
Accounting Pronouncements
In June 2009, the FASB issued the Accounting Standards
Codification (“ASC”) Subtopic 105 “Generally
Accepted Accounting Principles,” which establishes the
Accounting Standards Codification as the single source of
authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. Rules and
interpretive releases of the Securities and Exchange Commission
(“SEC”) under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. The
subsequent issuances of new standards will be in the form of
Accounting Standards Updates that will be included in the
codification. This guidance is effective for financial
statements issued for interim and annual periods ending after
September 15, 2009. The adoption of this guidance did not
have a material effect on the Company’s consolidated
financial position, results of operations or cash flows, since
the codification is not intended to change GAAP.
In May 2009, the FASB issued authoritative guidance included in
ASC Subtopic 855 “Subsequent Events,” which
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date, but before
financial statements are issued or are available to be issued.
Specifically, this guidance provides (i) the period after
the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements;
(ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance
sheet date in its financial statements; and (iii) the
disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. This
guidance is effective for interim or annual financial periods
ending after June 15, 2009, and is to be applied
prospectively. The adoption of this guidance did not have a
material effect on the Company’s consolidated financial
position, results of operations or cash flows.
In December 2007, the FASB issued ASC 805,
“Business Combinations,” formerly Statements of
Financial Accounting Standards (“SFAS”) No. 141
(revised 2007), “Business Combinations”
(“ASC
F-25
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
805”), which replaces FASB Statement No. 141. ASC 805
establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill
acquired. This guidance also establishes disclosure requirements
that enable users to evaluate the nature and financial effects
of the business combination. ASC 805 is effective as of the
beginning of an entity’s fiscal year that begins after
December 15, 2008. This guidance requires the fair value of
acquired IPR&D to be recorded as indefinite lived
intangibles. IPR&D was previously expensed at the time of
the acquisition. The adoption of ASC 805 had a material impact
on the Company’s consolidated financial position and
results of operations through the recognition of
$9.7 million of IPR&D as intangibles.
In December 2007, the FASB issued ASC 810,
“Consolidation,” formerly
SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statement — amendments of ARB
No. 51” (“ASC 810”). ASC 810 states
that accounting and reporting for minority interests will be
recharacterized as noncontrolling interests and classified as a
component of equity. ASC 810 also establishes reporting
requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners. ASC 810 applies to
all entities that prepare consolidated financial statements,
except
not-for-profit
organizations, but will affect only those entities that have an
outstanding noncontrolling interest in one or more subsidiaries
or that deconsolidate a subsidiary. This guidance is effective
as of the beginning of an entity’s first fiscal year
beginning after December 15, 2008. The adoption of ASC 810
did not have a material impact on the Company’s
consolidated financial position, results of operations or cash
flows.
The Company adopted the provisions of ASC 820,
“Fair Value Measurements and Disclosures,”
formerly SFAS No. 157, “Fair Value
Measurements” (“ASC 820”) on January 1,
2008 and January 1, 2009 for financial assets and
liabilities and for nonfinancial assets and liabilities,
respectively. ASC 820 defines fair value, establishes a
market-based framework or hierarchy for measuring fair value and
expands disclosures about fair value measurements. ASC 820 is
applicable whenever another accounting pronouncement requires or
permits assets and liabilities to be measured at fair value. ASC
820 does not expand or require any new fair value measures,
however the application of this guidance may change current
practice. The adoption of ASC 820 did not have a material effect
on the Company’s financial condition or results of
operations.
In April 2008, the FASB issued ASC 350,
“Intangibles-Goodwill and Other,” formerly FSP
FAS 142-3,
“Determination of the Useful Life of Intangible
Assets.” ASC 350 amends the factors that should be
considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset
under SFAS No. 142, “Goodwill and Other
Intangible Assets.” ASC 350 is effective for financial
statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal
years. The adoption of ASC 350 did not have a material impact on
the Company’s consolidated financial position, results of
operations or cash flows.
In June 2009, the FASB issued ASC 810,
“Consolidation,” formerly
SFAS No. 167, “Amendments to FASB
Interpretation No. 46(R)”
(“SFAS No. 167”) (“ASC 810”),
which (1) replaces the quantitative-based risks and rewards
calculation for determining whether an enterprise is the primary
beneficiary in a variable interest entity with an approach that
is primarily qualitative, (2) requires ongoing assessments
of whether an enterprise is the primary beneficiary of a
variable interest entity and (3) requires additional
disclosures about an enterprise’s involvement in variable
interest entities. The Company is required to adopt ASC 810 as
of the beginning of 2010. The Company is evaluating the
potential impact the adoption of ASC 810 will have on its
consolidated financial statements.
F-26
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 5. | Reorganization Related Items |
In accordance with ASC 852, the financial statements for the
Predecessor Company periods distinguish transactions and events
that are directly associated with the reorganization from the
ongoing operations of the Company. In connection with the
bankruptcy proceedings, implementation of the Plan of
Reorganization and adoption of fresh-start reporting, the
Company recorded the following reorganization income (expense)
items:
| Predecessor | ||||
|
Ten-Month Period |
||||
|
Ended October 25, |
||||
| 2009 | ||||
|
Professional fees
|
$ | (7,459 | ) | |
|
Revaluation of assets
|
31,399 | |||
|
Effects of the plan of reorganization
|
780,981 | |||
|
Write-off of debt issuance costs
|
(166 | ) | ||
|
Others
|
(182 | ) | ||
|
Total
|
$ | 804,573 | ||
Included in reorganization items, net for the ten-month period
ended October 25, 2009 was the Predecessor Company’s
gain recognized from the effects of the Plan of Reorganization.
The gain results from the difference between the Predecessor
Company’s carrying amount of remaining pre-petition
liabilities subject to compromise and the amounts to be
distributed pursuant to the Plan of Reorganization. The gain
from the effects of the Plan of Reorganization is comprised of
the following:
| Predecessor | ||||
|
Ten-Month Period |
||||
|
Ended October 25, |
||||
| 2009 | ||||
|
Discharge of liabilities subject to compromise
|
$ | 798,043 | ||
|
Issuance of new common units
|
(14,259 | ) | ||
|
Issuance of new warrants
|
(2,533 | ) | ||
|
Accrual of amounts to be settled in cash
|
(270 | ) | ||
|
Gain from the effects of the Plan of Reorganization
|
$ | 780,981 | ||
Liabilities subject to compromise represent the liabilities of
the Company incurred prior to the petition date, except those
that will not be impaired under the Plan of Reorganization.
Liabilities subject to compromise consisted of the following at
October 25, 2009.
| Predecessor | ||||
|
October 25, |
||||
| 2009 | ||||
|
General unsecured claims
|
$ | 2,702 | ||
|
Current portion of long-term debt-old
|
750,000 | |||
|
Accrued interest on current portion of long-term debt
|
45,341 | |||
|
Total
|
$ | 798,043 | ||
F-27
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 6. | Fair Value Measurements |
ASC 820 defines fair value, establishes a consistent framework
for measuring fair value and expands disclosure requirements
about fair value measurements. The Company adopted ASC 820 on
January 1, 2008 for financial assets and liabilities and
non-financial assets and liabilities. ASC 820 requires, among
other things, the Company’s valuation techniques used to
measure fair value to maximize the use of observable inputs and
minimize the use of unobservable inputs. This guidance was
applied prospectively to the valuation of assets and liabilities
on and after the effective dates of this guidance.
There are three general valuation techniques that may be used to
measure fair value, as described below:
(A) Market approach — Uses prices and other
relevant information generated by market transactions involving
identical or comparable assets or liabilities;
(B) Cost approach — Based on the amount that
currently would be required to reproduce or replace the service
capacity of an asset (reproduction cost or replacement
cost); and
(C) Income approach — Uses valuation techniques
to convert future amounts to a single present amount based on
current market expectations about the future amounts (includes
present value techniques, option-pricing models, the excess
earnings method, and the royalty savings method).
I. Net present value method is an income approach where a
stream of expected cash flows is discounted at an appropriate
discount rate.
II. The excess earnings method is a variation of the income
approach where the value of a specific asset is isolated from
its contributory assets.
III. The royalty savings method is a variation of the
income approach where the underlying premise is that an
intangible asset’s fair value is equal to the present value
of the cost savings (royalties) achieved by owning the asset.
Fair value information for each major category of assets and
liabilities measured on a nonrecurring basis as part of
fresh-start reporting during the period is listed in the
following table. The Company remeasured its assets and
liabilities at fair value on the Reorganization Effective Date
as required by ASC 852 using the guidance for measurement found
in ASC 805. The gains and losses
F-28
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
related to these fair value adjustments were recorded by the
Predecessor Company. Assets and liabilities measured at fair
value on a nonrecurring basis during the period included:
| Successor | ||||||||||||||||||||||
|
Quoted Prices |
||||||||||||||||||||||
|
in Active |
Significant |
|||||||||||||||||||||
|
Markets for |
Other |
Significant |
||||||||||||||||||||
|
As of |
Identical |
Observable |
Unobservable |
Total |
||||||||||||||||||
|
October 25, |
Assets |
Inputs |
Inputs |
Gains |
Valuation |
|||||||||||||||||
| 2009 | (Level 1) |
(Level 2)
|
(Level 3) |
(Losses)
|
Technique
|
|||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||
|
Other current assets
|
$ | 439 | $ | 439 | $ | (1,233 | ) | (B), (C)-I | ||||||||||||||
|
Inventories
|
||||||||||||||||||||||
|
Finished goods
|
10,078 | $ | 10,078 | 2,557 | (A), (C)-I | |||||||||||||||||
|
Semi-finished goods and
work-in-process
|
52,309 | 52,309 | 15,346 | (A), (B), (C)-I | ||||||||||||||||||
|
Property, plant and equipment
|
||||||||||||||||||||||
|
Land
|
14,902 | 14,902 | 5,091 | (A), (C)-I | ||||||||||||||||||
|
Building
|
71,007 | 71,007 | (25,113 | ) | (A), (C)-I | |||||||||||||||||
|
Furniture and fixture
|
1,435 | 1,435 | (4,771 | ) | (B), (C)-I | |||||||||||||||||
|
Machinery and equipment
|
69,664 | 69,664 | 14,867 | (B), (C)-I | ||||||||||||||||||
|
Structure
|
119 | 119 | (1,814 | ) | (B), (C)-I | |||||||||||||||||
|
Other tangible assets
|
1,291 | 1,291 | (2,200 | ) | ((B), (C)-I | |||||||||||||||||
|
Intangible assets
|
||||||||||||||||||||||
|
Core technology
|
5,200 | 5,200 | 1,295 | (C)-I, III | ||||||||||||||||||
|
Existing technology
|
11,800 | 11,800 | 11,800 | (C)-I, II | ||||||||||||||||||
|
In-process research and development
|
9,700 | 9,700 | 9,700 | (C)-I, II | ||||||||||||||||||
|
Backlog
|
6,400 | 6,400 | 6,400 | (C)-I, II | ||||||||||||||||||
|
Customer relationships
|
19,700 | 19,700 | (3,268 | ) | (C)-I, II | |||||||||||||||||
|
Trademarks
|
2,400 | 2,400 | 2,387 | (C)-I, III | ||||||||||||||||||
|
Other non-current assets
|
2,270 | 2,270 | 355 | (A) | ||||||||||||||||||
| $ | 31,399 | |||||||||||||||||||||
Carrying amounts of the other assets and liabilities except
those in the above table equal their fair values.
For details of key assumptions and inputs applied by the Company
for above fair valuation, see “Note 3 Fresh-Start
Reporting.”
F-29
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 7. | Accounts Receivable |
Accounts receivable as of December 31, 2009 and 2008
consisted of the following:
| Successor | Predecessor | |||||||||
|
December 31, |
December 31, |
|||||||||
| 2009 | 2008 | |||||||||
|
Accounts receivable
|
$ | 74,516 | $ | 67,186 | ||||||
|
Notes receivable
|
3,260 | 12,450 | ||||||||
|
Less:
|
||||||||||
|
Allowances for doubtful accounts
|
(377 | ) | (1,569 | ) | ||||||
|
Cash return reserve
|
(1,729 | ) | (671 | ) | ||||||
|
Low yield compensation reserve
|
(1,437 | ) | (1,101 | ) | ||||||
|
Accounts receivable, net
|
$ | 74,233 | $ | 76,295 | ||||||
Changes in allowance for doubtful accounts for each period are
as follows:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Beginning balance
|
$ | — | $ | (1,569 | ) | $ | (1,367 | ) | $ | (1,418 | ) | |||||||||
|
Bad debt expense
|
(379 | ) | (723 | ) | (503 | ) | (161 | ) | ||||||||||||
|
Write off
|
— | — | 104 | 208 | ||||||||||||||||
|
Translation adjustments
|
2 | (40 | ) | 197 | 4 | |||||||||||||||
|
Ending balance
|
$ | (377 | ) | $ | (2,332 | ) | $ | (1,569 | ) | $ | (1,367 | ) | ||||||||
Changes in cash return reserve for each period are as follows:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Beginning balance
|
$ | (1,545 | ) | $ | (671 | ) | $ | (914 | ) | $ | (1,450 | ) | ||||||||
|
Addition to reserve
|
(648 | ) | (4,476 | ) | (3,385 | ) | (2,509 | ) | ||||||||||||
|
Payment made
|
484 | 3,722 | 3,393 | 3,040 | ||||||||||||||||
|
Translation adjustments
|
(20 | ) | (120 | ) | 235 | 5 | ||||||||||||||
|
Ending balance
|
$ | (1,729 | ) | $ | (1,545 | ) | $ | (671 | ) | $ | (914 | ) | ||||||||
F-30
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
Changes in low yield compensation reserve for each period are as
follows:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Beginning balance
|
$ | (1,213 | ) | $ | (1,101 | ) | $ | (1,260 | ) | $ | (2,482 | ) | ||||||||
|
Addition to reserve
|
(715 | ) | (1,759 | ) | (1,854 | ) | (1,307 | ) | ||||||||||||
|
Payment made
|
507 | 1,724 | 1,663 | 2,523 | ||||||||||||||||
|
Translation adjustments
|
(16 | ) | (77 | ) | 350 | 6 | ||||||||||||||
|
Ending balance
|
$ | (1,437 | ) | $ | (1,213 | ) | $ | (1,101 | ) | $ | (1,260 | ) | ||||||||
| 8. | Inventories |
Inventories as of December 31, 2009 and 2008 consist of the
following:
| Successor | Predecessor | |||||||||
|
December 31, |
December 31, |
|||||||||
| 2009 | 2008 | |||||||||
|
Finished goods
|
$ | 19,474 | $ | 22,694 | ||||||
|
Semi-finished goods and
work-in-process
|
42,604 | 49,814 | ||||||||
|
Raw materials
|
5,844 | 7,471 | ||||||||
|
Materials in-transit
|
64 | 206 | ||||||||
|
Less: inventory reserve
|
(4,579 | ) | (33,075 | ) | ||||||
|
Inventories, net
|
$ | 63,407 | $ | 47,110 | ||||||
Changes in inventory reserve for each period are as follows:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Beginning balance
|
$ | — | $ | (33,075 | ) | $ | (8,620 | ) | $ | (11,652 | ) | |||||||||
|
Reversal of (addition to) reserve
|
(4,952 | ) | 8,081 | (34,869 | ) | 1,101 | ||||||||||||||
|
Write off
|
391 | 11,297 | 4,992 | 1,888 | ||||||||||||||||
|
Translation adjustments
|
(18 | ) | 17 | 5,422 | 43 | |||||||||||||||
|
Ending balance
|
$ | (4,579 | ) | $ | (13,680 | ) | $ | (33,075 | ) | $ | (8,620 | ) | ||||||||
F-31
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 9. | Property, Plant and Equipment |
Property, plant and equipment as of December 31, 2009 and
2008 are comprised of the following:
| Successor | Predecessor | |||||||||
|
December 31, |
December 31, |
|||||||||
| 2009 | 2008 | |||||||||
|
Buildings and related structures
|
$ | 72,076 | $ | 111,933 | ||||||
|
Machinery and equipment
|
71,505 | 318,440 | ||||||||
|
Vehicles and others
|
3,043 | 40,422 | ||||||||
| 146,624 | 470,795 | |||||||||
|
Less: accumulated depreciation
|
(5,388 | ) | (296,038 | ) | ||||||
|
Land
|
15,101 | 9,198 | ||||||||
|
Property, plant and equipment, net
|
$ | 156,337 | $ | 183,955 | ||||||
Aggregate depreciation expenses totaled $5,389 thousand, $28,649
thousand, $47,707 thousand and $129,870 thousand for the
two-month period ended December 31, 2009, for the ten-month
period ended October 25, 2009 and for the years ended
December 31, 2008 and 2007, respectively.
Property, plant and equipment are pledged as collateral for the
new term loan of Successor Company and for the senior secured
revolving credit facility and Second Priority Senior Secured
Notes of Predecessor Company to a maximum of $780 million
as of December 31, 2009 and 2008, respectively.
| 10. | Intangible assets |
Intangible assets at December 31, 2009 and 2008 are as
follows:
| Successor | Predecessor | |||||||||
|
December 31, |
December 31, |
|||||||||
| 2009 | 2008 | |||||||||
|
Technology
|
$ | 14,942 | $ | 14,156 | ||||||
|
Customer relationships
|
26,448 | 112,167 | ||||||||
|
Intellectual property assets
|
4,779 | 6,011 | ||||||||
|
In-process research and development
|
9,829 | — | ||||||||
|
Less: accumulated amortization
|
(5,840 | ) | (97,442 | ) | ||||||
|
Intangible assets, net
|
$ | 50,158 | $ | 34,892 | ||||||
Aggregate amortization expenses for intangible assets totaled
$5,829 thousand, $9,606 thousand, $24,254 thousand and $33,564
thousand for the two-month period ended December 31, 2009,
for the ten-month period ended October 25, 2009 and for the
years ended December 31, 2008 and 2007, respectively. The
estimated aggregate amortization expense of intangible assets
for the next five years is $25,182 thousand in 2010, $11,328
thousand in 2011, $6,402 thousand in 2012, $5,554 thousand in
2013 and $1,096 thousand in 2014.
Intangible assets are pledged as collateral for the new term
loan of the Successor Company and for the senior secured
revolving credit facility and Second Priority Senior Secured
Notes of the Predecessor Company as of December 31, 2009
and 2008, respectively.
F-32
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
As part of its application of fresh-start reporting, the Company
recognized fair value associated with IPR&D of $9,700
thousand. Fair value of IPR&D was based on estimating the
future cash flows by the Company’s semiconductor
manufacturing services (“SMS”) and large display
solution (“LDS”) reporting units using the excess
earnings method and discounting the net cash flows back to their
present values. The revenues were allocated to IPR&D of the
SMS reporting unit on the basis of percentage of projected SMS
revenues for 2010, 2011 and thereafter. Selling, general and
administrative (“SG&A”) expenses as a percentage
of revenue were determined to be consistent with the cost
structure of SMS. Research and development
(“R&D”) expenses as a percentage of revenue were
determined to be a percentage of the projected R&D
expenses. This percentage represents the cost to maintain
IPR&D. The cost to complete the IPR&D was derived
based on the R&D expenses in the subsequent period not used
to maintain existing technology. The estimated cash flows
attributable to the IPR&D were converted to a present value
equivalent. IPR&D of the LDS reporting unit is expected to
generate revenue over a two-year time frame starting with its
introduction to the market in 2010. The revenues allocated to
IPR&D of the LDS reporting unit were determined to be a
percentage of the projected LDS revenues in 2010 and 2011. Costs
of revenues and operating expenses were deducted from the
revenues based on LDS cost structure as a percentage of revenue.
While SG&A expenses as a percentage of revenue were
determined to be the same as the whole business, maintenance
R&D expenses were determined to be a percentage of the
projected R&D expenses. The cost to complete the IPR&D
project was estimated based on the R&D budget less the
amount of R&D dedicated to maintaining the existing
technology. The estimated cash flows attributable to the
IPR&D of LDS reporting unit were converted to a present
value equivalent.
The Company recorded goodwill as a result from the acquisition
of ISRON Corporation on March 6, 2005. On an ongoing basis,
the Company evaluates goodwill at the reporting unit level for
indications of potential impairment. Goodwill is tested for
impairment based on the present value of discounted cash flows,
and, if impaired, goodwill is written down to fair value. The
Company performs its annual goodwill impairment test during the
first quarter of each fiscal year, as well as additional
impairment tests, if any, required on an event-driven basis. In
the first quarter of each of fiscal year 2008, 2007 and 2006,
the Company performed its annual goodwill impairment test and
determined that goodwill was not impaired. As of
December 31, 2008, the Company performed an additional
goodwill impairment test triggered by the significant adverse
change in the revenue of the mobile display solutions, or MDS,
reporting unit, and determined that goodwill was impaired. At
the time of impairment, revenue of the MDS reporting unit was
expected to decrease due to the deterioration of the
Company’s financial credit status and the decline of the
semiconductor sector resulting from the world-wide economic
slowdown. Accordingly, an impairment charge of $14,245 thousand,
which represents the entire balance of goodwill, was recorded
for the year ended December 31, 2008.
F-33
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 11. | Product Warranties |
Changes in accrued warranty liabilities for each period are as
follows:
| Successor | Predecessor | ||||||||||||||||
|
Two-Month |
Ten-Month |
||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
||||||||||||||
| 2009 | 2009 | 2008 | 2007 | ||||||||||||||
|
Beginning balance
|
$ | 929 | $ | 474 | $ | 211 | $ | 112 | |||||||||
|
Addition to warranty reserve
|
(16 | ) | 1,928 | 2,608 | 586 | ||||||||||||
|
Payments made
|
(4 | ) | (1,544 | ) | (2,243 | ) | (486 | ) | |||||||||
|
Translation adjustments
|
12 | 71 | (102 | ) | (1 | ) | |||||||||||
|
Ending balance
|
$ | 921 | $ | 929 | $ | 474 | $ | 211 | |||||||||
| 12. | Short-term Borrowings |
Predecessor
Company
On December 23, 2004, the Company and its subsidiaries,
including MagnaChip Semiconductor S.A. and MagnaChip
Semiconductor Finance Company, as borrowers, entered into a
senior credit agreement with a syndicate of banks, financial
institutions and other entities providing for a
$100 million senior secured revolving credit facility.
Interest was charged at current rates when drawn upon.
Short-term borrowings under this facility were comprised of the
following as of December 31, 2008:
|
Annual Interest |
Amount of |
|||||||
| Maturity | Rate (%) | Principal | ||||||
|
Euro dollar revolving loan
|
January 15, 2009 | 3 month LIBOR + 6.75 | $ | 10,000 | ||||
|
Alternate Base Rate (“ABR”) revolving loan
|
March 31, 2009 | ABR + 5.75 | 85,000 | |||||
| $ | 95,000 | |||||||
As discussed in Note 2, on the Reorganization Effective
Date, $61,750 thousand of these short-term borrowings was
refinanced with a new term loan and the remainder of $33,250
thousand was repaid in cash as part of the Company’s
reorganization.
| 13. | Current Portion of Long-term Debt |
Successor
Company
The current portion of the new term loan issued in connection
with the Company’s reorganization was $618 thousand as of
December 31, 2009, as described in Note 14.
Predecessor
Company
On December 23, 2004, two of the Company’s
subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip
Semiconductor Finance Company, issued $500 million
aggregate principal amount of Second Priority Senior Secured
Notes consisting of $300 million aggregate principal amount
of Floating Rate Second Priority Senior Secured Notes and
$200 million aggregate principal amount of
F-34
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
67/8%
Second Priority Senior Secured Notes. At the same time, these
subsidiaries issued $250 million aggregate principal amount
of 8% Senior Subordinated Notes.
Details of the current portion of long-term debt as of
December 31, 2008 are presented as below:
|
Annual Interest |
Amount of |
|||||||||
|
Maturity
|
Rate (%) | Principal | ||||||||
|
Floating Rate Second Priority Senior Secured Notes
|
2011 | 3 month LIBOR + 3.250 | $ | 300,000 | ||||||
|
67/8%
Second Priority Senior Secured Notes
|
2011 | 6.875 | 200,000 | |||||||
|
8% Senior Subordinated Notes
|
2014 | 8.000 | 250,000 | |||||||
| $ | 750,000 | |||||||||
The senior secured revolving credit facility and Second Priority
Senior Secured Notes were collateralized by substantially all of
the assets of the Company. This indebtedness was initially
expected to be paid in full upon maturity.
Each indenture governing the notes contained covenants that
limited the ability of the Company and its subsidiaries to
(i) incur additional indebtedness, (ii) pay dividends
or make other distributions on its capital stock or repurchase,
repay or redeem its capital stock, (iii) make certain
investments, (iv) incur liens, (v) enter into certain
types of transactions with affiliates, (vi) create
restrictions on the payment of dividends or other amounts to the
Company by its subsidiaries, and (vii) sell all or
substantially all of its assets or merge with or into other
companies.
As of December 31, 2008, the Company and all of its
subsidiaries except for MagnaChip Semiconductor (Shanghai)
Company Limited jointly and severally guaranteed each series of
the Second Priority Senior Secured Notes on a second priority
senior secured basis. As of December 31, 2008, the Company
and all of its subsidiaries except for MagnaChip Semiconductor
Ltd. (Korea) and MagnaChip Semiconductor (Shanghai) Company
Limited jointly and severally guaranteed the Senior Subordinated
Notes on an unsecured, senior subordinated basis. In addition,
the Company and each of its then current and future direct and
indirect subsidiaries (subject to certain exceptions) were
required to be guarantors of Second Priority Senior Secured
Notes and Senior Subordinated Notes.
During December 2008, the Company failed to make interest
payments under its Second Priority Senior Secured Notes and
Senior Subordinated Notes. Additionally, as of December 31,
2008, the Company was not in compliance with certain of its
financial covenants under the terms of its senior secured credit
facility, and the indentures governing the Second Priority
Senior Secured Notes and the Senior Subordinated Notes.
Accordingly, amounts outstanding under the Second Priority
Senior Secured Notes and Senior Subordinated Notes were
reclassified as current portion of long-term debt in the
Company’s accompanying balance sheet as of
December 31, 2008.
In connection with the issuance of the notes and entering into
the credit facility, the Company capitalized certain costs and
fees, which were being amortized using the effective interest
method or straight-line method over their respective terms. As a
result of not being in compliance with certain of its financial
covenants under the terms of its senior secured credit facility
and the indentures governing the Second Priority Senior Secured
Notes and Senior Subordinated Notes, the remaining capitalized
costs of $12,319 thousand in connection with the issuance of the
Second Priority Senior Secured Notes and Senior Subordinated
Notes as of December 31, 2008 were written off and included
in interest expense. Amortization costs, which were included in
interest expense in the
F-35
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
accompanying consolidated statements of operations, amounted to
$836 thousand for the ten-month period ended October 25,
2009, and $16,290 thousand and $3,919 thousand for the years
ended December 31, 2008 and 2007, respectively. As of
October 25, 2009, the remaining capitalized costs of $166
thousand in connection with the entrance into the credit
facility were written off and included in reorganization items,
net, in accordance with the Plan of Reorganization as described
in Notes 3 and 5. The remaining capitalized costs as of
December 31, 2008 and 2007 were $1,004 thousand and $17,917
thousand, respectively.
As of October 25, 2009, the current portion of long-term
debt of $750,000 thousand and accrued interest of $45,341
thousand were discharged in exchange for new common units with a
fair value of $14,259 thousand and new warrants with a fair
value of $2,533 thousand as part of the Company’s
reorganization as described in Notes 3 and 5.
Interest Rate
Swap
Effective June 27, 2005, the Company entered into an
interest rate swap agreement (the “Swap”) to hedge the
effect of the volatility of the
3-month
London Inter-Bank Offering Rate (“LIBOR”) resulting
from the Company’s $300 million of Floating Rate
Second Priority Senior Secured Notes. Under the terms of the
Swap, the Company received a variable interest rate equal to the
three-month LIBOR rate plus 3.25%. In exchange, the Company paid
interest at a fixed rate of 7.34%. The Swap effectively replaced
the variable interest rate on the notes with a fixed interest
rate through the expiration date of the Swap on June 15,
2008.
The Swap qualified as a cash flow hedge under ASC 815, since at
both the inception of the hedge and on an ongoing basis, the
hedging relationship was expected to be highly effective in
achieving offsetting cash flows attributable to the hedged risk
during the term of the hedge. The Company utilized the
“hypothetical derivative method” to measure the
effectiveness by comparing the changes in value of the actual
derivative versus the change in fair value of the
“hypothetical derivative.”
| 14. | Long-term Debt |
Successor
Company
In connection with the Predecessor Company’s reorganization
as described in Note 3, in complete satisfaction of the
first lien lender claims arising from the senior secured credit
facility (included in short-term borrowings) of $95,000
thousand, the Company made a cash payment of $33,250 thousand to
the senior secured credit facility lenders and, together with
its subsidiaries, including MagnaChip Semiconductor S.A. and
MagnaChip Semiconductor Finance Company, as borrowers, entered
into a $61,750 thousand Amended and Restated Credit
Agreement (the “Credit Agreement” or the “new
term loan”) with Avenue Investments, LP, Goldman Sachs
Lending Partners LLC and Citicorp North America, Inc.
Long-term borrowings as of December 31, 2009 consisted of
Eurodollar loans at an annual interest rate of 6 month
LIBOR + 12% to Avenue Investments, LP, Goldman Sachs Lending
Partners LLC and Citicorp North America, Inc. in the principal
amount of $42,055 thousand, $12,285 thousand and $7,410
thousand, respectively. After deducting the current portion of
long-term debt of $618 thousand, long-term borrowings as of
December 31, 2009 were $61,132 thousand.
The Company may by written notice to the administrative agent
elect to request the establishment of one or more new term loan
or revolving loan commitments (the “Incremental Loan
F-36
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
Commitments”) by an amount not in excess of $23,250
thousand in the aggregate less any incremental loans incurred
after the effective date of the new term loan.
The principal balance of the new term loan is to be paid in
quarterly installments of approximately $154 thousand with the
first installment due on March 31, 2010, and ending with
the last installment due on September 30, 2013. In
addition, the Credit Agreement has optional and mandatory loan
prepayment provisions as follows:
Optional Prepayments. The Company has the right at any time
and from time to time to prepay the new term loan, in whole or
in part.
Excess Cash Flow Prepayments. Not later than 90 days after
the end of each fiscal year (commencing with the fiscal year
ending December 31, 2010), the Company shall calculate the
amount of Excess Cash Flow (as defined in the Credit Agreement)
for such fiscal year, and shall prepay the new loan in an amount
equal to the amount by which (A) 50% of such Excess Cash
Flow exceeds (B) the sum of (x) the aggregate
principal amount of voluntary prepayments of the new term loan
during such fiscal year, and (y) in the case of the fiscal
year ending December 31, 2010, the aggregate principal
amount of any Early Excess Cash Flow Prepayments (as defined in
the Credit Agreement), which is equal to the amount of dividends
paid and the amount of subordinated indebtedness payments made
on or prior to 90 days after the end of such fiscal year,
or an Excess Cash Flow Prepayment; provided, that if the amount
in clause (B) exceeds the amount in clause (A), no such
prepayment of the new term loan is required.
Asset Sales. Not later than three business days following
the receipt of any net cash proceeds of any asset sale, the
Company shall make (with certain exceptions) prepayments in an
aggregate amount equal to 100% of such net cash proceeds from
such asset sale.
Dividend or Subordinated Indebtedness Payment. Concurrently
with the making of any dividend and any subordinated
indebtedness payment, in each case from any Cumulative Credit
(as defined in the Credit Agreement) prior to the date that the
first Excess Cash Flow Prepayment is required to be made, the
Company shall make prepayments of the outstanding term loan in
an amount equal to the amount of such dividend or subordinated
indebtedness payment, as the case may be.
Casualty Events. Not later than three business days
following the receipt by the Company of any net cash proceeds
from a casualty event in excess of $3,000 thousand, the Company
must use the full amount of such net cash proceeds to:
(i) make prepayments of the outstanding term loan, or
(ii) so long as no default shall have occurred and be
continuing, repair, replace or restore the property in respect
of which such net cash proceeds were repaid or reinvested in
other fixed or capital assets no later than 360 days
following receipt thereof.
The Company is required to pay the balance of the Credit
Agreement, if any, on November 6, 2013. The Credit
Agreement is collateralized by substantially all of the assets
of the Company.
The Credit Agreement contains covenants that limit the ability
of the Company and its subsidiaries to (i) incur additional
indebtedness, (ii) pay dividends or make other
distributions on its capital stock or repurchase, repay or
redeem its capital stock, (iii) make certain investments,
(iv) incur liens, (v) enter into certain types of
transactions with affiliates, (vi) create restrictions on
the payment of dividends or other amounts to the Company by its
subsidiaries, (vii) sell all or substantially all of its
assets or merge with or into other companies, (viii) issue
specific equity interests and (ix) establish, create or
acquire any additional subsidiaries. It also contains a minimum
liquidity financial covenant and compliance with financial
ratios.
F-37
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
As of December 31, 2009, the Company and all of its
subsidiaries except for MagnaChip Semiconductor (Shanghai)
Company Limited jointly and severally guaranteed, as a primary
obligor, the payment and performance of the borrower’s
obligations under the Credit Agreement.
In connection with the entrance into the Credit Agreement, the
Company capitalized certain costs and fees, which are being
amortized using the straight-line method over the term of loan.
Amortization costs, which were included in interest expense in
the accompanying consolidated statements of operations, amounted
to $0.3 thousand for the two-month period ended
December 31, 2009, and total remaining capitalized costs as
of December 31, 2009 were $235 thousand.
| 15. | Accrued Severance Benefits |
The majority of accrued severance benefits is for employees in
the Company’s Korean subsidiary, MagnaChip Semiconductor
Ltd. (Korea). Pursuant to the Employee Retirement Benefit
Security Act of Korea, most employees and executive officers
with one or more years of service are entitled to severance
benefits upon the termination of their employment based on their
length of service and rate of pay. As of December 31, 2009,
98% of all employees of the Company were eligible for severance
benefits.
Changes in accrued severance benefits for each period are as
follows:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Beginning balance
|
$ | 72,243 | $ | 63,147 | $ | 75,869 | $ | 64,642 | ||||||||||||
|
Provisions
|
1,851 | 8,835 | 14,026 | 18,834 | ||||||||||||||||
|
Severance payments
|
(1,389 | ) | (4,320 | ) | (6,505 | ) | (7,151 | ) | ||||||||||||
|
Translation adjustments
|
941 | 4,581 | (20,243 | ) | (456 | ) | ||||||||||||||
| 73,646 | 72,243 | 63,147 | 75,869 | |||||||||||||||||
|
Less: Cumulative contributions to the National Pension Fund
|
(530 | ) | (533 | ) | (539 | ) | (784 | ) | ||||||||||||
|
Group severance insurance plan
|
(707 | ) | (681 | ) | (669 | ) | (909 | ) | ||||||||||||
| $ | 72,409 | $ | 71,029 | $ | 61,939 | $ | 74,176 | |||||||||||||
The severance benefits are funded approximately 1.68%, 1.91% and
2.23% as of December 31, 2009, 2008 and 2007, respectively,
through the Company’s National Pension Fund and group
severance insurance plan which will be used exclusively for
payment of severance benefits to eligible employees. These
amounts have been deducted from the accrued severance benefit
balance.
F-38
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
The Company is liable to pay the following future benefits to
its employees upon their normal retirement age:
|
Severance |
||||
|
Benefit
|
||||
|
2010
|
$ | 33 | ||
|
2011
|
69 | |||
|
2012
|
135 | |||
|
2013
|
— | |||
|
2014
|
279 | |||
|
2015 - 2019
|
8,332 | |||
The above amounts were determined based on the employees’
current salary rates and the number of service years that will
be accumulated upon their retirement dates. These amounts do not
include amounts that might be paid to employees that will cease
working with the Company before their normal retirement ages.
| 16. | Redeemable Convertible Preferred Units |
Predecessor
Company
The Company issued 49,727 units as Series A redeemable
convertible preferred units (the “Series A
units”) and 447,420 units as Series B redeemable
convertible preferred units (the “Series B
units”) on September 23, 2004 and an additional
364 units of Series A units and 3,272 units of
Series B units on November 30, 2004, respectively.
Each Series A and Series B unit had a stated value of
$1,000 per unit. As the Series A and B units were
redeemable at the option of the holders, the Company classified
the Series A units and B units outside of permanent equity.
All Series A units were redeemed by cash on
December 27, 2004 and a portion of the Series B units
were redeemed by cash on December 15, 2004 and
December 27, 2004.
Changes in Series B units for each period are as follows:
| Predecessor | ||||||||||||||||||||||||
|
Ten-Month |
Year Ended |
Year Ended |
||||||||||||||||||||||
|
Period Ended |
December 31, |
December 31, |
||||||||||||||||||||||
| October 25, 2009 | 2008 | 2007 | ||||||||||||||||||||||
|
Units
|
Amount
|
Units
|
Amount
|
Units | Amount | |||||||||||||||||||
|
Series B Units
|
||||||||||||||||||||||||
|
Beginning of the period
|
93,997 | $ | 142,669 | 93,997 | $ | 129,405 | 93,997 | $ | 117,374 | |||||||||||||||
|
Accrual of preferred dividends
|
— | 6,317 | — | 13,264 | — | 12,031 | ||||||||||||||||||
|
End of the period
|
93,997 | $ | 148,986 | 93,997 | $ | 142,669 | 93,997 | $ | 129,405 | |||||||||||||||
The Series B units were issued to the original purchasers
of the Company in 2004. Holders of Series B units were
entitled to receive cumulative dividends, whether or not earned
or declared by the board of directors. The cumulative cash
dividends accrued at the rate of 10% per unit per annum on the
Series B units’ original issue price, compounded
semi-annually.
The Series B units, which had a carrying amount of $148,986
thousand, were retired without consideration as part of the
Company’s reorganization as described in Note 3.
F-39
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
Conversion
The outstanding Series B units were convertible, in whole
or in part, into common equity interests upon or concurrently
with the first public offering of the common equity interests of
the Company at the Company’s option or the holder’s
option based on a formula, represented by the conversion ratio.
The conversion ratio for the Series B units was an amount
equal to the original issue price per unit plus an amount per
unit equal to full cumulative dividends accrued and unpaid to
the date of the consummation of the first public offering,
divided by the per common equity interest price to the public in
the Company’s first public offering of equity securities.
Dividends
Holders of Series B units were entitled to receive
cumulative dividends, whether or not earned or declared by the
board of directors. The cumulative cash dividends accrued at the
rate of 10% per unit per annum on the Series B units
original issue price, compounded semi-annually. Such dividends
were payable in semi-annual installments in arrears commencing
March 15, 2005.
Liquidation
In the event of liquidation, the holders of Series B units
were entitled to receive after all creditors of the Company have
been paid in full but before any amounts were paid to the
holders of any units ranking junior to the Series B units
with respect to dividends or upon liquidation (including common
units), out of the assets of the Company legally available for
distribution to its members, whether from capital, surplus or
earnings, an amount equal to the Series B units original
issue price in cash per unit plus an amount equal to full
cumulative dividends accrued and unpaid thereon to the date of
final distribution, and no more. If the net assets of the
Company were insufficient to pay the holders of all outstanding
Series B units and of any units ranking on parity with the
Series B units, the full amounts to which they respectively
were entitled, such assets, or the proceeds thereof, were to be
distributed ratably among the holders of the Series B units
and any units ranking on parity with the Series B units in
accordance with the amounts which would be payable on such
distribution if the amount to which the holders of the
Series B units and any units ranking on a parity with the
Series B units were entitled to be paid in full.
Voting
As provided in Predecessor Company’s operating agreement,
the holders of Series B units were not entitled to vote on
any matter submitted to a vote of the Predecessor Company’s
members, and were not entitled to notice of any meeting of
members.
Redemption
If any outstanding Series B units had remained outstanding
on the 14th anniversary after issuance of the Series B
units, then the holders of a majority of the then outstanding
Series B units had the right to elect to have the Company
redeem all outstanding Series B units from funds legally
available, at a price per unit equal to $1,000 plus an amount
per unit equal to full cumulative dividends accrued and unpaid
thereon to the redemption date.
Also the Series B units were redeemable from funds legally
available, in whole or in part, at the election of the Company,
expressed by resolution of its board of directors, at any time
and from time to time at a price of $1,000 per unit plus any
cumulative accrued and unpaid dividends.
F-40
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 17. | Warrants |
Successor
Company
In connection with the Company’s reorganization, the
Company issued warrants to purchase 15,000 thousand of the
Company’s new common units. The warrants were issued in
partial satisfaction of the claims of the holders of the
Company’s Senior Subordinated Notes and are exercisable at
a price of $1.97 per unit at any time following the issue date
of the warrants, so long as the exercise of the warrants is
exempt from the registration requirements of the Securities Act
of 1933, as amended. The value of each warrant to purchase one
common unit is $0.169, which was estimated using the
Black-Scholes option pricing model using the following
assumptions: fair value of $0.79 per common unit, exercise price
of $1.97 per unit, risk free rate of interest of 2.3%,
volatility of 50%, dividend rate of 0% and term of 5 years.
| 18. | Common Units |
Successor
Company
New common units with no par value were authorized in the amount
of 375,000 thousand units, of which 307,084 thousand
units were issued and outstanding as of December 31, 2009.
Details of new common units as of December 31, 2009 are as
follows:
|
As of December 31, |
||||||||
| 2009 | ||||||||
| Units | Amount | |||||||
|
Common units at the beginning of the period
|
299,999,996 | $ | 49,539 | |||||
|
Restricted unit bonuses issued
|
7,084,000 | 5,596 | ||||||
|
Total common units issued and outstanding at the end of the
period
|
307,083,996 | $ | 55,135 | |||||
| 19. | Equity Incentive Plans |
Successor
Company
The Successor Company adopted its 2009 Common Unit Plan
effective December 8, 2009, which is administered by the
board of directors. Under the plan, employees, consultants and
non-employee directors are eligible for equity incentives,
including grants of options to purchase the Company’s
common units or restricted unit bonuses or restricted unit
purchase rights and deferred units awards, subject to terms and
conditions determined by the board of directors. The term of
options shall not exceed ten years from the date of grant.
Restricted unit purchase rights shall be exercisable within a
period established by the board of directors, which shall in no
event exceed thirty days from the effective date of the grant.
As of December 31, 2009, an aggregate maximum of
30,000,000 units were authorized and 7,551,000 units
were reserved for all future grants of units.
Unit options are generally granted with exercise prices of no
less than the fair market value of the Company’s common
units on the grant date. The requisite service period, or the
period during which a grantee is required to provide service in
exchange for option grants, coincides with the vesting period.
The purchase price for units issuable under each restricted unit
purchase right shall be established by the board of directors in
its discretion. No monetary payment (other than applicable tax
F-41
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
withholding) shall be required as a condition of receiving units
pursuant to a restricted unit bonus, the consideration for which
shall be services actually rendered to a participating company
or for its benefit. Units issued pursuant to any restricted unit
award may (but need not) be made subject to vesting conditions
based upon the satisfaction of such service requirements,
conditions, restrictions or performance criteria as shall be
established by the board of directors and set forth in the award
agreement evidencing such award. During any period in which
units acquired pursuant to a restricted unit award remain
subject to vesting conditions, such units may not be sold,
exchanged, transferred, pledged, assigned or otherwise
disposed of other than pursuant to an ownership change event or
transfer by will or the laws of descent and distribution. The
grantee shall have all of the rights of a member of the Company
holding units, including the right to vote such units and to
receive all dividends and other distributions paid with respect
to such units; provided, however, that if so determined by the
board of directors and provided by the award agreement, such
dividends and distributions shall be subject to the same vesting
conditions as the units subject to the restricted unit award
with respect to which such dividends or distributions were paid.
If a grantee’s service terminates for any reason, whether
voluntary or involuntary (including the grantee’s death or
disability), then (a) the Company (or its assignee) has the
option to repurchase for the purchase price paid by the grantee
any units acquired by the grantee pursuant to a restricted unit
purchase right which remain subject to vesting conditions as of
the date of the grantee’s termination of service and
(b) the grantee shall forfeit to the Company any units
acquired by the grantee pursuant to a restricted unit bonus
which remain subject to vesting conditions as of the date of the
grantee’s termination of service. The Company shall have
the right to assign at any time any repurchase right it may
have, whether or not such right is then exercisable, to one or
more persons as may be selected by the Company.
No monetary payment (other than applicable tax withholding, if
any) is required as a condition of receiving a deferred unit
award, the consideration for which shall be services actually
rendered to a participating company or for its benefit. Deferred
unit awards may (but need not) be made subject to vesting
conditions based upon the satisfaction of such service
requirements, conditions, restrictions or performance criteria
as shall be established by the Committee and set forth in the
award agreement evidencing such award. Grantees have no voting
rights with respect to units represented by deferred unit awards
until the date of the issuance of such units (as evidenced by
the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company). If a grantee’s
service terminates for any reason, whether voluntary or
involuntary (including the grantee’s death or disability),
then the grantee shall forfeit to the Company any deferred units
pursuant to the award which remain subject to vesting conditions
as of the date of the grantee’s termination of service,
and, in the event of the grantee’s termination for cause,
such deferred unit award to the extent not yet settled. The
Company shall issue to a grantee on the date on which deferred
units subject to the grantee’s deferred unit award vest or
on such other date determined by the board of directors, in its
discretion, and set forth in the award agreement one unit
(and/or any other new, substituted or additional securities or
other property) for each deferred unit then becoming vested or
otherwise to be settled on such date, subject to the withholding
of applicable taxes, if any.
F-42
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
The following summarizes unit option and restricted unit bonus
activities for the two-month period ended December 31,
2009. At the date of grant, all options had an exercise price
above the fair value of common units:
| Successor Company | ||||||||||||||||||||
|
Weighted |
||||||||||||||||||||
|
Weighted |
Aggregate |
Average |
||||||||||||||||||
|
Average |
Intrinsic |
Remaining |
||||||||||||||||||
|
Number of |
Exercise |
Value of |
Contractual |
|||||||||||||||||
|
Restricted Unit |
Number of |
Price of Unit |
Unit |
Life of |
||||||||||||||||
| Bonuses |
Options
|
Options | Options | Unit Options | ||||||||||||||||
|
Outstanding at October 25, 2009
|
— | — | — | |||||||||||||||||
|
Granted
|
7,084,000 | 15,365,000 | $ | 1.16 | ||||||||||||||||
|
Released from restriction
|
2,408,560 | — | ||||||||||||||||||
|
Outstanding at December 31, 2009
|
4,675,440 | 15,365,000 | 1.16 | — | 9.9 years | |||||||||||||||
|
Vested and expected to vest at December 31, 2009
|
13,553,302 | — | 9.9 years | |||||||||||||||||
|
Exercisable at December 31, 2009
|
— | — | — | |||||||||||||||||
Total compensation expenses recorded for the restricted unit
bonuses and unit options pursuant to ASC 718 for the two-month
period ended December 31, 2009 was $2,073 thousand and $126
thousand, respectively. As of December 31, 2009, there were
$3,243 thousand and $2,811 thousand of total unrecognized
compensation cost related to unvested restricted unit bonuses
and unit options, which are expected to be recognized over a
weighted average future periods of 1.4 years and
1.7 years, respectively. Total fair value of restricted
unit bonuses released from restriction for the period from
October 25 to December 31, 2009 is $1,903 thousand.
The Company utilizes the Black-Scholes option-pricing model to
measure the fair value of each option grant. The following
summarizes the grant-date fair value of options granted for the
two-month period ended December 31, 2009 and assumptions
used in the Black-Scholes option-pricing model on a weighted
average basis:
|
Two-Month Period Ended |
||||
| December 31, 2009 | ||||
|
Grant-date fair value of option (in US dollars)
|
$ | 0.22 | ||
|
Expected term
|
2.9 Years | |||
|
Risk-free interest rate
|
0.6 | % | ||
|
Expected volatility
|
59.1 | % | ||
|
Expected dividends
|
— | |||
F-43
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
The number and weighted average grant-date fair value of the
unit options are as follows:
|
Two-Month Period |
||||||||
| Ended December 31, 2009 | ||||||||
|
Weighted Average |
||||||||
| Number | Grant-Date Fair Value | |||||||
|
Unvested options at the beginning of the period
|
— | $ | — | |||||
|
Granted options during the period
|
15,365,000 | 0.22 | ||||||
|
Vested options during the period
|
— | — | ||||||
|
Unvested options at the end of the period
|
15,365,000 | 0.22 | ||||||
Predecessor
Company
The Predecessor Company adopted two equity incentive plans
effective October 6, 2004 and March 21, 2005,
respectively, which were administered by the compensation
committee designated by the board of directors. Employees,
consultants and non-employee directors were eligible for the
grant of options to purchase the Company’s common units or
restricted common units subject to terms and conditions
determined by the compensation committee. The term of options
could in no event exceed ten years from the date of grant. As of
December 31, 2008, an aggregate maximum of 7,890,864 common
units were authorized and reserved for all future and
outstanding grants of options.
Unit options were generally granted with exercise prices of no
less than the fair market value of the Company’s common
units on the grant date. Generally, options vested and became
exercisable in periodic installments, with 25% of the options
vesting on the first anniversary of the grant date and 6.25% of
options vesting on the last day of each calendar quarter
thereafter. In most cases, the requisite service period, or the
period during which a grantee was required to provide service in
exchange for option grants, coincided with the vesting period.
Upon the termination of a unit option grantee’s employment
prior to a public offering, the Company had the right to
repurchase all or any of the common units acquired by the
grantee upon exercise of any of his or her options for a cash
payment equal to the fair market value of such common units on
the date of repurchase. The Company’s repurchase right
would terminate ninety days after the termination date.
During the three months ended December 31, 2004, restricted
units were issued upon the exercise of certain options to
purchase restricted common units at the exercise price of $1 per
unit. Restricted units issued were subject to restrictions which
generally lapsed in installments over a four-year period. Under
the terms and conditions of these restricted units, the
restricted units were subject to forfeiture upon the termination
of the restricted unitholder’s employment with the Company.
Upon termination, the Company could repurchase all, or any
portion of the restricted common units for either $1 per
unit (the exercise price) or the fair market value of the
restricted common units at the time of repurchase. If the
termination was for cause, as defined in the service agreements
entered into with each restricted unitholder, the repurchase
price per unit would be $1. However, if the termination was for
any other reason, then the Company could repurchase all or any
portion of the restricted units for which the restricted period
had not lapsed as of the date of termination for a repurchase
price per unit of $1, and could repurchase all or any portion of
the restricted common units for which the restricted period had
lapsed as of the date of termination for a repurchase price per
unit equal to fair market value. Termination for
“cause” was defined in the service agreements to mean
a termination of the restricted unitholder’s employment
with the Company because of (a) a failure by the restricted
unitholder to substantially perform the restricted
unitholder’s customary duties
F-44
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
with the Company in the ordinary course (other than in certain
specified circumstances); (b) the restricted
unitholder’s gross negligence, intentional misconduct or
fraud in the performance of his or her employment; (c) the
restricted unitholder’s indictment for a felony or to a
crime involving fraud or dishonesty; (d) a judicial
determination that the restricted unitholder committed fraud or
dishonesty against any person or entity; or (e) the
restricted unitholder’s material violation of one or more
of the Company’s policies applicable to the restricted
unitholder’s employment as may be in effect from time to
time.
The Predecessor Company adopted fresh-start reporting (see
Note 3) as of October 25, 2009, at which time it
effectively cancelled all unit options under the Predecessor
Company’s equity incentive plans.
The following summarizes unit option and restricted unit
activities for the ten-month period ended October 25, 2009
and for the year ended December 31, 2008. At the date of
grant, all options had an exercise price at or above the fair
value of common units:
| Predecessor Company | ||||||||||||||||||||
|
Aggregate |
Weighted |
|||||||||||||||||||
|
Weighted |
Intrinsic |
Average |
||||||||||||||||||
|
Number of |
Average Exercise |
Value of |
Remaining |
|||||||||||||||||
|
Restricted |
Number of |
Price of Unit |
Unit |
Contractual Life |
||||||||||||||||
| Units |
Options
|
Options | Options | of Unit Options | ||||||||||||||||
|
Outstanding at January 1, 2008
|
268,343 | 4,916,840 | $ | 1.9 | ||||||||||||||||
|
Granted
|
— | 315,000 | 5.8 | |||||||||||||||||
|
Exercised
|
— | 161,460 | 1.1 | $ | 787 | |||||||||||||||
|
Forfeited/Repurchased
|
— | 853,780 | 3.1 | |||||||||||||||||
|
Released from restriction
|
268,343 | — | ||||||||||||||||||
|
Outstanding at December 31, 2008
|
— | 4,216,600 | 1.9 | 15,118 | 6.9 years | |||||||||||||||
|
Vested and expected to vest at December 31, 2008
|
3,973,510 | 1.9 | 14,412 | 6.9 years | ||||||||||||||||
|
Exercisable at December 31, 2008
|
3,085,038 | 1.7 | 11,827 | 6.6 years | ||||||||||||||||
|
Outstanding at January 1, 2009
|
— | 4,216,600 | 1.9 | |||||||||||||||||
|
Granted
|
— | — | — | |||||||||||||||||
|
Exercised
|
— | — | — | — | ||||||||||||||||
|
Forfeited / Repurchased
|
— | 391,500 | 2.5 | |||||||||||||||||
|
Released from restriction
|
— | — | ||||||||||||||||||
|
Outstanding at October 25, 2009 (Predecessor Company)
|
— | 3,825,100 | 1.9 | — | 6.1 years | |||||||||||||||
|
Application of fresh-start reporting (Note 4)
|
— | (3,825,100 | ) | |||||||||||||||||
|
Outstanding at October 25, 2009 (Successor Company)
|
— | — | ||||||||||||||||||
Total compensation expenses recorded for the restricted units
and unit options pursuant to ASC 718 were $0 and $233 thousand
for the ten-month period ended October 25, 2009, $16
thousand and $449 thousand for the year ended December 31,
2008 and $328 thousand and $276 thousand for the year ended
December 31, 2007, respectively. As of October 25,
2009, total unrecognized compensation cost related to unvested
unit options of $166 thousand, which were expected to be
recognized over a weighted average future period of
0.7 years, was recognized as reorganization items, net,
according to the Company’s reorganization. As of
December 31, 2008, there was $335
F-45
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
thousand of total unrecognized compensation cost related to
unvested unit options, which were expected to be recognized over
a weighted average future period of 1.0 years. Total fair
value of restricted units released from restriction for the year
ended December 31, 2008 was $152 thousand. Total fair value
of options vested for the ten-month period ended
October 25, 2009 and for the year ended December 31,
2008 was $266 thousand and $408 thousand, respectively.
The Company utilizes the Black-Scholes option-pricing model to
measure the fair value of each option grant. The following
summarizes the grant-date fair value of options granted during
the specified periods and assumptions used in the Black-Scholes
option-pricing model on a weighted average basis:
| Predecessor | ||||||||
|
Year Ended |
December 31, |
|||||||
|
December 31, |
Year Ended |
|||||||
| 2008 | 2007 | |||||||
|
Grant-date fair value of option
|
$ | 0.87 | $ | 0.67 | ||||
|
Expected term
|
2.2 Years | 2.1 Years | ||||||
|
Risk-free interest rate
|
2.5 | % | 4.4 | % | ||||
|
Expected volatility
|
42.0 | % | 46.6 | % | ||||
|
Expected dividends
|
— | — | ||||||
The total cash received from employees as a result of option
exercises was $0, $184 thousand and $151 thousand for the
ten-month period ended October 25, 2009 and for the years
ended December 31, 2008 and 2007, respectively.
The number and weighted average grant-date fair value of the
unit options are as follows:
|
Ten-Month Period |
Year Ended |
Year Ended |
||||||||||||||||||||||
| Ended October 25, 2009 | December 31, 2008 |
December 31, 2007
|
||||||||||||||||||||||
|
Weighted Average |
Weighted Average |
Weighted Average |
||||||||||||||||||||||
|
Grant-Date |
Grant-Date |
Grant-Date |
||||||||||||||||||||||
|
Number
|
Fair Value
|
Number
|
Fair Value |
Number
|
Fair Value | |||||||||||||||||||
|
Unvested options at the beginning of the period
|
1,131,563 | $ | 0.65 | 2,374,896 | $ | 0.43 | 3,481,528 | $ | 0.29 | |||||||||||||||
|
Granted options during the period
|
— | — | 315,000 | 0.87 | 710,000 | 0.67 | ||||||||||||||||||
|
Vested options during the period
|
520,969 | 0.51 | 1,108,772 | 0.31 | 1,339,570 | 0.23 | ||||||||||||||||||
|
Forfeited options during the period
|
391,500 | 0.17 | 853,780 | 0.51 | 737,750 | 0.23 | ||||||||||||||||||
|
Unvested options at the end of the period
|
547,438 | 0.88 | 1,131,563 | 0.65 | 2,374,896 | 0.43 | ||||||||||||||||||
| 20. | Discontinued Operations |
On October 6, 2008, the Company announced the closure of
its Imaging Solutions business segment. As of December 31,
2008, Imaging Solutions business segment qualified as a
discontinued operation component of the Company under
ASC 360, “Property, Plant and Equipment,”
formerly SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”
(“ASC 360”). As a
F-46
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
result, the results of operations of the Imaging Solutions
business segment were classified as discontinued operations. All
prior period information has been reclassified to reflect this
presentation on the statements of operations.
The results of operations of the Company’s discontinued
Imaging Solutions business consist of the following:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Net sales
|
$ | 947 | $ | 2,728 | $ | 65,862 | $ | 82,848 | ||||||||||||
|
Cost of sales
|
369 | 3,617 | 81,789 | 75,930 | ||||||||||||||||
|
Selling, general and administrative expenses
|
68 | (6,355 | ) | 3,491 | 10,280 | |||||||||||||||
|
Research and development expenses
|
— | — | 37,506 | 48,058 | ||||||||||||||||
|
Restructuring and impairment charges
|
— | (1,120 | ) | 34,158 | — | |||||||||||||||
|
Income tax expenses
|
— | — | 373 | 304 | ||||||||||||||||
|
Income (loss) from discontinued operations, net of taxes
|
$ | 510 | $ | 6,586 | $ | (91,455 | ) | $ | (51,724 | ) | ||||||||||
During the third quarter ended September 27, 2009, the
Company renewed the CAD software license use agreement with
Synopsys. During the quarter ended December 31, 2008, the
Company recorded as restructuring charges the remaining license
fee of the agreement, which was applied to the Imaging Solutions
business segment due to the closure of the segment. However,
given the renewal of the agreement during the third quarter of
2009, the Company reversed $1,120 thousand of accrued
restructuring charges.
In connection with the closure of its Imaging Solutions business
segment, the Company recorded impairment charges of $26,285
thousand during the third quarter ended September 28, 2008,
in accordance with ASC 360. Also, the Company recorded
restructuring charges of $7,873 thousand during the fourth
quarter ended December 31, 2008, in accordance with
ASC 420, “Exit or Disposal Cost Obligations,”
formerly SFAS No. 146, “Accounting for
Costs Associated with Exit or Disposal Activities”
(“ASC 420”), related to one-time employee
termination benefits, costs associated with the closing of the
facilities and contract terminations. Actual payments of $4,989
thousand were charged against the restructuring accruals and the
remaining accrual balance as of December 31, 2008 was
$2,584 thousand.
| 21. | Restructuring and Impairment Charges |
Predecessor
Company
2009
Restructuring and Impairment Charges
On March 31, 2009, the Company announced the closure of the
Tokyo office of its subsidiary, MagnaChip Semiconductor Inc.
(Japan). In connection with this closure, the Company recognized
$439 thousand of restructuring charges, which consisted of
one-time termination benefits and other related costs under ASC
420 for the ten-month period ended October 25, 2009. Actual
payments of $439 thousand were charged against the restructuring
accruals and there were no remaining restructuring accruals as
of December 31, 2009.
F-47
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
2008
Restructuring and Impairment Charges
During the three months ended July 1, 2007, the Company
recognized $1,978 thousand of restructuring accruals under ASC
420. The restructuring charges were related to the closure of
the Company’s five-inch wafer fabrication facilities
located in Gumi and those charges consisted of one-time
termination benefits and other associated costs. Up to the first
quarter of 2008, actual payments of $1,103 were charged against
the restructuring accruals and the Company believes the
restructuring activities were substantially completed as of
March 30, 2008. Accordingly, the Company reversed $875
thousand of unused restructuring accruals.
As of December 31, 2008, the Company performed an
additional goodwill impairment test triggered by the significant
adverse change in the revenue of the MDS reporting unit, and
determined that total amount of goodwill was impaired. Revenue
of the MDS reporting unit was expected to decrease due to the
deterioration of the Company’s financial credit status and
the recession in the semiconductor industry resulting from the
world-wide economic crisis beginning in the third quarter of
2008. Accordingly, an impairment charge of $14,245 thousand was
recorded for the year ended December 31, 2008.
2007
Restructuring and Impairment Charges
During the year ended December 31, 2007, the Company
recorded restructuring and impairment charges totaling $12,084
thousand, which included $10,106 thousand of impairment charges
under ASC 360 and $1,978 thousand of restructuring charges under
ASC 420. The impairment charges and restructuring charges that
were recorded related to the closure of the Company’s
five-inch wafer fabrication facilities located in Gumi (the
“asset group”) that had generated losses and no longer
supported the Company’s strategic technology roadmap.
ASC 360 requires the Company to evaluate the recoverability of
certain long-lived assets whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. The net book value of the asset group before the
impairment charges as of July 1, 2007 was approximately
$10,228 thousand.
The impairment charge was measured as the excess of the carrying
amount of the asset group over its fair value. The fair value of
the asset group was estimated using a present value technique,
where expected future cash flows from the use and eventual
disposal of the asset group were discounted by an interest rate
commensurate with the risk of the cash flows.
| 22. | Income Taxes |
The Company’s income tax expenses are composed of domestic
and foreign income taxes depending on the relevant tax
jurisdiction. “Domestic” refers to the income before
taxes, current income taxes and deferred income taxes generated
or incurred in the United States, where the Parent resides.
F-48
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
The components of income tax expense are as follows:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Income (loss) from continuing operations before income taxes
|
||||||||||||||||||||
|
Domestic
|
$ | (4 | ) | $ | 774,188 | $ | 18,442 | $ | 16,031 | |||||||||||
|
Foreign
|
(523 | ) | 67,627 | (332,696 | ) | (136,022 | ) | |||||||||||||
| $ | (527 | ) | $ | 841,815 | $ | (314,254 | ) | $ | (119,991 | ) | ||||||||||
|
Current income taxes expense (benefits)
|
||||||||||||||||||||
|
Domestic
|
$ | 16 | $ | (143 | ) | $ | 1,335 | $ | 230 | |||||||||||
|
Foreign
|
1,244 | 6,033 | 8,530 | 8,103 | ||||||||||||||||
|
Uncertain tax position liability (domestic)
|
9 | 256 | 92 | — | ||||||||||||||||
|
Uncertain tax position liability (foreign)
|
23 | 95 | 138 | 163 | ||||||||||||||||
| 1,292 | 6,241 | 10,095 | 8,496 | |||||||||||||||||
|
Deferred income taxes expense (benefits)
|
||||||||||||||||||||
|
Domestic
|
— | — | — | — | ||||||||||||||||
|
Foreign
|
654 | 1,054 | 1,490 | 339 | ||||||||||||||||
| 654 | 1,054 | 1,490 | 339 | |||||||||||||||||
|
Total income tax expense
|
$ | 1,946 | $ | 7,295 | $ | 11,585 | $ | 8,835 | ||||||||||||
The Parent is a limited liability company and a non-taxable
entity for US tax purposes, and thus the Company expects
statutory income tax rate to be zero. MagnaChip Semiconductor,
Ltd. (Korea) is the principal operating entity within the
consolidated Company. The statutory income tax rate of MagnaChip
Semiconductor, Ltd. (Korea), including tax surcharges,
applicable to the consolidated Company was approximately 24.2%
in 2009 and 27.5% in 2008 and 2007. MagnaChip Semiconductor,
Ltd. (Korea) was eligible for a tax exemption for companies
qualified as direct foreign investments under the Korean tax
code until 2008, and, accordingly, its corporate income tax was
reduced by 30% from 2007 to 2008.
F-49
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
The provision for domestic and foreign income taxes incurred is
different from the amount calculated by applying the statutory
tax rate to the net income before income taxes. The significant
items causing this difference are as follows:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Provision computed at statutory rate
|
$ | — | $ | — | $ | — | $ | — | ||||||||||||
|
Permanent differences
|
(693 | ) | (19,500 | ) | (1,076 | ) | 4,831 | |||||||||||||
|
Change in statutory tax rate
|
(265 | ) | 118 | 8,173 | (18,242 | ) | ||||||||||||||
|
Adjustment for overseas tax rate
|
3,139 | 8,192 | (52,569 | ) | (27,028 | ) | ||||||||||||||
|
Change in valuation allowance
|
(267 | ) | 18,134 | 56,827 | 49,111 | |||||||||||||||
|
Uncertain tax positions liability
|
32 | 351 | 230 | 163 | ||||||||||||||||
|
Income tax expenses
|
$ | 1,946 | $ | 7,295 | $ | 11,585 | $ | 8,835 | ||||||||||||
A summary of the composition of net deferred income tax assets
(liabilities) at December 31, 2009 and 2008 are as follows:
| Successor | Predecessor | |||||||||
|
December 31, |
December 31, |
|||||||||
| 2009 | 2008 | |||||||||
|
Deferred tax assets
|
||||||||||
|
Inventories
|
$ | — | $ | 9,086 | ||||||
|
Accrued expenses
|
2,056 | 1,419 | ||||||||
|
Product warranties
|
322 | 152 | ||||||||
|
Other reserves
|
530 | 356 | ||||||||
|
Accumulated severance benefits
|
12,042 | 9,908 | ||||||||
|
Property, plant and equipments
|
15,503 | 13,981 | ||||||||
|
NOL carry-forwards
|
146,833 | 98,745 | ||||||||
|
Tax credit
|
31,558 | 23,947 | ||||||||
|
Royalty income
|
5,985 | 10,629 | ||||||||
|
Foreign currency translation loss
|
30,198 | 40,916 | ||||||||
|
Debt issuance costs
|
284 | 397 | ||||||||
|
Others
|
3,081 | 1,402 | ||||||||
|
Total deferred tax assets
|
248,392 | 210,938 | ||||||||
|
Less: valuation allowance
|
(225,704 | ) | (196,093 | ) | ||||||
| 22,688 | 14,845 | |||||||||
|
Deferred tax liabilities
|
||||||||||
|
Inventories
|
1,721 | — | ||||||||
|
Intangible assets
|
12,247 | — | ||||||||
|
Others
|
243 | 4,450 | ||||||||
|
Total deferred tax liabilities
|
14,211 | 4,450 | ||||||||
|
Net deferred tax assets
|
$ | 8,477 | $ | 10,395 | ||||||
F-50
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
Changes in valuation allowance for deferred tax assets for the
two-month period ended December 31, 2009, for the ten-month
period ended October 25, 2009 and for the year ended
December 31, 2008 are as follows:
| Successor | Predecessor | ||||||||||||||
|
Two-Month |
Ten-Month |
||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
|||||||||||||
|
December 31, |
October 25, |
December 31, |
|||||||||||||
|
2009
|
2009 | 2008 | |||||||||||||
|
Beginning balance
|
$ | 223,367 | $ | 196,093 | $ | 165,977 | |||||||||
|
Charge to expenses
|
(409 | ) | 17,090 | 79,438 | |||||||||||
|
Translation adjustment
|
2,746 | 10,184 | (49,322 | ) | |||||||||||
|
Ending balance
|
$ | 225,704 | $ | 223,367 | $ | 196,093 | |||||||||
Deferred income tax assets are recognized only to the extent
that realization of the related tax benefit is more likely than
not. Realization of the future tax benefits related to the
deferred tax assets is dependent on many factors, including the
Company’s ability to generate taxable income within the
period during which the temporary differences reverse, the
outlook for the economic environment in which the Company
operates and the overall future industry outlook. Based on the
Company’s historical accounting and tax losses, management
determined that it was more likely than not that the Company
would realize benefits related to its deferred tax assets in the
amount of $8,477 thousand, $9,238 thousand and $10,395 thousand
as of December 31, 2009, October 25, 2009 and
December 31, 2008, respectively. Accordingly, the Company
recorded a valuation allowance of $225,704 thousand, $223,367
thousand and $196,093 thousand on its net deferred tax assets as
of December 31, 2009, October 25, 2009 and
December 31, 2008, respectively.
At December 31, 2009, the Company had approximately
$625,616 thousand of net operating loss carry-forwards available
to offset future taxable income. The majority of net operating
loss is related to MagnaChip Korea, which expires in varying
amounts starting from 2010 to 2019. The Company also has Korean
and Dutch tax credit carry-forwards of approximately $11,446
thousand and $20,103 thousand, respectively, as of
December 31, 2009. The Korean tax credits expire at various
dates starting from 2010 to 2013, and the Dutch tax credits are
carried forward to be used for an indefinite period of time.
Uncertainty in
Income Taxes
The Company’s subsidiaries file income tax returns in
Korea, Japan, Taiwan, the U.S. and in various other
jurisdictions. The Company is subject to income tax examinations
by tax authorities of these jurisdictions for all years since
the beginning of its operation as an independent company in
October 2004.
The Company adopted the provisions of ASC 740 guidance on
uncertain tax positions on January 1, 2007. As a result of
the implementation of ASC 740 guidance on uncertain tax
positions, the Company recognized $1,554 thousand of liabilities
for unrecognized tax benefits, which are related to the
temporary difference arising from the timing of expensing
certain inventories. Such liabilities were accounted for as an
increase to the January 1, 2007 balance of accumulated
deficits. As of December 31, 2009 and 2008, the Company
recorded $1,997 thousand and $1,490 thousand of liabilities for
unrecognized tax benefits, respectively.
F-51
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
The Company recognizes interest and penalties accrued related to
unrecognized tax benefits as income tax expenses. The Company
recognized $26 thousand, $206 thousand and $155 thousand of
interest and penalties as income tax expense for the two-month
period ended December 31, 2009, for the ten-month period
ended October 25, 2009 and for the year ended
December 31, 2008, respectively. Total interest and
penalties accrued as of December 31, 2009,
December 31, 2008 and as of the ASC 740 guidance on
uncertain tax positions adoption date were $946 thousand, $652
thousand and $530 thousand, respectively.
A tabular reconciliation of the total amounts of unrecognized
tax benefits at the beginning and end of each period is as
follows:
| Successor | Predecessor | ||||||||||||||
|
Two-Month |
Ten-Month |
||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
|||||||||||||
|
December 31, |
October 25, |
December 31, |
|||||||||||||
| 2009 | 2009 | 2008 | |||||||||||||
|
Unrecognized tax benefits, balance at the beginning
|
$ | 2,874 | $ | 2,293 | $ | 1,593 | |||||||||
|
Additions based on tax positions related to the current year
|
— | 33 | — | ||||||||||||
|
Additions for tax positions of prior years
|
123 | 635 | 748 | ||||||||||||
|
Reductions for tax positions of prior years
|
(18 | ) | (88 | ) | (64 | ) | |||||||||
|
Settlements
|
— | — | — | ||||||||||||
|
Lapse of statute of limitations
|
— | — | — | ||||||||||||
|
Translation adjustment
|
— | 1 | 16 | ||||||||||||
|
Unrecognized tax benefits, balance at the ending
|
$ | 2,979 | $ | 2,874 | $ | 2,293 | |||||||||
| 23. | Geographic and Segment Information |
On October 6, 2008, the Company announced the closure of
its Imaging Solutions business segment, subject to support for
existing customers. As of December 31, 2008, the Imaging
Solutions business segment qualified as a discontinued operation
component of the Company under ASC 360. As a result, the results
of operations of the Imaging Solutions business and reportable
segment have been classified as discontinued operations.
Accordingly, the Company has restated prior periods’
segment information to conform to the current presentation.
F-52
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
The following sets forth information relating to the reportable
segments:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Net Sales
|
||||||||||||||||||||
|
Display Solutions
|
$ | 51,044 | $ | 231,894 | $ | 304,095 | $ | 331,684 | ||||||||||||
|
Semiconductor Manufacturing Services
|
54,759 | 206,662 | 287,111 | 321,034 | ||||||||||||||||
|
Power Solutions
|
4,746 | 7,627 | 5,437 | — | ||||||||||||||||
|
All other
|
533 | 2,801 | 5,021 | 56,790 | ||||||||||||||||
|
Total segment net sales
|
$ | 111,082 | $ | 448,984 | $ | 601,664 | $ | 709,508 | ||||||||||||
|
Gross Profit
|
||||||||||||||||||||
|
Display Solutions
|
$ | 8,747 | $ | 61,788 | $ | 57,386 | $ | 41,524 | ||||||||||||
|
Semiconductor Manufacturing Services
|
10,657 | 71,825 | 98,411 | 67,127 | ||||||||||||||||
|
Power Solutions
|
736 | 1,431 | (4,272 | ) | — | |||||||||||||||
|
All other
|
534 | 2,801 | 4,885 | 22,000 | ||||||||||||||||
|
Total segment gross profit
|
$ | 20,674 | $ | 137,845 | $ | 156,410 | $ | 130,651 | ||||||||||||
The following is a summary of net sales by region, based on the
location of the customer:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Korea
|
$ | 62,241 | $ | 244,309 | $ | 301,006 | $ | 404,276 | ||||||||||||
|
Asia Pacific
|
25,573 | 116,920 | 144,482 | 155,488 | ||||||||||||||||
|
Japan
|
6,477 | 31,641 | 79,892 | 71,211 | ||||||||||||||||
|
North America
|
14,910 | 48,458 | 61,346 | 58,506 | ||||||||||||||||
|
Europe
|
1,881 | 7,656 | 14,938 | 20,027 | ||||||||||||||||
| $ | 111,082 | $ | 448,984 | $ | 601,664 | $ | 709,508 | |||||||||||||
Over 99% of the Company’s property, plant and equipment are
located in Korea as of December 31, 2009.
Net sales from the Company’s top ten largest customers
accounted for 66%, 69%, 63% and 63% for the two-month period
ended December 31, 2009, for the ten-month period ended
October 25, 2009 and for the years ended December 31,
2008 and 2007, respectively.
The Company recorded $25.3 million, $121.5 million,
$152.4 million and $182.6 million of sales to one
customer within its Display Solutions segment, which represents
greater than 10% of net sales, for the two-month period ended
December 31, 2009, for the ten-month period ended
October 25, 2009 and for the years ended December 31,
2008 and 2007, respectively.
F-53
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 24. | Commitments and Contingencies |
Operating
Agreements with Hynix
In connection with the acquisition of the non-memory
semiconductor business from Hynix on October 4, 2004
(the “Original Acquisition”), the Company entered into
several agreements with Hynix, including a non-exclusive cross
license that provides the Company with access to certain of
Hynix’s intellectual property for use in the manufacture
and sale of non-memory semiconductor products. The Company also
agreed to provide certain utilities and infrastructure support
services to Hynix. The obligation to provide certain of these
services lasts indefinitely.
Upon the closing of the Original Acquisition, MagnaChip Korea
and Hynix also entered into lease agreements under which
MagnaChip Korea leases space from Hynix in several buildings,
primarily warehouses and utility facilities, in Cheongju, Korea.
These leases are generally for an initial term of 20 years
plus an indefinite number of renewal terms of 10 years
each. Each of the leases is cancelable upon 90 days’
notice by the lessee. The Company also leases certain land from
Hynix located in Cheongju, Korea. The term of this lease is
indefinite unless otherwise agreed by the parties, and as long
as the buildings remain on the lease site and are owned and used
by the Company for permitted uses.
Operating
Leases
The Company leases land, office building and equipment under
various operating lease agreements that expire through 2034.
Rental expenses were approximately $2,472 thousand, $11,775
thousand, $13,380 thousand and $11,614 thousand for the
two-month period ended December 31, 2009, for the ten-month
period ended October 25, 2009 and for the years ended
December 31, 2008 and 2007, respectively.
As of December 31, 2009, the minimum aggregate rental
payments due under non-cancelable lease contracts are as follows:
|
2010
|
6,840 | |||
|
2011
|
1,883 | |||
|
2012
|
1,883 | |||
|
2013
|
1,883 | |||
|
2014
|
1,883 | |||
|
2015 and thereafter
|
37,244 | |||
| $ | 51,616 | |||
Payments of
Guarantee
As of December 31, 2009 and 2008, the Company has provided
guarantees for bank loans that employees borrowed to participate
in the issuance of new shares of Hynix in 1999. The outstanding
balances of guarantees for payments provided by the Company
amounted to approximately $163 thousand and $138 thousand as of
December 31, 2009 and 2008, respectively.
Loss
contingency
Samsung Fiber Optics has made a claim against the Company for
the infringement of the certain patent rights of Caltech in
relation to imaging sensor products provided by the Company to
Samsung Fiber Optics. The Company accrued $718 thousand of
estimated liabilities as of October 25 and December 31,
2009 applying guidance under ASC 450
“Contingencies” (“ASC 450”).
Accordingly,
F-54
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
the Company cannot provide assurance that the estimated
liabilities will be realized, and actual results could vary
materially.
| 25. | Related Party Transactions |
Unitholders
Funds affiliated with Avenue Capital Management II, L.P. are the
majority unitholders of the Company, owning 69.8% of the common
units outstanding at December 31, 2009.
Backstop
Commitment Agreement
Funds affiliated with Avenue Capital Management II, L.P. were
paid an amount in new common units equal to 10% of the new
common units (the “standby commitment fee”), or
30,000,000 units. The standby commitment fee was deemed
fully earned and payable upon the Reorganization Effective Date,
regardless of whether the offering was fully subscribed by
eligible holders of the second lien noteholder claims.
Loans to
employees
Loans to employees as of December 31, 2009 and 2008 were as
follows:
| Successor | Predecessor | |||||||
|
December 31, |
December 31, |
|||||||
| 2009 | 2008 | |||||||
|
Short-term loans
|
$ | 40 | $ | 94 | ||||
|
Long-term loans
|
45 | 46 | ||||||
|
Total
|
$ | 85 | $ | 140 | ||||
New Term
Loan
A portion of the new term loan equal to $42,055 thousand was
borrowed from Avenue Investments, LP, which is an affiliate of
Avenue Capital Management II, L.P., and related interest expense
of $822 thousand was recorded in relation to this new term loan
and remains as accrued interest as of December 31, 2009.
Warrants
Funds affiliated with Avenue Capital Management II, L.P. own
warrants for the purchase of 4,447,680 common units out of the
total warrants for the purchase of 15,000,000 units
outstanding as of December 31, 2009.
F-55
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 26. | Earnings (loss) per Unit |
The following table illustrates the computation of basic and
diluted earnings (loss) per common unit:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Income (loss) from continuing operations
|
$ | (2,473 | ) | $ | 834,520 | $ | (325,839 | ) | $ | (128,826 | ) | |||||||||
|
Income (loss) from discontinued operations, net of taxes
|
510 | 6,586 | (91,455 | ) | (51,724 | ) | ||||||||||||||
|
Net income (loss)
|
(1,963 | ) | 841,116 | (417,294 | ) | (180,550 | ) | |||||||||||||
|
Dividends accrued on preferred unitholders
|
— | (6,317 | ) | (13,264 | ) | (12,031 | ) | |||||||||||||
|
Income (loss) from continuing operations attributable to common
units
|
$ | (2,473 | ) | $ | 828,203 | $ | (339,103 | ) | $ | (140,857 | ) | |||||||||
|
Net income (loss) attributable to common units
|
$ | (1,963 | ) | $ | 834,789 | $ | (430,558 | ) | $ | (192,581 | ) | |||||||||
|
Weighted average common units outstanding
|
300,862,764 | 52,923,483 | 52,768,614 | 52,297,192 | ||||||||||||||||
|
Basic and diluted earnings (loss) per unit from continuing
operations
|
$ | (0.01 | ) | $ | 15.65 | $ | (6.43 | ) | $ | (2.69 | ) | |||||||||
|
Basic and diluted earnings (loss) per unit from discontinued
operations
|
0.00 | 0.12 | (1.73 | ) | (0.99 | ) | ||||||||||||||
|
Basic and diluted net earnings (loss) per unit
|
$ | (0.01 | ) | $ | 15.77 | $ | (8.16 | ) | $ | (3.68 | ) | |||||||||
The following outstanding redeemable convertible preferred
units, unit options, restricted units and warrants were excluded
from the computation of diluted earnings (loss) per unit, as
they would have an anti-dilutive effect on the calculation:
| Successor | Predecessor | |||||||||||||||||||
|
Two-Month |
Ten-Month |
|||||||||||||||||||
|
Period Ended |
Period Ended |
Year Ended |
Year Ended |
|||||||||||||||||
|
December 31, |
October 25, |
December 31, |
December 31, |
|||||||||||||||||
| 2009 | 2009 | 2008 | 2007 | |||||||||||||||||
|
Redeemable convertible preferred units
|
NA | 93,997 | 93,997 | 93,997 | ||||||||||||||||
|
Options
|
15,365,000 | 3,825,100 | 4,216,600 | 4,916,840 | ||||||||||||||||
|
Restricted Units
|
4,675,440 | — | — | 268,343 | ||||||||||||||||
|
Warrants
|
15,000,000 | — | — | — | ||||||||||||||||
F-56
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 27. | Subsequent Events |
The Company has evaluated subsequent events requiring
recognition or disclosure in the consolidated financial
statements during the period from January 1, 2010 through
March 13, 2010, the date the consolidated financial
statements were available to be issued.
Effective January 11, 2010, the Company’s Korean
subsidiary entered into option and forward contracts to hedge
the risk of changes in the functional-currency-equivalent cash
flows attributable to currency rate changes on U.S. dollar
denominated revenues. Total notional amounts for the options and
forward contracts were $50,000 thousand and $135,000
thousand, respectively, and monthly settlements for the
contracts will be made from February to December 2010.
F-57
Table of Contents
MagnaChip Semiconductor
Corporation
Depositary Shares
Representing Shares
of Common Stock
| Goldman, Sachs & Co. | Barclays Capital | Deutsche Bank Securities |
|
Citi
|
UBS Investment Bank |
Through and
including ,
2010 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer’s obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
Table of Contents
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
| ITEM 13. | Other Expenses of Issuance and Distribution. |
The following table sets forth all expenses other than the
underwriting discount, payable by the registrant in connection
with the sale of the common stock being registered. All amounts
shown are estimates except for the SEC registration fee.
|
SEC Registration Fee
|
$ | 17,825 | ||
|
FINRA Fees
|
$ | 25,500 | ||
|
New York Stock Exchange Listing Fee
|
$ | * | ||
|
Legal Fees and Expenses
|
$ | * | ||
|
Printing Expenses
|
$ | * | ||
|
Blue Sky Fees
|
$ | * | ||
|
Transfer Agent’s Fees
|
$ | * | ||
|
Accounting Fees and Expenses
|
$ | * | ||
|
Miscellaneous
|
$ | * | ||
|
Total
|
$ | * |
| * | To be provided by amendment |
| ITEM 14. | Indemnification of Officers and Directors. |
Section 145 of the Delaware General Corporation Law (DGCL)
provides that a corporation may indemnify directors and officers
as well as other employees and individuals against expenses
(including attorneys’ fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with any threatened, pending or completed
actions, suits or proceedings in which such person is made a
party or who is threatened to be made a party by reason of such
person being or having been a director, officer, employee of or
agent to the registrant. The statute provides that it is not
exclusive of other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
As permitted by the DGCL, our certificate of incorporation
includes a provision that eliminates the personal liability of
our directors for monetary damages for breach of fiduciary duty
as a director, except to the extent such exemption from
liability is not permitted by DGCL.
As permitted by the DGCL, our bylaws provide that (1) we
are required to indemnify our directors and officers to the
fullest extent permitted by the DGCL, subject to certain
exceptions; (2) we are permitted to indemnify our other
employees and agents to the extent that we indemnify our
officers and directors; (3) we are required to advance
expenses, as incurred, to our directors and officers in
connection with any legal proceeding, subject to certain
exceptions; and (4) the rights conferred in our bylaws are
not exclusive.
We intend to enter into indemnification agreements with our
directors and officers. The indemnification agreements will
provide for indemnification and advancement of expenses to our
directors and officers under certain circumstances for acts or
omissions to the extent permissible under Delaware law. We also
obtained directors’ and officers’ liability insurance,
which insures against liabilities that our directors or officers
may incur in such capacities. At present, we are not aware of
any pending or threatened litigation or proceeding involving any
of our directors, officers, employees or agents in which
indemnification would be required or permitted. We believe that
our charter and bylaw provisions are necessary to attract and
retain qualified persons as directors and officers.
II-1
Table of Contents
| Item 15. | Recent Sales of Unregistered Securities. |
The following relates to sales of securities that have occurred
since January 1, 2007 and that have not been registered
under the Securities Act:
Prior to the closing of the offering, we will convert from a
Delaware limited liability company into a Delaware corporation.
At the time of the corporate conversion, all of the outstanding
common units of MagnaChip Semiconductor LLC will be
automatically converted into shares of our common stock and all
of the outstanding warrants to purchase common units of
MagnaChip Semiconductor LLC will be automatically converted into
warrants to purchase shares of our common stock. The issuance of
common stock and warrants to purchase common stock to our
members in the corporate conversion will be exempt from
registration under the Securities Act by virtue of the exemption
provided under Section 3(a)(9) thereof as the common stock
and warrants will be exchanged by us with our existing security
holders exclusively where no commission or other remuneration is
paid or given directly or indirectly for soliciting such
exchange. The issuance of common stock and warrants will also be
exempt from registration under the Securities Act by virtue of
Section 4(2) thereof as a transaction not involving a
public offering or, with respect to certain of our existing
security holders, Regulation S thereof as an issuance to
non-U.S. persons
in transactions that will take place outside of the U.S. In
addition, as part of our corporate conversion, we will convert
outstanding options to purchase common units of MagnaChip
Semiconductor LLC into options to purchase shares of our common
stock. The issuance of such options to purchase shares of our
stock pursuant to such corporate conversion will be exempt from
registration in reliance upon exemptions from the registration
requirements provided by Rule 701 under the Securities Act
relating to transactions occurring under compensatory benefit
plans or provided by Regulation S to
non-U.S. persons
in transactions that will take place outside of the U.S.
In December 2009, we issued to certain of our employees
restricted unit bonuses for an aggregate of 7,084,000 common
units pursuant to the MagnaChip Semiconductor LLC 2009 Common
Unit Plan. In December 2009, we also issued to certain of our
employees options to purchase up to 15,365,000 common units
pursuant to the MagnaChip Semiconductor LLC 2009 Common Unit
Plan at an exercise price of $1.16 per unit. The issuance of
such restricted unit bonuses and options to purchase our common
units was exempt from registration in reliance upon exemptions
from the registration requirements provided by Rule 701
under the Securities Act relating to transactions occurring
under compensatory benefit plans or provided by
Regulation S to
non-U.S. persons
in transactions that took place outside of the U.S.
In November 2009, in connection with our emergence from
reorganization proceedings, we issued an aggregate of 17,999,996
common units and warrants to purchase 15,000,000 common units to
certain of our former creditors in satisfaction and retirement
of their claims. The issuance of such common units and warrants
and the distribution thereof was exempt from registration under
applicable securities laws pursuant to Section 1145(a) of
the U.S. Bankruptcy Code.
In November 2009, in connection with our emergence from
reorganization proceedings, we issued an aggregate of
252,000,000 common units in a rights offering to affiliated
funds of Avenue Capital Management II, L.P. and certain of our
other former creditors who were accredited investors, as defined
in Regulation D of the Securities Act, for an aggregate
purchase price of $35,280,000. In connection with such rights
offering we issued an additional 30,000,000 common units to
affiliated funds of Avenue Capital Management II, L.P. as
payment of a backstop commitment fee payable pursuant to our
Chapter 11 plan of reorganization. The sale and issuance of
such securities was exempt from registration under applicable
securities laws pursuant to Section 4(2) of the Securities
Act and Regulation D promulgated thereunder.
On July 4, 2008, one of our former employees exercised
options to acquire 4,375 of our common units at a purchase price
of $12,040.87. The issuance of these securities was exempt from
registration under Section 4(2) of the Securities Act, by
reason of the fact that the offering was a
II-2
Table of Contents
limited private placement to one knowledgeable investor who
agreed not to resell the securities to the public.
On April 14, 2008, one of our former executives exercised
options to acquire 143,272.50 of our common units at a purchase
price of $143,272.50. Because the offering transaction took
place outside the U.S. and the optionee was not a
U.S. person, the issuance of these securities was exempt
from registration under Regulation S.
On March 12, 2008, one of our former employees exercised
options to acquire 2,437.50 of our common units at a purchase
price of $7,312.50. Because the offering transaction took place
outside the U.S. and the optionee was not a
U.S. person, the issuance of these securities was exempt
from registration under Regulation S.
On February 19, 2008, two of our former employees exercised
options to acquire 11,375 of our common units for an aggregate
purchase price of $20,890. Because the offering transactions
took place outside the U.S. and neither of the optionees
was a U.S. person, the issuance of these securities was
exempt from registration under Regulation S.
On December 24, 2007, one of our former executives
exercised options to acquire 12,500 of our common units at a
purchase price of $37,500. Because the offering transaction took
place outside the U.S. and the optionee was not a
U.S. person, the issuance of these securities was exempt
from registration under Regulation S.
On October 25, 2007, one of our former employees exercised
options to acquire 1,500 of our common units at a purchase price
of $3,000. Because the offering transaction took place outside
the U.S. and the optionee was not a U.S. person, the
issuance of these securities was exempt from registration under
Regulation S.
On August 22, 2007, one of our former executives exercised
options to acquire 30,937.50 of our common units at a purchase
price of $30,937. Because the offering transaction took place
outside the U.S. and the optionee was not a
U.S. person, the issuance of these securities was exempt
from registration under Regulation S.
On May 4, 2007, one of our former executives exercised
options to acquire 80,000 of our common units for an aggregate
purchase price of $80,000. The issuance of these securities was
exempt from registration under Section 4(2) of the
Securities Act, by reason of the fact that the offering was a
limited private placement to one knowledgeable investor who
agreed not to resell the securities to the public.
II-3
Table of Contents
| ITEM 16. | Exhibits. |
| 1 | .1 | Form of Underwriting Agreement* | ||
| 3 | .1 | Certificate of Formation of MagnaChip Semiconductor LLC (formerly System Semiconductor Holding LLC) | ||
| 3 | .2 | Certificate of Amendment to Certificate of Formation of MagnaChip Semiconductor LLC | ||
| 3 | .3 | Fifth Amended and Restated Limited Liability Company Operating Agreement of MagnaChip Semiconductor LLC | ||
| 3 | .4 | Form of Certificate of Incorporation of MagnaChip Semiconductor Corporation | ||
| 3 | .5 | Form of Bylaws of MagnaChip Semiconductor Corporation | ||
| 3 | .6 | Agreement and Plan of Conversion by and among the Members of MagnaChip Semiconductor LLC* | ||
| 4 | .1 | Registration Rights Agreement, dated as of November 9, 2009, by and among MagnaChip Semiconductor LLC and each of the securityholders named therein | ||
| 4 | .2 | Form of Deposit Agreement, among MagnaChip Semiconductor LLC, American Stock Transfer & Trust Company, LLC, as the depositary, and the holders from time to time of the depositary receipts evidencing the depositary shares* | ||
| 4 | .3 | Specimen Depositary Share (included in Exhibit 4.2)* | ||
| 5 | .1 | Form of Opinion of DLA Piper LLP (US)* | ||
| 10 | .1 | Amended and Restated Credit Agreement, dated as of November 6, 2009, among MagnaChip Semiconductor S.A., MagnaChip Semiconductor Finance Company, the guarantors named therein, the lenders named therein, and Wilmington Trust FSB, as Administrative Agent | ||
| 10 | .2 | Intellectual Property License Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) | ||
| 10 | .3 | Land Lease and Easement Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea)(1) | ||
| 10 | .4 | First Amendment to Land Lease and Easement Agreement, dated as of December 30, 2005, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) | ||
| 10 | .5 | General Service Supply Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) | ||
| 10 | .6 | First Amendment to the General Service Supply Agreement, dated as of December 30, 2005, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) | ||
| 10 | .7 | License Agreement (ModularBCD), dated as of March 18, 2005, by and between Advanced Analogic Technologies, Inc. and MagnaChip Semiconductor, Ltd. (Korea)(2) | ||
| 10 | .8 | Amended & Restated License Agreement (TrenchDMOS), dated as of September 19, 2007, by and between Advanced Analogic Technologies, Inc. and MagnaChip Semiconductor, Ltd. (Korea)(2) | ||
| 10 | .9 | Technology License Agreement, dated as of December 16, 1996, by and between Advanced RISC Machines Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited)(1) | ||
| 10 | .10 | Amendment to the Technology License Agreement, dated as of October 16, 2006, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(2) | ||
| 10 | .11 | ARM7201TDSP Device License Agreement, dated as of August 26, 1997, by and between Advanced RISC Machines Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited)(1) | ||
| 10 | .12 | Technology License Agreement, dated as of October 5, 1995, by and between Advanced RISC Machines Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited)(2) | ||
| 10 | .13 | Technology License Agreement, dated as of July 2001, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to Hynix Semiconductor Inc.)(1) |
II-4
Table of Contents
| 10 | .14 | Technology License Agreement, dated as of August 22, 2001, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to Hynix Semiconductor Inc.)(1) | ||
| 10 | .15 | Technology License Agreement, dated as of May 20, 2004, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to Hynix Semiconductor Inc.) | ||
| 10 | .16 | Design Migration Agreement, dated as of May 1, 2007, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(2) | ||
| 10 | .17 | Basic Agreement on Joint Development and Grant of License, dated as of November 10, 2006, by and between MagnaChip Semiconductor, Ltd. and Silicon Works (English translation) | ||
| 10 | .18 | Master Service Agreement, dated as of December 27, 2000 by and between Sharp Corporation and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to Hyundai Electronics Japan Co., Ltd) (English translation) | ||
| 10 | .19 | Warrant Agreement, dated as of November 9, 2009, between MagnaChip Semiconductor LLC and American Stock Transfer & Trust Company, LLC | ||
| 10 | .20 | MagnaChip Semiconductor LLC 2009 Common Unit Plan | ||
| 10 | .21 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (Non-U.S. Participants) | ||
| 10 | .22 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (U.S. Participants) | ||
| 10 | .23 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (Non-U.S. Participants) | ||
| 10 | .24 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (U.S. Participants) | ||
| 10 | .25 | MagnaChip Semiconductor Corporation 2010 Equity Incentive Plan | ||
| 10 | .26 | MagnaChip Semiconductor Corporation 2010 Employee Stock Purchase Plan | ||
| 10 | .27 | Amended and Restated Service Agreement, dated as of May 8, 2008, by and between MagnaChip Semiconductor, Ltd. (Korea) and Sang Park | ||
| 10 | .28 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Sang Park | ||
| 10 | .29 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Sang Park | ||
| 10 | .30 | Entrustment Agreement, dated as of October 6, 2004, by and between MagnaChip Semiconductor, Ltd. (Korea) and Tae Young Hwang | ||
| 10 | .31 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Young Hwang | ||
| 10 | .32 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Young Hwang | ||
| 10 | .33 | Offer Letter dated March 7, 2006, from MagnaChip Semiconductor LLC and MagnaChip Semiconductor, Inc. to Brent Rowe, as supplemented on December 20, 2006 | ||
| 10 | .34 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Brent Rowe | ||
| 10 | .35 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Brent Rowe | ||
| 10 | .36 | Offer Letter dated September 5, 2006, from MagnaChip Semiconductor LLC and MagnaChip Semiconductor, Ltd. to Margaret Sakai | ||
| 10 | .37 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Margaret Sakai | ||
| 10 | .38 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Margaret Sakai |
II-5
Table of Contents
| 10 | .39 | Offer Letter, dated as of July 1, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Heung Kyu Kim | ||
| 10 | .40 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Heung Kyu Kim | ||
| 10 | .41 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Heung Kyu Kim | ||
| 10 | .42 | Offer Letter, dated as of June 20, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Tae Jong Lee | ||
| 10 | .43 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Jong Lee | ||
| 10 | .44 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Jong Lee | ||
| 10 | .45 | Service Agreement, dated as of April 1, 2006, by and between MagnaChip Semiconductor, Ltd. (Korea) and John McFarland | ||
| 10 | .46 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and John McFarland | ||
| 10 | .47 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and John McFarland | ||
| 10 | .48 | Senior Advisor Agreement, dated as of April 10, 2009, by and between MagnaChip Semiconductor, Ltd.(Korea) and Robert J. Krakauer | ||
| 10 | .49 | MagnaChip Semiconductor Corporation Form of Indemnification Agreement with Directors and Officers | ||
| 21 | .1 | Subsidiaries of the Registrant | ||
| 23 | .1 | Consent of Samil PricewaterhouseCoopers | ||
| 23 | .2 | Consent of DLA Piper LLP (US) (contained in Exhibit 5.1)* | ||
| 24 | .1 | Power of Attorney of officers and directors of MagnaChip Semiconductor LLC (contained on signature page) |
| * | To be filed by amendment. |
Footnotes:
| (1) | Certain portions of this document have been omitted pursuant to a grant of confidential treatment by the SEC. |
| (2) | Certain portions of this document have been omitted pursuant to a request for confidential treatment by the SEC. |
| Item 17. | Undertakings. |
We hereby undertake to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in
such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by a
director, officer, or controlling person of us in the successful
defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the
securities being registered, we will, unless in the opinion of
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by
II-6
Table of Contents
us is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective; and
(2) for purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
MagnaChip Semiconductor LLC certifies that it has reasonable
grounds to believe that it meets all of the requirements for
filing on
Form S-1
and has duly caused this Registration Statement on
Form S-1
to be signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, The Republic of Korea on March 15,
2010.
MagnaChip Semiconductor LLC
| By: |
/s/ Sang
Park
|
Sang Park, Chief Executive
Officer (Principal Executive Officer)
POWER OF
ATTORNEY
Know All Persons By
These Presents, that each person whose signature
appears below constitutes and appoints Sang Park, as his or her
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments and registration
statements filed pursuant to Rule 462(b) under the
Securities Act) to this Registration Statement and to file the
same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on
Form S-1
has been signed below by the following persons on behalf of
MagnaChip Semiconductor LLC and in the capacities and on the
dates indicated:
|
Signature
|
Title
|
Date
|
||||
|
/s/ Sang
Park Sang Park |
Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) |
March 15, 2010 | ||||
|
/s/ Margaret
Sakai Margaret Sakai |
Chief Financial Officer (Principal Financial and Accounting Officer) | March 15, 2010 | ||||
|
/s/ Michael
Elkins Michael Elkins |
Director | March 15, 2010 | ||||
|
/s/ Randal
Klein Randal Klein |
Director | March 15, 2010 | ||||
|
/s/ R. Douglas
Norby R. Douglas Norby |
Director | March 15, 2010 | ||||
II-8
Table of Contents
|
Signature
|
Title
|
Date
|
||||
|
/s/ Gidu
Shroff Gidu Shroff |
Director | March 15, 2010 | ||||
|
/s/ Steven
Tan Steven Tan |
Director | March 15, 2010 | ||||
|
/s/ Nader
Tavakoli Nader Tavakoli |
Director | March 15, 2010 | ||||
II-9
Table of Contents
Exhibit
Index
| 1 | .1 | Form of Underwriting Agreement* | ||
| 3 | .1 | Certificate of Formation of MagnaChip Semiconductor LLC (formerly System Semiconductor Holding LLC) | ||
| 3 | .2 | Certificate of Amendment to Certificate of Formation of MagnaChip Semiconductor LLC | ||
| 3 | .3 | Fifth Amended and Restated Limited Liability Company Operating Agreement of MagnaChip Semiconductor LLC | ||
| 3 | .4 | Form of Certificate of Incorporation of MagnaChip Semiconductor Corporation | ||
| 3 | .5 | Form of Bylaws of MagnaChip Semiconductor Corporation | ||
| 3 | .6 | Agreement and Plan of Conversion by and among the Members of MagnaChip Semiconductor LLC* | ||
| 4 | .1 | Registration Rights Agreement, dated as of November 9, 2009, by and among MagnaChip Semiconductor LLC and each of the securityholders named therein | ||
| 4 | .2 | Form of Deposit Agreement, among MagnaChip Semiconductor LLC, American Stock Transfer & Trust Company, LLC, as the depositary, and the holders from time to time of the depositary receipts evidencing the depositary shares* | ||
| 4 | .3 | Specimen Depositary Share (included in Exhibit 4.2)* | ||
| 5 | .1 | Form of Opinion of DLA Piper LLP (US)* | ||
| 10 | .1 | Amended and Restated Credit Agreement, dated as of November 6, 2009, among MagnaChip Semiconductor S.A., MagnaChip Semiconductor Finance Company, the guarantors named therein, the lenders named therein, and Wilmington Trust FSB, as Administrative Agent | ||
| 10 | .2 | Intellectual Property License Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) | ||
| 10 | .3 | Land Lease and Easement Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea)(1) | ||
| 10 | .4 | First Amendment to Land Lease and Easement Agreement, dated as of December 30, 2005, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) | ||
| 10 | .5 | General Service Supply Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) | ||
| 10 | .6 | First Amendment to the General Service Supply Agreement, dated as of December 30, 2005, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) | ||
| 10 | .7 | License Agreement (ModularBCD), dated as of March 18, 2005, by and between Advanced Analogic Technologies, Inc. and MagnaChip Semiconductor, Ltd. (Korea)(2) | ||
| 10 | .8 | Amended & Restated License Agreement (TrenchDMOS), dated as of September 19, 2007, by and between Advanced Analogic Technologies, Inc. and MagnaChip Semiconductor, Ltd. (Korea)(2) | ||
| 10 | .9 | Technology License Agreement, dated as of December 16, 1996, by and between Advanced RISC Machines Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited)(1) | ||
| 10 | .10 | Amendment to the Technology License Agreement, dated as of October 16, 2006, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(2) | ||
| 10 | .11 | ARM7201TDSP Device License Agreement, dated as of August 26, 1997, by and between Advanced RISC Machines Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited)(1) | ||
| 10 | .12 | Technology License Agreement, dated as of October 5, 1995, by and between Advanced RISC Machines Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited)(2) | ||
| 10 | .13 | Technology License Agreement, dated as of July 2001, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to Hynix Semiconductor Inc.)(1) | ||
| 10 | .14 | Technology License Agreement, dated as of August 22, 2001, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to Hynix Semiconductor Inc.)(1) |
Table of Contents
| 10 | .15 | Technology License Agreement, dated as of May 20, 2004, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to Hynix Semiconductor Inc.) | ||
| 10 | .16 | Design Migration Agreement, dated as of May 1, 2007, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(2) | ||
| 10 | .17 | Basic Agreement on Joint Development and Grant of License, dated as of November 10, 2006, by and between MagnaChip Semiconductor, Ltd. and Silicon Works (English translation) | ||
| 10 | .18 | Master Service Agreement, dated as of December 27, 2000 by and between Sharp Corporation and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to Hyundai Electronics Japan Co., Ltd) (English translation) | ||
| 10 | .19 | Warrant Agreement, dated as of November 9, 2009, between MagnaChip Semiconductor LLC and American Stock Transfer & Trust Company, LLC | ||
| 10 | .20 | MagnaChip Semiconductor LLC 2009 Common Unit Plan | ||
| 10 | .21 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (Non-U.S. Participants) | ||
| 10 | .22 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (U.S. Participants) | ||
| 10 | .23 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (Non-U.S. Participants) | ||
| 10 | .24 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (U.S. Participants) | ||
| 10 | .25 | MagnaChip Semiconductor Corporation 2010 Equity Incentive Plan | ||
| 10 | .26 | MagnaChip Semiconductor Corporation 2010 Employee Stock Purchase Plan | ||
| 10 | .27 | Amended and Restated Service Agreement, dated as of May 8, 2008, by and between MagnaChip Semiconductor, Ltd. (Korea) and Sang Park | ||
| 10 | .28 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Sang Park | ||
| 10 | .29 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Sang Park | ||
| 10 | .30 | Entrustment Agreement, dated as of October 6, 2004, by and between MagnaChip Semiconductor, Ltd. (Korea) and Tae Young Hwang | ||
| 10 | .31 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Young Hwang | ||
| 10 | .32 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Young Hwang | ||
| 10 | .33 | Offer Letter dated March 7, 2006, from MagnaChip Semiconductor LLC and MagnaChip Semiconductor, Inc. to Brent Rowe, as supplemented on December 20, 2006 | ||
| 10 | .34 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Brent Rowe | ||
| 10 | .35 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Brent Rowe | ||
| 10 | .36 | Offer Letter dated September 5, 2006, from MagnaChip Semiconductor LLC and MagnaChip Semiconductor, Ltd. to Margaret Sakai | ||
| 10 | .37 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Margaret Sakai | ||
| 10 | .38 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Margaret Sakai | ||
| 10 | .39 | Offer Letter, dated as of July 1, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Heung Kyu Kim | ||
| 10 | .40 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Heung Kyu Kim | ||
| 10 | .41 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Heung Kyu Kim |
Table of Contents
| 10 | .42 | Offer Letter, dated as of June 20, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Tae Jong Lee | ||
| 10 | .43 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Jong Lee | ||
| 10 | .44 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Jong Lee | ||
| 10 | .45 | Service Agreement, dated as of April 1, 2006, by and between MagnaChip Semiconductor, Ltd. (Korea) and John McFarland | ||
| 10 | .46 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and John McFarland | ||
| 10 | .47 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and John McFarland | ||
| 10 | .48 | Senior Advisor Agreement, dated as of April 10, 2009, by and between MagnaChip Semiconductor, Ltd.(Korea) and Robert J. Krakauer | ||
| 10 | .49 | MagnaChip Semiconductor Corporation Form of Indemnification Agreement with Directors and Officers | ||
| 21 | .1 | Subsidiaries of the Registrant | ||
| 23 | .1 | Consent of Samil PricewaterhouseCoopers | ||
| 23 | .2 | Consent of DLA Piper LLP (US) (contained in Exhibit 5.1)* | ||
| 24 | .1 | Power of Attorney of officers and directors of MagnaChip Semiconductor LLC (contained on signature page) |
| * | To be filed by amendment. |
Footnotes:
| (1) | Certain portions of this document have been omitted pursuant to a grant of confidential treatment by the SEC. |
| (2) | Certain portions of this document have been omitted pursuant to a request for confidential treatment by the SEC. |
Exhibit 3.1
CERTIFICATE OF FORMATION
OF
SYSTEM SEMICONDUCTOR HOLDING LLC
The undersigned, an authorized natural person, for the purpose of forming a limited
liability company under the provisions and subject to the requirements of the State of Delaware
(particularly Chapter 18, Title 6 of the Delaware Code and the acts amendatory thereof and
supplemental thereto, and known, identified and referred to as the “Delaware Limited Liability
Company Act”), hereby certifies that:
FIRST. The name of the limited liability company (hereinafter called the “Limited
Liability Company”) is System Semiconductor Holding LLC.
SECOND. The address of the registered office and the name and address of the registered
agent of the Limited Liability Company required to be maintained by Section 18-104 of the Delaware
Limited Liability Company Act is National Corporate Research, Ltd., 615 South Dupont Highway, in
the City of Dover, County of Kent, Delaware 19901. The name of the registered agent at this address
is National Corporate Research, Ltd.
Executed on November 26, 2003.
| /s/ Catherine Sicari | ||||
| Catherine Sicari | ||||
| Authorized Person | ||||
| State of Delaware | ||
| Secretary of State | ||
| Division of Corporations | ||
| Delivered 07:20 PM 11/26/2003 | ||
| FILED 06:56 PM 11/26/2003 | ||
| SRV 030764552 - 3733022 FILE |
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF FORMATION
OF
SYSTEM SEMICONDUCTOR HOLDING LLC
1. The name of the limited liability company is System Semiconductor Holding LLC.
2. The Certificate of Formation of the limited liability company is hereby amended as
follows:
Item FIRST of the Certificate of Formation shall be deleted in its entirety and the
following shall be inserted in lieu thereof:
FIRST. The name of the limited liability company (hereinafter called the “Limited
Liability Company”) is MagnaChip Semiconductor LLC.
3. This Certificate of Amendment shall be effective upon its filing with the Office of
the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment of the
Certificate of Formation of System Semiconductor Holding LLC.
| SYSTEM SEMICONDUCTOR HOLDING LLC | ||||||
| By: | Paul C. Schorr IV | |||||
| Name: | Paul C. Schorr IV | |||||
| Title: | President | |||||
Exhibit 3.3
FIFTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
MAGNACHIP SEMICONDUCTOR LLC,
a Delaware limited liability company
Dated as of February 12, 2010
THE SECURITIES REPRESENTED BY THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS AND, AS SUCH, THEY MAY NOT BE
OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS THE
SECURITIES HAVE BEEN QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR
UNLESS SUCH QUALIFICATION AND REGISTRATION IS NOT LEGALLY REQUIRED. TRANSFER OF THE SECURITIES
REPRESENTED BY THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT MAY BE FURTHER SUBJECT TO THE
RESTRICTIONS, TERMS AND CONDITIONS SET FORTH HEREIN.
TABLE OF CONTENTS
| Page | ||||||
ARTICLE I. ORGANIZATION |
1 | |||||
1.1 Formation; Effective Date |
1 | |||||
1.2 Name |
2 | |||||
1.3 Registered Agent; Offices |
2 | |||||
1.4 Purpose |
2 | |||||
1.5 Foreign Qualification |
2 | |||||
ARTICLE II. Membership Interests |
3 | |||||
2.1 Existing Members; New Members |
3 | |||||
2.2 Representations and Warranties |
4 | |||||
2.3 Units; Certification |
6 | |||||
2.4 Common Units |
6 | |||||
2.5 Information |
6 | |||||
2.6 Liability to Third Parties |
7 | |||||
2.7 Lack of Authority |
7 | |||||
2.8 Withdrawal |
7 | |||||
ARTICLE III. CAPITAL CONTRIBUTIONS |
7 | |||||
3.1 Contributions |
7 | |||||
3.2 Additional Capital Contributions and Return of Contributions |
7 | |||||
3.3 Advances by Members |
8 | |||||
3.4 Capital Accoun |
8 | |||||
3.5 Safe Harbor Election |
9 | |||||
ARTICLE IV. ALLOCATIONS AND DISTRIBUTIONS |
9 | |||||
4.1 Allocations |
9 | |||||
4.2 Distributions. |
12 | |||||
ARTICLE V. DIRECTORS |
13 | |||||
5.1 Delegation of Rights and Powers. |
13 | |||||
5.2 Number; Term |
14 | |||||
5.3 Vacancies; Removals |
14 | |||||
5.4 Subsidiaries |
15 | |||||
5.5 Meetings of the Board of Directors |
15 | |||||
5.6 Payments to Directors; Reimbursements |
16 | |||||
5.7 Competitive Opportunity |
16 | |||||
5.8 Committees |
17 | |||||
ARTICLE VI. OFFICERS |
17 | |||||
6.1 Designation and Appointment |
17 | |||||
6.2 Resignation and Removal |
17 | |||||
6.3 Duties of Officers Generally |
18 | |||||
6.4 Chairman of the Board |
18 | |||||
-i-
| Page | |||||
6.5 Chief Executive Officer |
18 | ||||
6.6 President |
18 | ||||
6.7 Vice President(s) |
18 | ||||
6.8 Secretary |
18 | ||||
6.9 Treasurer |
19 | ||||
ARTICLE VII. MEETINGS OF MEMBERS |
19 | ||||
7.1 Meetings of Members |
19 | ||||
7.2 Notice |
19 | ||||
7.3 Quorum; Voting |
20 | ||||
7.4 Action by Written Consent |
20 | ||||
7.5 Record Date |
20 | ||||
7.6 Adjournment |
20 | ||||
7.7 Conversion |
20 | ||||
7.8 Merger and Consolidation |
21 | ||||
7.9 Sale of Assets |
21 | ||||
ARTICLE VIII. INDEMNIFICATION |
21 | ||||
8.1 Right to Indemnification |
21 | ||||
8.2 Insurance and Other Indemnification |
22 | ||||
ARTICLE IX. TAXES |
23 | ||||
9.1 Tax Returns |
23 | ||||
9.2 Tax Elections |
23 | ||||
9.3 Tax Allocations and Reports |
23 | ||||
9.4 Partnership for U.S. Federal Tax Purposes |
24 | ||||
9.5 Unrelated Business Taxable Income |
24 | ||||
ARTICLE X. BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS |
24 | ||||
10.1 Book |
24 | ||||
10.2 Company Funds |
24 | ||||
ARTICLE XI. DISSOLUTION, LIQUIDATION, AND TERMINATION |
25 | ||||
11.1 Dissolution |
25 | ||||
11.2 Liquidation and Termination |
25 | ||||
11.3 Deficit Capital Accounts |
26 | ||||
11.4 Certificate of Cancellation |
26 | ||||
ARTICLE XII. Transfer Restrictions |
26 | ||||
12.1 Limitations on Transfers |
26 | ||||
12.2 Drag-Along Rights |
27 | ||||
12.3 Holdback Agreement |
29 | ||||
ARTICLE XIII. GENERAL PROVISIONS |
29 | ||||
13.1 Offset |
29 | ||||
13.2 Notices |
29 | ||||
13.3 Entire Agreement |
30 | ||||
-ii-
| Page | |||||
13.4 Effect of Waiver or Consent |
30 | ||||
13.5 Amendment |
30 | ||||
13.6 Binding Act |
30 | ||||
13.7 Governing Law |
30 | ||||
13.8 Consent to Exclusive Jurisdiction |
30 | ||||
13.9 Severability |
31 | ||||
13.10 Further Assurances |
31 | ||||
13.11 No Third Party Benefit |
31 | ||||
13.12 Counterparts |
31 | ||||
13.13 Construction |
31 | ||||
-iii-
FIFTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
MAGNACHIP SEMICONDUCTOR LLC,
a Delaware limited liability company
THIS FIFTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT (this
“Agreement”) of MAGNACHIP SEMICONDUCTOR LLC (the “Company”) dated as of February
12, 2010 is entered into by and among the parties listed on Exhibit A attached hereto (the
“Existing Members”) and those other Persons (defined below) who become Members (defined
below) of the Company from time to time, as hereinafter provided. All capitalized terms used in
this Agreement and not otherwise are defined herein are defined in Annex I hereto.
ARTICLE I.
ORGANIZATION
ORGANIZATION
1.1 Formation; Effective Date. The Company was organized as a Delaware limited liability company
on November 26, 2003 by the filing of a certificate of formation (the “Certificate”) with
the Office of the Secretary of State of the State of Delaware under and pursuant to the Act
(defined below). The name of the Company was changed from “System Semiconductor Holding LLC” to
“MagnaChip Semiconductor LLC” on August 31, 2004 by the filing of a Certificate of Amendment to the
Certificate with the Office of the Secretary of State of the State of Delaware under and pursuant
to the Act. This Agreement, which further amends and restates the Fourth Amended and Restated
Limited Liability Company Operating Agreement of the Company dated as of November 9, 2009 (the
“Prior Agreement”), which had amended and restated the Third Amended and Restated Limited
Liability Company Operating Agreement of the Company dated as of October 6, 2004, which had amended
and restated the First Amended and Restated Limited Liability Company Operating Agreement of the
Company dated as of September 10, 2004, which had amended and restated the Operating Agreement of
the Company dated as of June 8, 2004, is made and filed in accordance with Section 13.5 of the
Prior Agreement by a Required Interest as of the date hereof (the “Effective Date”). The
Prior Agreement was filed with the United States Bankruptcy Court for the District of Delaware (the
“Bankruptcy Court”) pursuant to a plan of reorganization (as amended from time to time, the
“Chapter 11 Plan”) confirmed by an order of the Bankruptcy Court, dated August 25, 2009, in
In re: MagnaChip Semiconductor Finance Company, et al., Case No.: 09-12008 (PJW) under Chapter 11
of Title 11 of the United States Code (the “Order”) and became effective November 9, 2009
(the “Chapter 11 Plan Effective Date”). Pursuant to the Order and as set forth in the
Chapter 11 Plan, among other things, all equity securities of the Company issued and outstanding
immediately prior to the Chapter 11 Plan Effective Date and the Effective Date (as defined in the
Prior Agreement) of the Prior Agreement were discharged, terminated and cancelled. To the extent
that the rights or obligations of any Member are different by reason of any provision of this
Agreement than they would be in the absence of such provisions, this Agreement shall, to the extent
permitted by the Act, control. As used herein, “Act” means the Delaware Limited
- 1 -
Liability Company Act (6 Del. C. § 18-101 et seq.), and any successor statute, as amended from time
to time.
1.2 Name. The name of the Company is “MagnaChip Semiconductor LLC” and all Company business must be
conducted in that name or in such other names that comply with applicable law as the Board of
Directors of the Company (the “Board of Directors”) may select from time to time.
1.3 Registered Agent; Offices. The registered agent and office of the Company required by the Act
to be maintained in the State of Delaware shall be National Corporate Research, Ltd., 615 S. DuPont
Highway, Dover, Delaware 19901, or such other agent or office (which need not be a place of
business of the Company) as the Board of Directors may designate from time to time in the manner
provided by applicable law. The principal office of the Company shall be located at such place
within or without the State of Delaware, and the Company shall maintain such records, as the Board
of Directors shall determine from time to time. The Company may have such other offices as the
Board of Directors may designate from time to time.
1.4 Purpose.
(a) The nature or purpose of the business to be conducted or promoted by the Company is to (i)
purchase from time to time and hold equity and/or debt investment interests in MagnaChip
Semiconductor S.A., a company organized under the laws of Luxembourg (“MagnaChip
Luxembourg”), MagnaChip Semiconductor, Inc., a Delaware corporation (“MagnaChip US”)
and any successor to MagnaChip Luxembourg or MagnaChip US or any direct or indirect subsidiary of
such entities; (ii) engage in the semiconductor industry or related industries or purchase from
time to time and hold equity and/or debt investment interests in entities engaged in such
industries; (iii) perform all duties and activities as a controlling stockholder of MagnaChip
Luxembourg and MagnaChip US or their respective successors and manage the investments of the
Company; (iv) hold for investment, distribute and/or otherwise dispose of cash or property
distributed to the Company by MagnaChip Luxembourg or MagnaChip US or otherwise received by the
Company in connection with its business; and (v) engage in any and all activities necessary,
desirable or incidental to the accomplishment of the foregoing. Notwithstanding anything herein to
the contrary, nothing set forth herein shall be construed as authorizing the Company to possess any
purpose or power, or to do any act or thing, forbidden by law to a limited liability company
organized under the laws of the State of Delaware.
(b) Subject to the provisions of this Agreement, the Company shall have the power and
authority to take any and all actions necessary, appropriate, proper, advisable, convenient or
incidental to, or for the furtherance of, the purposes set forth in Section 1.4(a).
1.5 Foreign Qualification. The Board of Directors shall cause the Company to comply with all
requirements necessary to qualify the Company as a foreign limited liability company in any
jurisdiction where the nature of its business makes such qualification necessary or desirable;
provided that the Board of Directors shall provide to each Member such notice of
its intention to so qualify in any jurisdiction outside the United States as is reasonably
practicable, which such notice shall contain the name of the jurisdiction and the reason for such
qualification to the extent reasonably practicable. Subject to the preceding sentence, at the
request of the
-2-
Board of Directors, each Member shall execute, acknowledge, and deliver all certificates and other
instruments conforming with this Agreement that are necessary or appropriate to qualify, continue,
or terminate the Company as a foreign limited liability company in all such jurisdictions in which
the Company may conduct business.
ARTICLE II.
MEMBERSHIP INTERESTS
MEMBERSHIP INTERESTS
2.1 Existing Members; New Members.
(a) The Existing Members of the Company are designated on Exhibit A. Pursuant to the
Order and as set forth in the Chapter 11 Plan, upon the Chapter 11 Plan Effective Date, the Prior
Agreement was deemed to be valid, binding and enforceable in accordance with its respective terms,
and each Member was bound thereby, in each case, without the need for execution by any party
thereto other than Avenue and the Company. The number of Common Units owned by each Member, such
Member’s Percentage Interest (defined below) of each class of Units (defined below) and such
Member’s Capital Contributions as of the date hereof are set forth on Exhibit A opposite
such Member’s name. Each Member’s Membership Interest shall be represented by Units of Membership
Interest.
(b) Subject to the approval by the Board of Directors, the Company shall have the right to
issue or sell to any Person (including Members and affiliates of Members) any of the following
(which for purposes of this Agreement shall be referred to as “Additional Interests”): (i)
additional Common Units and (ii) warrants, options, or other rights to purchase or otherwise
acquire Common Units. Subject to the provisions of this Agreement and approval by the Board of
Directors, the Company shall determine the number of each class or series of Units to be issued or
sold and the contribution required in connection with the issuance of such Additional Interests. In
order for a Person to be admitted as a new Member of the Company with respect to an Additional
Interest, with respect to Units that have been transferred pursuant to this Agreement or otherwise:
such Person shall have delivered to the Company a written undertaking in a form acceptable to the
Company to be bound by the terms and conditions of this Agreement and shall have delivered such
documents and instruments as the Company reasonably determines to be necessary or appropriate in
connection with the issuance of such Additional Interest to such Person or the transfer of Units to
such Person or to effect such Person’s admission as a Member. Thereafter, the Secretary of the
Company shall amend Exhibit A without the further vote, act or consent of any other Person
to reflect such new Person as a Member and shall make available for review a copy of such amended
Exhibit A to each Member. Upon the delivery of such documents and instruments, such Person
shall be admitted as a Member and deemed listed as such on the books and records of the Company and
thereupon shall be issued such Person’s Units.
(c) As used herein, the following terms shall have the following meanings:
(i) “Member” means (a) the Existing Members and (b) any Person
hereafter admitted to the Company as a member as provided in this Agreement but does
not include any Person who has ceased to be a member in the Company.
(ii) “Membership Interest” means a Member’s entire interest in the
Company, including such Member’s economic interest, the right to vote on or
participate in the Company’s management, and the right to receive information
-3-
concerning the business and affairs of the Company, in each case, to the extent
expressly provided in this Agreement or required by the Act. A Member’s Membership
Interest is represented by the Units that it owns.
(iii) “Percentage Interest” means, with respect to any Member, the
percentage of the total number of Units of the class of Units in question owned by
such Member.
2.2 Representations and Warranties. Each Member hereby represents and warrants to the Company and
to each other Member that:
(a) Such Member has full legal right, power and authority (including the due authorization by
all necessary corporate, limited liability company or partnership action in the case of corporate,
limited liability company or partnership Members) to enter into this Agreement and to perform such
Member’s obligations hereunder without the need for the consent of any other Person; and this
Agreement has been duly authorized, executed and delivered and constitutes the legal, valid and
binding obligation of such Member enforceable against such Member in accordance with the terms
hereof.
(b) The Units are being received by such Member for investment and not with a view to any
distribution thereof that would violate the United States Securities Act of 1933, as amended (the
"Securities Act”), or the applicable securities laws of any state; such Member will not
distribute the Units in violation of the Securities Act or the applicable securities laws of any
state.
(c) Such Member is financially able to hold the Units for long-term investment, believes that
the nature and amount of the Units being acquired are consistent with such Member’s overall
investment program and financial position, and recognizes that there are substantial risks involved
in acquiring the Units. Such Member is aware that the Company may issue additional securities in
the future which could result in the dilution of such Member’s ownership interest in the Company.
(d) Such Member confirms that (i) such Member is familiar with the business of the Company,
(ii) such Member has had the opportunity to ask questions about the Company and to obtain (and that
such Member has received to its satisfaction) such information about the business and financial
condition of the Company as such Member has reasonably requested, and (iii) such Member, either
alone or with such Member’s representative (as defined in Rule 501(h) promulgated under the
Securities Act), if any, has such knowledge and experience in financial and business matters that
such Member is capable of evaluating the merits and risks of the prospective investment in the
Units.
(e) Such Member acknowledges and agrees that such Member’s Units cannot be sold, assigned,
transferred, exchanged or otherwise disposed of except in compliance with the terms of this
Agreement to which such Member is bound.
(f) If such Member is not a citizen of the United States of America, such Member hereby
represents that such Member is satisfied as to the full observance of the laws of such Member’s
jurisdiction of organization in connection with the acquisition of Units or any use of this
Agreement. Such Member’s acquisition of and continued ownership of, Units will not violate any
applicable securities or other laws of such Member’s jurisdiction of organization.
-4-
(g) Such Member understands that the Units have not been registered under the Securities Act
or the securities laws of any state and may not be transferred, pledged or hypothecated except as
permitted under the Securities Act and applicable state securities laws pursuant to registration or
an exemption therefrom; such Member understands that any certificates evidencing the Units, or any
other securities issued in respect of the Units upon any split, dividend, recapitalization, merger,
consolidation or similar event, shall bear the following legend (in addition to any legend required
under applicable U.S. federal and state securities laws or called for by any agreement between the
Company and such Member):
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF
CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER
OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER
THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER, SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE OR OTHER SIMILAR TRANSFER AND
VOTING AS SET FORTH IN A LIMITED LIABILITY COMPANY OPERATING AGREEMENT AMONG THE
COMPANY AND THE ORIGINAL HOLDERS OF THESE SECURITIES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.”
; provided, however, that the forgoing legend shall not be required with
respect to any Units issued pursuant to Section 1145 of the Bankruptcy Reform Act of 1978, as
amended, and such Member understands and agrees that any certificates evidencing such Units shall
instead bear the following legend (in addition to any other legend required under applicable U.S.
federal and state securities laws or called for by any agreement between the Company and such
Member):
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS BEEN ISSUED PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SECTION 1145 OF THE BANKRUPTCY REFORM ACT OF 1978,
AS AMENDED (THE “BANKRUPTCY CODE”). THE SECURITIES MAY BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”); PROVIDED THAT THE HOLDER IS NOT
DEEMED TO BE AN UNDERWRITER AS SUCH TERM IS DEFINED IN SECTION 1145(b) OF THE
BANKRUPTCY CODE. IF THE HOLDER IS
-5-
DEEMED TO BE AN UNDERWRITER AS SUCH TERM IS DEFINED IN SECTION 1145(b) OF THE
BANKRUPTCY CODE, THEN THE SECURITIES MAY ONLY BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED UPON REGISTRATION UNDER THE SECURITIES ACT OR RECEIPT OF AN OPINION OF
COUNSEL SATISFACTORY TO MAGNACHIP SEMICONDUCTOR LLC AND ITS COUNSEL THAT SUCH
DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
THE SECURITIES ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER, SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE OR OTHER SIMILAR TRANSFER AND
VOTING AS SET FORTH IN A LIMITED LIABILITY COMPANY OPERATING AGREEMENT AMONG THE
COMPANY AND THE ORIGINAL HOLDERS OF THESE SECURITIES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.”
2.3 Units; Certification. There shall be one class of Units consisting of units of common
Membership Interests in the Company (the “Common Units” or collectively, the
"Units”). As of the date hereof, and after giving effect to the transactions contemplated
hereby, there shall be authorized (i) Three Hundred Seventy Five Million (375,000,000) Common
Units, of which Three Hundred Seven Million Eighty-Three Thousand Nine Hundred Ninety-Six
(307,083,996) are issued and outstanding as of the Effective Date. The Company may, in its
discretion, issue certificates to the Members representing the Units held by each Member. To the
extent that the holder of a Unit is required by the other provisions of this Agreement to deliver
or surrender such holder’s certificates representing Units, then, in the event that the Units are
not certificated by the Company, the Company will provide a form to be completed and delivered by
such holder in lieu thereof.
2.4 Common Units. Except as otherwise provided herein, all Common Units shall be identical and
shall entitle the holders thereof to the same rights and privileges. The holders of Common Units
shall have the general right to vote for all purposes, including the election of directors of the
Board of Directors of the Company (“Directors”), as provided by applicable law and in
accordance with ARTICLE V hereof. Each holder of Common Units shall be entitled to one vote for
each unit thereof held. Notwithstanding anything to the contrary, to the extent prohibited by
Section 1123(a)(6) under chapter 11 of title 11 of the United States Code (the “Bankruptcy
Code”), the Company will not issue non-voting equity securities; provided,
however the foregoing restriction will (a) have no further force and effect beyond that
required under Section 1123 of the Bankruptcy Code, (b) only have such force and effect for so long
as Section 1123 of the Bankruptcy Code is in effect and applicable to the Company, and (c) in all
events may be amended or eliminated in accordance with applicable law as from time to time may be
in effect.
2.5 Information. The Company will provide or make available directly to each Member:
-6-
(a) As soon as available but in any event within one hundred and twenty (120) days after the
end of each fiscal year, (A) audited consolidated annual financial statements (including an income
statement, balance sheet and statement of cash flows) of the Company, accompanied by (B) a
narrative discussion, prepared by the Company’s management, comparing the operations of the current
fiscal year and the previous fiscal year.
(b) As soon as available but in any event within sixty (60) days after the end of each of the
first three quarters of each fiscal year, unaudited quarterly consolidated financial statements
(including an income statement, balance sheet and statement of cash flows (each unaudited)) of the
Company.
(c) Notwithstanding anything to the contrary contained in this Section 2.5, the Company shall
not be required to provide information rights pursuant to Section 2.5 to any Member who is a direct
competitor of the Company or its Subsidiaries or to any Member whose Affiliate is a direct
competitor of the Company or its Subsidiaries (as determined in each case in good faith by the
Board of Directors). Each Member agrees to hold in confidence and trust and not to misuse or
disclose any confidential information provided pursuant to this Section 2.5.
2.6 Liability to Third Parties. Except as otherwise expressly provided by the Act, the debts,
obligations or liabilities of the Company, whether arising in contract, tort or otherwise, shall be
the debts, obligations and liabilities solely of the Company, and no Member shall be obligated
personally for any such debt, obligation or liability of the Company solely by reason of being a
Member.
2.7 Lack of Authority. No Member has the authority or power to act for or on behalf of the Company,
to do any act that would be binding on the Company, or to incur any expenditures on behalf of the
Company; provided that, this Section 2.7 shall not limit the rights of any Director
who is also a Member to act in such Member’s capacity as a Director.
2.8 Withdrawal. A Member does not have the right to withdraw from the Company as a Member (except
in connection with a transfer of its Units in accordance with this Agreement) and any attempt to
violate the provisions hereof shall be legally ineffective.
ARTICLE III.
CAPITAL CONTRIBUTIONS
CAPITAL CONTRIBUTIONS
3.1 Contributions. Each Member shall make or shall have made a Capital Contribution as provided for
in this Article III. As used herein, “Capital Contribution” means any contribution by a
Member to the capital of the Company; provided that upon the admission of a new
Member, the Capital Contribution of each Member shall be deemed equal to the capital account of
such Member as revalued pursuant to this Agreement.
3.2 Additional Capital Contributions and Return of Contributions. No Member shall be required to
make any additional Capital Contributions to the Company or to restore any deficit in such Member’s
capital account. A Member is not entitled to the return of any part of its Capital Contributions
or to be paid interest in respect of either its capital account or its Capital Contributions. An
unrepaid Capital Contribution is not a liability of the Company or of any Member.
-7-
3.3 Advances by Members. With the consent of the Board of Directors, any Member may advance funds
to or on behalf of the Company on terms approved by the Board of Directors. An advance described in
this Section 3.3 constitutes a loan from the Member to the Company, and is not a Capital
Contribution.
3.4 Capital Account.
(a) A capital account shall be established and maintained for each Member. Such capital
accounts shall be subject to revaluation in accordance with Reg. § 1.704-1(b)(2)(iv)(f) at such
time as the Board of Directors shall determine.
(b) Each Member’s capital account:
(i) shall be increased by: (A) the amount of money contributed by that Member
to the Company, (B) the fair market value of property contributed by that Member to
the Company (net of liabilities secured by the contributed property that the Company
is considered to assume or take subject to under Section 752 of the Code), and (C)
allocations to that Member of Company income and gain (or items thereof), including
income and gain exempt from tax and income and gain described in Reg. §
1.704-1(b)(2)(iv)(g), but excluding income and gain described in Reg. §
1.704-1(b)(4)(i), and
(ii) shall be decreased by (A) the amount of money distributed to that Member
by the Company, (B) the fair market value of property distributed to that Member by
the Company (net of liabilities secured by the distributed property that the Member
is considered to assume or take subject to under Section 752 of the Code), (C)
allocations to that Member of expenditures of the Company described in Section
705(a)(2)(B) of the Code, and (D) allocations of Company loss and deduction (or
items thereof), including loss and deduction described in Reg. §
1.704-1(b)(2)(iv)(g), but excluding items described in clause (b)(ii)(C) above and
loss or deduction described in Reg. § 1.704-1(b)(4)(i) or § 1.704-1(b)(4)(iii). As
used herein, “Code” means the Internal Revenue Code of 1986 and any
successor statute, as amended from time to time, and “Reg.” means the Income
Tax Regulations, including Temporary Regulations, promulgated under the Code, as
such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
(c) The Members’ capital accounts also shall be maintained and adjusted as permitted by the
provisions of Reg. § 1.704-1(b)(2)(iv) (f) and as required by the other provisions of Reg. §§
1.704-1(b)(2)(iv) and 1.704-1(b)(4), including adjustments to reflect the allocations to the
Members of depreciation, depletion, amortization, and gain or loss as computed for book purposes
rather than the allocation of the corresponding items as computed for tax purposes, as required by
Reg. § 1.704-l(b)(2)(iv)(g).
(d) Upon the exercise of a Warrant, the capital account of the exercising Warrant holder shall
be credited with the amount of the exercise price, and the capital accounts of the exercising
holder and all the other Members shall be adjusted in accordance with the rules set forth in
Proposed
-8-
Treasury Reg. § 1.704-1(b)(2)(iv)(s) so that the capital account associated with each Common
Unit is equal to the capital account of each other Common Unit. If Proposed Treasury Reg. §
1.704-1(b)(2)(iv)(s) is amended or replaced, these adjustments shall be made in accordance with any
subsequent rules applicable to the maintenance of capital accounts upon the exercise of a
noncompensatory option at the time of the exercise of the Warrant.
(e) On the transfer of all or part of a Member’s Units, the capital account of the transferor
that is attributable to the transferred Units or part thereof shall carry over to the transferee
Member in accordance with the provisions of Reg. § 1.704-l(b)(2)(iv)(l).
3.5 Safe Harbor Election. In the event that the Proposed Treasury Reg. § 1.83-3(l) is finalized,
the Company shall be authorized and directed to make the Safe Harbor Election and the Company and
each Member (including any Member who received Units in the Company in exchange for the performance
of services, including as a result of the exercise or settlement of an Award) agrees to comply with
all requirements of the Safe Harbor with respect to all Units in the Company received in connection
with the performance of services (including as a result of the exercise or settlement of an Award)
while the Safe Harbor Election remains effective. The Tax Matters Member shall be authorized to
(and shall) prepare, and file the Safe Harbor Election.
ARTICLE IV.
ALLOCATIONS AND DISTRIBUTIONS
ALLOCATIONS AND DISTRIBUTIONS
4.1 Allocations.
(a) Profits. After giving effect to any special allocations set forth in this Section 4.1, all
items of income and gain of the Company for any fiscal year (or portion thereof) shall be
allocated:
(i) first, to each Member, if any, with a negative capital account balance, in
proportion to such negative balances, until any such negative balances have been
eliminated;
(ii) second, with respect to the holders of Common Units, if the positive
balances in the Common Unit Capital Accounts of such Members is not in proportion to
their relative Percentage Interests, then to the holders of the Common Units in such
manner so as to cause such positive balances (after taking into account all
allocations to be made under this subsection) to be in proportion to such Percentage
Interests; and
(iii) the balance, if any, to all holders of Common Units in proportion to
their Percentage Interests.
(b) Losses. After giving effect to any special allocations set forth in this Section 4.1, all
items of loss and deduction of the Company shall be allocated:
(i) first, with respect to holders of Common Units, if the positive balances in
the Common Unit Capital Accounts of such Members is not in proportion to their
relative Percentage Interests, then to the holders of the Common Units in such
-9-
manner so as to cause such positive balances (after taking into account all
allocations to be made under this subsection) to be in proportion to such Percentage
Interests;
(ii) second, with respect to holders of Common Units in proportion to the
positive balances in their Common Unit Capital Accounts until such balances have
been reduced to zero; and
(iii) the balance, if any, to holders of Common Units in proportion to their
Percentage Interests.
(c) Special Allocations. The following special allocations shall be made in the following
order:
(i) Limitation on Losses. The losses allocated to any Member pursuant to
Section 4.1(b) of this Agreement shall not exceed the maximum amount of losses that
can be so allocated without causing such person to have an Adjusted Capital Account
Deficit at the end of any Fiscal Year. In the event some, but not all, of the
Members would have Adjusted Capital Account Deficits as a consequence of an
allocation of losses pursuant to Section 4.1(b), the limitation set forth in this
Section 4.1(c)(i) shall be applied on a Member-by-Member basis so as to allocate the
maximum permissible losses to each Member under Reg. § 1.704-l(b)(2)(ii)(d).
(ii) Qualified Income Allocation. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Reg. §§
1.704-l(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5), or 1.704-1 (b)(2)(ii)(d)(6), items
of Company income and gain shall be specially allocated to each such Member in an
amount and manner sufficient to eliminate, to the extent required by the
Regulations, the deficit capital account balance of such Member as promptly as
possible, provided, that, an allocation pursuant to this Section
4.1(c)(ii) shall be made if and only to the extent that such Member would have a
deficit capital account balance after all other allocations provided for in this
Section 4.1 have been tentatively made as if this Section 4.1(c)(ii) were not in
this Agreement.
(iii) Gross Income Allocation. In the event any Member has a deficit Capital
Account at the end of any fiscal year which is in excess of the sum of (i) the
amount such Member is obligated to restore pursuant to this Agreement, if any, and
(ii) the amount such Member is deemed to be obligated to restore pursuant to the
penultimate sentences of Reg. §§ 1.704-2(g)(l) and 1.704-2(i)(5), each such Member
shall be specially allocated items of Company income and gain in the amount of such
excess as quickly as possible, provided that, an allocation pursuant
to this Section 4.1(c)(iii) shall be made if and only to the extent that such Member
would have a deficit Capital Account in excess of such sum after all other
allocations provided for in this Section 4.1 have been tentatively made as if this
Section 4.1(c)(iii) was not in the Agreement.
(iv) Impact of Company Indebtedness. In the event that the Company incurs
indebtedness in any material amount, then the allocation provisions set forth
-10-
herein shall be deemed to be further modified so as to reflect inclusion of a
Company and, if applicable, Member minimum gain chargeback consistent with that set
forth in Reg. §§ 1.704-2(f) and (i)(4), which allocations shall be applied before
application of the other special allocation provisions set forth in this Section
4.1(c).
(v) Curative Allocations. The allocations set forth in this Section 4.1(c) (the
“Regulatory Allocations”) are intended to comply with certain requirements
of the Treasury Regulations promulgated under Code Section 704(b). It is the intent
of the Members that, to the extent possible, all Regulatory Allocations shall be
offset either with other Regulatory Allocations or with special allocations of other
items of Company income, gain, loss, or deduction pursuant to this Section
4.1(c)(v). Therefore, notwithstanding any other provision of this Section 4.1 (other
than the Regulatory Allocations), the Company shall make such offsetting special
allocations of Company income, gain, loss, or deduction in whatever manner it
determines appropriate so that, after such offsetting allocations are made, each
Member’s capital account balance is, to the extent possible, equal to the capital
account balance such Member would have had if the Regulatory Allocations were not
part of the Agreement and all Company items were allocated pursuant to Sections
4.1(a) (other than Section 4.1(c)).
(vi) “Adjusted Capital Account Deficit” means, with respect to any
Member, the deficit balance, if any, in such Member’s capital account as of the end
of the relevant fiscal year, after giving effect to the following adjustments:
(1) Credit to such capital account any amounts which such Member is
obligated to restore or is deemed to be obligated to restore pursuant to the
penultimate sentences of Reg. §§ 1.704-2(g)(l) and 1.704-2(i)(5); and
(2) Debit to such Capital Account the items described in Reg. §§
1.704-l(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-
l(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Reg. § 1.704-l(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
(d) Transfers of Units. All items of income, gain, loss, deduction and credit allocable to any
Unit that may have been transferred or otherwise disposed of shall be allocated between the
transferor and the transferee based on the percentage of the calendar year during which each was
recognized as owning that Unit, without regard to the results of Company operations during any
particular portion of that calendar year and without regard to whether cash distributions were made
to the transferor or the transferee during that calendar year; provided, however,
that this allocation must be made in accordance with a method permissible under Section 706 of the
Code and the regulations thereunder.
-11-
(e) Section 704(c) Allocations. Solely for tax purposes, income, gain, loss and deduction with
respect to any property contributed to the capital of the Company or for which the adjusted tax
basis and book value differ shall be allocated among the Members so as to take account of any
variation between adjusted tax basis and book value. The allocations provided in this Section 4.1
are intended to comply with the requirements of Section 704 of the Code and Treasury Regulations
thereunder and shall be interpreted (or modified, to the extent necessary) in such manner as is
consistent with such requirements, as determined by the Company’s Tax Matters Partner (defined
below). For purposes of allocations under Section 704(c) of the Code, the Company shall use the
allocation method or methods as determined by the Board of Directors.
(f) Allocations Upon Exercise of Warrants. In accordance with Proposed Treasury Reg. §
1.704-1(b)(2)(s) and 1.704-1(b)(4)(ix) and solely for tax purposes, corrective allocations of
income, gain, loss and deduction shall be made among the Members upon the exercise of a Warrant and
thereafter. If these Proposed Treasury Regulations are amended or replaced, then such allocations
shall be made in accordance with any subsequent rules applicable to maintenance of capital accounts
and allocations resulting therefrom upon the exercise of a noncompensatory option at the time of
the exercise of the Warrant. Any elections or other decisions relating to such allocations shall
be made by the Board of Directors in any manner that reasonably reflects the purpose and intention
of this Agreement. Allocations pursuant to this Section 4.1(f) are solely for purposes of federal,
state and local taxes and shall not affect or in any way be taken into account in computing any
Member’s capital account or share of profits, losses other items or distributions to any provision
of this Agreement.
(g) Allocations Upon Forfeiture of Exercised Awards. In accordance with Proposed Treasury Reg.
§ 1.704-1(b)(4)(xii) and Internal Revenue Service Notice 2005-43, issued on May 19, 2005, and
solely for tax purposes, in any year in which Units received in exchange for performance of
services (including Units received upon exercise or settlement of an Award) are forfeited, the
company shall cause (i) forfeiture allocations to be made in the year of forfeiture, and (ii) all
material allocations and capital account adjustments in this Agreement not pertaining to the Unit
received in exchange for services (including Units received upon exercise or settlement of an
Award) to be recognized under Section 704(b). If these Proposed Treasury Regulations are amended
or replaced, then such allocations shall be made in accordance with any subsequent rules applicable
to allocations and adjustments required to be made upon forfeiture of Units received upon exercise
or settlement of the Award. Any elections or other decisions relating to such allocations shall be
made by the Board of Directors in any manner that reasonably reflects the purpose and intention of
this Agreement. Allocations and adjustments pursuant to this Section 4.1(g) are solely for
purposes of federal, state and local taxes and shall not affect or in any way be taken into account
in computing any Member’s capital account or share of profits, losses other items or distributions
to any provision of this Agreement.
4.2 Distributions.
(a) Regular Distributions. The Board of Directors shall have the authority to reinvest the
Company’s cash generated from operations and dispositions of assets, including the sale or other
disposition of equity interests in a related company in which the Company invests directly or
indirectly. Consequently, distributions to Members of the Company’s cash or other assets shall be
made only at such times and in such amounts as authorized by the Board of Directors and the Board
of Directors shall have no obligation or duty to distribute cash or other assets to the Members
prior to the dissolution and liquidation of the Company. Distributions, if any, shall be made with
respect to holders
-12-
of Common Units, to all such Members in proportion to their Percentage Interests.
Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not be
required to make a distribution to any Member on account of its Units if such distribution would
violate the Act or any other Applicable Law.
(b) Tax Distributions.
(i) Notwithstanding Section 4.2(a), with respect to each taxable period of the
Company, the Company shall, to the extent of available funds, make a Tax
Distribution to the Members; provided, that such distribution shall
only be made if and to the extent that the Board of Directors determines that the
distribution does not violate or breach, or constitute a termination, cancellation
or acceleration of, any obligation, contract, agreement or other instrument of the
Company.
(ii) “Tax Distribution” means, for the applicable taxable period, an
aggregate cash distribution to the Members equal to (1) the taxable income of the
Company for the taxable period multiplied by (2) an assumed tax rate equal to (A)
the maximum federal income tax rate for corporations in effect for the taxable
period plus (B) six percent (6%). The amount of the Tax Distribution shall be
determined by the Company’s independent accounting firm.
(iii) Tax Distributions shall be distributed among the Members in accordance
with their ownership of the Units in the same manner as provided for in Section
4.2(a).
(iv) Subject to Section 4.2(b)(i), the Company shall make the Tax Distribution,
if any, for an applicable taxable period in four installments based on a reasonable
estimate of the year’s anticipated taxable income. Such installments shall be
distributed no later than the tenth day of each of April, June, September and
December of the year.
(c) Withholding. The Company shall be entitled to withhold and pay over any federal, state or
foreign income taxes as required by applicable law and any such payments with respect to the income
or distributions of a Member shall be treated as a distribution to the Member on whose behalf the
withholding occurs.
ARTICLE V.
DIRECTORS
DIRECTORS
5.1 Delegation of Rights and Powers.
(a) Subject to the delegation of rights and powers provided for herein, the board of directors
of the Company, (the “Board of Directors” or the “Board”) shall have the sole right
to manage the business and affairs of the Company and shall have all powers and rights necessary,
appropriate or advisable to effectuate and carry out the purposes and business of the Company,
including, without limitation, the right to sell all or substantially all of the assets of the
Company, to convert the Company to a corporation or to consummate a public offering of Securities.
-13-
(b) No Member, by reason of such Member’s status as a Member, shall have any authority to act
for or bind the Company but shall have only the right to vote on or approve the actions to be voted
on or approved by such Member as specified in this Agreement or as required under the Act.
(c) The officers of the Company shall be elected, removed and perform such functions as are
provided in ARTICLE VI. The Board of Directors may delegate to any officer of the Company or to any
such other Person such authority to act on behalf of the Company as the Board of Directors may from
time to time deem appropriate in its sole discretion.
5.2 Number; Term.
(a) The number of Directors of the Company shall initially be five (5) and thereafter, the
number of members of the Board of Directors (each, a “Director” and collectively, the
"Directors”) may be determined from time to time by a majority vote of the Directors then
in office. No decrease in the number of Directors shall have the effect of shortening the term of
any incumbent Director except by the affirmative vote of the Required Interests. The initial
Directors are set forth on Schedule I hereto. Each Director shall have one (1) vote with
respect to any matters that come before the Board of Directors. Each Director is hereby designated
as a “manager” of the Company within the meaning of Section 18-101(10) of the Act.
(b) Except as otherwise provided herein, the Directors shall be elected at any annual or
special meeting of the Members (or by written consent in lieu of a meeting of the Members) and will
serve until their successors are duly elected and qualified pursuant to the terms of this Agreement
or until their earlier death, disability, resignation, termination (with cause or without cause) or
other removal. So long as Avenue and its Affiliates own at least twenty-five percent (25%) of the
then outstanding Common Units, the Board of Directors shall be constituted as follows: (i) Avenue
shall have the right to appoint a majority of the Directors (the “Avenue Designated
Directors”), (ii) one of the Directors shall be the President and Chief Executive Officer of
the Company, and (iii) the remaining Directors will be elected by the affirmative vote of the
Required Interests. When Avenue and its Affiliates no longer own at least twenty-five percent
(25%) of the outstanding Common Units, the Board of Directors shall be constituted as follows: (A)
one of the Directors shall be the President and Chief Executive Officer of the Company and (B) the
remaining Directors will be elected by a plurality of the votes cast at the meeting.
5.3 Vacancies; Removals.
(a) Other than any vacancy caused by the death, resignation, retirement, disqualification or
removal of an Avenue Designated Director, which vacancy may only be filled by Avenue so long as
Avenue and its Affiliates own at least twenty-five percent (25%) of the then outstanding Common
Units, vacancies resulting from death, resignation, retirement, disqualification, removal or other
cause and newly created vacancies resulting from an increase in the number of Directors shall be
filled by a majority vote of the Directors then in office, even if the number of such Directors
then in office is less than a quorum, or by a sole remaining Director, if applicable. Any Director
appointed in accordance with this Section 5.3 shall hold office until the next annual election of
Directors and until his or her successor shall have been elected and
-14-
qualified, subject to such Director’s earlier death, resignation, retirement, disqualification
or removal.
(b) Other than with respect to the Avenue Designated Directors (who may be removed by Avenue
and, in the event Avenue and its Affiliates own less than twenty-five percent (25%) of the then
outstanding Common Units, may also be removed by a vote of the Required Interest), a Director may
be removed from the Board of Directors by a vote of the Required Interest. Any vacancy created by
the removal of any former Director (other than an Avenue Designated Director so long as Avenue and
its Affiliates own at least twenty-five percent (25%) of the then outstanding Common Units) may be
filled by the Required Interest or by a majority of the Directors then in office unless filled by
the Required Interest. So long as Avenue and its Affiliates own at least twenty-five percent (25%)
of the then outstanding Common Units, any vacancy created by any former Avenue Designated Director
may only be filled by Avenue.
5.4 Subsidiaries. The composition of the board of directors (or similar governing body) of any of
the Company’s Subsidiaries shall be determined by a majority vote of the Directors then in office.
5.5 Meetings of the Board of Directors.
(a) All meetings of the Board of Directors may be held at any place that has been designated
from time to time by resolution of the Board of Directors or in any notice properly given with
respect to such meeting. In the absence of such a designation, regular meetings shall be held at
the principal place of business of the Company. Any meeting, regular or special, may be held by
conference telephone or similar communication equipment; provided that all Directors participating
in the meeting can hear one another, and all Directors participating by telephone or similar
communication equipment shall be deemed to be present in person at the meeting.
(b) Regular meetings of the Board of Directors shall be held at such times and at such places
as shall be fixed by approval of the Directors in accordance with the terms of this Agreement.
(c) Special meetings of the Board of Directors for any purpose or purposes may be called at
any time by any of the Directors. Notice of the time and place of a special meeting shall be
delivered personally to each Director and sent by first class mail, by telegram, telecopy or email
(or similar electronic means) or by nationally recognized overnight courier, charges prepaid,
addressed to each Director at that Director’s address as it is shown on the records of the Company.
If the notice is mailed, it shall be deposited in the United States mail at least five (5)
Business Days before the date of the meeting. If the notice is delivered personally or by
telephone or by telegram, telecopy or email (or similar electronic means) or overnight courier, it
shall be given at least twenty-four (24) hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated either to the Director or to a
Person designated by such Director to receive such notice. Any notice of a special meeting shall
state generally the nature of the business to be transacted as such meeting.
(d) A majority of the Directors shall constitute a quorum for the transaction of business.
Every act done or decision made by the affirmative vote of the Directors holding a majority of
-15-
the votes present at a meeting duly held at which a quorum is present shall be regarded as the
act of the Board of Directors, except to the extent that the vote of a higher number is required by
this Agreement or Applicable Law.
(e) Notice of any meeting need not be given to any Director who either before or after the
meeting signs a written waiver of notice, a consent to holding the meeting or an approval of the
minutes. The waiver of notice or consent shall specify the purpose of the meeting. All such
waivers, consents and approvals shall be filed with the records of the Company or be made a part of
the minutes of the meeting. Notice of a meeting shall also be deemed given to any Director who
attends the meeting without protesting at or prior to its commencement the lack of notice to that
Director.
(f) Directors present at any meeting entitled to cast a majority of all votes entitled to be
cast by such Directors, whether or not constituting a quorum, may adjourn any meeting to another
time and place. Notice of the time and place of holding an adjourned meeting need not be given
unless the meeting is adjourned for more than forty-eight (48) hours, in which case notice of the
time and place shall be given before the time of the adjourned meeting in the manner specified in
Section 5.5(c) hereof.
(g) Any action which could be taken by the Board of Directors at a meeting may be taken
without such meeting by the written consent of all the Directors entitled to act at such meeting.
Any such written consent may be executed and given by telecopy, email or similar electronic means.
Such written consents shall be filed with the minutes of the proceedings of the Board of Directors.
5.6 Payments to Directors; Reimbursements. Except as otherwise determined by the Board of
Directors (by the vote or written consent of a majority of the votes of the disinterested Directors
then in office), no Director shall be entitled to remuneration by the Company for services rendered
in his or her capacity as a Director (other than for reimbursement of reasonable out-of-pocket
expenses of such Director). All Directors will be entitled to reimbursement of their reasonable
out-of-pocket expenses incurred in connection with their attendance at Board of Directors meetings.
5.7 Competitive Opportunity. The Members and the Company recognize that the Members, their
Affiliates and the Directors: (i) may have participated, directly or indirectly, and may continue
to participate (including, without limitation, in the capacity of investor, director, officer and
employee) in businesses that are similar to or compete with the business (or proposed business) of
the Company; (ii) may have interests in, participate with, aid and maintain seats on the board of
directors of other such entities; and (iii) may develop opportunities for such entities
(collectively, the “Position”). In such Position, the Members, their Affiliates and the
Directors may encounter business opportunities that the Company or its Members may desire to
pursue. The Members and the Company agree that the Members, their Affiliates and the Directors
shall have no obligation to the Company, the Members or to any other Person to present any such
business opportunity to the Company before presenting and/or developing such opportunity with any
other Persons, other than such opportunities specifically presented to any such Member or Director
for the Company’s benefit in his or her capacity as a Member or Director of the Company. Each
Member and the Company acknowledges and agrees that, in any such case, to the extent a court might
hold that the conduct of such activity is a breach of a duty to the Company, such Member and the
Company hereby waive any and all claims and causes of action that such Member and/or the Company
believes that it may have for such activities. Each
-16-
Member and the Company further agrees that the waivers and agreements in this Agreement identify
certain types and categories of activities which do not violate any duty of loyalty to the Company,
and such types and categories are not manifestly unreasonable. The waivers and agreements in this
Agreement apply to activities conducted before and after the date hereof.
5.8 Committees. The Board of Directors may, from time to time, designate one or more committees,
each committee to consist of one or more Directors. Any such committee shall have such powers and
authority as provided in the enabling resolution of the Company with respect thereto. At every
meeting of any such committee, the presence of all members thereof shall constitute a quorum and
the affirmative vote of a majority of all committee members shall be necessary for the adoption of
any resolution; provided, that the Board of Directors shall have the authority to lower the number
of committee members so required to constitute a quorum so long as such number is at least a
majority of the total number of committee members, and to lower the number of committee members
whose affirmative vote is so required to adopt a resolution so long as such number is at least a
majority of the committee members present at any meeting at which a quorum is present. The Board of
Directors may dissolve any committee at any time, unless otherwise provided in this Agreement.
ARTICLE VI.
OFFICERS
OFFICERS
6.1 Designation and Appointment. The Board of Directors may, from time to time, employ and retain
persons as may be necessary or appropriate for the conduct of the Company’s business (subject to
the supervision and control of the Board of Directors), including employees, agents and other
persons (any of whom may be a Member or Director) who may be designated as Officers of the Company
(“Officers”), with titles including but not limited to “chairman of the board,” “chief
executive officer,” “president,” “vice president,” “treasurer,” “Secretary,” “general counsel,”
“director” and “chief financial officer,” as and to the extent authorized by the Board of
Directors. Any number of offices may be held by the same person. In the Board of Directors’
discretion, the Board of Directors may choose not to fill any office for any period as it may deem
advisable. Officers need not be residents of the State of Delaware or Members. Any Officer so
designated shall have such authority and perform such duties as is customary for an officer of such
type for a corporation or as the Board of Directors may, from time to time, delegate to such
Officer. The Board of Directors may assign titles to particular Officers. Each Officer shall hold
office until his or her successor shall be duly designated and shall have qualified as an Officer
or until his or her death or until he or she shall resign or shall have been removed in the manner
hereinafter provided. The salaries or other compensation, if any, of the Officers of the Company
shall be fixed from time to time by the Board of Directors.
6.2 Resignation and Removal. Any Officer may resign as such at any time. Such resignation shall be
made in writing and shall take effect at the time specified therein, or if no time be specified, at
the time of its receipt by the Board of Directors. The acceptance by the Board of Directors of a
resignation of any Officer shall not be necessary to make such resignation effective, unless
otherwise specified in such resignation. Any Officer may be removed as such, either with or without
cause, at any time by the Board of Directors. Designation of any person as an Officer by the Board
of Directors pursuant to the provisions of
-17-
Section 6.1 shall not in and of itself vest in such person any contractual or employment rights
with respect to the Company.
6.3 Duties of Officers Generally. The Officers, in the performance of their duties as such, shall
(i) owe to the Company duties of loyalty and due care of the type owed by the officers of a
corporation to such corporation and its stockholders under the laws of the State of Delaware, and
(ii) keep the Board of Directors reasonably apprised of material developments in the business of
the Company.
6.4 Chairman of the Board. The Chairman of the Board of Directors, when present, shall
preside at all meetings of the Members and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to the office and shall also perform such
other duties and have such other powers as the Board of Directors shall designate from time to
time. If there is no Chief Executive Officer or President, then the Chairman of the Board of
Directors shall also serve as the Chief Executive Officer of the Company and shall have the powers
and duties prescribed in Section 6.5.
6.5 Chief Executive Officer. The Chief Executive Officer shall, subject to the control of the
Board of Directors, be responsible for the general supervision, direction and control of the
business and the officers of the Company. He or she shall have the general powers and duties of
management usually vested in the office of President of a business entity and shall have such other
powers and duties as may be prescribed by the Board of Directors or this Agreement. The Board of
Directors shall initially designate Sang Park as Chairman of the Board and Chief Executive Officer
of the Company.
6.6 President. Unless some other officer has been elected Chief Executive Officer of the Company,
the President shall be the chief executive officer of the Company and shall, subject to the control
of the Board of Directors, have general supervision, direction and control of the business and
officers of the Company. He or she shall have the general powers and duties of management usually
vested in the office of President of a business entity and shall have such other powers and duties
as may be prescribed by the Board of Directors, the Chief Executive Officer (if the President is
not the chief executive officer of the Company) or this Agreement.
6.7 Vice President(s). The vice president(s) of the Company shall perform such duties and have such other powers as the
president of the Company or the Board of Directors may from time to time prescribe. A vice
president may be designated as an executive vice president, a senior vice president, an assistant
vice president, or a vice president with a functional title.
6.8 Secretary. The Secretary shall keep or cause to be kept at the principal place of business of
the Company, or such other place as the Board of Directors may direct, a book of minutes of all
meetings and actions of the Board of Directors, committees or other delegates of the Board of
Directors and the Members. The Secretary shall keep or cause to be kept at the principal place of
business of the Company a register or a duplicate register showing the names of all Members and
their addresses, the class and equity interests in the Company held by each, the number and date of
certificates issued for the same, if any, and the number and date of
-18-
cancellation of every certificate surrendered for cancellation, if any. The Secretary shall give
or cause to be given notice of all meetings of the Members and of the Board of Directors (or
committees or other delegates thereof) required to be given by this Agreement or by Applicable Law
and shall have such other powers and perform such other duties as may be prescribed by the Board of
Directors or by this Agreement.
6.9 Treasurer. The Treasurer shall be the chief financial officer of the Company and shall keep
and maintain or cause to be kept and maintained adequate and correct books and records of accounts
of the properties and business transactions of the Company. The books of account shall at all
reasonable times be open to inspection by any Director. The Treasurer shall deposit all monies and
other valuables in the name and to the credit of the Company with such depositaries as may be
designated by the Board of Directors. He or she shall disburse the funds of the Company as may be
ordered by the Board of Directors, shall render to the President and the Board of Directors,
whenever they request it, an account of all of his or her transactions as chief financial officer
and of the financial condition of the Company and shall have other powers and perform such other
duties as may be prescribed by the Board of Directors or this Agreement.
ARTICLE VII.
MEETINGS OF MEMBERS
MEETINGS OF MEMBERS
7.1 Meetings of Members.
(a) All meetings of the Members shall be held at the principal place of business of the
Company or at such other place within or without the State of Delaware as shall be specified or
fixed in the notices (or waivers of notice thereof). Except as otherwise required by law or as
otherwise provided herein, only holders of Common Units shall be entitled to notice of, to attend
and to vote at meetings of the Members.
(b) An annual meeting of the Members shall be held for the purpose of election of the
Directors and for the transaction of such other business as may properly come before the meeting.
Any meeting of Members shall be held on such date and at such time as the Board of Directors shall
fix and set forth in the notice of the meeting.
(c) Special meetings of the Members for any proper purpose or purposes may be called at any
time by the Board of Directors or upon the request of a Required Interest (defined below). Only
business within the purpose or purposes described in the notice (or waiver thereof) required by
this Agreement may be conducted at a special meeting of the Members. As used herein, “Required
Interest” means one or more Members owning among them more than 50% of the then outstanding
Common Units.
(d) All meetings of the Members shall be presided over by the chairman of the meeting, who
shall be a Director designated by a majority of the Board of Directors. The chairman of any meeting
of Members shall determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him or her in order.
7.2 Notice. Written notice stating the place, day and hour of any meeting of the Members and, with
respect to a special meeting of the Members, the purpose or purposes for
-19-
which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60)
days before the date of such meeting by or at the direction of the Directors or person calling the
meeting, to each Member entitled to vote at such meeting.
7.3 Quorum; Voting.
(a) Except as otherwise provided in the Certificate or this Agreement or required by
applicable law, a quorum shall be present at a meeting of Members if the holders of a Required
Interest are represented at the meeting in person or by proxy.
(b) A Member may vote either in person or by proxy executed in writing by the Member. A proxy
shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable. Except
as otherwise provided in the Certificate or this Agreement or required by applicable law, with
respect to any matter, the affirmative vote of a majority of those present at a meeting of Members
at which a quorum is present shall be the act of the Members.
7.4 Action by Written Consent. Any action which could be taken by the Members at an annual or
special meeting of Members may be taken by the Members, without a meeting, without prior notice and
without a vote, if a consent or consents in writing setting forth the action so taken is signed by
the holders of a Required Interest (or holders of such higher aggregate percentage of Unit as is
required to authorize or take such action under the terms of the Certificate, this Agreement or
Applicable Law). Any such written consent may be executed and ascribed to by facsimile or similar
electronic means.
7.5 Record Date. The Board of Directors may fix a record date for purposes of determining Members
entitled to notice of or vote at a meeting of Members (including any adjournment thereof), Members
entitled to consent to action by written consent, and Members entitled to receive payment of any
dividend or other distribution or allotment of any rights, which such record date shall not precede
the date upon which the resolution fixing the record date is adopted by the Board of Directors and
which such record date shall not be more than sixty nor less than ten days before the date of such
meeting, consent or payment.
7.6 Adjournment. The chairman of the meeting or the holders of a Required Interest shall have the
power to adjourn such meeting from time to time, without any notice other than announcement at the
meeting of the time and place of the holding of the adjourned meeting. If such meeting is adjourned
by the Members, such time and place shall be determined by a vote of the holders of a Required
Interest and no notice of the adjourned meeting need be given if such time and place are announced
at the meeting at which the adjournment is taken. Upon the resumption of such adjourned meeting,
any business may be transacted that might have been transacted at the meeting as originally called.
7.7 Conversion.
(a) Immediately prior to the consummation of an IPO authorized by the Board of Directors, the
Members and Board of Directors will take all necessary and desirable actions in consummation of any
such IPO, and, if approved by the Board of Directors, effect a Solvent Reorganization of the
Company into a corporation and/or an exchange of the Units into Securities of the Company or its
Subsidiaries or distribution of Securities of the Company or its Subsidiaries in respect of
-20-
Units (the “Reclassified Securities”) the Board of Directors finds acceptable;
provided, that (i) the Reclassified Securities provide each Member with substantially similar
economic interest, governance, priority, vesting and other rights and privileges as such Member had
prior to such recapitalization and/or exchange (prior to giving effect to the effect of the IPO on
the terms of this Agreement) and are consistent with the rights and preferences attendant to such
Units as set forth in this Agreement or Applicable Law as in effect immediately prior to such IPO
and (ii) except as otherwise provided herein, the provisions of this Agreement shall apply to the
Reclassified Securities and the issuer thereof as such provisions apply to the Units and the
Company, mutatis mutandis.
7.8 Merger and Consolidation. Pursuant to an agreement of merger or consolidation, the Company may
merge or consolidate with or into one or more limited liability companies or one or more other
business entities (as defined in the Act); provided that such merger or
consolidation is approved by the Board of Directors and authorized by the affirmative vote of the
Required Interest.
7.9 Sale of Assets. The Company may sell, lease or exchange all or substantially all of its
property and assets upon such terms and conditions and for such consideration as the Board of
Directors deems expedient and for the best interests of the Company, provided that
such sale, lease or exchanges is approved by the Board of Directors and authorized by a resolution
adopted by the Required Interest at a special meeting duly called for purposes of considering such
sale, lease or exchange.
ARTICLE VIII.
INDEMNIFICATION
INDEMNIFICATION
8.1 Right to Indemnification.
(a) No Member shall have any fiduciary or other duty to another Member with respect to the
business and affairs of the Company. No Member shall have any responsibility to restore any
negative balance in his capital account or to contribute to or in respect of the liabilities or
obligations of the Company or to return distributions made by the Company, except as required by
the Act or other Applicable Law.
(b) To the fullest extent permitted by Applicable Law, no Director of the Company shall be
personally liable to the Company or to any Member or other person or entity who may become a party
to or bound by this Agreement for any losses, claims, damages or liabilities arising from any act
or omission performed or omitted by the Director of the Company in connection with this Agreement
or the Company’s business and affairs or for breach of any duties (including fiduciary duties)
arising under or in connection with this Agreement or the Company, except for any losses, claims,
damages or liabilities primarily attributable to the Director’s willful misconduct, bad faith,
recklessness or gross negligence, as finally determined by a court of competent jurisdiction, or as
otherwise required by law.
(c) To the fullest extent permitted by Applicable Law, no Member, Director, officer, or any
direct or indirect officer, director, Affiliate stockholder, member or partner of a Member (each,
an “Indemnitee”), shall be liable, responsible or accountable in damages or otherwise to
the Company or any Member for any act or failure to act by such Indemnitee in connection with the
conduct of the business of the Company, or by any other such Indemnitee in performing or
participating in the
-21-
performance of the obligations of the Company, so long as such action or failure to act was
not in material violation of this Agreement and did not constitute gross negligence or willful
misconduct.
(d) To the fullest extent permitted by Applicable Law, the Company shall indemnify and hold
harmless each Indemnitee to the fullest extent permitted by Applicable Law against losses, damages,
liabilities, costs or expenses (including reasonable attorneys’ fees and expenses and amounts paid
in settlement) incurred by any such Indemnitee in connection with any action, suit or proceeding to
which such Indemnitee may be made a party or otherwise involved or with which it shall be
threatened by reason of its being a Member, Director, officer, or any direct or indirect officer,
director, Affiliate stockholder or partner of a Member, or while acting as (or on behalf of) a
Member on behalf of the Company or in the Company’s interest. Such attorneys’ fees and expenses
shall be paid by the Company as they are incurred upon receipt, in each case, of an undertaking by
or on behalf of the Indemnitee to repay such amounts if it is ultimately determined that such
Indemnitee is not entitled to indemnification with respect thereto.
(e) The right of an Indemnitee to indemnification hereunder shall not be exclusive of any
other right or remedy that a Member, Director or officer may have pursuant to Applicable Law or
this Agreement.
(f) An Indemnitee shall be fully protected in relying in good faith upon the records of the
Company and upon such information, opinions, reports or statements presented to the Company by any
Person as to matters the Indemnitee reasonably believes are within such other Person’s professional
or expert competence and who has been selected with reasonable care by or on behalf of the Company,
including information, opinions, reports or statements as to the value and amount of the assets,
liabilities, or any other facts pertinent to the existence and amount of assets from which
distributions to the Member might properly be paid.
(g) To the extent that, at law or in equity, an Indemnitee has duties (including fiduciary
duties) and liabilities relating thereto to the Company or to any other Indemnitee, an Indemnitee
acting within the scope of this Agreement shall not be liable to the Company or to any other
Indemnitee for its good faith reliance on the provisions of this Agreement or any approval or
authorization granted by the Company or any other Indemnitee. The provisions of this Agreement, to
the extent that they restrict the duties and liabilities of an Indemnitee otherwise existing at law
or in equity, are agreed by the Members to replace such other duties and liabilities of such
Indemnitee.
(h) The foregoing provisions of this Section 8.1 shall (a) survive any termination of this
Agreement and (b) be contract rights, and no amendment, modification, supplement, restatement or
repeal of this Section 8.1 shall have the effect of limiting or denying any such rights with
respect to actions giving rise to losses, damages, liabilities, costs or expenses (including
reasonable attorneys’ fees and expenses and amounts paid in settlement) prior to any such
amendment, modification, supplementation or repeal.
8.2 Insurance and Other Indemnification. The Board of Directors shall have the power to (i)
authorize the Company to purchase and maintain, at the Company’s expense, insurance on behalf of
the Company and on behalf of others to the extent that power to do so has not been prohibited by
Applicable Law, (ii) create any fund of any nature, whether or not under
-22-
the control of a trustee, or otherwise secure any of its indemnification obligations, and (iii)
give other indemnification to the extent permitted by Applicable Law.
ARTICLE IX.
TAXES
TAXES
9.1 Tax Returns. The Board of Directors shall cause the Company to prepare and file all necessary
U.S. federal, state, local and foreign tax returns for the Company including making the elections
described in Section 9.2. Each Member shall furnish to the Company all pertinent information
(including without limitation form W-8BEN, W-8ECI or W-8EXP, as applicable) in its possession
relating to Company operations that is necessary to enable the Company’s tax returns to be prepared
and filed. Such tax returns will duly reflect the allocation of income, gain, loss and deduction
set forth in Article IV of this Agreement.
9.2 Tax Elections. To the extent permitted by applicable tax law, the Company shall make the
following elections on the appropriate tax returns:
(a) to adopt the fiscal year ending December 31 as the Company’s taxable year; and
(b) to adopt the accrual method of accounting and to keep the Company’s books and records on
the accrual basis method.
Neither the Company nor any Director or Member may make an election for the Company to be excluded
from the application of the provisions of subchapter K of chapter 1 of subtitle A of the Code or
any similar provisions of applicable state law, and no provision of this Agreement shall be
construed to sanction or approve such an election.
9.3 Tax Allocations and Reports. The Company shall take reasonable efforts so that within three
calendar months after the end of each fiscal year, the Board of Directors shall cause the Company
to furnish each Member an Internal Revenue Service Form K-l, Form 5471 and any similar form
required for the filing of state or local income tax returns for such Member for such fiscal year,
which forms will duly reflect the allocation of income, gain, loss and deduction set forth in
Article IV of this Agreement. Upon the written request of any such Member and at the expense of
such Member, the Company will use reasonable efforts to deliver or cause to be delivered any
additional information necessary for the preparation of any federal, state, local and foreign
income tax return which must be filed by such Member.
(a) The Tax Matters Partner will determine whether to make or revoke any available election
pursuant to the Code. Each Member will, upon request, supply the information necessary to give
proper effect to any such election.
(b) The Board of Directors shall designate a Member to act as the “Tax Matters
Partner” (as defined in Section 6231(a)(7) of the Code) in accordance with Sections 6221
through 6233 of the Code. Upon such designation, the Tax Matters Partner shall be authorized and
required to represent the Company (at the Company’s expense) in connection with all examinations of
the Company’s affairs by tax authorities, including resulting administrative and judicial
proceedings, and to expend Company funds for professional services and costs associated therewith;
provided that, the Tax Matters Partner may be removed and replaced by, and shall
act in such capacity at the direction of, the
-23-
Board of Directors. Each Member agrees to cooperate with the Tax Matters Partner and to do or
refrain from doing any or all things reasonably requested by the Tax Matters Partner with respect
to the conduct of such proceedings. Subject to the foregoing proviso, the Tax Matters Partner will
have reasonable discretion to determine whether the Company (either on its own behalf or on behalf
of the Members) will contest or continue to contest any tax deficiencies assessed or proposed to be
assessed by any taxing authority. Any deficiency for taxes imposed on any Member (including
penalties, additions to tax or interest imposed with respect to such taxes) will be paid by such
Member, and if paid by the Company, will be recoverable from such Member (including by offset
against distributions otherwise payable to such Member). Each Director will be provided with a copy
of all tax returns filed by the Company and the Tax Matters Partner will consult with and keep the
Board of Directors fully informed about the status of all material tax examinations, controversies
and proceedings.
9.4 Partnership for U.S. Federal Tax Purposes. Prior to the effective time of an affirmative
election for the Company to be treated as a corporation for U.S. federal income tax purposes or
prior to the time the Company is converted to a corporation under Delaware (or other state) law,
whether by operation of law, merger, or otherwise, for U.S. federal tax purposes the parties agree
to treat the Company as a partnership and to treat all Units as interests in such partnership and
no party shall take any position inconsistent with this characterization in any tax return or
otherwise.
9.5 Unrelated Business Taxable Income. The Company will operate and make investments in a manner
that will not cause a non-U.S. Member to be obligated to file tax returns as a result of income
that is effectively connected with the conduct of a trade or business within the United States
within the meaning of Sections 871 and 882 of the Code, or as a result of the application of
Section 897 of the Code. The Company will operate and make investments in a manner that will not
cause a any Tax Exempt Member or beneficial owner thereof to realize any “unrelated business
taxable income” within the meaning of Sections 512 through 514 of the Code or any item of gross
income that would be included in determining such Member’s (or beneficial owner’s) unrelated
business taxable income.
ARTICLE X.
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.1 Book. The Company shall maintain complete and accurate books of account of the Company’s
affairs at the Company’s principal office, which books shall be open to inspection by any Member
(or its authorized representative) to the extent required by the Act.
10.2 Company Funds. Except as specifically provided in this Agreement or with the approval of the
Board of Directors, the Company shall not pay to or use for, the benefit of any Member (except in
any Member’s capacity as a Director, employee or independent contractor of the Company), funds,
assets, credit, or other resources of any kind or description of the Company. Funds of the Company
shall (i) be deposited only in the accounts of the Company in the Company’s name, (ii) not be
commingled with funds of any Member, and (iii) be withdrawn only upon such signature or signatures
as may be designated in writing from time to time by the Board of Directors.
-24-
ARTICLE XI.
DISSOLUTION, LIQUIDATION, AND TERMINATION
DISSOLUTION, LIQUIDATION, AND TERMINATION
11.1 Dissolution. The Company shall dissolve and its affairs shall be wound up on the first to
occur of the following:
(a) the decision of the Board of Directors to dissolve and liquidate the Company;
(b) the written consent of Members owning a majority of the Common Units; and
(c) entry of a decree of judicial dissolution of the Company under Section 18-802 of the Act.
The Company shall not be dissolved by the admission of Members in accordance with the terms of
this Agreement. The death, insanity, retirement, resignation, expulsion, bankruptcy or dissolution
of a Member or the occurrence of an event that terminates the continued membership of a Member in
the Company, shall not cause the Company to be dissolved and its affairs wound up so long as the
Company at all times has at least one Member. Upon the occurrence of any such event, the business
of the Company shall be continued without dissolution.
11.2 Liquidation and Termination.
(a) On dissolution of the Company, Company shall conduct only such activities as are necessary
to wind up its affairs (including the sale of the assets of the Company in an orderly manner) and
the Directors who have not wrongfully dissolved the Company shall act as liquidator or may appoint
one or more Members as liquidator. The liquidator shall wind up the affairs of the Company as
provided in the Act and shall have all the powers set forth in the Act. The costs of liquidation
shall be a Company expense.
(b) Upon the winding up of the Company, the assets of the Company shall first be distributed
to creditors, including Members and Directors who are creditors, to the extent otherwise permitted
by Applicable Law, in satisfaction of liabilities of the Company (whether by payment or the making
of reasonable provision for payment thereof) other than liabilities for which reasonable provision
for payment has been made.
(c) Any assets remaining after the Company’s liabilities and obligations have been paid (or
reasonable provision for the payment thereof has been made) shall be distributed to the Members in
accordance with the positive capital account balances of the Members, as determined after taking
into account all capital account adjustments for the Company’s taxable year during which such
liquidation occurs (other than those made as a result of this Section), by the end of such taxable
year or, if later, within 90 days after the date of such liquidation, except as permitted by Reg. §
1.704- l(b)(2)(ii)(b).
(d) If, at the discretion of the Board of Directors, any assets of the Company are distributed
in-kind to the Members, such assets shall be valued on the basis of the fair market value thereof
as determined by the Board of Directors in their reasonable discretion on the date of distribution.
Without limiting the Board of Directors’ discretion to make such a valuation or requiring that any
such appraisal be made, the valuation of any asset by the Board of Directors on the basis of the
determination
-25-
of its fair market value by an independent appraiser shall be deemed to be a reasonable value
for such asset and a reasonable exercise of such discretion. Upon any such in-kind distribution to
a Member, the capital accounts of the Members shall be adjusted to reflect the manner in which the
unrealized income, gain, loss or deduction inherent in such property (that has not previously been
reflected in the Members’ capital accounts) would be allocated among the Members if there had been
a taxable disposition of such property at its fair market value on the date of distribution. The
capital accounts of the Members receiving a distribution in-kind shall then be reduced by the fair
market value of the property distribution.
(e) Nothing in this ARTICLE XI shall be construed to extend the time period prescribed under
Section 11.2(c) above and Reg. § 1.704-l(b)(2)(ii)(b) for making liquidating distributions of the
Company’s assets. If the liquidator deems it impracticable to cause the Company to make
distributions of the liquidating proceeds to the Members within the time period described under
Reg. § 1.704-l(b)(2)(ii)(b), the liquidator may make any arrangement that is considered for federal
income tax purposes to effectuate liquidating distributions of all of the Company’s assets to the
Members within the time period prescribed in such regulation and that will permit the sale of the
non-cash assets considered so distributed in a manner that gives effect, to the extent possible, to
the intent of the preceding provisions of this ARTICLE XI.
11.3 Deficit Capital Accounts. Notwithstanding anything to the contrary contained in this
Agreement, and notwithstanding any custom or rule of law to the contrary, upon dissolution of the
Company, the deficit, if any, in the capital account of any Member, including any deficit that
results from or is attributable to deductions and losses of the Company (including non-cash items
such as depreciation) or distributions of assets pursuant to this Agreement to all Members, shall
not be an asset of the Company and such Members shall not be obligated to contribute such amount to
the Company to bring the balance of such Member’s capital account to zero.
11.4 Certificate of Cancellation. On the completion of the winding up of the Company following its
dissolution, the Board of Directors shall cancel any filings made pursuant to Section 1.5 and the
Board of Directors (or such other person or persons as the Act may require or permit) shall file a
Certificate of Cancellation with the Office of the Secretary of State of the State of Delaware.
The Company shall terminate when the Certificate shall have been canceled in the manner required by
the Act.
ARTICLE XII.
TRANSFER RESTRICTIONS
TRANSFER RESTRICTIONS
12.1 Limitations on Transfers.
(a) No Member shall be permitted to Transfer any Units held by such Member except for
Transfers made in accordance with this Section 12.1.
(b) Notwithstanding any other provisions of this Agreement, or the compliance with any of the
terms hereof, no Transfer of Units shall be effective, and any such Transfer of Units shall be
deemed null and void, if, at the time of such Transfer, the Company has more than 450 “holders of
record” (as understood for purposes of Section 12(g) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) of Units and/or Warrants.
-26-
(c) Subject to Section 12.1(e), the limitations set forth in Section 12.1(b) shall not
prohibit: (i) a Transfer of Units by a Member to another Person that, immediately prior to the
Transfer, is a holder of record of Units and/or Warrants, (ii) a Transfer of Units by a Member to
the Company, (iii) a Transfer of Units by the Company to a Person that, immediately prior to the
Transfer, is a holder of record of Units and/or Warrants, or (iv) a Transfer of all Units owned by
the proposed transferor to a single Person who is treated as a single record holder of Units under
the Exchange Act. Any attempted Transfer that is prohibited by Section 12.1(b) and not approved by
the Company or otherwise prohibited by this Section 12.1 and not approved by the Company shall be
null and void and shall not be effective to Transfer any Units. The proposed transferee shall not
be entitled to any rights of Members of the Company, including, but not limited to, the rights to
vote or to receive dividends and liquidating distributions, with respect to the Units that were the
subject of such attempted Transfer.
(d) By the fifth (5th) business day after the Company has 350 or more holders of record of
Warrants and/or Common Units, the Company shall issue a press release stating the number of holders
of record of Warrants and Common Units (a “Notice Date Press Release”). A Transfer of
Units that is completed or attempted after the Company issues a Notice Date Press Release shall be
null and void and not effective unless (i) the holder seeking to make such Transfer delivers to the
Company notice of its intent to Transfer, (ii) such Transfer is approved in advance by the Company
and (iii) such Transfer otherwise complies with the terms of this Agreement.
(e) Notwithstanding anything to the contrary in this Agreement or this Section 12.1, no sale,
disposition or other transfer of Units otherwise permitted by this Agreement shall be effective
without the prior written consent of the Company if, in the Company’s sole discretion, such
disposition could cause the Company to be treated as a “publicly traded partnership” within the
meaning of section 7704 of the Code.
(f) The restrictions contained in this Section 12.1 are for the purpose of ensuring that the
Company is not required to become a registrant under the Exchange Act due to the number of Members
or becoming a “publicly traded partnership” within the meaning of section 7704 of the Code. The
Company may institute legal proceedings to force rescission of a Transfer prohibited by this
Section 12.1 and to seek any other remedy available to it at law, in equity or otherwise, including
an injunction prohibiting any such Transfer.
(g) No Transfer of any Units shall become effective (i) unless prior written notice thereof
has been delivered to the Company, (ii) unless such Transfer complies with this Section 12.1, (iii)
until the Transferee (unless already party to this Agreement) executes and delivers to the Company
a Joinder Agreement in the form attached hereto as Exhibit B and (iv) upon request by the
Company, the delivery of an opinion of counsel, in form and substance reasonably satisfactory to
the Board of Directors, with respect to the compliance of the Transfer under Applicable Law and any
other matters reasonably requested by the Company. Upon such Transfer and such execution and
delivery, the Transferee shall be bound by, and entitled to the benefits of, this Agreement with
respect to the Transferred Units in the same manner as the Member effecting such Transfer.
-27-
12.2 Drag-Along Rights.
(a) At any time, if Avenue desires to effect a Drag-Along Sale, Avenue at its option may
require all Members to sell such number of their respective Units on a pro-rata basis as Avenue
desires such Members to sell to any Person that is not affiliated with Avenue in such Drag Along
Sale for the consideration determined in accordance with Section 12.2(d) and otherwise on the same
terms and conditions as apply to those Units to be sold by Avenue. A “Drag-Along Sale”
shall mean the occurrence of any of the following: (i) any “person” or “group” (within the meaning
of Sections 13(d) and 14(d)(2) of the Exchange Act) other than current Members of the Company, is
or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of more than one-half of the then outstanding voting securities of the Company; (ii)
there occurs a merger, consolidation or combination of the Company with any other entity, other
than a merger, consolidation or combination which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity or its parent) at
least a majority of the combined voting power of the voting securities of the Company, or such
surviving entity or its parent outstanding immediately after such merger, consolidation or
combination; (iii) any Person or Persons, other than Members of the Company on the Effective Date,
has or have the right to elect a majority in number of the persons then serving on the Board of
Directors; or (iv) all or substantially all of the assets of the Company are sold to an
unaffiliated third party or parties in one transaction or series of related transactions followed
by the dissolution and winding up of the Company.
(b) Written notice of the Drag-Along Sale (the “Drag-Along Sale Notice”) shall be
provided by Avenue to all holders of Units. Such Drag-Along Sale Notice shall disclose in
reasonable detail the number and class of Units to be subject to the Drag-Along Sale (the
"Drag-Along Securities”), an estimate of the proposed price, the other proposed terms and
conditions of the proposed Drag-Along Sale (including copies of the definitive agreements relating
thereto, if available) and the identity of the prospective purchaser.
(c) With respect to any Drag-Along Sale, each Member agrees that it shall use its reasonable
best efforts to effect the Drag-Along Sale as expeditiously as practicable, including delivering
all documents necessary or reasonably requested in connection with such Drag-Along Sale, voting in
support of such transaction and entering into any instrument, undertaking or obligation necessary
or reasonably requested in connection with such Drag-Along Sale (as specified in the Drag-Along
Sale Notice). Subject to the terms and conditions of this Section 12.2(c) and without limiting the
generality of the foregoing, the Company and each Member shall take or cause to be taken all
actions, and do, or cause to be done, on behalf and in respect of the Company any and all actions
that may be reasonably requested consistent with this Section 12.2(c) in connection with any
Drag-Along Sale. In addition, each holder of Drag-Along Securities, in the case of a Drag-Along
Sale, shall (i) pay its pro rata share (based on the aggregate proceeds) of the reasonable expenses
(if any) incurred by the Company in connection with such Drag-Along Sale; and (ii) join on a pro
rata basis (based on the aggregate proceeds), severally and not jointly, in any indemnification or
other obligations that are specified in the Drag-Along Sale Notice, other than any such obligations
which relate specifically to a particular holder such as indemnification with respect to
representations and warranties given by a holder regarding such holder’s title to and ownership of
Units and other fundamental customary representations and warranties; provided that no holder shall
be obligated under this clause in connection with such Transfer to agree to indemnify or hold
harmless the Transferee or Transferees with respect to an amount in excess of the proceeds paid in
respect of such holder’s Units in connection with such Drag-Along Sale.
-28-
(d) In the event of a Drag-Along Sale, each Member shall be required to Transfer such Units
held by such Member as provided in the Drag-Along Sale Notice to the extent such Transfer is
required under Section 12.2 hereof. In the event of a Drag-Along Sale of all of the Units or a
repurchase of Units by the Company pursuant to Section 12.2(e), the amount each Member will be
entitled to receive in respect of any Units sold in such Drag-Along Sale will be the amount that
would have been distributable pursuant to Section 4.2, assuming all proceeds of such Drag-Along
Sale were received by the Company and distributed. Each Member will be entitled to receive the same
form of consideration (and be subject to the same indemnity and escrow provisions) as a result of
such Drag-Along Sale.
(e) Notwithstanding anything to the contrary set forth in this Section 12.2, the Company or
its designee shall have the option on a Drag-Along Sale to purchase, and each Member shall be
required to sell, any Units held by such Member to the Company.
12.3 Holdback Agreement. If requested by the lead managing underwriter, each Member agrees not to
effect any public sale or distribution of any Securities of the Company (or any other entity or
entities created though any Solvent Reorganization or designated by the Board of Directors) being
registered or of any securities convertible into or exchangeable or exercisable for such Company
Securities, including a sale pursuant to Rule 144 under the Securities Act, during a period of not
more than one hundred and eighty (180) days after, an IPO commencing on the effective date of the
registration statement (the “Lock-Up Period”), unless expressly authorized to do so by the
lead managing underwriter; provided, however, that if any other holder of
securities of the Company shall be subject to a shorter period or receives more advantageous terms
relating to the Lock-Up Period, then the Lock-Up Period shall be such shorter period and also on
such more advantageous terms and notwithstanding the foregoing, the Members shall not be required
to sign lock-up agreements unless all of the Company’s directors, officers and securityholders
owning one percent (1%) or more of the Company’s fully diluted voting stock have signed lock-up
agreements with the managing underwriters. Any such lock-up agreements signed by the Members shall
contain reasonable and customary exceptions, including, without limitation, the right of a Holder
to make transfers to certain Affiliates and transfers related to securities owned by Members as a
result of open market purchases made following the closing of the applicable offering. The Company
shall be authorized to impose stop-transfer instructions with respect to the securities subject to
the foregoing restrictions until the end of the relevant period.
ARTICLE XIII.
GENERAL PROVISIONS
GENERAL PROVISIONS
13.1 Offset. Whenever the Company is to pay any sum to any Member, any amounts then due and payable
from such Member to the Company may be deducted from that sum before payment.
13.2 Notices. Except as expressly set forth to the contrary in this Agreement, all notices,
requests, or consents provided for or permitted to be sent under this Agreement must be in writing
and must be sent by registered mail, addressed to the recipient, postage paid, or by delivering
that writing to the recipient in person, by internationally recognized express courier, or by
facsimile transmission; and a notice, request, or consent sent under this Agreement is
-29-
effective on receipt by the person to receive it. A notice, request or consent shall be deemed
received when delivered if personally delivered, after a “good transmission” receipt is received,
if sent via facsimile, or otherwise on the date of receipt by the recipient thereof. All notices,
requests, and consents to be sent to a Member must be sent to or made at the address or facsimile
number ascribed to that Member on the books of the Company or such other address or facsimile
number as that Member may specify by notice to the Company and the other Members. Any notice,
request, or consent to the Company must be sent to the Company at its principal office. Whenever
any notice is required to be sent by law, the Certificate or this Agreement, a written waiver
thereof, signed by the person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to the giving of such notice.
13.3 Entire Agreement. This Agreement constitutes the entire agreement among the parties on the
date hereof with respect to the subject matter hereof and supersedes all prior understandings,
contracts or agreements among the parties with respect to the subject matter hereof, whether oral
or written.
13.4 Effect of Waiver or Consent. The failure of a Member to insist on the strict performance of
any covenant or duty required by the Agreement, or to pursue any remedy under the Agreement, shall
not constitute a waiver of the breach or the remedy.
13.5 Amendment. This Agreement may be amended or modified, or any provision hereof may be waived,
provided that such amendment, modification or waiver is set forth in a writing executed by (i) the
Company and (ii) the Required Interest, except an amendment that materially and adversely affects
any Member without similarly affecting the rights and obligations of all holders of the same class
of Units shall be effective only if such Member executes such amendment. No course of dealing
between or among any Persons having any interest in this Agreement will be deemed effective to
modify, amend or discharge any part of this Agreement or any rights or obligations of any Person
under or by reason of this Agreement.
13.6 Binding Act. Subject to the restrictions on transfer set forth in this Agreement, this
Agreement is binding on and inures to the benefit of the Members and their respective heirs, legal
representatives, successors, and assigns.
13.7 Governing Law. All issues and questions concerning the application, construction, validity,
interpretation and enforcement of this Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware and the Act, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State of Delaware.
13.8 Consent to Exclusive Jurisdiction. Each of the parties hereto agrees that any legal action or
proceeding with respect to this Agreement or any agreement, certificate or other instrument entered
into in contemplation of the transactions contemplated by this Agreement, or any matters arising
out of or in connection with this Agreement or such other agreement, certificate or instrument, and
any action for the enforcement of any judgment in respect thereof, shall be brought exclusively in
the Delaware Court of Chancery of New Castle County, Delaware or the courts of the United States of
America for the District of Delaware, unless the
-30-
parties to any such action or dispute mutually agree to waive this provision. By execution and
delivery of this Agreement, each of the parties hereto irrevocably consents to service of process
out of any of the aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, or by recognized express carrier or
delivery service, to the applicable party at his, her or its address referred to herein. Each of
the parties hereto irrevocably waives any objection which he, she or it may now or hereafter have
to the laying of venue of any of the aforementioned actions or proceedings arising out of or in
connection with this Agreement, or any related agreement, certificate or instrument referred to
above, brought in the courts referred to above and hereby further irrevocably waives and agrees, to
the fullest extent permitted by applicable law, not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in any inconvenient forum.
Nothing herein shall affect the right of any party to serve process in any other manner permitted
by law.
13.9 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision of this Agreement is
held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision
or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision had never been contained
herein. The Members shall negotiate in good faith to replace any provision so held to be invalid or
unenforceable so as to implement most effectively the transactions contemplated by such provision
in accordance with the original intent of the Members signatory hereto.
13.10 Further Assurances. In connection with this Agreement and the transactions contemplated
hereby, each Member shall execute and deliver any additional documents and instruments and perform
any additional acts that may be necessary or appropriate to effectuate and perform the provisions
of this Agreement and those transactions.
13.11 No Third Party Benefit. The provisions hereof are solely for the benefit of the Company and
its Members, Directors and Officers and are not intended to, and shall not be construed to, confer
a right or benefit on any creditor of the Company or any other Person.
13.12 Counterparts. This Agreement may be executed in any number of counterparts with the same
effect as if all signing parties had signed the same document. All counterparts shall be construed
together and constitute the same instrument.
13.13 Construction. Whenever the context requires, the gender of all words used in this Agreement
includes the masculine, feminine and neuter. All references to Articles and Sections refer to
Articles and Sections of this Agreement, and all references to Exhibits are to Exhibits attached
hereto, each of which is made a part hereof for all purposes.
-31-
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first set
forth above.
| AVENUE INTERNATIONAL MASTER, L.P. By: Avenue International Master GenPar, Ltd., its General Partner |
||||
| Name: | ||||
| Title: | ||||
| AVENUE INVESTMENTS, L.P. By: Avenue Partners, LLC, its General Partner |
||||
| Name: | ||||
| Title: | ||||
| AVENUE SPECIAL SITUATIONS FUND V, L.P. By: Avenue Capital Partners V, LLC, its General Partner By: GL Partners V, LLC, its Managing Member |
||||
| Name: | ||||
| Title: | ||||
| AVENUE SPECIAL SITUATIONS FUND IV, L.P. By: Avenue Capital Partners IV, LLC, General Partner By: GL Partners IV, LLC, its Managing Member |
||||
| Name: | ||||
| Title: | ||||
| AVENUE-CDP GLOBAL OPPORTUNITIES FUND, L.P. By: Avenue Global Opportunities Fund GenPar, LLC, its General Partner |
||||
| Name: | ||||
| Title: | ||||
Exhibit 3.4
CERTIFICATE OF INCORPORATION
OF MAGNACHIP SEMICONDUCTOR CORPORATION
a Delaware Corporation
OF MAGNACHIP SEMICONDUCTOR CORPORATION
a Delaware Corporation
ARTICLE FIRST
The name of the Corporation is MagnaChip Semiconductor Corporation (the
“Corporation”).
ARTICLE SECOND
The address of the registered office of the Corporation in the State of Delaware is 615 S.
DuPont Highway, in the City of Dover, County of Kent. The name of the registered agent at that
address is National Corporate Research, Ltd.
ARTICLE THIRD
The purpose of the Corporation is to engage in any lawful act or activity for which a
corporation may be organized under the General Corporation Law of Delaware (“DGCL”).
ARTICLE FOURTH
(a) The total number of shares of all classes of stock which the Corporation shall have
authority to issue is shares consisting of:
(i) shares of Common Stock, with a par value of $0.01 per share (the “Common Stock”);
and
(ii) shares of Preferred Stock, with a par value of $0.01 per share (the “Preferred
Stock”).
(b) The Board of Directors is authorized, subject to any limitations prescribed by law, to
provide for the issuance of shares of Preferred Stock in one or more series and, by filing a
certificate of designations (“Preferred Stock Designations”) pursuant to the DGCL, to
establish from time to time the number of shares to be included in each such series, and to fix the
voting rights, if any, designation, powers, preferences and rights of each such series and any
qualifications, limitations or restrictions thereon. The number of authorized shares of Preferred
Stock may be increased or decreased (but not below the number of shares thereof then outstanding)
by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock,
without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of
any such holders is required pursuant to the Certificate of Incorporation or Preferred Stock
Designations.
(c) The holders of shares of Common Stock shall be entitled to one vote for each such share on
each matter properly submitted to the stockholders on which the holders of shares of Common Stock
are entitled to vote. No stockholder of the Corporation shall be entitled to exercise any right of
cumulative voting. Except as may otherwise be provided in this Certificate of Incorporation, in
one or more Preferred Stock Designations (excluding the right to elect, in the aggregate, a
majority or more of directors of the Corporation) or by applicable law, at any annual or special
meeting of the stockholders the Common Stock shall have the exclusive right to vote for the
election of directors and on all other matters properly submitted to a vote of the stockholders.
Notwithstanding the foregoing, except as otherwise required by law or this Certificate of
Incorporation (including a Preferred Stock Designation), holders of Common Stock shall not be
entitled to vote on any amendment to this Certificate of Incorporation (including any amendment to
any Preferred Stock Designation) that relates solely to the terms of one or more outstanding series
of Preferred
Stock if the holders of such affected series are entitled, either separately or together with
the holders of one or more other such series, to vote thereon pursuant to this Certificate of
Incorporation (including any Preferred Stock Designation).
(d) Subject to the rights of the holders of Preferred Stock, the holders of shares of Common
Stock shall be entitled to receive such dividends and other distributions (payable in cash,
property or capital stock of the Corporation) when, as and if declared thereon by the Board of
Directors from time to time out of any assets or funds of the Corporation legally available
therefor and shall share equally on a per share basis in such dividends and distributions.
(e) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, after payment or provision for payment of the debts and other liabilities of the
Corporation, and subject to the rights of the holders of Preferred Stock in respect thereof, the
holders of shares of Common Stock shall be entitled to receive all the remaining assets of the
Corporation available for distribution to its stockholders, ratably in proportion to the number of
shares of Common Stock held by them.
(f) Upon the filing of the Certificate of Conversion of MagnaChip Semiconductor LLC to the
Corporation and this Certificate of Incorporation (the “Effective Time”), (i) each Common
Unit of MagnaChip Semiconductor LLC (the “Common Units”) will be converted into issued and outstanding, fully paid and nonassessable shares of Common Stock without any
action required on the part of the former holders of such Common Units.
ARTICLE FIFTH
The following provisions are inserted for the management of the business and the conduct of
the affairs of the Corporation, and for further definition, limitation and regulation of the powers
of the Corporation and of its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by or under the direction of
the Board of Directors. In addition to the powers and authority expressly conferred upon them by
statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the Board of
Directors is hereby empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL, this
Certificate of Incorporation and any Bylaws adopted by the stockholders; provided,
however, that no Bylaws hereafter adopted by the stockholders shall invalidate any prior
act of the Board of Directors that would have been valid if such Bylaws had not been adopted.
(b) The number of directors shall initially be seven (7) and, thereafter, shall be fixed from
time to time exclusively by the Board of Directors.
(c) The directors of the Corporation need not be elected by written ballot unless the Bylaws
so provide.
ARTICLE SIXTH
(a) On or after the closing date of the first sale of the Corporation’s Common Stock pursuant
to a firmly underwritten registered public offering (the “IPO”), any action required or
permitted to be taken by the stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may not be effected by any consent
in writing by such stockholders. At all times prior to such IPO, any action which may be taken at
any annual or special meeting of stockholders may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the actions so
2
taken, is signed by the holders of outstanding shares having not less than the minimum number
of votes which would be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. All such consents shall be filed with the
Secretary of the Corporation and shall be maintained in the corporate records. Prompt notice of
the taking of a corporate action without a meeting by less than unanimous written consent shall be
given to those stockholders who have not consented in writing.
ARTICLE SEVENTH
In furtherance and not in limitation of the powers conferred upon it by law, the Board of
Directors is expressly empowered to adopt, amend, alter or repeal the Bylaws of the Corporation.
The stockholders shall also have power to adopt, amend, alter or repeal the Bylaws of the
Corporation. Any adoption, amendment, alteration or repeal of the Bylaws of the Corporation by the
stockholders shall require, in addition to any vote of the holders of any class or series of stock
of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then outstanding shares of the capital stock of the Corporation entitled to vote generally in
the election of directors, voting together as a single class.
ARTICLE EIGHTH
No person who is or was a director of the Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation thereof is not permitted
by the DGCL as the same exists or hereafter may be amended.
If the DGCL is hereafter amended to authorize the further elimination or limitation of the
liability of a director, then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the DGCL, as so amended.
Any repeal or amendment of this Article EIGHTH by the stockholders of the Corporation or by
changes in law, or the adoption of any other provision of this Certificate of Incorporation
inconsistent with this Article EIGHTH will, unless otherwise required by law, be prospective only
(except to the extent such amendment or change in law permits the Corporation to further limit or
eliminate the liability of directors) and shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or amendment or adoption of such
inconsistent provision with respect to acts or omissions occurring prior to such repeal or
amendment or adoption of such inconsistent provision.
ARTICLE NINTH
The Corporation reserves the right to amend, alter, change or repeal any provision contained
in this Certificate of Incorporation (including any Preferred Stock Designation) in any manner now
or hereafter prescribed by this Certificate of Incorporation and the DGCL; and all rights,
preferences and privileges herein conferred upon stockholders, directors or any other person by and
pursuant to this Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this Article; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any provision of law
which might otherwise permit a lesser vote or no vote, and in addition to any vote of the holders
of any class or series of the stock of this Corporation required by law or this Certificate of
Incorporation (including any Preferred Stock Designation), the affirmative vote of the holders of
at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to amend, alter, change
or repeal or adopt any provision as part of this Certificate of Incorporation inconsistent
3
with the purpose and intent of, this Article NINTH, Article FIFTH, Article SIXTH, Article SEVENTH,
Article EIGHTH or Article TENTH.
ARTICLE TENTH
Non-employee directors of the Corporation and each non-employee stockholder holding, together
with its Affiliates, more than five percent (5%) of the voting power of all of the then outstanding
shares of capital stock of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, and their Affiliates (collectively, the “Non-Employee
Directors and Stockholders”): (a) may have participated, directly or indirectly, and may
continue to participate (including, without limitation, in the capacity of investor, manager,
officer and employee) in businesses that are similar to or compete with the business (or proposed
business) of the Corporation; (b) may have interests in, participate with, aid and maintain seats
on the board of directors of other such entities; and (c) may develop opportunities for such
entities (collectively, the “Position”). In such Position, the Non-Employee Directors and
Stockholders may encounter business opportunities that the Corporation or its stockholders may
desire to pursue. To the fullest extent permitted by Section 122(17) of the DGCL, the Non-Employee
Directors and Stockholders and any of their respective officers, directors, agents, stockholders,
members, partners, employees, affiliates or subsidiaries shall have no duty to refrain from
engaging directly or indirectly in a corporate opportunity in the same or similar activities or
line of business as the Corporation (and all corporations, partnerships, joint ventures,
associations and other entities in which the Corporation beneficially owns directly or indirectly
50 percent or more of the outstanding voting stock, voting power, partnership interests or similar
voting interests (collectively, “Related Entities”)) engages in or proposes to engage in,
and the Corporation, on behalf of itself and its Related Entities, renounces any interest or
expectancy of the Corporation and its Related Entities in, or in being offered an opportunity to
participate in, business opportunities, that are from time to time presented to any of such persons
or entities, even if the opportunity is one that the Corporation or its Related Entities might
reasonably be deemed to have pursued or had the ability or desire to pursue if granted the
opportunity to do so. To the fullest extent permitted by Section 122(17) of the DGCL, the
Non-Employee Stockholders and Directors and any of their respective officers, directors, agents,
stockholders, members, partners, employees, affiliates or subsidiaries shall also have no
obligation to the Corporation, the stockholders of the Corporation or to any other Person to
present any such business opportunity to the Corporation before presenting and/or developing such
opportunity with any other Persons, other than such opportunities specifically presented to any
such Non-Employee Director or Stockholder for the Corporation’s benefit in his or her capacity as
a Non-Employee Director or Stockholder of the Corporation. In any case where an opportunity is not
specifically presented to a stockholder or director for the Corporation’s benefit, to the extent a
court might hold that the pursuit of the opportunity for the benefit of a person other than the
Corporation is a breach of a duty to the Corporation, the stockholders of the Corporation and the
Corporation hereby waive any and all claims and causes of action that such stockholders and/or the
Corporation believes that it may have for such activities. Any person purchasing or otherwise
acquiring any interest in any shares of stock of the Corporation shall be deemed to have notice of
and consented to the provisions of this Article TENTH. Neither the alteration, amendment or repeal
of this Article TENTH nor the adoption of any provision of this Certificate of Incorporation
inconsistent with this Article TENTH shall eliminate or reduce the effect of this Article TENTH in
respect of any business opportunity first identified or any other matter occurring, or any cause of
action, suit or claim that, but for this Article TENTH, would accrue or arise, prior to such
alteration, amendment, repeal or adoption. For purposes of this Article TENTH, “Affiliate”
means any person who directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified. For purposes of the
definition of Affiliate, “control” means the possession, directly or indirectly, of the
power to direct, or to cause the direction of, the management and policies of a person, whether
through the ownership of voting securities, by contract, or otherwise.
4
ARTICLE ELEVENTH
The incorporator of the Corporation is John McFarland, whose mailing address is c/o MagnaChip
Semiconductor, Inc., 20400 Stevens Creek Boulevard, Suite 370, Cupertino, CA 95014.
The undersigned sole incorporator hereby acknowledges that the foregoing Certificate of
Incorporation is the act and deed of such incorporator and that the facts stated therein are true.
| John McFarland, Sole Incorporator | ||||
5
Exhibit 3.5
BYLAWS OF
MAGNACHIP SEMICONDUCTOR CORPORATION
(the “Corporation”)
MAGNACHIP SEMICONDUCTOR CORPORATION
(the “Corporation”)
ARTICLE I
STOCKHOLDERS
STOCKHOLDERS
1.1 Place of Meetings. All meetings of stockholders shall be held at such
place (if any) within or without the State of Delaware as may be designated from time to time by
the Board of Directors, the Chairman of the Board or the Chief Executive Officer.
1.2 Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be brought before the
meeting shall be held on a date to be fixed by the Board of Directors at the time and place to be
fixed by the Board of Directors and stated in the notice of the meeting. In lieu of holding an
annual meeting of stockholders at a designated place, the Board of Directors may, in its sole
discretion, determine that any annual meeting of stockholders may be held solely by means of remote
communication pursuant to Section 1.13.
1.3 Special Meetings. Except as otherwise required by applicable law or as
provided in the Corporation’s Certificate of Incorporation, special meetings of stockholders may be
called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or by holders of at least 25% of the voting power of all then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors, for any purpose
or purposes prescribed in the notice of the meeting and shall be held at such place (if any), on
such date and at such time as the Board of Directors may fix. In lieu of holding a special meeting
of stockholders at a designated place, the Board of Directors may, in its sole discretion,
determine that any special meeting of stockholders may be held solely by means of remote
communication. Business transacted at any special meeting of stockholders shall be confined to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Written notice of each meeting of stockholders,
whether annual or special, shall be given not less than 10 nor more than 60 days before the date on
which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or as required by law (meaning here and hereafter, as required from time
to time by the Delaware General Corporation Law (“DGCL”) or the Certificate of
Incorporation). The notice of any meeting shall state the place, if any, date and hour of the
meeting, and the means of remote communication, if any, by which stockholders and proxy holders may
be deemed to be present in person and vote at such meeting and the record date for determining the
stockholders entitled to vote at the meeting, if such date is different from the record date for
determining stockholders entitled to notice of the meeting, shall be given in the manner permitted
by Section 5.9 to each stockholder entitled to vote thereat as of the record date for determining
the stockholders entitled to notice of the meeting. The notice of a special meeting shall state,
in addition, the purpose or purposes for which the meeting is called, and the business transacted
at such meeting shall be limited to the matters so stated in the notice of meeting (or any
supplement thereto). Any meeting of stockholders as to which notice has been given may be
postponed, and any special meeting of stockholders as to which notice has been given may be
cancelled, by the Board of Directors upon public announcement (as defined in Section 1.10(a)) given
before the date previously scheduled for such meeting.
1.5 Voting List. The Secretary shall prepare, or shall cause the officer or
agent who has charge of the stock ledger of the Corporation to prepare, at least 10 days before
each meeting of stockholders (provided, however, if the record date for determining the
stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect
the stockholders entitled to vote as of the
tenth day before the meeting date), a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order for each class of stock and showing the address of each
stockholder and the number of shares registered in the name of each stockholder. Nothing contained
in this Section 1.5 shall require the Corporation to include electronic mail addresses or other
electronic contact information on such list. Such list shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, in the manner provided by law. The list shall
also be produced and kept at the time and place of the meeting during the whole time of the
meeting, and may be inspected by any stockholder who is present. If the Corporation determines to
make the list available on an electronic network, the Corporation may take reasonable steps to
ensure that such information is available only to stockholders of the Corporation. If a meeting of
stockholders is to be held solely by means of remote communication as permitted by Section 1.13,
then such list shall be open to the examination of any stockholder during the whole time of the
meeting on a reasonably accessible electronic network, and the information required to access such
list shall be provided with the notice of meeting. The stock ledger shall be the only evidence as
to who are the stockholders entitled to examine the list required by this Section 1.5 or to vote in
person or by proxy at any meeting of stockholders and the number of shares held by each of them.
1.6 Quorum. Except as otherwise provided by applicable law, the Certificate
of Incorporation or these Bylaws, the holders of a majority of the voting power of all outstanding
shares of capital stock of the Corporation entitled to vote at the meeting, present in person or
represented by proxy, shall constitute a quorum for the transaction of business. Where a separate
class vote by a class or classes or series is required, a majority of the voting power of all
outstanding shares of such class or classes or series present in person or represented by proxy
shall constitute a quorum entitled to take action with respect to that vote on that matter. If a
quorum shall not be present or represented by proxy at any meeting of the stockholders, the
chairman of the meeting may adjourn the meeting from time to time in the manner provided in Section
1.7 until a quorum shall attend. The stockholders present at a duly convened meeting may continue
to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the voting power of the shares entitled to vote in the election of
directors of such other corporation is held, directly or indirectly, by the Corporation, shall
neither be entitled to vote nor be counted for quorum purposes; provided, however, that the
foregoing shall not limit the right of the Corporation or any such other corporation to vote shares
held by it in a fiduciary capacity.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any other
time and to any other place at which a meeting of stockholders may be held under these Bylaws by
the chairman of the meeting or, in the absence of such person, by any officer entitled to preside
at or to act as secretary of such meeting, or by the holders of a majority of the shares of stock
present or represented at the meeting and entitled to vote, although less than a quorum. When a
meeting is adjourned to another place, date or time, written notice need not be given of the
adjourned meeting if the date, time, and place, if any, thereof, and the means of remote
communication, if any, by which stockholders and proxy holders may be deemed to be present in
person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is
taken; provided, however, that if the date of any adjourned meeting is more than 30 days after the
date for which the meeting was originally noticed, or if a new record date is fixed for the
adjourned meeting, written notice of the place, if any, date, and time of the adjourned meeting and
the means of remote communications, if any, by which stockholders and proxy holders may be deemed
to be present in person and vote at such adjourned meeting, shall be given in conformity herewith.
At the adjourned meeting, the Corporation may transact any business which might have been
transacted at the original meeting.
1.8 Voting and Proxies. Except as may otherwise be provided in the
Certificate of Incorporation, in one or more Preferred Stock Designations (excluding the right to
elect, in the aggregate,
2
a majority or more of directors of the Corporation) or by applicable law, each stockholder
entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of
stock held of record by such stockholder which has voting power upon the matter in question. Each
stockholder of record entitled to vote at a meeting of stockholders may authorize another person or
persons to vote or act for such stockholder by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer period. Every proxy
must be authorized in a manner permitted by Section 212 of the DGCL or any successor provision. A
proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is
coupled with an interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy that is not irrevocable by attending the meeting and voting in person or by
delivering to the Secretary of the Corporation a revocation of the proxy or a new later dated
proxy. Voting at meetings of stockholders need not be by written ballot. At all meetings of
stockholders for the election of Directors at which a quorum is present, a plurality of the votes
cast shall be sufficient to elect. All other elections and questions presented to the stockholders
at a meeting at which a quorum is present shall, unless otherwise provided by the Certificate of
Incorporation, these Bylaws, the rules or regulations of any stock exchange applicable to the
corporation, or applicable law or pursuant to any regulation applicable to the corporation or its
securities, be decided by the affirmative vote of the holders of a majority in voting power of the
shares of stock of the Corporation which are present in person or represented by proxy at the
meeting and entitled to vote thereon. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission authorizing another person or persons to act as proxy
for a stockholder may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be used; provided that
such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of
the entire original writing or transmission.
1.9 Action at Meeting.
(a) At any meeting of stockholders for the election of one or more directors at
which a quorum is present, the election shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election.
(b) All other matters shall be determined by a majority of the votes cast by the
stockholders present in person or represented by proxy and entitled to vote on the matter (or if
there are two or more classes of stock entitled to vote as separate classes, then in the case of
each such class, a majority of the votes cast by the stockholders of each such class present in
person or represented by proxy and entitled to vote on the matter shall decide such matter),
provided that a quorum is present, except when a different vote is required by express provision of
law, the Certificate of Incorporation or these Bylaws.
(c) The Board of Directors may, and to the extent required by law, shall, in advance
of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of
the Corporation or otherwise serve the Corporation in other capacities, to act at the meeting or
any adjournment thereof and make a written report thereof. The Board of Directors may designate
one or more persons as an alternate inspector to replace any inspector who fails to act. If no
inspector or alternate is appointed by the Board of Directors, the chairman of the meeting may, and
to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to
faithfully execute the duties of inspector with strict impartiality and according to the best of
his or her ability. The inspectors shall ascertain and report the number of outstanding shares and
the voting power of each; determine the number of shares present in person or represented by proxy
at the meeting and the validity of proxies and ballots; count all votes and ballots and report the
results; determine and retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors; and certify their
3
determination of the number of shares represented at the meeting and their count of all votes
and ballots. No person who is a candidate for an office at an election may serve as an inspector
at such election. Each report of an inspector shall be in writing and signed by the inspector or
by a majority of them if there is more than one inspector acting at such meeting. If there is more
than one inspector, the report of a majority shall be the report of the inspectors.
1.10 Notice of Stockholder Business. The provisions set forth in this
Section 1.10 shall only be effective upon the closing of the first sale of the Corporation’s Common
Stock pursuant to a firmly underwritten registered public offering (the “IPO”).
(a) At an annual or special meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) properly brought before the meeting by
or at the direction of the Board of Directors, or (iii) properly brought before the meeting by a
stockholder of record. For business to be properly brought before an annual meeting by a
stockholder, it must be a proper matter for stockholder action under the DGCL, and the stockholder
must have given timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder proposal to be presented at an annual meeting shall be received at the
Corporation’s principal executive offices not earlier than the close of business on the 120th day,
nor later than the close of business on the 90th day, prior to the first anniversary of the date of
the preceding year’s annual meeting as first specified in the Corporation’s notice of meeting
(without regard to any postponements or adjournments of such meeting after such notice was first
sent), except that if no annual meeting was held in the previous year or the date of the
annual meeting is more than 30 days earlier or later than such anniversary date, notice by the
stockholders to be timely must be received not later than the close of business on the later of the
90th day prior to the annual meeting or the 10th day following the date on which public
announcement of the date of such meeting is first made. Notwithstanding the previous sentence, for
purposes of determining whether a stockholder’s notice shall have been received in a timely manner
for the annual meeting of stockholders in 2011, to be timely, a stockholder’s notice must have been
received not later than the close of business on ___, 20___nor earlier than the opening of
business on ___, 20_. “Public announcement” for purposes hereof shall have the meaning
set forth in Section 2.15(c) of these Bylaws. In no event shall the public announcement of an
adjournment or postponement of an annual meeting commence a new time period (or extend any time
period) for the giving of a stockholder’s notice as described above. For business to be properly
brought before a special meeting by a stockholder, the business must be limited to the purpose or
purposes set forth in a request under Section 1.3.
(b) A stockholder’s notice to the Secretary of the Corporation shall set forth as to
each matter the stockholder proposes to bring before the meeting (i) a brief description of the
business desired to be brought before the meeting and the text of the proposal or business,
including the text of any resolutions proposed for consideration and, in the event that such
business includes a proposal to amend the bylaws of the Corporation, the language of the proposed
amendment, (ii) the name and address, as they appear on the Corporation’s books, of the stockholder
proposing such business and the names and addresses of the beneficial owners, if any, on whose
behalf the business is being brought, (iii) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at the meeting on the date of such notice and
intends to appear in person or by proxy at the meeting to propose the business specified in the
notice, (iv) any material interest of the stockholder and such other beneficial owner in such
business, and (v) the following information regarding the ownership interests of the stockholder or
such other beneficial owner, which shall be supplemented in writing by the stockholder not later
than 10 days after the record date for the meeting to disclose such interests as of the record
date: (A) the class and number of shares of the Corporation that are owned beneficially and of
record by the stockholder and such other beneficial owner; (B) any option, warrant, convertible
security, stock
4
appreciation right, or similar right with an exercise or conversion privilege or a settlement
payment or mechanism at a price related to any class or series of shares of the Corporation or with
a value derived in whole or in part from the value of any class or series of shares of the
Corporation, whether or not such instrument or right shall be subject to settlement in the
underlying class or series of capital stock of the Corporation or otherwise (a “Derivative
Instrument”) directly or indirectly owned beneficially by such stockholder and any other direct
or indirect opportunity to profit or share in any profit derived from any increase or decrease in
the value of shares of the Corporation; (C) any proxy, contract, arrangement, understanding, or
relationship pursuant to which such stockholder has a right to vote any shares of any security of
the Corporation; (D) any short interest in any security of the Corporation (for purposes of this
Section 1.10 and Section 2.15, a person shall be deemed to have a short interest in a security if
such person directly or indirectly, through any contract, arrangement, understanding, relationship
or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the
value of the subject security); (E) any rights to dividends on the shares of the Corporation owned
beneficially by such stockholder that are separated or separable from the underlying shares of the
Corporation; (F) any proportionate interest in shares of the Corporation or Derivative Instruments
held, directly or indirectly, by a general or limited partnership in which such stockholder is a
general partner or, directly or indirectly, beneficially owns an interest in a general partner; and
(G) any performance-related fees (other than an asset-based fee) to which such stockholder is
entitled based on any increase or decrease in the value of shares of the Corporation or Derivative
Instruments, if any, as of the date of such notice, including, without limitation, any such
interests held by members of such stockholder’s immediate family sharing the same household.
(c) Notwithstanding the foregoing provisions of this Section 1.10, a stockholder
shall also comply with all applicable requirements of the Securities Exchange Act of 1934 (the
“Exchange Act”) and the rules and regulations thereunder with respect to the matters set
forth in this Section 1.10.
(d) Notwithstanding any provisions to the contrary, the notice requirements set
forth in subsections (a) and (b) above shall be deemed satisfied by a stockholder if the
stockholder has notified the Corporation of his or her intention to present a proposal at an annual
meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and
such stockholder’s proposal has been included in a proxy statement that has been prepared by the
Corporation to solicit proxies for such annual meeting. No business shall be conducted at the
annual meeting of stockholders except business brought before the annual meeting in accordance with
the procedures set forth in this Section 1.10 and Section 1.9, provided, however,
that once business has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 1.10 shall be deemed to preclude discussion by any stockholder
of any such business. If the Board of Directors or the chairman of the annual meeting determines
that any business or stockholder proposal was not made in accordance with the provisions of this
Section 1.10 or that the information provided in a stockholder’s notice does not satisfy the
information requirements of this Section 1.10, such proposal shall not be presented for action at
the annual meeting. Notwithstanding the foregoing provisions of this Section 1.10, if the
stockholder (or a qualified representative of the stockholder) does not appear at the annual
meeting of stockholders of the Corporation to present the proposed business, such proposed business
shall not be transacted, notwithstanding that proxies in respect of such matter may have been
received by the Corporation.
1.11 Conduct of Business. At every meeting of the stockholders, the
Chairman of the Board, or, in his or her absence, the President, or, in his or her absence, such
other person as may be appointed by the Board of Directors, shall act as chairman. The Secretary
of the Corporation or a person designated by the chairman of the meeting shall act as secretary of
the meeting. Unless otherwise approved by the chairman of the meeting, attendance at the
stockholders’ meeting is restricted to stockholders of record,
5
persons authorized in accordance with Section 1.8 of these Bylaws to act by proxy, and
officers of the Corporation.
The chairman of the meeting shall call the meeting to order, establish the agenda, and conduct
the business of the meeting in accordance therewith or, at the chairman’s discretion, it may be
conducted otherwise in accordance with the wishes of the stockholders in attendance. The date and
time of the opening and closing of the polls for each matter upon which the stockholders will vote
at the meeting shall be announced at the meeting.
The chairman shall also conduct the meeting in an orderly manner, rule on the precedence of,
and procedure on, motions and other procedural matters, and exercise discretion with respect to
such procedural matters with fairness and good faith toward all those entitled to take part.
Unless and to the extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with the rules of
parliamentary procedure. Without limiting the foregoing, the chairman may (a) restrict attendance
at any time to bona fide stockholders of record and their proxies and other persons in attendance
at the invitation of the presiding officer or Board of Directors, (b) restrict use of audio or
video recording devices at the meeting, and (c) impose reasonable limits on the amount of time
taken up at the meeting on discussion in general or on remarks by any one stockholder. Should any
person in attendance become unruly or obstruct the meeting proceedings, the chairman shall have the
power to have such person removed from the meeting.
1.12 Stockholder Action Without Meeting. Effective upon the closing date of
the IPO, any action required or permitted to be taken by the stockholders of the Corporation must
be effected at a duly called annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing by such stockholders. At all times prior to the closing
of the IPO, any action which may be taken at any annual or special meeting of stockholders may be
taken without a meeting and without prior notice, if a consent in writing, setting forth the
actions so taken, is signed by the holders of outstanding shares having not less than the minimum
number of votes which would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. All such consents shall be filed with the
Secretary of the Corporation and shall be maintained in the corporate records. Prompt notice of
the taking of a corporate action without a meeting by less than unanimous written consent shall be
given to those stockholders who have not consented in writing.
An electronic transmission consenting to an action to be taken and transmitted by a
stockholder, or by a proxy holder or other person authorized to act for a stockholder, shall be
deemed to be written, signed and dated for the purpose of this Section 1.11, provided that such
electronic transmission sets forth or is delivered with information from which the Corporation can
determine (i) that the electronic transmission was transmitted by the stockholder or by a person
authorized to act for the stockholder and (ii) the date on which such stockholder or authorized
person transmitted such electronic transmission. The date on which such electronic transmission is
transmitted shall be deemed to be the date on which such consent was signed. No consent given by
electronic transmission shall be deemed to have been delivered until such consent is reproduced in
paper form and until such paper form shall be delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business or an officer or agent
of the Corporation having custody of the books in which proceedings of meetings of stockholders are
recorded.
1.13 Meetings by Remote Communication. If authorized by the Board of
Directors, and subject to such guidelines and procedures as the Board of Directors may adopt,
stockholders and proxy holders not physically present at a meeting of stockholders may, by means of
remote communication, participate in the meeting and be deemed present in person and vote at the
meeting, whether such meeting is to be held at a designated place or solely by means of remote
communication, provided that (i) the Corporation shall implement reasonable measures to verify that
each person deemed present and
6
permitted to vote at the meeting by means of remote communication is a stockholder or proxy
holder, (ii) the Corporation shall implement reasonable measures to provide such stockholders and
proxy holders a reasonable opportunity to participate in the meeting and to vote on matters
submitted to the stockholders, including an opportunity to read or hear the proceedings of the
meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxy
holder votes or takes other action at the meeting by means of remote communication, a record of
such vote or other action shall be maintained by the Corporation.
ARTICLE II
BOARD OF DIRECTORS
BOARD OF DIRECTORS
2.1 General Powers. The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all of the powers of
the Corporation except as otherwise provided by law or the Certificate of Incorporation. In the
event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided
by law, may exercise the powers of the full Board of Directors until the vacancy is filled.
2.2 Number and Term of Office.
(a) Subject to the rights of the holders of any series of preferred stock to elect
directors under specified circumstances, the number of directors shall initially be seven (7) and,
thereafter, shall be fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such resolution is
presented to the Board of Directors for adoption).
(b) Effective upon the closing of the IPO, other than those who may be elected by
the holders of any series of preferred stock under specified circumstances, the directors shall be
divided into three classes, as nearly equal in number as possible and designated Class I, Class II
and Class III. The initial division of the Board of Directors into classes shall be made by the
Board of Directors. The term of the initial Class I Directors shall terminate at the annual
meeting of stockholders to be held in 2011; the term of the initial Class II Directors shall
terminate at the annual meeting of stockholders to be held in 2012; and the term of the initial
Class III Directors shall terminate at the annual meeting of stockholders to be held in 2013. At
each succeeding annual meeting of stockholders beginning in 2014, successors to the class of
directors whose term expires at that annual meeting shall be elected for a three-year term.
Subject to the rights of the holders of any series of Preferred Stock then outstanding, if the
number of directors is changed, any increase or decrease shall be apportioned by the Board of
Directors among the classes so as to maintain the number of directors in each class as nearly equal
as possible, but in no case will a decrease in the number of directors shorten the term of any
incumbent director.
2.3 Vacancies and Newly Created Directorships. Subject to the rights of the
holders of any series of Preferred Stock then outstanding and effective only upon the closing of
the IPO, newly created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death, resignation, retirement,
disqualification or other cause (including removal from office by a vote of the stockholders) may
be filled only by a majority vote of the directors then in office, even if less than a quorum, or
by the sole remaining director (and not by stockholders), and directors so chosen shall hold office
for a term expiring at the next annual meeting of stockholders at which the term of office of the
class to which they have been elected expires or until such director’s successor shall have been
duly elected and qualified; subject, however, to such director’s earlier death, resignation,
retirement, disqualification or removal. No decrease in the number of authorized directors shall
shorten the term of any incumbent director.
7
2.4 Resignation. Any director may resign by delivering notice in writing or
by electronic transmission to the President, Chairman of the Board or Secretary. Such resignation
shall be effective upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event.
2.5 Removal. Prior to the closing of the IPO and subject to the rights of
the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board
of Directors, may be removed from office at any time, with or without cause, by the affirmative
vote of the holders of a majority of the voting power of all of the outstanding shares of capital
stock entitled to vote generally in the election of directors, voting together as a single class.
After the closing of an IPO and subject to the rights of the holders of any series of Preferred
Stock then outstanding, for so long as Section 2.2(b) is in effect, any or all of the directors may
be removed from office at any time, but only for cause and only by the affirmative vote of holders
of a majority of the voting power of all then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting together as a single
class.
2.6 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State of Delaware, as
shall be determined from time to time by the Board of Directors; provided that any director who is
absent when such a determination is made shall be given notice of the determination. A regular
meeting of the Board of Directors may be held without notice immediately after and at the same
place as the annual meeting of stockholders.
2.7 Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board, the Chief Executive Officer and shall be called by the
Chairman of the Board, Chief Executive Officer or the Secretary upon the written request of at
least a two directors, and shall be held at such time, date and place as may be determined by the
person calling the meeting or, if called upon the request of directors or the sole director, as
specified in such written request.
2.8 Notice of Special Meetings. Notice of any special meeting of directors
shall be given to each director, as provided in Section 5.9, by whom it is not waived by the
Secretary or by the officer or one of the directors calling the meeting. Notice shall be duly
given to each director by (i) giving notice to such director in person or by telephone, electronic
transmission or voice message system at least 24 hours in advance of the meeting, (ii) sending a
facsimile to his or her last known facsimile number, or delivering written notice by hand to his or
her last known business or home address, at least 24 hours in advance of the meeting, or (iii)
mailing written notice to his or her last known business or home address at least three days in
advance of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need
not specify the purposes of the meeting. Unless otherwise indicated in the notice thereof, any and
all business may be transacted at a special meeting.
2.9 Participation in Meetings by Telephone Conference Calls or Other Methods of
Communication. Directors or any members of any committee designated by the directors may
participate in a meeting of the Board of Directors or such committee by means of conference
telephone or other communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute presence in person at
such meeting.
2.10 Quorum. A majority of the total number of authorized directors shall
constitute a quorum at any meeting of the Board of Directors. In the absence of a quorum at any
such meeting, a majority of the directors present may adjourn the meeting from time to time without
further notice other than announcement at the meeting, until a quorum shall be present. Interested
directors may be counted in
8
determining the presence of a quorum at a meeting of the Board of Directors or at a meeting of
a committee which authorizes a particular contract or transaction.
2.11 Action at Meeting. At any meeting of the Board of Directors at which a
quorum is present, the vote of a majority of those present shall be sufficient to take any action,
unless a different vote is specified by law, the Certificate of Incorporation or these Bylaws.
2.12 Action by Written Consent. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee of the Board of Directors may be taken
without a meeting if all members of the Board of Directors or committee, as the case may be,
consent to the action in writing or by electronic transmission, and the writings or electronic
transmissions are filed with the minutes of proceedings of the Board of Directors or committee.
Such filing shall be in paper form if the minutes are maintained in paper form and shall be in
electronic form if the minutes are maintained in electronic form.
2.13 Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the Corporation, with such
lawfully delegated powers and duties as it therefor confers, to serve at the pleasure of the Board
of Directors. The Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or not he, she or they
constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the provisions of the DGCL,
shall have and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it. Each such committee shall keep
minutes and make such reports as the Board of Directors may from time to time request. Except as
the Board of Directors may otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Bylaws for the Board of Directors.
2.14 Compensation of Directors. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings as the Board of
Directors may from time to time determine. No such payment shall preclude any director from
serving the Corporation or any of its parent or subsidiary corporations in any other capacity and
receiving compensation for such service. Members of committees of the Board of Directors may be
allowed like compensation and reimbursement of expenses for service on the committee.
2.15 Nomination of Director Candidates. The provisions set forth in this
Section 2.15 shall only be effective upon the closing of the IPO.
(a) Subject to the rights of holders of any class or series of Preferred Stock then
outstanding, nominations for the election of Directors at an annual meeting may be made by (i) the
Board of Directors or a duly authorized committee thereof or (ii) any stockholder entitled to vote
in the election of Directors generally who complies with the procedures set forth in this Bylaw and
who is a stockholder of record at the time notice is delivered to the Secretary of the Corporation.
Any stockholder entitled to vote in the election of Directors generally may nominate one or more
persons for election as Directors at an annual meeting only if timely notice of such stockholder’s
intent to make such nomination or nominations has been given in writing to the Secretary of the
Corporation. To be timely, a stockholder nomination for a director to be elected at an annual
meeting shall be received at the Corporation’s
9
principal executive offices not earlier than the close of business on the 120th day, nor later
than the close of business on the 90th day, prior to the first anniversary of the date of the
preceding year’s annual meeting as first specified in the Corporation’s notice of meeting (without
regard to any postponements or adjournments of such meeting after such notice was first sent),
except that if no annual meeting was held in the previous year or the date of the annual meeting is
more than 30 days earlier or later than such anniversary date, notice by the stockholders to be
timely must be received not later than the close of business on the later of the 90th day prior to
the annual meeting or the 10th day following the date on which public announcement of the date of
such meeting is first made. Notwithstanding the previous sentence, for purposes of determining
whether a stockholder’s notice shall have been received in a timely manner for the annual meeting
of stockholders in 2011, to be timely, a stockholder’s notice must have been received not later
than the close of business on ___, 20___nor earlier than the opening of business on
___, 20_. Each such notice shall set forth (i) the name and address, as they appear on
the Corporation’s books, of the stockholder who intends to make the nomination and the names and
addresses of the beneficial owners, if any, on whose behalf the nomination is being made and of the
person or persons to be nominated, (ii) a representation that the stockholder is a holder of record
of stock of the Corporation entitled to vote for the election of Directors on the date of such
notice and intends to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice, (iii) the following information regarding the ownership interests of the
stockholder or such other beneficial owner, which shall be supplemented in writing by the
stockholder not later than 10 days after the record date for the meeting to disclose such interests
as of the record date: (A) the class and number of shares of the Corporation that are owned
beneficially and of record by the stockholder and such other beneficial owner; (B) any Derivative
Instrument directly or indirectly owned beneficially by such stockholder and any other direct or
indirect opportunity to profit or share in any profit derived from any increase or decrease in the
value of shares of the Corporation; (C) any proxy, contract, arrangement, understanding, or
relationship pursuant to which such stockholder has a right to vote any shares of any security of
the Corporation; (D) any short interest in any security of the Corporation; (E) any rights to
dividends on the shares of the Corporation owned beneficially by such stockholder that are
separated or separable from the underlying shares of the Corporation; (F) any proportionate
interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a
general or limited partnership in which such stockholder is a general partner or, directly or
indirectly, beneficially owns an interest in a general partner; and (G) any performance-related
fees (other than an asset-based fee) to which such stockholder is entitled based on any increase or
decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the
date of such notice, including, without limitation, any such interests held by members of such
stockholder’s immediate family sharing the same household, (iv) a description of all arrangements
or understandings between the stockholder or such beneficial owner and each nominee and any other
person or persons (naming such person or persons) pursuant to which the nomination or nominations
are to be made by the stockholder, (v) a description of all direct and indirect compensation and
other material monetary agreements, arrangements and understandings during the past three years,
and any other material relationships, between or among such stockholder and such other beneficial
owner, if any, and their respective affiliates and associates, or others acting in concert
therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and
associates, or others acting in concert therewith, on the other hand, including, without limitation
all information that would be required to be disclosed pursuant to Rule 404 promulgated under
Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf
the nomination is made, if any, or any affiliate or associate thereof or person acting in concert
therewith, were the “registrant” for purposes of such rule and the nominee were a director
or executive officer of such registrant, (vi) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been
nominated, or intended to be nominated, by the Board of Directors, and (vii) the consent of each
nominee to serve as a director of the Corporation if so elected. In no event shall the public
announcement of an adjournment or postponement of an annual meeting commence a new time period (or
extend any time
10
period) for the giving of a stockholder’s notice as described above. Notwithstanding the
third sentence of this Section 2.15(a), in the event that the number of Directors to be elected at
an annual meeting is increased and there is no public announcement by the Corporation naming the
nominees for the additional directorships at least 100 days prior to the first anniversary of the
date of the preceding year’s annual meeting as first specified in the Corporation’s notice of
meeting (without regard to any postponements or adjournments of such meeting after such notice was
first sent), a stockholder’s notice required by this Section 2.15(a) shall also be considered
timely, but only with respect to nominees for the additional directorships, if it shall be
delivered to the Secretary at the principal executive offices of the Corporation not later than the
close of business on the 10th day following the day on which such public announcement is first made
by the Corporation.
(b) Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s
notice of meeting (i) by or at the direction of the Board of Directors or a committee thereof or
(ii) by any stockholder of the Corporation who is entitled to vote at the meeting, who complies
with the notice procedures set forth in this Bylaw and who is a stockholder of record at the time
such notice is delivered to the Secretary of the Corporation. In the event the Corporation calls a
special meeting of stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case may be), for election
to such position(s) as are specified in the Corporation’s notice of meeting, if the stockholder’s
notice as required by Section 2.15(a) shall be delivered to the Secretary at the principal
executive offices of the Corporation not earlier than the 120th day prior to such special meeting
and not later than the close of business on the later of the 90th day prior to such special meeting
or the 10th day following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment or postponement of a special
meeting commence a new time period (or extend any time period) for the giving of a stockholder’s
notice as described above.
(c) For purposes of these Bylaws, “public announcement” shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed or furnished by the Corporation
with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act.
(d) Notwithstanding the foregoing provisions of this Section 2.15, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in this Bylaw.
(e) Only persons nominated in accordance with the procedures set forth in this
Section 2.15 shall be eligible to serve as directors. Except as otherwise provided by law, the
chairman of the meeting shall have the power and duty (a) to determine whether a nomination was
made in accordance with the procedures set forth in this Section 2.15 and (b) if any proposed
nomination was not made in compliance with this Section 2.15, to declare that such nomination shall
be disregarded.
(f) If the chairman of the meeting for the election of Directors determines that a
nomination of any candidate for election as a Director at such meeting was not made in accordance
with the applicable provisions of this Section 2.15, such nomination shall be void; provided,
however, that nothing in this Section 2.15 shall be deemed to limit any voting rights upon the
occurrence of dividend arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock.
11
ARTICLE III
OFFICERS
OFFICERS
3.1 Enumeration. The officers of the Corporation elected by the Board of
Directors shall consist of a Chief Executive Officer, a President, a Secretary, a Treasurer, a
Chief Financial Officer and such other officers with such other titles as the Board of Directors
shall determine, including, at the discretion of the Board of Directors, a Chairman of the Board
and one or more Vice Presidents and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. Officers shall be elected annually by the Board of Directors
at its first meeting following the annual meeting of stockholders. Officers may be appointed by
the Board of Directors at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his or her successor is
elected and qualified, unless a different term is specified in the vote appointing him, or until
his or her earlier death, resignation or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his or
her written resignation to the Corporation at its principal office or to the Chief Executive
Officer or Secretary. Such resignation shall be effective upon receipt unless it is specified to
be effective at some other time or upon the happening of some other event. Any officer elected by
the Board of Directors may be removed at any time, with or without cause, by the Board of
Directors.
3.6 Chairman of the Board. The Board of Directors may appoint a Chairman of
the Board. If the Board of Directors appoints a Chairman of the Board, he or she shall perform
such duties and possess such powers as are assigned to him by the Board of Directors. Unless
otherwise provided by the Board of Directors, he or she shall preside at all meetings of the Board
of Directors. The Chairman of the Board must be a director of the Corporation.
3.7 Chief Executive Officer. The Chief Executive Officer of the Corporation
shall, subject to the ultimate authority of the Board of Directors, have the general powers and
duties of management usually vested in the chief executive officer of a corporation, including
general supervision, direction and control of the business and the officers of the Corporation. He
or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a
Chairman of the Board, at all meetings of the Board of Directors. He or she shall have such other
powers and duties as may be prescribed by the Board of Directors or these Bylaws. He or she shall
have power to sign stock certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision and direction of all of the other officers, employees
and agents of the Corporation.
3.8 President. Subject to the ultimate authority of the Board of Directors
and such supervisory powers as may be given by these Bylaws or the Board of Directors to the
Chairman of the Board or the Chief Executive Officer, if such titles be held by other officers, the
President shall have general supervision, direction and control of the business and supervision of
other officers of the Corporation. Unless otherwise designated by the Board of Directors, the
President shall be the Chief Executive Officer of the Corporation. The President shall have such
other powers and duties as may be
12
prescribed by the Board of Directors or these Bylaws. He or she shall have power to sign
stock certificates, contracts and other instruments of the Corporation which are authorized and
shall have general supervision and direction of all of the other officers, employees and agents of
the Corporation, other than the Chairman of the Board and the Chief Executive Officer.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the President, the Vice
President (or if there shall be more than one, the Vice Presidents in the order determined by the
Board of Directors) shall perform the duties of the President and when so performing shall have at
the powers of and be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior Vice President or
any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall attend all
meetings of the stockholders, the Board of Directors and (as required) committees of the Board of
Directors and shall record the proceedings of such meetings in books to be kept for that purpose.
The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors and shall perform such other duties as may be prescribed
by the Board of Directors, the Chairman of the Board, Chief Executive Officer or the President.
The Secretary shall have custody of the corporate seal of the Corporation and the Secretary, or any
Assistant Secretary, shall have authority to affix the same to any instrument requiring it, and
when so affixed, it may be attested by his or her signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other officer to affix the
seal of the Corporation and to attest the affixing thereof by his or her signature. The Secretary
shall keep, or cause to be kept, at the principal executive office of the Corporation or at the
office of the Corporation’s transfer agent or registrar, if one has been appointed, a stock ledger,
or duplicate stock ledger, showing the names of the stockholders and their addresses, the number
and classes of shares held by each and, with respect to certificated shares, the number and date of
certificates issued for the same and the number and date of certificates cancelled.
Any Assistant Secretary shall perform such duties and possess such powers as the Board of
Directors, the Chief Executive Officer or the Secretary may from time to time prescribe. In the
event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if
there shall be more than one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting of directors, the
person presiding at the meeting shall designate a temporary secretary to keep a record of the
meeting.
3.11 Treasurer. The Treasurer shall perform such duties and have such
powers as are incident to the office of treasurer, including without limitation, the duty and power
to keep and be responsible for all funds and securities of the Corporation, to maintain the
financial records of the Corporation, to deposit funds of the Corporation in depositories as
authorized, to disburse such funds as authorized, to make proper accounts of such funds, and to
render as required by the Board of Directors accounts of all such transactions and of the financial
condition of the Corporation.
3.12 Chief Financial Officer. The Chief Financial Officer shall perform
such duties and shall have such powers as may from time to time be assigned to him by the Board of
Directors or the Chief Executive Officer. Unless otherwise designated by the Board of Directors,
the Chief Financial Officer shall be the Treasurer of the Corporation.
13
3.13 Salaries. Officers of the Corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board
of Directors.
3.14 Delegation of Authority. The Board of Directors may from time to time
delegate the powers or duties of any officer to any other officers or agents, notwithstanding any
provision hereof.
ARTICLE IV
CAPITAL STOCK
CAPITAL STOCK
4.1 Issuance of Stock. Subject to the provisions of the Certificate of
Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the
Corporation or the whole or any part of any unissued balance of the authorized capital stock of the
Corporation held in its treasury may be issued, sold, transferred or otherwise disposed of by vote
of the Board of Directors in such manner, for such consideration and on such terms as the Board of
Directors may determine.
4.2 Certificates of Stock. The shares of the Corporation shall be
represented by certificates, provided that the Board of Directors may provide by resolution or
resolutions that some or all of any class or series of its stock shall be uncertificated shares;
provided, however, that no such resolution shall apply to shares represented by a certificate until
such certificate is surrendered to the Corporation. Every holder of stock of the Corporation
represented by certificates shall be entitled to have a certificate, in such form as may be
prescribed by law and by the Board of Directors, certifying the number and class of shares owned by
him in the Corporation. Each such certificate shall be signed by, or in the name of the
Corporation by, (a) the Chairman of the Board, if any, the Chief Executive Officer, President or a
Vice President, and (b) the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation. Any or all the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before
such certificate is issued, such certificate may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar on the date of issue.
Each certificate for shares of stock which are subject to any restriction on transfer pursuant
to the Certificate of Incorporation, the Bylaws, applicable securities laws or any agreement among
any number of shareholders or among such holders and the Corporation shall have conspicuously noted
on the face or back of the certificate either the full text of the restriction or a statement of
the existence of such restriction.
4.3 Transfers.
(a) If a certificate representing shares of the Corporation is presented to the
Corporation with a stock power or other indorsement requesting the registration of transfer of such
shares or an instruction is presented to the Corporation requesting the registration of transfer of
uncertificated shares, the Corporation shall register the transfer as requested if:
(i) in the case of certificated shares, the certificate representing such shares has
been surrendered;
(ii) (A) with respect to certificated shares, the indorsement is made by the person
specified by the certificate as entitled to such shares; (B) with respect to uncertificated shares,
an instruction is made by the registered owner of such uncertificated shares; or (C) with respect
to certificated shares or uncertificated shares, the indorsement or instruction is made by any
other appropriate person or by an agent who has actual authority to act on behalf of the
appropriate person;
14
(iii) the Corporation has received a guarantee of signature of the person signing
such indorsement or instruction or such other reasonable assurance that the indorsement or
instruction is genuine and authorized as the Corporation may request;
(iv) the transfer does not violate any enforceable restriction on transfer imposed
by the Corporation; and
(v) such other conditions for such transfer as shall be provided for under
applicable law have been satisfied.
(b) Whenever any transfer of shares shall be made for collateral security and not
absolutely, the Corporation shall so record such fact in the entry of transfer if, when the
certificate for such shares is presented to the Corporation for transfer or, if such shares are
uncertificated, when the instruction for registration of transfer thereof is presented to the
Corporation, both the transferor and transferee request the Corporation to do so.
4.4 Lost, Stolen or Destroyed Certificates.
(a) If an owner of a certificate representing shares claims that such certificate
has been lost, destroyed or wrongfully taken, the Corporation shall issue a new certificate
representing such shares or such shares in uncertificated form if the owner: (i) requests such a
new certificate before the Corporation has notice that the certificate representing such shares has
been acquired by a protected purchaser; (ii) if requested by the Corporation, delivers to the
Corporation a bond sufficient to indemnify the Corporation against any claim that may be made
against the Corporation on account of the alleged loss, wrongful taking or destruction of such
certificate or the issuance of such new certificate or uncertificated shares; and (iii) satisfies
other reasonable requirements imposed by the Corporation.
(b) If a certificate representing shares has been lost, apparently destroyed or
wrongfully taken, and the owner fails to notify the Corporation of that fact within a reasonable
time after the owner has notice of such loss, apparent destruction or wrongful taking and the
Corporation registers a transfer of such shares before receiving notification, the owner shall be
precluded from asserting against the Corporation any claim for registering such transfer or a claim
to a new certificate representing such shares or such shares in uncertificated form.
4.5 Registered Stockholders. Before due presentment for registration of
transfer of a certificate representing shares of the Corporation or of an instruction requesting
registration of transfer of uncertificated shares, the Corporation may treat the registered owner
as the person exclusively entitled to inspect for any proper purpose the stock ledger and the other
books and records of the Corporation, vote such shares, receive dividends or notifications with
respect to such shares and otherwise exercise all the rights and powers of the owner of such
shares, except that a person who is the beneficial owner of such shares (if held in a voting trust
or by a nominee on behalf of such person) may, upon providing documentary evidence of beneficial
ownership of such shares and satisfying such other conditions as are provided under applicable law,
may also so inspect the books and records of the Corporation.
4.6 Regulations. The Board of Directors shall have power and authority to
make such additional rules and regulations, subject to any applicable requirement of law, as the
Board of Directors may deem necessary and appropriate with respect to the issue, transfer or
registration of transfer of shares of stock or certificates representing shares. The Board of
Directors may appoint one or more transfer agents or registrars and may require for the validity
thereof that certificates representing shares bear the signature of any transfer agent or registrar
so appointed.
15
4.7 Record Date. The Board of Directors may fix in advance a record date
for the determination of the stockholders entitled to notice of or to vote at any meeting of
stockholders or to express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any rights in respect of any
change, concession or exchange of stock, or for the purpose of any other lawful action. Such
record date shall not precede the date on which the resolution fixing the record date is adopted
and shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than
60 days prior to any other action to which such record date relates.
If no record date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day before the day on which notice is given, or, if notice is waived, at the close
of business on the day before the day on which the meeting is held. If no record date is fixed by
the Board of Directors, the record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting when no prior action by the Board of Directors is
necessary shall be the day on which the first written consent is expressed. The record date for
determining stockholders for any other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
ARTICLE V
GENERAL PROVISIONS
GENERAL PROVISIONS
5.1 Fiscal Year. The fiscal year of the Corporation shall be as fixed by
the Board of Directors.
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors. The seal may be used by causing it or a facsimile thereof to
be impressed, affixed or otherwise reproduced.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these Bylaws, a waiver of such notice
either in writing signed by the person entitled to such notice or such person’s duly authorized
attorney, or by electronic transmission or any other method permitted under the DGCL, whether
before, at or after the time stated in such waiver, or the appearance of such person or persons at
such meeting in person or by proxy, shall be deemed equivalent to such notice. Attendance at a
meeting shall constitute a waiver of notice of such meeting, except where a person attends for the
express purpose of objecting to the transaction of any business on the ground that the meeting was
not lawfully called or convened.
5.4 Actions with Respect to Securities of Other Corporations. Except as the
Board of Directors may otherwise designate, the Chief Executive Officer or President or any officer
of the Corporation authorized by the Chief Executive Officer or President shall have the power to
vote and otherwise act on behalf of the Corporation, in person or proxy, and may waive notice of,
and act as, or appoint any person or persons to act as, proxy or attorney-in-fact to this
Corporation (with or without power of substitution) at any meeting of stockholders or shareholders
(or with respect to any action of stockholders) of any other corporation or organization, the
securities of which may be held by this Corporation and otherwise to exercise any and all rights
and powers which this Corporation may possess by reason of this Corporation’s ownership of
securities in such other corporation or other organization.
16
5.5 Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a
committee or any officer or representative of the Corporation shall as to all persons who rely on
the certificate in good faith be conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these Bylaws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the
Corporation, as amended and in effect from time to time.
5.7 Severability. Any determination that any provision of these Bylaws is
for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other
provision of these Bylaws.
5.8 Pronouns. All pronouns used in these Bylaws shall be deemed to refer to
the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may
require.
5.9 Notices.
(a) Whenever under applicable law, the Certificate of Incorporation or these Bylaws
notice is required to be given to any director, such notice shall be given either (i) in writing
and sent by hand delivery, through the United States mail, or by a nationally recognized overnight
delivery service for next day delivery, (ii) by means of facsimile telecommunication or other form
of electronic transmission, or (iii) by oral notice given personally or by telephone. A notice to
a director will be deemed given as follows: (i) if given by hand delivery, orally, or by
telephone, when actually received by the director, (ii) if sent through the United States mail,
when deposited in the United States mail, with postage and fees thereon prepaid, addressed to the
director at the director’s address appearing on the records of the Corporation, (iii) if sent for
next day delivery by a nationally recognized overnight delivery service, when deposited with such
service, with fees thereon prepaid, addressed to the director at the director’s address appearing
on the records of the Corporation, (iv) if sent by facsimile telecommunication, when sent to the
facsimile transmission number for such director appearing on the records of the Corporation, (v) if
sent by electronic mail, when sent to the electronic mail address for such director appearing on
the records of the Corporation, or (vi) if sent by any other form of electronic transmission, when
sent to the address, location or number (as applicable) for such director appearing on the records
of the Corporation.
(b) Whenever under applicable law, the Certificate of Incorporation or these Bylaws
notice is required to be given to any stockholder, such notice may be given (i) in writing and sent
either by hand delivery, through the United States mail, or by a nationally recognized overnight
delivery service for next day delivery, or (ii) by means of a form of electronic transmission
consented to by the stockholder, to the extent permitted by, and subject to the conditions set
forth in Section 232 of the DGCL. A notice to a stockholder shall be deemed given as follows: (i)
if given by hand delivery, when actually received by the stockholder, (ii) if sent through the
United States mail, when deposited in the United States mail, with postage and fees thereon
prepaid, addressed to the stockholder at the stockholder’s address appearing on the stock ledger of
the Corporation, (iii) if sent for next day delivery by a nationally recognized overnight delivery
service, when deposited with such service, with fees thereon prepaid, addressed to the stockholder
at the stockholder’s address appearing on the stock ledger of the Corporation, and (iv) if given by
a form of electronic transmission consented to by the stockholder to whom the notice is given and
otherwise meeting the requirements set forth above, (A) if by facsimile transmission, when directed
to a number at which the stockholder has consented to receive notice, (B) if by electronic mail,
when directed to an electronic mail address at which the stockholder has consented to receive
notice, (C) if by a posting on an electronic network together with separate notice to the
stockholder of such specified posting, upon the later of (1) such posting and (2) the giving of
such
17
\
separate notice, and (D) if by any other form of electronic transmission, when directed to the
stockholder. A stockholder may revoke such stockholder’s consent to receiving notice by means of
electronic communication by giving written notice of such revocation to the Corporation. Any such
consent shall be deemed revoked if (1) the Corporation is unable to deliver by electronic
transmission two consecutive notices given by the Corporation in accordance with such consent and
(2) such inability becomes known to the Secretary or an Assistant Secretary or to the Corporation’s
transfer agent, or other person responsible for the giving of notice; provided, however, the
inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or
other action.
(c) “Electronic transmission” means any form of communication, not directly
involving the physical transmission of paper, that creates a record that may be retained, retrieved
and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a
recipient through an automated process, including but not limited to transmission by telex,
facsimile telecommunication, electronic mail, telegram and cablegram.
(d) Without limiting the manner by which notice otherwise may be given effectively
by the Corporation to stockholders, any notice to stockholders given by the Corporation under any
provision of the DGCL, the Certificate of Incorporation or these Bylaws shall be effective if given
by a single written notice to stockholders who share an address if consented to by the stockholders
at that address to whom such notice is given. A stockholder may revoke such stockholder’s consent
by delivering written notice of such revocation to the Corporation. Any stockholder who fails to
object in writing to the Corporation within 60 days of having been given written notice by the
Corporation of its intention to send such a single written notice shall be deemed to have consented
to receiving such single written notice.
(e) Whenever notice is required to be given, under the DGCL, the Certificate of
Incorporation or these Bylaws, to any person with whom communication is unlawful, the giving of
such notice to such person shall not be required and there shall be no duty to apply to any
governmental authority or agency for a license or permit to give such notice to such person. Any
action or meeting that shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice had been duly
given. If the action taken by the Corporation is such as to require the filing of a certificate
with the Secretary of State of Delaware, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive notice except such
persons with whom communication is unlawful.
(f) Whenever notice is required to be given by the Corporation, under any provision
of the DGCL, the Certificate of Incorporation or these Bylaws, to any stockholder to whom (1)
notice of two consecutive annual meetings of stockholders and all notices of stockholder meetings
or of the taking of action by written consent of stockholders without a meeting to such stockholder
during the period between such two consecutive annual meetings, or (2) all, and at least two
payments (if sent by first-class mail) of dividends or interest on securities during a 12-month
period, have been mailed addressed to such stockholder at such stockholder’s address as shown on
the records of the Corporation and have been returned undeliverable, the giving of such notice to
such stockholder shall not be required. Any action or meeting that shall be taken or held without
notice to such stockholder shall have the same force and effect as if such notice had been duly
given. If any such stockholder shall deliver to the Corporation a written notice setting forth
such stockholder’s then-current address, the requirement that notice be given to such stockholder
shall be reinstated. If the action taken by the Corporation is such as to require the filing of a
certificate with the Secretary of State of Delaware, the certificate need not state that notice was
not given to persons to whom notice was not required to be given pursuant to Section 230(b) of the
DGCL. The exception in subsection (1) of the first sentence of this paragraph to the requirement
18
that notice be given shall not be applicable to any notice returned as undeliverable if the
notice was given by electronic transmission.
(g) Whenever any notice is required to be given under applicable law, the
Certificate of Incorporation, or these Bylaws, a written waiver of such notice, signed before or
after the date of such meeting by the person or persons entitled to said notice, or a waiver by
electronic transmission by the person entitled to said notice, shall be deemed equivalent to such
required notice. All such waivers shall be kept with the books of the Corporation. Attendance at
a meeting shall constitute a waiver of notice of such meeting, except where a person attends for
the express purpose of objecting to the transaction of any business on the ground that the meeting
was not lawfully called or convened.
5.10 Reliance Upon Books, Reports and Records. Each director, each member
of any committee designated by the Board of Directors, and each officer of the Corporation shall,
in the performance of his or her duties, be fully protected in relying in good faith upon the books
of account or other records of the Corporation as provided by law, including reports made to the
Corporation by any of its officers, by an independent certified public accountant, or by an
appraiser selected with reasonable care.
5.11 Time Periods. In applying any provision of these Bylaws which require
that an act be done or not done a specified number of days prior to an event or that an act be done
during a period of a specified number of days prior to an event, calendar days shall be used, the
day of the doing of the act shall be excluded, and the day of the event shall be included.
5.12 Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any
officer or officers of the Corporation may be used whenever and as authorized by the Board of
Directors or a committee thereof.
ARTICLE VI
AMENDMENTS
AMENDMENTS
In furtherance and not in limitation of the powers conferred upon it by law, the Board of
Directors is expressly empowered to adopt, amend, alter or repeal the Bylaws of the Corporation.
The stockholders shall also have power to adopt, amend, alter or repeal the Bylaws of the
Corporation. Any adoption, amendment, alteration or repeal of the Bylaws of the Corporation by the
stockholders shall require, in addition to any vote of the holders of any class or series of stock
of the Corporation required by law, the Certificate of Incorporation or these Bylaws, the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then outstanding shares of the capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single class.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
7.1 Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (“proceeding”), by reason of the fact that he or
she, or a person for whom he or she is the legal representative, is or was a director or officer of
the Corporation or is or was serving at the request of the Corporation as a director or officer of
another corporation, or as a controlling person of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director or officer, or in any other
capacity while serving as a director or officer, shall be indemnified and held harmless by the
Corporation to the fullest extent not prohibited by the DGCL, as the same exists or may hereafter
be amended, against
19
all expenses, liability and loss (including, without limitation, attorney’s fees, judgments,
fines, ERISA excise taxes and penalties and amounts paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that except as provided in
Section 7.2 of this Article VII, the Corporation shall indemnify any such person seeking indemnity
in connection with a proceeding (or part thereof other than a mandatory counterclaim)
initiated by such person only if the proceeding (or part thereof other than a mandatory
counterclaim) was authorized by the Board of Directors of the Corporation. The rights hereunder
shall be contract rights and shall include the right to be paid expenses (including, without
limitation, attorney’s fees) incurred in defending, testifying, or otherwise participating in any
such proceeding in advance of its final disposition (hereinafter an “advancement of
expenses”). The Corporation shall to the fullest extent not prohibited by applicable law pay
the expenses (including, without limitation, attorneys’ fees) incurred by a Covered Person in
defending, testifying, or otherwise participating in any proceeding in advance of its final
disposition; provided, however, that if the DGCL requires, an advancement of
expenses incurred by a director or officer of the Corporation in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by such person while
a director or officer, including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it should be determined ultimately by final judicial
decision from which there is no further right to appeal (hereinafter a “final
adjudication”)that such director or officer is not entitled to be indemnified under this
section or otherwise.
7.2 Right of Claimant to Bring Suit. If a claim under Section 7.1 is not
paid in full by the Corporation within 60 days after a written claim has been received by the
Corporation, or 20 days in the case of a claim for advancement of expenses, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the claimant shall be entitled
to be paid also the expense of prosecuting or defending such claim. In (a) any suit brought by the
claimant to enforce a right to indemnification hereunder (but not in a suit brought by a claimant
to enforce a right to an advancement of expenses) it shall be a defense that, and (b) in any suit
brought by the Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication
that, the claimant has not met any applicable standard for indemnification set forth in the DGCL.
Neither the failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the commencement of such action
that indemnification of the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the DGCL, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel or its stockholders) that
the claimant has not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of conduct. In any suit
brought by the claimant to enforce a right to indemnification or to an advancement of expenses
hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the claimant is not entitled to be indemnified, or to such
advancement of expenses, under this Article VII or otherwise, shall be on the Corporation.
7.3 Indemnification of Employees and Agents. The Corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to indemnification, and
to the advancement of related expenses, to any employee or agent of the Corporation to the fullest
extent of the provisions of this Article with respect to the indemnification of and advancement of
expenses to directors and officers of the Corporation.
20
7.4 Non-Exclusivity of Rights. The rights conferred on any person in this
Article VII shall not be exclusive of any other right which such persons may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
7.5 Indemnification Contracts. The Board of Directors is authorized to
enter into a contract with any director, officer, employee or agent of the Corporation, or any
person serving at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so
determines, greater than, those provided for in this Article VII.
7.6 Insurance. The Corporation may maintain insurance to the extent
reasonably available, at its expense, to protect itself and any such director, officer, employee or
agent of the Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or loss under the DGCL.
7.7 Effect of Amendment. Any repeal or amendment of this Article VII by the
Board of Directors or the stockholders of the Corporation or by changes in applicable law, or the
adoption of any other provision of these Bylaws inconsistent with this Article VII, shall, to the
extent permitted by applicable law, be prospective only (except to the extent such amendment or
change in applicable law permits the Corporation to provide broader indemnification rights to
claimants on a retroactive basis than permitted prior thereto), and will not in any way diminish or
adversely affect any right or protection existing hereunder in respect of any act or omission
occurring prior to such repeal or amendment or adoption of such inconsistent provision.
7.8 Certain Definitions. For purposes of this Article VII, (a) references
to “other enterprise” shall include any employee benefit plan; (b) references to
“fines” shall include any excise taxes assessed on a person with respect to an employee
benefit plan; (c) references to “serving at the request of the Corporation” shall include
any service that imposes duties on, or involves services by, a person with respect to any employee
benefit plan, its participants, or beneficiaries; and (d) a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best
interest of the Corporation” for purposes of Section 145 of the DGCL.
7.9 Contract Rights. The rights provided to claimants pursuant to this
Article VII (a) shall be contract rights based upon good and valuable consideration, pursuant to
which a claimant may bring suit as if the provisions of this Article VII were set forth in a
separate written contract between the claimant and the Corporation, (b) shall fully vest at the
time the claimant first assumes his or her position as a director or officer of the Corporation,
(c) are intended to be retroactive and shall be available with respect to any act or omission
occurring prior to the adoption of this Article VII, (d) shall continue as to a claimant who has
ceased to be a director or officer of the Corporation, and (e) shall inure to the benefit of the
claimant’s heirs, executors and administrators.
21
Exhibit 4.1
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this “Agreement”) dated as of November 9, 2009 entered
into by and between MagnaChip Semiconductor LLC, a Delaware limited liability company (or any other
Affiliate entity or entities created through any Solvent Reorganization or designated by the Board
of Managers, the “Company”), and each of the individuals and entities listed on Schedule I
attached hereto (the “Securityholders”).
A. On August 25, 2009, the Creditor’s Committee of the Company and certain of its debtor
subsidiaries filed that certain Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy
Code (as may be amended, the “Plan”), which provides that the Securityholders shall receive units
of the Company’s membership interests (the “Common Units” or the “Initial Securities”).
B. In connection with the consummation of the transactions contemplated by the Plan, the
Company and the Securityholders desire to enter into this Agreement to provide the Securityholders
registration rights with respect to the Registrable Securities (as defined herein) of the Company
held by them including, without limitation, the Initial Securities.
AGREEMENT:
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I.
REGISTRATION RIGHTS
Section 1.1 Definitions. For purposes of this Agreement:
(a) “Affiliate” means, with respect to any Person, any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by or is under common
control with such Person. The term “control” (including, with correlative meaning, the terms
“controlled by” and “under common control with”) means the possession, directly or indirectly, of
the power to direct, or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
(b) “Demand Registration” means a registration requested pursuant to Section 1.3.
(c) “Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
(d) “FINRA” means the Financial Industry Regulatory Authority, Inc.
(e) “Holder” means a Person that (i) is a party to this Agreement (or a permitted transferee
under Section 1.11) and (ii) owns Registrable Securities.
(f) “IPO” means an initial firm commitment underwritten public offering of the Company’s
securities.
(g) “Participating Holders” means Holders participating, or electing to participate, in an
offering of Registrable Securities.
(h) “Person” means any individual, firm, corporation, company, partnership, trust,
incorporated or unincorporated association, limited liability company, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other entity of any kind,
and shall include any successor (by merger or otherwise) of any such entity.
(i) “Qualified Public Offering” means a firm commitment underwritten public offering of the
Company’s securities pursuant to an effective registration statement filed by the Company under the
Securities Act resulting in gross proceeds of at least $75,000,000 to the Company.
(j) “Reclassified Securities” means the Securities received in connection with the exchange of
the Common Units into Securities of the Company or its Subsidiaries or distribution of Securities
of the Company or its Subsidiaries in respect of Common Units to effect a Solvent Reorganization in
connection with an IPO of the Company.
(k) “Register,” “registered” and “registration” mean a registration effected by preparing and
filing a Registration Statement in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such Registration Statement.
(l) “Registrable Securities” means all Reclassified Securities held by the Securityholders
(including a permitted transferee under Section 1.11 hereof) whether acquired on or after
the effective date of the Plan, including, without limitation, (i) the Initial Securities, (ii) any
securities issued by the Company, which are convertible into Reclassified Securities, including the
Warrants, and (iii) any Reclassified Securities issued as a dividend or other distribution with
respect to or in exchange for or in replacement of the securities referenced in (i) or (ii) above;
provided, however, that Registrable Securities, once issued, shall cease to be Registrable
Securities (a) upon the sale thereof pursuant to an effective Registration Statement, (b) upon the
sale thereof pursuant to Rule 144 (or successor rule) under the Securities Act, (c) upon the sale
in a private transaction in which the transferor’s rights under this Agreement are not validly
assigned in accordance with the terms of this Agreement and (d) when such securities cease to be
outstanding.
(m) “Registration Expenses” means all expenses (other than Selling Expenses) arising from or
incident to the performance of, or compliance with, this Agreement, including, without limitation,
(i) SEC, stock exchange, FINRA and other registration and filing fees, (ii) all fees and expenses
incurred in connection with complying with any securities or blue sky laws (including, without
limitation, fees, charges and disbursements of counsel in connection with blue sky qualifications
of the Registrable Securities), (iii) all printing, messenger and delivery expenses, (iv) the fees,
charges and disbursements of counsel to the Company and of its
independent public accountants and any other accounting and legal fees, charges and expenses
incurred by the Company (including, without limitation, any expenses arising from any special
2
audits or “comfort letters” required in connection with or incident to any registration), (v) the
fees, charges and disbursements of any special experts retained by the Company in connection with
any registration pursuant to the terms of this Agreement, (vi) all internal expenses of the Company
(including, without limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (vii) the fees and expenses incurred in connection with the listing of
the Registrable Securities on any securities exchange and (viii) Securities Act liability insurance
if the Company elects to obtain such insurance, regardless of whether any Registration Statement
filed in connection with such registration is declared effective. “Registration Expenses” shall
also include fees, charges and disbursements of one (1) firm of counsel to all of the Participating
Holders participating in any underwritten public offering (which shall be selected by a majority,
based on the number of Registrable Securities to be sold, of the Participating Holders).
(n) “Registration Statement” means any Registration Statement of the Company filed with the
SEC on the appropriate form pursuant to the Securities Act which covers any of the Registrable
Securities pursuant to the provisions of this Agreement and all amendments and supplements to any
such Registration Statement, including post-effective amendments, in each case including the
prospectus contained therein, all exhibits thereto and all materials incorporated by reference
therein.
(o) “SEC” or “Commission” means the United States Securities and Exchange Commission.
(p) “Securities” shall mean, with respect to any Person, all equity interests of such Person,
all securities convertible into or exchangeable for equity interests of such Person, and all
options, warrants, and other rights to purchase or otherwise acquire from such Person equity
interests, including any equity appreciation or similar rights, contractual or otherwise.
(q) “Securities Act” means the United States Securities Act of 1933, as amended, or any
successor statute.
(r) “Selling Expenses” means the underwriting fees, discounts, selling commissions and stock
transfer taxes applicable to all Registrable Securities registered by the Participating Holders and
fees and disbursements of counsel for any Participating Holder (other than the fees, charges and
disbursements of one (1) firm of counsel to all of the Participating Holders as included in
Registration Expenses).
(s) “Solvent Reorganization” shall mean any solvent reorganization of the Company, including
by merger, consolidation, recapitalization, transfer or sale of shares or assets, or contribution
of assets and/or liabilities, or any liquidation, exchange of Securities, conversion of entity,
migration of entity, formation of new entity, or any other transaction or group of related
transactions (in each case other than to or with an unaffiliated third party), in which:
(i) all holders of the same class of Securities of the Company are offered the same amount of
consideration in respect of such Securities; and
(ii) all holders’ economic interests in the Company, relative to each other and all other
holders of Securities of the Company, are preserved.
3
(t) “Subsidiary” means, with respect to any Person, any corporation, association, partnership,
limited liability company or other business entity of which 50% or more of the total voting power
of equity interests (including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers, representatives or trustees
thereof is at the time owned or controlled, directly or indirectly, by (a) such Person, (b) such
Person and one or more subsidiaries of such Person, or (c) one or more subsidiaries of such Person.
For purposes of this definition, the terms “control,” “controlling,” “controlled by” and “under
common control with,” as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Section 1.2 Qualified Public Offering.
(a) Upon the written request of one or more Holders owning at least fifty percent (50%) of the
Registrable Securities on a fully diluted basis, the Company shall use commercially reasonable
efforts to consummate a Qualified Public Offering within one hundred eighty (180) days from the
date on which the Company receives such written request.
(b) The Company shall be entitled to temporarily postpone such Qualified Public Offering for a
reasonable period of time if the Board of Managers of the Company (i) determines that in the Board
of Managers’ reasonable judgment and good faith consummation of a Qualified Public Offering would
materially adversely affect the business, operations or financial position of the Company or any of
its subsidiaries and (ii) promptly gives the Holders written notice of such determination,
containing a general statement of the reasons for such postponement and an approximation of the
period of the anticipated delay; provided, however, that such postponement shall be no longer than
sixty (60) days.
Section 1.3 Demand Registration Rights.
(a) (i) Subject to the terms and conditions hereof, commencing on the date which is ninety
(90) days following the completion of a Qualified Public Offering, any Holder or group of Holders
(the “Initiating Holders”) shall have the right to request by written notice, which shall state the
number of shares of Registrable Securities to be disposed of and the intended methods of
disposition of such shares (the “Demand Notice”), given to the Company that the Company register
under and in accordance with the provisions of the Securities Act all or any portion of the
Registrable Securities designated by such Holder(s); provided, however, that such Registrable
Securities represent at least twenty percent (20%) of the Registrable Securities on a fully diluted
basis.
(ii) Subject to the terms and conditions hereof, after the Company has become eligible for
the use of SEC Form S-3, each Holder shall be entitled to request by Demand Notice given to the
Company that the Company effect a Demand Registration under SEC Form S-3 or any similar short form
registration statement with respect to all or part of the Registrable
Securities designated by such Holder(s) in accordance with the provisions of the Securities
Act (each a “S-3 Demand Registration”).
4
(iii) Notwithstanding the above, the Company shall not be obligated to effect, or to take any
action to effect, any Demand Registration pursuant to Section 1.3(a)(i) above:
(A) if the Initiating Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate offering price to the public of less than $10,000,000;
(B) after the Company has initiated four (4) such registrations pursuant to Section
1.3(a)(i) unless such Demand Registrations do not become effective or the applicable
Registrable Securities are not sold pursuant to such registration because the applicable Demand
Registration is not maintained in effect for the respective periods set forth in Section
1.3(c), in which case such Demand Registration shall not be treated as a counted registration
for purposes of this Section 1.3(a)(iii)(B).
(C) in any particular jurisdiction in which the Company would be required to file a general
consent to service of process in any jurisdiction where it has not theretofore done so or to take
any action that would subject it to general service of process or taxation in any such jurisdiction
where it is not then subject, except as may be required by the Securities Act; or
(D) if, in a given three-month period, the Company has effected one (1) Demand Registration
pursuant to Section 1.3(a)(i) in such period.
(iv) Notwithstanding the above, the Company shall not be obligated to effect, or to take any
action to effect, any Demand Registration pursuant to Section 1.3(a)(ii) above:
(A) if the Initiating Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) on Form S-3 at an aggregate offering price to the public of less than
$1,000,000;
(B) in any particular jurisdiction in which the Company would be required to file a general
consent to service of process in any jurisdiction where it has not theretofore done so or to take
any action that would subject it to general service of process or taxation in any such jurisdiction
where it is not then subject, except as may be required by the Securities Act; or
(C) if, in a given one-month period, the Company has effected one (1) S-3 Demand Registration
pursuant to Section 1.3(a)(ii) in such period.
(v) Upon receipt of a Demand Notice, the Company shall promptly (and in any event within ten
(10) business days from the date of receipt of such Demand Notice) notify all other Holders of the
receipt of such Demand Notice and allow them the opportunity to include Registrable Securities held
by them in the proposed registration by submitting their own Demand Notice. If the Initiating
Holders intend to distribute the Registrable Securities covered by their
request by means of an underwriting, then they shall so advise the Company as a part of their
Demand Notice. In such event, the right of any Holder to include such Holder’s Registrable
Securities in such registration shall be conditioned upon such Holder’s participation in such
5
underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. The underwriters will be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. All Holders proposing
to distribute their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or underwriters selected for
such underwriting. Notwithstanding any other provision of this Section 1.3, in connection
with any Demand Registration in which more than one Holder participates, in the event that such
Demand Registration involves an underwritten offering and the managing underwriter or underwriters
participating in such offering advise in writing to the Holders of Registrable Securities to be
included in such offering that the total number of Registrable Securities to be included in such
offering exceeds the amount that can be sold in (or during the time of) such offering without
materially delaying or jeopardizing the success of such offering (including the price per share of
the Registrable Securities to be sold), then the Registrable Securities to be offered for the
account of the Holders who have elected to participate shall be equally divided between such
Holders pro rata on the basis of the number of Registrable Securities beneficially owned by each
such Holder); provided, however, that the number of shares of Registrable Securities to be included
in such underwriting and registration shall not be reduced unless all other securities of the
Company are first entirely excluded from the underwriting and registration. Any Registrable
Securities excluded and withdrawn from such underwriting shall be withdrawn from the registration.
(b) The Company, within forty-five (45) days of the date on which the Company receives a
Demand Notice given by Holders in accordance with Section 1.3(a) hereof, shall file with
the SEC, and the Company shall thereafter use its commercially reasonable efforts to cause to be
declared effective as promptly as practicable, a Registration Statement, in accordance with the
intended method or methods of distribution, of the total number of Registrable Securities specified
by the Holders in such Demand Notice (a “Demand Registration”), which may, at the request of the
Holders, be a “shelf” registration (a “Shelf Registration”) pursuant to Rule 415 under the
Securities Act.
(c) The Company shall use commercially reasonable efforts to keep each Registration Statement
filed pursuant to this Section 1.3 continuously effective and usable for the resale of the
Registrable Securities covered thereby (i) in the case of a registration that is not a Shelf
Registration, for a period of one hundred twenty (120) days from the date on which the SEC declares
such Registration Statement effective and (ii) in the case of a Shelf Registration, for a period of
two (2) years from the date on which the SEC declares such Registration Statement effective, in
either case (x) until such earlier date as all of the Registrable Securities covered by such
Registration Statement have been sold pursuant to such Registration Statement, and (y) as such
period may be extended pursuant to this Section 1.3. The time period for which the Company
is required to maintain the effectiveness of any Registration Statement shall be extended by the
aggregate number of days of all Delay Periods and all Interruption Periods occurring with respect
to such registration and such period and any extension thereof is hereinafter referred to as the
“Effectiveness Period.”
(d) The Company shall be entitled to postpone the filing of any Registration Statement
otherwise required to be prepared and filed by the Company pursuant to this Section
6
1.3, or
suspend the use of any effective Registration Statement under this Section 1.3, for a
reasonable period of time (a “Delay Period”), if the Board of Managers of the Company determines
that in the Board of Managers’ reasonable judgment and good faith the registration and distribution
of the Registrable Securities covered or to be covered by such Registration Statement would
materially interfere with any pending material financing, acquisition or corporate reorganization
or other material corporate development involving the Company or any of its subsidiaries or would
require premature disclosure thereof and promptly gives the Holders written notice of such
determination, containing a general statement of the reasons for such postponement and an
approximation of the period of the anticipated delay; provided, however, that (i) the aggregate
number of days included in all Delay Periods during any consecutive twelve (12) months shall not
exceed the aggregate of (x) sixty (60) days minus (y) the number of days occurring during all
Interruption Periods during such consecutive twelve (12) months and (ii) a period of at least
forty-five (45) days shall elapse between the termination of any Delay Period or Interruption
Period and the commencement of the immediately succeeding Delay Period. If the Company shall so
postpone the filing of a Registration Statement, the Holders of Registrable Securities to be
registered shall have the right to withdraw the request for registration by giving written notice
from the Holders of a majority in number of the Registrable Securities that were to be registered
to the Company within forty-five (45) days after receipt of the notice of postponement or, if
earlier, the termination of such Delay Period (and, in the event of such withdrawal, such request
shall not be counted for purposes of determining the number of requests for registration to which
the Holders of Registrable Securities are entitled pursuant to this Section 1.3). The
Company shall not be entitled to initiate or continue a Delay Period unless it shall (A)
concurrently prohibit sales by all other security holders under registration statements covering
securities held by such other security holders and (B) in accordance with the Company’s policies
from time to time in effect, forbid purchases and sales in the open market by senior executives of
the Company.
(e) The Company shall not include any securities that are not Registrable Securities in any
Registration Statement filed pursuant to this Section 1.3 without the prior written consent
of the Holders of a majority in number of the Registrable Securities covered by such Registration
Statement.
(f) Holders of a majority in number of the Registrable Securities to be included in a
Registration Statement pursuant to this Section 1.3 may, at any time prior to the effective
date of the Registration Statement relating to such Registration, revoke such request by providing
a written notice to the Company revoking such request. Any such Demand Request so withdrawn shall
not be counted for purposes of determining the number of requests for registration to which the
Holders of Registrable Securities are entitled pursuant to this Section 1.3 if the Holders
of Registrable Securities who revoked such request reimburse the Company for all its out-of-pocket
expenses incurred in the preparation, filing and processing of the Registration Statement;
provided, however, that, if such revocation was based on (i) the Company’s failure to comply in any
material respect with its obligations hereunder, (ii) the institution by the Company of a Delay
Period or (iii) a material adverse change in the condition, business or prospects of the Company
not known to the Holders at the time of their request for such registration and such revocation
was made with reasonable promptness after the Holders learned of such material adverse change,
such reimbursement shall not be required.
7
Section 1.4 Piggyback Registrations.
(a) Right to Include Registrable Securities. Each time that the Company proposes for
any reason to register any of its equity securities under the Securities Act for its own account
other than pursuant to a Registration Statement on Forms S-4 or S-8 (or similar or successor forms)
or a registration pursuant to Section 1.3, a registration relating solely to employee
benefit plans, a registration relating to the offer and sale of debt securities, a registration
relating to a corporate reorganization or other Rule 145 transaction, or a registration on any
registration form that does not permit secondary sales (a “Proposed Registration”), the Company
shall promptly give written notice of such Proposed Registration to all of the Holders of
Registrable Securities (which notice shall be given not less than thirty (30) days prior to the
expected effective date of the Company’s Registration Statement) and shall, subject to the
provisions of this Section 1.4, use its commercially reasonable efforts to cause to be
registered all of the Registrable Securities that each such Holder has requested to be included in
such Proposed Registration. The rights to piggyback registration may be exercised an unlimited
number of occasions.
(b) Piggyback Procedure. Each Holder of Registrable Securities shall have twenty (20)
days from the date of receipt of the Company’s notice referred to in Section 1.4(a) above
to deliver to the Company a written request specifying the number of Registrable Securities such
Holder intends to sell and such Holder’s intended method of disposition. Any Holder shall have the
right to withdraw such Holder’s request for inclusion of such holder’s Registrable Securities in
any Registration Statement pursuant to this Section 1.4 by giving written notice to the
Company of such withdrawal; provided, however, that the Company may ignore a notice of withdrawal
made within twenty-four (24) hours of the time the Registration Statement is to become effective.
Subject to Section 1.4(d) below, the Company shall use its commercially reasonable efforts
to include in such Registration Statement all such Registrable Securities so requested to be
included therein; provided, however, that the Company may at any time withdraw or cease proceeding
with any such Proposed Registration if it shall at the same time withdraw or cease proceeding with
the registration of all other equity securities originally proposed to be registered. If a
registration of which the Company gives notice under this Section 1.4 is for an
underwritten offering, then the Company shall so advise the Holders. In such event, the right of
any Holder to include such Holder’s Registrable Securities in such registration shall be
conditioned upon such Holder’s participation in such underwriting and the inclusion of such
Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriters selected for such
underwriting. If any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the managing underwriters. Any
Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn
from the registration.
(c) Selection of Underwriters. The managing underwriter for any Proposed Registration
that involves an underwritten public offering shall be one or more reputable
nationally recognized investment banks selected by the Company and reasonably acceptable to a
majority in interest of the Participating Holders.
8
(d) Priority for Piggyback Registration. Notwithstanding any other provision of this
Agreement, if the managing underwriter of an underwritten public offering determines and advises
the Company and the Holders in writing that the inclusion of all Registrable Securities proposed to
be included by the Holders of Registrable Securities in the underwritten public offering would
materially and adversely interfere with the successful marketing of the Company’s securities, then
the Holders of Registrable Securities shall not be permitted to include any Registrable Securities
in excess of the amount, if any, of Registrable Securities which the managing underwriter of such
underwritten public offering shall reasonably and in good faith agree in writing to include in such
public offering in addition to the amount of securities to be registered for the Company. The
Company will be obligated to include in such Registration Statement, as to each Holder, only a
portion of the Registrable Securities such Holder has requested be registered equal to the ratio
which such Holder’s requested Registrable Securities bears to the total number of Registrable
Securities requested to be included in such Registration Statement by all Holders who have
requested that their Registrable Securities be included in such Registration Statement. It is
acknowledged by the parties hereto that pursuant to the foregoing provision, the securities to be
included in a registration initiated by the Company shall be allocated:
(i) first, to the Company;
(ii) second, pari passu to the Participating Holders; and
(iii) third, to any others requesting registration of securities of the Company.
If as a result of the provisions of this Section 1.4(d), any Holder shall not be
entitled to include all of its Registrable Securities in a registration that such Holder has
requested to be so included, such Holder may withdraw such Holder’s request to include Registrable
Securities in such Registration Statement.
Section 1.5 Holdback Agreements.
(a) Restrictions on Public Sale by Holders. Restrictions on Public Sale by
Securityholders. If requested by the lead managing underwriter, each Securityholder agrees not to
effect any public sale or distribution of any Company Securities (including any Reclassified
Securities) or of any securities convertible into or exchangeable or exercisable for such Company
Securities (including any Reclassified Securities), including a sale pursuant to Rule 144 under the
Securities Act, during a period of not more than one hundred and eighty (180) days after, an IPO
pursuant to an effective Registration Statement commencing on the effective date of the
Registration Statement (the “Lock-Up Period”), unless expressly authorized to do so by the lead
managing underwriter; provided, however, that if any other holder of securities of the Company
shall be subject to a shorter period or receives more advantageous terms relating to the Lock-Up
Period, then the Lock-Up Period shall be such shorter period and also on such more advantageous
terms and notwithstanding the foregoing, the Securityholders shall not be required to sign lock-up
agreements unless all of the Company’s directors, officers and securityholders
owning one percent (1%) or more of the Company’s fully diluted voting stock have signed
lock-up agreements with the managing underwriters. Any such lock-up agreements signed by the
Securityholders shall contain reasonable and customary exceptions, including, without limitation,
9
the right of a Securityholder to make transfers to certain Affiliates and transfers related to
securities owned by Securityholders as a result of open market purchases made following the closing
of the applicable offering. The Company shall be authorized to impose stop-transfer instructions
with respect to the securities subject to the foregoing restrictions until the end of the relevant
period.
(b) Restrictions on Public Sale by the Company. The Company agrees not to effect any
public sale or distribution of any securities for its own account (except pursuant to registrations
on Form S-4 or S-8 or any similar or successor form) during any Lock-Up Period, to the extent
reasonably requested by the managing underwriter (except for securities being sold by the Company
for its own account under such Registration Statement).
Section 1.6 Registration Procedures.
(a) Obligations of the Company. Whenever registration of Registrable Securities is
required pursuant to this Agreement, the Company shall use its commercially reasonable efforts to
effect the registration and sale of such Registrable Securities in accordance with the intended
method of distribution thereof as promptly as possible, and in connection with any such request,
the Company shall, as expeditiously as possible:
(i) Preparation of Registration Statement; Effectiveness. Prepare and file with the SEC, a
Registration Statement on any form on which the Company then qualifies, which counsel for the
Company shall deem appropriate and pursuant to which such offering may be made in accordance with
the intended method of distribution thereof (except that the Registration Statement shall contain
such information as may reasonably be requested for marketing or other purposes by the managing
underwriter), and use its commercially reasonable efforts to cause any registration required
hereunder to become effective as soon as practicable after the initial filing thereof and remain
effective for a period of not less than two hundred and ten (210) days (or such shorter period in
which all Registrable Securities have been sold in accordance with the methods of distribution set
forth in the Registration Statement); provided, however, that, in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed
basis, such two hundred and ten (210) day period shall be extended, if necessary, to keep the
Registration Statement effective until all such Registrable Securities are sold, provided that Rule
415, or any successor rule under the Securities Act, permits an offering on a continuous or delayed
basis;
(ii) Participation in Preparation. Provide any Participating Holder holding more than ten
percent (10%) of all Registrable Securities, any underwriter participating in any disposition
pursuant to a Registration Statement, and any attorney, accountant or other agent retained by any
such Participating Holder or underwriter (each, an “Inspector” and, collectively, the
“Inspectors”), the opportunity to participate (including, but not limited to, reviewing, commenting
on and attending all meetings) in the preparation of such Registration Statement, each prospectus
included therein or filed with the SEC and each amendment or supplement thereto;
(iii) Due Diligence. For a reasonable period prior to the filing of any Registration
Statement pursuant to this Agreement, make available for inspection and copying by
10
the Inspectors
such financial and other information and books and records, pertinent corporate documents and
properties of the Company and its subsidiaries and cause the officers, directors, employees,
counsel and independent certified public accountants of the Company and its subsidiaries to respond
to such inquiries and to supply all information reasonably requested by any such Inspector in
connection with such Registration Statement, as shall be reasonably necessary, in the judgment of
the respective counsel referred to in Section 1.6(a)(ii), to conduct a reasonable
investigation within the meaning of the Securities Act; provided, however, that if requested by the
Company, each Inspector shall enter into a confidentiality agreement with the Company prior to
participating in the preparation of the Registration Statement or the Company’s release or
disclosure of confidential information to such Inspector;
(iv) General Notifications. Promptly notify in writing the Participating Holders, the sales
or placement agent, if any, therefor and the managing underwriter of the securities being sold, (A)
when such Registration Statement or the prospectus included therein or any prospectus amendment or
supplement or post-effective amendment has been filed, and, with respect to any such Registration
Statement or any post-effective amendment, when the same has become effective, (B) when the SEC
notifies the Company whether there will be a “review” of such Registration Statement, (C) of any
comments (oral or written) by the SEC and by the blue sky or securities commissioner or regulator
of any state with respect thereto and (D) of any request by the SEC for any amendments or
supplements to such Registration Statement or the prospectus or for additional information;
(v) 10b-5 Notification. Promptly notify in writing the Participating Holders, the sales or
placement agent, if any, therefor and the managing underwriter of the securities being sold
pursuant to any Registration Statement at any time when a prospectus relating thereto is required
to be delivered under the Securities Act upon discovery that, or upon the happening of any event as
a result of which, any prospectus included in such Registration Statement (or amendment or
supplement thereto) contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and the Company shall promptly prepare a
supplement or amendment to such prospectus and file it with the SEC (in any event no later than ten
(10) days following notice of the occurrence of such event to each Participating Holder, the sales
or placement agent and the managing underwriter) so that after delivery of such prospectus, as so
amended or supplemented, to the purchasers of such Registrable Securities, such prospectus, as so
amended or supplemented, shall not contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made;
(vi) Notification of Stop Orders; Suspensions of Qualifications and Exemptions. Promptly
notify in writing the Participating Holders, the sales or placement agent, if any, therefor and the
managing underwriter of the securities being sold of the issuance by the SEC of (A) any stop order
issued or threatened to be issued by the SEC or (B) any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction or the initiation or threatening of any
proceeding for such purpose and the Company agrees to use its commercially reasonable efforts
to (x) prevent the issuance of any such stop order, and in the event of such issuance, to obtain
the
11
withdrawal of any such stop order and (y) obtain the withdrawal of any order suspending or
preventing the use of any related prospectus or suspending the qualification of any Registrable
Securities included in such Registration Statement for sale in any jurisdiction at the earliest
practicable date;
(vii) Amendments and Supplements. Prepare and file with the SEC such amendments, including
post-effective amendments to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the applicable time period required hereunder and
if applicable, file any Registration Statements pursuant to Rule 462(b) under the Securities Act;
cause the related prospectus to be supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated
under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the sellers thereof set forth
in such Registration Statement as so amended or in such prospectus as so supplemented;
(viii) Copies. Furnish as promptly as practicable to each Participating Holder and Inspector
prior to filing a Registration Statement or any supplement or amendment thereto, copies of such
Registration Statement, supplement or amendment as it is proposed to be filed, and after such
filing such number of copies of such Registration Statement, each amendment and supplement thereto
(in each case including all exhibits thereto), the prospectus included in such Registration
Statement (including each preliminary prospectus) and such other documents as each such
Participating Holder or underwriter may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Participating Holder;
(ix) Blue Sky. Use its commercially reasonable efforts to, prior to any public offering of
the Registrable Securities, register or qualify (or seek an exemption from registration or
qualifications) such Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any Participating Holder or underwriter may request, and to continue such
qualification in effect in each such jurisdiction for as long as is permissible pursuant to the
laws of such jurisdiction, or for as long as a Participating Holder or underwriter requests or
until all of such Registrable Securities are sold, whichever is shortest, and do any and all other
acts and things which may be reasonably necessary or advisable to enable any Participating Holder
to consummate the disposition in such jurisdictions of the Registrable Securities; provided,
however, that the Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent of process in any such states or
jurisdictions or subject itself to material taxation in any such state or jurisdiction, but for
this subparagraph;
(x) Other Approvals. Use its commercially reasonable efforts to obtain all other approvals,
consents, exemptions or authorizations from such governmental agencies or authorities as may be
necessary to enable the Participating Holders and underwriters to consummate the disposition of
Registrable Securities;
12
(xi) Agreements. Enter into customary agreements (including any underwriting agreements in
customary form), and take such other actions as may be reasonably required in order to expedite or
facilitate the disposition of Registrable Securities;
(xii) “Cold Comfort” Letter. Obtain a “cold comfort” letter from the Company’s independent
public accountants in customary form and covering such matters of the type customarily covered by
“cold comfort” letters as the managing underwriter may reasonably request;
(xiii) Legal Opinion. Furnish, at the request of any underwriter of Registrable Securities on
the date such securities are delivered to the underwriters for sale pursuant to such registration,
an opinion, dated such date, of counsel representing the Company for the purposes of such
registration, addressed to the underwriter, covering such legal matters with respect to the
registration in respect of which such opinion is being given as such underwriter may reasonably
request and as are customarily included in such opinions;
(xiv) SEC Compliance, Earnings Statement. Use its commercially reasonable efforts to comply
with all applicable rules and regulations of the SEC and make available to its securityholders, as
soon as reasonably practicable, but no later than fifteen (15) months after the effective date of
any Registration Statement, an earnings statement covering a period of twelve (12) months beginning
after the effective date of such Registration Statement, in a manner which satisfies the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder;
(xv) Certificates, Closing. Provide customary officers’ certificates and other customary
closing documents;
(xvi) FINRA. Cooperate with each Participating Holder and each underwriter participating in
the disposition of such Registrable Securities and underwriters’ counsel in connection with any
filings required to be made with the FINRA;
(xvii) Road Show. Cause appropriate officers as are requested by an managing underwriter to
participate in a “road show” or similar marketing effort being conducted by such underwriter with
respect to an underwritten public offering;
(xviii) Listing. Use commercially reasonable efforts to cause all such Registrable Securities
to be listed on each securities exchange on which similar securities issued by the Company are then
listed;
(xix) Transfer Agent, Registrar and CUSIP. Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereto and a CUSIP number for all such Registrable
Securities, in each case, no later than the effective date of such registration;
(xx) Private Sales. Use its commercially reasonable efforts to assist a Holder in
facilitating private sales of Registrable Securities by, among other things, providing officers’
certificates and other customary closing documents; and
13
(xxi) Commercially Reasonable Efforts. Use its commercially reasonable efforts to take all
other actions necessary to effect the registration of the Registrable Securities contemplated
hereby.
(b) Delay of Registration; Seller Information.
(i) Delay of Registration. No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any controversy that might
arise with respect to the interpretation or implementation of this Agreement.
(ii) Seller Information. The Company may require each Participating Holder as to which any
registration of such Holder’s Registrable Securities is being effected to furnish to the Company
with such information regarding such Participating Holder and such Participating Holder’s method of
distribution of such Registrable Securities as the Company may from time to time reasonably request
in writing. If a Participating Holder refuses to provide the Company with any of such information
on the grounds that it is not necessary to include such information in the Registration Statement,
the Company may exclude such Participating Holder’s Registrable Securities from the Registration
Statement. The exclusion of a Participating Holder’s Registrable Securities shall not affect the
registration of the other Registrable Securities to be included in the Registration Statement.
(c) Notice to Discontinue. Each Participating Holder whose Registrable Securities are
covered by a Registration Statement filed pursuant to this Agreement agrees that, upon receipt of
written notice from the Company of the happening of any event of the kind described in Section
1.6(a)(v), such Participating Holder shall forthwith discontinue the disposition of Registrable
Securities until such Participating Holder’s receipt of the copies of the supplemented or amended
prospectus contemplated by Section 1.6(a)(v) or until it is advised in writing by the
Company that the use of the prospectus may be resumed and has received copies of any additional or
supplemental filings which are incorporated by reference into the prospectus (such period during
which disposition is discontinued being an “Interruption Period”), and, if so directed by the
Company in the case of an event described in Section 1.6(a)(v), such Participating Holder
shall deliver to the Company (at the Company’s expense) all copies, other than permanent file
copies then in such Participating Holder’s possession, of the prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such Registration Statement is to be
maintained effective by the number of days of the Interruption Period.
Section 1.7 Registration Expenses. Except as otherwise provided herein, all Registration
Expenses shall be borne by the Company. All Selling Expenses relating to Registrable Securities
registered shall be borne by the Participating Holders of such Registrable Securities pro rata on
the basis of the number of securities on a fully diluted basis so registered.
Section 1.8 Indemnification.
(a) Indemnification by the Company. The Company agrees, notwithstanding termination
of this Agreement, to indemnify and hold harmless to the fullest extent permitted by
14
law, each Holder, each of its directors, officers, employees, advisors, agents and general or
limited partners (and the directors, officers, employees, advisors and agents thereof), their
respective Affiliates and each Person who controls (within the meaning of the Securities Act or the
Exchange Act) any of such Persons, and each underwriter and each Person who controls (within the
meaning of the Securities Act or the Exchange Act) any underwriter (collectively, “Holder
Indemnified Parties”) from and against any and all losses, claims, damages, expenses (including,
without limitation, reasonable costs of investigation and fees, disbursements and other charges of
counsel, any amounts paid in settlement effected with the Company’s consent, which consent shall
not be unreasonably withheld or delayed and any costs incurred in enforcing the Company’s
indemnification obligations hereunder) or other liabilities (collectively, “Losses”) to which any
such Holder Indemnified Party may become subject under the Securities Act, Exchange Act, any other
federal law, any state or common law or any rule or regulation promulgated thereunder or otherwise,
insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect
thereof) are resulting from or arising out of or based upon (i) any untrue, or alleged untrue,
statement of a material fact contained in any Registration Statement, prospectus or preliminary
prospectus (as amended or supplemented) or any document incorporated by reference in any of the
foregoing or resulting from or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in light of the circumstances under which they were made),
not misleading or (ii) any violation by the Company of the Securities Act, Exchange Act, any other
federal law, any state or common law or any rule or regulation promulgated thereunder or otherwise
incident to any registration, qualification or compliance and in any such case, the Company will
promptly reimburse each such Holder Indemnified Party for any legal and any other Losses reasonably
incurred in connection with investigating, preparing or defending any such claim, loss, damage,
liability, action or investigation or proceeding (collectively, a “Claim”); provided, however, that
the Company shall not be liable to any Holder Indemnified Party for any Losses that arise out of or
are based upon (x) written information provided by a Holder Indemnified Party expressly for use in
the Registration Statement or (y) sales of Registrable Securities by a Holder Indemnified Party to
a person to whom there was not sent or given, at or before the written confirmation of such sale, a
copy of the prospectus (excluding documents incorporated by reference) or the prospectus as then
amended or supplemented (excluding documents incorporated by reference) if the Company has
previously furnished in a timely manner a reasonable number of copies thereof to such Holder
Indemnified Party in compliance with this Agreement and the Losses of such Holder Indemnified Party
results from an untrue statement or omission of a material fact contained in such preliminary
prospectus which was corrected in the prospectus (or the prospectus as then amended or
supplemented). Such indemnity obligation shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder Indemnified Parties and shall survive the transfer
of Registrable Securities by such Holder Indemnified Parties.
(b) Indemnification by Holders. In connection with any proposed registration in which
a Holder is participating pursuant to this Agreement, each such Holder shall furnish to the Company
in writing such information with respect to such Holder as the Company may reasonably request or as
may be required by law for use in connection with any Registration Statement or prospectus or
preliminary prospectus to be used in connection with such registration and each Holder agrees,
severally and not jointly, to indemnify and hold harmless the Company, any underwriter retained by
the Company and their respective directors, officers,
15
partners, employees, advisors and agents, their respective Affiliates and each Person who
controls (within the meaning of the Securities Act or the Exchange Act) any of such Persons to the
same extent as the foregoing indemnity from the Company to the Holders as set forth in Section
1.8(a) (subject to the exceptions set forth in the foregoing indemnity, the proviso to this
sentence and applicable law), but only with respect to any such information furnished in writing by
such Holder expressly for use therein; provided, however, that the liability of any Holder under
this Section 1.8(b) shall be limited to the amount of the net proceeds received by such
Holder in the offering giving rise to such liability. Such indemnity obligation shall remain in
full force and effect regardless of any investigation made by or on behalf of the Holder
Indemnified Parties (except as provided above) and shall survive the transfer of Registrable
Securities by such Holder.
(c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification
hereunder (the “Indemnified Party”) agrees to give prompt written notice to the indemnifying party
(the “Indemnifying Party”) after the receipt by the Indemnified Party of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof made in writing for
which the Indemnified Party intends to claim indemnification or contribution pursuant to this
Agreement; provided, however, that, the failure so to notify the Indemnifying Party shall not
relieve the Indemnifying Party of any liability that it may have to the Indemnified Party hereunder
unless and to the extent such Indemnifying Party is materially prejudiced by such failure. If
notice of commencement of any such action is given to the Indemnifying Party as above provided, the
Indemnifying Party shall be entitled to participate in and, to the extent it may wish, jointly with
any other Indemnifying Party similarly notified, to assume the defense of such action at its own
expense, with counsel chosen by it and reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel shall be paid by the
Indemnified Party unless (i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying
Party fails to assume the defense of such action with counsel satisfactory to the Indemnified Party
in its reasonable judgment or (iii) the named parties to any such action (including, but not
limited to, any impleaded parties) reasonably believe that the representation of such Indemnified
Party and the Indemnifying Party by the same counsel would be inappropriate under applicable
standards of professional conduct. In the case of clause (ii) above and (iii) above, the
Indemnifying Party shall not have the right to assume the defense of such action on behalf of such
Indemnified Party. No Indemnifying Party shall be liable for any settlement entered into without
its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party
shall, without the written consent of the Indemnified Party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought hereunder (whether or not
the Indemnified Party is an actual or potential party to such action or claim) unless such
settlement, compromise or judgment (A) includes an unconditional release of the Indemnified Party
from all liability arising out of such action or claim and (B) does not include a statement as to,
or an admission of, fault, culpability or a failure to act by or on behalf of any Indemnified
Party. The rights afforded to any Indemnified Party hereunder shall be in addition to any rights
that such Indemnified Party may have at common law, by separate agreement or otherwise.
16
(d) Contribution. If the indemnification provided for in this Section 1.8
from the Indemnifying Party is unavailable or insufficient to hold harmless an Indemnified Party in
respect of any Losses referred to herein, then the Indemnifying Party, in lieu of indemnifying the
Indemnified Party, shall contribute to the amount paid or payable by the Indemnified Party as a
result of such Losses in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party, as well as any other relevant equitable
considerations. The relative faults of the Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged omission to state a
material fact, was made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the Indemnifying Party’s and Indemnified Party’s relative intent, knowledge,
access to information and opportunity to correct or prevent such action; provided, however, that
the liability of any Holder under this Section 1.8(d) shall be limited to the amount of the
net proceeds received by such Holder in the offering giving rise to such liability. The amount
paid or payable by a party as a result of the Losses or other liabilities referred to above shall
be deemed to include, subject to the limitations set forth in Sections 1.8(a),
1.8(b) and 1.8(c), any legal or other fees, charges or expenses reasonably incurred
by such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if contribution pursuant to
this Section 1.8(d) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to contribution pursuant to this
Section 1.8(d).
Section 1.9 Certain Limitations on Registration Rights. No Holder may participate in any
Registration Statement hereunder unless such Holder completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements, and other documents reasonably required
under the terms of such underwriting arrangements and agrees to sell such Holder’s Registrable
Securities on the basis provided in any such underwriting agreement; provided, however, that no
such Holder shall be required to make any representations or warranties to the Company or the
underwriters in connection with any such registration other than representations and warranties as
to (i) such Holder’s ownership of its Registrable Securities to be sold or transferred, (ii) such
Holder’s power and authority to effect such transfer and (iii) such matters pertaining to
compliance with securities laws as may be reasonably requested. Such Holders of Registrable
Securities to be sold by such underwriters may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of the Company to and for
the benefit of such underwriters, shall also be made to and for the benefit of such Holders and
that any or all of the conditions precedent to the obligations of the underwriters under the
underwriting agreement be conditions precedent to the obligations of the Holders; provided,
however, that this requirement shall not apply to piggyback registrations as set forth in
Section 1.4 hereof.
Section 1.10 Limitations on Subsequent Registration Rights. The Company represents and
warrants that, except as set forth in this Agreement, it has not granted registration rights with
respect to any of the Company’s presently outstanding securities or any of its
17
securities that may hereafter be issued and agrees that from and after the date of this
Agreement, it shall not, without the prior written consent of the Holders of at least a majority of
the Registrable Securities then outstanding on a fully diluted basis, enter into any agreement (or
amendment or waiver of the provisions of any agreement) with any holder or prospective holder of
any securities of the Company that would grant such holder registration rights that are more
favorable or senior to those granted to the Holders hereunder.
Section 1.11 Transfer of Registration Rights. The rights of a Holder hereunder may be
transferred or assigned in connection with a transfer of Registrable Securities to (i) any
Affiliate of a Holder, (ii) any subsidiary, parent, partner, retired partner, limited partner,
shareholder or member of a Holder or (iii) any family member or trust for the benefit of any
Holder, or (iv) any transferee who, after such transfer, holds at least one percent (1%) of the
Registrable Securities on a fully diluted basis (as adjusted for any stock dividends, stock splits,
combinations and reorganizations and similar events). Notwithstanding the foregoing, such rights
may only be transferred or assigned provided that all of the following additional conditions are
satisfied: (a) such transfer or assignment is effected in accordance with applicable securities
laws; (b) such transferee or assignee agrees in writing to become subject to the terms of this
Agreement as a Securityholder; and (c) the Company is given written notice by such Holder of such
transfer or assignment, stating the name and address of the transferee or assignee and identifying
the Registrable Securities with respect to which such rights are being transferred or assigned.
Section 1.12 Termination of Registration Rights. The rights contained in Sections
1.2, 1.3, and 1.9 hereof shall terminate at the earlier of (a) the date on
which all of the Registrable Securities have been sold pursuant to a registered offering or (b) as
to any Holder, at any time following an IPO, the date on which all Registrable Securities of such
Holder may be sold without volume and manner of sale limitations under the Securities Act pursuant
to Rule 144.
ARTICLE II.
GENERAL PROVISIONS
Section 2.1 Survival of Agreements. All covenants, agreements, representations and warranties
made in this Agreement shall survive the execution and delivery of this Agreement, the issuance,
sale and delivery of the Initial Securities.
Section 2.2 Entire Agreement. This Agreement, together with the Schedules hereto and any
certificates, documents, instruments and writings that are delivered pursuant hereto, constitutes
the entire agreement and understanding of the parties in respect of the subject matter hereof and
supersedes all prior understandings, agreements or representations by or among the parties, written
or oral, to the extent they relate in any way to the subject matter hereof.
Section 2.3 Assignment; Binding Effect. Subject to Section 1.11, no party may assign
either this Agreement or any of its rights, interests or obligations hereunder without the prior
written approval of the other parties; provided, however, that each Securityholder may (a) assign
any or all of its rights and interests hereunder to one or more of its Affiliates and (b)
18
designate one or more of its Affiliates to perform its obligations hereunder (in any or all of
which cases such Securityholder nonetheless will remain responsible for the performance of all of
its obligations hereunder). All of the terms, agreements, covenants, representations, warranties
and conditions of this Agreement are binding upon, and inure to the benefit of and are enforceable
by, the parties and their respective successors and permitted assigns.
Section 2.4 Notices. All notices, requests and other communications provided for or permitted
to be given under this Agreement must be in writing and shall be given by personal delivery, by
certified or registered United States mail (postage prepaid, return receipt requested), by a
nationally recognized overnight delivery service for next day delivery, or by facsimile
transmission, as follows (or to such other address as any party may give in a notice given in
accordance with the provisions hereof):
| If to a Securityholder: |
In accordance with the contact information set forth on Schedule I attached
hereto.
| If to the Company: |
MagnaChip Semiconductor LLC
c/o MagnaChip Semiconductor Ltd.
891 Daechi-dong, Gangnam-gu
Seoul 135-738 Korea
Attn: General Counsel
Fax: 82-2-6903-3898
c/o MagnaChip Semiconductor Ltd.
891 Daechi-dong, Gangnam-gu
Seoul 135-738 Korea
Attn: General Counsel
Fax: 82-2-6903-3898
All notices, requests or other communications will be effective and deemed given only as follows:
(i) if given by personal delivery, upon such personal delivery, (ii) if sent by certified or
registered mail, on the fifth business day after being deposited in the United States mail, (iii)
if sent for next day delivery by overnight delivery service, on the date of delivery as confirmed
by written confirmation of delivery, (iv) if sent by facsimile, upon the transmitter’s confirmation
of receipt of such facsimile transmission, except that if such confirmation is received after 5:00
p.m. (in the recipient’s time zone) on a business day, or is received on a day that is not a
business day, then such notice, request or communication will not be deemed effective or given
until the next succeeding business day. Notices, requests and other communications sent in any
other manner, including by electronic mail, will not be effective.
Section 2.5 Specific Performance; Remedies. Each party acknowledges and agrees that the other
parties would be damaged irreparably if any provision of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. Accordingly, the parties will be
entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement
and to enforce specifically this Agreement and its provisions in any action or proceeding
instituted in any court of the United States or any state thereof having jurisdiction over the
parties and the matter, subject to Section 2.6 and Section 2.7, in addition to any
other remedy to which they may be entitled, at law or in equity. Except as expressly provided
herein, the rights, obligations and remedies created by this Agreement are cumulative and in
addition to
19
any other rights, obligations or remedies otherwise available at law or in equity. Except as
expressly provided herein, nothing herein will be considered an election of remedies.
Section 2.6 Submission to Jurisdiction; Waiver of Jury Trial.
(a) Submission to Jurisdiction. Any action, suit or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in connection with, this Agreement or the
transactions contemplated hereby shall only be brought in any federal court located in the State of
New York or any New York state court, and each party consents to the exclusive jurisdiction and
venue of such courts (and of the appropriate appellate courts therefrom) in any such action, suit
or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it
may now or hereafter have to the laying of the venue of any such, action, suit or proceeding in any
such court or that any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum. Process in any such action, suit or proceeding may be served on any
party anywhere in the world, whether within or without the jurisdiction of any such court. Without
limiting the foregoing, service of process on such party as provided in Section 2.4 shall
be deemed effective service of process on such party.
(b) Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES THAT ANY DISPUTE THAT MAY ARISE OUT
OF OR RELATING TO THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE SUCH PARTY HEREBY EXPRESSLY WAIVES ITS RIGHT TO JURY TRIAL OF ANY DISPUTE BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OTHER AGREEMENTS RELATING HERETO OR ANY DEALINGS AMONG THEM
RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. THE SCOPE OF THIS WAIVER IS INTENDED TO
ENCOMPASS ANY AND ALL ACTIONS, SUITS AND PROCEEDINGS THAT RELATE TO THE SUBJECT MATTER OF THE
TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS,
AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY REPRESENTS THAT (i) NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT IN THE EVENT OF ANY ACTION, SUIT OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER,
(ii) SUCH PARTY UNDERSTANDS AND WITH THE ADVICE OF COUNSEL HAS CONSIDERED THE IMPLICATIONS OF THIS
WAIVER, (iii) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) SUCH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND REPRESENTATIONS IN THIS
SECTION 2.6(b).
Section 2.7 Governing Law. This Agreement will be governed by and construed in accordance
with the laws of the State of New York, without giving effect to any choice of law principles.
Section 2.8 Headings. The article and section headings contained in this Agreement are
inserted for convenience only and will not affect in any way the meaning or interpretation of this
Agreement.
20
Section 2.9 Amendments. Other than with respect to amendments to Schedule I hereto,
which may be amended by the Company to reflect additional Securityholders or permitted transfers,
this Agreement may not be amended or modified without the written consent of the Company and the
Securityholders holding at least a majority of the Registrable Securities then outstanding on a
fully diluted basis.
Section 2.10 Extensions; Waivers. Any party may, for itself only, (a) extend the time for the
performance of any of the obligations of any other party under this Agreement, (b) waive any
inaccuracies in the representations and warranties of any other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any such extension or waiver will be
valid only if set forth in a writing signed by the party to be bound thereby. No waiver by any
party of any default, misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, may be deemed to extend to any prior or subsequent default, misrepresentation
or breach of warranty or covenant hereunder or affect in any way any rights arising because of any
prior or subsequent such occurrence. Neither the failure nor any delay on the part of any party to
exercise any right or remedy under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right or remedy preclude any other or further exercise of the
same or of any other right or remedy.
Section 2.11 Severability. The provisions of this Agreement will be deemed severable and the
invalidity or unenforceability of any provision will not affect the validity or enforceability of
the other provisions hereof; provided, that if any provision of this Agreement, as applied
to any party or to any circumstance, is judicially determined not to be enforceable in accordance
with its terms, the parties agree that the court judicially making such determination may modify
the provision in a manner consistent with its objectives such that it is enforceable, and/or to
delete specific words or phrases, and in its modified form, such provision will then be enforceable
and will be enforced.
Section 2.12 Counterparts; Effectiveness. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original but all of which together will constitute
one and the same instrument. This Agreement will become effective when one or more counterparts
have been signed by each of the parties and delivered to the other parties. For purposes of
determining whether a party has signed this Agreement or any document contemplated hereby or any
amendment or waiver hereof, only a handwritten original signature on a paper document or a
facsimile copy of such a handwritten original signature shall constitute a signature,
notwithstanding any law relating to or enabling the creation, execution or delivery of any contract
or signature by electronic means.
Section 2.13 Construction. This Agreement has been freely and fairly negotiated among the
parties. If an ambiguity or question of intent or interpretation arises, this Agreement will be
construed as if drafted jointly by the parties and no presumption or burden of proof will arise
favoring or disfavoring any party because of the authorship of any provision of this Agreement.
Any reference to any law will be deemed to refer to such law as in effect on the date hereof and
all rules and regulations promulgated thereunder, unless the context requires otherwise. The words
“include,” “includes,” and “including” will be deemed to be followed by “without limitation.”
Pronouns in masculine, feminine, and neuter genders will be construed to
21
include any other gender, and words in the singular form will be construed to include the
plural and vice versa, unless the context otherwise requires. The words “this Agreement,”
“herein,” “hereof,” “hereby,” “hereunder,” and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited. The parties intend that
each representation, warranty, and covenant contained herein will have independent significance.
If any party has breached any covenant contained herein in any respect, the fact that there exists
another covenant relating to the same subject matter (regardless of the relative levels of
specificity) which the party has not breached will not detract from or mitigate the fact that the
party is in breach of the first covenant.
Section 2.14 Adjustments for Stock Splits, Etc. Wherever in this Agreement there is a
reference to a specific number of the Company’s securities, then, upon the occurrence of any
subdivision, combination or stock dividend of such securities, the specific number of securities so
referenced in this Agreement will automatically be proportionally adjusted to reflect the effect of
such subdivision, combination or stock dividend on the outstanding securities of such class or
series.
Section 2.15 Aggregation of Stock. All securities owned or acquired by any Securityholder or
its Affiliated entities or persons (assuming full conversion, exchange and exercise of all
convertible, exchangeable and exercisable securities into Common Stock) shall be aggregated
together for the purpose of determining the availability of any right under this Agreement.
Section 2.16 Further Assurances. The Company and the Holders each agree to take such actions
and execute and deliver such other documents or agreements as may be reasonably necessary or
desirable for the implementation of this Agreement and the consummation of the transactions
contemplated hereby.
[SIGNATURE PAGES FOLLOW]
22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.
COMPANY:
|
MAGNACHIP SEMICONDUCTOR LLC | |||
| By: | ||||
| Name: | ||||
| Title: | ||||
SECURITYHOLDERS:
|
AVENUE INTERNATIONAL MASTER, L.P. | |||
| By: Avenue International Master GenPar, Ltd., its General Partner | ||||
| Name: | ||||
| Title: | ||||
| AVENUE INVESTMENTS, L.P. | ||||
| By: Avenue Partners, LLC, its General Partner | ||||
| Name: | ||||
| Title: | ||||
| AVENUE SPECIAL SITUATIONS FUND V, L.P. | ||||
| By: Avenue Capital Partners V, LLC, its General Partner | ||||
| By: GL Partners V, LLC, its Managing Member | ||||
| Name: | ||||
| Title: | ||||
| AVENUE SPECIAL SITUATIONS FUND IV, L.P. | ||||
| By: Avenue Capital Partners IV, LLC, General Partner | ||||
| By: GL Partners IV, LLC, its Managing Member | ||||
| Name: | ||||
| Title: | ||||
| AVENUE-CDP GLOBAL OPPORTUNITIES FUND, L.P. | ||||
| By: Avenue Global Opportunities Fund GenPar, LLC, its General Partner |
||||
| Name: | ||||
| Title: | ||||
Exhibit 10.1
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of November 6, 2009,
among
MAGNACHIP SEMICONDUCTOR S.A.
and
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY
as Borrowers,
and
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY
as Borrowers,
MAGNACHIP SEMICONDUCTOR LLC
and
THE OTHER GUARANTORS PARTY HERETO,
as Guarantors,
and
THE OTHER GUARANTORS PARTY HERETO,
as Guarantors,
THE LENDERS PARTY HERETO
and
WILMINGTON TRUST FSB,
as Administrative Agent,
as Administrative Agent,
TABLE OF CONTENTS
| Section | Page | |||||
| ARTICLE I |
||||||
| DEFINITIONS |
||||||
SECTION 1.01 |
Defined Terms | 2 | ||||
SECTION 1.02 |
Classification of Loans and Borrowings | 32 | ||||
SECTION 1.03 |
Terms Generally | 32 | ||||
SECTION 1.04 |
Accounting Terms; GAAP | 32 | ||||
SECTION 1.05 |
Resolution of Drafting Ambiguities | 32 | ||||
| ARTICLE II |
||||||
| THE CREDITS |
||||||
SECTION 2.01 |
Commitments | 33 | ||||
SECTION 2.02 |
Loans | 33 | ||||
SECTION 2.03 |
Borrowing Procedure | 34 | ||||
SECTION 2.04 |
Evidence of Debt; Repayment of Loans | 34 | ||||
SECTION 2.05 |
Fees | 36 | ||||
SECTION 2.06 |
Interest on Loans | 36 | ||||
SECTION 2.07 |
[Intentionally Omitted] | 36 | ||||
SECTION 2.08 |
Interest Elections | 36 | ||||
SECTION 2.09 |
Optional and Mandatory Prepayments of Loans | 38 | ||||
SECTION 2.10 |
Alternate Rate of Interest | 40 | ||||
SECTION 2.11 |
Yield Protection | 40 | ||||
SECTION 2.12 |
Breakage Payments | 41 | ||||
SECTION 2.13 |
Payments Generally; Pro Rata Treatment; Sharing of Setoffs | 42 | ||||
SECTION 2.14 |
Taxes | 43 | ||||
SECTION 2.15 |
Mitigation Obligations; Replacement of Lenders | 45 | ||||
SECTION 2.16 |
[Intentionally Omitted] | 46 | ||||
SECTION 2.17 |
[Intentionally Omitted] | 46 | ||||
SECTION 2.18 |
Increase in Commitments | 46 | ||||
| ARTICLE III | ||||||
| REPRESENTATIONS AND WARRANTIES | ||||||
SECTION 3.01 |
Organization; Powers | 47 | ||||
SECTION 3.02 |
Authorization; Enforceability | 48 | ||||
SECTION 3.03 |
No Conflicts | 48 | ||||
SECTION 3.04 |
Financial Statements; Projections | 48 | ||||
SECTION 3.05 |
Properties | 49 | ||||
SECTION 3.06 |
Intellectual Property | 49 | ||||
SECTION 3.07 |
Equity Interests and Subsidiaries | 50 | ||||
SECTION 3.08 |
Litigation; Compliance with Laws | 50 | ||||
SECTION 3.09 |
Agreements | 51 | ||||
i
| Section | Page | |||||
SECTION 3.10 |
Federal Reserve Regulations | 51 | ||||
SECTION 3.11 |
Investment Company Act; Public Utility Holding Company Act | 51 | ||||
SECTION 3.12 |
Use of Proceeds | 51 | ||||
SECTION 3.13 |
Taxes | 51 | ||||
SECTION 3.14 |
No Material Misstatements | 52 | ||||
SECTION 3.15 |
Labor Matters | 52 | ||||
SECTION 3.16 |
Solvency | 52 | ||||
SECTION 3.17 |
Employee Benefit Plans | 52 | ||||
SECTION 3.18 |
Environmental Matters | 53 | ||||
SECTION 3.19 |
Insurance | 54 | ||||
SECTION 3.20 |
Security Documents | 55 | ||||
SECTION 3.21 |
Anti-Terrorism Law | 55 | ||||
SECTION 3.22 |
[Intentionally Omitted] | 56 | ||||
SECTION 3.23 |
UK Financial Assistance | 56 | ||||
| ARTICLE IV | ||||||
| CONDITIONS PRECEDENT | ||||||
SECTION 4.01 |
Conditions to Effective Date | 56 | ||||
SECTION 4.02 |
Conditions to All Credit Extensions | 61 | ||||
| ARTICLE V | ||||||
| AFFIRMATIVE COVENANTS | ||||||
SECTION 5.01 |
Financial Statements, Reports, etc | 62 | ||||
SECTION 5.02 |
Litigation and Other Notices | 65 | ||||
SECTION 5.03 |
Existence; Businesses and Properties | 65 | ||||
SECTION 5.04 |
Insurance | 66 | ||||
SECTION 5.05 |
Obligations and Taxes | 67 | ||||
SECTION 5.06 |
Employee Benefits | 67 | ||||
SECTION 5.07 |
Maintaining Records; Access to Properties and Inspections; Annual Meetings | 68 | ||||
SECTION 5.08 |
Use of Proceeds | 68 | ||||
SECTION 5.09 |
Compliance with Environmental Laws; Environmental Reports | 68 | ||||
SECTION 5.10 |
Additional Collateral; Additional Guarantors | 69 | ||||
SECTION 5.11 |
Security Interests; Further Assurances | 70 | ||||
SECTION 5.12 |
Information Regarding Collateral | 71 | ||||
SECTION 5.13 |
Post-Closing Collateral Matters | 72 | ||||
SECTION 5.14 |
Affirmative Covenants with Respect to Leases | 72 | ||||
| ARTICLE VI | ||||||
| NEGATIVE COVENANTS | ||||||
SECTION 6.01 |
Indebtedness | 72 | ||||
SECTION 6.02 |
Liens | 73 | ||||
SECTION 6.03 |
Sale and Leaseback Transactions | 76 | ||||
SECTION 6.04 |
Investment, Loan and Advances | 76 | ||||
SECTION 6.05 |
Mergers and Consolidations | 77 | ||||
ii
| Section | Page | |||||
SECTION 6.06 |
Asset Sales | 78 | ||||
SECTION 6.07 |
Acquisitions | 78 | ||||
SECTION 6.08 |
Dividends | 79 | ||||
SECTION 6.09 |
Transactions with Affiliates | 79 | ||||
SECTION 6.10 |
Minimum Liquidity | 80 | ||||
SECTION 6.11 |
Prepayments of Other Indebtedness; Modifications of Organizational Documents and Other Documents, etc | 80 | ||||
SECTION 6.12 |
Limitation on Certain Restrictions on Subsidiaries | 81 | ||||
SECTION 6.13 |
Limitation on Issuance of Capital Stock | 82 | ||||
SECTION 6.14 |
Limitation on Creation of Subsidiaries | 82 | ||||
SECTION 6.15 |
Business | 82 | ||||
SECTION 6.16 |
Limitation on Accounting Changes | 82 | ||||
SECTION 6.17 |
Fiscal Year | 82 | ||||
SECTION 6.18 |
[Intentionally Omitted] | 82 | ||||
SECTION 6.19 |
No Further Negative Pledge | 82 | ||||
SECTION 6.20 |
Anti-Terrorism Law; Anti-Money Laundering | 83 | ||||
SECTION 6.21 |
Embargoed Person | 83 | ||||
SECTION 6.22 |
Limitation on Finance Subsidiary | 84 | ||||
SECTION 6.23 |
Preservation of Claims Under the Korean Opco Bank Guarantees | 84 | ||||
| ARTICLE VII | ||||||
| GUARANTEE | ||||||
SECTION 7.01 |
The Guarantee | 84 | ||||
SECTION 7.02 |
Obligations Unconditional | 84 | ||||
SECTION 7.03 |
Reinstatement | 85 | ||||
SECTION 7.04 |
Subrogation | 86 | ||||
SECTION 7.05 |
Remedies | 86 | ||||
SECTION 7.06 |
Instrument for the Payment of Money | 86 | ||||
SECTION 7.07 |
Continuing Guarantee | 86 | ||||
SECTION 7.08 |
General Limitation on Guarantee Obligations | 86 | ||||
SECTION 7.09 |
Release of Guarantors | 86 | ||||
SECTION 7.10 |
Provisions Applicable to Certain Guarantees | 87 | ||||
| ARTICLE VIII | ||||||
| EVENTS OF DEFAULT | ||||||
SECTION 8.01 |
Events of Default | 87 | ||||
SECTION 8.02 |
Application of Proceeds | 90 | ||||
SECTION 8.03 |
Right to Cure | 90 | ||||
| ARTICLE IX | ||||||
| THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT | ||||||
SECTION 9.01 |
Appointment and Authority | 91 | ||||
SECTION 9.02 |
Rights as a Lender | 91 | ||||
SECTION 9.03 |
Exculpatory Provisions | 91 | ||||
SECTION 9.04 |
Reliance by Agent | 93 | ||||
iii
| Section | Page | |||||
SECTION 9.05 |
Delegation of Duties | 93 | ||||
SECTION 9.06 |
Resignation of Agent | 93 | ||||
SECTION 9.07 |
Non-Reliance on Agent and Other Lenders | 94 | ||||
SECTION 9.08 |
Agents Not Required to Advance Funds | 94 | ||||
| ARTICLE X | ||||||
| MISCELLANEOUS | ||||||
SECTION 10.01 |
Notices. | 94 | ||||
SECTION 10.02 |
Waivers; Amendment. | 96 | ||||
SECTION 10.03 |
Expenses; Indemnity; Damage Waiver. | 99 | ||||
SECTION 10.04 |
Successors and Assigns. | 101 | ||||
SECTION 10.05 |
Survival of Agreement | 103 | ||||
SECTION 10.06 |
Counterparts; Integration; Effectiveness; Electronic Execution. | 104 | ||||
SECTION 10.07 |
Severability | 104 | ||||
SECTION 10.08 |
Right of Setoff | 104 | ||||
SECTION 10.09 |
Governing Law; Jurisdiction; Consent to Service of Process. | 105 | ||||
SECTION 10.10 |
Waiver of Jury Trial | 105 | ||||
SECTION 10.11 |
Obligations Joint and Several | 106 | ||||
SECTION 10.12 |
Headings | 106 | ||||
SECTION 10.13 |
Treatment of Certain Information; Confidentiality | 106 | ||||
SECTION 10.14 |
USA PATRIOT Act Notice | 106 | ||||
SECTION 10.15 |
Interest Rate Limitation | 107 | ||||
SECTION 10.16 |
[Intentionally Omitted] | 107 | ||||
SECTION 10.17 |
Obligations Absolute | 107 | ||||
SECTION 10.18 |
Judgment Currency. | 107 | ||||
SECTION 10.19 |
Restatement of Pre-Petition Credit Agreement. | 108 | ||||
| ANNEX | ||
Annex I
|
Outstanding Term Loans |
| SCHEDULES | ||
Schedule 1.01(a)
|
Korean Opco Security Documents | |
Schedule 1.01(d)
|
Subsidiary Guarantors | |
Schedule 3.03
|
Governmental Approvals; Compliance with Laws | |
Schedule 3.05(b)
|
Real Property | |
Schedule 3.06(c)
|
Violations or Proceedings | |
Schedule 3.07(a)
|
Equity Interests | |
Schedule 3.07(c)
|
Corporate Organizational Chart | |
Schedule 3.20
|
Financing Statements | |
Schedule 4.01(d)
|
Extinguished Indebtedness | |
Schedule 4.01(g)
|
Local and Foreign Counsel | |
Schedule 5.13
|
Post-Closing Matters |
| EXHIBITS | ||
Exhibit A
|
Form of Administrative Questionnaire |
iv
| EXHIBITS | ||
Exhibit B
|
Form of Assignment and Assumption | |
Exhibit C
|
Form of Borrowing Request | |
Exhibit D
|
Form of Compliance Certificate | |
Exhibit E
|
Form of Interest Election Request | |
Exhibit F
|
Form of Joinder Agreement | |
Exhibit G
|
Form of Note | |
Exhibit H
|
Form of Security Agreement | |
Exhibit I
|
Form of Solvency Certificate |
v
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT (this “Agreement”), dated as of November
6, 2009, among MAGNACHIP SEMICONDUCTOR S.A., a société anonyme, organized and existing
under the laws of the Grand Duchy of Luxembourg, having its registered office at 74, rue de Merl, L
- - 2146 Luxembourg, Grand Duchy of Luxembourg, registered with the Luxembourg Register of commerce
and companies under the number B 97,483, MAGNACHIP SEMICONDUCTOR FINANCE COMPANY, a Delaware
corporation (collectively, “Borrowers”), MAGNACHIP SEMICONDUCTOR LLC, a Delaware limited liability
company (“Holdings”), the Subsidiary Guarantors listed on the signature pages hereto (such term and
each other capitalized term used but not defined herein having the meaning given to it in
Article I), the Lenders, Wilmington Trust FSB, as administrative agent (in such
capacity, “Administrative Agent”) for the Lenders and as collateral agent (in such capacity,
“Collateral Agent”) for the Secured Parties.
WITNESSETH:
WHEREAS, Holdings, the Borrowers, the subsidiary guarantors party thereto, UBS AG, Stamford
Branch, as administrative agent and as collateral agent, UBS Securities LLC, as lead arranger, as
documentation agent and as syndication agent, UBS Loan Finance LLC, as swingline lender and Korea
Exchange Bank, as issuing bank, are parties to that certain Credit Agreement, dated as of December
23, 2004 (as amended, restated, supplemented or otherwise modified from time to time prior to the
date hereof, the “Pre-Petition Credit Agreement”).
WHEREAS, on June 12, 2009 (“Petition Date”), Holdings, the Borrowers and certain of the
Subsidiary Guarantors, as debtors and debtors-in-possession (the “Debtors”), commenced voluntary
cases under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the “Bankruptcy Court”), which cases are being jointly administered (the
“Chapter 11 Case”).
WHEREAS, the Plan of Reorganization of the Debtors, dated September 24, 2009, in the form
filed with the Bankruptcy Court and any amendments, supplements or modifications thereto
(the “Plan of Reorganization”) has been confirmed pursuant to the Confirmation Order, and
concurrently with the effectiveness of this Agreement, the effective date with respect to such Plan
of Reorganization has occurred.
WHEREAS, in connection with the Plan of Reorganization, it has been agreed by the parties
hereto to amend and restate the Pre-Petition Credit Agreement to (i) terminate any unused
commitments thereunder, (ii) reduce the outstanding principal amount thereunder to $61,750,000,
(iii) to redenominate the outstanding revolving loans as outstanding Term Loans, and (iv) provide
that the “Loans” outstanding as of the Effective Date and other “Obligations” under and as defined
in the Pre-Petition Credit Agreement (including indemnities) shall be governed by and deemed to be
outstanding under this Agreement with the intent that the terms of this Agreement shall supersede
the terms of the Pre-Petition Credit Agreement, and all references to the Pre-Petition Credit
Agreement herein or in any Loan Document or other document or instrument delivered in connection
herewith or therewith shall be deemed to refer to this Agreement and the provisions hereof.
NOW, THEREFORE, the Lenders are willing to extend such credit to Borrowers on the terms and
subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Defined Terms. As used in this Agreement, the following terms shall have the
meanings specified below:
“ABR”, when used in reference to any Loan or Borrowing, is used when such Loan, or the Loans
comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate
Base Rate.
“ABR Borrowing” shall mean a Borrowing comprised of ABR Loans.
“ABR Loan” shall mean any Loan bearing interest at a rate determined by reference to the
Alternate Base Rate in accordance with the provisions of Article II.
“Acquisition Consideration” shall mean the purchase consideration for any Permitted
Acquisition and all other payments by Holdings or any of its Subsidiaries in exchange for, or as
part of, or in connection with, any Permitted Acquisition, whether paid in cash or by exchange of
Equity Interests or of properties or otherwise and whether payable at or prior to the consummation
of such Permitted Acquisition or deferred for payment at any future time, whether or not any such
future payment is subject to the occurrence of any contingency, and includes any and all payments
representing the purchase price and any assumptions of Indebtedness, “earn-outs” and other
agreements to make any payment the amount of which is, or the terms of payment of which are, in any
respect subject to or contingent upon the revenues, income, cash flow or profits (or the like) of
any person or business; provided that any such future payment that is subject to a contingency
shall be considered Acquisition Consideration only to the extent of the reserve, if any, required
under GAAP at the time of such sale to be established in respect thereof by Holdings or any of its
Subsidiaries.
“Adjusted LIBOR Rate” shall mean, with respect to any Eurodollar Borrowing for any Interest
Period, (a) an interest rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%)
determined by the Administrative Agent to be equal to the LIBOR Rate for such Eurodollar Borrowing
in effect for such Interest Period divided by (b) 1 minus the Statutory Reserves (if any) for such
Eurodollar Borrowing for such Interest Period.
“Administrative Agent” shall have the meaning assigned to such term in the preamble hereto and
includes each other person appointed as the successor pursuant to Article X.
“Administrative Agent Fees” shall have the meaning assigned to such term in
Section 2.05(a).
“Administrative Questionnaire” shall mean an Administrative Questionnaire in substantially the
form of Exhibit A.
“Affiliate” shall mean, when used with respect to a specified person, another person that
directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is
under common Control with the person specified; provided, however, that, for purposes of
Section 6.09, the term “Affiliate” shall also include (i) any person that directly or
indirectly owns more than 10% of any class of Equity Interests of the person specified or (ii) any
person that is an executive officer or director of the person specified.
2
“Agents” shall mean the Administrative Agent and the Collateral Agent; and “Agent” shall mean
any of them.
“Agreement” shall have the meaning assigned to such term in the preamble hereto.
“Alternate Base Rate” shall mean, for any day, a rate per annum (rounded upward, if necessary,
to the nearest 1/100th of 1%) equal to the greater of (a) the Base Rate in effect on such day and
(b) the Federal Funds Effective Rate in effect on such day plus 0.50%. If the Administrative Agent
shall have determined (which determination shall be conclusive absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or
failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of
the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) of
the preceding sentence until the circumstances giving rise to such inability no longer exist. Any
change in the Alternate Base Rate due to a change in the Base Rate or the Federal Funds Effective
Rate shall be effective on the effective date of such change in the Base Rate or the Federal Funds
Effective Rate, respectively.
“Anti-Terrorism Laws” shall have the meaning assigned to such term in Section 3.21.
“Applicable Margin” shall mean, for any day, (i) with respect to any Eurodollar Loan, 12.00%
per annum and (ii) with respect to any ABR Loan, 11.00% per annum.
“Approved Fund” shall mean any Fund that is administered or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a
Lender.
“Asset Sale” shall mean (a) any conveyance, sale, assignment, transfer or other disposition
(including by way of merger or consolidation, any lease, sublease, license or sublicense that is in
effect a disposition and any Sale and Leaseback Transaction) of any property excluding sales of
inventory, dispositions of cash equivalents and Intellectual Property licenses, in each case, in
the ordinary course of business, by Holdings or any of its Subsidiaries and (b) any issuance or
sale of any Equity Interests of any Subsidiary of Holdings, in each case, to any person other than
(i) any Borrower or (ii) any Subsidiary Guarantor.
“Assignment and Assumption” shall mean an assignment and assumption entered into by a Lender
and an Eligible Assignee (with the consent of any party whose consent is required by
Section 10.04(b)), and accepted by the Administrative Agent, in substantially the form of
Exhibit B, or any other form approved by the Administrative Agent.
“Attributable Indebtedness” shall mean, when used with respect to any Sale and Leaseback
Transaction, as at the time of determination, the present value (discounted at a rate equivalent to
Borrowers’ then-current weighted average cost of funds for borrowed money as at the time of
determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in any such Sale and Leaseback
Transaction.
“Bankruptcy Code” means the United States Bankruptcy Code, being Title 11 of the United States
Code (11 U.S.C. Sections 101-1330), as the same may be amended, modified, recodified or
supplemented, together with all official rules and regulations thereunder.
“Bankruptcy Court” shall have the meanings set forth in the recitals hereto.
3
“Base Rate” shall mean, for any day, a rate per annum that is equal to the corporate base rate
of interest determined by the Administrative Agent from time to time; each change in the Base Rate
shall be effective on the date such change is effective. The corporate base rate is not
necessarily the lowest rate charged by the Administrative Agent to its customers.
“Board” shall mean the Board of Governors of the Federal Reserve System of the United States.
“Board of Directors” shall mean, with respect to any person, (i) in the case of any
corporation, the board of directors of such person; (ii) in the case of any limited liability
company, the board of managers of such person; (iii) in the case of any partnership, the Board of
Directors of the general partner of such person; and (iv) in any other case, the functional
equivalent of the foregoing.
“Borrowers” shall have the meaning assigned to such term in the preamble hereto.
“Borrowing” shall mean Loans of the same Class and Type, made, converted or continued on the
same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.
“Borrowing Request” shall mean a request by any Borrower in accordance with the terms of
Section 2.03 and substantially in the form of Exhibit C, or such other form as
shall be approved by the Administrative Agent.
“Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks in
New York City are authorized or required by law to close; provided, however, that when used in
connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank market.
“Capital Expenditures” shall mean, for any period, without duplication, the increase during
that period in the gross property, plant or equipment account in the consolidated balance sheet of
Holdings and its Subsidiaries, determined in accordance with GAAP, whether such increase is due to
purchase of properties for cash or financed by the incurrence of Indebtedness, but excluding any
portion of such increase attributable solely to acquisitions of property, plant and equipment in
Permitted Acquisitions.
“Capital Lease Obligations” of any person shall mean the 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 are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of
such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
“Cash Equivalents” shall mean, as to any person, (a) Dollars, Korean Won, Pound Sterling, Hong
Kong dollars, New Taiwan dollars, Euros and Japanese Yen; (b) securities issued or directly and
fully guaranteed or insured by the United States government, Korean government, EU member states
with a sovereign credit rating of A or better, the Japanese government, the Taiwan government, the
Hong Kong government, or any agency or instrumentality of any such government (provided that the
full faith and credit of any such government is pledged in support of those securities) having
maturities of not more than one year from the date of acquisition; (c) Dollar denominated and
Korean Won denominated certificates of deposit, eurodollar time deposits and other similar
instruments in
4
the United States, Hong Kong, Taiwan and Japan with maturities of one year or less from the
date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank
deposits, in each case, with any Lender or with any domestic commercial bank having capital and
surplus in excess of $500.0 million and a Thomson Bank Watch Rating of “B” or better or comparable
rating by a comparable rating agency in the relevant jurisdiction if a Moody’s or S&P rating is
unavailable; (d) repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (b) and (c) above entered into with any financial
institution meeting the qualifications specified in clause (c) above; (e) commercial paper having
one of the three highest ratings obtainable from S&P and one of the two highest ratings obtainable
from Moody’s or comparable rating by a comparable rating agency in the relevant jurisdiction if a
Moody’s or S&P rating is unavailable and, in each case, maturing within one year after the date of
acquisition; and (f) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (e) of this definition.
“Cash Interest Expense” shall mean, for any period, Consolidated Interest Expense for such
period, less the sum of (a) interest on any debt paid by the increase in the principal amount of
such debt including by issuance of additional debt of such kind; (b) items described in clause (c)
or, other than to the extent paid in cash, clause (g) of the definition of “Consolidated Interest
Expense;” and (c) gross interest income of Holdings and its Subsidiaries for such period.
“Casualty Event” shall mean any loss of title or any loss of or damage to or destruction of,
or any condemnation or other taking (including by any Governmental Authority) of, any property of
Holdings or any of its Subsidiaries. “Casualty Event” shall include but not be limited to any
taking of all or any part of any Real Property of any person or any part thereof, in or by
condemnation or other eminent domain proceedings pursuant to any Requirement of Law, or by reason
of the temporary requisition of the use or occupancy of all or any part of any Real Property of any
person or any part thereof by any Governmental Authority, civil or military, or any settlement in
lieu thereof.
“CERCLA” shall mean the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. § 9601 et seq. and any implementing regulations.
A “Change in Control” shall be deemed to have occurred if:
(a) Holdings at any time ceases to own 99% of the Equity Interests of Lux Borrower,
100% of the Equity Interests of the U.S. Sales Subsidiary or 100% of the Equity Interests of
MagnaChip SA Holdings;
(b) MagnaChip SA Holdings ceases to own 1% of the Equity Interests of Lux Borrower;
(c) Lux Borrower ceases to own 100% of the Equity Interests of each of Dutch Holdco,
MagnaChip Semiconductor Finance Company or any Foreign Sales Subsidiary;
(d) Dutch Holdco ceases to own 100% of the Equity Interests of Korean Opco;
(e) at any time a change of control occurs under any Material Indebtedness;
(f) prior to an IPO, (i) the Permitted Holders cease to own, or to have the power to
vote or direct the voting of, Voting Stock of Holdings representing a majority of the voting
power of the total outstanding Voting Stock of Holdings or (ii) the Permitted Holders cease
to own
5
Equity Interests representing a majority of the total economic interests of the Equity
Interests of Holdings;
(g) following an IPO, (i) the Permitted Holders shall fail to own, or to have the power
to vote or direct the voting of, Voting Stock of Holdings representing more than 25% of the
voting power of the total outstanding Voting Stock of Holdings, (ii) the Permitted Holders
cease to own Equity Interests representing more than 25% of the total economic interests of
the Equity Interests of Holdings or (iii) any “person” or “group” (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is
or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that for purposes of this clause such person or group shall be deemed to have
“beneficial ownership” of all securities that such person or group has the right to acquire,
whether such right is exercisable immediately or only after the passage of time), directly
or indirectly, of Voting Stock of Holdings representing more than 25% of the voting power of
the total outstanding Voting Stock of Holdings; or
(h) following an IPO, during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of Holdings (together with
any new directors whose election to such Board of Directors or whose nomination for election
was approved by a vote of a majority of the members of the Board of Directors of Holdings,
which members comprising such majority are then still in office and were either directors at
the beginning of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of Directors of
Holdings.
For purposes of this definition, a person shall not be deemed to have beneficial ownership of
Equity Interests subject to a stock purchase agreement, merger agreement or similar agreement until
the consummation of the transactions contemplated by such agreement.
“Change in Law” shall mean the occurrence, after the date of this Agreement, of any of the
following: (a) the adoption or taking into effect of any law, treaty, order, policy, rule or
regulation, (b) any change in any law, treaty, order, policy, rule or regulation or in the
administration, interpretation or application thereof by any Governmental Authority or (c) the
making or issuance of any request, guideline or directive (whether or not having the force of law)
by any Governmental Authority.
“Chapter 11 Case” shall have the meaning set forth in the recitals hereto.
“Charges” shall have the meaning assigned to such term in Section 10.15.
“Class,” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the
Loans comprising such Borrowing, are Term Loans or Incremental Loans, in each case, under this
Agreement, as originally in effect or pursuant to Section 2.18, of which such Loan or
Borrowing shall be a part.
“Clearing House” shall mean the means the Seoul Clearing House, an institution appointed by
the Minster of the Ministry of Justice of Korea pursuant to Article 83 of the Bills of Exchange and
Promissory Notes Law of Korea and Article 69 of the Cheques Law of Korea and operated by the Korea
Financial Telecommunications and Clearing Institute for settlement activities by way of exchange of
bills of exchange, promissory notes and cheques in Korea.
6
“Closing Date” shall mean December 23, 2004.
“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
“Collateral” shall mean, collectively, all of the Security Agreement Collateral, the Mortgaged
Property and all other property wherever situate of whatever kind and nature subject or purported
to be subject from time to time to a Lien under any Security Document.
“Collateral Agent” shall have the meaning assigned to such term in the preamble hereto.
“Collateral Trust Agreement” shall mean that certain Amended and Restated Collateral Trust
Agreement dated as of the date hereof by and among the Administrative Agent, the Collateral Agent,
the Senior Secured Notes Trustee, Korean Opco and the Collateral Trustee.
“Collateral Trustee” shall mean US Bank National Association, its successors and assigns.
“Collateral Trust Documents” shall mean the Collateral Trust Agreement and all other documents
executed and delivered in connection therewith relating to the granting of liens or the issuance of
guarantees by Korean Opco.
“Commitment” shall mean, from the date on which any Incremental Loan Commitment shall have
become effective pursuant to Section 2.18, with respect to any Lender, such Lender’s Incremental
Loan Commitment, if any, as the same may be reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 10.04.
“Companies” shall mean Holdings and its Subsidiaries; and “Company” shall mean any one of
them.
“Compliance Certificate” shall mean a certificate of a Financial Officer substantially in the
form of Exhibit D.
“Confirmation Order” means the Findings of Fact, Conclusions of Law, and Order Confirming the
Loan Parties’ Plan of Reorganization issued by the Bankruptcy Court and entered on September 25,
2009 in the Chapter 11 Case.
“Consolidated Amortization Expense” shall mean, for any period, the amortization expense of
Holdings and its Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP.
“Consolidated Depreciation Expense” shall mean, for any period, the depreciation expense of
Holdings and its Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP.
“Consolidated EBITDA” shall mean, for any period, Consolidated Net Income for such period,
adjusted by (x) adding thereto, in each case only to the extent (and in the same proportion)
deducted in determining such Consolidated Net Income (and with respect to the portion of
Consolidated Net Income attributable to any Subsidiary of Holdings only if a corresponding amount
would be permitted at the date of determination to be distributed to a Borrower by such Subsidiary
without prior
7
approval (that has not been obtained), pursuant to the terms of its Organizational Documents
and all agreements, instruments and Requirements of Law applicable to such Subsidiary or its
equityholders):
(a) Consolidated Interest Expense for such period;
(b) Consolidated Amortization Expense for such period;
(c) Consolidated Depreciation Expense for such period;
(d) Consolidated Tax Expense for such period plus the amount of any Permitted Tax
Distributions made by Holdings pursuant to Section 6.08(c);
(e) costs and expenses directly incurred in connection with the Chapter 11 Case and the
Transactions; and
(f) the aggregate amount of all other non-cash charges reducing Consolidated Net Income
(excluding any non-cash charge that results in an accrual of a reserve for cash charges in
any future period) for such period; and
(y) subtracting therefrom the aggregate amount of all non-cash items increasing Consolidated Net
Income (other than the accrual of revenue or recording of receivables in the ordinary course of
business) for such period. For the avoidance of doubt, Consolidated EBITDA for any period shall
not include any Cure Amount received by Holdings in any period. Notwithstanding anything to the
contrary in the foregoing, for purposes of calculating Consolidated EBITDA for any period that
includes any of the fiscal quarters ended March 29, 2009, June 28, 2009 or September 27, 2009,
Consolidated EBITDA for such fiscal quarters shall be deemed to be $2,290,000, $29,010,000 and
$31,820,000, respectively, subject, in each case, to normal year-end audit adjustments.
Consolidated EBITDA shall be calculated on a Pro Forma Basis to give effect to any Permitted
Acquisition and Asset Sales (other than any dispositions in the ordinary course of business)
consummated at any time on or after the first day of the Test Period thereof as if each such
Permitted Acquisition had been effected on the first day of such period and as if each such Asset
Sale had been consummated on the day prior to the first day of such period.
“Consolidated Indebtedness” shall mean, as at any date of determination, the aggregate amount
of all Indebtedness of Holdings and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
“Consolidated Interest Expense” shall mean, for any period, the total consolidated interest
expense of Holdings and its Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP plus, without duplication:
(a) imputed interest on Capital Lease Obligations and Attributable Indebtedness of
Holdings and its Subsidiaries for such period;
(b) commissions, discounts and other fees and charges owed by Holdings or any of its
Subsidiaries with respect to letters of credit securing financial obligations, bankers’
acceptance financing and receivables financings for such period;
8
(c) amortization of debt issuance costs, debt discount or premium and other financing
fees and expenses incurred by any Borrower or any of its Subsidiaries for such period;
(d) cash contributions to any employee stock ownership plan or similar trust made by
Holdings or any of its Subsidiaries to the extent such contributions are used by such plan
or trust to pay interest or fees to any person (other than any Borrower or a Wholly Owned
Subsidiary) in connection with Indebtedness incurred by such plan or trust for such period;
(e) all interest paid or payable with respect to discontinued operations of Holdings or
any of its Subsidiaries for such period;
(f) the interest portion of any deferred payment obligations of Holdings or any of its
Subsidiaries for such period;
(g) all interest on any Indebtedness of Holdings or any of its Subsidiaries of the type
described in clause (f) or (k) of the definition of “Indebtedness” for such period;
provided that (a) to the extent directly related to the Transactions, debt issuance costs, debt
discount or premium and other financing fees and expenses shall be excluded from the calculation of
Consolidated Interest Expense and (b) Consolidated Interest Expense shall be calculated after
giving effect to Hedging Agreements (including associated costs), but excluding unrealized gains
and losses with respect to Hedging Agreements.
Consolidated Interest Expense shall be calculated on a Pro Forma Basis to give effect to any
Indebtedness incurred, assumed or permanently repaid or extinguished during the relevant Test
Period in connection with any Permitted Acquisitions and Asset Sales (other than any dispositions
in the ordinary course of business) as if such incurrence, assumption, repayment or extinguishing
had been effected on the first day of such period.
“Consolidated Net Income” shall mean, for any period, the consolidated net income (or loss) of
Holdings and its Subsidiaries determined on a consolidated basis in accordance with GAAP; provided
that there shall be excluded from such net income (to the extent otherwise included therein),
without duplication:
(a) the net income (or loss) of any person (other than a Subsidiary of Holdings) in
which any person other than Holdings or any of its Subsidiaries has an ownership interest,
except to the extent that cash in an amount equal to any such income has actually been
received by such Borrower or (subject to clause (b) below) such Subsidiary during such
period;
(b) the net income of any Subsidiary of Holdings during such period to the extent that
the declaration or payment of dividends or similar distributions by such Subsidiary of that
income is not permitted by operation of the terms of its Organizational Documents or any
agreement, instrument or Requirement of Law applicable to that Subsidiary during such
period, except that Borrowers’ equity in net loss of any such Subsidiary for such period
shall be included in determining Consolidated Net Income;
(c) any gain (or loss), together with any related provisions for taxes on any such gain
(or the tax effect of any such loss), realized during such period by Holdings or any of its
Subsidiaries upon any Asset Sale (other than any dispositions in the ordinary course of
business) by any Borrower or any of its Subsidiaries;
9
(d) gains and losses due solely to fluctuations in currency values and the related tax
effects determined in accordance with GAAP for such period;
(e) unrealized gains and losses with respect to Hedging Obligations for such period;
(f) any extraordinary gain (or extraordinary loss), together with any related provision
for taxes on any such gain (or the tax effect of any such loss), recorded or recognized by
Holdings or any of its Subsidiaries during such period; and
For purposes of this definition of “Consolidated Net Income,” Consolidated Net Income shall be
reduced (to the extent not already reduced thereby) by the amount of any Permitted Tax
Distributions made by Holdings pursuant to Section 6.08(c).
“Consolidated Tax Expense” shall mean, for any period, the tax expense of Holdings and its
Subsidiaries, for such period, determined on a consolidated basis in accordance with GAAP.
“Contingent Obligation” shall mean, as to any person, any obligation, agreement, understanding
or arrangement of such person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations (“primary obligations”) of any other person (the “primary obligor”)
in any manner, whether directly or indirectly, including any obligation of such person, whether or
not contingent, (a) to purchase any such primary obligation or any property constituting direct or
indirect security therefor; (b) to advance or supply funds (i) for the purchase or payment of any
such primary obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary obligor; (c) to purchase
property, securities or services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of such primary
obligation; (d) with respect to bankers’ acceptances, letters of credit and similar credit
arrangements, until a reimbursement obligation arises (which reimbursement obligation shall
constitute Indebtedness); or (e) otherwise to assure or hold harmless the holder of such primary
obligation against loss in respect thereof; provided, however, that the term “Contingent
Obligation” shall not include endorsements of instruments for deposit or collection in the ordinary
course of business or any product warranties. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made (or, if less, the maximum amount of such
primary obligation for which such person may be liable, whether singly or jointly, pursuant to the
terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof (assuming such person is required
to perform thereunder) as determined by such person in good faith.
“Control” shall mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a person, whether through the ownership of voting
securities, by contract or otherwise, and the terms “Controlling” and “Controlled” shall have
meanings correlative thereto.
“Controlled Investment Affiliate” means, as to any person, any other person which directly or
indirectly is in Control of, is Controlled by, or is under common Control with, such person and is
organized by such person (or any person Controlling such person) primarily for making equity or
debt investments in Holdings or other portfolio companies.
“Credit Extension” shall mean the making of a Loan by a Lender.
10
“CRPL” shall mean the Corporate Restructuring Promotion Law of Korea (Law Number 09617
(amended in 2009)) and all regulations, rules and decrees promulgated under the CRPL and any
successor statute or law.
“Cumulative Credit” means, at any date, an amount, not less than zero in the aggregate,
determined on a cumulative basis equal to, without duplication:
(a) $5.0 million, plus;
(b) the aggregate cumulative sum of 50% of Excess Cash Flow for each full fiscal
quarter ending after the Effective Date (which, for the avoidance of doubt, shall not
include the fiscal quarter ending December 31, 2009), plus;
(c) cash proceeds from the sale of Equity Interests of Holdings (other than
Disqualified Capital Stock or any Equity Interests that provide for the making of mandatory
Dividends prior to the first anniversary of the Maturity Date) after the Effective Date,
excluding any Cure Amounts, plus;
(d) cash contributions to the capital of Holdings after the Effective Date, excluding
any Cure Amounts, minus;
(e) any Dividends made pursuant to Section 6.08(d) after the Effective Date,
minus;
(f) any payments, prepayments, redemptions or acquisitions of Subordinated Indebtedness
pursuant to Section 6.11(a) after the Effective Date.
“Cure Amount” shall have the meaning assigned to such term in Section 8.03.
“Cure Right” shall have the meaning assigned to such term in Section 8.03.
“Current Assets” shall mean, with respect to Holdings and its Subsidiaries on a consolidated
basis at any date of determination, the sum of all assets (other than cash and Cash Equivalents or
other cash equivalents) that would, in accordance with GAAP, be classified on a consolidated
balance sheet of Holdings and its Subsidiaries as current assets at such date of determination,
other than amounts related to current or deferred Taxes based on income or profits.
“Current Liabilities” shall mean, with respect to Holdings and its Subsidiaries on a
consolidated basis at any date of determination, all liabilities that would, in accordance with
GAAP, be classified on a consolidated balance sheet of Holdings and its Subsidiaries as current
liabilities at such date of determination, other than (a) the current portion of any Indebtedness;
(b) accruals of Consolidated Interest Expense; (c) accruals for current or deferred Taxes based on
income or profits; (d) accruals, if any, of transaction costs resulting from the Transactions; (e)
accruals of any costs or expenses related to (i) severance or termination of employees prior to the
Effective Date or (ii) bonuses, pension and other post-retirement benefit obligations; and (f)
accruals for add-backs to Consolidated EBITDA.
“Debt Issuance” shall mean the incurrence by Holdings or any of its Subsidiaries of any
Indebtedness after the Effective Date (other than as permitted by Section 6.01).
“Debt Service” shall mean, for any period, Cash Interest Expense for such period plus
scheduled principal amortization of all Indebtedness for such period.
11
“Default” shall mean any event, occurrence or condition which is, or upon notice, lapse of
time or both would constitute, an Event of Default.
“Default Rate” shall have the meaning assigned to such term in Section 2.06(c).
“Disqualified Capital Stock” shall mean any Equity Interest which, by its terms (or by the
terms of any security into which it is convertible or for which it is exchangeable), or upon the
happening of any event; (a) matures (excluding any maturity as the result of an optional redemption
by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior
to the first anniversary of the Maturity Date; (b) is convertible into or exchangeable (unless at
the sole option of the issuer thereof) for (i) debt securities or (ii) any Equity Interests
referred to in (a) above, in each case at any time on or prior to the first anniversary of the
Maturity Date; or (c) contains any repurchase obligation which may come into effect prior to
payment in full of all Obligations; provided, however, that any Equity Interests that would not
constitute Disqualified Capital Stock but for provisions thereof giving holders thereof (or the
holders of any security into or for which such Equity Interests is convertible, exchangeable or
exercisable) the right to require the issuer thereof to redeem such Equity Interests upon the
occurrence of a change in control or an asset sale occurring prior to the first anniversary of the
Maturity Date shall not constitute Disqualified Capital Stock if such Equity Interests provide that
the issuer thereof will not redeem any such Equity Interests pursuant to such provisions prior to
the repayment in full of the Obligations.
“Dividend” with respect to any person shall mean that such person has declared or paid a
dividend or returned any equity capital to the holders of its Equity Interests or authorized or
made any other distribution, payment or delivery of property (other than Qualified Capital Stock of
such person) or cash to the holders of its Equity Interests as such, or redeemed, retired,
purchased or otherwise acquired, directly or indirectly, for consideration any of its Equity
Interests outstanding (or any options or warrants issued by such person with respect to its Equity
Interests), or set aside any funds for any of the foregoing purposes, or shall have permitted any
of its Subsidiaries to purchase or otherwise acquire for consideration any of the Equity Interests
of such person outstanding (or any options or warrants issued by such person with respect to its
Equity Interests). Without limiting the foregoing, “Dividends” with respect to any person shall
also include all payments made or required to be made by such person with respect to any stock
appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting
aside of any funds for the foregoing purposes.
“Dutch Holdco” shall mean MagnaChip Semiconductor B.V., a Dutch privately held limited
liability company.
“Dollars” or “$” shall mean lawful money of the United States.
“Early Excess Cash Flow Prepayment” means a prepayment of Loans pursuant to Section
2.09(d).
“Effective Date” shall mean the date on which the conditions precedent set forth in Section
4.01 shall have been satisfied or waived with the consent of the Supermajority Lenders, which date
is November 6, 2009.
12
“Eligible Assignee” shall mean (i) any Lender; (ii) an Affiliate of any Lender; (iii) an
Approved Fund; and (iv) any other person (other than a natural person) approved by the
Supermajority Lenders and Borrowers.
“Embargoed Person” shall have the meaning assigned to such term in Section 6.21.
“Enforcement Lenders” shall mean (i) to the extent that Permitted Holders and their Affiliates
hold more than 50% of the sum of all the Loans outstanding and unused Commitments, all Lenders who
are not Permitted Holders or Affiliates thereof, and (ii) otherwise, the Required Lenders.
“Environment” shall mean ambient air, surface water and groundwater (including potable water,
navigable water and wetlands), the land surface and subsurface strata, natural resources, the
workplace, and any other area or medium in any Environmental Law.
“Environmental Claim” shall mean any claim, notice, demand, order, action, suit, proceeding or
other communication alleging liability for an obligation with respect to any investigation,
remediation, removal, cleanup, response, corrective action, damages to natural resources, personal
injury, property damage, fines, penalties or other costs resulting from, related to or arising out
of (i) the presence, Release or threatened Release in or into the Environment of Hazardous Material
at any location or (ii) any violation or alleged violation of any Environmental Law, and shall
include any claim seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from, related to or arising out of the presence, Release or threatened
Release of Hazardous Material or alleged injury or threat of injury to health, safety or the
Environment.
“Environmental Law” shall mean any and all applicable present and future treaties, laws,
statutes, ordinances, regulations, rules, decrees, orders, judgments, consent orders, consent
decrees, code or other binding requirements, and the common law, in any jurisdiction relating to
protection of public health or the Environment, the Release or threatened Release of Hazardous
Material, natural resources or natural resource damages, or occupational safety or health.
“Environmental Permit” shall mean any permit, license, approval, registration, notification,
exemption, consent or other authorization required in any jurisdiction by or from a Governmental
Authority under Environmental Law.
“Equity Interest” shall mean, with respect to any person, any and all shares, interests,
participations or other equivalents, including membership interests (however designated, whether
voting or nonvoting), of equity of such person, including, if such person is a partnership,
partnership interests (whether general or limited) and any other interest or participation that
confers on a person the right to receive a share of the profits and losses of, or distributions of
property of, such partnership, whether outstanding on the date hereof or issued after the Effective
Date, but excluding debt securities convertible or exchangeable into such equity.
“Equity Issuance” shall mean, without duplication, (i) any issuance or sale by Holdings after
the Effective Date of any Equity Interests in Holdings (including any Equity Interests issued upon
exercise of any warrant or option) or any warrants or options to purchase Equity Interests or
(ii) any contribution to the capital of Holdings.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as the same may be
amended from time to time.
13
“ERISA Affiliate” shall mean, with respect to any person, any trade or business (whether or
not incorporated) that, together with such person, is treated as a single employer under
Section 414 of the Code.
“ERISA Event” shall mean (a) any “reportable event,” as defined in Section 4043 of ERISA or
the regulations issued thereunder, with respect to a Plan (other than an event for which the 30-day
notice period is waived); (b) prior to the effectiveness of the applicable provisions of the
Pension Protection Act, the existence with respect to any Plan of an “accumulated funding
deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), or on and after the
effective date of the applicable provisions of the Pension Protection Act, any failure by any Plan
to satisfy the minimum funding standard (within the meaning of Sections 412 and 430 of the Code or
Section 302 of ERISA) applicable to such Plan, in each case whether or not waived; (c) the failure
to make by its due date a required installment under Section 412(m) of the Code with respect to any
Plan or the failure to make any required contribution to a Multiemployer Plan; (d) the filing
pursuant to, prior to the effectiveness of the applicable provisions of the Pension Protection Act,
Section 412(d) of the Code or Section 303(d) of ERISA, or on and after the effectiveness of the
applicable provisions of the Pension Protection Act, Section 412(c) of the Code or Section 302(c)
of ERISA, of an application for a waiver of the minimum funding standard with respect to any Plan;
(e) the incurrence by any Company or any of its ERISA Affiliates of any liability under Title IV of
ERISA with respect to the termination of any Plan; (f) the receipt by any Company or any of its
ERISA Affiliates from the PBGC or a plan administrator of any notice relating to the intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan, or the occurrence of
any event or condition which could reasonably be expected to constitute grounds under ERISA for the
termination of, or the appointment of a trustee to administer, any Plan; (g) the incurrence by any
Company or any of its ERISA Affiliates of any liability with respect to the withdrawal from any
Plan or Multiemployer Plan; (h) the receipt by any Company or its ERISA Affiliates of any notice,
concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is,
or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA or on
and after the effective date of the applicable provisions of the Pension Protection Act, is in
endangered or critical status, with the meaning of Section 305 of ERISA; (i) the “substantial
cessation of operations” within the meaning of Section 4062(e) of ERISA with respect to a Plan;
(j) the making of any amendment to any Plan which could result in the imposition of a lien or the
posting of a bond or other security; (k) the occurrence of a nonexempt prohibited transaction
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) which could reasonably be
expected to result in liability to any Company; and (l) on and after the effectiveness of the
applicable provisions of the Pension Protection Act, a determination that any Plan is, or is
expected to be, in “at-risk” status (as defined in Section 303(i)(4) of ERISA or Section 430(i)(4)
of the Code).
“Eurodollar Borrowing” shall mean a Borrowing comprised of Eurodollar Loans.
“Eurodollar Loan” shall mean any Loan bearing interest at a rate determined by reference to
the Adjusted LIBOR Rate in accordance with the provisions of Article II.
“Event of Default” shall have the meaning assigned to such term in Section 8.01.
“Excess Cash Flow” shall mean, with respect to Holdings and its Subsidiaries on a consolidated
basis for any applicable period, Consolidated EBITDA for such period, minus, without duplication:
14
(a) Debt Service for such period (other than principal repayments in respect of any
revolving credit facility unless there is an equivalent permanent reduction in commitments
thereunder);
(b) the amount of any voluntary prepayment permitted hereunder of term Indebtedness
during such period (other than any voluntary prepayment of the Loans), so long as the amount
of such prepayment is not already reflected in Debt Service;
(c) (i) Capital Expenditures by Holdings and its Subsidiaries on a consolidated basis
during such period that are paid in cash (to the extent permitted under this Agreement)
other than any such Capital Expenditures that are financed with the Net Cash Proceeds of any
Asset Sale pursuant to Section 2.09(c)(ii) and (ii) the aggregate consideration paid
in cash during the period in respect of Permitted Acquisitions and other Investments
permitted hereunder less any amounts received in cash in respect thereof;
(d) Capital Expenditures that Holdings or any of its Subsidiaries shall, during such
period, become obligated to make but that are not made during such period (to the extent
permitted under this Agreement); provided that (i) such Capital Expenditures and the
delivery of the related equipment will be made within 180 days after the end of such period,
and (ii) any amount so deducted shall not be deducted again in a subsequent period;
(e) Taxes paid in cash by Holdings and its Subsidiaries (or Permitted Tax Distributions
permitted by Section 6.08(c)) on a consolidated basis during such period or that will be
paid within six months after the close of such period; provided that with respect to any
such amounts to be paid after the close of such period, (i) any amount so deducted shall not
be deducted again in a subsequent period, and (ii) appropriate reserves shall have been
established in accordance with GAAP;
(f) an amount equal to any increase in Working Capital for such period;
(g) cash expenditures made in respect of Hedging Agreements permitted under this
Agreement during such period, to the extent not reflected in the computation of Consolidated
EBITDA or Consolidated Interest Expense;
(h) Dividends (including repurchases by Holdings of its Qualified Capital Stock
expressly permitted under Section 6.08(b)) paid in cash in such period by Holdings or any of
its Subsidiaries to any person other than Holdings, any other Borrower or any of the
Subsidiaries and to the extent expressly permitted under Section 6.08 (other than
Section 6.08(d));
(i) amounts paid in cash during such period on account of (A) items that were accounted
for as noncash reductions of net income in determining Consolidated Net Income or as noncash
reductions of Consolidated Net Income in determining Consolidated EBITDA of Holdings and its
Subsidiaries in a prior period and (B) reserves or accruals established in purchase
accounting (provided that any amounts that are deducted from Excess Cash Flow pursuant to
this clause (i) shall not thereafter be deducted from Excess Cash Flow in any succeeding
period);
(j) to the extent not deducted in the computation of Net Cash Proceeds in respect of
any Asset Sale or Casualty Event giving rise thereto, the amount of any mandatory prepayment
of
15
Indebtedness (other than Indebtedness created hereunder or under any other Loan
Document) made in cash in such period, together with the cash portion of any interest,
premium or penalties required to be paid (and actually paid) in connection therewith; and
(k) the aggregate amount of items (including the cash funding of pensions and
retirement obligations) that were added to or not deducted from net income in calculating
Consolidated Net Income or were added to or not deducted from Consolidated Net Income in
calculating Consolidated EBITDA to the extent such items represented a cash payment (which
had not reduced Excess Cash Flow upon the accrual thereof in a prior period), or an accrual
for a cash payment, by Holdings or any of its Subsidiaries or did not represent cash
received by Holdings or any of its Subsidiaries, in each case on a consolidated basis during
such period;
plus, without duplication:
(l) an amount equal to any decrease in Working Capital for such period;
(m) all amounts referred to in clauses (b), (c), (d) and (h) above to the extent funded
with the proceeds of the issuance or the incurrence of Indebtedness (including Capital Lease
Obligations and purchase money Indebtedness), the sale or issuance of any Equity Interests
(including any capital contributions) and any loss, damage, destruction or condemnation of,
or any sale, transfer or other disposition (including any sale and leaseback of assets and
any mortgage or lease of Real Property) to any person of any asset or assets, in each case
to the extent there is a corresponding deduction from Excess Cash Flow above;
(n) to the extent any permitted Capital Expenditures referred to in clause (d) above
and the delivery of the related equipment have not occurred within 180 days of the end of
the period in which such adjustment was made pursuant to clause (d) above, the amount of
such Capital Expenditures that were not so made;
(o) cash payments received in respect of Hedging Agreements during such period to the
extent (i) not included in the computation of Consolidated EBITDA or (ii) such payments do
not reduce Cash Interest Expense;
(p) any extraordinary or nonrecurring gain realized in cash during such period (except
to the extent such gain consists of Net Cash Proceeds subject to Section 2.09(c) or
(f));
(q) to the extent deducted in the computation of Consolidated EBITDA, cash interest
income; and
(r) the aggregate amount of items that were deducted from or not added to net income in
connection with calculating Consolidated Net Income or were deducted from or not added to
Consolidated Net Income in calculating Consolidated EBITDA to the extent either (i) such
items represented cash received by Holdings or any of its Subsidiaries or (ii) such items do
not represent cash paid by Holdings or any of its Subsidiaries, in each case on a
consolidated basis during such period.
“Excess Cash Flow Prepayment” shall have the meaning assigned to such term in Section
2.09(b).
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
16
“Excluded Taxes” shall mean, with respect to the Administrative Agent, any Lender or any other
recipient of any payment to be made by or on account of any obligation of any Borrower hereunder,
(a) taxes imposed on or measured by the recipient’s overall net income (however denominated),
franchise taxes imposed on the recipient (in lieu of net income taxes) and branch profits taxes
imposed on the recipient, by the jurisdiction (or any political subdivision thereof) under the laws
of which such recipient is organized or in which its principal office is located or, in the case of
any Lender, in which its applicable lending office is located and (b) any Luxembourg federal
withholding tax that is imposed on amounts payable to any Lender at the time such Lender becomes a
party hereto (or designates a new lending office) or is attributable to such Lender’s failure to
comply with Section 2.14(e), except to the extent that such Lender (or its assignor, if
any) was entitled, at the time of designation of a new lending office (or assignment), to receive
additional amounts from Borrower with respect to such withholding tax pursuant to Section
2.14(a); provided that this clause (b) shall not apply to any Tax imposed on a Lender in
connection with an interest or participation in any Loan or other obligation that such Lender was
required to acquire pursuant to Section 2.13(c).
“Executive Order” shall have the meaning assigned to such term in Section 3.22.
“Existing Lien” shall have the meaning assigned to such term in Section 6.02(c).
“Existing Obligations” shall have the meaning assigned to such term in Section
10.19(b).
“Federal Funds Effective Rate” shall mean, for any day, the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve System of the United
States arranged by federal funds brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for the day for such transactions received by the
Administrative Agent from three federal funds brokers of recognized standing selected by it.
“Fee Letter” shall mean that certain Fee Letter dated as of November 6, 2009 among the
Borrowers and the Administrative Agent.
“Final Order” shall mean an order or judgment of a court of competent jurisdiction that has
been entered on the docket maintained by the clerk of such court and has not been reversed, vacated
or stayed and as to which (a) the time to appeal, petition for certiorari or move for a stay, new
trial, reargument or rehearing has expired and as to which no appeal, petition for certiorari or
other proceedings for a stay, new trial, reargument or rehearing shall then be pending or (b) if an
appeal, writ of certiorari, stay, new trial, reargument or rehearing thereof has been sought, (i)
such order or judgment shall have been affirmed by the highest court to which such order was
appealed, certiorari shall have been denied or a stay, new trial, reargument or rehearing shall
have been denied or resulted in no modification of such order and (ii) the time to take any further
appeal, petition for certiorari or move for a stay, new trial, reargument or rehearing shall have
expired.
“Finance Subsidiary” shall mean MagnaChip Semiconductor Finance Company, a Delaware limited
liability company.
“Financial Officer” of any person shall mean the chief financial officer, principal accounting
officer, treasurer or controller of such person.
17
“FIRREA” shall mean the Federal Institutions Reform, Recovery and Enforcement Act of 1989, as
amended.
“Foreign Plan” shall mean any employee benefit plan, program, policy, arrangement or agreement
(other than a Plan or Multiemployer Plan) maintained or contributed to by any Company with respect
to employees employed outside the United States.
“Foreign Sales Subsidiaries” means each of the Sales Subsidiaries other than the US Sales
Subsidiary.
“Foreign Subsidiary” shall mean a Subsidiary that is organized under the laws of a
jurisdiction other than the United States or any state thereof or the District of Columbia.
“Fund” shall mean any person that is (or will be) engaged in making, purchasing, holding or
otherwise investing in commercial loans and similar extensions of credit in the ordinary course of
its business.
“GAAP” shall mean generally accepted accounting principles in the United States applied on a
consistent basis.
“Governmental Authority” shall mean the government of the United States of America or any
other nation, or of any political subdivision thereof, whether state, provincial or local, and any
agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government (including any supra-national bodies such as the European Union or the
European Central Bank) in any jurisdiction.
“Governmental Real Property Disclosure Requirements” shall mean any Requirement of Law of any
Governmental Authority requiring notification of the buyer, lessee, mortgagee, assignee or other
transferee of any Real Property, facility, establishment or business, or notification, registration
or filing to or with any Governmental Authority, in connection with the sale, lease, mortgage,
assignment or other transfer (including any transfer of control) of any Real Property, facility,
establishment or business, of the actual or threatened presence or Release in or into the
Environment, or the use, disposal or handling of Hazardous Material on, at, under or near the Real
Property, facility, establishment or business to be sold, leased, mortgaged, assigned or
transferred.
“Guaranteed Obligations” shall have the meaning assigned to such term in Section 7.01.
“Guarantees” shall mean the guarantees issued pursuant to Article VII by Holdings and
the Subsidiary Guarantors and the Korean Opco Bank Guarantee.
“Guarantors” shall mean Holdings and the Subsidiary Guarantors.
“Hazardous Materials” shall mean the following: hazardous substances; hazardous wastes;
polychlorinated biphenyls (“PCBs”) or any substance or compound containing PCBs; asbestos or any
asbestos-containing materials in any form or condition; radon or any other radioactive materials
including any source, special nuclear or by-product material; petroleum, crude oil or any fraction
thereof; and any other pollutant or contaminant or chemicals, wastes, materials, compounds,
constituents or substances, subject to regulation or which can give rise to liability under any
Environmental Laws.
18
“Hedging Agreement” shall mean any swap, cap, collar, forward purchase or similar agreements
or arrangements dealing with interest rates, currency exchange rates or commodity prices, either
generally or under specific contingencies.
“Hedging Obligations” shall mean obligations under or with respect to Hedging Agreements.
“Holdings” shall have the meaning assigned to such term in the preamble hereto.
“Hynix Related Account Debtors” shall mean Hynix Semiconductor Inc. and each of its
Subsidiaries that is an account debtor with respect to any Hynix Related Receivable.
“Hynix Related Receivables” shall mean any “accounts” as defined in the New York UCC owing to
any of the Companies by any Hynix Related Account Debtors.
“Increase Effective Date” shall have the meaning assigned to such term in
Section 2.18(a).
“Increase Joinder” shall have the meaning assigned to such term in Section 2.18(c).
“Incremental Loan” shall have the meaning assigned to such term in Section 2.18(c)(i).
“Incremental Loan Commitments” shall have the meaning assigned to such term in Section
2.18(a).
“Indebtedness” of any person shall mean, without duplication, (a) all obligations of such
person for borrowed money or advances; (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments; (c) all obligations of such person upon which interest
charges are customarily paid or accrued; (d) all obligations of such person under conditional sale
or other title retention agreements relating to property purchased by such person; (e) all
obligations of such person issued or assumed as the deferred purchase price of property or services
(excluding trade accounts payable and accrued obligations incurred in the ordinary course of
business on normal trade terms and, unless subject to a good faith dispute, not overdue by more
than 90 days); (f) all Indebtedness of others secured by any Lien on property owned or acquired by
such person, whether or not the obligations secured thereby have been assumed, but limited to the
fair market value of such property; (g) all Capital Lease Obligations, Purchase Money Obligations
and synthetic lease obligations of such person; (h) all Hedging Obligations to the extent required
to be reflected on a balance sheet of such person; (i) all Attributable Indebtedness of such
person; (j) all obligations of such person for the reimbursement of any obligor in respect of
letters of credit, letters of guaranty, bankers’ acceptances and similar credit transactions; and
(k) all Contingent Obligations of such person in respect of Indebtedness or obligations of others
of the kinds referred to in clauses (a) through (j) above. The Indebtedness of any person shall
include the Indebtedness of any other entity (including any partnership in which such person is a
general partner) to the extent such person is liable therefor as a result of such person’s
ownership interest in or other relationship with such entity, except (other than in the case of
general partner liability) to the extent that terms of such Indebtedness expressly provide that
such person is not liable therefor.
“Indemnified Party” shall have the meaning assigned to such term in Section 9.03.
“Indemnified Taxes” shall mean all Taxes other than Excluded Taxes.
19
“Indemnitee” shall have the meaning assigned to such term in Section 10.03(b).
“Information” shall have the meaning assigned to such term in Section 10.13.
“Insurance Policies” shall mean the insurance policies and coverages required to be maintained
by each Loan Party which is an owner of Mortgaged Property with respect to the applicable Mortgaged
Property pursuant to Section 5.04 and all renewals and extensions thereof.
“Insurance Requirements” shall mean, collectively, all provisions of the Insurance Policies,
all requirements of the issuer of any of the Insurance Policies and all orders, rules, regulations
and any other requirements of the National Board of Fire Underwriters (or any other body exercising
similar functions) binding upon each Loan Party which is an owner of Mortgaged Property and
applicable to the Mortgaged Property or any use or condition thereof.
“Intellectual Property” shall mean collectively, all rights, privileges relating to
intellecttual property, whether arising under United States, state, multinational or foreign laws
or otherwise, including, without limitation, copyrights, patents, trademarks, service-marks, trade
names, domain names, technology, proprietary information, know-how and processes, recipes,
formulas, trade secrets, all applications for registration or issuance of any of the foregoing, and
all rights to sue at law or in equity for any past, present or future infringement or other
impairment thereof, including the right to receive all proceeds and damages therefrom.
“Intercompany Loan Documents” shall mean any promissory note or other instrument evidencing
any extension of credit by any Loan Party to Holdings or any of its Subsidiaries.
“Interest Election Request” shall mean a request by any Borrower to convert or continue a
Borrowing in accordance with Section 2.08(b), substantially in the form of
Exhibit E.
“Interest Payment Date” shall mean (a) with respect to any ABR Loan, the last Business Day of
each March, June, September and December to occur during any period in which such Loan is
outstanding; (b) with respect to any Eurodollar Loan, the last day of the Interest Period
applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Loan with
an Interest Period of more than three months’ duration, each day prior to the last day of such
Interest Period that occurs at intervals of three months’ duration after the first day of such
Interest Period; and (c) with respect to any Loan, the Maturity Date or such earlier date on which
the maturity of the Loans is accelerated, as the case may be.
“Interest Period” shall mean, with respect to any Eurodollar Borrowing, the period commencing
on the date of such Borrowing and ending on the numerically corresponding day in the calendar month
that is one, two, three or six months (or, if each affected Lender so agrees, nine months)
thereafter, as any Borrower may elect; provided that (a) if any Interest Period would end on a day
other than a Business Day, such Interest Period shall be extended to the next succeeding Business
Day unless such next succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day; and (b) any Interest Period that
commences on the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest Period) shall end on the
last Business Day of the last calendar month of such Interest Period. For purposes hereof, the
date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter
shall be the effective date of the most recent conversion or
20
continuation of such Borrowing; provided, however, that an Interest Period shall be
limited to the extent required under Section 2.02(e).
“Investments” shall have the meaning assigned to such term in Section 6.04.
“IPO” shall mean the first underwritten public offering by Holdings of its Equity Interests
after the Effective Date pursuant to a registration statement filed with the Securities and
Exchange Commission in accordance with the Securities Act that results in cumulative gross proceeds
of not less than $25 million.
“Joinder Agreement” shall mean a joinder agreement substantially in the form of Exhibit
F.
“Judgment Currency” shall have the meaning assigned to such term in Section 10.18(a).
“Judgment Currency Conversion Date” shall have the meaning assigned to such term in
Section 10.18(a).
“Korean Opco” shall mean MagnaChip Semiconductor Ltd., a Korean yuhan hoesa.
“Korean Opco Bank Guarantee” shall have the meaning assigned to such term in Section
4.01(q)(i).
“Korean Opco Loan Documents” shall mean the Korean Opco Bank Guarantee, the Korean Opco
Security Documents, and all other documents executed and delivered with respect thereto.
“Korean Opco Security Documents” shall mean each of the documents executed by Korean Opco
granting liens and/or security interests in each of its assets in favor of the Collateral Trustee
as security for the obligations of Korean Opco under the Korean Opco Bank Guarantee and all
documents and other instruments related, directly or indirectly, thereto (including, without
limitation, such documents and instruments set forth on Schedule 1.01(a)).
“Leases” shall mean any and all leases, subleases, tenancies, options, concession agreements,
rental agreements, occupancy agreements, franchise agreements, access agreements and any other
agreements (including all amendments, extensions, replacements, renewals, modifications and/or
guarantees thereof), whether or not of record and whether now in existence or hereafter entered
into, affecting the use or occupancy of all or any portion of any Real Property.
“Lenders” shall mean (a) the financial institutions listed as Lenders on the signature pages
hereto, (b) any financial institution that has become a party hereto pursuant to an Assignment and
Assumption, and (c) any financial institution that becomes party hereto pursuant to Section
2.18, other than, in each case, any such financial institution that has ceased to be a party
hereto pursuant to an Assignment and Assumption.
“LIBOR Rate” shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the
rate per annum determined by the Administrative Agent to be the arithmetic mean (rounded upward, if
necessary, to the nearest 1/100th of 1%) of the offered rates for deposits in dollars with a term
comparable to such Interest Period that appears on the Telerate British Bankers Assoc. Interest
Settlement Rates Page (as defined below) at approximately 11:00 a.m., London, England time, on the
second full Business Day preceding the first day of such Interest Period; provided, however, that
(i) if no comparable
21
term for an Interest Period is available, the LIBOR Rate shall be determined using the
weighted average of the offered rates for the two terms most nearly corresponding to such Interest
Period and (ii) if there shall at any time no longer exist a Telerate British Bankers Assoc.
Interest Settlement Rates Page, “LIBOR Rate” shall mean, with respect to each day during each
Interest Period pertaining to Eurodollar Borrowings comprising part of the same Borrowing, the rate
per annum equal to the rate at which the Administrative Agent is offered deposits in dollars at
approximately 11:00 a.m., London, England time, two Business Days prior to the first day of such
Interest Period in the London interbank market for delivery on the first day of such Interest
Period for the number of days comprised therein and in an amount comparable to its portion of the
amount of such Eurodollar Borrowing to be outstanding during such Interest Period. “Telerate
British Bankers Assoc. Interest Settlement Rates Page” shall mean the display designated as Page
3750 on the Telerate System Incorporated Service (or such other page as may replace such page on
such service for the purpose of displaying the rates at which dollar deposits are offered by
leading banks in the London interbank deposit market).
“Lien” shall mean, with respect to any property, (a) any mortgage, deed of trust, lien,
pledge, encumbrance, claim, charge, assignment, hypothecation, security interest or encumbrance of
any kind or any arrangement to provide priority or preference or any filing of any financing
statement under the UCC or any other similar notice of lien under any similar notice or recording
statute of any Governmental Authority, including any easement, right-of-way or other encumbrance on
title to Real Property, in each of the foregoing cases whether voluntary or imposed by law, and any
agreement to give any of the foregoing; (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating to such property;
and (c) in the case of securities, any purchase option, call or similar right of a third party with
respect to such securities.
“Liquidity Requirement” shall have the meaning assigned to such term in Section 6.10.
“Loan Documents” shall mean this Agreement, the Notes (if any), the Security Documents, the
Collateral Trust Documents, and the Korean Opco Loan Documents.
“Loan Parties” shall mean Holdings, Borrowers and the Subsidiary Guarantors.
“Loans” shall mean, as the context may require, a Term Loan or an Incremental Loan.
“Lux Borrower” shall mean MagnaChip Semiconductor S.A., a Luxembourg corporation.
“MagnaChip SA Holdings” shall mean MagnaChip Semiconductor SA Holdings LLC, a Delaware limited
liability company.
“Margin Stock” shall have the meaning assigned to such term in Regulation U.
“Material Adverse Effect” shall mean (a) a material adverse effect on the business, property,
results of operations, prospects or condition, financial or otherwise, of Borrowers and their
Subsidiaries, taken as a whole, or Holdings and its Subsidiaries taken as a whole; (b) material
impairment of the ability of the Loan Parties to perform any of their obligations under any Loan
Document; (c) material impairment of the rights of or benefits or remedies available to the Lenders
or the Collateral Agent under any Loan Document; or (d) a material adverse effect on the Collateral
or the Liens in favor of the Collateral Agent (for its benefit and for the benefit of the other
Secured Parties) on the Collateral or
22
the priority of such Liens; provided that, neither the Chapter 11 Case nor the events leading
thereto shall constitute a Material Adverse Effect.
“Material Indebtedness” shall mean any Indebtedness (other than the Loans) or Hedging
Obligations of Holdings or any of its Subsidiaries in an aggregate outstanding principal amount
exceeding $3.0 million. For purposes of determining Material Indebtedness, the “principal amount”
in respect of any Hedging Obligations of any Loan Party at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that such Loan Party would be required to pay if
the related Hedging Agreement were terminated at such time.
“Maturity Date” shall mean November 6, 2013.
“Maximum Rate” shall have the meaning assigned to such term in Section 10.15.
“Mortgage” shall mean an agreement, including, but not limited to, a mortgage, deed of trust
or any other document, creating and evidencing a Lien on a Mortgaged Property, which shall be
reasonably satisfactory to the Collateral Agent and include such provisions as shall be necessary
to conform such document to applicable local or foreign law or as shall be customary under
applicable local or foreign law.
“Mortgaged Property” shall mean (a) all Real Property securing all or any portion of the
Secured Obligations or any obligations of Korean Opco under the Korean Opco Loan Documents and (b)
each Real Property, if any, which shall be subject to a Mortgage delivered after the Closing Date
pursuant to Section 5.10(c).
“Multiemployer Plan” shall mean a multiemployer plan within the meaning of Section 4001(a)(3)
or Section 3(37) of ERISA (a) to which any Company or any ERISA Affiliate is then making or
accruing an obligation to make contributions; (b) to which any Company or any ERISA Affiliate has
within the preceding five plan years made contributions; or (c) with respect to which any Company
could incur liability.
“Net Cash Proceeds” shall mean:
(a) with respect to any Asset Sale (other than any issuance or sale of Equity
Interests), the cash proceeds received by Holdings or any of its Subsidiaries (including
cash proceeds subsequently received (as and when received by Holdings or any of its
Subsidiaries) in respect of non-cash consideration initially received) net of (i) selling
expenses (including reasonable brokers’ fees or commissions, legal, accounting and other
professional and transactional fees, transfer and similar taxes and Borrowers’ good faith
estimate of income taxes paid or payable in connection with such sale); (ii) amounts
provided as a reserve, in accordance with GAAP, against (x) any liabilities under any
indemnification obligations associated with such Asset Sale or (y) any other liabilities
retained by Holdings or any of its Subsidiaries associated with the properties sold in such
Asset Sale (provided that, to the extent and at the time any such amounts are released from
such reserve, such amounts shall constitute Net Cash Proceeds); (iii) Borrowers’ good faith
estimate of payments required to be made with respect to unassumed liabilities relating to
the properties sold within 90 days of such Asset Sale (provided that, to the extent such
cash proceeds are not used to make payments in respect of such unassumed liabilities within
90 days of such Asset Sale, such cash proceeds shall constitute Net Cash Proceeds); and (iv)
the principal amount, premium or penalty, if any, interest and other amounts on any
23
Indebtedness for borrowed money which is secured by a Lien on the properties sold in
such Asset Sale (so long as such Lien was permitted to encumber such properties under the
Loan Documents at the time of such sale) and which is repaid with such proceeds (other than
any such Indebtedness assumed by the purchaser of such properties);
(b) with respect to any Debt Issuance, any Equity Issuance or any other issuance or
sale of Equity Interests by Holdings or any of its Subsidiaries, the cash proceeds thereof,
net of customary fees, commissions, costs and other expenses incurred in connection
therewith; and
(c) with respect to any Casualty Event, the cash insurance proceeds, condemnation
awards and other compensation received in respect thereof, net of all reasonable costs and
expenses incurred in connection with the collection of such proceeds, awards or other
compensation in respect of such Casualty Event.
“Non Guarantor Subsidiaries” means each Subsidiary of Holdings that is not a Subsidiary
Guarantor.
“Non-Reinvested Asset Sale Proceeds” shall have the meaning assigned to such term in
Section 2.09(c).
“Non-Reinvested Casualty Proceeds” shall have the meaning assigned to such term in Section
2.09(f).
“Non-Reinvested Proceeds” shall mean, collectively, the Non-Reinvested Asset Sale Proceeds and
the Non-Reinvested Casualty Proceeds.
“Notes” shall mean any notes evidencing the Loans issued pursuant to this Agreement, if any,
substantially in the form of Exhibit G.
“Obligation Currency” shall have the meaning assigned to such term in Section
10.18(a).
“Obligations” shall mean (a) obligations of Borrowers and the other Loan Parties from time to
time arising under or in respect of the due and punctual payment of (i) the principal of and
premium, if any, and interest (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in
such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise and (ii) all other monetary obligations, including fees,
costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or allowable in such
proceeding), of Borrowers and the other Loan Parties under this Agreement and the other Loan
Documents; (b) the due and punctual performance of all covenants, agreements, obligations and
liabilities of Borrowers and the other Loan Parties under or pursuant to this Agreement and the
other Loan Documents; and (c) the due and punctual payment and performance of all obligations in
respect of overdrafts and related liabilities owed to any Lender, any Affiliate of a Lender, the
Administrative Agent or the Collateral Agent arising from treasury, depositary and cash management
services or in connection with any automated clearinghouse transfer of funds.
“OFAC” shall have the meaning assigned to such term in Section 3.21.
24
“Officers’ Certificate” shall mean a certificate executed by the chairman of the Board of
Directors (if an officer), the chief executive officer or the president and one of the Financial
Officers, each in his or her official (and not individual) capacity.
“Organizational Documents” shall mean, with respect to any person, (i) in the case of any
corporation, the certificate of incorporation and by-laws (or similar documents) of such person;
(ii) in the case of any limited liability company, the certificate of formation and operating
agreement (or similar documents) of such person; (iii) in the case of any limited partnership, the
certificate of formation and limited partnership agreement (or similar documents) of such person;
(iv) in the case of any general partnership, the partnership agreement (or similar document) of
such person; and (v) in any other case, the functional equivalent of the foregoing.
“Other Taxes” shall mean all present or future stamp or documentary taxes or any other excise
or property taxes, charges or similar levies arising from any payment made hereunder or under any
other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect
to, this Agreement or any other Loan Document.
“Participant” shall have the meaning assigned to such term in Section 10.04(d).
“PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA.
“Pension Protection Act” shall mean the Pension Protection Act of 2006 (PL 109-280), as
amended.
“Perfection Certificate” shall have the meaning set forth in the Security Agreement.
“Permitted Acquisition” shall mean any transaction or series of related transactions for the
direct or indirect (a) acquisition of all or substantially all of the property of any person, or of
any business or division of any person; (b) acquisition of in excess of 50% of the Equity Interests
of any person, and otherwise causing such person to become a Subsidiary of such person; or (c)
merger or consolidation or any other combination with any person, if each of the following
conditions is met:
(i) no Default then exists or would result therefrom;
(ii) after giving effect to such transaction on a Pro Forma Basis, the Total Leverage
Ratio shall be no more than 3.0 to 1.0,
(iii) no Company shall, in connection with any such transaction, assume or remain
liable with respect to any Indebtedness or other liability (including any material tax or
ERISA liability) of the related seller or the business, person or properties acquired,
except (A) to the extent permitted under Section 6.01 and (B) obligations not
constituting Indebtedness incurred in the ordinary course of business and necessary or
desirable to the continued operation of the underlying properties, and any other such
liabilities or obligations not permitted to be assumed or otherwise supported by any Company
hereunder shall be paid in full or released as to the business, persons or properties being
so acquired on or before the consummation of such acquisition;
(iv) the person or business to be acquired shall be, or shall be engaged in, a business
of the type that Borrowers and their Subsidiaries are permitted to be engaged in under
25
Section 6.15 and the property acquired in connection with any such transaction shall be
made subject to the Lien of the Security Documents (to the extent permitted by applicable
law) and shall be free and clear of any Liens, other than Permitted Collateral Liens;
(v) the Board of Directors of the person to be acquired shall not have indicated
publicly its opposition to the consummation of such acquisition (which opposition has not
been publicly withdrawn);
(vi) all transactions in connection therewith shall be consummated in accordance with
all applicable Requirements of Law;
(vii) with respect to any transaction involving Acquisition Consideration of more than
$25.0 million, unless the Administrative Agent shall otherwise agree, Borrowers shall have
provided the Administrative Agent and the Lenders with (A) historical financial statements
for the last three fiscal years (or, if less, the number of years since formation) of the
person or business to be acquired (audited if available without undue cost or delay) and
unaudited financial statements thereof for the most recent interim period which are
available; (B) reasonably detailed projections for the succeeding five years pertaining to
the person or business to be acquired and updated projections for Borrowers after giving
effect to such transaction; (C) a reasonably detailed description of all material
information relating thereto and copies of all material documentation pertaining to such
transaction; and (D) all such other information and data relating to such transaction or the
person or business to be acquired as may be reasonably requested by the Administrative Agent
or the Required Lenders;
(viii) Borrowers shall have delivered to the Agents and the Lenders an Officers’
Certificate certifying that (A) such transaction complies with this definition (which shall
have attached thereto reasonably detailed backup data and calculations showing such
compliance), and (B) such transaction could not reasonably be expected to result in a
Material Adverse Effect; and
(ix) the Acquisition Consideration for such acquisition shall not exceed $50.0 million
of which up to $25.0 million may be cash, and the aggregate amount of the Acquisition
Consideration for all Permitted Acquisitions since the Effective Date shall not exceed
$100.0 million; provided that any Equity Interests constituting all or a portion of such
Acquisition Consideration shall not have a cash dividend requirement on or prior to the
Maturity Date.
“Permitted Collateral Liens” means (i) Contested Liens (as defined in the Security Agreement);
(ii) the Liens described in clauses (a), (b), (c), (d), (e), (f), (g), (h), (j), (k), (l), (m) and
(n) of Section 6.02; and (iii) in the case of Mortgaged Property, “Permitted Collateral
Liens” shall mean the Liens described in clauses (a), (b), (c), (d), (e), (g) and (l) of
Section 6.02.
“Permitted Holders” shall mean Avenue Investments, LP and its Controlled Investment
Affiliates.
“Permitted Liens” shall have the meaning assigned to such term in Section 6.02.
“Permitted Tax Distributions” means, with respect to any periods during which MagnaChip
Semiconductor LLC is treated as a partnership for U.S. federal income tax purposes, payments in
respect of tax liabilities of MagnaChip Semiconductor LLC’s members arising from direct or
indirect ownership of MagnaChip Semiconductor LLC’s equity interests. Permitted Tax
Distributions
26
shall be calculated by reference to the amount of MagnaChip Semiconductor LLC’s and
its Subsidiaries’ income determined to be an amount required to be included in income under section
951 of the Code times 35%. A nationally recognized accounting firm chosen by Holdings shall
determine the amount of Permitted Tax Distributions.
“person” shall mean any natural person, corporation, limited liability company, trust, joint
venture, association, company, partnership, Governmental Authority or other entity.
“Petition Date” shall have the meaning set forth in the recitals hereto.
“Plan” shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject
to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA which is
maintained or contributed to by any Company or its ERISA Affiliate or with respect to which any
Company could incur liability (including under Section 4069 of ERISA).
“Preferred Stock” shall mean, with respect to any person, any and all preferred or preference
Equity Interests (however designated) of such person whether now outstanding or issued after the
Effective Date.
“Premises” shall have the meaning assigned thereto in the applicable Mortgage.
“Pre-Petition Credit Agreement” shall have the meanings set forth in the recitals hereto.
“Pro Forma Basis” shall mean on a basis in accordance with GAAP and Regulation S-X and
otherwise reasonably satisfactory to the Administrative Agent.
“property” shall mean any right, title or interest in or to property, undertaking or assets of
any kind whatsoever, wherever situate, whether real, personal or mixed and whether tangible or
intangible and including Equity Interests or other ownership interests of any person and whether
now in existence or owned or hereafter entered into or acquired, including all Real Property.
“Proposed Assignment” shall have the meaning set forth in Section 10.04(b)(iv).
“Purchase Money Obligation” shall mean, for any person, the obligations of such person in
respect of Indebtedness (including Capital Lease Obligations) incurred for the purpose of financing
all or any part of the purchase price of any property (including Equity Interests of any person) or
the cost of installation, construction or improvement of any property and any refinancing thereof;
provided, however, that (i) such Indebtedness is incurred within one year after such acquisition of
such property by such person and (ii) the amount of such Indebtedness does not exceed 100% of the
cost of such acquisition, installation, construction or improvement, as the case may be.
“Qualified Capital Stock” of any person shall mean any Equity Interests of such person that
are not Disqualified Capital Stock.
“Real Property” shall mean, collectively, all right, title and interest (including any
leasehold, mineral or other estate) in and to any and all parcels of or interests in real property
owned, leased or operated by any person, whether by lease, license or other means, together with,
in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and
appurtenant fixtures
27
and equipment, all general intangibles and contract rights and other property and rights
incidental to the ownership, lease or operation thereof.
“Register” shall have the meaning assigned to such term in Section 10.04(c).
“Regulation D” shall mean Regulation D of the Board as from time to time in effect and all
official rulings and interpretations thereunder or thereof.
“Regulation S-X” shall mean Regulation S-X promulgated under the Securities Act.
“Regulation T” shall mean Regulation T of the Board as from time to time in effect and all
official rulings and interpretations thereunder or thereof.
“Regulation U” shall mean Regulation U of the Board as from time to time in effect and all
official rulings and interpretations thereunder or thereof.
“Regulation X” shall mean Regulation X of the Board as from time to time in effect and all
official rulings and interpretations thereunder or thereof.
“Related Parties” shall mean, with respect to any person, such person’s Affiliates and the
partners, directors, officers, employees, agents and advisors of such person and of such person’s
Affiliates.
“Release” shall mean any spilling, leaking, seepage, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating
or migrating of any Hazardous Material in, into, onto or through the Environment.
“Required Lenders” shall mean Lenders holding more than 50% of the sum of all Loans
outstanding and unused Commitments.
“Requirements of Law” shall mean, collectively, any and all requirements of any Governmental
Authority including any and all laws, judgments, orders, decrees, ordinances, rules, regulations,
statutes or case law in any jurisdiction.
“Response” shall mean (a) “response” as such term is defined in CERCLA, 42 U.S.C. § 9601(24),
and (b) all other actions required by any Governmental Authority or voluntarily undertaken to (i)
clean up, remove, treat, abate or in any other way address any Hazardous Material in the
Environment; (ii) prevent the Release or threat of Release, or minimize the further Release, of any
Hazardous Material; or (iii) perform studies and investigations in connection with, or as a
precondition to, or to determine the necessity of the activities described in, clause (i) or (ii)
above.
“Responsible Officer” of any person shall mean any executive officer or Financial Officer of
such person and any other officer or similar official thereof with responsibility for the
administration of the obligations of such person in respect of this Agreement.
“Sale and Leaseback Transaction” has the meaning assigned to such term in Section
6.03.
“Sales Subsidiaries” shall mean, collectively, (i) MagnaChip Semiconductor, Inc., a California
corporation; (ii) MagnaChip Semiconductor Limited, a company incorporated in England and
28
Wales with registered number 05232381; (iii) MagnaChip Semiconductor, Inc., a Japan company;
(iv) MagnaChip Semiconductor Ltd. a Hong Kong company; and (v) MagnaChip Semiconductor Limited, a
Taiwan company.
“Sarbanes-Oxley Act” shall mean the United States Sarbanes-Oxley Act of 2002, as amended, and
all rules and regulations promulgated thereunder.
“Secured Obligations” shall mean the Obligations and the due and punctual payment and
performance of all obligations of Borrowers and the other Loan Parties under each Hedging Agreement
entered into with any counterparty that is a Secured Party.
“Secured Parties” shall mean, collectively, the Administrative Agent, the Collateral Agent,
the Collateral Trustee, the Lenders and each party to a Hedging Agreement relating to the Loans if
at the date of entering into such Hedging Agreement such person was a Lender or an Affiliate of a
Lender and such person executes and delivers to the Administrative Agent a letter agreement in form
and substance reasonably acceptable to the Administrative Agent pursuant to which such person (i)
appoints the Collateral Agent as its agent under the applicable Loan Documents and (ii) agrees to
be bound by the provisions of Sections 10.03 and 10.09.
“Securities Act” shall mean the Securities Act of 1933.
“Securities Collateral” shall have the meaning assigned to such term in the Security
Agreement, together with all other certificated Equity Interests, note or other instruments pledged
pursuant to any of the Security Documents.
“Security Agreement” shall mean a Security Agreement substantially in the form of Exhibit
H among certain of the Loan Parties and Collateral Agent for the benefit of the Secured
Parties.
“Security Agreement Collateral” shall mean all property pledged or granted as collateral
pursuant to the Security Agreement delivered (a) on the Closing Date or (b) thereafter pursuant to
Section 5.11.
“Security Documents” shall mean the Security Agreement, the Mortgages, the Korean Opco
Security Documents and each other security document or pledge agreement delivered in accordance
with applicable local or foreign law to grant a valid, perfected security interest in any property
as collateral for the Secured Obligations and/or Guaranteed Obligations, and all UCC or other
financing statements or instruments of perfection required by this Agreement, the Security
Agreement, any Mortgage, the Korean Opco Security Documents or any other such security document or
pledge agreement to be filed with respect to the security interests in property and fixtures
created pursuant to the Security Agreement, any Mortgage or the Korean Opco Security Documents and
any other document or instrument utilized to pledge, assign, charge or grant or purport to pledge,
assign, charge or grant a security interest or lien under the laws of any jurisdiction on any
property as collateral for the Secured Obligations.
“Specified Lender” shall mean Avenue Investments, LP, its Controlled Investment Affiliates and
Related Parties as long as they collectively hold more than 50% of the outstanding Loans and unused
Commitments.
“Statutory Reserves” shall mean for any Interest Period for any Eurodollar Borrowing, the
average maximum rate at which reserves (including any marginal, supplemental or emergency
29
reserves) are required to be maintained during such Interest Period under Regulation D by
member banks of the United States Federal Reserve System in New York City with deposits exceeding
one billion dollars against “Eurocurrency liabilities” (as such term is used in Regulation D).
“Subordinated Indebtedness” shall mean Indebtedness of any Borrower or any Guarantor that is
by its terms subordinated in right of payment to the Obligations of such Borrower and such
Guarantor, as applicable.
“Subordinated Indebtedness Payment” shall have the meaning assigned to such term in
Section 6.11(a).
“Subsidiary” shall mean, with respect to any person (the “parent”) at any date, (i) any person
the accounts of which would be consolidated with those of the parent in the parent’s consolidated
financial statements if such financial statements were prepared in accordance with GAAP as of such
date; (ii) any other corporation, limited liability company, association or other business entity
of which securities or other ownership interests representing more than 50% of the voting power of
all Equity Interests entitled (without regard to the occurrence of any contingency) to vote in the
election of the Board of Directors thereof are, as of such date, owned, controlled or held by the
parent and/or one or more subsidiaries of the parent; (iii) any partnership (a) the sole general
partner or the managing general partner of which is the parent and/or one or more subsidiaries of
the parent or (b) the only general partners of which are the parent and/or one or more subsidiaries
of the parent; and (iv) any other person that is otherwise Controlled by the parent and/or one or
more subsidiaries of the parent. Unless the context requires otherwise, “Subsidiary” refers to a
Subsidiary of any Borrower or Holdings.
“Subsidiary Guarantor” shall mean each Subsidiary listed on Schedule 1.01(d), Korean
Opco and each other Subsidiary that is or becomes a party to this Agreement pursuant to Section
5.10.
“Supermajority Lenders” shall mean at least two Lenders (provided that one of the Lenders
shall not be a Specified Lender), who hold in the aggregate at least 70% of the sum of all Loans
outstanding and unused Commitments.
“Survey” shall mean a survey of any Mortgaged Property (and all improvements thereon) which is
(a) (i) prepared by a surveyor or engineer licensed to perform surveys in the jurisdiction where
such Mortgaged Property is located, (ii) dated (or redated) not earlier than six months prior to
the date of delivery thereof and (b) otherwise in form and substance substantially satisfactory to
the Collateral Agent.
“Tax Return” shall mean all returns, statements, filings, attachments and other documents or
certifications required to be filed in respect of Taxes.
“Taxes” shall mean all present or future taxes, levies, imposts, duties, registration or stamp
duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental
Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Loan” shall mean a Term Loan deemed to be outstanding on the Effective Date pursuant to
Section 2.01.
“Test Period” shall mean, at any time, the four consecutive fiscal quarters of Borrowers (or
its predecessor) then last ended for which financial statements have been delivered pursuant to
Section 5.01.
30
“Total Assets” shall mean the total amount of all assets of a person, determined on a
consolidated basis in accordance with GAAP as shown on such person’s most recent balance sheet.
“Total Leverage Ratio” shall mean, at any date of determination, the ratio of (x) Consolidated
Indebtedness on such date to (y) Consolidated EBITDA for the Test Period then most recently ended.
“Transaction Documents” shall mean the Loan Documents, Collateral Trust Documents and the Plan
of Reorganization.
“Transactions” shall mean, collectively, the transactions to occur on or prior to the
Effective Date pursuant to the Transaction Documents, including (a) the execution, delivery and
performance of the Loan Documents and the initial borrowing hereunder; (b) the transactions
contemplated by the Plan of Reorganization; and (c) the payment of all fees and expenses to be paid
on or prior to the Effective Date and owing in connection with the foregoing.
“Transferred Guarantor” shall have the meaning assigned to such term in Section 7.09.
“Type,” when used in reference to any Loan or Borrowing, refers to whether the rate of
interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the
Adjusted LIBOR Rate or the Alternate Base Rate.
“UCC” shall mean the Uniform Commercial Code as in effect from time to time (except as
otherwise specified) in any applicable state or jurisdiction.
“UK Sales Subsidiary” shall mean MagnaChip Semiconductor Limited, a company incorporated in
England and Wales with registered number 05232381.
“United States” shall mean the United States of America.
“USA Patriot Act” shall have the meaning assigned to such term in Section 3.21.
“U.S. Sales Subsidiary” shall mean MagnaChip Semiconductor, Inc., a California corporation.
“Voting Stock” shall mean, with respect to any person, any class or classes of Equity
Interests pursuant to which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the Board of Directors of such person.
“Wholly Owned Subsidiary” shall mean, as to any person, (a) any corporation 100% of whose
capital stock (other than directors’ qualifying shares) is at the time owned by such person and/or
one or more Wholly Owned Subsidiaries of such person and (b) any partnership, association, joint
venture, limited liability company or other entity in which such person and/or one or more Wholly
Owned Subsidiaries of such person have a 100% equity interest at such time.
“Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete
or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle
E of Title IV of ERISA.
31
“Working Capital” shall mean, with respect to Holdings and its Subsidiaries on a consolidated
basis at any date of determination, Current Assets at such date of determination minus Current
Liabilities at such date of determination; provided that, for purposes of calculating Excess Cash
Flow, increases or decreases in Working Capital shall be calculated without regard to any changes
in Current Assets or Current Liabilities as a result of (a) any reclassification in accordance with
GAAP of assets or liabilities, as applicable, between current and noncurrent or (b) the effects of
purchase accounting.
SECTION 1.02 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a
“Term Loan”) or by Type (e.g., a “Eurodollar Loan”) or by Class and Type. Borrowings also may be
classified and referred to by Type (e.g., a “Eurodollar Borrowing”).
SECTION 1.03 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be
deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to
have the same meaning and effect as the word “shall.” Unless the context requires otherwise (a)
any definition of or reference to any Loan Document, agreement, instrument or other document herein
shall be construed as referring to such agreement, instrument or other document as from time to
time amended, supplemented or otherwise modified (subject to any restrictions on such amendments,
supplements or modifications set forth herein), (b) any reference herein to any person shall be
construed to include such person’s successors and assigns, (c) the words “herein,” “hereof” and
“hereunder,” and words of similar import, shall be construed to refer to this Agreement in its
entirety and not to any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and
Exhibits and Schedules to, this Agreement, (e) any reference to any law or regulation herein shall
refer to such law or regulation as amended, modified or supplemented from time to time, (f) the
words “asset” and “property” shall be construed to have the same meaning and effect and to refer to
any and all tangible and intangible assets and properties, including cash, securities, accounts and
contract rights and (g) “on,” when used with respect to the Mortgaged Property or any property
adjacent to the Mortgaged Property, means “on, in, under, above or about.”
SECTION 1.04 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all financial statements to be delivered
pursuant to this Agreement shall be prepared in accordance with GAAP as in effect from time to time
and all terms of an accounting or financial nature shall be construed and interpreted in accordance
with GAAP, as in effect on the date hereof unless otherwise agreed to by Borrowers and the
Supermajority Lenders.
SECTION 1.05 Resolution of Drafting Ambiguities. Each Loan Party acknowledges and agrees that it was represented by counsel in connection
with the execution and delivery of the Loan Documents to which it is a party, that it and its
counsel reviewed and participated in the preparation and negotiation hereof and thereof and that
any rule of construction to the effect that ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation hereof or thereof.
32
ARTICLE II
THE CREDITS
SECTION
2.01 Commitments.
On the Effective Date, subject to the terms and conditions and relying upon the
representations and warranties set forth herein, (i) any unused Revolving Commitment, Swingline
Commitment and LC Commitment (in each case, as defined in the Pre-Petition Credit Agreement) under
the Pre-Petition Credit Agreement is terminated and (ii) the outstanding principal amount of
outstanding loans under the Pre-Petition Credit Agreement is reduced to $61,750,000 and are
redenominated as Term Loans. As of the Effective Date, the outstanding principal amount of Term
Loans owed to each Lender is set forth on Annex I hereto. Amounts repaid in respect of Term Loans
may not be reborrowed.
SECTION
2.02 Loans.
(a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders
ratably in accordance with their applicable Commitments; provided that the failure of any Lender to
make its Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it
being understood, however, that no Lender shall be responsible for the failure of any other Lender
to make any Loan required to be made by such other Lender).
(b) Subject to Sections 2.11 and 2.12, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as any Borrower may request pursuant to Section
2.03. Each Lender may at its option make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such
option shall not affect the obligation of Borrowers to repay such Loan in accordance with the terms
of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided
that Borrowers shall not be entitled to request any Borrowing that, if made, would result in more
than five Eurodollar Borrowings outstanding hereunder at any one time. For purposes of the
foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the
same date, shall be considered separate Borrowings.
(c) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof
by wire transfer of immediately available funds to such account in New York City as the
Administrative Agent may designate not later than 11:00 a.m., New York City time, and the
Administrative Agent shall promptly credit the amounts so received to an account as directed by any
Borrower in the applicable Borrowing Request maintained with the Administrative Agent or, if a
Borrowing shall not occur on such date because any condition precedent herein specified shall not
have been met, return the amounts so received to the respective Lenders.
(d) Unless the Administrative Agent shall have received notice from a Lender prior to the date
of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s
portion of such Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such Borrowing in accordance with
paragraph (c) above, and the Administrative Agent may, in reliance upon such assumption, make
available to Borrowers on such date a corresponding amount. If the Administrative Agent shall have
so made funds available, then, to the extent that such Lender shall not have made such portion
available to the Administrative Agent, each of such Lender and Borrowers severally agrees to repay
to the Administrative Agent forthwith on demand such corresponding amount together with interest
thereon, for
33
each day from the date such amount is made available to Borrowers until the date such
amount is repaid to the Administrative Agent at (i) in the case of Borrowers, the interest rate
applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender,
the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation. If such Lender shall repay to
the Administrative Agent such corresponding amount, such amount shall constitute such Lender’s Loan
as part of such Borrowing for purposes of this Agreement, and Borrowers’ obligation to repay the
Administrative Agent such corresponding amount pursuant to this Section 2.02(d) shall
cease.
(e) Notwithstanding any other provision of this Agreement, none of the Borrowers shall be
entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period
requested with respect thereto would end after the Maturity Date.
SECTION 2.03 Borrowing Procedure. To request a Borrowing, a Borrower shall deliver, by hand delivery or telecopier, a duly
completed and executed Borrowing Request to the Administrative Agent (i) in the case of a
Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the
date of the proposed Borrowing or (ii) in the case of an ABR Borrowing, not later than 9:00 a.m.,
New York City time, on the date of the proposed Borrowing. Each Borrowing Request shall be
irrevocable and shall specify the following information in compliance with Section 2.02:
(a) the aggregate amount of such Borrowing;
(b) the date of such Borrowing, which shall be a Business Day;
(c) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(d) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable
thereto, which shall be a period contemplated by the definition of the term “Interest Period”;
(e) the location and number of such Borrower’s account to which funds are to be disbursed,
which shall comply with the requirements of Section 2.02(c); and
(f) that the conditions set forth in Sections 4.02(b)-(d) have been satisfied
as of the date of the notice.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be
an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar
Borrowing, then such Borrower shall be deemed to have selected an Interest Period of one month’s
duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the amount of such
Lender’s Loan to be made as part of the requested Borrowing.
SECTION 2.04 Evidence of Debt; Repayment of Loans.
(a) Promise to Repay. Each Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender, the then unpaid principal amount of each Loan
of such Lender on the Maturity Date.
(b) Subject to the other paragraphs of this Section:
34
(i) the Borrowers shall repay Term Loans on each date set forth below in the aggregate
principal amount (as adjusted from time to time pursuant to Section 2.09(h)) set forth
opposite such date (each such date being referred to as a “Term Loan Installment
Date”):
| Date | Amount of Term Loans to Be Repaid | |||
March 31, 2010 |
$ | 154,375 | ||
June 30, 2010 |
$ | 154,375 | ||
September 30, 2010 |
$ | 154,375 | ||
December 31, 2010 |
$ | 154,375 | ||
March 31, 2011 |
$ | 154,375 | ||
June 30, 2011 |
$ | 154,375 | ||
September 30, 2011 |
$ | 154,375 | ||
December 31, 2011 |
$ | 154,375 | ||
March 31, 2012 |
$ | 154,375 | ||
June 30, 2012 |
$ | 154,375 | ||
September 30, 2012 |
$ | 154,375 | ||
December 31, 2012 |
$ | 154,375 | ||
March 31, 2013 |
$ | 154,375 | ||
June 30, 2013 |
$ | 154,375 | ||
September 30, 2013 |
$ | 154,375 | ||
(ii) in the event that any Incremental Loans that constitute term loans are made
pursuant to Section 2.18, the Borrowers shall repay such Incremental Loans on the
dates and in the amounts set forth in the Increase Joinder.
(c) Lender and Administrative Agent Records. Each Lender shall maintain in accordance
with its usual practice an account or accounts evidencing the indebtedness of Borrowers to such
Lender resulting from each Loan made by such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time under this Agreement. The
Administrative Agent shall maintain accounts in which it will record (i) the amount of each Loan
made hereunder, the Type and Class thereof and the Interest Period applicable thereto; (ii) the
amount of any principal or interest due and payable or to become due and payable from Borrowers to
each Lender hereunder; and (iii) the amount of any sum received by the Administrative Agent
hereunder for the account of the Lenders and each Lender’s share thereof. The entries made in the
accounts maintained pursuant to this paragraph shall be prima facie evidence of the existence and
amounts of the obligations therein recorded; provided that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error therein shall not in any manner affect
the obligations of Borrowers to repay the Loans in accordance with their terms.
(d) Promissory Notes. Any Lender by written notice to Borrowers (with a copy to the
Administrative Agent) may request that Loans of any Class made by it be evidenced by a promissory
note. In such event, Borrowers shall prepare, execute and deliver to such Lender a promissory note
payable to the order of such Lender (or, if requested by such Lender, to such Lender and its
registered assigns) in the form of Exhibit G, as the case may be. Thereafter, the Loans
evidenced by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 10.04) be represented by one or more promissory notes in
such form payable to the order of the payee named therein (or, if such promissory note is a
registered note, to such payee and its registered assigns).
35
SECTION 2.05 Fees.
(a) Administrative Agent Fees. Borrowers agree to pay to the Administrative Agent,
for its own account, the administrative fees set forth in the Fee Letter or such other fees payable
in the amounts and at the times separately agreed upon between Borrowers and the Administrative
Agent (the “Administrative Agent Fees”).
(b) All fees shall be paid on the dates due, in immediately available funds, to the
Administrative Agent for distribution, if and as appropriate, among the Lenders. Once paid, none
of the fees shall be refundable under any circumstances.
SECTION 2.06 Interest on Loans.
(a) ABR Loans. Subject to the provisions of Section 2.06(c), the Loans
comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base
Rate plus the Applicable Margin.
(b) Eurodollar Loans. Subject to the provisions of Section 2.06(c), the Loans
comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to the Adjusted
LIBOR Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.
(c) Default Rate. Notwithstanding the foregoing, during the continuance of an Event
of Default, all Obligations shall, to the extent permitted by applicable law, bear interest, after
as well as before judgment, at a per annum rate equal to 2% plus the Alternate Base Rate plus the
Applicable Margin (the “Default Rate”).
(d) Interest Payment Dates. Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to
Section 2.06(c) shall be payable on demand, (ii) in the event of any repayment or
prepayment of any Loan (other than a prepayment of an ABR Loan), accrued interest on the principal
amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in
the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period
therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.
(e) Interest Calculation. All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate Base Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be
payable for the actual number of days elapsed (including the first day but excluding the last day).
The applicable Alternate Base Rate or Adjusted LIBOR Rate shall be determined by the
Administrative Agent in accordance with the provisions of this Agreement and such determination shall be conclusive
absent manifest error.
SECTION 2.07 [Intentionally Omitted].
SECTION 2.08 Interest Elections.
(a) Generally. Each Borrowing initially shall be of the Type specified in the
applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial
Interest Period as specified in such Borrowing Request. Thereafter, any Borrower may elect to
convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a
Eurodollar Borrowing,
36
may elect Interest Periods therefor, all as provided in this Section. Any Borrower may elect different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders holding the Loans
comprising such Borrowing, and the Loans comprising each such portion shall be considered a
separate Borrowing. Notwithstanding anything to the contrary, none of the Borrowers shall be
entitled to request any conversion or continuation that, if made, would result in more than five
Eurodollar Borrowings outstanding hereunder at any one time.
(b) Interest Election Notice. To make an election pursuant to this Section, a
Borrower shall deliver, by hand delivery or telecopier, a duly completed and executed Interest
Election Request to the Administrative Agent not later than the time that a Borrowing Request would
be required under Section 2.03 if such Borrower were requesting a Borrowing of the Type
resulting from such election to be made on the effective date of such election. Each Interest
Election Request shall be irrevocable. Each Interest Election Request shall specify the following
information in compliance with Section 2.03:
(i) the Borrowing to which such Interest Election Request applies and, if different
options are being elected with respect to different portions thereof, or if outstanding
Borrowings are being combined, allocation to each resulting Borrowing (in which case the
information to be specified pursuant to clauses (iii) and (iv) below shall be specified for
each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election
Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be
applicable thereto after giving effect to such election, which shall be a period
contemplated by the definition of the term “Interest Period.”
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an
Interest Period, then such Borrower shall be deemed to have selected an Interest Period of one
month’s duration.
Promptly following receipt of an Interest Election Request, the Administrative Agent shall
advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
(c) Automatic Conversion to ABR Borrowing. If an Interest Election Request with
respect to a Eurodollar Borrowing is not timely delivered prior to the end of the Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such
Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any
contrary provision hereof, if an Event of Default has occurred and is continuing, the
Administrative Agent or the Required Lenders may require, by notice to Borrowers, that (i) no
outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless
repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
37
SECTION 2.09 Optional and Mandatory Prepayments of Loans.
(a) Optional Prepayments. Borrowers shall have the right at any time and from time to
time to prepay any Borrowing, in whole or in part, subject to the requirements of this Section
2.09; provided that each partial prepayment shall be in an amount that is an integral multiple
of $250,000 and not less than $5.0 million.
(b) Excess Cash Flow Prepayments. Not later than 90 days after the end of each fiscal
year (commencing with the fiscal year ending on December 31, 2010), the Borrower shall calculate
Excess Cash Flow for such fiscal year and an amount equal to the amount by which (A) 50% of such
Excess Cash Flow exceeds (B)(x) the aggregate principal amount of voluntary prepayments of Loans
pursuant to Section 2.09(a) during such fiscal year, plus (y) in the case of the fiscal
year ending on December 31, 2010, the aggregate principal amount of any Early Excess Cash Flow
Prepayments made pursuant to Section 2.09(d) on or prior to 90 days after the end of such
fiscal year, shall be applied to prepay Loans in accordance with Section 2.09(h) (each such
payment, an “Excess Cash Flow Prepayment”); provided, that if the amount in clause (B) exceeds the
amount in clause (A), no such prepayment of Loans shall be required.
(c) Asset Sales. Not later than three (3) Business Day following the receipt of any
Net Cash Proceeds of any Asset Sale by Holdings or any of its Subsidiaries, Borrowers shall make
prepayments in accordance with Sections 2.09(h) and (i) in an aggregate amount
equal to 100% of such Net Cash Proceeds; provided that:
(i) no such prepayment shall be required under this Section 2.09(c)(i) with
respect to (A) any Asset Sale permitted by Section 6.06(a), (c),
(d), (e) and (f), (B) the disposition of property which constitutes
a Casualty Event or (C) Asset Sales for fair market value resulting in less than $3.0
million in Net Cash Proceeds in any fiscal year; provided that clause (C) shall not apply in
the case of any Asset Sale described in clause (b) of the definition thereof; and
(ii) so long as no Default shall then exist or would arise therefrom, such proceeds
shall not be required to be so applied on such date to the extent that Borrowers shall have
delivered an Officers’ Certificate to the Administrative Agent on or prior to such date
stating that such Net Cash Proceeds are expected to be reinvested in fixed or capital assets
within 360 days following the date of such Asset Sale (which Officers’ Certificate shall set
forth the estimates of the proceeds to be so expended); provided that if all or any portion
of such Net Cash Proceeds is not so reinvested within such 360-day period, such unused
portion ( the “Non-Reinvested Asset Sale Proceeds”) shall be applied on the last day of such
period as a mandatory prepayment as provided in this Section 2.09(c); provided,
further, that if the property subject to such Asset Sale constituted Collateral, then all
property purchased with the Net Cash Proceeds thereof pursuant to this subsection shall be
made subject to the Lien of the applicable Security Documents in favor of the Collateral Agent, for its benefit and for the benefit of the
other Secured Parties in accordance with Sections 5.11 and 5.12.
(d) Concurrently with the making of any Dividend pursuant to Section 6.08(d) and any
Subordinated Indebtedness Payment pursuant to Section 6.11(a), in each case from any Cumulative
Credit prior to the date that the first Excess Cash Flow Prepayment is required to be made pursuant
to Section 2.09(b), Borrowers shall make prepayments of the outstanding Loans in accordance with
Section 2.09(h) in an amount equal to the amount of such Dividend or Subordinated Indebtedness
Payment, as the case may be.
38
(e) [Intentionally Omitted].
(f) Casualty Events. Not later than three (3) Business Day following the receipt of
any Net Cash Proceeds from a Casualty Event by Holdings or any of its Subsidiaries in excess of
$3.0 million, Borrowers shall do one or more of the following with the full amount of such Net Cash
Proceeds: (i) make prepayments of the outstanding Loans or (ii) so long as no Default shall have
occurred and be continuing, deliver an Officers’ Certificate to the Administrative Agent stating
that such proceeds are expected to be used to repair, replace or restore the property in respect of
which such Net Cash Proceeds were paid or to reinvest in other fixed or capital assets no later
than 360 days following the date of receipt thereof. To the extent any property subject to a
Casualty Event generating Net Cash Proceeds in excess of $250,000 constituted Collateral under the
Security Documents, the property so purchased with such Net Cash Proceeds shall be made subject to
the Lien of the applicable Security Documents in accordance with Sections 5.11 and
5.12. Any portion of the Net Cash Proceeds that is not used to so repair, replace or
restore the property in respect of which such Net Cash Proceeds were paid within 360 days after
receipt of such Net Cash Proceeds (the “Non-Reinvested Casualty Proceeds”) shall be applied as a
repayment of the outstanding Loans pursuant to Section 2.09(h).
(g) [Intentionally Omitted].
(h) Application of Prepayments.
(i) Prepayment of the Loans: (x) from all Net Cash Proceeds pursuant to Section
2.09(c) and (f), to be applied to prepay Loans of any Class shall be applied to
reduce on a pro rata basis (based on the amount of such amortization payments) the remaining
scheduled amortization payments in respect of the Loans of such Class; and (y) any optional
prepayments of the Loans pursuant to Section 2.09(a) shall be applied to the
remaining installments thereof as directed by the Borrowers.
(ii) Prepayment of the Loans from Excess Cash Flow pursuant to Section 2.09(b) and in
connection with the making of certain Dividends and Subordinated Indebtedness Payments
pursuant to Section 2.09(d), to be applied to prepay Loans of any Class shall be applied (A)
to reduce in order of maturity the next four unpaid quarterly scheduled amortization
payments under Section 2.04(b) above in respect of the Loans of such Class, and (B)
thereafter, to reduce on a pro rata basis (based on the amount of such amortization
payments) the remaining scheduled amortization payments in respect of the Loans of such
Class.
(iii) Prior to any repayment of any Loan or Loans hereunder, the Borrowers shall select
the Borrowing or Borrowings constituting such Loan or Loans to be repaid or reduced and
shall notify the Administrative Agent by telephone (confirmed by telecopy) of such selection (i) in the case of an ABR Borrowing, not later than 12:00 p.m., Local Time, one
Business Day before the scheduled date of such repayment and (ii) in the case of a
Eurocurrency Borrowing, not later than 12:00 p.m., Local Time, three Business Days before
the scheduled date of such repayment or reduction. Any mandatory prepayment of Loans shall
be applied so that the aggregate amount of such prepayment is allocated among the Term Loans
and Incremental Loans, which are term loans, of each Class, if any, pro rata based on the
aggregate principal amount of outstanding Loans of each such Class. In the case of
prepayments under Section 2.09(a), the Borrowers may in their sole discretion select
the Borrowing or Borrowings to be prepaid. Each repayment of a Borrowing within any Class
shall be applied ratably to the Loans in such Class included in the repaid Borrowing.
Notwithstanding anything to the contrary in the immediately
39
preceding sentence, the Borrowers shall select the Borrowing or Borrowings to be repaid and
shall notify the Administrative Agent by telephone (confirmed by telecopy) of such selection
not later than 12:00 p.m., Local Time, on the scheduled date of such repayment. Repayments
of Borrowings shall be accompanied by accrued interest on the amount repaid.
SECTION 2.10 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be final and
conclusive absent manifest error) that adequate and reasonable means do not exist for
ascertaining the Adjusted LIBOR Rate for such Interest Period; or
(b) the Administrative Agent is advised in writing by the Required Lenders that the
Adjusted LIBOR Rate for such Interest Period will not adequately and fairly reflect the cost
to such Lenders of making or maintaining their Loans included in such Borrowing for such
Interest Period;
then the Administrative Agent shall give written notice thereof to Borrowers and the Lenders as
promptly as practicable thereafter and, until the Administrative Agent notifies Borrowers and the
Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing
as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a
Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.
SECTION 2.11 Yield Protection.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan,
insurance charge or similar requirement against assets of, deposits with or for the account
of, or credit extended or participated in, by any Lender (except any reserve requirement
reflected in the Adjusted LIBOR Rate);
(ii) subject any Lender to any tax of any kind whatsoever with respect to this
Agreement, or any Eurodollar Loan made by it, or change the basis of taxation of payments to
such Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by
Section 2.14 and the imposition of, or any change in the rate of, any Excluded Tax
payable by such Lender); or
(iii) impose on any Lender or the London interbank market any other condition, cost or
expense affecting this Agreement or Eurodollar Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan), or to
reduce the amount of any sum received or receivable by such Lender (whether of principal, interest
or any other amount), then, upon request of such Lender, Borrowers will pay to such Lender, such
additional amount or amounts as will compensate such Lender for such additional costs incurred or
reduction suffered.
(b) Capital Requirements. If any Lender determines (in good faith, but in its sole
absolute discretion) that any Change in Law affecting such Lender or any lending office of such
Lender
40
or such Lender’s holding company, if any, regarding capital requirements has or would have
the effect of reducing the rate of return on such Lender’s capital or on the capital of such
Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such
Lender or the Loans made by such Lender, to a level below that which such Lender or such Lender’s
holding company could have achieved but for such Change in Law (taking into consideration such
Lender’s policies and the policies of such Lender’s holding company with respect to capital
adequacy), then from time to time Borrowers will pay to such Lender, as the case may be, such
additional amount or amounts as will compensate such Lender or such Lender’s holding company for
any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Lender setting forth the
amount or amounts necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section 2.11 and delivered to Borrowers shall
be conclusive absent manifest error. Borrowers shall pay such Lender, as the case may be, the
amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender to demand
compensation pursuant to this Section 2.11 shall not constitute a waiver of such Lender’s
right to demand such compensation; provided that Borrowers shall not be required to compensate a
Lender pursuant to this Section for any increased costs incurred or reductions suffered more than
six months prior to the date that such Lender, as the case may be, notifies Borrowers of the Change
in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim
compensation therefor (except that, if the Change in Law giving rise to such increased costs or
reductions is retroactive, then the six-month period referred to above shall be extended to include
the period of retroactive effect thereof) .
SECTION 2.12 Breakage Payments. In the event of (a) the payment or prepayment, whether optional or mandatory, of any
principal of any Eurodollar Loan earlier than the last day of an Interest Period applicable thereto
(including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan earlier
than the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Loan on the date specified in any notice delivered pursuant hereto or (d)
the assignment of any Eurodollar Loan earlier than the last day of the Interest Period applicable
thereto as a result of a request by any Borrower pursuant to Section 2.15(b), then, in any
such event, Borrowers shall compensate each Lender for the loss, cost and expense attributable to
such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be
deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount
of interest which would have accrued on the principal amount of such Loan had such event not
occurred, at the Adjusted LIBOR Rate that would have been applicable to such Loan, for the period
from the date of such event to the last day of the then current Interest Period therefor (or, in
the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for
such Loan), over (ii) the amount of interest which would accrue on such principal amount for such
period at the interest rate which such Lender would bid were it to bid, at the commencement of such
period, for dollar deposits of a comparable amount and period from other banks in the Eurodollar
market. A certificate of any Lender setting forth in reasonable detail any amount or amounts that
such Lender is entitled to receive pursuant to this Section 2.12 shall be delivered to
Borrowers (with a copy to the Administrative Agent) and shall be conclusive and binding absent
manifest error. Borrowers shall pay such Lender the amount shown as due on any such certificate
within 5 days after receipt thereof.
41
SECTION 2.13 Payments Generally; Pro Rata Treatment; Sharing of Setoffs.
(a) Payments Generally. Borrowers shall make each payment required to be made by them
hereunder or under any other Loan Document (whether of principal, interest, fees or Reimbursement
Obligations, or of amounts payable under Section 2.11, 2.12, 2.14 or
10.03, or otherwise) on or before the time expressly required hereunder or under such other
Loan Document for such payment (or, if no such time is expressly required, prior to 2:00 p.m., New
York City time), on the date when due, in immediately available funds, without setoff, deduction or
counterclaim. Any amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding Business Day for
purposes of calculating interest thereon. All such payments shall be made to the Administrative
Agent at its offices at 301 West 11th Street, Wilmington, DE 19801, except those
payments pursuant to Sections 2.11, 2.12, 2.14 and 10.03 shall be
made directly to the persons entitled thereto and payments pursuant to other Loan Documents shall
be made to the persons specified therein. The Administrative Agent shall distribute any such
payments received by it for the account of any other person to the appropriate recipient promptly
following receipt thereof. If any payment under any Loan Document shall be due on a day that is
not a Business Day, unless specified otherwise, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall
be payable for the period of such extension. All payments under each Loan Document shall be made
in dollars, except as expressly specified otherwise.
(b) Insufficient Funds. If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal, interest and fees then
due hereunder, such funds shall be applied (i) first, toward payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties; and (ii) second, toward payment of principal then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of principal then due to
such parties.
(c) Sharing of Set-Off. If any Lender shall, by exercising any right of setoff or
counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its
Loans or other Obligations resulting in such Lender’s receiving payment of a proportion of the
aggregate amount of its Loans and accrued interest thereon or other Obligations greater than its
pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall
(a) notify the Administrative Agent of such fact; and (b) purchase (for cash at face value)
participations in the Loans and such other obligations of the other Lenders, or make such other
adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on
their respective Loans and other amounts owing them, provided that:
(i) if any such participations are purchased and all or any portion of the payment
giving rise thereto is recovered, such participations shall be rescinded and the purchase
price restored to the extent of such recovery, without interest; and
(ii) the provisions of this paragraph shall not be construed to apply to (x) any
payment made by any Borrower pursuant to and in accordance with the express terms of this
Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or
sale of a participation in any of its Loans to any assignee or participant.
Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under
applicable Requirements of Law, that any Lender acquiring a participation pursuant to the foregoing
42
arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of such Loan Party in the
amount of such participation. If under applicable bankruptcy, insolvency or any similar law any
Secured Party receives a secured claim in lieu of a setoff or counterclaim to which this
Section 2.13(c) applies, such Secured Party shall to the extent practicable, exercise its
rights in respect of such secured claim in a manner consistent with the rights to which the Secured
Party is entitled under this Section 2.13(c) to share in the benefits of the recovery of
such secured claim.
(d) Borrowers Default. Unless the Administrative Agent shall have received notice
from any Borrower prior to the date on which any payment is due to the Administrative Agent for the
account of the Lenders hereunder that such Borrower will not make such payment, the Administrative
Agent may assume that such Borrower has made such payment on such date in accordance herewith and
may, in reliance upon such assumption, distribute to the Lenders, the amount due. In such event,
if such Borrower has not in fact made such payment, then each of the Lenders severally agrees to
repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with
interest thereon, for each day from and including the date such amount is distributed to it to but
excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation.
(e) Lender Default. If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.02(c), 2.13(d), 2.16(d), 2.17(d),
2.17(e) or 10.03(c), then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such
Sections until all such unsatisfied obligations are fully paid.
SECTION 2.14 Taxes.
(a) Payments Free of Taxes. Any and all payments by or on account of any obligation
of any Loan Party hereunder or under any other Loan Document shall be made free and clear of and
without reduction or withholding for any Indemnified Taxes or Other Taxes; provided that if such
Loan Party shall be required by applicable Requirements of Law to deduct any Indemnified Taxes
(including any Other Taxes) from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent or Lender, as the case may be,
receives an amount equal to the sum it would have received had no such deductions been made, (ii)
such Loan Party shall make such deductions and (iii) such Loan Party shall timely pay the full
amount deducted to the relevant Governmental Authority in accordance with applicable Requirements
of Law.
(b) Payment of Other Taxes by the Loan Parties. Without limiting the provisions of
paragraph (a) above, the Loan Parties shall timely pay any Other Taxes to the relevant Governmental
Authority in accordance with applicable Requirements of Law.
(c) Indemnification by the Loan Parties. The Loan Parties shall, jointly and
severally, indemnify the Administrative Agent and each Lender, within 10 days after demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes
or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid
by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and
reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified
Taxes or Other Taxes were correctly
43
or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Loan
Parties by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on
its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d) Evidence of Payments. As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by any Loan Party to a Governmental Authority, such Loan Party shall deliver
to the Administrative Agent the original or a certified copy of a receipt issued by such
Governmental Authority evidencing such payment, a copy of the return reporting such payment or
other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e) Status of Lenders. Any Lender that is entitled to an exemption from or reduction
of withholding tax under the law of the jurisdiction in which any Borrower is resident for tax
purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder
or under any other Loan Document shall, to the extent it may lawfully do so, deliver to such
Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable
Requirements of Law or reasonably requested by such Borrower or the Administrative Agent, such
properly completed and executed documentation prescribed by applicable Requirements of Law as will
permit such payments to be made without withholding or at a reduced rate of withholding. In
addition, any Lender, if requested by any Borrower or the Administrative Agent, shall deliver such
other documentation prescribed by applicable Requirements of Law or reasonably requested by such
Borrower or the Administrative Agent as will enable such Borrower or the Administrative Agent to
determine whether or not such Lender is subject to backup withholding or information reporting
requirements. Notwithstanding anything to the contrary in the above two sentences, in the case of
non U.S. withholding taxes the completion, execution and submission of non-U.S. forms shall not be
required if in the Lender’s reasonable judgment such completion, execution or submission would be
disadvantageous to such Lender in any material respect. Borrowers shall reimburse the Lender for
any cost or expense incurred by such Lender in connection with complying with this Section 2.14(e).
(f) For any period during which, upon a written request provided by the Borrowers to a Lender
reasonably in advance of the date compliance is due and describing the documentation requested by
the Borrowers, such Lender has failed to provide the Borrowers with the appropriate documentation
requested by Borrowers and required by Section 2.14(e), the Borrowers shall not be obligated to
pay, and such Lender shall not be entitled to secure additional amounts under this Section 2.14
with respect to Indemnified Taxes imposed by a Governmental Authority to the extent that such
additional amounts would not have arisen but for such failure of such Lender; provided that, no
Lender shall be required to provide documentation unless legally permitted to do so.
(g) Treatment of Certain Refunds. If the Administrative Agent or a Lender determines,
in its reasonable discretion, that it has received a refund of any Indemnified Taxes or Other Taxes
as to which it has been indemnified by any Borrower or with respect to which any Borrower has paid
additional amounts pursuant to this Section, it shall pay to such Borrower an amount equal to such
refund (but only to the extent of indemnity payments made, or additional amounts paid, by such
Borrower under this Section with respect to the Indemnified Taxes or Other Taxes giving rise to
such refund), net of all out-of-pocket expenses of the Administrative Agent or such Lender, as the
case may be, and without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund); provided that such Borrower, upon the request of the
Administrative Agent or such Lender, agrees to repay the amount paid over to such Borrower (plus
any penalties, interest or other charges imposed by the relevant
Governmental Authority) to the Administrative Agent or such Lender in
the event the
44
Administrative Agent or such Lender in the event the Administrative Agent or such Lender is
required to repay such refund to such Governmental Authority. This paragraph shall not be
construed to require the Administrative Agent or any Lender to make available its tax returns (or
any other information relating to its taxes that it deems confidential) to any Borrower or any
other person. Notwithstanding anything to the contrary, in no event will any Lender be required to
pay any amount to any Borrower the payment of which would place such Lender in a less favorable net
after-tax position than such Lender would have been in if the additional amounts giving rise to
such refund of any Indemnified Taxes or Other Taxes had never been paid.
SECTION 2.15 Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office. If any Lender requests compensation
under Section 2.11, or requires any Borrower to pay any additional amount to any Lender or
any Governmental Authority for the account of any Lender pursuant to Section 2.14, then
such Lender shall use reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to another of its
offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment
(i) would eliminate or reduce amounts payable pursuant to Section 2.11 or 2.14, as
the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. Each Borrower hereby agrees to
pay all reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment. A certificate setting forth such costs and expenses submitted by such
Lender to Borrowers shall be conclusive absent manifest error.
(b) Replacement of Lenders. If any Lender requests compensation under Section
2.12, or if any Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.14, or if any
Lender defaults in its obligation to fund Loans hereunder, or if any Borrower exercises its
replacement rights under Section 10.02(d), then such Borrower may, at its sole expense and
effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and
delegate, without recourse (in accordance with and subject to the restrictions contained in, and
consents required by, Section 10.04), all of its interests, rights and obligations under
this Agreement and the other Loan Documents to an assignee that shall assume such obligations
(which assignee may be another Lender, if a Lender accepts such assignment); provided that:
(i) such Borrower shall have paid to the Administrative Agent the processing and
recordation fee specified in Section 10.04(b);
(ii) such Lender shall have received payment of an amount equal to the outstanding
principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under
Section 2.12), from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or such Borrower (in the case of all other amounts);
(iii) in the case of any such assignment resulting from a claim for compensation under
Section 2.12 or payments required to be made pursuant to Section 2.14, such
assignment will result in a reduction in such compensation or payments thereafter; and
(iv) such assignment does not conflict with applicable Requirements of Law.
45
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling such Borrower to
require such assignment and delegation cease to apply.
SECTION 2.16 [Intentionally Omitted].
SECTION 2.17 [Intentionally Omitted].
SECTION 2.18 Increase in Commitments.
(a) Borrower Request. Borrower may by written notice to the Administrative Agent
elect to request the establishment of one or more new term loan or revolving loan commitments (the
"Incremental Loan Commitments”) by an amount not in excess of $23,250,000 in the aggregate less any
Indebtedness incurred pursuant to Section 6.01(k). Each such notice shall specify (i) the
date (each, an “Increase Effective Date”) on which Borrower proposes that the new Commitments shall
be effective, which shall be a date not less than 10 Business Days after the date on which such
notice is delivered to the Administrative Agent and (ii) the identity of each Eligible Assignee to
whom Borrower proposes any portion of such new Commitments be allocated and the amounts of such
allocations; provided that any existing Lender approached to provide all or a portion of the new
Commitments may elect or decline, in its sole discretion, to provide such new Commitment.
(b) Conditions. The new Commitments shall become effective, as of such Increase
Effective Date; provided that:
(i) each of the conditions set forth in Section 4.02 shall be satisfied;
(ii) no Default shall have occurred and be continuing or would result from the
borrowings to be made on the Increase Effective Date; and
(iii) Borrower shall deliver or cause to be delivered any legal opinions or other
documents reasonably requested by the Administrative Agent in connection with any such
transaction.
(c) Terms of New Loans and Commitments. The terms and provisions of Loans made
pursuant to the new Commitments shall be as follows:
(i) the maturity date of the new loans made pursuant to the new Commitments (each an
“Incremental Loan”) shall not be earlier than the Maturity Date and the weighted average
life to maturity of any Incremental Loans that are term loans shall be no shorter than the
weighted average life to maturity of the Term Loans;
(ii) the interest rate for the Incremental Loans shall be determined by Borrower and
the applicable new Lenders; provided that if the interest rate (which shall be deemed to
include all upfront or similar fees or original issue discount (with OID being equated to
interest rates in a manner reasonably determined by the Administrative Agent on an assumed
four-year life to maturity) and any other component of interest rate) in respect of any
Incremental Loans exceeds the interest rate with respect to the Term Loans and/or previously
incurred Incremental Loans, the interest rate with respect to the Term Loans and previously
incurred Incremental Loans shall be automatically increased on the date of incurrence of
such new
46
Incremental Loans so that it is equal to the interest rate with respect to the new Incremental Loans.
(iii) subject to clauses (i) and (ii) above, any Incremental Loans consisting of term
loans shall have the same terms as the Term Loans (other than as to pricing, maturity and
amortization); and
(iv) subject to clauses (i) and (ii) above, any Incremental Loan consisting of
revolving loans shall have the same terms as the Term Loans (other than as to pricing,
maturity, amortization and mechanical differences due to the revolving nature of such
loans); provided that any such revolving loans shall require no scheduled amortization or
mandatory commitment reductions prior to the Maturity Date.
The new Commitments shall be effected by a joinder agreement (the “Increase Joinder”) executed by
Borrower, the Administrative Agent and each Lender making such new Commitment, in form and
substance satisfactory to each of them. The Increase Joinder may, without the consent of any other
Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary
or appropriate, in the opinion of the Administrative Agent, to effect the provision of this
Section 2.18 (including, without limitation, amending and restating this Agreement or any
other Loan Document and mechanical changes to implement an Incremental Loan Commitment with respect
to revolving loans).
(d) Making of Incremental Loans. On any Increase Effective Date on which new
Commitments for Incremental Loans are effective or any day thereafter during the effectiveness of
such Commitment, in the case of revolving Incremental Loan Commitments, subject to the satisfaction
of the foregoing terms and conditions, if requested by the Borrowers, each Lender of such
Commitment shall make an Incremental Loan to the Borrowers in an amount up to the available amount
of its new Commitment.
(e) Equal and Ratable Benefit. The Loans and Commitments established pursuant to this
paragraph shall constitute Loans and Commitments under, and shall be entitled to all the benefits
afforded by, this Agreement and the other Loan Documents, and shall, without limiting the
foregoing, benefit equally and ratably from the Guarantees and security interests created by the
Security Documents. The Loan Parties shall take any actions reasonably required by the
Administrative Agent to ensure and/or demonstrate that the Lien and security interests granted by
the Security Documents continue to be perfected under the UCC or otherwise after giving effect to
the establishment of any such Class of Incremental Loans or any such new Commitments.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Loan Party represents and warrants to the Administrative Agent, the Collateral Agent and
each of the Lenders (with references to the Companies being references thereto after giving effect
to the Transactions unless otherwise expressly stated) that:
SECTION 3.01 Organization; Powers. Each Company (a) is duly organized and validly existing under the laws of the jurisdiction
of its organization, (b) has all requisite power, capacity and authority to carry on its business
as now conducted and to own and lease its property and (c) is qualified and in good standing (to
the extent such concept is applicable in the applicable jurisdiction) to do
47
business in every jurisdiction where such qualification is required, except in such jurisdictions where the failure
to so qualify or be in good standing, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect. There is no existing default under any
Organizational Document of any Company or any event which, with the giving of notice or passage of
time or both, would constitute a default by any party thereunder.
SECTION 3.02 Authorization; Enforceability. The Transactions to be entered into by each Loan Party are within such Loan Party’s powers
and have been duly authorized by all necessary action on the part of such Loan Party. This
Agreement has been duly executed and delivered by each Loan Party and constitutes, and each other
Loan Document to which any Loan Party is to be a party, when executed and delivered by such Loan
Party, will constitute, a legal, valid and binding obligation of such Loan Party, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors’ rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03 No Conflicts. Except as set forth on Schedule 3.03, the Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by, any Governmental
Authority, except (i) such as have been obtained or made and are in full force and effect, (ii)
filings necessary to perfect Liens created by the Loan Documents and (iii) consents, approvals,
registrations, filings, permits or actions the failure to obtain or perform which could not
reasonably be expected to result in a Material Adverse Effect, (b) will not violate the
Organizational Documents of any Company, (c) will not violate any Requirement of Law, (d) will not
violate or result in a default or require any consent or approval under any indenture, agreement or
other instrument binding upon any Company or its property, or give rise to a right thereunder to
require any payment to be made by any Company, except for violations, defaults or the creation of
such rights that could not reasonably be expected to result in a Material Adverse Effect and (e)
will not result in the creation or imposition of any Lien on any property of any Company, except
Liens created by the Loan Documents and Permitted Liens.
SECTION 3.04 Financial Statements; Projections.
(a) Historical Financial Statements. Borrowers have heretofore delivered to the
Lenders the consolidated balance sheets and related statements of income, stockholders’ equity and
cash flows of Holdings and its Subsidiaries (i) as of and for the fiscal years ended December 31,
2006 and 2007, audited by and accompanied by the unqualified opinion of Samil Pricewaterhouse
Coopers, independent public accountants, (ii) as of and for the fiscal year ended December 31, 2008
and (iii) as of and for the six-month period ended June 30, 2009 and for the comparable period of
the preceding fiscal year. Such financial statements and all financial statements delivered
pursuant to Sections 5.01(a) and (b) have been prepared in accordance with GAAP
(subject in the case of the interim statements to normal year-end adjustments and the absence of
footnotes) and present fairly and accurately the financial condition and results of operations and
cash flows of Borrowers as of the dates and for the periods to which they relate.
(b) No Liabilities. Except as set forth in the financial statements referred to in
Section 3.04(a), there are no liabilities of any Company of any kind, whether accrued,
contingent, absolute, determined, determinable or otherwise, which could reasonably be expected to
result in a Material Adverse Effect, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability, other than
liabilities under the Loan Documents. Since the Effective Date, there has been no event, change,
circumstance or occurrence that, individually or in the aggregate, has had or could reasonably be
expected to result in a Material Adverse Effect.
48
(c) [Intentionally Omitted].
(d) Forecasts. The forecasts of financial performance of Holdings and its
subsidiaries furnished to the Lenders have been prepared in good faith by Borrowers and based on
assumptions believed by Borrowers to be reasonable.
SECTION 3.05 Properties.
(a) Generally. Each Company has good title to, or valid leasehold interests in, all
its property material to its business, free and clear of all Liens except for, in the case of
Collateral, Permitted Collateral Liens and, in the case of all other material property, Permitted
Liens and minor irregularities or deficiencies in title that, individually or in the aggregate, do
not interfere with its ability to conduct its business as currently conducted or to utilize such
property for its intended purpose. The property of the Companies, taken as a whole, (i) is in good
operating order, condition and repair (ordinary wear and tear excepted) and (ii) constitutes all
the property which is required for the business and operations of the Companies as presently
conducted.
(b) Real Property. Schedule 3.05(b) hereto contains as of the Effective Date
a true and complete list of each interest in Real Property (i) owned by any Company as of the date
hereof and describes the type of interest therein held by such Company and whether such owned Real
Property is leased and if leased whether the underlying Lease contains any option to purchase all
or any portion of such Real Property or any interest therein or contains any right of first refusal
relating to any sale of such Real Property or any portion thereof or interest therein and (ii)
leased, subleased or otherwise occupied or utilized by any Company, as lessee, sublessee,
franchisee or licensee, as of the date hereof and describes the type of interest therein held by
such Company and, in each of the cases described in clauses (i) and (ii) of this Section
3.05(b), whether any Lease requires the consent of the landlord or tenant thereunder, or other
party thereto, to the Transactions.
(c) No Casualty Event. No Company has received any notice of, nor has any knowledge
of, the occurrence or pendency or contemplation of any Casualty Event affecting all or any material
portion of its property or any material portion of the Collateral.
(d) Collateral. Each Company owns or has rights to use all of the Collateral and all
rights with respect thereto used in, necessary for or material to each Company’s business as
currently conducted. The use by each Company of such Collateral and all such rights with respect
to the foregoing do not infringe on the rights of any person other than such infringement which
could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse
Effect. No claim has been made and remains outstanding that any Company’s use of any Collateral
does or may violate the rights of any third party that could, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.06 Intellectual Property.
(a) Ownership/No Claims. Each Loan Party owns, or is licensed to use, all
Intellectual Property, except for those the failure to own or license which, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse Effect. No claim has
been asserted and is pending by any person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does
any Loan Party know of any valid basis for any such claim which could reasonably be expected to
have a Material Adverse Effect. The use
49
of such Intellectual Property by each Loan Party does not infringe the rights of any person, except for such claims and infringements that, individually or
in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
(b) Registrations. Except pursuant to licenses and other user agreements entered into
by each Loan Party in the ordinary course of business, on and as of the date hereof (i) each Loan
Party owns and possesses the right to use, and has done nothing to authorize or enable any other
person to use, any of its Intellectual Property that is material to its business and (ii) all
registrations with respect to such Intellectual Property are valid and in full force and effect.
(c) No Violations or Proceedings. To each Loan Party’s knowledge, on and as of the
date hereof, there is no material violation by others of any right of such Loan Party with respect
to any of its Intellectual Property pledged by it under the name of such Loan Party except as may
be set forth on Schedule 3.06(c).
SECTION 3.07 Equity Interests and Subsidiaries.
(a) Equity Interests. Schedule 3.07(a) sets forth a list as of the Effective
Date of (i) all the Subsidiaries of Holdings and their jurisdictions of organization and (ii) the
number of each class of its Equity Interests authorized, and the number thereof outstanding, and
the number of shares covered by all outstanding options, warrants, rights of conversion or purchase
and similar rights. All Equity Interests of each Company are duly and validly issued and are fully
paid and non-assessable, and, other than Holdings, are owned by Holdings, directly or indirectly
through Wholly Owned Subsidiaries. All Equity Interests of Borrowers are owned directly or
indirectly by Holdings through Wholly Owned Subsidiaries. Each Loan Party is the record and
beneficial owner of, and has good and marketable title to, the Equity Interests pledged by it under
the Security Documents, free of any and all Liens, rights or claims of other persons, except the
security interest created by the Security Documents, and there are no outstanding warrants, options
or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the
issuance or sale of, any such Equity Interests.
(b) No Consent of Third Parties Required. No consent of any person including any
other general or limited partner, any other member of a limited liability company, any other
shareholder or any other trust beneficiary is necessary or reasonably desirable (from the
perspective of a secured party) in connection with the creation, perfection or first priority
status of the security interest of the Collateral Agent in any Equity Interests pledged to the
Collateral Agent for the benefit of the Secured Parties under the Security Agreement or the
exercise by the Collateral Agent of the voting or other rights provided for in the Security
Agreement or the exercise of remedies in respect thereof.
(c) Organizational Chart. An accurate organizational chart, showing the ownership
structure of Holdings, Borrowers and each Subsidiary on the Effective Date, and after giving effect
to the Transactions, is set forth on Schedule 3.07(c).
SECTION 3.08 Litigation; Compliance with Laws. There are no actions, suits, investigations or proceedings at law or in equity by or before
any Governmental Authority now pending or, to the knowledge of any Company, threatened against or
affecting any Company or any business, property or rights of any Company (i) that involve any Loan
Document or any of the Transactions or (ii) as to which there is a reasonable possibility of an
adverse determination and that, if adversely determined, could reasonably be expected, individually
or in the aggregate, to result in a Material Adverse Effect. Except for
50
matters covered by Section 3.18, no Company or any of its property is in violation of, nor will the continued
operation of its property as currently conducted violate, any Requirements of Law (including any
zoning or building ordinance, code or approval or any building permits) or any restrictions of
record or agreements affecting any Company’s Real Property or is in default with respect to any
Requirement of Law, where such violation or default, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.09 Agreements. No Company is a party to any agreement or instrument or subject to any corporate or other
constitutional restriction that has resulted or could reasonably be expected to result in a
Material Adverse Effect. No Company is in default in any manner under any provision of any
indenture or other agreement or instrument evidencing Indebtedness, or any other agreement or
instrument to which it is a party or by which it or any of its property is or may be bound, where
such default could reasonably be expected to result in a Material Adverse Effect, and no condition
exists which, with the giving of notice or the lapse of time or both, would constitute such a
default.
SECTION 3.10 Federal Reserve Regulations. No Company is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of buying or carrying Margin Stock. No part of the proceeds of
any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, for any purpose that entails a violation of, or that is inconsistent with, the
provisions of the regulations of the Board, including Regulation T, U or X. The pledge of the
Securities Collateral pursuant to the Security Agreement does not violate such regulations.
SECTION 3.11 Investment Company Act; Public Utility Holding Company Act. No Company is (a) an “investment company” or a company “controlled” by an “investment
company,” as defined in, or subject to regulation under, the Investment Company Act of 1940, as
amended, or (b) a “holding company,” an “affiliate” of a “holding company” or a “subsidiary
company” of a “holding company,” as defined in, or subject to regulation under, the Public Utility
Holding Company Act of 1935, as amended.
SECTION 3.12 Use of Proceeds. Borrowers shall use the proceeds of the Loans for general corporate purposes.
SECTION 3.13 Taxes. Each Company has (a) timely filed or caused to be timely filed all federal Tax Returns and
all material state, local and foreign Tax Returns or materials required to have been filed by it
and all such Tax Returns are true and correct in all material respects and (b) duly and timely
paid, collected or remitted or caused to be duly and timely paid, collected or remitted all Taxes
(whether or not shown on any Tax Return) due and payable, collectible or remittable by it and all
assessments received by it, except Taxes (i) that are being contested in good faith by appropriate
proceedings and for which such Company has set aside on its books adequate reserves in accordance
with GAAP (and any locally applicable generally accepted accounting principles) and (ii) which
could not, individually or in the aggregate, have a Material Adverse Effect. Each Company has made
adequate provision in accordance with GAAP for all Taxes not yet due and payable. Each Company is
unaware of any proposed or pending tax assessments, deficiencies or audits that could be reasonably
expected to, individually or in the aggregate, result in a Material Adverse Effect. No Company has
ever been a party to any understanding or arrangement constituting a “tax shelter” within the
meaning of Section 6111(c), Section 6111(d) or Section 6662(d)(2)(C)(iii) of the Code, except as
could not be reasonably expected to, individually or in the aggregate, result in a Material Adverse
Effect.
51
SECTION 3.14 No Material Misstatements. No information, report, financial statement, certificate, Borrowing Request, exhibit or
schedule furnished by or on behalf of any Company to the Administrative Agent or any Lender in
connection with the negotiation of any Loan Document or included therein or delivered pursuant
thereto, taken as a whole, contained or contains any material misstatement of fact or omitted or
omits to state any material fact necessary to make the statements therein, in the light of the
circumstances under which they were or are made, not misleading as of the date such information is
dated or certified; provided that to the extent any such information, report, financial statement,
exhibit or schedule was based upon or constitutes a forecast or projection, each Company represents
only that it acted in good faith and utilized reasonable assumptions and due care in the
preparation of such information, report, financial statement, exhibit or schedule.
SECTION 3.15 Labor Matters. As of the Effective Date, there are no strikes, lockouts or slowdowns against any Company
pending or, to the knowledge of any Company, threatened. The hours worked by and payments made to
employees of any Company subject thereto have not been in violation of the Fair Labor Standards Act
of 1938, as amended, or any other applicable federal, state, local or foreign law dealing with such matters in any manner which could reasonably be expected to result in a Material Adverse
Effect. All payments due from any Company, or for which any claim may be made against any Company,
on account of wages and employee health and welfare insurance and other benefits, have been paid or
accrued as a liability on the books of such Company except where the failure to do so could not
reasonably be expected to result in a Material Adverse Effect. The consummation of the
Transactions will not give rise to any right of termination or right of renegotiation on the part
of any union under any collective bargaining agreement to which any Company is bound.
SECTION 3.16 Solvency. Immediately after the consummation of the Transactions to occur on the Effective Date and
immediately following the making of each Loan and after giving effect to the application of the
proceeds of each Loan, (a) the fair value of the properties of each Loan Party (individually and on
a consolidated basis with its Subsidiaries) will exceed its debts and liabilities, subordinated,
contingent or otherwise; (b) the present fair saleable value of the property of each Loan Party
(individually and on a consolidated basis with its Subsidiaries) will be greater than the amount
that will be required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities become absolute and
matured; (c) each Loan Party (individually and on a consolidated basis with its Subsidiaries) will
be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; (d) each Loan Party (individually and on a consolidated
basis with its Subsidiaries) will not have unreasonably small capital with which to conduct its
business in which it is engaged as such business is now conducted and is proposed to be conducted
following the Effective Date and (e) with respect to the UK Sales Subsidiary only, it is not
“unable to pay its debts”; provided, that in this context, “unable to pay its debts” means that
there are no grounds on which the UK Sales Subsidiary could be deemed unable to pay its debts (as
defined in Section 123(1) of the United Kingdom Insolvency Act 1986) or on which a court could be
satisfied that the value of its assets is less than the amount of its liabilities, taking into
account its contingent and prospective liabilities (as such term would be construed for the
purposes of Section 123(2) of the United Kingdom Insolvency Act 1986).
SECTION 3.17 Employee Benefit Plans. Each Company which is subject to ERISA and its ERISA Affiliates is in compliance in all
material respects with the applicable provisions of ERISA and the Code and the regulations and
published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to
occur that, when taken together with all other such ERISA Events, could reasonably be expected to
result in material liability of any Company which is subject to ERISA or any of its ERISA
Affiliates or the imposition of a Lien on any of the property of any Company which is
52
subject to ERISA. The present value of all accumulated benefit obligations of all underfunded Plans (based on
the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not,
as of the date of the most recent financial statements reflecting such amounts, exceed by more than
$1,000,000 the fair market value of the property of all such underfunded Plans. Using actuarial
assumptions and computation methods consistent with subpart I of subtitle E of Title IV of ERISA,
the aggregate liabilities of each Company which is subject to ERISA or its ERISA Affiliates to all
Multiemployer Plans in the event of a complete withdrawal therefrom, as of the close of the most
recent fiscal year of each such Multiemployer Plan, could not reasonably be expected to result in a
Material Adverse Effect.
To the extent applicable, each Foreign Plan has been maintained in compliance in all material
respects with its terms and with the requirements of any and all applicable Requirements of Law and
has been maintained, where required, in good standing with applicable regulatory authorities. No
Company has incurred any material obligation in connection with the termination of or
withdrawal from any Foreign Plan. The present value of the accrued benefit liabilities (whether or
not vested) under each Foreign Plan which is required to be funded under applicable law, determined
as of the end of the most recently ended fiscal year of the respective Company on the basis of
actuarial assumptions, each of which is reasonable, did not exceed the current value of the
property of such Foreign Plan by an amount in excess of $1,000,000, and for each Foreign Plan which
is not funded, the obligations of such Foreign Plan are properly accrued.
SECTION 3.18 Environmental Matters.
(a) Except as, individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect:
(i) The Companies and their businesses, operations and Real Property are and have
always been in compliance with, and the Companies have no liability under, any applicable
Environmental Law;
(ii) The Companies have obtained all Environmental Permits required for the conduct of
their businesses and operations, and the ownership, operation and use of their property,
under Environmental Law, all such Environmental Permits are valid and in good standing, the
Companies and their businesses are in compliance with all, and have not violated any,
Environmental Permits and, under the currently effective business plan of the Companies, no
expenditures or operational adjustments will be required in order to renew or modify such
Environmental Permits during the next ten years;
(iii) There has been no Release or threatened Release of Hazardous Material on, at,
under or from any Real Property or facility presently or formerly owned, leased or operated
by the Companies or their predecessors in interest that could result in liability by the
Companies under Environmental Law;
(iv) There is no Environmental Claim pending or, to the knowledge of the Companies,
threatened against the Companies, or relating to the Real Property currently or formerly
owned, leased or operated by the Companies or relating to the operations of the Companies or
their predecessors in interest (including, without limitation, the transportation, treatment
or disposal of any Hazardous Material at any location), and there are no actions,
activities, circumstances, conditions, events or incidents (including, without limitation,
any
53
written request for information under CERCLA or any similar Environmental Law) that could form the basis of such an Environmental Claim; and
(v) No person with an indemnity or contribution obligation to the Companies relating to
compliance with or liability under Environmental Law is in default with respect to such
obligation.
(b) Except as, individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect:
(i) No Company is obligated to perform any action or otherwise incur any expense under
Environmental Law pursuant to any order, decree, judgment or agreement by which it is bound
or has assumed by contract, agreement or operation of law, and no Company is conducting or financing any Response pursuant to any Environmental Law with respect to
any Real Property or any other location;
(ii) No Real Property or facility owned, operated or leased by the Companies and, to
the knowledge of the Companies, no Real Property or facility formerly owned, operated or
leased by the Companies or any of their predecessors in interest is (i) listed or proposed
for listing on the National Priorities List promulgated pursuant to CERCLA or (ii) listed on
the Comprehensive Environmental Response, Compensation and Liability Information System
promulgated pursuant to CERCLA or (iii) included on any similar list maintained by any
Governmental Authority including any such list relating to petroleum;
(iii) No Lien has been recorded or, to the knowledge of any Company, threatened under
any Environmental Law with respect to any Real Property or property of the Companies;
(iv) The execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not require any notification, registration,
filing, reporting, disclosure, investigation, remediation or cleanup pursuant to any
Governmental Real Property Disclosure Requirements or any other applicable Environmental
Law; and
(v) The Companies have made available to the Lenders all material records and files in
the possession, custody or control of, or otherwise reasonably available to, the Companies
concerning compliance with or liability under Environmental Law, including those concerning
the actual or suspected existence of Hazardous Material at Real Property or facilities
currently or formerly owned, operated, leased or used by the Companies.
SECTION 3.19 Insurance. Except as could not reasonably be expected to result in a Material Adverse Effect, all
insurance maintained by the Companies is in full force and effect, all premiums have been duly
paid, no Company has received notice of violation or cancellation thereof, the Premises, and the
use, occupancy and operation thereof, comply in all material respects with all Insurance
Requirements, and there exists no default under any Insurance Requirement. Each Company has
insurance in such amounts and covering such risks and liabilities as are customary for companies of
a similar size engaged in similar businesses in similar locations.
54
SECTION 3.20 Security Documents.
(a) Security Agreement. The Security Agreement is effective to create in favor of the
Collateral Agent for the benefit of the Secured Parties, legal, valid and enforceable Liens on, and
security interests in, the Security Agreement Collateral and, when (i) financing statements and
other filings in appropriate form are filed in the offices specified on Schedule 3.20 and
(ii) upon the taking of possession or control by the Collateral Agent of the Security Agreement
Collateral with respect to which a security interest may be perfected only by possession or control
(which possession or control shall be given to the Collateral Agent to the extent possession or
control by the Collateral Agent is required by each Security Agreement), the Liens created by the
Security Agreement shall constitute fully perfected Liens on, and security interests in, all right,
title and interest of the grantors thereunder in the Security Agreement Collateral (other than such
security Agreement Collateral in which a security interest cannot be perfected under the UCC as in effect at the relevant time in the relevant jurisdiction), in
each case subject to no Liens other than Permitted Collateral Liens.
(b) Copyright Office Filing. When the Security Agreement or a short form thereof is
filed in the United States Copyright Office, the Liens created by such Security Agreement shall
constitute fully perfected Liens on, and security interests in, all right, title and interest of
the grantors thereunder in the Registered Copyrights and Registered Copyright Licenses (each as
defined in such Security Agreement), in each case subject to no Liens other than Permitted
Collateral Liens.
(c) Mortgages. Each Mortgage is effective to create, in favor of the Collateral
Agent, for its benefit and the benefit of the Secured Parties, or with respect to each Mortgage
executed by Korean Opco, is effective to create in favor of the Collateral Trustee, legal, valid
and enforceable first priority Liens on, and security interests in, all of the Loan Parties’ right,
title and interest in and to the Mortgaged Properties thereunder and the proceeds thereof, subject
only to Permitted Collateral Liens or other Liens acceptable to the Collateral Agent, and when the
Mortgages are filed in the appropriate offices for the recording thereof, the Mortgages shall
constitute fully perfected Liens on, and security interests in, all right, title and interest of
the Loan Parties in the Mortgaged Properties and the proceeds thereof, in each case prior and
superior in right to any other person, other than Liens permitted by such Mortgage.
(d) Valid Liens. Each Security Document delivered on or prior to the Effective Date
is, and, when delivered pursuant to Sections 5.11, 5.12 or 5.13 or any
other requirement of this Agreement or any Loan Document, each other Security Document will upon
execution and delivery thereof be, effective to create in favor of the Collateral Agent, for the
benefit of the Secured Parties, or the Collateral Trustee, as applicable, legal, valid and
enforceable Liens on, and security interests in, all of the Loan Parties’ right, title and interest
in and to the Collateral thereunder, and when all appropriate filings or recordings are made in the
appropriate offices as may be required under applicable law, or other notices given as may be
required pursuant to applicable law, such Security Document will constitute fully perfected, first
ranking Liens on, and security interests in, all right, title and interest of the Loan Parties in
such Collateral, in each case subject to no Liens other than the applicable Permitted Collateral
Liens.
SECTION 3.21 Anti-Terrorism Law.
(a) No Loan Party and, to the knowledge of the Loan Parties, none of its Affiliates is in
violation of any Requirement of Law related to terrorism financing or money laundering
(“Anti-Terrorism Laws”) including the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act (“USA PATRIOT Act”) of 2001 (Title III of
Pub. L.
55
107-56), The Currency and Foreign Transactions Reporting Act (also known as the “Bank
Secrecy Act”, 31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§ 1818(s), 1820(b) and 1951-1959), the Trading
With the Enemy Act (50 U.S.C. § 1 et seq., as amended) and Executive Order 13224 (effective
September 24, 2001) (“Executive Order”).
(b) No Loan Party and to the knowledge of the Loan Parties, no Affiliate or broker or other
agent of any Loan Party acting or benefiting in any capacity in connection with the Loans is any of
the following:
(i) a person that is listed in the annex to, or is otherwise subject to the provisions
of, the Executive Order;
(ii) a person owned or controlled by, or acting for or on behalf of, any person that is
listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;
(iii) a person with which any Lender is prohibited from dealing or otherwise engaging
in any transaction by any Anti-Terrorism Law;
(iv) a person that commits, threatens or conspires to commit or supports “terrorism” as
defined in the Executive Order; or
(v) a person that is named as a “specially designated national and blocked person” on
the most current list published by the U.S. Treasury Department Office of Foreign Assets
Control (“OFAC”) at its official website or any replacement website or other replacement
official publication of such list.
(c) No Loan Party and, to the knowledge of the Loan Parties, no broker or other agent of any
Loan Party acting in any capacity in connection with the Loans (i) conducts any business or engages
in making or receiving any contribution of funds, goods or services to or for the benefit of any
person described in paragraph (b) above, (ii) deals in, or otherwise engages in any transaction
relating to, any property or interests in property blocked pursuant to the Executive Order, or
(iii) engages in or conspires to engage in any transaction that evades or avoids, or has the
purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any
Anti-Terrorism Law.
SECTION 3.22 [Intentionally Omitted].
SECTION 3.23 UK Financial Assistance. Neither the execution, delivery or performance of any of the Loan Documents nor the
incurrence of any of the Obligations by any Loan Party constitutes or will constitute unlawful
financial assistance for the purposes of sections 151 to 154 (inclusive) of the United Kingdom
Companies Act 1985 (as re-enacted or amended from time to time).
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.01 Conditions to Effective Date. Subject to Section 5.13, the amendment and restatement of the Pre-Petition Credit
Agreement set forth herein shall be subject to the prior or concurrent satisfaction of each of the
conditions precedent set forth in this Section 4.01.
56
(a) Loan Documents. All legal matters incident to this Agreement, the Credit
Extensions hereunder and the other Loan Documents shall be satisfactory to the Lenders and to the
Administrative Agent and there shall have been delivered to the Administrative Agent an executed
counterpart of each of the Loan Documents.
(b) Corporate Documents. The Administrative Agent shall have received:
(i) a certificate of the secretary or assistant secretary (or other authorized officer
or member acceptable to the Administrative Agent) of each Loan Party dated the Effective
Date, certifying (A) that attached thereto is a true and complete copy of each
Organizational Document of such Loan Party certified (to the extent applicable) as of a
recent date by the Secretary of State of the state of its organization (or other applicable
Governmental Authority); (B) that attached thereto is a true and complete copy of
resolutions duly adopted by the Board of Directors of such Loan Party authorizing the
execution, delivery and performance of the Loan Documents to which such person is a party
and, in the case of Borrowers, the borrowings hereunder, and that such resolutions have not
been modified, rescinded or amended and are in full force and effect; and (C) as to the
incumbency and specimen signature of each officer executing any Loan Document or any other
document delivered in connection herewith on behalf of such Loan Party (together with a
certificate of another officer as to the incumbency and specimen signature of the secretary
or assistant secretary executing the certificate in this clause (i));
(ii) a certificate as to the good standing of each Loan Party (in so-called “long-form”
if available) as of a recent date, from such Secretary of State (or other applicable
Governmental Authority); and
(iii) such other documents as the Lenders or the Administrative Agent may reasonably
request.
(c) Officers’ Certificate. The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the chief executive officer or the chief
financial officer of Borrowers, confirming compliance with the conditions precedent set forth in
this Section 4.01 and Sections 4.02(b), (c) and (d).
(d) Financings and Other Transactions, Etc.
(i) The Transactions shall have been consummated or shall be consummated simultaneously
on the Effective Date, in each case in all material respects in accordance with the terms
hereof and the terms of the Transaction Documents, without the waiver or amendment of any
such terms not approved by the Lenders other than any waiver or amendment thereof that is
not materially adverse to the interests of the Lenders.
(ii) The Lenders shall be satisfied with the capitalization, the terms and conditions
of any equity arrangements and the corporate or other organizational structure of the
Companies.
(iii) The Administrative Agent shall have received evidence in form and substance
reasonably satisfactory to the Administrative Agent that all debt set forth on Schedule
4.01(d) has been extinguished or cancelled; and the Administrative Agent shall have
received from any person holding any Lien securing any such debt, such UCC termination
statements,
57
mortgage releases, releases of assignments of leases and rents, releases of security interests in Intellectual Property and other instruments, in each case, in any
jurisdiction, in proper form for recording, as the Administrative Agent shall have
reasonably requested to release and terminate of record the Liens securing such debt.
(e) Financial Statements; Projections. The Lenders shall have received and shall be
satisfied with the form and substance of the financial statements described in Section 3.04
and with the forecasts of the financial performance of Holdings, Borrowers and their respective
Subsidiaries.
(f) Indebtedness and Minority Interests. After giving effect to the Transactions and
the other transactions contemplated hereby, no Company shall have outstanding any Indebtedness or
Preferred Stock other than (i) the Loans and Credit Extensions hereunder; (ii) Indebtedness
permitted pursuant to Section 6.01; and (iii) Indebtedness owed to any Borrower or any
Guarantor.
(g) Opinions of Counsel. The Administrative Agent shall have received, on behalf of
itself, the Collateral Agent, the Collateral Trustee and the Lenders a favorable written opinion of
(i) DLA Piper, special counsel for the Loan Parties, in form and substance satisfactory to the
Lenders, and (ii) each local and foreign counsel listed on Schedule 4.01(g), in form and
substance satisfactory to the Lenders, in each case (A) dated the Effective Date; (B) addressed to
Administrative Agent, the Collateral Agent, the Collateral Trustee and the Lenders; and (C)
covering such other matters relating to the Loan Documents and the Transactions as the Lenders
shall reasonably request.
(h) Solvency Certificate. The Lenders shall have received a solvency certificate in
the form of Exhibit I, dated the Effective Date and signed by the chief financial officer
of Borrowers.
(i) Requirements of Law. The Lenders shall be satisfied that Holdings, its
Subsidiaries and the Transactions shall be in full compliance with all material Requirements of
Law, including Regulations T, U and X of the Board, and shall have received satisfactory evidence
of such compliance reasonably requested by them.
(j) Consents. The Lenders shall be satisfied that all requisite Governmental
Authorities and third parties shall have approved or consented to the Transactions, and there shall
be no governmental or judicial action, actual or threatened, that has or would have, singly or in
the aggregate, a reasonable likelihood of restraining, preventing or imposing burdensome conditions
on the Transactions or the other transactions contemplated hereby.
(k) Litigation. There shall be no litigation, public or private, or administrative
proceedings, governmental investigation or other legal or regulatory developments, actual or
threatened, that, singly or in the aggregate, could reasonably be expected to result in a Material
Adverse Effect, or could materially and adversely affect the ability of Holdings, Borrowers and
their respective Subsidiaries to fully and timely perform their respective obligations under the
Transaction Documents, or the ability of the parties to consummate the financings contemplated
hereby or the other Transactions.
(l) [Intentionally Omitted].
(m) Fees. The Administrative Agent shall have received all fees and other amounts due
and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or
payment of all reasonable out-of-pocket expenses (including the legal fees and expenses of Latham &
Watkins LLP and Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Administrative
58
Agent, the legal fees and expenses of Akin Gump Strauss Hauer & Feld LLP, counsel to the Specified
Lender, Latham & Watkins LLP, special counsel to certain of the Lenders, and the reasonable fees
and expenses of any local counsel, foreign counsel, appraisers, consultants and other advisors)
required to be reimbursed or paid by Borrowers hereunder or under any other Loan Document.
(n) Personal Property Requirements. The Collateral Agent shall have received:
(i) all certificates, agreements or instruments representing or evidencing the
Securities Collateral accompanied by instruments of transfer and stock powers undated and
endorsed in blank;
(ii) Intercompany Loan Documents existing as of the Effective Date accompanied by
instruments of transfer, undated and endorsed in blank;
(iii) all other certificates, agreements, or instruments (excluding control agreements)
necessary to perfect the Collateral Agent’s and the Collateral Trustee’s (as applicable)
security interest in all Chattel Paper, all Instruments, all Deposit Accounts and all
Investment Property of each Loan Party (as each such term is defined in the Security
Agreement and to the extent required by the Security Agreement);
(iv) UCC financing statements in appropriate form for filing under the UCC, filings
with the United States Patent and Trademark Office and United States Copyright Office and
such other documents under applicable Requirements of Law in each jurisdiction as may be
necessary or appropriate or, in the opinion of the Collateral Agent, desirable to perfect
the Liens created, or purported to be created, by the Security Documents; and
(v) evidence acceptable to the Collateral Agent of payment or arrangements for payment
by the Loan Parties of all applicable recording taxes, fees, charges, costs and expenses
required for the recording of the Security Documents.
(o) Insurance. The Administrative Agent shall have received a copy of, or a
certificate as to coverage under, the insurance policies required by Section 5.04 and the
applicable provisions of the Security Documents, each of which shall be endorsed or otherwise
amended to include a “standard” or “New York” lender’s loss payable or mortgagee endorsement (as
applicable) and shall name the Collateral Agent, on behalf of the Secured Parties, and the
Collateral Trustee as additional insured, in form and substance satisfactory to the Administrative
Agent.
(p) Patriot Act. Each Borrower, each Subsidiary Guarantor and Korean Opco shall have
provided to each Lender the information required by Section 10.14 and such additional
information as may be reasonably requested by any Lender in order to satisfy its “know your
customer” and anti-money-laundering rules and regulations.
(q) Korean Law Requirements. Administrative Agent shall have received:
(i) a fully executed guarantee in form and substance satisfactory to the Administrative
Agent (the “Korean Opco Bank Guarantee”) by and between Korean Opco and the Collateral
Trustee;
(ii) duly executed originals of the Korean Opco Security Documents, each in full force
and effect together with all authorizations, approvals, consents and licenses necessary in
59
connection therewith and evidence that the same are in full force and effect (including,
without limitations, such documents set forth on Schedule 1.01(a));
(iii) any and all notices, consents, letters of undertaking, certificates and other
documents annexed, exhibited, appended or related to the Korean Opco Loan Documents;
(iv) a certified copy of the Articles of Incorporation of Korean Opco, as amended,
modified or supplemented to the Closing Date, certified to be true, correct and complete by
an authorized officer of Korean Opco;
(v) a certified copy of the resolutions of the board of directors of Korean Opco
approving and authorizing the execution, delivery and performance of the Korean Opco Loan
Documents to which it is a party and any other documents to be executed and delivered by
Korean Opco in relation thereto;
(vi) a certificate of the representative director of Korean Opco dated the Effective
Date certifying the name(s) and signature(s) of the officer(s) of Korean Opco authorized to
sign the Korean Opco Loan Documents to which it is a party and the power of attorney for the
execution of the Korean Opco Loan Documents;
(vii) a certified copy of the shareholders registry of Korean Opco;
(viii) the seal impression certificate of the representative director of Korean Opco
executing the Korean Opco Loan Documents and all other certificates hereunder;
(ix) a certificate of the representative director of Korean Opco dated the Closing Date
certifying the following: (i) the representations and warranties of Korean Opco set forth
herein and in each other Loan Document to which it is a party are true and correct; (ii) no
Default shall have occurred and be continuing; and (iii) the seal impressions or signatures
set out beside the names of each director listed in the resolutions of the board of
directors referred to in paragraph 1(b) above are the respective genuine seal impressions or
signatures of such director;
(x) copies of the relevant reports and/or Approvals required under the Foreign Exchange
Transaction Law of Korea or other similar laws and regulations; and
(xi) certified copies of all material approvals, consents, filings and authorizations
of the Korean government authority necessary for the valid execution, delivery and
performance of the Korean Opco Loan Documents, if any.
(r) Collateral Trustee Requirements. The terms and conditions of the Collateral Trust
Documents shall be in form and substance satisfactory to the Administrative Agent in its sole and
absolute discretion.
(s) UK Sales Subsidiary Requirements. The Administrative Agent shall have received in
form and substance satisfactory to it:
(i) evidence of the appointment of an agent for service of process in the United
Kingdom by the shareholder of the UK Sales Subsidiary;
60
(ii) a shareholder resolution of the UK Sales Subsidiary authorising the entry into of
the applicable Loan Documents by the UK Sales Subsidiary; and
(iii) original signed, stamped but undated stock transfer forms and original share
certificates with respect to the shares in the UK Sales Subsidiary charged pursuant to the
applicable Security Document.
(t) The Administrative Agent and the Lenders shall have received the Confirmation Order.
(u) The terms and provisions of the Plan of Reorganization shall be reasonably satisfactory to
the Administrative Agent and Lenders (it being acknowledged by the Administrative Agent and the
Lenders that the terms and provisions of the Plan of Reorganization, dated September 24, 2009, and
filed with the Bankruptcy Court on September 25, 2009, are satisfactory), and the Confirmation
Order shall include such provisions with respect to the Loans as are reasonably satisfactory to the
Administrative Agent and the Lenders and, providing, among other things, that the Borrowers,
Holdings and the Subsidiary Guarantors shall be authorized to (i) enter into the Loan Documents,
(ii) grant the Liens and security interests and incur or guarantee the Obligations under the Loan
Documents and (iii) issue, execute and deliver all documents, agreements and instruments necessary
or appropriate to implement and effectuate all obligations under the Loan Documents and to take all
other actions necessary to implement and effectuate Borrowings under the Loan Documents. Except as
consented to by the Administrative Agent and the Lenders, the Bankruptcy Court’s retention of
jurisdiction under the Confirmation Order shall not govern the enforcement of the Loan Documents or
any rights or remedies related thereto.
(v) The Administrative Agent and the Lenders shall have received evidence, reasonably
satisfactory to the Administrative Agent and the Lenders, that (i) the effective date under the
Plan of Reorganization shall have occurred, the Confirmation Order shall be valid, subsisting and
continuing as a Final Order and all conditions precedent to the effectiveness of the Plan of
Reorganization shall have been fulfilled, or validly waived with the consent of the Lenders,
including, without limitation, the execution, delivery and performance of all of the conditions
thereof other than conditions that have been validly waived with the consent of the Lenders (but
not including conditions consisting of the effectiveness of the Loan Documents) and (ii) no motion,
action or proceeding by any creditor or other party-in-interest to the Chapter 11 Case which would
adversely affect the Plan of Reorganization, the consummation of the Plan of Reorganization, the
business or operations of the Borrowers, Holdings or the Subsidiary Guarantors or the transactions
contemplated by the Loan Documents, as determined by the Lenders in good faith, shall be pending.
SECTION 4.02 Conditions to All Credit Extensions. The obligation of each Lender to make any Credit Extension shall be subject to, and to the
satisfaction of, each of the conditions precedent set forth below.
(a) Notice. The Administrative Agent shall have received a Borrowing Request as
required by Section 2.03 (or such notice shall have been deemed given in accordance with
Section 2.03).
(b) No Default. Borrowers and each other Loan Party shall be in compliance in all
material respects with all the terms and provisions set forth herein and in each other Loan
Document on its part to be observed or performed, and, at the time of and immediately after giving
effect to such Credit
61
Extension and the application of the proceeds thereof, no Default or Event of Default shall have occurred and be continuing on such date.
(c) Representations and Warranties. Each of the representations and warranties made
by any Loan Party set forth in Article III hereof or in any other Loan Document shall be
true and correct in all material respects (except that any representation and warranty that is
qualified as to “materiality” or “Material Adverse Effect” shall be true and correct in all
respects) on and as of the date of such Credit Extension with the same effect as though made on and as of such date, except to
the extent such representations and warranties expressly relate to an earlier date.
(d) No Legal Bar. No order, judgment or decree of any Governmental Authority shall
purport to restrain any Lender from making any Loans to be made by it. No injunction or other
restraining order shall have been issued, shall be pending or noticed with respect to any action,
suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any
damages or obtain relief as a result of, the transactions contemplated by this Agreement or the
making of Loans hereunder.
Each delivery of a Borrowing Request and the acceptance by Borrowers of the proceeds of such
Credit Extension shall constitute a representation and warranty by Borrowers and each other Loan
Party that on the date of such Credit Extension (both immediately before and after giving effect to
such Credit Extension and the application of the proceeds thereof) the conditions contained in
Sections 4.02(b)-(d) have been satisfied. Borrowers shall provide such
information as the Administrative Agent may reasonably request to confirm that the conditions in
Sections 4.02(b)-(d) have been satisfied.
ARTICLE V
AFFIRMATIVE COVENANTS
Each Loan Party warrants, covenants and agrees with each Lender that so long as this Agreement
shall remain in effect and until the Commitments have been terminated and the principal of and
interest on each Loan, all fees and all other expenses or amounts payable under any Loan Document
shall have been paid in full, unless the Required Lenders shall otherwise consent in writing, each
Loan Party will, and will cause each of its Subsidiaries to:
SECTION 5.01 Financial Statements, Reports, etc. Furnish to the Administrative Agent and each Lender:
(a) Annual Reports. As soon as available and in any event within 90 days (or such
earlier date on which Holdings is required to file a Form 10-K under the Exchange Act) after the
end of each fiscal year, (i) the consolidated balance sheet of Holdings as of the end of such
fiscal year and related consolidated statements of income, cash flows and stockholders’ equity for
such fiscal year, in comparative form with such financial statements as of the end of, and for, the
preceding fiscal year, and notes thereto (including, with respect to any Subsidiary of Holdings
that is not a Subsidiary Guarantor, and each other Subsidiary of Holdings for which such note is
required to be prepared pursuant to the requirements of applicable law or GAAP, a note with a
consolidating balance sheet and financial statement of income and cash flows separating out each of
such Subsidiary), all prepared in accordance with Regulation S-X if required by the Securities Act,
and accompanied by an opinion of Samil Pricewaterhouse Coopers or other independent public
accountants of recognized international standing satisfactory to the Administrative Agent (which
opinion shall not be qualified as to scope or contain any
62
going concern or other qualification),stating that such financial statements fairly present, in all material respects, the consolidated
financial condition, results of operations and cash flows of Holdings as of the dates and for the
periods specified in accordance with GAAP; (ii) a management report in a form reasonably
satisfactory to the Administrative Agent setting forth (A) statement of income items and
Consolidated EBITDA of Holdings for such fiscal year, showing variance, by dollar amount and
percentage, from amounts for the previous fiscal year and budgeted amounts and (B) key operational information and statistics for such fiscal year consistent with internal and industry-wide
reporting standards; and (iii) a narrative report and management’s discussion and analysis, in a
form reasonably satisfactory to the Administrative Agent, of the financial condition and results of
operations of Holdings for such fiscal year, as compared to amounts for the previous fiscal year
and budgeted amounts (it being understood that the information required by clause (i) may be
furnished in the form of a Form 10-K);
(b) Quarterly Reports. As soon as available and in any event within 45 days (or such
earlier date on which Holdings is required to file a form 10-Q under the Exchange Act) after the
end of each of the first three fiscal quarters of each fiscal year, (i) the consolidated balance
sheet of Holdings as of the end of such fiscal quarter and related consolidated statements of
income and cash flows for such fiscal quarter and for the then elapsed portion of the fiscal year,
in comparative form with the consolidated statements of income and cash flows for the comparable
periods in the previous fiscal year, and notes thereto (including, with respect to any Subsidiary
of Holdings that is not a Subsidiary Guarantor, and each other Subsidiary of Holdings for which
such note is required to be prepared pursuant to the requirements of applicable law or GAAP, a note
with a consolidating balance sheet and financial statement of income and cash flows separating out
each of such Subsidiary), all prepared in accordance with Regulation S-X under the Securities Act
if required by the Securities Act and accompanied by a certificate of a Financial Officer stating
that such financial statements fairly present, in all material respects, the consolidated financial
condition, results of operations and cash flows of Holdings as of the date and for the periods
specified in accordance with GAAP consistently applied, and on a basis consistent with audited
financial statements referred to in clause (a) of this Section, subject to normal year-end audit
adjustments, (ii) a management report in a form reasonably satisfactory to the Administrative Agent
setting forth (A) statement of income items and Consolidated EBITDA of Holdings for such fiscal
quarter and for the then elapsed portion of the fiscal year, showing variance, by dollar amount and
percentage, from amounts for the comparable periods in the previous fiscal year and budgeted
amounts and (B) key operational information and statistics for such fiscal quarter and for the then
elapsed portion of the fiscal year consistent with internal and industry wide reporting standards
and (iii) a narrative report and management’s discussion and analysis, in a form reasonably
satisfactory to the Administrative Agent, of the financial condition and results of operations for
such fiscal quarter and the then elapsed portion of the fiscal year, as compared to the comparable
periods in the previous fiscal year and budgeted amounts (it being understood that the information
required by clause (i) may be furnished in the form of a Form 10-Q);
(c) Financial Officer’s Certificate. (i) Concurrently with any delivery of financial
statements under Section 5.01(a) or (b), a Compliance Certificate certifying that
no Default has occurred or, if such a Default has occurred, specifying the nature and extent
thereof and any corrective action taken or proposed to be taken with respect thereto and (ii)
concurrently with any delivery of financial statements under Section 5.01(a) above, a
report of the accounting firm opining on or certifying such financial statements stating that in
the course of its regular audit of the financial statements of Holdings and its Subsidiaries, which
audit was conducted in accordance with generally accepted auditing standards, such accounting firm
obtained no knowledge that any Default insofar as it relates to financial or accounting matters has
occurred or, if in the opinion of such accounting firm such a Default has occurred, specifying the
nature and extent thereof;
63
(d) Public Reports. Promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by any Company with the
Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, or distributed to holders
of its Indebtedness pursuant to the terms of the documentation governing such Indebtedness (or any trustee, agent
or other representative therefor), as the case may be;
(e) Management Letters. Promptly after the receipt thereof by any Company, a copy of
any “management letter” received by any such person from its certified public accountants and the
management’s responses thereto;
(f) Budgets. Within 60 days after the beginning of Holdings fiscal year, a budget for
Holdings in form reasonably satisfactory to the Required Lenders, but to include balance sheets,
statements of income and sources and uses of cash, for each month of such fiscal year prepared in
detail, with appropriate presentation and discussion of the principal assumptions upon which such
budgets are based, accompanied by the statement of a Financial Officer of Borrowers to the effect
that the budget of Holdings is a reasonable estimate for the periods covered thereby and, promptly
when available, any significant revisions of such budget;
(g) Notification to Account Debtors. Within ten (10) Business Days after the end of
each month commencing with the first full month ending after the Effective Date, a certification
from an authorized officer of each of (i) Korean Opco and (ii) any Sales Subsidiary having
accounts owing from Japanese customers totaling in excess of $500,000, certifying that (x) all
notices to Hynix Related Account Debtors that are required to be given under applicable law in
order to perfect the Collateral Trustee’s or the Collateral Agent’s lien on any Hynix Related
Receivables shall have been given to such Hynix Related Account Debtors and that each such notice
contained an accurate “fixed date stamp” under applicable law indicating the date of such notice,
(y) notices have been given to all other account debtors of Korean Opco or such Sales Subsidiary
that (except for the affixing of a fixed date stamp thereon) are required to be given under
applicable law in order to perfect the Collateral Trustee’s lien on the accounts receivable of
Korean Opco or the Collateral Agent’s lien on accounts receivable of such Sales Subsidiary (to the
extent that such accounts arise under contracts or invoices that do not prohibit the granting of
such liens) shall have been given to such account debtors, and (z) confirming that Korean Opco and
any such Sales Subsidiary have used their commercially reasonable efforts to ensure that no new
contracts, agreements or invoices have been entered into since the Effective Date by Korean Opco or
any such Sales Subsidiary prohibiting the granting of such liens. With respect to any existing
contracts or invoices prohibiting the granting of liens in favor of the Collateral Trustee or the
Collateral Agent on accounts receivable arising thereunder, the Borrowers shall use, and shall
cause Korean Opco and/or such Sales Subsidiaries to use, commercially reasonable efforts to obtain
the consent of the parties thereto to the granting of liens in favor of the Collateral Trustee or
the Collateral Agent, as applicable, on such accounts receivable.
(h) Perfection Certificate Supplements. At all times prior to the continuation of a
Default, upon the reasonable request of the Enforcement Lenders (but in no event, more than one
time per fiscal year), and after the occurrence and during the continuation of a Default,
concurrently with any delivery of financial statements under Section 5.01(b), a certificate of a
Financial Officer that supplements the information set forth in the Perfection Certificate or
confirming that there has been no change in such information since the date of the Perfection
Certificate (after giving effect to all amendments, supplements and other modifications thereto).
64
(i) Other Information. Promptly, from time to time, such other information regarding
the operations, business affairs and financial condition of any Company, or compliance with the
terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request.
SECTION 5.02 Litigation and Other Notices. Furnish to the Administrative Agent and each Lender written notice of the following
promptly (and, in any event, within three Business Days of the occurrence thereof):
(a) any Default, specifying the nature and extent thereof and the corrective action (if
any) taken or proposed to be taken with respect thereto;
(b) the filing or commencement of, or any threat or notice of intention of any person
to file or commence, any action, suit, litigation or proceeding, whether at law or in equity
by or before any Governmental Authority, (i) against any Company or any Affiliate thereof
that could reasonably be expected to result in a Material Adverse Effect or (ii) with
respect to any Loan Document;
(c) any development that has resulted in, or could reasonably be expected to result in
a Material Adverse Effect;
(d) the occurrence of a Casualty Event with respect to property having a value
individually or in the aggregate in excess of $1 million; and
(e) (i) the incurrence of any material Lien (other than Permitted Collateral Liens) on,
or claim asserted against any of the Collateral or (ii) the occurrence of any other event
which could materially affect the value of the Collateral.
SECTION 5.03 Existence; Businesses and Properties.
(a) Do or cause to be done all things necessary to preserve, renew and maintain in full force
and effect its legal existence, except as otherwise expressly permitted under Section 6.05
or Section 6.06 or, in the case of any Subsidiary, where the failure to perform such
obligations, individually or in the aggregate, could not reasonably be expected to result in a
Material Adverse Effect.
(b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in
full force and effect the rights, licenses, permits, privileges, franchises, authorizations and
Intellectual Property material to the conduct of its business; maintain and operate such business
in substantially the manner in which it is presently conducted and operated; comply with all
material contractual obligations and all applicable Requirements of Law (including taxation, ERISA,
any and all zoning, building, Environmental Law, ordinance, code or approval or any building
permits or any restrictions of record or agreements affecting the Real Property) and decrees and
orders of any Governmental Authority, whether now in effect or hereafter enacted, except with
respect to any of the foregoing where the failure to comply, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect; pay and perform its
obligations under all Transaction Documents; and at all times maintain, preserve and protect all
property material to the conduct of such business and keep such property in good repair, working
order and condition (other than wear and tear occurring in the ordinary course of business) and
from time to time make, or cause to be made, all needful and proper repairs, renewals, additions,
improvements and replacements thereto necessary in order that the business carried on in connection
therewith may be properly conducted at all times; provided that nothing in this
65
Section 5.03(b) shall prevent (i) sales of property, consolidations or mergers by or involving any
Company in accordance with Section 6.05 or Section 6.06; (ii) the withdrawal by any
Company of its qualification as a foreign corporation in any jurisdiction where such withdrawal,
individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; or (iii)
the abandonment by any Company of any rights, franchises, licenses or Intellectual Property that
such person reasonably determines are not useful to its business or no longer commercially
desirable.
SECTION 5.04 Insurance.
(a) Generally. Keep its insurable property adequately insured at all times by
financially sound and reputable insurers; maintain such other insurance, to such extent and against
such risks as is customary with companies in the same or similar businesses operating in the same
or similar locations, including insurance with respect to Mortgaged Properties and other properties
material to the business of the Companies against such casualties and contingencies and of such
types and in such amounts with such deductibles as is customary in the case of similar businesses
operating in the same or similar locations, including (i) physical hazard insurance on an “all
risk” basis; (ii) commercial general liability against claims for bodily injury, death or property
damage covering any and all insurable claims; (iii) explosion insurance in respect of any boilers,
machinery or similar apparatus constituting Collateral; (iv) business interruption insurance; (v)
worker’s compensation insurance and such other insurance as may be required by any Requirement of
Law; and (vi) such other insurance against risks as the Administrative Agent may from time to time
require (such policies to be in such form and amounts and having such coverage as may be reasonably
satisfactory to the Administrative Agent and the Collateral Agent); provided that with respect to
physical hazard insurance, neither the Collateral Agent nor the applicable Company shall agree to
the adjustment of any claim thereunder without the consent of the other (such consent not to be
unreasonably withheld or delayed); provided, further, that no consent of any Company shall be
required during an Event of Default.
(b) Requirements of Insurance. All such insurance shall (i) provide that no
cancellation, material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Collateral Agent or the Collateral Trustee,
as applicable, of written notice thereof; (ii) name the Collateral Agent or the Collateral Trustee,
as applicable, as mortgagee (in the case of property insurance) or additional insured on behalf of
the Secured Parties (in the case of liability insurance) or loss payee (in the case of property
insurance), as applicable; (iii) if reasonably requested by the Collateral Agent or the Collateral
Trustee, as applicable, include a breach of warranty clause and (iv) be reasonably satisfactory in
all other respects to the Collateral Agent and the Collateral Trustee.
(c) Notice to Agents. Notify the Administrative Agent and the Collateral Agent
immediately whenever any separate insurance concurrent in form or contributing in the event of loss
with that required to be maintained under this Section 5.04 is taken out by any Company;
and, upon request, promptly deliver to the Administrative Agent and the Collateral Agent a
duplicate original copy of such policy or policies.
(d) Flood Insurance. With respect to each Mortgaged Property, to the extent the
applicable property is located in a flood zone or on a flood plain and such insurance is available
at reasonable commercial rates, obtain flood insurance in such total amount as the Administrative
Agent or the Required Lenders may from time to time reasonably require.
66
(e) Broker’s Report. Deliver to the Administrative Agent and the Collateral Agent and
the Lenders a report of a reputable insurance broker with respect to such insurance and such
supplemental reports with respect thereto as the Administrative Agent or the Collateral Agent may
from time to time reasonably request.
(f) Mortgaged Properties. No Loan Party that is an owner of Mortgaged Property shall
take any action that is reasonably likely to be the basis for termination, revocation or denial of
any insurance coverage required to be maintained under such Loan Party’s respective Mortgage or
that could be the basis for a defense to any claim under any Insurance Policy maintained in respect
of the Premises, and each Loan Party shall otherwise comply in all material respects with all
Insurance Requirements in respect of the Premises; provided, however, that each Loan Party may, at
its own expense and after written notice to the Administrative Agent, (i) contest the applicability
or enforceability of any such Insurance Requirements by appropriate legal proceedings, the
prosecution of which does not constitute a basis for cancellation or revocation of any insurance
coverage required under this Section 5.04 or (ii) cause the Insurance Policy containing any
such Insurance Requirement to be replaced by a new policy complying with the provisions of this
Section 5.04.
SECTION 5.05 Obligations and Taxes.
(a) Payment of Obligations. Pay its Indebtedness and other obligations promptly and
in accordance with their terms and pay and discharge promptly when due all Taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or in respect of its
property, before the same shall become delinquent or in default, as well as all lawful claims for
labor, services, materials and supplies or otherwise that, if unpaid, might give rise to a Lien
other than a Permitted Lien upon such properties or any part thereof; provided that such payment
and discharge shall not be required with respect to any such Indebtedness, obligation, Tax,
assessment, charge, levy or claim so long as (x)(i) the validity or amount thereof shall be
contested in good faith by appropriate proceedings timely instituted and diligently conducted and
the applicable Company shall have set aside on its books adequate reserves or other appropriate
provisions with respect thereto in accordance with GAAP and (ii) such contest operates to suspend
collection of the contested Indebtedness, obligation, Tax, assessment or charge and enforcement of
a Lien other than a Permitted Lien and (y) the failure to pay could not reasonably be expected to
result in a Material Adverse Effect.
(b) Filing of Returns. Timely and correctly file all material Tax Returns required to
be filed by it. Withhold, collect and remit all material Taxes that it is required to collect,
withhold or remit.
(c) Tax Shelter Reporting. Borrowers do not intend to treat the Loans as being a
“reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4. In the event
Borrowers determine to take any action inconsistent with such intention, it will promptly notify
the Administrative Agent thereof.
SECTION 5.06 Employee Benefits. (a) Comply in all material respects with the applicable provisions of ERISA (to the extent
applicable to any Company) and the Code and (b) furnish to the Administrative Agent (x) as soon as
possible after, and in any event within 5 days after any Responsible Officer of any Company or any
ERISA Affiliates of any Company knows or has reason to know that, any ERISA Event has occurred
that, alone or together with any other ERISA Event could reasonably be expected to result in
liability of the Companies or any of their ERISA Affiliates in an aggregate amount exceeding
$500,000 or the imposition of a Lien, a statement of a Financial Officer of Borrowers setting
67
forth details as to such ERISA Event and the action, if any, that the Companies propose to take with
respect thereto, and (y) upon request by the Administrative Agent, copies of (i) each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) filed by any Company or any ERISA
Affiliate with the Internal Revenue Service with respect to each Plan; (ii) the most recent actuarial valuation report for each Plan; (iii) all notices received by any
Company or any ERISA Affiliate from a Multiemployer Plan sponsor or any governmental agency
concerning an ERISA Event; and (iv) such other documents or governmental reports or filings
relating to any Plan (or employee benefit plan sponsored or contributed to by any Company) as the
Administrative Agent shall reasonably request. With respect to Korean Opco, Korean Opco shall
ensure that all pension plans or schemes operated by or maintained for the benefit of any of its
employees are, to the extent required by applicable law, fully funded based on reasonable actuarial
assumptions and recommendations and otherwise are operated or maintained in all material respects
as required by Korean law.
SECTION 5.07 Maintaining Records; Access to Properties and Inspections; Annual
Meetings.
(a) Keep proper books of record and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law are made of all dealings and transactions in
relation to its business and activities. Each Company will permit any representatives designated
by the Administrative Agent or any Lender to visit such Company’s offices and facilities to inspect
the financial records and the property of such Company at reasonable times and as often as
reasonably requested and to make extracts from and copies of such financial records, and permit any
representatives designated by the Administrative Agent or any Lender to discuss the affairs,
finances, accounts and condition of any Company with the officers and employees thereof and
advisors therefor (including independent accountants).
(b) Within 150 days after the end of each fiscal year of the Companies, at the request of the
Administrative Agent or Supermajority Lenders, hold a meeting (at a mutually agreeable location,
venue and time or, at the option of the Administrative Agent, by conference call, the costs of such
venue or call to be paid by Borrowers) with all Lenders who choose to attend such meeting, at which
meeting shall be reviewed the financial results of the previous fiscal year and the financial
condition of the Companies and the budgets presented for the current fiscal year of the Companies.
SECTION 5.08 Use of Proceeds. Use the proceeds of the Loans only for the purposes set forth in Section 3.12.
SECTION 5.09 Compliance with Environmental Laws; Environmental Reports.
(a) Comply, and cause all lessees and other persons occupying Real Property owned, operated or
leased by any Company to comply, in all material respects with all Environmental Laws and
Environmental Permits applicable to its operations and Real Property; obtain and renew all material
Environmental Permits applicable to its operations and Real Property; and conduct all Responses
required by, and in accordance with, Environmental Laws; provided that no Company shall be required
to undertake any Response to the extent that its obligation to do so is being contested in good
faith and by proper proceedings and appropriate reserves are being maintained with respect to such
circumstances in accordance with GAAP.
68
(b) If a Default caused by reason of a breach of Section 3.18 or Section
5.09(a) shall have occurred and be continuing for more than 20 days without the Companies
commencing activities reasonably likely to cure such Default, at the written request of the
Administrative Agent or the Supermajority Lenders through the Administrative Agent, provide to the
Lenders within 45 days after such request, at the expense of Borrowers, an environmental assessment report regarding the
matters which are the subject of such Default, including, where appropriate, any soil and/or
groundwater sampling, prepared by an environmental consulting firm and, in the form and substance,
reasonably acceptable to the Administrative Agent and indicating the presence or absence of
Hazardous Materials and the estimated cost of any compliance or Response to address them.
(c) Each Loan Party that is an owner of Mortgaged Property shall not install nor permit to be
installed in the Mortgaged Property any Hazardous Materials, other than in compliance with
applicable Environmental Laws.
SECTION 5.10 Additional Collateral; Additional Guarantors.
(a) Subject to this Section 5.10, with respect to any property acquired, created or
developed (including, without limitation, the filing of any application or registration or issuance
of any Intellectual Property) after the Effective Date by any Loan Party with a value in excess of
$250,000 (individually or in the aggregate for all such property) that is intended to be subject to
the Lien created by any of the Security Documents but is not so subject, promptly (and in any event
within 30 days after the acquisition thereof) (i) execute and deliver to the Administrative Agent
and the Collateral Agent (or the Collateral Trustee, as the case may be) such amendments or
supplements to the relevant Security Documents or such other documents as the Administrative Agent
or the Collateral Agent (or the Collateral Trustee, as the case may be) shall deem necessary or
advisable to grant to the Collateral Agent (or the Collateral Trustee, as the case may be), for its
benefit and for the benefit of the other Secured Parties, a Lien on such property subject to no
Liens other than Permitted Collateral Liens and (ii) take all actions necessary to cause such Lien
to be duly perfected to the extent required by such Security Document in accordance with all
applicable Requirements of Law, including the filing of financing statements in such jurisdictions
as may be reasonably requested by the Administrative Agent. Borrowers shall otherwise take such
actions and execute and/or deliver to the Collateral Agent (or the Collateral Trustee, as the case
may be) such documents as the Administrative Agent or the Collateral Agent (or the Collateral
Trustee, as the case may be) shall require to confirm the validity, perfection and priority of the
Lien of the Security Documents against such after-acquired properties. The Loan Parties shall not
be required to take any actions pursuant to this Section 5.10 if the Administrative Agent
shall determine in the exercise of its reasonable discretion that the costs of obtaining Liens on
any property as otherwise required by this Section 5.10 are excessive in relation to the
value of such property. In addition, neither Korean Opco nor any Subsidiary described in
Section 5.01(g) shall be required to affix a “fixed date stamp” to any notification sent to
any account debtor (other than as contemplated by Section 5.01(g)).
(b) With respect to any person that is or becomes a Subsidiary of either Borrower or Holdings
after the Effective Date, promptly (and in any event within 30 days after such person becomes a
Subsidiary of either Borrower or Holdings) (i) deliver to the Collateral Agent (or the Collateral
Trustee, as the case may be) the certificates, if any, representing all of the Equity Interests of
such Subsidiary, together with undated stock powers or other appropriate instruments of transfer
executed and delivered in blank by a duly authorized officer of the holder(s) of such Equity
Interests, and all intercompany notes owing from such Subsidiary to any Loan Party together with
instruments of transfer executed and delivered in blank by a duly authorized officer of such Loan
Party and (ii) cause such new Subsidiary (A) to execute a Joinder Agreement or such comparable
documentation to become a Subsidiary Guarantor
69
(to the extent permitted under applicable law) and a joinder agreement to the applicable Security Agreement, substantially in the form annexed thereto
or, in the case of a Foreign Subsidiary, execute (to the extent permitted by applicable law) a
security agreement compatible with the laws of such Foreign Subsidiary’s jurisdiction in form and
substance reasonably satisfactory to the Administrative Agent, and (B) to take all actions necessary or advisable in the opinion of the Administrative Agent or the Collateral
Agent to cause the Lien created by the applicable Security Agreement to be duly perfected to the
extent required by such agreement in accordance with all applicable Requirements of Law, including
the filing of financing statements in such jurisdictions as may be reasonably requested by the
Administrative Agent or the Collateral Agent.
(c) Promptly grant to the Collateral Agent (or the Collateral Trustee, as the case may be), in
each case to the extent permitted by applicable law, within 60 days of the acquisition thereof, a
security interest in and Mortgage on (i) each Real Property owned in fee by such Loan Party as is
acquired by such Loan Party after the Effective Date and that, together with any improvements
thereon, individually has a fair market value of at least $1.0 million, and (ii) unless the
Collateral Agent otherwise consents or such Mortgage cannot be obtained after the use of
commercially reasonable efforts, each leased Real Property of such Loan Party, which lease
individually has a fair market value of at least $1.0 million, in each case, as additional security
for the Secured Obligations (unless the subject property is already mortgaged to a third party to
the extent permitted by Section 6.02). Such Mortgages shall be granted pursuant to
documentation reasonably satisfactory in form and substance to the Administrative Agent and the
Collateral Agent (and, if applicable, the Collateral Trustee) and shall constitute valid and
enforceable perfected Liens subject only to Permitted Collateral Liens or other Liens acceptable to
the Collateral Agent. The Mortgages or instruments related thereto shall be duly recorded or filed
in such manner and in such places as are required by law to establish, perfect, preserve and
protect the Liens in favor of the Collateral Agent (or the Collateral Trustee, as the case may be)
required to be granted pursuant to the Mortgages and all taxes, fees and other charges payable in
connection therewith shall be paid in full. Such Loan Party shall otherwise take such actions and
execute and/or deliver to the Collateral Agent (or the Collateral Trustee, as the case may be) such
documents as the Administrative Agent or the Collateral Agent (or the Collateral Trustee, as the
case may be) shall require to confirm the validity, perfection and priority of the Lien of any
existing Mortgage or new Mortgage against such after-acquired Real Property (including a title
policy, if available in the opinion of the Administrative Agent on commercially reasonable terms, a
Survey, if customarily obtained in the jurisdiction where such Real Property is located and
available in the opinion of the Administrative Agent on commercially reasonable terms, and local
counsel opinion (in form and substance reasonably satisfactory to the Administrative Agent) in
respect of such Mortgage).
(d) Notwithstanding anything to the contrary set forth in this Section 5.10,
Subsidiaries of Holdings that have assets having a fair value of less than $500,000 individually
(but not to exceed $5,000,000 for all such Subsidiaries covered by this clause (d)) shall not be
required to become a Subsidiary Guarantor pursuant to the requirements of, or grant the liens and
security interest contemplated by, this Section 5.10.
(e) Notwithstanding anything to the contrary herein or in any Loan Document, no Loan Party
shall be required to deliver control agreements over deposit accounts or securities accounts.
SECTION 5.11 Security Interests; Further Assurances. Promptly, upon the reasonable request of the Administrative Agent, the Collateral Agent,
the Collateral Trustee or any Lender, at Borrowers’ expense, execute, acknowledge and deliver, or
cause the execution, acknowledgment and delivery of, and thereafter register, file or record, or
cause to be registered, filed or recorded, in an
70
appropriate governmental office, any document or instrument supplemental to or confirmatory of the Security Documents or otherwise deemed by the
Administrative Agent, the Collateral Agent or the Collateral Trustee reasonably necessary or
desirable for the continued validity, perfection and priority of the Liens on the Collateral covered thereby subject to no
other Liens except as permitted hereby or by the applicable Security Document, or use commercially
reasonable efforts to obtain any consents or waivers as may be necessary or appropriate in
connection therewith. Deliver or cause to be delivered to the Administrative Agent, the Collateral
Agent and the Collateral Trustee from time to time such other documentation, consents,
authorizations, approvals and orders in form and substance reasonably satisfactory to the
Administrative Agent, the Collateral Trustee and the Collateral Agent as the Administrative Agent,
the Collateral Trustee and the Collateral Agent shall reasonably deem necessary to perfect or
maintain the Liens on the Collateral pursuant to the Security Documents (and, in the case of any
security governed by the laws of England and Wales, preserve, establish or otherwise evidence the
fixed nature of such security). Upon the exercise by the Administrative Agent, the Collateral
Agent, the Collateral Trustee or any Lender of any power, right, privilege or remedy pursuant to
any Loan Document which requires any consent, approval, registration, qualification or
authorization of any Governmental Authority execute and deliver all applications, certifications,
instruments and other documents and papers that the Administrative Agent, the Collateral Agent, the
Collateral Trustee or such Lender may reasonably require. If the Administrative Agent, the
Collateral Agent, the Collateral Trustee or the Required Lenders determine that they are required
by a Requirement of Law to have appraisals prepared in respect of the Real Property of any Loan
Party constituting Collateral, Borrowers shall provide to the Administrative Agent appraisals that
satisfy the applicable requirements of the Real Estate Appraisal Reform Amendments of FIRREA and
are otherwise in form and substance reasonably satisfactory to the Administrative Agent, the
Collateral Agent and the Collateral Trustee. Each Loan Party also agrees to promptly notify the
Collateral Agent and the Collateral Trustee (if applicable) of any change in the location of any
office in which it maintains books or records relating to Collateral owned by it or any office or
facility at which Collateral having a value in excess of $250,000 is located (including the
establishment of any such new office or facility), other than changes in location to a Mortgaged
Property or a leased property subject to a landlord access agreement, in form and substance
reasonably satisfactory to the Supermajority Lenders.
SECTION 5.12 Information Regarding Collateral.
Not effect any change (i) in any Loan Party’s legal name; (ii) in the location of any Loan
Party’s chief executive office; (iii) in any Loan Party’s identity or organizational structure,
(iv) in any Loan Party’s Federal Taxpayer Identification Number or organizational identification
number, if any; or (v) in any Loan Party’s jurisdiction of organization (in each case, including by
merging with or into any other entity, reorganizing, dissolving, liquidating, reorganizing or
organizing in any other jurisdiction), until (A) it shall have given the Collateral Agent, the
Collateral Trustee and the Administrative Agent and the Collateral Trustee not less than 30 days’
prior written notice (in the form of an Officers’ Certificate), or such lesser notice period agreed
to by the Collateral Agent or the Collateral Trustee (as applicable), of its intention so to do,
clearly describing such change and providing such other information in connection therewith as the
Collateral Agent, the Administrative Agent or the Collateral Trustee (as applicable) may reasonably
request and (B) it shall have taken all action reasonably satisfactory to the Collateral Agent or
the Collateral Trustee (as applicable) to maintain the perfection and priority of the security
interest of the Collateral Agent for the benefit of the Secured Parties or the Collateral Trustee
in the Collateral, if applicable. Each Loan Party agrees to promptly provide the Collateral Agent
and the Collateral Trustee, if applicable, with certified Organizational Documents reflecting any
of the changes described in the preceding sentence.
71
SECTION 5.13 Post-Closing Collateral Matters. Execute and deliver the documents and complete
the tasks set forth on Schedule 5.13, in each case within the time limits specified on such
schedule.
SECTION 5.14 Affirmative Covenants with Respect to Leases. With respect to each Lease, the
respective Loan Party shall perform all the obligations imposed upon the landlord under such Lease
and enforce all of the tenant’s obligations thereunder, except where the failure to so perform or
enforce could not reasonably be expected to result in a Material Adverse Effect.
ARTICLE VI
NEGATIVE COVENANTS
Each Loan Party warrants, covenants and agrees with each Lender that, so long as this
Agreement shall remain in effect and until the Commitments have been terminated and the principal
of and interest on each Loan, all fees and all other expenses or amounts payable under any Loan
Document have been paid in full, unless the Required Lenders shall otherwise consent in writing, no
Loan Party will, nor will it cause or permit any Subsidiaries to:
SECTION 6.01 Indebtedness. Incur, create, assume or permit to exist, directly or indirectly, any
Indebtedness, except:
(a) Indebtedness incurred under this Agreement and the other Loan Documents;
(b) (i) Indebtedness outstanding on the Effective Date and (ii) refinancings or
renewals thereof; provided that (A) any such refinancing Indebtedness is in an aggregate
principal amount not greater than the aggregate principal amount of the Indebtedness being
renewed or refinanced, plus the amount of any premiums required to be paid thereon and
reasonable fees and expenses associated therewith, (B) such refinancing Indebtedness has a
later or equal final maturity and longer or equal weighted average life than the
Indebtedness being renewed or refinanced and (C) the covenants, events of default,
subordination and other provisions thereof (including any guarantees thereof) shall be, in
the aggregate, no less favorable to the Lenders than those contained in the Indebtedness
being renewed or refinanced;
(c) Indebtedness under Hedging Obligations with respect to interest rates, foreign
currency exchange rates or commodity prices, in each case not entered into for speculative
purposes; provided that if such Hedging Obligations relate to interest rates, (i) such
Hedging Obligations relate to payment obligations on Indebtedness otherwise permitted to be
incurred by the Loan Documents and (ii) the notional principal amount of such Hedging
Obligations at the time incurred does not exceed the principal amount of the Indebtedness to
which such Hedging Obligations relate;
(d) Indebtedness permitted by Section 6.04(f);
(e) Indebtedness in respect of Purchase Money Obligations and Capital Lease
Obligations, and refinancings or renewals thereof, in an aggregate amount not to exceed
$25.0 million at any time outstanding;
(f) Indebtedness in respect of bid, performance or surety bonds, workers’ compensation
claims, self-insurance obligations and bankers acceptances issued for the account
72
of any
Company in the ordinary course of business, including guarantees or obligations of any
Company with respect to letters of credit supporting such bid, performance or surety bonds,
workers’ compensation claims, self-insurance obligations and bankers acceptances (in each
case other than for an obligation for money borrowed);
(g) Contingent Obligations of any Loan Party in respect of Indebtedness otherwise
permitted under this Section 6.01;
(h) Indebtedness arising from the honoring by a bank or other financial institution of
a check, draft or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within five Business Days of incurrence;
(i) Indebtedness arising in connection with endorsement of instruments for deposit in
the ordinary course of business;
(j) unsecured Indebtedness of any Company in an aggregate amount not to exceed $30.0
million at any time outstanding;
(k) secured or unsecured Indebtedness of any Company up to an amount equal to
$23,250,000 less any Incremental Loans incurred after the Effective Date; provided that if
such Indebtedness is secured by Collateral, it may be secured either on a junior basis or on
an equal and ratable basis with the Secured Obligations, in each case, subject to
intercreditor arrangements reasonably satisfactory to the Supermajority Lenders; provided
further that if the interest rate (which shall be deemed to include all upfront or similar
fees or original issue discount (with OID being equated to interest rates in a manner
reasonably determined by the Administrative Agent on an assumed four-year life to maturity)
and any other component of interest rate) in respect of any such Indebtedness that is
secured by Collateral on an equal and ratable basis with the Secured Obligations exceeds the
interest rate with respect to the Term Loans and/or previously incurred Incremental Loans,
the interest rate with respect to the Term Loans and previously incurred Incremental Loans
shall be increased so that it is equal to the interest rate with respect to such
Indebtedness; and
(l) other Indebtedness of any Company; provided that, if such Indebtedness is secured
by Collateral, it may be secured on a junior basis with the Secured Obligations subject to
intercreditor arrangements reasonably satisfactory to the Supermajority Lenders; provided
further that, after giving effect to such Indebtedness, on a Pro Forma Basis, the Total
Leverage Ratio shall be no more than 3.0 to 1.0.
SECTION 6.02 Liens. Create, incur, assume or permit to exist, directly or indirectly, any Lien on
any property now owned or hereafter acquired by it or on any income or revenues or rights in
respect of any thereof, except the following (collectively, the “Permitted Liens”):
(a) inchoate Liens for taxes, assessments or governmental charges or levies not yet due
and payable or delinquent and Liens for taxes, assessments or governmental charges or
levies, which are being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, which proceedings (or
orders entered in connection with such proceedings) have the effect of preventing the
forfeiture or sale of the property subject to any such Lien;
73
(b) Liens in respect of property of any Company imposed by Requirements of Law, which
were incurred in the ordinary course of business and do not secure Indebtedness for borrowed
money, such as carriers’, warehousemen’s, materialmen’s, landlords’, workmen’s, suppliers’,
repairmen’s and mechanics’ Liens and other similar Liens arising in the ordinary course of
business, and (i) which do not in the aggregate materially detract from the value of the
property of the Companies, taken as a whole, and do not materially impair the use thereof in
the operation of the business of the Companies, taken as a whole and (ii) which, if they
secure obligations that are then due and unpaid, are being contested in good faith by
appropriate proceedings for which adequate reserves have been established in accordance with
GAAP, which proceedings (or orders entered in connection with such proceedings) have the
effect of preventing the forfeiture or sale of the property subject to any such Lien;
(c) any Lien in existence on the Effective Date and any Lien granted as a replacement
or substitute therefor; provided that any such replacement or substitute Lien (i) except as
permitted by Section 6.01(b)(ii)(A), does not secure an aggregate amount of
Indebtedness, if any, greater than that secured on the Effective Date and (ii) does not
encumber any property other than the property subject thereto on the Effective Date (any
such Lien, an “Existing Lien”);
(d) easements, rights-of-way, restrictions (including zoning restrictions), covenants,
licenses, encroachments, protrusions and other similar charges or encumbrances, and minor
title deficiencies on or with respect to any Real Property, in each case whether now or
hereafter in existence, not (i) securing Indebtedness; (ii) individually or in the aggregate
materially impairing the value or marketability of such Real Property; or (iii) individually
or in the aggregate materially interfering with the ordinary conduct of the business of the
Companies at such Real Property;
(e) Liens arising out of judgments, attachments or awards not resulting in a Default
and in respect of which such Company shall in good faith be prosecuting an appeal or
proceedings for review in respect of which there shall be secured a subsisting stay of
execution pending such appeal or proceedings;
(f) Liens (other than any Lien imposed by ERISA) (x) imposed by Requirements of Law or
deposits made in connection therewith in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other types of social security
legislation, (y) incurred in the ordinary course of business to secure the performance of
tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal
bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and
return of money bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money) or (z) arising by virtue of deposits made in the ordinary course
of business to secure liability for premiums to insurance carriers; provided that (i) with
respect to clauses (x), (y) and (z) of this paragraph (f), such Liens are for amounts not
yet due and payable or delinquent or, to
the extent such amounts are so due and payable, such amounts are being contested in
good faith by appropriate proceedings for which adequate reserves have been established in
accordance with GAAP, which proceedings for orders entered in connection with such
proceedings have the effect of preventing the forfeiture or sale of the property subject to
any such Lien and (ii) to the extent such Liens are not imposed by Requirements of Law, such
Liens shall in no event encumber any property other than cash and Cash Equivalents;
74
(g) Leases of the properties of any Company, in each case entered into in the ordinary
course of such Company’s business so long as such Leases are subordinate in all respects to
the Liens granted and evidenced by the Security Documents and do not, individually or in the
aggregate, (i) interfere in any material respect with the ordinary conduct of the business
of any Company or (ii) materially impair the use (for its intended purposes) or the value of
the property subject thereto;
(h) Liens arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by any Company in the ordinary course of
business in accordance with the past practices of such Company;
(i) Liens securing Indebtedness incurred pursuant to Section 6.01(e); provided
that any such Liens attach only to the property being financed pursuant to such Indebtedness
and do not encumber any other property of any Company;
(j) bankers’ Liens, rights of setoff and other similar Liens existing solely with
respect to cash and Cash Equivalents on deposit in one or more accounts maintained by any
Company, in each case granted in the ordinary course of business in favor of the bank or
banks with which such accounts are maintained, securing amounts owing to such bank with
respect to cash management and operating account arrangements, including those involving
pooled accounts and netting arrangements; provided that, unless such Liens are
non-consensual and arise by operation of law, in no case shall any such Liens secure (either
directly or indirectly) the repayment of any Indebtedness;
(k) Liens on property of a person existing at the time such person is acquired or
merged with or into or consolidated with any Company to the extent permitted hereunder (and
not created in anticipation or contemplation thereof); provided that such Liens do not
extend to property not subject to such Liens at the time of acquisition (other than
improvements thereon) and are no more favorable to the lienholders than such existing Lien;
(l) (x) Liens granted pursuant to the Security Documents to secure the Secured
Obligations, (y) Liens securing Indebtedness permitted to be incurred pursuant to
Section 6.01(k), which may extend to Collateral on either a junior basis or an equal
and ratable basis with the Secured Obligations, in each case, subject to intercreditor
arrangements reasonably satisfactory to the Supermajority Lenders, and (z) Liens securing
Indebtedness permitted to be incurred pursuant to Section 6.01(l), so long as such
Liens, to the extent covering Collateral, are junior to the liens granted pursuant to the
Security Documents, subject to intercreditor arrangements reasonably satisfactory to the
Supermajority Lenders;
(m) licenses of Intellectual Property granted by any Company in the ordinary course of
business and not interfering in any material respect with the ordinary conduct of business
of the Companies;
(n) the filing of UCC financing statements solely as a precautionary measure in
connection with operating leases or consignment of goods; and
(o) Liens with respect to obligations that do not in the aggregate exceed $5.0 million
at any time outstanding, so long as, other than any such Liens securing obligations of up to
$1.0
75
million, such Liens to the extent covering any Collateral are junior to the Liens
granted pursuant to the Security Documents.
SECTION 6.03 Sale and Leaseback Transactions. Enter into any arrangement, directly or indirectly,
with any person whereby it shall sell or transfer any property, real or personal, used or useful in
its business, whether now owned or hereafter acquired, and thereafter rent or lease such property
or other property which it intends to use for substantially the same purpose or purposes as the
property being sold or transferred (a “Sale and Leaseback Transaction”) unless (i) the sale of such
property is permitted by Section 6.06 and (ii) any Liens arising in connection with its use
of such property are permitted by Section 6.02.
SECTION 6.04 Investment, Loan and Advances. Directly or indirectly, lend money or credit (by way
of guarantee or otherwise) or make advances to any person, or purchase or acquire any stock, bonds,
notes, debentures or other obligations or securities of, or any other interest in, or make any
capital contribution to, any other person, or purchase or own a futures contract or otherwise
become liable for the purchase or sale of currency or other commodities at a future date in the
nature of a futures contract (all of the foregoing, collectively, “Investments”), except that the
following shall be permitted:
(a) the Companies may consummate the Transactions in accordance with the provisions of
the Transaction Documents;
(b) Investments outstanding on the Effective Date;
(c) the Companies may (i) acquire and hold accounts receivables owing to any of them if
created or acquired in the ordinary course of business and payable or dischargeable in
accordance with customary terms, (ii) invest in, acquire and hold cash and Cash Equivalents,
(iii) endorse negotiable instruments held for collection in the ordinary course of business
or (iv) make lease, utility and other similar deposits in the ordinary course of business;
(d) Hedging Obligations incurred pursuant to Section 6.01(c);
(e) loans and advances to directors, employees and officers of any Borrower and any of
its Subsidiaries for bona fide business purposes and to purchase Equity Interests of
Holdings, in aggregate amount not to exceed $1.0 million at any time outstanding;
(f) Investments by any Company in any other Company; provided that (i) any Investment
in the form of a loan or advance to any such Company (whether or not a Subsidiary Guarantor)
shall be pledged as Collateral pursuant to the Security Documents, (ii) to the extent any
such loans or advances in an amount exceeding $500,000 (individually or in the aggregate) is
evidenced by an Intercompany Loan Document, such Intercompany Loan Document shall be
delivered to the Collateral Agent, accompanied by instruments of transfer, undated and
endorsed in blank, and (iii) the equity interests of any Subsidiary of Holdings into which
any such Investment is made shall be pledged as additional security for the Secured
Obligations pursuant to the Security Documents;
(g) Investments in securities of trade creditors or customers in the ordinary course of
business received upon foreclosure or pursuant to any plan of reorganization or liquidation
or similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers;
76
(h) Investments made by any Borrower or any Subsidiary as a result of consideration
received in connection with an Asset Sale made in compliance with Section 6.06;
(i) Investments constituting Contingent Obligations permitted by Section 6.01;
(j) Investments constituting Permitted Acquisitions; and
(k) other investments in an aggregate amount not to exceed $10.0 million at any time
outstanding.
Notwithstanding anything to the contrary set forth in this Section 6.04, Investments
in Non-Guarantor Subsidiaries will not be deemed permitted under this Section 6.04 if the
aggregate value of (i) all Investments in such Non-Guarantor Subsidiaries (the value of which is
measured at the time of such Investment) and (ii) all transfers of assets to such Non-Guarantor
Subsidiaries (the value of which is measured at the time of such transfers of assets) exceeds an
amount equal to 20% of the Total Assets of Holdings and its Subsidiaries that are Subsidiary
Guarantors.
SECTION 6.05 Mergers and Consolidations. Wind up, liquidate or dissolve its affairs or enter into
any transaction of merger or consolidation (or agree to do any of the foregoing at any future
time), except that the following shall be permitted:
(a) the Transactions as contemplated by the Transaction Documents;
(b) Asset Sales in compliance with Section 6.06;
(c) acquisitions in compliance with Section 6.07;
(d) (i) any Company may merge or consolidate with or into any Borrower or any
Subsidiary Guarantor (as long as such Borrower is the surviving person in the case of any
merger or consolidation involving such Borrower and a Subsidiary Guarantor is the surviving
person and remains a Wholly Owned Subsidiary of Holdings in any other case); (ii) any
Non-Subsidiary Guarantor may merge or consolidate with any other Non-Subsidiary Guarantor;
and (iii) any Subsidiary of Holdings organized under the laws of the United States or any
political subdivision thereof may merge with Holdings (so long as Holdings is the surviving
person) or any other such Subsidiary organized under such laws (so long as the surviving
person is a Subsidiary Guarantor); provided that in the case of each of clauses (i), (ii)
and (iii), the Lien on and security interest in such property granted or to be granted in
favor of the Collateral Agent under the Security Documents shall be maintained or created in
accordance with the provisions of Section 5.10 or Section 5.11, as
applicable; and
(e) any Subsidiary may dissolve, liquidate or wind up its affairs at any time; provided
that such dissolution, liquidation or winding up, as applicable, could not reasonably be
expected to have a Material Adverse Effect.
To the extent the Required Lenders waive the provisions of this Section 6.05 with
respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section
6.05, such Collateral
(unless sold to a Company) shall be sold free and clear of the Liens created by the Security
Documents, and the Agents shall take all actions they deem appropriate in order to effect the
foregoing.
77
SECTION 6.06 Asset Sales. Effect any Asset Sale, or agree to effect any Asset Sale, except that
the following shall be permitted:
(a) disposition of used, worn out, obsolete or surplus property by any Company in the
ordinary course of business and the abandonment or other disposition of Intellectual
Property that is, in the reasonable judgment of Borrowers, no longer economically
practicable to maintain or useful in the conduct of the business of the Companies taken as a
whole;
(b) Asset Sales; provided that the aggregate consideration received in respect of all
Asset Sales pursuant to this clause (b) shall not exceed $10.0 million in any four
consecutive fiscal quarters of Borrowers;
(c) leases of real or personal property in the ordinary course of business and in
accordance with the applicable Security Documents;
(d) the Transactions as contemplated by the Transaction Documents;
(e) mergers and consolidations in compliance with Section 6.05; and
(f) Investments in compliance with Section 6.04.
To the extent the Required Lenders waive the provisions of this Section 6.06 with
respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section
6.06, such Collateral (unless sold to a Company) shall be sold free and clear of the Liens
created by the Security Documents, and the Agents shall take all actions they deem appropriate in
order to effect the foregoing.
SECTION 6.07 Acquisitions. Purchase or otherwise acquire (in one or a series of related
transactions) any part of the property (whether tangible or intangible) of any person (or agree to
do any of the foregoing at any future time), except that the following shall be permitted:
(a) Capital Expenditures by Borrowers and their Subsidiaries shall be permitted;
(b) purchases and other acquisitions of inventory, materials, equipment and intangible
property in the ordinary course of business and licenses of Intellectual Property in the
ordinary course of business;
(c) Investments in compliance with Section 6.04;
(d) leases of real or personal property in the ordinary course of business and in
accordance with the applicable Security Documents;
(e) the Transactions as contemplated by the Transaction Documents;
(f) Permitted Acquisitions; and
(g) mergers and consolidations in compliance with Section 6.05;
provided that the Lien on and security interest in such property granted or to be granted in favor
of the Collateral Agent under the Security Documents shall be maintained or created in accordance
with the provisions of Section 5.10 or Section 5.11, as applicable.
78
SECTION 6.08 Dividends. Authorize, declare or pay, directly or indirectly, any Dividends with
respect to any Company, except that the following shall be permitted:
(a) Dividends by any Company or any Subsidiary of any Company to Holdings, any Borrower
or any Guarantor that is a Wholly Owned Subsidiary of Holdings;
(b) payments to Holdings to permit Holdings, and the subsequent use of such payments by
Holdings, to repurchase or redeem Qualified Capital Stock of Holdings held by officers,
directors or employees or former officers, directors or employees (or their transferees,
estates or beneficiaries under their estates) of any Company, upon their death, disability,
retirement, severance or termination of employment or service; provided that the aggregate
cash consideration paid for all such redemptions and payments shall not exceed, in any
fiscal year, $2.0 million; provided further that this amount may be increased by an amount
not to exceed the sum of (i) the cash proceeds from the sale of Equity Interests of Holdings
and (ii) to the extent contributed to Holdings, cash proceeds from the sale of Equity
Interests of any of Holdings’ direct or indirect parent corporations, in each case to
current or former members of management, directors, managers or consultants of Holdings and
any of its Subsidiaries or any of its direct or indirect parent corporations that occurs
after the Effective Date and during the year of any such Dividend permitted by this
clause (b);
(c) Permitted Tax Distributions by Holdings to its investors and dividends and payments
to Holdings in an amount not to exceed such Permitted Tax Distributions for the purpose of
enabling Holding to make such Permitted Tax Distributions; and
(d) Dividends by Holdings equal to the portion of the Cumulative Credit on such date
that Holdings elects to apply pursuant to this Section 6.08(d); provided that no
Default or Event of Default has occurred and is continuing or result therefrom and after
giving effect thereto, the Total Leverage Ratio, on a Pro Forma Basis, is no greater than
3.0 to 1.0; provided, further that if any such Dividend is made from the Cumulative Credit
prior to the first Excess Cash Flow Prepayment required to be made pursuant to Section
2.09(b), the Borrowers shall concurrently prepay the Loans pursuant to Section
2.09(d) in an amount equal to such Dividend.
SECTION 6.09 Transactions with Affiliates. Enter into, directly or indirectly, any transaction or
series of related transactions, whether or not in the ordinary course of business, with any
Affiliate of any Company (other than between or among one or more Loan Parties), other than on
terms and conditions at least as favorable to such Company as would reasonably be obtained by such
Company at that time in a comparable arm’s-length transaction with a person other than an
Affiliate, except that the following shall be permitted:
(a) Dividends permitted by Section 6.08;
(b) Investments permitted by Sections 6.04(e) and (f);
(c) reasonable and customary director, officer and employee compensation (including
bonuses) and other benefits (including retirement, health, stock option and other
benefit plans) and indemnification arrangements, in each case approved by the Board of
Directors of the applicable Borrower;
79
(d) transactions with customers, clients, suppliers, joint venture partners or
purchasers or sellers of goods and services, in each case in the ordinary course of business
and otherwise not prohibited by the Loan Documents;
(e) So long as no Default exists and the Total Leverage Ratio, on a Pro Forma Basis, is
no greater than 3.0 to 1.0, the payment of management fees in an amount not to exceed $2.0
million in any fiscal year;
(f) the existence of, and the performance by any Loan Party of its obligations under
the terms of, any limited liability company, limited partnership or other Organizational
Document or securityholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party on the Effective Date, as in
effect on the Effective Date, and similar agreements that it may enter into thereafter;
provided, however, that the existence of, or the performance by any Loan Party of
obligations under, any amendment to any such existing agreement or any such similar
agreement entered into after the Effective Date shall only be permitted by this Section
6.09(f) to the extent not more adverse to the interest of the Lenders in any material
respect, when taken as a whole, than any of such documents and agreements as in effect on
the Effective Date;
(g) sales of Qualified Capital Stock of Holdings to Affiliates of any Borrower not
otherwise prohibited by the Loan Documents and the granting of registration and other
customary rights in connection therewith;
(h) any transaction with an Affiliate where the only consideration paid by any Loan
Party is Qualified Capital Stock of Holdings; and
(i) the Transactions as contemplated by the Transaction Documents.
SECTION 6.10 Minimum Liquidity.
Permit, on the last day of each fiscal quarter, the sum of qualified and unrestricted cash and
Cash Equivalents held by Loan Parties to be less than $12,500,000 (the “Liquidity Requirement”).
SECTION 6.11 Prepayments of Other Indebtedness; Modifications of Organizational Documents and Other
Documents, etc. Directly or indirectly:
(a) make (or give any notice in respect thereof) any voluntary or optional payment or
prepayment on or redemption or acquisition for value of, or any prepayment or redemption as
a result of any asset sale, change of control or similar event of any Subordinated
Indebtedness (the “Subordinated Indebtedness Payment”), unless, if after giving effect
thereto, the Total Leverage Ratio, on a Pro Forma Basis, is no greater than 3.0 to 1.0, then
any Subordinated Indebtedness Payment may be made up to an aggregate amount equal to the
Cumulative Credit; provided that if any such Subordinated Indebtedness Payment is made from
the Cumulative Credit prior to the date of the first Excess Cash Flow Prepayment required to
be made pursuant to Section 2.09(b), the Borrowers shall concurrently prepay the
Loans pursuant to Section 2.09(d) in an amount equal to such Subordinated Indebtedness
Payment.
(b) amend or modify, or permit the amendment or modification of, any provision of any
Transaction Document in any manner that is adverse in any material respect to the interests
of the Lenders; and
80
(c) terminate, amend, modify (including electing to treat any Pledged Interests (as
defined in the Security Agreement) as a “security” under Section 8-103 of the UCC) or change
any of its Organizational Documents (including by the filing or modification of any
certificate of designation) or any agreement to which it is a party with respect to its
Equity Interests (including any stockholders’ agreement), or enter into any new agreement
with respect to its Equity Interests, other than any such amendments, modifications or
changes or such new agreements which are not adverse in any material respect to the
interests of the Lenders; provided that Holdings may issue such Equity Interests, so long as
such issuance is not prohibited by Section 6.13 or any other provision of this
Agreement, and may amend its Organizational Documents to authorize any such Equity
Interests.
SECTION 6.12 Limitation on Certain Restrictions on Subsidiaries. Directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (a) pay dividends or make any other distributions on its capital stock
or any other interest or participation in its profits owned by any Borrower or any Subsidiary, or
pay any Indebtedness owed to a Borrower or a Subsidiary, (b) make loans or advances to any Borrower
or any Subsidiary or (c) transfer any of its properties to any Borrower or any Subsidiary, except
for such encumbrances or restrictions existing under or by reason of (i) applicable Requirements of
Law; (ii) this Agreement and the other Loan Documents; (iii) customary provisions restricting
subletting or assignment of any lease governing a leasehold interest of a Subsidiary; (iv)
customary provisions restricting assignment of any agreement entered into by a Subsidiary in the
ordinary course of business; (v) any holder of a Lien permitted by Section 6.02 restricting
the transfer of the property subject thereto; (vi) customary restrictions and conditions contained
in any agreement relating to the sale of any property permitted under Section 6.06 pending
the consummation of such sale; (vii) any agreement in effect at the time such Subsidiary becomes a
Subsidiary of a Borrower, so long as such agreement was not entered into in connection with or in
contemplation of such person becoming a Subsidiary of a Borrower; (viii) without affecting the Loan
Parties’ obligations under Section 5.10, customary provisions in partnership agreements,
limited liability company organizational governance documents, asset sale and stock sale agreements
and other similar agreements entered into in the ordinary course of business that restrict the
transfer of ownership interests in such partnership, limited liability company or similar person;
(ix) restrictions on cash or other deposits or net worth imposed by suppliers or landlords under
contracts entered into in the ordinary course of business; (x) any instrument governing
Indebtedness assumed in connection with any Permitted Acquisition, which encumbrance or restriction
is not applicable to any person, or the properties or assets of any person, other than the person
or the properties or assets of the person so acquired; (xi) in the case of any joint venture which
is not a Loan Party in respect of any matters referred to in clauses (b) and (c) above,
restrictions in such person’s Organizational Documents or pursuant to any joint venture agreement
or stockholders agreements solely to the extent of the Equity Interests of or property held in the
subject joint venture or other entity; or (xii) any encumbrances or restrictions imposed by any
amendments or refinancings that are otherwise permitted by the Loan Documents of the contracts,
instruments or obligations referred to in clauses (iii) or (viii) above; provided that such
amendments or refinancings are no more materially restrictive with respect to such encumbrances and
restrictions than those prior to such amendment or refinancing.
81
SECTION 6.13 Limitation on Issuance of Capital Stock.
(a) With respect to Holdings, issue any Equity Interest that is not Qualified Capital Stock.
(b) With respect to any Borrower or any Subsidiary, issue any Equity Interest (including by
way of sales of treasury stock) or any options or warrants to purchase, or securities convertible
into, any Equity Interest, except (i) for stock splits, stock dividends and additional issuances of
Equity Interests which do not decrease the percentage ownership of any Borrower or any Subsidiaries
in any class of the Equity Interest of such Subsidiary; (ii) Subsidiaries of any Borrower formed
after the Effective Date in accordance with Section 6.14 may issue Equity Interests to such
Borrower or the Subsidiary of such Borrower which is to own such Equity Interests; and (iii) any
Borrower may issue common stock that is Qualified Capital Stock to Holdings. All Equity Interests
issued in accordance with this Section 6.13(b) shall, to the extent required by
Sections 5.10 and 5.11 or any Security Agreement, be delivered to the Collateral
Agent for pledge pursuant to the applicable Security Agreement to the extent permitted by
applicable law.
SECTION 6.14 Limitation on Creation of Subsidiaries. Establish, create or acquire any additional
Subsidiaries without the prior written consent of the Required Lenders; provided that, without such
consent (i) any Borrower may establish or create one or more Wholly Owned Subsidiaries of such
Borrower; (ii) any Borrower may establish, create or acquire one or more Subsidiaries in connection
with an Investment made pursuant to Section 6.04(f); (iii) any Borrower may acquire one or
more Subsidiaries in connection with a Permitted Acquisition; or (iv) Holdings may acquire or form
one or more Subsidiaries in connection with a Permitted Acquisition, so long as, in each case,
Section 5.10(b) shall be complied with.
SECTION 6.15 Business.
(a) With respect to Holdings, engage in any business activities or have any properties or
liabilities, other than (i) the direct or indirect ownership of the Equity Interests of its
Subsidiaries in existence as of the Effective Date and any other Subsidiary acquired or formed by
Holdings in connection with a Permitted Acquisition, (ii) obligations under the Loan Documents and
(iii) activities and properties incidental to the foregoing clauses (i) and (ii).
(b) With respect to Borrowers and their Subsidiaries, engage (directly or indirectly) in any
business other than those businesses in which Borrowers and its Subsidiaries are engaged on the
Effective Date and activities incidental or related thereto.
SECTION 6.16 Limitation on Accounting Changes. Make or permit any change in accounting policies or
reporting practices, without the consent of the Required Lenders, which consent shall not be
unreasonably withheld, except changes that are required by GAAP.
SECTION 6.17 Fiscal Year. Change its fiscal year-end to a date other than December 31.
SECTION 6.18 [Intentionally Omitted].
SECTION 6.19 No Further Negative Pledge. Enter into any agreement, instrument, deed or lease which
prohibits or limits the ability of any Loan Party to create, incur, assume or suffer to exist any
Lien upon any of their respective properties or revenues, whether now owned or hereafter
82
acquired, or which requires the grant of any security for an obligation if security is granted
for another obligation, except the following: (1) this Agreement and the other Loan Documents; (2)
covenants in documents creating Liens permitted by Section 6.02 prohibiting further Liens
on the properties encumbered thereby; (3) any other agreement that does not restrict in any manner
(directly or indirectly) Liens created pursuant to the Loan Documents on any Collateral securing
the Secured Obligations and does not require the direct or indirect granting of any Lien securing
any Indebtedness or other obligation by virtue of the granting of Liens on or pledge of property of
any Loan Party to secure the Secured Obligations; and (4) any prohibition or limitation that (a)
exists pursuant to applicable Requirements of Law; (b) consists of customary restrictions and
conditions contained in any agreement relating to the sale of any property permitted under
Section 6.06 pending the consummation of such sale; (c) restricts subletting or assignment
of any lease governing a leasehold interest of a Borrower or a Subsidiary; (d) exists in any
agreement in effect at the time such Subsidiary becomes a Subsidiary of a Borrower, so long as such
agreement was not entered into in contemplation of such person becoming a Subsidiary; or (e) is
imposed by any amendments or refinancings that are otherwise permitted by the Loan Documents of the
contracts, instruments or obligations referred to in clause (3) or (5)(d); provided that such
amendments and refinancings are no more materially restrictive with respect to such prohibitions
and limitations than those prior to such amendment or refinancing.
SECTION 6.20 Anti-Terrorism Law; Anti-Money Laundering.
(a) Directly or indirectly, (i) knowingly conduct any business or engage in making or
receiving any contribution of funds, goods or services to or for the benefit of any person
described in Section 3.21; (ii) knowingly deal in, or otherwise engage in any transaction
relating to, any property or interests in property blocked pursuant to the Executive Order or any
other Anti-Terrorism Law; or (iii) knowingly engage in or conspire to engage in any transaction
that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of
the prohibitions set forth in any Anti-Terrorism Law (and the Loan Parties shall deliver to the
Lenders any certification or other evidence requested from time to time by any Lender in its
reasonable discretion, confirming the Loan Parties’ compliance with this Section 6.20).
(b) Cause or permit any of the funds of such Loan Party that are used to repay the Loans to be
derived from any unlawful activity with the result that the making of the Loans would be in
violation of any Requirement of Law.
SECTION 6.21 Embargoed Person. Cause or permit (a) any of the funds or properties of the Loan
Parties that are used to repay the Loans to constitute property of, or be beneficially owned
directly or indirectly by, any person subject to sanctions or trade restrictions under United
States law (“Embargoed Person” or “Embargoed Persons”) that is identified on (1) the “List of
Specially Designated Nationals and Blocked Persons” maintained by OFAC and/or on any other similar
list maintained by OFAC pursuant to any authorizing statute including, but not limited to, the
International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy
Act, 50 U.S.C. App. 1 et seq., and any Executive Order or Requirement of Law promulgated
thereunder, with the result that the investment in the Loan Parties (whether directly or
indirectly) is prohibited by a Requirement of Law, or the Loans made by the Lenders would be in
violation of a Requirement of Law, or (2) the Executive Order, any related enabling legislation or
any other similar Executive Orders; or (b) any Embargoed Person to have any direct or indirect
interest, of any nature whatsoever in the Loan Parties, with the result that the investment in the
Loan Parties (whether directly or indirectly) is prohibited by a Requirement of Law or the Loans
are in violation of a Requirement of Law.
83
SECTION 6.22 Limitation on Finance Subsidiary. Finance Subsidiary may not hold any material
properties, become liable for any material obligations, engage in any trade or business, or conduct
any business activity, other than (1) the issuance of its Equity Interests to Lux Borrower or any
Wholly Owned Subsidiary of Lux Borrower; (2) the incurrence of Indebtedness as a co-obligor or
guarantor, as the case may be, of any Indebtedness that is permitted to be incurred by Borrowers
under the Loan Documents; provided that the net proceeds of such Indebtedness are retained by Lux
Borrower or loaned to or contributed as capital to one or more Subsidiaries other than Finance
Subsidiary; and (3) activities incidental thereto. Neither Lux Borrower nor any Subsidiary thereof
shall engage in any transactions with Finance Subsidiary in violation of the immediately preceding
sentence.
SECTION 6.23 Preservation of Claims Under the Korean Opco Bank Guarantees. Make any payment or
take any other action that would reduce the obligations of Korean Opco under the Korean Opco Bank
Guarantee below an amount equal to the outstanding balance of the Secured Obligations at such time.
ARTICLE VII
GUARANTEE
SECTION 7.01 The Guarantee. The Guarantors (other than Korean Opco which has separately executed
the Korean Opco Bank Guarantee) hereby jointly and severally guarantee, as a primary obligor and
not as a surety to each Secured Party and their respective successors and assigns, the prompt
payment in full when due (whether at stated maturity, by required prepayment, declaration, demand,
by acceleration or otherwise) of the principal of and interest (including any interest, fees, costs
or charges that would accrue but for the provisions of the Title 11 of the United States Code after
any bankruptcy or insolvency petition under Title 11 of the United States Code) on the Loans made
by the Lenders to, and the Notes held by each Lender of, Borrowers, and all other Secured
Obligations from time to time owing to the Secured Parties by any Loan Party under any Loan
Document or any Hedging Agreement entered into with a counterparty that is a Secured Party, in each
case strictly in accordance with the terms thereof (such obligations being herein collectively
called the “Guaranteed Obligations”). The Guarantors hereby jointly and severally agree that if
Borrowers or other Guarantor(s) shall fail to pay in full when due (whether at stated maturity, by
acceleration or otherwise) any of the Guaranteed Obligations, the Guarantors will promptly pay the
same in cash, without any demand or notice whatsoever, and that in the case of any extension of
time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in
full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the
terms of such extension or renewal.
SECTION 7.02 Obligations Unconditional. The obligations of the Guarantors under Section
7.01 shall constitute a guaranty of payment and to the fullest extent permitted by applicable
Requirements of Law, are absolute, irrevocable and unconditional, joint and several, irrespective
of the value, genuineness, validity, regularity or enforceability of the Guaranteed Obligations of
Borrowers under this Agreement, the Notes, if any, or any other agreement or instrument referred to
herein or therein, or any substitution, release or exchange of any other guarantee of or security
for any of the Guaranteed Obligations, and, irrespective of any other circumstance whatsoever that
might otherwise constitute a legal or equitable discharge or defense of a surety or Guarantor
(except for payment in full). Without limiting the generality of the foregoing, it is agreed that
the occurrence of any one or more of the following shall not alter or impair the liability of the
Guarantors hereunder which shall remain absolute, irrevocable and unconditional under any and all
circumstances as described above:
84
(i) at any time or from time to time, without notice to the Guarantors, the time for
any performance of or compliance with any of the Guaranteed Obligations shall be extended,
or such performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this Agreement or the Notes,
if any, or any other agreement or instrument referred to herein or therein shall be done or
omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of
the Guaranteed Obligations shall be amended in any respect, or any right under the Loan
Documents or any other agreement or instrument referred to herein or therein shall be
amended or waived in any respect or any other guarantee of any of the Guaranteed Obligations
or any security therefor shall be released or exchanged in whole or in part or otherwise
dealt with;
(iv) any Lien or security interest granted to, or in favor of, any Lender, the
Collateral Trustee, the Collateral Agent or the Administrative Agent as security for any of
the Guaranteed Obligations shall fail to be perfected; or
(v) the release of any other Guarantor pursuant to Section 7.09.
The Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and
all notices whatsoever, and any requirement that any Secured Party exhaust any right, power or
remedy or proceed against any Borrower under this Agreement or the Notes, if any, or any other
agreement or instrument referred to herein or therein, or against any other person under any other
guarantee of, or security for, any of the Guaranteed Obligations. The Guarantors waive any and all
notice of the creation, renewal, extension, waiver, termination or accrual of any of the Guaranteed
Obligations and notice of or proof of reliance by any Secured Party upon this Guarantee or
acceptance of this Guarantee, and the Guaranteed Obligations, and any of them, shall conclusively
be deemed to have been created, contracted or incurred in reliance upon this Guarantee, and all
dealings among Borrowers and the Secured Parties shall likewise be conclusively presumed to have
been had or consummated in reliance upon this Guarantee. This Guarantee shall be construed as a
continuing, absolute, irrevocable and unconditional guarantee of payment without regard to any
right of offset with respect to the Guaranteed Obligations at any time or from time to time held by
Secured Parties, and the obligations and liabilities of the Guarantors hereunder shall not be
conditioned or contingent upon the pursuit by the Secured Parties or any other person at any time
of any right or remedy against Borrowers or against any other person which may be or become liable
in respect of all or any part of the Guaranteed Obligations or against any collateral security or
guarantee therefor or right of offset with respect thereto. This Guarantee shall remain in full
force and effect and be binding in accordance with and to the extent of its terms upon the
Guarantors and the successors and assigns thereof, and shall inure to the benefit of the Lenders,
and their respective successors and assigns, notwithstanding that from time to time during the term
of this Agreement there may be no Guaranteed Obligations outstanding.
SECTION 7.03 Reinstatement. The obligations of the Guarantors under this Article VII shall
be automatically reinstated if and to the extent that for any reason any payment by or on behalf of
Borrowers or other Loan Party in respect of the Guaranteed Obligations is rescinded or must be
otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise.
85
SECTION 7.04 Subrogation. Each Guarantor hereby agrees that until the indefeasible payment and
satisfaction in full in cash of all Guaranteed Obligations and the expiration and termination of
the Commitments of the Lenders under this Agreement it shall waive any claim and shall not exercise
any right or remedy, direct or indirect, arising by reason of any performance by it of its
guarantee in Section 7.01, whether by subrogation or otherwise, against Borrowers or any
other Guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed
Obligations.
SECTION 7.05 Remedies. The Guarantors jointly and severally agree that, as between the Guarantors
and the Lenders, the obligations of Borrowers under this Agreement and the Notes, if any, may be
declared to be forthwith due and payable as provided in Section 8.01 (and shall be deemed
to have become automatically due and payable in the circumstances provided in Section 8.01)
for purposes of Section 7.01, notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming automatically due and payable) as
against Borrowers and that, in the event of such declaration (or such obligations being deemed to
have become automatically due and payable), such obligations (whether or not due and payable by
Borrowers) shall forthwith become due and payable by the Guarantors for purposes of Section
7.01.
SECTION 7.06 Instrument for the Payment of Money. Each Guarantor hereby acknowledges that the
guarantee in this Article VII constitutes an instrument for the payment of money, and
consents and agrees that any Lender or Agent, at its sole option, in the event of a dispute by such
Guarantor in the payment of any moneys due hereunder, shall have the right to bring a motion-action
under New York CRPL Section 3213.
SECTION 7.07 Continuing Guarantee. The guarantee in this Article VII is a continuing
guarantee of payment, and shall apply to all Guaranteed Obligations whenever arising.
SECTION 7.08 General Limitation on Guarantee Obligations. In any action or proceeding involving
any state corporate limited partnership or limited liability company law, or any applicable state,
federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Guarantor under Section 7.01 would otherwise
be held or determined to be void, voidable, invalid or unenforceable, or subordinated to the claims
of any other creditors, on account of the amount of its liability under Section 7.01, then,
notwithstanding any other provision to the contrary, the amount of such liability shall, without
any further action by such Guarantor, any Loan Party or any other person, be automatically limited
and reduced to the highest amount that is valid and enforceable and not subordinated to the claims
of other creditors as determined in such action or proceeding.
SECTION 7.09 Release of Guarantors. If, in compliance with the terms and provisions of the Loan
Documents, all or substantially all of the Equity Interests or property of any Guarantor are sold
or otherwise transferred (a “Transferred Guarantor”) to a person or persons, none of which is a
Borrower or a Subsidiary, such Transferred Guarantor shall, upon the consummation of such sale or
transfer, be released from its obligations under this Agreement (including under Section
10.03 hereof) and its obligations to pledge and grant any Collateral owned by it pursuant to
any Security Document and, in the case of a sale of all or substantially all of the Equity
Interests of the Transferred Guarantor, the pledge of such Equity Interests to the Collateral Agent
pursuant to the Security Agreements shall be released, and the Collateral Agent shall take such
actions as are necessary to effect each release described in this Section 7.09 in
accordance with the relevant provisions of the Security Documents
86
SECTION 7.10 Provisions Applicable to Certain Guarantees. Notwithstanding any of the provisions of
Article VII, the Guaranteed Obligations of any Subsidiary Guarantor shall under no circumstances
whatsoever extend to include any monies, liabilities or obligations (including the Obligations)
which, if so included, would cause the infringement by any Subsidiary Guarantor of any of sections
151 to 154 (inclusive) of the United Kingdom Companies Act 1985 (as re-enacted or amended from time
to time).
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01 Events of Default. Upon the occurrence and during the continuance of the following
events (“Events of Default”):
(a) default shall be made in the payment of any principal of any Loan when and as the
same shall become due and payable, whether at the due date thereof or at a date fixed for
prepayment (whether voluntary or mandatory) thereof or by acceleration thereof or otherwise;
(b) default shall be made in the payment of any interest on any Loan or any fee or any
other amount (other than an amount referred to in paragraph (a) above) due under any Loan
Document, when and as the same shall become due and payable, and such default shall continue
unremedied for a period of three Business Days;
(c) any representation or warranty made or deemed made in or in connection with any
Loan Document or the borrowings hereunder, or any representation, warranty, statement or
information contained in any report, certificate, financial statement or other instrument
furnished in connection with or pursuant to any Loan Document, shall prove to have been
false or misleading in any material respect when so made, deemed made or furnished;
(d) default shall be made in the due observance or performance by any Company of any
covenant, condition or agreement contained in Section 5.02, 5.03(a) or
5.08 or in Article VI;
(e) default shall be made in the due observance or performance by any Company of any
covenant, condition or agreement contained in any Loan Document (other than those specified
in paragraphs (a), (b) or (d) immediately above) and such default shall continue unremedied
or shall not be waived for a period of thirty (30) days after written notice thereof from
the Administrative Agent or any Lender to Borrowers;
(f) any Company shall (i) fail to pay any principal or interest, regardless of amount,
due in respect of any Indebtedness (other than the Obligations), when and as the same shall
become due and payable beyond any applicable grace period, or (ii) fail to observe or
perform any other term, covenant, condition or agreement contained in any agreement or
instrument evidencing or governing any such Indebtedness if the effect of any failure
referred to in this clause (ii) is to cause, or to permit the holder or holders of such
Indebtedness or a trustee or other representative on its or their behalf (with or without
the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due
prior to its stated maturity or become subject to a mandatory offer purchase by the obligor;
provided that it shall not constitute an Event of Default pursuant to this paragraph (f)
unless the aggregate amount of all such Indebtedness referred to in clauses (i) and (ii)
exceeds $3.0 million at any one time (provided that, in the case
87
of Hedging Obligations, the amount counted for this purpose shall be the amount payable
by all Companies if such Hedging Obligations were terminated at such time);
(g) an involuntary proceeding shall be commenced or an involuntary petition shall be
filed or any application shall be made in a court of competent jurisdiction seeking (i)
relief in respect of any Company, or of a substantial part of the property of any Company,
under Title 11 of the Code, as now constituted or hereafter amended, or any other federal,
state or foreign bankruptcy, insolvency, receivership or similar law in any jurisdiction;
(ii) the appointment of a receiver, administrator, administrative receiver, liquidator,
trustee, custodian, sequestrator, conservator or similar official for any Company or for a
substantial part of the property of any Company; or (iii) the suspension of payments, a
moratorium of any indebtedness, bankruptcy, dissolution, administration, examination,
reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise), the
winding-up or liquidation of any Company; and (other than with respect to the UK Sales
Subsidiary) such proceeding or petition shall continue undismissed for 60 days or an order
or decree approving or ordering any of the foregoing shall be entered;
(h) any Company shall (i) voluntarily commence any proceeding or file 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 in any jurisdiction; (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or the filing of any petition described in
clause (g) above; (iii) apply for or consent to the appointment of a receiver,
administrator, administrative receiver, liquidator, trustee, custodian, sequestrator,
conservator or similar official for any Company or for a substantial part of the property of
any Company; (iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding; (v) make a general assignment for the benefit of
creditors; (vi) become unable, admit in writing its inability or fail generally to pay its
debts as they become due including, in the case of the UK Sales Subsidiary, within the
meaning of subsections 123(1)(a), (b), (c) or (d) of the United Kingdom Insolvency Act of
1986; (vii) take any action for the purpose of effecting any of the foregoing; (viii) wind
up or liquidate; (ix) suspend making payments on any of its debts or, by reason of actual or
anticipated financial difficulties, commence negotiations with one or more of its creditors
with a view to rescheduling any of its indebtedness, (x) declare or institute a moratorium
in respect of any of its indebtedness; (xi) enter into a composition, compromise, assignment
or arrangement with any creditor of any Loan Party; or (xii) the value of the assets of the
UK Sales Subsidiary is less than its liabilities (taking into account contingent and
prospective liabilities);
(i) one or more judgments, orders or decrees for the payment of money in an aggregate
amount in excess of $1,000,000 shall be rendered against any Company or any combination
thereof and the same shall remain undischarged, unvacated or unbonded for a period of 30
consecutive days during which execution shall not be effectively stayed, or any action shall
be legally taken by a judgment creditor to levy upon properties of any Company to enforce
any such judgment;
(j) one or more ERISA Events or noncompliance with respect to Foreign Plans shall have
occurred that, in the opinion of the Required Lenders, when taken together with all other
such ERISA Events and noncompliance with respect to Foreign Plans that have occurred, could
reasonably be expected to result in liability of any Company and its ERISA Affiliates in an
88
aggregate amount exceeding $1,000,000 or in the imposition of a Lien on any properties
of a Company;
(k) any security interest and Lien purported to be created by any Security Document
with respect to property in excess of $500,000 in value shall cease to be in full force and
effect, or shall cease to give the Collateral Agent, for the benefit of the Secured Parties,
or the Collateral Trustee, as applicable, the Liens, rights, powers and privileges purported
to be created and granted under such Security Document (including a perfected first priority
security interest in and Lien on all of the Collateral thereunder (except as otherwise
expressly provided in such Security Document)) in favor of the Collateral Agent or the
Collateral Trustee, as applicable, or shall be asserted by any Borrower or any other Loan
Party not to be a valid, perfected, first priority (except as otherwise expressly provided
in this Agreement or such Security Document) security interest in or Lien on the Collateral
covered thereby;
(l) any Loan Document or any material provisions thereof shall at any time and for any
reason be declared by a court of competent jurisdiction to be null and void, or a proceeding
shall be commenced by any Loan Party or any other person, or by any Governmental Authority,
seeking to establish the invalidity or unenforceability thereof (exclusive of questions of
interpretation of any provision thereof), or any Loan Party shall repudiate or deny any
portion of its liability or obligation for the Obligations;
(m) there shall have occurred a Change in Control;
(n) any Company shall be prohibited or otherwise restrained from conducting the
business theretofore conducted by it in any manner that has or could reasonably be expected
to result in a Material Adverse Effect by virtue of any determination, ruling, decision,
decree or order of any court or Governmental Authority of competent jurisdiction;
(o) Korean Opco is designated as a “failing company” under the CRPL; or
(p) the Clearing House suspends any current transactions of Korean Opco;
then, and in every such event (other than an event with respect to Holdings or any Borrower
described in paragraph (g), (h), (o) or (p) above), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of the Enforcement
Lenders shall, by notice to Borrowers, take either or both of the following actions, at the same or
different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then
outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the
Loans so declared to be due and payable, together with accrued interest thereon and any unpaid
accrued fees and all other Obligations of Borrowers accrued hereunder and under any other Loan
Document, shall become forthwith due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by Borrowers and the Guarantors,
anything contained herein or in any other Loan Document to the contrary notwithstanding; and in any
event, with respect to Holdings or any Borrower described in paragraph (g), (h), (o) or (p) above,
the Commitments shall automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and any unpaid accrued fees and all other Obligations of
Borrowers accrued hereunder and under any other Loan Document, shall automatically become due and
payable, without presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by Borrowers and the Guarantors, anything contained herein or in any other
Loan Document to the contrary notwithstanding.
89
SECTION 8.02 Application of Proceeds. The proceeds received by the Collateral Agent in respect of
any sale of, collection from or other realization upon all or any part of the Collateral pursuant
to the exercise by the Collateral Agent of its remedies shall be applied, in full or in part,
together with any other sums then held by the Collateral Agent pursuant to this Agreement, promptly
by the Collateral Agent as follows:
(a) First, to the payment of all reasonable costs and expenses, fees, commissions and
taxes of such sale, collection or other realization including compensation to the Collateral
Agent and its agents and counsel, and all expenses, liabilities and advances made or
incurred by the Collateral Agent in connection therewith and all amounts for which the
Collateral Agent is entitled to indemnification pursuant to the provisions of any Loan
Document, together with interest on each such amount at the highest rate then in effect
under this Agreement from and after the date such amount is due, owing or unpaid until paid
in full;
(b) Second, to the payment of all other reasonable costs and expenses of such sale,
collection or other realization including compensation to the other Secured Parties and
their agents and counsel and all costs, liabilities and advances made or incurred by the
other Secured Parties in connection therewith, together with interest on each such amount at
the highest rate then in effect under this Agreement from and after the date such amount is
due, owing or unpaid until paid in full;
(c) Third, without duplication of amounts applied pursuant to clauses (a) and (b)
above, to the indefeasible payment in full in cash, pro rata, of interest and other amounts
constituting Obligations (other than principal) and any fees, premiums and scheduled
periodic payments due under Hedging Agreements constituting Secured Obligations and any
interest accrued thereon, in each case equally and ratably in accordance with the respective
amounts thereof then due and owing;
(d) Fourth, to the indefeasible payment in full in cash, pro rata, of principal amount
of the Obligations and any breakage, termination or other payments under Hedging Agreements
constituting Secured Obligations and any interest accrued thereon; and
(e) Fifth, the balance, if any, to the person lawfully entitled thereto (including the
applicable Loan Party or its successors or assigns) or as a court of competent jurisdiction
may direct.
In the event that any such proceeds are insufficient to pay in full the items described in
clauses (a) through (e) of this Section 8.02, the Loan Parties shall remain liable, jointly
and severally, for any deficiency.
SECTION 8.03 Right to Cure. Notwithstanding anything to the contrary contained in Section
8.01, in the event that the Loan Parties fail (or, but for the operation of this Section
8.03, would fail) to comply with the Liquidity Requirement, until the expiration of the 30th
day subsequent to the fiscal quarter for which such failure to comply occurs, Holdings shall have
the right to issue Qualified Capital Stock (which does not provide for the making of mandatory
Dividends prior to the first anniversary of the Maturity Date) for cash or otherwise receive cash
contributions to the capital of Holdings, (collectively, the “Cure Right”), and upon the receipt by
Holdings of such cash (the “Cure Amount”) pursuant to the exercise by Holdings of such Cure Right
the covenant in Section 6.10 shall be recalculated giving effect to the Cure Amount and,
if, after giving effect to such adjustment, the Loan Parties shall then
90
be in compliance with the requirements of the Liquidity Requirement, the Loan Parties shall be
deemed to have satisfied the Liquidity Requirement as of the relevant date of determination with
the same effect as though there had been no failure to comply therewith at such date, and the
applicable breach or default of the Liquidity Requirement that had occurred shall be deemed cured
for the purposes of the Agreement; provided that in any four consecutive fiscal quarter period
there shall be at least two fiscal quarters in which no Cure Right has been exercised.
ARTICLE IX
THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT
SECTION 9.01 Appointment and Authority. Each of the Lenders hereby irrevocably appoints Wilmington
Trust FSB, to act on its behalf as the Administrative Agent and the Collateral Agent hereunder and
under the other Loan Documents and authorizes such Agents to take such actions on its behalf and to
exercise such powers as are delegated to such Agents by the terms hereof or thereof, together with
such actions and powers as are reasonably incidental thereto. The provisions of this Article are
solely for the benefit of the Administrative Agent, the Collateral Agent and the Lenders, and
neither any Borrower nor any other Loan Party shall have rights as a third party beneficiary of any
of such provisions.
SECTION 9.02 Rights as a Lender. Each person serving as an Agent hereunder shall have the same
rights and powers in its capacity as a Lender as any other Lender and may exercise the same as
though it were not an Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly
indicated or unless the context otherwise requires, include each person serving as an Agent
hereunder in its individual capacity. Such person and its Affiliates may accept deposits from,
lend money to, act as the financial advisor or in any other advisory capacity for and generally
engage in any kind of business with any Borrower or any Subsidiary or other Affiliate thereof as if
such person were not an Agent hereunder and without any duty to account therefor to the Lenders.
SECTION 9.03 Exculpatory Provisions. Agents and any of their respective officers, partners,
directors, employees or agents (each an “Indemnified Party”) shall not be liable to Lenders for any
action taken or omitted to be taken by any Agent (including the Prior Agent) under or in connection
with any of the Loan Documents except to the extent caused by such Agent’s gross negligence or
willful misconduct, as determined by a final, non-appealable judgment of a court of competent
jurisdiction. No such Agent shall have any duties or obligations except those expressly set forth
herein and in the other Loan Documents. Each Agent shall be entitled to refrain from any act or
the taking of any action (including the failure to take an action) in connection herewith or any of
the other Loan Documents or from the exercise of any power, discretion or authority vested in it
hereunder or thereunder unless and until such Agent shall have received instructions in respect
thereof from Required Lenders or Supermajority Lenders (or such other Lenders as may be required,
or as such Agent shall believe in good faith shall be necessary, to give such instructions under
Section 10.02) and, upon receipt of such instructions from Required Lenders or Supermajority
Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where
so instructed) refrain from acting, or to exercise such power, discretion or authority, in
accordance with such instructions. Agents may distribute documents, deliverables or other
materials to the Lenders for acceptance or rejection, and may, upon appropriate notice, rely on the
lack of an objection by Lenders as deemed approval of the action presented. Without prejudice to
the generality of the foregoing, (i) each Indemnified Party shall be entitled to rely, and shall be
fully protected in relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper Person or Persons and shall be
entitled to rely, and shall be fully protected in
91
relying, on opinions and judgments of attorneys (who may be attorneys for Borrower and its
Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no
Lender or Loan Party shall have any right of action whatsoever against any Indemnified Party as a
result of such Agent acting or (where so instructed) refraining from acting hereunder or under any
of the other Loan Documents in accordance with the instructions of Required Lenders, Supermajority
Lenders (or such other Lenders as may be required, or as such Agent shall believe in good faith
shall be necessary, to give such instructions under Section 10.02). Without limiting the
generality of the foregoing, no Agent:
(i) shall be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing;
(ii) shall have any duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or by the other
Loan Documents that such Agent is required to exercise as directed in writing by the
Required Lenders or the Supermajority Lenders (or such other number or percentage of the
Lenders as shall be expressly provided for herein or in the other Loan Documents); provided
that such Agent shall not be required to take any action that, in its judgment or the
judgment of its counsel, may expose such Agent to liability or that is contrary to any Loan
Document or applicable Requirements of Law; and
(iii) shall, except as expressly set forth herein and in the other Loan Documents, have
any duty to disclose, and shall not be liable for the failure to disclose, any information
relating to any Borrower or any of its Affiliates that is communicated to or obtained by the
person serving as such Agent or any of its Affiliates in any capacity.
No Agent shall be liable for any action taken or not taken by it (x) with the consent or at the
request of the Required Lenders, other than with respect to any items that are subject to the
consent of the Supermajority Lenders or another vote of Lenders as provided in this Agreement, in
which case such Agent shall obtain the consent of the Supermajority Lenders, (or such other Lenders
as shall be necessary, or as such Agent shall believe in good faith shall be necessary, under the
circumstances as provided in Section 10.02) or (y) in the absence of its own gross
negligence or willful misconduct. No Agent shall be deemed to have knowledge of any Default unless
and until notice describing such Default is given to such Agent by Borrowers or a Lender.
No Agent shall be responsible for or have any duty to ascertain or inquire into (i) any
statement, warranty or representation made in or in connection with this Agreement or any other
Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder
or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of
the covenants, agreements or other terms or conditions set forth herein or therein or the
occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this
Agreement, any other Loan Document or any other agreement, instrument or document or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein, other than to
confirm receipt of items expressly required to be delivered to such Agent. Without limiting the
generality of the foregoing, the use of the term “agent” in this Agreement with reference to the
Administrative Agent or the Collateral Agent is not intended to connote any fiduciary or other
implied (or express) obligations arising under agency doctrine of any applicable law. Instead,
such term us used merely as a matter of market custom and is intended to create or reflect only an
administrative relationship between independent contracting parties.
92
SECTION 9.04 Reliance by Agent. Each Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent, statement, instrument,
document or other writing (including any electronic message, Internet or intranet website posting
or other distribution) believed by it to be genuine and to have been signed, sent or otherwise
authenticated by the proper person. Each Agent also may rely upon any statement made to it orally
or by telephone and believed by it to have been made by the proper person, and shall not incur any
liability for relying thereon. In determining compliance with any condition hereunder to the
making of a Loan, that by its terms must be fulfilled to the satisfaction of a Lender, the
Administrative Agent may presume that such condition is satisfactory to such Lender unless the
Administrative Agent shall have received notice to the contrary from such Lender prior to the
making of such Loan. Each Agent may consult with legal counsel (who may be counsel for Borrowers),
independent accountants and other experts selected by it, and shall not be liable for any action
taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
SECTION 9.05 Delegation of Duties. Each Agent may perform any and all of its duties and exercise
its rights and powers hereunder or under any other Loan Document by or through any one or more
sub-agents appointed by such Agent. Each Agent and any such sub-agent may perform any and all of
its duties and exercise its rights and powers by or through their respective Related Parties. The
exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties
of each Agent and any such sub-agent, and shall apply to their respective activities in connection
with the syndication of the credit facilities provided for herein as well as activities as Agent.
Notwithstanding anything herein to the contrary, with respect to each Indemnified Party (other than
an Agent), including any sub-agent appointed by an Agent, (i) such sub-agent or other Indemnified
Party shall be a third party beneficiary under this Agreement with respect to all such rights,
benefits and privileges (including exculpatory rights and rights to indemnification) and shall have
all of the rights and benefits of a third party beneficiary, including an independent right of
action to enforce such rights, benefits and privileges (including exculpatory rights and rights to
indemnification) directly, without the consent or joinder of any other Person, against any or all
of the Loan Parties and the Lenders, (ii) no waiver, amendment or modification of such rights,
benefits and privileges (including exculpatory rights and rights to indemnification) shall be
effective with respect to any such sub-agent or other Indemnified Party without the consent of such
Person, and (iii) such sub-agent or other Indemnified Party shall only have obligations to such
Agent, and not to any Loan Party, Lender or any other Person and no Loan Party, Lender or any other
Person shall have any rights, directly or indirectly, as a third party beneficiary or otherwise,
against such sub-agent or other Indemnified Person.
SECTION 9.06 Resignation of Agent. Each Agent may at any time give notice of its resignation to
the Lenders and Borrowers. Upon receipt of any such notice of resignation, the Required Lenders
shall have the right, in consultation with Borrowers, to appoint a successor, which shall be a bank
with an office in the United States, or an Affiliate of any such bank with an office in the United
States. If no such successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Agent gives notice of its resignation,
then the retiring Agent may on behalf of the Lenders, appoint a successor Agent meeting the
qualifications set forth above provided that if the Agent shall notify Borrowers and the Lenders
that no qualifying person has accepted such appointment, then such resignation shall nonetheless
become effective in accordance with such notice and (1) the retiring Agent shall be discharged from
its duties and obligations hereunder and under the other Loan Documents (except that in the case of
any collateral security held by the Collateral Agent on behalf of the Lenders under any of the Loan
Documents, the retiring Collateral Agent shall continue to hold such collateral security as nominee
until such time as a successor Collateral Agent is appointed) and (2) all payments, communications
and determinations provided to be made by, to or through an Agent shall instead
93
be made by or to each Lender directly, until such time as the Required Lenders appoint a
successor Agent as provided for above in this paragraph. Upon the acceptance of a successor’s
appointment as Agent hereunder, such successor shall succeed to and become vested with all of the
rights, powers, privileges and duties of the retiring (or retired) Agent, and the retiring Agent
shall be discharged from all of its duties and obligations hereunder or under the other Loan
Documents (if not already discharged therefrom as provided above in this paragraph). The fees
payable by any Borrower to a successor Agent shall be the same as those payable to its predecessor
unless otherwise agreed between such Borrower and such successor. After the retiring Agent’s
resignation hereunder and under the other Loan Documents, the provisions of this Article IX
and Section 10.03 shall continue in effect for the benefit of such retiring Agent, its
sub-agents and their respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while the retiring Agent was acting as Agent.
SECTION 9.07 Non-Reliance on Agent and Other Lenders. Each Lender acknowledges that it has,
independently and without reliance upon any Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon any Agent or any other Lender and based on such documents and information as it shall
from time to time deem appropriate, continue to make its own decisions in taking or not taking
action under or based upon this Agreement, any other Loan Document or any related agreement or any
document furnished hereunder or thereunder.
SECTION 9.08 Agents Not Required to Advance Funds. Without limiting the foregoing, none of the
Agents shall be required to act hereunder or to advance its own funds or otherwise incur any
financial liability in the performance of its duties or the exercise of its rights hereunder and
under any other agreements or documents to which it is a party, and shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall receive further assurances to its
satisfaction from the Secured Parties (other than the Agents) of their indemnification obligations
under and in accordance with the provisions of Section 10.03 against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take or refraining from
taking any such action.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Notices.
(a) Generally. Except in the case of notices and other communications expressly
permitted to be given by telephone (and except as provided in paragraph (b) below), all notices and
other communications provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by telecopier as follows:
| (i) | if to any Loan Party, to Borrowers at: |
||
| c/o MagnaChip Semiconductor, Ltd. | |||
| 891 | Daechi-dong, Gangnam-gu | ||
| Seoul 135-738 Korea | |||
| Attention: General Counsel | |||
| Telecopier No.: +82-2-6903-3898 |
94
| (ii) | if to the Administrative Agent or the Collateral Agent, to it at: |
||
| Wilmington Trust FSB | |||
| 50 South Sixth Street, Suite 1290 | |||
| Minneapolis, MN 55402 | |||
| Attention: Renee Kuhl | |||
| Telecopier No.: 612-217-5651 |
(iii) if to a Lender, to it at its address (or telecopier number) set forth in its
Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall
be deemed to have been given when received; notices sent by telecopier shall be deemed to have been
given when sent (except that, if not given during normal business hours for the recipient, shall be
deemed to have been given at the opening of business on the next business day for the recipient).
Notices delivered through electronic communications to the extent provided in paragraph (b) below,
shall be effective as provided in said paragraph (b).
(b) Electronic Communications. Notices and other communications to the Lenders
hereunder may (subject to Section 10.01(d)) be delivered or furnished by electronic
communication (including e-mail and Internet or intranet websites) pursuant to procedures approved
by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender
pursuant to Article II if such Lender has notified the Administrative Agent that it is
incapable of receiving notices under such Article by electronic communication. The Administrative
Agent, the Collateral Agent or any Borrower may, in its discretion, agree to accept notices and
other communications to it hereunder by electronic communications pursuant to procedures approved
by it (including as set forth in Section 10.01(d)); provided that approval of such
procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications
sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement
from the intended recipient (such as by the “return receipt requested” function, as available,
return e-mail or other written acknowledgement); provided that if such notice or other
communication is not sent during the normal business hours of the recipient, such notice or
communication shall be deemed to have been sent at the opening of business on the next business day
for the recipient, and (ii) notices or communications posted to an Internet or intranet website
shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as
described in the foregoing clause (i) of notification that such notice or communication is
available and identifying the website address therefor.
(c) Change of Address, Etc. Any party hereto may change its address or telecopier
number for notices and other communications hereunder by notice to the other parties hereto.
(d) Posting. Each Loan Party hereby agrees that it will provide to the Administrative
Agent all information, documents and other materials that it is obligated to furnish to the
Administrative Agent pursuant to this Agreement and any other Loan Document, including all notices,
requests, financial statements, financial and other reports, certificates and other information
materials, but excluding any such communication that (i) relates to a request for a new, or a
conversion of an existing, Borrowing or other extension of credit (including any election of an
interest rate or interest period relating thereto);
95
(ii)relates to the payment of any principal or other amount due under this Agreement prior to the
scheduled date therefor; (iii) provides notice of any Default under this Agreement; or (iv) is
required to be delivered to satisfy any condition precedent to the effectiveness of this Agreement
and/or any borrowing or other extension of credit hereunder (all such non-excluded communications,
collectively, the “Communications”), by transmitting the Communications in an electronic/soft
medium in a format reasonably acceptable to the Administrative Agent at rkuhl@wilmingtontrust.com
or at such other e-mail address(es) provided to Borrowers from time to time or in such other form,
including hard copy delivery thereof, as the Administrative Agent shall require. In addition, each
Loan Party agrees to continue to provide the Communications to the Administrative Agent in the
manner specified in this Agreement or any other Loan Document or in such other form, including hard
copy delivery thereof, as the Administrative Agent shall require. Nothing in this Section
10.01 shall prejudice the right of the Agents, any Lender or any Loan Party to give any notice
or other communication pursuant to this Agreement or any other Loan Document in any other manner
specified in this Agreement or any other Loan Document or as any such Agent shall require.
To the extent consented to by the Administrative Agent in writing from time to time,
Administrative Agent agrees that receipt of the Communications by the Administrative Agent at its
e-mail address(es) set forth above shall constitute effective delivery of the Communications to the
Administrative Agent for purposes of the Loan Documents; provided that Borrowers shall also deliver
to the Administrative Agent an executed original of each Compliance Certificate required to be
delivered hereunder.
Each Loan Party further agrees that Administrative Agent may make the Communications available
to the Lenders by posting the Communications on Intralinks or a substantially similar electronic
transmission system (the “Platform”). The Platform is provided “as is” and “as available.” The
Agents do not warrant the accuracy or completeness of the Communications, or the adequacy of the
Platform and expressly disclaim liability for errors or omissions in the communications. No
warranty of any kind, express, implied or statutory, including, without limitation, any warranty of
merchantability, fitness for a particular purpose, non-infringement of third party rights or
freedom from viruses or other code defects, is made by any Agent in connection with the
Communications or the Platform. In no event shall the Administrative Agent or any of its Related
Parties have any liability to the Loan Parties, any Lender or any other person for damages of any
kind, including direct or indirect, special, incidental or consequential damages, losses or
expenses (whether in tort, contract or otherwise) arising out of any Loan Party’s or the
Administrative Agent’s transmission of communications through the Internet, except to the extent
the liability of such person is found in a final non-appealable judgment by a court of competent
jurisdiction to have resulted from such person’s gross negligence or willful misconduct.
SECTION 10.02 Waivers; Amendment.
(a) Generally. No failure or delay by any Agent or any Lender in exercising any right
or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of each Agent and the Lenders
hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of any Loan Document or
consent to any departure by any Loan Party therefrom shall in any event be effective unless the
same shall be permitted by this Section 10.02, and then such waiver or consent shall be
effective only in the specific instance and for the purpose
96
for which given. Without limiting the generality of the foregoing, the making of a Loan shall
not be construed as a waiver of any Default, regardless of whether any Agent or any Lender may have
had notice or knowledge of such Default at the time. No notice or demand on any Borrower in any
case shall entitle such Borrower to any other or further notice or demand in similar or other
circumstances.
(b) Required Consents. Subject to Section 10.02(c), and (d), neither
this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived,
amended, supplemented or modified except, in the case of this Agreement, pursuant to an agreement
or agreements in writing entered into by Borrowers and the Required Lenders or, in the case of any
other Loan Document, pursuant to an agreement or agreements in writing entered into by the
Administrative Agent, the Collateral Agent (in the case of any Security Document) and the Loan
Party or Loan Parties that are party thereto, in each case with the written consent of the Required
Lenders; provided that no such agreement shall be effective if the effect thereof would:
(i) increase the Commitment of any Lender without the written consent of such Lender
(it being understood that no amendment, modification, termination, waiver or consent with
respect to any condition precedent, covenant or Default shall constitute an increase in the
Commitment of any Lender);
(ii) reduce the principal amount of any Loan or reduce the rate of interest thereon
(other than interest pursuant to Section 2.06(c)), or reduce any fees payable
hereunder, or change the form or currency of payment of any Obligation, without the written
consent of each Lender directly affected thereby (it being understood that any amendment or
modification to the financial definitions in this Agreement shall not constitute a reduction
in the rate of interest for purposes of this clause (ii));
(iii) (A) change the scheduled final maturity of any Loan, (B) postpone the date for
payment of any interest or fees payable hereunder, (C) change the amount of, waive or excuse
any such payment (other than waiver of any increase in the interest rate pursuant to
Section 2.06(c)), or (D) postpone the scheduled date of expiration of any Commitment
beyond the Maturity Date, in any case, without the written consent of each Lender directly
affected thereby;
(iv) increase the maximum duration of Interest Periods hereunder, without the written
consent of each Lender directly affected thereby;
(v) permit the assignment or delegation by any Borrower of any of its rights or
obligations under any Loan Document, without the written consent of each Lender;
(vi) release Holdings, Korean Opco or all or substantially all of the Subsidiary
Guarantors from their Guarantee (except as expressly provided in Article VII), or
limit their liability in respect of such Guarantee, without the written consent of each
Lender;
(vii) release all or a substantial portion of the Collateral from the Liens of the
Security Documents or subordinate the priorities of the Liens of the Security Documents or
the Secured Obligations entitled to the Liens of the Security Documents, in each case
without the written consent of each Lender (it being understood that additional Classes of
Loans pursuant to Section 2.18 and Indebtedness incurred pursuant to Section
6.01(k) may be equally and ratably secured by the Collateral with the then existing
Secured Obligations under the Security Documents);
97
(viii) change Section 2.13(b) or (c) or Section 2.09(h) in a
manner that would alter the pro rata sharing of payments or setoffs required thereby or any
other provision in a manner that would alter the pro rata allocation among the Lenders of
Loan disbursements, including the requirements of Sections 2.02(a), 2.16(d),
2.17(d) and 8.02, without the written consent of each Lender directly
affected thereby;
(ix) change any provision of this Section 10.02(b) or Section 10.02(c)
or (d), without the written consent of each Lender directly affected thereby (except
for additional restrictions on amendments or waivers for the benefit of Lenders of
additional Classes of Loans pursuant to Section 2.18);
(x) change the percentage set forth in the definition of “Required Lenders,”
“Supermajority Lenders” or any other provision of any Loan Document (including this Section)
specifying the number or percentage of Lenders (or Lenders of any Class) required to waive,
amend or modify any rights thereunder or make any determination or grant any consent
thereunder, without the written consent of each Lender (or each Lender of such Class, as the
case may be);
(xi) change or waive any provision of Article X as the same applies to any
Agent, or any other provision hereof as the same applies to the rights or obligations of any
Agent, in each case without the written consent of such Agent;
(xii) expressly change or waive any condition precedent in Section 4.02 to any
Borrowing without the written consent of the Supermajority Lenders;
provided further that, to the extent that any Lender (together with any other Lender that is
a Controlled Investment Affiliate or a Related Party of such Lender) holds more than 50% of
the sum of all the Loans outstanding and unused Commitments, any amendments, supplements or
other modifications of any provision of any Loan Document (including any series of related
waivers, amendments, supplements or modifications) which are materially adverse to the
interests of the Lenders shall not be effective without the written consent of Supermajority
Lenders, it being understood that any of the following will be materially adverse to the
interests of the Lenders:
(i) changes to and waivers of Section 2.06(c), 2.08(c), 2.18,
6.07(f), 6.08, 6.09, 6.10, 6.11(a), 6.15,
8.03, 10.04(b)(iv), the definition of “Cumulative Credit” and the definition
of “Permitted Acquisition”, in each case, as in effect immediately prior to such change or
waiver;
(ii) changes to and waivers of Section 6.01, as in effect immediately prior to
such change or waiver, that permit the incurrence of additional Indebtedness or removes or
modifies the requirement that intercreditor arrangements are reasonably satisfactory to the
Supermajority Lenders;
(iii) changes to and waivers of Sections 6.02, 6.22 and 6.23,
in each case, as in effect immediately prior to such change or waiver, that adversely
affects the grant of and/or priority of the Liens on Collateral securing the Secured
Obligations;
98
(iv) changes to and waivers of Sections 6.04 or 6.06, in each case, as
in effect immediately prior to such change or waiver, that would permit additional cash or
other assets to be distributed, disposed of or otherwise transferred to the Permitted
Holders; and
(v) changes to and waivers of Section 5.10 that increase the dollar thresholds above
those set forth therein on the Effective Date.
(c) Collateral. Without the consent of any other person, the applicable Loan Party or
Parties and the Administrative Agent and/or Collateral Agent may (in its or their respective sole
discretion, or shall, to the extent required by any Loan Document) enter into any amendment or
waiver of any Loan Document, or enter into any new agreement or instrument, to effect the granting,
perfection, protection, expansion or enhancement of any security interest in any Collateral or
additional property to become Collateral for the benefit of the Secured Parties, or as required by
local law to give effect to, or protect any security interest for the benefit of the Secured
Parties, in any property or so that the security interests therein comply with applicable
Requirements of Law.
(d) Dissenting Lenders. If, in connection with any proposed change, waiver, discharge
or termination of the provisions of this Agreement as contemplated by Section 10.02(b), the
consent of the Required Lenders is obtained but the consent of one or more of such other Lenders
whose consent is required is not obtained, then Borrowers shall have the right to replace all, but
not less than all, of such non-consenting Lender or Lenders (so long as all non-consenting Lenders
are so replaced) with one or more persons pursuant to Section 2.15 so long as at the time
of such replacement each such new Lender consents to the proposed change, waiver, discharge or
termination.
SECTION 10.03 Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses. Borrowers shall pay (i) all reasonable out-of-pocket expenses
incurred by the Administrative Agent, the Collateral Agent, the Collateral Trustee, the Specified
Lender and their respective Affiliates (including the reasonable fees, charges and disbursements of
counsel for the Administrative Agent, the Collateral Agent, the Collateral Trustee and the
Specified Lender) in connection with the syndication of the credit facilities provided for herein
(including the obtaining and maintaining of CUSIP numbers for the Loans), the preparation,
negotiation, execution, delivery and administration of this Agreement and the other Loan Documents
or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable
out-of-pocket expenses (including the reasonable fees, charges and disbursements of a single
counsel) incurred by the Lenders (other than the Specified Lender) in connection with the
preparation, negotiation, execution, delivery and administration of the Loan Documents incurred on
or prior to the Effective Date; provided that, such expenses specified in clause (ii) shall in no
event exceed $70,000, (iii) all out-of-pocket expenses incurred by the Administrative Agent, the
Collateral Agent, the Collateral Trustee or any Lender (including the fees, charges and
disbursements of any counsel for the Administrative Agent, the Collateral Agent, the Collateral
Trustee or any Lender), in connection with the enforcement or protection of its rights (A) in
connection with this Agreement and/or the other Loan Documents, including its rights under this
Section 10.03, or (B) in connection with the Loans made hereunder, including all such
out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of
such Loans and (iv) all documentary and similar taxes and charges in respect of the Loan Documents.
(b) Indemnification by Borrowers. Borrowers shall, jointly and severally, indemnify
the Administrative Agent (and any sub-agent thereof), the Collateral Agent (and any sub-agent
thereof),
99
the Collateral Trustee, each Lender, and each Related Party of any of the foregoing persons
(each such person being called an “Indemnitee”) against, and hold each Indemnitee harmless from,
any and all losses, claims, damages, liabilities and related expenses (including the fees, charges
and disbursements of any counsel for any Indemnitee) incurred by any Indemnitee or asserted against
any Indemnitee by any third party or by any Borrower or any other Loan Party arising out of, in
connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan
Document or any agreement or instrument contemplated hereby or thereby, the performance by the
parties hereto of their respective obligations hereunder or thereunder or the consummation of the
transactions contemplated hereby or thereby; (ii) any Loan or the use or proposed use of the
proceeds therefrom; (iii) any actual or alleged presence or Release or threatened Release of
Hazardous Materials on, at, under or from any property owned, leased or operated by any Company at
any time, any violation of, noncompliance with, or liability or obligation under, any Environmental
Laws, any orders, requirements or demands of any Governmental Authority relating to any
Environmental Laws or Environmental Permits, or any Environmental Claim related in any way to any
Company; or (iv) any actual or prospective claim, litigation, investigation or proceeding relating
to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a
third party or by any Borrower or any other Loan Party, and regardless of whether any Indemnitee is
a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the
extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a
court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by any
Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s
obligations hereunder or under any other Loan Document, if such Borrower or such Loan Party has
obtained a final and nonappealable judgment in its favor on such claim as determined by a court of
competent jurisdiction.
(c) Reimbursement by Lenders. To the extent that any Borrower for any reason fails to
indefeasibly pay any amount required under paragraph (a) or (b) of this Section 10.03 to be
paid by it to the Administrative Agent (or any sub-agent thereof), the Collateral Agent, the
Collateral Trustee or any Related Party of any of the foregoing, each Lender severally agrees to
pay to the Administrative Agent (or any such sub-agent), the Collateral Agent (or any sub-agent
thereof), the Collateral Trustee or such Related Party, as the case may be, such Lender’s pro rata
share (determined as of the time that the applicable unreimbursed expense or indemnity payment is
sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim,
damage, liability or related expense, as the case may be, was incurred by or asserted against the
Administrative Agent (or any such sub-agent), the Collateral Trustee, the Collateral Agent (or any
sub-agent thereof) or against any Related Party of any of the foregoing acting for the
Administrative Agent (or any such sub-agent), the Collateral Agent (or any sub-agent thereof) or
the Collateral Trustee in connection with such capacity. For purposes hereof, a Lender’s “pro rata
share” shall be determined based upon its share of the sum of the total Loans Outstanding and
unused Commitments at the time.
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by
applicable Requirements of Law, no Loan Party shall assert, and each Loan Party hereby waives, any
claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as
a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated
hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds
thereof. No Indemnitee referred to in paragraph (b) above shall be liable for any damages arising
from the use by unintended recipients of any information or other materials distributed by it
through telecommunications, electronic or other information transmission systems in connection with
this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
100
(e) Payments. All amounts due under this Section shall be payable not later than 3
Business Days after demand therefore accompanied by appropriate invoices or other evidence of
amounts owed.
(f) Collateral Trustee as Third Party Beneficiary. The Collateral Trustee is hereby
made an express third party beneficiary of this Section 10.03.
SECTION 10.04 Successors and Assigns.
(a) Successors and Assigns Generally. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that none of the Borrowers may assign or otherwise transfer any of
its rights or obligations hereunder without the prior written consent of the Administrative Agent,
the Collateral Agent and each Lender and no Lender may assign or otherwise transfer any of its
rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the
provisions of paragraph (b) of this Section 10.04, (ii) by way of participation in
accordance with the provisions of paragraph (d) of this Section 10.04 or (iii) by way of
pledge or assignment of a security interest subject to the restrictions of paragraph (f) of this
Section (and any other attempted assignment or transfer by any Borrower or any Lender shall be null
and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any
person (other than the parties hereto, their respective successors and assigns permitted hereby,
Participants to the extent provided in paragraph (d) of this Section and, to the extent expressly
contemplated hereby, the other Indemnitees) any legal or equitable right, remedy or claim under or
by reason of this Agreement.
(b) Assignments by Lenders. Any Lender may at any time assign to one or more Eligible
Assignees all or a portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided that:
(i) except in the case of an assignment of the entire remaining amount of the assigning
Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to
a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the
aggregate amount of the Commitment (which for this purpose includes Loans outstanding
thereunder) or, if the applicable Commitment is not then in effect, the principal
outstanding balance of the Loans of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Assumption with respect to such assignment is
delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and
Assumption, as of the Trade Date) shall not be less than $5.0 million, unless the
Administrative Agent and, so long as no Default has occurred and is continuing, Borrowers
otherwise consent (each such consent not to be unreasonably withheld or delayed);
(ii) each partial assignment shall be made as an assignment of a proportionate part of
all the assigning Lender’s rights and obligations under this Agreement with respect to the
Loan or the Commitment assigned, except that this clause (ii) shall not prohibit any Lender
from assigning all or a portion of its rights and obligations among separate tranches on a
non-pro rata basis;
(iii) the parties to each assignment shall execute and deliver to the Administrative
Agent an Assignment and Assumption, together with a processing and recordation fee of
$3,500, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; and
101
(iv) in the case of an assignment to Borrowers, Holdings or any Subsidiary Guarantor,
(A) such assigned Loans or Commitments may not be further assigned to any person other than
to a Borrower, Holdings or any Subsidiary Guarantor, (B) the Borrowers, Holdings or any
Subsidiary Guarantor shall not be entitled to participate as a Lender in any Lender
meetings, (C) the Borrowers, Holdings or any Subsidiary Guarantor shall not be permitted to
vote in connection with any amendment, modification, waiver, consent or other action with
respect to the terms of any Loan Document, other than with respect to any such amendment,
modification, waiver, consent or other action described in clauses (i) through (xiv) of
Section 10.02(b); provided that no amendment, modification, waiver, consent or other
action to any Loan Document shall deprive the Borrowers, Holdings or any Subsidiary
Guarantor of its pro rata share of any payments to which it is entitled to share in its
capacity as a Lender under the Loan Documents; provided, further that the Administrative
Agent is authorized to automatically deem any Loans or unused Commitments held by any
Borrower, Holdings or any Subsidiary Guarantor to be voted (and, at the request of the
Supermajority Lenders, is authorized to appoint an independent third party reasonably
acceptable to such Supermajority Lenders as attorney in fact for any such Borrower, Holdings
or any such Subsidiary Guarantor with respect to such Loans and/or unused Commitments then
held by any such Borrower, Holdings or any such Subsidiary Guarantor to be voted) pro rata
according to the Loans and unused Commitments of all other Lenders in the aggregate (other
than any Borrower, Holdings or Subsidiary Guarantor that is a Lender) in connection with any
such amendment, modification, waiver, consent or other action (including, without
limitation, all voting and consent rights arising out of any bankruptcy or other insolvency
proceedings, including voting on any plan of reorganization), and (D) prior to consummating
any proposed assignment of the Loans and/or Commitments to Borrowers, Holdings or any
Subsidiary Guarantor (a “Proposed Assignment”), Borrowers, Holdings or such Subsidiary
Guarantor, as applicable, shall notify each Lender of the principal amount and purchase
price (specified as a percentage of par) of such Proposed Assignment and shall offer each
Lender the right to participate on a pro rata basis in such Proposed Assignment, which offer
shall remain open for at least five Business Days.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c)
of this Section 10.04, from and after the effective date specified in each Assignment and
Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent
of the interest assigned by such Assignment and Assumption, have the rights and obligations of a
Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Assumption, be released from its obligations under this
Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but
shall continue to be entitled to the benefits of Sections 2.11, 2.13, 2.15
and 10.03 with respect to facts and circumstances occurring prior to the effective date of
such assignment. Any assignment or transfer by a Lender of rights or obligations under this
Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement
as a sale by such Lender of a participation in such rights and obligations in accordance with
paragraph (d) of this Section 10.04.
(c) Register. The Administrative Agent, acting solely for this purpose as an agent of
Borrowers, shall maintain at one of its offices a copy of each Assignment and Assumption delivered
to it and a register for the recordation of the names and addresses of the Lenders, and the
Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and
Borrowers, the Administrative Agent, and the Lenders may treat each person whose name is recorded
in the Register pursuant to the
102
terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary. The Register shall be available for inspection by any Borrower, the Collateral
Agent and any Lender (with respect to its own interest only), at any reasonable time and from time
to time upon reasonable prior notice.
(d) Participations. Any Lender may at any time, without the consent of, or notice to,
any Borrower or the Administrative Agent sell participations to any person (other than a natural
person or any Borrower or any Affiliates of a Borrower or Subsidiaries) (each, a “Participant”) in
all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or
a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s
obligations under this Agreement shall remain unchanged; (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations; and (iii) such
Borrower, the Administrative Agent and the Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender’s rights and obligations under this Agreement.
Any agreement or instrument pursuant to which a Lender sells such a participation shall
provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve
any amendment, modification or waiver of any provision of the Loan Documents; provided that such
agreement or instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in clause (i), (ii) or (iii)
of the first proviso to Section 10.02(b) that affects such Participant. Subject to
paragraph (e) of this Section, Borrowers agree that each Participant shall be entitled to the
benefits of Sections 2.11, 2.12 and 2.14 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To
the extent permitted by law, each Participant also shall be entitled to the benefits of Section
10.08 as though it were a Lender, provided such Participant agrees to be subject to Section
2.14 as though it were a Lender.
(e) Limitations on Participant Rights. A Participant shall not be entitled to receive
any greater payment under Sections 2.11, 2.12 and 2.14 than the applicable
Lender would have been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made with Borrowers’ prior
written consent. A Participant shall not be entitled to the benefits of Section 2.14
unless Borrowers are notified of the participation sold to such Participant and such Participant
agrees, for the benefit of Borrowers, to comply with Section 2.14(e) as though it were a
Lender.
(f) Certain Pledges. Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations of such Lender,
including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that
no such pledge or assignment shall release such Lender from any of its obligations hereunder or
substitute any such pledgee or assignee for such Lender as a party hereto. In the case of any
Lender that is a fund that invests in bank loans, such Lender may, without the consent of Borrowers
or the Administrative Agent, collaterally assign or pledge all or any portion of its rights under
this Agreement, including the Loans and Notes or any other instrument evidencing its rights as a
Lender under this Agreement, to any holder of, trustee for, or any other representative of holders
of, obligations owed or securities issued, by such fund, as security for such obligations or
securities.
SECTION 10.05 Survival of Agreement. All covenants, agreements, representations and warranties made
by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement or any other Loan Document
103
shall be considered to have been relied upon by the other parties hereto and shall survive the
execution and delivery of the Loan Documents and the making of any Loans, regardless of any
investigation made by any such other party or on its behalf and notwithstanding that the Agents or
any Lender may have had notice or knowledge of any Default or incorrect representation or warranty
at the time any credit is extended hereunder, and shall continue in full force and effect as long
as the principal of or any accrued interest on any Loan or any fee or any other amount payable
under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or
terminated. The provisions of Sections 2.11, 2.13, 2.14 and Article
X shall survive and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the
Commitments or the termination of this Agreement or any provision hereof.
SECTION 10.06 Counterparts; Integration; Effectiveness; Electronic Execution.
(a) Counterparts; Integration; Effectiveness. This Agreement may be executed in
counterparts (and by different parties hereto in different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a single contract.
This Agreement and the other Loan Documents, and any separate letter agreements with respect to
fees payable to the Administrative Agent, constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and understandings, oral
or written, relating to the subject matter hereof. Except as provided in Section 4.01,
this Agreement shall become effective when it shall have been executed by the Administrative Agent
and when the Administrative Agent shall have received counterparts hereof that, when taken
together, bear the signatures of each of the other parties hereto. Delivery of an executed
counterpart of a signature page of this Agreement by telecopier shall be effective as delivery of a
manually executed counterpart of this Agreement.
(b) Electronic Execution of Assignments. The words “execution,” “signed,”
“signature,” and words of like import in any Assignment and Assumption shall be deemed to include
electronic signatures or the keeping of records in electronic form, each of which shall be of the
same legal effect, validity or enforceability as a manually executed signature or the use of a
paper-based recordkeeping system, as the case may be, to the extent and as provided for in any
applicable Requirement of Law, including the Federal Electronic Signatures in Global and National
Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state
laws based on the Uniform Electronic Transactions Act.
SECTION 10.07 Severability. Any provision of this Agreement held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity, illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 10.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each
Lender and each of their respective Affiliates is hereby authorized at any time and from time to
time, to the fullest extent permitted by applicable Requirements of Law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final, in whatever currency)
at any time held and other obligations (in whatever currency) at any time owing by such Lender or
any such Affiliate to or for the credit or the account of any Borrower or any other Loan Party
against any and all of the obligations of such Borrower or such Loan Party now or hereafter
existing under this Agreement or any other Loan Document to such Lender, irrespective of whether or
not such Lender shall have made any demand under
104
this Agreement or any other Loan Document and although such obligations of such Borrower or
such Loan Party may be contingent or unmatured or are owed to a branch or office of such Lender
different from the branch or office holding such deposit or obligated on such indebtedness. The
rights of each Lender and their respective Affiliates under this Section are in addition to other
rights and remedies (including other rights of setoff) that such Lender or its Affiliates may have.
Each Lender agrees to notify Borrowers and the Administrative Agent promptly after any such setoff
and application; provided that the failure to give such notice shall not affect the validity of
such setoff and application.
SECTION 10.09 Governing Law; Jurisdiction; Consent to Service of Process.
(a) Governing Law. This Agreement shall be construed in accordance with and governed
by the law of the State of New York, without regard to conflicts of law principles that would
require the application of the laws of another jurisdiction.
(b) Submission to Jurisdiction. Each Loan Party hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the United States District
Court of the Southern District of New York, and any appellate court from any thereof, in any action
or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of
any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all
claims in respect of any such action or proceeding may be heard and determined in such New York
State court or, to the fullest extent permitted by applicable law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any
right that the Administrative Agent or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement or any other Loan Document against any Loan Party or its
properties in the courts of any jurisdiction.
(c) Waiver of Venue. Each Loan Party hereby irrevocably and unconditionally waives,
to the fullest extent permitted by applicable Requirements of Law, 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 this Agreement or any other Loan Document in any court referred to in Section
10.09(b). Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by applicable Requirements of Law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) Service of Process. Each party hereto irrevocably consents to service of process
in any action or proceeding arising out of or relating to any Loan Document, in the manner provided
for notices (other than telecopier) in Section 10.01. Nothing in this Agreement or any
other Loan Document will affect the right of any party hereto to serve process in any other manner
permitted by applicable Requirements of Law.
SECTION 10.10 Waiver of Jury Trial. Each Loan Party hereby waives, to the fullest extent permitted
by applicable Requirements of Law, any right it may have to a trial by jury in any legal proceeding
directly or indirectly arising out of or relating to this Agreement, any other Loan Document or the
transactions contemplated hereby (whether based on contract, tort or any other theory). Each party
hereto (a) certifies that no representative, agent or attorney of any other party has represented,
expressly or otherwise, that such other party would not, in the event of litigation, seek to
enforce the
105
foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced
to enter into this Agreement by, among other things, the mutual waivers and certifications in this
Section.
SECTION 10.11 Obligations Joint and Several. The liability of the Borrowers for all amounts due to
any Agent, any Lender or any Indemnitees in respect of any of the Obligations shall be joint and
several regardless of which Borrower actually received Loans hereunder or the amount of such Loans
or the manner in which the Lenders or the Agents account for such Loans in their respective books
and records.
SECTION 10.12 Headings. Article and Section headings and the Table of Contents used herein are for
convenience of reference only, are not part of this Agreement and shall not affect the construction
of, or be taken into consideration in interpreting, this Agreement.
SECTION 10.13 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent
and the Lenders agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’
respective partners, directors, officers, employees, agents, advisors and other representatives (it
being understood that the persons to whom such disclosure is made will be informed of the
confidential nature of such Information and instructed to keep such Information confidential); (b)
to the extent requested by any regulatory authority purporting to have jurisdiction over it
(including any self-regulatory authority, such as the National Association of Insurance
Commissioners); (c) to the extent required by applicable Requirements of Law or by any subpoena or
similar legal process; (d) to any other party hereto; (e) in connection with the exercise of any
remedies hereunder or under any other Loan Document or any action or proceeding relating to this
Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder; (f)
subject to an agreement containing provisions substantially the same as those of this Section
10.13, to (i) any assignee of or Participant in, or any prospective assignee of or Participant
in, any of its rights or obligations under this Agreement, (ii) any actual or prospective
counterparty (or its advisors) to any swap or derivative transaction relating to any Borrower and
its obligations or (iii) any rating agency for the purpose of obtaining a credit rating applicable
to any Lender; (g) with the consent of Borrowers; or (h) to the extent such Information (x) becomes
publicly available other than as a result of a breach of this Section or (y) becomes available to
the Administrative Agent, any Lender or any of their respective Affiliates on a nonconfidential
basis from a source other than any Borrower. For purposes of this Section, “Information” means all
information received from any Borrower or any of its Subsidiaries relating to any Borrower or any
of its Subsidiaries or any of their respective businesses, other than any such information that is
available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure
by any Borrower or any of its Subsidiaries; provided that, in the case of information received from
any Borrower or any of its Subsidiaries after the date hereof, such information is clearly
identified at the time of delivery as confidential. Any person required to maintain the
confidentiality of Information as provided in this Section shall be considered to have complied
with its obligation to do so if such person has exercised the same degree of care to maintain the
confidentiality of such Information as such person would accord to its own confidential
information.
SECTION 10.14 USA PATRIOT Act Notice. Each Lender that is subject to the USA PATRIOT Act and the
Administrative Agent (for itself and not on behalf of any Lender) hereby notifies Borrowers that
pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record
information that identifies Borrowers, which information includes the name, address and tax
identification number of Borrowers and other information regarding Borrowers that will allow such
Lender or the Administrative Agent, as applicable, to identify Borrowers in accordance with the USA
106
PATRIOT Act. This notice is given in accordance with the requirements of the USA PATRIOT Act
and is effective as to the Lenders and the Administrative Agent.
SECTION 10.15 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any
time the interest rate applicable to any Loan, together with all fees, charges and other amounts
which are treated as interest on such Loan under applicable Requirements of Law (collectively, the
“Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable
Requirements of Law, the rate of interest payable in respect of such Loan hereunder, together with
all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent
lawful, the interest and Charges that would have been payable in respect of such Loan but were not
payable as a result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be increased (but not
above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the
Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.
SECTION 10.16 [Intentionally Omitted].
SECTION 10.17 Obligations Absolute. To the fullest extent permitted by applicable Requirements of
Law, all obligations of the Loan Parties hereunder shall be absolute and unconditional irrespective
of:
(a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition,
liquidation or the like of any Loan Party;
(b) any lack of validity or enforceability of any Loan Document or any other agreement
or instrument relating thereto against any Loan Party;
(c) any change in the time, manner or place of payment of, or in any other term of, all
or any of the Obligations, or any other amendment or waiver of or any consent to any
departure from any Loan Document or any other agreement or instrument relating thereto;
(d) any exchange, release or non-perfection of any other Collateral, or any release or
amendment or waiver of or consent to any departure from any guarantee, for all or any
of the Obligations;
(e) any exercise or non-exercise, or any waiver of any right, remedy, power or
privilege under or in respect hereof or any Loan Document; or
(f) any other circumstances which might otherwise constitute a defense available to, or
a discharge of, the Loan Parties.
SECTION 10.18 Judgment Currency.
(a) Each Borrower’s obligations hereunder and under the other Loan Documents to make payments
in Dollars (the “Obligation Currency”) shall not be discharged or satisfied by any tender or
recovery pursuant to any judgment expressed in or converted into any currency other than the
Obligation Currency, except to the extent that such tender or recovery results in the effective
receipt by the Administrative Agent or the respective Lender of the full amount of the Obligation
Currency expressed to be payable to the Administrative Agent or such Lender or under this Agreement
or the other
107
Loan Documents. If, for the purpose of obtaining or enforcing judgment against Borrower in
any court or in any jurisdiction, it becomes necessary to convert into or from any currency other
than the Obligation Currency (such other currency being hereinafter referred to as the “Judgment
Currency”) an amount due in the Obligation Currency, the conversion shall be made at the rate of
exchange (as quoted by the Administrative Agent or if the Administrative Agent does not quote a
rate of exchange on such currency, by a known dealer in such currency designated by the
Administrative Agent) determined, in each case, as of the Business Day immediately preceding the
day on which the judgment is given (such Business Day being hereinafter referred to as the
“Judgment Currency Conversion Date”).
(b) If there is a change in the rate of exchange prevailing between the Judgment Currency
Conversion Date and the date of actual payment of the amount due, each Borrower covenants and
agrees to pay, or cause to be paid, such additional amounts, if any (but in any event not a lesser
amount) as may be necessary to ensure that the amount paid in the Judgment Currency, when converted
at the rate of exchange prevailing on the date of payment, will produce the amount of the
Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated
in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency
Conversion Date.
(c) For purposes of determining the Relevant Currency Equivalent or any other rate of exchange
for this Section 10.18, such amounts shall include any premium and costs payable in
connection with the purchase of the Obligation Currency.
SECTION 10.19 Restatement of Pre-Petition Credit Agreement.
The parties hereto agree that on the Effective Date, the following transactions shall be
deemed to occur automatically, without further action by any party hereto:
(a) the Pre-Petition Credit Agreement shall be deemed to be amended and restated in its
entirety in the form of this Agreement;
(b) all existing “Obligations” (under and as defined in the Pre-Petition Credit Agreement)
under the Pre-Petition Credit Agreement (“Existing Obligations”) shall, to the extent not paid on
the Effective Date, be deemed to be Obligations outstanding hereunder;
(c) the guaranties and Liens in favor of administrative agent, collateral agent or collateral
trustee under the Pre-Petition Credit Agreement for the benefit of the lenders under the
Pre-Petition Credit Agreement securing payment of the Existing Obligations, whether registered,
recorded or otherwise perfected, shall remain in full force and effect and shall be continuing with
respect to the Obligations; and
(d) all references in the other Loan Documents to the Pre-Petition Credit Agreement shall be
deemed to refer without further amendment to this Agreement.
The parties hereto acknowledge and agree that this Agreement and the other Loan Documents do
not constitute a novation, payment and reborrowing or termination of the Existing Obligations and
that all such Existing Obligations are in all respects continued and outstanding as Obligations
under this Agreement with only the terms being modified from and after the Effective Date as
provided in this Agreement and the other Loan Documents.
[Signature Pages Follow]
108
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
| MAGNACHIP SEMICONDUCTOR S.A., a Luxembourg company |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| MAGNACHIP SEMICONDUCTOR FINANCE COMPANY, a Delaware limited liability company |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| MAGNACHIP SEMICONDUCTOR LLC, a Delaware limited liability company |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
| SUBSIDIARY GUARANTORS MAGNACHIP SEMICONDUCTOR, INC., a California company |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
| MAGNACHIP SEMICONDUCTOR SA HOLDINGS LLC, a Delaware limited liability company |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
| MAGNACHIP SEMICONDUCTOR LIMITED, a company
incorporated in England and Wales with registered number 05232381 |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
| MAGNACHIP SEMICONDUCTOR HOLDING COMPANY LIMITED, a company incorporated in the British Virgin Islands |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
| MAGNACHIP SEMICONDUCTOR, INC., a Japanese company |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
For execution as a deed: |
||||||||
SEALED WITH THE COMMON SEAL
|
) | |||||||
OF MAGNACHIP SEMICONDUCTOR
|
) | |||||||
LIMITED AND SIGNED
|
) | |||||||
BY |
) | |||||||
in the presence of:
|
) | |||||||
Witness: |
Witness: |
|||||||
Name:
|
Name: | |||||||
Address:
|
Address: |
Signature Page to Credit Agreement
| MAGNACHIP SEMICONDUCTOR LIMITED, a Taiwan company |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
| MAGNACHIP SEMICONDUCTOR B.V. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
| WILMINGTON TRUST FSB, as Administrative Agent and Collateral Agent |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
| AVENUE INVESTMENTS, L.P. |
||||
| By: | Avenue Partners, LLC, its General Partner | |||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
| GOLDMAN SACHS LENDING PARTNERS LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
| CITICORP NORTH AMERICA INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
Exhibit 10.2
Execution Copy
Intellectual Property License Agreement
This Intellectual Property License Agreement (this “Agreement”) is made and entered into
this 6 day of October, 2004, by and between MagnaChip Semiconductor, Ltd., a company organized and
existing under the Laws of the Republic of Korea (“Korea”), with offices at 1, Hyangjeong-dong,
Heungduk-gu, Cheongju-si, Chungcheongbuk-do, Korea (“Purchaser”), and Hynix Semiconductor Inc., a
corporation organized under the Laws of Korea, with offices at San 136-1, Ami-Ri, Bubal-Eub,
Ichon-Si. Kyoungki-Do, Korea (“Hynix”). Either Purchaser or Hynix may be referred to herein as a
“Party” or together as the “Parties,” as the case may require.
RECITALS
WHEREAS, Purchaser and Hynix have entered into a certain Business Transfer Agreement,
dated as of June 12, 2004, as amended (the “Business Transfer Agreement”) pursuant to which
Purchaser will acquire all of the Acquired Assets and assume all of the Assumed Liabilities upon
the terms and conditions set forth in the Business Transfer Agreement;
WHEREAS, the Parties wish to license to each other certain Intellectual Property in
accordance with the terms and conditions contained in this Agreement; and
WHEREAS, the execution and delivery of this Agreement is required by the Business
Transfer Agreement and is a condition to closing of the transactions contemplated thereunder.
NOW, THEREFORE, in consideration of the promises and the mutual covenants and
undertakings contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties, intending to be legally bound hereby, do
agree as follows:
| 1. | DEFINITIONS |
Capitalized terms used herein shall have the meanings ascribed to such terms in the
Business Transfer Agreement unless otherwise defined herein or as set forth below.
| 1.1. | “Confidential Information” means (i) all information and proprietary materials of Hynix which is not publicly known and is in the possession of, or disclosed by Hynix to, Purchaser or a representative of Purchaser and relating to Hynix’s business (after giving effect to the transactions contemplated by the Business Transfer Agreement), including but not limited to Hynix’s Intellectual Property and proprietary business information and (ii) all information and proprietary materials of Purchaser (after giving effect to the transactions contemplated by the Business Transfer Agreement) which is not publicly known and is in the possession of, or disclosed by Purchaser to, Hynix or a representative of Hynix and relating to Purchaser’s business, including but not limited to Purchaser’s Intellectual Property and proprietary business information. | ||
| 1.2. | “Hynix Licensed Intellectual Property” means any Intellectual Property (other than Purchaser Licensed Intellectual Property (as defined below)) of Hynix and/or |
| any Subsidiaries of Hynix, as such Intellectual Property existed as of the Closing Date; provided however that Hynix shall have the right to delete, from time to time, from the definition of Hynix Licensed Intellectual Property, any Patents (as defined below) which Hynix chooses in its sole discretion to abandon. In the case that Hynix abandons any Patent(s) as permitted pursuant to the foregoing sentence, notwithstanding any other provision to the contrary, the license granted under this Agreement for such Patent shall immediately terminate. |
| 1.3. | “Intellectual Property” means patents, patent applications, utility models, utility model applications and industrial design registrations and applications, together with any continuations, continuations-in-part or divisional applications thereof, and all patents issued or issuing thereon and unfiled invention disclosures (the “Patents”), as well as other technology, know-how, trade secrets, processes, formulae, technical information, designs, data, documentation, drawings, plans, specifications, formulations, methods, procedures and reports, and other general and specific knowledge, experience, techniques and information, in written or machine-readable form and otherwise (collectively, the “Know-How”), the mask work rights/chip layout (regardless of registration) (“Mask Works”), and software and copyrights (including without limitation computer programs and computer program registrations and applications) (“Copyrights”), but expressly excluding for purposes of this definition, trademarks, service marks, trade names, logotypes, slogans, and trade dress associated therewith and/or product or part identification codes (“Trademarks”) and applications for Trademarks. | ||
| 1.4. | “Purchaser ‘022 Patents’” means U.S. Patent No. 5,438,022 and its foreign counterparts that are part of the Acquired Assets which have been transferred to Purchaser under the Business Transfer Agreement. | ||
| 1.5. | “Purchaser Licensed Intellectual Property” means those of the Acquired Assets which are Intellectual Property, as such Intellectual Property existed as of the Closing Date; provided however that Purchaser shall have the right to delete, from time to time, from the definition of Purchaser Licensed Intellectual Property, any Patents which Purchaser chooses in its sole discretion to abandon. In the case that Purchaser abandons any Patent(s) as permitted pursuant to the foregoing sentence, notwithstanding any other provisions to the contrary, the license granted under this Agreement for such Patent shall immediately terminate. |
| 2. | LICENSE GRANT TO PURCHASER |
| 2.1. | LICENSED INTELLECTUAL PROPERTY |
| (a) | As of the Closing Date and subject to the terms and conditions of this Agreement, Hynix hereby grants to Purchaser and its Subsidiaries a perpetual, worldwide, paid-up, royalty-free, non-exclusive, non-transferable (except as permitted under Section 7.13 of this Agreement) right and personal license under and to the Hynix Licensed Intellectual Property to (i) with respect to the Hynix Licensed Intellectual Property which are Patents related or directed to semiconductor products or their method of manufacture (“Product Patents”), design, develop, manufacture, have |
2
| manufactured, make, have made, use, lease, offer for sale, sell, export and import, package, modify or otherwise dispose of (A) any semiconductor product(s) other than Memory Products, and/or (B) Memory Products which Purchaser manufactures for Hynix and/or any Subsidiary(ies) of Hynix, (ii) copy, have copied, use or have used any other manufacturing technology included in the Hynix Licensed Intellectual Property to design, develop, manufacture, have manufactured, make or have made, package or modify (A) any semiconductor product(s) other than Memory Products, and/or (B) Memory Products which Purchaser manufactures for Hynix and/or any Subsidiary(ies) of Hynix; and (iii) with respect to Hynix Licensed Intellectual Property which are not Products Patents or other manufacturing technology, to copy and use such Hynix Licensed Intellectual Property, and to create derivative works thereof and copy and use such derivative works, in the conduct of its business; provided, however, that with respect to softwares which are Hynix Licensed Intellectual Property, the license granted hereunder shall be limited to such softwares existing as of the Closing Date and which are used or have been used in the Business on or prior to the Closing Date. For the avoidance of doubt and without limiting the foregoing sentence, the Parties agree that the license granted hereunder shall include the following softwares: ADMS, IP Web, Legal System and EGGS (Employee/Officer General Supporting System). In addition, for the avoidance of doubt, and notwithstanding the foregoing or any other provision to the contrary, Purchaser shall have the right to create any improvements, developments, enhancements, modifications, and/or derivative works to the Hynix Licensed Intellectual Property. | |||
| (b) | Notwithstanding the foregoing or any other provision of this Agreement to the contrary, nothing in this Section 2.1 shall be interpreted to allow Purchaser or any Subsidiary of Purchaser to, directly or indirectly, take any action that would violate the covenant not to compete in Section 6.4 of the Business Transfer Agreement. |
| 2.2. | SOFTWARE | ||
| As of the Closing Date and subject to the terms and conditions of this Agreement, Hynix hereby agrees to transfer to Purchaser, with respect to each commercial and custom software application, (a) with respect to the software applications on Schedule 2.2, that number of software licenses (that is, individual installations or usage rights) as is listed on Schedule 2.2 and (b) with respect to all other software applications, a number of software licenses equal to the number used by the Business as of the Closing Date; provided, however, that the on-going costs and expenses related to such software applications accrued after the Closing Date will be borne solely by Purchaser. |
3
| 2.3. | HYNIX REGISTERED USER REQUIREMENTS | ||
| Hynix may, on behalf of both Parties and at its expense, take such action, in its sole discretion, that it deems necessary or desirable with respect to compliance with registered user or similar filing requirements of, or to otherwise cause the license granted by Hynix under this Agreement to be registered with, the appropriate authorities of the government of any jurisdiction. In addition, Hynix shall, on behalf of both Parties, take such other requested action with respect to compliance with registered user or similar filing requirements of, or to otherwise cause the license granted by Hynix under this Agreement to be registered with, the appropriate authorities of the government of any jurisdiction upon, the reasonable request of Purchaser and at Purchaser’s expense. | |||
| 2.4. | HYNIX OBLIGATIONS REGARDING PROSECUTION AND MAINTENANCE OF PATENTS AND ABANDONMENT | ||
| Hynix shall have no obligation to Purchaser with respect to the prosecution or injunction of any infringement, violation, misappropriation and/or interference by third parties with respect to the Hynix Licensed Intellectual Property or any associated intellectual property rights. For Patents that are abandoned as permitted in Section 1.2, Hynix shall have no further obligation to Purchaser with respect to such Patents after the abandonment of such Patents. |
| 3. | LICENSE GRANT TO HYNIX |
| 3.1. | LICENSE GRANT |
| (a) | As of the Closing Date and subject to the terms and conditions of this Agreement, Purchaser hereby grants to Hynix and its Subsidiaries a perpetual, worldwide, paid-up, royalty-free, non-exclusive, non-transferable (except as permitted under Section 7.13 of this Agreement) right and personal license under and to the Purchaser Licensed Intellectual Property to (i) with respect to the Purchaser Licensed Intellectual Property which are Product Patents, design, develop, manufacture, have manufactured, make, have made, use, lease, offer for sale, sell, export and import, package, modify or otherwise dispose of any semiconductor product(s), (ii) copy, have copied, use or have used any other manufacturing technology included in the Purchaser Licensed Intellectual Property to design, develop, manufacture, have manufactured, make or have made, package or modify any semiconductor product(s), and (iii) with respect to Purchaser Licensed Intellectual Property which are not Product Patents or other manufacturing technology; to copy and use such Purchaser Licensed Intellectual Property, and to create derivative works thereof and copy and use such derivative works, in the conduct of its business. For the avoidance of doubt, and notwithstanding the foregoing or any other provision to the contrary, Hynix shall have the right to create any improvements, developments, enhancements, modifications, and/or derivative works to the Purchaser Licensed Intellectual Property. | ||
| (b) | Notwithstanding the foregoing, nothing in this Agreement shall be interpreted to allow Hynix and/or any Hynix Subsidiary(ies) to directly or indirectly, take any action that would violate the covenant not to compete in Section 6.4 of the Business Transfer Agreement. |
4
| (c) | Purchaser agrees that its and its Subsidiaries’ rights to the Purchaser ‘022 Patents’ will be subject to all licenses Hynix has granted to third parties which were in effect as of June 12, 2004. In addition, in connection with claims against Hynix with respect to the infringement, violation or misappropriation of and/or interference with the intellectual property rights of a third party, Hynix shall have the right to sub-license to such third party its rights with respect to the Purchaser ‘022 Patents’ under this Agreement. |
| 3.2. | PURCHASER REGISTERED USER REQUIREMENTS | ||
| Purchaser may, on behalf of both Parties and at its expense, take such action, in its sole discretion, that it deems necessary or desirable with respect to compliance with registered user or similar filing requirements of, or to otherwise cause the license granted by Purchaser under this Agreement to be registered with, the appropriate authorities of the government of any jurisdiction. In addition, Purchaser shall, on behalf of both Parties, take such other requested action with respect to compliance with registered user or similar filing requirements of, or to otherwise cause the license granted by Purchaser under this Agreement to be registered with, the appropriate authorities of the government of any jurisdiction, upon the reasonable request of Hynix and at Hynix’s expense. | |||
| 3.3. | PURCHASER OBLIGATIONS REGARDING PROSECUTION AND MAINTENANCE OF PATENTS | ||
| Purchaser shall have no obligation to Seller with respect to the prosecution or injunction of any infringement, violation, misappropriation and/or interference by third parties with respect to the Purchaser Licensed Intellectual Property or any associated intellectual property rights. For Patents that are abandoned as permitted in Section 1.5, Purchaser shall have no further obligation to Hynix with respect to such Patents after the abandonment of such Patents. |
| 4. | RIGHT TO SUBLICENSE; NO IMPLIED LICENSES; INTELLECTUAL PROPERTY RIGHTS NOTICES |
| 4.1. | Notwithstanding any provision to the contrary, subject to Section 6.4 of the Business Transfer Agreement, each Party shall have the right to sublicense the license rights granted to it under this Agreement, for the sole purpose of having, in the case of Hynix, its Subsidiaries, or its agents and contractors, exercise its rights hereunder solely on its behalf to make, manufacture, design, develop or package any semiconductor products for Hynix; or in the case of Purchaser, Warrant Issuer’s Subsidiaries, or its agents and contractors exercise its rights hereunder solely on its behalf to make, manufacture, design, develop or package any semiconductor products (other than Memory Products) for Purchaser or any |
5
| Memory Products for Hynix and/or any Subsidiary(ies) of Hynix. Notwithstanding the forgoing, neither Party shall sublicense the license rights granted to it under this Agreement to any direct or indirect Subsidiary of Warrant Issuer or Hynix, as the case may be, which at the time such Subsidiary became a direct or indirect Subsidiary of Warrant Issuer or Hynix, as the case may be, was actively operating a technology business (including a semiconductor business). In no event shall Hynix’s Subsidiaries, or its agents and/or contractors, or the Warrant Issuer’s Subsidiaries, or Purchaser’s agents and/or contractors, make, manufacture, design, develop or package any products under this sublicense for, and/or sell any products made under this sublicense to, any party other than Hynix and/or any Subsidiary of Hynix or Purchaser and/or any Subsidiary(ies) of the Warrant Issuer, as the case may be. | |||
| 4.2. | NO IMPLIED LICENSE | ||
| Except for the licenses expressly granted in this Agreement, neither Party grants to the other Party by implication, estoppel or otherwise any license or other right to any of its Intellectual Property. In addition, neither Party grants any license, release or other right expressly, by implication, by estoppel or otherwise to any third party. | |||
| 4.3. | INTELLECTUAL PROPERTY RIGHTS NOTICES | ||
| Each Party agrees that, unless otherwise agreed by the Parties in writing, it will not obfuscate, remove or alter any of the trademarks, trade names, logos, patent, mask work or copyright notices, confidential or other proprietary legends or notices on or in the materials to which it is granted a license, and all such markings shall be included in all copies made by such Party of any portion of the materials to which it is granted a license hereunder. |
| 5. | CONFIDENTIALITY | |
| Each Party shall protect the other’s Confidential Information from unauthorized dissemination and use with the same degree of care that such Party uses to protect its own like information, but not less than reasonable care. Neither Party will use the other’s Confidential Information except as permitted by the licenses hereunder or for purposes other than those necessary to directly further the purposes of this Agreement. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, each Party shall only have the right to sublicense the Intellectual Property to which it is granted a license hereunder, subject to Section 4.1 and pursuant to the following: (i) with respect to a sublicense to a Subsidiary, to a Subsidiary which, prior to accessing any of the licensed Intellectual Property, is legally bound to the terms of an appropriate confidentiality agreement containing limitations no less restrictive than those set forth in Sections 2.1 and/or 3.1, as applicable, 4.3 and 5 of this Agreement and otherwise adequately protects the intellectual property rights of licensor in the Intellectual Property and who uses the Intellectual Property solely in accordance with the terms and conditions of this Agreement; and/or (ii) with respect to any third party agent and/or contractor, to a |
6
| third party agent and/or contractor with a need to know who is hired by the party to whom a license to the applicable Intellectual Property has been granted hereunder, who uses the applicable Intellectual Property solely for the benefit of the applicable licensee hereunder, and who, prior to accessing any of the licensed Intellectual Property, has signed an appropriate confidentiality agreement, which agreement contains provisions no less restrictive than those set forth in Sections 2.1 and/or 3.1, as applicable, 4.3 and 5 of this Agreement and otherwise adequately protects the intellectual property rights of licensor in the Intellectual Property and who uses the Intellectual Property solely in accordance with the terms and conditions of this Agreement. Except as permitted by the licenses hereunder or as required by law or order of any governmental authority (provided that such disclosure will be done under reasonable steps to protect confidentiality, such as a protective order), neither Party will disclose to any third parties the other’s Confidential Information without the prior written consent of the other Party. Except as expressly provided in this Agreement, no ownership or license right is granted in any Confidential Information. The Parties’ obligations of confidentiality under this Agreement shall not be construed to limit either Party’s right to independently develop or acquire products without use of, or reference to, the other Party’s Confidential Information. The confidentiality obligations of the Parties under this Agreement shall terminate with respect to any specific Confidential Information five (5) years from the date of receipt thereof. | ||
| Each Party agrees not to disclose the content or nature of this Agreement to any third party without the prior written consent of the other Party; provided, however, that this obligation shall not apply to a Party (i) to the extent such Party is required by law or order of any governmental authority (provided that such Party takes reasonable steps to protect the confidentiality of such information, such as a protective order) to disclose this Agreement, but only to the extent necessary to comply with such law or order; (ii) to the extent necessary for such Party to enforce or exercise its rights under this Agreement, (iii) to the extent reasonably necessary and on a confidential basis, to its accountants, attorneys, financial advisers and potential investors in or acquirers of such Party or (iv) with respect to such Party’s disclosure and public filing of this Agreement (and its terms and conditions) in connection with a public offering of securities by such Party or its Affiliates. | ||
| 6. | DISCLAIMERS | |
| EXCEPT AS EXPRESSLY PROVIDED IN THE BUSINESS TRANSFER AGREEMENT, THE HYNIX LICENSED INTELLECTUAL PROPERTY IS PROVIDED “AS IS” WITHOUT ANY REPRESENTATION OR WARRANTY AND HYNIX MAKES NO, AND EXPRESSLY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED OR STATUTORY, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT, WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THE BUSINESS TRANSFER AGREEMENT, THE PURCHASER LICENSED INTELLECTUAL PROPERTY IS PROVIDED “AS IS” WITHOUT ANY REPRESENTATION OR |
7
| WARRANTY AND PURCHASER MAKES NO, AND EXPRESSLY DISCLAIMS ANY AND ALL REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED OR STATUTORY, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT, WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT. | ||
| 7. | GENERAL |
| 7.1. | TERM AND TERMINATION | ||
| The term of this Agreement shall become effective as of the Closing Date and shall continue to be effective until terminated by mutual agreement of the Parties, provided that this Agreement and all licenses hereunder may be earlier terminated by either Party if the other Party materially breaches any of the terms and conditions of this Agreement and fails to remedy such breach within 60 days after written notice thereof. | |||
| 7.2. | RELATIONSHIP OF THE PARTIES | ||
| This Agreement does not create a fiduciary or agency relationship between Hynix and Purchaser, each of which shall be and at all times remain independent companies for all purposes hereunder. Nothing in this Agreement is intended to make either Party a general or special agent, joint venturer, partner or employee of the other for any purpose. | |||
| 7.3. | COUNTERPARTS | ||
| This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party. | |||
| 7.4. | GOVERNING LAW; CONSENT TO JURISDICTION | ||
| This Agreement shall be governed by and construed in accordance with the Laws of the Korea without giving effect to the rules of conflict of laws of the Korea that would require application of any other Law. Purchaser and Hynix each consent to and hereby submit to the non-exclusive jurisdiction of the Seoul Central District Court located in the Korea in connection with any action, suit or proceeding arising out of or relating to this Agreement, and each of the Parties irrevocably waives, to the fullest extent permitted by Law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. |
8
| 7.5. | ENTIRE AGREEMENT | ||
| This Agreement and the Business Transfer Agreement constitute the entire agreement between the Parties with respect to the subject matter hereof, and supersede any prior agreements, understandings or other communications, written or oral, between the Parties with respect to the subject matter hereof, and there are no agreements, understandings, representations or warranties between the Parties with respect to the subject matter hereof other than those set forth herein or the Business Transfer Agreement. | |||
| 7.6. | NO THIRD-PARTY BENEFICIARIES | ||
| Nothing in this Agreement, express or implied, is intended to or shall confer on any Person other than the Parties and their respective successors or permitted assigns any rights (including third party beneficiary rights), remedies, obligations or liabilities under or by reason of this Agreement. This Agreement shall not provide third parties with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to the terms of this Agreement. | |||
| 7.7. | INTERPRETATION; ABSENCE OF PRESUMPTION |
| (a) | For the purposes hereof, (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires, (ii) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section and paragraph references are to the Articles, Sections and paragraphs to this Agreement unless otherwise specified, (iii) the word “including” and words of similar import when used in this Agreement means “including, without limitation,” unless the context otherwise requires or unless otherwise specified, (iv) the word “or” shall not be exclusive, (v) provisions shall apply, when appropriate, to successive events and transactions, and (vi) all references to any period of days shall be deemed to be to the relevant number of calendar days. | ||
| (b) | This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted. |
| 7.8. | FORCE MAJEURE | ||
| A Party shall not be liable for a failure or delay in the performance of any of its obligations under this Agreement where such failure or delay is the result of conditions beyond the control of said Party, such as fire, flood, or other natural disaster, act of God, war, embargo, riot, labor dispute, or the intervention of any government authority, providing that the Party failing in or delaying its performance immediately notifies the other Party of its inability to perform and states the reason for such inability. |
9
| 7.9. | PUBLICITY | ||
| Neither Party shall, without the approval of the other Party, make any press release or other public announcement concerning the terms of the transactions contemplated by this Agreement, except as allowed under Section 5. | |||
| 7.10. | FURTHER ASSURANCES | ||
| Each Party shall cooperate and take such action as may be reasonably requested by the other Party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. | |||
| 7.11. | EXPORT CONTROL | ||
| The Parties shall comply with any and all export regulations and rules now in effect or as may be issued from time to time by the Office of Export Administration of the United States Department of Commerce, Korean governmental authority, or any other governmental authority which has jurisdiction relating to the export of technology. | |||
| 7.12. | NOTICES | ||
| Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted to be given to any Party hereunder shall be in writing and shall be deemed duly given only upon delivery to the Party personally (including by reputable overnight courier service), when telecopied (with confirmation of transmission having been received) during normal business hours or three days after being mailed by registered or certified mail (return receipt requested), with postage and registration or certification fees thereon prepaid, addressed to the Party at its address set forth below (or at such other address for a Party as shall be specified by such Party by like notice): |
If to Purchaser:
MagnaChip Semiconductor, Ltd.
Hyangjeong-dong
Heungduk-gu
Cheongju City
Chung Cheong Bok-do
Korea
Fax: +82-43-270-2134
Attention: Dr. Youm Huh
Hyangjeong-dong
Heungduk-gu
Cheongju City
Chung Cheong Bok-do
Korea
Fax: +82-43-270-2134
Attention: Dr. Youm Huh
10
with a copy to:
Dechert LLP
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Fax: 215-994-2222
Attention: Geraldine A. Sinatra, Esq.
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Fax: 215-994-2222
Attention: Geraldine A. Sinatra, Esq.
and
Dechert LLP
30 Rockefeller Plaza
New York, NY 10112
Fax: (212) 698-3599
Attention: Sang H. Park, Esq.
30 Rockefeller Plaza
New York, NY 10112
Fax: (212) 698-3599
Attention: Sang H. Park, Esq.
If to Hynix:
Hynix Semiconductor Inc.
Hynix Youngdong Bldg 891
Daechi-dong
Kangnam-gu, Seoul 135-738
Korea
Fax: 82-2-3459-3555
Attention: Mr. Dong Soo Chung
Hynix Youngdong Bldg 891
Daechi-dong
Kangnam-gu, Seoul 135-738
Korea
Fax: 82-2-3459-3555
Attention: Mr. Dong Soo Chung
with a copy to:
Bae, Kim & Lee
647-15 Yoksam-dong
Kangnam-gu, Seoul 135-738
Korea
Fax: +82 2 3404 0803
Attention: Gun Chul Do, Esq.
647-15 Yoksam-dong
Kangnam-gu, Seoul 135-738
Korea
Fax: +82 2 3404 0803
Attention: Gun Chul Do, Esq.
with a copy to:
Sullivan & Cromwell LLP
1888 Century Park East
Los Angeles, CA 90067
Fax: (310) 712-8800
Attention: Alison S. Ressler, Esq.
1888 Century Park East
Los Angeles, CA 90067
Fax: (310) 712-8800
Attention: Alison S. Ressler, Esq.
11
| 7.13. | ASSIGNMENT | ||
| This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns; provided, however, that no Party may assign its rights or delegate its obligations under this Agreement (including by operation of law and provided that a change in control with respect to Hynix or Purchaser shall be deemed an assignment for purposes of this Agreement) without the express prior written consent of each other Party, except that (i) Purchaser may assign its rights hereunder as collateral security to any entity providing financing of indebtedness for borrowed money to Purchaser and/or any of its Subsidiaries and any such financial institutions may assign such rights in connection with a sale of Purchaser, (ii) Hynix and Purchaser each may, upon written notice to the other party (but without the obligation to obtain the consent of such other party), assign this Agreement or any of its rights and obligations under this Agreement to any person, entity or organization that acquires all or substantially all of its assets and liabilities or all or substantially all of the assets and liabilities of the portion of the Party’s business to which the subject of this Agreement relates or of a division of such Party as a result of a change in control (provided that upon any such assignment or change in control the applicable license granted hereunder shall not extend to the business or products of the assignee or acquiring entity as conducted as of the date of such assignment or acquisition), if such person or entity agrees in writing to assume and be bound by all of the relevant obligations of such party under this Agreement; and (iii) Purchaser may, upon written notice to Hynix (but without the obligation to obtain the consent of Hynix), assign this Agreement or any of its rights and obligations under this Agreement to one or more direct or indirect Subsidiaries of Warrant Issuer, provided that at the time such Subsidiary became a direct or indirect Subsidiary of Warrant Issuer it was not actively operating a technology business (including a semiconductor business). | |||
| 7.14. | HEADINGS; DEFINITIONS | ||
| The section and article headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. | |||
| 7.15. | AMENDMENT | ||
| This Agreement may not be amended, modified, superseded, canceled, renewed or extended except by a written instrument signed by the Party to be charged therewith. | |||
| 7.16. | WAIVER; EFFECT OF WAIVER | ||
| No provision of this Agreement may be waived except by a written instrument signed by the Party waiving compliance. No waiver by any Party of any of the requirements hereof or of any of such Party’s rights hereunder shall release the other Parties from full performance of their remaining obligations stated herein. No failure to exercise or delay in exercising on the part of any Party hereto any |
12
| right, power or privilege of such Party shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege by such Party. | |||
| 7.17. | SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF | ||
| The Parties each acknowledge that, in view of the uniqueness of the subject matter hereof, the Parties would not have an adequate remedy at law for money damages in the event that this Agreement were not performed in accordance with its terms, and therefore agree that the Parties shall have the right to a claim for injunctive relief and be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the Parties may be entitled at law or in equity. | |||
| 7.18. | SURVIVAL | ||
| The respective rights and obligations of the Parties under Sections 5, 6, 7, and other Sections which by their nature are intended to extend beyond termination, shall survive the termination of this Agreement. |
[SIGNATURE PAGE TO FOLLOW]
13
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed on their behalf
as of the date first written above.
| HYNIX SEMICONDUCTOR INC. | ||||||
| By | ||||||
| Name: | ||||||
| Title: | ||||||
| MAGNACHIP SEMICONDUCTOR, LTD. | ||||||
| By | ||||||
| Name: | ||||||
| Title: | ||||||
Exhibit 10.3
Execution Copy
LAND LEASE AND EASEMENT AGREEMENT
between
Hynix Semiconductor Inc.
as Lessor
and
MagnaChip Semiconductor, Ltd.
as Lessee
with respect to
certain land located in the Cheong-Ju Complex
in Cheong-Ju, the Republic of Korea
October 6, 2004
[*****] = Portions of this exhibit are subject to a request for confidential treatment and
have been redacted and filed separately with the Securities and Exchange Commission.
TABLE OF CONTENTS
| Page | ||||
Article 1. Definitions
|
1 | |||
Article 2. Grant of Lease and Easement
|
6 | |||
Article 3. Term
|
7 | |||
Article 4. Rent
|
8 | |||
Article 5. Representations, Warranties and Covenants
|
9 | |||
Article 6. Maintenance and Other Expenses
|
12 | |||
Article 7. Registration of the Lease Right and Easement Right
|
13 | |||
Article 8. [Intentionally Deleted]
|
14 | |||
Article 9. Use and Maintenance
|
14 | |||
Article 10. Termination
|
15 | |||
Article 11. Sublease and Assignment
|
15 | |||
Article 12. Quiet Enjoyment; Indemnification
|
16 | |||
Article 13. Surrender
|
16 | |||
Article 14. Disputes and Governing Law
|
17 | |||
Article 15. Change of Applicable Laws of Korea
|
17 | |||
Article 16. Alterations
|
18 | |||
Article 17. Right of First Refusal
|
18 | |||
Article 18. Additional Warehouse
|
19 | |||
Article 19. Insurance
|
19 | |||
Article 20. Signage
|
20 | |||
Article 21. Force Majeure
|
20 | |||
Article 22. Confidentiality
|
20 | |||
Article 23. Miscellaneous
|
21 | |||
EXHIBIT A CHEONG-JU COMPLEX |
||||
EXHIBIT B DESCRIPTION OF THE SITE, ACCESS AREAS AND EASEMENT AREAS |
||||
EXHIBIT C CONSENTS |
||||
EXHIBIT D DESCRIPTION OF THE PORTIONS TO BE SUB-LEASED TO VEOLIA |
||||
EXHIBIT E SIGNAGE |
||||
SCHEDULE 5.1(d) VEOLIA LEASE RIGHTS |
||||
SCHEDULE 5.1(e) VEOLIA CONSENTS |
||||
LAND LEASE AND EASEMENT AGREEMENT
This LAND LEASE AND EASEMENT AGREEMENT (this “Agreement”), dated as of October 6, 2004, is
entered into by and between:
| (1) | Hynix Semiconductor Inc., a company organized and existing under the laws of the Republic of Korea (“Korea”) with its registered office at San-136-1, Ami-Ri, Bubal-Eub, Ichon-Si, Kyoungki-Do, Korea (“Lessor”); and |
| (2) | MagnaChip Semiconductor, Ltd., a company organized and existing under the laws of Korea with its registered office at 1 Hyanjeong-dong, Heungduk-gu, Cheongju City, Chung Cheong Bok-do, Korea (“Lessee”) (each a “Party”, and collectively, the “Parties”). |
RECITALS
WHEREAS, the Parties have entered into a certain business transfer agreement dated as of June
12, 2004 as amended (the “BTA”) pursuant to which, among other things, Lessee has agreed to acquire
the Acquired Assets (as defined in the BTA) from Lessor subject to the terms and conditions set
forth in the BTA;
WHEREAS, the Parties desire to enter into an agreement as contemplated by the BTA whereby
Lessor grants lease rights and easement rights to Lessee as to certain parts of parcels of land,
which are necessary for Lessee’s ownership of certain buildings that are now or hereafter used in
the Business (as defined below) and for its operation of facilities necessary for its Business, in
accordance with this Agreement; and
WHEREAS, the execution and delivery of this Agreement is a condition to the Closing under the
BTA.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements
hereinafter set forth, and intending to be legally bound hereby, each of Lessor and Lessee agrees
as follows:
Article 1. Definitions
| 1.1. | Unless otherwise defined herein or in the BTA, all capitalized terms shall have the meanings set forth below: |
| “Access Areas” shall mean the access roads and areas located on the Lease Rights Site I, as more specifically shown on Exhibit B. |
| “Additional Warehouses” shall have the meaning ascribed to such term in Section 18.1. |
| “Affiliate” shall have the meaning ascribed to such term in the BTA. |
| “Amended Section 6.5 of the BTA” shall mean Section 6.5 of the BTA as amended by an First Amendment to Business Transfer Agreement made and entered into on October 6, 2004 by and between Lessor and Lessee. |
| “Applicable Laws” shall mean all laws, constitutions, statutes, codes, ordinances, decrees, rules, regulations, municipal by-laws, judicial or arbitral or administrative or ministerial or departmental or regulatory judgments, orders, decisions, rulings or awards, consent orders and decrees, policies, guidelines or any interpretations of any of the foregoing, including general principles of civil law and equity, issued by any Governmental Entity having or exercising jurisdiction over or otherwise affecting any Party, the Business or the Land. |
| “BTA” shall have the meaning ascribed to such term in the Recitals. |
| “Buildings” shall mean the “R” Building, “C1” Building and “C2” Building, as well as the to be built Gas Warehouse Building and Waste Water Facility Building and such other buildings, if any, and improvements affixed to such buildings now or hereafter owned by Lessee located in the Cheong-Ju Complex, each of which Building is owned by Lessee, as the same may be altered or replaced. |
| “Business” shall have the meaning ascribed to such term in the BTA including all Permitted Uses. |
| “Cheong-Ju Complex” shall mean Lessor’s manufacturing, testing, packaging and research and development facilities and appurtenant areas located in Cheong-Ju, Korea, as more specifically identified in Exhibit A attached hereto. |
| “Closing Date” shall have the meaning ascribed to such term in the BTA. |
| “Confidential Information” shall mean any and all information including technical data, trade secrets or know-how, disclosed by either Party to the other Party in connection with this Agreement, which is marked as “Proprietary” or “Confidential” or is declared by the other Party, whether in writing or orally, to be confidential, or which by its nature would reasonably be considered confidential. |
| “Consents” shall mean any consents, approvals, waivers or authorizations to be obtained from, or notices to be given to, any persons or entities, and includes Governmental Authorizations. |
| “Damages” shall mean any and all losses, settlements, expenses, liabilities, obligations, claims, damages (including any governmental penalty or costs of investigation, clean-up and remediation), deficiencies, royalties, interest, costs and expenses (including reasonable attorneys’ fees and all other expenses reasonably incurred in investigating, preparing or defending any litigation or proceeding, commenced or threatened incident to the successful enforcement of this Agreement), the extent of which are recoverable under Korean law. Damages also shall include, if applicable, any and all increases in insurance premiums that are reasonably demonstrably attributable to the breach by Lessee or Lessor, as the case may be, of its representations, warranties, agreements and covenants expressly |
2
| contained in this Agreement, or negligence, gross negligence, intentional breach or willful misconduct of Lessee or Lessor, as the case may be, for the two following annual policy periods. |
| “Due Date” shall have the meaning ascribed to such term in Section 4.3. |
| “Easement Right” shall mean the right to use all necessary and appropriate roads for ingress to, egress from and access to and from all locations at the Cheong Ju Complex and the right to use certain land to own, use or perform maintenance, repair and replacement of utility, pipeline, conduit and wiring systems at the Cheong Ju Complex serving the locations leased by Lessee or owned by Lessor, as the case may be, each of which is on an equal and shared basis with the owner or lessee, as the case may be, of relevant land. |
| “Easement Site” shall mean Easement Site I and Easement Site II. |
| “Easement Site I” shall mean the main access roads from public roads to the Lease Right Site I, as more specifically shown on Exhibit B. |
| “Easement Site II” shall mean the access roads, areas and the parking lots at the Cheong Ju Complex, as more specifically shown on Exhibit B. |
| “Event of Force Majeure” shall have the meaning ascribed to such term in Section 21.1. |
| “Excluded Damages” shall mean any punitive damages. |
| “Execution Date” shall mean the date of this Agreement. |
| “Expansion Area” shall have the meaning ascribed to such term in Section 17.1. |
| “Governmental Authorization” shall mean any approval, consent, license, permit, waiver or other authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Entity or otherwise pursuant to any Applicable Law, and any registration with, or report or notice to, any Governmental entity pursuant to any Applicable Law, including those listed on Exhibit C. |
| “Governmental Entity” shall mean a court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency. |
| “Grace Period” shall have the meaning ascribed to such term in Section 13.1. |
| “Hynix Building” shall mean any building in the Cheong-Ju Complex other than any of the Buildings. |
| “Hynix Easement Right” shall mean the Easement Right over the Access Areas on an equally shared basis with Lessee. |
3
| “Hynix Land” shall mean the portions of the Cheong-Ju Complex land, excluding the Land. |
| “Indemnified Person” of a Party shall mean the Party and its Subsidiary and any shareholder, director, officer, employee or agent of the Party or such Subsidiary. |
| “Invoice” shall have the meaning ascribed to such term in Section 4.2. |
| “Land” shall mean (a) the Lease Rights Site I, (b) Lease Rights Site II, (c) Easement Site I and (d) Easement Site II located in the Cheong-Ju Complex, as more specifically identified in Exhibit B, all of which are subject to the lease or easement rights under this Agreement. |
| “Lease Right” shall have the meaning ascribed to such term in Section 2.5. |
| “Lease Rights Site” shall mean the Lease Rights Site I and the Lease Rights Site II. |
| “Lease Rights Site I” shall mean the Site and the Access Areas. |
| “Lease Rights Site II” shall mean certain lots on which the Gas Warehouse Building and the Waste Water Facility Building will be built by Lessee, as more specifically identified in Exhibit B attached hereto. |
| “Lease Term” shall have the meaning ascribed to such term in Section 3.1. |
| “Lessee Easement Rights Consents” shall have the meaning ascribed to such term in Section 5.2(e). |
| “Lessor Easement Rights Consents” shall have the meaning ascribed to such term in Section 5.1(e). |
| “Lessor Lease Rights Consents” shall have the meaning ascribed to such term in Section 5.1(e). |
| “Lien” shall mean any lien, charge, claim, agreement to sell, pledge, judgment, security interest, conditional sale agreement or other title retention agreement, lease, mortgage, deed of trust, security agreement, right of first refusal or offer (or other similar right), option, restriction, tenancy, license, covenant, encroachment (whether upon any real property or by any improvement situated on any real property onto any adjoining real property or onto any easement area), right of way, easement, title defect or other encumbrance or title matter or interest in real estate, existing as of the Closing Date. |
| “Other Costs” shall have the meaning ascribed to such term in Section 4.5. |
| “Partition Date” shall mean the date on which the Lease Rights Site I is partitioned as a separate parcel and the Lessor acquires the sole legal and beneficial ownership thereto from the Lessee. |
4
| “Permitted Uses” shall mean the Business or any other semiconductor, information technology or other technology related business. |
| “Proceeding” shall mean any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, or investigative) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Entity. |
| “Rent” shall have the meaning ascribed to such term in Section 4.1. |
| “Rules and Regulations” shall have the meaning ascribed to such term in Section 2.2. |
| “Site” shall mean certain lots which are occupied by Building “R”, Building “C1”, Building “C2”, as more specifically identified in Exhibit B, all of which are subject to the lease under this Agreement. |
| “Subsidiary” shall have the meaning ascribed to such term in the BTA. |
| “Successor” shall have the meaning ascribed to such term in Section 11.2. |
| “Turnover Condition” shall have meaning set forth in Section 17.1(d) of this Lease. |
| “VAT” shall mean the value added tax required to be paid to the relevant Governmental Entity in respect of the lease or grant of easement rights of the Land to Lessee. |
| “Warrant Issuer” shall have the meaning ascribed to such term in the BTA. |
| 1.2. | Rules of Interpretation. |
| (a) | When a reference is made in this Agreement to a section or article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. | ||
| (b) | Whenever the words “include”, “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation.” | ||
| (c) | The words “hereof”, “hereto”, “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph and exhibit references are to the articles, sections, paragraphs and exhibits of this Agreement unless otherwise specified. | ||
| (d) | The meaning assigned to each term defined herein shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. |
5
| (e) | A reference to any party to this Agreement or any other agreement or document shall include such party’s successors and permitted assigns. | ||
| (f) | A reference to any legislation or to any provision of any legislation shall include any amendment to, and any modification or re-enactment thereof, any legislative provision substituted therefor and all regulations and statutory instruments issued thereunder or pursuant thereto. | ||
| (g) | The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement. | ||
| (h) | Headings are for convenience only and do not affect the interpretation of the provisions of this Agreement. | ||
| (i) | Any Exhibits attached hereto are incorporated herein by reference and shall be considered as part of this Agreement. |
Article 2. Grant of Lease and Easement
| 2.1. | Subject to Article 3, in consideration of the Rent hereby agreed to be paid to Lessor by Lessee and the agreements and covenants herein made by Lessee and subject to other terms and conditions herein, Lessor hereby (a) leases to Lessee the Lease Rights Site and the one-half of the Easement Site (until the date of registration of the Easement Right on the Easement Site) and (b) grants Lessee the Easement Right to use the Easement Site from the date of the registration of the Easement Right; provided that the Easement Right and the Lease Right on the one-half of the Easement Site granted to Lessee shall be exercisable by Lessee in a manner and to the extent that it is in common with equivalent rights exercisable by Lessor, as owner. | |
| 2.2. | In consideration of the lease rights and easement rights hereby granted to Lessee by Lessor and the agreements and covenants herein made by Lessor and subject to other terms and conditions herein, for the Lease Term Lessee shall grant to Lessor the Hynix Easement Right over the Access Areas for free; provided that the Hynix Easement Right granted to Lessor shall be exercised by Lessor in a manner and to the extent that allows Lessee to exercise equal right to use the Access Areas based upon Lessee’s Lease Rights over the Access Areas. | |
| 2.3. | In consideration of the Rent hereby agreed to be paid to Lessor by Lessee and the agreements and covenants herein made by Lessee and subject to other terms and conditions herein, Lessor hereby grants to Lessee a right (i) to access to the Cheong-Ju Complex for the purpose of using the Land in accordance with this Agreement, and to pass and repass to and from the Land or any part thereof over and along certain roads, accessways, paths, highways and other thoroughfares within the Cheong-Ju Complex, provided that Lessee shall fully comply in all material respects with all Applicable Laws and the rules and regulations as currently adopted and enforced in the ordinary operation |
6
| of the Cheong-Ju Complex and such additional rules and regulations adopted by Lessor and enforced uniformly as to all occupants of the Cheong-Ju Complex which do not materially change the economic structure or effect of the Business (together “Rules and Regulations”) and (ii) to use, operate, maintain, repair and replace all of Lessee’s utility, pipeline, conduit and wiring systems on the Cheong Ju Complex or any part thereof that serve the Site. In case where it is necessary, (i) Lessee may install utility, pipeline, conduit or wiring systems for the purpose of using the Buildings on Easement Site and Access Areas with Lessor’s prior written consent which may not be unreasonably withheld and (ii) Lessor may install such facilities for the purpose of using Hynix Buildings on Access Areas with Lessee’s prior written consent which may not be unreasonably withheld. | ||
| 2.4 | In consideration of the Lease Right and the Easement Right hereby granted to Lessee by Lessor and the agreements and covenants herein made by Lessor and subject to other terms and conditions herein, Lessee hereby grants to Lessor a right (i) to access to the Cheong-Ju Complex for the purpose of using the Hynix Land as the owner thereof, and to pass and repass to and from the Land or other part of the Cheong Ju Complex on which Lessee has a lease right or any part thereof over and along certain roads, accessways, paths, highways and other thoroughfares within the Cheong-Ju Complex, provided that Lessor shall fully comply in all material respects with all Applicable Laws and reasonable rules and regulations adopted by Lessee and enforced uniformly as to all occupants of the Cheong-Ju Complex which do not materially change the economic structure of, or have an effect on, Lessor’s business and (ii) to use, operate, maintain, repair and replace all of Lessor’s utility, pipeline, conduit and wiring systems on the Cheong Ju Complex or any part thereof that serve the Hynix Land. | |
| 2.5 | Subject to Article 7, Lessor hereby grants to Lessee a right to register the lease under this Agreement (“Lease Right”, “deunggi imchakwon”) over the Lease Rights Site and the one-half of the Easement Site and the Easement Right (“jiyokkown”) over the Easement Site with the relevant real property registry offices. The Lease Right and the Easement Right shall be effective during the Lease Term, as long as the Buildings remain on the Lease Rights Site and the Lease Rights Site is used for the Permitted Uses in accordance with the terms of this Agreement. | |
| 2.6 | Subject to Article 7, Lessee hereby grants to Lessor a right to register the Hynix Easement Right over the Access Areas with the relevant real property registry offices. | |
| 2.7 | Lessee acknowledges and agrees that Lessee has the right to occupy and use the Land only for the Permitted Uses, and upon the terms and conditions set forth in this Agreement. |
Article 3. Term
| 3.1. | This Agreement shall be effective from the Closing Date. | |
| 3.2. | Subject to Section 3.4, the lease term for the Lease Right (“Lease Term”) shall be indefinite (i) unless otherwise agreed between the Parties, and (ii) as long as the Buildings remain on the Lease Rights Site and are owned by Lessee and Lessee uses the Lease Rights Site for the purpose of the Permitted Uses. |
7
| 3.3 | The Lease Term for the Lease Right on the one-half of the Easement Site shall continue until the Easement Right is registered on the Easement Site. | |
| 3.4 | Term for the Easement Right on the Easement Site shall continue from the Partition Date to the expiration date of the Lease Term. |
| 3.5 | Hynix Easement Right on Access Areas shall be effective from the Partition Date to the expiration date of the Lease Term. |
Article 4. Rent
| 4.1. | The monthly rent for the Land, exclusive of VAT, (the “Rent”) shall be [*****] per year for ten (10) years, which is [*****] payable monthly in accordance with Article 4. Commencing on the tenth (10th) anniversary of the Closing Date, or the first day of the immediately succeeding calendar month if the Closing Date is not the first day of a calendar month, and every second (2nd) anniversary of such date (each, a “Calculation Date”), Rent shall be recalculated for the next succeeding two years to increase or decrease by the same percentage as the change in the consumer price index published by the Korean National Statistical Office of the Ministry of Finance and Economy (each, an “Index”) or any of its equivalent if an Index is not available, between the Index published most recently prior to the Calculation Date compared to the Index published most recently prior to two years before such Calculation Date. In any event prior to the commencement date on which such recalculated Rent shall be applicable, the Parties, upon the request of either Party, agree to submit a joint application to modify the amount of the Rent registered as of such time into such recalculated amount of the Rent. |
| 4.2. | Lessor shall provide an invoice (the “Invoice”) to Lessee by the 10th day of each calendar month which shall include the amount of Rent, Other Costs and the corresponding VAT amount payable by Lessee for such month. |
| 4.3. | Lessee shall pay in aggregate the Rent, Other Costs and the corresponding VAT amount stated on each Invoice to the Lessor’s designated account, or as otherwise designated by Lessor, by means of wire transfer in immediately available funds by 25th day of each calendar month (the “Due Date”). |
| 4.4. | For any month of the Lease Term which is less than a full calendar month, the amount of Rent (and the corresponding VAT amount) payable by Lessee shall be equal to a pro rata portion of the Rent, based on a ratio of the number of days during such month that the Lease Term is in effect to the total number of days in such month. |
| 4.5. | If (a) the Rent is not paid on or before the Due Date or (b) any other amounts payable herein including payments due by either Party with respect to Damages (collectively, the “Other Costs”) are not paid when due, after the passage of any applicable grace and/or cure period, Lessee or Lessor, as applicable, shall be liable for and pay interest on the outstanding amounts of the Rent and/or Other Costs at a rate of eight percent (8%) per annum calculated from and including the sixth day after the Due Date until the date Rent and/or Other Costs are received in full by the Party to whom they are due. |
[*****] = Portions of this exhibit are subject to a request for confidential treatment and
have been redacted and filed separately with the Securities and Exchange Commission.
8
| 4.6. | Lessee shall be responsible for payment of any VAT levied on the Rent under this Agreement. |
| 4.7 | Notwithstanding anything herein to the contrary, in the event of a bankruptcy filing with respect to Lessee, Lessee shall deposit with Lessee an amount equal to the fees paid by Lessee during the immediately preceding full calendar month under the terms of this Agreement, against which will be credited fees payable by Lessee over the thirty day period following such deposit. Lessee shall renew such deposit each thirty days in each case by reference to the fees paid by Lessee during the full calendar month immediately preceding any such renewal until such bankruptcy protection filing has been accepted by the bankruptcy court. For the avoidance of doubt, Lessee shall not be relieved of responsibility for, and shall pay when due, any fees for services hereunder during any such thirty day period to the extent in excess of the then actual deposit. |
Article 5. Representations, Warranties and Covenants
| 5.1. | Lessor hereby covenants, represents and warrants to Lessee that all of the representations and warranties contained in this Section 5.1 are true and correct in all material respects as of the Closing Date, and the Partition Date, as the case may be. |
| (a) | Organization. Lessor is a corporation duly organized and validly existing under the laws of Korea and has full power and authority to own and lease the Land. | ||
| (b) | Authorization. Lessor has full corporate power and authority to execute and deliver this Agreement. The execution, delivery and performance by Lessor of this Agreement have been duly authorized by all corporate actions on the part of Lessor that are necessary to authorize the execution, delivery and performance by Lessor of this Agreement. | ||
| (c) | Binding Agreement. This Agreement has been duly executed and delivered by Lessor and, assuming due and valid authorization, execution and delivery hereof by Lessee, is a valid and binding obligation of Lessor, enforceable against Lessor in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws of general application affecting enforcement of creditors’ rights generally and (ii) the availability of the remedy of injunctive relief may be subject to the discretion of the court before which any proceeding therefor may be brought or the general principle of good faith and fairness provided for in the Korean Civil Code. | ||
| (d) | Title and Consents. Except as disclosed in Schedule 5.1(d), Lessor is the only legal and beneficial owner of the Land and has requisite power to grant the Lease Rights or the Easement Right hereunder to Lessee and has the requisite power to grant the registration of the Lease Right and the Easement Right on the relevant portions of the Land to Lessee. |
9
| (e) | Use of Land. Except as disclosed in Schedule 5.1(e), Lessor has obtained all Consent required in connection with the ownership or use of the Land and the granting to Lessee of the rights under this Agreement, and shall obtain such additional Consents necessary or appropriate for the grant of the Lease Rights or the Easement Right, as applicable, and the registration thereof in accordance with Section 7 (“Lessor Lease Rights Consents” or “Lessor Easement Rights Consent”, as the case may be). Lessor has provided Lessee with copies of all such Consents and shall provide Lessee with the Lessor Lease Rights Consents related to the registration of Lease Rights on or before the Closing Date and the Lessor Easement Rights Consents related to the registration of the Easement Right on or before the Partition Date, including those listed on Exhibit C. The present condition and use of the Land by Lessor complies with all Applicable Laws in all material respects. | ||
| (f) | Veolia Lease Right. Lessor shall de-register the registered lease rights in favor of Veolia Water Korea Co., Ltd. (formerly known as Vivendi Water Industrial Development Co., Ltd.) (“Veolia”) on the land described in Schedule 5.1(d) (“Veolia Leased Land”) and consent to the registration of Lease Right I for the benefit of Lessee on the Veolia Leased Land as soon as possible after the Closing but in no event later than 4 weeks thereafter. | ||
| (g) | Brokerage. Lessor and its Subsidiaries (as defined in the BTA) have not made any agreement or taken any other action which might cause any Person to become entitled to a broker’s or finder’s fee or commission as a result of this Agreement. | ||
| (h) | NO OTHER REPRESENTATIONS. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT OR THE BTA, NEITHER LESSOR NOR ANY OTHER PERSON OR ENTITY ACTING ON BEHALF OF LESSOR, MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED. TO THE EXTENT ANY REPRESENTATIONS OR WARRANTIES HEREIN ARE INCONSISTENT WITH ANY REPRESENTATIONS OR WARRANTIES IN THE BTA, THE APPLICABLE REPRESENTATIONS OR WARRANTIES IN THE BTA SHALL CONTROL. |
| 5.2. | Lessee hereby covenants, represents and warrants to Lessor that all of the representations and warranties contained in this Section 5.2 are true and correct in all material respects as of the Closing Date, and the Partition Date, as the case may be. |
| (a) | Organization. Lessee is a corporation duly organized and validly existing under the laws of Korea and has full power and authority to carry on its business as heretofore conducted. |
10
| (b) | Authorization. Lessee has full corporate power and authority to execute and deliver this Agreement. The execution, delivery and performance by Lessee of this Agreement have been duly authorized by all corporate actions on the part of Lessee that are necessary to authorize the execution, delivery and performance by Lessee of this Agreement. | ||
| (c) | Binding Agreement. This Agreement has been duly executed and delivered by Lessee and, assuming due and valid authorization, execution and delivery hereof by Lessor, is a valid and binding obligation of Lessee, enforceable against Lessee in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws of general application affecting enforcement of creditors’ rights generally and (ii) the availability of the remedy of injunctive relief may be subject to the discretion of the court before which any proceeding therefor may be brought or the general principle of good faith and fairness provided for in the Korean Civil Code. | ||
| (d) | Title and Consents. As of the Partition Date, Lessee has requisite power to grant the easement rights hereunder to Lessor and has the requisite power to grant the registration of the Hynix Easement Right on the relevant portions of the Land to Lessor. | ||
| (e) | Use of Land. Lessee has obtained all Consents required in connection with the use of the Land and the granting to Lessor of the rights under this Agreement, and shall obtain such additional Consents necessary or appropriate for the grant of the Hynix Easement Right and the registration thereof in accordance with Section 7 (“Lessee Easement Rights Consents”). As of Partition Date, Lessee has provided Lessor with copies of all such Consents and shall provide Lessor with the Lessee Easement Rights Consents on or before the Partition Date, including those listed on Exhibit C. The condition and use of the Access Areas as of the Partition Date by Lessee complies with all Applicable Laws in all material respects. | ||
| (f) | Construction of Warehouses. Lessee shall construct a Gas Warehouse Building on the Lease Right Site II within two (2) years from the Closing Date and a Waste Water Facility Building on the Lease Rights Site II within one(1) year from the Closing Date. | ||
| (g) | Brokerage. Lessee has not made any agreement or taken any other action which might cause any Person to become entitled to a broker’s or finder’s fee or commission as a result of this Agreement. | ||
| (h) | NO OTHER REPRESENTATIONS. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT OR THE BTA, NEITHER LESSEE NOR ANY OTHER PERSON OR ENTITY ACTING ON BEHALF OF LESSEE, MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED. TO THE EXTENT ANY REPRESENTATIONS OR WARRANTIES HEREIN ARE |
11
| INCONSISTENT WITH ANY REPRESENTATIONS OR WARRANTIES IN THE BTA, THE APPLICABLE REPRESENTATIONS OR WARRANTIES IN THE BTA SHALL CONTROL. |
| 5.3. | Each Party covenants and agrees to endeavor to cooperate with the other Party so as to minimize any interference with the other Party’s operation of its business. |
| 5.4. | With respect to Lessee’s use of the Land, from and after the Closing Date, Lessee shall comply in all material respects with all Applicable Laws applicable to the ordinary operation of Lessee’s Business, including the environmental laws, and with the terms of all Government Authorizations relating to Lessee’s operation of its Business at the Land or in the Buildings arising after the Closing Date. |
| 5.5. | Lessee covenants and agrees to reimburse Lessor, in full and promptly upon demand, if Lessor sustains any material Damages or is reasonably required to expend any money as a result of a default by Lessee hereunder; provided, however, Lessee shall not reimburse Lessor for any damages resulting from (a) reasonable wear and tear to the Land, (b) Lessor’s maintenance of the Land as provided for herein, or (c) to the extent such Damages arises from Lessor’s gross negligence or intentional misconduct. |
| 5.6. | Based on the Lease Right over the Site, Lessee shall grant to Veolia a registered sublease (“deunggi cheonchawkwon”) on certain portions of the Site, as more specifically depicted in Exhibit D attached hereto, under the terms and conditions substantially the same as those of the Land Use Rights Agreement dated March 27, 2001 entered into by and between Lessor and Veolia. |
| 5.7. | Except as disclosed in Schedule 5.1(d), Lessor will deliver actual possession of the Site free and clear of occupancy. |
| 5.8. | By the Closing Date, Lessor shall have obtained all necessary and relevant Lessor Lease Rights Consents related to the registration of the Lease Rights. By the Partition Date, Lessee shall have obtained all necessary and relevant Lessee Easement Rights Consents. Lessor shall not permit or suffer future Liens on the Lease Rights Site I. |
| 5.9. | Lessor covenants and agrees to reimburse Lessee, in full and promptly upon demand, if Lessee sustains any material Damages or is reasonably required to expend any money as a result of a default by Lessor hereunder; provided, however, Lessor shall not reimburse Lessee for any damages resulting from (a) reasonable wear and tear to the Land, or (b) Lessee’s maintenance of the Land as provided for herein, or (c) to the extent such Damage arises from Lessee’s gross negligence or intentional misconduct. |
Article 6. Maintenance and Other Expenses
All costs, expenses and obligations relating to the Site which arise or are attributable to
Lessee’s occupancy or use of the Site during the Lease Term, shall be paid by Lessee. Lessee hereby
assumes all other responsibilities normally identified with the ownership of the Site, such as
responsibility for the condition of the premises, such as operation, repair, replacement,
maintenance and management of the Site, including repairs to the paved areas and driveways on
12
the Site. During the Lease Term, if Lessee fails to maintain the Site in good repair and condition
for Lessor to obtain the reasonable benefits of the Site, Lessor may so notify Lessee and perform
such repair and shall be reimbursed upon demand by Lessee for such costs based on invoices for work
actually performed. Without limiting the foregoing, except as otherwise provided in this Agreement,
or the other contracts executed by the Parties in connection with the BTA, the Parties agree that
Lessor shall not be required or obligated to furnish any services or facilities to the Lease Rights
Site. All costs, expenses and obligations relating to the Easement Site and taxes that Lessor
should pay, which arise or are attributable to the period of the Lease Term shall be paid by
Lessor. Lessor hereby assumes all other responsibilities normally identified with the ownership of
the Easement Site, such as a responsibility for the condition of the Easement Site, such as
operation, repair, replacement, maintenance and management of the Easement Site, including repairs
to the paved areas and driveways on the Easement Site. If Lessor fails to maintain the Easement
Site in good repair and condition for Lessee to obtain the reasonable benefit of the Easement
Right, Lessee may so notify Lessor and perform such repair and shall be reimbursed upon demand by
Lessor for such costs based on invoices for work actually performed, with a right of setoff against
next Rent due to the extent not reimbursed.
Article 7. Registration of the Lease Right and Easement Right.
| 7.1. | On the Closing Date, Lessor shall consent to the registration of (a) the Lease Right over the Lease Rights Site for the benefit of Lessee, in accordance with Section 2.3 and (b) the lease rights over the one-half of the Easement Site for the benefit of Lessee, subject to Lessor’s rights to use the Easement Site as the owner thereof, and shall provide to Lessee all the necessary and appropriate documents normally required of a lessor for the registration of such Lease Right on the Closing Date, including Lessor Lease Rights Consents. Lessee shall be entitled to register, on or after the Closing Date, the rights granted under this Section 7.1 with the pertinent real property registry offices. Such registration shall have, (i) with respect to the Lease Rights Site I and the Easement Site I, first priority during the Lease Term over any Lien on the Lease Rights Site I and the Easement Site I, subject to the subsequent de-registration of such lease rights over the one-half of the Easement Site on the Partition Date and (ii) with respect to the Lease Rights Site II, subordinate to the Liens held by Lessor’s creditors. The registration shall include such material matters provided in this Agreement as Lessor and Lessee may agree to register and as permitted to be registered in the real property registry under the Applicable Laws, provided that the terms of such Lease Right shall be the same as the terms and conditions of this Agreement. The expenses and costs of such registration of the Lease Right shall be borne wholly by Lessee. |
| 7.2 | On the Partition Date, Lessor shall consent to the registration of the Easement Right over the Easement Site for the benefit of Lessee, in accordance with Section 2.3 and shall provide to Lessee all necessary and appropriate documents normally required of a lessor for the registration of such Easement Right on the Partition Date. Lessee shall be entitled to register, on or after the Partition Date, the Easement Right over the Easement Site granted under this Section 7.2 with the pertinent real property registry offices. Such registration shall have, (a) with respect to the Easement Site I, first priority during the Lease Term over any Lien on the Easement Site I and (b) with respect to Easement Site II, priority subordinated to the Liens held by Lessor’s creditors. The registration shall |
13
| include such material matters provided in this Agreement as Lessor and Lessee may agree to register and as permitted to be registered in the real property registry under the Applicable Laws, including the matter of the exercise by Lessee of the Easement Right in a manner and to the extent that allows Lessor to exercise a equal rights to use the Easement Site based on its ownership rights to the Easement Site set forth in Section 2.1, provided that the terms of such Easement Right shall be the same as the terms and conditions of this Agreement. The expenses and cost of deregistration and re-registration of rights other than Lease Right over Lease Rights Site and Easement Right over Easement Site shall be borne by the Party incurring such costs and expenses. The expenses and costs of such registration of such Easement Right shall be borne solely by Lessee. |
| 7.3 | On the Partition Date, Lessee shall consent to the registration of the Hynix Easement Right over the Access Areas in accordance with Section 2.1 for the benefit of Lessor and shall provide to Lessor all necessary and appropriate documents normally required of a lessor for the registration of such easement rights on the Partition Date. Lessor shall be entitled to register, on or after the Partition Date, such Easement Right over the Access Areas granted under this Section 7.3 with the pertinent real property registry offices. Such registration shall have, with respect to the Access Areas, first priority during the Lease Term over any Lien on the Access Areas. The registration shall include such material matters provided in this Agreement as Lessor and Lessee may agree to register and as permitted to be registered in the real property registry under the Applicable Laws, including the matter of the exercise by Lessee of the Easement Right in a manner and to the extent that allows Lessee to exercise a equal rights to use the Access Areas based on its Lease Rights over the Access Areas set forth in Section 2.2, provided that the terms of such easement rights shall be the same as the terms and conditions of this Agreement. The expenses and costs of such registration of Hynix Easement Right shall be borne solely by Lessor. |
Article 8. [Intentionally Deleted]
Article 9. Use and Maintenance
| 9.1. | Subject to Section 2.7, Lessee shall not occupy or use the Lease Rights Site and the Easement Site for any purpose whatsoever, other than in connection with the operation of the Business, including all Permitted Uses and in compliance with all Applicable Laws and Rules and Regulations. |
| 9.2. | Lessee shall, at its sole cost and expense, maintain, or cause to be maintained, during the Lease Term, the Site in equivalent condition to the condition as of the Closing Date, wear and tear, insured casualty and condemnation excepted. |
14
Article 10. Termination
| 10.1. | Termination. This Agreement may be terminated at any time during the Lease Term of this Agreement upon the occurrence of any of the following events: |
| (a) | by a Party serving a written notice of termination to the other Party in the event of a material breach or default by such other Party of its obligations hereunder, which default shall not have been cured within sixty (60) days after written notice is provided by the non-breaching Party to the breaching Party; or | ||
| (b) | by Lessee with ninety (90) days prior written notice to Lessor for any reason whatsoever. |
| 10.2. | Upon termination of this Agreement, each Party shall discontinue the use of all Confidential Information provided by the other Party in connection with this Agreement, and shall promptly return to the other Party any and all Confidential Information, including documents originally conveyed to it by the other Party and any copies thereof made thereafter. |
| 10.3. | Termination of this Agreement shall be without prejudice to the accrued rights and liabilities of the Parties prior to the termination of this Agreement. |
| 10.4. | The respective rights and obligations of the Parties under any Sections which by their nature are intended to extend beyond termination, shall survive the termination or expiry of this Agreement. |
| 10.5. | In the event of the termination of this Agreement pursuant to Section 10.1 hereof, a written notice thereof shall forthwith be given to the other Party specifying the provision hereof pursuant to which such termination is made, and Lessee or Lessor (as the case may be) shall only be liable thereafter for (i) Damages suffered as a result of its fraud or willful breach of this Agreement that occurred prior to the termination of this Agreement, or (ii) the obligations and liabilities of the Parties pursuant to this Agreement that accrued prior to the termination of this Agreement. |
Article 11. Sublease and Assignment
| 11.1. | This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns; provided, however, that no Party hereto will assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other Party hereto, except that (i) Lessee may assign its rights hereunder (other than the lease right over the one-half of the Easement Site allowed from the Closing Date until the Partition Date) as collateral security to any bona fide financial institution engaged in financing in the ordinary course providing financing to the Warrant Issuer or its Subsidiaries and any of the foregoing financial institutions may assign such rights in connection with the sale of Lessee’s business in the form then being conducted by Lessee substantially as an entirety; (ii) Lessor and Lessee each may, upon written notice to the other Party (but without the obligation to obtain the consent of such other Party), assign this Agreement or any of its rights and obligations under this Agreement to |
15
| any person, entity or organization that succeeds (by purchase, merger, operation of law or otherwise) to all or substantially all of the capital stock, assets or business of such party, all or substantially all of its assets and liabilities or to all or substantially all of the assets and liabilities of the portion of the Party’s business to which the subject of this Agreement relates or of a division of Lessee, if such person or entity agrees in writing to assume and be bound by all of the relevant obligations of such Party under this Agreement; and (iii) Lessee may, upon written notice to Lessor (but without the obligation to obtain the consent of Lessor), assign this Agreement or any of its rights and obligations under this Agreement to one or more direct or indirect Subsidiaries of the Warrant Issuer if such Subsidiaries agree in writing to assume and be bound by all of the relevant obligations of Lessee under this Agreement. |
| 11.2. | Intentionally Deleted. |
| 11.3. | Notwithstanding anything to the contrary, Lessee shall not sublease the Lease Rights Site, in whole or in part, to a third party, except Veolia in accordance with Section 5.6 and the Hynix Easement Right. |
Article 12. Quiet Enjoyment; Indemnification.
| 12.1. | Without prejudice to Lessor’s rights under this Agreement or under the Applicable Laws, so long as Lessee pays the Rent and materially observes all other terms, conditions and covenants hereof, Lessor shall ensure that Lessee has the right to quietly enjoy the Land without hindrance, molestation or interruption during the Lease Term, subject to the terms and conditions of this Agreement. |
| 12.2. | Lessor shall indemnify Lessee and its Indemnified Persons (the “Lessee Indemnified Parties”), and hold the Lessee Indemnified Parties harmless from and against, any and all Damages arising out of, resulting from or relating to claims by third parties arising from the negligent acts of Lessor, except to the extent such Damage is caused by the negligence or willful misconduct of any such Lessee Indemnified Party. |
| 12.3. | Lessee shall indemnify Lessor and its Indemnified Persons (the “Lessor Indemnified Parties”) and hold the Lessor Indemnified Parties harmless from and against, any and all Damages arising out of, resulting from or relating to claims by third parties arising from the negligent acts of Lessee, except to the extent such Damage is caused by the negligence or willful misconduct of any such Lessor Indemnified Party. |
| 12.4. | In no event shall a Party be liable for Excluded Damages. |
Article 13. Surrender.
| 13.1. | Upon the expiration or termination of this Agreement, Lessor and Lessee shall consult in good faith to determine a reasonable grace period (which shall not be more than 6 months) (the “Grace Period”) for Lessee to peaceably and quietly vacate and surrender the Land to Lessor. For the avoidance of doubt, Lessee shall be obligated to pay the Rent for the period until the date of surrender of the Land to Lessor. |
16
| 13.2. | During the Grace Period, Lessee shall, among other things, restore the Land to its condition and shape equivalent to that of the Closing Date, wear and tear, insured casualty and condemnation excepted, and as otherwise reasonably acceptable to Lessor by removing at its own expense any additional fixtures, partitions and structural alterations made by Lessee not consented to by Lessor. In the event Lessee fails to vacate, surrender and restore the Land to its condition equivalent to that of the Closing Date, including the presence of any buildings and improvements, reasonable wear and tear and insured casualty excepted, by the end of the Grace Period, Lessor may move, remove or dispose of any fixtures, partitions, structural alterations or other property or belongings remaining on the Land, and all reasonable expenses incurred therefrom shall be borne by Lessee. |
Article 14. Disputes and Governing Law.
| 14.1. | This Agreement shall be governed by and construed in accordance with the laws of Korea without reference to the choice of law principles thereof. |
| 14.2. | The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction to prevent any breach of this Agreement and to enforce specifically the terms and provisions of this Agreement by bringing a relevant action in the Seoul Central District Court in Seoul, Korea, in addition to any other remedy to which any Party may be entitled at law or in equity. In addition, the Parties agree that any disputes, claims or controversies between the Parties arising out of or relating to this Agreement, whether in contract, tort, equity or otherwise and whether relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement shall be submitted to the exclusive jurisdiction of the Seoul Central District Court in Seoul, Korea. Each of the Parties irrevocably waives, to the fullest extent permitted by law, any objection which it may now, or hereafter, have with respect to the jurisdiction of, or the venue in, the Seoul Central District Court. |
Article 15. Change of Applicable Laws of Korea
Lessor shall process, and Lessee shall pay for, every zoning requirement or the requirements
imposed by the Applicable Laws, which arise from change of conditions caused by Lessee subsequent
to the Closing Date from the operation of the Business, as they come into effect during the Lease
Term.
17
Article 16. Alterations
Each of the Buildings is now or hereafter shall be owned by Lessee, Lessee has the unfettered
right to alter, replace, construct and/or reconstruct the Buildings, and Lessor acknowledges such
alteration, replacement, construction or reconstruction shall not be deemed to be a termination of
the Business or this Agreement. Lessor shall, upon request by Lessee, either (a) give evidence of
this prior consent to such demolition and construction during the Lease Term as long as the
applicable Building is to be used for a Permitted Use, and/or (b) issue the requisite consent
letter for submission to competent authorities.
Article 17. Right of First Refusal
| 17.1. | Lessor is the current occupant of portions of the Hynix Land (“Expansion Area”), Lessee shall have both a Right of First Refusal on the Expansion Area as set forth below: |
| (a) | Right of First Refusal. If Lessor shall receive an offer to lease any portion of the Expansion Area, from time to time, which offer Lessor shall desire to accept, Lessor shall transmit a memorandum of said offer to Lessee. The memorandum shall set forth in detail the terms of the offer, including a description of the area, the rent (including any abatement and escalations), and any other material terms of the offer, to the extent available. Within fifteen (15) days of receiving Lessor’s memorandum, Lessee shall, by written notice to Lessor exercise the right (each, a “Right of First Refusal”), (i) to accept such Expansion Area upon the terms and conditions stated in the offer or (ii) to accept such Expansion Area on the terms and conditions set forth in Section 17.1(c) and 17.1(d). Lessee’s failure to make the election shall be deemed a rejection of the Expansion Area. Upon Lessee’s acceptance of the Expansion Area, the parties shall execute an amendment incorporating the Expansion Area into the Site subject to all of the terms, covenants, and conditions of the Lease, except as modified by the terms of the offer (if Lessee has elected option (i) above). Notwithstanding anything to the contrary in the offer, the terms of the Lease for the Expansion Area shall be as provided in Section 17.1(c) immediately below. Notwithstanding that Lessee should fail or refuse to exercise its Right of First Refusal in the manner herein provided, if the Expansion Area, or any part thereof, is not leased to the prospective tenant contemplated by Lessor’s memorandum within the time-period and on terms no more favorable to such tenant than originally offered to Lessee, the Expansion Area shall thereafter continue to be subject to the terms and conditions imposed by this Section 17.1(a) upon third party offers to lease and the first refusal procedure established by this Section 17.1(a) shall be reinstated. | ||
| (b) | Should Lessee elect to exercise its Right of First Refusal, the terms and conditions of this Lease shall apply to the Expansion Area except as modified by the terms of the offer if Lessee has accepted in Section 17.1(a) option (i) above. Rent for the Expansion Area shall be at the then current square meter rental rate except as modified by the terms of the offer if Lessee has accepted in Section 17.1(a) option (i) above. |
18
| (c) | Should Lessee exercise its Right of First Refusal, Lessor shall deliver such Expansion Area to Lessee, in Turnover Condition (defined below) whereupon said Expansion Area shall be added to and become a part of the Site and shall be governed in all respects by the terms of this Lease except that (i) as to the Right of First Refusal, the terms of the offer upon which Lessee exercised such right shall govern to the extent inconsistent with the terms of this Agreement and (ii) notwithstanding anything herein to the contrary, the term applicable to such space shall end at the same time, and under the same conditions, as applicable to the Lease Term. As used herein, “Turnover Condition” shall mean broom clean, free of occupants, debris, and movable property. |
Article 18. Additional Warehouse
| 18.1 | In accordance with Applicable Laws and if any land in the Cheong Ju Complex is available for the construction of one additional warehouse (“First Additional Warehouse”), Lessee may elect to construct a First Additional Warehouse by hiring its own contractors and performing such construction. In such event, Lessor shall provide or engage in the following: |
| (a) | the use or lease of the additional land necessary for the construction of the First Additional Warehouse, which would become part of the Lease Rights Site II; and | ||
| (b) | the use of access to such additional land and to the completed First Additional Warehouse, which would become part of the Easement Site II. | ||
| (c) | to undertake the performance for Lessee to obtain second priority Lease Rights for the site of the First Additional Warehouse and second priority Easement Rights for access from a public road along the main road to the site of the First Additional Warehouse consistent with Article 7 of this Agreement. |
| 18.2 | In accordance with Applicable Laws and if any land in the Cheong Ju Complex is available for the construction of one other additional warehouse (“Second Additional Warehouse”, together with the First Additional Warehouse, the “Additional Warehouses”), upon Lessee’s request, the Parties shall discuss in good faith (i) to accommodate such request and (ii) the selection of the site for the Second Additional Warehouse and other required acts. If both Parties agree, Lessor shall provide the undertakings as set forth in Sections 18.1(a), (b) and (c) above. |
| 18.3 | This Section shall be deemed as advance consent by Lessor to the site of the Additional Warehouses becoming part of the Lease Rights Site II and having the right of Easement Right II for access from a public road along the main road to the site of the Additional Warehouses. |
Article 19. Insurance.
| 19.1. | Lessor and Lessee shall each obtain from, keep in force during the Lease Term with, and pay all premiums due to, an insurer(s) holding a Best Rating of B+ or higher, Standard |
19
| Commercial General Liability Insurance. The limits of liability of such insurances shall be in an amount not less than One Million Dollars ($1,000,000.00) per occurrence, Personal Injury including death and One Million Dollars ($1,000,000.00) per occurrence, Property Damage Liability or One Million Dollars ($1,000,000.00) combined single limit for Personal Injury and property Damage Liability. |
| 19.2. | Lessee shall pay to Lessor the incremental amount of insurance premiums which will be additionally charged to Lessor due to Lessor’s grant to Lessee of lease of the Lease Rights Site I and easement right to the Easement Site in accordance with this Agreement. |
Article 20. Signage.
Upon surrender or vacation of the Leased Premises, Lessee shall have removed all signs it has
installed. Lessee shall obtain all applicable Governmental Authorizations for sign and exterior
treatments at its sole cost and expense. Lessor consents to the signage as depicted on Exhibit E.
If Lessee desires to install signs, decorations, or advertising media, the Parties shall discuss in
good faith the installation of such signage.
Article 21. Force Majeure.
| 21.1. | Neither Party shall be liable to the other Party for failure of or delay in the performance of any obligations under this Agreement due to causes reasonably beyond its control including (i) war, insurrections, riots, explosions, inability to obtain raw materials due to then current market situation; (ii) natural disasters and acts of God, such as violent storms, earthquakes, floods, and destruction by lightning; (iii) the intervention of any Governmental Entity or changes in relevant laws or regulations which restrict or prohibit either Party’s performance of its obligations under this Agreement or implementation of this Agreement; or (iv) strikes, lock-outs and work-stoppages, which are beyond the reasonable control of the Party claiming the benefit (each, an “Event of Force Majeure”). Upon the occurrence of an Event of Force Majeure, the affected Party shall notify the other Party as soon as possible of such occurrence, describing the nature of the Event of Force Majeure and the expected duration thereof. Notwithstanding the foregoing, Lessee shall be under continuing obligation to make the payments required hereunder for any Rent, Other Costs and the corresponding VAT payable by Lessee, which was payable by Lessee prior to the occurrence of an Event of Force Majeure. |
| 21.2. | If a Party is unable, by reason of an Event of Force Majeure, to perform any of its obligations under this Agreement, then such obligation shall be suspended to the extent and for the period that the affected Party is unable to perform. If this Agreement requires an obligation to be performed by a specified date, such date shall be extended for the period during which the relevant obligation is suspended due to such an Event of Force Majeure under this Agreement. |
Article 22. Confidentiality.
| 22.1. | Confidentiality. Neither Party shall, except as expressly permitted by the terms of this Agreement, disclose to any third party the terms and conditions of this Agreement, the |
20
| existence of this Agreement and any Confidential Information which either Party obtains from the other Party in connection with this Agreement and/or use such Confidential Information for any purposes whatsoever other than those contemplated hereunder provided, however, that this Agreement (and its terms and conditions) may be disclosed and filed publicly in connection with a public offering of securities by Lessee or its Affiliates. “Confidential Information” shall mean any and all information including technical data, trade secrets or know-how, disclosed by either Party to the other Party in connection with this Agreement, which is marked as “Proprietary” or “Confidential” or is declared by the other Party, whether in writing or orally, to be confidential, or which by its nature would reasonably be considered confidential. |
| 22.2. | The obligation of confidentiality in Section 22.1 shall not apply to any information that: (a) was known to the other Party without an obligation of confidentiality prior to its receipt thereof from the disclosing Party; (b) is or becomes generally available to the public without breach of this Agreement, other than as a result of a disclosure by the recipient Party, its representatives, its Affiliates or the representatives of its Affiliates in violation of this Agreement; (c) is rightfully received from a third party with the authority to disclose without obligation of confidentiality and without breach of this Agreement; or (d) is required by law or regulation to be disclosed by a recipient Party or its representatives (including by oral question, interrogatory, subpoena, civil investigative demand or similar process), provided that written notice of any such disclosure shall be provided to the disclosing Party in advance. If a Party determines that it is required to disclose any information pursuant to applicable law (including the requirements of any law, rule or regulation in connection with a public offering of securities by Lessor or its Affiliates) or receives any demand under lawful process to disclose or provide information of the other Party that is subject to the confidentiality provisions hereof, such Party shall notify the other Party prior to disclosing and providing such information and shall cooperate at the expense of the requesting Party in seeking any reasonable protective arrangements requested by such other Party. Subject to the foregoing, the Party that receives such request may thereafter disclose or provide information to the extent required by such law or by lawful process. |
Article 23. Miscellaneous.
| 23.1. | Exercise of Right. A Party may exercise a right, power or remedy at its discretion, and separately or concurrently with another right, power or remedy. A single or partial exercise of a right, power or remedy by a Party does not prevent a further exercise of that or of any other right, power or remedy. A failure to exercise a right, power or remedy or a delay in exercising a right, power or remedy by a Party does not prevent such Party from exercising the same right thereafter. |
| 23.2. | Extension; Waiver. At any time during the Lease Term, each of Lessor and Lessee may (a) extend the time for the performance of any of the obligations or other acts of the other or (b) waive any inaccuracies in the representations and warranties of the other contained in this Agreement or in any document delivered pursuant to this Agreement. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set |
21
| forth in an instrument in writing signed on behalf of such Party. The failure of any Party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. Any rights under this Agreement may not be waived except in writing signed by the Party granting the waiver or varied except in writing signed by the Parties. |
| 23.3. | Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted to be given to any Party shall be in writing and shall be deemed duly given only upon delivery to the Party personally (including by reputable overnight courier service), when telecopied (with confirmation of transmission having been received) during normal business hours or three days after being mailed by registered or certified mail (return receipt requested), with postage and registration or certification fees thereon prepaid, addressed to the Party at its address set forth below (or at such other address for a party as shall be specified by such Party by like notice): |
If to Lessor, to:
Hynix Semiconductor Inc.
Hynix Youngdong Building
891 Daechi-dong, Gangnam-gu
Seoul 135-738, Korea
Attention: O.C. Kwon
Telephone: 82-2-3459-3006
Facsimile: 82-2-3459-5955
Hynix Youngdong Building
891 Daechi-dong, Gangnam-gu
Seoul 135-738, Korea
Attention: O.C. Kwon
Telephone: 82-2-3459-3006
Facsimile: 82-2-3459-5955
If to Lessee, to:
MagnaChip Semiconductor, Ltd.
1 Hyangjeong-dong
Heungduk-gu
Cheongju City
Chung Cheong Bok-do
Korea
Telephone:
1 Hyangjeong-dong
Heungduk-gu
Cheongju City
Chung Cheong Bok-do
Korea
Telephone:
Attention: Dr. Youm Huh
Facsimile: +82-43-270-2134
Facsimile: +82-43-270-2134
with a copy to:
Dechert LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 698-3500
Facsimile: (212) 698-3599
Attention: Geraldine A. Sinatra, Esq.
Sang H. Park, Esq.
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 698-3500
Facsimile: (212) 698-3599
Attention: Geraldine A. Sinatra, Esq.
Sang H. Park, Esq.
22
| 23.4. | Fees and Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the Party incurring such expenses, except as specifically provided to the contrary in this Agreement. |
| 23.5. | Entire Lease; No Third Party Beneficiaries. This Agreement (a) constitutes the entire agreement between the Parties and supersedes all prior agreements and understandings, both written or oral, between the Parties with respect to the subject matter hereof and (b) is not intended to confer upon any person other than the Parties hereto any rights or remedies hereunder. |
| 23.6. | Severability of Provisions. Any term or provision of this Agreement that is held by a court of competent jurisdiction or other authority to be unlawful, invalid, void or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction or other authority declares that any term or provision hereof is unlawful, invalid, void or unenforceable, the Parties agree that the court making such determination shall have the power to reduce the scope, duration, area or applicability of the term or provision, to delete specific words or phrases, or to replace any unlawful, invalid, void or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the unlawful, invalid or unenforceable term or provision. |
| 23.7. | Amendment and Modification. This Agreement (for the avoidance of doubt, including Exhibits attached hereto) may be amended, modified and supplemented in any and all respects, but only by a written instrument signed by the Parties expressly stating that such instrument is intended to amend, modify or supplement this Agreement. |
| 23.8. | Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement. |
| 23.9. | Election of Remedies. Neither the exercise of nor the failure to exercise a right or to give notice of a claim under this Agreement shall constitute an election of remedies or limit any Party in any manner in the enforcement of any other remedies that may be available to such Party, whether at law or in equity. |
| 23.10. | Language. This Agreement is being originally executed in the English language only. In the event that the Parties agree to have a Korean version of this Agreement following signing, this Agreement may be translated into Korean. The Parties acknowledge that the Korean version of this Agreement shall be for reference purposes only, and in the event of any inconsistency between the two texts, the English version shall control. |
| 23.11. | No Merger. It is the intention of the Lessor to lease the Land to the Lessee free of any merger of the fee estate and leasehold estate or any other interests that may be held contemporaneously by Lessor, or any of them, and Lessee. No such merger will occur until such time as the Lessee executes a written instrument specifically effecting such merger and duly records the same. |
23
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its duly
authorized representatives as of the date first above written.
| Hynix Semiconductor Inc. | ||||
By: |
||||
Name:
|
||||
Title: |
||||
MagnaChip
|
Semiconductor, Ltd. | |||
By: |
||||
Name:
|
||||
Title: |
||||
24
Exhibit 10.4
FIRST AMENDMENT TO LAND LEASE AND EASEMENT AGREEMENT
This First Amendment to Land Lease and Easement Agreement (this “Amendment”) is entered into as of
December 30, 2005 by and between Hynix Semiconductor, Inc. (“Lessor”) and MagnaChip Semiconductor
Ltd. (“Lessee”) (each a “Party”, and collectively the “Parties”).
WHEREAS, the Parties are parties to that certain Land Lease and Easement Agreement dated as of
October 6, 2004 (the “Agreement”), and wish to amend the Agreement as set forth below.
NOW, THEREFORE, the Parties agree as follows:
| 1. | Section 4.2 is hereby amended and restated in its entirety as follows: “Lessor shall provide an invoice (the “Invoice”) to Lessee by the last day of each calendar month which shall include the amount of Rent, Other Costs and the corresponding VAT amount payable by Lessee for such month.” |
|
| 2. | Section 4.3 is hereby amended and restated in its entirety as follows: “Lessee shall pay in aggregate the Rent, Other Costs and the corresponding VAT amount stated on each Invoice to the Lessor’s designated account, or as otherwise designated by Lessor, by means of wire transfer in immediately available funds by the 25th day of the next calendar month following the date of the Invoice (the “Due Date”).” |
|
| 3. | Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement. | |
| 4. | Wherever necessary, all terms of the Agreement are hereby amended to be consistent with the terms of this Amendment. Except as set forth herein, the Agreement remains in full force and effect according to its terms. | |
| 5. | This Amendment shall become effective from the 6th of October, 2004. |
1
| 6. | This Amendment shall be governed by, and shall be construed in accordance with, the laws of Korea. |
[Signature Page Follows]
2
IN WITNESS WHEREOF, the Parties have caused their duly authorized representatives to execute this
Amendment as of the date first set forth above.
| MagnaChip Semiconductor, Ltd. | ||||
By: |
||||
Name:
|
||||
Title:
|
President & Chief Executive Officer | |||
| Hynix Semiconductor, Inc. | ||||
By: |
||||
Name:
|
||||
Title: |
||||
3
Exhibit 10.5
Execution Copy
GENERAL SERVICE SUPPLY AGREEMENT
between
Hynix Semiconductor Inc.
and
MagnaChip Semiconductor, Ltd.
October 6, 2004
TABLE OF CONTENTS
| Page | ||||
ARTICLE 1. DEFINITIONS
|
1 | |||
ARTICLE 2. TERM OF AGREEMENT; DURATION OF SERVICES
|
7 | |||
ARTICLE 3. SERVICES AND FEES
|
8 | |||
ARTICLE 4. SUPPLY OF THE SERVICES; RIGHT OF FIRST REFUSAL
|
13 | |||
ARTICLE 5. MAINTENANCE OF THE SERVICES
|
14 | |||
ARTICLE 6. COORDINATING COMMITTEE
|
15 | |||
ARTICLE 7. PAYMENTS FOR THE SERVICES
|
15 | |||
ARTICLE 8. REPRESENTATIONS, WARRANTIES AND COVENANTS
|
17 | |||
ARTICLE 9. FORCE MAJEURE
|
18 | |||
ARTICLE 10. TERMINATION; EFFECT OF TERMINATION
|
20 | |||
ARTICLE 11. INDEMNIFICATION
|
20 | |||
ARTICLE 12. LIMITATION ON LIABILITY
|
21 | |||
ARTICLE 13. ASSIGNMENT
|
21 | |||
ARTICLE 14. GOVERNING LAW; DISPUTE RESOLUTION
|
22 | |||
ARTICLE 15. CONFIDENTIALITY
|
23 | |||
ARTICLE 16. MISCELLANEOUS
|
24 | |||
EXHIBIT A SHORT TERM SERVICES |
||||
EXHIBIT B ENVIRONMENTAL SAFETY & FACILITY MONITORING SERVICES FEES |
||||
EXHIBIT C UTILITIES AND INFRASTRUCTURE SUPPORT SERVICES FEES |
||||
EXHIBIT D VIVENDI SERVICES FEES & CERTAIN VIVENDI ASSETS |
||||
EXHIBIT E WELFARE FACILITY SERVICES FEES |
||||
EXHIBIT F CHEMICAL PROCUREMENT SERVICES FEES |
||||
EXHIBIT G PARKING LOT, SPORTS FIELDS AND TENNIS COURT NEAR THE
WOMEN’S DORMITORIES |
||||
APPENDIX I SAMPLE CALCULATION OF FEES |
||||
-i-
GENERAL SERVICE SUPPLY AGREEMENT
This GENERAL SERVICE SUPPLY AGREEMENT (this “Agreement”), dated as of October 6, 2004 (the
“Effective Date”), is entered into by and between:
| (1) | Hynix Semiconductor Inc., a company organized and existing under the laws of the Republic of Korea (“Korea”) with its registered office at San-136-1, Ami-Ri, Bubal-Eub, Ichon-Si, Kyoungki-Do, Korea (“Hynix”); and |
| (2) | MagnaChip Semiconductor, Ltd., a company organized and existing under the laws of Korea with its registered office at 1, Hyangjeong-Dong, Heungduk-Gu, Cheongju-Si, Chungcheongbuk-Do, Korea (“NewCo”) (each a “Party” and collectively the “Parties”). |
RECITALS
WHEREAS, the Parties have entered into a certain business transfer agreement dated June 12,
2004, as amended (the “BTA”) pursuant to which, among other things, NewCo has agreed to acquire the
Acquired Assets (as defined in the BTA) from Hynix subject to the terms and conditions set forth in
the BTA;
WHEREAS, the Parties desire to enter into an agreement as contemplated by the BTA whereby
Hynix and NewCo will provide to each other certain services related to goods, utilities and
facilities in accordance with the terms and conditions of this Agreement which are required or
desirable for the transition, setting-up or continuing operation of the applicable Party’s
business; and
WHEREAS, the execution and delivery of this Agreement is a condition to the Closing under the
BTA.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements
hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows:
Article 1. Definitions
| 1.1. | Unless otherwise defined herein, all capitalized terms shall have the meanings set forth below: |
| “Affiliate” shall have the meaning ascribed to such term in the BTA. |
| “AUP” shall mean the agreed-upon-procedures which Samil PricewaterhouseCoopers (formerly Samil Accounting Corporation) has performed in connection with the financial statements attached in Schedule 2.4 of the BTA. |
| “BTA” shall have the meaning ascribed to such term in the Recitals. |
| “Business” shall have the meaning ascribed to such term in the BTA. Any reference to the “conduct of the Business” or the “operation of the Business” shall refer to the conduct or operation of the Business as conducted as of the execution date of the BTA. |
| “Business Day” shall mean any day other than a Saturday, Sunday or a day on which banks in Seoul are authorized or obligated by relevant law to close. |
| “CAO Operation Support Services” shall mean on-the-job training of personnel so that such personnel can provide services related to accounting, finance, administration and control of human resources (but excluding planning and decision functions of human resources), which have been historically provided to the Business. |
| “Chemical Procurement Services” shall mean the sale by Hynix to NewCo of such quantities of CPD-18 in a state of Developer 2.38% CPD2000 (Developer 20%) and produced by mixing with de-ionized water (the “Chemical”) as are requested by NewCo from time to time to meet the requirements of NewCo’s business, and the services related to such sale in which every morning Hynix will pick up from such locations within the Hynix Complex in Cheongju, Korea as may be designated by NewCo from time to time such drums which NewCo has deposited there for these Services and the following morning Hynix will deliver to the same locations each such drum refilled with the Chemical. |
| “Closing” shall have the meaning ascribed to such term in the BTA. |
| “Closing Date” shall have the meaning ascribed to such term in the BTA. |
| “Confidential Information” shall have the meaning ascribed to such term in Section 15.1. |
| “Coordinating Committee” shall have the meaning ascribed to such term in Section 6.1. |
| “Daesung” shall mean Daesung Industrial Gas Co., Ltd., a company organized and existing under the laws of Korea and a party to the Daesung Agreements. |
| “Daesung Agreements” shall mean all agreements entered into between Hynix and Daesung under which Daesung supplies gas to Hynix by constructing and operating, at Daesung’s own cost and responsibility, on-site gas plants within the Hynix Complex in Cheongju, Korea. |
| “Damages” shall mean any and all losses, settlements, expenses, liabilities, obligations, claims, damages (including any governmental penalty or costs of investigation, clean-up and remediation), deficiencies, royalties, interest, costs and expenses (including reasonable attorneys’ fees and all other expenses reasonably incurred in investigating, preparing or defending any litigation or proceeding, commenced or threatened incident to the successful enforcement of this Agreement), the extent of which are recoverable under Korean law. For the purposes of Articles 11 and 12, Damages also shall include any and all increases in insurance premiums that are reasonably demonstrably attributable to the breach by NewCo or Hynix, as the case may be, of its representations, warranties, agreements and covenants expressly contained in this Agreement, or negligence, gross negligence, intentional breach or willful misconduct of NewCo or Hynix, as the case may be, for the two following annual policy periods. |
2
| “Environmental Safety & Facility Monitoring Services” shall mean the services related to wastewater treatment, sewage management (to the extent it is not supplied as a part of the Vivendi Services), fire emergency service and drills/training, facility monitoring service, radiation and in-house clinic, which have been historically provided to the Business. |
| “Event of Force Majeure” shall have the meaning ascribed to such term in Section 9.1. |
| “Governmental Authorization” shall mean any approval, consent, license, permit, waiver or other authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Entity or otherwise pursuant to any applicable laws, or any registration with, or report or notice to, any Governmental Entity pursuant to any applicable laws. |
| “Governmental Entity” shall mean a court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency. |
| “Hynix Complex” shall mean the Hynix and/or NewCo manufacturing, testing, packaging, research and development and other facilities located at Ichon, Cheongju, Gumi, and Seoul, Korea. |
| “Hynix Utilities and Infrastructure Support Services” shall mean the services related to electricity (154kV substation and substation of the Korea Electric Power Corporation), water, fuel (city gas and light oil), bulk gasses (of the type historically provided under the Daesung Agreements) and de-ionized water (to the extent it is not supplied by Vivendi as a part of the Vivendi Services), which have been historically provided to the Business in Cheongju, Korea. |
| “Indemnified Party” shall have the meaning ascribed to such term in Section 11.1. |
| “Indemnifying Party” shall have the meaning ascribed to such term in Section 11.1. |
| “Joint Purchasing Services” shall mean, to the extent permitted by applicable law, such cooperation and coordination between the Parties, including by means of information sharing and joint purchasing from the same vendors, as is necessary or advisable to achieve such benefits including volume discounts, cost reductions and efficiency in gathering market information in the purchase of equipment, silicon wafers, photo chemicals and other raw materials and spare parts, which have been historically provided to the Business. |
| “Leased Premises” shall have the meaning ascribed to such term in Section 3.14(a). |
| “Long-Term Service” shall mean each of the Vivendi Services and each of the services related to (a) electricity (154kV substation), electricity (substation of the Korea Electric Power Corporation), bulk gasses and de-ionized water (to the extent it is not supplied as a part of the Vivendi Services), which are part of the Hynix Utilities and Infrastructure Support Services; (b) use of and services related to dormitory (including sewage and waste management and disposal services), Hynix culture center, security cameras, |
3
| security guard house, commuting bus, cafeteria, communication systems including leased lines, company broadcasting system (other than content), company house (Poolen Apartments, Sawon Apartments and sa-rang-bang) and leased apartments (Woojung apartments), sports field, tennis courts and parking lot (near women’s dormitories) and reserve troops in Cheongju, Korea, and use of and services relating to Highla Condominiums, Korea Condominiums and, subject to then applicable union contracts and restrictions, other condominiums existing as of the date hereof, which are part of the Welfare Facility Services; and (c) wastewater treatment and sewage management (to the extent they are not supplied as a part of the Vivendi Services), fire emergency service and drills/training and in-house clinic, which are part of the Environmental Safety & Facility Monitoring Services. |
| “Maintenance Activities” shall have the meaning ascribed to such term in Section 5.1. |
| “Mask Services” shall mean certain services relating to the Products as defined in the Mask Production and Supply Agreement between the Parties, dated the date hereof, including defect inspection, repair and cleaning of such Products. |
| “NewCo Utilities and Infrastructure Support Services” shall mean the services related to management of water tank, supply of assembly utility and waste management, which have been historically used or received by Hynix (other than in connection with the Business) in connection with Hynix’s use of the R, C1, C2, C3 and Assembly buildings in Cheongju, Korea. |
| “Notice of Sale” shall have the meaning ascribed to such term in Section 4.5. |
| “Notice Period” shall have the meaning ascribed to such term in Section 4.5. |
| “Offered Assets” shall have the meaning ascribed to such term in Section 4.5. |
| “Permitted Business” shall mean the Business or any other semiconductor, information technology or other technology related business. |
| “Service Facilities” shall mean those facilities at the Hynix Complex and those assets that are used for or relate to the provision of the Services. |
| “Services” shall mean such services related to goods, facilities and utilities which are required or desirable for transition, setting-up or continuing operation of the applicable Party’s business and consisting of each of the services constituting the Vivendi Services, Hynix Utilities and Infrastructure Support Services, NewCo Utilities and Infrastructure Support Services, Welfare Facility Services, Environmental Safety & Facility Monitoring Services, Mask Services, CAO Operation Support Services, Chemical Procurement Services, Joint Purchasing Services and the other services described herein. |
| “Subsidiaries” shall have the meaning ascribed to such term in the BTA. |
| “Term” shall have the meaning ascribed to such term in Article 2. |
4
| “Third Party Supplier(s)” shall mean Daesung and/or Vivendi, as applicable, which provide certain services to Hynix for Hynix’s provision of such Services hereunder. |
| “Third Party Supplier Agreement(s)” shall mean the Daesung Agreement and/or the Vivendi Water and Wastewater Services Agreement, as applicable, and any replacements or modifications thereof from time to time. |
| “Unprotected Long-Term Services” shall mean each of the services related to (a) security cameras, security guard house, commuting bus, cafeteria, communication systems including leased lines, company broadcasting system, company house (Poolen Apartments, Sawon Apartments and sa-rang-bang) and leased apartments (Woojung apartments), sports field, tennis courts and parking lot (near the women’s dormitories) and reserve troops in Cheongju, Korea, and Highla Condominiums, Korea Condominiums and, subject to then applicable union contracts and restrictions, other condominiums existing as of the date hereof, which are part of the Welfare Facility Services; and (b) fire emergency service and drills/training and in-house clinic, which are part of the Environmental Safety & Facility Monitoring Services. |
| “Vivendi” shall mean Veolia Water Industrial Development Co., Ltd. (formerly known as “Vivendi Water Industrial Development Co., Ltd.”), organized and existing under the laws of Korea and a party to the Vivendi Water and Wastewater Services Agreement. |
| “Vivendi Services” shall mean the services related to de-ionized water supply and wastewater disposal in the Hynix Complex located in Cheongju, Korea and in Gumi, Korea, and all such other services provided by Vivendi to Hynix under the Vivendi Water and Wastewater Service Agreement. |
| “Vivendi Water and Wastewater Services Agreement” shall mean the Water and Wastewater Services Agreement dated March 29, 2001 entered into by and between Hynix (then named Hyundai Electronics Industries Co., Ltd.) and Vivendi, as the same may be amended from time to time. |
| “Warrant Issuer” shall have the meaning ascribed to such term in the BTA. |
| “Welfare Facility Services” shall mean such welfare and facility services, including the use of and services related to (a) dormitories (including sewage and waste management and disposal services), Hynix culture center, security cameras, security guard house, commuting bus, cafeteria, communication systems, company broadcasting system (other than content), company house (Poolen Apartments, Sawon Apartments and sa-rang-bang) and leased apartments (Woojong apartments), sports fields, tennis courts and parking lot (near women’s dormitories), and reserve troops in the Hynix Complex located in Cheongju, Korea; (b) leased apartments, dormitory (including sewage and waste management and disposal services), cafeteria, gymnasium, parking lot, communication systems, pavilion/PR center/audience room, kindergarten, reserve troops, security and sports field in the Hynix Complex located in Ichon, Korea; (c) reserve troops, postal and package delivery (among Cheongju, Ichon and Youngdong), security card key system and communication systems in the Hynix Complex located in Youngdong Building, |
5
| Seoul, Korea, which have been historically provided to the Business; and (d) Highla Condominiums, Korea Condominiums and, subject to then applicable union contracts and restrictions, other condominiums existing as of the date hereof owned by Hynix. |
| 1.2. | Rules of Interpretation. |
| (a) | When a reference is made in this Agreement to a section or article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. | ||
| (b) | Whenever the words “include”, “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation.” | ||
| (c) | The words “hereof”, “hereto”, “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified. | ||
| (d) | The meaning assigned to each term defined herein shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. | ||
| (e) | A reference to any party to this Agreement or any other agreement or document shall include such party’s successors and permitted assigns. | ||
| (f) | A reference to any legislation or to any provision of any legislation shall include any amendment to, and any modification or re-enactment thereof, any legislative provision substituted therefor and all regulations and statutory instruments issued thereunder or pursuant thereto. | ||
| (g) | The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement. | ||
| (h) | Headings are for convenience only and do not affect the interpretation of the provisions of this Agreement. | ||
| (i) | Any Exhibits attached hereto are incorporated herein by reference and shall be considered as a part of this Agreement. |
6
Article 2. Term of Agreement; Duration of Services
| 2.1. | This Agreement shall become effective on the Effective Date and continue in full force and effect for so long as any Service is being provided hereunder, unless earlier terminated in accordance with Article 10 (the “Term”). |
| 2.2. | Unless specified otherwise in this Article 2, each of the Services shall be provided from the Effective Date until the date that is one (1) year after the Effective Date (the “Initial Service Period”), unless otherwise earlier terminated pursuant to this Agreement. Unless specified otherwise in this Article 2, after the Initial Service Period for a Service, such Service shall be provided for one additional one (1) year period NewCo notifies Hynix in writing of its desire not to renew the provision of such Service at least sixty (60) days prior to the expiration of the Initial Service Period or the Service is earlier terminated pursuant to this Agreement. |
| 2.3. | The provision of Services in the Hynix Complex located in Youngdong Building, Seoul, and Ichon, Korea, respectively, will terminate after the applicable lease for the Hynix Complex located in Youngdong Building, Seoul, and Ichon, Korea, respectively, terminates, provided, however, that with respect to the leased apartments in Ichon, Korea, NewCo or the NewCo employee (as applicable) shall have the right to early termination of such leased apartment without penalty and shall, subject to the regulations of Hynix concerning the leased apartments, have the option to renew a leased apartment for one additional term. |
| 2.4. | Each Long-Term Service shall be provided for the Initial Service Period and for successive additional one (1) year periods, unless NewCo notifies Hynix in writing of its desire not to renew the provision of such Long-Term Service at least sixty (60) days prior to the expiration of the Initial Service Period or any annual anniversary thereof or the Long-Term Service is earlier terminated pursuant to this Agreement. |
| 2.5. | NewCo and Hynix shall, for a period of one year from the date hereof, cooperate with each other and negotiate in good faith with Vivendi regarding, and use commercially reasonable efforts to enter into, separate water and wastewater services agreements with Vivendi under which Vivendi shall directly provide NewCo and Hynix with services that are identical to the services provided by Vivendi to Hynix under the Vivendi Water and Wastewater Services Agreement, with terms at least as favorable as those on which the services are currently provided to Hynix. To the extent that NewCo is able to enter into such an agreement, Hynix will no longer be obligated to provide such services as are provided directly from Vivendi to NewCo under such agreement. To the extent that NewCo is unable to receive the applicable services directly from Vivendi, Hynix shall remain obligated to provide Vivendi Services to NewCo in accordance with the terms and conditions of this Agreement. NewCo and Hynix shall, for a period of one year from the date hereof, cooperate with each other and negotiate in good faith with Daesung regarding, and use commercially reasonable efforts to enter into, separate gas agreements with Daesung under which Daesung shall directly provide NewCo and Hynix with services that are identical to the services provided by Daesung to Hynix under the Daesung Agreements, with terms at least as favorable as those on which the services currently are |
7
| provided to Hynix. To the extent that NewCo is able to enter into such an agreement, Hynix will no longer be obligated to provide such services as are provided directly from Daesung to NewCo under such agreement. To the extent that NewCo is unable to receive the applicable services directly from Daesung, Hynix shall remain obligated to provide such services to NewCo in accordance with the terms and conditions of this Agreement. |
| 2.6. | NewCo Utilities and Infrastructure Support Services shall be provided for the Initial Service Period and for successive one (1)-year periods, unless Hynix notifies NewCo in writing of its desire not to renew the provision of the NewCo Utilities and Infrastructure Support Services at least sixty (60) days prior to the expiration of the Initial Service Period or any annual anniversary thereof or the NewCo Utilities and Infrastructure Support Services are earlier terminated pursuant to this Agreement. |
| 2.7. | Notwithstanding any other provision of this Agreement to the contrary, each Party may terminate the provision of any Service, in whole or in part, by providing the other Party with sixty (60) days prior notice of such termination (or such shorter time period of notice as is specified for such Service in Exhibit A). The terminating Party shall not be obligated to pay the other Party the service fees attributable to such cancelled Service(s), or part thereof, to the extent such fees are for services provided for any period beginning on or after the effective date of such termination. |
| 2.8. | Chemical Procurement Services shall be provided from the Effective Date until the date that is five (5) years after the Effective Date, and thereafter for so long as Hynix has the capacity to provide such Service, unless otherwise earlier terminated pursuant to this Agreement. |
| 2.9. | With respect to the Services related to the company broadcasting system under the Welfare Facility Services relating to production and development of content, such services shall be provided from the Effective Date until the date that is five (5) years after the Effective Date, unless otherwise earlier terminated pursuant to this Agreement. |
| 2.10. | The Mask Services shall be provided from the Effective Date until the date that is five (5) years after the Effective Date, unless otherwise earlier terminated pursuant to this Agreement. |
Article 3. Services and Fees
| 3.1. | Hynix shall provide, or cause the applicable Third Party Supplier to provide, NewCo with the Vivendi Services, Hynix Utilities and Infrastructure Support Services, Welfare Facility Services, Environmental Safety & Facility Monitoring Services, Mask Services, CAO Operation Support Services and Chemical Procurement Services, and NewCo shall receive such Services from Hynix, for the periods determined in accordance with Article 2. NewCo shall provide Hynix with the NewCo Utilities and Infrastructure Support Services, and Hynix shall receive such Services from NewCo, for the periods determined in accordance with Article 2. |
| 3.2. | The Parties shall each provide the Joint Purchasing Services to the other at no cost to the other and, to the extent permitted by applicable law, shall jointly purchase equipment, |
8
| silicon wafers, photo chemicals and other materials or spare parts if such joint purchasing would reduce the cost of any such item. For such purpose, Hynix and NewCo shall form a joint purchasing steering committee composed of an equal number of representatives designated by each Party to, to the extent permitted by applicable laws, coordinate information sharing and the joint purchasing of equipment, silicon wafers, photo chemicals and other raw materials and spare parts. |
| 3.3. | The fees for the Environmental Safety & Facility Monitoring Services, Hynix Utilities and Infrastructure Support Services, NewCo Utilities and Infrastructure Support Services, Welfare Facility Services and Chemical Procurement Services shall be determined in accordance with Exhibits B, C.1, C.2, E and F, respectively. Until the expiration and/or termination of the Vivendi Water and Wastewater Service Agreement, the fees for the Vivendi Services shall be determined in accordance with Exhibit D. |
| 3.4. | Hynix shall provide NewCo with the CAO Operation Support Services, at no additional cost, for the period set forth in Article 2. Hynix shall provide NewCo with the Mask Services at actual cost incurred for the period set forth in Article 2. |
| 3.5. | Upon the expiration of the Vivendi Water and Wastewater Service Agreement, Hynix will be entitled to receive certain assets (the “Vivendi Assets”) from Vivendi used in connection with the provision of services under such agreement. In such case, upon NewCo’s request, Hynix shall promptly transfer, assign and convey to NewCo, at no additional cost, those Vivendi Assets which are listed on Exhibit D hereto. Upon the early termination of the Vivendi Water and Wastewater Service Agreement, Hynix also will be entitled to receive the Vivendi Assets from Vivendi used in connection with the provision of services under such agreement. In such case, upon NewCo’s request, Hynix shall promptly transfer, assign and convey to NewCo those Vivendi Assets which are listed on Exhibit D hereto at the same price paid by Hynix to Vivendi for such Vivendi Assets under the Vivendi Water and Wastewater Services Agreement. To the extent that there are any benefits provided to either Party under the Vivendi Water and Wastewater Service Agreement, both Parties shall work in good faith to divide such benefits between them in an equitable manner. |
| 3.6. | With respect to the Welfare Facility Services related to the dormitories, NewCo shall provide Hynix with the names and identities of NewCo’s employees who intend to use such Welfare Facility Services as soon as reasonably practical in advance of the first day of such use. |
| 3.7. | NewCo agrees that it shall, and shall cause NewCo’s directors, officers, employees, agents, representatives or any other permitted users of the Welfare Facility Services to, abide by all reasonable safety and administrative rules and regulations of Hynix related to the Welfare Facility Services, if any. |
| 3.8. | Subject to Section 3.14, Hynix and NewCo shall have equal rights for the use of all relevant facilities for the Welfare Facility Services. NewCo and its directors, officers and employees shall, at all times, receive the benefits of the Welfare Facility Services on terms and conditions that are as favorable as those enjoyed by Hynix, and its directors, officers and employees at such time without any additional incremental cost to NewCo or its directors, officers or employees. |
9
| 3.9. | Hynix shall provide, at no additional cost, NewCo and NewCo’s representatives with access at all reasonable times to any historical data relating to the Business that NewCo may request. In furtherance of the forgoing, at the reasonable request of NewCo, Hynix shall provide NewCo and NewCo’s representatives with access to, or shall otherwise provide to NewCo and NewCo’s representatives, electronic data in electronic form relating to the Business. NewCo shall provide, at no additional cost, Hynix and Hynix’s representatives with access at all reasonable times to any historical data relating to Hynix’s business, except for information relating to the Business, that Hynix may request. Neither Party shall, for a period of six years after the date hereof, destroy any such data without giving the other Party at least 30 days prior written notice, during which time the other Party shall have the right (subject to Article 15) to examine, remove, to the extent not prohibited by operation of applicable law, or make and retain a copy of, any such data prior to destruction. Nothing herein shall limit or modify or be deemed to limit or modify the Parties’ rights and obligations under Section 6.2 of the BTA. |
| 3.10. | If either Party receives any payment after the Closing Date to which the other Party is entitled pursuant to the BTA, such Party shall promptly (and in no event later than ten (10) Business Days after receipt of such payment) remit such payment to the other Party. |
| 3.11. | In addition to the Services set forth herein, Hynix and NewCo acknowledge and agree that there may be additional services which have not been identified but which historically have been provided by Hynix to the Business and which shall continue to be required or desired by NewCo. If, within one year of the Closing Date, any such additional services are identified and requested reasonably in advance by NewCo, Hynix shall provide such additional services to NewCo in a manner consistent with the other Services, at a price no greater than actual cost, and, to the extent applicable, calculated by taking into account the AUP. Any such additional services which are consistent with the type and subject matter of other Long-Term Services under this Agreement shall be deemed to be Long-Term Services for the purposes of Article 2 and any other such additional services shall be provided until the second anniversary of the date hereof, subject to Section 2.7. With respect to additional services which historically have not been provided by Hynix with respect to the Business (“New Service”), at the request of NewCo, the Parties will discuss in good faith the provision of any such New Service by Hynix to NewCo. |
| 3.12. | Any fees for the Services to be provided hereunder are set forth on the applicable Exhibit and there are no other fees for the Services except as set forth thereon. To the extent applicable, calculations hereunder shall be made by taking into account the AUP. |
| 3.13. | Notwithstanding anything herein to the contrary, but subject to the last sentence of Section 3.11, the Parties acknowledge and agree that it is their mutual intent that the fees for the Services provided hereunder shall be no greater than the actual cost reasonably incurred to provide such Services. The Parties agree to cooperate in good faith in furtherance of the foregoing, including by adjusting the fees from time to time if |
10
| necessary in order to effectuate this intent and by conducting, at the request of either Party, an audit of the fees in each calendar year during which services are provided (at a time within the first six months of the succeeding calendar year mutually agreed to in good faith) to compare the costs actually incurred to provide the Services hereunder during such period with the fees paid for such Services. The audited Party may dispute the results of any such audit, provided that the audited Party shall notify the requesting Party in writing of such disputed results within 30 days of the audited Party’s receipt of the results of the audit. In the event of any such dispute, Hynix and NewCo shall attempt to reconcile their differences and any resolution by them as to any disputed amounts shall be final, binding and conclusive on Hynix and NewCo. If Hynix and NewCo are unable to reach a resolution to such effect of all disputed amounts within 30 days of receipt of the audited Party’s written notice of dispute to the requesting Party, NewCo and Hynix shall submit the amounts remaining in dispute for resolution to the Independent Accounting Firm, which shall, within 30 days after such submission, determine and report to Hynix and NewCo with respect to the amounts disputed. The findings of the Independent Accounting Firm shall be final, binding and conclusive on Hynix and NewCo. If the results of any such audit as finally determined indicate that the requesting Party has, in the aggregate with respect to all costs audited, paid more than the amount otherwise required to have been paid pursuant to this Agreement, the audited Party shall promptly (and in no event later than 30 days from the date of such determination) refund the amount of such overpayment to the requesting Party. If the results of any such audit as finally determined indicate that the requesting Party has, in the aggregate with respect to all costs audited, paid less than the amount otherwise required to have been paid pursuant to this Agreement, the requesting Party shall promptly (and in no event later than 30 days from the date of such determination) pay the amount of such underpayment to the audited Party. For any individual deficiency or overpayment indicated by the results of any such audit as finally determined, the Party owing the payment shall pay to the other Party, in addition to such payment due, interest thereon at a rate of eight (8%) percent per annum of such deficiency or overpayment for the period from the date of such deficiency or overpayment until the date finally paid or reimbursed, as the case may be. The total costs involved in any such audit shall be paid by: (i) the requesting Party, in the case that the audit demonstrates a deviation in the aggregate with respect to all audited costs of less than 5% from the amount otherwise required to have been paid pursuant to this Agreement, (ii) both Parties equally, in the case that the audit demonstrates a deviation from 5% to 10% and (iii) the audited Party, in the event that the audit demonstrates a deviation greater than 10%. Each Party shall use its commercially reasonable efforts to minimize the costs incurred to provide the Services. The Parties agree that the audit contemplated hereunder shall be conducted only once in each calendar year for all of the following agreements entered into by and between the Parties and/or their Affiliates as of the date hereof: General Service Supply Agreement, R&D Equipment Utilization Agreement, IT & FA Service Agreement, Taiwan Overseas Sales Services Agreement, U.S. Overseas Sales Services Agreement, Japan Overseas Sales Services Agreement, U.K. Overseas Sales Services Agreement and Hong Kong Overseas Sales Services Agreement. |
| 3.14. | (a) Hynix and NewCo shall have the right to use up to 54.7% and 45.3%, respectively, of the units in each dormitory and apartment in Cheongju, Korea | ||
11
| which is a part of the Welfare Facility Services. Each Party shall have the right to use such additional amount of the units in each such dormitory or apartment as the Parties may agree from time to time. In order to secure NewCo’s right described in the first sentence of this Section 3.14 (a), on or after the Effective Date, NewCo shall have the right to register lease rights (the “Lease Rights”) over 45.3% of the total floor area of each dormitory in the Hynix Complex in Cheongju, Korea (the “Leased Premises”) with the relevant real property registry offices for the Term, such Lease Right registration having priority over any lien or encumbrance established on such dormitories other than statutory liens and liens established thereon as of one (1) day prior to the Closing Date by Hynix’s financing creditors; provided, however, that with respect to the women’s dormitory, Hynix shall conduct the registration to preserve ownership with respect to the women’s dormitory within one (1) year from the Effective Date and shall thereafter register the Lease Rights over 45.3% of the total floor area of the women’s dormitory having priority over any lien or encumbrance established on the women’s dormitory other than statutory liens and liens to be established thereon by Hynix’s financing creditors. Hynix shall take any action necessary to maintain or cause to be maintained the priority of the Lease Right, subordinate only to such Hynix’s senior financing and statutory liens, with respect to the Leased Premises during the Term. Hynix shall provide to NewCo all necessary documents normally required of a lessor for the registration of the Lease Right on the Leased Premises on the Effective Date. For the avoidance of doubt, the Parties agree and acknowledge that notwithstanding the registration of the Lease Rights pursuant to this Section 3.14(a), NewCo shall not have the right to exclusively use the Leased Premises and the Parties shall have the right to use all dormitories in existence as of the date hereof on a pro rata shared basis as indicated in the first sentence of this Section 3.14(a). | |||
| (b) | With respect to the leased apartments in Ichon, Korea which are a part of the Welfare Facility Services, only the employees of NewCo who reside in such apartments on the date hereof or who apply to Hynix for occupancy within one day prior to the Closing Date shall be eligible to occupy such apartments. |
| 3.15. | Hynix shall provide e-mail forwarding services for NewCo employees for up to six (6) months from the Closing Date at no additional cost so that any e-mail addressed to the former Hynix e-mail account of a NewCo employee shall automatically forward to the NewCo e-mail account of such NewCo employee. Each NewCo employee shall be entitled to use the same telephone numbers and fax numbers as it used prior to the Closing Date and NewCo shall also be entitled to use the same telephone numbers and fax numbers as were used by the Business prior to the Closing Date. |
| 3.16. | With respect to the sports field and the parking lot near the women’s dormitories as set forth on Exhibit G, Hynix may cease to provide these facilities to NewCo on three months prior written notice in the event Hynix determines to put such space to a different use or sells such facilities, but if such facilities are replaced with a substitute recreational facility or parking lot, respectively, such facilities shall be made available to NewCo and its employees as part of the Welfare Facilities Services to the extent such substitute |
12
| facilities are available to Hynix or its employees. If Hynix makes any other sports field or parking lot available to Hynix employees in lieu of the removed facilities, such other sports field and parking lot shall be made available to NewCo and its employees as part of the Welfare Facilities Services. |
| 3.17. | Hynix may, on three months prior written notice to NewCo, remove the tennis courts set forth in Exhibit G in Cheongju, Korea, but only in the event that such tennis courts are replaced with a substitute recreational facility, such facility to be made available to NewCo and its employees as part of the Welfare Facilities Services. |
| 3.18. | With respect to the Highla Condominiums, Korea Condominiums and, subject to then applicable union contracts and restrictions, other condominiums existing as of the date hereof under the Welfare Facilities Services, Hynix shall make such condominiums available to NewCo employees on the same terms applicable to Hynix employees. There shall be no additional fees paid by NewCo’s employees with regard to such condominiums except the usage fees paid by the employee using such condominiums, which shall be consistent with fees paid by Hynix employees. |
| 3.19. | With respect to fire emergency drills/training under the Environmental Safety & Facility Monitoring Services, the Parties shall cooperate in good faith in determining the scheduling of such drills and training at mutually agreeable times. |
| 3.20. | Beginning upon the expiration and/or early termination of the Vivendi Water and Wastewater Service Agreement, each Party will cooperate and coordinate with each other as is reasonably necessary or advisable for the joint operation of the Vivendi Assets, including entering into an agreement with a third party service provider, in order that both Parties receive services that are identical to the services provided by Vivendi as of the expiration and/or early termination of the Vivendi Water and Wastewater Service Agreement. Beginning upon the the expiration and/or early termination of the Vivendi Water and Wastewater Service Agreement, each Party shall provide back up services to the other Party with respect to the Vivendi Services, including use of de-ionized water systems, waste water treatment facilities and other applicable facilities. |
Article 4. Supply of the Services; Right of First Refusal
| 4.1. | The obligations of Hynix to provide each of the Vivendi Services, and the part of the Hynix Utilities and Infrastructure Support Services provided by Daesung, set forth in this Agreement shall be subject, to the extent applicable, to the terms and conditions of the applicable Third Party Supplier Agreements; provided that NewCo shall be entitled to participate in any negotiations that Hynix may have with any third party supplier regarding the provision of services by such third party supplier, including any renewal, replacement, modification or termination of any third party supplier agreement and Hynix shall not agree to any renewal, replacement, modification or termination of the Vivendi Water and Wastewater Service Agreement or Daesung Agreements without NewCo’s prior written consent (which consent shall not be unreasonably withheld). |
13
| 4.2. | Unless Hynix otherwise agrees and subject to Article 13, NewCo shall use the Services for the sole purpose of operating and maintaining NewCo’s business and may not sell, transfer, supply or grant access to any of the Services to any third party without Hynix’s prior written consent (which shall not be unreasonably withheld). |
| 4.3. | All Services under this Agreement shall be performed in compliance with all applicable laws and regulations in all material respects, in a manner, to the extent and at a time, substantially consistent with past practice and in the manner, extent and time in which the applicable Party performs similar services for its own benefit (including with respect to using employees with similar levels and experience). The Parties agree to take timely and adequate action to correct any deficiency in the performance of any Service. |
| 4.4. | The Parties shall cooperate in good faith to increase overall site safety and reduce insurance costs. |
| 4.5. | In the event that Hynix wishes to sell or otherwise dispose of all or any part of its assets (“Offered Assets”) that are used for or relate to the provision of the Services at any time during the Term, Hynix shall first make an offer for the sale of such Offered Assets to NewCo by giving NewCo a written notice setting forth the price and other terms and conditions thereof (“Notice of Sale”). NewCo shall notify Hynix in writing whether NewCo accepts or rejects such offer made in the Notice of Sale within thirty (30) days after the receipt thereof (such thirty-day period, the “Notice Period”). Unless NewCo accepts in writing such offer made in the Notice of Sale prior to the expiration of the Notice Period, Hynix shall be free to sell or otherwise dispose of such Offered Assets offered through the Notice of Sale to a third party within thirty (30) days from the date of expiration of the Notice Period; provided, however, that such sale or disposal to a third party shall not be made under terms and conditions more favorable than the offer made to NewCo in the Notice of Sale. If Hynix sells or otherwise disposes of any of such Offered Assets, it shall nonetheless continue to provide NewCo with the Services in accordance with this Agreement without any other change in the terms and conditions thereof; provided, however, that Hynix shall not be obligated to provide an Unprotected Long-Term Service following the fifth anniversary of the date hereof if NewCo has rejected the offer made in a Notice of Sale with respect to the assets used to provide such Unprotected Long-Term Service. |
Article 5. Maintenance of the Services
| 5.1. | During the Term of this Agreement if Hynix or any third party supplier (including Third Party Suppliers) has scheduled, or otherwise has planned to undertake inspection, testing, preventative maintenance, corrective maintenance, repairs, replacement, improvement or other similar activities to all or any portion of the Service Facilities (collectively, the “Maintenance Activities”), Hynix or the relevant third party supplier, as applicable, may, for the duration of such Maintenance Activities, interrupt, suspend or curtail the provision of relevant Services to the extent that the Maintenance Activities for the affected parts of the Service Facilities are necessary or advisable. In the event that Hynix is required to perform corrective maintenance, repairs due to malfunction or non-routine inspection due to a suspected malfunction, Hynix shall give NewCo prior written notice of such |
14
| activities to the extent reasonably possible. In the event that Hynix proposes to conduct any other Maintenance Activities, Hynix shall give NewCo as much prior written notice as reasonably possible of such activities, which in any event shall not be less than 30 days prior written notice, and Hynix shall consult with NewCo prior to undertaking or permitting to occur any such Maintenance Activity. Upon Hynix’s receipt of any notice of any Maintenance Activities by any third party suppliers, Hynix promptly shall provide NewCo written notice thereof and shall consult with NewCo to the extent reasonably possible prior to permitting any such Maintenance Activities to occur. |
| 5.2. | If NewCo receives such notice as set forth in Section 5.1, then to the extent that the affected Services are insufficient to meet NewCo’s requirements for NewCo’s use thereof in accordance with the terms and conditions hereof, Hynix shall (i) to the extent Hynix has alternative sources available internally, provide alternate sources for the affected Services for the duration of the Maintenance Activities, (ii) to the extent that Hynix obtains any alternate sources for such Services, Hynix shall make available a pro-rata share of these alternate sources to NewCo, and (iii) if the foregoing are not available or are insufficient to meet NewCo’s requirements, Hynix shall cooperate with NewCo to locate alternate sources for such Services. To the extent the foregoing alternate sources are provided by Hynix, there shall be no incremental cost or expense to NewCo. To the extent the foregoing alternate sources are provided by third-parties, NewCo shall bear the actual costs of the services it uses. |
Article 6. Coordinating Committee
| 6.1. | Within thirty (30) days after the Effective Date, the Parties shall establish a coordinating committee (the “Coordinating Committee”) which shall consist of four (4) members, two (2) of which shall be appointed by Hynix and two (2) of which shall be appointed by NewCo. Each Party, upon prior written notice to the other Party, may from time to time remove or replace any member appointed by such Party. |
| 6.2. | Except as the Parties may otherwise agree in writing, the Coordinating Committee shall have the power and the responsibility under this Agreement to: |
| (a) | act as a forum for the liaison between the Parties with respect to the day-to-day implementation of this Agreement; | ||
| (b) | subject to Article 14, seek to resolve disputes; and | ||
| (c) | undertake such other functions as the Parties may agree in writing. |
Article 7. Payments for the Services
| 7.1. | Hynix shall invoice NewCo on the tenth (10th) day (except that for the Vivendi Services this shall be the fourteenth (14) day, until the expiration and/or termination of the Vivendi Water and Wastewater Service Agreement) of each calendar month for the fees for the Environmental Safety & Facility Monitoring Services, Hynix Utilities and Infrastructure Support Services (except for the fees for electricity (substation of the Korea Electric Power Corporation), water and fuel, which will be invoiced as set forth in the |
15
| third sentence of this Section 7.1), Vivendi Services, Welfare Facility Services and Chemical Procurement Services, provided during the immediately preceding calendar month specifying the Services provided during that month and the amount of fees for such Services calculated in accordance with Exhibits B, C, D, E and F, respectively, and Article 3. By the twenty-fifth (25th) day of each calendar month so invoiced (except with respect to the Vivendi Services for which the due date will be the twenty-fourth (24th) day of each calendar month so invoiced, until the expiration and/or termination of the Vivendi Water and Wastewater Service Agreement), NewCo shall pay the invoiced amount and value added tax thereto to Hynix’s designated account by means of a wire transfer in cash. In addition, by the fifth (5th) day prior to the due date for the fees for electricity (substation of the Korea Electric Power Corporation), water and fuel supplied by Hynix to NewCo as part of the Hynix Utilities and Infrastructure Support Services as such due date is set forth on the relevant invoice therefor, Hynix shall invoice NewCo for the fees for such Services in the amounts for which such fees are set forth on the relevant invoice issued by relevant agencies and NewCo shall pay such invoiced amount and value added tax thereto to Hynix’s designated account by means of a wire transfer in cash by one (1) Business Day prior to such due date. |
| 7.2. | NewCo shall invoice Hynix on the tenth (10th) day of each calendar month for the fees for the NewCo Utilities and Infrastructure Support Services provided during the immediately preceding calendar month specifying the Services provided during that month and the amount of fees for such Services calculated in accordance with Exhibit C. By the twenty-fifth (25th) day of each calendar month so invoiced, Hynix shall pay the invoiced amount and value added tax thereto to NewCo’s designated account by means of a wire transfer in cash. |
| 7.3. | All payments hereunder shall be made in Korean Won. |
| 7.4. | If a Party fails to make any payment due hereunder by the date it is due, such non-paying Party shall pay the other party, in addition to the amount of such payment due, a late charge of eight (8%) percent per annum of the outstanding amount, prorated to reflect a pro rata portion of such late charge for the period from the due date of the payment until finally paid. |
| 7.5. | Notwithstanding any dispute on the amount of payment under this Agreement, each Party shall continue to perform its obligations hereunder (including obligations to make payments of the amounts included on the invoices for the Services which are not disputed in good faith) and be entitled to exercise its rights under this Agreement; provided, however, that if a Party fails to pay in full the portion of sums invoiced by the other which are not disputed by the invoiced Party in good faith for three (3) calendar months after such sums become due, the invoicing Party may suspend or curtail the applicable Services for which payment was not made until such payment is made in full. Any invoice amount which remains disputed after thirty (30) days shall be referred to the Coordinating Committee in accordance with Section 14.2. |
| 7.6. | Each Party shall, at the request of the other Party, provide the other Party with relevant data and records for the determination of such Party’s compliance with its obligations |
16
| under this Agreement (other than with respect to calculation of fees hereunder which is governed by Section 3.13); provided that a Party may make no more than one such request per calendar quarter and any such request must be reasonably specific. In this regard, each Party shall prepare and maintain proper books and records of all matters pertaining to the Services under this Agreement. Subject to Article 15 and the first sentence of this Section 7.6, upon seven (7) days prior written notice, either Party, or its authorized representatives, may examine during normal business hours, the books, records and documents of the other Party to the extent reasonably necessary for verification of compliance under this Agreement; provided, however, that if a Party is to provide such books and records to the other Party for such Party’s examination and photocopying purposes, the other Party may blackout any information contained in such books and records that relates to the other Party other than information that is required for the determination of the other Party’s compliance with its obligations under this Agreement. |
| 7.7. | Notwithstanding anything herein to the contrary, in the event of a bankruptcy filing with respect to NewCo, NewCo shall deposit with Hynix an amount equal to the fees paid by NewCo during the immediately preceding full calendar month under the terms of this Agreement, against which will be credited fees payable by NewCo over the thirty day period following such deposit. NewCo shall renew such deposit each thirty days in each case by reference to the fees paid by NewCo during the full calendar month immediately preceding any such renewal until such bankruptcy protection filing has been accepted by the bankruptcy court. For the avoidance of doubt, NewCo shall not be relieved of responsibility for, and shall pay when due, any fees for services hereunder during any such thirty day period to the extent in excess of the then actual deposit. |
Article 8. Representations, Warranties and Covenants
| 8.1. | Each Party hereby represents and warrants to the other Party that all of the statements contained in this Section 8.1 are true and correct with respect to such Party as of the Effective Date and at all times thereafter during the Term. |
| (a) | Organization. Such Party is duly incorporated and validly existing under the laws of Korea and has full power and authority to perform its respective obligations herein. | ||
| (b) | Authorization. Such Party has full corporate power and authority to execute and deliver this Agreement. The execution, delivery and performance by such Party of this Agreement have been duly authorized by all corporate actions on the part of such Party that are necessary to authorize the execution, delivery and performance by such Party of this Agreement. | ||
| (c) | Binding Agreement. This Agreement has been duly executed and delivered by such Party and, assuming due and valid authorization, execution and delivery hereof by the other Party, is a valid and binding obligation of such Party, enforceable against such Party in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent |
17
| conveyance and other similar laws of general application affecting enforcement of creditors’ rights generally and (ii) the availability of the remedy of injunctive relief may be subject to the discretion of the court before which any proceeding therefor may be brought or the general principle of good faith and fairness provided for in the Korean Civil Code. | |||
| (d) | No Violation of Laws or Agreements. The execution, delivery and performance of this Agreement does not, (i) contravene any provision of the articles of incorporation or bylaws, or other similar organizational documents, of such Party; or (ii) violate, conflict with, result in a breach of, or constitute a default (or an event which might, with the passage of time or the giving of notice, or both, constitute a default) under any agreement to which such Party is a party or by which it is bound. | ||
| (e) | Governmental Authorizations. Such Party has obtained all required Governmental Authorizations in connection with the supply of the Services. |
| 8.2. | EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT OR IN THE BTA, NEITHER PARTY NOR ANY OTHER PERSON OR ENTITY ACTING ON BEHALF OF SUCH PARTY, MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED (INCLUDING ANY REPRESENTATION OR WARRANTY FOR SUFFICIENCY, SATISFACTORY RESULT OR FITNESS FOR PARTICULAR PURPOSE WITH RESPECT TO THE SERVICES PROVIDED HEREUNDER). |
| 8.3. | Each Party covenants and agrees to endeavor to cooperate with the other Party so as to minimize any interference with the other Party’s operation of its business. |
Article 9. Force Majeure
| 9.1. | Neither Party shall be liable to the other Party for failure of or delay in the performance of any obligations under this Agreement due to causes reasonably beyond its control including (i) war, insurrections, riots, explosions and inability to obtain raw materials due to then current market situations; (ii) natural disasters and acts of God, such as violent storms, earthquakes, floods and destruction by lightning; (iii) the intervention of any governmental authority or changes in relevant laws or regulations which restrict or prohibit either Party’s performance of its obligations under this Agreement or implementation of this Agreement; or (iv) strikes, lock-outs and work-stoppages (each, an “Event of Force Majeure”). Upon the occurrence of an Event of Force Majeure, the affected Party shall notify the other Party as soon as reasonably possible of such occurrence, describing the nature of the Event of Force Majeure and the expected duration thereof. Notwithstanding the foregoing, the Party receiving Services hereunder shall be under a continuing obligation to make payments for such Services which have already been supplied to the Party prior to the occurrence of an Event of Force Majeure. |
| 9.2. | If a Party is unable, by reason of an Event of Force Majeure, to perform any of its obligations under this Agreement, then such obligations shall be suspended to the extent |
18
| and for the period that the affected Party is unable to perform. If this Agreement requires an obligation to be performed by a specified date, such date shall be extended for the period during which the relevant obligation is suspended due to such an Event of Force Majeure under this Agreement. |
| 9.3. | Notwithstanding anything to the contrary contained herein, a third party supplier’s (including Third Party Suppliers) failure to meet its obligations in accordance with the applicable third party supplier agreement (including Third Party Supplier Agreements) shall not constitute an Event of Force Majeure and Hynix shall be liable to NewCo for any breach of this Agreement resulting from such failure; provided that any such liability to NewCo shall be limited to the extent that such third party supplier’s liability to Hynix is limited under the applicable third party supplier agreement; provided, further, that any such liability to NewCo shall be limited to the amount that Hynix actually recovers from such third party supplier. In the case of a material breach by a third party supplier, and in the event that NewCo incurs Damages resulting from such breach of the applicable third party supplier agreement material to NewCo, Hynix shall use commercially reasonable efforts to vigorously pursue all available actions for Damage compensation from any such third party supplier. In the event Hynix receives any compensation for Damages from the third party supplier for any breach, Hynix shall pay to NewCo a pro rata portion of such Damages received from the third party supplier based on the amount of Damages suffered by NewCo relative to the aggregate amount of Damages suffered by both Parties. Each Party shall be responsible for a portion of the reasonable and documented expenses of any such actions for Damage compensation in proportion to the allocation of any recovery of Damages pursuant to the preceding sentence; provided that the Parties shall cooperate in good faith to minimize such expenses and consult with each other in advance with respect to the conduct of any such action. |
| 9.4. | To the extent that the Services affected due to a third party’s failure to meet its obligations under the applicable third party supplier agreement are insufficient to meet NewCo’s requirements for NewCo’s use thereof in accordance with the terms and conditions hereof, Hynix shall (i) to the extent Hynix has alternative sources available internally, provide such alternate sources for the affected Services for the duration the Services are affected, (ii) to the extent that Hynix obtains any alternate sources for such Services, Hynix shall make available a pro-rata share of such alternate sources to NewCo, and (iii) if the foregoing are not available or are insufficient to meet NewCo’s requirements, Hynix shall cooperate with NewCo to locate alternate sources for such Services. To the extent the foregoing alternate sources are provided by Hynix, there shall be no incremental cost or expense to NewCo. To the extent the foregoing alternate sources are provided by third parties, NewCo shall bear the actual costs of the services it uses. To the extent that any service which both Parties utilize for their respective businesses remains partially available during an Event of Force Majeure (e.g., Hynix makes some quantity of service available but not the usual amount or Hynix otherwise accesses an alternative source of some quantity of service), each Party shall receive, to the extent practically possible, equal provision of such service up to the amount it would otherwise receive if there were no Event of Force Majeure. |
19
Article 10. Termination; Effect of Termination
| 10.1. | Termination. This Agreement may be terminated at any time during the Term upon occurrence of any of the following: |
| (a) | by the non-breaching Party serving a written notice thereof to the other Party and the Coordinating Committee in the event of a material breach or default by the other Party of its obligations hereunder, which default shall not have been cured by other Party, or otherwise resolved by the Coordinating Committee, within sixty (60) days after written notice is provided by the non-breaching Party to the other Party and the Coordinating Committee; or | ||
| (b) | by Hynix’s serving sixty (60) days prior written notice thereof to NewCo if NewCo ceases to conduct any Permitted Business (provided that an assignment pursuant to Article 13 shall not trigger the application of this provision in so far as such assignee does not cease to conduct any Permitted Business). |
| 10.2. | Upon termination of this Agreement, each Party shall discontinue the use of all Confidential Information provided by the other Party in connection with this Agreement, and shall promptly return to the other Party any and all Confidential Information, including documents originally conveyed to it by the other Party and any copies thereof made thereafter. |
| 10.3. | Except as provided in this Section 10.3 and Section 10.4, following the termination or expiration of this Agreement all obligations and liabilities of the Parties under or arising from this Agreement shall cease and be of no effect, and neither Party shall have any liability under or arising from this Agreement as a consequence of the termination or expiration of this Agreement in accordance with Section 10.1 except for fraud or willful breach of this Agreement. Notwithstanding the foregoing, termination of this Agreement shall be without prejudice to the accrued rights and liabilities of the Parties prior to the termination of this Agreement. |
| 10.4. | The respective rights and obligations of the Parties under Sections 3.9, 3.10 and 3.11 and Articles 11, 14 and 15 and other Sections which by their nature are intended to extend beyond termination, shall survive the termination or expiry of this Agreement. |
Article 11. Indemnification
| 11.1. | Subject to Article 12 hereof, each Party (the “Indemnifying Party”) shall defend, indemnify and hold harmless the other Party (and its shareholders, partners, members, directors, officers, employees, agents and representatives) (collectively, the “Indemnified Party”) from and against, and shall pay to the Indemnified Party the amount of any Damages arising from any breach of any representation, warranty, agreement or covenant made by the Indemnifying Party under this Agreement or the negligence, gross negligence or willful misconduct of the Indemnifying Party. |
20
Article 12. Limitation on Liability
| 12.1. | Notwithstanding anything to the contrary herein, neither Party shall have any liability whatsoever to the other Party, and the other Party shall have no rights or remedies whatsoever (in each case whether in contract, tort, including negligence, or otherwise), for or in connection with any failure to provide (a) any Services in accordance with this Agreement to the extent such failure is attributable to the occurrence of an Event of Force Majeure or (b) electricity, except to the extent such failure is attributable to the Party’s gross negligence, willful misconduct or intentional breach. |
| 12.2. | Notwithstanding anything to the contrary, no Party shall be liable to the other Party, whether by way of indemnity or otherwise, for any punitive damages, whether any such damages arise out of contract, equity, tort (including negligence), strict liability or otherwise arising out of, or related to, this Agreement and each Party hereby waives, to the fullest extent permitted by law, all rights with respect to punitive damages. |
| 12.3. | Notwithstanding anything to the contrary contained herein, the liability of each Party (the “Breaching Party”) hereunder for Damages resulting from the Breaching Party’s breach of this Agreement or its negligence, gross negligence or willful misconduct shall be limited to (a) in the event that the Breaching Party proves that such breach was the result of the negligence of the Breaching Party and no other reason or, in the case of a tort claim, the Indemnifying Party proves that such Damages resulted from the negligence of the Indemnifying Party and no other reason, the aggregate amount received by the Breaching Party in fees hereunder for the calendar year prior to the year of determination for the Service affected by such breach and (b) in all other events, including if the breach was the result of gross negligence, willful misconduct or intentional breach, the maximum amount permitted by Korean law. |
| 12.4. | If any Indemnified Party is at any time entitled to recover under any third-party policy of insurance (excluding any self-insurance that is not reinsured with a third party), in respect of any Damages for which indemnification is sought under Article 11, the Indemnified Party shall, at the request of the Indemnifying Party, use its commercially reasonable efforts to enforce such recovery for the benefit of the Indemnifying Party and, upon recovery under such policy, reduce the amount of Damages for which it is seeking indemnification under Article 11 by the amount actually recovered under the policy (net of all costs, charges and expenses of the Indemnified Party in connection with such recovery). |
| 12.5. | Each Party shall subscribe for and maintain in effect, at its own expense, such insurance covering the Damages incurred from any electricity failure, with such amounts and other terms as a reasonably prudent business would maintain under like circumstances. |
Article 13. Assignment
| 13.1. | This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns; provided, however, that no Party will assign its rights or delegate its obligations under this Agreement without the express prior |
21
| written consent of the other Party, except that (i) NewCo may assign its rights hereunder as collateral security to any bona fide financial institution engaged in financing in the ordinary course providing financing to the Warrant Issuer or its Subsidiaries and any of the foregoing financial institutions may assign such rights in connection with a sale of NewCo in the form then being conducted by NewCo substantially as an entirety; (ii) Hynix and NewCo each may, upon written notice to the other Party (but without the obligation to obtain the consent of such other Party), assign this Agreement or any of its rights and obligations under this Agreement to any person, entity or organization that succeeds (by purchase, merger, operation of law or otherwise) to all or substantially all of the capital stock, assets or business of such party, to all or substantially all of its assets and liabilities or to all or substantially all of the assets and liabilities of the portion of the Party’s business to which the subject of this Agreement relates or of a division of the Party, if such person or entity agrees in writing to assume and be bound by all of the relevant obligations of such Party under this Agreement; and (iii) NewCo may, upon written notice to Hynix (but without the obligation to obtain the consent of Hynix), assign this Agreement or any of its rights and obligations under this Agreement to one or more direct or indirect Subsidiaries of Warrant Issuer. |
| 13.2. | Notwithstanding anything to the contrary contained herein, Hynix may be entitled to utilize any subcontractor or supplementary provider in performing all or any parts of its obligations under this Agreement without any prior written consent of NewCo; provided that Hynix remains liable under this Agreement for the performance of all of its obligations. |
Article 14. Governing Law; Dispute Resolution
| 14.1. | This Agreement shall be governed by and construed in accordance with the laws of Korea without reference to the choice of law principles thereof. |
| 14.2. | Each Party seeking the resolution of a dispute arising under this Agreement must provide written notice of such dispute to the other Party, which notice shall describe the nature of such dispute. All such disputes shall be referred initially to the Coordinating Committee for resolution. Decisions of the Coordinating Committee under this Section 14.2 shall be made by unanimous vote of all members and shall be final and legally binding on the Parties. If a dispute is resolved by the Coordinating Committee, then the terms of the resolution and settlement of such dispute shall be set forth in writing and signed by both Parties. In the event that the Coordinating Committee does not resolve a dispute within thirty (30) days of the submission thereof, such dispute shall be resolved in accordance with Section 14.3. Notwithstanding the foregoing, Hynix and NewCo shall each continue to perform its obligations under this Agreement during the pendency of such dispute in accordance with this Agreement. |
| 14.3. | The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction to prevent any breach of this Agreement and to enforce specifically the terms and provisions of this Agreement by bringing a relevant action in the Seoul Central |
22
| District Court in Seoul, Korea, in addition to any other remedy to which any Party may be entitled at law or in equity. In addition, the Parties agree that any dispute, claims or controversy between the Parties arising out of or relating to this Agreement, whether in contract, tort, equity or otherwise and whether relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, which is not resolved by the Coordinating Committee pursuant to Section 14.2 may be submitted to the exclusive jurisdiction of the Seoul Central District Court, in Seoul, Korea. Each of the Parties irrevocably waives, to the fullest extent permitted by law, any objection which it may now, or hereafter, have with respect to the jurisdiction of, or the venue in, the Seoul Central District Court. |
Article 15. Confidentiality
| 15.1. | Neither Party shall, except as expressly permitted by the terms of this Agreement, disclose to any third party the terms and conditions of this Agreement, the existence of this Agreement and any Confidential Information which either Party obtains from the other Party in connection with this Agreement and/or use such Confidential Information for any purposes whatsoever other than those contemplated hereunder; provided, however, that this Agreement (and its terms and conditions) may be disclosed and filed publicly in connection with a public offering of securities by NewCo or its Affiliates. “Confidential Information” shall mean any and all information including technical data, trade secrets or know-how, disclosed by either Party to the other Party in connection with this Agreement, which is marked as “Proprietary” or “Confidential” or is declared by the other Party, whether in writing or orally, to be confidential, or which by its nature would reasonably be considered confidential. |
| 15.2. | The obligation of confidentiality in Section 15.1 shall not apply to any information that: (a) was known to the other Party without an obligation of confidentiality prior to its receipt thereof from the disclosing Party; (b) is or becomes generally available to the public without breach of this Agreement, other than as a result of a disclosure by the recipient Party, its representatives, its Affiliates or the representatives of its Affiliates in violation of this Agreement; (c) is rightfully received from a third party with the authority to disclose without obligation of confidentiality and without breach of this Agreement; or (d) is required by law or regulation to be disclosed by a recipient Party or its representatives (including by oral question, interrogatory, subpoena, civil investigative demand or similar process), provided that written notice of any such disclosure shall be provided to the disclosing Party in advance. If a Party determines that it is required to disclose any information pursuant to applicable law (including the requirements of any law, rule or regulation in connection with a public offering of securities by NewCo or its Affiliates) or receives any demand under lawful process to disclose or provide information of the other Party that is subject to the confidentiality provisions hereof, such Party shall notify the other Party prior to disclosing and providing such information and shall cooperate at the expense of the requesting Party in seeking any reasonable protective arrangements requested by such other Party. Subject to the foregoing, the Party that receives such request may thereafter disclose or provide information to the extent required by such law or by lawful process. |
23
Article 16. Miscellaneous
| 16.1. | Exercise of Right. A Party may exercise a right, power or remedy at its discretion, and separately or concurrently with another right, power or remedy. A single or partial exercise of a right, power or remedy by a Party does not prevent a further exercise of that or of any other right, power or remedy. A failure to exercise a right, power or remedy or a delay in exercising a right, power or remedy by a Party does not prevent such Party from exercising the same right thereafter. |
| 16.2. | Extension; Waiver. At any time during the Term, each of Hynix and NewCo may (a) extend the time for the performance of any of the obligations or other acts of the other or (b) waive any inaccuracies in the representations and warranties of the other contained in this Agreement or in any document delivered pursuant to this Agreement. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. The failure of any Party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. Any rights under this Agreement may not be waived except in writing signed by the Party granting the waiver or varied except in writing signed by the Parties. |
| 16.3. | Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted to be given to any Party shall be in writing and shall be deemed duly given only upon delivery to the Party personally (including by reputable overnight courier service), when telecopied (with confirmation of transmission having been received) during normal business hours or three days after being mailed by registered or certified mail (return receipt requested), with postage and registration or certification fees thereon prepaid, addressed to the Party at its address set forth below (or at such other address for a party as shall be specified by such Party by like notice): |
If to Hynix, to:
Hynix Semiconductor Inc.
Hynix Youngdong Building
891 Daechi-dong, Gangnam-gu
Seoul 135-738, Korea
Attention: Mr. O.C. Kwon
Facsimile: 82-2-3459-5955
Hynix Youngdong Building
891 Daechi-dong, Gangnam-gu
Seoul 135-738, Korea
Attention: Mr. O.C. Kwon
Facsimile: 82-2-3459-5955
If to NewCo, to:
MagnaChip Semiconductor, Ltd.
1 Hyangjeong-dong
Heungduk-gu
Cheongju City
Chung Cheong Bok-do, Korea
Facsimile: 82-43-270-2134
Attention: Dr. Youm Huh
1 Hyangjeong-dong
Heungduk-gu
Cheongju City
Chung Cheong Bok-do, Korea
Facsimile: 82-43-270-2134
Attention: Dr. Youm Huh
24
with a copy to:
Dechert LLP
30 Rockefeller Plaza
New York, NY 10112
Telephone: (212) 698-3500
Facsimile: (212) 698-3599
Attention: Geraldine A. Sinatra, Esq.
30 Rockefeller Plaza
New York, NY 10112
Telephone: (212) 698-3500
Facsimile: (212) 698-3599
Attention: Geraldine A. Sinatra, Esq.
Sang H. Park, Esq.
| 16.4. | Fees and Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the Party incurring such expenses, except as specifically provided to the contrary in this Agreement. |
| 16.5. | Entirety; No Third Party Beneficiaries. This Agreement (a) constitutes the entire agreement between the Parties and supersedes all prior agreements and understandings, both written or oral, between the Parties with respect to the subject matter hereof and (b) is not intended to confer upon any person other than the Parties hereto any rights or remedies hereunder. |
| 16.6. | Severability of Provisions. Any term or provision of this Agreement that is held by a court of competent jurisdiction or other authority to be unlawful, invalid, void or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction or other authority declares that any term or provision hereof is unlawful, invalid, void or unenforceable, the Parties agree that the court making such determination shall have the power to reduce the scope, duration, area or applicability of the term or provision, to delete specific words or phrases, or to replace any unlawful, invalid, void or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the unlawful, invalid or unenforceable term or provision. |
| 16.7. | Amendment and Modification. This Agreement (for the avoidance of doubt, including Exhibits attached hereto) may be amended, modified and supplemented in any and all respects, but only by a written instrument signed by the Parties expressly stating that such instrument is intended to amend, modify or supplement this Agreement. |
| 16.8. | Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement. |
| 16.9. | Election of Remedies. Neither the exercise of nor the failure to exercise a right or to give notice of a claim under this Agreement shall constitute an election of remedies or limit any Party in any manner in the enforcement of any other remedies that may be available to such Party, whether at law or in equity. |
| 16.10. | Language. This Agreement is being originally executed in the English language only. In the event that the Parties agree to have a Korean version of this Agreement following |
25
| signing, this Agreement may be translated into Korean. The Parties acknowledge that the Korean version of this Agreement shall be for reference purposes only, and in the event of any inconsistency between the two texts, the English version shall control. |
| 16.11. | Relationship of the Parties. Each Party shall perform its obligations hereunder as an independent contractor. This Agreement does not create a fiduciary or agency relationship between Hynix and NewCo, each of which shall be and at all times remain independent companies for all purposes hereunder. Nothing in this Agreement is intended to make either Party a general or special agent, joint venturer, partner or employee of the other for any purpose. |
[SIGNATURE PAGE TO FOLLOW]
26
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its duly
authorized representatives as of the date first above written.
| Hynix Semiconductor Inc. | ||||
By: |
||||
Name:
|
||||
Title: |
||||
| MagnaChip Semiconductor, Ltd. | ||||
By: |
||||
Name:
|
||||
Title: |
||||
Exhibit 10.6
FIRST AMENDMENT TO GENERAL SERVICE SUPPLY AGREEMENT
This First Amendment to General Service Supply Agreement (this “Amendment”) is entered into as of
December 30, 2005 by and between Hynix Semiconductor, Inc. (“Hynix”) and MagnaChip Semiconductor
Ltd. (“NewCo”) (each a “Party”, and collectively the “Parties”).
WHEREAS, the Parties are parties to that certain General Service Supply Agreement dated as of
October 6, 2004 (the “Agreement”), and wish to amend the Agreement as set forth below.
NOW, THEREFORE, the Parties agree as follows:
| 1. | Section 1.1 is hereby amended by adding the following thereto in the appropriate alphabetical order : | ||
| “Mask Shop Chemicals and Gases Procurement Services” shall mean the provision by NewCo to Hynix with such quantities of the chemicals (including TMAH2.38, Thinner, HMDS, H2SO4, H2O2, NH4OH and IPA) and gases (including CI2, CF4, CHF3, SF6, HCI, F2/Kr/Ne, Kr/Ne) (collectively, the “Chemicals and Gases”) required for Hynix’s mask production lines installed in C1 and C2 buildings as are requested by Hynix from time to time.” | |||
| 2. | Section 1.1 is hereby amended by deleting the defined term “Services” and replacing such defined term with the following: | ||
| “Services” shall mean such services related to goods, facilities and utilities which are required or desirable for transition, setting-up or continuing operation of the applicable Party’s business and consisting of each of the services constituting the Vivendi Services, Hynix Utilities and Infrastructure Support Services, NewCo Utilities and Infrastructure Support Services, Welfare Facility Services, Environmental Safety & Facility Monitoring Services, Mask Services, CAO Operation Support Services, Chemical Procurement Services, Mask Shop Chemicals and Gases Procurement Services , Joint Purchasing Services and the other services described herein.” |
1
| 3. | Section 2.6 is hereby amended and restated in its entirety as follows: | ||
| “Each of the NewCo Utilities and Infrastructure Support Services and Mask Shop Chemicals and Gases Procurement Services shall be provided for the Initial Service Period and for successive additional one (1)-year periods, unless Hynix notifies NewCo in writing of its desire not to renew the provision of such Services at least sixty (60) days prior to the expiration of the Initial Service Period or any annual anniversary thereof or such Services are earlier terminated pursuant to this Agreement.” | |||
| 4. | Section 3.1 is hereby amended by deleting the second sentence thereof in its entirety and by adding the following sentence to the end of such section: | ||
| “NewCo shall provide Hynix with the NewCo Utilities and Infrastructure Support Services and Mask Shop Chemicals and Gases Procurement Services, and Hynix shall receive such Services from NewCo, for the periods determined in accordance with Article 2.” | |||
| 5. | Appendix A hereto shall be added as Exhibit H of the Agreement and Section 3.3 is hereby amended by deleting the first sentence thereof in its entirety and by adding the following sentence to the beginning of such section: | ||
| “The fees for the Environmental Safety & Facility Monitoring Services, Hynix Utilities and Infrastructure Support Services, NewCo Utilities and Infrastructure Support Services, Welfare Facility Services, Chemical Procurement Services and Mask Shop Chemicals and Gases Procurement Services shall be determined in accordance with Exhibits B, C.1, C.2, E, F and H, respectively.” | |||
| 6. | Section 7.1 is hereby amended and restated in its entirety as follows: | ||
| “Hynix shall invoice NewCo on the last day (except that for the Vivendi Services this shall be the fourteenth (14th) day, until the expiration and/or termination of the Vivendi Water and Wastewater Service Agreement) of each calendar month for the fees for the Environmental Safety & Facility Monitoring Services, Hynix Utilities and Infrastructure Support Services (except for the fees for electricity (substation of the Korea Electric Power Corporation), water and fuel, which will be invoiced as set forth in the third sentence of this Section 7.1), |
2
| Vivendi Services, Welfare Facility Services and Chemical Procurement Services, provided during such calendar month specifying the Services provided during that month and the amount of fees for such Services calculated in accordance with Exhibits B, C.1, D, E and F, respectively, and Article 3. By the twenty-fifth (25th) day of the next calendar month following the invoice (except with respect to the Vivendi Services for which the due date will be the twenty-fourth (24th) day of the invoiced calendar month, until the expiration and/or termination of the Vivendi Water and Wastewater Service Agreement), NewCo shall pay the invoiced amount and value added tax thereto to Hynix’s designated account by means of a wire transfer in cash. In addition, by the fifth (5th) day prior to the due date for the fees for electricity (substation of the Korea Electric Power Corporation), water and fuel supplied by Hynix to NewCo as part of the Hynix Utilities and Infrastructure Support Services as such due date is set forth on the relevant invoice therefore, Hynix shall invoice NewCo for the fees for such Services in the amounts for which such fees are set forth on the relevant invoice issued by relevant agencies and NewCo shall pay such invoiced amount and value added tax thereto to Hynix’s designated account by means of a wire transfer in cash by one (1) Business Day prior to such due date.” |
| 7. | Section 7.2 is hereby amended and restated in its entirety as follows: | ||
| “NewCo shall invoice Hynix on the last day of each calendar month for the fees for the NewCo Utilities and Infrastructure Support Services and Mask Shop Chemicals and Gases Procurement Services provided during such calendar month specifying the Services provided during that month and the amount of fees for such Services calculated in accordance with Exhibits C.2 and H, respectively. By the twenty-fifth (25th) day of the next calendar month following the invoice, Hynix shall pay the invoiced amount and value added tax thereto to NewCo’s designated account by means of a wire transfer in cash.” |
3
| 8. | The “Variable Overhead Cost” definition in Exhibit E.1 is hereby amended and restated as follows: |
“Variable Overhead Cost”
|
means, for any applicable Service item (reserve troops; company broadcasting station; Hynix Culture Center; men’s dormitory; women’s dormitory; Bongmyung dormitory; and sports field), the amount of those relatively variable overhead costs (costs which fluctuate heavily from month to month) which have been historically allocated in connection with the provision of such Service item and which were actually incurred by Hynix in providing such Service item for the month of calculation |
| 9. | Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement. | ||
| 10. | Wherever necessary, all terms of the Agreement are hereby amended to be consistent with the terms of this Amendment. Except as set forth herein, the Agreement remains in full force and effect according to its terms. | ||
| 11. | Articles 1 through 7 of this Amendment shall become effective from the 6th of October, 2004 and Article 8 of this Amendment shall become effective from the 1st of April, 2005. | ||
| 12. | This Amendment shall be governed by, and shall be construed in accordance with, the laws of Korea. |
[Signature Page Follows]
4
IN WITNESS WHEREOF, the Parties have caused their duly authorized representatives to execute this
Amendment as of the date first set forth above.
| MagnaChip Semiconductor, Ltd. | ||||
By: |
||||
Name:
|
||||
Title:
|
President & Chief Executive Officer | |||
| Hynix Semiconductor, Inc. | ||||
By: |
||||
Name:
|
||||
Title: |
||||
5
APPENDIX A
Exhibit H
MASK SHOP CHEMICALS AND GASES PROCUREMENT SERVICES FEES
The total monthly fee for the Mask Shop Chemicals and Gases Procurement Services equal the fee
calculated in accordance with the following formula:
The following terms apply to this formula:
“Labor Charge”
|
means the sum of the products of (i) the Labor Cost for each NewCo employee providing the applicable Service to Hynix multiplied by (ii) the Labor Contribution Rate for such employee | |
“Labor Cost”
|
means, for any NewCo employee, average monthly (i) salary plus (ii) amount of reserve for retirement allowances plus (iii) amount of Fringe Benefits for such employee, over the Standard Calculation Period. | |
“Labor Contribution Rate”
|
means, for any NewCo employee, the percentage of the Labor Cost for such employee allocated to Hynix (other than the Business) for the Standard Calculation Period, which such percentage is based upon the AUP and takes into account (in a manner consistent with historical practice) such factors as ratio of time spent on activities for the benefit of Hynix (other than the Business), the relative importance of such activities and the other factors historically taken into account | |
“Fringe Benefits”
|
means, for any NewCo employee, the fringe benefits provided to such employee in accordance with past practice | |
“Standard Calculation Period”
|
means the second calendar year prior to the year of calculation, with respect to calculations made for the first three months of any calendar year, and the calendar year immediately prior to the year of calculation, with respect to calculations made for the last nine months of any calendar year — e.g., the calculations for January through March of 2005 will be based on calendar year 2003, while the calculations for April through December 2005 will be based on calendar year 2004 |
“Asset Charge”
|
means the sum of the products of (i) the Asset Cost for each NewCo asset used to provide the applicable Service to Hynix multiplied by (ii) the Asset Contribution Rate for such asset | |
“Asset Cost”
|
means, for any asset, one twelfth of the sum of (i) depreciation expense plus (ii) the product of Book Value multiplied by 8%, allocated to such asset in accordance with the AUP for the Standard Calculation Period | |
“Asset Contribution
Rate”
|
means, for any asset, a fraction the numerator of which equals the quantity of the Chemical produced by NewCo for Hynix (other than the Business) for the Standard Calculation Period and the denominator of which equals the total quantity of the Chemical produced by NewCo for the Standard Calculation Period | |
“Book Value”
|
means, for any asset, the value of such asset on the books of NewCo as of the last day of the Standard Calculation Period, as may be adjusted from time to time (a) as a result of the installation of capital improvements or the incurrence of capital expenditures, as determined in accordance with Korea generally accepted accounting principles, or (b) as a result of a revaluation as may be permitted by law | |
“Fixed Overhead
Charge”
|
means the sum of the products of (i) the Fixed Overhead Cost for each NewCo employee providing the Service to Hynix multiplied by (ii) the Fixed Overhead Contribution Rate for such employee | |
“Fixed Overhead
Cost”
|
means, for any employee, the amount equal to one-twelfth of the product of (i) those relatively fixed overhead costs (those that do not fluctuate much from month to month) which have been historically allocated in connection with the provision of the Service and which were actually incurred by NewCo (or the Business) in providing the Service in the Standard Calculation Period multiplied by (ii) the percentage of such costs historically allocated to such employee in connection with providing the Service | |
“Fixed Overhead
Contribution Rate”
|
means, for any employee, the Labor Contribution Rate for such employee |
“Variable Overhead Charge”
|
means the sum of the product of (i) the Variable Overhead Cost multiplied by (ii) the Variable Overhead Contribution Rate | |
“Variable Overhead Cost”
|
means the amount of those relatively variable overhead costs (costs which fluctuate heavily from month to month) which have been historically allocated in connection with the provision of the Service and which were actually incurred by NewCo in providing the Service for the month of calculation | |
“Variable Overhead
Contribution Rate”
|
means, for Variable Overhead Cost arising from (i) the raw chemicals and gases used to produce the Chemicals and Gases, a fraction, the numerator of which equals the quantity of the raw chemicals and gases purchased by NewCo to provide the Service to Hynix for the month of calculation and the denominator of which equals the total quantity of the raw chemicals and gases purchased by NewCo for the month of calculation, (ii) costs to repair the assets used to produce the Chemicals and Gases, a fraction, the numerator of which equals the quantity of the Chemicals and Gases delivered to Hynix hereunder for the month of calculation and the denominator of which equals the total quantity of the Chemicals and Gases produced by NewCo for the month of calculation and (iii) temporary workers used to produce the Chemicals and Gases, a fraction, the numerator of which equals the number of hours such workers worked to provide the Service to Hynix for the month of calculation and the denominator of which equals the total number of hours worked by such temporary workers to provide the Chemicals and Gases to NewCo and Hynix for the month of calculation |
Exhibit 10.7
LICENSE AGREEMENT
(ModularBCD)
(ModularBCD)
DATED March 18, 2005
BETWEEN
ADVANCED ANALOGIC TECHNOLOGIES INC.
AND
MAGNACHIP SEMICONDUCTOR, LTD.
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
LICENSE AGREEMENT
(ModularBCD)
(ModularBCD)
This agreement (the “Agreement”) is made effective as of March 18, 2005, by and between
Advanced Analogic Technologies Inc., a California corporation with its principal place of business
located at 830 E. Arques Ave, Sunnyvale California 94085 (hereafter called “AATI”) and MagnaChip
Semiconductor, Ltd. with its principal place of business located at 1, Hyangjeong-dong, Hungduk-gu,
Cheongju-si, Chungbuk, South Korea (hereafter called “MAGNACHIP”).
RECITALS
WHEREAS, AATI and/or its affiliates own certain technology related to ModularBCD
Technology (as defined below), and
WHEREAS, MAGNACHIP wishes to obtain a license to certain technology of AATI, and AATI has
agreed to license such technology pursuant to the terms and conditions set forth herein, including
a use restriction, and
WHEREAS, AATI wishes to provide for the manufacture, assembly, test and delivery of
certain products (defined below), and MAGNACHIP has agreed to undertake such obligations pursuant
to the terms and conditions set forth in the Wafer Supply Agreement dated June 4, 2002 (“Wafer
Agreement”), as those terms and conditions are amended by an Amendment effective on the Effective
Date hereof.
NOW, THEREFORE, the MAGNACHIP and AATI agree as follows:
AGREEMENT
1. DEFINITIONS. The following terms will have the meanings attributed thereto,
unless otherwise provided herein:
1.1 “AATI Field” means the design, manufacturing, testing, sale, offer for sale, or
distribution of Products, which are using AATI ModularBCD Technology described hereunder.
1.2 “AATI Improvements” shall have the meaning attributed thereto in Section 3.3.
1.3 “AATI Intellectual Property” means those Intellectual Property Rights that AATI
owns or has a right to license consistent with the scope of the license hereunder.
1.4 “AATI Licensed Products” means those AATI Products whose manufacture includes
the use of MAGNACHIP Technology.
1.5 “AATI Products” means those Low-Voltage Power Management Products of AATI,
including, but not limited to, those identified on Exhibit A, as may be amended by
AATI from time to time.
1.6 “AATI IC Technology” means the designs, technology and other information
provided by AATI to MAGNACHIP related to ModularBCD Technology and related device and
processing under this
Agreement. AATI IC Technology includes the processes, methods, devices and apparatus
described in the United States and foreign patent and patent applications listed on
Exhibit B along with any improvements, derivatives, continuation patents, foreign
filings, continuation in part (CIP) applications, and all work by AATI or its employees
related to ModularBCD Technology preceding said applications (dating back to September 1998)
continuing through the term of this Agreement. AATI IC Technology also includes the features,
devices, processes, apparatus and methods identified in Exhibit C and protected by the
Patents in Exhibit B. For purposes of clarity and notwithstanding the above definition of AATI
IC Technology, AATI IC Technology does not include discrete trench-gated vertical power
MOSFETs and AATI’s proprietary TrenchDMOS Technology used to produce discrete vertical power
MOSFETs, circuit designs, packaging technology, the multi-chip combination of TrenchDMOS or
discrete transistors with integrated circuits containing ModularBCD Technology or other
integrated circuits, and other related designs, technologies and information.
1.7 “Basic Semiconductor Technology” means designs, technology and other information
used to design, manufacture and test semiconductors, including etching, depositions,
diffusion, cleaning, photolithography, and other semiconductor processes or sequences (such as
LOCOS). Basic Semiconductor Technology does not include process architecture or the process
integration (and resulting process flow) of an integrated process such as ModularBCD
Technology. It also does not include “specialized” unit process steps such as directionally
deposited oxides, chained and non-Gaussian implants, etc.
1.8 “Battery Management” means a Low-Voltage Power Management Products comprising
any device or solution that manages battery performance, including controls the charging and
discharging of batteries, electrochemical cells, and fuel cells. Battery Management includes
battery charger circuits, protection of LiIon or Lithium polymer batteries from potentially
damaging overcharged and over-discharged conditions, the multiplexing and sequencing of
different batteries in multi-battery systems (e.g. in notebook computers), and voltage
clamping to limit the maximum voltage output from a charger circuit. Battery Management
functions typically include sensing the battery’s condition (voltage, temperature, total
coulombs) and interrupting or permitting current flow (switching).
1.9 “Competing Products” means products that compete with the AATI Products after
the date of this Agreement. If any portion of a Product includes or integrates the functions
of a Competing Product, then such product is a “Competing Product.”
1.10 “Confidential Information” means any information disclosed by either Party (the
“Disclosing Party”) to the other Party (the “Receiving Party”) under this Agreement, either
directly or indirectly, in writing, orally or by inspection of tangible objects (including
without limitation documents, prototypes, samples and equipment), which is designated as
“Confidential,” “Proprietary” or some similar designation. Information communicated orally or
through inspection shall be considered Confidential Information if such information is
confirmed in writing as being Confidential Information within a reasonable time after the
initial disclosure. Confidential Information may also include information disclosed to a
Disclosing Party by Third Parties. Notwithstanding any designation of “Confidential”,
Confidential Information includes the AATI IC Technology.
1.11 “Effective Date” means the date at which this Agreement is signed by both
Parties.
1.12 “Facility” means the MAGNACHIP-owned wafer fabrication facility located in
Gumi, Korea and Cheong-ju, Korea or such other MAGNACHIP-owned facility that the Parties may
agree upon in writing.
1.13 “MAGNACHIP Field” means Basic Semiconductor Technology, along with the design,
manufacture, test, and sales of products not related to analog semiconductors, power
semiconductors, or the AATI Field (such as memory ICs, digital ICs, displays, sensors, and
other non-analog non-power semiconductor products).
1.14 “MAGNACHIP Licensed Products” means Non-Competing Products of MAGNACHIP, i.e.
Non-Competing Products marketed and sold under a MAGNACHIP-owned brand or sold by MAGNACHIP to
a Third Party as wafer sales, die sales or finished good sales through MAGNACHIP’s foundry
services business that include, employ or rely upon AATI IC Technology.
1.15 “MAGNACHIP Improvements” shall have the meaning attributed thereto in Section
3.3.
1.16 “MAGNACHIP Intellectual Property” means those Intellectual Property Rights that
MAGNACHIP owns or has a right to license consistent with the scope of the license hereunder.
1.17 “MAGNACHIP Technology” means the Basic Semiconductor Technology, and technology
not related to analog and power semiconductor manufacture such as memory IC and digital IC
processes, provided by MAGNACHIP to AATI.
1.18 “Intellectual Property Rights” means any intellectual property right existing
now or during the term of this Agreement recognized throughout the world, including without
limitation copyright, maskwork rights, patent rights, trade secrets and know-how. For the
purposes of this Agreement, “Intellectual Property Rights” excludes trademarks, service marks
and domain names.
1.19 “Improvements” means all copyrightable material, notes, records, drawings,
designs, inventions, patents, improvements, developments, discoveries and trade secrets first
conceived, made or discovered by a Party during the period of this Agreement which relate in
any manner to, or are derived from, the AATI IC Technology, the MAGNACHIP Technology or
Confidential Information licensed or provided hereunder, including any enhancements,
modifications or derivations thereto.
1.20 “Joint Improvements” shall have the meaning attributed thereto in Section 3.3.
1.21 “Load Switching and Power Supervision” involves Low-Voltage Power Management
Products which shuts-off or limits loads to save power when the load is not in use (load
switching) or to supervise power by sensing when an adequate power supply condition is reached
(voltage monitoring as a power good indicator), including the sequencing of multiple power
supplies. Voltage references, along with voltage detectors and microprocessor reset ICs are
considered as power supervision type products. Some load switching functions may include
slow-turn-on to limit in-rush current (and over-current) or over-temperature protection to
prevent damage during a shorted load condition.
1.22 “Low-Voltage Power Management Products” means those products that have low-
voltage power management characteristics. For the purpose of this Agreement, “Low-Voltage”
shall be defined as semiconductor components rated at 35 volts or less. “Power Management
Products” include the following semiconductor components: (1) Integrated Circuits, (2) Power
Integrated Circuits, (3) Discrete Power MOSFETs, (4) Intelligent and Application-Specific
Power MOSFETs, and (5) Multi-chip Combinations of ICs and Power MOSFETs which include any
Product controlling the flow of power in the
following broadly defined functions: (1) Port Protection, (2) Battery Management, (3)
Load Switching & Power Supervision, and/or (4) Voltage Regulation & DC/DC Conversion.
1.23 “Other Technology” means all designs, technology and information other than
AATI IC Technology are beyond the scope of this Agreement. Other Technology includes, without
limitation, TrenchDMOS Technology (as defined in the License Agreement (TrenchDMOS) between
AATI and MAGNACHIP of even date with this Agreement.
1.24 “Port Protection” means Low-Voltage Power Management Products having functions
that include limiting current, clamping voltage, providing ESD protection, facilitating
over-temperature protection, and preventing operation during under-voltage or shorted-load
conditions. Port Protection includes protecting any input or output pin (or connector) from
damage, especially during the connection or disconnection of components while power is
available at the connector (hot plugging) such as PC Cards (PCMCIA), Universal Serial Bus
(USB), IEEE1394 (FireWire), Bluetooth, camera modules, external peripherals, and PCB (printed
circuit board) hot plugging. Port Protection may also include protocol-specific functions such
as sensing of the port condition, power supply voltage sequencing, noise suppression between
loads, and in-rush induced noise spikes. Port Protection may also include supplying power to a
port (such as USB on-the-go) or by driving an external load (such as a speaker in a class D
audio output).
1.25 “ModularBCD Technology” means that technology related to the fabrication of
electronic devices and semiconductor integrated circuits capable of monolithically integrating
fully-isolated devices without the need for epitaxial layers or high-thermal-budget processing
(including long or high-temperature diffusions, deep diffusions, or any processes that
substantially redistribute dopant profiles from their as-implanted distributions through
thermal diffusion). ModularBCD Technology is distinguished by its extensive use of high-energy
ion implantation methods (including multi-energy chained-implants) to form and isolate any and
various combinations of electronic devices including N-channel and P-channel MOSFETs (i.e.
CMOS), NPN and PNP bipolar transistors (i.e. complementary bipolars), DMOS (double-junction)
transistors, lateral and quasi-vertical trench-gated power MOSFET devices, along with on-chip
passives (such as high-sheet-resistance resistors and poly-to-poly capacitors). Isolation of
components is achieved using deeply-implanted junctions without requiring epitaxy, isolation
diffusions, trench isolation, or SOI (silicon-on-insulator) materials. ModularBCD Technology
can also be characterized by its multi-voltage capability whereby components and circuitry
operating at different voltages can be integrated and isolated with little or no interaction
among the differing voltage components, and with no substantial area penalty for mixing
voltages within the integrated circuit. ModularBCD Technology includes but is not limited to
the processes, methods, devices and apparatus described in United States and foreign Patent
and Patent applications listed in Exhibit B along with any improvements, derivatives,
continuation patents, foreign filings, continuation in part (CIP) applications, and all work
by AATI or its employees related to ModularBCD Technology preceding said applications (dating
back to September 1998) continuing through the term of this Agreement. ModularBCD Technology
features includes but is not limited to the features, device structures, apparatus and
fabrication methods listed in Exhibit C and protected by the Patents in Exhibit B.
1.26 “Net Sales” means the gross selling die or wafer price (depending on how such
is sold) invoiced by MAGNACHIP, its affiliates and authorized manufacturers on sales or other
dispositions of MAGNACHIP Licensed Products, less the following items to the extent they are
included in such gross revenues and separately stated on the invoice: (i) normal and customary
rebates, refunds and discounts actually given by seller, (ii) insurance, transportation and
other delivery charges actually paid by seller, (iii) sales, excise, value-added and other
taxes, (iv) testing and packaging costs and (v) wafer thinning, and other
outside expenses incurred in manufacturing, but not included in the Projected Wafer
Costs. Sales between MAGNACHIP, its affiliates and authorized manufacturers shall not be
included in Net Sales (but sales or other dispositions by MAGNACHIP, its affiliates and
authorized manufacturers to third parties shall be counted as Net Sales). If any MAGNACHIP
Licensed Products are sold or transferred
in whole or in part for consideration other than cash, Net Sales shall include the fair market
value of such MAGNACHIP Licensed Product. For purposes of this definition of Net Sales,
“authorized manufacturer” means any entity (other than a MAGNACHIP affiliate) that
manufacturers (including any assembly and packaging of MAGNACHIP Licensed Products) and sells
MAGNACHIP Licensed Products under authority, directly or indirectly, from MAGNACHIP.
1.27 “Non-Competing Products” means Products that either (i) Operate above 35V, or
(ii) Do NOT perform Power Management functions (namely Port Protection, Load Switching & Power
Supervision, Battery Management, or Voltage Regulation & DC/DC Conversion). Specific examples
of Non-Competitive Products are listed in Exhibit D.
1.28 “Party” means each of AATI and MAGNACHIP (and collectively “Parties” means both
MAGNACHIP and AATI). The term Party (whether referred to as a “Party” or “Parties” or “AATI”
or “MAGNACHIP”) does not include any affiliates of such Party except for wholly owned
subsidiaries, unless expressly agreed upon in writing by both Parties. In addition, the terms
Party, AATI, MAGNACHIP and Parties shall not include any assignees or successors in interest
except as provided for under Section 12.3.
1.29 “Products” means semiconductor devices; integrated circuits; discrete
transistors; or semiconductor components; whether in wafer form or separated into individual
dice (chips), whether assembled into packages, modules, chip-scale packages, bumped, or
otherwise unassembled, whether tested or untested. Products include both Competing Products
and Non-Competing Products.
1.30 “Release-to-Design (RTD) Date” means the date when IC circuit design using
ModularBCD Technology can commence. The RTD Date requires the completion of working test
devices and the extraction of SPICE simulation models. Thereafter design of the first
integrated circuit product can commence.
1.31 “Release-to-Manufacturing (RTM) Date” means the date when the first integrated
circuit Product using ModularBCD Technology is successfully qualified. The RTM Date requires
the successful fabrication and burn-in qualification of three (3) wafer runs of said Product.
Thereafter both Product and ModularBCD Technology are qualified and manufacturing production
can commence.
1.32 “Third Party” means any company, corporation, partnership, person or commercial
entity other than a Party.
1.33 “Voltage Regulation & DC/DC Conversion” means Low-Voltage Power Management
Products that regulate voltage (or in some cases current) by linear (i.e. linear regulators or
LDO’s), switched capacitive (i.e. charge pumps), and switched inductor (i.e. switching or PWM
regulator) methods. The input voltage is generally stepped up and/or down in voltage by the
converter circuitry then the output is regulated by some sort of feedback to produce constant
output voltage (or in some cases constant output current). Linear regulators and charge pumps
need external capacitors while switching regulators also require one or more inductors.
Voltage Regulation applications include regulators for cell phones, CPUs, chip sets, displays,
RF ICs, DSPs, memory, data busses, whole systems, and more. Constant current applications
include LED drivers for portable electronics display backlights.
1.34 “Projected Wafer Cost” means the estimated cost of a wafer, including the
substrate, but not including back grind or project costs. This will also be the same cost that
AATI will pay directly for said wafers from MAGNACHIP. The projected wafer costs shall be
mutually agreed upon by both parties and both parties agree to revisit the projected wafer
cost on an annual basis in the future.
1.35 “Customer” means any third party purchaser of products under this Agreement who
is not an affiliate, parent company or subsidiary of MAGNACHIP or AATI.
2. LICENSE
2.1 License by AATI.
(a) Subject to the terms and conditions set forth in this Agreement, AATI
hereby grants and agrees to grant to MAGNACHIP, and MAGNACHIP accepts, the following
license:
(i) a non-exclusive and non-transferable (except pursuant to Section
12.3), license under the AATI Intellectual Property to:
(1) make at the Facility (but not have made elsewhere), design,
develop, offer to sell, sell, use, import, and otherwise dispose of the
MAGNACHIP Licensed Products;
(2) practice, at the Facility, any process or method involved in
the manufacture or use of MAGNACHIP Licensed Products; and
(3) to make, use and have made any manufacturing apparatus
involved in the manufacture or use of MAGNACHIP Licensed Products.
(ii) a non-exclusive nontransferable (except pursuant to Section 12.3)
license under the AATI Intellectual Property to use the AATI IC Technology for
the sole purpose of manufacturing and repairing AATI Products, at the Facility,
for distribution to AATI.
(iii) a non-exclusive and non-transferable (except pursuant to Section
12.3), license on a world-wide basis under the AATI Intellectual Property to use,
reproduce modify and make derivative works of the copyrightable materials of the
AATI IC Technology solely for use in connection with the exercise of the license
granted in Section 2.1(a)(i) and (ii).
(b) MAGNACHIP Licensed Products shall be royalty-bearing in accordance with
Section 5.
(c) MAGNACHIP shall have no license under the AATI Intellectual Property to
supply AATI Products or Competing Products to any party other than AATI without AATI’s
prior written approval except as provided for in Section 2.3. Further, for clarity and
notwithstanding anything to the contrary set forth in this Agreement, to the extent (i)
a MAGNACHIP License Product includes or relies upon both AATI IC Technology and Other
Technology, or (ii) the practice of any rights granted under this Section 2.1 infringes
or misappropriates any AATI Intellectual Property due to such Other Technology, then
(iii) the use of the Other Technology shall not be considered licensed under this
Agreement, but shall instead require a
separate license from AATI (which AATI may grant or withhold in its sole
discretion). The parties acknowledge that AATI and MAGNACHIP have executed a separate
License Agreement (TrenchDMOS) concurrently with this Agreement.
(d) MAGNACHIP shall have the right, upon prior approval of AATI in writing, to
sublicense to Third Parties its right under Section 2.1(a). Except as expressly provided
in this
Section 2.1, MAGNACHIP shall have no right to sublicense the rights granted in this
Section 2.1.
2.2 License by MAGNACHIP:
(a) Subject to the terms and conditions set forth in this Agreement, MAGNACHIP
hereby grants and agrees to grant to AATI, and AATI accepts, a non-exclusive,
irrevocable, royalty-free, fully paid-up and non-transferable (except pursuant to
Section 12.3 , and, under no circumstances, to any other manufacturer of the Products
apart from MAGNACHIP), and only for the Term of this Agreement, license on a world-wide
basis under the MAGNACHIP Intellectual Property to:
(i) make and have made AATI Licensed Products solely in the Facility,
(ii) design, develop, offer to sell, sell, use, import and otherwise
dispose of AATI Licensed Products made or to be made in the Facility,
(iii) practice, solely within the Facility, any process or method
involved in the manufacture of the AATI Licensed Products,
(iv) to practice any process or method involved in the use of the AATI
Licensed Products made in the Facility, and
(v) make and have made any manufacturing apparatus involved in the
manufacture or use of AATI Licensed Products that incorporates or is based upon
MAGNACHIP Technology and to use such apparatus exclusively at the Facility.
2.3 Competing Products. In no event shall MAGNACHIP utilize any AATI IC
Technology in connection with the design, manufacturing, distribution or sale of any Competing
Product without the prior written permission of AATI. MAGNACHIP agrees to provide AATI at
least thirty (30) days prior written notice prior to MAGNACHIP’s manufacture, distribution or
sale (or assisting others with regard to the same) of any Competing Product. At no time my
AATI utilize MAGNACHIP Licensed Products or MAGNACHIP Intellectual property in connection with
the design or manufacturing of AATI Products or AATI Licensed Products outside of MAGNACHIP’
Facility without MAGNACHIP’ expressed written approval.
3. OWNERSHIP AND RESERVATION
3.1 By AATI. Subject to the rights granted to or retained by MAGNACHIP under
Sections 2, 3.2 and 3.3, the Parties acknowledge and agree that as between the Parties, all
title to and ownership of all AATI Intellectual Property and AATI IC Technology not expressly
granted herein shall remain the sole and exclusive property of AATI. Nothing herein shall be
construed as granting MAGNACHIP any ownership rights in the AATI Intellectual Property and
AATI IC Technology. AATI grants no rights, license or title to its technology beyond the scope
of this Agreement, unless otherwise agreed to in writing by both parties.
3.2 By MAGNACHIP: Subject to the rights granted to or retained by AATI under
Sections 2, 3.1 and 3.3, the Parties acknowledge and agree that as between the Parties, all
title to and ownership of all MAGNACHIP Technology and MAGNACHIP Intellectual Property not
expressly granted herein shall remain the sole and exclusive property of MAGNACHIP. Nothing
herein shall be construed as granting AATI any ownership rights in the MAGNACHIP Intellectual
Property and
MAGNACHIP Technology. MAGNACHIP grants no rights, license, or title to its technology
beyond the scope of this Agreement, unless otherwise agreed to in writing by both parties.
3.3 Improvements. With respect to any Improvements, ownership shall be
allocated as follows:
(a) AATI Improvements. All Improvements to AATI IC Technology that are created
or conceived solely by AATI shall be solely owned by AATI (the “AATI Improvements”).
AATI shall own all right, title, and interest in the AATI Improvements and all
Intellectual Property therein (excluding MAGNACHIP’ rights in and ownership of any Joint
Improvement under Section 3.3(c) below). AATI shall have the exclusive right to apply
for or register any patents, mask work rights, copyrights, and such other proprietary
protections with respect thereto. Nothing herein shall be construed as granting
MAGNACHIP any ownership rights in the AATI Intellectual Property and AATI IC Technology.
AATI grants no rights, license or title to such technology and/or Intellectual Property
outside the scope of this Agreement.
(b) MAGNACHIP Improvements: All Improvements to MAGNACHIP Technology that are
created or conceived solely by MAGNACHIP shall be solely owned by MAGNACHIP (the
“MAGNACHIP Improvements”). MAGNACHIP shall own all right, title, and interest in the
MAGNACHIP Improvements, and all Intellectual Property therein (excluding AATI’s rights
in and ownership of any Joint Improvement under Section 3.3(c) below). MAGNACHIP shall
have the exclusive right to apply for or register any patents, mask work rights,
copyrights, and such other proprietary protections with respect thereto. Nothing herein
shall be construed as granting AATI any ownership rights in the MAGNACHIP Intellectual
Property and MAGNACHIP Technology. MAGNACHIP grants no rights, license or title to such
technology and/or Intellectual Property outside the scope of this Agreement.
(c) Joint Improvements. Any Improvement which is jointly created or conceived
by the Parties pursuant to this Agreement shall:
(i) if created or conceived as an Improvement to AATI IC Technology as
a result of the licenses granted to MAGNACHIP in Section 2 or access to the AATI
IC Technology or AATI Confidential Information, be considered:
(1) a “Joint Improvement” under this Section 3.3(c), if falling
outside the AATI Field; or
(2) an “AATI Improvement” under Section 3.3(a), if falling within
the AATI Field; and
(ii) if created or conceived as an Improvement to MAGNACHIP Technology
as a result of the licenses granted to AATI in Section 2 or access to the
MAGNACHIP Technology or MAGNACHIP Confidential Information, be considered:
(1) a “Joint Improvement” under this Section 3.3(c), if falling
outside the MAGNACHIP Field; or
(2) a “MAGNACHIP Improvement” under Section 3.3(b), if falling
within the MAGNACHIP Field.
(iii) The Parties shall cooperate with each other in obtaining and
securing all possible United States and foreign rights to the Joint Improvements
and enforcing such
rights. The Parties agree to meet and confer prior to any public
dissemination, use or sale of Joint Improvement in order to ensure that any
related patent applications have been filed prior to such event, and shall not
make such dissemination, use or sale of Joint Improvement until related patent
applications have been filed. The Parties shall share equally in the costs of
obtaining Joint Improvement rights which are jointly owned, including but not
limited to the costs of preparing, filing and prosecuting applications and patent
maintenance fees. If a Party determines that it does not want to pursue or
continue to pursue obtaining a particular Joint Improvement right which otherwise
would be jointly owned, and the other Party elects to do so (the “electing
Party”), the cost related to that particular Joint Improvement right shall be
borne solely by the electing Party and the electing Party shall have sole and
full ownership of such Joint Improvement right, including any derivatives,
continuations, divisions, reissues and reexaminations of that Joint Improvement
right.
(iv) MAGNACHIP hereby irrevocably transfers, conveys and assigns to
AATI all of its right, title, and interest in any Improvements described in
Section 3.3(c)(i)(B) (AATI Improvement). MAGNACHIP shall execute such documents,
render such assistance, and take such other action as AATI may reasonably
request, at AATI’s expense, to apply for, register, perfect, confirm, and protect
AATI rights to such Improvements, and all Intellectual Property therein. AATI
hereby irrevocably transfers, conveys and assigns to MAGNACHIP all of its right,
title, and interest in any Improvements described in Section 3.3(c)(ii)(B)
(MAGNACHIP Improvement). AATI shall execute such documents, render such
assistance, and take such other action as MAGNACHIP may reasonably request, at
MAGNACHIP’s expense, to apply for, register, perfect, confirm, and protect
MAGNACHIP’s rights to such Improvements, and all Intellectual Property therein.
(v) MAGNACHIP and AATI shall each have the right to exploit all Joint
Improvements (that are not AATI Improvements or MAGNACHIP Improvements) without
being required any additional payment to the other, provided however, in the
event a Party refuses to cooperate and pay costs related to the Joint Improvement
under Section 3(c)(iii), such Party shall have no rights to use or exploit such
Joint Improvement under the terms of this Agreement.
(d) Independently Developed. Notwithstanding the above, to the extent
that any Improvements is solely created by a Party under this Agreement, without
reference or use of the other Party’s Technology, Intellectual Property or Confidential
Information (as defined below), then such Party shall exclusively own such Improvements.
3.4 Waiver of Moral Rights. Each party hereby waives any and all “moral
rights,” meaning any right to identification of authorship or limitation on subsequent
modification that a party (or its employees, agents or consultants) has or may have in the
other party’s Improvements, to the extent recognized by applicable law consistent with Berne
Convention, art. 6bis.
3.5 Attorney in Fact. Each Party assigning any rights under Section 3
hereunder (the “Assignor”) agrees that if the other Party (the “Assignee”) is unable because
of Assignor’s unavailability, dissolution or incapacity, or for any other reason, to secure
Assignor’s signature to apply for or to pursue any application for any United States or
foreign patents or mask work or copyright registrations covering the inventions assigned to
Assignee above, then Assignor hereby irrevocably designates and appoints the company and its
duly authorized officers and agents as Assignor’s agent and attorney in fact, to act for and
in Assignor’s behalf and stead to execute and file any such applications and to do all other
lawfully permitted acts to further the prosecution and issuance of patents, copyright and mask
work registrations thereon with the same legal force and
effect as if executed by Assignor. This power of attorney is deemed coupled with an
interest and is irrevocable.
3.6 Non-Exclusive Arrangement. Nothing in this Agreement shall be construed
to limit AATI’s rights to manufacture, distribute or take any other action with respect to the
AATI Products, AATI IC Technology, AATI Improvements or AATI Confidential Information or to
authorize any other persons to do any of the foregoing except as it relates to MAGNACHIP
Technology or Improvements to MAGNACHIP Technology pursuant to Section 3.3. Likewise nothing
in this agreement shall be construed to limit MAGNACHIP’s rights to manufacture, distribute or
take any other action with respect to the MAGNACHIP Products, MAGNACHIP Technology, MAGNACHIP
Improvements or MAGNACHIP Confidential Information or to authorize any other persons to do any
of the foregoing, except as it relates to AATI IC Technology or Improvements to AATI IC
Technology pursuant to Section 3.3.
4. TECHNOLOGY DELIVERY & IMPLEMENTATION.
4.1 AATI Technology. AATI will deliver to MAGNACHIP the AATI IC Technology
promptly after the Effective Date in a form that is mutually acceptable to both Parties. AATI
deliverables to MAGNACHIP are outlined in Exhibit E. Thereafter, AATI may (but is not
obligated to) supplement the AATI IC Technology.
4.2 MAGNACHIP Technology: Upon the recommendation of MAGNACHIP or upon
agreement of both Parties, MAGNACHIP will deliver to AATI the MAGNACHIP Technology listed in
Exhibit F that may be applicable and useful in adapting and implementing the AATI IC
Technology in said Facility. It is understood by both Parties that the applicability of such
MAGNACHIP Technology to AATI IC Technology Implementation may vary by Facility. Thereafter, as
agreed upon by both Parties, certain processing steps, methods, or features in the AATI IC
Technology (such as unit process steps in the ModularBCD Technology process flow) may be
adapted to incorporate MAGNACHIP Technology or variants thereof. MAGNACHIP may (but is not
obligated to) supplement the MAGNACHIP Technology at a later date.
4.3 AATI IC Technology Implementation. Both Parties agree to implement with
commercially reasonable effort, the AATI IC Technology in said Facility in accordance with the
procedures for AATI IC Technology Implementation as described in Exhibit G.
(i) Adapting AATI IC Technology for Facility. In the event that AATI IC
Technology is adapted or modified to best match or fit said Facility by utilizing
MAGNACHIP Technology in certain steps or processes, such steps or techniques that
constitute MAGNACHIP Technology shall remain the property of MAGNACHIP. Those portions
of the AATI IC Technology not using MAGNACHIP Technology along with the integrated
process flow of ModularBCD Technology constitute AATI IC Technology and shall remain the
property of AATI.
(ii) Initial AATI IC Technology Implementation. The initial implementation of
AATI IC Technology in said Facility does NOT constitute an Improvement to AATI IC
Technology.
(iii) Initial AATI IC Technology Implementation Milestones. Both Parties will
use commercially reasonable efforts to meet the milestones of the Initial AATI IC
Technology Implementation including efforts to meet the objective Release-to-Design
(RTD) Date, and the Release-to-Manufacturing (RTM) Date.
5. ROYALTIES AND PAYMENT TERMS.
5.1 Royalty.
(a) MAGNACHIP shall pay [*****] royalty for Products its produces for and sells to
AATI (or AATI’s affiliate as designated in writing by contract from AATI). AATI’s wafer price
from MAGNACHIP is covered under the AATI MAGNACHIP supply agreement and is not covered by this
Agreement.
(b) In the case of Non-Competing Products, MAGNACHIP shall pay AATI [*****] royalty
of Net Sales of all wafers produced using or incorporating the AATI Intellectual Property
licensed herein (such MAGNACHIP payment to be offset by any payment due from AATI pursuant to
Section 5.4 below); provided, however, that the Parties agree that the foregoing royalty rate
is based on a presumption of a [*****] withholding tax rate as of the Effective Date, and so
the Parties agree to negotiate in good faith an increase or decrease in such royalty rate at
any time the withholding tax rate changes after the Effective Date. Customer shall be
responsible for its own designs or pay for AATI’s design with a release to AATI. Customer
and/or MagnaChip shall be responsible for the qualification, orders, shipping logistics and
quality.
(c) In the case of Competing Products, MAGNACHIP has no license under this Agreement
to sell Competing Products to customers other than AATI (and AATI’s affiliates). In the event
that AATI has provided said customer with a license to have made, purchase, promote and sell
Competing Products, however, MAGNACHIP may, to the extent it is a qualified manufacturer
manufacture Competing Products for such licensee, to the extent authorized by AATI. In such
instances, MAGNACHIP shall pay AATI [*****] of the difference between the Net Sales of a wafer
produced using or incorporating the AATI Intellectual Property licensed herein, and the
mutually agreed upon “Projected Wafer Cost” (such MAGNACHIP payment to be offset by any
payment due from AATI pursuant to Section 5.4 below). AATI reserves the right to charge
additional consideration directly to such customers (as opposed to MAGNACHIP) for such
Competing Products. In such cases, (1) MAGNACHIP makes no representation to AATI with respect
to the qualification and product quality; (2) AATI, at its election, may choose to assist such
customers with respect to qualification and product quality; and (3) as between AATI and
MAGNACHIP. MAGNACHIP shall be responsible for shipping logistics, orders and process quality
of wafers.
(d) Both parties shall negotiate a mutually agreeable new cost price. In any case,
both parties agree that they will review the pricing structure hereunder on an annual basis to
ensure the pricing structure is mutually agreeable, and adjust such accordingly.
5.2 Payment. Within 30 days following the end of each calendar quarter,
MAGNACHIP and AATI shall pay their respective royalty payments on invoices paid by the third
party in U.S. Dollars and shall include a report sufficient to show the basis for calculation
of the royalty payments made hereunder, including without limitation, quantity and
identification of all Competing and Non-Competing Products
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
(“Report”). Upon AATI approval, in lieu of payment on a quarterly basis MAGNACHIP may pay such
outstanding royalties by issuing a credit against outstanding AATI invoices or toward new
wafer starts for Products from MAGNACHIP.
5.3 Records and Audit. Each party shall retain records and supporting
documentation sufficient to document the fee payable under this Agreement in any particular
quarter in which this Agreement is in effect for at least three years following the end of
such quarter and its compliance with Section 5.2. Upon prior reasonable written notice of no
less than sixty (60) days by one party, the other party shall provide to a nationally
recognized independent public accounting firm (the
“Auditors”) designated in writing by that party access during normal business hours to
the audited party’s personnel, outside accountants and data and records maintained in
connection with this Agreement, in each case to the extent necessary or appropriate for the
purpose of determining whether (i) calculations of the royalties payable under this Agreement
are accurate and in accordance with this Agreement and/or (ii) MAGNACHIP has offered most
favorable pricing to AATI in accordance with Section 5.2 (an “Audit”). Audits will be
conducted no more frequently than once per calendar year. Each party agrees to use
commercially reasonable efforts to assist such Auditors in connection with such Audits. Any
such Audits shall be conducted at the requesting party’s sole cost and expense.
5.4 Taxes. Each Party shall bear any and all taxes and other charges
incurred by or levied on it by its own country in connection with this Agreement; provided,
however, that AATI shall bear fifty percent (50%) of any withholding or similar tax for
foreign payments that is levied by the Korean Government upon any amounts due from MAGNACHIP
to AATI under this Agreement, and MAGNACHIP is entitled to offset such AATI payment obligation
from any amounts actually paid by MAGNACHIP to AATI under this Agreement, including but not
limited to amounts due pursuant to Sections 5.1(b) and 5.1(c) above. MAGNACHIP will furnish
AATI with each tax receipt issued by the Korean taxing authority to assist AATI in obtaining
the credit in the United States.
6. WARRANTY AND DISCLAIMER.
6.1 General. Each Party represents and warrants to the other that:
(e) it has all requisite corporate power and authority to enter into this Agreement
and to carry out the transactions contemplated by this Agreement; and
(f) the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated by this Agreement have been duly authorized by all requisite
corporate action on the part of such Party
6.2 EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS SECTION 6, NEITHER PARTY
MAKES ANY OTHER WARRANTIES WITH RESPECT TO THE TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS
LICENSED HEREUNDER, WHETHER EXPRESSED OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.
7. TERM AND TERMINATION OF AGREEMENT.
7.1 Term. This Agreement shall have an initial term of three (3) years but
shall be automatically renewed thereafter (and after each subsequent renewal term) for a
renewal term of one year unless, at least sixty (60) days prior to the date of any such
renewal, either Party hereto shall have given notice in writing to the other of its intention
to terminate the Agreement. This Agreement shall thereafter be automatically terminated at the
end of the term during which such notice is given.
7.2 Termination for Default. Should either Party materially default in the
performance of any term or condition of this Agreement (a “Default”), in addition to all other
legal rights and remedies, the other Party may terminate this Agreement by giving thirty (30)
days written notice of said Default unless such Default is corrected within the notice period.
7.3 Termination for Bankruptcy: Either Party may terminate this Agreement by
written notice in the event that the other Party makes an assignment for this benefit of
creditors, or admits in writing inability to pay debts as they become due; or a Trustee or
receiver for any substantial part of
its assets is appointed by any court; or a proceeding is instituted under a provision of
the Federal Bankruptcy Act by or against the other Party and is acquiesced in or is not
dismissed within 60 days or results in an adjudication in bankruptcy. An assignment by AATI of
all or part of its rights to payment hereunder as part of a working capital financing shall
not be deemed cause for termination under this paragraph.
7.4 Effect of Termination. Upon termination or expiration of this Agreement
for any reason, all licenses shall immediately terminate. Each Party shall return the
Confidential Information of the other Party within thirty (30) days after the effective date
of such termination or expiration. In addition Sections 1, 3, 5.3, 6, 7, 8, 9, 10, 11 and 12
shall survive any expiration or termination of this Agreement.
8. INTELLECTUAL PROPERTY RIGHTS INDEMNITY.
8.1 By MAGNACHIP:
(a) MAGNACHIP will defend or settle, at its expense, all claims, proceedings and/or
suits brought by Third Parties against AATI, its Affiliates (including their directors,
officers, and employees) and customers alleging that the MAGNACHIP Technology as provided by
MAGNACHIP to AATI hereunder infringes or violates any patent, copyright, trade secret or other
intellectual property right (herein “Infringement Claim”) and will indemnify AATI from and pay
all litigation costs, reasonable attorney’s fees, settlement payments (subject to reasonable
approval by MAGNACHIP) and damages awarded by a court having jurisdiction over such
Infringement Claim with respect to any Infringement Claim; and provided that MAGNACHIP shall
be relieved of its obligations under this Section 8.1 unless AATI promptly notifies MAGNACHIP
in writing of any such Infringement Claim and gives MAGNACHIP sole control, full authority,
information and assistance (at MAGNACHIP’s expense) for the defense or settlement of such
Infringement Claim.
(b) Without limiting its obligations under Section 8.1(a), when notified of an
action or motion that seeks to restrict the use, sale and/or distribution of any MAGNACHIP
Technology hereunder (or part thereof), MAGNACHIP may but is not required nor obligated to, at
its option and expense, (1) obtain the right for AATI the right to use the MAGNACHIP
Technology as licensed hereunder, (2) substitute other functionally equivalent technology that
does not infringe, or (3) modify such MAGNACHIP Technology so that it no longer infringes.
(c) Notwithstanding any provision to the contrary, the indemnification obligations
in this Section 8.1 shall not be applicable to the extent an Infringement Claim arises from
(1) use of the MAGNACHIP Technology in violation of the license terms herein, (2) the
modification of any MAGNACHIP Technology by AATI, or (3) a combination of the MAGNACHIP
Technology with other technology not provided by MAGNACHIP. THE FOREGOING SECTION 8.1 STATES
THE SOLE LIABILITY OF MAGNACHIP, AND THE SOLE REMEDY OF AATI, WITH RESPECT TO INFRINGEMENT OR
MISAPPROPRIATION OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT
BY THE MAGNACHIP TECHNOLOGY OR MAGNACHIP INTELLECTUAL PROPERTY UNDER THIS AGREEMENT.
8.2 By AATI.
(a) AATI will defend or settle, at its expense, all claims, proceedings and/or suits
brought by Third Parties against MAGNACHIP, its Affiliates (including their directors,
officers, and employees) alleging that AATI IC Technology as provided by AATI to MAGNACHIP
hereunder infringes or violates any patent, copyright, trade secret or other intellectual
property right (herein “Claim”) and will indemnify MAGNACHIP from and pay all litigation
costs, reasonable attorney’s fees, settlement payments (subject to AATI’s reasonable approval)
and damages awarded by a court having
jurisdiction over such Claim with respect to any such Claim; and provided that AATI shall
be relieved of its obligations under this Section 8.2 unless MAGNACHIP promptly notifies AATI
in writing of any such Claim and gives AATI sole control, full authority, information and
assistance (at AATI’s expense) for the defense or settlement of such Claim.
(b) Without limiting its obligations under Section 8.2(a), when notified of an
action or motion that seeks to restrict the use, sale and/or distribution of any AATI IC
Technology hereunder (or part thereof), AATI may but is not required or obligated to, at its
option and expense, (1) obtain the right for MAGNACHIP the right to use the AATI IC Technology
licensed hereunder, (2) substitute other functionally equivalent technology that does not
infringe, or (3) modify such technology so that it no longer infringes.
(c) Notwithstanding any provision to the contrary, the indemnification obligations
in this Section 8.2 shall not be applicable to the extent a Claim arises from (1) use of the
AATI IC Technology in violation of the license terms herein or (2) modification of the AATI IC
Technology by a party other than AATI, or (3) a combination of the AATI IC Technology with
other technology not provided by AATI or (4) MAGNACHIP acting as a foundry to any Third Party
AATI Intellectual Property licensee, provided, however, that AATI has, in its written consent
granting permission to MAGNACHIP to act as a foundry to such Third Party licensee, provided a
written representation reasonably satisfactory to counsel to MAGNACHIP that AATI has
indemnified such Third Party licensee from and against all claims, proceedings and/or suits
brought against the Third Party licensee and alleging that AATI intellectual property as
provided by AATI to the Third Party licensee infringes or violates any patent, copyright,
trade secret or other intellectual property right. THE FOREGOING SECTION 8.2 STATES THE SOLE
LIABILITY OF AATI, AND THE SOLE REMEDY OF MAGNACHIP, WITH RESPECT TO INFRINGEMENT OR
MISAPPROPRIATION OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT
BY AATI IC TECHNOLOGY PROVIDED TO MAGNACHIP BY AATI UNDER THIS AGREEMENT.
9. OTHER INDEMNITIES. Notwithstanding anything to the contrary in this Agreement
or any Exhibit hereto, each party agrees to defend, indemnify and hold the other harmless from and
against any and all claims, liability for damages, costs and expenses (including reasonable
attorney’s fees and disbursements) for any noncompliance by said party or its Affiliates or agents
with the laws, rules or regulations of any jurisdiction, including export control laws.
10. LIMITATION OF LIABILITY.
EXCEPT FOR A BREACH OF SECTIONS 2.1(c) or 11 or LIABILITY UNDER SECTIONS 8 AND 9, IN
NO EVENT WILL EITHER PARTY BE LIABLE FOR LOST PROFITS OR ANY CONSEQUENTIAL, SPECIAL, PUNITIVE,
INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING
WITHOUT LIMITATION, NEGLIGENCE), ARISING OUT OF OR RELATED TO THIS AGREEMENT WHETHER OR NOT
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EACH PARTY ACKNOWLEDGES THAT
FEES AGREED UPON BY THE PARTIES ARE BASED IN PART UPON THESE LIMITATIONS, AND THAT THESE
LIMITATIONS WILL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY.
NOTWITHSTANDING THE FOREGOING, THIS LIMITATION OF LIABILITY SHALL NOT APPLY TO ANY CLAIM WITH
RESPECT TO DEATH OR PERSONAL INJURY.
EXCEPT FOR A BREACH OF SECTIONS 2.1(c) or 11, IN NO EVENT SHALL EITHER PARTY’S
LIABILITY UNDER THIS AGREEMENT EXCEED THE AMOUNT OF U.S. FIVE MILLION DOLLARS
(US$5,000,000.00) IN THE AGGREGATE.
11. CONFIDENTIALITY OF INFORMATION.
11.1 Each Receiving Party shall safeguard the Confidential Information and keep it
in strict confidence, and shall use reasonable efforts, consistent with those used in the
protection of its own confidential information of similar nature and significance, to prevent
the disclosure of such Confidential Information to Third Parties.
11.2 A Receiving Party shall limit the dissemination of the Confidential Information
to only its shareholders, directors, officers, employees and agents, who have a specific need
to know such Confidential Information for the purpose for which such Confidential Information
is disclosed and prevent the dissemination of such Confidential Information to Third Parties;
provided however a Receiving Party may disclose Confidential Information of the a Disclosing
Party to the extent required to do so under applicable law. In the event such disclosure is
required, the Receiving Party shall provide prompt prior written notice to the Disclosing
Party, shall use commercially reasonable efforts to limit any such disclosure, shall cooperate
in a reasonable manner with the Disclosing Party in resisting such disclosure, and provide
sufficient time, if possible, for the Disclosing Party to seek a protective order or other
legal recourse against disclosure.
11.3 Each Receiving Party shall not use or disclose the Confidential Information for
any purposes other than for the performance of this Agreement.
11.4 Confidentiality of Terms. The Parties shall keep the terms of this
Agreement confidential and shall not now or hereafter divulge these terms to any Third Party
except:
(a) with the prior written consent of the other Party; or
(b) to any governmental body having jurisdiction to call therefor; or
(c) as otherwise may be required by law or legal process, including to legal and
financial advisors in their capacity of advising a Party in such matters; or
(d) to the extent reasonably necessary to comply with United States law in a filing
with the Securities and Exchange Commission, or other governmental agency; or
(e) during the course of litigation so long as the disclosure of such terms and
conditions are restricted in the same manner as is the confidential information of other
litigating Parties and so long as (1) the restrictions are embodied in a court-entered
protective order and (2) the disclosing Party informs the other Party in writing at
least ten (10) days in advance of the disclosure; or
(f) in confidence to legal counsel, accountants, banks and financing sources and
their advisors solely in connection with financial transactions or other corporate
transactions, and said persons are held to the same level of confidentiality as set
forth herein.
11.5 Nothing contained in this Section 11 shall be construed as granting or
conferring any rights, licenses or establishing relationships by the disclosure or
transmission of a Disclosing Party’s Confidential Information.
11.6 All Confidential Information disclosed to or received by a Receiving Party’s
under this Agreement shall always remain the property of the Disclosing Party, except for the
license granted herein or other terms or conditions expressly provided herein. Upon the
expiration or termination of
this Agreement, the Receiving Party shall return to the Disclosing Party all Confidential
Information and any documents or storage media (including any and all transcripts and copies
thereof recording such Confidential Information.
11.7 The confidentiality obligations set forth in this Article shall not apply to
any information which:
(a) is already known by the Receiving Party at the time of its receipt from the
Disclosing Party; or
(b) is or becomes publicly available or known through no breach of this Section 11,
or any other agreement between the Parties by the Receiving Party ; or
(g) is made available to a Third Party by the Disclosing Party without any
restriction on disclosure; or
(h) is rightfully received by the Receiving Party from a Third Party who is not
restricted from disclosing such information and is not in wrongful possession of such
information; or
(i) can be demonstrated has been independently developed by the Receiving Party
without reference to the Disclosing Party’s Confidential Information; or
(j) is disclosed with the prior written consent of the Disclosing Party.
11.8 Each Receiving Party acknowledge that any disclosure or dissemination of any
Confidential Information of the Disclosing Party which is not expressly authorized under this
Agreement is likely to cause irreparable injury to such Disclosing Party, for which monetary
damages is not likely to be an adequate remedy, and therefore such Party shall be entitled to
equitable relief, without the posting of bond or security, in addition to any remedies it may
have under this Agreement or at law.
12. GENERAL.
12.1 Independent Contractors. The Parties hereto are independent
contractors. Nothing contained herein will constitute either Party the agent of the other
Party, or constitute the Parties as partners or joint ventures. MAGNACHIP shall make no
representations or warranties on behalf of AATI with respect to the MAGNACHIP Licensed
Products or AATI IC Technology.
12.2 Days. Unless otherwise indicated, the term “days” used in this
Agreement is assumed to be calendar days.
12.3 Assignment. Neither Party may assign or delegate this Agreement or any
of its licenses, rights or duties under this Agreement, directly or indirectly (in a single
transaction or any series of transactions), by operation of law or otherwise, without the
prior written consent of the other Party. Notwithstanding, a Party may assign this agreement
to an affiliate of such Party and in the case of a re-incorporation, reorganization or a sale
or other transfer of substantially all such Party’s assets or equity, including, without
limitation, either party’s right to sell all or spin-off all or substantially all of its
assets to which this Agreement relates, whether by sale of assets or stock or by merger or
other reorganization that the assignee has agreed in writing to be bound by all the terms and
conditions of this Agreement, and further, provided that in no event shall either party (or
its permitted successors) assign or transfer (in a single transaction or any series of
transactions) this Agreement or any of its licenses, rights or duties hereunder, to a party
primarily engaged in the manufacture, marketing or
sale of a product that directly competes with the products of the other party without the
prior written permission of such other party. Upon any such attempted prohibited assignment or
delegation, such assignment shall be deemed null and void, and this Agreement will immediately
automatically terminate. Subject to the terms of this Section 12.3, this Agreement will inure
to the benefit of each Party’s successors and assigns.
12.4 Notices. Any notice required or permitted to be given by either Party
under this Agreement will be in writing or by email and will be deemed given: (i) one day
after pre-paid deposit with a commercial courier service (e.g., DHL, FedEx), (ii) upon
receipt, if personally delivered, (iii) three days after deposit, postage pre-paid, with first
class airmail (certified or registered if available), or (iv) upon receipt, when sent by
facsimile or e-mail (with a confirmation copy to follow by regular U.S. Mail), in any such
case, to the other Party at its address below, or to such new address as may from time to time
be supplied hereunder by the Parties hereto:
Notice Address for AATI:
Advanced Analogic Technologies Inc.
830 E. Arques Ave.
Sunnyvale, California 94085
Attn: President
Tel: (408) 737-4600
Fax: (408) 737-4611
Email:
830 E. Arques Ave.
Sunnyvale, California 94085
Attn: President
Tel: (408) 737-4600
Fax: (408) 737-4611
Email:
Notice Address for MAGNACHIP:
MagnaChip Semiconductor, Ltd.
1, Hyangjeong-dong, Hungduk-gu, Cheongju-si, Chungbuk, South Korea
Attn: President & CEO, with copy to Legal Department
Tel: 82-2-3459-3007
Fax: 82-2-3459-3666
Email: youm.huh@magnachip.com
1, Hyangjeong-dong, Hungduk-gu, Cheongju-si, Chungbuk, South Korea
Attn: President & CEO, with copy to Legal Department
Tel: 82-2-3459-3007
Fax: 82-2-3459-3666
Email: youm.huh@magnachip.com
12.5 Export Regulations. MAGNACHIP understands and acknowledges that AATI is
subject to regulation by agencies of the United States Government, including, but not limited
to, the U.S. Department of Commerce, which prohibit export or diversion of certain technology
to certain countries. Any obligations of AATI to provide technology are subject in all
respects to such United States laws and regulations as from time to time govern the license
and delivery of technology and services outside the United States. MAGNACHIP will comply with
all applicable laws, and will not export, re-export, transfer, divert or disclose, directly or
indirectly, including via remote access, the AATI IC Technology, Products, any confidential
information contained or embodied in the AATI IC Technology or Products, or any direct product
thereof, except as authorized under the Export Administration Regulations or other United
States laws and regulations governing exports in effect from time to time.
12.6 Payment. Payment must be in U.S. Dollars. All references to “dollars”
or “$” in this Agreement mean United States dollars.
12.7 Legal Compliance. MAGNACHIP will comply with all applicable laws in
connection with its performance under this Agreement.
12.8 Force Majeure. Neither Party shall be responsible for delays or
failures in performance not within its reasonable control resulting from acts of God, strikes
or other labor disputes, riots, acts
of war, acts of terrorism, plagues and epidemics, governmental regulations superimposed
after the facts, communication line failures, power failures, fire or other disasters beyond
its control. If it appears that MAGNACHIP’s performance hereunder will be delayed for more
than ninety (90) days, AATI shall have the right to terminate this Agreement, or to cancel
without cancellation charges those Purchase Orders or portions thereof which are affected by
the delay.
12.9 Language. This Agreement is in the English language only, which
language will be controlling in all respects, and all versions hereof in any other language
will not be binding on the Parties hereto. All communications and notices to be made or given
pursuant to this Agreement must be in the English language. The Parties hereto confirm that it
is their wish that this Agreement, as well as other documents relating hereto, including
notices, have been and will be written in the English language only.
12.10 Governing Law. The rights and obligations of the Parties under this
Agreement will not be governed by the 1980 U.N. Convention on Contracts for the International
Sale of Goods;
rather such rights and obligations will be governed by and construed under the laws of
the State of California, without reference to its conflict of laws principles.
12.11 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the existence, validity, breach or termination of this Agreement, whether
during or after its term, will be finally settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (“AAA”), as modified or
supplemented as follows:
(a) To initiate arbitration, a Party will file the appropriate notice at the AAA.
The arbitration proceeding will take place in San Francisco, CA or such other place as the
Parties may agree in writing. The arbitration panel will be selected in accordance with the
AAA standards. The Parties expressly agree that the arbitrators will be empowered to, at a
Party’s request, (i) issue an interim order requiring one or more other Parties to cease using
and return the requesting Party’s Confidential Information and/or (ii) grant injunctive
relief.
(b) The arbitration award will be the exclusive remedy of the Parties for all
claims, counterclaims, issues or accounting presented or pled to the arbitrators. The award
will be granted and paid in U.S. Dollars exclusive of any tax, deduction or offset and will
include reasonable attorneys fees and costs. Judgment on the arbitration award may be entered
in any court that has jurisdiction thereof. Any additional costs, fees or expenses incurred in
enforcing the arbitration award will be charged against the Party that resists its
enforcement.
(c) Nothing in this Section 12.11 will prevent a Party from seeking injunctive
relief against another Party from any judicial or administrative authority pending the
resolution of a dispute by arbitration. MAGNACHIP acknowledges that a violation of proprietary
rights of AATI would result in irreparable injury entitling MAGNACHIP to injunctive relief.
12.12 Modification and Waiver. No amendment, waiver or any other change in
any term or condition of this Agreement will be valid or binding unless mutually agreed to in
writing by both Parties. The failure of a Party to enforce any provision of this Agreement, or
to require performance by the other Party, will not be construed to be a waiver, or in any way
affect the right of either Party to enforce such provision thereafter.
12.13 Severability. If a court or other body of competent jurisdiction
finds, or the Parties mutually believe, any provision of this Agreement, or portion thereof,
to be invalid or unenforceable, such provision will be enforced to the maximum extent
permissible so as to effect the intent of the Parties, and the remainder of this Agreement
will continue in full force and effect. The Parties shall
negotiate in good faith an enforceable substitute provision that most nearly achieves the
intent and economic effect of such invalid or unenforceable provision.
12.14 Favored Pricing Terms.
12.15 The price charged AATI and its customers for any MAGNACHIP Licensed Products
shall always be MAGNACHIP’s lowest price charged any customer for such MAGNACHIP Licensed
Product (or other products which are most similar or substantially equivalent to the
manufacturing, function, and electrical specification of said MAGNACHIP Licensed Products)
regardless of any special terms, conditions, rebates, or allowances of any nature. If
MAGNACHIP provides MAGNACHIP Licensed Products or other technologies that are related to the
AATI IC Technology or AATI Intellectual Property to any customer at a price less than provided
for herein, MAGNACHIP shall adjust its price charged to AATI to
the lower price for any un-invoiced product and for all outstanding and future invoices
for such product. AATI shall have the right to audit MAGNACHIP’s compliance with this
provision by conducting an Audit in accordance with Section 5.3 of this Agreement.
12.16 Entire Agreement. The terms and conditions of this Agreement,
including all exhibits hereto, constitute the entire agreement between the Parties and
supersede all previous agreements and understandings, whether oral or written, between the
Parties hereto with respect to the subject matter hereof.
12.17 Authority.
(i) By AATI. Execution or modification of this License Agreement
requires the approval of the President (or the CEO) and the Chief Technical Officer
(CTO) of AATI. No other employee of AATI can approve modifications to the Intellectual
Property licenses contained herein.
(ii) By MAGNACHIP. Execution or modification of this License Agreement
requires the approval of a representative officer or director of MAGNACHIP. No other
employee of MAGNACHIP can approve modifications to the Intellectual Property licenses
contained herein.
12.18 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original, and all of which taken together shall
constitute a single instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement the date and the year
first herein above written.
| MAGNACHIP Semiconductor, Ltd. | ||||
Signature: |
||||
Name:
|
Youm Huh | |||
Title:
|
President and Chief Executive Officer (CEO) | |||
Address:
|
891 Daechi-dong Kangnam-gu, Seoul, South | |||
| Korea, 135-738 | ||||
Facsimile:
|
82-2-3459-3666 | |||
| Advanced Analogic Technologies, Inc.: | ||||
Signature: |
||||
Name:
|
Richard K. Williams | |||
Title:
|
President, Chief Executive Officer (CEO) and | |||
| Chief Technical Officer (CTO) | ||||
Address:
|
830 E. Arques Ave. Sunnyvale, California | |||
| 94085 | ||||
Facsimile:
|
(408) 737-4611 | |||
Exhibit 10.8
AMENDED AND RESTATED LICENSE AGREEMENT
(TrenchDMOS)
(TrenchDMOS)
DATED September 19, 2007
BETWEEN
ADVANCED ANALOGIC TECHNOLOGIES INC.
AND
MAGNACHIP
SEMICONDUCTOR, LTD.
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
AMENDED AND RESTATED
LICENSE AGREEMENT
(TrenchDMOS)
(TrenchDMOS)
This agreement (the “Agreement”) is made effective as of September 19, 2007
(“Effective Date”), by
and between Advanced Analogic Technologies Inc., a California corporation with its principal
place of
business located at 830 E. Arques Ave, Sunnyvale California 94085 (hereafter called “AATI”)
and MagnaChip
Semiconductor, Ltd. with its principal place of business located 1, Hyangjeong-dong,
Hungduk-gu,
Cheongju-si,Chungbuk, South Korea (hereafter called “MAGNACHIP”).
RECITALS
WHEREAS, AATI and MAGNACHIP entered into a License Agreement on or about March 30, 2005
(“Original Agreement”) providing for the license of certain of AATI’s technology related to
TrenchDMOS Technology (as defined below), and
WHEREAS, MAGNACHIP and AATI wishes to amend and restate such Original Agreement on the
terms and conditions set forth below as of the Effective Date hereof.
NOW, THEREFORE, the MAGNACHIP and AATI agree as follows:
AGREEMENT
1. DEFINITIONS. The following terms will have the meanings attributed thereto, unless
otherwise provided herein:
1.1 “AATI Field” means the design, manufacturing, testing, sale, offer for sale, or distribution of Products, which are using AATI TrenchDMOS Technology described hereunder.
1.2 “AATI Improvements” shall have the meaning attributed thereto in Section 4.3.
1.3 “AATI Intellectual Property” means those Intellectual Property Rights that AATI owns or has a right to license consistent with the scope of the license hereunder.
1.4 “AATI Licensed Products” means those AATI Products whose manufacture includes the use of MAGNACHIP Technology.
1.5 “AATI Products” means those Low-Voltage TrenchDMOS Products of AATI, including, but not limited to, those identified on Exhibit A, as may be amended by AATI from time to time.
1.6 “AATI Discrete Technology” means the designs, technology and other information provided
by AATI to MAGNACHIP related to TrenchDMOS Technology and related device and processing under
this
Agreement AATI Discrete Technology includes the processes, methods, devices and apparatus
described in
the United States and foreign patents and patent applications listed on Exhibit B along with
any improvements,
derivatives, continuation patents, foreign filings, continuation in part (“CIP”)
applications, and all work by
AATI or its employees related to TrenchDMOS Technology preceding said applications (dating
back to
September 1998) continuing through the term of this Agreement. AATI Discrete Technology also
includes the
features, devices, processes, apparatus and methods identified in Exhibit C__including those protected by the
Patents in Exhibit B. For the purposes of clarity (and notwithstanding the above definition of AATI Discrete
Technology), AATI Discrete Technology) does not include integrated circuit technology (including IC
processes incorporating CMOS, BiCMOS, CBiC, and BCD device arsenals), IC processes used to produce
power management integrated circuits (such as AATl’s proprietary ModularBCD Technology), circuit designs,
packaging technology, the multi-chip combination of TrenchDMOS or discrete transistors with integrated
circuits, the multi-chip combination of TrenchDMOS or discrete devices with Schottky diodes, and other
related designs, technologies and information.
1.7 “Basic Semiconductor Technology” means designs, technology and other information used
to design, manufacture and test semiconductors, including etching, depositions, diffusion,
cleaning,
photolithography, and other semiconductor processes or sequences (such as LOCOS). Basic
Semiconductor
Technology does not include process architecture or the process integration (and resulting
process flow) of an
integrated process such as TrenchDMOS Technology. It also does not include “specialized” unit
process steps
such as directionally deposited oxides, chained and non-Gaussian implants, etc.
1.8 “Competing Products” means Products that compete with the AATI Products after the date
of this Agreement. If any portion of a Product includes or integrates the functions of a
Competing Product, then
such product is a “Competing Product.”
1.9 “Confidential Information” means any information disclosed by either Party (the “Disclosing Party”) to the other Party (the “Receiving Party”) under this Agreement, either
directly or
indirectly, in writing, orally or by inspection of tangible objects (including without
limitation documents,
prototypes, samples and equipment), which ts designated as “Confidential,” “Proprietary” or
some similar
designation. Information communicated orally or through inspection shall be considered
Confidential
Information if such information is confirmed in writing as being Confidential Information
within a reasonable
time after the initial disclosure. Confidential Information may also include information disclosed to a
Disclosing Party by Third Parties. Notwithstanding any designation of “Confidential”, Confidential
Information includes the AATI Discrete Technology.
1.10 “Effective Date” means the date set forth in the recital.
1.11 “Facility” means the MAGNACHIP-owned wafer fabrication facility located in Gumi, Korea
and Cheong-ju, Korea or such other MAGNACHIP-owned facility that the Parties may agree upon
in writing.
1.12 “MAGNACHIP Field” means Basic Semiconductor Technology, along with the design,
manufacture, test, and sales of products not related to analog semiconductors, power
semiconductors, or the AATI Field (such as memory ICs, digital ICs, displays, sensors, and other non-analog or non-power
semiconductor products).
1.13 “MAGNACHIP Licensed Products” means (1) those Non-Competing Products of
MAGNACHIP, i.e., Non-Competing Products marketed and sold under a MAGNACHIP-owned brand or
sold
by MAGNACHIP to a Third Party as wafer sales, die sales or finished good sales through
MAGNACHIP’s
foundry services business that include or rely upon AATI Discrete Technology and (2) those
Competing
Products sold to the Customers designated in Exhibit H (“Customers”), as may be amended by
AATI in its sole
discretion, and with MagnaChip’s approval of such, from time to time. “MAGNACHIP Licensed
Products”
exclude Competing Products sold to any other Customer and Products that utilize Other Technology.
1.14 “MAGNACHIP Improvements” shall have the meaning attributed thereto in Section 3.3.
-2-
1.15 “MAGNACHIP Intellectual Property” means those Intellectual Property Rights that
MAGNACHIP owns or has a right to license consistent with the scope of the license hereunder.
1.16 “MAGNACHIP Technology” means the Basic Semiconductor Technology, and technology
not related to analog and power semiconductor manufacture such as memory IC and digital 1C
processes,
provided by MAGNACHIP to AATI.
1.17 “Intellectual Property Rights” means any intellectual property right existing now or during
the term of this Agreement recognized throughout the world, including without limitation
copyright, maskwork
rights, patent rights, trade secrets and know-how. For the purposes of this Agreement,
“Intellectual Property
Rights” excludes trademarks, service marks and domain names.
1.18 “Improvements” means all copyrightable material, notes, records, drawings, designs,
inventions, patents, improvements, developments, discoveries and trade secrets first
conceived, made or
discovered by a Party during the period of this Agreement which relate in any manner to, or
are derived from,
the AATI Discrete Technology, the MAGNACHIP Technology or Confidential Information licensed or
provided hereunder, including any enhancements, modifications or derivations thereto.
1.19 “Joint Improvements” shall have the meaning attributed thereto in Section 4.3.
1.20 “Low-Voltage TrenchDMOS Products” means those TrenchDMOS products that have
low- voltage characteristics. For the purpose of this Agreement, “Low-Voltage” shall be
defined as
semiconductor components rated at 35 volts or less, i.e., devices who drain-to-source
breakdown specification
not exceeding 35V. “TrenchDMOS Products” include the following semiconductor components: (1)
Discrete
power MOSFETs produced using TrenchDMOS Technology or portions of TrenchDMOS Technology (2)
Multichip packages containing at least one discrete power MOSFET produced using TrenchDMOS
Technology
or portions of TrenchDMOS Technology (3) Monolithically integrated power MOSFETs produced
using
TrenchDMOS Technology or portions of TrenchDMOS Technology (including dual common-drain
devices).
“TrenchDMOS Products” collectively comprise N-channel or P-channel devices of differing drain
and gate
voltage ratings (i.e., Process Types). Some TrenchDMOS Products may also include
gate-to-source ESD
protection diodes.
1.21 “Starting Material” means un-patterned epitaxial silicon wafers comprising either N-epi on
an N++ Substrate or P-epi on a P++ Substrate, as applicable. Epitaxial doping and thickness
vary with Process
Type.
1.22 “TrenchDMOS Technology” means that technology related to the fabrication of
semiconductor electronic components comprising or containing at least one trench-gated MOSFET
device
having vertical current flow (i.e., where current flows between a topside source contact and
a backside drain
contact in a manner which is substantially perpendicular to the wafer’s surface in the drain
and/or channel
regions of the device) and incorporating any of several unique features, processes, or
characteristics (as
described in Exhibit C) including;
(a) A “chained implant DMOS body” (or CIDB) using sequential multiple and high
energy (including MeV) ion implantations to form an active MOS channel;
(b) A trench gate with “thick bottom oxide” (TBOX) formed by directional deposition of
dielectric material;
-3-
(c) A “dual polysilicon trench gate” process comprising an embedded trench gate
contacted by a second polysilicon (also used to form optional PN polysilicon diodes);
(d) A “hardmask self-aligned trench gate” photolithographically defined by a dielectric
hardmask layer not removed prior to the trench-etch and trench-fill processing steps;
(e) A “super-self aligned” (or SSA) trench gate photolithographically defined by a
dielectric hardmask layer subsequently removed by chemical and/or CMP methods to facilitate
contact across
the entire silicon mesa (i.e., trench-to-trench);
(f) A high-speed embedded “polycide” trench gate comprising a polysilicon-sealed
silicide trench gate structure (i.e., where the silicide does not touch the gate oxide);
(g) A “planarized gate bus” comprising the integration of narrow (trench-gates) and wide
(trench-gate-bus) regions, sharing a common embedded polysilicon, planarized by CMP or
etchback
(h) A rugged trench-gated DMOS combining thick bottom oxide (TBOX) with an
embedded PN drain clamping diode (or “TBOX clamping diode”), said clamping diode being
shallower than
trenches but deeper than the polysilicon gates;
(i) A “planarized silicided trench contact” for a trench gated DMOS with improved
ruggedness (avalanche capability);
(j) A “salicide trench gate DMOS”, comprising self aligned silicided (i.e., salicide)
polysilicon and mesa regions;
1.23 TrenchDMOS Technology can also be characterized by its low thermal budget fabrication
(no long or high temperature diffusions), its high-density-capable device construction (287
Mcells/in 2 and up), a
highly-reproducible short channel capable of low thresholds without punchthrough, and the
unique benefits of
its thick bottom oxide including lower gate charge (per trench width), reduced
field-plate-induced breakdown,
and improved reliability (since impact ionization and avalanche occur near the thick bottom
oxide, not in the
vicinity of thin gate oxide). TrenchDMOS Technology includes but is not limited to the
processes, methods,
devices, mask designs, and apparatus described in United States and foreign Patents and
Patent applications
listed in Exhibit B along with any improvements, derivatives, continuation patents, foreign
filings, CIP
applications, and all work by AATI or its employees related to TrenchDMOS Technology
preceding said
applications (dating back to September 1998) continuing through the term of this Agreement.
TrenchDMOS
Technology features includes but is not limited to the features, device structures, apparatus
and fabrication
methods listed in Exhibit C. TrenchDMOS Technology collectively comprises processes and
methods to
manufacture N-channel and P-channel TrenchDMOS Products, for any and all drain-to-source and
gate-to-source device voltage ratings (referred to herein as “Process Types”).
1.24 “Net Sales” means the gross selling die or wafer price (depending on how such is sold)
invoiced by MAGNACHIP, its affiliates and authorized manufacturers on sales or other
dispositions of
MAGNACHIP Licensed Products, less the following items to the extent they are included in such
gross
revenues and separately stated on the invoice: (i) normal and customary rebates, refunds and
discounts actually
given by seller, (ii) insurance, transportation and other delivery charges actually paid by
seller, (iii) sales, excise,
value-added and other taxes, and (iv) testing and packaging costs (v) backmetal and backgrind
performed as a
service to MAGNACHIP by any 3rd party vendor. Sales between MAGNACHIP, its
affiliates and authorized
manufacturers shall not be included in Net Sales (but sales or dispositions by MAGNACHIP, its
affiliates and
authorized manufacturers to third parties shall count as Net Sales). If any MAGNACHIP Licensed
Products are
-4-
sold or transferred in whole or in part for consideration other than cash, Net Sales shall include the fair market
value of such MAGNACHIP Licensed Product. For purposes of this definition of Net Sales, “authorized
manufacturer” means any entity (other than a MAGNACHIP affiliate) that manufacturers (including any
assembly and packaging of MAGNACHIP Licensed Products) and sells MAGNACHIP Licensed Products
under authority, directly or indirectly, from MAGNACHIP.
1.25 “Non-Competing Products” means (i) Products comprising or containing vertical power
MOSFETs that operate above 35V (i.e., have a drain to source breakdown voltage specification
in excess of
35V), or (ii) Products that do not comprise or contain vertical power MOSFETs (including
conventional planar
lateral MOSFETs). For clarity, vertical MOS-bipolar merged devices such as the MOS gated
thyristor, emitter switch thyristors, or IGBTs (insulated gate bipolar transistors) whether conventional or trench-gated are
Non-Competing Products. Specific examples of Non-Competing Products are listed in Exhibit D.
1.26 “Other Technology” means all designs, technology and information other than AATI
Discrete Technology and beyond the scope of this Agreement. Other Technology includes,
without limitation,
ModularBCD Technology as defined in the License Agreement (ModularBCD) between AATI and
MAGNACHIP of even date with this Agreement.
1.27
“Party” means each of AATI and MAGNACHIP (and collectively “Parties” means both
MAGNACHIP and AATI). The term Party (whether referred to as a “Party” or “Parties” or “AATI”
or
“MAGNACHIP”) does not include any affiliates of such Party except for wholly owned
subsidiaries, unless
expressly agreed upon in writing by both Parties. In addition, the terms Party, AATI, MAGNACHIP and
Parties shall not include any assignees or successors in interest except as provided for under Section 13.3.
1.28 “Process Type” means the process variations of TrenchDMOS Technology in conductivity
type, epitaxial doping, and gate oxide thickness that sets the device voltage ratings for
drain minimum
avalanche breakdown (i.e., BVdss) and for maximum gate voltage (i.e., itsVGs(max) specification). Process
Types are coded by their ratings using the nomenclature Polarity-BVDSs
- -VGs(max). A TrenchDMOS Process
Type P3020, for example, refers to a P-channel device with a 30V drain rating and a 20V
maximum gate
voltage rating. Other Process Types in TrenchDMOS Technology include; P2012, P1208, N3020,
N3012, and
N2012.
1.29 “Products” means semiconductor devices; integrated circuits, discrete transistors; or
semiconductor components; whether in wafer form or separated into individual dice (chips),
whether assembled
into packages, modules, chip-scale packages, bumped, or otherwise unassembled, whether tested
or untested.
Products include both Competing Products and Non-Competing Products.
1.31 “Customer” means any third party purchaser of products under this Agreement who is not
an
affiliate, parent company or subsidiary of MAGNACHIP or AATI.
1.32 “Release-to-Manufacturing (RTM) Date” means the date when the first TrenchDMOS
Product using TrenchDMOS Technology is successfully qualified for a particular TrenchDMOS
Process Type,
i.e., for a given drain and gate voltage specification. The RTM Date requires the successful
fabrication and
burn-in qualification of three (3) wafer runs of said Product for that Product Type.
Thereafter both Product and
TrenchDMOS Technology are qualified and manufacturing production for that particular Process
Type can
commence. Each specific Process Type (e.g. N2012, P3020) will require separate qualification
to constitute a
Release-to-Manufacturing (RTM) for that Process Type.
1.33 “Third Party” means any company, corporation, partnership, person or commercial entity
other than a Party.
-5-
2. TERMINATION OF ORIGINAL AGREEMENT
AATI and MAGNACHIP hereby tenninate the Original Agreement in its entirety, and
notwithstanding
anything therein to the contrary all terms and conditions thereof are hereby terminated, no
longer in force or
effect and hereby replaced by the terms and conditions of this Agreement; provided however,
(1) all
Confidential Information and technology delivered or provided under the Original Agreement is
hereby deemed
subject to the terms of this Agreement and (2) all amounts owing under the Original Agreement
shall continue
to be owed, and the respective audit and reporting provisions of the Restated Agreement shall
apply thereto.
The Parties hereby waive all rights to notice of termination as may be otherwise provided
under the Original
Agreement or applicable laws. Except as expressly provided herein, all other Agreements
between the Parties
remain in effect in accordance with their own terms.
3. LICENSE
3.1 License by AATI
(a) Subject to the terms and conditions set forth in this Agreement, AATI hereby grants
and agrees
to grant to MAGNACHIP, and MAGNACHIP accepts, the following license:
(i) a non-exclusive and non-transferable (except pursuant to Section 13.3), license
under the AATI Intellectual Property to:
(1) make at the Facility (but not have made elsewhere), design, develop,
offer to sell, sell, use, import, and otherwise dispose of the MAGNACHIP Licensed Products;
(2) practice, at the Facility, any process or method involved in the
manufacture or use of MAGNACHIP Licensed Products; and
(3) to make, use and have made any manufacturing apparatus involved in
the manufacture or use of MAGNACHIP Licensed Products.
(ii) a non-exclusive nontransferable (except pursuant to Section 13.3) license
under the AATT Intellectual Property to use the AATI Discrete Technology for the sole purpose
of
manufacturing and repairing AATI Products, at the Facility, for distribution to AATI and such
other third
parties that AATI may designate in writing from time to time.
(iii) a non-exclusive and non-transferable (except pursuant to Section 13.3), license
on a world-wide basis under the AATI Intellectual Property to use, reproduce modify and make
derivative
works of the copyrightable materials of the AATI Discrete Technology solely for use in
connection with the
exercise of the license granted in Section 3.1(a)(i) and (ii).
(b) MAGNACHIP Licensed Products shall be royalty-bearing in accordance with Section 6.
(c) MAGNACHIP shall have no license under the AATI Intellectual Property to supply AATI
Products or Competing Products to any party other than AATI or, in the case of Competing
Products only, to the
Customers designated on Exhibit H’s without
AATI’s prior written approval. Further,
for clarity and
notwithstanding anything to the contrary set forth in this Agreement, to the extent (i) a
MAGNACHIP License
Product includes or relies upon both AATI Discrete Technology and Other Technology, or (ii)
the practice of
any rights granted under this Section 3.1 infringes or misappropriates any AATI Intellectual
Property due to
such Other Technology, then (iii) the use of the Other Technology shall not be considered
licensed under this
-6-
Agreement, but shall instead require a separate license from AATI (which AATI may grant or
withhold in its
sole discretion). The parties acknowledge that AATI and MAGNACHIP have executed a separate License
Agreement (ModularBCD) concurrently with this Agreement.
(d) MAGNACHIP shall have the right, upon prior approval of AATI in writing, to sublicense
to Third Parties its right under Section 3.1(a). Except as expressly provided in this Section
3.1, MAGNACHIP shall have no right to sublicense the rights granted in this Section 3.1.
3.2 License by MAGNACHIP
(a) Subject to the terms and conditions set forth in this Agreement, MAGNACHIP hereby grants
and agrees to grant to AATI, and AATI accepts, a non-exclusive, irrevocable, royalty free,
fully paid-up and
non-transferable (except pursuant to Section 13.3, and, under no circumstances, to any other
manufacturer of
the Products apart from MAGNACHIP), and only for the Term of this Agreement, license on a
world-wide
basis under the MAGNACHIP Intellectual Property to:
(i) make and have made AATI Licensed Products solely in the Facility,
(ii) offer to sell, sell, use, design, develop, import, and otherwise dispose of AATI
Licensed Products made or to be made in the Facility,
(iii) practice, solely within the Facility, any process or method involved in the manufacture
of the AATI Licensed Products,
(iv) to practice any process or method involved in the use of the AATI Licensed Products
made in the Facility, and
(v) make and have made any manufacturing apparatus involved in the manufacture or use
of AATI Licensed Products that incorporates or is based upon MAGNACHIP Technology and to use
such apparatus exclusively at the Facility.
3.3 Restrictions. Except as expressly authorized herein, in no event shall MAGNACHIP utilize any
AATI Discrete Technology in connection with the design, manufacturing, distribution or sale of
any Competing
Product without the prior written permission of AATI. In no event shall MAGNACHIP utilize any
AATI
Discrete Technology in connection with the design, manufacturing, distribution or sale of any
Product that
includes an integrated circuit and a Product that uses AATI Discrete Technology in a single
package without the
prior written permission of AATI. MAGNACHIP agrees to provide AATI at least thirty (30) days
prior written
notice prior to MAGNACHIP’s manufacture, distribution or sale (or assisting others with regard
to the same) of any Competing Product, except as provided for under Exhibit H. At no time may AATI utilize
MAGNACHIP
Licensed Products or MAGNACHIP Intellectual property in connection with the design or
manufacturing of
AATI Products or AATI Licensed Products outside of MAGNACHIP’s Facility without MAGNACHIP’s
expressed written approval.
4. OWNERSHIP AND RESERVATION
4.1 By AATI. Subject to the rights granted to or retained by MAGNACHIP under
Sections 3, 4.2
and 4.3, the Parties acknowledge and agree that as between the Parties, all title to and
ownership of all AATI
Intellectual Property and AATI Discrete Technology not expressly granted herein shall remain
the sole and
exclusive property of AATI. Nothing herein shall be construed as granting MAGNACHIP any
ownership rights
-7-
in the AATI Intellectual Property and AATI Discrete Technology. AATI grants no rights, license or title to its
technology beyond the scope of this Agreement, unless otherwise agreed to in writing by both parties.
4.2 By MAGNACHIP Subject to the rights granted to or retained by AATI under Sections 3, 4.1
and 4.3, the Parties acknowledge and agree that as between the Parties, all title to and
ownership of all
MAGNACHIP Technology and MAGNACHIP Intellectual Property not expressly granted herein shall
remain
the sole and exclusive property of MAGNACHIP. Nothing herein shall be construed as granting
AATI any
ownership rights in the MAGNACHIP Intellectual Property and MAGNACHIP Technology. MAGNACHIP
grants no rights, license or title to its technology beyond the scope of this Agreement,
unless otherwise agreed to
in writing by both parties.
4.3
Improvements. With respect to any Improvements, ownership shall be allocated as follows:
(a) AATI Improvements. All Improvements to AATI Discrete Technology that are created
or conceived solely by AATI shall be solely owned by AATI (the “AATI Improvements”). AATI
shall own
all right, title, and interest in the AATI Improvements and all Intellectual Property therein
(excluding
MagnaChip’ rights in and ownership of any Joint Improvement under Section 4.3(c) below), AATI
shall have
the exclusive right to apply for or register any patents, mask work rights, copyrights, and
such other proprietary
protections with respect thereto. Nothing herein shall be construed as granting MAGNACHIP any
ownership
rights in the AATI Intellectual Property and AATI Discrete Technology. AATI grants no rights,
license or title
to such technology and/or Intellectual Property outside the scope of this Agreement.
(b) MAGNACHIP Improvements All Improvements to MAGNACHIP Technology that
are created or conceived solely by MAGNACHIP shall be solely owned by MAGNACHIP (the
“MAGNACHIP Improvements”). MAGNACHIP shall own all
right, title, and interest in the MAGNACHIP
Improvements, and all Intellectual Property therein (excluding AATPs rights in and ownership
of any Joint
Improvement under Section 4.3(c) below). MAGNACHIP shall have the exclusive right to apply
for or register
any patents, mask work rights, copyrights, and such other proprietary protections with
respect thereto. Nothing
herein shall be construed as granting AATI any ownership rights in the MagnaChip Intellectual
Property and
MagnaChip Technology. MagnaChip grants no rights, license or title to such technology and/or
Intellectual
Property outside the scope of this Agreement.
(c) Joint Improvements. Any Improvement which is jointly created or conceived by the
Parties pursuant to this Agreement shall:
(i) if created or conceived as an Improvement to AATI Discrete Technology as a
result of the licenses granted to MAGNACHIP in Section 3 or access to the AATI
Discrete
Technology or AATI Confidential Information, be considered:
(1) a
“Joint Improvement” under this
Section 4.3(c), if falling
outside
the AATI Field; or
(2) an
“AATI Improvement” under Section 4.3(a), if falling within the AATI Field; and
(ii) if created or conceived as an Improvement to MAGNACHIP Technology as a
result of the licenses granted to AATI in Section 3 or access to the MAGNACHIP
Technology
or MAGNACHIP Confidential Information, be considered:
-8-
(1) a “Joint Improvement” under this Section 4.3(c), if falling
outside
the MAGNACHIP Field; or
(2) a “MAGNACHIP Improvement” under Section 4.3(b), if falling
within the MAGNACHIP Field.
(iii) The Parties shall cooperate with each other in obtaining and securing all
possible United States and foreign rights to the Joint Improvements and
enforcing such rights.
The Parties agree to meet and confer prior to any public dissemination, use or
sale of Joint
Improvement in order to ensure that any related patent applications have been
filed prior to
such event, and shall not make such dissemination, use or sale of Joint
Improvement until
related patent applications have been filed. The Parties shall share equally in
the costs of
obtaining Joint Improvement rights which are jointly owned, including but not
limited to the
costs of preparing, filing and prosecuting applications and patent maintenance
fees. If a Party
determines that it does not want to pursue or continue to pursue obtaining a
particular Joint
Improvement right which otherwise would be jointly owned, and the other Party
elects to do
so (the “electing party”), the cost related to that particular Joint Improvement
right shall be
borne solely by the electing Party and the electing Party shall have sole and
full ownership of
such Joint Improvement right, including any derivatives, continuations,
divisions, reissues
and reexaminations of that Joint Improvement right.
(iv) MAGNACHIP hereby irrevocably transfers, conveys and assigns to AATI all
of its right, title, and interest in any Improvements described in Section
4.3(c)(i)(2) (AATI
Improvement). MAGNACHIP shall execute such documents, render such assistance,
and take
such other action as AATI may reasonably request, at AATI’s expense, to apply
for, register,
perfect, confirm, and protect AATI rights to such Improvements, and all
Intellectual Property
therein. AATI hereby irrevocably transfers, conveys and assigns to MAGNACHIP
all of its right, title, and interest in any Improvements described in Section
4.3(c)(ii)(2) (MAGNACHIP
Improvement). AATI shall execute such documents, render such assistance, and
take such
other action as MAGNACHIP may reasonably request, at MAGNACHIP’s expense, to
apply
for, register, perfect, confirm, and protect MAGNACHIP’s rights to such
Improvements, and
all Intellectual Property therein.
(v) MAGNACHIP and AATI shall each have the right to exploit all Joint
Improvements (that are not AATI Improvements or MAGNACHIP Improvements) without
being required any additional payment to the other, provided however, in the
event a Party
refuses to cooperate and pay costs related to the Joint Improvement under
Section 4(c)(iii),
such Party shall nave no rights to use or exploit such Joint Improvement under
the terms of this
Agreement.
(d) Independently Developed. Notwithstanding the above, to the extent that any
Improvements is solely created by a Party under this Agreement, without reference or use of
the other Party’s
Technology, Intellectual Property or Confidential Information (as defined below), then such
Party shall
exclusively own such Improvements.
4.4 Waiver of Moral Rights. Each party hereby waives any and all “moral rights,”
meaning any
right to identification of authorship or limitation on subsequent modification that a party
(or its employees,
agents or consultants) has or may have in the other party’s Improvements, to the extent
recognized by applicable
law consistent with Berne Convention, art. 6bis.
-9-
4.5
Attorney in Fact. Each Party assigning any rights under this Section 4 hereunder
(the
“Assignor”) agrees that if the other Party (the “Assignee”) is unable because of Assignor’s
unavailability,
dissolution or incapacity, or for any other reason, to secure Assignor’s signature to apply
for or to pursue any
application for any United States or foreign patents or mask work or copyright registrations
covering the
inventions assigned to Assignee above, then Assignor hereby irrevocably designates and
appoints the company
and its duly authorized officers and agents as Assignor’s agent and attorney in fact, to act
for and in Assignor’s
behalf and stead to execute and file any such applications and to do all other lawfully
pennitted acts to further
the prosecution and issuance of patents, copyright and mask work registrations thereon with
the same legal
force and effect as if executed by Assignor. This power of attorney is deemed coupled with an
interest and is irrevocable.
4.6 Non-Exclusive Arrangement. Nothing in this Agreement shall be construed to limit AATI’s
rights to manufacture, distribute or take any other action with respect to the AATI Products,
AATI Discrete
Technology, AATI Improvements or AATI Confidential Information or to authorize any other
persons to do
any of the foregoing except as it relates to MAGNACHIP Technology or Improvements to
MAGNACHIP
Technology pursuant to Section 4.3. Likewise nothing in this Agreement shall be construed to
limit
MAGNACHIP’s rights to manufacture, distribute or take any other action with respect to the
MAGNACHIP
Products, MAGNACHIP Technology, MAGNACHIP Improvements or MAGNACHIP Confidential
Information or to authorize any other persons to do any of the foregoing, except as it
relates to AATI Discrete
Technology or Improvements to AATI Discrete Technology pursuant to Section 4.3
5.
TECHNOLOGY DELIVERY & IMPLEMENTATION.
5.1
AATI Discrete Technology. As of the Effective Date, AATI has delivered to
MAGNACHIP
the AATI Discrete Technology as outlined in Exhibit E. AATI may (but is not obligated to)
supplement the
AATI Discrete Technology.
5.2 MAGNACHIP Technology; Upon the recommendation of MAGNACHIP or upon
agreement of both Parties, MAGNACHIP will deliver to AATI the MAGNACHIP Technology listed in
Exhibit F that may be applicable and useful in adapting and implementing the AATI Discrete
Technology in
said Facility. It is understood by both Parties that the applicability of such MAGNACHIP
Technology to
AATI Discrete Technology Implementation may vary by Facility. Thereafter, as agreed upon by
both Parties,
certain processing steps, methods, or features in the AATI Discrete Technology (such as unit
process steps in
the TrenchDMOS process flow) may be adapted to incorporate MAGNACHIP Technology or variants
thereof.
MAGNACHIP may (but is not obligated to) supplement the MAGNACHIP Technology at a later date.
5.3
AATI Discrete Technology Implementation. Both Parties have, as of the Effective Date,
implemented, the AATI Discrete Technology in said Facility in accordance with the procedures
for AATI
Discrete Technology Implementation as described in Exhibit G.
(i) Adapting AATI Discrete Technology for Facility. In the event that AATI Discrete
Technology is adapted or modified to best match or fit said Facility by utilizing MAGNACHIP
Technology in
certain steps or processes, such steps or techniques that constitute MAGNACHIP Technology
shall remain the
property of MAGNACHIP. Those portions of the AATI Discrete Technology not using MAGNACHIP
Technology along with the integrated process flow of TrenchDMOS Technology constitute AATI
Discrete
Technology and shall remain the property of AATI.
(ii) Initial AATI Discrete Technology Implementation. The initial implementation of
AATI Discrete Technology in said Facility does NOT constitute an Improvement to AATI Discrete
Technology.
-10-
(iii) Initial
AATI Discrete Technology Implementation Milestones. Both Parties will
use
commercially reasonable efforts to meet the milestones of the initial AATI Discrete Technology
Implementation including efforts to meet the objective
Release-to-Manufacturing (RTM) Date
6. ROYALTIES
AND PAYMENT TERMS.
6-1
Royalty.
(a) MAGNACHIP shall pay [*****] royalty for Products its produces for and sells to
AATI (or AATI’s affiliate as designated in writing by contract from AATI). AATI’s
wafer price from
MAGNACHIP is covered under the AATI MAGNACHIP supply agreement and is not covered by this
Agreement.
(b) In
the case of Non-Competing Products, MAGNACHIP shall pay AATI
[*****] royalty
of Net Sales of all wafers produced using or incorporating the AATI Intellectual Property
licensed herein (such
MAGNACHIP payment to be offset by any payment due from AATI pursuant to Section 5.4 below);
provided,
however, that the Parties agree that the foregoing royalty rate is based on a presumption of a
[*****] withholding
tax rate as of the Effective Date, and so the Parties agree to negotiate in good faith an
increase or decrease in
such royalty rate at any time the withholding tax rate changes after the Effective Date.
Customer shall be
responsible for its own designs or pay for AATI’s design with a release to AATI. Customer
and/or MagnaChip
shall be responsible for the qualification, orders, shipping logistics and quality.
(c) In
the case of Competing Products, MAGNACHIP shall pay AATI the royalty identified
in Exhibit H of Net Sales to the identified Customer of all wafers produced using or
incorporating the AATI
Intellectual Property licensed herein. The Parties anticipate that
such royalties will be [*****] (depending on volume) of such Net Sales to the identified Customers of all wafers, or as otherwise agreed to
by both parties in
writing.
(d) Both parties agree that they will review the pricing structure hereunder on an annual
basis to ensure the pricing structure is mutually agreeable, and adjust such accordingly. In
the event that a
customer provides the Starting Material, the parties agree to adjust the foregoing Net Sales
price by (I)
deducting the actual third party costs of such Starting Material or (2) otherwise agreeing
upon a commercially
reasonable value for Starting Material and deducting such agreed upon value from the Net Sales
price. AATI
reserves the right to charge additional consideration directly to such customers (as opposed
to MAGNACHIP)
for such Competing Products. In such cases, (1) MAGNACHIP makes no representation to AATI with
respect
to the qualification and product quality; (2) AATI, at its election, may choose to assist such
customers with
respect to qualification and product quality; and (3) as between AATI and MAGNACHIP, MAGNACHIP
shall
be responsible for shipping logistics, orders and process quality of wafers.
6.2
Payment Within thirty (30) days following the end of each calendar quarter,
MAGNACHIP
and AATI shall pay their respective royalty payments on invoices paid by the third party in
U.S. Dollars and
shall include a report sufficient to show the basis for calculation of the royalty payments
made hereunder,
including without limitation, quantity and identification of all Competing and Non-Competing
Products
(“Report”). Upon AATI approval, in lieu of payment on a quarterly basis MAGNACHIP may pay such
outstanding royalties by issuing a credit against outstanding AATI invoices or toward new
wafer starts for
Products from MAGNACHIP.
6.3 Records and Audit. Each party shall retain records and supporting documentation
sufficient to
document the fee payable under this Agreement in any particular quarter in which this
Agreement is in effect for
at least three years following the end of such quarter and its compliance with Section 6.2.
Upon prior
-11-
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
reasonable written notice of no less than sixty (60) days by one party, the other party shall
provide to a
nationally recognized independent public accounting firm (the “Auditors”) designated in writing by
that party
access during normal business hours to the audited party’s personnel, outside accountants and data
and records
maintained in connection with this Agreement, in each case to the extent necessary or appropriate
for the
purpose of determining whether (i) calculations of the royalties payable under this Agreement are
accurate and
in accordance with this Agreement and/or (ii) MAGNACHIP has offered most favorable pricing to AATI
in
accordance with Section 6.2 (an “Audit”). Audits will be conducted no more frequently than once
per calendar
year. Each Party agrees to use commercially reasonable efforts to assist such Auditors in
connection with such
Audits. Any such Audits shall be conducted at the requesting party’s sole cost and expense.
6.4 Taxes. Each Party shall bear any and all taxes and other charges incurred by or
levied on it by its
own country in connection with this Agreement, provided, however, that AATI shall bear fifty
percent (50%) of
any withholding or similar tax for foreign payments that is levied by the Korean Government
upon any amounts
due from MAGNACHIP to AATI under this Agreement, and MAGNACHIP is entitled to offset such
AATI
payment obligation from any amounts actually paid by MAGNACHIP to AATI under this Agreement,
including but not limited to amounts due pursuant to Sections 6.1(b) and 6.1(c) above.
MAGNACHIP will
furnish AATI with each tax receipt issued by the Korean taxing authority to assist AATI in
obtaining the credit in the United States.
7. WARRANTY AND DISCLAIMER.
7.1 General. Each Party represents and warrants to the other that:
(a) it has all requisite corporate power and authority to enter into this Agreement and to
carry
out the transactions contemplated by this Agreement; and
(b) the execution, delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly authorized by all requisite
corporate action on the part of such Party
7.2 EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS SECTION 7,
NEITHER PARTY MAKES ANY OTHER WARRANTIES WITH RESPECT TO THE TECHNOLOGY
AND INTELLECTUAL PROPERTY RIGHTS LICENSED HEREUNDER, WHETHER EXPRESSED OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR
A PARTICULAR PURPOSE OR NON-INFRINGEMENT.
8. TERM AND TERMINATION OF AGREEMENT.
8.1 Term. This Agreement shall have an initial term of three (3) years but
shall be automatically
renewed thereafter (and after each subsequent renewal term) for a renewal term of one year
unless, at least sixty
(60) days prior to the date of any such renewal, either Party hereto shall have given notice
in writing to the other
of its intention to terminate the Agreement. This Agreement shall thereafter be automatically
terminated at the
end of the term during which such notice is given.
8.2 Termination for Default. Should either Party materially default in the performance
of any
term or condition of this Agreement (a “Default”), in addition to all other legal rights and
remedies, the other
Party may terminate this Agreement by giving thirty (30) days written notice of said Default
unless such Default
is corrected within the notice period.
-12-
8.3 Termination for Bankruptcy: Either Party may terminate this Agreement by written
notice in
the event that the other Party makes an assignment for this benefit of creditors, or admits
in writing inability to
pay debts as they become due; or a Trustee or receiver for any substantial part of its assets
is appointed by any
court; or a proceeding is instituted under a provision of the Federal Bankruptcy Act by or
against the other Party
and is acquiesced in or is not dismissed within 60 days or results in an adjudication in
bankruptcy. An
assignment by AATI of all or part of its rights to payment hereunder as part of a working
capital financing shall
not be deemed cause for termination under this paragraph.
8.4 Effect of Termination. Upon termination or expiration of this Agreement for any reason, all
licenses shall immediately terminate. Each Party shall return the Confidential Information of
the other Party
within thirty (30) days after the effective date of such termination or expiration. In
addition Sections 1, 2, 4, 6.3, 7, 8, 9, 10, 11, 12 and 13 shall survive any expiration or termination of this Agreement.
9. INTELLECTUAL PROPERTY RIGHTS INDEMNITY.
9.1
By MAGNACHIP.
(a) MAGNACHIP will defend or settle, at its expense, all claims, proceedings and/or suits
brought by Third Parties against AATI, its Affiliates (including their directors, officers,
and employees) and
customers alleging that the MAGNACHIP Technology as provided by MAGNACHIP to AATI hereunder
infringes or violates any patent, copyright, trade secret or other intellectual property
right (herein
“Infringement Claim”) and will indemnify AATI from and pay all litigation costs, reasonable
attorney’s fees,
settlement payments (subject to reasonable approval by MagnaChip) and damages awarded by a
court having
jurisdiction over such Infringement Claim with respect to any Infringement Claim; and
provided that
MAGNACHIP shall be relieved of its obligations under this Section 9.1 unless AATI promptly
notifies
MAGNACHIP in writing of any such Infringement Claim and gives MAGNACHIP sole control, full
authority,
information and assistance (at MAGNACHIP’s expense) for the defense or settlement of such
Infringement
Claim.
(b) Without
limiting its obligations under Section 9.1(a), when notified of an action or
motion that seeks to restrict the use, sale and/or distribution of any MAGNACHIP Technology
hereunder (or
part thereof), MAGNACHIP may but is not required nor obligated to, at its option and expense,
(1) obtain the
right for AATI to use the MAGNACHIP Technology as licensed hereunder, (2) substitute other
functionally
equivalent technology that does not infringe, or (3) modify such MAGNACHIP Technology so that
it no longer
infringes.
(c) Notwithstanding any provision to the contrary, the indemnification obligations in this
Section 9.1 shall not be applicable to the extent an
Infringement Claim arises from (l) use of
the MAGNACHIP
Technology in violation of the license terms herein, (2) the modification of any MAGNACHIP
Technology by
AATI, or (3) a combination of the MAGNACHIP Technology with other technology not provided by
MAGNACHIP. THE FOREGOING SECTION 9.1 STATES THE SOLE LIABILITY OF MAGNACHIP,
AND THE SOLE REMEDY OF AATI, WITH RESPECT TO INFRINGEMENT OR MISAPPROPRIATION
OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT
BY THE MAGNACHIP TECHNOLOGY OR MAGNACHIP INTELLECTUAL PROPERTY UNDER THIS
AGREEMENT.
9.2 Bv AATI.
(a) AATI will defend or settle, at its expense, all claims, proceedings and/or suits brought
by
Third Parties against MAGNACHIP, its Affiliates (including their directors, officers, and
employees) alleging
-13-
that AATI Discrete Technology as provided by AATI to MAGNACHIP hereunder infringes or violates any
patent, copyright, trade secret or other intellectual property right
(herein “Claim”) and will
indemnify
MAGNACHIP from and pay all litigation costs, reasonable attorney’s fees, settlement payments
(subject to
AATI’s reasonable approval) and damages awarded by a court having jurisdiction over such Claim
with respect
to any such Claim; and provided that AATI shall be relieved of its obligations under this Section
9.2 unless
MAGNACHIP promptly notifies AATI in writing of any such Claim and gives AATI sole control, full
authority,
information and assistance (at AATI’s expense) for the defense or settlement of such Claim.
(b) Without limiting its obligations under Section 9.2(a), when notified of an action or
motion that seeks to restrict the use, sale and/or distribution of any AATI Discrete
Technology hereunder, (or
part thereof), AATI may but is not required nor obligated to, at its option and expense, (1)
obtain for
MAGNACHIP the right to use the AATI Discrete Technology licensed hereunder, (2) substitute
other
functionally equivalent technology that does not infringe, or (3) modify such technology so
that it no longer
infringes.
(e) Notwithstanding any provision to the contrary, the indemnification obligations in this
Section 9.2 shall not be applicable to the extent a Claim arises from (I) use of the AATI
Discrete Technology in
violation of the license terms herein or (2) modification of the AATI Discrete Technology by
a party other than
AATI, or (3) a combination of the AATI Discrete Technology with other technology not provided
by AATI or
(4) MAGNACHIP acting as a foundry to any Third Party that is an AATI Intellectual Property
licensee,
provided, however, that AATI has, in its written consent granting permission to MAGNACHIP to
act as a
foundry to such Third Party licensee, provided a written representation reasonably
satisfactory to counsel to
MAGNACHIP that AATI has indemnified such Third Party licensee from and against all claims,
proceedings
and/or suits brought against the Third Party licensee and alleging that AATI intellectual
property as provided by
AATI to the Third Party licensee infringes or violates any patent, copyright, trade secret or
other intellectual
property right. THE FOREGOING SECTION 9.2 STATES THE SOLE LIABILITY OF AATI, AND THE
SOLE REMEDY OF MAGNACHIP, WITH RESPECT TO INFRINGEMENT OR MISAPPROPRIATION
OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT
BY AATI DISCRETE TECHNOLOGY PROVIDED TO MAGNACHIP BY AATI UNDER THIS
AGREEMENT.
(d) AATI will provide indemnity to Customers on substantially the same terms provided to
MAGNACHIP as described in this Section 9.2 provided that 1) MAGNACHIP has identified to AATI
in
writing any Customer for which indemnity is sought prior to any sales to that Customer under
this Agreement
and 2) AATI has not specifically rejected such Customer in writing within fifteen (15)
business days of
MAGNACHIP’S notification thereof.
10. OTHER
INDEMNITIES. Notwithstanding anything to the contrary in this Agreement or
any
Exhibit hereto, each Party agrees to defend, indemnify and hold the other harmless from and
against any and all
claims, liability for damages, costs and expenses (including reasonable attorney’s fees and
disbursements) for
any noncompliance by said Party or its Affiliates or agents with the laws, rules or
regulations of any jurisdiction,
including export control laws.
11.
LIMITATION OF LIABILITY.
EXCEPT
FOR A BREACH OF SECTIONS 3.1(c) or 12 or LIABILITY UNDER SECTIONS 9 AND
10, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR LOST PROFITS OR ANY
CONSEQUENTIAL, SPECIAL, PUNITIVE, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER
CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING WITHOUT LIMITATION,
NEGLIGENCE), ARISING OUT OF OR RELATED TO THIS AGREEMENT WHETHER OR NOT SUCH
-14-
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EACH PARTY
ACKNOWLEDGES THAT FEES AGREED UPON BY THE PARTIES ARE BASED IN PART UPON
THESE LIMITATIONS, AND THAT THESE LIMITATIONS WILL APPLY NOTWITHSTANDING ANY
FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY. NOTWITHSTANDING THE FOREGOING,
THIS LIMITATION OF LIABILITY SHALL NOT APPLY TO ANY CLAIM WITH RESPECT TO DEATH
OR PERSONAL INJURY.
EXCEPT FOR A BREACH OF SECTIONS 3.1(c) or 12, IN NO EVENT SHALL EITHER PARTY’S
LIABILITY UNDER THIS AGREEMENT EXCEED THE AMOUNT OF U.S.FIVE MILLION DOLLARS
(US$5,000,000.00) IN THE AGGREGATE.
12. CONFIDENTIALITY OF INFORMATION.
12.1 Each Receiving Party shall safeguard the Confidential Information and keep it in strict
confidence, and shall use reasonable efforts, consistent with those used in the protection of
its own confidential
information of similar nature and significance, to prevent the disclosure of such
Confidential Information to
Third Parties.
12.2 A Receiving Party shall limit the dissemination of the Confidential Information to only its
shareholders, directors, officers, employees and agents, who have a specific need to know such
Confidential
Information for the purpose for which such Confidential Information is disclosed and prevent
the dissemination
of such Confidential Information to Third Parties; provided however a Receiving Party may
disclose
Confidential Information of the a Disclosing Party to the extent required to do so under
applicable law. In the
event such disclosure is required, the Receiving Party shall provide prompt prior written
notice to the
Disclosing Party, shall use commercially reasonable efforts to limit any such disclosure,
shall cooperate in a
reasonable manner with the Disclosing Party in resisting such disclosure, and provide
sufficient time, if possible,
for the Disclosing Party to seek a protective order or other legal recourse against disclosure.
12.3 Each Receiving Party shall not use or disclose the Confidential Information for any purposes
other than for the performance of this Agreement.
12.4 The Parties shall keep the terms of this Agreement confidential and shall not now or hereafter
divulge these terms to any Third Party except:
(a) with the prior written consent of the other Party; or
(b) to any governmental body having jurisdiction to call therefore; or
(c) as otherwise may be required by law or legal process, including to legal and
financial
advisors in their capacity of advising a Party in such matters; or
(d) to the extent reasonably necessary to comply with United States law in a filing
with the
Securities and Exchange Commission, or other governmental agency; or
(e) during the course of litigation so long as the disclosure of such terms and
conditions are
restricted in the same manner as is the confidential information of other litigating
Parties and so
long as (1) the restrictions are embodied in a court-entered protective order and
(2) the
disclosing Party informs the other Party in writing at least ten (10) days in
advance of the
disclosure; or
-15-
(f) in confidence to legal counsel, accountants, banks and financing sources and
their advisors solely in connection with financial transactions or other corporate transactions, and
said persons are held to the same level of confidentiality as set forth herein.
12.5 Nothing contained in this Section 12 shall be construed as granting or conferring any rights,
licenses or establishing relationships by the disclosure or transmission of a Disclosing
Party’s Confidential
Information.
12.6 All Confidential Information disclosed to or received by a Receiving Party’s under this
Agreement shall always remain the property of the Disclosing Party, except for the license
granted herein or
other terms or conditions expressly provided herein. Upon the expiration or termination of
this Agreement, the
Receiving Party shall return to the Disclosing Party all Confidential Information and any
documents or storage
media (including any and all transcripts and copies thereof) recording such Confidential Information.
12.7 The confidentiality obligations set forth in this Article shall not apply to any information which:
(a) is already known by the Receiving Party at the time of its receipt from the
Disclosing Party;
or
(b) is or becomes publicly available or known through no breach of this Section 12,
or any
other agreement between the Parties by the Receiving Party; or
(c) is made available to a Third Party by the Disclosing Party without any
restriction on
disclosure; or
(d) is rightfully received by the Receiving Party from a Third Party who is not
restricted from
disclosing such information and is not in wrongful possession of such information;
or
(e) can be demonstrated has been independently developed by the Receiving Party
without
reference to the Disclosing Party’s Confidential Information; or
(f) is disclosed with the prior written consent of the Disclosing Party.
12.8 Each Receiving Party acknowledge that any disclosure or dissemination of any
Confidential
Information of the Disclosing Party which is not expressly authorized under this Agreement is
likely to cause
irreparable injury to such Disclosing Party, for which monetary damages is not likely to be
an adequate remedy,
and therefore such Party shall be entitled to equitable relief, without the posting of bond
or security, in addition
to any remedies it may have under this Agreement or at law.
13. GENERAL.
13.1 Independent Contractors. The Parties hereto are independent contractors. Nothing
contained
herein will constitute either Party the agent of the other Party, or constitute the Parties as
partners or joint
ventures. MAGNACHIP shall make no representations or warranties on behalf of AATI with respect
to the
MAGNACHIP Licensed Products or AATI Discrete Technology.
13.2 Days. Unless otherwise indicated, the term “days” used in this Agreement is assumed to be
calendar days.
-16-
13.3 Assignment. Neither Party may assign or delegate this Agreement or any of its
licenses, rights
or duties under this Agreement, directly or indirectly (in a single transaction or any series
of transactions), by
operation of law or otherwise, without the prior written consent of the other Party.
Notwithstanding, a Party
may assign this Agreement to an affiliate of such Party and in the case of a re-incorporation,
reorganization or a
sale or other transfer of substantially all such Party’s assets or equity, including, without
limitation, either
Party’s right to sell all or spin-off all or substantially all of its assets to which this
Agreement relates, whether by
sale of assets or stock or by merger or other reorganization that the assignee has agreed in
writing to be bound
by all the terms and conditions of this Agreement, and further, provided that in no event
shall either party (or its
permitted successors) assign or transfer (in a single transaction or any series of
transactions) this Agreement or
any of its licenses, rights or duties hereunder, to a party primarily engaged in the
manufacture, marketing or
sale of a product that directly competes with the products of the other party without the
prior written permission
of such other party. Upon any such attempted prohibited assignment or delegation, such
assignment shall be
deemed null and void, and this Agreement will immediately automatically terminate. Subject to
the terms of this Section 13.3, this Agreement will inure to the benefit of each Party’s successors and assigns.
13.4 Notices. Any notice required or permitted to be given by either Party under this Agreement will
be in writing or by email and will be deemed given: (i) one day after pre-paid deposit with a
commercial courier
service (e.g., DHL, FedEx, etc.), (ii) upon receipt, if personally delivered, (iii) three
days after deposit, postage
pre-paid, with first class airmail (certified or registered if available), or (iv) upon
receipt, when sent by facsimile
or e-mail (with a confirmation copy to follow by regular U.S. Mail), in any such case, to the
other Party at its
address below, or to such new address as may from time to time be supplied hereunder by the
Parties hereto:
Notice Address for AATI:
Advanced Analogic Technologies Inc.
830 E. Arques Ave.
Sunnyvale, California 94085
Attn: President
Tel: (408) 737-4600
Fax: (408) 737-4611
Email: richardwilliams@analogictech.com
830 E. Arques Ave.
Sunnyvale, California 94085
Attn: President
Tel: (408) 737-4600
Fax: (408) 737-4611
Email: richardwilliams@analogictech.com
Notice Address for MAGNACHIP:
MagnaChip Semiconductor, Ltd.
891 Daechi-dong Kangnam-gu, Seoul, South Korea, 135-738
891 Daechi-dong Kangnam-gu, Seoul, South Korea, 135-738
Attn: EVP, GM of SMS Division
|
SVP, General Counsel and Secretary | ||
Tel: 82-2-3459-3160
|
82-2-3459-3073 | ||
Fax: 82-2-3459-4698
|
82-23459-3898 | ||
Email: channy. Iee@magnachip.com
|
jmcfarland@magnachip.com |
13.5 Export Regulations. MAGNACHIP understands and acknowledges that AATI is
subject to
regulation by agencies of the United States Government, including, but not limited to, the
U.S. Department of
Commerce, which prohibit export or diversion of certain technology to certain countries. Any
obligations of
AATI to provide technology are subject in all respects to such United States laws and
regulations as from time
to time govern the license and delivery of technology and services outside the United States.
MAGNACHIP
will comply with all applicable laws, and will not export, re-export, transfer, divert or
disclose, directly or
-17-
indirectly, including via remote access, the AATI Discrete Technology, Products, or any confidential
information contained or embodied in the AATI Discrete Technology or Products, or any direct product thereof,
except as authorized under the Export Administration Regulations or other United States laws and regulations
governing exports in effect from time to time.
13.6
Payment Payment must be in U.S. Dollars. All references to “dollars” or “$” in this Agreement
mean United States dollars.
13.7
Legal Compliance. MAGNACHIP will comply with all applicable laws in connection with its
performance under this Agreement.
13.8
Force Majeure. Neither Party shall be responsible for delays or failures in performance not
within its reasonable control resulting from acts of God, strikes or other labor disputes,
riots, acts of war, acts of
terrorism, plagues and epidemics, governmental regulations superimposed after the facts,
communication line
failures, power failures, fire or other disasters beyond its control. If it appears that
MAGNACHlP’s
performance hereunder will be delayed for more than ninety (90) days, AATI shall have the
right to terminate
this Agreement, or to cancel without cancellation charges those Purchase Orders or portions
thereof which are
affected by the delay.
13.9
Language. This Agreement is in the English language only, which language will be controlling
in all respects, and all versions hereof in any other language will not be binding on the
Parties hereto. All
communications and notices to be made or given pursuant to this Agreement must be in the
English language.
The Parties hereto confirm that it is their wish that this Agreement, as well as other
documents relating hereto,
including notices, have been and will be written in the English language only.
13.10
Governing Law. The rights and obligations of the Parties under this Agreement
will not
be governed by the 1980 U.N. Convention on Contracts for the
International Sale of Coods;
rather such
rights and obligations will be governed by and construed under the laws of the State of
California, without
reference to its conflict of laws principles.
13.11
Arbitration. Any controversy or claim arising out
of or relating to this
Agreement, or the
existence, validity, breach or termination of this Agreement, whether during or after its
term, will be finally
settled by arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration
Association (“AAA”), as modified or supplemented as follows:
(a) To initiate arbitration, a Party will file the appropriate notice at the AAA. The
arbitration
proceeding will take place in San Francisco, CA or such other place as the Parties may agree
in writing. The
arbitration panel will be selected in accordance with the AAA standards. The Parties
expressly agree that the
arbitrators will be empowered to, at a Party’s request, (i) issue an interim order requiring
one or more other
Parties to cease using and return the requesting Party’s Confidential Information and/or (ii)
grant injunctive
relief.
(b) The arbitration award will be the exclusive remedy of the Parties for all claims,
counterclaims, issues or accounting presented or pled to the arbitrators. The award will be
granted and paid in
U.S. Dollars exclusive of any tax, deduction or offset and will include reasonable attorneys
fees and costs.
Judgment on the arbitration award may be entered in any court that has jurisdiction thereof.
Any additional
costs, fees or expenses incurred in enforcing the arbitration award will be charged against
the Party that resists
its enforcement.
-18-
(c) Nothing
in this Section 13.11 will prevent a Party from seeking injunctive relief
against
another Party from any judicial or administrative authority pending the resolution of a
dispute by arbitration.
MAGNACHIP acknowledges that a violation of proprietary rights of AATI would result in
irreparable injury entitling AATI to injunctive relief.
13.12
Modification and Waiver. No amendment, waiver or any other change in any term or
condition of this Agreement will be valid or binding unless mutually agreed to in writing by
both Parties. The
failure of a Party to enforce any provision of this Agreement, or to require performance by
the other Party, will
not be construed to be a waiver, or in any way affect the right of either Party to enforce such provision
thereafter.
13.13
Severability. If a court or other body of competent jurisdiction finds, or the Parties mutually
believe, any provision of this Agreement, or portion thereof, to be invalid or unenforceable,
such provision will
be enforced to the maximum extent permissible so as to effect the intent of the Parties, and
the remainder of this
Agreement will continue in full force and effect. The Parties shall negotiate in good faith
an enforceable
substitute provision that most nearly achieves the intent and economic effect of such invalid
or unenforceable
provision.
13.14 [*****]
13.15 Entire Agreement. The terms and conditions of this Agreement, including all exhibits hereto,
constitute the entire agreement between the Parties and supersede all previous agreements and
understandings,
whether oral or written, between the Parties hereto with respect to the subject matter hereof.
13.16 Authority
(i) By AATI. Execution or modification of this Agreement requires the
approval of the
President (or the CEO) and the Chief Technical Officer (CTO) Of AATI. No other employee of
AATI can
approve modifications to the Intellectual Property licenses contained herein.
(ii) By MAGNACHIP. Execution or modification of this Agreement requires the approval
of a representative, officer or director of MAGNACHIP. No other employee of MAGNACHIP can
approve
modifications to the Intellectual Property licenses contained herein.
13.17 Counterparts. This Agreement may be executed in one or more counterparts, each of which
shall be an original, and all of which taken together shall constitute a single instrument.
-19-
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement the date and the year
herein above written.
| MagnaChip Semiconductor, Ltd.: |
||||
| By : | /s/ Channy Lee | |||
| Name: | Channy Lee | |||
| Title: Address: Facsimile: |
Executive Vice President and General Manager of SMS Division 891 Daechi-dong Kangnam-gu, Seoul, South Korea, 135-738 82-2-3459-4698 |
|||
| Advanced Analogic Technologies,
Inc.: |
||||
| By: | /s/ Richard K. Williams | |||
| Name: | Richard K. Williams | |||
| Title: Address: Facsimile: |
President, Chief Executive Officer (CEO) and Chief Technical Officer (CTO) 830 E. Arques Ave. Sunnyvale, California 94085 (408) 737-4611 |
|||
-20-
Exhibit 10.9
| This Technology Licence Agreement (the “Agreement”) is made the 16th day of December 1996 | ||
| BETWEEN | ||
| ADVANCED RISC MACHINES LIMITED whose registered office is situated at 90, Fulbourn Road, Cherry Hinton, Cambridge CBI 4JN, England (“ARM”) | ||
| and | ||
| LG SEMICON COMPANY LIMITED whose principal place of business is situated at 16 Woomyeon-dong. Seocho-gu. Seoul 137-140, Korea (“LGS”). | ||
| WHEREAS | ||
| LGS has requested ARM and ARM has agreed, to license LGS to manufacture and distribute certain ARM products and thereby to make use of certain portions of the Intellectual Property (as defined below) upon the terms set out in this Agreement. | ||
| In consideration of the mutual representations, warranties, covenants, and other terms and conditions contained herein, the parties agree as follows: | ||
| 1. | Definitions | |
| 1.1 | “ARM Compliant Product” shall mean any single silicon chip developed by LGS which contains, at a minimum: (i) an ARM7TDMI Core; or (ii) a Modified ARM7TDMI Core, which has been verified in accordance with the provisions of Clause 3. | |
| 1.2 | “ARM7TDMI Core” shall mean the device as described and identified in the ARM7TDMI datasheet identified in Schedule 2 Part A Item A1. | |
| 1.3 | “ARM Instruction Set” shall mean both the ARM Instruction Set and THUMB Instruction Set as each are defined in the ARM Architecture and Reference Manual identified in Schedule 2 Part A Item A2. | |
| 1.4 | “Authorised Distributor” shall mean those distributors appointed, in writing, by LGS. | |
| 1.5 | “AVS” shall mean the ARM Architectural Validation Suite in binary code format Schedule 2 Part B Section 2 Item T3. | |
| 1.6 | “Confidential Information” shall mean: (i) any trade secrets relating to the ARM7TDMI Core and Transfer Materials and the source code for any Software; (ii) any information designated in writing by either party as confidential which if disclosed verbally is reduced to writing within thirty (30) days after its oral disclosure; and (iii) the terms and conditions of this Agreement. | |
| 1.7 | “Core Functional Test Vectors” shall mean the test vectors identified in Schedule 2 Part A Items B10, B11, B12 and B13. | |
| 1.8 | “Design Win Event” shall mean for each different Design Win Product, the point in time of the sale, supply or other distribution of five hundred (500) units of such product. | |
| 1.9 | “Design Win Product” shall mean an application specific product made by LGS, an LG Affiliate or LG Group Company, which incorporates an ARM Compliant Product. |
Page 1
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
| 1.10 | “Effective Date” shall mean the date of this Agreement or the date upon which the Korean Government gives approval to this Agreement, whichever is the later, subject always to the provisions of Clause 18.4. | |
| 1.11 | “Embedded ICE” shall mean the Embedded ICE Protocol Converter identified in Schedule 14. | |
| 1.12 | “End User Licence” shall mean a licence agreement substantially conforming to that agreement set forth in Schedule 7. | |
| 1.13 | “Half Year” shall mean each calendar half year ending the 30th June and 31st December of any year. | |
| 1.14 | “HP” shall mean any Hewlett Packard compatible computer running HP-UX v9.0.5 (and later versions as may be mutually agreed). | |
| 1.15 | “IBM PC” shall mean any computer. 486 (or above) processor based IBM AT architecture, having, at a minimum. 16Mb RAM. 50Mb hard disc space and running Microsoft DOS v6.2 (and later versions as may be mutually agreed) and, where appropriate, Microsoft Windows 95 or Windows NT. ARM will use reasonable endeavours, in collaboration with LGS, to ensure the Software operates on reputable IBM PC compatible computers provided that such operation is not constrained by significant hardware or software deficiencies. | |
| 1.16 | “Intellectual Property” shall mean any patents, patent rights, trade marks, service marks, registered designs, topography or semiconductor maskwork rights, applications for any of the foregoing, copyright, know-how, unregistered design right, confidential information, any Intellectual Property Derivatives, and any other similar protected rights in any country, which are taken into use in the design, use or production of the ARM7TDMI Core. Software or Transfer Materials. | |
| 1.17 | “Intellectual Property Derivatives” shall include: (i) for copyrightable or copyrighted material, any translation, abridgement, revision or other form in which an existing work may be recast, transformed or adapted; (ii) for work protected by topography or mask right, any translation, abridgement, revision or other form in which an existing work may be recast, transformed or adapted; (iii) for patentable or patented material, any improvement created by ARM; and (iv) for material protected by trade secret any new material derived from or employing such existing trade secret. | |
| 1.18 | “LG Affiliate” shall mean each of the companies set forth in Schedule 10. An LG Affiliate shall cease to be an LG Affiliate when; (i) it is merged into a corporation other than an LG Group Company; or (ii) the majority of its voting shares becomes owned or controlled by a person, company or other legal entity other than an LG Group Company; or (iii) the Chief Executive Officer (referred to in Korean as “Hoejang”) ceases to control directly or indirectly such LG Affiliate. | |
| 1.19 | “LG Group Company” shall mean each of the companies identified in Schedule 8. | |
| 1.20 | “LGS Users” shall mean LGS (or any LG Group Company) when incorporating an ARM Compliant Product, distributed pursuant to this Agreement, for use in LGS’s (or such LG Group Company’s) end user products. | |
| 1.21 | “LGS Materials” shall mean such of the Transfer Materials (or any additional materials) as are necessary to enable ARM, in respect of any Modified ARM7TDMI Core, to exercise the rights set out in Clause 2.3. | |
| 1.22 | “Models” shall mean: (i) the object code and source code of the programs identified in Schedule 3 Part A; (ii) the object code and such source code of the programs identified in Schedule 3 Part B as may be necessary (at ARM’s absolute discretion) to allow the support of |
Page 2
| subsequent releases of the specified simulator: and (iii) subject to the payment by LGS of the fee(s) set out in Clause 9.2, the object code and such source code of the programs identified in Schedule 3 Part C as may be necessary (at ARM’s absolute discretion) to allow the support of subsequent releases of the specified simulator; together with such Updates thereof, if any, as are developed by or for ARM. |
| 1.23 | “Modified ARM7TDMI Core” shall mean any ARM7TDMI Core modified in accordance with the provisions of Clause 2.2. | |
| 1.24 | “NSP” shall mean the net sales price of any ARM Compliant Product calculated by taking the aggregate invoice price charged on arm’s length terms by LGS and its Subsidiaries in the sale or distribution of any ARM Compliant Product, less any (i) value added, turnover, import, or other tax, duty or tariff payable thereon (ii) freight and insurance costs incurred and (iii) amounts actually repaid or credited with respect to any ARM Compliant Products returned. | |
| In the event that ARM, in its discretion, considers that the NSP for any ARM Compliant Product charged to LGS Users is materially below the open market value for such ARM Compliant Product, the NSP shall be deemed to be: in the case of the sale or distribution of any ARM Compliant Product to LGS Users, the net sales price for such ARM Compliant Product sold by LGS to third parties; and in the case of the sale or distribution of ARM Compliant Products manufactured for, and supplied solely to, LGS Users, at a minimum, the sum of: |
| (i) | the cost of materials and the cost of fabrication or such other processing of such ARM Compliant Product; and | ||
| (ii) | an amount for general expenses and profit equal to that usually reflected in the sales to third parties of products of the same general class or kind as the ARM Compliant Product; and | ||
| (iii) | the cost of all packaging. |
| 1.25 | “PIV Card” shall mean the hardware identified in Schedule 2 Section 1 Part A as Item E1. | |
| 1.26 | “Software” shall mean together the Models, Tools, Test Programs, Embedded ICE and Vectors. | |
| 1.27 | “Subsidiary” shall mean any company the majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by a party hereto or any company a majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by any of the aforementioned entities. A company shall be considered a Subsidiary only so long as such control exists. | |
| 1.28 | “Sun/SunOS” shall mean any Sun/SPARC compatible computer running SunOS v4.1.3_u1 (and later versions as may be mutually agreed). | |
| 1.29 | “Test Programs” shall mean the source code and object code of the programs identified in Schedule 2 Part B Section 1 Items T1 and T2 together with such Updates, if any, as are developed by or for ARM. | |
| 1.30 | “Test Chip” shall mean a device which complies with the test chip specification set forth in Schedule 2 Part A Item D1. | |
| 1.31 | “Test Chip Characterisation Vectors” shall mean those test vectors identified in Schedule 2 Part A Items D6, D7, D8 and D9. |
Page 3
| 1.32 | “Test Chip Functional Vectors” shall mean those test vectors identified in Schedule 2 Part A Items D4 and D5. | |
| 1.33 | “Tools” shall mean the source and object code of the programs identified in Schedule 4 Parts A and B; and (ii) the documentation identified in Schedule 4 Part C, together with such Updates, if any, as are developed by or for ARM. | |
| 1.34 | “Trademarks” shall mean the trademarks, service marks and logos set forth in Schedule 5. | |
| 1.35 | “Transfer Materials” shall mean that technical information with respect to the ARM7TDMI Core identified in Schedule 2 Part A. | |
| 1.36 | “Updates” shall mean; (i) for the Software, any bug fixes or enhancements to the Software the incorporation of which ARM, in its absolute discretion, decides does not cause to be created a new product; and (ii) for the Transfer Materials, all modifications, enhancements and updates to the Transfer Materials, created by ARM, including such modifications to the Transfer Materials as are made by ARM’s other licencees and adopted by ARM for general release as an update provided that ARM may exclude any modification, enhancement or update which ARM, in its absolute discretion decides, results in the creation of a new product; | |
| 1.37 | “Use” shall mean copying the programs identified in Schedule 3 Parts B and C and Schedule 4 Parts A and C onto a computer for the purposes of processing the instructions or statements contained therein, but excluding disassembly, reverse assembly, or reverse compiling except as permitted by local legislation implementing Article 6 of the EC Software Directive and only to the extent necessary to achieve interoperability of an independently created program with other programs. Disassembly, reverse assembly, or reverse compiling for die purpose of error correction is specifically prohibited. | |
| 1.38 | “Vectors” shall mean together the Test Chip Functional Vectors and Test Chip Characterisation Vectors. | |
| 1.39 | “1995 Agreement” shall mean the Technology Licence Agreement between ARM and LGS dated the 5th October 1995. | |
| 2. | Licence | |
| 2.1 | In consideration of the fee (“Core Fee”) set out in Schedule 12 Part A, ARM hereby grants to LGS, under the Intellectual Property, a perpetual (subject to Clause 18), non-transferable (subject to Clause 20.3), non-exclusive, world-wide right and licence to: |
| (i) | use, modify (subject to the provisions of Clauses 2.2 and 2.3) and copy the Transfer Materials solely for the purposes of creating, developing, manufacturing, having manufactured (subject to the provisions of Clauses 2.4 and 2.5), and selling, supplying and distributing to any third party, ARM Compliant Products; | ||
| (ii) | modify, translate, reproduce and distribute, subject to the confidentiality obligations set forth in Clause 14, the documentation identified in Schedule 2 (except Item A2). |
Page 4
| 2.2 | LGS may modify: |
| (i) | the internal logic of any ARM7TDMI Core: | ||
| (ii) | the layout of any ARM7TDMI Core where necessary for the purposes of manufacturing such ARM7TDMI Core on another CMOS process, |
| PROVIDED ALWAYS THAT the Modified ARM7TDMI Core retains compatibility with the ARM Instruction Set. A Modified ARM7TDMI Core will be deemed compatible if the Test Chip for the Modified ARM7TDMI Core: (i) executes each and every instruction contained in the ARM Instruction Set; (ii) executes the instructions at an identical rate of clocks per instruction as the ARM7TDMI Core from which it was derived; and (iii) runs the Vectors and the AVS. | ||
| 2.3 | LGS hereby grants to ARM, in respect of all modifications made to the ARM7TDMI Core (“Modifications”), a perpetual and irrevocable, royalty-free, non-transferable, non-exclusive, world-wide right and licence to manufacture, have manufactured, modify, create derivative works of, use, sell, supply and distribute all Modifications and sub-license others to exercise similar rights with respect to such Modifications. In pursuance of the licence to all Modifications hereby granted, LGS shall; |
| 2.3.1 | prior to any prototype production of the first ARM Compliant Product including any Modification, deliver to ARM, in writing, a full technical description of such proposed Modification; and | ||
| 2.3.2 | within thirty (30) days of the first shipment of the first ARM Compliant Product including any Modification, deliver to ARM the LGS Materials for such ARM Compliant Product including the Modification. |
| For the avoidance of doubt, nothing in this Clause 2.3 shall be construed as granting to ARM any right or licence to any peripheral devices owned by LGS which are integrated around the ARM7TDMI Core. | ||
| ARM shall notify LGS in the event that ARM incorporates any Modification in any general update to or general release of the ARM7TDMI Core. |
| 2.4 | LGS may exercise its right to have manufactured ARM Compliant Products provided that: |
| (i) | LGS notifies ARM of the identity of LGS’s subcontracted manufacturer (“Manufacturer”) not less than thirty (30) days prior to first prototype production by the Manufacturer; and | ||
| (ii) | LGS ensures that any Manufacturer agrees (i) to be bound by the same obligations of confidentiality as are contained in this Agreement and (ii) to supply The ARM Compliant Products solely to LGS. |
| In the event that any Manufacturer breaches the provisions referred to in this Clause 2.4, LGS agrees that such breach shall be treated as a material breach of this Agreement by LGS which is incapable of remedy. Further LGS hereby undertakes to keep ARM indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to such breach. | ||
| For the avoidance of doubt, in the event that LGS subcontracts only the packaging of ARM Compliant Products to a third party, LGS shall be released from the obligations of this Clause 2.4. |
Page 5
| 2.5 | In the event that LGS subcontracts the packaging of ARM Compliant Products, LGS shall |
| (i) | ensure that the packaging company agrees to supply the ARM Compliant Products solely to LGS; and | ||
| (ii) | undertake to keep ARM indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to the breach of the provisions of Clause 2.5(i). |
| 2.6 | For the avoidance of doubt, no right is granted to LGS to: |
| (i) | sublicense the rights licensed to LGS pursuant to Clause 2.1; | ||
| (ii) | distribute any ARM Compliant Product prior to verification in accordance with Clause 3 except that in the event that it is the intention of LGS, and LGS do proceed, to verify a device in accordance with Clause 3, LGS may distribute a maximum of one hundred (100) prototype units of such device without having verified such device. |
| 2.7 | Save as licensed in Clause 2.1, LGS acquires no right, title or interest in the ARM7TDMI Core or Transfer Materials and Intellectual Property. In no event shall the licence grant set forth in Clause 2.1 be construed as granting LGS, expressly or by implication, estoppel or otherwise, a licence to use any ARM technology or intellectual property other than that pertaining to the ARM7TDMI Core. | |
| 2.8 | During the term of this Agreement, LGS may exercise the right to include any Subsidiary as a licence of ARM provided that: |
| (i) | such Subsidiary agrees in writing, as set forth in Schedule 1, to be bound by the obligations of LGS and to comply with all the terms and conditions of this Agreement LGS shall deliver to ARM a copy of the Subsidiary’s undertaking within thirty (30) days of the execution of such undertaking: | ||
| (ii) | any breach of the terms and conditions of this Agreement by a Subsidiary shall constitute a breach of this Agreement by LGS; | ||
| (iii) | any termination of this Agreement as provided by Clause 18 shall be effective in respect of all Subsidiaries; | ||
| (iv) | any licence, granted in accordance with the provisions of this Clause 2.8, shall automatically terminate upon any Subsidiary ceasing to be a Subsidiary. |
| 2.9 | During the term of this Agreement LGS may exercise the right to include any LG Affiliate as a Licence of ARM provided that: |
| (i) | such LG Affiliate agrees in writing, as set forth in Schedule 11, to be bound by the obligations of LGS and to comply with all the terms and conditions of this Agreement LGS shall deliver to ARM a copy of the LG Affiliate’s undertaking within thirty (30) days of the execution of such undertaking; | ||
| (ii) | any breach of the terms and conditions of this Agreement by a LG Affiliate shall constitute a breach of this Agreement by LGS; | ||
| (iii) | any termination of this Agreement as provided by Clause 18 shall be effective in respect of all LG Affiliates; |
Page 6
| (iv) | any licence, granted in accordance with the provisions of this Clause 2.9, shall automatically terminate upon any LG Affiliate ceasing to be a member of the LG Group. |
| 3. | Verification of ARM Compliant Products | |
| 3.1 | LGS shall manufacture and characterise a Test Chip for the ARM7TDMI Core and any Modified ARM7TDMI Core. | |
| 3.2 | LGS shall: |
| (i) | run the Vectors, in the appropriate format, on the Test Chip and deliver to ARM, a copy of the log (“the Log Results”) generated by running the Vectors together with five (5) samples of the Test Chip: and | ||
| (ii) | run the AVS on the Test Chip (by means of a PIV Card) and deliver to ARM a copy of the log (“the AVS Results”) generated by running the AVS. |
| ARM may, at ARM’S discretion, exercise the right to run the Vectors and/or AVS on the Test Chip. | ||
| 3.3 | The ARM7TDMI Core shall be verified upon: |
| (i) | ARM’S acceptance, of the Log Results either; (a) delivered by LGS; or (b) generated by ARM. The Log Results shall be accepted when they indicate that no errors have been detected or where any errors detected have been jointly agreed, in good faith, and a waiver agreed between the parties: and | ||
| (ii) | ARM’s acceptance of the AVS Results either; (a) delivered by LGS; or (b) generated by ARM. The AVS Results shall be accepted when they indicate that no differences have been detected between the AVS Results and the AVS reference file supplied by ARM or where any errors detected have been jointly agreed, in good faith, and a waiver agreed between the parties. |
| ARM shall notify LGS, in writing, within thirty (30) days of delivery by LGS of the Log Results and Test Chip samples to ARM (the “Verification Period”), whether the Test Chip has been verified or has failed the verification process. In the event that the Test Chip fails the verification process, ARM shall provide details of the errors which cause the failure to LGS and LGS shall endeavour to correct the errors. The parties shall repeat the above process until either: (i) the Test Chip is verified; or (ii) LGS withdraws the Test Chip from the verification process. In the event that ARM fails to notify LGS of the result of the verification process within the Verification Period, the Test Chip subject to the verification process shall be deemed verified. | ||
| 3.4 | Provided that: (a) the Test Chip has been verified in accordance with the provisions of Clause 3.2; and (b) the ARM Compliant Product containing the ARM Core contained in such Test Chip runs the Core Functional Test Vectors and they indicate that no errors have been detected (or where any errors detected have been jointly agreed, in good faith, and a waiver agreed between the parties), LGS may distribute such ARM Compliant Product without further verification. | |
| 3.5 | LGS shall provide to ARM. free of charge, within thirty (30) days of verification in accordance with Clause 3.2, fifty (50) samples of each Test Chip manufactured by LGS on each process utilised for such manufacture, so that ARM, at its option, may test the compatibility of each Test Chip. For the avoidance of doubt, there shall be no restriction on ARM’s use of such samples provided that ARM shall not reverse engineer any Test Chips provided by LGS under this Clause 3. |
Page 7
| 4. | Models Licence | |
| 4.1 | In consideration of the fee (“Models Fee”) set out in Schedule 12 Part K, ARM hereby grants to LGS a non-transferable (subject to Clause 20.3), non-exclusive, world-wide right and licence under the Intellectual Property, to; |
| (i) | reproduce and use, internally and for third party support purposes, the Models and relevant documentation; | ||
| (ii) | reproduce and distribute, and sub-license (provided that the end user agrees to be bound by the End User Licence) the Use of the object code of the Models (excluding the Model identified in Schedule 3 Part A); | ||
| (iii) | modify, reproduce, use and distribute, in connection with the Models (excluding the Model identified in Schedule 3 Part A), the documentation (including any modified documentation) relevant thereto. | ||
| (iv) | sub-license the distribution rights granted to LGS under Clauses 4.1(ii) and (iii) to Authorised Distributors only. |
| 4.2 | For the avoidance of doubt, except as provided by Clause 4.1(iv), no right is granted to LGS to sub-license the right to sell, supply or otherwise distribute the Models. | ||
| 5. | Tools Licence | |
| 5.1 | In consideration of the Fees set out in Schedule 12 Part L. ARM hereby grants, to LGS, a non-transferable (subject to Clause 20.3), non-exclusive, world-wide right and licence under the Intellectual Property, to; |
| (i) | modify the Tools and related documentation identified in Schedule 4 solely for the purpose of providing Hangul language support and incorporating any LGS logo; | ||
| (ii) | copy and use the Tools and related documentation identified in Schedule 4 (and any modified versions thereof created under the provisions of Clause 5.1(i)), internally only. |
| 5.2 | If, within the period of two (2) years from the Effective Date LGS exercises any of the following options; |
| Option 1: payment of the fees (“Tools Distribution Option Fee 1”) set out in Schedule 12 Part H; or | |||
| Option 2: payment of the fees (“Tools Distribution Option Fee 2”) set out in Schedule 12 Part I; or | |||
| Option 3: payment of the fees (“Tools Distribution Option Fee 3”) set out in Schedule 12 Part J. |
| The licence to the Tools provided in Clause 5.1 shall be extended to include the following rights: |
| (i) | copy and distribute and sub-license (provided that the end user agrees to be bound by the End User Licence) the Use of the object code of the Tools identified in Schedule 4 Part A and Schedule 4 Part C; |
Page 8
| (ii) | copy and distribute, and sub-license (provided that the end user agrees to be bound by the End User Licence) the use of the Tools identified in Schedule 4 Part B (including the Tools modified in accordance with Clause 5.1(ii)); | ||
| (iii) | modify, copy, use and distribute the Tools documentation identified in Schedule 4 Part D (including any modified Tools documentation); | ||
| (iv) | sub-license the distribution rights granted to LGS under Clauses 5.2 (i)-(iii) to Authorised Distributors only. |
| 5.3 | For the avoidance of doubt, except as provided by Clause 5.2(iv), no right is granted to LGS to sub-license the right to sell, supply or otherwise distribute the Tools. |
| 5A. | Embedded ICE Licence | |
| 5A.1 | In consideration of the fees paid by LGS to ARM as set out in Schedule 12 Part C. ARM hereby grants to LGS a non-transferable (subject to Clause 20.3), non-exclusive, world-wide licence under the Intellectual Property to; |
| (i) | use copy and modify the Embedded ICE, internally and for third party support purposes; | ||
| (ii) | copy and distribute and sub-license (provided that the end user agrees to be bound by the End User Licence) the Use of the binary code derived from the source code for the Embedded ICE (together with any modified versions thereof created under the provisions of Clause 5A.1(i)) of the Embedded ICE. |
| 5B. PID7T Configurable Device Programs Licence | ||
5B.1 ARM hereby grants to LGS a non-transferable (subject to Clause
20.3), non-exclusive, world-wide licence under the Intellectual
Property to; |
||
| (i) | use copy and modify the PID7T Configurable Device Programs identified in Schedule 15 Part B, internally and for third party support purposes. |
| 6. | Verification and Test Licence | |
| 6.1 | In consideration of the fees (“Core Fees”) paid by LGS to ARM as set out in Schedule 12 Part A. ARM hereby grants to LGS a non-transferable (subject to Clause 20.3), nonexclusive, world-wide right and licence under the Intellectual Property, to copy, modify (subject to the provisions of Clause 6.2) and use internally only, the Test Programs and associated documentation. | |
| 6.2 | LGS may modify the Test Programs provided that; |
| (i) | the Test Programs exhibit the same functionality after modification as they did prior to modification; and | ||
| (ii) | LGS shall, upon request, from ARM, deliver, to ARM, the source code for such modified Test Programs and a file of the test patterns generated using such modified Test Programs. |
| 6.3 | ARM hereby grants, to LGS, a non-transferable (subject to Clause 20.3), non-exclusive, world-wide right and licence under the ARM’s Intellectual Property rights, to copy and use internally only, the AVS. |
Page 9
| 6.4 | ARM hereby grants, to LGS a non-transferable (subject to Clause 20.3), non-exclusive, world-wide right and licence under the ARM’s Intellectual Property rights, to copy, translate into different formats and use, and distribute (subject to the conditions attaching to limited confidential information described in Clause 14.2) solely for the purpose of testing ARM Compliant Products, the Vectors and Core Functional Vectors. | |
| 7. | Ownership of the Software | |
| 7.1 | In no event shall the licence grants set forth in Clauses 4.1. 5.1, 5A.1 and 6.l be construed as granting LGS, expressly or by implication, estoppel or otherwise, a licence under any ARM technology other than the Software and related documentation. | |
| 7.2 | Except as licensed to LGS in Clauses 4.1. 5.1. 5A.1 and 6.1 all right, title and interest in and to the Software and related documentation shall remain vested in ARM. | |
| 7.3 | LGS shall reproduce and not remove or obscure any notice incorporated in the Software or related documentation by ARM to protect ARM’s Intellectual Property Rights or to acknowledge the copyright and/or contribution of any third party developer. LGS shall incorporate corresponding notices and/or such other markings and notifications as ARM may reasonably require on all copies of Software and related documentation used or distributed by LGS. | |
| 8. | Trademark Licence | |
| 8.1 | ARM hereby grants to LGS a non-transferable (subject to Clause 20.3), non-exclusive, royalty-free, world-wide right and licence under ARM’s Intellectual Property rights, to use the Trademarks in the promotion and sale of ARM Compliant Products. | |
| 8.2 | LGS shall use the Trademarks, in accordance with ARM’s guidelines set forth in Schedule 5 (the “Guidelines”), on (i) all ARM Compliant Products sold or distributed by LGS and (ii) all documentation, promotional materials and software associated with such ARM Compliant Products. ARM shall have the right to revise Schedule 5 and the Guidelines (including the right to add further trademarks or modify the Trademarks) provided that such revisions are made in respect of the Guidelines issued to all licencees of the Trademarks. Any such revisions shall be effective, upon ninety (90) days written notice to LGS. | |
| 8.3 | LGS shall be released from the provisions of Clause 8.2 in the case of any ARM Compliant Product, created or developed by LGS, solely for a specific customer of LGS provided that; (a) the customer has notified LGS, in writing, that the customer wishes the ARM Compliant Product packaging not to bear any Trademark; and (b) the ARM Compliant Product does not bear the LGS name or trademark. | |
| 8.4 | LGS shall submit samples of documentation, packaging, and promotional or advertising materials bearing the Trademarks to ARM from time to time in order that ARM may verity compliance with the Guidelines. In the event that any documentation, packaging, promotional or advertising material fails to comply with the Guidelines, ARM shall notify LGS and LGS shall rectify such documentation, packaging, and promotional or advertising materials so as to comply with the Guidelines and cease using any such non-compliant materials within thirty (30) days of the date of ARM’s notice. Any documentation, packaging, and promotional or advertising materials not rejected for failing to comply with the Guidelines by ARM within thirty (30) days after delivery to ARM shall be deemed approved. |
Page 10
| 8.5 | LGS agrees to assist ARM in maintaining the validity of the Trademarks by retaining a record of its use of the Trademarks. Such records shall include samples of the use of each of the Trademarks as well as information regarding the first use of the Trademarks in each country. Upon request, LGS shall make available all such records. | |
| 8.6 | Except as provided by the terms of this Agreement, LGS shall not use or register any trademark, service mark, device or logo, any of the Trademarks or any word or mark confusingly similar to any of the Trademarks in any jurisdiction. | |
| 9. | Licence Fees and Royalties | |
| 9.1 | In consideration of the licences granted to the Transfer Materials and the delivery of the Transfer Materials to LGS under this Agreement, LGS shall pay the fees (“Core Fees”) set out in Schedule 12 Part A. | |
| 9.1A | In consideration of the delivery of the PID7T cards and Embedded ICE protocol converters (identified in Schedule 15) to LGS under this Agreement, LGS shall pay the fee (“PID Fee”) set out in Schedule 12 Part M. | |
| 9.2 | For each ARM Compliant Product sold, supplied or distributed by LGS. LGS shall pay a royalty (“Running Royalty”) calculated in accordance with the provisions of Schedule 13. | |
| 9.3 | For the period of five years from the Effective Date (“Design Win Period”). LGS shall pay a non-refundable fee (“Design Win Fee”), as set out in Schedule 12 Part G, upon each Design Win Event up to a maximum of eight (8) Design Win Fees (except no Design Win Fee shall be payable on the first Design Win Event). No Design Win Fees shall be payable after the Design Win Period and LGS shall not manipulate the sale, supply or other distribution of any Design Win Product to avoid the payment of a Design Win Fee. | |
| 9.3A | After a period of ten (10) years from the first commercial shipment of the first manufactured ARM Compliant Product under this Agreement (the “Initial Period”), LGS shall be entitled to either; (i) require ARM to enter into good faith negotiations to revise the Running Royalty rates for the remainder of the term of this Agreement; or (ii) require ARM to enter into good faith negotiations to agree a sum payable by LGS to ARM in lieu of the Running Royalties which would otherwise fall due in accordance with the provisions of Clause 9.2. LGS shall exercise its rights under this Clause 9.3A upon written notice to ARM referring to this Clause 9.3A, served not less that six (6) months prior to the expiry of the Initial Period. For the avoidance of doubt, in the event that; |
| (i) | LGS fails to serve any notice in accordance with the provisions of Clause 9.3, the rights set forth in Clause 9.3A shall lapse; or | ||
| (ii) | the parties fail to reach agreement prior to the expiry of the Initial Period and LGS does not terminate this Agreement, LGS shall continue to pay the Running Royalties in accordance with the provisions of Clause 9.2. |
| 9.4 | In no event shall any Fee or Design Win Fee be construed as being an advance payment of Running Royalties and no right of set off of Running Royalties against any Fee or Royalty Fee paid to ARM, by LGS, shall exist. LGS shall not manipulate distribution of ARM Compliant Products between LGS Subsidiaries for the purpose of avoiding payment of Running Royalties at a higher rate than would have been the case if such manipulation had not taken place. |
Page 11
| 9.5 | In consideration of the Embedded ICE licence under Clause 5A, LGS shall pay to ARM a fee (“Embedded ICE Fee”), as set out in Schedule 12 Part C, and for each microprocessor development system created by LGS which incorporates the Embedded ICE (or a modified version thereof created under the provisions of Clause 5A.1(i) a further fee (“Embedded ICE Royalty”) as set out in Schedule 12 Part C. | |
| 9.6 | Upon giving written notice to ARM referring to this Clause 9.6, together with payment, to ARM of the option fee set out in Schedule 12 Part B, for a limited period of three (3) years from the Effective Date, LGS may extend the licence contained in Clause 4 hereof, so as to include any of the simulator specific models specified in Schedule 3 Part C. | |
| 9.7 | In consideration of the Core maintenance services provided under Clause 12 and the training provided under Clause 13A, LGS shall pay, to ARM the fee (“Core Maintenance Fee”) set out in Schedule 12 Part D. | |
| 9.8 | In consideration of the Software maintenance services provided under Clause 13, LGS shall pay, to ARM the fee (“Software Maintenance Fee”) set out in Schedule 12 Part E. | |
| 9.9 | LGS shall keep all records of account as are necessary to demonstrate compliance with its obligations under this Clause 9. | |
| 9.10 | ARM shall have the right for representatives of a firm of independent Chartered Accountants to which LGS shall not unreasonably object (“Auditors’”), to make an examination and audit by prior appointment during normal business hours, not more frequently than once annually, of all records and accounts as may under recognised accounting practices contain information bearing upon (i) the number of chips and the NSP of ARM Compliant Products sold or distributed by LGS under this Agreement and (ii) the amounts of Running Royalties payable to ARM under this Clause 9. The Auditors will report to ARM only upon whether the Running Royalties paid to ARM by LGS were or were not correct, and if incorrect, what are the correct amounts for the Running Royalties. LGS shall be supplied with a copy of or sufficient extracts from any report prepared by the Auditors. The Auditors report shall (in the absence of clerical or manifest error) be final and binding on the parties. Such audit shall be at ARM’s expense unless it reveals an underpayment of Running Royalties of five per cent (5%) or more, in which case LGS shall reimburse ARM for the costs of such audit. LGS shall make good any underpayment of royalties forthwith. If the audit identifies that LGS has made an overpayment, such overpayment will be credited to the next such payment or payments to be made by LGS. | |
| 9.11 | Any income or other tax which LGS is required by law to pay or withhold on behalf of ARM with respect to any licence fees and/or royalties payable to ARM under this Agreement shall be deducted from the amount of such licence fees and/or royalties otherwise due provided, however, that in regard to any such deduction, LGS shall give to ARM such assistance as may be necessary to enable or assist ARM to claim exemption therefrom, or credit therefor, and shall upon request furnish to ARM such certificates and other evidence of deduction and payment thereof as ARM may properly require. | |
| 9.12 | Any Running Royalties due to ARM under this Agreement shall be paid in accordance with the terms set forth in Schedule 6 Part B. All other sums shall be due, to ARM, in accordance with the provisions of Schedule 12 and shall be paid within thirty (30) days of the date of ARM’s invoice therefor except that in the case of the Core Fee [*****] shall be paid within thirty (30) days of the date of ARM’s invoice therefor and [*****] shall be paid within ninety (90) days of the date of ARM’s invoice therefor. |
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
Page 12
| 9.13 | If any sum due under this Agreement is not paid within thirty (30) days of receipt of the invoice therefor, then (without prejudice to ARM’s other rights and remedies) ARM reserves the right to charge interest on such sum on a day to day basis (as well after as before any judgement) from the date from which payment was due to the date of payment at the rate of five (5) per cent per annum above the base rate of Barclays Bank PLC from time to time in force. | |
| 10. | Delivery, Acceptance and Production Costs | |
| 10.1 | In consideration of the payment to ARM by LGS of the fee (“Design Transfer Fee”) set out in Schedule 12 Part F. ARM shall port and deliver to LGS database CD in respect of the ARM7TDMI Core which conform to the LGS 0.35 micron ASIC Design Rules Version 2 (Aug 19th 1996). In the event that LGS delivers a later set of rules ARM shall review and if the amount of work involved is substantially different then ARM and LGS shall mutually agree an alternative course of action. | |
| 10.2 | ARM shall deliver any deliverables due to LGS under the provisions of this Agreement in accordance with the delivery schedule set forth in Schedule 9. | |
| 10.3 | Unless otherwise agreed in writing, delivery: |
| (i) | by LGS, shall take place at Advanced RISC Machines Limited 90 Fulbourn Road, Cherry Hinton, Cambridge CB1 4JN. England marked for the attention of the Engineering Director; | ||
| (ii) | by ARM, shall take place at 16 Woomyeon-dong, Seocho-gu, Seoul 137-140. Korea marked for the attention of Mr Jay H. Kim. |
| 10.4 | ARM shall not be responsible under the terms of this Agreement for any recoverable or non-recoverable costs incurred directly or indirectly, by LGS in the design translation, processing, or manufacture of masks and prototypes characterisation or manufacture of production quality silicon in whatever quantity. | |
| 11. | Contract Administrators | |
| 11.1 | The parties hereby appoint the following individuals as their respective contract administrators between ARM and LGS with respect to this Agreement: |
| ARM: | LGS: | |
For legal notices: |
||
David N MacKay VP of Strategic Alliances Advanced RISC Machines Limited 90, Fulbourn Road Cherry Hinton Cambridge CBl 4JN England |
Jong-Taek Hong General Manager Legal Affairs Department LG Semicon Co Limited 891 Daechi-dong Kangnam-ku Seoul Korea |
Page 13
For corporate issues: |
||
James S Urquhart |
||
VP of Sales and Marketing
|
Mr. Young-Pyo Bae | |
Advanced RISC Machines Limited
|
Managing Director | |
90, Fulbourn Road
|
LG Semicon Co Limited | |
Cherry Hinton
|
891 Daechi-dong | |
Cambridge
|
Kangnam-ku | |
CB1 4JN
|
Seoul | |
England
|
Korea | |
For Confidential Information: |
||
Bryn Parry
|
Mr. Jay H. Kim | |
Business Unit Manager
|
Group Leader MD 8 | |
At the address set forth above
|
At the address set forth above | |
For financial issues: |
||
Angela Au
|
Mr. K K. Kang | |
Financial Controller
|
General Manager | |
At the address set forth above
|
At the address set forth above | |
For applications support: |
||
Bryn Parry
|
Mr. Jay H. Kim | |
Business Unit Manager
|
Group Leader MD 8 | |
At the address set forth above
|
At the address set forth above | |
For software support: |
||
Bryn Parry
|
Mr. Jay H. Kim | |
Business Unit Manager
|
Group Leader MD 8 | |
At the address set forth above
|
At the address set forth above |
| 11.2 | The contract administrators identified herein are appointed by the parties for the receipt and dispatch on their behalf of all communications relating to the administrators’ above designated areas of responsibility. The contract administrators shall also be responsible for the good progress of the parties’ performance under this Agreement and the timely resolution of all technical, administrative and commercial issues which may arise from time to time during the execution of this Agreement. | |
| 11.3 | Each party reserves the right to change its appointment as above upon seven (7) days written notice to the other party’s then current corresponding liaison. | |
| 12. | Core Maintenance Services | |
| 12.1 | In consideration of the payment of the Core Maintenance Fee to ARM, by LGS, ARM shall provide, to LGS, in respect of the ARM7TDMI Core through the parties’ applicable contract administrator, the following maintenance services; |
| (i) | the correction, to the extent reasonably possible, of any defects in any ARM7TDMI Core which cause such ARM7TDMI Core not to operate in accordance with the functionality described in the applicable documentation. If ARM determines that such defects are due to errors in such description, ARM shall promptly issue corrections to the applicable documentation and shall not be required to correct the |
Page 14
Transfer Materials provided that LGS is not thereby prevented from
commercially exploiting such ARM7TDMI Core.
| (ii) | reasonable telephone and written consultation pertaining to the operation and application of the ARM7TDMI Core; | ||
| (iii) | any bug-fixes or corrections to the ARM7TDMI Core made available by ARM to any third party; | ||
| (iv) | all Updates to the ARM7TDMI Core; | ||
| (v) | the provision of ARM-related training; |
| The services provided under Clauses 12.1(ii), 12.1(v) and 13.1(ii) shall together be limited to a total of thirty (30) man days per annum. | ||
| 12.2 | Upon LGS requesting ARM’S assistance pursuant to the provisions of Clause 12.1, LGS shall promptly provide to ARM such samples and technical information as ARM may reasonably require to enable ARM to provide such assistance. | |
| 12.3 | In notifying ARM of any defects or problems LGS shall use a format and medium reasonably requested by ARM. Notwithstanding the foregoing, LGS shall provide ARM promptly with any information or assistance reasonably requested by ARM to enable ARM to provide the maintenance service hereunder. | |
| 12.4 | The maintenance services shall be provided at ARM’s UK premises. Nevertheless, ARM will use reasonable efforts to provide maintenance services to LGS, at LGS’s premises, subject to LGS meeting all reasonable travelling, accommodation and sustenance expenses. | |
| 12.5 | For the avoidance of doubt, ARM’s obligation under this Clause 12 is limited expressly to the provision of the maintenance services to LGS and ARM shall be under no obligation to provide the maintenance services to LGS’s customers. | |
| 13. | Software Maintenance Services | |
| 13.1 | In consideration of the payment of the Software Maintenance Fee to ARM, by LGS, ARM shall provide to LGS, in respect of the Software, through the parties’ applicable contract administrator, the following maintenance services: |
| (i) | to correct, to the extent reasonably possible, any defects in the Software which cause the Software not to operate in accordance with the description of the Software’s function in the applicable documentation. If ARM determines that such defects are due to errors in such description, ARM shall promptly issue corrections to the documentation and shall not be required to alter the Software provided that LGS is not thereby prevented from commercially exploiting the Software. | ||
| (ii) | to provide reasonable telephone and written consultation pertaining to the operation and application of the Software. | ||
| (iii) | to provide as available Updates to the Software. |
| 13.2 | In notifying ARM of any defects or problems LGS shall use a format reasonably requested by ARM. LGS shall provide ARM promptly with any information or assistance reasonably requested by ARM to enable ARM to provide the maintenance service hereunder. | |
| 13.3 | For the avoidance of doubt, ARM’s obligation under this Clause 13 is limited expressly to the provision of the Software maintenance services to LGS and ARM shall be under no obligation to provide the maintenance services to LGS’s sub-licensees of the Software. |
Page 15
| 13A. | Training | |
| I3A.1 | In consideration of the Fees see out in Schedule 12 Part D. ARM shall provide, on reasonable notice, at ARM’s premises in Cambridge, up to four (4) weeks of support for up to two (2) LGS personnel in relation to building the Test Chip and use of the Embedded ICE. | |
| 14. | Confidentiality | |
| 14.1 | Save as provided by Clause 14.2, each party shall maintain in confidence the Confidential Information disclosed by the other party and apply security measures no less stringent than the measures that such party applies to protect its own like information, but not less than a reasonable degree of care, to prevent unauthorised disclosure and use of the Confidential Information. The period of confidentiality shall be (i) indefinite with respect to the terms of this Agreement, pattern generation tapes and photomasks and (ii) twenty (20) years with respect to all other information. | |
| 14.2 | In the event that either party qualifies the confidentiality of any Confidential Information in writing by marking such Confidential Information with the words “Limited Confidentiality”, such Confidential Information may be disclosed to a third party who has entered into a non disclosure agreement (“NDA”) with the recipient containing substantially similar terms to this Clause 14. A NDA in respect of the disclosure of business Confidential Information may be limited in duration to a period of not less than three (3) years from the date of disclosure. A NDA in respect of the disclosure of technical Confidential Information may be limited in duration to a period of not less than five (5) years from the date of disclosure. | |
| 14.3 | The provisions of this clause shall not apply to information which:- |
| (i) | is known and has been reduced to tangible form by the receiving party prior to disclosure by the other party; or | ||
| (ii) | is, or becomes through no fault of the receiving party, generally known; or | ||
| (iii) | is disclosed to the receiving party by a third party having the lawful right to make such disclosure; or | ||
| (iv) | is independently conceived by the receiving party provided that the receiving party is able to provide evidence of such independent conception in the form of written records; or | ||
| (v) | is released to the receiving party for disclosure to any third party, other than on a confidential basis, by the disclosing party in writing; or | ||
| (vi) | as required by any court or other governmental body. |
| 14.4 | For the avoidance of doubt, LGS Royalty Reports may be disclosed to, in confidence, ARM’s financial and/or legal advisors. In addition, ARM may disclose the total unit sales of ARM Compliant Products. | |
| 14.5 | The parties agree that the disclosure of Confidential Information to a party hereunder shall be co-ordinated through the appointed contract administrators identified for such purpose in Clause 11.1. |
Page 16
| 15. | Warranties | |
| 15.1 | ARM warrants that the materials delivered to LGS will be sufficient for a competent semiconductor manufacturer to produce an ARM7TDMI Core which meets the functionality specified in the ARM Datasheet Doc. No. ARM DDI 0029E. LGS’s sole and exclusive remedy for any breach of such warranty shall be for ARM to correct any errors in the materials and deliver such corrected materials to LGS or replace the materials at ARM’s discretion. | |
| 15.2 | LGS acknowledges that the Software cannot be tested in every possible operation, and accordingly ARM does not warrant that the Software will be free from all defects or that there will be no interruption in its use. However, ARM warrants that the Software will be complete and comply with the description of its functionality specified in the documentation. LGS’s sole and exclusive remedy for any breach of such warranty shall be for ARM, as soon as is reasonably practicable, to correct any errors in the Software and deliver such corrected Software to LGS. | |
| 15.3 | ARM further warrants that to ARM’s knowledge and belief, but expressly without having undertaken any searches for prior art, that: |
| (i) | the ARM7TDMI Core, and Software do not infringe any third party copyright, maskwork right or trade secret; and | ||
| (ii) | there are no pending claims that have been made, or actions commenced, against ARM for breach of any third party copyright, maskwork right, patent or trade secret; and | ||
| (iii) | ARM, or its applicable licensor, is the owner of the properties to be delivered to LGS; and | ||
| (iv) | ARM has the right to enter into the Agreement. |
| 15.4 | Except as expressly provided in this Agreement, the ARM7TDMI Core. Software, Intellectual Property, and Transfer Materials are licensed “as is” and ARM makes no warranties express, implied or statutory, including, without limitation, the implied warranties of merchantability or fitness for a particular purpose with respect to the ARM7TDMI Core, Software, Intellectual Property and Transfer Materials. | |
| 15.5 | LGS warrants that LGS shall: |
| (i) | submit this Agreement for approval by the Korean Government forthwith upon signature by the parties; and | ||
| (ii) | use all reasonable endeavours to obtain all or any tax exemption or tax credits applicable to the technology licensed and monies payable under this Agreement. |
| 16. | Infringement | |
| 16.1 | Each party (the “Delivering Party”) will support the other party (the “Receiving Party”) in any action based on a claim that the materials delivered by the Delivering Party to the Receiving Party under this Agreement (the “Delivered Materials”), when used in accordance with this Agreement, infringe any patent, copyright or trade secret provided that the Receiving Party shall notify the Delivering Party promptly in writing of each such suit. However, a party shall not be obliged to support the other party in any action based upon an infringement or alleged infringement of any patent, copyright, trade secret, mask work, trademark or other property right by; (a) the Receiving Party’s manufacturing process; (b) any modification of the Delivered Materials not made by the Delivering Party; or (c) the use of |
Page 17
| the Delivered Materials in combination with other equipment, technology or software not purchased or licensed from the Delivering Party, provided that such claim would not have occurred but for such combination, modification or enhancement. |
| 16.2 | The Receiving Party will support the Delivering Party in any action based on a claim that (a) the process used by or on behalf of the Receiving Party in manufacturing products incorporating, embodying or based upon the Delivered Materials, (b) any modification of the Delivered Materials made by or on behalf of the Receiving Party, or (c) the use of the Delivered Materials in combination with other equipment, software or technology not purchased or licensed from the Delivering Party, provided that such claim would not have occurred but for such combination, modification or enhancement, has infringed any patent, copyright or trade secret provided that the Delivering Party shall notify the Receiving Party promptly in writing of such suits. | |
| 16.3 | If any Delivered Materials provided to LGS by ARM, or any portion thereof, is finally adjudged to infringe a patent or copyright, ARM shall, at ARM’s election, use its reasonable efforts to; (a) procure the right to continue using the unmodified Delivered Materials; (b) modify the Delivered Materials so that they become non-infringing; (c) replace the unmodified Delivered Materials, or infringing portions thereof, with reasonably equivalent non-infringing products; or (d) pay compensatory damages to LGS, subject to the limitations of Clause 16.6. The provisions of this Clause 16.3 do not extend to any suit based upon an infringement or alleged infringement of any patent, copyright, trade secret, mask work, trademark or other property right by; (a) the LGS manufacturing process; (b) any modification of the Delivered Materials not made by ARM; or (c) the use of the Delivered Materials in combination with other equipment, technology or software not purchased or licensed from ARM, provided that such claim would not have occurred but for such combination, modification or enhancement. | |
| 16.4 | If any Delivered Materials provided to ARM by LGS, or any portion thereof, is finally adjudged to infringe a patent or copyright. LGS shall, at LGS’s election, use its reasonable efforts to; (a) procure the right to continue using the unmodified Delivered Materials; (b) modify the Delivered Materials so that they become non-infringing; (c) replace the unmodified Delivered Materials, or infringing portions thereof, with reasonably equivalent non-infringing products; or (d) pay compensatory damages to ARM subject to the limitations of Clause 16.6. The provisions of this Clause 16.4 do not extend to any suit based upon an infringement or alleged infringement of any patent, copyright, trade secret, mask work, trademark or other property right by any modification of the Delivered Materials not made by LGS. | |
| 16.5 | In the event that there is a final adjudication of infringement, the liability of the Delivering Party for such infringement shall terminate with respect to all damages regarding the infringing intellectual property arising after the date of such final adjudication. | |
| 16.6 | THE FOREGOING STATES THE ENTIRE LIABILITY OF THE PARTIES, AND THE EXCLUSIVE REMEDY FOR THE PARTIES, FOR ANY INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADEMARK, TRADE SECRET, MASK WORK OR OTHER PROPRIETARY RIGHT OF A THIRD PARTY. ARM AND LGS DISCLAIM ALL OTHER LIABILITY FOR ANY SUCH INFRINGEMENT. INCLUDING ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT. NEITHER PARTY SHALL BE LIABLE FOR ANY AMOUNTS IN EXCESS OF THE SUM OF TWO HUNDRED AND EIGHTY FIVE THOUSAND US DOLLARS (US$285,000) IN THE AGGREGATE FOR ALL PAYMENTS MADE PURSUANT TO ANY CLAIMS IN ANY WAY ARISING OUT OF OR IN CONNECTION WITH THE PROVISIONS OF THIS CLAUSE 16. |
Page 18
| 17. | Disclaimer of Consequential Damages | |
| 17.1 | IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES WHETHER SUCH DAMAGES ARE ALLEGED AS A RESULT OF TORTIOUS CONDUCT OR BREACH OF CONTRACT OR OTHERWISE EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SUCH DAMAGES SHALL INCLUDE BUT SHALL NOT BE LIMITED TO THE COST OF REMOVAL AND REINSTALLATION OF GOODS, LOSS OF GOODWILL, LOSS OF PROFITS, LOSS OF USE OF DATA, INTERRUPTION OF BUSINESS OR OTHER ECONOMIC LOSS BUT NOTHING IN THIS CLAUSE SHALL OPERATE TO EXCLUDE LIABILITY FOR DEATH OR PERSONAL INJURY RESULTING FROM EITHER PARTY’S NEGLIGENCE. | |
| 18. | Term and Termination | |
| 18.1 | This Agreement shall commence on the Effective Date and continue in force, except as provided by Clause 18.3, unless and until terminated in accordance with the provisions of Clause 18.2. | |
| 18.2 | Without prejudice to any other right or remedy which may be available to it, either party shall be entitled summarily to terminate this Agreement by giving written notice to the other. |
| (i) | if the other party has committed a material breach of any of its obligations hereunder which is not capable of remedy; or | ||
| (ii) | if the other party has committed a material breach of any of its obligations hereunder which is capable of remedy but which has not been remedied within a period of sixty (60) days following receipt of written notice to do so; or | ||
| (iii) | makes any voluntary arrangement with its creditors for the settlement of its debts or becomes subject to an administration order; or | ||
| (iv) | has an order made against it. or passes a resolution, for its winding-up (except for the purposes of amalgamation or reconstruction) or has an encumbrancer take possession or has a receiver or similar officer appointed over all or substantially all of its property or assets. |
| 18.3 | After a period of seven and one half (7.5) years from the Effective Date of the 1995 Agreement (the “Initial Period”), the licence set forth in Clause 5 shall expire automatically whereupon LGS shall have no further right or licence in respect of the Tools. However, LGS may renew the licence granted under the provisions of Clause 5, subject to the provisions of Clauses 18.3(i) and (ii), for a further term of seven (7) years upon payment of a fee (“Renewal Fee”). |
| (i) | LGS may exercise its rights to renew, as provided by this Clause 18.3, provided that LGS gives to ARM not less than six (6) months notice in writing of its intention to so renew, expiring on the seventh anniversary of the Effective Date. | ||
| (ii) | Upon receipt of LGS’s notice served in accordance with Clause 18.3(i), the parties shall enter into good faith negotiations to agree a reasonable Renewal Fee. For the avoidance of doubt, LGS shall not be entitled to exercise any of the rights contained in Clause 5 unless and until agreement has been reached and the Renewal Fee has been paid to ARM. |
Page 19
| 18.4 | LGS and ARM acknowledge that each and every term and condition of this Agreement has been fully and completely negotiated and such terms and conditions closely relate to each other. In the event that the Korean governmental authorities, including the Korean Fair Trade Commission, during the review of this Agreement require a modification to one or more of the clauses or this Agreement. ARM shall have the option to renegotiate the entire Agreement or accept the applicable modification of the Agreement as required by such governmental authorities. | |
| 19. | Effect of Termination | |
| 19.1 | Upon termination of this Agreement by either party pursuant to Clause 18.2, LGS will immediately discontinue any use and distribution of all ARM Compliant Products, Software, Intellectual Property, Transfer Materials and ARM Confidential Information. LGS shall, at ARM’s option, either destroy or return to ARM any Confidential Information, including any copies thereof in its possession, together with the Transfer Materials and all copies of the Software in its possession. Within one month after termination of this Agreement LGS will furnish to ARM a certificate signed by a duly authorised officer of LGS that to the best of his or her knowledge, information and belief, after due enquiry, LGS has complied with provisions of this Clause. For the avoidance of doubt, any sub-licences of the Software granted by LGS prior to the termination of this Agreement shall survive such termination. | |
| 19.2 | Upon termination of this Agreement the termination date shall be treated as the end of a Half Year for the purposes of accounting for all Running Royalties due to ARM. Thereafter LGS shall submit a royalty report to ARM in accordance with the provisions of Schedule 6. | |
| 19.3 | The provisions of Clauses 1, 2.3, 2.4 (in respect of LGS’s obligation to indemnify ARM thereunder), 7, 9 (to the extent that any amounts remain due and unpaid at the date of termination), 14, 16, 17, 19, and 20 shall survive termination or expiration of this Agreement. | |
| 20. | General | |
| 20.1 | All communications between the parties including, but not limited to, notices, royalty reports, error or bug reports, the exercise of options, and support requests shall be in the English language. | |
| 20.2 | All notices which are required to be given hereunder shall be in writing and shall be sent to the address of the recipient set out in this Agreement or such other address as the recipient may designate by notice given in accordance with the provisions of this Clause. Any such notice may be delivered personally, by commercial overnight courier or facsimile transmission which shall be followed by a hard copy and shall be deemed to have been served if by hand when delivered, if by commercial overnight courier 48 hours after deposit with such courier, and if by facsimile transmission when dispatched. | |
| 20.3 | Neither party shall assign or otherwise transfer this Agreement or any of its rights and obligations hereunder whether in whole or in part without the prior written consent of the other. | |
| 20.4 | Neither party shall be liable for any failure or delay in its performance under this Agreement due to causes, including, but not limited to, acts of God, acts of civil or military authority, fires, epidemics, floods, earthquakes, riots, wars, sabotage, third party industrial disputes and governments actions, which are beyond its reasonable control: provided that the delayed party: (i) gives the other party written notice of such cause promptly, and in any event within fourteen (14) days of discovery thereof; and (ii) uses its reasonable efforts to correct such failure or delay in its performance. The delayed party’s time for performance or cure under this Clause 20.4 shall be extended for a period equal to the duration of the cause. |
Page 20
| 20.5 | ARM and LGS are independent parties. Neither company nor their employees, consultants, contractors or agents, are agents, employees or joint venturers of the other party, nor do they have the authority to bind the other party by contract or otherwise to any obligation. Neither party will represent to the contrary, either expressly, implicitly, by appearance or otherwise. | |
| 20.6 | The parties agree that the terms and conditions of this Agreement shall be treated as Confidential Information hereunder and shall not be disclosed without the consent of both parties. | |
| 20.7 | Failure by either party to enforce any provision of this Agreement shall not be deemed a waiver of future enforcement of that or any other provision. | |
| 20.8 | If any provision of this Agreement, or portion thereof, is determined to be invalid or unenforceable the same will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect. | |
| 20.9 | The headings to the Clauses of this Agreement are for ease of reference only and shall not affect the interpretation or construction of this Agreement. | |
| 20.10 | This Agreement may be executed in one or more counterparts each of which shall be deemed an original, but all of which shall constitute one and the same instrument. | |
| 20.11 | This Agreement, including all Schedules and documents referenced herein, constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes and replaces all prior or contemporaneous understandings or agreements, written or oral, regarding the subject matter. No amendment to, or modification of, this Agreement shall be binding unless in writing and signed by a duly authorised representative of both parties. | |
| 20.12 | This Agreement shall be governed by and construed in accordance with the laws of England. In the event that ARM commences proceedings against LGS under this Agreement, the parties agree to submit to the jurisdiction of the Seoul District Court, Korea, for the purpose of hearing and determining any disputes arising out of this Agreement. In the event that LGS commences proceedings against ARM under this Agreement, the parties agree to submit to the jurisdiction of the High Court of Justice, London, England, for the purpose of hearing and determining any disputes arising out of this Agreement. |
| IN WITNESS WHEREOF the parties have caused this Agreement to be executed by their duly authorised representative: |
| ADVANCED RISC MACHINES LIMITED: | LG SEMICON COMPANY LIMITED: | |||||||
SIGNED:
|
/s/ R. K. Saxby
|
SIGNED: | /s/ B. D. Sun
|
|||||
NAME:
|
R. K. Saxby | NAME: | Byung-Don Sun | |||||
TITLE:
|
President & CEO | TITLE: | Executive Vice President | |||||
Page 21
Exhibit 10.10
| 12 October, 2006 | Confidential | LEC-LTM-01434-V5.0 |
This amendment (“Amendment”) is effective from the 16th of October 2006 (“Effective Date”)
BETWEEN
ARM LIMITED whose registered office is situated at 110 Fulbourn Road, Cambridge CB1 9NJ, United Kingdom
(“ARM”);
and
MAGNACHIP SEMICONDUCTOR LTD whose principal place of business is situated at 891 Daechi-dong,
Gangnam-gu, Seoul 135-738, Seoul, Korea (“MAGNACHIP”)
WHEREAS
| A. | This Amendment (defined above) refers to and amends the terms and conditions of the technology licence agreement, ARM document number LEC-TLA-00142, between ARM and MAGNACHIP dated 16th December 1996 (the “Agreement”). | |
| B. | The Agreement was assigned by LG Semicon Company Limited to Hyundai Electronics Ltd (“Hyundai”) in the month of March 2000. | |
| C. | Hyundai changed its name to Hynix Semiconductor Inc (“Hynix”) on 29th March 2001. | |
| D. | MAGNACHIP purchased the system IC business of Hynix on 6th October 2004 and the Agreement was assigned to MAGNACHIP. | |
| E. | MAGNACHIP has requested and ARM has agreed to license an additional model to MAGNACHIP under the terms and conditions of the Agreement. |
IT IS AGREED AS FOLLOWS:
| 1. | That all definitions contained in the Agreement shall have the same meanings and apply to this Amendment. | |
| 2. | Delete the following from Clause 1.22(iii) of the Agreement | |
| “subject to the payment by MAGNACHIP of the fee(s) set out in Clause 9.2” | ||
| and replace with the following: | ||
| “subject to the payment by MAGNACHIP of the fee(s) set out in Clauses 9.6a, 9.6b and 9.6c as applicable” | ||
| 3. | After Clause 9.6, add Clauses 9.6a and 9.6b to the Agreement as follows: |
| “9.6a | In consideration of ARM agreeing to licence the Model identified in Schedule 3 Part C Item C7 to MAGNACHIP, MAGNACHIP shall pay, to ARM, the sum of [*****] due on the Effective Date of the Amendment. | |||
| 9.6b | In consideration of ARM agreeing to provide support and maintenance services to MAGNACHIP in respect of the Model identified in Schedule 3 Part C Item C7, MAGNACHIP shall pay, to ARM, the [******] due on the Effective Date of the Amendment. | |||
| 9.6c | In the event that MAGNACHIP exercises its option in Clause 13.1b, MAGNACHIP shall pay, to ARM, the sum of [*****] (“Model Optional Support and Maintenance Fee”) due on the first anniversary of the Effective Date of the Amendment.” |
| NM/JL | Page 1 of 2 | ARM/Magnachip Semiconductor Limited |
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
| 12 October, 2006 | Confidential | LEC-LTM-O1434-V5.0 |
| 4. | After Clause 13.1 of the Agreement, add Clause 13.1a to the Agreement as follows: |
| “13.1a | Notwithstanding anything to the contrary contained in Clause 13.1, for the period commencing on the Effective Date of the Amendment and ending one (1) year thereafter, ARM shall provide support and maintenance to MAGNACHIP pursuant to this Clause 13 in respect of the Model identified in Schedule 3 Part C Item C7. | |||
| 13.1b | Subject to receipt of notice from MAGNACHIP requesting support and maintenance and payment of the Model Optional Support and Maintenance Fee (defined in Clause 9.6c), for the period commencing on the first anniversary of the Effective Date of the Amendment and ending one (1) year thereafter, ARM shall provide support and maintenance to MAGNACHIP pursuant to this Clause 13 in respect of the Model identified in Schedule 3 Part C Item C7.” |
| 5. | Add the following to the end of Schedule 3 Part C of the Agreement: |
C7
|
AT010-MS-28607 | ARM7TDMI Model | NC-Verilog simulator on Linux platform |
N |
The terms contained herein are agreed and accepted by the authourised signatories of the respective partics:
ARM LIMITED
|
MAGNACHIP | SEMICONDUCTOR LTD | ||||||||
BY
|
/s/
|
BY | /s/ David J Gampell
|
|||||||
NAME
|
NAME | DAVID J GAMPELL | ||||||||
TITLE
|
EVP | TITLE | VP ENGINEERING, ISO | |||||||
DATE
|
7/11/06 | DATE | 16 OCT 2006 |
| NM/JL | Page 2 of 2 | ARM/Magnachip Semiconductor Limited |
Exhibit 10.11
ARM7201TDSP Device Licence Agreement
This device licence agreement (“The Agreement”) is made the 26th day of
August 1997
between
ADVANCED RISC MACHINES LIMITED
whose registered office is situated at 90, Fulbourn Road, Cherry Hinton, Cambridge, CB1 4JN
(“ARM”)
and
LG SEMICON COMPANY LIMITED
whose principle place of business is situated at 16 Woomyeon-dong, Seocho-qu, Seoul 137-140
Korea (“LGS”)
IT IS HEREBY AGREED AS FOLLOWS;
Except to the extent that the terms of this Agreement are inconsistent with the terms of the
1996 Agreement, in which event the terms of this Agreement shall prevail, this Agreement shall be
without prejudice to the terms of the 1996 Agreement and the terms of the 1996 Agreement shall
apply.
| 1. | Definitions | |
| The following terms shall have the following meanings where used in this Agreement; | ||
| 1.1 | “1996 Agreement” shall mean the Technology Licence Agreement between ARM and LGS dated the 16th December 1996. | |
| 1.2 | “ARM Services” shall mean the services described in Schedule 1 which ARM shall provide to LGS pursuant to this Agreement. | |
| 1.3 | “ARM Compliant Product” shall mean any single silicon chip developed by LGS which contains, at a minimum; (i) an ARM7TDMI Core or a Modified ARM7TDMI Core as defined in the 1996 Agreement; or (ii) an ARM720T Core or a Modified ARM720T Core, which has been verified in accordance with the provisions of Clause 3 of the 1996 Agreement mutatis mutandis. | |
| 1.4 | “ARM720T Core” shall mean the ARM720T Core specified in the ARM720T Datasheet identified in Schedule 3 Part A. | |
| 1.5 | “ARM720T Model” shall mean the ARM720T Model identified in Schedule 3 Part B. | |
| 1.6 | “ARM720T Core Transfer Materials” shall mean the items in respect of the ARM720T Core identified in Schedule 3. | |
| 1.7 | “ARM7201TDSP Device” shall mean the device specified in the device specification approved by LGS in accordance with Clause 3.3 together with any changes thereto mutually agreed between the parties in writing from time to time. A preliminary specification is set out in Schedule 11. |
1
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
| 1.8 | “ARM7201TDSP Transfer Materials” shall mean the items identified in Schedule 2 Parts A. | |
| 1.9 | “ARM720TDSP” shall mean the combined core of the ARM720T Core and the Piccolo Core | |
| 1.10 | “ARM720TDSP Transfer Materials” shall mean the items identified in Schedule 2 Part B. | |
| 1.11 | “ARM Deliverables” shall mean the ARM720T Core Transfer Materials, ARM720TDSP Core Transfer Materials, the ARM7201TDSP Transfer Materials and the Piccolo Core Transfer Materials. | |
| 1.12 | “Beta Release” shall mean a version of the Software which, subject to Known exceptions (which will be documented and provided to LGS); |
| (i) | substantially conforms with the Specification; and | ||
| (ii) | is free from significant bugs. |
| 1.13 | “Delivery Schedule” shall mean the dates set out in the various schedules of this Agreement for performance of the ARM Services for and delivery of the ARM720T Core Transfer Materials, the ARM720TDSP Core Transfer Materials, the ARM7201TDSP Transfer Materials, the Piccolo Core Transfer Materials, and the Software to LGS. | |
| 1.14 | “Design Win Event” shall mean for each different ARM Compliant Product or semiconductor product incorporating the Piccolo Core, the point in time of sale, supply or other distribution by LGS of ten thousand (10,000) units of such product. | |
| 1.15 | “Device Driver Software” shall mean the source and object code versions of the computer programs and documentation identified in Schedule 5 Part A. | |
| 1.16 | “Effective Date” shall mean the date of this Agreement or date upon which the Korean Government gives approval to this Agreement, whichever is the later, subject always to the provision of Clause 13.3. | |
| 1.17 | “Final Release” shall mean a version of the Software which; |
| (i) | conforms with the Specification; | ||
| (ii) | is free from significant bugs; and | ||
| (iii) | is supported by such documentation as is necessary for its, installation, operation and interpretation. |
| 1.18 | “FPGA Board” shall mean the hardware identified in Schedule 5 Part B. | |
| 1.19 | “OAL Software” shall mean the source and object code versions of the computer programs and documentation identified in Schedule 5 Part A. | |
| 1.20 | “Intellectual Property” shall mean patents and patent rights, trade marks, service marks, registered designs, applications for any of the foregoing, design rights, |
2
topography or mask rights, copyright, know-how, Confidential
Information, any Intellectual Property Derivatives, and any other
similar protected rights in any country.
| 1.21 | “Intellectual Property Derivatives” shall mean; (i) for copyrightable or copyrighted material, any translation, abridgement, revision or other form in which an existing work may be recast, transformed or adapted; (ii) for work protected by topography or maskwork right, any translation, abridgement, revision or other form in which an existing work may be recast, transformed or adapted; (iii) for patented or patentable material, any improvement; and (iv) for material protected by trade secret any new material derived from or employing such trade secret. | |
| 1.22 | “LGS Deliverables” shall mean the items in respect of the ARM7201TDSP Device identified in Schedule 8 Part A. | |
| 1.23 | “LGS Services” shall mean the services as set out in Schedule 9 which LGS shall provide to ARM. | |
| 1.24 | “LG Affiliates” shall mean each of the companies set out in Schedule 10. | |
| 1.25 | “Microsoft” shall mean Microsoft Corporation, One Microsoft Way, Redmond, WA 9052-6399 USA. | |
| 1.26 | “Modified ARM720T Core” shall mean any ARM720T Core modified in accordance with the provisions of Clause 2.2 of the 1996 Agreement mutatis mutandis. | |
| 1.27 | “Modified ARM720TDSP Core” shall mean any ARM720TDSP Core modified in accordance with the provisions of Clause 2.2 of the 1996 Agreement mutatis mutandis. | |
| 1.28 | “Model” shall mean: (i) the object code and source code of the Design Transfer Model identified in Schedule 2, Schedule 3 and Schedule 4; (ii) the object code and such source code of the Design Simulation Models and Design Simulation Model Options identified in Schedule 2, Schedule 3 and Schedule 4 as may be necessary (at ARM’s absolute discretion) to allow the support of subsequent releases of the specified simulator; together with such Updates thereof, if any, as are developed by or for ARM. | |
| 1.29 | “NSP” shall mean the net sales price of any ARM Compliant Products calculated by taking the aggregate invoice price charged on arm’s length terms by LGS and its Subsidiaries in the sale or distribution of any ARM Compliant Product, less any (i) value added, turnover, import, or other tax, duty or tariff payable thereon (ii) freight and insurance costs incurred and (iii) amounts actually repaid or credited with respect to any ARM Compliant Products returned. | |
| 1.30 | “OEM Agreement” shall mean a separate royalty license and distribution agreement by which MS licenses an original equipment manufacturer (OEM) the right to distribute Windows CE with a Windows CE Device designed by such OEM. | |
| 1.31 | “Piccolo Coprocessor” shall mean the ARM SP7 as described and identified in the ARM SP7 datasheet. ARM DDI — 0089 | |
| 1.32 | “Piccolo Core” shall mean an implementation which |
| (i) | executes each and every instruction in the Piccolo Instruction Set; |
3
| (ii) | executes no additional instructions to those contained in the Piccolo Instruction Set; and | ||
| (iii) | has been verified using ARM720TDSP test chip in accordance with the provisions of Clause 3 of the 1996 Agreement. |
| 1.33 | “Piccolo Instruction Set” shall mean the Piccolo Instruction Set as defined in the Piccolo Architecture Specification: ARM IPU - 0025 including all amendments and architectural enhancements made thereto within a period of ten (10) years from the Effective Date. | |
| 1.34 | “Piccolo Core Transfer Materials” shall mean the items in respect of the Piccolo Core identified in Schedule 4. | |
| 1.35 | “Software” shall mean together the OAL Software and the Device Driver Software. | |
| 1.36 | “ARM Software” shall mean together the Models, Tools, Test Programs, Embedded ICE and Vectors for the ARM720T Core, the ARM720TDSP, the ARM7201TDSP Device and the Piccolo Core identified in Schedule 2, Schedule 3 and Schedule 4. | |
| 1.37 | “Software Transfer Materials” shall mean the items identified in Schedule 5. | |
| 1.38 | “Specification” shall mean the specification for the Software as set out in Schedule 5. | |
| 1.39 | “Subsidiary” shall mean any company the majority of shares is now or hereafter owned or controlled, directly or indirectly, by a party hereto or any company a majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by any of the aforementioned entities. A company shall be considered a Subsidiary only so long as such control exists. | |
| 1.40 | “Test Programs” shall mean the source code and object code of the programs identified in Schedule 2, Schedule 3 and Schedule 4 together with such Updates, if any, as are developed by or for ARM. | |
| 1.41 | “Tools” shall mean: (i) the source and object code of the programs identified in Schedule 4 Part C Section 1; and (ii) the documentation identified in Schedule 4 Part C Section 2, together with such Updates, if any, as are developed by or for ARM. | |
| 1.42 | “Updates” shall mean; (i) for the ARM Software, any bug fixes or enhancements to the Software the incorporation of which ARM, in its absolute discretion, decides does not cause to be created a new product; and (ii) for the ARM Deliverables, all modifications, enhancements and updates to the ARM Deliverables, created by ARM, including such modifications to the ARM Deliverables as are made by ARM’s other licensees and adopted by ARM for general release as an update provided that ARM may exclude any modification, enhancement or update which ARM, in its absolute discretion decides, results in the creation of a new product | |
| 1.43 | “Validation Card” shall mean the hardware identified in Schedule 2 Part D. | |
| 1.44 | “Vectors” shall mean together the Test Chip functional vectors and Test Chip characterisation vectors identified in Schedule 2, Schedule 3 and Schedule 4. | |
| 1.45 | “Windows CE” or “WinCE” shall mean any version Microsoft’s hand-held operating system and applications platform software delivered by Microsoft to ARM. |
4
| 1.46 | “Windows CE OAK” shall mean the Windows CE OEM adaptation kit. | |
| 1.47 | “Windows CE Device” or “WinCE Device” shall mean any semiconductor device designed and/or assembled by LGS which incorporates the WinCE operating system software. | |
| 2. | ARM Deliverables and Provision of ARM Services | |
| 2.1 | ARM shall deliver the ARM Deliverables and the Software Transfer Materials, to LGS, in accordance with the Delivery Schedule. | |
| 2.2 | ARM shall apply reasonable skill and care in the provision of the ARM Services to LGS. | |
| 2.3 | LGS shall provide, to ARM, all necessary accurate information, support and cooperation that may be reasonably required to enable ARM to provide the ARM Services to LGS in accordance with the Delivery Schedule. | |
| 2.4 | ARM shall provide the following services to LGS; |
| (i) | the Core Maintenance Services for the ARM720T Core, the ARM720TDSP Core and the Piccolo Core in accordance with the provisions of the Clause 12 of the 1996 Agreement mutatis mutandis. | ||
| (ii) | the Software Maintenance Services for the ARM Software in accordance with the provisions of the Clause 13 of the 1996 Agreement mutatis mutandis. | ||
| (iii) | the Training for the ARM720T Core, the ARM720TDSP Core and the Piccolo Core in accordance with the provisions of the Clause 12 of the 1996 Agreement mutatis mutandis. |
For the avoidance of doubt, LGS do not need to pay any additional Core Maintenance Fee or
Software Maintenance Fee set out in Schedule 12 of the 1996 Agreement for such services.
| 2.5 | LGS acknowledges that adherence to the Delivery Schedule by ARM is dependent upon the receipt by ARM of certain deliverables from Microsoft. ARM shall not be liable for any departure from the Delivery Schedule which results directly or indirectly from any failure by Microsoft to deliver such deliverables to ARM in a timely manner provided that ARM has used reasonable efforts to secure timely delivery from Microsoft. | |
| 3. | ARM7201TDSP Device Development | |
| 3.1 | Subject to the provisions of Clauses 6.2 and 2.5, ARM shall use reasonable efforts to develop and deliver the ARM7201TDSP Transfer Materials to LGS in accordance with the Delivery Schedule. | |
| 3.2 | Where LGS provides a requirements specification to ARM for the ARM Deliverables, ARM shall review the requirements specification in good faith and if the requirements specification is acceptable to ARM, then ARM shall approve it in writing prior to commencement of work under this Agreement. If the requirements specification is not acceptable to ARM then ARM shall recommend the changes to the requirements |
5
specification that would make it acceptable to ARM. If, after
ARM has approved the requirements specification, LGS requires that
the requirements specification be revised for any reason, LGS shall
be liable for the cost of any work required to comply with such
revisions. ARM shall review any such requirement in good faith and
shall deliver a reasonable quote for the performance of the
additional work, to LGS, based on ARM’s then standard scale of
consulting charges.
Where ARM provides a device specification to LGS, LGS shall review the device
specification and shall report, to ARM, in writing, within three(3) weeks of receipt of the
device specification whether or not it is approved (such approval not to be unreasonably
withheld) and if not approved the reasons for withholding approval. If the device
specification is not approved by LGS because it fails to comply with LGS requirements
specification as approved in Clause 3.2 then, ARM shall revise the device specification
accordingly and resubmit it to LGS. This process shall be repeated until the device
specification is approved by LGS. If, after LGS has approved the device specification, LGS
requires that the device specification be revised for any reason, LGS shall be liable for the
cost of any work required to comply with such revisions. ARM shall review any such requirement
in good faith and shall deliver a reasonable quote for the performance of the additional work,
to LGS, based on ARM’s then standard scale of consulting charges.
ARM shall deliver, to LGS, a behavioural model which conforms to the device specification
as approved under Clause 3.3. LGS, with ARM’s support, shall check the behavioural model to
determine whether or not the behavioural model conforms to the device specification as
approved under Clause 3.3. LGS shall complete the checking of the behavioural model within
thirty (30) days of its receipt from ARM, and upon completion of the checking shall promptly
report, to ARM, in writing whether or not the behavioural model complies with the device
specification. If LGS demonstrates that the behavioural model fails to comply with the device
specification, ARM shall be responsible for Identifying the cause of such failure and shall
use reasonable efforts to correct the problem and expedite the delivery to LGS of a corrected
behavioural model. The parties shall repeat the above process until the behavioural model is
approved by LGS. If, after LGS has approved the behavioural model, LGS requires that the
behavioural model be revised for any reason, LGS shall be liable for the cost of any work
required to comply with such revisions. ARM shall review any such requirement in good faith
and shall deliver a reasonable quote for the performance of the additional work, to LGS, based
on ARM’s standard scale of consulting charges.
Where ARM is delivering layout to LGS, ARM shall;
| (i) | perform an LVS check in respect of such layout. The LVS check shall be deemed complete when either; (i) the LVS check indicates an exact match between the layout and the schematic netlist; or (ii) where all discrepancies between the layout and the schematic netlist have been reviewed by the parties with the foundry in good faith and a waiver agreed between ARM, LGS and the foundry; | ||
| (ii) | perform layout simulation and provide test vectors for layout verification; and | ||
| (iii) | perform a design rule check in respect of such layout by reference to the DRC file provided by LGS (where, for the purposes of this Clause 3.5(iii), LGS shall mean LGS or LGS chosen foundry, as appropriate) to ARM. The layout delivered to LGS by ARM shall be deemed to comply with the LGS design rules if the layout passes the DRC provided by LGS. The layout shall be deemed to pass the DRC when either, (i) The DRC log generated by |
6
running the DRC on the layout reports no breach or breaches of
the LGS design rules; or (ii) where all reported breach or breaches
have been reviewed by the parties and where appropriate the LGS
chosen foundry in good faith and a waiver agreed between ARM, LGS
and the foundry. ARM shall have no responsibility for any
inconsistency between the DRC file provided by LGS and LGS
corresponding design rules nor shall ARM be responsible for any
failure by the DRC provided by LGS to comprehensively test for
compliance with the LGS corresponding design rules.
| 3.6 | Following delivery of any complete layout, by ARM, to LGS, LGS shall manufacture the ARM7201TDSP Device. With support from ARM, LGS shall test the prototypes of the ARM7201TDSP Device to determine whether or not the functionality and performance of the prototypes conforms to the device specification approved by LGS in accordance with the provisions of Clause 3.3. ARM shall continue to support LGS in the testing of the ARM7201TDSP Device until such device is approved by LGS. Upon completion of the testing of the prototypes, LGS shall promptly report to ARM, in writing, whether or not the prototypes comply with the device specification and in the event that LGS believes that the prototypes do not comply with the device specification, LGS shall provide ARM with details of such non-compliance. ARM shall be responsible for identifying the cause of such non-compliance and shall use reasonable endeavours to amend the layout such that revised prototypes can be manufactured which do comply with the device specification. The parties shall repeat the above process until the prototypes are approved by LGS. | |
| 4. | Software Development | |
| 4.1 | Subject to the provisions of Clauses 6.2 and 2.5, ARM shall use reasonable efforts to develop and deliver the Software and the Software Transfer Materials to LGS in accordance with the Delivery Schedule. | |
| 4.2 | LGS shall review the Specification and shall report, to ARM, in writing, within thirty (30) days of receipt of the Specification whether or not it is approved (such approval not to be unreasonably withheld) and if not approved the reasons for withholding approval. If the Specification is not approved by LGS, ARM shall revise the Specification accordingly and resubmit it to LGS. This process shall be repeated until the Specification is approved by LGS. If, after LGS has approved the Specification, LGS requires that the Specification be revised for any reason, LGS shall be liable for the cost of any work required to comply with such revisions. ARM shall review any such requirement in good faith and shall deliver a reasonable quote for the performance of the additional work, to LGS, based on ARM’s then standard scale of consulting charges. | |
| 4.3 | Within forty (40) days of receipt of each Beta Release by LGS, LGS shall test the Beta Release and report any bugs or non-compliance with the Specification to ARM. If any bugs or non-compliance are reported, ARM shall revise the Beta Release accordingly and resubmit it to LGS within twenty (20) days of receipt of the non-compliance report regarding the Beta Release. This process shall be repeated until the Beta Release is approved by LGS, provided, however, that the total period of time for such repeat shall be limited to eighty (80) days. It LGS fails to test a Beta Release and deliver a report of non-compliance to ARM within forty (40) days of receipt of the Beta Release, then such Beta Release shall be deemed to be accepted by LGS. | |
| 4.4 | Within forty (40) days of receipt of the Final Release by LGS, LGS shall provide written confirmation of approval of the Final Release to ARM. If any bugs or |
7
| non-compliance are reported. ARM shall revise the Final Release accordingly and resubmit it to LGS within twenty (20) days of receipt of the non-compliance report regarding the Final Release. This process shall be repeated until the Final Release is approved by LGS, provided, however, that the total period of time for such repeat shall be limited to sixty (60) days. If LGS fails to-deliver confirmation of approval to ARM within forty (40) days of receipt of the Final Release by LGS, then the Final Release shall be deemed to be approved by LGS. | ||
| 5. | Fees and Terms of Payment | |
| 5.1 | In consideration of the licenses granted by ARM, to LGS, for the ARM7201TDSP Device, the ARM720T Core, the Piccolo Core, the Software and other ARM Deliverables and the Win CE Consortium rights set out in Schedule 12, LGS shall pay to ARM; (i) a tee (Technology Fee”) of [*****] in accordance with the provisions of Schedule 7 allocated as follows; |
ARM7201TDSP Device, ARM720T Core, |
||||
Win CE Consortium rights set out in Schedule 12 and Software |
[*****] | |||
Piccolo Core with WinCE Device |
[*****] | |||
Piccolo Core with any integrated circuit |
[*****] |
and (ii) Running Royalties in accordance with the provisions of Clause 5.
| 5.2 | LGS shall pay, to ARM, all reasonable travelling accommodation and sustenance expenses necessarily incurred by ARM when visiting LGS, or LGS agent’s premises in performance of ARM’s obligations under this Agreement. | |
| 5.3 | For each unit of ARM Compliant Product incorporating an ARM720T Core or a Modified ARM720T Core sold, supplied or distributed by LGS, LGS shall pay a royalty (“Running Royalty”) in accordance with the Running Royalty table set out in Schedule 6. | |
| 5.4 | For each unit of ARM Compliant Product or other integrated circuit which incorporates a Piccolo Core sold, supplied or distributed by LGS, LGS shall pay a royalty (“Running Royalty”) calculated in accordance with the Running Royalty Rate tables set out in Schedule 6. | |
| 5.5 | LGS shall pay the fees, to ARM, in accordance with the provisions of this Clause 5. | |
| 5.6 | Reporting and payment any Running Royalties shall be submitted to ARM, by LGS, in accordance with the terms set out in Schedule 6 of the 1996 Agreement. | |
| 5.7 | The Element of the Technology Fee due in respect of the Win CE Consortium rights shall be due as follows; |
On the Effective Date |
[*****] | |||
On availability of Beta of Tools Port from Microsoft (ARMv4 version only) |
[*****] |
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
8
On Release To Manufacturing by Microsoft of OAK
for ARM (ARMv4 version only) Birch Version |
[*****] | |||
On Release To Manufacturing by Microsoft of the
Windows CE Port for ARM (ARMv4 version only)
Birch version |
[*****] |
The balance of the Technology Fee shall be due under this Agreement in accordance with
the payment schedule set out in Schedule 7.
| 5.8 | In consideration of the Support and Maintenance Services provided by ARM, to ARM Partner, under Schedule 12, for a period of two (2) years from the Effective Date, ARM Partner shall pay to ARM, in advance, an annual fee (“Maintenance Fee”) of [*****]. The Maintenance Fee for the first year following the Effective Date shall be deemed included within the Consortium Fee. The Maintenance Fee for the second year following the Effective Date shall be due upon the anniversary of the Effective Date. | |
| 5.9 | In consideration of the Development Services provided by ARM, to ARM Partner, under Schedule 12, for the period of two (2) years ending on the 30th June 1999, ARM Partner shall pay to ARM an annual development services fee (“Development Fee”). The Development Fee for the first year following the Effective Date shall be [*****] and shall be deemed included within the Consortium Fee. The Development Fee for the second year following the Effective Date shall be due in accordance with the provisions of Clause 5.10 and shall be determined by reference to the number of Members on the anniversary of the Effective Date as follows: |
| Number of Members | Development Fee (US$) | |||
1 - 2 |
[*****] | |||
3 |
[*****] | |||
4 |
[*****] | |||
5 and above |
[*****] | |||
| 5.10 | Fifty percent (50%) of the Development Fee for the second year following the Effective Date shall be due on the first anniversary of the Effective Date. If provision of the Development Services is substantially procured by ARM by payments to BSquare or any third party contractor, then the balance of the Development Fee for the second year following the Effective Date shall be due only when ARM makes such payments to the third party. The amount of each installment due from ARM Partner shall be the same proportion of the balance of the Development Fee as the payment by ARM to the third party is a proportion of ARM’s committed expenditure to the third party in that period. If provision of the Development Services is not substantially procured by ARM by payment to a third party, then the Development Fee shall be due only where ARM can demonstrate to ARM Partner a reasonable schedule for the availability of the next version of the Tools Port and in such event the balance of the Development Fee shall be due in four equal quarterly installments with the first installment due on the first anniversary of the Effective Date. | |
| 5.11 | ARM warrants to ARM Partner that, for the period from the 30th June 1997 to 30th June 2000 (the “Initial Period”), the Consortium Fee payable by any third party shall be one million US dollars (US$1,000,000). If any more favourable rate is agreed with any third party during the Initial Period, then ARM shall refund, to ARM Partner, the difference between the Consortium Fee and the more favourable rate payable by the third party. |
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
9
| 5.12 | ARM further warrants to ARM Partner that the Maintenance Fees and Development Fees due in respect of the two (2) year period expiring on the 30th June 1999 (the “Initial Support Period”), shall be the same rates as set out in this Win CE Agreement for all Founder Members (together with, after the expiry of the Initial Period, Ordinary Members) subject always to the effect of the discount schedule applicable in respect of the second year of this Win CE Agreement as set forth in Clause 5.9 (the “Discount Schedule”). If any more favourable rates are agreed with another Founder or Ordinary Member during the Initial Support Period (other than where such more favourable rate is obtained by virtue of the operation of the Discount Schedule), then ARM shall refund, to ARM Partner, the difference between the Maintenance Fee or Development Fee, as appropriate, and the more favourable rate. | |
| 5.13 | All sums due to ARM under this Agreement shall be paid net thirty (30) days of receipt by ARM Partner of an invoice therefor. | |
| 5.14 | Any income or other tax which LGS is required by law to pay or withhold on behalf of ARM with respect to any license fees and/or royalties payable to ARM under this Agreement shall be deducted from the amount of such of license fees and/or royalties otherwise due, provided, however, that in regard to any such deduction, LGS shall give to ARM such assistance as may be necessary to enable or assist ARM to claim exemption therefrom, or credit therefor, and shall upon request furnish to ARM such certificates and other evidence of deduction and payment thereof as ARM may properly require. | |
| 5.15 | If any sum due under this Agreement is not paid within thirty (30) days of receipt, by LGS, of an invoice therefor then, without prejudice to ARM’s other rights and remedies, ARM reserves the right to charge interest on such sum on a day to day basis (as well after as before any judgement) from the date that such sum became due to the date of payment at the rate of two (2) per cent per annum above the base rate of Barclays Bank PLC from time to time in force. | |
| 6. | LGS Deliverables | |
| 6.1 | LGS shall deliver the LGS deliverables, to ARM, in accordance with the delivery schedule set out in Schedule 8 Part B. | |
| 6.2 | If LGS fails to deliver the LGS Deliverables in accordance with the delivery schedule set out in Schedule 8 Part B and such failure prevents ARM from meeting any of its obligations under Clause 3.1, ARM shall be permitted to extend any relevant dependent dates in the Delivery Schedule for such period as is reasonable. | |
| 6.3 | To the extent that it does not result in a disclosure of Confidential Information or a breach of LGS’s or any third party Intellectual Property, nothing in this Agreement shall be construed to prevent ARM from using, in furtherance of ARM’s normal business, ideas and know-how gained during the performance of the ARM Services and development of the ARM Deliverables and Software. | |
| 7. | Provision of LGS Services | |
| 7.1 | For the duration of this Agreement LGS shall provide the LGS Services, as required by ARM. | |
| 7.2 | LGS shall apply reasonable skill and care in the provision of the LGS Services to ARM. |
10
| 7.3 | ARM shall provide, to LGS, all necessary accurate information, support and cooperation that may be reasonably required to enable LGS to provide the LGS Services to ARM. | |
| 8. | Intellectual Property and Licences | |
| General | ||
| 8.1 | Except as set out in this Agreement, all right, title and interest in any Intellectual Property in any or all of the ARM Deliverables and ARM Software shall vest in and be owned by ARM. | |
| ARM720T Core Licence | ||
| 8.2 | Except to the extent that such terms and conditions have been varied by the terms of this Agreement, ARM hereby grants to LGS a licence, in respect of the ARM720T Core, the Modified ARM720T Core and/or the ARM720T Core Transfer Materials, upon the terms and conditions set out in Clause 2 of the 1996 Agreement (mutatis mutandis) in respect of the ARM7TDMI Core, the Modified ARM7TDMI Core and the ARM7TDMI Core Transfer Materials. | |
| ARM Software Licence | ||
| 8.3 | Except to the extent that such terms and conditions have been varied by the terms of this Agreement, ARM hereby grants to LGS a licence, in respect of the ARM Software, upon the terms and conditions set out in the 1996 Agreement (mutatis mutandis) in respect of the Models, Embedded ICE, PID7T, Configurable Device Programs, and Verification and Test as defined in the 1996 Agreement except that LGS shall also have the right to modify the ARM Software and the rights granted under the 1996 Agreement shall apply mutatis mutandis to any modified ARM Software developed by LGS by exercising such right. | |
| Piccolo Core Licence | ||
| 8.4 | In consideration of the payment in accordance with the provisions set out in Schedule 7 in respect of the Piccolo Core, ARM hereby grants to, LGS, subject to the terms and conditions of the 1996 Agreement mutatis mutandis a non-transferable, non-exclusive, world-wide licence, with the right to sub-license to LGS’s Subsidiary, to use, modify (subject to the provisions of Clauses 2.2 and 2.3 of the 1996 Agreement mutatis mutandis) and copy the Piccolo Core and/or the Piccolo Transfer Materials for the purposes of creating, developing, having developed, manufacturing, having manufactured (subject to the provisions of Clauses 2.4 and 2.5 of the 1996 Agreement mutatis mutandis), and selling, supplying and distributing to any third party, ARM Compliant Products or any other semiconductor products. | |
| Software Modem Licence | ||
| 8.5 | In the event that ARM owns or has secured the right from a third party to sub-licence, a 56K6bps software modem, ARM shall not unreasonably withhold a licence, to LGS, in respect of such 56K6bps software modem on usual commercial terms. |
11
| Software Licence | ||
| 8.6 | LGS hereby acknowledges and represents that ARM has advised LGS that an OEM Agreement with Microsoft is necessary in order to obtain license rights to the Microsoft WinCE software and that LGS’s intended customers should communicate with Microsoft concerning such a proposed license agreement prior to signature of this Agreement. | |
| 8.7 | ARM shall use reasonable efforts to secure the rights from Microsoft, subject to Microsoft’s rights and interests in the Device Driver Software to sub-license, to Recipient the non-exclusive, non-transferable, worldwide right under ARM’s Intellectual Property, to copy, use, modify, sell, supply and distribute the Device Driver Software in conjunction with software licensed from Microsoft. ARM shall use reasonable efforts to assist LGS in entering into a Microsoft Windows CE Development and Testing Agreement (or its equivalent) with Microsoft. |
| 8.8 | ARM shall use reasonable efforts to secure the rights from Microsoft, subject to Microsoft’s rights and interests in the OAL Software to sub-license, to Recipient, the non-exclusive, non-transferable, worldwide right under Intellectual Property jointly owned by ARM and Microsoft, to copy, use, modify, sell, supply and distribute the OAL Software in conjunction with software licensed from Microsoft. ARM shall use reasonable efforts to assist LGS in entering into a Microsoft Windows CE Development and Testing Agreement (or its equivalent) with Microsoft. | |
| ARM7201TDSP Device Licence | ||
| 8.9 | Except to the extent that such terms and conditions are varied by the terms and conditions of this Agreement, the ARM7201TDSP Device shall be deemed to be an ARM Compliant Product and the terms of the 1996 Agreement shall apply accordingly. | |
| 8.10 | ARM hereby grants, to LGS, under ARM’s Intellectual Property, a worldwide, non-exclusive, perpetual (subject to termination in accordance with the provisions of Clause 13), non-transferable, licence to use, modify (subject to the provisions of Clause 2.2 of the 1996 Agreement in respect of the ARM720T Core and Piccolo Core), have modified (subject to the provisions of Clause 2.4 of the 1996 Agreement mutatis mutandis and the provisions of Clause 2.2 of the 1996 Agreement mutatis mutandis in respect of the ARM720T Core and Piccolo Core), design, have designed (subject to the provisions of Clause 2.4 of the 1996 Agreement mutatis mutandis and the provisions of Clause 2.2 of the 1996 Agreement mutatis mutandis in respect of the ARM720T Core and Piccolo Core) and copy the ARM7201TDSP Transfer Materials for the purpose of exercising the licence granted below; | |
| ARM hereby grants to LGS under ARM’s Intellectual Property a worldwide, exclusive, perpetual (subject to termination in accordance with the provisions of Clause 13), transferable licence to use, modify (subject to the provisions of Clause 2.2 of the 1996 Agreement mutatis mutandis in respect of the ARM720T Core and Piccolo Core), have modified (subject to the provisions of Clause 2.4 of the 1996 Agreement mutatis mutandis and the provisions of Clause 2.2 of the 1996 Agreement mutatis mutandis in respect of the ARM720T Core and Piccolo Core) copy, manufacture, have manufactured (subject to the provisions of Clause 2.4 of the 1996 Agreement) sell, supply and distribute to third parties the ARM7201TDSP Device and any derivative of the ARM7201TDSP Device created under the licences granted in this Clause. |
12
| Other ARM Deliverables Licence | ||
| 8.11 | ARM shall, under ARM’s Intellectual Property, grants to LGS a worldwide, non-exclusive, non-transferable, paid-up and perpetual license, with the right to sub-license to LGS’s Subsidiary, to use, modify, design, have designed and copy the peripheral circuits incorporated in the ARM7201TDSP Device for the purpose of creating, developing, having developed, manufacturing, having manufactured, and selling, supplying and distributing to any third party, ARM Compliant Products and/or any semiconductor product which incorporates the peripheral circuits incorporated in the ARM7201TDSP Device. | |
| LG Affiliates’s Licence | ||
| 8.12 | LGS may exercise the right to include any LG Affiliate as a licencee of ARM provided that: |
| (i) | such LG Affiliate agrees in writing to be bound by the obligations of LGS and to comply with all the terms and conditions of this Agreement. LGS shall deliver to ARM a copy of the LG Affiliate’s undertaking within thirty (30) days of the execution of such undertaking; | ||
| (ii) | any breach of the terms and conditions of this Agreement by a LG Affiliate shall constitute a breach of this Agreement by LGS; | ||
| (iii) | any termination of this Agreement shall be effective in respect of all LG Affiliates. |
| LGS Deliverables Licence | ||
| 8.13 | All right, title and interest in any intellectual property in the LGS Deliverables shall vest in and be owned by LGS. | |
| 8.14 | LGS hereby grants, to ARM, a non-exclusive licence to use, copy and modify LGS Deliverables solely for the purpose of developing the ARM7201TDSP Device. | |
| 9. | Confidentiality | |
| 9.1 | During the course of this development, ARM and LGS may exchange information which is of a secret or confidential nature and which is neither already known to the recipient nor in the public domain either at the time of disclosure or subsequently through no fault of the recipient (the “Confidential Information”). ARM Confidential Information shall include but shall not be limited to; (i) the source code for the Software; and (ii) all underlying ideas, principles and information derived by LGS from observing, studying and testing the functioning of the Software. The party receiving Confidential Information hereunder (the “Recipient”) shall use the same standard of care, but in any event no less than a reasonable standard of care, to prevent the unauthorised use, dissemination or publication of such Confidential Information, as it uses to protect its own confidential information of a similar nature. | |
| 9.2 | The Recipient is hereby authorised to disclose such of the Confidential Information to third party sub-contractors or consultants as is necessary for the performance by the sub-contractor or consultant of any of the work under this Agreement that is assigned to it provided always that any such subcontractor or consultant is bound by provisions of confidentiality no less stringent than those provided by Clause 9.1. | |
| 9.3 | Except as provided by this Agreement the Recipient shall not commercially exploit nor permit others to commercially exploit any Confidential Information. |
13
| 9.4 | Except with the other party’s express prior written consent (which shall not be unreasonably withheld), neither party shall make any press announcements or publicise the contents or existence of this Agreement in any way. | |
| 10. | ARM Warranties and Indemnities | |
| 10.1 | Except as expressly provided in this Agreement, the ARM720T Core Transfer Materials, ARM7201TDSP Transfer Materials, Piccolo Core Transfer Materials and Software are supplied “as is” and ARM makes no representations and gives no warranties express, implied or statutory, including, without limitation, the implied warranties of satisfactory quality or fitness for a particular purpose in respect thereof. | |
| 10.2 | ARM warrants that; (i) the ARM7201TDSP Transfer Materials shall be consistent and sufficient for a competent semiconductor manufacturer to fabricate the ARM7201TDSP Device which conforms to the device specification approved by LGS in accordance with the Clause 3.2 and 3.3; (ii) the ARM720T Core Transfer Materials shall be consistent and sufficient for a competent semiconductor manufacturer to fabricate the ARM720T Core which conforms to the functionality specified in the ARM Datasheet Doc. No. ARM DDI (00XX); and (iii) the Piccolo Core Transfer Materials shall be consistent and sufficient for a competent semiconductor manufacturer to fabricate the Piccolo Core which conforms to the functionality specified in the ARM Datasheet Doc. No. ARM DDI 0089. LGS sole and exclusive remedy for any breach of this warranty shall be for ARM to correct any errors in the ARM Deliverables and deliver such corrected deliverables to LGS. | |
| 10.3 | ARM does not warrant the adequacy of any device specification, approved by LGS, with respect to LGS intended use and ARM shall not be responsible for the circuit performance of the ARM7201TDSP Device in LGS intended application. | |
| 10.4 | ARM shall not be liable for any; |
| (i) | recoverable or non-recoverable costs incurred, directly or indirectly, in the processing, or manufacture of masks and prototypes, characterisation or manufacture of production quality silicon in whatever quantity; or | ||
| (ii) | defect in the ARM7201TDSP Device caused by a fault in the LGS or LGS agent’s manufacturing process. |
| 10.5 | After the period of sixty (60) days following approval of the prototypes of the ARM7201 Device in accordance with the provisions of Clause 3.6, ARM shall not be liable for any changes necessary to any layout. | |
| 10.6 | LGS acknowledges that the Software cannot be tested in every possible operation, and accordingly ARM does not warrant that the Software will be free from all defects or that there will be no interruption in its use. ARM warrants for the period of twelve (12) months from the delivery of the Software to LGS that the Software will be complete and exhibit the functionality described in the Specification. LGS’s sole and exclusive remedy for any breach of the warranty in this Clause 10.6 shall be for ARM, as soon as is reasonably practicable, to correct any errors in the Software and deliver such corrected Software to LGS. |
14
| 10.7 | ARM warrants, to LGS, that; |
| (i) | to ARM’s knowledge (but expressly without having undertaken any searches for prior art) the Intellectual Property in the ARM720T Core Transfer Materials, ARM7201TDSP Transfer Materials, Piccolo Core Transfer Materials and Software does not infringe any third party copyright, design right, registered design right, trade secret or maskwork right; and | ||
| (ii) | as at the date of entering into this Agreement, ARM has not received written notice of any claim, and no actions have been commenced or threatened, against ARM for infringement of any third party Intellectual Property; and | ||
| (iii) | ARM has the right to enter into this Agreement. |
| 10.8 | If any part of the ARM720T Core Transfer Materials, ARM7201TDSP Transfer Materials, Piccolo Core Transfer Materials and Software becomes the subject of a claim brought against LGS on the issue of infringement of the Intellectual Property of any third party or if the use or licensing of any part of the ARM720T Core Transfer Materials, ARM7201TDSP Transfer Materials, Piccolo Core Transfer Materials and Software is restricted in any way, then ARM at its option and expense may; |
| (i) | obtain for LGS the right to continue to use the ARM720T Core Transfer Materials, ARM7201TDSP Transfer Materials, Piccolo Core Transfer Materials and Software; | ||
| (ii) | replace or modify the ARM720T Core Transfer Materials, ARM7201TDSP Transfer Materials, Piccolo Core Transfer Materials and Software so that they become non-infringing; or | ||
| (iii) | offer reasonable compensation to LGS for the direct loss suffered by LGS up to a maximum of all sums paid by LGS to ARM under this Agreement. |
ARM shall have no liability under this Clause it the alleged infringement results from;
| (a) | compliance with the LGS requirement specification or the Specification, as the case may be, and such alleged infringement is unavoidable in providing such compliance; | ||
| (b) | the combination, use or operation of the ARM720T Core Transfer Materials, ARM7201TDSP Transfer Materials, Piccolo Core Transfer Materials and Software in connection or combination with any equipment, device or software not developed and supplied by ARM and such alleged infringement would have been avoided in the absence of such combination; or | ||
| (c) | the modification of the ARM720T Core Transfer Materials, ARM7201TDSP Transfer Materials, Piccolo Core Transfer Materials and Software by the LGS or any third party unless the modification was made or approved by ARM, | ||
| (d) | infringement by any manufacturing process applied to the ARM720T Core Transfer Materials, ARM7201TDSP Transfer Materials, Piccolo Core Transfer Materials and Software. |
| 10.9 | The foregoing states the entire liability of ARM for infringement by the Intellectual Property in the ARM Deliverables and Software, of third party Intellectual Property. |
15
| 11. | LGS Warranties and Indemnities | |
| 11.1 | LGS warrants, to ARM, that; |
| (i) | to LGS knowledge (but expressly without having undertaken any searches for prior art), the Intellectual Property in the LGS Deliverables does not infringe any third party copyright, design right, registered design right, maskwork right, or trade secret; and | ||
| (ii) | LGS has the right to enter into this Agreement. |
| 11.2 | If compliance, by ARM, with LGS designs, specifications or instructions, or use, by ARM, of Intellectual Property received from LGS or LGS agent, results in ARM being subject to a claim for infringement of any Intellectual Property of a third party, LGS, at its option and expense, may; |
| (i) | obtain for ARM the right to continue to use the LGS Deliverables; | ||
| (ii) | replace or modify the LGS Deliverables so that they become non-infringing; or | ||
| (iii) | offer reasonable compensation to ARM for the direct loss suffered by ARM up to a maximum of all sums paid by LGS to ARM under this Agreement. |
| 11.3 | The foregoing states the entire liability of LGS for infringement by the Intellectual Property in the LGS Deliverables, of third party Intellectual Property. | |
| 12. | Limitation of Liability | |
| 12.1 | IN NO EVENT SHALL EITHER PARTY BE LIABLE UNDER THE AGREEMENT FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES WHETHER SUCH DAMAGES ARE ALLEGED AS A RESULT OF TORTIOUS CONDUCT OR BREACH OF CONTRACT OR OTHERWISE EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SUCH DAMAGES SHALL INCLUDE BUT SHALL NOT BE LIMITED TO THE COST OF REMOVAL AND REINSTALLATION OF GOODS, LOSS OF GOODWILL, LOSS OF PROFITS, LOSS OR USE OF DATA, INTERRUPTION OF BUSINESS OR OTHER ECONOMIC LOSS BUT NOTHING IN THIS CLAUSE SHALL OPERATE TO EXCLUDE LIABILITY FOR DEATH OR PERSONAL INJURY RESULTING FROM EITHER PARTY’S NEGLIGENCE. | |
| 12.2 | EACH PARTY’S LIABILITY FOR THE AGGREGATE OF ALL CLAIMS IN ANY WAY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT SHALL NOT EXCEED THE SUM OF ALL FEES PAID TO ARM BY LGS UNDER THE PROVISIONS OF THIS AGREEMENT. | |
| 13. | Term and Termination | |
| 13.1 | This Agreement shall commence on the Effective Date and shall continue in force until termination in accordance with the provisions of Clause 13.2. | |
| 13.2 | Without prejudice to any other right or remedy which may be available to it and except as provided to the contrary elsewhere in this Agreement, either party shall be entitled summarily to terminate this Agreement by giving written notice to the other; |
| (i) | If the other party has committed a material breach of any of its obligations hereunder which is not capable of remedy; or |
16
| (ii) | if the other party has committed a material breach of any of its obligations hereunder which is capable of remedy but which has not been remedied within a period of thirty (30) days following receipt of written notice to do so; or | ||
| (iii) | if the other party makes any voluntary arrangement with its creditors or becomes subject to an administration order; or | ||
| (iv) | if the other party has an order made against it, or passes a resolution, for its winding-up (except for the purpose of bona fide solvent amalgamation or reconstruction) or has an encumbrancer take possession or has a receiver or similar officer appointed over a material part of its property or assets. |
| 13.3 | LGS and ARM acknowledge that each and every term and condition of this Agreement has been fully and completely negotiated and such terms and conditions closely related to each other. In the event that the Korean Governmental authorities, including the Korean Fair Trade Commission, during the review of this Agreement require a modification to one or more of the clauses of this Agreement, ARM shall have the option to renegotiate the entire Agreement or accept the applicable modification of the Agreement as required by such governmental authorities. | |
| 14. | Effect of Termination | |
| 14.1 | Upon termination of this Agreement by ARM In accordance with the provisions of Clause 13.2, the license and rights granted by ARM to LGS hereunder shall terminate. LGS shall, at ARM’s option, either destroy or return to ARM any Confidential Information, including any copies thereof and any ARM Deliverables in LGS’s possession. Within one month after termination of this Agreement in accordance with this Clause 14.1, LGS will furnish to ARM a certificate signed by a duly authorised officer of LGS that to the best of his or her knowledge, information and belief, LGS has complied with provisions of this Clause. | |
| 14.2 | Upon termination of this Agreement, by LGS under the provisions of Clause 13.2; (i) the rights granted to LGS under Clause 8 (except the licence granted under Clause 8.4) shall survive such termination; (ii) LGS shall be entitled to retain any ARM Deliverables delivered by ARM to LGS prior to such termination; and (iii) ARM shall deliver any then partially completed ARM Deliverables to LGS. The licence granted under Clause 8.4 shall survive only in respect of any semiconductor product which is already under development by LGS at the date of termination under the provisions of this Clause and the survival of such licence shall be subject to a continuing obligation for LGS to pay the appropriate fee in the event that such product is the subject of a Design Win Event. | |
| 14.3 | The provisions of Clauses 1, 5 (to the extent that any payment has accrued and is outstanding) 8, 9, 10, 11, 12, 13, 14 and Schedule 12 shall survive termination of this Agreement. |
17
| 15. | General |
Notices
|
All notices which are required to be given hereunder shall be in writing and shall be sent to the address of the recipient set out in this Agreement or such other address as the recipient may designate by notice given in accordance with the provisions of this Clause. Any such notice may be delivered personally, by commercial overnight courier, or facsimile transmission which shall be followed by a hard copy and shall be deemed to have been served if by hand when delivered, if by commercial overnight courier 48 hours after deposit with such courier, and it by facsimile transmission when transmitted. | |
Assignment
|
Neither party shall assign or otherwise transfer this Agreement or any of its rights and obligations hereunder whether in whole or in part without the prior written consent of the other, such consent not to be unreasonably withheld. | |
Non-association
|
ARM and LGS are independent parties. Neither party’s company nor their employees, consultants, contractors or agents, are agents, employees or joint venturers of the other party, nor do they have the authority to bind the other party by contract or otherwise to any obligation. Neither party shall represent to the contrary, either expressly, or implicitly. | |
Waiver
|
Failure by either party to enforce any provision of this Agreement shall not be deemed a waiver of the right to enforce that or any other provision in the future. | |
Force Majeure
|
ARM shall not be liable to LGS for any delay in or failure to perform its obligations under this Agreement as a result of any cause beyond ARM’s reasonable control, including but not limited to any industrial dispute or failure by a supplier to deliver a relevant deliverable to ARM on time. If such delay continues for a period of more than ninety (90) days, then either party shall be entitled to terminate this Agreement by written notice and the provisions of Clause 14.2 shall apply. | |
Entire Agreement
|
These terms and conditions apply in preference to and supersede any terms and conditions referred to, offered or relied upon by LGS whether in negotiation or at any stage in the dealings between ARM and LGS with reference to this Agreement. Without prejudice to the generality of the foregoing, ARM will not be bound by any standard or printed terms and conditions furnished by LGS in any of its documents. No amendment to, or modification of, this Agreement shall be binding unless in writing and signed by a duly authorised representative of both parties. | |
Severance
|
If any provision of this contract is held invalid, illegal or unenforceable for any reason by any court of competent jurisdiction such provision shall be severed and the remainder of the provisions shall continue in full force and effect as if this Agreement had been executed with the invalid provisions eliminated. In the event of a holding of invalidity so fundamental as to prevent the accomplishment of the purpose of this Agreement, ARM and LGS shall immediately commence good faith negotiations to remedy such invalidity. | |
English Law
|
This Agreement shall be considered as a contract made in England and according to English Law. In the event that ARM commences proceedings against LGS under this Agreement, the parties agree to submit to the jurisdiction of the Seoul District Court, Korea, for the purpose of hearing and determining |
18
| any disputes arising out of this Agreement. In the event that LGS commence proceedings against ARM under this Agreement, the parties agree to submit to the jurisdiction of the High Court of Justice, London, England, for the purpose of hearing and determining any disputes arising out of this Agreement. |
IN WITNESS WHEREOF the parties have caused this Agreement to be signed by their duly
authorised representative:
| ADVANCED RISC MACHINES LIMITED | LG SEMICON CO., LIMITED | |||||||||
BY:
|
/s/ R.K.Saxby | BY: | /s/ B. D. Sun | |||||||
NAME:
|
R.K.Saxby | NAME: | Sun Byung-Don | |||||||
TITLE:
|
President & Ceo | TITLE: | Executive Vice President | |||||||
Exhibit 10.12
TECHNOLOGY LICENCE AGREEMENT
between
ADVANCED RISC MACHINES LIMITED
and
LG SEMICON COMPANY LIMITED
dated
5th OCTOBER 1995
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
| This Technology Licence Agreement (the “Agreement”) is made the 5th day of October 1995 | ||
| BETWEEN | ||
| ADVANCED RISC MACHINES LIMITED whose registered office is situated at Fulbourn Road, Cherry Hinton, Cambridge CB1 4JN, England (“ARM”) | ||
| and. | ||
| LG SEMICON COMPANY LIMITED whose principal place of business is situated at 16 Woomyeon-dong, Seocho-gu, Seoul 137-140, Korea (“LGS”) | ||
| WHEREAS | ||
| ARM is the owner of certain Intellectual Property, Intellectual Property Derivatives and the know-how to manufacture the ARM Cores, AMBA and the Peripherals as such terms are defined below. | ||
| LGS has requested ARM, and ARM has agreed, to license LGS to manufacture and distribute certain ARM products and thereby to make use of certain portions of the Intellectual Property and Intellectual Property Derivatives as set forth in this Agreement. | ||
| Therefore, in consideration of the mutual representations, warranties, covenants, and other terms and conditions contained herein, the parties agree as follows: | ||
1.
|
Definitions | |
1.1
|
“ARM Compliant Product” shall mean any single silicon chip developed by LGS which: | |
| (i) contains, at a minimum, an ARM Core or Modified ARM Core; and | ||
| (ii) implements an ARM Core or Modified ARM Core which has been verified in accordance with the provisions of Clause 3. | ||
1.2
|
“ARM7 Core” shall mean the device as described and identified in the ARM7 datasheet: | |
| ARM DDI-0020C. | ||
1.3
|
“ARM7l0a Core” shall mean the device as described and identified in the ARM710a Macrocell datasheet: ARM DDI — 0033C. | |
1.4
|
“ARM Core(s)” shall mean, jointly and severally where the context admits, the ARM7 and ARM710a Cores. | |
1.5
|
“ARM Instruction Set” shall mean the instruction set as defined in the ARM7 datasheet | |
1.6
|
“Authorized Distributor” shall mean those distributors appointed, in writing, by LGS. | |
1.7
|
“Confidential Information” shall mean: (i) any trade secrets relating to the ARM Cores and Transfer Materials (ii) any information designated in writing by either party as confidential which if disclosed verbally is reduced to writing within thirty (30) days after its oral disclosure; and (iii) the terms and conditions of this Agreement | |
ARM/LGS
Confidential
Page 1
1.8
|
“Effective Date” shall mean the date of this Agreement or the date upon which the Korean Government gives approval to this Agreement, whichever is the later, subject always to the provisions of Clause 18.4. | |
1.9
|
“End User Licence” shall mean a licence agreement substantially conforming to that agreement set forth in Schedule 9. | |
1.10
|
“Half Year” shall mean each calendar half year ending the 30th June and 31st December of any year. | |
1.11
|
“HP” shall mean any Hewlett Packard compatible computer running HP-UX v9.0.3 (and later versions as may be mutually agreed). | |
1.12
|
“IBM PC” shall mean any computer, 486 (or above) processor based IBM AT architecture, having, at a minimum, 16Mb RAM, 10Mb hard disc space and running Microsoft DOS v6.2 (and later versions as may be mutually agreed) and, where appropriate, Microsoft Windows v3.11, Windows 95 or Windows NT. ARM will use reasonable endeavours, in collaboration with LGS, to ensure the Software operates on reputable IBM PC compatible computers provided that such operation is not constrained by significant hardware or software deficiencies. | |
1.13
|
“Intellectual Property” shall mean any patents, patent rights, trade marks, service marks, registered designs, topography or semiconductor maskwork rights, applications for any of the foregoing, copyright, know-how, unregistered design right, confidential information, any Intellectual Property Derivatives, and any other similar protected rights in any country, which are taken into use in the design, use or production of ARM Cores, AMBA, Peripherals, Software or Transfer Materials. | |
1.14
|
“Intellectual Property Derivatives” shall include: (i) for copyrightable or copyrighted material, any translation, abridgement, revision or other form in which an existing work may be recast, transformed or adapted; (ii) for work protected by topography or mask right, any translation, abridgement, revision or other form in which an existing work may be recast, transformed or adapted; (iii) for patentable or patented material, any improvement created by ARM; and (iv) for material protected by trade secret any new material derived from or employing such existing trade secret. | |
1.15
|
“LG Affiliate” shall mean each of the companies set forth in Schedule 13. | |
1.16
|
“LG Group Company” shall mean each of the companies identified in Schedule 10. | |
1.17
|
“LGS Users” shall mean LGS (or any LG Group Company) when incorporating an ARM Compliant Product, distributed pursuant to this Agreement, for use in LGS’s (or such LG Group Company’s) end user products. | |
1.18
|
“LGS Materials” shall mean such of the Transfer Materials (or any additional materials) as are necessary to enable ARM, in respect of any Modified ARM Core and modified Peripheral, to exercise the rights set forth in Clause 2.3. | |
1.19
|
“Models” shall mean the source code and object code of the programs described in Schedule 4 together with such Updates, if any, as are developed by or for ARM. | |
1.20
|
“Modified ARM Core” shall mean any ARM Core modified in accordance with the provisions of Clause 2.2. | |
1.21
|
“NSP” shall mean the net sales price of any ARM Compliant Product calculated by taking the aggregate invoice price charged on arm’s length terms by LGS and its Subsidiaries in the sale or distribution of any ARM Compliant Product, less any (i) value added, turnover, import, or other tax, duty or tariff payable thereon (ii) freight and insurance costs incurred |
ARM/LGS
Confidential
Page 2
| and (iii) amounts actually repaid or credited with respect to any ARM Compliant Products returned. | ||
| In the event that ARM, in its discretion, considers that the NSP for any ARM Compliant Product charged to LGS Users is materially below the open market value for such ARM Compliant Product, the NSP shall be deemed to be: in the case of the sale or distribution of any ARM Compliant Product to LGS Users, the net sales price for such ARM Compliant Product sold by LGS to third parties; and in the case of the sale or distribution of ARM Compliant Products manufactured for, and supplied solely to, LGS Users, at a minimum, the sum of: | ||
| (i) the cost of materials and the cost of fabrication or such other processing of such ARM Compliant Product; and | ||
| (ii) an amount for general expenses and profit equal to that usually reflected in the sales to third parties of products of the same general class or kind as the ARM Compliant Product; and | ||
| (iii) the cost of all packaging. | ||
1.22
|
“Peripherals” shall mean the macrocells designs as each are described and identified in Schedule 2. | |
1.23
|
“PIE Card” shall mean the device identified in the ARM7 PIE Card User Guide: ARM DUI - 0011B together with the Release Notes for the ARM710a PIE Card Kit. | |
1.24
|
“Software” shall mean together the Models, Tools and Test. | |
1.25
|
“Subsidiary” shall mean any company the majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by a party hereto or any company a majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by any of the aforementioned entities. A company shall be considered a Subsidiary only so long as such control exists. | |
1.26
|
“Sun/SPARC” shall mean any Sun/SPARC compatible computer running SunOS v4.1.3_ul (and later versions as may be mutually agreed). | |
1.27
|
“Test” shall mean the source code and object code of the programs described in Schedule 6 together with such Updates, if any, as are developed by or for ARM. | |
1.28
|
“Tools” shall mean the Sun/SPARC, IBM PC and HP versions of source code and object code of the programs described in Schedule 5 together with such Updates, if any, as are developed by or for ARM. | |
1.29
|
“Trademarks” shall mean the trademarks, service marks and logos set forth in Schedule 7. | |
1.30
|
“Transfer Materials” shall mean that technical information with respect to the ARM Cores, AMBA and Peripherals as set forth in Schedule 3. | |
1.31
|
“Updates” shall mean any bug fixes or enhancements to the Software the incorporation of which ARM, in its absolute discretion, decides does not cause to be created a new product. | |
1.32
|
“Use” shall mean copying the programs identified in Schedule 4 and Schedule 5 Part A onto a computer for the purposes of processing the instructions or statements contained therein, but excluding disassembly, reverse assembly, or reverse compiling except as permitted by local legislation implementing Article 6 of the EC Software Directive and only to the extent necessary to achieve interoperability of an independently created program with other |
ARM/LGS
Confidential
Page 3
| programs. Disassembly, reverse assembly, or reverse compiling for the purpose of error correction is specifically prohibited. | ||
1.33
|
“Validation Vectors” and “Functional Test Vectors” shall mean those test patterns identified in Schedule 3 as items B7a, B7b, B9, D7a and D7b respectively. | |
1.34
|
“AMBA” shall mean ARM’s Advanced Module Bus Architecture as identified in the AMBA Draft Specification, document reference ARM IHI-0001C, and any future version thereof released by ARM. | |
2.
|
Licence |
2.1
|
ARM hereby grants to LGS, under ARM’s Intellectual Property rights, a perpetual (subject to Clause 18), non-transferable (subject to Clause 20.3), non-exclusive, world-wide right and licence to: | |
(i) use, modify (subject to the provisions of Clauses 2.2 and 2.3) and copy the Transfer
Materials and/or any Intellectual Property solely for the purposes of creating,
developing, manufacturing, having manufactured (subject to the provisions of
Clauses 2.4 and 2.5), and selling, supplying and distributing to any third party
(subject to the provisions of Clause 2.6), ARM Compliant Products; |
||
(ii) use and copy the Transfer Materials and/or any Intellectual Property specific to
AMBA for the purposes of creating, developing, manufacturing, having manufactured
(subject to the provisions of Clauses 2.4 and 2.5), and selling, supplying and
distributing to any third party any product developed by LGS; |
||
(iii) modify, translate, reproduce and distribute, subject to the confidentiality obligations
set forth in Clause 14, the documentation identified in Schedule 3. |
||
2.2
|
LGS may modify: | |
(i) the internal logic of any ARM Core and/or Peripheral; |
||
(ii) the layout of any ARM Core and/or Peripheral where necessary for the purposes of
manufacturing such ARM Core or Peripheral on another CMOS process; |
||
(iii) the ARM710a Core (provided that ARM7 Core contained therein shall not be modified except as provided by (i) and (ii) above). |
||
| PROVIDED ALWAYS THAT the ARM7 Core retains compatibility with the ARM Instruction Set. A modified ARM Core will be deemed compatible provided that ARM7 Core contained therein (i) executes each and every instruction contained in the ARM7 Core’s Instruction Set; (ii) executes the instructions at an identical rate of clocks per instruction as the ARM7 Core from which it was derived; and (iii) runs the Validation Vectors and Functional Test Vectors. | ||
2.3
|
LGS hereby grants to ARM, in respect of all modifications made to the ARM Cores and Peripherals (“Modifications”), a perpetual and irrevocable, royalty-free, non-transferable, non-exclusive, world-wide right and licence to manufacture, have manufactured, modify, create derivative works of, use, sell, supply and distribute all Modifications and sub-license others to exercise similar rights with respect to such Modifications. In pursuance of the licence to all Modifications hereby granted, LGS shall: | |
2.3.1
prior to any prototype production of the first ARM Compliant Product including any
Modification, deliver to ARM, in writing, a full technical description of such
proposed Modification; and |
ARM/LGS
Confidential
Page 4
2.3.2 within thirty (30) days of the first shipment of the first ARM Compliant Product
including any Modification, deliver to ARM the LGS Materials for such ARM
Compliant Product including the Modification. |
||
| For the avoidance of doubt, nothing in this Clause 2.3 shall be construed as granting to ARM any right or licence to any peripheral devices owned by LGS which are integrated around the ARM Core. | ||
2.4
|
LGS may exercise its right to have manufactured ARM Compliant Products provided that: | |
(i) LGS notifies ARM of the identity of LGS’s subcontracted manufacturer
(“Manufacturer”) not less than thirty (30) days prior to first prototype production by
the Manufacturer, and |
||
(ii) LGS ensures that any Manufacturer agrees (i) to be bound by the same obligations of
confidentiality as are contained in this Agreement and (ii) to supply the ARM
Compliant Products solely to LGS. |
||
| In the event that any Manufacturer breaches the provisions referred to in Clause 2.4, LGS agrees that such breach shall be treated as a material breach of this Agreement by LGS which is incapable of remedy. Further LGS hereby undertakes to keep ARM indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to such breach. | ||
| For the avoidance of doubt, in the event that LGS subcontracts only the packaging of ARM Compliant Products to a third party, LGS shall be released from the obligations of this Clause 2.4. | ||
2.5
|
In the event that LGS subcontracts the packaging of ARM Compliant Products, LGS shall | |
(i) ensure that the packaging company agrees to supply the ARM Compliant Products
solely to LGS; and |
||
(ii) undertake to keep ARM indemnified against all and any loss, liability, costs,
damages, expenses (including the fees of lawyers and other professionals), suffered,
incurred or sustained as a result of or in relation to the breach of the provisions of
Clause 2.5(i). |
||
2.6
|
Notwithstanding anything to the contrary contained in this Agreement, for a period of fifteen (15) calendar months from the Effective Date, LGS shall not sell, supply or distribute any ARM Compliant Product to any third party other than a LGS User or ARM and/or its Subsidiaries. In the event that any LG User distributes any ARM Compliant Product, other than either (i) as a constituent part of LGS’s (or such LG Group Company’s) end user products or (ii) to ARM and/or its Subsidiaries, within the period specified in this Clause 2.6, LGS agrees that such use or distribution shall be treated as a material breach of this Agreement by LGS which is incapable of remedy thus entitling ARM to summarily terminate this Agreement in accordance with the provisions of Clause 18.2. | |
2.7
|
For the avoidance of doubt, no right is granted to LGS to: | |
(i) sublicense the rights licensed to LGS pursuant to Clause 2.1; |
||
(ii) distribute any ARM Compliant Product prior to verification in accordance with
Clause 3 except that in the event that it is the intention of LGS, and LGS do proceed,
to verify a device in accordance with Clause 3, LGS may distribute (subject always to
the provisions of Clause 2.6) a maximum of one hundred (100) prototype units of
such device without having verified such device. |
ARM/LGS
Confidential
Page 5
2.8
|
Save as licensed in Clause 2.1, LGS acquires no right, title or interest in and to the ARM Cores, AMBA, Peripherals, Transfer Materials and Intellectual Property. In no event shall the licence grant set forth in Clause 2.1 be construed as granting LGS, expressly or by implication, estoppel or otherwise, a licence to use any ARM technology or intellectual property other than that pertaining to the ARM Cores, AMBA and Peripherals. | |
2.9
|
During the term of this Agreement, LGS may exercise the right to include any Subsidiary as a licenece of ARM provided that: | |
(i) such Subsidiary agrees in writing, as set forth in Schedule 1, to be bound by the
obligations of LGS and to comply with all the terms and conditions of this
Agreement. LGS shall deliver to ARM a copy of the Subsidiary’s undertaking within
thirty (30) days of the execution of such undertaking; |
||
(ii) any breach of the terms and conditions of this Agreement by a Subsidiary shall
constitute a breach of this Agreement by LGS; |
||
(iii) any termination of this Agreement as provided by Clause 18 shall be effective in
respect of all Subsidiaries; |
||
(iv) any licence, granted in accordance with the provisions of this Clause 2.9, shall
automatically terminate upon any Subsidiary ceasing to be a Subsidiary. |
||
2.10
|
During the term of this Agreement, but subject to the provisions of Clause 2.11, LGS may exercise the right to include any LG Affiliate as a licencee of ARM provided that: | |
(i) such LG Affiliate agrees in writing, as set forth in Schedule 14, to be bound by the
obligations of LGS and to comply with all the terms and conditions of this
Agreement. LGS shall deliver to ARM a copy of the LG Affiliate’s undertaking
within thirty (30) days of the execution of such undertaking; |
||
(ii) any breach of the terms and conditions of this Agreement by a LG Affiliate shall
constitute a breach of this Agreement by LGS; |
||
(iii) any termination of this Agreement as provided by Clause 18 shall be effective in
respect of all LG Affiliates; |
||
(iv) any licence, granted in accordance with the provisions of this Clause 2.10, shall
automatically terminate upon any LG Affiliate ceasing to be a member of the LG
Group. |
||
2.11
|
LGS shall not be entitled to exercise the rights granted under Clause 2.10 unless and until ARM and LGS have agreed, in writing, upon the critieria to determine the point at which a LG Affiliate ceases to be a member of the LG Group. The parties shall negotiate in good faith with the objective of agreeing such criteria as soon as is reasonably practicable. | |
2.12
|
ARM hereby grants to LGS, under ARM’s Intellectual Property rights, a perpetual (subject to Clause 18), non-transferable (subject to Clause 20.3), non-exclusive, world-wide right and licence to: | |
| (i) manufacture and have manufactured, the PIE Card; and | ||
| (ii) supply the PIE Card within the LG Group: and | ||
| (iii) supply the PIE Card, free of charge, solely for evaluation purposes, to any LG Group customers; and |
ARM/LGS
Confidential
Page 6
| (iv) | reproduce and distribute, and sub-license (provided that the end user agrees to be bound by the End User Licence) the use of the object code of the PIE Card software; | |
| (v) | reproduce and distribute, in connection with the PIE Card, the documentation relevant thereto. |
| For the avoidance of doubt, no right or licence is granted to LGS to distribute the PIE Card to third parties for revenue or other consideration. | ||
3.
|
Verification of ARM Compliant Products | |
3.1
|
LGS shall develop, manufacture and characterize an ARM710a Core test chip (the “Test Chip”) which complies with the test chip specification set forth in Schedule 3 (Item D16). | |
3.2
|
LGS shall run the Validation Vectors and Functional Test Vectors (together the “Vectors”), on the Test Chip and deliver to ARM a copy of the log (“the Log Results”) generated by running the Vectors together with five (5) samples of the applicable Test Chip. ARM may, at ARM’s discretion, exercise the right to run the Vectors on the Test Chip. The ARM Core shall be verified for a that process upon ARM’s acceptance of either the Log Results (i) delivered by LGS or (ii) generated by ARM. The Log Results shall be accepted when they indicate that no errors have been detected or where any errors detected have been jointly agreed, in good faith, and a waiver agreed between the parties. ARM shall notify LGS, in writing, within thirty (30) days of delivery by LGS of the Log Results and Test Chip samples to ARM (the “Verification Period”), whether the Test Chip has been verified or has failed the verification process. In the event that the Test Chip fails the verification process, ARM shall provide details of the errors which cause the failure to LGS and LGS shall endeavour to correct the errors with ARM’s assistance as provided under the terms of Clause 12. The parties shall repeat the above process until either: (i) the Test Chip is verified; or (ii) LGS withdraws the Test Chip from the verification process. In the event that ARM fails to confirm the result of the verification process within the Verification Period, the Test Chip subject to the verification process shall be deemed verified. | |
3.3
|
Provided that: (a) the Test Chip has been verified in accordance with the provisions of Clause 3.2; and (b) the ARM Compliant Product containing the ARM Core contained in the Test Chip runs the Functional Test Vectors and they indicate that no errors have been detected (or where any errors detected have been jointly agreed, in good faith, and a waiver agreed between the parties); except as hereafter provided, LGS may distribute such ARM Compliant Product without further verification. However, in the event that LGS modifies the internal logic of the ARM7 Core or ports any ARM Core to a new process LGS shall not be entitled to distribute any such modified or ported ARM Compliant Product until: |
| (i) | in respect of an ARM Compliant Product containing the ARM710a Core, a Test Chip has been verified in accordance with the provisions of Clause 3.2; or | |
| (ii) | in respect of an ARM Compliant Product containing the ARM7 Core (other than an ARM Compliant Product as specified in Clause 3.3(i)), an ARM7 test chip, which complies with the test chip specification set forth in Schedule 3 (Item B12), has been verified, mutatis mutandis, in accordance with the provisions of Clause 3.2. | |
3.4
|
LGS shall provide to ARM, free of charge, fifty (50) samples of each Test Chip manufactured by LGS on each process utilized for such manufacture so that ARM, at its option, may, inter alia, test the compatibility of each Test Chip with the ARM Instruction Set. For the avoidance of doubt, there shall be no restriction on ARM’s use of such samples provided that ARM shall not reverse engineer such Test Chips. | |
ARM/LGS
Confidential
Page 7
4.
|
Models Licence | |
4.1
|
ARM hereby grants to LGS a non-transferable (subject to Clause 20.3), non-exclusive, world-wide right and licence under the ARM’s Intellectual Property rights, to: | |
| (i) reproduce, modify and use, internally and for third party support purposes, the Models and relevant documentation; | ||
| (ii) reproduce and distribute, and sub-license (provided that the end user agrees to be bound by the End User Licence) the Use of the object code of the Models including any modified versions thereof; | ||
| (iii) modify, reproduce, use and distribute, in connection with the Models including any modified versions thereof, the documentation (including any modified documentation) relevant thereto; | ||
| (iv) sub-license the distribution rights granted to LGS under Clauses 4.1(ii) and (iii) to Authorized Distributors only. | ||
4.2
|
For the avoidance of doubt, except as provided by Clause 4.1(iv), no right is granted to LGS to sub-license the right to sell, supply or otherwise distribute the Models. | |
5.
|
Tools Licence | |
5.1
|
ARM hereby grants to LGS a non-transferable (subject to Clause 20.3), non-exclusive, world-wide right and licence under the ARM’s Intellectual Property rights, to: | |
-
|
(i) reproduce and use the Tools and relevant documentation, internally and for third party support purposes; | |
| (ii) modify the Tools solely for the purpose of providing Hangul language support and incorporating any LGS logo; | ||
| (iii) reproduce and distribute, and sub-license (provided that the end user agrees to be bound by the End User Licence) the Use of the object code of the Tools identified in Schedule 5 Part A (including the Tools modified in accordance with Clause 5.l(ii)); | ||
| (iv) reproduce and distribute, and sub-license (provided that the end user agrees to be bound by the End User Licence) the use of the Tools identified in Schedule 5 Part B (including the Tools modified in accordance with Clause 5.1 (ii)); | ||
| (v) modify, reproduce, use and distribute the Tools documentation (including any modified Tools documentation); | ||
| (vi) sub-license the distribution rights granted to LGS under Clauses 5.1(iii) — (v) to Authorized Distributors only. | ||
5.2
|
For the avoidance of doubt, except as provided by Clause 5.1(vi), no right is granted to LGS to sub-license the right to sell, supply or otherwise distribute the Tools. | |
6.
|
Test Licence | |
6.1
|
ARM hereby grants to LGS a non-transferable (subject to Clause 20.3), non-exclusive, world-wide right and licence under the ARM’s Intellectual Property rights, to reproduce, modify, have modified, and use internally only, the Test and relevant Test documentation (including modified Test and modified Test documentation). |
ARM/LGS
Confidential
Page 8
6.2
|
For the avoidance of doubt, no right is granted to LGS to sell, supply or otherwise distribute the Test. | |
7.
|
Ownership of the Software | |
7.1
|
In no event shall the licence grants set forth in Clauses 4.1, 5.1 and 6.1 be construed as granting LGS, expressly or by implication, estoppel or otherwise, a licence under any ARM technology other than the Software and related documentation. | |
7.2
|
Except as licensed to LGS in Clauses 4.1, 5.1 and 6.1 all right, title and interest in and to the Software and related documentation shall remain vested in ARM. | |
7.3
|
LGS shall reproduce and not remove or obscure any notice incorporated in the Software or related documentation by ARM to protect ARM’s Intellectual Property Rights or to acknowledge the copyright and/or contribution of any third party developer. LGS shall incorporate corresponding notices and/or such other markings and notifications as ARM may reasonably require on all copies of Software and related documentation used or distributed by LGS. | |
8.
|
Trademark Licence | |
8.1
|
ARM hereby grants to LGS a non-transferable (subject to Clause 20.3), non-exclusive, royalty-free, world-wide right and licence under ARM’s Intellectual Property rights, to use the Trademarks in the promotion and sale of ARM Compliant Products. | |
8.2
|
LGS shall use the Trademarks, in accordance with ARM’s guidelines set forth in Schedule 7 (the “Guidelines”), on (i) all ARM Compliant Products sold or distributed by LGS and (ii) all documentation, promotional materials and software associated with such ARM Compliant Products. ARM shall have the right to revise Schedule 7 and the Guidelines (including the right to add further trademarks or modify the Trademarks) provided that such revisions are made in respect of the Guidelines issued to all licencees of the Trademarks. Any such revisions shall be effective, upon ninety (90) days written notice to LGS. | |
8.3
|
LGS shall be released from the provisions of Clause 8.2 in the case of any ARM Compliant Product, created or developed by LGS, solely for a specific customer of LGS PROVIDED THAT (a) the customer has notified LGS, in writing, that the customer wishes the ARM Compliant Product packaging not to bear any Trademark and (b) the ARM Compliant Product does not bear the LGS name or trademark. | |
8.4
|
LGS shall submit samples of documentation, packaging, and promotional or advertizing materials bearing the Trademarks to ARM from time to time in order that ARM may verify compliance with the Guidelines. In the event that any documentation, packaging, promotional or advertizing material fails to comply with the Guidelines, ARM shall notify LGS and LGS shall rectify such documentation, packaging, and promotional or advertizing materials so as to comply with the Guidelines and cease using any such non-compliant materials within thirty (30) days of the date of ARM’s notice. Any documentation, packaging, and promotional or advertizing materials not rejected for failing to comply with the Guidelines by ARM within thirty (30) days after delivery to ARM shall be deemed approved. | |
8.5
|
LGS agrees to assist ARM in maintaining the validity of the Trademarks by retaining a record of its use of the Trademarks. Such records shall include samples of the use of each of the Trademarks as well as information regarding the first use of the Trademarks in each country. Upon request, LGS shall make available all such records. |
ARM/LGS
Confidential
Page 9
8.6
|
Upon ARM’s request, LGS shall provide, free of charge, samples of the use of the Trademarks for the purpose of trademark registration or renewal. LGS shall support ARM in the application and maintenance of any registration for the Trademarks in the name of ARM. Upon request, LGS shall execute any documents required by the applicable laws of any jurisdiction for the purpose of registering and/or maintaining the Trademarks. In the event that LGS fails to timely execute any such documents, LGS hereby irrevocably appoints ARM as its attorney with respect to such matters. Any and all registrations for the Trademarks shall be procured by and for ARM, at ARM’s expense. | |
8.7
|
Except as provided by the terms of this Agreement, LGS shall not use or register any trademark, service mark, device or logo, any of the Trademarks or any word or mark confusingly similar to any of the Trademarks, in any jurisdiction. | |
9.
|
Licence Fees and Royalties | |
9.1
|
LGS shall pay a non-refundable licence fee (the “Technology Licence Fee”) of [*****] upon the terms set forth in Clause 9.1(i), together with for each ARM Compliant Product sold, supplied or distributed by LGS (including as permitted by this Agreement, any Subsidiary and/or LG Affiliate), an additional royalty (“Running Royalty”) upon the terms set forth in Clause 9.1(ii). | |
| (i) The Technology Licence Fee shall be paid by instalments as follows: | ||
On the Effective Date
[*****] |
||
On delivery of the design databases for the ARM Cores
[*****] |
||
On acceptance of the Test Chip (as defined in
Clause 10.4) [*****] |
||
(ii) The Running Royalty for each ARM Compliant Product shall be determined by
reference to the NSP of such ARM Compliant Product and the total number of ARM
Compliant Product chips sold or distributed by LGS (including as permitted by this
Agreement, any Subsidiary and/or LG Affiliate) in accordance with the following
table: |
||
| Cumulative Volume | Running Royalty as %age of NSP | |
[*****] [*****] [*****] |
[*****] [*****] [*****] |
| For the avoidance of doubt, in no event shall the Technology Licence Fee be construed as being an advance payment of Running Royalties and no right of set off of Running Royalties against the Technology Licence Fee shall exist. | ||
9.2
|
Running Royalties due to ARM under this Agreement shall be paid in accordance with the terms set forth in Schedule 8. | |
9.3
|
After a period of ten (10) years from the first commercial shipment of the first manufactured ARM Compliant Product (the “Initial Period”), LGS shall be entitled to either (i) require ARM to enter into good faith negotiations to revise the Running Royalty rates for the remainder of the term of this Agreement or (ii) require ARM to enter into good faith negotiations to agree a sum payable by LGS to ARM in lieu of the Running Royalties which would otherwise fall due in accordance with the provisions of Clauses 9.1. LGS shall exercise its rights under this Clause 9.3 upon written notice to ARM, referring to this Clause |
ARM/LGS
Confidential
Page 10
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
| 9.3, served not less that six (6) months prior to the expiry of the Initial Period. For the avoidance of doubt, in the event that: | ||
| (i) LGS fails to serve any notice in accordance with the provisions of Clause 9.3, the rights set forth in Clause 9.3 shall lapse; or | ||
| (ii) the parties fail to reach agreement prior to the expiry of the Initial Period and LGS does not terminate this Agreement, LGS shall continue to pay the Running Royalties at the rates specified in Clause 9.1(ii). | ||
9.4
|
LGS shall keep all records of account as are necessary to demonstrate compliance with its obligations under this Clause 9. | |
9.5
|
ARM shall have the right for representatives of a firm of independent Chartered Accountants to which LGS shall not unreasonably object (“Auditors”), to make an examination and audit, by prior appointment during normal business hours, not more frequently than once annually, of all records and accounts as may under recognized accounting practices contain information bearing upon (i) the number of chips and the NSP of ARM Compliant Products sold or distributed by LGS under this Agreement and (ii) the amounts of Running Royalties payable to ARM under this Clause 9. The Auditors will report to ARM only upon whether the Running Royalties paid to ARM by LGS were or were not correct, and if incorrect, what are the correct amounts for the Running Royalties. LGS shall be supplied with a copy of or sufficient extracts from any report prepared by the Auditors. The Auditors report shall (in the absence of clerical or manifest error) be final and binding on the parties. Such audit shall be at ARM’s expense unless it reveals an underpayment of Running Royalties of five per cent (5%) or more, in which case LGS shall reimburse ARM for the costs of such audit LGS shall make good any underpayment of royalties forthwith. If the audit identifies that LGS has made an overpayment, such overpayment will be credited to the next such payment or payments to be made by LGS. | |
9.6
|
In consideration of the payment by LGS of the Technology Licence Fee, ARM shall provide the support and maintenance services for a period of two (2) years from the Effective Date. In the event that LGS requests that ARM continue to provide the support and maintenance services after the expiration of the initial two (2) year period, the annual support and maintenance fees payable in respect of any such subsequent year shall be determined by good faith negotiations between the parties. However, ARM shall be under no obligation to provide the support and maintenance services, in respect of any subsequent year, until the annual support and maintenance fees have been agreed and paid to ARM. | |
9.7
|
Any income or other tax which LGS is required by law to pay or withhold on behalf of ARM with respect to any licence fees and/or royalties payable to ARM under this Agreement shall be deducted from the amount of such licence fees and/or royalties otherwise due, provided, however, that in regard to any such deduction, LGS shall give to ARM such assistance as may be necessary to enable or assist ARM to claim exemption therefrom, or credit therefor, and shall upon request furnish to ARM such certificates and other evidence of deduction and payment thereof as ARM may properly require. | |
9.8
|
LGS shall pay all instalments of the Technology Licence Fee due to ARM under the terms of this Agreement within thirty (30) days of receipt of ARM’s invoice therefor (the “Due Date”). The Due Date in respect of the payment of Running Royalties shall be forty five (45) days from the end of each Half Year. | |
9.9
|
If any sum under this Agreement is not paid by the Due Date, then (without prejudice to ARM’s other rights and remedies) ARM reserves the right to charge interest on such sum on a day to day basis (as well after as before any judgment) from the Due Date to the date of payment at the rate of five (5) per cent per annum above the base rate of Barclays Bank PLC from time to time in force. |
ARM/LGS
Confidential
Page 11
10.
|
Delivery, Acceptance and Production Costs | |
10.1
|
The database tapes in respect of the ARM Cores delivered to LGS shall conform to the LGS 0.6um ASIC Design Rules (Rev 1.1) dated February 1995 using three layers of metal. | |
10.2
|
ARM shall deliver the Transfer Materials and Software in accordance with the delivery schedule set forth in Schedule 11. | |
10.3
|
Unless otherwise agreed in writing, delivery: |
| (i) | by LGS, shall take place at Advanced RISC Machines Limited, Fulbourn Road, Cherry Hinton, Cambridge CB1 4JN, England marked for the attention of the Engineering Director; | |
| (ii) | by ARM, shall take place at 16 Woomyeon-dong, Seocho-gu, Seoul 137-140, Korea marked for the attention of Mr Hag-Keun Kim. |
10.4
|
For the purposes of Clause 9.1(i): |
| (i) | LGS shall use best efforts to manufacture (or have manufactured) the Test Chip and comply with the provisions of Clause 10.4(ii). | |
| (ii) | LGS shall run the Vectors on the Test Chip and forthwith deliver to ARM a copy of the log results generated by running the Vectors, together with five (5) samples of the Test Chip. The Test Chip shall be deemed accepted when the log results indicate that no errors have been detected or where any errors detected have been jointly agreed, in good faith, and a waiver agreed between the parties. | |
| However, in the event that: | ||
| (a) | LGS fails to manufacture the Test Chip within nine (9) months of delivery of the ARM710a Core design database, LGS shall pay to ARM the third instalment of the Technology Licence Fee irrespective of the provisions of Clause 9. l(i); or | |
| (b) | due to a LGS manufacturing fault, the Test Chip does not pass the Vectors within nine (9) months of delivery of the ARM710a Core design database, LGS shall pay to ARM the third instalment of the Technology Licence Fee irrespective of the provisions of Clause 9.1(i). | |
10.5
|
ARM shall not be responsible for any recoverable or non-recoverable costs incurred, directly or indirectly, by LGS in the design translation (except as provided by Clause 10.1), processing, or manufacture of masks and prototypes, characterization or manufacture of production quality silicon in whatever quantity. | |
10.6
|
Within six (6) months of the Effective Date, the parties will work together in the creation of a development, sales and marketing plan indicating the milestones, resource and activity that LGS will use to develop ARM Compliant Products. | |
11.
|
Contract Administrators | |
11.1
|
The parties hereby appoint the following individuals as their respective contract administrators between ASM and LGS with respect to this Agreement: |
ARM/LGS
Confidential
Page 12
| ARM: | LGS: | |
For
legal notices: |
||
David N MacKay
|
Jong-Taek Hong | |
Director of Legal Affairs
|
General Manager Legal Affairs Department | |
Advanced RISC Machines Limited
|
LG Semicon Co Limited | |
Fulbourn Road
|
891 Daechi-dong | |
Cherry Hinton
|
Kangnarm-ku | |
Cambridge
|
Seoul | |
CB14JN
|
Korea | |
England |
||
For
corporate issues: |
||
James S Urquhart
|
Dr Min-Sung Choi | |
Sales Director
|
Managing Director | |
Advanced RISC Machines Limited
|
LG Semicon Co Limited | |
Fulbourn Road
|
16 Woomyeon-dong | |
Cherry Hinton
|
Seocho-gu | |
Cambridge
|
Seoul | |
CB14JN
|
137-140 | |
England
|
Korea | |
For
Confidential Information: |
||
Peter King
|
Dr Min-Sung Choi | |
Partner Support Manager
|
Managing Director | |
At the address set forth above
|
At the address set forth above | |
For
financial issues: |
||
John Martyn
|
Dr Min-Sung Choi | |
Financial Controller
|
Managing Director | |
At the address set forth above
|
At the address set forth above | |
For
applications support: |
||
Peter King
|
Hag-Keun Kim | |
Partner Support Manager
|
Department Manager Multimedia Device #2 | |
At the address set forth above
|
At the address set forth above | |
For software support: |
||
Peter King
|
Hag-Keun Kim | |
Partner Support Manager
|
Department Manager Multimedia Device #2 | |
At the address set forth above
|
At the address set forth above | |
For
design transfer: |
||
Tudor Brown
|
Hag-Keun Kim | |
Engineering Director
|
Department Manager Multimedia Device #2 |
ARM/LGS
Confidential
Page13
At the address set forth above
|
At the address set forth above |
11.2
|
The contract administrators identified herein are appointed by the parties for the receipt and dispatch on their behalf of all communications relating to the administrators’ above designated areas of responsibility. The contract administrators shall also be responsible for the good progress of the parties’ performance under this Agreement and the timely resolution of all technical, administrative and commercial issues which may arise from time to time during the execution of this Agreement. | |
11.3
|
Each party reserves the right to change its appointment as above upon seven (7) days written notice to the other party’s then current corresponding liaison. | |
12.
|
Macrocell Maintenance Services | |
12.1
|
ARM shall provide to LGS, in respect of the ARM Cores, AMBA and Peripherals (the “Macrocells”), through the parties’ applicable contract administrator, the following maintenance services; |
| (i) | the correction, to the extent reasonably possible, of any defects in any Macrocell which cause such Macrocell not to operate in accordance with the functionality described in the applicable documentation. If ARM determines that such defects are due to errors in such description, ARM shall promptly issue corrections to the applicable documentation and shall not be required to correct the Transfer Materials provided that LGS is not thereby prevented from commercially exploiting such Macrocell. | |
| (ii) | reasonable telephone and written consultation pertaining to the operation and application of the Macrocells; | |
| (iii) | any bug-fixes or corrections to the Macrocells made available by ARM to any third party; | |
| (iv) | all modifications, enhancements and updates to the Macrocells, created by ARM, including such modifications to the Macrocells as are made by ARM’s other licencees and adopted by ARM for general release as an update PROVIDED THAT ARM may exclude any modification, enhancement or update which ARM, in its absolute discretion decides, results in the creation of a new product; | |
| (v) | the provision of ARM-related training; | |
| The services provided under Clauses 12.1(ii), 12.1(v) and 13.1(ii) shall together be limited to a total of Thirty (30) man days per annum. | ||
12.2
|
Upon LGS requesting ARM’s assistance pursuant to the provisions of Clause 12.1, LGS shall promptly provide to ARM such samples and technical information as ARM may reasonably require to enable ARM to provide such assistance. | |
12.3
|
In notifying ARM of any defects or problems LGS shall use a format and medium reasonably requested by ARM. Notwithstanding the foregoing, LGS shall provide ARM promptly with any information or assistance reasonably requested by ARM to enable ARM to provide the maintenance service hereunder. | |
12.4
|
The maintenance services shall be provided at ARM’s UK premises. Nevertheless, ARM will use reasonable efforts to provide maintenance services to LGS, at LGS’s premises, subject to LGS meeting all reasonable travelling, accommodation and sustenance expenses. | |
ARM/LGS
Confidential
Page 14
12.5
|
For the avoidance of doubt, ARM’s obligation under this Clause 12 is limited expressly to the provision of the maintenance services to LGS and ARM shall be under no obligation to provide the maintenance services to LGS’s customers. | |
13.
|
Software Maintenance Services | |
13.1
|
ARM shall provide to LGS, in respect of the Software, through the parties’ applicable contract administrator, the following maintenance services: | |
(i) to correct, to the extent reasonably possible, any defects in the Software which cause
the Software not to operate in accordance with the description of the Software’s
function in the applicable documentation. If ARM determines that such defects are
due to errors in such description, ARM shall promptly issue corrections to the
documentation and shall not be required to alter the Software provided that LGS is
not thereby prevented from commercially exploiting the Software. |
||
(ii) to provide reasonable telephone and written consultation pertaining to the operation
and application of the Software. |
||
(iii) to provide as available Updates to the Software. |
||
13.2
|
In notifying ARM of any defects or problems LGS shall use a format reasonably requested by ARM. LGS shall provide ARM promptly with any information or assistance reasonably requested by ARM to enable ARM to provide the maintenance service hereunder. | |
13.3
|
For the avoidance of doubt, ARM’S obligation under this Clause 13 is limited expressly to the provision of the Software maintenance services to LGS and ARM shall be under no obligation to provide the maintenance services to LGS’s sub-licensees of the Software. | |
14.
|
Confidentiality | |
14.1
|
Save as provided by Clause 14.2, each party shall maintain in confidence the Confidential Information disclosed by the other party and apply security measures no less stringent than the measures that such party applies to protect its own like information, but not less than a reasonable degree of care, to prevent unauthorized disclosure and use of the Confidential Information. The period of confidentiality shall be (i) indefinite with respect to the terms of this Agreement, pattern generation tapes and photomasks and (ii) twenty (20) years with respect to all other information. | |
14.2
|
In the event that either party qualifies the confidentiality of any Confidential Information in writing by marking such Confidential Information with the words “Limited Confidentiality”, such Confidential Information may be disclosed to a third party who has entered into a non disclosure agreement (“NDA”) with the recipient containing substantially similar terms to this Clause 14. A NDA in respect of the disclosure of business Confidential Information may be limited in duration to a period of not less than three (3) years from the date of disclosure. A NDA in respect of the disclosure of technical Confidential Information may be limited in duration to a period of not less than five (5) years from the date of disclosure. | |
14.3
|
The provisions of this clause shall not apply to information which:- | |
(i) is known and has been reduced to tangible form by the receiving party prior to
disclosure by the other party; or |
||
(ii) is, or becomes through no fault of the receiving party, generally known; or |
ARM/LGS
Confidential
Page 15
(iii) is disclosed to the receiving party by a third party having the lawful right to make
such disclosure; or |
||
(iv) is independently conceived by the receiving party provided that the receiving party is
able to provide evidence of such independent conception in the form of written
records; or |
||
(v) is released to the receiving party for disclosure to any third party, other than on a
confidential basis, by the disclosing party in writing; or |
||
(vi) as required by any court or other governmental body. |
||
14.4
|
For the avoidance of doubt, LGS Royalty Reports may be disclosed to, in confidence, ARM’s financial and/or legal advisors. In addition, ARM may disclose the total unit sales of ARM Compliant Products. | |
14.5
|
The parties agree that the disclosure of Confidential Information to a party hereunder shall be co-ordinated through the appointed contract administrators identified for such purpose in Clause 11.1. | |
15.
|
Warranties | |
15.1
|
ARM warrants that the materials delivered to LGS will be sufficient for a competent semiconductor manufacturer to produce the ARM Cores, AMBA and Peripherals which meet the functionality specified in the applicable documentation. LGS’s sole and exclusive remedy for any breach of such warranty shall be for ARM to correct any errors in the materials and deliver such corrected materials to LGS or replace the materials at ARM’s discretion. | |
15.2
|
LGS acknowledges that the Software cannot be tested in every possible operation, and accordingly ARM does not warrant that the Software will be free from all defects or that there will be no interruption in its use. However, ARM warrants that the Software will be complete and comply with the description of its functionality specified in the documentation. LGS’s sole and exclusive remedy for any breach of such warranty shall be for ARM, as soon as is reasonably practicable, to correct any errors in the Software and deliver such corrected Software to LGS. | |
15.3
|
ARM further warrants that to ARM’s knowledge and belief, but expressly without having undertaken any searches for prior art, that: | |
(i) the ARM Cores, AMBA, Peripherals and Software do not infringe any third party
copyright, maskwork right or trade secret; and |
||
(ii) there are no pending claims that have been made, or actions commenced, against
ARM for breach of any third party copyright, maskwork right, patent or trade secret;
and |
||
(iii) ARM, or its applicable licensor, is the owner of the properties to be delivered to LGS;
and |
||
(iv) ARM has the right to enter into the Agreement. |
||
15.4
|
Except as expressly provided in this Agreement, the ARM Cores, AMBA, Peripherals Software, Intellectual Property, and Transfer Materials are licensed “as is” and ARM makes no warranties express, implied or statutory, including, without limitation, the implied warranties of merchantability or fitness for a particular purpose with respect to the ARM Cores, AMBA, Peripherals Software, Intellectual Property and Transfer Materials. |
ARM/LGS
Confidential
Page 16
15.5
|
LGS warrants that LGS shall: |
| (i) | submit this Agreement for approval by the Korean Government forthwith upon signature by the parties; and | |
| (ii) | use all reasonable endeavours to obtain all or any tax exemption or tax credits applicable to the technology licensed and monies payable under this Agreement. |
16.
|
Infringement | |
16.1
|
Each party (the “Delivering Party”) will support the other party (the “Receiving Party”) in any action based on a claim that the materials delivered by the Delivering Party to the Receiving Party under this Agreement (the “Delivered Materials”), when used in accordance with this Agreement, infringe any patent, copyright or trade secret provided that the Receiving Party shall notify the Delivering Party promptly in writing of each such suit. However, a party shall not be obliged to support the other party in any action based upon an infringement or alleged infringement of any patent, copyright, trade secret, mask work, trademark or other property right by: (a) the Receiving Party’s manufacturing process; (b) any modification of the Delivered Materials not made by the Delivering Party; or (c) the use of the Delivered Materials in combination with other equipment, technology or software not purchased or licensed from the Delivering Party, provided that such claim would not have occurred but for such combination, modification or enhancement. | |
16.2
|
The Receiving Party will support the Delivering Party in any action based on a claim that (a) the process used by or on behalf of the Receiving Party in manufacturing products incorporating, embodying or based upon the Delivered Materials, (b) any modification of the Delivered Materials made by or on behalf of the Receiving Party, or (c) the use of the Delivered Materials in combination with other equipment, software or technology not purchased or licensed from the Delivering Party, provided that such claim would not have occurred but for such combination, modification or enhancement, has infringed any patent, copyright or trade secret provided that the Delivering Party shall notify the Receiving Party promptly in writing of such suits. | |
16.3
|
If any Delivered Materials provided to LGS by ARM, or any portion thereof, is finally adjudged to infringe a patent or copyright, ARM shall, at ARM’s election, use its reasonable efforts to: (a) procure the right to continue using the unmodified Delivered Materials; (b) modify the Delivered Materials so that they become non-infringing; (c) replace the unmodified Delivered Materials, or infringing portions thereof, with reasonably equivalent non-infringing products; or (d) pay compensatory damages to LGS, subject to the limitations of Clause 16.6. The provisions of this Clause 16.3 do not extend to any suit based upon an infringement or alleged infringement of any patent, copyright, trade secret, mask work, trademark or other property right by: (a) the LGS manufacturing process; (b) any modification of the Delivered Materials not made by ARM; or (c) the use of the Delivered Materials in combination with other equipment, technology or software not purchased or licensed from ARM, provided that such claim would not have occurred but for such combination, modification or enhancement | |
16.4
|
If any Delivered Materials provided to ARM by LGS, or any portion thereof, is finally adjudged to infringe a patent or copyright, LGS shall, at LGS’s election, use its reasonable efforts to: (a) procure the right to continue using the unmodified Delivered Materials; (b) modify the Delivered Materials so that they become non-infringing; (c) replace the unmodified Delivered Materials, or infringing portions thereof, with reasonably equivalent non-infringing products; or (d) pay compensatory damages to ARM subject to the limitations of Clause 16.6. The provisions of this Clause 16.4 do not extend to any suit based upon an infringement or alleged infringement of any patent, copyright, trade secret, mask work, trademark or other property right by any modification of the Delivered Materials not made by LGS. |
ARM/LGS
Confidential
Page 17
16.5
|
In the event that there is a final adjudication of infringement, the liability of the Delivering Party for such infringement shall terminate with respect to all damages regarding the infringing intellectual property arising after the date of such final adjudication. | |
16.6
|
THE FOREGOING STATES THE ENTIRE LIABILITY OF THE PARTIES, AND THE EXCLUSIVE REMEDY FOR THE PARTIES, FOR ANY INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADEMARK, TRADE SECRET, MASK WORK OR OTHER PROPRIETARY RIGHT OF A THIRD PARTY. ARM AND LGS DISCLAIM ALL OTHER LIABILITY FOR ANY SUCH INFRINGEMENT, INCLUDING ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE FOR ANY AMOUNTS IN EXCESS OF THE SUM OF FOUR HUNDRED AND SEVENTY FIVE THOUSAND US DOLLARS (US$475,000) IN THE AGGREGATE FOR ALL PAYMENTS, ROYALTIES OR FEES MADE PURSUANT TO ALL CLAIMS IN ANY WAY ARISING OUT OF OR IN CONNECTION WITH THE PROVISIONS OF THIS CLAUSE 16. | |
17.
|
Disclaimer of Consequential Damages | |
17.1
|
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES WHETHER SUCH DAMAGES ARE ALLEGED AS A RESULT OF TORTIOUS CONDUCT OR BREACH OF CONTRACT OR OTHERWISE EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SUCH DAMAGES SHALL INCLUDE BUT SHALL NOT BE LIMITED TO THE COST OF REMOVAL AND REINSTALLATION OF GOODS, LOSS OF GOODWILL, LOSS OF PROFITS, LOSS OF USE OF DATA, INTERRUPTION OF BUSINESS OR OTHER ECONOMIC LOSS BUT NOTHING IN THIS CLAUSE SHALL OPERATE TO EXCLUDE LIABILITY FOR DEATH OR PERSONAL INJURY RESULTING FROM EITHER PARTY’S NEGLIGENCE. | |
18.
|
Term and Termination | |
18.1
|
This Agreement shall commence on the Effective Date and continue in force, except as provided by Clause 18.3, unless and until terminated in accordance with the provisions of Clause 18.2. | |
18.2
|
Without prejudice to any other right or remedy which may be available to it, either party shall be entitled summarily to terminate this Agreement by giving written notice to the other: |
| (i) | if the other party has committed a material breach of any of its obligations hereunder which is not capable of remedy; or | |
| (ii) | if the other party has committed a material breach of any of its obligations hereunder which is capable of remedy but which has not been remedied within a period of sixty (60) days following receipt of written notice to do so; or | |
| (iii) | makes any voluntary arrangement with its creditors for the settlement of its debts or becomes subject to an administration order; or | |
| (iv) | has an order made against it, or passes a resolution, for its winding-up (except for the purposes of amalgamation or reconstruction) or has an encumbrancer take possession or has a receiver or similar officer appointed over all or substantially all of its property or assets. |
ARM/LGS
Confidential
Page 18
18.3
|
After a period of seven (7) years from the Effective Date (the “Initial Period”), the licence set forth in Clause 5 shall expire automatically whereupon LGS shall have no further right or licence in respect of the Tools. However, LGS may renew the licence granted under the provisions of Clause 5, subject to the provisions of Clauses 18.3(i) and (ii), for a farther term of seven (7) years upon payment of a Renewal Fee. |
| (i) | LGS may exercise its rights to renew, as provided by this Clause 18.3, provided that LGS gives to ARM not less than six (6) months notice in writing of its intention to so renew, expiring on the seventh anniversary of the Effective Date. | |
| (ii) | Upon receipt of LGS’s notice served in accordance with Clause 18.3(i), the parties shall enter into good faith negotiations to agree a reasonable Renewal Fee. For the avoidance of doubt, LGS shall not be entitled to exercise any of the rights contained in Clause 5 unless and until agreement has been reached and the Renewal Fee has been paid to ARM. |
18.4
|
LGS and ARM acknowledge that each and every term and condition of this Agreement has been fully and completely negotiated and such terms and conditions closely relate to each other. In the event that the Korean governmental authorities, including the Korean Fair Trade Commission, during the review of this Agreement require a modification to one or more of the clauses of this Agreement, ARM shall have the option to renegotiate the entire Agreement or accept the applicable modification of the Agreement as required by such governmental authorities. | |
19.
|
Effect of Termination | |
19.1
|
Upon termination of this Agreement by either party pursuant to Clause 18.2, LGS will immediately discontinue any use and distribution of all ARM Compliant Products, Software, Intellectual Property, Transfer Materials and ARM Confidential Information. LGS shall, at ARM’s option, either destroy or return to ARM any Confidential Information, including any copies thereof in its possession, together with the Transfer Materials and all copies of the Software in its possession. Within one month after termination of this Agreement LGS will furnish to ARM a certificate signed by a duly authorised officer of LGS that to the best of his or her knowledge, information and belief, after due enquiry, LGS has complied with provisions of this Clause. For the avoidance of doubt, any sub-licences of the Software granted by LGS prior to the termination of this Agreement shall survive such termination. | |
19.2
|
Upon termination of this Agreement the termination date shall be treated as the end of a Half Year for the purposes of accounting for all Running Royalties due to ARM. Thereafter LGS shall submit a royalty report to ARM in accordance with the provisions of Schedule 8. | |
19.3
|
The provisions of Clauses 2.3, 9, 14, 16, 17, 19, and 20 shall survive termination or expiration of this Agreement. | |
20.
|
General | |
20.1
|
All communications between the parties including, but not limited to, notices, royalty reports, error or bug reports, the exercise of options, and support requests shall be in the English language. | |
20.2
|
All notices which are required to be given hereunder shall be in writing and shall be sent to the address of the recipient set out in this Agreement or such other address as the recipient may designate by notice given in accordance with the provisions of this Clause. Any such notice may be delivered personally, by commercial overnight courier or facsimile transmission which shall be followed by a hard copy and shall be deemed to have been |
ARM/LGS
Confidential
Page 19
| served if by hand when delivered, if by commercial overnight courier 48 hours after deposit with such courier, and if by facsimile transmission when dispatched. | ||
20.3
|
Neither party shall assign or otherwise transfer this Agreement or any of its rights and obligations hereunder whether in whole or in part without the prior written consent of the other. | |
20.4
|
Neither party shall be liable for any failure or delay in its performance under this Agreement due to causes, including, but not limited to, acts of God, acts of civil or military authority, fires, epidemics, floods, earthquakes, riots, wars, sabotage, third party industrial disputes and governments actions, which are beyond its reasonable control; provided that the delayed party: (i) gives the other party written notice of such cause promptly, and in any event within fourteen (14) days of discovery thereof; and (ii) uses its reasonable efforts to correct such failure or delay in its performance. The delayed party’s time for performance or cure under this Clause 20.4 shall be extended for a period equal to the duration of the cause. | |
20.5
|
ARM and LGS are independent parties. Neither company nor their employees, consultants, contractors or agents, are agents, employees or joint venturers of the other party, nor do they have the authority to bind the other party by contract or otherwise to any obligation. Neither party will represent to the contrary, either expressly, implicitly, by appearance or otherwise. | |
20.6
|
The parties agree that the terms and conditions of this Agreement shall be treated as Confidential Information hereunder and shall not be disclosed without the consent of both parties. | |
20.7
|
Failure by either party to enforce any provision of this Agreement shall not be deemed a waiver of future enforcement of that or any other provision. | |
20.8
|
If any provision of this Agreement, or portion thereof, is determined to be invalid or unenforceable the same will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect. | |
20.9
|
The headings to the Clauses of this Agreement are for ease of reference only and shall not affect the interpretation or construction of this Agreement. | |
20.10
|
This Agreement may be executed in one or more counterparts each of which shall be deemed an original, but all of which shall constitute one and the same instrument. | |
20.11
|
This Agreement, including all Schedules and documents referenced herein, constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes and replaces all prior or contemporaneous understandings or agreements, written or oral, regarding the subject matter. No amendment to, or modification of, this Agreement shall be binding unless in writing and signed by a duly authorized representative of both parties. | |
20.12
|
This Agreement shall be governed by and construed in accordance with the laws of England. In the event that ARM commences proceedings against LGS under this Agreement, the parties agree to submit to the jurisdiction of the Seoul District Court, Korea, for the purpose of hearing and determining any disputes arising out of this Agreement. In the event that LGS commences proceedings against ARM under this Agreement, the parties agree to submit to the jurisdiction of the High Court of Justice, London, England, for the purpose of hearing and determining any disputes arising out of this Agreement. |
ARM/LGS
Confidential
Page 20
IN WITNESS WHEREOF the parties have caused this Agreement
to be executed by their
duly authorized representative:
| ADVANCED RISC MACHINES LIMITED: | LG SEMICON COMPANY LIMITED: | |||||||
SIGNED: |
/s/ R. K Sayby | SIGNED: | /s/ Chung Hwan Mun | |||||
NAME: |
ROBIN K. SAYBY | NAME: | CHUNG HWAN MUN | |||||
TITLE: |
PRESIDENT | TITLE: | PRESIDENT | |||||
ARM/LGS
Confidential
Page 21
Exhibit 10.13
This Technology License Agreement (“Agreement”) is made and entered into the day of July 2001
(“Effective Date”)
BETWEEN
ARM LIMITED whose registered office is situated at 110 Fulbourn Road, Cambridge CB1 9NJ, England
(“ARM”)
and
HYNIX SEMICONDUCTOR INC. a company organised and existing under the laws of the Republic of Korea
and whose principal place of business is situated at San 136-1, Ami-ri, Bubal-eub, Ichon-si,
Kyoungki-do, Republic of Korea (“LICENSEE”).
WHEREAS
| A. | LICENSEE has requested ARM and ARM has agreed to license LICENSEE to manufacture and distribute certain ARM Secure Core Based Products (as defined below) on the following terms and conditions. | |
| B. | Therefore, in consideration of the mutual representations, warranties, covenants, and other terms and conditions contained herein, the parties agree as follows: | |
| 1. | Definitions | |
| 1.1 | “ARM Secure Core” means the ARM Secure Core identified in the Technical Reference Manual [DDI-0207-A]. | |
| 1.2 | “ARM Secure Core Synthesizable Source” means together; (i) the Synthesizable RTL; (ii) the Synthesis Scripts; and (iii) the Synthesis Reference Deliverables. | |
| 1.3 | “ARMv4T Instruction Sets” means both the ARMv4 instruction set and Thumb instruction set as defined in the ARM Architecture Reference Manual [ARM DDI 0100]. | |
| 1.4 | “ARM Secure Core Transfer Materials” means together; (i) the ARM Secure Core Synthesizable Source; (ii) the Implementation Guide; (iii) the Synthesizable Functional Test Vectors; (iv) the Technical Reference Manual; (v) the AVS; (vi) the Core Self Test Programs, together with any Updates thereto delivered to LICENSEE by ARM from time to time; and (vii) any relevant supplemental documentation released by ARM to its other licensees from time to time. | |
| 1.5 | “ARM Secure Core Based Product(s)” means any chip designed and manufactured by or for LICENSEE which is offered for sale solely for use in applications where secure processing is specified and which contains at a minimum; (i) a Microarchitecture Compliant Core; and (ii) LICENSEE or LICENSEE’s customer’s circuitry which adds significant functionality. | |
| 1.6 | “ARM Transfer Materials” means together; (i) the ARM Secure Core Transfer Materials; and (ii) the MME Transfer Materials. | |
| 1.7 | “Authorized Distributor” means any distributor appointed, in writing, by LICENSEE. | |
| 1.8 | “AVS” means the ARM architectural validation suite identified in Schedule 1 Part H. | |
| 1.9 | “Claim” means a written notice of infringement received by ARM from a third party demanding that ARM cease and desist from such alleged Intellectual Property infringement. |
1 of 18
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
| 1.10 | “Confidential Information” means; (i) any trade secrets relating to the ARM Secure Core and the ARM Transfer Materials; (ii) any information designated in writing by either party, by appropriate legend, as confidential; (iii) any information which if first disclosed orally is identified as confidential at the time of disclosure and is thereafter reduced to writing for confirmation and sent to the other party within thirty (30) days after its oral disclosure and designated, by appropriate legend, as confidential; and (iv) the terms and conditions of this Agreement. | |
| 1.11 | “Core Self Test Programs” means the programs identified in Schedule 1 Part K Item K1. | |
| 1.12 | “Documentation” means the documentation identified in Schedule 2 Part A. | |
| 1.13 | “Effective Date” means the date of this Agreement, subject always to the provisions of Clause 15.13. | |
| 1.14 | “End User License” means a license agreement substantially in the form set out in Schedule 6. | |
| 1.15 | “Implementation Guide” means the documentation identified in Schedule 1 Part B. | |
| 1.16 | “Intellectual Property” means any patents, patent rights, trade marks, service marks, registered designs, topography or semiconductor maskwork rights, applications for any of the foregoing, copyright, unregistered design right, trade secrets and know-how and any other similar protected rights in any country. | |
| 1.17 | “LICENSEE’s Synthesis Timing Constraints File” means such timing constraints file as the LICENSEE shall finalise prior to final synthesis. | |
| 1.18 | “Microarchitecture Compliant Core” means an implementation of an ARM Secure Core manufactured under licence from ARM and which; |
| (i) | executes each and every instruction in the ARMv4T Instruction Sets; | ||
| (ii) | executes no additional instructions to those contained in the ARMv4T Instruction Sets; | ||
| (iii) | exhibits a Pipeline Length of 3; | ||
| (iv) | exhibits a Von Neumann Architecture; | ||
| (v) | is Single Issue or Multiple Issue, as appropriate for the respective ARM Secure Core as identified in the relevant Technical Reference Manual; | ||
| (vi) | implements the programmer’s model as identified in the ARM Architecture Reference Manual; | ||
| (vii) | passes the respective Synthesizable Functional Test Vectors; and | ||
| (viii) | has been verified in accordance with the provisions of Clause 3. |
| 1.19 | “MME Macrocell” means the MME hardware accelerator specified in the MME Technical Reference manual SC043-TRM-0001-A. | |
| 1.20 | “MME Synthesizable RTL” means the deliverables identified in Schedule 2 Part B Section 1. | |
| 1.21 | “MME Synthesis Scripts” means the deliverables identified in Schedule 2 Part B Section 2. | |
| 1.22 | “MME Synthesizable Source” means together; (i) the MME Synthesizable RTL; and (ii) the MME Synthesis Scripts. |
2 of 18
| 1.23 | “MME Transfer Materials” means together (i) the MME Synthesizable Source; (ii) the MME Validation Suite; (iii) the Documentation; (iv) the Software, together with any Updates thereto delivered to LICENSEE by ARM from time to time; and (iv) any relevant supplemental documentation released by ARM to licensees from time to time. | |
| 1.24 | “NSP” means the net sales price of any ARM Secure Core Based Product calculated by taking the aggregate invoice price charged on arms length terms by LICENSEE and its Subsidiaries in the sale or distribution of any ARM Secure Core Based Product, less any; (i) value added, turnover, import, or other tax, duty or tariff payable thereon; (ii) freight, insurance costs incurred; and (iii) amounts actually repaid or credited with respect to any ARM Secure Core Based Products returned. | |
| 1.25 | “MME Validation Suite” means the deliverables identified in Schedule 2 Part C. | |
| 1.26 | “Packaging” means the materials used to encapsulate the silicon of an ARM Secure Core Based Product. | |
| 1.27 | “Pipeline Length” means the number of clocked stages through which each single-cycle instruction must pass to complete the execution of such instruction. | |
| 1.28 | “Single Issue” means that only one instruction is issued for execution within the integer unit in any single clock cycle (where for the purposes of this definition “clock” means the clock that advances the pipeline). | |
| 1.29 | “Software” means the example support software for the MME Macrocell as identified in Schedule 2 Part D, together with any Updates thereto delivered to LICENSEE by ARM from time to time. | |
| 1.30 | “Subsidiary” means any company the majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by a party hereto or any company a majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by any of the aforementioned entities. The company shall be considered a Subsidiary only so long as such control exists. | |
| 1.31 | “Synthesizable Functional Test Vectors” means the synthesizable functional test vectors identified in Schedule 1 Part D. | |
| 1.32 | “Synthesis Reference Deliverables” means the deliverables identified in Schedule 1 Part C Section 3. | |
| 1.33 | “Synthesisable RTL” means the deliverables identified in Schedule 1 Part C Section 1. | |
| 1.34 | “Synthesis Scripts” means the deliverables identified in Schedule 1 Part C Section 2. | |
| 1.35 | “Technical Reference Manual” means the technical reference manual identified in Schedule 1 Part A. | |
| 1.36 | “Trademarks” means the trademarks identified in Schedule 3. | |
| 1.37 | “Updates” means any enhancements and modifications including but not limited to any error corrections to the ARM Transfer Materials including any documentation associated therewith, designed by, or for ARM, the incorporation of which ARM, in its absolute discretion, decides does not cause a new product to be created. |
3 of 18
| 1.38 | “Unique ARM Secure Core Based Product” means a device manufactured by or for LICENSEE and which has a unique part number; except that a device shall not be a Unique ARM Secure Core Based Product if the device has a different part number for any or all of the following reasons; |
| (i) | because it is an optically shrunk version of an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product; | ||
| (ii) | because it is a version of an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that has been ported to a different set of process design rules; | ||
| (iii) | because it is an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that has a different on chip memory size; | ||
| (iv) | because it is an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that has a different on chip memory content; | ||
| (v) | because it is an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that has a different on chip memory type; | ||
| (vi) | because it is an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that incorporates a bug fix (to conform to original specification for the Unique ARM Secure Core Based Product); and | ||
| (vii) | because it is an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that incorporates a different revision of the ARM Transfer Materials delivered by ARM to LICENSEE from time to time. |
| 1.39 | “Von Neumann Architecture” means a microprocessor architecture which dictates that the instruction stream for the integer unit shares the same port with the data stream for such integer unit. | |
| 2. | Licence | |
| 2.1 | Subject to the provisions of Clause 9 (Confidentiality) and the payment of appropriate fees in accordance with the provisions of Clause 5, ARM hereby grants to LICENSEE, under ARM’s Intellectual Property, a non-transferable (subject to Clause 15.3), non-exclusive, perpetual (subject to termination in accordance with the provisions of Clause 13) world-wide licence, to; |
ARM Secure Core Based Products
| (i) | use and copy the AVS and the MME Validation Suite only for the purposes of designing ARM Secure Core Based Products; | ||
| modify the MME testbench in Verilog identified as Item C1 in Schedule 2 Part C; | |||
| (ii) | use, copy and modify the Core Self Test Programs only for the purposes of designing ARM Secure Core Based Products; | ||
| (iii) | use and copy; (a) the Implementation Guide; and (b) the Synthesisable Reference Deliverables, only for the purposes of designing ARM Secure Core Based Products; |
4 of 18
| modify the SC100 Core Verilog GTECH Synthesis Command Files identified as Item C3 in Schedule 1 Part C Section 3; | |||
| (iv) | use, copy and modify (solely to the extent necessary to run the following deliverables on LICENSEE’s tester or simulator) the Synthesizable Functional Test Vectors, only for the purposes of designing ARM Secure Core Based Products; | ||
| (v) | use, copy and modify (only for the purpose of substituting functional blocks in the Synthesizable RTL with functionally equivalent LICENSEE or LICENSEE’s customer’s functional blocks); (i) the Synthesizable RTL; and (ii) the MME Synthesizable RTL, only for the purposes of designing ARM Secure Core Based Products; | ||
| (vi) | use, copy and modify; (i) the Synthesis Scripts; and (ii) the MME Synthesis Scripts, only for the purposes of designing ARM Secure Core Based Products; | ||
| (vii) | manufacture and have manufactured (subject to the provisions of Clause 2.2) the ARM Secure Core Based Products created under the licences granted in Clauses 2.1(i) to 2.1(vi) inclusive; | ||
| (viii) | sell, supply and distribute ARM Secure Core Based Products manufactured under the licences granted in Clause 2.1(vii) to any third party and authorise Authorised Distributors to do the same; | ||
| (ix) | test and have tested (subject to the provisions of Clause 2.3) the ARM Secure Core Based Products manufactured under the licences granted in Clause 2.1(vii); |
Technical Reference Manual and Documentation
| (x) | use, copy, modify and distribute (solely to LICENSEE’s customers of ARM Secure Core Based Products and subject to the terms of a confidentiality agreement no less restrictive than those contained in this Agreement) the Technical Reference Manual only for the purposes of designing ARM Secure Core Based Products; | ||
| (xi) | use, copy, modify and distribute (solely to LICENSEE’s customers of ARM Secure Core Based Products and subject to the terms of a confidentiality agreement no less restrictive than those contained in this Agreement) the Documentation only for the purposes of designing ARM Secure Core Based Products; |
Software
| (xii) | use, copy and modify the Software; and | ||
| (xiii) | distribute the Software in source code or binary code form solely in conjunction with ARM Secure Core Based Products. |
Have Manufactured
| 2.2 | Subject to the provisions of Clause 9 (Confidentiality), LICENSEE may exercise its right to have ARM Secure Core Based Products manufactured by a third party manufacturer (“Manufacturer”) in accordance with the provisions of Clause 2.1 solely to manufacture ARM Secure Core Based Products for LICENSEE provided that; (a) LICENSEE agrees not to grant to the Manufacturer any license in respect of any ARM Transfer Materials for any other purpose; and (b) that each Manufacturer agrees; |
| (i) | to be bound by obligations of confidentiality no less restrictive than those contained in this Agreement; |
5 of 18
| (ii) | to supply units of the ARM Secure Core Based Product solely to LICENSEE; and |
| (iii) | to return any ARM Confidential Information and ARM Transfer Materials to LICENSEE on the earlier of; (a) the completion of the manufacture; and (b) the expiration of the confidentiality period for each ARM Transfer Material in accordance with the provisions of Clause 9. |
| If any Manufacturer breaches the provisions of any of Clauses 2.2(i) to 2.2(iii), LICENSEE agrees that such breach shall be treated as a material breach of this Agreement by LICENSEE which shall entitle ARM to terminate this Agreement in accordance with the provisions of Clause 13.2 and LICENSEE shall hold ARM harmless from and keep ARM indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to such breach. |
Have Tested
| 2.3 | Subject to the provisions of Clause 9 (Confidentiality), LICENSEE may exercise its right to have ARM Secure Core Based Products tested by a third party (“Test House”) in accordance with the provisions of Clause 2.1 provided that the Test House agrees; |
| (i) | to be bound by obligations of confidentiality no less restrictive than those contained in this Agreement; and | ||
| (ii) | to supply units of the tested ARM Secure Core Based Products solely to LICENSEE; and | ||
| (iii) | to return any ARM Confidential Information and ARM Transfer Materials to LICENSEE on the earlier of; (a) the completion of the test; and (b) the expiration of the confidentiality period for each ARM Transfer Material in accordance with the provisions of Clause 9. |
| If any Test House breaches the provisions of Clauses 2.3(i) to 2.3(iii), LICENSEE agrees that such breach shall be treated as a material breach of this Agreement by LICENSEE which shall entitle ARM to terminate this Agreement in accordance with the provisions of Clause 13.2 and LICENSEE shall hold ARM harmless from and keep ARM indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to such breach. |
Have Designed
| 2.4 | On receipt of a request from LICENSEE, ARM may on a case by case basis grant LICENSEE the right to have ARM Secure Core Based Products designed by a designer subcontracted by LICENSEE (“Designer”) provided that each Designer agrees; |
| (i) | to be bound by obligations of confidentiality no less restrictive than those contained in this Agreement; and |
| (ii) | to supply units of the tested ARM Secure Core Based Products solely to LICENSEE; and |
| (iii) | to return any ARM Confidential Information and ARM Transfer Materials to LICENSEE on the earlier of; (a) the completion of the design; and (b) the end of the confidentiality period for each ARM Transfer Material in accordance with the provisions of Clause 9. |
| If any Designer breaches the provisions of Clauses 2.4(i) to 2.4(iii), LICENSEE agrees that such breach shall be treated as a material breach of this Agreement by LICENSEE which shall entitle ARM to terminate this Agreement in accordance with the provisions of Clause 13.2 and LICENSEE shall hold ARM harmless from and keep ARM indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), |
6 of 18
| suffered, incurred or sustained as a result of or in relation to such breach. The parties shall agree for each Designer which of the ARM Transfer Materials can be delivered to such Designer. |
| 2.5 | No right is granted to LICENSEE to; |
| (i) | except as expressly granted in Clauses 2.1, sub-license any of the rights licensed to LICENSEE under Clause 2.1; or |
| (ii) | distribute any ARM Secure Core Based Product prior to verification in accordance with Clause 3, except that if it is the intention of LICENSEE, and LICENSEE does proceed, to verify a device in accordance with Clause 3.1 and 3.2, LICENSEE may distribute, in aggregate, up to two thousand (2000) prototype units of such device without having such devices verified provided that LICENSEE provides written evidence to ARM that; (a) the recipient of such devices is aware that such device has not passed the verification process by ARM; and (b) the recipient has agreed to keep the recipient’s use of the non verified device as confidential. |
| 2.6 | Except as specifically licensed in Clause 2.1, LICENSEE acquires no right, title or interest in the ARM Secure Cores, ARM Transfer Materials or any of ARM’s Intellectual Property embodied therein. In no event shall the license grant set out in Clause 2.1 be construed as granting LICENSEE, expressly or by implication, estoppel or otherwise, a license to use any ARM technology except the ARM Transfer Materials and Software. LICENSEE shall reproduce and not remove or obscure any notice incorporated in the ARM Transfer Materials by ARM to protect ARM’s Intellectual Property or to acknowledge the copyright and/or contribution of any third party designer. LICENSEE shall incorporate corresponding notices and/or such other markings and notifications as ARM may reasonably require on all copies of the ARM Transfer Materials used or distributed by LICENSEE. |
Subsidiaries
| 2.7 | For the continuance of this Agreement, LICENSEE may exercise the right to include any Subsidiary as a licensee under the terms of this Agreement provided that; |
| (i) | such Subsidiary agrees in writing, as set out in Schedule 10 to be bound by the obligations of LICENSEE and to comply with all the terms and conditions of this Agreement; | ||
| (ii) | any breach of the terms and conditions of this Agreement by a Subsidiary shall constitute a breach of this Agreement by LICENSEE; and | ||
| (iii) | any termination of this Agreement in accordance with the provisions of Clause 13 shall be effective in respect of all Subsidiaries. |
| 3. | Verification | |
| 3.1 | For each ARM Secure Core implementation which is used in the manufacture of ARM Secure Core Based Products for sale and distribution by LICENSEE in accordance with the terms of this Agreement, LICENSEE shall in the course of generating such implementation use the ARM Transfer Materials to generate a netlist (each a “Synthesized Netlist”) which includes back-annotated delays derived from the physical layout of the Synthesized Netlist. | |
| 3.2 | LICENSEE shall simulate the AVS on each Synthesized Netlist (defined in Clause 3.1). | |
| 3.3 | LICENSEE shall deliver to ARM a copy of the log results generated by running the AVS on each respective Synthesized Netlist (the “Synthesized Log Results” for each Synthesized Netlist). Prior to delivery of such Synthesized Log Results LICENSEE shall give ARM as much advance |
7 of 18
| warning as practicably possible of LICENSEE’s proposed delivery of such Synthesized Log Results. | ||
| 3.4 | Each Synthesized Netlist shall be verified for a particular process upon ARM’s acceptance of the Synthesized Log Results delivered by LICENSEE. | |
| 3.5 | The Synthesized Log Results shall be accepted when they indicate that no errors have been detected or where any errors detected have been jointly agreed, in good faith, and a waiver agreed between the parties. | |
| 3.6 | ARM shall notify LICENSEE, in writing, within fifteen (15) days of delivery by LICENSEE of the Synthesized Log Results (“Synthesis Verification Period”), whether the Synthesized Log Results have been accepted by ARM or have failed the in verification process. In the event that ARM fails to confirm the result of the verification process within the Synthesis Verification Period, the Synthesized Log Results shall be deemed accepted by ARM. In the event that the Synthesized Log Results fail the verification process, ARM shall provide details of the errors which cause the failure to LICENSEE and LICENSEE shall endeavour to correct the errors. The parties shall repeat the above process until either; (i) the Synthesized Log Results are accepted; or (ii) LICENSEE withdraws the Synthesized Log Results from the verification process. | |
| 4. | Trademark License | |
| 4.1 | ARM hereby grants to LICENSEE a non-transferrable (subject to Clause 15.3), non-exclusive, world-wide licence to use the Trademarks in the promotion and sale of ARM Secure Core Based Products. | |
| 4.2 | LICENSEE shall use one of the Trademarks, in accordance with ARM’s guidelines set forth in Schedule 3 (“Guidelines”), on; (i) all ARM Secure Core Based Products sold or distributed by LICENSEE; and (ii) all documentation, promotional materials and software associated with such ARM Secure Core Based Products. ARM shall have the right to revise Schedule 3 and the Guidelines (including the right to add further trademarks or modify the Trademarks) provided that such revisions are made in respect of the Guidelines issued to all licencees of the Trademarks. Any such revisions shall be effective, upon written notice to LICENSEE; (a) for printed material upon ninety (90) days notice; and (b) immediately in respect of products to be manufactured after ninety (90) days from receipt of such notice. | |
| 4.3 | LICENSEE shall submit samples of all documentation, packaging, and promotional or advertising materials bearing the Trademarks to ARM from time to time as requested by ARM to verify compliance with the Guidelines. LICENSEE shall immediately rectify any documentation, packaging, and promotional or advertising materials so as to comply with the Guidelines and cease using any non-compliant materials. | |
| 4.4 | LICENSEE agrees to assist ARM in maintaining the validity of the Trademarks by retaining a record of its use of the Trademarks. Such records shall include samples of all uses of the Trademarks for each ARM Secure Core Based Product as well as information regarding the first use of each of the Trademarks in each country. Upon request from ARM, LICENSEE shall make available all such records to ARM. | |
| 4.5 | Upon ARM’s request, LICENSEE shall provide, free of charge, samples of the use of the Trademarks for the purpose of trademark registration. LICENSEE shall support ARM in the application and maintenance of any registration for the Trademarks in the name of ARM. Upon request from ARM, LICENSEE shall execute any required registered user agreements (including any such other documents required by the applicable laws of any jurisdiction) for the Trademarks. In the event that LICENSEE fails to timely execute any such documents, LICENSEE hereby irrevocably appoints ARM as its attorney with respect to such matters. Any and all registrations for the Trademarks shall be procured by and for ARM, at ARM’s expense. |
8 of 18
| 4.6 | Except as provided by the terms of this Agreement, LICENSEE shall not use or register any trademark, service mark, device or logo or any word or mark confusingly similar to any of the Trademarks, in any jurisdiction. | |
| 5. | Fees and Royalties | |
| 5.1 | In consideration of the licenses granted in Clause 2.1 for the ARM Secure Core Transfer Materials, LICENSEE shall pay ARM a fee (each a “Core Licence Fee”) for each Unique ARM Secure Core Based Product developed by LICENSEE as set out in and in accordance with Schedule 7 Part A. If within three (3) years after the Effective Date, LICENSEE pays ARM [*****] Core Licence Fees for [*****] Unique ARM Secure Core Based Products, then during the continuance of this Agreement, LICENSEE shall not have any obligation to pay Core Licence Fees for the [*****] Unique ARM Secure Core Based Products. | |
| 5.2 | In consideration of the licenses granted in Clause 2.1 for the MME Transfer Materials, LICENSEE shall pay, ARM a fee (“MME Licence Fee”) as set out in and in accordance with Schedule 7 Part B. | |
| 5.3 | In consideration of the licenses granted in Clause 2.1, LICENSEE shall pay to ARM a royalty (“Royalty”), as determined in accordance with the table in Schedule 8, for each unit of ARM Secure Core Based Product sold, supplied or otherwise distributed by LICENSEE. | |
| 5.4 | In consideration of the ARM Maintenance (defined in Clause 8.1) LICENSEE shall pay, ARM, annual fees (each a “Maintenance Fee”) as set out in and in accordance with Schedule 7 Part C. The Maintenance Fees shall be fixed for two (2) years after the Effective Date and thereafter shall be subject to re-negotiation between the parties. | |
| 5.5 | In consideration of the ARM Support (defined in Clause 8.2) LICENSEE shall pay, ARM, annual fees (each a “Support Fee”) as set out in and in accordance with Schedule 7 Part D. The Support Fees shall be fixed for two (2) years after the Effective Date and thereafter shall be subject to re-negotiation between the parties. | |
| 5.6 | Royalties (defined in Clause 5.3) due to ARM under this Agreement shall be paid in accordance with the terms set out in Schedule 4. | |
| 5.7 | LICENSEE shall keep all records of account as are necessary to demonstrate compliance with its obligations under this Clause 5 for six (6) years from the date of each royalty report. | |
| 5.8 | ARM shall have the right for representatives of a firm of independent Chartered Accountants to which LICENSEE shall not unreasonably object (“Auditors”), to make an examination and audit, by appointment made at least thirty (30) days prior to the audit, during normal business hours, not more frequently than once annually, of all records and accounts as may under recognised accounting practices contain information including; (i) the number of units of ARM Secure Core Based Product and the number of cores per ARM Secure Core Based Product, sold or distributed by LICENSEE under this Agreement; and (ii) the amount of Royalties payable to ARM under this Clause 5. The Auditors will report to ARM only upon whether the Royalties paid to ARM by LICENSEE were or were not correct, and if incorrect, what are the correct amounts for the Royalties. LICENSEE shall be supplied with a copy of or sufficient extracts from any preliminary and final report prepared by the Auditors. The Auditor’s report shall (in the absence of clerical or manifest error) be final and binding on the parties. Such audit shall be at ARM’s expense unless it reveals an underpayment of Royalties of five per cent (5%) or more, in which case LICENSEE shall reimburse ARM for the costs of such audit. LICENSEE shall make good any underpayment of Royalties forthwith. If the audit identifies that LICENSEE has made an overpayment of Royalties, such overpayment will be credited with the next such payment or payments to be made by LICENSEE. |
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
9 of 18
| 5.9 | Any income or other tax which LICENSEE is required by law to pay or withhold on behalf of ARM with respect to any licence fees and/or Royalties payable to ARM under this Agreement shall be deducted from the amount of such licence fees and/or Royalties otherwise due, provided, however, that in regard to any such deduction, LICENSEE shall give such assistance as may be necessary to enable or assist ARM to claim exemption therefrom, or credit therefor, and shall furnish ARM with such certificates and other evidence of deduction and payment thereof as ARM may properly require. | |
| 5.10 | LICENSEE shall pay all licence fees and Royalties due to ARM under the terms of this Agreement within forty five (45) days of receipt of ARM’s original invoice therefor (“Due Date”). | |
| 5.11 | If any sum under this Agreement is not paid by the Due Date (as defined in Clause 5.10), then (without prejudice to ARM’s other rights and remedies) ARM reserves the right to charge interest on such sum on a day to day basis (as well after as before any judgement) from the day after the Due Date to the date of payment at the rate of two and a half (2.5%) per cent per annum above the base rate of The Bank of England from time to time in force. Notwithstanding the foregoing, ARM may waive this requirement, at its sole discretion, in the event that LICENSEE gives ARM advance warning that it has good cause to believe that, for reasons beyond its control, it may be unable to pay any such sum on the Due Date. | |
| 6. | Delivery and Acceptance | |
| 6.1 | ARM shall deliver the ARM Transfer Materials to LICENSEE in accordance with the delivery schedule set out in Schedule 9. | |
| 7. | Contract Management and Administration | |
| 7.1 | The parties hereby appoint the following individuals as their respective contract administrator between ARM and LICENSEE with respect to this Agreement: |
| ARM | LICENSEE | |
For Legal Notices:
|
For Legal Notices, Corporate Issues, Financial Matters, Confidential Information, Design Transfer and Support | |
VP and general Counsel
|
Jay Ho Chae | |
ARM Limited
|
Vice President/System IC SBU, SP BU, MCU | |
110 Fulbourn Road
|
Hynix Semiconductor Inc. | |
Cambridge
|
1 Hyangjeong-dong Hungduk-gu | |
CB1 9JN
|
Cheongju-si | |
| 361-725 Korea | ||
For Corporate Issues: |
||
Chief Operations Officer |
||
At the address above |
||
For Financial Matters: |
||
Financial Controller |
||
At the address above |
10 of 18
For Confidential Information: |
||
Manager of Core Licensing |
||
At the Address above |
||
For Design Transfer and Support
|
For Technical Matters | |
Manager of Core Licensing
|
As above | |
At the Fulbourn Road Address above |
| 7.2 | The contract administrators identified herein are appointed by the parties for the receipt and dispatch on their behalf all communications relating to this Agreement. The contract administrators shall also be responsible for the good progress of the parties’ performance under this Agreement and the timely resolution of all technical, administrative and commercial issues which may arise from time to time during the execution of this Agreement. | |
| 7.3 | Each party reserves the right to change its appointment as above upon at least seven (7) days prior written notice to the other party’s then current corresponding liaison. | |
| 7.4 | As soon as reasonably possible after the Effective Date, the parties shall mutually agree and publish a press release relating to the contents of this Agreement and the relationship thereby established between the parties. | |
| 8. | ARM Maintenance and Support | |
| 8.1 | Subject to LICENSEE’s payment of the Maintenance Fees, ARM shall provide to LICENSEE, in respect of the ARM Transfer Materials through the parties’ contract administrator, with the following services (“ARM Maintenance”); |
| (i) | the use of commercially reasonable efforts to correct any defects in the ARM Transfer Materials which cause any of the ARM Transfer Materials not to operate in accordance with the functionality described in the datasheet and/or manual for the ARM Transfer Materials, as appropriate. If ARM determines that such defects are due to errors in such datasheet and/or manual provided by ARM shall promptly issue corrections to the datasheet and/or manual and shall not be required to revise the ARM Materials, provided that use of the ARM Transfer Materials by LICENSEE is not adversely affected thereby; and | ||
| (ii) | all Updates to the ARM Transfer Materials. |
| 8.2 | Subject to LICENSEE’s payment of the Support Fees, ARM shall provide to LICENSEE, in respect of the ARM Transfer Materials through the parties’ contract administrator, with the following services (“ARM Support”); reasonable telephone, e-mail and written consultation pertaining to the operation and application of the ARM Transfer Materials. The ARM Support provided under this Clause 8.2 shall be limited to a total of ten (10) person days per annum. | |
| 8.3 | LICENSEE agrees to receive ARM Maintenance and ARM Support for the ARM Secure Core and the ARM Transfer Materials for two (2) years after the Effective Date and after such date may |
11 of 18
| request ARM to continue the provision of ARM Maintenance and ARM Support subject to the payment of appropriate fees mutually agreed by the parties. |
| 8.4 | Upon LICENSEE requesting ARM Maintenance pursuant to Clause 8.1 or ARM Support pursuant to the provisions of Clause 8.2, LICENSEE shall promptly provide ARM with such samples and technical information as ARM may reasonably require to enable ARM to provide such ARM Maintenance or ARM Support, as appropriate. | |
| 8.5 | For the avoidance of doubt, ARM’s obligation under this Clause 8 is limited expressly to the provision of ARM Support only for LICENSEE and ARM shall be under no obligation to provide ARM Support for LICENSEE’s customers. | |
| 8.6 | ARM Maintenance and ARM Support shall be provided from ARM’s premises in Cambridge, England. Nevertheless, ARM will use reasonable efforts to provide ARM Maintenance and ARM Support to LICENSEE, at LICENSEE’s premises, subject to LICENSEE bearing all reasonable travelling, accommodation and sustenance expenses incurred and agreed in advance in writing with both parties. | |
| 8.7 | For the avoidance of doubt, ARM’s obligation under Clause 8.2 is limited expressly to the provision of ARM Support only for LICENSEE and ARM shall be under no obligation to provide ARM Support for LICENSEE’s customers. | |
| 8.8 | Upon LICENSEE requesting ARM Support pursuant to the provisions of Clause 8, LICENSEE shall promptly provide ARM with such samples and technical information as ARM may reasonably require to enable ARM to provide ARM Support. | |
| 9. | Confidentiality | |
| 9.1 | Except as provided by Clause 9.3 and 9.4, each party shall maintain in confidence the Confidential Information disclosed by the other party and apply security measures no less stringent than the measures that such party applies to protect its own Confidential Information, but not less than a reasonable degree of care, to prevent unauthorised disclosure and use of the Confidential Information. The period of confidentiality shall be fifteen (15) years with respect to each party’s Confidential Information. | |
| 9.2 | LICENSEE agrees that it shall not use any of ARM’s Confidential Information other than for the purposes of designing, having designed, manufacturing, having manufactured, marketing and distributing ARM Secure Core Based Products whether alone or incorporated in other products and any other activities reasonably necessary in the normal course of business for LICENSEE to sell ARM Secure Core Based Products. ARM agrees that it shall only use LICENSEE’s Confidential Information for LICENSEE’s purposes. | |
| 9.3 | Notwithstanding the foregoing; LICENSEE shall have the right to disclose layout derived from the Synthesizable RTL identified in Schedule 1 Part C Section 1 and the MME Synthesisable RTL identified in Schedule 2 Part B Section 1, to a Manufacturer (as defined in Clause 2.2) pursuant to the exercise of the “have manufactured” rights granted in Clause 2.1 under an NDA with substantially similar terms to this Clause 9 but also including a prohibition on the reverse engineering of the ARM Transfer Materials and/or the derivatives therefrom and except that the confidentiality period for each deliverable shall be at a minimum of ten (10) years from the date of disclosure. | |
| 9.4 | Notwithstanding the foregoing, LICENSEE shall have the right to disclose the Core Self Test Programs, to a House (as defined in Clause 2.3) pursuant to the exercise of the have tested rights granted in Clause 2.1 under an NDA containing substantially similar terms to this Clause 9, except that the confidentiality period for each deliverable shall be at a minimum of five (5) years from the date of disclosure. |
12 of 18
| 9.5 | The provisions of this Clause 9 shall not apply to information which: |
| (i) | is known and has been reduced to tangible form by the receiving party prior to disclosure by the other party; or | ||
| (ii) | is published or otherwise made available to the public other than by a breach of this Agreement by the receiving party; or | ||
| (iii) | is disclosed to the receiving party by a third party without a duty of confidentiality; or | ||
| (iv) | is independently conceived by the receiving party provided that the receiving party is able to provide evidence of such independent conception in the form of written records; or | ||
| (v) | is released to the receiving party for disclosure to any third party, other than on a confidential basis, by the disclosing party in writing; or | ||
| (vi) | is approved for release by the disclosing party; or | ||
| (vii) | is released to a third party by the disclosing party without a duty of confidentiality; or | ||
| (viii) | is marked (N) in the Schedules of this Agreement. |
| 9.6 | For the avoidance of doubt, LICENSEE Royalty reports may be disclosed in confidence to ARM’s financial and legal advisors. In addition, ARM may disclose the total unit sales of ARM processor based products on an annual basis provided that the unit sales of such ARM Secure Core Based Products by LICENSEE are not separately identifiable or deducible therefrom. | |
| 10. | Warranties | |
| 10.1 | Except as expressly provided in this Agreement, the ARM Transfer Materials and Software are supplied “as is” and ARM makes no representations and gives no warranties express, implied or statutory, including, without limitation, the implied warranties of satisfactory quality or fitness for a particular purpose in respect thereof. | |
| 10.2 | ARM warrants, to LICENSEE, that; |
| (i) | the Intellectual Property in the ARM Transfer Materials does not infringe any third party copyright, design right, registered design right or maskwork right or trade secret; and | ||
| (ii) | ARM has the right to enter into this Agreement. |
| 10.3 | ARM represents and warrants that as of the Effective Date, there are no pending Claims that have been made, or actions commenced, against ARM for breach by the ARM Transfer Materials of any third party Intellectual Property. | |
| 10.4 | ARM warrants that the ARM Transfer Materials will be consistent and sufficient for a competent semiconductor manufacturer to produce Microarchitecture Compliant Cores, as the case may be, which meet the functionality and performance specified in the applicable Technical Reference Manual. LICENSEE’s remedy for any breach of such warranty shall be for ARM, as soon as is reasonably possible, to correct any errors in the appropriate ARM Transfer Materials and deliver such corrected materials to LICENSEE in accordance with the provisions of Clause 8. | |
| 10.5 | LICENSEE acknowledges that the Software cannot be tested in every possible operation, and accordingly ARM does not warrant that the Software will be free from all defects or that there will be no interruption in their use. However, ARM warrants that the Software will comply with the description of their functionality specified in the related documentation. LICENSEE’s remedy for |
13 of 18
| any breach of such warranty shall be for ARM, as soon as is reasonably possible, to correct any errors in the Software and deliver such corrected Software to LICENSEE. | ||
| 10.6 | ARM shall not be responsible for any recoverable or non-recoverable costs incurred, directly or indirectly, by LICENSEE in the design migration, processing, or manufacture of masks and prototypes, characterization or manufacture of production quality silicon in whatever quantity. | |
| 11. | Infringement | |
| 11.1 | LICENSEE shall notify ARM immediately upon learning of any claim which may be made or threatened that the exercise by LICENSEE of the rights hereby licensed constitutes an infringement of the patent, copyright, maskwork right, or trade secret (together “Rights”) of a third party and will not take any action in relation to such claim which may be prejudicial to the interests of ARM without the written consent of ARM. | |
| 11.2 | ARM agrees that it will, at its expense, timely defend any suit instituted against LICENSEE and shall indemnify LICENSEE against any award of damages and costs made against LICENSEE in any such suit insofar as the same is based on a claim that the exercise by LICENSEE of its licensed rights under Clause 2.1, infringes any Right of a third party, provided that LICENSEE gives ARM timely notice in writing of the institution of such suit and permits ARM through ARM’s lawyers of choice to defend the same and LICENSEE provides all available information, assistance and authority to so defend. ARM shall have control of the defence of any such suit, including appeals, and of all negotiations for settlement, including the right to effect the settlement or compromise thereof. | |
| 11.3 | In the event that rights licensed to LICENSEE under Clause 2.1 are, in any suit for infringement of any Right of a third party, held to constitute an infringement, ARM shall, at its option and expense, procure for LICENSEE the right to continue exercising its rights under Clause 2.1, or, to the extent commercially practicable, replace or modify the ARM Transfer Materials, as appropriate, provided that such replacement or modification of the ARM Transfer Materials maintain compatibility, so that the exercise by LICENSEE of its rights under Clause 2.1, does not constitute an infringement. | |
| 11.4 | ARM shall have no liability under this Clause 11 with respect to any suit or claim to the extent that infringement is due solely to; ARM shall have no liability under this Clause for any infringement arising from; |
| (i) | the combination of the ARM Transfer Materials with other products not supplied by ARM if such infringement arises exclusively from such combination; | ||
| (ii) | the modification of the ARM Transfer Materials unless the modification was made or approved by ARM if such infringement arises exclusively from modification; | ||
| (iii) | any manufacturing process applied to the ARM Transfer Materials by LICENSEE or LICENSEE’s agent; or | ||
| (iv) | compliance by ARM with the LICENSEE requirement specification where such compliance necessarily lead to such infringement. |
| 11.5 | LICENSEE agrees that it will, at its expense, timely defend any suit instituted against ARM and shall indemnify ARM against any award of damages and costs made against ARM in any such suit insofar as the same is based on a claim that; (i) the combination of the ARM Transfer Materials with other products not supplied by ARM if such infringement arises exclusively from such combination; (ii) the modification of the ARM Transfer Materials unless the modification was made or approved by ARM if such infringement arises exclusively from modification; (iii) any manufacturing process applied to the ARM Transfer Materials by LICENSEE; or (iv) compliance by ARM with the LICENSEE requirement specification where such compliance necessarily lead |
14 of 18
| to infringement, infringes any Right of a third party, provided that ARM gives LICENSEE timely notice in writing of the institution of such suit and permits LICENSEE through LICENSEE’s lawyers of choice to defend the same and ARM provides, at ARM’s expense, all available information, assistance and authority to so defend. LICENSEE shall have control of the defence of any such suit, including appeals, and of all negotiations for settlement, including the right to effect the settlement or compromise thereof. Notwithstanding the foregoing, LICENSEE shall not be liable under the indemnification provided in this Clause 11.5 unless it is held in any suit that the infringement has been caused by the wilful action of LICENSEE. | ||
| 12. | Disclaimer of Consequential Damages and limitation of liability | |
| 12.1 | IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM ITS PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE OR USE OF THE ARM SECURE CORE OR ARM TRANSFER MATERIALS LICENSED HEREBY. | |
| 12.2 | NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, ARM SHALL NOT BE LIABLE FOR ANY AMOUNTS IN EXCESS OF THE TOTAL CORE LICENCE FEES PAID TO ARM PURSUANT TO CLAUSE 5.1 OF THIS AGREEMENT FOR ALL PAYMENTS BY ARM TO LICENSEE MADE PURSUANT TO ALL CLAIMS IN ANY WAY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. | |
| 12.3 | NOTHING IN THIS CLAUSE SHALL OPERATE TO EXCLUDE LIABILITY FOR DEATH OR PERSONAL INJURY RESULTING FROM EITHER PARTY’S NEGLIGENCE. | |
| 12.4 | If the Synthesizable RTL and MME Synthesizable RTL for the ARM Secure Core simulates substantially the functionality described in the Technical Reference Manual, ARM shall not be liable for any loss or damage suffered by LICENSEE as a result of the failure of any ARM Secure Core Based Product to provide security of data processed by the device. If an ARM Secure Core Based Product fails to provide security of data processed by it, ARM shall, subject to the provisions of Clause 12.2, only be liable for any loss or damage suffered by LICENSEE as a result of such failure to the extent that such loss or damage is a direct result of the Synthesizable RTL and MME Synthesizable RTL for the ARM Secure Core failing to simulate substantially the functionality described in the Technical Reference Manual. | |
| 13. | Term and Termination | |
| 13.1 | This Agreement shall commence on the Effective Date and shall continue in force unless earlier terminated in accordance with the provisions of Clause 13.2. | |
| 13.2 | Without prejudice to any other right or remedy which may be available to it, either party shall be entitled summarily to terminate this Agreement forthwith by giving written notice to the other, if the other party: |
| (i) | has committed a material breach of any of its obligations hereunder which is not capable of remedy; or | ||
| (ii) | has committed a material breach of any of its obligations hereunder which is capable of remedy but which has not been remedied within sixty (60) days following receipt of written notice to do so; or | ||
| (iii) | makes any voluntary arrangement with its creditors for the general settlement of its debts or becomes subject to an administration order; or |
15 of 18
| (iv) | has an order made against it, or passes a resolution, for its winding-up (except for the purposes of amalgamation or reconstruction) or has an encumbrancer take possession or has a receiver or similar officer appointed over all or substantially all of its property or assets. |
| 14. | Effect of Expiry and Termination | |
| 14.1 | Upon termination of this Agreement by ARM pursuant to Clause 13.2, LICENSEE will immediately discontinue any use and distribution of all ARM Secure Core Based Products, the ARM Secure Core, the ARM Transfer Materials, any Intellectual Property embodied therein, and any ARM Confidential Information. LICENSEE shall, at ARM’s option, either destroy or return to ARM any Confidential Information, including any copies thereof in its possession, together with the ARM Transfer Materials in its possession. Within one month after termination of this Agreement LICENSEE will furnish to ARM a certificate signed by a duly authorised representative of LICENSEE that to the best of his or her knowledge, information and belief, after due enquiry, LICENSEE has complied with provisions of this Clause. | |
| 14.2 | Unless this Agreement is terminated by LICENSEE in accordance with the provisions of Clause 13.2, the licenses granted to LICENSEE under the terms of this Agreement shall survive (subject to the terms and conditions of this Agreement) in the event that either; (i) ARM makes any voluntary arrangement with its creditors for the settlement of its debts or becomes subject to an administration order; or (ii) ARM has an order made against it, or passes a resolution, for its winding-up (except for the purposes of amalgamation or reconstruction) or has an encumbrancer take possession or has a receiver or similar officer appointed over all or substantially all of its property or assets. Notwithstanding anything to the contrary contained elsewhere in this Agreement, if this Agreement is terminated by LICENSEE in accordance with the provisions of Clause 13.2, any and all rights, including, without limitation, all licences granted to LICENSEE hereunder shall survive such termination subject to the terms and conditions of this Agreement including, without limitation, the continued payment of Royalties in accordance with the provisions of Clause 5.3. | |
| 14.3 | Upon termination the provisions of Clauses 1, 5 (to the extent that any obligation under this Clause remains outstanding) 9, 10, 11, 12, 14 and 15 shall survive termination. | |
| 15. | General | |
| 15.1 | All communications between the parties including, but not limited to, notices, royalty reports, error or bug reports, the exercise of options, and support requests shall be in the English language. | |
| 15.2 | All notices which are required to be given hereunder shall be in writing and shall be sent to the address of the recipient set out in this Agreement or such other address as the recipient may designate by notice given in accordance with the provisions of this Clause. Any such notice may be delivered personally, by commercial overnight courier or facsimile transmission which shall be followed by a hard copy and shall be deemed to have been served if by hand when delivered, if by commercial overnight courier 48 hours after deposit with such courier, and if by facsimile transmission when dispatched. | |
| 15.3 | Neither party shall assign or otherwise transfer this Agreement or any of its rights and obligations hereunder whether in whole or in part without the prior written consent of the other provided that such consent shall not be unreasonably withheld. | |
| 15.4 | Neither party shall be liable for any failure or delay in its performance under this Agreement due to causes, including, but not limited to, acts of God, acts of civil or military authority, fires, epidemics, floods, earthquakes, riots, wars, sabotage, third party industrial disputes and governments actions, which are beyond its reasonable control; provided that the delayed party: (i) gives the other party written notice of such cause promptly, and in any event within fourteen (14) days of discovery thereof; and (ii) uses its reasonable efforts to correct such failure or delay in its |
16 of 18
| performance. The delayed party’s time for performance or cure under this Clause 15.4 shall be extended for a period equal to the duration of the cause. | ||
| 15.5 | ARM and LICENSEE are independent parties. Neither company nor their employees, consultants, contractors or agents, are agents, employees or joint venturers of the other party, nor do they have the authority to bind the other party by contract or otherwise to any obligation. Neither party will represent to the contrary, either expressly, implicitly, by appearance or otherwise. | |
| 15.6 | The parties agree that the terms and conditions of this Agreement shall be treated as Confidential Information hereunder and shall not be disclosed without the consent of both parties. | |
| 15.7 | Failure by either party to enforce any provision of this Agreement shall not be deemed a waiver of future enforcement of that or any other provision. | |
| 15.8 | If any provision of this Agreement, or portion thereof, is determined to be invalid or unenforceable the same will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect. | |
| 15.9 | The headings to the Clauses of this Agreement are for ease of reference only and shall not affect the interpretation or construction of this Agreement. | |
| 15.10 | This Agreement may be executed in one or more counterparts each of which shall be deemed an original, but all of which shall constitute one and the same instrument. | |
| 15.11 | This Agreement, including all Schedules and documents referenced herein, constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes and replaces all prior or contemporaneous understandings or agreements, written or oral, regarding the subject matter. Except in respect of changes to the Trademark Guidelines (defined in Clause 4.2) which may be changed in accordance with the provisions of Clause 4.2, no amendment to, or modification of, this Agreement shall be binding unless in writing and signed by a duly authorized representatives of both parties. | |
| 15.12 | This Agreement shall be governed by and construed in accordance with the laws of England. In the event that ARM commences proceedings against LICENSEE under this Agreement, the parties agree to submit to the jurisdiction of the Seoul District Court, Korea, for the purpose of hearing and determining any disputes arising out of this Agreement. In the event that LICENSEE commences proceedings against ARM under this Agreement, the parties agree to submit to the jurisdiction of the High Court of Justice, London, England, for the purpose of hearing and determining any disputes arising out of this Agreement. | |
| 15.13 | LICENSEE and ARM acknowledge that each and every term and condition of this Agreement has been fully and completely negotiated and such terms and conditions closely relate to each other. In the event that the Korean governmental authorities, including the Korean Fair Trade Commission, during the review of this Agreement require a modification to one or more of the clauses of this Agreement, ARM shall have the option to renegotiate the entire Agreement or accept the applicable modification of the Agreement as required by such governmental authorities. | |
| 15.14 | Subject to the mutual agreement of the authorized executives of the parties, ARM and LICENSEE agree to issue a mutually agreed press release detailing the relationship established and products licensed under this Agreement. |
17 of 18
IN WITNESS WHEREOF the parties have caused this Agreement to be executed by their duly authorized
representatives:
| ARM LIMITED: | HYNIX SEMICONDUCTOR LIMITED | |||||||||
SIGNED
|
|
SIGNED |
|
|||||||
NAME:
|
NAME: | |||||||||
TITLE:
|
TITLE: | |||||||||
DATE:
|
DATE: | |||||||||
18 of 18
Exhibit 10.14
This Technology License Agreement (“Agreement”) is made and entered into the 22 day of August 2001
(“Effective Date”)
BETWEEN
ARM LIMITED whose registered office is situated at 110 Fulbourn Road, Cambridge CB1 9NJ, England
(“ARM”)
and
HYNIX SEMICONDUCTOR INC. a company organised and existing under the laws of the Republic of Korea
and whose principal place of business is situated at San 136-1, Ami-ri, Bubal-eub, Ichon-si,
Kyoungki-do, Republic of Korea (“LICENSEE”).
WHEREAS
| A. | LICENSEE has requested ARM and ARM has agreed to license LICENSEE to manufacture and distribute certain ARM Secure Core Based Products (as defined below) on the following terms and conditions. | |
| B. | Therefore, in consideration of the mutual representations, warranties, covenants, and other terms and conditions contained herein, the parties agree as follows: | |
| 1. | Definitions | |
| 1.1 | “ARM Secure Core” means the ARM Secure Core identified in the Technical Reference Manual [DDI-0207-A]. | |
| 1.2 | “ARM Secure Core Synthesizable Source” means together; (i) the Synthesizable RTL; (ii) the Synthesis Scripts; and (iii) the Synthesis Reference Deliverables. | |
| 1.3 | “ARMv4T Instruction Sets” means both the ARMv4 instruction set and Thumb instruction set as defined in the ARM Architecture Reference Manual [ARM DDI 0100]. | |
| 1.4 | “ARM Secure Core Transfer Materials” means together; (i) the ARM Secure Core Synthesizable Source; (ii) the Implementation Guide; (iii) the Synthesizable Functional Test Vectors; (iv) the Technical Reference Manual; (v) the AVS; (vi) the Core Self Test Programs, together with any Updates thereto delivered to LICENSEE by ARM from time to time; and (vii) any relevant supplemental documentation released by ARM to its other licensees from time to time. | |
| 1.5 | “ARM Secure Core Based Product(s)” means any chip designed and manufactured by or for LICENSEE which is offered for sale solely for use in applications where secure processing is specified and which contains at a minimum; (i) a Microarchitecture Compliant Core; and (ii) LICENSEE or LICENSEE’s customer’s circuitry which adds significant functionality. | |
| 1.6 | “ARM Transfer Materials” means together; (1) the ARM Secure Core Transfer Materials; and (ii) the MME Transfer Materials. | |
| 1.7 | “Authorized Distributor” means any distributor appointed, in writing, by LICENSEE. | |
| 1.8 | “AVS” means the ARM architectural validation suite identified in Schedule 1 Part H. | |
| 1.9 | “Claim” means a written notice of infringement received by ARM from a third party demanding that ARM cease and desist from such alleged Intellectual Property infringement. |
1
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
| 1.10 | “Confidential Information” means; (i) any trade secrets relating to the ARM Secure Core and the ARM Transfer Materials; (ii) any information designated in writing by either party, by appropriate legend, as confidential; (iii) any information which if first disclosed orally is identified as confidential at the time of disclosure and is thereafter reduced to writing for confirmation and sent to the other party within thirty (30) days after its oral disclosure and d esignated, by appropriate legend, as confidential; and (iv) the terms and conditions of this Agreement. | |
| 1.11 | “Core Self Test Programs” means the programs identified in Schedule 1 Part K Item K1. | |
| 1.12 | “Documentation” means the documentation identified in Schedule 2 Part A. | |
| 1.13 | “Effective Date” means the date of this Agreement, subject always to the provisions of Clause 15.13. | |
| 1.14 | “End User License” means a license agreement substantially in the form set out in Schedule 6. | |
| 1.15 | “Implementation Guide” means the documentation identified in Schedule 1 Part B. | |
| 1.16 | “Intellectual Property” means any patents, patent rights, trade marks, service marks, registered designs, topography or semiconductor maskwork rights, applications for any of the foregoing, copyright, unregistered design right, trade secrets and know-how and any other similar protected rights in any country. | |
| 1.17 | “LICENSEE’s Synthesis Timing Constraints File” means such timing constraints file as the LICENSEE shall finalise prior to final synthesis. | |
| 1.18 | “Microarchitecture Compliant Core” means an implementation of an ARM Secure Core manufactured under licence from ARM and which: |
| (i) | executes each and every instruction in the ARMv4T Instruction Sets; | ||
| (ii) | executes no additional instructions to those contained in the ARMv4T Instruction Sets; | ||
| (iii) | exhibits a Pipeline Length of 3; | ||
| (iv) | exhibits a Von Neumann Architecture; | ||
| (v) | is Single Issue or Multiple Issue, as appropriate for the respective ARM Secure Core as identified in the relevant Technical Reference Manual; | ||
| (vi) | implements the programmer’s model as identified in the ARM Architecture Reference Manual; | ||
| (vii) | passes the respective Synthesizable Functional Test Vectors; and | ||
| (viii) | has been verified in accordance with the provisions of Clause 3. |
| 1.19 | “MME Macrocell” means the MME hardware accelerator specified in the MME Technical Reference manual SC043-TRM-0001-A. | |
| 1.20 | “MME Synthesizable RTL” means the deliverable identified in Schedule 2 Part B Section 1. | |
| 1.21 | “MME Synthesis Scripts” means the deliverables identified in Schedule 2 Part B Section 2. | |
| 1.22 | “MME Synthesizable Source” means together, (i) the MME Synthesizable RTL; and (ii) the MME Synthesis Scripts. |
2
| 1.23 | “MME Transfer Materials” means together (i) the MME Synthesizable Source; (ii) the MME Validation Suite; (iii) the Documentation; (iv) the Software, together with any Updates thereto delivered to LICENSEE by ARM from time to time; and (iv) any relevant supplemental documentation released by ARM to licensees from time to time. | |
| 1.24 | “NSP” means the net sales price of any ARM Secure Core Based Product calculated by taking the aggregate invoice price charged on arms length terms by LICENSEE and its Subsidiaries in the sale or distribution of any ARM Secure Core Based Product, less any; (i) value added, turnover, import, or other tax, duty or tariff payable thereon; (ii) freight, insurance costs incurred; and (iii) amounts actually repaid or credited with respect to any ARM Secure Core Based Product s returned. | |
| 1.25 | “MME Validation Suite” means the deliverables identified in Schedule 2 Part C. | |
| 1.26 | “Packaging” means the materials used to encapsulate the silicon of an ARM Secure Core Based Product. | |
| 1.27 | “Pipeline Length” means the number of clocked stages through which each single-cycle instruction must pass to complete the execution of such instruction. | |
| 1.28 | “Single Issue” means that only one instruction is issued for execution within the integer unit in any single clock cycle (where for the purposes of this definition “clock” means the clock that advances the pipeline). | |
| 1.29 | “Software” means the example support software for the MME Macrocell as identified in Schedule 2 Part D, together with any Updates thereto delivered to LICENSEE by ARM from time to time. | |
| 1.30 | “Subsidiary” means any company the majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by a party hereto or any company a majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by any of the aforementioned entities. The company shall be considered a Subsidiary only so long as such control exists. | |
| 1.31 | “Synthesizable Functional Test Vectors” means the synthesizable functional test vectors identified in Schedule 1 Part D. | |
| 1.32 | “Synthesis Reference Deliverables” means the deliverables identified in Schedule 1 Part C Section 3. | |
| 1.33 | “Synthesizable RTL” means the deliverables identified in Schedule 1 Part C Section 1. | |
| 1.34 | “Synthesis Scripts” means the deliverables identified in Schedule 1 Part C Section 2. | |
| 1.35 | “Technical Reference Manual” means the technical reference manual identified in Schedule 1 Part A. | |
| 1.36 | “Trademarks” means the trademarks identified in Schedule 3. | |
| 1.37 | “Updates” means any enhancements and modifications including but not limited to any error corrections to the ARM Transfer Materials including any documentation associated therewith, designed by, or for ARM, the incorporation of which ARM, in its absolute discretion, decides does not cause a new product to be created. |
3
| 1.38 | “Unique ARM Secure Core Based Product” means a device manufactured by or for LICENSEE and which has a unique part number; except that a device shall not be a Unique ARM Secure Core Based Product if the device has a different part number for any or all of the following reasons: |
| (i) | because it is an optically shrunk version of an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product; | ||
| (ii) | because it is a version of an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that has been ported to a different set of process design rules; | ||
| (iii) | because it is an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that has a different on chip memory size; | ||
| (iv) | because it is an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that has a different on chip memory content; | ||
| (v) | because it is an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that has a different on chip memory type; | ||
| (vi) | because it is an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that incorporates a bug fix (to conform to original specification for the Unique ARM Secure Core Based Product); and | ||
| (vii) | because it is an otherwise unmodified (except to the extent accommodated by this definition) Unique ARM Secure Core Based Product that incorporates a different revision of the ARM Transfer Materials delivered by ARM to LICENSEE from time to time. |
| 1.39 | “Von Neumann Architecture” means a microprocessor architecture which dictates that the instruction stream for the integer unit shares the same port with the data stream for such integer unit. | |
| 2. | Licence | |
| 2.1 | Subject to the provisions of Clause 9 (Confidentiality) and the payment of appropriate fees in accordance with the provisions of Clause 5, ARM hereby grants to LICENSEE, under ARM’s Intellectual Property, a non-transferable (subject to Clause 15.3), non-exclusive, perpetual (subject to termination in accordance with the provisions of Clause 13) world-wide licence, to; |
ARM Secure Core Based Products
| (i) | use and copy the AVS and the MME Validation Suite only for the purposes of designing ARM Secure Core Based Products; | ||
| modify the MME testbench in Verilog identified as Item Cl in Schedule 2 Part C; | |||
| (ii) | use, copy and modify the Core Self Test Programs only for the purposes of designing ARM Secure Core Based Products; | ||
| (iii) | use and copy; (a) the Implementation Guide; and (b) the Synthesisable Reference Deliverables, only for the purposes of designing ARM Secure Core Based Products; | ||
| modify the SC100 Core Verilog GTECH Synthesis Command Files identified as Item C3 in Schedule 1 Part C Section 3; |
4
| (iv) | use, copy and modify (solely to the extent necessary to run the following deliverables on LICENSEE’s tester or simulator) the Synthesizable Functional Test Vectors, only for the purposes of designing ARM Secure Core Based Products; | ||
| (v) | use, copy and modify (only for the purpose of substituting functional blocks in the Synthesizable RTL with functionally equivalent LICENSEE or LICENSEE’s customer’s functional blocks); (i) the Synthesizable RTL; and (ii) the MME Synthesizable RTL, only for the purposes of designing ARM Secure Core Based Products; | ||
| (vi) | use, copy and modify; (i) the Synthesis Scripts; and (ii) the MME Synthesis Scripts, only for the purposes of designing ARM Secure Core Based Products; | ||
| (vii) | manufacture and have manufactured (subject to the provisions of Clause 2.2) the ARM Secure Core Based Products created under the licences granted in Clauses 2.1(i) to 2.l(vi) inclusive; | ||
| (viii) | sell, supply and distribute ARM Secure Core Based Products manufactured under the licences granted in Clause 2.1(vii) to any third party and authorise Authorised Distributors to do the same; | ||
| (ix) | test and have tested (subject to the provisions of Clause 2.3) the ARM Secure Core Based Products manufactured under the licences granted in Clause 2.1(vii); |
Technical Reference Manual and Documentation
| (x) | use, copy, modify and distribute (solely to LICENSEE’s customers of ARM Secure Core Based Products and subject to the terms of a confidentiality agreement no less restrictive than those contained in this Agreement) the Technical Reference Manual only for the purposes of designing ARM Secure Core Based Products; | ||
| (xi) | use, copy, modify and distribute (solely to LICENSEE’s customers of ARM Secure Core Based Products and subject to the terms of a confidentiality agreement no less restrictive than those contained in this Agreement) the Documentation only for the purposes of designing ARM Secure Core Based Products; |
Software
| (xii) | use, copy and modify the Software; and | ||
| (xiii) | distribute the Software in source code or binary code form solely in conjunction with ARM Secure Core Based Products. |
Have Manufactured
| 2.2 | Subject to the provisions of Clause 9 (Confidentiality), LICENSEE may exercise its right to have ARM Secure Core Based Products manufactured by a third party manufacturer (“Manufacturer”) in accordance with the provisions of Clause 2.1 solely to manufacture ARM Secure Core Based Products for LICENSEE provided that; (a) LICENSEE agrees not to grant to the Manufacturer any license in respect of any ARM Transfer Materials for any other purpose; and (b) that each Manufacturer agrees; |
| (i) | to be bound by obligations of confidentiality no less restrictive than those contained in this Agreement; | ||
| (ii) | to supply units of the ARM Secure Core Based Product solely to LICENSEE; and | ||
| (iii) | to return any ARM Confidential Information and ARM Transfer Materials to LICENSEE on the earlier of; (a) the completion of the manufacture; and (b) the expiration of the |
5
| confidentiality period for each ARM Transfer Material in accordance with the provisions of Clause 9. |
| If any Manufacturer breaches the provisions of any of Clauses 2.2(i) to 2.2(iii), LICENSEE agrees that such breach shall be treated as a material breach of this Agreement by LICENSEE which shall entitle ARM to terminate this Agreement in accordance with the provisions of Clause 13.2 and LICENSEE shall hold ARM harmless from and keep ARM indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to such breach. |
Have Tested
| 2.3 | Subject to the provisions of Clause 9 (Confidentiality), LICENSEE may exercise its right to have ARM Secure Core Based Products tested by a third party (“Test House”) in accordance with the provisions of Clause 2.1 provided that the Test House agrees: |
| (i) | to be bound by obligations of confidentiality no less restrictive than those contained in this Agreement; and | ||
| (ii) | to supply units of the tested ARM Secure Core Based Products solely to LICENSEE; and | ||
| (iii) | to return any ARM Confidential Information and ARM Transfer Materials to LICENSEE on the earlier of; (a) the completion of the test; and (b) the expiration of the confidentiality period for each ARM Transfer Material in accordance with the provisions of Clause 9. |
| If any Test House breaches the provisions of Clauses 2.3(i) to 2.3(iii), LICENSEE agrees that such breach shall be treated as a material breach of this Agreement by LICENSEE which shall entitle ARM to terminate this Agreement in accordance with the provisions of Clause 13.2 and LICENSEE shall hold ARM harmless from and keep ARM indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to such breach. |
Have Designed
| 2.4 | On receipt of a request from LICENSEE, ARM may on a case by case basis grant LICENSEE the right to have ARM Secure Core Based Products designed by a designer subcontracted by LICENSEE (“Designer”) provided that each Designer agrees; |
| (i) | to be bound by obligations of confidentiality no less restrictive than those contained in this Agreement; and | ||
| (ii) | to supply units of the tested ARM Secure Core Based Products solely to LICENSEE; and | ||
| (iii) | to return any ARM Confidential Information and ARM Transfer Materials to LICENSEE on the earlier of; (a) the completion of the design; and (b) the end of the confidentiality period for each ARM Transfer Material in accordance with the provisions of Clause 9. |
| If any Designer breaches the provisions of Clauses 2.4(i) to 2.4(iii), LICENSEE agrees that such breach shall be treated as a material breach of this Agreement by LICENSEE which shall entitle ARM to terminate this Agreement in accordance with the provisions of Clause 13.2 and LICENSEE shall hold ARM harmless from and keep ARM indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to such breach. The parties shall agree for each Designer which of the ARM Transfer Materials can be delivered to such Designer. |
6
| 2.5 | No right is granted to LICENSEE to: |
| (i) | except as expressly granted in Clauses 2.1, sub-license any of the rights licensed to LICENSEE under Clause 2.1; or | ||
| (ii) | distribute any ARM Secure Core Based Product prior to verification in accordance with Clause 3, except that if it is the intention of LICENSEE, and LICENSEE does proceed, to verify a device in accordance with Clause 3.1 and 3.2, LICENSEE may distribute, in aggregate, up to two thousand (2000) prototype units of such device without having such devices verified provided that LICENSEE provides written evidence to ARM that; (a) the recipient of such devices is aware that such device has not passed the verification process by ARM; and (b) the recipient has agreed to keep the recipient’s use of the non verified device as confidential. |
| 2.6 | Except as specifically licensed in Clause 2.1, LICENSEE acquires no right, title or interest in the ARM Secure Cores, ARM Transfer Materials or any of ARM’s Intellectual Property embodied therein. In no event shall the License grant set out in Clause 2.1 be construed as granting LICENSEE, expressly or by implication, estoppel or otherwise, a license to use any ARM technology except the ARM Transfer Materials arid Software. LICENSEE shall reproduce and not remove or obscure any notice incorporated in the ARM Transfer Materials by ARM to protect ARM’s Intellectual Property or to acknowledge the copyright and/or contribution of any third party designer. LICENSEE shall incorporate corresponding notices and/or such other markings and notifications as ARM may reasonably require on all copies of the ARM Transfer Materials used or distributed by LICENSEE. |
Subsidiaries
| 2.7 | For the continuance of this Agreement, LICENSEE may exercise the right to include any Subsidiary as a licensee under the terms of this Agreement provided that; |
| (i) | such Subsidiary agrees in writing, as set out in Schedule 10 to be bound by the obligations of LICENSEE and to comply with all the terms and conditions of this Agreement; | ||
| (ii) | any breach of the terms and conditions of this Agreement by a Subsidiary shall constitute a breach of this Agreement by LICENSEE; and | ||
| (iii) | any termination of this Agreement in accordance with the provisions of Clause 13 shall be effective in respect of all Subsidiaries. |
| 3. | Verification | |
| 3.1 | For each ARM Secure Core implementation which is used in the manufacture of ARM Secure Core Based Products for sale and distribution by LICENSEE in accordance with the terms of this Agreement, LICENSEE shall in the course of generating such implementation use the ARM Transfer Materials to generate a netlist (each a “Synthesized Netlist”) which includes back-annotated delays derived from the physical layout of the Synthesized Netlist. | |
| 3.2 | LICENSEE shall simulate the AVS on each Synthesized Netlist (defined in Clause 3.1). | |
| 3.3 | LICENSEE shall deliver to ARM a copy of the log results generated by running the AVS on each respective Synthesized Netlist (the “Synthesized Log Results” for each Synthesized Netlist). Prior to delivery of such Synthesized Log Results LICENSEE shall give ARM as much advance warning as practicably possible of LICENSEE’S proposed delivery of such Synthesized Log Results. | |
| 3.4 | Each Synthesized Netlist shall be verified for a particular process upon ARM’S acceptance of the Synthesized Log Results delivered by LICENSEE. |
7
| 3.5 | The Synthesized Log Results shall be accepted when they indicate that no errors have been detected or where any errors detected have been jointly agreed, in good faith, and a waiver agreed between the parties. | |
| 3.6 | ARM shall notify LICENSEE, in writing, within fifteen (15) days of delivery by LICENSEE of the Synthesized Log Results (“Synthesis Verification Period”), whether the Synthesized Log Results have been accepted by ARM or have failed the in verification process. In the event that ARM fails to confirm the result of the verification process within the Synthesis Verification Period, the Synthesized Log Results shall be deemed accepted by ARM. In the event that the Synthesized Log Results fail the verification process, ARM shall provide details of the errors which cause the failure to LICENSEE and LICENSEE shall endeavour to correct the errors. The parties shall repeat the above process until either; (i) the Synthesized Log Results are accepted; or (ii) LICENSEE withdraws the Synthesized Log Results from the verification process. | |
| 4. | Trademark License | |
| 4.1 | ARM hereby grants to LICENSEE a non-transferrable (subject to Clause 15.3), non-exclusive, world-wide licence to use the Trademarks in the promotion and sale of ARM Secure Core Based Products. | |
| 4.2 | LICENSEE shall use one of the Trademarks, in accordance with ARM’s guidelines set forth in Schedule 3 (“Guidelines”), on; (i) all ARM Secure Core Based Products sold or distributed by LICENSEE; and (ii) all documentation, promotional materials and software associated with such ARM Secure Core Based Products. ARM shall have the right to revise Schedule 3 and the Guidelines (including the right to add further trademarks or modify the Trademarks) provided that such revisions are made in respect of the Guidelines issued to all licencees of the Trademarks. Any such revisions shall be effective, upon written notice to LICENSEE; (a) for printed material upon ninety (90) days notice; and (b) immediately in respect of products to be manufactured after ninety (90) days from receipt of such notice. | |
| 4.3 | LICENSEE shall submit samples of all documentation, packaging, and promotional or advertising materials bearing the Trademarks to ARM from time to time as requested by ARM to verify compliance with the Guidelines. LICENSEE shall immediately rectify any documentation, packaging, and promotional or advertising materials so as to comply with the Guidelines and cease using any non-compliant materials. | |
| 4.4 | LICENSEE agrees to assist ARM in maintaining the validity of the Trademarks by retaining a record of its use of the Trademarks. Such records shall include samples of all uses of the Trademarks for each ARM Secure Core Based Product as well as information regarding the first use of each of the Trademarks in each country. Upon request from ARM, LICENSEE shall make available all such records to ARM. | |
| 4.5 | Upon ARM’s request, LICENSEE shall provide, free of charge, samples of the use of the Trademarks for the purpose of trademark registration. LICENSEE shall support ARM in the application and maintenance of any registration for the Trademarks in the name of ARM. Upon request from ARM, LICENSEE shall execute any required registered user agreements (including any such other documents required by the applicable laws of any jurisdiction) for the Trademarks. In the event that LICENSEE fails to timely execute any such documents, LICENSEE hereby irrevocably appoints ARM as its attorney with respect to such matters. Any and all registrations for the Trademarks shall be procured by and for ARM, at ARM’s expense. | |
| 4.6 | Except as provided by the terms of this Agreement, LICENSEE shall not use or register any trademark, service mark, device or logo or any word or mark confusingly similar to any of the Trademarks, in any jurisdiction. |
8
| 5. | Fees and Royalties | |
| 5.1 | In consideration of the licenses granted in Clause 2.1 for the ARM Secure Core Transfer Materials, LICENSEE shall pay ARM a fee (each a “Core Licence Fee”) for each Unique ARM Secure Core Based Product developed by LICENSEE as set out in and in accordance with Schedule 7 Part A. If within three (3) years after the Effective Date, LICENSEE pays ARM [*****] Core Licence Fees for [*****] Unique ARM Secure Core Based Products, then during the continuance of this Agreement, LICENSEE shall not have any obligation to pay Core Licence Fees for the [*****] Unique ARM Secure Core Based Products. | |
| 5.2 | In consideration of the licenses granted in Clause 2.1 for the MME Transfer Materials, LICENSEE shall pay, ARM a fee (“MME Licence Fee”) as set out in and in accordance with Schedule 7 Part B. | |
| 5.3 | In consideration of the licenses granted in Clause 2.1, LICENSEE shall pay to ARM a royalty (“Royalty”), as determined in accordance with the table in Schedule 8, for each unit of ARM Secure Core Based Product sold, supplied or otherwise distributed by LICENSEE. | |
| 5.4 | In consideration of the ARM Maintenance (defined in Clause 8.1) LICENSEE shall pay, ARM, annual fees (each a “Maintenance Fee”) as set out in and in accordance with Schedule 7 Part C. The Maintenance Fees shall be fixed for two (2) years after the Effective Date and thereafter shall be subject to re-negotiation between the parties. | |
| 5.5 | In consideration of the ARM Support (defined in Clause 8.2) LICENSEE shall pay, ARM, annual fees (each a “Support Fee”) as set out in and in accordance with Schedule 7 Part D. The Support Fees shall be fixed for two (2) years after the Effective Date and thereafter shall be subject to re-negotiation between the parties. | |
| 5.6 | Royalties (defined in Clause 5.3) due to ARM under this Agreement shall be paid in accordance with the terms set out in Schedule 4. | |
| 5.7 | LICENSEE shall keep all records of account as are necessary to demonstrate compliance with its obligations under this Clause 5 for six (6) years from the date of each royalty report | |
| 5.8 | ARM shall have the right for representatives of a firm of independent Chartered Accountants to which LICENSEE shall not unreasonably object (“Auditors”), to make an examination and audit, by appointment made at least thirty (30) days prior to the audit, during normal business hours, not more frequently than once annually, of all records and accounts as may under recognised accounting practices contain information including; (i) the number of units of ARM Secure Core Based Product and the number of cores per ARM Secure Core Based Product, sold or distributed by LICENSEE under this Agreement; and (ii) the amount of Royalties payable to ARM under this Clause 5. The Auditors will report to ARM only upon whether the Royalties paid to ARM by LICENSEE were or were not correct, and if incorrect, what are the correct amounts for the Royalties. LICENSEE shall be supplied with a copy of or sufficient extracts from any preliminary and final report prepared by the Auditors. The Auditor’s report shall (in the absence of clerical or manifest error) be final and binding on the parties. Such audit shall be at ARM’s expense unless it reveals an underpayment of Royalties of five per cent (5%) or more, in which case LICENSEE shall reimburse ARM for the costs of such audit. LICENSEE shall make good any underpayment of Royalties forthwith. If the audit identifies that LICENSEE has made an overpayment of Royalties, such overpayment will be credited with the next such payment or payments to be made by LICENSEE. | |
| 5.9 | Any income or other tax which LICENSEE is required by law to pay or withhold on behalf of ARM with respect to any licence fees and/or Royalties payable to ARM under this Agreement shall be deducted from the amount of such licence fees and/or Royalties otherwise due, provided, however, that in regard to any such deduction, LICENSEE shall give such assistance as may be |
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
9
| necessary to enable or assist ARM to claim exemption therefrom, or credit therefor, and shall furnish ARM with such certificates and other evidence of deduction and payment thereof as ARM may properly require. | ||
| 5.10 | LICENSEE shall pay all licence fees and Royalties due to ARM under the terms of this Agreement within forty five (45) days of receipt of ARM’s original invoice therefor (“Due Date”). | |
| 5.11 | If any sum under this Agreement is not paid by the Due Date (as defined in Clause 5.10), then (without prejudice to ARM’s other rights and remedies) ARM reserves the right to charge interest on such sum on a day to day basis (as well after as before any judgement) from the day after the Due Date to the date of payment at the rate of two and a half (2.5%) per cent per annum above the base rate of The Bank of England from time to time in force. Notwithstanding the foregoing. ARM may waive this requirement, at its sole discretion, in the event that LICENSEE gives ARM advance warning that it has good cause to believe that, for reasons beyond its control, it may be unable to pay any such sum on the Due Date. | |
| 6. | Delivery and Acceptance | |
| 6.1 | ARM shall deliver the ARM Transfer Materials to LICENSEE in accordance with the delivery schedule set out in Schedule 9. | |
| 7. | Contract Management and Administration | |
| 7.1 | The parties hereby appoint the following individuals as their respective contract administrator between ARM and LICENSEE with respect to this Agreement: |
| ARM | LICENSEE | |
For Legal Notices:
|
For Legal Notices, Corporate Issues, Financial Matters, Confidential Information, Design Transfer and Support | |
VP and general Counsel
|
Jay Ho Chac | |
ARM Limited
|
Vice President/System IC SBU, SP BU, MCU | |
110 Fulbourn Road
|
Hynix Semiconductor Inc. | |
Cambridge
|
1 Hyangjeong-dong Hungduk-gu | |
CB19JN
|
Cheongju-si | |
| 361-725 Korea | ||
For Corporate Issues: |
||
Chief Operations Officer |
||
At the address above |
||
For Financial Matters: |
||
Financial Controller |
||
At the address above |
10
For Confidential Information: |
||
Manager of Core Licensing |
||
At the Address above |
||
For Design Transfer and Support
|
For Technical Matters | |
Manager of Core Licensing
|
As above | |
At the Fulbourn Road Address above |
| 7.2 | The contract administrators identified herein are appointed by the parties for the receipt and dispatch on their behalf all communications relating to this Agreement. The contract administrators shall also be responsible for the good progress of the parties’ performance under this Agreement and the timely resolution of all technical, administrative and commercial issues which may arise from time to time during the execution of this Agreement. | |
| 7.3 | Each party reserves the right to change its appointment as above upon at least seven (7) days prior written notice to the other party’s then current corresponding liaison. | |
| 7.4 | As soon as reasonably possible after the Effective Date, the parties shall mutually agree and publish a press release relating to the contents of this Agreement and the relationship thereby established between the parties. | |
| 8. | ARM Maintenance and Support | |
| 8.1 | Subject to LICENSEE’s payment of the Maintenance Fees, ARM shall provide to LICENSEE, in respect of the ARM Transfer Materials through the parties’ contract administrator, with the following services (“ARM Maintenance”); |
| (i) | the use of commercially reasonable efforts to correct any defects in the ARM Transfer Materials which cause any of the ARM Transfer Materials not to operate in accordance with the functionality described in the datasheet and/or manual for the ARM Transfer Materials, as appropriate. If ARM determines that such defects are due to errors in such datasheet and/or manual provided by ARM shall promptly issue corrections to the datasheet and/or manual and shall not be required to revise the ARM Materials, provided that use of the ARM Transfer Materials by LICENSEE is not adversely affected thereby; and | ||
| (ii) | all Updates to the ARM Transfer Materials. |
| 8.2 | Subject to LICENSEE’s payment of the Support Fees, ARM shall provide to LICENSEE, in respect of the ARM Transfer Materials through the parties’ contract administrator, with the following services (“ARM Support”); reasonable telephone, e-mail and written consultation pertaining to the operation and application of the ARM Transfer Materials. The ARM Support provided under this Clause 8.2 shall be limited to a total of ten (10) person days per annum. | |
| 8.3 | LICENSEE agrees to receive ARM Maintenance and ARM Support for the ARM Secure Core and the ARM Transfer Materials for two (2) years after the Effective Date and after such date may request ARM to continue the provision of ARM Maintenance and ARM Support subject to the payment of appropriate fees mutually agreed by the parties. | |
| 8.4 | Upon LICENSEE requesting ARM Maintenance pursuant to Clause 8.1 or ARM Support pursuant to the provisions of Clause 8.2, LICENSEE shall promptly provide ARM with such samples and technical information as ARM may reasonably require to enable ARM to provide such ARM Maintenance or ARM Support, as appropriate. |
11
| 8.5 | For the avoidance of doubt, ARM’s obligation under this Clause 8 is limited expressly to the provision of ARM Support only for LICENSEE and ARM shall be under no obligation to provide ARM Support for LICENSEE’s customers. | |
| 8.6 | ARM Maintenance and ARM Support shall be provided from ARM’s premises in Cambridge, England. Nevertheless, ARM will use reasonable efforts to provide ARM Maintenance and ARM Support to LICENSEE, at LICENSEE’s premises, subject to LICENSEE bearing all reasonable travelling, accommodation and sustenance expenses incurred and agreed in advance in writing with both parties. | |
| 8.7 | For the avoidance of doubt, ARM’s obligation under Clause 8.2 is limited expressly to the provision of ARM Support only for LICENSEE and ARM shall be under no obligation to provide ARM Support for LICENSEE’s customers. | |
| 8.8 | Upon LICENSEE requesting ARM Support pursuant to the provisions of Clause 8, LICENSEE shall promptly provide ARM with such samples and technical information as ARM may reasonably require to enable ARM to provide ARM Support. | |
| 9. | Confidentiality | |
| 9.1 | Except as provided by Clause 9.3 and 9.4, each party shall maintain in confidence the Confidential Information disclosed by the other party and apply security measures no less stringent than the measures that such party applies to protect its own Confidential Information, but not less than a reasonable degree of care, to prevent unauthorised disclosure and use of the Confidential Information. The period of confidentiality shall be fifteen (15) years with respect to each party’s Confidential Information. | |
| 9.2 | LICENSEE agrees that it shall not use any of ARM’s Confidential Information other than for the purposes of designing, having designed, manufacturing, having manufactured, marketing and distributing ARM Secure Core Based Products whether alone or incorporated in other products and any other activities reasonably necessary in the normal course of business for LICENSEE to sell ARM Secure Core Based Products. ARM agrees that it shall only use LICENSEE’s Confidential Information for LICENSEE’s purposes. | |
| 9.3 | Notwithstanding the foregoing; LICENSEE shall have the right to disclose layout derived from the Synthesizable RTL identified in Schedule 1 Part C Section 1 and the MME Synthesisable RTL identified in Schedule 2 Part B Section 1, to a Manufacturer (as defined in Clause 2.2) pursuant to the exercise of the “have manufactured” rights granted in Clause 2.1 under an NDA with substantially similar terms to this Clause 9 but also including a prohibition on the reverse engineering of the ARM Transfer Materials and/or the derivatives therefrom and except that the confidentiality period for each deliverable shall be at a minimum of ten (10) years from the date of disclosure. | |
| 9.4 | Notwithstanding the foregoing, LICENSEE shall have the right to disclose the Core Self Test Programs, to a House (as defined in Clause 2.3) pursuant to the exercise of the have tested rights granted in Clause 2.1 under an NDA containing substantially similar terms to this Clause 9, except that the confidentiality period for each deliverable shall be at a minimum of five (5) years from the date of disclosure. | |
| 9.5 | The provisions of this Clause 9 shall not apply to information which: |
| (i) | is known and has been reduced to tangible form by the receiving party prior to disclosure by the other party; or | ||
| (ii) | is published or otherwise made available to the public other than by a breach of this Agreement by the receiving party; or |
12
| (iii) | is disclosed to the receiving patty by a third party without a duty of confidentiality; or | ||
| (iv) | is independently conceived by the receiving party provided that the receiving party is able to provide evidence of such independent conception in the form of written records; or | ||
| (v) | is released to the receiving party for disclosure to any third party, other than on a confidential basis, by the disclosing party in writing; or | ||
| (vi) | is approved for release by the disclosing party; or | ||
| (vii) | is released to a third party by the disclosing party without a duty of confidentiality; or | ||
| (viii) | is marked (N) in the Schedules of this Agreement. |
| 9.6 | For the avoidance of doubt, LICENSEE Royalty reports may be disclosed in confidence to ARM’s financial and legal advisors. In addition, ARM may disclose the total unit sales of ARM processor based products on an annual basis provided that the unit sales of such ARM Secure Core Based Products by LICENSEE are not separately identifiable or deducible therefrom. | |
| 10. | Warranties | |
| 10.1 | Except as expressly provided in this Agreement, the ARM Transfer Materials and Software are supplied “as is” and ARM makes no representations and gives no warranties express, implied or statutory, including, without limitation, the implied warranties of satisfactory quality or fitness for a particular purpose in respect thereof. | |
| 10.2 | ARM warrants, to LICENSEE, that; |
| (i) | the Intellectual Property in the ARM Transfer Materials does not infringe any third party copyright, design right, registered design right or maskwork right or tradesecret; and | ||
| (ii) | ARM has the right to enter into this Agreement. |
| 10.3 | ARM represents and warrants that as of the Effective Date, there are no pending Claims that have been made, or actions commenced, against ARM for breach by the ARM Transfer Materials of any third party Intellectual Property. | |
| 10.4 | ARM warrants that the ARM Transfer Materials will be consistent and sufficient for a competent semiconductor manufacturer to produce Microarchitecture Compliant Cores, as the case may be, which meet the functionality and performance specified in the applicable Technical Reference Manual. LICENSEE’s remedy for any breach of such warranty shall be for ARM, as soon as is reasonably possible, to correct any errors in the appropriate ARM Transfer Materials and deliver such corrected materials to LICENSEE in accordance with the provisions of Clause 8. | |
| 10.5 | LICENSEE acknowledges that the Software cannot be tested in every possible operation, and accordingly ARM does not warrant that the Software will be free from all defects or that there will be no interruption in their use. However, ARM warrants that the Software will comply with the description of their functionality specified in the related documentation. LICENSEE’s remedy for any breach of such warranty shall be for ARM, as soon as is reasonably possible, to correct any errors in the Software and deliver such corrected Software to LICENSEE. | |
| 10.6 | ARM shall not be responsible for any recoverable or non-recoverable costs incurred, directly or indirectly, by LICENSEE in the design migration, processing, or manufacture of masks and prototypes, characterization or manufacture of production quality silicon in whatever quantity. |
13
| 11. | Infringement | |
| 11.1 | LICENSEE shall notify ARM immediately upon learning of any claim which may be made or threatened that the exercise by LICENSEE of the rights hereby licensed constitutes an infringement of the patent, copyright, maskwork right, or trade secret (together “Rights”) of a third party and will not take any action in relation to such claim which may be prejudicial to the interests of ARM without the written consent of ARM. | |
| 11.2 | ARM agrees that it will, at its expense, timely defend any suit instituted against LICENSEE and shall indemnify LICENSEE against any award of damages and costs made against LICENSEE in any such suit insofar as the same is based on a claim that the exercise by LICENSEE of its licensed rights under Clause 2.1, infringes any Right of a third party, provided that LICENSEE gives ARM timely notice in writing of the institution of such suit and permits ARM through ARM’s lawyers of choice to defend the same and LICENSEE provides all available information, assistance and authority to so defend. ARM shall have control of the defence of any such suit, including appeals, and of all negotiations for settlement, including the right to effect the settlement or compromise thereof. | |
| 11.3 | In the event that rights licensed to LICENSEE under Clause 2.1 are, in any suit for infringement of any Right of a third party, held to constitute an infringement, ARM shall, at its option and expense, procure for LICENSEE the right to continue exercising its rights under Clause 2.1, or, to the extent commercially practicable, replace or modify the ARM Transfer Materials, as appropriate, provided that such replacement or modification of the ARM Transfer Materials maintain compatibility, so that the exercise by LICENSEE of its rights under Clause 2.1, does not constitute an infringement. | |
| 11.4 | ARM shall have no liability under this Clause 11 with respect to any suit or claim to the extent that infringement is due solely to; ARM shall have no liability under this Clause for any infringement arising from; |
| (i) | the combination of the ARM Transfer Materials with other products not supplied by ARM if such infringement arises exclusively from such combination; | ||
| (ii) | the modification of the ARM Transfer Materials unless the modification was made or approved by ARM if such infringement arises exclusively from modification; | ||
| (iii) | any manufacturing process applied to the ARM Transfer Materials by LICENSEE or LICENSEE’S agent; or | ||
| (iv) | compliance by ARM with the LICENSEE requirement specification where such compliance necessarily lead to such infringement. |
| 11.5 | LICENSEE agrees that it will, at its expense, timely defend any suit instituted against ARM and shall indemnify ARM against any award of damages and costs made against ARM in any such suit insofar as the same is based on a claim that; (i) the combination of the ARM Transfer Materials with other products not supplied by ARM if such infringement arises exclusively from such combination; (ii) the modification of the ARM Transfer Materials unless the modification was made or approved by ARM if such infringement arises exclusively from modification; (iii) any manufacturing process applied to the ARM Transfer Materials by LICENSEE; or (iv) compliance by ARM with the LICENSEE requirement specification where such compliance necessarily lead to infringement, infringes any Right of a third party, provided that ARM gives LICENSEE timely notice in writing of the institution of such suit and permits LICENSEE through LICENSEE’s lawyers of choice to defend the same and ARM provides, at ARM’s expense, all available information, assistance and authority to so defend. LICENSEE shall have control of the defence of any such suit, including appeals, and of all negotiations for settlement, including the right to effect the settlement or compromise thereof. Notwithstanding the foregoing, LICENSEE shall not be |
14
| liable under the indemnification provided in this Clause 11.5 unless it is held in any suit that the infringement has been caused by the wilful action of LICENSEE. | ||
| 12. | Disclaimer of Consequential Damages and limitation of liability |
| 12.1 | IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM ITS PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE OR USE OF THE ARM SECURE CORE OR ARM TRANSFER MATERIALS LICENSED HEREBY. | |
| 12.2 | NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, ARM SHALL NOT BE LIABLE FOR ANY AMOUNTS IN EXCESS OF THE TOTAL CORE LICENCE FEES PAID TO ARM PURSUANT TO CLAUSE 5.1 OF THIS AGREEMENT FOR ALL PAYMENTS BY ARM TO LICENSEE MADE PURSUANT TO ALL CLAIMS IN ANY WAY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. | |
| 12.3 | NOTHING IN THIS CLAUSE SHALL OPERATE TO EXCLUDE LIABILITY FOR DEATH OR PERSONAL INJURY RESULTING FROM EITHER PARTY’S NEGLIGENCE. | |
| 12.4 | If the Synthesizable RTL and MME Synthesizable RTL for the ARM Secure Core simulates substantially the functionality described in the Technical Reference Manual, ARM shall not be liable for any loss or damage suffered by LICENSEE as a result of the failure of any ARM Secure Core Based Product to provide security of data processed by the device. If an ARM Secure Core Based Product fails to provide security of data processed by it, ARM shall, subject to the provisions of Clause 12.2, only be liable for any loss or damage suffered by LICENSEE as a result of such failure to the extent that such loss or damage is a direct result of the Synthesizable RTL and MME Synthesizable RTL for the ARM Secure Core failing to simulate substantially the functionality described in the Technical Reference Manual. | |
| 13. | Term and Termination | |
| 13.1 | This Agreement shall commence on the Effective Date and shall continue in force unless earlier terminated in accordance with the provisions of Clause 13.2. | |
| 13.2 | Without prejudice to any other right or remedy which may be available to it, either party shall be entitled summarily to terminate this Agreement forthwith by giving written notice to the other, if the other party: |
| (i) | has committed a material breach of any of its obligations hereunder which is not capable of remedy; or | ||
| (ii) | has committed a material breach of any of its obligations hereunder which is capable of remedy but which has not been remedied within sixty (60) days following receipt of written notice to do so; or | ||
| (iii) | makes any voluntary arrangement with its creditors for the general settlement of its debts or becomes subject to an administration order; or | ||
| (iv) | has an order made against it, or passes a resolution, for its winding-up (except for the purposes of amalgamation or reconstruction) or has an encumbrancer take possession or has a receiver or similar officer appointed over all or substantially all of its property or assets. |
15
| 14. | Effect of Expiry and Termination | |
| 14.1 | Upon termination of this Agreement by ARM pursuant to Clause 13.2, LICENSEE will immediately discontinue any use and distribution of all ARM Secure Core Based Products, the ARM Secure Core, the ARM Transfer Materials, any Intellectual Property embodied therein, and any ARM Confidential Information. LICENSEE shall, at ARM’s option, either destroy or return to ARM any Confidential Information, including any copies thereof in its possession, together with the ARM Transfer Materials in its possession. Within one month after termination of this Agreement LICENSEE will furnish to ARM a certificate signed by a duly authorised representative of LICENSEE that to the best of his or her knowledge, information and belief, after due enquiry, LICENSEE has complied with provisions of this Clause. | |
| 14.2 | Unless this Agreement is terminated by LICENSEE in accordance with the provisions of Clause 13.2, the licenses granted to LICENSEE under the terms of this Agreement shall survive (subject to the terms and conditions of this Agreement) in the event that either; (i) ARM makes any voluntary arrangement with its creditors for the settlement of its debts or becomes subject to an administration order; or (ii) ARM has an order made against it, or passes a resolution, for its winding-up (except for the purposes of amalgamation or reconstruction) or has an encumbrancer take possession or has a receiver or similar officer appointed over all or substantially all of its property or assets. Notwithstanding anything to the contrary contained elsewhere in this Agreement, if this Agreement is terminated by LICENSEE in accordance with the provisions of Clause 13.2, any and all rights, including, without limitation, all licences granted to LICENSEE hereunder shall survive such termination subject to the terms and conditions of this Agreement including, without limitation, the continued payment of Royalties in accordance with the provisions of Clause 5.3. | |
| 14.3 | Upon termination the provisions of Clauses 1, 5 (to the extent that any obligation under this Clause remains outstanding) 9, 10, 11, 12, 14 and 15 shall survive termination. | |
| 15. | General | |
| 15.1 | All communications between the parties including, but not limited to, notices, royalty reports, error or bug reports, the exercise of options, and support requests shall be in the English language. | |
| 15.2 | All notices which are required to be given hereunder shall be in writing and shall be sent to the address of the recipient set out in this Agreement or such other address as the recipient may designate by notice given in accordance with the provisions of this Clause. Any such notice may be delivered personally, by commercial overnight courier or facsimile transmission which shall be followed by a hard copy and shall be deemed to have been served if by hand when delivered, if by commercial overnight courier 48 hours after deposit with such courier, and if by facsimile transmission when dispatched. | |
| 15.3 | Neither party shall assign or otherwise transfer this Agreement or any of its rights and obligations hereunder whether in whole or in part without the prior written consent of the other provided that such consent shall not be unreasonably withheld. | |
| 15.4 | Neither party shall be liable for any failure or delay in its performance under this Agreement due to causes, including, but not limited to, acts of God, acts of civil or military authority, fires, epidemics, floods, earthquakes, riots, wars, sabotage, third party industrial disputes and governments actions, which are beyond its reasonable control; provided that the delayed party: (i) gives the other party written notice of such cause promptly, and in any event within fourteen (14) days of discovery thereof; and (ii) uses its reasonable efforts to correct such failure or delay in its performance. The delayed party’s time for performance or cure under this Clause 15.4 shall be extended for a period equal to the duration of the cause. | |
| 15.5 | ARM and LICENSEE are independent parties. Neither company nor their employees, consultants, contractors or agents, are agents, employees or joint venturers of the other party, nor do they have |
16
| the authority to bind the other party by contract or otherwise to any obligation. Neither party will represent to the contrary, either expressly, implicitly, by appearance or otherwise. |
| 15.6 | The parties agree that the terms and conditions of this Agreement shall be treated as Confidential Information hereunder and shall not be disclosed without the consent of both parties. | |
| 15.7 | Failure by either party to enforce any provision of this Agreement shall not be deemed a waiver of future enforcement of that or any other provision. | |
| 15.8 | If any provision of this Agreement, or portion thereof, is determined to be invalid or unenforceable the same will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect. | |
| 15.9 | The headings to the Clauses of this Agreement are for ease of reference only and shall not affect the interpretation or construction of this Agreement. | |
| 15.10 | This Agreement may be executed in one or more counterparts each of which shall be deemed an original, but all of which shall constitute one and the same instrument. | |
| 15.11 | This Agreement, including all Schedules and documents referenced herein, constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes and replaces all prior or contemporaneous understandings or agreements, written or oral, regarding the subject matter. Except in respect of changes to the Trademark Guidelines (defined in Clause 4.2) which may be changed in accordance with the provisions of Clause 4.2, no amendment to, or modification of, this Agreement shall be binding unless in writing and signed by a duly authorized representatives of both parties. | |
| 15.12 | This Agreement shall be governed by and construed in accordance with the laws of England. In the event that ARM commences proceedings against LICENSEE under this Agreement, the parties agree to submit to the jurisdiction of the Seoul District Court, Korea, for the purpose of hearing and determining any disputes arising out of this Agreement. In the event that LICENSEE commences proceedings against ARM under this Agreement, the parties agree to submit to the jurisdiction of the High Court of Justice, London, England, for the purpose of hearing and determining any disputes arising out of this Agreement. | |
| 15.13 | LICENSEE and ARM acknowledge that each and every term and condition of this Agreement has been fully and completely negotiated and such terms and conditions closely relate to each other. In the event that the Korean governmental authorities, including the Korean Fair Trade Commission, during the review of this Agreement require a modification to one or more of the clauses of this Agreement, ARM shall have the option to renegotiate the entire Agreement or accept the applicable modification of the Agreement as required by such governmental authorities. | |
| 15.14 | Subject to the mutual agreement of the authorized executives of the parties, ARM and LICENSEE agree to issue a mutually agreed press release detailing the relationship established and products licensed under this Agreement. |
IN WITNESS WHEREOF the parties have caused this Agreement to be executed by their duly authorized
representatives:
| ARM LIMITED: | HYNIX SEMICONDUCTOR LIMITED | |||||||||
SIGNED NAME: |
Illegible
|
SIGNED NAME: |
/s/ Jay Ho Chae
|
|||||||
TITLE:
|
EVP | TITLE: | VP | |||||||
17
Exhibit 10.15
This Technology License Agreement (“TLA”) is made the 20th day of May day of 2004 (“Effective
Date”)
BETWEEN
ARM LIMITED whose registered office is situated at 110 Fulbourn Road, Cambridge CB1 9NJ,
England (“ARM”);
and
HYNIX SEMICONDUCTOR INC. whose principal place of business is situated at Youngdong Building
891, Daechi-dong, Kangnam-gu, Seoul, Republic of Korea (“HYNIX”).
WHEREAS
LICENSEE has requested ARM and ARM has agreed to license to LICENSEE certain ARM Technology
(defined below) on the following terms and conditions.
| 1. | Definitions | |
| 1.1 | “ARM Compliant Product” means an integrated circuit incorporating an ARM Compliant Core as defined in the relevant Annex 1. | |
| 1.2 | “ARM Technology” means any or all, as the context admits, of the technology identified in each Annex 1 and any Updates thereto delivered by ARM to LICENSEE. | |
| 1.3 | “ASP” means the average sales price of an ARM Compliant Product or other device which contains royalty bearing ARM Technology, as the case may be, in a Quarter, calculated by taking the figure for the aggregate of all invoices for the distribution of such ARM Compliant Product or other device which contains royalty bearing ARM Technology in such Quarter by the entity exercising the licences to manufacture or have manufactured under this TLA (notwithstanding that such distribution may be between HYNIX and a Subsidiary of HYNIX or between Subsidiaries of HYNIX), less; (i) any value added, turnover, import or other tax, duty or tariff payable by law thereon; and (ii) any freight and insurance costs included in the invoiced price, and dividing it by the number of units of such ARM Compliant Product or other device which contains royalty bearing ARM Technology, as appropriate, accounted for under such invoices. | |
| 1.4 | “Claim” means a written notice received by ARM and claiming infringement of the Intellectual Property of a third party by any of the ARM Technology and which demands that ARM cease and desist from such claimed Intellectual Property infringement. | |
| 1.5 | “Confidential Information” means; (i) the ARM Technology and derivatives thereof (including any translation, modification, compilation, abridgement or other form in which the ARM Technology has been recast, transformed or adapted) and any trade secrets relating to the ARM Technology; (ii) any information designated in writing by either party, by appropriate legend, as confidential; (iii) any information which if first disclosed orally is identified as confidential at the time of disclosure and is thereafter reduced to writing for confirmation and sent to the other party within thirty (30) days after its oral disclosure and designated, by appropriate legend, as confidential; and (iv) the terms and conditions of this TLA. | |
| 1.6 | “Customer” means any entity that has contracted with LICENSEE for the design and manufacture of an ARM Compliant Product for such entity. | |
| 1.7 | “Designer” means any entity sub-contracted by LICENSEE to provide design resource to LICENSEE. | |
| 1.8 | “Intellectual Property” means any patents, patent rights, trade marks, service marks, registered designs, topography or semiconductor mask work rights, applications for any of the foregoing, copyright, unregistered design right and any other similar protected rights in any country. |
1 of 15
| 1.9 | “LICENSEE” means HYNIX and any Subsidiaries of HYNIX. | |
| 1.10 | “Manufacturer” means any entity sub-contracted by LICENSEE to manufacture integrated circuits for LICENSEE. | |
| 1.11 | “Quarter” means each calendar quarter ending the 31st March, 30th June, 30th September and 31st December of each year. | |
| 1.12 | “Subsidiary” means any company the majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by a party hereto or any company a majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by any of the aforementioned entities. A company shall be a Subsidiary only so long as such control exists. | |
| 1.13 | “Term” means the term for which the subject ARM Technology is licensed to LICENSEE by ARM as specifically set out in Section 7 of the relevant Annex 1. | |
| 1.14 | “Test House” means any entity sub-contracted by LICENSEE to test integrated circuits for LICENSEE. | |
| 1.15 | “Trademarks” means the trademarks identified in Section 6 of each Annex 1. | |
| 1.16 | “Trademark Guidelines” means the guidelines for the use of ARM’s Trademarks as set out in Annex 2 and any amendment thereto delivered to LICENSEE by ARM from time to time in accordance with the provisions of Clause 2.9. | |
| 1.17 | “Updates” means any; (i) error corrections developed by or for ARM; and (ii) functional enhancements or other modifications developed by or for ARM (which ARM in its discretion decides does not constitute a new product), together with any Intellectual Property embodied therein. | |
| 2. | Licence | |
| ARM Technology Licence | ||
| 2.1 | The ARM Technology shall be licensed to LICENSEE subject to the relevant license terms identified in Section 2 of the relevant Annex 1. | |
| Subcontracting Design | ||
| 2.2 | Subject to the provisions of Clause 3 (Confidentiality), LICENSEE may exercise the right, if granted in Section 2 of the relevant Annex 1, to have ARM Compliant Products or other devices which contain ARM Technology licensed in accordance with the terms of this TLA, as the case may be, designed by any Designer, provided that; (a) LICENSEE does not grant to the Designer any license in respect of the ARM Technology for any other purpose; and (b) that each Designer; |
| (i) | is subject to contractual obligations of confidentiality in respect of the ARM Confidential Information and ARM Technology which are in accordance with the provisions of Clause 3.3; | ||
| (ii) | is subject to a contractual obligation to use the ARM Confidential Information and ARM Technology solely for the purpose of supplying the designs of the ARM Compliant Products or other devices which contain ARM Technology licensed in accordance with the terms of this TLA, as the case may be, solely to LICENSEE; and | ||
| (iii) | is subject to a contractual obligation to return any ARM Confidential Information and ARM Technology to LICENSEE on the earlier of; (a) the completion of the design; and (b) the end of the contractual confidentiality period (in the agreement between LICENSEE and Designer) for the relevant ARM Confidential Information or ARM Technology. |
| If any Designer breaches the provisions of Clauses 2.2(i) to 2.2(iii), LICENSEE agrees that such breach shall be treated as a material breach of this TLA by LICENSEE which shall entitle ARM to terminate this TLA in accordance with the provisions of Clause 14.2 and LICENSEE shall hold ARM harmless from and keep ARM |
2 of 15
| indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to such breach. | ||
| Customer Collaboration | ||
| 2.3 | Subject to the provisions of Clause 3 (Confidentiality), LICENSEE may exercise the right, if granted in Section 2 of the relevant Annex 1, to have ARM Compliant Products or other devices which contain ARM Technology licensed in accordance with the terms of this TLA, as the case may be, designed by any Customer provided that; (a) LICENSEE does not grant to the Customer any license in respect of the ARM Technology for any purpose other than for collaborating on the design of ARM Compliant Products or other devices which contain ARM Technology licensed in accordance with the terms of this TLA, as the case may be, with LICENSEE and; and (b) that each Customer; |
| (i) | is subject to contractual obligations of confidentiality in respect of the ARM Confidential Information and ARM Technology which are in accordance with the provisions of Clause 3.4; | ||
| (ii) | is subject to a contractual obligation to use the ARM Confidential Information and ARM Technology solely for the purpose of supplying the designs of the ARM Compliant Products or other devices which contain ARM Technology licensed in accordance with the terms of this TLA, as the case may be, solely to LICENSEE; and | ||
| (iii) | is subject to a contractual obligation to return any ARM Confidential Information and ARM Technology to LICENSEE on the earlier of; (a) the completion of the design; and (b) the end of the contractual confidentiality period (in the agreement between LICENSEE and Customer) for the relevant ARM Confidential Information or ARM Technology. |
| If any Customer breaches the provisions of Clauses 2.3(i) to 2.3(iii), LICENSEE agrees that such breach shall be treated as a material breach of this TLA by LICENSEE which shall entitle ARM to terminate this TLA in accordance with the provisions of Clause 14.2 and LICENSEE shall hold ARM harmless from and keep ARM indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to such breach. | ||
| Subcontracting Manufacture | ||
| 2.4 | Subject to the provisions of Clause 3 (Confidentiality), LICENSEE may exercise the right, if granted in Section 2 of the relevant Annex 1, to have ARM Compliant Products or other devices which contain ARM Technology licensed in accordance with the terms of this TLA, as the case may be, manufactured by a Manufacturer provided that; (a) LICENSEE does not grant to the Manufacturer any license in respect of the ARM Technology for any purpose other than for manufacturing ARM Compliant Products or other devices which contain ARM Technology licensed in accordance with the terms of this TLA, as the case may be, solely for LICENSEE; and (b) that each Manufacturer; |
| (i) | is subject to contractual obligations of confidentiality in respect of the ARM Confidential Information and ARM Technology which are in accordance with the provisions of Clause 3.2; | ||
| (ii) | is subject to a contractual obligation to use the ARM Confidential Information and ARM Technology solely for the purpose of supplying units of the ARM Compliant Products or other devices which contain ARM Technology licensed in accordance with the terms of this TLA, as the case may be, solely to LICENSEE; and | ||
| (iii) | is subject to a contractual obligation to return any ARM Confidential Information and ARM Technology to LICENSEE on the earlier of; (a) the completion of the manufacture; and (b) the end of the contractual confidentiality period (in the agreement between LICENSEE and Manufacturer) for the relevant ARM Confidential Information or ARM Technology. |
| If any Manufacturer breaches the provisions of Clauses 2.4(i) to 2.4(iii), LICENSEE agrees that such breach shall be treated as a material breach of this TLA by LICENSEE which shall entitle ARM to terminate this TLA in accordance with the provisions of Clause 14.2 and LICENSEE shall hold ARM harmless from and keep ARM |
3 of 15
| indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to such breach. | ||
| Subcontracting Testing | ||
| 2.5 | Subject to the provisions of Clause 3 (Confidentiality), LICENSEE may exercise the right, if granted in Section 2 of the relevant Annex 1, to have tested ARM Compliant Products or other devices which contain ARM Technology licensed in accordance with the terms of this TLA, as the case may be, by a Test House provided that; (a) LICENSEE does not grant to the Test House any license in respect of the ARM Technology for any purpose other than for testing ARM Compliant Products or other devices which contain ARM Technology licensed in accordance with the terms of this TLA, as the case may be, solely for LICENSEE; and (b) that each Test House; |
| (i) | is subject to contractual obligations of confidentiality in respect of the ARM Confidential Information and ARM Technology which are in accordance with the provisions of Clause 3.5; | ||
| (ii) | is subject to a contractual obligation to use the ARM Confidential Information and ARM Technology solely for the purpose of supplying units of the tested ARM Compliant Products or other devices which contain ARM Technology licensed in accordance with the terms of this TLA, as the case may be, solely to LICENSEE; and | ||
| (iii) | is subject to a contractual obligation to return any ARM Confidential Information and ARM Technology to LICENSEE on the earlier of; (a) the completion of the testing; and (b) the end of the contractual confidentiality period (in the agreement between LICENSEE and Test House) for the relevant ARM Confidential Information or ARM Technology. |
| If any Test House breaches the provisions of Clauses 2.5(i) to 2.5(iii), LICENSEE agrees that such breach shall be treated as a material breach of this TLA by LICENSEE which shall entitle ARM to terminate this TLA in accordance with the provisions of Clause 14.2 and LICENSEE shall hold ARM harmless from and keep ARM indemnified against all and any loss, liability, costs, damages, expenses (including the fees of lawyers and other professionals), suffered, incurred or sustained as a result of or in relation to such breach. | ||
| Intercompany Matters | ||
| 2.6 | Any breach of this TLA by a Subsidiary of HYNIX shall entitle ARM to terminate this TLA in accordance with the provisions of Clause 14.2 as if HYNIX were the party in breach. Any termination of this TLA in accordance with the provisions of Clause 14.2 shall be effective in respect of HYNIX and all Subsidiaries. | |
| Any rights granted to any Subsidiary of HYNIX hereunder shall automatically terminate upon such Subsidiary of HYNIX ceasing to be a Subsidiary of HYNIX. | ||
| In the event that a Subsidiary of HYNIX is in breach of any of the terms of this TLA, HYNIX shall hold harmless and indemnify ARM against all and any loss, liability, costs, damages, expenses (including the reasonable fees of lawyers and other professionals) suffered, as a result of or in connection with such breach. | ||
| Licence Restrictions | ||
| 2.7 | Except as specifically licensed in accordance with Clause 2.1, LICENSEE acquires no right, title or interest in any ARM Confidential Information, ARM Technology or any Intellectual Property embodied therein. In no event shall the licenses granted in accordance with Clause 2.1 be construed as granting LICENSEE, expressly or by implication, estoppel or otherwise, a license to use any ARM technology except the ARM Technology. | |
| Except as expressly licensed in accordance with Clause 2.1, no right is granted to LICENSEE to sublicense the rights granted to LICENSEE under this TLA. | ||
| LICENSEE shall not use or procure others to use any ARM Technology or ARM Confidential Information; (i) for the purposes of determining if any features, functions or processes provided by the ARM Technology or disclosed by the ARM Confidential Information are covered by any patents or patent applications owned by LICENSEE; or (ii) as a reference for developing inventions in respect of which LICENSEE or its agents will seek patent protection; (iii) for developing technology or products which work around any of ARM’s Intellectual Property licensed |
4 of 15
| hereunder; or (iv) as a reference for modifying existing patents or patent applications or creating any continuation, continuation in part, or extension of existing patents or patent applications. | ||
| Intellectual Property Notices | ||
| 2.8 | LICENSEE shall reproduce and not remove or obscure any notice incorporated in the ARM Technology by ARM to protect ARM’s Intellectual Property or to acknowledge the Intellectual Property of any third party. LICENSEE shall incorporate and shall require that any Designer, Customer, Manufacturer and Test House to which any ARM Technology is provided in accordance with the terms of this Agreement, incorporates corresponding notices and such other markings and notifications as ARM may reasonably require on all copies of the ARM Technology and any derivatives thereof (including any translation, modification, compilation, abridgement or other form in which the ARM Technology has been recast, transformed or adapted) created by LICENSEE, Designer, Customer, Manufacturer or Test House, as the case may be. | |
| ARM Trademarks | ||
| 2.9 | ARM hereby grants to LICENSEE a non-transferable (subject to Clause 16.3), non-exclusive, royalty-free, world-wide license to use the Trademarks in connection with the promotion and sale of products developed under the licences granted in this TLA. | |
| LICENSEE shall use the Trademarks, in accordance with the Trademark Guidelines. ARM shall have the right to revise the Trademark Guidelines and Section 6 of any Annex 1. Any such revisions shall be effective with respect to printed materials and products to be produced or manufactured after ninety (90) days from receipt of ARM’s written notice specifying the revisions to LICENSEE. | ||
| Upon request from ARM, LICENSEE shall submit samples of documentation, packaging, and promotional or advertising materials bearing the Trademarks to ARM so that ARM may verify compliance with the Trademark Guidelines. In the event that any documentation, packaging, promotional or advertising material fails to comply with the Trademark Guidelines, ARM shall notify LICENSEE and LICENSEE shall rectify such documentation, packaging, and promotional or advertising materials so as to comply with the Trademark Guidelines and cease using any such non-compliant materials as soon as reasonably possible after the date of ARM’s notice. | ||
| LICENSEE agrees to provide reasonable assistance to ARM in maintaining the validity of the Trademarks. Upon ARM’s request, LICENSEE shall provide, free of charge, a reasonable number of samples of the use of the Trademarks for the purpose of trademark registration or renewal. Upon request, LICENSEE shall at ARM’s expense execute any documents required by the applicable laws of any jurisdiction for the purpose of either or both registering and maintaining the Trademarks. | ||
| Except as provided by the terms of this TLA, LICENSEE shall not use or register, in any jurisdiction, any trademark, service mark, device or logo or any word or mark confusingly similar to any of the Trademarks. | ||
| 3. | Confidentiality | |
| Restricted Disclosure | ||
| 3.1 | Except as expressly provided by Clauses 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7, each party shall maintain in confidence the Confidential Information disclosed by the other party and apply security measures no less stringent than the measures that such party applies to its own like information, but not less than a reasonable degree of care, to prevent unauthorised disclosure and use of the Confidential Information. The period of confidentiality shall be indefinite with respect to each party’s Confidential Information. | |
| Permitted Disclosure to Manufacturers | ||
| 3.2 | LICENSEE may disclose the (i) the ARM Technology marked “M” in any Annex 1, and any translation, modification, compilation, abridgement or other form in which the ARM Technology marked “M” has been recast, transformed or adapted; (ii) any GDSII created by or for LICENSEE from the synthesizable RTL licensed under any Annex 1; and (iii) any masks created from the GDSII by or for LICENSEE, to a Manufacturer pursuant to the exercise of any have manufactured rights (if granted in Section 2 of the relevant Annex 1) solely for the purposes of having ARM Compliant Products manufactured for LICENSEE by such third party and under a non-disclosure |
5 of 15
| agreement containing substantially similar terms to this Clause 3, except that the confidentiality period for each deliverable shall be, at a minimum, of five (5) years from the date of disclosure. | ||
| Permitted Disclosure to Designers | ||
| 3.3 | LICENSEE may disclose the ARM Technology marked “D” in any Annex 1 and any translation, modification, compilation, abridgement or other form in which the ARM Technology marked “D” has been recast, transformed or adapted, to a Designer pursuant to the exercise of the have designed rights (if granted in Section 2 of the relevant Annex 1) solely for the purposes of having ARM Compliant Products designed for LICENSEE by such third party and under an non-disclosure agreement containing substantially similar terms to this Clause 3, including the confidentiality period for each deliverable determined in accordance with the provisions of Clause 3.1. | |
| Permitted Disclosure to Customers | ||
| 3.4 | LICENSEE may disclose the ARM Technology marked “CS” in any Annex 1 to a Customer solely for the purposes of collaborating on the design of ARM Compliant Products for such third party and under an non-disclosure agreement containing substantially similar terms to this Clause 3, including the confidentiality period for each deliverable determined in accordance with the provisions of Clause 3.1. | |
| Permitted Disclosure to Test Houses | ||
| 3.5 | LICENSEE may disclose (i) the ARM Technology marked “T” in any Annex 1 and any translation, modification, compilation, abridgement or other form in which the ARM Technology marked “T” has been recast, transformed or adapted; and (ii) any ATPG test vectors created by or for LICENSEE from the synthesizable RTL to a Test House pursuant to the exercise of the have tested rights (if granted in Section 2 of the relevant Annex 1) solely for the purposes of having ARM Compliant Products tested for LICENSEE by such third party and under an non-disclosure agreement containing substantially similar terms to this Clause 3, except that the confidentiality period for each deliverable shall be, at a minimum, five (5) years from the date of disclosure. | |
| 3.6 | Other Permitted Disclosures | |
| Either party may disclose Confidential Information received from the other party in the following circumstances; |
| (i) | disclosure to third parties to the extent that the Confidential Information is required to be disclosed pursuant to a court order or as otherwise required by law, provided that the party required to make the disclosure promptly notifies the other party upon learning of such requirement and has given the other party a reasonable opportunity to contest or limit the scope of such required disclosure (including but not limited to making an application for a protective order); | ||
| (ii) | disclosure to nominated third parties under written authority from the original discloser of the Confidential Information; and | ||
| (iii) | disclosure to the receiving party’s legal counsel, accountants or professional advisors to the extent necessary for them to advise upon the interpretation or enforcement of this Agreement. |
| Permitted Disclosure of LICENSEE Confidential Information | ||
| 3.7 | LICENSEE royalty reports may be disclosed in confidence to ARM’s financial and legal advisors. In addition, ARM may disclose the total unit sales, from time to time, of ARM Compliant Products and any other devices which contain royalty bearing ARM Technology, provided that the unit sales of such products by LICENSEE are not separately identifiable or deducible therefrom. | |
| ARM shall be permitted to disclose LICENSEE Confidential Information to Subsidiaries of ARM subject to the same terms and conditions of confidentiality as are set out in this Agreement. | ||
| Restricted Use | ||
| 3.8 | LICENSEE agrees that it shall not use any of ARM’s Confidential Information other than pursuant to and in accordance with the exercise of any of the licences granted under this TLA. |
6 of 15
| Excepted Information | ||
| 3.9 | The provisions of this Clause 3 shall not apply to information which; |
| (i) | is known to and has been reduced to tangible form by the receiving party prior to its receipt provided that such information is not already subject to any obligations of confidentiality; or | ||
| (ii) | is in the public domain at the time of receipt or later becomes part of the public domain without breach of the confidentiality obligations in this TLA; or | ||
| (iii) | is received from a third party without any breach of any obligation of confidentiality in respect of such information provided that such information is not subject to any continuing obligations of confidentiality; or | ||
| (iv) | is identified as (N) in Section 1 of the relevant Annex 1 of this TLA. |
| 4. | Verification | |
| 4.1 | Prior to the distribution of any integrated circuit incorporating a central microprocessor unit manufactured by or for LICENSEE under the licences granted in Section 2 of any Annex 1, LICENSEE shall verify such central microprocessor unit in accordance with the verification procedure set out in Section 3 of the relevant Annex 1. | |
| 5. | Delivery | |
| 5.1 | ARM shall use reasonable efforts to deliver the ARM Technology in each Annex 1 to LICENSEE on or before the delivery dates set out in Section 1 of the relevant Annex 1. ARM shall deliver Updates for any ARM Technology to LICENSEE as soon as reasonably possible after such Update is made generally available by ARM. | |
| 6. | Fees and Royalties | |
| Fees | ||
| 6.1 | HYNIX shall pay, to ARM, fees (“Fees”) as set out in and in accordance with Section 8 of the relevant Annex 1. | |
| Royalties | ||
| 6.2 | If provided for in Section 8 of a relevant Annex 1, HYNIX shall pay, to ARM, a royalty (“Royalty”) in accordance with the provisions of such Annex 1. | |
| For the purpose of calculating Royalties, only the distribution by the entity exercising the licences to manufacture or have manufactured under this TLA (notwithstanding that such distribution may be between HYNIX and a Subsidiary of HYNIX or between Subsidiaries of HYNIX) shall be relevant. | ||
| Any distribution of ARM Compliant Products by LICENSEE shall, in the absence of evidence to the contrary, be deemed to be distributed under the licences granted to LICENSEE under this TLA and LICENSEE shall pay Royalties to ARM accordingly. The burden of proof for rebutting the above presumption shall be on LICENSEE. | ||
| Royalty Report | ||
| 6.3 | HYNIX shall submit a report within thirty (30) days after the end of each Quarter, containing at least the information required by the form set out in Section 8 of each Annex 1. | |
| Intercompany Sales | ||
| 6.4 | For transactions between any of HYNIX and the Subsidiaries of HYNIX, LICENSEE shall ensure that such transactions shall be conducted so that the ASP of any ARM Compliant Product or other device which contains royalty bearing ARM Technology licensed in accordance with the terms of this TLA, as the case may be, is not manipulated for the purpose of reducing the Royalties payable to ARM under this TLA. If any ARM Compliant Product or other device which contains royalty bearing ARM Technology is sold to HYNIX or to a Subsidiary of HYNIX then the invoice price shall be deemed to be the higher of the actual invoice price and what the invoice price of the ARM Compliant Product or other device which contains royalty bearing ARM Technology, as the case may |
7 of 15
| be, would have been if such ARM Compliant Product or other device which contains royalty bearing ARM Technology had been sold to an independent customer at a fair open market value. | ||
| Records | ||
| 6.5 | For the period of five (5) years from the date that each royalty report is delivered to ARM by HYNIX, LICENSEE shall keep such records and books of account, identifying and providing invoice details for ARM Compliant Products or any other royalty bearing ARM Technology distributed under the licences granted in this TLA, as are necessary to derive the ASP for each ARM Compliant Product or any other royalty bearing ARM Technology identified in such royalty report and to demonstrate compliance with LICENSEE’s obligations under this Clause 6. | |
| Audit | ||
| 6.6 | ARM shall have the right for representatives of a firm of independent Chartered Accountants (“Auditors”), to make an examination and audit, by prior appointment during normal business hours, of all records and accounts as may under recognised accounting practices contain information bearing upon; |
| (i) | the number of units of ARM Compliant Products and any other devices which contain royalty bearing ARM Technology which have been distributed by LICENSEE under this TLA; | ||
| (ii) | the number of ARM microprocessor cores incorporated into any ARM Compliant Product which has been distributed by LICENSEE under this TLA; | ||
| (iii) | the ASP and fair market value of any ARM Compliant Product and any other devices which contain royalty bearing ARM Technology which have been distributed by LICENSEE under this TLA; | ||
| (iv) | the amounts of Royalties payable to ARM under this TLA; and | ||
| (v) | any fees payable to ARM under this TLA. |
| The Auditors shall be permitted to provide, to ARM, information relating to Clauses 6.6(i)-(iv), including but not limited to, information relating to the systems operated by LICENSEE to capture and record such information. Any information obtained pursuant to any audit performed in accordance with the provisions of this Clause 6.6 and provided by the Auditors to ARM shall be treated by ARM as LICENSEE Confidential Information. The Auditors’ conclusions shall (in the absence of clerical or manifest error) be final and binding on the parties. Such audit shall be at ARM’s expense unless it reveals a net underpayment of Royalties or other fees of five per cent (5%) or more in any Quarter, in which case HYNIX shall promptly reimburse ARM for the costs of such audit. HYNIX shall make good any underpayment of royalties forthwith. If the audit identifies that HYNIX has made an overpayment, such overpayment will be credited to the next payment or payments of Royalties or fees to be made by HYNIX. | ||
| Taxes | ||
| 6.7 | All sums stated under this TLA do not include taxes. All applicable taxes shall be payable by LICENSEE in accordance with relevant legislation in force at the relevant tax point. Any income or other tax which LICENSEE is required by law to pay or withhold on behalf of ARM with respect to any Royalties or other fees payable to ARM under this TLA may be deducted from the amount of such Royalties or other fees otherwise due, provided, however, that in regard to any such deduction, HYNIX shall give to ARM such assistance as may be necessary to enable or assist ARM to claim exemption therefrom, or credit therefor, and shall upon request furnish to ARM such certificates and other evidence of deduction and payment thereof as ARM may properly require. | |
| Payment | ||
| 6.8 | HYNIX shall pay all Royalties and Fees due to ARM under the terms of this TLA within thirty (30) days of receipt of ARM’s invoice therefor (“Due Date”). ARM shall send any invoice for payment to the address set out in Section 8 of the relevant Annex 1 and HYNIX shall provide ARM with at least ten (10) working days notice of any change to such address. | |
| 6.9 | If any sum under this TLA is not paid by the Due Date (defined in Clause 6.8), then (without prejudice to ARM’s other rights and remedies in addition to the invoice amount) ARM reserves the right to charge interest on such sum |
8 of 15
| on a day to day basis (as well after as before any judgement) from the Due Date to the date of payment at the rate of five (5%) per cent per annum above the base rate of National Westminster Bank PLC from time to time in force. | ||
| No Right of Set Off | ||
| 6.10 | All sums properly due to ARM under this Agreement shall be paid in full and LICENSEE shall not be entitled to assert against ARM any credit, set-off or counterclaim arising under any Annex 1 in order to justify withholding payment of any sum properly due under any other Annex 1. Obligations under each Annex 1 shall be construed as divisible from obligations under any other Annex 1 for the purposes of interpreting this Clause 6.10. | |
| 7 | Maintenance | |
| 7.1 | Subject to LICENSEE’s payment of the appropriate Fees (defined in Clause 6.1), ARM shall provide to LICENSEE, in respect of the relevant ARM Technology the following maintenance for such ARM Technology (“Maintenance”); |
| (i) | the use of commercially reasonable efforts to correct any defects in the ARM Technology which cause such technology not to operate in accordance with the functionality described in the relevant datasheet or manual for such technology. If ARM determines that such defects are due to errors in such description ARM shall promptly issue corrections to the datasheet or manual and shall not be required to revise the ARM Technology, provided that LICENSEE’s use of the ARM Technology by LICENSEE is not adversely affected thereby; and | ||
| (ii) | all Updates to such ARM Technology. |
| 7.2 | Upon LICENSEE requesting ARM’s assistance pursuant to the provisions of Clause 7.1(i), LICENSEE shall promptly provide to ARM such samples and technical information as ARM may reasonably require and in a form specified by ARM to enable ARM to provide such assistance. | |
| 7.3 | ARM’s obligation under this Clause 7 is limited expressly to the provision of Maintenance to LICENSEE and ARM shall be under no obligation to provide any maintenance to any Designer, Customer, Manufacturer, Test House or other third parties. | |
| 7.4 | If ARM believes at any time that any ARM Technology infringes the Intellectual Property of any third party, then ARM, at its option and expense, may develop an Update to the relevant ARM Technology which in ARM’s opinion avoids such infringement and upon receipt of such Update from ARM, LICENSEE shall cease use of the ARM Technology which the Update replaces. | |
| 8. | Support | |
| 8.1 | Subject to LICENSEE’s payment of the appropriate Fees (defined in Clause 6.1), ARM shall provide to LICENSEE, in respect of the relevant ARM Technology, reasonable telephone, e-mail and written consultation about the operation and application of such ARM Technology. The services provided under this Clause 8.1 shall be limited in accordance with the provisions of Section 4 of the relevant Annex 1. | |
| 8.2 | The support shall be provided from the relevant ARM support centre. Nevertheless, ARM will use reasonable efforts to provide support to LICENSEE, at LICENSEE’s premises, subject to LICENSEE meeting all reasonable travelling, accommodation and sustenance expenses thereby incurred and agreed in advance in writing with LICENSEE. | |
| 8.3 | ARM’s obligation under this Clause 8 is limited expressly to the provision of support to LICENSEE and ARM shall be under no obligation to provide any support any Designer, Customer, Manufacturer, Test House or other third parties. |
9 of 15
| 8.4 | Upon LICENSEE requesting ARM’s assistance pursuant to the provisions of Clause 8.1, LICENSEE shall promptly provide to ARM such samples and technical information as ARM may reasonably require to enable ARM to provide such assistance. | |
| 9. | Training | |
| 9.1 | If provided for in Section 5 of a relevant Annex 1, ARM shall provide training in respect of the relevant ARM Technology in accordance with the provisions of Section 5 of the relevant Annex 1. | |
| 10. | ARM Technology Functionality Warranties | |
| 10.1 | Except as expressly provided in this TLA, ARM provides no warranties express, implied or statutory, including, without limitation, the implied warranties of satisfactory quality or fitness for a particular purpose with respect to the ARM Technology. | |
| 10.2 | ARM warrants to LICENSEE that the ARM Technology will be consistent with allowing a competent semiconductor manufacturer to manufacture products which substantially conform to the functionality described in the relevant technical reference manual. LICENSEE acknowledges that the process for converting the ARM Technology delivered to LICENSEE in to silicon necessarily involves the introduction and use of technology not delivered by ARM and accordingly ARM’s liability and LICENSEE’s sole remedy for breach of the warranty provided under this Clause 10.2 shall be as follows; if LICENSEE can demonstrate to ARM that any defect in the silicon developed using any ARM Technology is exclusively caused by a defect in the ARM Technology as delivered to LICENSEE then ARM shall use commercially reasonable efforts to correct any errors in the ARM Technology and deliver corrected ARM Technology to LICENSEE. THE FOREGOING STATES THE ENTIRE LIABILITY OF ARM WITH RESPECT TO BREACH OF THE WARRANTY PROVIDED IN THIS CLAUSE 10.2. | |
| 10.3 | ARM shall not be responsible for any recoverable or non-recoverable costs incurred, directly or indirectly, by LICENSEE in the design migration, processing, or manufacture of masks and prototypes, characterization or manufacture of production quality silicon in whatever quantity. | |
| 11. | ARM Technology Intellectual Property Warranties | |
| 11.1 | ARM warrants, to ARM’s knowledge and belief, that; |
| (i) | the ARM Technology does not infringe any third party copyright, mask work right or trade secret; and | ||
| (ii) | as at the relevant Annex Effective Date, there are no pending; (a) Claims, or (b) actions commenced against ARM for infringement by the relevant ARM Technology of any third party Intellectual Property. |
| 12. | Intellectual Property Indemnities | |
| 12.1 | Except as provided under Clause 12.2, in the event of a suit against LICENSEE based upon a claim that any of the ARM Technology delivered by ARM to LICENSEE under this TLA, when used in accordance with this TLA, infringes any third party Intellectual Property, ARM agrees, subject to the limitations of Clauses 13.1 and 13.2, to defend and indemnify LICENSEE, at ARM’s expense, and to pay costs and damages finally awarded in any such suit, provided that; (i) ARM is promptly notified by LICENSEE, in writing, of any threats, claims and proceedings related thereto; (ii) ARM shall have sole control of the defence and any settlement thereof; (iii) LICENSEE shall not make any admission of liability nor settle or otherwise compromise any such claim without ARM’s prior written consent; (iv) LICENSEE furnishes to ARM, upon request, any information available to LICENSEE relating to the defence of such claim; (v) LICENSEE provides reasonable assistance to ARM in the defence of such claim; and (vi) ARM, at its option and expense, may; (a) obtain for LICENSEE the right to continue to use the ARM Technology; or (b) replace or modify the ARM Technology so that it becomes non-infringing, in which event LICENSEE shall cease use of the infringing ARM Technology. THE FOREGOING STATES THE ENTIRE LIABILITY OF ARM |
10 of 15
| WITH RESPECT TO INFRINGEMENT BY THE ARM TECHNOLOGY OF ANY THIRD PARTY INTELLECTUAL PROPERTY. | ||
| 12.2 | ARM shall have no liability under Clause 12.1 for any infringement arising from; (i) the combination of the ARM Technology with other products not supplied by ARM if such infringement would not have occurred but for such combination; (ii) the modification by LICENSEE of the ARM Technology if such infringement would not have occurred but for such modification; (iii) the process of synthesizing any ARM Technology including but not limited to the use by LICENSEE of LICENSEE’s or LICENSEE’s agent’s cell libraries if such infringement would not have occurred but for the application of such process; or (iv) any manufacturing process applied to the ARM Technology by LICENSEE if such infringement would not have occurred but for the application of such process. | |
| 12.3 | If a suit against ARM is based in whole or in part upon a claim that any of the ARM Technology delivered by ARM to LICENSEE under this TLA, when used in accordance with this TLA, infringes any third party Intellectual Property because of; (i) the combination of the ARM Technology with other products not supplied by ARM if such infringement would not have occurred but for such combination; (ii) the modification by LICENSEE of the ARM Technology if such infringement would not have occurred but for such modification; (iii) the process of synthesizing any ARM Technology including but not limited to the use by LICENSEE of LICENSEE’s or LICENSEE’s agent’s cell libraries if such infringement would not have occurred but for the application of such process; or (iv) any manufacturing process applied to the ARM Technology by LICENSEE if such infringement would not have occurred but for the application of such process, then LICENSEE agrees to indemnify ARM for any legal costs (including attorney’s fees) reasonably incurred by ARM in defending such suit, up to a maximum limit of Two Million US Dollars (US$2,000,000) per suit, provided that LICENSEE is notified promptly in writing of the suit and that at LICENSEE’s request, LICENSEE is given control of and all requested reasonable assistance to defend such suit. | |
| 12.4 | ARM shall only be liable under Clause 12.1 for any damages awarded by a court for infringement by any ARM Technology of the Intellectual Property of a third party, up to the date upon which such court issues its judgement. ARM shall have no continuing liability under Clause 12.1 for any loss suffered by LICENSEE in respect of the same infringement after the date of such judgement. | |
| 13. | Limitation of Liability | |
| 13.1 | EXCEPT IN RESPECT OF ANY BREACH OF THE PROVISIONS OF CLAUSE 3 (CONFIDENITIALITY), IN RESPECT OF WHICH A PARTY’S LIABILITY SHALL BE UNLIMITED, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES WHETHER SUCH DAMAGES ARE ALLEGED AS A RESULT OF TORTIOUS CONDUCT (INCLUDING NEGLIGENCE) OR BREACH OF CONTRACT OR OTHERWISE EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. | |
| 13.2 | NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS TLA, THE MAXIMUM LIABILITY OF ARM TO LICENSEE IN AGGREGATE FOR ALL CLAIMS MADE AGAINST ARM IN CONTRACT TORT OR OTHERWISE UNDER OR IN CONNECTION WITH THE SUBJECT MATTER OF EACH ANNEX 1 SHALL NOT EXCEED THE TOTAL AMOUNT OF THE FEES (DEFINED IN CLAUSE 6.1) PAID BY LICENSEE TO ARM UNDER SUCH ANNEX 1. THE EXISTENCE OF MORE THAN ONE CLAIM OR SUIT WILL NOT ENLARGE OR EXTEND THE LIMIT. LICENSEE RELEASES ARM FROM ALL OBLIGATIONS, LIABILITY, CLAIMS OR DEMANDS IN EXCESS OF THIS LIMITATION. | |
| 13.3 | NOTHING IN THIS CLAUSE SHALL OPERATE TO EXCLUDE LIABILITY FOR DEATH OR PERSONAL INJURY RESULTING FROM EITHER PARTY’S NEGLIGENCE. | |
| 13.4 | The parties hereby acknowledge that the provisions of this Clause 13 allocate the risks under this Agreement between ARM and Customer after negotiation and ARM’s pricing reflects this allocation of risk and the limitation of liability specified herein. | |
| Initials of ARM authorised signatory | ||
| Initials of HYNIX authorised signatory |
11 of 15
| 14. | Term, Termination and Expiration | |
| TLA Term | ||
| 14.1 | Except as provided below, this TLA shall commence on the Effective Date and shall continue in force unless earlier terminated in accordance with the provisions of either of Clause 14.2 or Clause 14.3. | |
| Termination by Either Party | ||
| 14.2 | Without prejudice to any other right or remedy which may be available to it, either party shall be entitled to immediately terminate this TLA (including all Annexes incorporated thereunder) by giving written notice to the other, if the other party: |
| (i) | has committed a material breach of any of its obligations hereunder which is not capable of remedy; or | ||
| (ii) | has committed a material breach of any of its obligations hereunder which is capable of remedy but which has not been remedied within a period of sixty (60) days following receipt of written notice to do so; or | ||
| (iii) | any circumstances arise which would entitle the court or a creditor to appoint a receiver, administrative receiver or administrator or to present a winding-up petition or make a winding-up order; or | ||
| (iv) | makes any voluntary arrangement with its creditors for the general settlement of its debts or becomes subject to an administration order; or | ||
| (v) | has an order made against it, or passes a resolution, for its winding-up (except for the purposes of amalgamation or reconstruction) or has a receiver or similar officer appointed over all or substantially all of its property or assets. |
| Termination by ARM | ||
| 14.3 | If a court of competent jurisdiction issues a judgement that any ARM Technology infringes the Intellectual Property of a third party, then the licences granted to such ARM Technology under this TLA shall terminate unless LICENSEE or ARM has obtained the necessary rights, from such third party, for LICENSEE to continue to exercise such licenses. | |
| Annex Expiry | ||
| 14.4 | Each Annex shall commence on the Annex Effective Date (defined in each Annex 1) and shall continue in force for the Term set out therein unless earlier terminated in accordance with the provisions either Clause 14.2 or Clause 14.3. | |
| 15. | Effect of Expiry and Termination | |
| Termination by ARM | ||
| 15.1 | Upon termination of this TLA by ARM in accordance with either of Clause 14.2, LICENSEE will immediately discontinue any use and distribution of all ARM Technology, ARM Confidential Information and any products embodying such technology or information. LICENSEE shall, at ARM’s option, either destroy or return to ARM any ARM Confidential Information, including any copies thereof in its possession and any ARM Technology or derivatives (including any translation, modification, compilation, abridgement or other form in which the ARM Technology has been recast, transformed or adapted) thereof in its possession. Within one month after termination of this TLA LICENSEE will furnish to ARM a certificate signed by a duly authorised representative of LICENSEE that to the best of his or her knowledge, information and belief, after due enquiry, LICENSEE has complied with provisions of this Clause. | |
| Upon termination of this TLA by ARM in accordance with either of Clauses 14.2; (i) the termination date shall be treated as the end of a Quarter for the purpose of accounting for Royalties to ARM; and (ii) any fees outstanding, |
12 of 15
| whether or not such fees have become due at the date of termination) shall become due and payable to ARM in accordance with the provisions of Clause 6. | ||
| Termination by LICENSEE | ||
| 15.2 | Upon termination of this TLA by LICENSEE pursuant to Clause 14.2 the licenses granted under Clause 2 of this TLA shall survive such termination, subject to the terms and conditions of this TLA including but not limited to LICENSEE’s continued payment, to ARM, its liquidator or receiver of any fees and Royalties due at the date of termination or in the future in accordance with the provisions of Clause 6. | |
| Annex 1 Termination | ||
| 15.3 | Upon termination of any Annex 1 in accordance with the provisions of Clause 14.3 LICENSEE will immediately discontinue any use and distribution of all the relevant ARM Technology, ARM Confidential Information and any products embodying such technology or information. LICENSEE shall, at ARM’s option, either destroy or return to ARM any ARM Confidential Information, including any copies thereof in its possession and any ARM Technology or derivatives (including any translation, modification, compilation, abridgement or other form in which the ARM Technology has been recast, transformed or adapted) thereof in its possession licensed or disclosed to LICENSEE in connections with such Annex 1. Within one month after termination of the relevant Annex 1, LICENSEE will furnish to ARM a certificate signed by a duly authorised representative of LICENSEE that to the best of his or her knowledge, information and belief, after due inquiry, LICENSEE has complied with provisions of this Clause 15.3. | |
| Upon termination of any Annex 1 by ARM in accordance with either of Clauses 14.3; (i) the termination date shall be treated as the end of a Quarter for the purpose of accounting for Royalties to ARM; and (ii) any fees outstanding, whether or not such fees have become due at the date of termination) shall become due and payable to ARM in accordance with the provisions of Clause 6. | ||
| Annex 1 Expiry | ||
| 15.4 | Upon expiry of any Annex 1 in accordance with the provisions of Clause 14.4, |
| (i) | any licences granted under Section 2 of the relevant Annex 1, to use copy and modify the relevant ARM Technology to develop products shall cease; | ||
| (ii) | any licences granted under Section 2 of the relevant Annex 1, to manufacture, have manufactured and sell supply or otherwise distribute products developed using the relevant ARM Technology shall survive subject to the terms and conditions of this TLA and subject to the continued payment to ARM of any fees and Royalties due at the time of expiry and in the future under the terms of this TLA and provided that such products are already being distributed at the date of expiry of the Annex 1; and | ||
| (iii) | except as expressly provided to the contrary in this Clause 15.4(iii), LICENSEE shall at ARM’s option, either destroy or return to ARM any ARM Confidential Information, including any copies thereof in its possession and any ARM Technology or derivatives (including any translation, modification, compilation, abridgement or other form in which the ARM Technology has been recast, transformed or adapted) thereof in its possession but LICENSEE may keep one copy of the relevant ARM Technology for the purpose of supporting the products referred to in Clause 15.4(ii). |
| 15.5 | Upon termination the provisions of Clauses 1, 3, 6 (to the extent that any obligation under this Clause remains outstanding), 11, 13, 15 and 16 shall survive termination. | |
| 16. | General | |
| 16.1 | All communications between the parties including, but not limited to, notices, royalty reports, error or bug reports, the exercise of options, and support requests shall be in the English language. | |
| 16.2 | All notices which are required to be given hereunder shall be in writing and shall be sent to the address of the recipient set out below (either party may change their respective address for service by giving notice of the change to the other party). Any such notice may be delivered personally, by commercial overnight courier or facsimile transmission which shall be followed by a hard copy and shall be deemed to have been served if by hand when |
13 of 15
| delivered, if by commercial overnight courier 48 hours after deposit with such courier, and if by facsimile transmission when dispatched. |
| ARM Contact | LICENSEE Contact | |
| 16.3 | Neither party shall assign or otherwise transfer this TLA or any of its rights and obligations hereunder whether in whole or in part without the prior written consent of the other, such consent not to be unreasonably withheld. An assignment shall be deemed to include, without limitation; (i) a merger of one party with a third party, whether or not the party is a surviving entity; (ii) any transaction or series of transactions whereby a third party acquires direct or indirect power to control the management and policies of the party, whether through the acquisition of voting securities, by contract or otherwise; or (iii) the sale of more than fifty percent (50%) of the party’s assets whether in a single transaction or series of transactions. | |
| 16.4 | Neither party shall be liable for any failure or delay in its performance under this TLA due to causes, including, but not limited to, acts of God, acts of civil or military authority, fires, epidemics, floods, earthquakes, riots, wars, sabotage, third party industrial disputes and governments actions, which are beyond its reasonable control; provided that the delayed party: (i) gives the other party written notice of such cause promptly, and in any event within fourteen (14) days of discovery thereof; and (ii) uses its reasonable efforts to correct such failure or delay in its performance. The delayed party’s time for performance or cure under this Clause 16.4 shall be extended for a period equal to the duration of the cause. | |
| 16.5 | ARM and LICENSEE are independent parties. Neither company nor their employees, consultants, contractors or agents are agents, employees or joint venturers of the other party, nor do they have the authority to bind the other party by contract or otherwise to any obligation. Neither party will represent to the contrary, either expressly, implicitly, by appearance or otherwise. | |
| 16.6 | Except as expressly provided under Clause 3 of this TLA, the parties agree that the terms and conditions of this TLA shall be treated as Confidential Information hereunder and shall not be disclosed without the consent of both parties. | |
| 16.7 | Failure or delay by either party to enforce any provision of this TLA shall not be deemed a waiver of future enforcement of that or any other provision. | |
| 16.8 | The provisions contained in each clause and sub-clause of this TLA shall be enforceable independently of each of the others and if a provision of this TLA is, or becomes, illegal, invalid or deemed unenforceable by any court or administrative body of competent jurisdiction it shall not affect the legality, validity or enforceability of any other provisions of this TLA. If any of these provisions is so held to be illegal. Invalid or unenforceable but would be legal, valid or enforceable if some part of the provision were deleted, the provision in question will apply with such modification as may be necessary to make it legal, valid or enforceable. | |
| 16.9 | This TLA, including all Annexes, constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes and replaces all prior or contemporaneous understandings or agreements, written or oral, regarding the subject matter. Except in respect of changes to the Trademark Guidelines which may be changed in accordance with the provisions of Clause 2.9, no amendment to or modification of this TLA shall be binding unless in writing and signed by a duly Authorized representative of both parties. | |
| 16.10 | The ARM Technology provided under this TLA is subject to U.S. export control laws, including the U.S. Export Administration Act and its associated regulations, and may be subject to export or import regulations in other countries. LICENSEE agrees to comply fully with all laws and regulations of the United States and other countries (“Export Laws”) to assure that neither the ARM Technology, nor any direct products thereof are; (i) exported, directly or indirectly, in violation of Export Laws, either to any countries that are subject to U.S export restrictions or to any end user who has been prohibited from participating in the U.S. export transactions by any federal agency |
14 of 15
| of the U.S. government; or (ii) intended to be used for any purpose prohibited by Export Laws, including, without limitation, nuclear, chemical, or biological weapons proliferation. | ||
| 16.11 | Any ARM Technology provided to the US Government pursuant to solicitations issued on or after December 1st 1995 is provided with the rights and restrictions described elsewhere herein. Any ARM Technology provided to the US Government pursuant to solicitations issued prior to December 1st 1995 is provided with “Restricted Rights” as provided for in FAR, 48 CFR 52.227-14 (JUNE 1987) or DFAR, 48 CFR 252.227-7013 (OCT 1988), as applicable. LICENSEE shall be responsible for ensuring that the ARM Technology is marked with the “Restrictive Rights Notice” or “Restrictive Rights Legend”, as required. | |
| 16.12 | Except as expressly stated in this TLA, the Contracts (Rights of Third Parties) Act 1999 and any legislation amending or replacing that Act shall not apply in relation to this TLA or any agreement, arrangement, understanding, liability or obligation arising under or in connection with this TLA and nothing in this TLA shall confer on any third party the right to enforce any provision of this TLA. | |
| 16.13 | The validity, construction and performance of this TLA shall be governed by English Law. In the event that ARM commences proceedings against LICENSEE under this Agreement, the parties agree to submit to the jurisdiction of the Seoul District Court, Korea, for the purpose of hearing and determining any disputes arising out of this Agreement. In the event that LICENSEE commences proceedings against ARM under this Agreement, the parties agree to submit to the jurisdiction of the High Court of Justice, London, England, for the purpose of hearing and determining any disputes arising out of this Agreement. | |
| IN WITNESS WHEREOF the parties have caused this TLA to be executed by their duly authorised representatives: |
| ARM LIMITED: | HYNIX SEMICONDUCTOR INC. | |||||||
SIGNED
|
SIGNED | |||||||
NAME:
|
NAME: | |||||||
TITLE:
|
TITLE: | |||||||
DATE:
|
DATE: | |||||||
15 of 15
Exhibit 10.16
| 20 February, 2007 | CONFIDENTIAL | LEC-DMA-00137-V3.0 |
This Design Migration Agreement (“Agreement”) is made the 01 day of May 2007
between
ARM
LIMITED whose registered office is situated at 110 Fulbourn Road , Cambridge, CBI 9NJ, United Kingdom (“ARM”);
and
MAGNACHIP SEMICONDUCTOR, LTD. whose principal place of bussiness is situated at c/o 891 Daechi-dong,
Gangnam-gu, Seoul 135-738, Korea (“Customer”).
THE PARTIES HEREBY AGREE AS FOLLOWS;
| 1. | Definitions | |
| “Active Project” means a project described in a Project Statement for which any fees as set out in the Fees Statement remain unpaid. | ||
| “ARM Services” means the services to be provided by ARM to Customer and described in Section 1 of each Statement of Work, subject to any change thereto effected by Change Order. | ||
| “ARM Deliverables” means the items identified in Section 2 of each Statement of Work, subject to any change thereto effected by Change Order. | ||
| “ARM Delivery Schedule” means the forecast dates for the performance of the ARM Services for and delivery of the ARM Deliverables to, Customer and set out respectively in Section 1 and Section 2 of each Statement of Work, subject to any change thereto effected by Change Order. | ||
| “Assumptions” means the assumptions made by ARM and circumstances contemplated by the parties in respect of each project as at the Effective Date (defined in each Project Statement) as set out in Section 5 of each Project Statement. | ||
| “Change Order” means a document signed by both parties recording any changes to any Project Statement from time to time that have been mutually agreed by the parties. | ||
| “Confidential Information” means; (i) ARM Deliverables (including any translation, modification, compilation, abridgement or other form in which the ARM Deliverables have been recast, transformed or adapted) and any trade secrets relating to the ARM Deliverables; (ii) any information designated in writing by either party, by appropriate legend, as confidential; (iii) any information which if first disclosed orally is identified as confidential at the time of disclosure and is thereafter reduced to writing for confirmation and sent to the other party within thirty (30) days after its oral disclosure and designated, by appropriate legend as confidential; and (iv) the terms and conditions of this Agreement | ||
| “Customer Deliverables” means the items identified in Section 3 of each Statement of Work, subject to any change thereto effected by Change Order. | ||
| “Customer Delivery Schedule” means the dates for delivery of the Customer Deliverables to ARM and set out in Section 3 of each Statement of Work, subject to any change thereto effected by Change Order. | ||
| “Design Rules” means the process design rules specified by Customer and identified in Section 4 of each Statement of Work. | ||
| “Fees Statement” means the statement (Schedule 2 of each Project Statement) setting out the amount of or basis for charging fees due to ARM for the performance of the ARM Services and delivery of the ARM Deliverables to Customer for each Project Statement together with the dates upon which such fees shall be due, subject to any change thereto effected by Change Order. | ||
| “Intellectual Property” means any patents, patent rights, trade marks, service marks, registered designs, topography or semiconductor mask work rights, applications for any of the foregoing, unregistered design |
| NM/CL | 1 | ARM/Magnachip Semiconductor Ltd. |
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
| 20 February, 2007 | CONFIDENTIAL | LEC-DMA-00137-V3.0 |
| rights, copyright and any other similar protected rights in any country to the extent recognised by any relevant jurisdiction as intellectual property, trade secrets, know-how and Confidential Information. | ||
| “Prefab Characterisation Conditions” means the prefabrication characterisation conditions specified by Customer and identified in Section 4 of each Statement of Work. | ||
| “Project Statement” means a statement (Annexed hereto) signed by both parties and referencing this Agreement comprising a Statement of Work and Fees Statement, subject to any change thereto effected by Change Order. | ||
| “Statement of Work” means the statement (Schedule 1 of each Project Statement) detailing each separate project undertaken by ARM for Customer from time to time under the terms and conditions of this Agreement and including a description of the ARM Services, the ARM Deliverables, the ARM Delivery Schedule, a description of the Customer Deliverables and the Customer Delivery Schedule, subject to any change thereto effected by Change Order. | ||
| “Subsidiary” means any company the majority of whose voting shares is now or hereafter owned or controlled, directly or indirectly, by a party hereto. A company shall be a Subsidiary only so long as such control exists. | ||
| “TLA” means the technology license agreement identified on page one (1) of each Project Statement. | ||
| 2. | Provision of ARM Services | |
| 2.1 | ARM shall perform the ARM Services for Customer in accordance with the terms and conditions of this Agreement. | |
| 2.2 | ARM shall perform the ARM Services utilising such resources, employees and subcontractors as ARM in its sole discretion deems appropriate. | |
| 2.3 | ARM shall use commercially reasonable efforts to perform the ARM Services in accordance with the ARM Delivery Schedule. | |
| 3. | ARM Deliverables | |
| Change Control | ||
| 3.1 | Either party may request an amendment to a Project Statement by Change Order. | |
| 3.2 | Customer may request a Change Order by submitting a request for a Change Order (“Change Order Request”) to ARM. A Change Order Request may be oral or in writing and shall not require any formality. Any request from Customer which ARM reasonably believes will affect the terms of a Project Statement may be deemed by ARM to be a Change Order Request ARM shall review any Change Order Request in good faith and report to Customer in writing in the form of a draft Change Order; (i) whether such change is technically feasible and if technically feasible; (ii) the reasonable impact on the ARM Delivery Schedule and Customer Delivery Schedule; and (iii) any necessary revision to the ARM Services, ARM Deliverables, Customer Deliverables and Fees Statement, as appropriate. ARM shall be under no obligation to accept the terms of any Change Order Request and Customer shall be under no obligation to accept the terms of any draft Change Order. If the terms of a Change Order Request are agreed by ARM and the terms of a respective draft Change Order are agreed by Customer the draft Change Order shall be signed by both parties. Customer shall bear all costs and expenses associated with any variation requested by Customer to any Project Statement including the cost of any feasibility study connected with the analysis of such variation. ARM shall be entitled to continue performing the ARM Services in accordance with the relevant Project Statement until the parties have agreed the terms of any Change Order |
| NM/CL | 2 | ARM/Magnachip Semiconductor Ltd. |
| 20 February, 2007 | CONFIDENTIAL | LEC-DMA-00137-V3.0 |
| 3.3 | ARM may request a Change Order in response to a Change Order Request by Customer by submitting a draft Change Order to Customer. Within ten (10) working days of receiving a draft Change Order from ARM, Customer shall review the draft Change Order in good faith and report to ARM in writing whether the terms of such draft Change Order are acceptable. Customer shall be under no obligation to accept the terms of any draft Change Order. If the terms of a draft Change Order are accepted by Customer the draft Change Order shall be signed by both parties. If no report on the draft Change Order is received by ARM from Customer within ten (10) working days of receipt of the Change Order by Customer then ARM may deem the terms of such draft Change Order to have been agreed by Customer. | |
| 3.4 | Any Change Order shall be attached to the Project Statement. After execution of a Change Order by both parties the amendments detailed therein shall be incorporated into the Project Statement and Fees Statement as appropriate and shall form part of this Agreement | |
| Delivery | ||
| 3.5 | Subject to the prior execution of the TLA by ARM and Customer, ARM shall use commercially reasonable efforts to deliver the ARM Deliverables to Customer in accordance with the ARM Delivery Schedule. ARM shall have no obligation to deliver the ARM Deliverables to Customer prior to execution of the TLA by ARM and Customer. | |
| 4 | ARM Services; Limited Warranty and Limitation of Liability | |
| 4.1 | ARM shall use reasonable skill and care in performing the ARM Services for Customer. | |
| 4.2 | Customer acknowledges that changes to any of the Design Rules, Prefab Characterisation Conditions or Assumptions may affect the ability of ARM to perform the ARM Services in accordance with the ARM Delivery Schedule and in such event the parties shall work together in good faith to minimize the impact of the change. Any change to the Project Statement resulting from any changes to any of the Design Rules, Prefab Characterization Conditions or Assumptions shall be managed by Change Order in accordance with the provisions of Clause 3. ARM shall have no liability for any delays or increased costs in the provision of the ARM Services which result directly from changes to any of the Design Rules, Prefab Characterization Conditions or Assumptions. | |
| 5. | ARM Deliverables and Limitation of Liability | |
| 5.1 | Customer acknowledges that changes to any of the Design Rules, Prefab Characterisation Conditions or Assumptions set out by the parties in the relevant Statement of Work may affect the ability of ARM to deliver the ARM Deliverables in accordance with the ARM Delivery Schedule and in such event the parties shall work together in good faith to minimize the impact of the change. Any change to the Project Statement resulting from any changes to any of the Design Rules, Prefab Characterization Conditions or Assumptions shall be managed by Change Order in accordance with the provisions of Clause 3. ARM shall have no liability for any delays or increased costs in the delivery of the ARM Deliverables which result directly from changes to any of the Design Rules, Prefab Characterization Conditions or Assumptions. | |
| 6. | Customer Deliverables | |
| 6.1 | Customer shall provide ARM with all necessary accurate information and support and co-operation that may be reasonably required to enable ARM to perform the ARM Services for and deliver the ARM Deliverables to Customer in accordance with the ARM Delivery Schedule. | |
| 6.2 | Customer shall use commercially reasonable efforts to deliver the Customer Deliverables to ARM in accordance with the Customer Delivery Schedule. |
| NM/CL | 3 | ARM/Magnachip Semiconductor Ltd. |
| 20 February, 2007 | CONFIDENTIAL | LEC-DMA-00137-V3.0 |
| 6.3 | ARM shall test each Customer Deliverable within ten (10) days of its receipt from Customer, and upon completion of the testing shall report to Customer, in writing, within two (2) working days whether or not the Customer Deliverable is accepted by ARM. If ARM believes that any Customer Deliverable is not acceptable, ARM shall provide Customer with details of why the deliverable is not acceptable and Customer shall use reasonable commercial efforts to modify the Customer Deliverable so that it is acceptable to ARM. | |
| 6.4 | If Customer fails; (i) to deliver, in accordance with the Customer Delivery Schedule, Customer Deliverables which are accepted by ARM in accordance with the provisions of Clause 6.3; or (ii) to provide ARM with all necessary, accurate information, support and co-operation that may be reasonably required to enable ARM to provide the ARM Services for and delivery of the ARM Deliverables to Customer in accordance with the ARM Delivery Schedule and such failure prevents ARM from meeting any of its obligations under Clauses 2.3 and 3.5, ARM shall be permitted to extend any relevant dependent dates in the ARM Delivery Schedule by Change Order for such period as is reasonable. If ARM’s cost of providing the ARM Services to Customer is increased as a result of a failure by the Customer; (i) to deliver, in accordance with the Customer Delivery Schedule, Customer Deliverables which are accepted by ARM in accordance with the provisions of Clause 6.3; or (ii) to provide ARM with all necessary, accurate information, support and co-operation that may reasonably be required to enable ARM to provide the ARM Services for and delivery of the ARM Deliverables to Customer in accordance with the ARM Delivery Schedule, then the Customer shall pay such increased costs reasonably incurred on a time and materials basis at ARM’S then prevailing consulting rate. Such increased costs reasonably incurred may include the cost of time during which ARM resources are under utilised as a direct result of the Customers failure to deliver, in accordance with the Customer Delivery Schedule, any Customer Deliverable which is accepted by ARM in accordance with the provisions of Clause 6.3. Any such change in the cost of providing the ARM Services to Customer shall be managed by Change Order in accordance with the provisions of Clause 3.3 except that provided the terms of the Change Order are reasonable Customer shall have no right to reject such Change Order. | |
| 7. | Fees, Taxes and Payment | |
| 7.1 | In consideration of ARM performing the ARM Services for and delivering the ARM Deliverables to Customer pursuant to each Statement of Work, fees shall be due to ARM from Customer in accordance with the Fees Statement. | |
| 7.2 | Unless otherwise agreed in writing by the parties Customer shall pay ARM all prior approved reasonable traveling, accommodation and subsistence expenses reasonably incurred by ARM when necessarily visiting Customer’s premises or the premises of any third party in the performance of the ARM Services. | |
| 7.3 | All sums stated under the Fees Statement do not include taxes. All applicable taxes shall be payable by Customer in accordance with relevant legislation in force at the relevant tax point. Any income or other tax which Customer is required by law to pay or withhold on behalf of ARM with respect to any fees payable to ARM under this Agreement may be deducted from the amount of such fees otherwise due, provided, however, that in regard to any such deduction, Customer shall give to ARM such assistance as may be necessary to enable or assist ARM to claim exemption therefore, or credit therefore, and shall upon request furnish to ARM such certificates and other evidence of deduction and payment thereof as ARM may properly require. | |
| 7.4 | Customer shall pay all fees due to ARM under the terms of this Agreement within thirty (30) days of receipt of ARM’s invoice therefor (“Due Date”). | |
| 7.5 | If any sum under this Agreement is not paid by the Due Date (as defined in Clause 7.4), then (without prejudice to ARM’s other rights and remedies in addition to the invoice amount) ARM reserves the right to charge interest on such sum on a day to day basis (as well after as before any judgment) from the Due Date to the date of payment at the rate of five (5%) per cent per annum above the base rate of National Westminster Bank PLC from time to time in force. | |
| 7.6 | If Customer fails to pay any sum due to ARM under this Agreement in accordance with the Fees Statement and the provisions of this Clause 7, ARM shall, upon giving at least seven (7) days notice in writing to |
| NM/CL | 4 | ARM/Magnachip Semiconductor Ltd. |
| 20 February, 2007 | CONFIDENTIAL | LEC-DMA-00137-V3.0 |
| Customer, be entitled to stop providing the ARM Services and withhold delivery of any ARM Deliverable until such payment is made. If ARM has stopped providing the ARM Services to Customer in accordance with this Clause 7.6, then ARM shall have no obligation to resume the performance of the ARM Services until Customer pays to ARM, in addition to any sums properly due but not paid, a fee equal to [*****] of the total fees due to ARM in accordance with the relevant Fees Schedule. | ||
| 7.7 | All sums properly due to ARM under this Agreement shall be paid in full and Customer shall not be entitled to assert against ARM any credit, set-off or counterclaim arising under any Project Statement in order to justify withholding payment of any sum properly due under any other Project Statement. Obligations under each Project Statement shall be construed as divisible from obligations under any other Project Statement for the purposes of interpreting this Clause 7.7. | |
| 8 | Confidentiality | |
| 8.1 | Subject to the provisions of Clause 8.2, the confidentiality provisions set out in the TLA shall apply (prior to the execution of the TLA as well as after) to Confidential Information disclosed between the parties under this Agreement. | |
| 8.2 | ARM is hereby authorised to disclose the Customer’s Confidential Information to third party subcontractors or consultants to the extent necessary for the performance by the sub-contractor or consultant (including without limitation any supplier of tools or equipment used in ARM’s design flow) of any of the work under any Statement of Work that is assigned to it provided always that any such subcontractor or consultant is bound by provisions of confidentiality no less stringent than those provided by this Clause 8. | |
| 8.3 | ARM shall be permitted to disclose Customer Confidential Information to Subsidiaries of ARM subject to the same terms and conditions of confidentiality as are set out in this Agreement | |
| 9. | Intellectual Property Ownership and Licensing |
ARM Deliverables
| 9.1 | The ARM Deliverables shall be deemed to be derived from the ARM Technology (as defined in the TLA) under Customer’s have designed rights granted in Clause 2.2 of the TLA and the terms of the TLA shall apply to such ARM Deliverables accordingly. |
Customer Deliverables
| 9.2 | Unless otherwise agreed in writing between the parties, all right, title and interest in the Customer Deliverables and any Intellectual Property embodied therein shall vest in and be owned by Customer. |
| 9.3 | Customer hereby grants to ARM, a royalty free, non-exclusive, non-transferable, worldwide, license (or sublicense as appropriate) to use, copy and modify the Customer Deliverables and sublicense the rights to use, copy and modify the Customer Deliverables solely to ARM’s subcontractors and solely for the purpose of creating the ARM Deliverables pursuant to the terms of this Agreement. |
| 9.4 | Except as specifically licensed in accordance with Clause 9.3, ARM acquires no right, title or interest in the Customer Deliverables or the Intellectual Property embodied therein. In no event shall the licenses granted under Clause 9.3 of this Agreement be construed as granting to ARM, expressly or by implication, estoppel or otherwise, a license to use any Customer or third party technology other than the Customer Deliverables. |
| 9.5 | ARM shall not remove or obscure any notice incorporated into the Customer Deliverables by Customer to protect any Intellectual Property of Customer. |
| NM/CL | 5 | ARM/Magnachip Semiconductor Ltd. |
| [*****] | - | Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. |
| 20 February, 2007 | CONFIDENTIAL | LEC-DMA-00137-V3.0 |
| 10. | Intellectual Property Warranties and Indemnities | |
| 10.1 | Subject to the provisions of Clause 10.2, the intellectual property warranties and indemnities set out in the TLA shall apply to the ARM Deliverables. | |
| 10.2 | ARM shall have no liability for any infringement arising from the use or incorporation into the ARM Deliverables, of any Customer Deliverables, if such infringement would not have occurred but for such use or incorporation. |
| 11. | Limitation of Liability | |
| 11.1 | EXCEPT IN RESPECT OF ANY BREACH OF THE PROVISIONS OF CLAUSE 8 (CONFIDENTIALITY), IN NO EVENT SHALL EITHER PARTY BE LIABLE UNDER THIS AGREEMENT FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES WHETHER SUCH DAMAGES ARE ALLEGED AS A RESULT OF TORTIOUS CONDUCT OR BREACH OF CONTRACT OR OTHERWISE EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SUCH DAMAGES SHALL INCLUDE BUT SHALL NOT BE LIMITED TO THE COST OF REMOVAL AND REINSTALLATION OF GOODS, LOSS OF GOODWILL, LOSS OF PROFITS, LOSS OR USE OF DATA, INTERRUPTION OF BUSINESS OR OTHER ECONOMIC LOSS. | |
| 11.2 | EXCEPT IN RESPECT OF ANY CLAIM UNDER THE INTELLECTUAL PROPERTY INDEMNITY FOR WHICH THE LIMITATION OF LIABILITY SET OUT IN THE TLA SHALL APPLY, THE MAXIMUM LIABILITY OF ARM TO CUSTOMER IN AGGREGATE FOR ALL CLAIMS MADE AGAINST ARM IN CONTRACT TORT OR OTHERWISE UNDER OR IN CONNECTION WITH THE SUBJECT MATTER OF EACH PROJECT STATEMENT UNDER THIS AGREEMENT SHALL NOT EXCEED THE TOTAL OF SUMS PAID BY CUSTOMER TO ARM IN RESPECT OF SUCH PROJECT STATEMENT. | |
| 11.3 | NOTHING IN THIS CLAUSE 11 SHALL OPERATE TO EXCLUDE LIABILITY FOR DEATH OR PERSONAL INJURY RESULTING FROM EITHER PARTY’S NEGLIGENCE. | |
| 12. | Termination | |
| 12.1 | Customer may terminate any Active Project upon giving at least thirty (30) days prior written notice of its intention to do so to ARM. | |
| 12.2 | Without prejudice to any other right or remedy which may be available to it either party shall be entitled summarily to terminate any or all Active Projects by giving written notice to the other party if; |
| (i) | the other party has committed a material breach of any of its obligations under this Agreement which is not capable of remedy; | ||
| (ii) | the other party has committed a material breach of any of its obligations under this Agreement which is capable of remedy but which has not been remedied within a period of fifteen (15) working days following receipt of written notice from the party seeing remedy to do so; | ||
| (iii) | the other party makes any voluntary arrangement with its creditors or becomes subject to an administration order; or | ||
| (iv) | the other party has an order made against it, or passes a resolution, for its winding-up (except for the purpose of bona fide solvent amalgamation or reconstruction) or has an encumbrancer take possession or has a receiver or similar officer appointed over a material part of its property or assets. |
| NM/CL | 6 | ARM/Magnachip Semiconductor Ltd. |
| 20 February, 2007 | CONFIDENTIAL | LEC-DMA-00137-V3.0 |
| 13. | Effect of Termination | |
| 13.1 | Upon termination of this Agreement in respect of an Active Project, by Customer for convenience in accordance with the provisions of Clause 12.1, without prejudice to any other right or remedy which may be available to either party; |
| (i) | the licences granted to Customer hereunder and related to the terminated Active Project shall cease; | ||
| (ii) | the rights granted to ARM hereunder and related to the terminated Active Project shall cease; | ||
| (iii) | Customer shall immediately return to ARM the ARM Deliverables and all ARM Confidential Information related to the ARM Deliverables identified in the Statement of Work for the terminated Active Project, including any copies and modified versions thereof in Customer’s possession; | ||
| (iv) | ARM shall immediately return to Customer or delete from ARM’s system, all Customer Deliverables and Customer Confidential Information related to Customer Deliverables identified in the Statement of Work for the terminated Active Project, including any copies and modified versions thereof; and | ||
| (v) | Customer shall pay, to ARM, within thirty (30) days of receipt of an invoice therefor; |
| (a) | any sums due to ARM by Customer, but not invoiced at the date of termination, for any completed milestones as set out in the Fees Statement for the terminated Active Project; | ||
| (b) | an amount representing the actual work performed, as at the date of termination, by ARM (calculated at ARM’s then prevailing consulting rate) towards completion of the next open milestone as set out in the Fees Statement for the terminated Active Project; and | ||
| (c) | a termination fee of five percent (5%) of the total fees (excluding any royalties) that would have been due under the Fees Statement for the terminated Active Project had it not been terminated in accordance with the provisions of Clause 12.1, |
provided that the aggregate of any sums payable to ARM by Customer in accordance
with the provisions of Clauses 13.1(v)(a), 13.1(v)(b) and 13.1(iv)(c) shall not
exceed the fees set out in the Fees Statement for the terminated Active Project.
| 13.2 | Upon termination of an Active Project by Customer under the provisions of Clause 12.2, without prejudice to any other right or remedy which may be available to either party; |
| (i) | the licences granted to Customer hereunder and related to the terminated Active Project shall survive; | ||
| (ii) | the rights granted to ARM hereunder and related to the terminated Active Project shall cease; | ||
| (iii) | ARM shall immediately return to Customer or delete from ARM’s system, all Customer Deliverables and Customer Confidential Information related to Customer Deliverables identified in the Statement of Work for the terminated Active Project, including any copies and modified versions thereof; and | ||
| (iv) | Customer shall pay, to ARM, within thirty (30) days of receipt of an invoice therefor, |
| (a) | any sums due to ARM by Customer, but not invoiced at the date of termination, for any completed milestones as set out in the Fees Statement for the terminated Active Project; and |
| NM/CL | 7 | ARM/Magnachip Semiconductor Ltd. |
| 20 February, 2007 | CONFIDENTIAL | LEC-DMA-00137-V3.0 |
| (b) | an amount representing the actual work performed, as at the date of termination, by ARM (calculated at ARM’s then prevailing consulting rate) towards completion of the next open milestone as set out in the Fees Statement for the terminated Active Project; |
provided that the aggregate of any sums payable to ARM by Customer in accordance with
the provisions of Clauses 13.2(iv)(a) and 13.2(iv)(b) shall not exceed the aggregate
of fees set out in the Fees Statement for the terminated Active Project.
| 13.3 | Upon termination of an Active Project by ARM under the provisions of Clause 12.2, without prejudice to any other right or remedy which may be available to either party; |
| (i) | the licences granted to Customer hereunder and related to the terminated Active Project shall cease; | ||
| (ii) | the rights granted to ARM hereunder and related to the terminated Active Project shall cease; | ||
| (iii) | Customer shall immediately return to ARM the ARM Deliverables and all ARM Confidential Information related to the ARM Deliverables identified in the Statement of Work for the terminated Active Project, including any copies and modified versions thereof in Customer’s possession; | ||
| (iv) | ARM shall immediately return to Customer or delete from ARM’s system, all Customer Deliverables and Customer Confidential Information related to Customer Deliverables identified in the Statement of Work for the terminated Active Project, including any copies and modified versions thereof; and | ||
| (v) | Customer shall pay, to ARM, within thirty (30) days of receipt of an invoice therefor; |
| (a) | any sums due to ARM by Customer, but not invoiced at the date of termination, for any completed milestones as set out in the Fees Statement for the terminated Active Project; and | ||
| (b) | an amount representing the actual work performed, as at the date of termination, by ARM (calculated at ARM’s then prevailing consulting rate) towards completion of the next open milestone as set out in the Fees Statement for the terminated Active Project; |
provided that the aggregate of any sums payable to ARM by Customer in accordance with the
provisions of Clauses 13.3(v)(a) and 13.3(v)(b) shall not exceed the aggregate of fees set out in the Fees
Statement for the terminated Active Project.
| 13.4 | The provisions of Clauses 1, 7 (to the extent that any payment has accrued and is outstanding), 8, 11, 13 and 14 shall survive termination of the Agreement. |
14. General
| Notices | All notices which are required to be given hereunder shall be in writing (which may include electronic mail) and shall be sent to the address of the recipient set out in the Agreement or such other address as the recipient may designate by notice given in accordance with the provisions of this Clause. Any such notice may be delivered personally, by commercial overnight courier or facsimile transmission which shall be followed by a hard copy and shall be deemed to have been served if by hand when delivered, if by commercial overnight courier 48 hours after deposit with such courier and if by facsimile transmission when dispatched. | |||
| Assignment | Except as expressly provided elsewhere in this Agreement, neither party may assign or otherwise transfer this Agreement or any of their rights and |
| NM/CL | 8 | ARM/Magnachip Semiconductor Ltd. |
| 20 February, 2007 | CONFIDENTIAL | LEC-DMA-00137-V3.0 |
| obligations hereunder whether in whole or in part without the prior, written, consent of the other. |
| Non-association | ARM and Customer are independent parties. Neither party or their employees, consultants, contractors or agents, are agents, employees or joint ventures of the other party nor do they have the authority to bind the other party by contract or otherwise to any obligation. Neither party will represent to the contrary, either expressly, implicitly, by appearance or otherwise. | |||
| Waiver | Failure or delay by either party to enforce any provision of this Agreement shall not be deemed a waiver of the right to enforce, in the future, that or any other provision of this Agreement. | |||
| Force Majeure | ARM shall not be liable to Customer for any delay in or failure to perform its obligations as a result of any failure by a supplier to deliver a relevant deliverable to ARM on time. If such delay continues for a period of more than thirty (30) days, then either party shall be entitled to terminate this Agreement by written notice to the other party. | |||
| Neither party shall be liable for any failure or delay in its performance under this Agreement due to causes, including, but not limited to, acts of God, acts of civil or military authority, fires, epidemics, floods, earthquakes, riots, wars, sabotage, third party industrial disputes and governments actions, which are beyond its reasonable control; provided that the delayed party: (i) gives the other party written notice of such cause promptly, and in any event within fourteen (14) days of discovery thereof; and (ii) uses its reasonable efforts to correct such failure or delay in its performance. The delayed party’s time for performance or cure under this Clause shall be extended for a period equal to the duration of the cause. | ||||
| Severance | The provisions contained in each clause and sub-clause of this Agreement shall be enforceable independently of each of the others and if any provision of this Agreement is or becomes invalid, illegal or deemed unenforceable for any reason by any court or administrative body of competent jurisdiction it shall not affect the legality, validity or enforceability of any other provisions of this Agreement. If any of these provisions is so held to be illegal, invalid or unenforceable but would be legal, valid or enforceable if some part of the provision were deleted, the provision in question will apply with such modification as may be necessary to make it legal, valid or enforceable. | |||
| Entire Agreement | This Agreement, including all Project Statements, constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes and replaces all prior or contemporaneous understandings or agreements, written or oral, regarding the subject matter. No amendment to or modification of this Agreement shall be binding unless in writing and signed by a duly Authorized representative of both parties | |||
| Export | The ARM Deliverables provided under this Agreement are subject to U.S. export control laws, including the U.S. Export Administration Act and its associated regulations, and may be subject to export or import regulations in other countries. Customer agrees to comply fully with all laws and regulations of the United States and other countries (“Export Laws”) to assure that neither the ARM Deliverables, nor any direct products thereof are; (i) exported, directly or indirectly, in violation of Export Laws, either to any countries that are subject to U.S export restrictions or to any end user who has been prohibited from participating in the U.S. export transactions by any federal agency of the U.S. government; or (ii) intended to be used for any purpose prohibited by Export Laws, including, without limitation, nuclear, chemical, or biological weapons proliferation. |
| NM/CL | 9 | ARM/Magnachip Semiconductor Ltd. |
| 20 February, 2007 | CONFIDENTIAL | LEC-DMA-00137-V3.0 |
| Any ARM Deliverables provided to the US Government pursuant to solicitations issued on or after December 1st 1995 is provided with the rights and restrictions described elsewhere herein. Any ARM Deliverables provided to the US Government pursuant to solicitations issued prior to December 1st 1995 is provided with “Restricted Rights” as provided for in FAR, 48 CFR 52.227-14 (JUNE 1987) or DFAR, 48 CFR 252.227-7013 (OCT 1988), as applicable. Customer shall be responsible for ensuring that the ARM Deliverables is marked with the “Restrictive Rights Notice” or “Restrictive Rights Legend”, as required. | ||||
| Incorporation | Each Project Statement generated from time to time and referencing this Agreement shall be incorporated into and form part of this Agreement. | |||
| Precedence | Notwithstanding anything to the contrary contained elsewhere in this Agreement, if any of the provisions contained in a Project Statement conflict or are inconsistent with any of the provisions of any of Clauses 1 to 14 of this Agreement inclusive, then to the extent that the provisions contained in such Project Statement are inconsistent with any of the provisions of any of Clauses 1 to 14 of this Agreement inclusive and solely for the purposes of interpretation of this Agreement with respect to such Project Statement, the provisions contained in such Project Statement shall prevail over and shall supersede the conflicting or inconsistent provisions in Clauses 1 to 14 of this Agreement inclusive. | |||
| Notwithstanding anything to the contrary contained elsewhere in this Agreement or any Project Statement, if any of the provisions contained in the TLA conflict or are inconsistent with any of the provisions of any of Clauses 1 to 14 of this Agreement inclusive, then to the extent that the provisions contained in the TLA are inconsistent with any of the provisions of any of Clauses 1 to 14 of this Agreement inclusive, the provisions contained in the TLA shall prevail over and shall supersede the conflicting or inconsistent provisions in Clauses 1 to 14 of this Agreement inclusive. | ||||
| English Law | The validity, construction and performance of this Agreement shall be governed by English Law. |
IN WITNESS WHEREOF the parties have caused this Agreement to be signed by their duly authorized
representative
| ARM LIMITED | CUSTOMER | |||||||||
BY
|
/s/Graham Budd
|
BY | /s/ Robert Krakauer
|
|||||||
| NAME: Graham Budd | NAME: Robert Krakauer | |||||||||
| TITLE: EVP and General Manage Processors Division | TITLE: President | |||||||||
| NM/CL | 10 | ARM/Magnachip Semiconductor Ltd. |
Exhibit 10.17
TRANSLATION
Basic Contract on Joint Development and Grant of License
This Basic Contract on Joint Development and Grant of License (hereinafter “Contract”) is made and
entered into as of November 10, 2006, by between MagnaChip Semiconductor, Ltd. (hereinafter “MC”)
and Silicon Works Co., Ltd. (hereinafter “SW”).
Article 1 (Purpose)
The Agreement is designed to define rights and obligations of the two parties in SW’s granting to
MC the license to manufacture and sell the contract product as defined in Article 2 of the Contract
(“Contract Product”) that MC and SW co-developed by utilizing the technical information that SW had
provided for the Contract Product (“Technical Information”).
Article 2 (Definition)
| 1. | “Contract Product” shall mean all products that MC and SW are currently co-developing and will co-develop in the future and all their Derivative Products, and product specifications for the Contract Product shall be specified in the Contract on Development of the Contract Product. | ||
| 2. | “Derivative Product” shall mean any product whose gamma is changed from the Contract Product (in case of source driver) and any product whose design is changed from the Contract Product (reinforcement and complement of its characteristics). | ||
| 3. | “Technical Information” shall mean any technical information, including but not limited to product specifications, test plan, assembly plan and RT plan that are required for MC to manufacture and sell the Contract Product. The Technical Information which shall be kept confidential is classified and specified as Confidential Information. The details are based on “Attachment 1.” | ||
| 4. | “Co-development” shall mean a series of development activities for which SW takes the responsibility of design for the Contract Product, MC manufactures it, SW and MC jointly validate characteristics of the products and MC completes the development in accordance with the rule on new product introduction (“NPI,” hereinafter). |
Article 3 (Grant of License)
| 1. | SW shall grant to MC the license that permits MC to manufacture and sell the Contract Product using SW’s Technical Information (including license to subcontract manufacturing and re-license). | ||
| 2. | MC shall pay a running royalty to SW as prescribed in Article 7 of this Contract and in the Development Contract for the Contract Product in return for the grant of license as prescribed paragraph 1 of this Article. |
Article 4 (Conduct development work)
| 1. | In accordance with the Product Specification as prescribed in the Development Contract for the Contract Product, MC and SW shall conduct development work in a good faith. In case of “Derivative Product,” MC and SW may determine product specification and development schedule through discussion when the development is needed. | ||
| 2. | When MC manufactures the Contract Product, SW shall provide needed technological support to MC based on the Technical Information prescribed in paragraph 3, Article 2 of this Contract. |
TRANSLATION
| 3. | In case the development work is hindered due to the reasons for which one of the two parties is not responsible during the development work that was being executed based on this Contract, the party shall immediately notify the other party of the disturbance and if the reason for the disturbance is not removed through mutual consultation, either of the two parties may terminate this Contract by delivering written notice to the other party without taking any responsibility for contract violation. | ||
| 4. | The development work stipulated in this Contract shall be deemed to be completed at the time when the Contract Product or the Derivative Product passes examination by the Quality Evaluation and Judgment Committee as stipulated in MC’s NPI, and SW shall provide utmost cooperation so that the Contract Product or Derivative Product passes the examination by the Quality Evaluation and Judgment Committee. |
Article 5 (Buyer of the Contract Product)
| 1. | The Contract Product that MC manufactured or produced in accordance with license granted under Article 3 of this Contract, shall be supplied to LG.Philips LCD Co., Ltd., before any other entity in the volume that was agreed with LG.Philips LCD Co., Ltd. | ||
| 2. | After fulfilling the supply obligation to LG.Philips LCD Co., Ltd., stipulated in Article 1 of the Contract, MC may sell the Contract Product to a third party without any restriction, under the condition that when MC sells the Contract Product to a third party, the timing shall be six (6) months or more after LG.Philips LCD Co., Ltd. conducted the first mass production of LCD modules that have the Contract Product attached. |
Article 6 (Provision of Technical Information)
| 1. | SW shall provide Technical Information on the Contract Product as prescribed in Attachment 1 to MC under its responsibility and at its cost as per procedures and methods mutually agreed between the two parties. | ||
| 2. | MC may ask for additional Technical Information without charge that is required to manufacture and sell the Contract Product through consultation with SW, and SW shall respond to such request. |
Article 7 (Payment of running royalty)
| 1. | MC shall pay a running royalty which is equivalent to a certain percentage of the Net Selling Price” of the Contract Product in return for the license granted by SW based on this Contract by end of the next month of the month when the Contract Product was sold. | ||
| 2. | The Net Selling Price referred to in this Contract shall mean the total selling amount minus all the expenses incurred for sales of the Contract Product including, but limited to the following amount and it is set as 0.1% of the total selling price. |
| Discount given in accordance with transaction discount practice | |||
| ‚ Price of the Contract Products that were returned due to defect | |||
| ƒ Value-added tax imposed in relation to sale of the Contract Product | |||
| „ Insurance and transportation charges incurred in relation to sale of the Contract Product |
| 3. | The rate of the running royalty for the Contract Product is determined based on agreement between the two parties when the Development Contract is sealed and the Development Contract, in principle, shall be signed 15 days before initiation of development of the Contract Product. |
TRANSLATION
| 4. | The rate of the running royalty, payment terms and penalty interest due to delinquencies are determined and prescribed in the Development Contract. |
Article 8 (Development cost and schedule)
| 1. | The cost for design of the Contract Product is wholly borne by SW. | ||
| 2. | The sample production cost for the Contract Product is wholly borne by MC under the condition that Masks consumed in this case shall be limited to 1.5 sets per product. | ||
| 3. | Additional Mask costs that exceed the limit of paragraph 2 of this Article shall be paid by the party that caused those costs. | ||
| 4. | The development schedule for the Contract Product is agreed between the two parties to meet the deadlines required by LG.Philips LCD Co., Ltd. |
Article 9 (Technical Support)
| 1. | After finishing the first manufacturing of the Contract Product using Technical Information provided by SW, MC shall provide the reliability test result for the products. If the reliability test result indicates any problem that is caused by flawed design, SW shall provide the technical support to MC to resolve the identified problem with no charge. | ||
| 2. | When there is any request by MC during the Contract period, SW shall provide to MC with no charge the design related technical support required for manufacturing, testing, field application engineering (FAE) and sale of the Contract Product using the Technical Information based on mutual consultation between the two parties. The detailed contents and method of technical support are determined and agreed by MC and SW based on MC’s request. |
Article 10 (Ownership)
| 1. | The intellectual properties for the technical information that MC provided for the Contract Product is owned by MC and those for the technical information that SW provided for the Contract Product is owned by SW. | ||
| 2. | The technical information that is developed jointly by MC and SW is co-owned by MC and SW and in case the co-owned technical information violates intellectual property of a third who raises claim for that or files related lawsuits, MC and SW shall respond to the claim or the lawsuits under the joint responsibility and joint payment for the incurred costs. |
Article 11 (Warranty)
| 1. | In case MC finds any design flaw(s) after careful observation during sales or use of the Contract Product, it my take corrective measures including, but not limited to, recalls or may request that SW fix the flaw(s) including, but not limited to, design modification. | ||
| 2. | In case of paragraph 1, SW shall take the responsibility of fixing the flaw(s) at its expense and compensate for all the losses that may have inflicted on MC due to design flaw(s) including costs for recall and product liability to a third party. |
TRANSLATION
Article 12 (Report and Investigation)
If deemed needed, SW, at its costs, may visit MC’s business sites to investigate materials used to
calculate the running royalty or request MC to present related materials as long as such activities
do not disturb MC’s usual business. But in this case, SW shall notify MC of purpose, timing, etc.
of such visits 15 days in advance at the latest and MC shall provide utmost cooperation to SW’s
investigation. SW’s visits and investigations as per this Article shall not exceed twice a year.
Article 13 (Intellectual property rights and indemnity)
In case a third party raises claim or files a lawsuit against MC or its customers for the reason
that the technical information related to the Contract Product that SW has provided as per this
Contract, SW shall indemnify MC or MC’s customers from such claim or lawsuit under its
responsibility and at its costs and at the same time, it shall compensate for the entire loss that
is inflicted on MC due to such claim or lawsuit.
Article 14 (Confidentiality)
Each of the parties shall not publicize existence of the Contract, its contents, all the technical
information and related technical materials that it acquired or was provided from the other party
in relation to the Contract, to others than persons concerned in this Contract without written
agreement of the other party for five years following termination or expiry of the Contract and it
shall not use or partially use the Contract for other purposes than is prescribed in this Contract.
But MC may reveal non-confidential technical information to a third party with no prior written
agreement from SW only if such revelation is needed for MC to sell the Contract Product to the
third party for its business purposes.
Article 15 (Contract period and termination)
| 1. | Unless terminated per paragraph 2 and 3 of this Article, this Contract remains effective for five years after it is signed, and it is automatically renewed every year in case there is no written notice of termination of either of the two parties three months before expiry of the Contract at the latest. | ||
| 2. | In case either of the parties violates the Contract, the other party may demand the violating party, in written manner, to execute its obligations within 30 days at minimum and in case such obligations are not fulfilled within the time frame given, it may immediately terminate the Contract via written notice. | ||
| 3. | In case either of the following occurs to either of the two parties, the other party may immediately terminate the Contract via written notice. |
| a. | Bills or checks that are issued, guaranteed for payment or accepted by either of the two parties bounced or are suspended for trading. | ||
| b. | Forcible execution including seizure, provisional seizure and provisional disposition, is commenced to either of the two parties or their main assets | ||
| c. | Bankruptcy, liquidation, composition or company disorganization is commenced to either of the two parties. | ||
| d. | Due to any other events, usual business cannot be conducted. |
| 4. | When the Contract is terminated or expired, the license granted as per this Contract immediately loses its effect and MC shall immediately return to SW or scrap according to SW’s instruction all related technical documents and other materials (including copies) held by MC or its subcontractors. But the Contract Product that is being |
TRANSLATION
| manufactured or kept in stock may be sold, used or disposed in accordance with terms and conditions of the Contract within one year after the termination or expiration and it may postpone return of technical document or other materials during the period. |
Article 16 (Compensation for damage)
Unless otherwise prescribed in this Contract, either of the two parties shall compensate for direct
and actual losses that can be inflected on the other party in relation to execution of this
Contract due to the reasons that it is responsible for.
Article 17 (Force majeure)
| 1. | Should either of the parties to this Contract fail to perform this Contract due to force majeure, such as earthquake, hurricane, flood, fire or any other unpreventable or unavoidable event, the party affected by the force majeure may be exempt from liability and shall immediately notify the other party in written form about the force majeure. | ||
| 2. | In case such force majeure continues for 60 days or longer, either of the two parties may immediately terminate the Contract in written form without any responsibility for the other party. |
Article 18 (Restriction on assignment)
Either of the two parties shall not assign to others this Contract or its rights prescribed in this
Contract or have others fulfill its obligations for it, without prior written agreement of the
other party. But, if needed to manufacture or sell the Contract Product, MC may assign to others
this Contract or its rights prescribed in this Contract or have others fulfill its obligations for
it under prior consultation with SW.
Article 19 (Others)
| 1. | All disputes that can happen in relation to this Contract are resolved by Seoul Central District Court which shall be the competent court. | ||
| 2. | The articles of the Contract including, but not limited to Article 10, 11, 13, 14, 15, 16, 18 and any other articles that shall remain effective even after the Contract expires or is terminated, if need be. | ||
| 3. | Deficiencies to this Contract or matters in relation to its interpretation are determined through mutual agreement and in case no agreement is established, commercial practices apply and in case no such commercial practices do not exist, related laws and regulations apply. | ||
| 4. | The Contract may be revised based on written agreement and sealing (signature) of the two parties. | ||
| 5. | The agreement reached verbally or in written form before this Contract is sealed shall lose its effect and replaced by this Contract. |
Each of the two parties produces two copies of the Contract and keeps one copy each after signing
it in order to prove existence and contents of the Contract.
TRANSLATION
Nov. 10, 2006
MC: Magnachip Semiconductor, Ltd.
361- 725, 1, Hyangjeong-dong, Heongdeok-gu, Cheongju-si, Korea
CEO Sang Ho Park
CEO Sang Ho Park
SW: 104-13 Munji-dong, Yuseong-gu, Daejeon-si 305-380
CEO Dae Keun Han
Attachment 1 Technical Information
| 1. | Test Plan | ||
| 2. | Assembly Plan | ||
| 3. | R/T Plan | ||
| 4. | Custom Tape manufacturing information | ||
| 5. | Mask (FAB/Bump) manufacturing information |
Exhibit 10.18
Master Service Agreement
This Master Service Agreement (hereinafter referred to as the “Agreement”) on manufacturing
and supply of goods is made and entered into by and between Sharp Corporation (“Sharp”) and Hyundai
Electronics Japan Co., Ltd (“Hyundai”).
Article 1 (Basic Elements)
| 1. | Sharp and Hyundai shall execute the Agreement and all other transactions (hereinafter referred to as “Individual Agreements”) signed under the Agreement in good faith and sincerity, respecting mutual interest and based on mutual trust. |
| 2. | Details of the Agreement shall be applicable to all Individual Agreements signed between Sharp and Hyundai unless otherwise stipulated in the special agreement. |
Article 2 (Individual Agreements)
| 1. | Individual Agreements shall stipulate names, quantities, delivery dates, delivery places, delivery methods, unit prices or payment amount and other necessary descriptions of traded goods (hereinafter referred to as “Completed Goods”). |
| 2. | Individual Agreements shall be deemed in effect in the case Sharp submits Hyundai an order form containing descriptions mentioned in the preceding paragraph, in the case Hyundai issues Sharp a confirmation of order or in the case Hyundai notifies Sharp its receipt of an order by phone or other means. |
| 3. | Notwithstanding the preceding paragraph, in the case Hyundai fails to issue a confirmation of order or take any measures upon receipt of the order form from Sharp, Hyundai shall be deemed to have accepted the Sharp’s order. |
| 4. | In the case Sharp needs to change descriptions of an order form, it may do so after consulting with Hyundai. |
Article 3 (Supply of Materials)
| 1. | Sharp may supply Hyundai necessary materials, components, half-finished products, and products (hereinafter referred to as “Supplied Goods”) to produce Completed Goods. In this case, Hyundai shall make use of Supplied Goods to produce Completed Goods. Supplied Goods shall be managed pursuant to this Article and Article 5. |
| i. | Supplied Goods are charged and their price, payment due date, payment method and other necessary details shall be separately determined by Sharp. However, in the case Sharp exceptionally acknowledges the necessity, they can be provided free of charge. | ||
| ii. | Sharp takes full ownership of Supplied Goods and Supplied Goods used in components, work in progress and Completed Goods regardless of whether or not they are paid. | ||
| iii. | For those Supplied Goods that were delivered to Hyundai directly by Sharp’s appointed vendor, Hyundai shall issue a goods receipt slip immediately. |
1 / 7
| iv. | Upon receipt of Supplied Goods, Hyundai shall inspect them without any delay and in the case defective goods or overage or shortage is found, such cases shall be immediately reported to Sharp. Hyundai shall compensate for all damages caused by not sending out the aforementioned notice promptly. | ||
| v. | To insure Supplied Goods, Sharp may subscribe to accident insurance and relevant cost shall be borne by Hyundai. While Hyundai bears the cost, it has the right to choose an insurance company. |
Article 4 (Equipment Lease)
Sharp may lease machinery, tools and mold (hereinafter referred to as “Leased Equipment”) to
Hyundai if desired. Lease methods, processes, periods and expenses shall be separately determined
by Sharp.
Article 5 (Managing Supplied Goods and Leased Equipment)
| 1. | Supplied Goods and Leased Equipment shall be managed in the following manner: |
| i. | Hyundai shall keep Supplied Goods and Leased Equipment with the care of a good manager and not use them for other than producing Completed Goods or transfer, sublease to the third party or mortgage them without an approval of Sharp. | ||
| ii. | Hyundai shall clearly specify that Sharp takes full ownership of Supplied Goods and Leased Equipment all the time. | ||
| iii. | In the case Supplied Goods and Leased Equipment managed by Hyundai are or may be put or under seizure, provisional attachment or sentenced to provisional injunction by the third party, Hyundai shall make a point and prove that they are the property of Sharp and immediately notify Sharp and follow its instructions. | ||
| iv. | Sharp or Sharp’s agent is allowed to access Hyundai’s office and warehouse at all times to check usage, storage and maintenance of Supplied Goods and Leased Equipment or can ask Hyundai to submit the report. | ||
| v. | In the case Supplied Goods and Leased Equipment are demolished, tarnished, deformed or stolen; Hyundai shall compensate the loss amount claimed by Sharp. | ||
| vi. | In the case Sharp demands return of Supplied Goods and Leased Equipment or the Agreement is terminated for some reasons, Hyundai shall hand over Supplied Goods and Leased Equipment to Sharp immediately at its own expense. | ||
| vii. | The blueprint, specifications and other documents borrowed by Hyundai from Sharp shall also be returned to Sharp immediately as mentioned in the preceding paragraph. |
Article 6 (Delivery of Completed Goods)
| 1. | For delivery of Completed Goods, Hyundai shall deliver Sharp ordered quantities of Completed Goods to the deliver location on the delivery date. | |
| 2. | In the case where Hyundai makes delivery of Completed Goods to the delivery location earlier than the delivery date, Sharp may keep them. However, until hand-over is completed on the delivery date except for the case pursuant to Article 3-2, Hyundai |
2 / 7
| takes full ownership of Completed Goods and bears related risks such as demolishing. | ||
| 3. | In the case Sharp faces damages caused by delivery of Completed Goods not made in accordance with Individual Agreements, Sharp may claim for such damages against Hyundai. | |
| 4. | At the time Completed Goods are delivered by Hyundai, it shall attach delivery slips specified by Sharp. In the case Hyundai fails to fulfill this requirement, Sharp may refuse to accept Completed Goods. | |
| 5. | In the case Hyundai enters Sharp’s premises; it shall follow Sharp’s instructions. | |
| 6. | In the case accidents attribute to Hyundai during delivery of Completed Goods, Hyundai shall compensate Sharp or the third party for relevant damages. | |
| 7. | In the case Sharp asked for specific packaging and handling during delivery of Completed Goods, they shall be fulfilled. | |
| 8. | Hyundai shall bear all expenses such as carriage charge, packing expense and insurance cost incurred until the delivery of Completed Goods. |
Article 7 (Receipt and Inspection)
| 1. | At the time of receiving Completed Goods from Hyundai, Sharp shall issue a written slip confirming goods receipt. |
| 2. | Upon receipt of goods, Sharp shall promptly inspect them. And if there are any defective goods or shortages found, such cases are reported to Hyundai. Inspection methods, pass/fail criteria and other details related to inspection shall be determined by Sharp. |
| 3. | After the inspection, only when Sharp acknowledges that goods are acceptable, hand-over of goods shall be deemed to be completed. |
| 4. | Ownership of Completed Goods shall be transferred from Hyundai to Sharp at the time delivery of Completed Goods mentioned in the preceding paragraph is finished. |
| 5. | Sharp may skip inspection of delivered Completed Goods described in the paragraph 2 depending on the situation. In such case, the delivery is deemed to be completed at the time Sharp issues a written slip confirming goods receipt. |
Article 8 (Replacing Rejected Goods)
| 1. | In the case Sharp found out defective Completed Goods are delivered or shortage detected and reported this to Hyundai regardless the inspection described in the preceding paragraph took place or not, Hyundai shall follow Sharp’s given instructions whether it be delivery of replaced goods, repair of defective goods or fulfillment or shortage within the given deadline. |
| 2. | In the case Sharp did not make any demands from preceding paragraph against handling defective goods, deduction of payment shall be carried out and its details shall be separately discussed and determined between Sharp and Hyundai. |
| 3. | In the case Sharp selected acceptable goods out of the defective lot and repaired defective goods, all costs incurred shall be borne by Hyundai. |
3 / 7
| 4. | In the case Hyundai received a notification on defective goods and goods to be returned from Sharp, Hyundai shall bear all costs incurred to receive them immediately. Damages incurred from demolishing, tarnishing and deforming while Sharp is keeping defective goods and goods to be returned in custody shall be borne by Hyundai unless their cause attributed to Sharp. |
Article 9 (Quality Control)
| 1. | Hyundai shall carry out proper quality control and strict shipping inspection during production and delivery of Completed Goods and make sure product quality is maintained to satisfy Sharp’s standards and specifications. |
| 2. | If desired, Sharp can ask Hyundai to establish proper quality control system and Hyundai shall satisfy this. |
Article 10 (Warranty for Goods)
| 1. | Unless otherwise specified separately in the Individual Agreements, Hyundai shall offer Sharp warrant of goods for one year since delivery of Completed Goods is made. In the case tarnished Completed Goods are found during the warranty period, they shall be either replaced in accordance with Sharp’s instructions or repaired with relevant costs borne by Hyundai within the warranty period. |
| 2. | The warranty period described in the preceding paragraph may be extended depending on types of Completed Goods upon discussion between Sharp and Hyundai. |
| 3. | In the case Sharp faced damages occurred from tarnished Completed Goods in accordance with preceding paragraph 2, it can claim compensations for such damages against Hyundai. |
Article 11 (Payment)
Sharp shall make payment to Hyundai for Completed Goods it received from Hyundai. The payment
method shall be decided separately upon discussion between Sharp and Hyundai.
Article 12 (Offset)
In the case Sharp holds credit obligation against Hyundai regardless of the Agreement, such credit
obligation and liabilities held against Hyundai may be set off regardless of a repayment date. In
this case, Sharp shall notify Hyundai of details.
Article 13 (Bearing of Risk)
Hyundai shall be responsible for such damages as demolishing, tarnishing and deforming of Completed
Goods occurred before hand-over except for those attributed to Sharp and Sharp shall be responsible
for such damages as demolishing, tarnishing and deforming of Completed Goods occurred after
hand-over except for those attributed to Hyundai.
4 / 7
Article 14 (Non-Disclosure)
| 1. | Sharp and Hyundai shall not disclose or leak all information about the other party related to the Agreement and Individual Agreements obtained to the third party without prior approval of the other party. |
| 2. | Hyundai shall not copy or reuse blueprints, specifications and materials provided by Sharp without gaining a prior approval and also refrain from transferring, opening, leaking or using them to the third party. |
| 3. | Even after this provision and the Agreement are terminated, their effectiveness remains valid. |
Article 15 (Prohibiting Entrustment of Production)
| 1. | Except in the case where a written consent was gained from Sharp in advance, Hyundai shall not use design, technical data, blueprint and specification of Completed Goods neither for itself nor the third party. |
| 2. | Without gaining a prior consent, Hyundai shall not entrust whole or part of producing Completed Goods to the third party. Even in the case where Sharp has granted entrustment to the third party, Hyundai shall not be exempted from its duties and obligations under the Agreement and Individual Agreements. |
Article 16 (Prohibiting Direct Negotiations)
Hyundai shall not carry out direct negotiations with Sharp’s vendors except in the case
instructions were given by Sharp.
Article 17 (Industrial Property)
In the case a dispute arise surrounding industrial property, circuit placement right to use and
copyright of Completed Goods with the third party, Hyundai shall resolve this under its
responsibility and bear relevant costs except in the case the dispute attributed to Sharp. And in
the case damages are caused to Sharp, such damages shall be compensated by Hyundai.
Article 18 (Public Liability)
| 1. | Regardless of defects are found in the Completed Goods, in the case Completed Goods themselves attributed damages to lives, bodies and properties of the third party or a dispute arises with the third party, Hyundai shall resolve this under its responsibility and bear relevant costs regardless of warranty period stated in the Article 10. However, this shall not apply to the case where damages attributed to Sharp. |
| 2. | While producing the Completed Goods, Hyundai shall make sure and pay extra attention to avoid harming the surrounding and if and when damages or disputes occur from operation, Hyundai shall resolve this under its responsibility and bear relevant costs. |
5 / 7
| 3. | In the case damages are caused to Sharp under paragraph 2 situations, such damages shall be compensated by Hyundai. |
Article 19 (Transfer of Rights and Obligations)
Sharp and Hyundai shall neither transfer whole or part of their rights and obligations generated
from the Agreement or Individual Agreements to the third party nor use them as collateral unless
written consents to the other party are obtained.
Article 20 (Contract Termination)
| 1. | Sharp may terminate whole or part of the Agreement and Individual Agreements immediately without giving a separate notification to Hyundai in any one of the following cases: |
| i. | Infringe any provisions of the Agreement or Individual Agreements | |
| ii. | Admit that it cannot execute the contract within contract period | |
| iii. | Sentenced to seizure, provisional injunction, face public sale, Subject to bankruptcy, composition, liquidation, corporate rehabilitation or there are such possibilities | |
| iv. | Sentenced business suspension and cancellation from the regulators | |
| v. | Checks overdue, insolvency | |
| vi. | Business are shut down, suspended or changed or business are managed by third parties or there are such possibilities | |
| vii. | An act of breach found against Sharp | |
| viii. | Harm public order and morality, and maintaining contract with Sharp is considered inadequate | |
| ix. | Financial state is instable or there are such possibilities | |
| x. | Other reasons similar to one of the above |
| 2. | In the case Hyundai is under one of the above and received a notification from Sharp, Hyundai shall settle all debts it has against Sharp immediately | |
| 3. | In the case damages are caused to Sharp due to contract termination under paragraph 1, Sharp may claim compensation for damages against Hyundai | |
| 4. | In the case the contract is terminated pursuant to paragraph 1 and a request was made by Sharp, Hyundai shall hand over Completed Goods (work in process included) before the delivery to Sharp. In return, Sharp shall pay Hyundai the amount of Completed Goods agreed with Hyundai. | |
| 5. | In the case the contract is terminated pursuant to paragraph 1, Sharp may produce Completed Goods in needed volume itself or ask the third party for production and sell them. In this case, all industrial properties held by Hyundai are deemed to have granted to Sharp. Grant of properties shall be determined upon discussion between Sharp and Hyundai. |
6 / 7
Article 21 (Dispute Settlement)
| 1. | In the case disputes or differences in opinions arise under the Agreement or Individual Agreements, or items not covered under the Agreement or individual Agreements appear, they shall be resolved upon discussion between Sharp and Hyundai. |
| 2. | The lawsuits filed related to the Agreement or Individual Agreements shall be governed in the Daejeon District Court. |
Article 22 (Validity Period)
The contract period of the Agreement shall be one year commencing December 27, 2000. However, if
neither party expresses their position in writing two months prior to the expiration date, the
Agreement is deemed to have automatically extended for one year and the same applies afterwards.
Article 23 (Supplementary Provision)
| 1. | The previous master agreement on production and supply of Completed Goods signed between Sharp and Hyundai shall have lose its effects after the Agreement come into effect. However, ancillary contracts and memorandum that were signed between Sharp and Hyundai shall remain effective unless otherwise they are in conflict with the Agreement. |
| 2. | The Agreement shall be applicable to Individual Agreements that were signed between Sharp and Hyundai before the Agreement comes into effect. |
IN WITNESS WHEREOF, Sharp and Hyundai have subscribed their names or affixed their seals and the
Agreement has been executed in two (2) sets and each party shall retain a copy for their
records.
December 27, 2000
SHARP:
HYUNDAI:
7 / 7
Exhibit 10.19
WARRANT AGREEMENT
THIS WARRANT AGREEMENT dated as of November 9, 2009 (this “Agreement”) is by and between
MAGNACHIP SEMICONDUCTOR LLC, a Delaware limited liability company (the “Company”), and American
Stock Transfer & Trust Company, LLC, as warrant agent (in such capacity, the “Warrant Agent”).
RECITALS:
WHEREAS, concurrently with the execution hereof, the Company is emerging from the protection
of Chapter 11 of Title 11 of the United States Code pursuant to that certain Plan of Reorganization
dated August 25, 2009, as the same may be modified or amended (the “Plan”).
WHEREAS, the Company has entered into the Fourth Amended and Restated Limited Liability
Company Agreement of the Company, dated November 9, 2009 (the “LLC Agreement”).
WHEREAS, pursuant to the terms of, and subject to the conditions contained in, the Plan, the
Company has agreed to issue to certain holders of subordinated note claims owed by the Company
warrants (each, a “Warrant”) entitling the holders thereof to purchase Common Units of the
Company at the Exercise Price (as defined herein).
WHEREAS, the Company wishes the Warrant Agent to act on its behalf, and the Warrant Agent is
willing to act on behalf of the Company, in connection with the issuance, exchange, transfer,
substitution and exercise of the Warrants.
WHEREAS, the Company desires to enter into this Agreement to set forth the terms and
conditions of the Warrants and the rights and obligations of the Company, the Warrant Agent and the
registered holders of the Warrant Certificates evidencing Warrants (the “Holders”).
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set
forth herein and in the Plan, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Warrant Agent, intending to be
legally bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS AND INTERPRETATION
DEFINITIONS AND INTERPRETATION
Section 1.01 Certain Defined Terms. Capitalized terms used in this Agreement shall have
the following respective meanings, except as otherwise provided herein or as the context shall
otherwise require:
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under common control with
such
Person. The term “control” (including, with correlative meaning, the terms “controlled by” and
“under common control with”) means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether through the ownership
of voting securities, by contract or otherwise.
“Agreement” has the meaning specified in the introduction of this Agreement.
“Board of Managers” means the managers of the Company as set forth in the LLC Agreement.
“Business Day” means any day which is not a day on which banking institutions in New York
City, New York are authorized or obligated by law or executive order to close.
“Change of Control” means if (i) any “person” or “group” (within the meaning of Sections
13(d) and 14(d)(2) of the Exchange Act, other than the current members of the Company, is or
becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of more than one-half of the then outstanding voting securities of the Company; (ii)
there occurs a merger, consolidation or combination of the Company with any other entity, other
than a merger, consolidation or combination which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity or its parent) at
least a majority of the combined voting power of the voting securities of the Company, such
surviving entity or its parent outstanding immediately after such merger, consolidation or
combination; or (iii) all or substantially all of the assets of the Company are sold to an
unaffiliated third party or parties in one transaction or series of related transactions followed
by the dissolution and winding up of the Company.
“Common Unit” means the Common Units as set forth in the LLC Agreement.
“Commission” means the Securities and Exchange Commission.
“Company” has the meaning specified in the introduction of this Agreement.
“Current Market Value” means, with respect to any security (including Common Units), as of a
specified date (the “date of calculation”):
(i) if such security is not registered under the Exchange Act, the value of such security as
determined in good faith by the Board of Managers of the Company; or
(ii) if such security is registered under the Exchange Act, the average of the daily market
prices of such security for the 10 consecutive trading days ending three trading days before the
earlier of the date of calculation and the day before the “ex” date with respect to the event
requiring such calculation or, if such security has been registered under the Exchange Act for less
than 10 consecutive trading days before such earlier date, then the average of the daily market
prices for all of the trading days before such earlier date for which daily market prices are
available; provided, however, that if the market price cannot be calculated (as provided below),
2
the Current Market Value of such security shall be determined as if such security were not
registered under the Exchange Act.
For purposes of this Agreement, (x) the term “market price” means, with respect to any
security for any trading day, (A) in the case of a security listed or admitted to trading on any
national securities exchange, the closing sales price, regular way, on such day, or if no sale
takes place on such day, the average of the closing bid and asked prices on such day on the
principal national securities exchange on which such security is listed or admitted, (B) in the
case of a security not then listed or admitted to trading
on any national securities exchange, the last reported sales price on such day, or if no sale
takes place on such day, the average of the closing bid and asked prices on such day, as reported
by a reputable quotation source designated by the Company or (C) in the case of a security not then
listed or admitted to trading on any national securities exchange and as to which no such reported
sales price or bid and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a reputable quotation service, or a newspaper of general
circulation in the Borough of Manhattan, City and State of New York customarily published on each
Business Day, designated by the Company, or, if there shall be no bid and asked prices on such day,
the average of the high bid and low asked prices, as so reported, on the most recent day (not more
than 30 days prior to the date in question) for which prices have been so reported and (y) the term
“ex’ date,” when used with respect to any distribution, shall mean the first date on which the
security trades regular way on such exchange or in such market without the right to receive such
distribution.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any similar Federal
statute, and the rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time. Reference to a particular section of the Securities Exchange Act of 1934, as
amended, shall include reference to the comparable section, if any, of any such similar Federal
statute.
“Exercise Price” means $1.97, subject to adjustment as provided in Section 4.01
hereof.
“Expiration Date” means, with respect to any Warrant, the fifth anniversary of the Original
Issuance Date or, if earlier, the date of the consummation of a Change of Control.
“Governmental Authority” means (i) any nation or government, (ii) any federal, state, county,
province, city, town, municipality, local or other political subdivision thereof or thereto, (iii)
any court, tribunal, department, commission, board, bureau, instrumentality, agency, council,
arbitrator or other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government and (iv) any other governmental entity,
agency or authority having or exercising jurisdiction over any relevant Person, item or matter.
“Holders” has the meaning specified in the Recitals of this Agreement.
“Issue Date” has the meaning specified in Section 2.03 hereof.
“Laws” means all laws, statutes, rules, regulations, ordinances, orders, writs, injunctions or
decrees and other pronouncements having the effect of law of any Governmental Authority.
3
“Legended Warrant Certificate” means any Warrant Certificate bearing the legend specified in
Section 2.02.
“LLC Agreement” has the meaning specified in the Recitals of this Agreement.
“Notice Date Press Release” has the meaning specified in Section 2.04(d).
“Original Issuance Date” means November 9, 2009, the effective date of the Plan.
“Person” means any individual, limited liability company, company, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, Governmental Authority or
other entity or enterprise.
“Plan” has the meaning specified in the Recitals of this Agreement.
“Securities Act” means the Securities Act of 1933, as amended.
“Transfer” means any direct or indirect transfer, exchange, donation, bequest, sale,
assignment, mortgage, pledge, lien, option, grant of a security interest or other encumbrance or
disposition of record ownership (including, without limitation, by way of merger, operation of law,
pursuant to any domestic relations or other court order, whether with or without consideration and
whether voluntarily or involuntarily).
“Transfer Notice” means a written notice to the Board of Managers and, if there be one in
office, the Secretary of the Company, at least five and not more than 20 Business Days prior to
completion of a Transfer, which notice states (i) the name, address, facsimile number and e-mail
address of the transferor and the transferee, (ii) the number of Warrants and underlying Common
Units subject to the proposed Transfer and (iii) the proposed date of completion of the proposed
Transfer.
“Units” means the Common Units.
“Warrant” has the meaning specified in the Recitals of this Agreement.
“Warrant Agent” has the meaning specified in the introduction of this Agreement.
“Warrant Certificates” has the meaning specified in Section 2.01.
Section 1.02 Interpretation. In this Agreement, unless a clear contrary intention
appears:
(a) the words “hereof,” “herein” and “hereunder” and words of similar import refer to this
Agreement as a whole and not to any particular provision of this Agreement;
(b) reference to any gender includes each other gender and the neuter;
4
(c) all terms defined in the singular shall have the same meanings in the plural and vice
versa;
(d) reference to any Person includes such Person’s heirs, executors, personal representatives,
administrators, successors and assigns; provided, however, that nothing contained in this clause
(d) is intended to authorize any assignment not otherwise permitted by this Agreement;
(e) reference to a Person in a particular capacity or capacities excludes such Person in any
other capacity;
(f) reference to any contract or agreement means such contract or agreement as amended,
supplemented or modified from time to time in accordance with the terms thereof;
(g) all references to Articles and Sections shall be deemed to be references to the Articles
and Sections of this Agreement;
(h) all references to Exhibits shall be deemed to be references to the Exhibits attached
hereto which are made a part hereof and incorporated herein by reference;
(i) the word “including” (and with correlative meaning “include”) means including, without
limiting the generality of any description preceding such term;
(j) with respect to the determination of any period of time, the word “from” means “from and
including” and the words “to” and “until” each means “to but excluding”;
(k) the captions and headings contained in this Agreement shall not be considered or given any
effect in construing the provisions hereof if any question of intent should arise;
(l) reference to any Law means such Law as amended, modified, codified, reenacted,
supplemented or superseded in whole or in part, and in effect from time to time;
(m) where any provision of this Agreement refers to action to be taken by any Person, which
such Person is prohibited from taking, such provision shall be applicable whether such action is
taken directly or indirectly by such Person; and
(n) no provision of this Agreement shall be interpreted or construed against any party solely
because that party or its legal representative drafted such provision.
ARTICLE II.
ORIGINAL ISSUE OF WARRANTS
ORIGINAL ISSUE OF WARRANTS
Section 2.01 Form of Warrant Certificates. The Warrants shall be evidenced by
certificates in registered form (the “Warrant Certificates”), substantially in the form attached
hereto as Exhibit A, and may have such insertions, letters, numbers or other marks of
5
identification and such legends and endorsements stamped, printed, lithographed or engraved thereon
as may, consistently herewith, be determined to be necessary or appropriate by the officers of the
Company executing such Warrant Certificates as evidenced by their execution of the Warrant
Certificates, or as may be required to comply with any applicable Law or with any rule or
regulation of any securities exchange or to conform to usage. Each Warrant shall represent the
right, subject to the provisions of this Agreement and of the Warrant Certificate, to purchase one
Common Unit at the Exercise Price, subject to adjustment pursuant to the provisions of Section
4.01. The definitive Warrant Certificates shall be typed, printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other manner permitted by
applicable Law.
Section 2.02 Legends. Each Warrant Certificate originally issued to a Holder, or
issued upon registration of transfer of, or upon exchange for or in lieu of, any Warrant
Certificate shall bear the following legend:
“THIS WARRANT HAS BEEN, AND THE COMMON UNITS WHICH MAY BE PURCHASED
PURSUANT TO THE EXERCISE OF THIS WARRANT (THE “WARRANT UNITS,” AND TOGETHER WITH
THIS WARRANT, THE “SECURITIES”) WILL BE, ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SECTION 1145 OF THE BANKRUPTCY REFORM ACT OF 1978, AS AMENDED
(THE “BANKRUPTCY CODE”). THE SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), PROVIDED THAT THE HOLDER IS NOT DEEMED TO BE AN
UNDERWRITER AS SUCH TERM IS DEFINED IN SECTION 1145(b) OF THE BANKRUPTCY CODE. IF
THE HOLDER IS DEEMED TO BE AN UNDERWRITER AS SUCH TERM IS
DEFINED IN SECTION 1145(b) OF THE BANKRUPTCY CODE, THEN THE SECURITIES MAY ONLY BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED UPON REGISTRATION UNDER THE
SECURITIES ACT OR RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY TO MAGNACHIP
SEMICONDUCTOR LLC AND ITS COUNSEL THAT SUCH DISPOSITION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND OF ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR
ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, PLEDGE OR OTHER TRANSFER OF
ANY INTEREST IN ANY OF THE WARRANT UNITS REPRESENTED BY THIS WARRANT.
THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER, SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE OR OTHER SIMILAR
TRANSFER AND VOTING RESTRICTIONS AS SET FORTH IN A LIMITED LIABILITY COMPANY
OPERATING AGREEMENT AMONG THE COMPANY AND THE ORIGINAL HOLDERS OF THE SECURITIES AND
A
6
WARRANT AGREEMENT AMONG THE COMPANY AND THE WARRANT AGENT (ON BEHALF OF THE
ORIGINAL HOLDERS OF THE SECURITIES), COPIES OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE COMPANY.”
Each Holder further acknowledges and agrees that the Units and any other securities
issued upon exercise of the Warrant if certificated shall bear a legend substantially in the form
of the legend appearing above, and any other legends required by applicable federal and state
securities laws or otherwise called for by this Agreement or any other agreement between the
Company and the Holder.
Section 2.03 Execution, Issuance and Delivery of Warrant Certificates.
(a) Each Warrant Certificate, whenever issued, shall be dated as of the date of
countersignature thereof by the Warrant Agent (the “Issue Date”), either upon initial issuance or
upon exchange, substitution or transfer and shall be executed on behalf of the Company by its
Chairman of the Board, Chief Executive Officer, President or any Vice President, either manually or
by facsimile signature printed thereon. The Warrant Certificates shall be countersigned by manual
or facsimile signature of the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In the event that any officer of the Company whose signature shall have been placed
upon any of the Warrant Certificates shall cease to be an officer of the Company before
countersignature by the Warrant Agent and the issuance and delivery thereof, such Warrant
Certificates may, nevertheless, be countersigned by the Warrant Agent and issued and delivered with
the same force and effect as though such person had not ceased to be such officer of the Company.
(b) The Company shall instruct the Warrant Agent to countersign, issue and deliver, at the
expense of the Company, Warrant Certificates evidencing Warrants to purchase an aggregate of up to
15,000,000 Common Units at the times required by, and in accordance with the terms and conditions
of, the Plan. The Warrant Agent shall, and is hereby authorized to, countersign, issue and deliver
Warrants as and when so instructed by the Company. In addition, the Warrant Agent is hereby
authorized to countersign, issue and deliver Warrant Certificates as required by Section
2.04, Section 3.03 or ARTICLE V.
Section 2.04 Transfer and Exchange of Warrant Certificates.
(a) The Warrant Agent shall maintain books, subject to such reasonable regulations as it may
prescribe, for the registration of Warrant Certificates and transfers and exchanges of Warrant
Certificates as provided in this Agreement.
(b) Notwithstanding any other provisions of this Agreement, no Holder shall Transfer any such
Warrants to any Person nor shall the Company effect the Transfer of any Warrants to any Person, if,
at the time of such Transfer, the Company has more than 450 “holders of record” (as understood for
purposes of Section 12(g) of the Exchange Act) of Common Units and/or Warrants. The limitations set
forth in the immediately preceding sentence shall not prohibit: (i) a Transfer of Warrants by a
Holder to another Person that, immediately prior to the Transfer, is a
7
holder of record of
Warrants, (ii) a Transfer of Warrants by a Holder to the Company, (iii) a Transfer of Warrants by
the Company to a Person that, immediately prior to the Transfer, is a holder of record of Warrants
or (iv) a Transfer of all Warrants owned by the proposed transferor to a single Person who is
treated as a single record holder of Warrants under the Exchange Act. Any attempted Transfer that
is prohibited by this Section and not approved by the Company shall be null and void and shall not
be effective to Transfer any Warrants. The Company may institute legal proceedings to force
rescission of a Transfer prohibited by this Section and to seek any other remedy available to it at
law, in equity or otherwise, including an injunction prohibiting any such Transfer. By acceptance
of a Warrant or Common Units issued pursuant to the exercise of a Warrant, any transferee of a
Warrant or the Common Units issued pursuant to the exercise of a Warrant accepts and agrees to be
bound by all the terms and conditions of the Warrant and the Warrant Agreement and notwithstanding
anything contained herein, the Company may require any transferee of this Warrant or the Common
Units issued pursuant to the exercise of a Warrant to execute an agreement to be bound by the terms
and conditions of this Warrant and the Warrant Agreement.
(c) By the fifth Business Day after the Company has 350 or more holders of record of Warrants
and/or Common Units, the Company shall issue a press release stating the number of holders
of record of Warrants and Common Units (the “Notice Date Press Release”). The Company shall notify
the Warrant Agent of such issuance and provide a copy of the Notice Date Press Release to the
Warrant Agent as provided in Section 9.04.
(d) A Transfer of Warrants that is completed or attempted after the Company issues a Notice
Date Press Release with respect to the Warrants shall be null and void and not effective unless (i)
the holder seeking to make such Transfer provides a Transfer Notice to the Company, (ii) such
Transfer is approved in advance by the Company and (iii) such Transfer otherwise complies with the
terms of this Agreement. No Transfer Notice is required with respect to Warrants for Transfers that
occur prior to the issuance by the Company of a Notice Date Press Release.
(e) Subject to Section 2.04(b) and Section 2.04(d), a Holder may Transfer its
Warrants by written application to the Warrant Agent stating the name of the proposed transferee
and otherwise complying with the terms of this Agreement and all applicable Laws and provided that
the Warrant Agent has not received a Notice Date Press Release. No Transfer of Warrants shall be
effected until, and such transferee shall succeed to the rights of a Holder only upon, (i) delivery
of written notice of the proposed Transfer to Company, (ii) compliance with the transfer provisions
of this Agreement, (iii) final acceptance and registration of the Transfer by the Warrant Agent in
the register in accordance with this Agreement and (iv) the delivery of an opinion of counsel, in
form and substance reasonably satisfactory to the Company and its counsel, with respect to the
compliance of the Transfer under applicable law, included federal and state securities law, and any
other matters reasonably requested by the Company. Prior to due presentation for registration of
transfer, the Company, the Warrant Agent and any agent of the Company may deem and treat the Person
in whose name the Warrant Certificates are registered as the absolute owner thereof for all
purposes (notwithstanding any notation of ownership or other writing thereon made by anyone), and
neither the Company nor the Warrant Agent shall be affected by any notice to the contrary or be
bound to recognize any equitable or
8
other claim to or an interest in any Warrants on the part of
any other Person and shall not be liable for any registration of transfer of Warrant Certificates
that are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary
unless made with actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer or with such knowledge of such facts that its
participation therein amount to bad faith. When Warrant Certificates are presented to the Warrant
Agent with a request to register the transfer thereof or to exchange them for an equal number of
Warrant Certificates of other authorized denominations, the Warrant Agent shall register the
transfer or make the exchange as requested solely in the case of any Legended Warrant Certificates
if the requirements of this Agreement for such transaction are met. To permit registrations of
transfers and exchanges, the Company shall execute Warrant Certificates at the Warrant Agent’s
request. No service charge shall be made for any registration of transfer or exchange of Warrant
Certificates, but the Company or the Warrant Agent may
require payment of a sum sufficient to cover any transfer tax or similar governmental charge
payable in connection with any registration of transfer of Warrant Certificates.
(f) Except as otherwise provided in this Section 2.04, all Warrant Certificates issued
upon any registration of transfer or exchange of Warrants shall be the valid obligations of the
Company, evidencing the same obligations, and entitled to the same benefits under this Agreement,
as the Warrant Certificates surrendered for registration of transfer or exchange.
(g) The Board of Managers shall have the power to determine, in its sole and absolute
discretion, all matters related to this Section, including matters necessary or desirable to
administer or to determine compliance with this Section and, absent manifest error, the
determinations of the Board of Managers shall be final and binding on the Company and the Holders.
Section 2.05 Surrender and Cancellation of Warrant Certificates. Any Warrant
Certificate surrendered for registration of transfer, exchange or exercise of the Warrants
represented thereby or pursuant to Section 6.02 shall, if surrendered to the Company, be
delivered to the Warrant Agent, and all Warrant Certificates surrendered or so delivered to the
Warrant Agent shall be promptly canceled by the Warrant Agent and shall not be reissued by the
Company or the Warrant Agent and, except as provided in Section 2.04 (in the case of a
transfer or exchange), Section 3.03 (in the case of the exercise of less than all the
Warrants represented by the surrendered Warrant Certificate) or ARTICLE V (in the case of a
lost, stolen, destroyed or mutilated Warrant Certificate), no Warrant Certificate shall be issued
hereunder in lieu thereof. On request of the Company, the Warrant Agent, provided that any
retention periods established by the Commission have expired, shall destroy canceled Warrant
Certificates held by it and shall deliver its certificates of destruction to the Company. The
Warrant Agent shall destroy all canceled Warrant Certificates in accordance with its normal
procedures.
Section 2.06 Holdback Agreement. If requested by the lead managing underwriter, each Holder
agrees not to effect any public sale or distribution of any securities of the Company (including
any Warrant, any Unit issued upon the exercise of a Warrant or any securities convertible into,
reclassified from or exchangeable or exercisable for such securities of the Company), including a
sale pursuant to Rule 144 under the Securities Act, during a period of not more than one hundred
and eighty (180) days after, an initial public offering of the Company’s
9
securities pursuant to an
effective registration statement filed by the Company under the Securities Act commencing on the
effective date of the registration statement (the “Lock-Up Period”), unless expressly authorized to
do so by the lead managing underwriter; provided, however, that if any other holder of securities
of the Company shall be subject to a shorter period or receives more advantageous terms relating to
the Lock-Up Period, then the Lock-Up Period shall be such shorter period and also on such more
advantageous terms and notwithstanding the
foregoing, the Holders shall not be required to sign lock-up agreements unless all of the
Company’s directors, officers and securityholders owning one percent (1%) or more of the Company’s
fully diluted voting stock have signed lock-up agreements with the managing underwriters. Any such
lock-up agreements signed by the Holders shall contain reasonable and customary exceptions,
including, without limitation, the right of a Holder to make transfers to certain Affiliates and
transfers related to securities owned by Holders as a result of open market purchases made
following the closing of the applicable offering. The Company shall be authorized to impose
stop-transfer instructions with respect to the securities subject to the foregoing restrictions
until the end of the relevant period.
ARTICLE III.
EXERCISE PRICE; EXERCISE OF WARRANTS
EXERCISE PRICE; EXERCISE OF WARRANTS
Section 3.01 Exercise Price. Each Warrant Certificate shall, when countersigned by the
Warrant Agent, entitle the Holder thereof, subject to the provisions of this Agreement and such
Warrant Certificate, to purchase one Common Unit (subject to adjustment as provided herein) for
each Warrant represented thereby at the Exercise Price per Common Unit (subject to adjustment as
provided herein), payable in full at the time of purchase.
Section 3.02 Exercise; Restrictions on Exercise. Each outstanding Warrant may be
exercised on any Business Day which is on or after its Issue Date and on or before the Expiration
Date, but only if (solely in the case of any Legended Warrant Certificate) the exercise of such
Warrants is exempt from the registration requirements of the Securities Act. Any Warrants not
exercised by 5:00 p.m., New York City time, on the Expiration Date (or, if applicable, immediately
prior to consummation of the applicable Change of Control) shall expire and all rights thereunder
and all rights in respect thereof under this Agreement shall automatically terminate at such time.
Section 3.03 Method of Exercise; Payment of Exercise Price.
(a) In order to exercise any of the Warrants, the Holder thereof must surrender the Warrant
Certificate evidencing such Warrants to the Warrant Agent at its corporate trust office set forth
in Section 9.04 (with (i) the Subscription Form set forth in the Warrant Certificate and
(ii) the Form of Joinder set forth in the LLC Agreement completed and duly executed), together with
payment in full of the Exercise Price then in effect for each Common Unit as to which a Warrant is
exercised and any documentary, stamp or transfer tax, or other applicable tax or governmental
charges. Payment of the Exercise Price shall be made by the Holder by check payable to the order of
Warrant Agent; provided, however, that in lieu of exercising any Warrants by payment of cash, if
the Company has provided notice under Section 4.04 in connection with any sale of all or
substantially all of the Company’s properties, assets or business or any consolidation, combination
or merger of the Company with or into another
10
company, in each case
resulting in a Change of Control in which the consideration receivable upon consummation of such
Change of Control by a holder of Common Units consists of consideration that is not solely cash,
the Holder may elect to exercise its Warrants conditioned upon the occurrence of such Change of
Control, to be effective immediately prior to the time such Change of Control is consummated, in
which event the Company shall issue (or have been deemed to issue) to the Holder upon exercise a
number of Common Units immediately prior to such Change of Control, computed using the following
formula:
X =
Y * (A - B) / A
where:
X
|
= | the number of Common Units to be issued to the Holder; | ||
Y
|
= | the number of Common Units with respect to which a Warrant is being exercised; | ||
A
|
= | the Current Market Value of a Common Unit determined as of the date the Change of Control is consummated; and | ||
B
|
= | the Exercise Price plus applicable taxes. |
Upon the exercise of any Warrant, the Warrant Agent shall promptly provide written notice of
such exercise to the Company, including notice of the number of Common Units to be issued upon the
exercise of such Warrant, and deliver all payments received upon exercise of such Warrant to the
Company in such manner as the Company shall instruct in writing.
(b) A Holder may exercise all or any number of whole Warrants represented by a Warrant
Certificate. If less than all of the Warrants represented by a Warrant Certificate are exercised,
such Warrant Certificate shall be surrendered and a new Warrant Certificate executed by the Company
of the same tenor and for the number of Warrants which were not exercised shall be issued by the
Warrant Agent. The Warrant Agent shall (i) countersign such Warrant Certificate, (ii) register such
Warrant Certificate in such name or names as may be directed in writing by the Holder and (iii)
deliver such Warrant Certificate to the Person or Persons entitled to receive the same.
(c) Upon the exercise of any Warrant and the surrender of the Warrant Certificate evidencing
such Warrant in conformity with the foregoing provisions, the Warrant Agent shall, subject to
Section 9.02, (i) transfer promptly to or upon the written order of the Holder of such
Warrant Certificate, appropriate evidence of ownership of any Common Units or other securities or
property (including money) to which it is entitled, registered or otherwise placed in such name or
names as may be directed in writing by the Holder, and (ii) deliver such evidence of ownership and
any other securities or property (including
money) to the Person or Persons entitled to receive the same (together with an amount in cash
in lieu of any fractional Unit as provided in Section 4.05).
(d) Upon the exercise of any Warrant, the Warrant Agent is hereby authorized and directed to
notify any transfer agent of the Common Units upon the exercise of any Warrant. Upon such
notification, such transfer agent (and all such transfer agents are hereby irrevocably
11
authorized
to comply with this Section 3.03(d)) shall register on its books the necessary number of
Common Units to which the Holder of such Warrant is entitled upon such exercise; provided, that
such Holder shall have completed and duly executed the Subscription Form set forth in the Warrant
Certificate and the Form of Joinder Agreement set forth in the LLC Agreement.
(e) Except for exercises in connection with and conditioned upon a Change of Control, any
Warrant which is exercised hereunder shall be deemed to have been exercised immediately prior to
the close of business on the date of the surrender, as provided above, of the Warrant Certificate
representing such Warrant, together with payment in full of the Exercise Price and any documentary,
stamp or transfer tax, or other applicable tax or governmental charges (unless settlement is on a
cashless basis in connection with and conditioned upon a Change of Control), and, for purposes of
this Agreement, the Person entitled to receive any Common Units or other securities or property
deliverable upon such exercise shall, as between such Person and the Company, be deemed to be the
Holder of such Common Units or other securities or property of record as of the close of business
on such date and shall be entitled to receive, and the Company shall deliver or cause to be
delivered to such Person, any money, Common Units or other securities or property to which he would
have been entitled had he been a record holder on such date.
ARTICLE IV.
ADJUSTMENTS
ADJUSTMENTS
Section 4.01 Adjustments. The number of Common Units issuable upon exercise of each
Warrant shall be subject to adjustment from time to time as follows:
(a) Upon Dividends, Subdivisions or Splits. If, at any time after the Original Issuance Date,
the number of Common Units outstanding is increased by a dividend or distribution on the
outstanding Common Units payable in Common Units or by a subdivision or split-up of Common Units,
other than, in any such case, upon a capital reorganization, reclassification, consolidation or
merger to which Section 4.01(c) applies, then, following the record date for the
determination of holders of Common Units entitled to receive such dividend, or to be affected by
such subdivision or split-up, the number of Common Units purchasable on exercise of the Warrants
shall be increased in proportion to such increase in outstanding
Common Units. The adjustment made pursuant to this clause (a) shall become effective (x) in
the case of any such dividend or distribution, immediately after the close of business on the
record date for the determination of holders of Common Units entitled to receive such dividend or
distribution or (y) in the case of such subdivision or split-up, at the close of business on the
day upon which such corporate action becomes effective.
(b) Upon Combinations or Reverse Splits. If, at any time after the Original Issuance Date, the
number of Common Units outstanding is decreased by a combination or reverse split of the
outstanding Common Units into a smaller number of Common Units, other than, in any such case, upon
a capital reorganization, reclassification, consolidation or merger to which Section
4.01(c) applies, then the number of Common Units purchasable on the exercise of each Warrant
immediately prior to the date of such combination or reverse split shall be decreased in proportion
to such decrease in outstanding Common Units. The adjustment made pursuant to this
12
clause (b) shall
become effective at the close of business on the day upon which such combination or reverse split
becomes effective. For purposes of Section 4.01(a) and Section 4.01(b), the number
of Common Units at any time outstanding shall not include any Common Units then owned or held by or
for the account of the Company.
(c) Upon Reclassifications, Reorganizations, Consolidations or Mergers.
(i) In the event of any capital reorganization of the Company, any reclassification of
any of the Common Units, or any consolidation, combination or merger of the Company with or
into another company, in each case not resulting in a Change of Control, where the Company
is not the surviving company or where there is a change in or distribution with respect to
the Units, each Warrant, effective at the close of business on the date such reorganization,
reclassification, consolidation, or merger shall become effective, shall thereafter be
exercisable for the kind and number of membership interests or other securities or property
(including cash) receivable upon the consummation of such reorganization, reclassification,
consolidation or merger, by a holder of the number of Common Units deliverable (immediately
prior to the time of such reorganization, reclassification, consolidation or merger) upon
exercise of such Warrant and, except as specified in Section 4.01(g), otherwise
shall have the same terms and conditions applicable immediately prior to such time of such
reorganization, reclassification, consolidation or merger. The provisions of this clause (i)
shall similarly apply to successive reorganizations, reclassifications, consolidations, or
mergers.
(ii) In the event of any capital reorganization of the Company, any reclassification of
any of the Common Units, any sale of all or substantially all of the Company’s assets or any
consolidation, combination or merger of the Company with or into another company, in each
case resulting in a Change of Control, and where the consideration receivable upon
consummation of such Change of Control by a holder of Common Units consists solely of cash,
the Company shall not effect any such reorganization, reclassification, sale of assets,
consolidation or merger unless, simultaneously with the consummation thereof, the Company
shall redeem the Warrants and pay to each Holder of a Warrant Certificate evidencing a
number of Warrants, upon surrender thereof to the Company, an amount in cash equal to (A)
the amount in cash that would be received upon such consummation by a holder of the number
of Common Units deliverable (immediately prior to such consummation) upon exercise of such
Warrants less (B) the aggregate Exercise Price therefor.
(d) Deferral in Certain Circumstances. If the Company shall take a record of the holders of
its Units for the purpose of entitling them to receive a dividend or distribution, and shall
thereafter, and before the distribution to such holders thereof, legally abandon its plan to pay or
deliver such dividend or distribution, then thereafter no adjustment in the number of Common Units
purchasable upon exercise of the Warrants granted by this Section 4.01 or in the Exercise
Price then in effect shall be required by reason of the taking of such record and, as to any
Warrants that remain outstanding, any adjustment previously made in respect thereof shall be
rescinded and annulled. In any case in which the provisions of this ARTICLE IV shall
require that an adjustment shall become effective immediately after a record date of an event, the
13
Company may defer, until the occurrence of such event, issuing to the holder of any Warrant
exercised after such record date and before the occurrence of such event the membership interests
issuable upon such exercise by reason of the adjustment required by such event and issuing to such
holder only the membership interests issuable upon such exercise before giving effect to such
adjustments, and paying to such holder any amount in cash in lieu of any fractional Common Units
pursuant to Section 4.05; provided, however, that the Company shall deliver to such holder
an appropriate instrument or due bill evidencing such holder’s right to receive such additional
Common Units and such cash on the date of the occurrence of such event.
(e) De Minimis Adjustments. No adjustment in the number of Common Units purchasable upon the
exercise of any Warrant shall be required unless such adjustment would require an increase or
decrease of at least 1% in the number of Common Units purchasable upon the exercise of such
Warrant; provided, however, that any adjustments which are not required to be made by reason of
this Section 4.01(e) shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 4.01(e) shall be made to the nearest
one-thousandth of a Unit.
(f) Determination of Current Market Value. If at any time the Current Market Value of any
security is required to be calculated pursuant to the terms of this Agreement, the determination of
such Current Market Value, if calculated in accordance with the terms of this Agreement, absent
manifest error,
shall be conclusive and binding on all Persons.
(g) Warrant Price Adjustment. Whenever the number of Common Units into which a Warrant is
exercisable is adjusted as provided in Sections 4.01(a), (b) or (c), the
Exercise Price payable upon exercise of the Warrant shall simultaneously be adjusted by multiplying
such Exercise Price immediately prior to such adjustment by a fraction, the numerator of which
shall be the number of Common Units into which such Warrant was exercisable immediately prior to
such adjustment, and the denominator of which shall be the number of Common Units into which such
Warrant was exercisable immediately thereafter.
Section 4.02 Notice of Adjustment. Whenever the number of Common Units or other
securities or property purchasable upon the exercise of each Warrant is required to be adjusted
pursuant to Section 4.01, the Company shall deliver to the Warrant Agent a certificate
setting forth (a) the number of Common Units or other securities or property purchasable upon the
exercise of each Warrant and the Exercise Price therefor after such adjustment, (b) a brief
statement of the facts requiring such adjustment and (c) the computation by which such adjustment
was made. Such certificate shall be conclusive evidence of the correctness of such adjustment
absent manifest error. The Warrant Agent shall not be deemed to have knowledge of such adjustment
unless and until it shall have received such certificate. Upon receipt of such certificate, the
Company shall cause the Warrant Agent to mail notice of the adjustment described in such
certificate to each Holder at the expense of the Company. The Warrant Agent shall be entitled to
rely on such certificate and shall be under no duty or responsibility with respect to any such
certificate, except to exhibit the same, from time to time, to any Holder desiring to inspect such
certificate during reasonable business hours. The Warrant Agent shall not at any time be under any
duty or responsibility to any Holder to determine whether any facts exist which may require any
adjustment of the Exercise Price or the number of Common Units or
14
other securities or property
purchasable upon exercise of any Warrant, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed in making such adjustment, or the
validity or value (or the kind or amount) of any Common Units or other
securities or property that
may be purchasable on exercise of any Warrant. The Warrant Agent shall not be responsible for any
failure of the Company to make any cash payment or to issue, transfer or deliver any Common Units
or other securities or property upon the exercise of any Warrant.
Section 4.03 Statement on Warrants. The form of Warrant Certificate need not be
changed because of any adjustment made pursuant to Section 4.01, and Warrant Certificates
issued after such adjustment may state the same Exercise Price and the same number and kind of
Common Units as are stated in the Warrant Certificates initially issued pursuant to this Agreement.
The Company may, however, at any time in its sole discretion (which shall be conclusive), make any
change in the form of
Warrant Certificate that it may deem appropriate to reflect any such adjustment and that does
not affect the substance thereof and any Warrant Certificate thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant Certificate or otherwise, may be in
the form so changed.
Section 4.04 Notice of Consolidation, Merger or Sale of Substantially All Assets,
Etc. In the event that, at any time after the date hereof and prior to 5:00 p.m., New York
City time (or, if applicable, immediately prior to consummation of the applicable Change of
Control), on the Expiration Date, (a) the Company shall consummate a Change of Control transaction
to which it is a party or otherwise consolidate or combine with another company, merge with or into
another company or sell, transfer or otherwise dispose of all or substantially all of its
properties, assets or business or (b) the Company shall dissolve, liquidate or wind-up its
operations, then in any one or more of such cases, the Company shall cause to be mailed to the
Warrant Agent and each Holder, at the earliest practicable time (and, in any event, not less than
20 calendar days before any record date or, if no record date applies, before any date set for
definitive action), notice of the date on which such Change of Control, consolidation, combination,
merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such
notice shall also set forth such facts as shall indicate the effect of such action (to the extent
such effect may be known at the date of such notice), if any, on the kind and amount of Common
Units and other securities, money and other property deliverable upon exercise of the Warrants.
Such notice shall also specify the date, if any, as of which the holders of record of Common Units
or other securities or property issuable upon exercise of the Warrants shall be entitled to
exchange their interests for securities, money or other property deliverable upon such
consolidation, combination, merger, sale, dissolution, liquidation or winding up, as the case may
be.
Section 4.05 Fractional Interests. Notwithstanding anything to the contrary
contained in this Agreement, if the number of Common Units purchasable on the exercise of each
Warrant is adjusted pursuant to the provisions of Section 4.01, the Company shall not be
required to issue any fraction of a Common Unit upon any subsequent exercise of any Warrant. If
Warrant Certificates evidencing more than one Warrant shall be surrendered for exercise at the same
time by the same Holder, the number of full Common Units that shall be issuable upon such exercise
thereof shall be computed on the basis of the aggregate number of Warrants evidenced by
15
Warrant
Certificates so surrendered. If any fraction of a Common Unit would, except for the provisions of
this Section 4.05, be issuable on the exercise of any Warrant (or specified portion
thereof), in lieu of the issuance of such fractional Common Unit, the Company shall pay the Holder
of such Warrant an amount in cash equal to the then Current Market Value per Common Unit multiplied
by such fraction (computed to the nearest whole cent). The Holders, by their acceptance of the
Warrant Certificates, expressly waive their right to receive any fraction of a Common Unit instead
of such cash.
Section 4.06 Concerning All Adjustments. Notwithstanding anything to the contrary
contained in this Agreement, if an adjustment is made under any provision of ARTICLE IV on
account of any event, transaction, circumstance, condition or happening, no additional adjustment
shall be made under any other provision of ARTICLE IV on account of such event,
transaction, circumstance, condition or happening. Unless otherwise expressly provided in this
ARTICLE IV, all determinations and calculations required or permitted under this
ARTICLE IV shall be made by the Company or its Board of Managers, as appropriate, and all
such calculations and determinations shall be conclusive and binding in the absence of manifest
error.
ARTICLE V.
LOSS, THEFT, DESTRUCTION OR MUTILATION
OF WARRANT CERTIFICATES
LOSS, THEFT, DESTRUCTION OR MUTILATION
OF WARRANT CERTIFICATES
Section 5.01 Lost, Theft, Destruction or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership and the loss, theft, destruction or
mutilation of any Warrant Certificate, and an indemnity bond in form and amount and with corporate
surety satisfactory to them, and (in the case of mutilation) upon surrender and cancellation
thereof, then, in the absence of notice to the Company or the Warrant Agent that the Warrants
represented thereby have been acquired by a bona fide purchaser, the Company shall issue and the
Warrant Agent shall countersign and deliver to the Holder of the lost, stolen, destroyed or
mutilated Warrant Certificate, in exchange and substitution for or in lieu thereof, a new Warrant
Certificate of the same tenor and representing an equivalent number of Warrants. Upon the issuance
of any new Warrant Certificate under this ARTICLE V, the Company may require the payment of
a sum sufficient to cover any tax or other governmental charge that may be imposed in relation
thereto and other expenses (including the fees and expenses of the Warrant Agent) in connection
therewith. Every new Warrant Certificate executed and delivered pursuant to this ARTICLE V
in lieu of any lost, stolen, destroyed or mutilated Warrant Certificate shall constitute an
original contractual obligation of the Company, whether or not the allegedly lost, stolen,
destroyed or mutilated Warrant Certificates shall be at any time enforceable by anyone, and shall
be entitled to the benefits of this Agreement equally and proportionately with any and all other
Warrant Certificates duly executed and delivered hereunder. The provisions of this ARTICLE
V are exclusive and shall preclude (to the extent lawful) all other rights or remedies with
respect to the replacement of lost, stolen, destroyed or mutilated Warrant Certificates.
16
ARTICLE VI.
AUTHORIZATION AND RESERVATION OF
COMMON UNITS; PURCHASE OF WARRANTS
AUTHORIZATION AND RESERVATION OF
COMMON UNITS; PURCHASE OF WARRANTS
Section 6.01 Reservation of Authorized Common Units. The Company shall at all times
reserve and keep available for issue upon the exercise of Warrants, such number of its authorized
but unissued Common Units or other securities deliverable upon exercise of Warrants as will be
sufficient to permit the exercise in full of all outstanding Warrants and shall take all action
required to increase the authorized number of Common Units if necessary to permit the conversion of
all outstanding Warrants. The Company will cause appropriate evidence of ownership of such Common
Units or other securities to be delivered to the Warrant Agent upon its request for delivery upon
the exercise of Warrants, and all such Common Units will, at all times, be duly approved for
listing subject to official notice of issuance on each securities exchange, interdealer quotation
system or market, if any, on which such Common Units is then listed. The Company covenants that all
Common Units or other securities that may be issued upon the exercise of the Warrants will, upon
issuance pursuant to the terms of the Warrant and the Warrant Agreement, be duly authorized,
validly issued, fully paid and non-assessable (except as non-assessability may be affected by
Section 18-607 or Section 18-804 of the Delaware Limited Liability Company Act), and free from
preemptive rights and all taxes, liens, charges, encumbrances and security interests, other than
any liens or encumbrances created by or imposed upon the Holders and provided, however, that the
Warrants and the Common Units issued or issuable pursuant to exercise of the Warrants are subject
to restrictions on transfer under applicable Federal and state securities laws and restrictions on
transfer as set forth herein, the LLC Agreement and other agreements between a Holder and the
Company in connection with Company securities held by such Holder.
Section 6.02 Purchase of Warrants by the Company. The Company shall have the right,
except as limited by law or other agreement, to purchase or otherwise acquire Warrants at such
times, in such manner and for such consideration as it may deem appropriate, upon mutual agreement
with the Holder of such Warrant. In the event the Company shall purchase or otherwise acquire
Warrants, the related Warrant Certificates shall thereupon be delivered to the Warrant Agent for
cancellation; provided, however, that unless and until the Warrant Certificates evidencing such
Warrants are surrendered by the Company to the Warrant Agent for cancellation, such purchase or
acquisition shall not operate as a redemption or termination of the right represented by such
Warrants. Any Warrants purchased or otherwise acquired by the Company shall not be outstanding for
any purpose.
ARTICLE VII.
WARRANT HOLDERS NOT DEEMED MEMBERS
WARRANT HOLDERS NOT DEEMED MEMBERS
Section 7.01 Warrant Holders Not Members. Prior to the exercise of any Warrant and
completion and execution of the Form of Joinder set forth in the LLC Agreement, nothing contained
in this Agreement or any Warrant Certificate shall be construed as conferring on the Holder of any
Warrant or Warrant Certificate any rights whatsoever as a member of the Company, either at law or
in equity,
including the right to vote on or to consent to any action of the members, to receive
dividends or other distributions, to exercise any preemptive right or to
17
receive any notice of
meetings of members and, except as otherwise provided in this Agreement, shall not be entitled to
receive any notice of any proceedings of the Company.
ARTICLE VIII.
THE WARRANT AGENT
THE WARRANT AGENT
Section 8.01 Appointment and Acceptance of Agency. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the instructions set forth in this
Agreement and the Warrant Agent hereby accepts the agency established by this Agreement and agrees
to perform the same on the terms and conditions herein set forth.
Section 8.02 Correctness of Statements; Distribution of Warrants. The statements
contained herein and in each Warrant Certificate shall be taken as statements of the Company, and
the Warrant Agent assumes no responsibility for the correctness of any of the same except as
describe the Warrant Agent or any action taken by it. The Warrant Agent assumes no responsibility
with respect to the distribution of the Warrants except as herein otherwise provided.
Section 8.03 Use of Agents. The Warrant Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty thereunder either itself (through its
employees) or by or through its attorneys or agents (which shall not include its employees) and
shall not be responsible for the misconduct or negligence of any agent appointed, provided that due
care had been exercised in the appointment and continued employment thereof.
Section 8.04 Proof of Actions Taken. Whenever in the performance of its duties under
this Agreement, the Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action hereunder, such fact
or matter (unless such evidence in respect thereof be herein specifically prescribed) may, in the
absence of bad faith on the part of the Warrant Agent, be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, President, Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, any Vice President, the Treasurer or
Secretary of the Company and delivered to the Warrant Agent; and such certificate, in the absence
of bad faith on the part of the Warrant Agent, shall be full authorization to the Warrant Agent for
any action taken, suffered or omitted by it under the provisions of this Agreement in reliance upon
such certificate.
Section 8.05 Compensation; Indemnity. The Company agrees to pay the Warrant
Agent compensation for all services rendered by the Warrant Agent in the performance of its
duties under this Agreement. The Company agrees to reimburse the Warrant Agent for all expenses,
taxes and governmental charges and other charges of any kind and nature incurred by the Warrant
Agent (including reasonable fees and expenses of the Warrant Agent’s counsel and agents) in the
performance of its duties under this Agreement. The Company also agrees to indemnify the Warrant
Agent for, and to hold it harmless against, any loss, liability or expenses incurred without
negligence or willful misconduct on the part of the Warrant Agent, for anything done or omitted by
the Warrant Agent in connection with the acceptance and administration of this Agreement, including
the reasonable costs and expenses of defending against any claim of
18
liability in the premises. The
indemnity provided for herein shall survive the expiration of the Warrants and the termination of
this Agreement. The reasonable costs and expenses incurred in enforcing this right of
indemnification shall be paid by the Company. Notwithstanding anything in this Agreement to the
contrary, in no event shall the Warrant Agent be liable for special, indirect or consequential loss
or damage of any kind whatsoever (including lost profits), even if the Warrant Agent has been
advised of the likelihood of such loss or damage and regardless of the form of the action.
Section 8.06 Legal Proceedings. The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more Holders shall furnish the Warrant Agent with reasonable
security and indemnity satisfactory to the Warrant Agent for any costs and expenses which may be
incurred, but this provision shall not affect the power of the Warrant Agent to take such action as
the Warrant Agent may consider proper, whether with or without any such security or indemnity. All
rights of action under this Agreement or under any of the Warrants may be enforced by the Warrant
Agent without the possession of any of the Warrants or the production thereof at any trial or other
proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant
Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the Holders, as their respective rights or interests may appear.
Section 8.07 Other Transactions Involving the Company. The Warrant Agent and any
stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily interested in any transactions in
which the Company may be interested, or contract with or lend money to the Company or otherwise act
as fully and freely as though it were not Warrant Agent under this Agreement or such director,
officer or employee. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity including acting as transfer agent or as a
lender to the Company or an affiliate thereof.
Section 8.08 Actions as Agent. The Warrant Agent shall act hereunder solely as
agent,
and its duties shall be determined solely by the provisions of this Agreement. No implied
duties or obligations shall be read into this Agreement against the Warrant Agent. The Warrant
Agent shall not be liable for anything which it may do or refrain from doing in connection with
this Agreement except for its own gross negligence or willful misconduct.
Section 8.09 Liability of Warrant Agent. The Warrant Agent may conclusively rely
upon and shall be protected by the Company and shall not incur any liability or responsibility to
the Company or to any Holder for or in respect of any action taken, suffered or omitted by it in
reliance on any Warrant Certificate or other securities of the Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, direction, statement, notice,
resolution, waiver, consent, order, certificate or other paper, document or instrument reasonably
believed by it to be genuine and to have been signed, executed, sent, presented and, where
necessary, verified or acknowledged, by the proper party or parties.
19
Section 8.10 Validity of Agreement. The Warrant Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution and delivery hereof by the Warrant Agent) or in respect of the validity
or execution of any Warrant (except its counter-signature thereof); nor shall it be responsible for
any breach by the Company of any covenant or condition contained in this Agreement or in any
Warrant Certificate; nor shall the Warrant Agent by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any underlying securities (or
other membership interests) to be issued pursuant to this Agreement or any Warrant, or as to
whether any underlying securities (or other membership interests) will, when issued, be validly
issued, fully paid and non-assessable, or as to the Exercise Price or the number or amount of
underlying securities or other securities or other property issuable upon exercise of any Warrant.
Section 8.11 Acceptance of Instructions. The Warrant Agent is hereby authorized and
directed to accept instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, any Vice President or Secretary of the Company, and to apply to such officers for advice
or instructions in connection with its duties, and shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of any such officer or officers or for
any delay in acting while waiting for those instructions.
Section 8.12 Right to Consult and Rely Upon Counsel. Before the Warrant Agent acts
or refrains from acting, it may at any time consult with legal counsel (who may be legal counsel
for the Company), and the opinion or advice of such counsel shall be full and complete
authorization and
protection to the Warrant Agent and the Warrant Agent shall incur no liability or
responsibility to the Company or to any Holder for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Section 8.13 Change of Warrant Agent.
(a) The Warrant Agent, or any successor to it hereafter appointed, may resign from its
position as such and be discharged from all further duties and liabilities hereunder (except
liabilities arising as a result of the Warrant Agent’s own gross negligence or willful misconduct),
after giving 30 days’ prior written notice to the Company, upon (but only upon) a duly appointed
successor Warrant Agent having been appointed and having accepted such appointment in writing. The
Company may remove the Warrant Agent upon not less than 30 days’ prior written notice specifying
the date when such discharge shall take effect, and the Warrant Agent shall thereupon in like
manner be discharged from all further duties and liabilities hereunder (except liabilities arising
as a result of the Warrant Agent’s own gross negligence or willful misconduct), upon (but only
upon) a duly appointed successor Warrant Agent having been appointed and having accepted such
appointment in writing. The Company shall cause to be mailed, at the expense of the Company, to
each Holder a copy of said notice of resignation or notice of removal, as the case may be. Upon
such resignation or removal the Company shall appoint in writing a successor to the Warrant Agent.
If the Company shall fail to make such appointment within a period of 30 days after it has been
notified in writing of such resignation by the resigning Warrant Agent or after such removal, then
the existing Warrant Agent or the Holder of any Warrant may apply to any court of competent
jurisdiction for the appointment of a successor
20
to the Warrant Agent. Pending appointment of a
successor to the original Warrant Agent, either by the Company or by such a court, the duties of
the Warrant Agent shall be carried out by the Company.
(b) Any successor to the Warrant Agent, whether appointed by the Company or by a court, shall
be a bank (or subsidiary thereof) or trust company doing business under the laws of the United
States or any state thereof, in good standing and having a combined capital and surplus of not less
than $50,000,000. The combined capital and surplus of any such successor to the Warrant Agent shall
be deemed to be the combined capital and surplus as set forth in the most recent annual report of
its condition published by such successor to the Warrant Agent prior to its appointment; provided
that such reports are published at least annually pursuant to law or to the requirements of a
federal or state supervising or examining authority. After acceptance in writing of such
appointment by the successor to the Warrant Agent, it shall be vested with the same authority,
powers, rights, immunities, duties and responsibilities as its predecessor Warrant Agent, without
any further assurance, conveyance, act or deed; provided, however, the predecessor Warrant Agent
shall in all events deliver and transfer to the successor Warrant Agent all property, if any, at
the time held hereunder by the predecessor Warrant
Agent and if for any reason it shall be necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning or removed Warrant Agent.
As soon as practicable after such appointment, the Company shall give notice thereof to the
predecessor Warrant Agent and the Holders. Failure to give any notice provided for in this
Section 8.13, however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent,
as the case may be.
Section 8.14 Successor Warrant Agent. Any company into which the Warrant Agent may
be merged or with which it may be consolidated, or any company resulting from any merger or
consolidation to which the Warrant Agent shall be a party, shall be the successor Warrant Agent
under this Agreement without any further act; provided, however, that such company would be
eligible for appointment as a successor to the Warrant Agent under the provisions of Section
8.13 hereof. Any such successor Warrant Agent shall promptly cause notice of its succession as
Warrant Agent to be mailed to the Company and the Holders.
Section 8.15 Other. No provision of this Agreement shall require the Warrant Agent
to expend or risk its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds
for believing that repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
ARTICLE IX.
MISCELLANEOUS
MISCELLANEOUS
Section 9.01 Money Deposited with the Warrant Agent. The Warrant Agent shall not be
required to pay interest on any moneys deposited pursuant to the provisions of this
21
Agreement,
except such as it shall agree in writing with the Company to pay thereon. Any moneys, securities or
other property which at any time shall be deposited by the Company or on its behalf with the
Warrant Agent pursuant to this Agreement shall be and are hereby assigned, transferred and set over
to the Warrant Agent in trust for the purpose for which such moneys, securities or other property
shall have been deposited; but such moneys, securities or other property need not be segregated
from other funds, securities or other property except to the extent required by law.
Section 9.02 Payment of Taxes. All Common Units or other securities issuable upon
the exercise of Warrants shall be validly issued, fully paid and non-assessable (except as
non-assessability may be affected by Section 18-607 or Section 18-804 of the Delaware Limited
Liability Company Act).
The Company shall pay all expenses in connection with, and each Holder shall pay all taxes and
other governmental charges that may be imposed with respect to the issuance or delivery of any
Common Units issuable upon the exercise of the Warrants. Without limiting the foregoing, the
Company shall not be required to pay any tax or other charge imposed in connection with any
transfer involved in the issuance of any Common Units or other securities or property issuable upon
the exercise of the Warrants in any name other than that of the holder of the Certificates
evidencing such Warrants, and in such case the Warrant Agent and the Company shall not be required
to issue any interests or pay any cash until such tax or other charge has been paid or it has been
established to the Warrant Agent’s and the Company’s reasonable satisfaction that no such tax or
charge is due.
Section 9.03 Merger, Consolidation or Sale of Assets of the Company. The Company
will not merge into or consolidate or combine with any other Person, or sell or otherwise transfer
all or substantially all of its property, assets or business to any Person (other than a merger,
consolidation, combination or sale (i) contemplated by Section 4.01(c)(ii) hereof in which
the consideration payable to the holders of Common Units in exchange for their Common Units
consists solely of cash or (ii) that constitutes a Change of Control pursuant to which a Holder may
exercise its Warrants pursuant to the cashless exercise provisions of Section 3.03), unless
the Person resulting from such merger, consolidation or combination, or transferee of such
property, assets or business, as the case may be, executes with the Warrant Agent a supplemental
agreement providing for the express assumption by such Person of the due and punctual performance
and observance of each and every covenant and condition of this Agreement to be performed and
observed by the Company.
Section 9.04 Notices. Any notice, request, demand or report (each, a
“Communication”) required or permitted to be given or made by this Agreement shall be in writing.
Any Communication authorized by this Agreement to be given or made by the Warrant Agent or by any
Holder to or on the Company shall be sufficiently given or made if sent by registered or certified
mail and shall be deemed given upon receipt, or by facsimile, addressed (until another address is
filed by the Company with the Warrant Agent) as follows:
MagnaChip Semiconductor LLC
c/o MagnaChip Semiconductor Ltd.
891 Daechi-dong, Gangnam-gu
Seoul 135-738 Korea
c/o MagnaChip Semiconductor Ltd.
891 Daechi-dong, Gangnam-gu
Seoul 135-738 Korea
Attn: General Counsel
Fax: 82-2-6903-3898
Fax: 82-2-6903-3898
22
Any Communication authorized by this Agreement to be given or made by the Company or by any
Holder to or on the Warrant Agent shall be sufficiently given or made if sent by registered or
certified
mail and shall be deemed given upon receipt, or by facsimile or electronic mail, addressed
(until another address is filed by the Warrant Agent with the Company) as follows:
American Stock Transfer & Trust Company, LLC
59 Maiden Lane, Plaza Level
New York, New York 10038
Attn: Carlos Pinto
Fax: 718-921-8355
Email: CPinto@AMSTOCK.com
59 Maiden Lane, Plaza Level
New York, New York 10038
Attn: Carlos Pinto
Fax: 718-921-8355
Email: CPinto@AMSTOCK.com
Any Communication authorized by this Agreement to be given or made by the Company or the
Warrant Agent to any Holder shall be sufficiently given or made if sent by first-class mail,
postage prepaid, or by facsimile or electronic mail, addressed to such Holder at the address of
such Holder as shown on the registry books of the Company. The Company shall deliver a copy of any
notice or demand it delivers to any Holder to the Warrant Agent and the Warrant Agent shall deliver
a copy of any notice or demand it delivers to any Holder to the Company.
Section 9.05 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS
AGREEMENT AND THE WARRANT CERTIFICATES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
Section 9.06 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and the Warrant Agent and their respective successors and assigns, and the
Holders from time to time of the Warrants. Nothing in this Agreement is intended or shall be
construed to confer upon any Person, other than the Company, the Warrant Agent and the Holders of
the Warrants, any right, remedy or claim under or by reason of this Agreement or any part hereof.
Section 9.07 Counterparts. This Agreement may be executed manually or by facsimile
in any number of counterparts, each of which shall be deemed an original, but all of which together
constitute one and the same instrument.
Section 9.08 Amendments.
(a) The Warrant Agent may, without the consent or concurrence of the Holders, enter into one
or more supplemental agreements or amendments with the Company for the purpose of
23
(i) evidencing
the rights of the Holders upon consolidation, merger, sale, transfer, reclassification, liquidation
or dissolution under Section 4.01(c)(i), (ii) making any changes or corrections in this
Agreement that are required to cure any ambiguity, to correct or supplement any provision contained
herein that may be defective or inconsistent with any other provision herein or any clerical
omission or mistake or manifest error herein contained, (iii) making such other provisions in
regard to matters or questions arising under this Agreement as shall not adversely affect the
interest of the Holders or be inconsistent with this Agreement or any supplemental agreement or
amendment or (iv) adding further covenants and agreements of the Company in this Agreement or
surrendering any rights or power reserved to or conferred upon the Company in this Agreement.
(b) With the consent of the Holders of Warrant Certificates evidencing at least a majority in
number of the Warrants at the time outstanding, the Company and the Warrant Agent may at any time
and from time to time by supplemental agreement or amendment add any provisions to or change in any
manner or eliminate any of the provisions of this Agreement or of any supplemental agreement or
modify in any manner the rights and obligations of the Holders and the Company. Notwithstanding
anything to the contrary contained in this Agreement, no supplement agreement or amendment that
changes the rights and duties of the Warrant Agent under this Agreement shall be effective against
the Warrant Agent without the written consent of the Warrant Agent.
Section 9.09 Common Units. The Common Units issuable upon exercise of any Warrant
are uncertificated. In the event a Holder exercises any Warrant and completes and executes the Form
of Joinder set forth in the LLC Agreement, (i) such Holder shall be deemed to have (w) agreed to be
bound by the terms of the LLC Agreement, (x) represented that it has the capacity, power and
authority to enter into the LLC Agreement, and (y) made the consents and waivers required of
members of the Company contained in the LLC Agreement; (ii) the Company shall admit such Holder as
a member of the Company with respect to the Common Units acquired upon exercise and (iii) the
Company shall record such admission on its books.
Section 9.10 Third Party Beneficiaries. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one hand, and the
Warrant Agent, on the other hand. All rights of action in respect of this Agreement are vested in
the respective Holders of the Warrant Certificates; provided, however, that no Holder of any
Warrant Certificate shall have the right to enforce, institute or maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, the Warrants evidenced
by such Warrant Certificate, unless (i) such Holder shall have previously given written notice to
the Company of the substance of such dispute, and Holders of at least
25% of the then outstanding Warrants shall have given written notice to the Company of their
support for the institution of such proceeding to resolve such dispute, (ii) written notice of the
substance of such dispute and of the support for the institution of such proceeding by such Holders
shall have been provided by the Company to the Warrant Agent and (iii) the Warrant Agent shall not
have instituted appropriate proceedings with respect to such dispute within 30 days following the
date of such written notice to the Warrant Agent, it being understood and intended that no one or
more Holders of Warrant Certificates shall have the right in any manner whatever by virtue of, or
by availing of, any provision of this Agreement to affect, disturb or prejudice the rights of any
other
24
Holders of Warrant Certificates, or to obtain or to seek to obtain priority in preference
over any other Holders or to enforce any right under this Agreement, except in the manner herein
provided for the equal and ratable benefit of all Holders of Warrant Certificates. Except as
provided in this Section 9.10, no Holder of a Warrant Certificate shall have the right to
enforce, institute or maintain any suit, action or proceeding to enforce, or otherwise act in
respect of, the Warrants.
Section 9.11 Waivers. The Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if (i) the Company has obtained the
written consent of Holders of Warrant Certificates evidencing a majority of the then outstanding
Warrants and (ii) any consent required pursuant to Section 9.08 has been obtained.
Section 9.12 Inspection. The Warrant Agent shall cause a copy of this Agreement to
be available at all reasonable times at the office of the Warrant Agent for inspection by the
Holder of any Warrant Certificate. The Warrant Agent may require such Holder to submit his Warrant
Certificate for inspection by it.
Section 9.13 Headings. The descriptive headings of the several Sections of this
Agreement are inserted for convenience and shall not control or affect the meaning or construction
of any of the provisions hereof.
Section 9.14 Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto as to the subject matter hereof and supersedes all previous, agreements among all or
some of the parties hereto with respect thereto, whether written, oral or otherwise.
[SIGNATURE PAGE FOLLOWS.]
25
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed, as of the
day and year first above written.
| MAGNACHIP SEMICONDUCTOR LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page — Warrant Agreement]
EXHIBIT A
FORM OF WARRANT CERTIFICATE
FORM OF WARRANT CERTIFICATE
MAGNACHIP SEMICONDUCTOR LLC
No.
[ ] Warrants
WARRANTS TO PURCHASE COMMON UNITS
THIS WARRANT HAS BEEN, AND THE COMMON UNITS WHICH MAY BE PURCHASED PURSUANT TO
THE EXERCISE OF THIS WARRANT (THE “WARRANT UNITS,” AND TOGETHER WITH THIS WARRANT,
THE “SECURITIES”) WILL BE, ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
SECTION 1145 OF THE BANKRUPTCY REFORM ACT OF 1978, AS AMENDED (THE “BANKRUPTCY
CODE”). THE SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), PROVIDED THAT THE HOLDER IS NOT DEEMED TO BE AN UNDERWRITER AS SUCH
TERM IS DEFINED IN SECTION 1145(b) OF THE BANKRUPTCY CODE. IF THE HOLDER IS DEEMED
TO BE AN UNDERWRITER AS SUCH TERM IS DEFINED IN SECTION 1145(b) OF THE BANKRUPTCY
CODE, THEN THE SECURITIES MAY ONLY BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED UPON REGISTRATION UNDER THE SECURITIES ACT OR RECEIPT OF AN OPINION OF
COUNSEL SATISFACTORY TO MAGNACHIP SEMICONDUCTOR LLC AND ITS COUNSEL THAT SUCH
DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
THE SECURITIES ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MUST BE
SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE
SALE, PLEDGE OR OTHER TRANSFER OF ANY INTEREST IN ANY OF THE WARRANT UNITS
REPRESENTED BY THIS WARRANT.
THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER, SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE OR OTHER SIMILAR
TRANSFER AND VOTING RESTRICTIONS AS SET FORTH IN A LIMITED LIABILITY COMPANY
OPERATING AGREEMENT AMONG THE COMPANY AND THE ORIGINAL HOLDERS OF THE SECURITIES AND
A WARRANT AGREEMENT AMONG THE COMPANY AND THE WARRANT
AGENT (ON BEHALF OF THE ORIGINAL HOLDERS OF THE SECURITIES), COPIES OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.
A-1
This certifies that , or its registered assigns, is the owner of the number
of Warrants set forth above, each of which represents the right to purchase, commencing November 9,
2009, from MAGNACHIP SEMICONDUCTOR LLC, a Delaware limited liability company (the “Company”), one
Common Unit (the “Common Unit”) of the Company (subject to adjustment as provided in the Warrant
Agreement hereinafter referred to) at the purchase price (the “Exercise Price”) of $1.97 per Common
Unit (subject to adjustment as provided in the Warrant Agreement), upon surrender hereof at the
office of American Stock Transfer & Trust Company, LLC or to its successor as the warrant agent
under the Warrant Agreement (any such warrant agent being herein called the “Warrant Agent”), with
the Subscription Form on the reverse hereof completed and duly executed, with signature guaranteed
as therein specified and simultaneous payment in full by check payable to the order of Warrant
Agent of the purchase price for the Common Units as to which the Warrant(s) represented by this
Warrant Certificate are exercised, all subject to the terms and conditions hereof and of the
Warrant Agreement. This Warrant Certificate may be exercised as to all or any whole number of the
Warrants evidenced hereby.
This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as
of November 9, 2009 (the “Warrant Agreement”) by and between the Company and American Stock
Transfer & Trust Company, LLC, as Warrant Agent, and is subject to the terms and provisions
contained therein, all of which terms and provisions the Holder of this Warrant Certificate
consents to by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference
and made a part hereof. Reference is hereby made to the Warrant Agreement for a full description of
the rights, limitations of rights, obligations, duties and immunities thereunder of the Company and
the Holders of the Warrants. The summary of the terms of the Warrant Agreement contained in this
Warrant Certificate is qualified in its entirety by express reference to the Warrant Agreement. All
capitalized terms used in this Warrant Certificate that are defined in the Warrant Agreement shall
have the meanings assigned to them in the Warrant Agreement.
Copies of the Warrant Agreement are on file at the office of the Warrant Agent and may be
obtained by writing to the Warrant Agent at the following address:
American Stock Transfer & Trust Company, LLC
59 Maiden Lane, Plaza Level
New York, New York 10038
Attn: Carlos Pinto
Fax: 718-921-8355
Email: CPinto@AMSTOCK.com
59 Maiden Lane, Plaza Level
New York, New York 10038
Attn: Carlos Pinto
Fax: 718-921-8355
Email: CPinto@AMSTOCK.com
The number of Common Units purchasable upon the exercise of each Warrant is subject to
adjustment as provided in the Warrant Agreement. In the event of any capital reorganization or
reclassification of any of the Common Units or any consolidation, combination or merger of the
Company with or into another company (where the Company is not the surviving company or where there
is a change in or distribution with respect to the Units), except in the case of a merger,
consolidation or combination constituting a change of control in the Company, each Warrant will,
upon exercise, entitle the Holder thereof to receive the number of Common Units
A-2
or other securities
or the amount of money and other property which the holder of a Common Unit is entitled to receive
upon completion of such reorganization, recapitalization, merger, consolidation or combination.
As to any final fraction of a Common Unit which the same Holder of one or more Warrants would
otherwise be entitled to purchase upon exercise thereof in the same transaction, the Company shall
pay the cash value thereof determined as provided in the Warrant Agreement.
All Common Units or other securities issuable upon the exercise of Warrants shall be validly
issued, fully-paid and non-assessable (except as non-assessability may be affected by Section
18-607 or Section 18-804 of the Delaware Limited Liability Company Act), and the Company shall pay
all expenses in connection with, and the holder shall pay all taxes and other governmental charges
that may be imposed with respect to the issuance or delivery of any Common Unit issuable upon the
exercise of the Warrants. Without limiting the foregoing, the Company shall not be required to pay
any tax or other charge imposed in connection with any transfer involved in the issue of any Common
Units or other securities or property issuable upon the exercise of the Warrants in any name other
than that of the holder of the Warrant Certificates evidencing such Warrants, and in such case the
Warrant Agent and the Company shall not be required to issue or deliver any interests or other
property until such tax or other charge has been paid or it has been established to the Warrant
Agent’s and the Company’s reasonable satisfaction that no tax or other charge is due.
Provided the Company has not issued a Notice Date Press Release suspending the transfer of
Warrants, this Warrant Certificate and all rights hereunder are transferable by the registered
Holder hereof, in any whole number of Warrants, in accordance with the provisions of the Warrant
Agreement, on the register maintained by the Warrant Agent for such purpose at its office at the
address referenced above, upon surrender of this Warrant Certificate duly endorsed, or accompanied
by a written instrument of transfer form satisfactory to the Company and the Warrant Agent
completed and duly executed, with signatures guaranteed as specified in the attached Form of
Assignment, by the registered Holder hereof or his attorney duly authorized in writing and upon
payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. Upon any partial transfer, the Warrant Agent
will issue and deliver to such Holder a new Warrant Certificate with respect to any portion not so
transferred. Each taker and Holder of this Warrant Certificate, by taking and holding the same,
consents and agrees that prior to the registration of transfer as provided in the Warrant
Agreement, the Company and the Warrant Agent may treat the Person in whose name the Warrants are
registered as the absolute owner hereof for any purpose and as the Person entitled to exercise the
rights represented hereby, any notice to the contrary notwithstanding. Each taker and Holder of a
Warrant and each taker and holder of Common Units issued pursuant to a Warrant agrees to be bound
by the terms and conditions of this Warrant and the Warrant Agreement.
This Warrant Certificate may be exchanged, in accordance with the terms of the Warrant
Agreement, at the office of the Warrant Agent maintained for such purpose, for Warrant Certificates
representing the same aggregate number of Warrants, each new Warrant Certificate to represent such
number of Warrants as the Holder hereof shall designate at the time of such exchange.
A-3
Prior to the exercise of the Warrants represented hereby, the Holder of this Warrant
Certificate, as such, shall not be entitled to any rights of a member of the Company, including,
without limitation, the right to vote or to consent to any action of the members, to receive
dividends or other distributions, to exercise any preemptive right or to receive any notice of
meetings of Unit holders, and shall not be entitled to receive any notice of any proceedings of the
Company except as provided in the Warrant Agreement. In the event a Holder exercises any Warrant
and completes and duly executes the attached Subscription Form and the Form of Joinder attached to
the LLC Agreement, such Holder shall have agreed to be bound by the terms of the Fourth Amended and
Restated Limited Liability Company Agreement of the Company, dated November 9, 2009, as it may be
amended or modified from time to time, the Company shall admit such Holder as a member of the
Company and the Company shall record such admission on its books.
This Warrant Certificate shall be void and all rights evidenced hereby shall cease on the
Expiration Date.
This Warrant Certificate shall not be valid for any purpose until it shall have been
countersigned by the Warrant Agent.
| MAGNACHIP SEMICONDUCTOR LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Dated: | ||||
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC
| By: | ||||
| Name: | ||||
| Title: | ||||
Dated:
A-4
FORM OF REVERSE OF WARRANT CERTIFICATE
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrants)
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrants)
To:
The undersigned hereby irrevocably exercises ___of the Warrants represented by the Warrant
Certificate for the purchase of ___Common Units (subject to adjustment) of MAGNACHIP
SEMICONDUCTOR LLC, a Delaware limited liability company (the “Company”), for each Warrant
exercised, and herewith (check one, if election is available; otherwise complete first line below):
o makes payment of $___(such payment being by check payable to the order
of Warrant Agent equal to the Exercise Price of the Warrants being exercised); or
o elects to make payment by cashless exercise, contingent upon and effective
immediately prior to the consummation of the Change of Control (as defined in the Warrant
Agreement) referred to in the Company’s notice, dated ___, 20___given pursuant to Section
4.04 of the Warrant Agreement,
all at the exercise price and on the terms and conditions specified in the Warrant Certificate and
the Warrant Agreement therein referred to, and hereby surrenders this Warrant Certificate and all
right, title and interest therein to and directs that the Common Units due upon the exercise of
such Warrants be registered or placed in the name and the address specified below.
Dated
(Signature of Owner)
(Street Address)
(City) (State) (Zip Code)
Signature Guaranteed By1
| 1 | The Holder’s signature must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an “eligible guarantor institution” as defined by Rule 17Ad-15 under the Exchange Act. |
Securities
and/or check to be issued to:
Please insert social security or identifying number:
Name
Street Address
City, State and Zip Code
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered holder of the Warrant Certificate hereby sells,
assigns and transfers unto the Assignee(s) named below (including the undersigned with respect to
any Warrants constituting a part of the Warrants evidenced by the within Warrant Certificate not
being assigned hereby) all of the rights of the undersigned under the Warrant Certificate, with
respect to the whole number of Warrants set forth below:
Name(s) of Assignee(s):
Address:
No. of Warrants:
Please insert social security or other identifying number of assignee(s):
and does hereby irrevocably constitute and appoint the undersigned’s
attorney to make such transfer on the books of maintained for such
purposes, with full power of substitution in the premises.
Dated
(Signature of Owner)
(Street Address)
(City) (State) (Zip Code)
Signature Guaranteed By1
| 1 | The Holder’s signature must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an “eligible guarantor institution” as defined by Rule 17Ad-15 under the Exchange Act. |
Exhibit 10.20
MAGNACHIP SEMICONDUCTOR LLC
2009 COMMON UNIT PLAN
2009 COMMON UNIT PLAN
1. Establishment, Purpose and Term of Plan.
1.1 Establishment. The MagnaChip Semiconductor LLC 2009 Common Unit Plan (the “Plan”) is
hereby established effective as of December 8, 2009 (the “Effective Date”).
1.2 Purpose. The purpose of the Plan is to advance the interests of the Participating Company
Group and its members by providing an incentive to attract, retain and reward persons performing
services for the Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group. The Company intends that Awards
granted pursuant to the Plan be exempt from or comply with Section 409A of the Code (including any
amendments or replacements of such section), and the Plan shall be so construed.
1.3 Term of Plan. The Plan shall continue in effect until its termination by the Board;
provided, however, that all Awards shall be granted, if at all, within ten (10) years from the
earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the
members of the Company.
2. Definitions and Construction.
2.1 Definitions. Whenever used herein, the following terms shall have their respective
meanings set forth below:
(a)“Affiliate” means (i) a parent entity that controls the Company, directly or indirectly,
through one or more intermediary entities, or (ii) a majority-owned subsidiary entity that is
controlled by the Company, directly or indirectly, through one or more intermediary entities. For
this purpose, the terms “parent,” “majority-owned subsidiary,” “control” and “controlled by” shall
have the meanings assigned such terms for the purposes of Rule 701 under the Securities Act.
(b)“Award” means an Option, Restricted Unit Purchase Right, Restricted Unit Bonus or Deferred
Unit granted under the Plan.
(c)“Award Agreement” means a written or electronic agreement between the Company and a
Participant setting forth the terms, conditions and restrictions of the Award granted to the
Participant.
(d)“Board” means the Board of Managers of the Company. If one or more Committees have been
appointed by the Board to administer the Plan, “Board” also means such Committee(s).
(e)“Cause” means, unless such term or an equivalent term is otherwise defined by the
Participant’s Award Agreement or written contract of employment or service, any of the following:
(i) the Participant’s failure to substantially perform the Participant’s customary duties with a
Participating Company in the ordinary course (other than such failure resulting from the
Participant’s incapacity due to physical or mental illness)
that, if susceptible to cure, has not been cured as determined by the Participating Company
within 30 days after a written demand for substantial performance is delivered to the Participant
by the Participating Company, which demand specifically identifies the manner in which the
Participating Company believes that the Participant has not substantially performed the
Participant’s duties; (ii) the Participant’s gross negligence, intentional misconduct or fraud in
the performance of his or her Service; (iii) the Participant’s indictment (or equivalent) for a
felony or to a crime involving fraud or dishonesty; (iv) a judicial determination that the
Participant committed fraud or dishonesty against any natural person, firm, partnership, limited
liability company, association, corporation, company, trust, business trust, governmental authority
or other entity; (v) the Participant’s material violation of one or more of the Participating
Company Group’s policies applicable to the Participant’s Service as may be in effect from time to
time; or (vi) the Participant’s conduct that brings or could reasonably be expected to bring the
Participating Company Group or the Affiliates thereof (including, without limitation, Avenue
Capital Group) into public disgrace or disrepute and that has a material adverse effect on the
business of the Participating Company Group or such Affiliates.
(f)“Change in Control” means, unless such term or an equivalent term is otherwise defined by
the Participant’s Award Agreement, the occurrence of any of the following:
(i) an Ownership Change Event or a series of related Ownership Change Events (collectively, a
“Transaction”) in which the members of the Company immediately before the Transaction do not retain
immediately after the Transaction direct or indirect beneficial ownership of more than fifty
percent (50%) of the total combined voting power of the outstanding securities entitled to vote
generally in the election of Managers or, in the case of an Ownership Change Event described in
Section 2.1(u)(iii), the entity to which the assets of the Company were transferred (the
“Transferee”), as the case may be; or
(ii) approval by the members of a plan of complete liquidation or dissolution of the Company.
For purposes of the preceding sentence, indirect beneficial ownership shall include, without
limitation, an interest resulting from ownership of the voting securities of one or more
corporations or other business entities which own the Company or the Transferee, as the case may
be, either directly or through one or more subsidiary corporations or other business entities. The
Board shall have the right to determine whether multiple sales or exchanges of the voting
securities of the Company or multiple Ownership Change Events are related, and its determination
shall be final, binding and conclusive. For purposes of clarification, a Change in Control shall
not include (1) the acquisition of voting securities directly from the Company, including pursuant
to or in connection with a public offering of such securities, or (2) an acquisition of additional
voting securities of the Company by a person (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) who on the Effective Date is the beneficial owner (as such term is defined in
Rule 13d-3 under the Exchange Act) of more than fifty percent (50%) of such voting securities.
(g)“Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations
and administrative guidelines promulgated thereunder.
2
(h)“Committee” means the compensation committee or other committee or subcommittee of the
Board duly appointed to administer the Plan and having such powers as shall be specified by the
Board. Unless the powers of the Committee have been specifically limited, the Committee shall have
all of the powers of the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations
imposed by law.
(i)“Company” means MagnaChip Semiconductor LLC, a Delaware limited liability company, or any
successor thereto.
(j)“Consultant” means a person engaged to provide consulting or advisory services (other than
as an Employee or a Manager) to a Participating Company, provided that the identity of such person,
the nature of such services or the entity to which such services are provided would not preclude
the Company from offering or selling securities to such person pursuant to the Plan in reliance on
either the exemption from registration provided by Rule 701 under the Securities Act.
(k)“Deferred Unit” means a right granted to a Participant pursuant to Section 8 to receive a
Unit on a deferred basis on a date determined in accordance with the provisions of such Section and
the Participant’s Award Agreement.
(l)“Disability” means the inability of the Participant, in the opinion of a qualified
physician acceptable to the Company, to perform the major duties of the Participant’s position with
the Participating Company Group because of the sickness or injury of the Participant.
(m)“Dividend Equivalent Right” means the right of a Participant, granted at the discretion of
the Board or as otherwise provided by the Plan, to receive a credit for the account of such
Participant in an amount equal to the cash dividends paid on one Unit for each Unit represented by
an Award held by such Participant.
(n)“Employee” means any person treated as an employee (including an Officer or a Manager who
is also treated as an employee) in the records of a Participating Company; provided, however, that
neither service as a Manager nor payment of a Manager’s fee shall be sufficient to constitute
employment for purposes of the Plan. The Company shall determine in good faith and in the exercise
of its discretion whether an individual has become or has ceased to be an Employee and the
effective date of such individual’s employment or termination of employment, as the case may be.
For purposes of an individual’s rights, if any, under the terms of the Plan as of the time of the
Company’s determination of whether or not the individual is an Employee, all such determinations by
the Company shall be final, binding and conclusive as to such rights, if any, notwithstanding that
the Company or any court of law or governmental agency subsequently makes a contrary determination
as to such individual’s status as an Employee.
(o)“Exchange Act” means the Securities Exchange Act of 1934, as amended.
(p)“Fair Market Value” means, as of any date:
(i) the value of a Unit or other property as determined by the Board in good faith without
regard to any restriction other than a restriction which, by its
3
terms, will never lapse, and in a manner consistent with the requirements of Section 409A of
the Code; or
(ii) except as otherwise determined by the Board or as otherwise permitted or required by
Section 409A of the Code, if, on such date, the Units or equity securities into which Units have
been converted (in either case, “Shares”) are listed or quoted on a national or regional securities
exchange or quotation system, the Fair Market Value of a Share shall be the closing price of a
Share as quoted on the national or regional securities exchange or quotation system constituting
the primary market for the Shares, as reported in The Wall Street Journal or such other source as
the Company deems reliable; provided that if the relevant date does not fall on a day on which the
Shares have traded on such securities exchange or quotation system, the date on which the Fair
Market Value shall be established shall be the last day on which the Shares were so traded or
quoted prior to the relevant date, or such other appropriate day as shall be determined by the
Board, in its discretion.
(q)“Manager” means a member of the Board.
(r)“Officer” means any person designated by the Board as an officer of the Company.
(s)“Operating Agreement” means the Fourth Amended and Restated Limited Liability Company
Operating Agreement of MagnaChip Semiconductor LLC, dated as of November 9, 2009, as the same may
be amended from time to time.
(t)“Option” means a right to purchase Units granted to a Participant pursuant to Section 6.
(u)“Ownership Change Event” means the occurrence of any of the following with respect to the
Company: (i) the direct or indirect sale or exchange in a single or series of related transactions
by the members of the Company of more than fifty percent (50%) of the voting securities of the
Company; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale,
exchange, or transfer of all or substantially all of the assets of the Company (other than a sale,
exchange or transfer to one or more Affiliates of the Company).
(v)“Participant” means any eligible person who has been granted one or more Awards.
(w)“Participating Company” means the Company or any Affiliate.
(x)“Participating Company Group” means, at any point in time, all entities collectively which
are then Participating Companies.
(y)“Restricted Unit Award” means an Award of a Restricted Unit Bonus or a Restricted Unit
Purchase Right.
(z)“Restricted Unit Bonus” means Units granted to a Participant pursuant to Section 7.
4
(aa)“Restricted Unit Purchase Right” means a right to purchase Units granted to a Participant
pursuant to Section 7.
(bb)“Securities Act” means the Securities Act of 1933, as amended.
(cc)“Service” means a Participant’s employment or service with the Participating Company
Group, whether in the capacity of an Employee, a Manager or a Consultant. Unless otherwise
provided by the Board, a Participant’s Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Participant renders such Service or a change in
the Participating Company for which the Participant renders such Service, provided that there is no
interruption or termination of the Participant’s Service. Furthermore, a Participant’s Service
shall not be deemed to have terminated if the Participant takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company. However, unless otherwise provided by
the Board, if any such leave taken by a Participant exceeds ninety (90) days, then on the
ninety-first (91st) day following the commencement of such leave the Participant’s Service shall be
deemed to have terminated, unless the Participant’s right to return to Service is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or
required by law, an unpaid leave of absence shall not be treated as Service for purposes of
determining vesting under the Participant’s Award Agreement. Except as otherwise provided by the
Board, in its discretion, the Participant’s Service shall be deemed to have terminated either upon
an actual termination of Service or upon the business entity for which the Participant performs
Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its
discretion, shall determine whether the Participant’s Service has terminated and the effective date
of and reason for such termination.
(dd)“Unit” means a Common Unit of the Company, as described in the Operating Agreement and as
adjusted from time to time in accordance with Section 4.3.
(ee)“Vesting Conditions” mean those conditions established in accordance with the Plan prior
to the satisfaction of which an Award or Units subject to an Award remain subject to forfeiture or
a repurchase option in favor of the Company exercisable for the Participant’s monetary purchase
price, if any, for such Units upon the Participant’s termination of Service.
2.2 Construction. Captions and titles contained herein are for convenience only and shall not
affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated
by the context, the singular shall include the plural and the plural shall include the singular.
Use of the term “or” is not intended to be exclusive, unless the context clearly requires
otherwise.
3. Administration.
3.1 Administration by the Board. The Plan shall be administered by the Board. All questions
of interpretation of the Plan, of any Award Agreement or of any other form of agreement or other
document employed by the Board or the Company in the administration of the Plan or of any Award
shall be determined by the Board, and such determinations shall be final, binding and conclusive
upon all persons having an interest in the Plan or such Award, unless fraudulent or made in bad
faith. Any and all actions, decisions and determinations taken or made by the Board in the
exercise of its discretion
5
pursuant to the Plan or Award Agreement or other agreement thereunder (other than determining
questions of interpretation pursuant to the preceding sentence) shall be final, binding and
conclusive upon all persons having an interest therein.
3.2 Authority of Officers. Any Officer shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, determination or election which is the
responsibility of or which is allocated to the Company herein, provided the Officer has actual
authority with respect to such matter, right, obligation, determination or election. The Board
may, in its discretion, delegate to the Chief Executive Officer of the Company the authority to
grant one or more Options, without further approval of the Board, to any Employee, including any
Officer other than the Chief Executive Officer; provided, however, that (a) the exercise price per
Unit of each such Option shall be not less than the Fair Market Value per Unit as most recently
determined by the Board and as determined for purposes of Section 409A of the Code, (b) each such
Option shall be subject to the terms and conditions of the appropriate standard form of Option
Agreement approved by the Board and shall conform to the provisions of the Plan, and (c) each such
Option shall conform to guidelines as shall be established from time to time by the Board.
3.3 Powers of the Board. In addition to any other powers set forth in the Plan and subject to
the provisions of the Plan and the Operating Agreement, the Board shall have the full and final
power and authority, in its discretion:
(a) to determine the persons to whom, and the time or times at which, Awards shall be granted
and the number of Units to be subject to each Award;
(b) to determine the type of Award granted;
(c) to determine the Fair Market Value of Units or other property;
(d) to determine the terms, conditions and restrictions applicable to each Award (which need
not be identical) and any Units acquired pursuant thereto, including, without limitation, (i) the
exercise or purchase price of Units pursuant to any Award, (ii) the method of payment for Units
purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with any Award, including by the withholding or delivery of Units,
(iv) the timing, terms and conditions of the exercisability or vesting of any Award or Units
acquired pursuant thereto, (v) the time of expiration of any Award, (vi) the effect of any
Participant’s termination of Service on any of the foregoing, and (vii) all other terms, conditions
and restrictions applicable to any Award or Units acquired pursuant thereto not inconsistent with
the terms of the Plan;
(e) to approve one or more forms of Award Agreement;
(f) to amend, modify, extend, cancel or renew any Award or to waive any restrictions or
conditions applicable to any Award or any Units acquired pursuant thereto;
(g) to accelerate, continue, extend or defer the exercisability or vesting of any Award or any
Units acquired pursuant thereto, including with respect to the period following a Participant’s
termination of Service;
6
(h) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to
adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without
limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate
the tax policy, accounting principles or custom of, foreign jurisdictions whose citizens may be
granted Awards; and
(i) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or
any Award Agreement and to make all other determinations and take such other actions with respect
to the Plan or any Award as the Board may deem advisable to the extent not inconsistent with the
provisions of the Plan or applicable law.
3.4 Indemnification. In addition to such other rights of indemnification as they may have as
members of the Board or as officers or employees of the Participating Company Group to the extent
permitted by applicable law and the Company’s By-laws and Articles of Formation, members of the
Board and any officers or employees of the Participating Company Group to whom authority to act for
the Board or the Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys’ fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal therein, to which they
or any of them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal counsel selected by
the Board) or paid by them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such action, suit or proceeding
that such person is liable for gross negligence, bad faith or intentional misconduct in duties;
provided, however, that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Board, in writing, the opportunity for the Company at
its own expense to handle and defend the same.
4. Units Subject to Plan.
4.1 Maximum Number of Units Issuable. Subject to adjustment as provided in Sections 4.2 and
4.3, the maximum aggregate number of Units that may be issued under the Plan shall be thirty
million (30,000,000) and shall consist of authorized but unissued or reacquired Units or any
combination thereof. Notwithstanding the foregoing, at any such time as the offer and sale of
securities pursuant to the Plan is subject to compliance with Section 260.140.45 of Title 10 of the
California Code of Regulations (“Section 260.140.45”), the total number of Units issuable upon the
exercise of all outstanding Awards (together with options outstanding under any other plan of the
Company) and the total number of Units provided for under any Unit bonus or similar plan of the
Company shall not exceed thirty percent (30%) (or such other higher percentage limitation as may be
approved by the members of the Company pursuant to Section 260.140.45) of the then outstanding
Units of the Company as calculated in accordance with the conditions and exclusions of Section
260.140.45.
4.2 Unit Counting. If an outstanding Award for any reason expires or is terminated or
canceled (other than those cancelled in exchange for the payment of value (i) in the case of
Options, for an amount of cash equal to the amount by which the Fair Market Value at the time of
such cancellation exceeds the stated exercise price, or (ii) in the case of Units, for an amount of
cash equal to the Fair Market Value at the time of cancellation; in which case such Options and/or
Units, canceled for value, shall count on a one-for-one basis
7
against the available Units hereunder) or if Units are acquired pursuant to an Award subject
to forfeiture or repurchase and are forfeited or repurchased by the Company for an amount not
greater than the Participant’s exercise or purchase price, the Units allocable to the terminated
portion of such Award or such forfeited or repurchased Units shall again be available for issuance
under the Plan. If the exercise price of an Option is paid by tender to the Company, or
attestation to the ownership, of Units owned by the Participant, or by means of a Net-Exercise, the
number of Units available for issuance under the Plan shall be reduced by the gross number of Units
for which the Option is exercised. Units withheld or reacquired by the Company in satisfaction of
tax withholding obligations pursuant to Section 11.2 shall not again be available for issuance
under the Plan.
4.3 Adjustments for Changes in Capital Structure. Subject to any required action by the
members of the Company and the requirements of Section 409A of the Code to the extent applicable,
in the event of any change in the Units effected without receipt of consideration by the Company,
whether through merger, consolidation, reorganization, recapitalization, reclassification, Unit
dividend, split, reverse split, split-up, split-off, spin-off, combination of Units, exchange of
Units, Solvent Reorganization (as defined by the Operating Agreement) or similar change in the
capital structure of the Company adjustments shall be made as the Board determines appropriate in
order to prevent dilution or enlargement of Participants’ rights under the Plan, including, without
limitation, (i) adjusting the number and/or kind of Units subject to the Plan and to any
outstanding Awards, (ii) adjusting the exercise or purchase price per Unit of any outstanding
Awards; (iii) adjusting Vesting Conditions (e.g., performance measures); (iv) providing for
substitute awards, accelerating exercisability and/or vesting, effecting the lapse of restrictions
and the termination of Awards, and/or providing for a period of time to exercise the Award prior to
the applicable event; and/or (v) cancelling any one or more outstanding Awards; provided, however,
that in the case of any “equity restructuring” (within the meaning of the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004)), the Board
shall make an equitable or proportionate adjustment to outstanding Awards to reflect such equity
restructuring. For purposes of the foregoing, conversion of any convertible securities of the
Company shall not be treated as “effected without receipt of consideration by the Company.” If a
majority of the Units which are of the same class as the Units that are subject to outstanding
Awards are exchanged for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change Event) securities of another business entity (the “New Securities”), the Board may
unilaterally amend the outstanding Awards to provide that such Awards are for New Securities. In
the event of any such amendment, the number of New Securities and the exercise or purchase price of
each unit of New Securities subject to the outstanding Awards shall be adjusted in a fair and
equitable manner as determined by the Board, in its discretion. Any fractional Unit resulting from
an adjustment pursuant to this Section shall be rounded down to the nearest whole number, and the
exercise price per Unit shall be rounded up to the nearest whole cent. Such adjustments shall be
determined by the Board, and its determination shall be final, binding and conclusive.
4.4 Assumption or Substitution of Awards. The Board may, without affecting the number of
Units available pursuant to Section 4.1, authorize the issuance or assumption of benefits under
this Plan in connection with any merger, consolidation, acquisition of property or stock, or
reorganization upon such terms and conditions as it may deem appropriate, subject to compliance
with Section 409A and any other applicable provisions of the Code.
8
5. Eligibility.
5.1 Persons Eligible for Awards. Awards may be granted only to Employees, Consultants and
Managers.
5.2 Participation in the Plan. Awards are granted solely at the discretion of the Board.
Eligible persons may be granted more than one Award. However, eligibility in accordance with this
Section shall not entitle any person to be granted an Award, or, having been granted an Award, to
be granted an additional Award.
5.3 Issuance of Units Subject to Operating Agreement. Notwithstanding any provision of the
Plan to the contrary, if required by the Board, as a condition to the grant and/or receipt of Units
under an Award, a Participant may be required to execute and deliver to the Company a written
undertaking in a form acceptable to the Board to be bound by the terms and conditions of the
Operating Agreement and/or any lock-up or other documents the Board reasonably determines to be
necessary or appropriate in connection with the issuance of an Award Agreement or such Units to
such person.
6. Options.
All Options shall be nonstatutory options and not incentive options described in Section
422(b) of the Code. Options shall be evidenced by Award Agreements specifying the number of Units
covered thereby, in such form as the Board shall from time to time establish. Such Award
Agreements shall incorporate all applicable terms of the Plan by reference and shall comply with
and be subject to the following terms and conditions:
6.1 Exercise Price. The exercise price for each Option shall be established in the discretion
of the Board; provided, however, that the exercise price per Unit for an Option shall be not less
than the Fair Market Value of a Unit on the effective date of grant of the Option. Notwithstanding
the foregoing, an Option may be granted with an exercise price lower than the minimum exercise
price set forth above if such Option is granted pursuant to an assumption or substitution for
another option in a manner that would qualify under the provisions of Section 409A of the Code.
6.2 Exercisability and Term of Options. Subject to Section 12, Options shall be exercisable
at such time or times, or upon such event or events, and subject to such terms, conditions,
performance criteria and restrictions as shall be determined by the Board and set forth in the
Award Agreement evidencing such Option; provided, however, that no Option shall be exercisable
after the expiration of ten (10) years after the effective date of grant of such Option. Subject
to the foregoing, unless otherwise specified by the Board in the grant of an Option, any Option
granted hereunder shall terminate ten (10) years after the effective date of grant of the Option,
unless earlier terminated in accordance with its provisions.
6.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the
exercise price for the number of Units being purchased pursuant to any Option shall be made (i) in
cash, by check or in cash equivalent; (ii) if permitted by the Board and subject to the limitations
contained in Section 6.3(b), by means of (1) a Unit Tender Exercise, (2) a Cashless Exercise or (3)
a Net Exercise; (iii) by such other
9
consideration as may be approved by the Board from time to time to the extent permitted by
applicable law, or (iv) by any combination thereof. The Board may at any time or from time to time
grant Options which do not permit all of the foregoing forms of consideration to be used in payment
of the exercise price or which otherwise restrict one or more forms of consideration.
(b) Limitations on Forms of Consideration.
(i) Unit Tender Exercise. A “Unit Tender Exercise” means the delivery of a properly executed
exercise notice accompanied by a Participant’s tender to the Company, or attestation to the
ownership, in a form acceptable to the Board of whole Units having a Fair Market Value that does
not exceed the aggregate exercise price for the Units with respect to which the Option is
exercised. A Unit Tender Exercise shall not be permitted if it would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the Units. If
required by the Board, the Option may not be exercised by tender to the Company, or attestation to
the ownership, of Units unless such Units either have been owned by the Participant for a period of
time required by the Board (and not used for another option exercise by attestation during such
period) or were not acquired, directly or indirectly, from the Company.
(ii) Cashless Exercise. A Cashless Exercise shall be permitted only following a conversion of
Options into options for shares of stock of a corporation having shares of the same class which
have become publicly traded in an established securities market. A “Cashless Exercise” means the
delivery of a properly executed exercise notice together with irrevocable instructions to a broker
providing for the assignment to the Company of the proceeds of a sale or loan with respect to some
or all of the shares being acquired upon the exercise of the Option (including, without limitation,
through an exercise complying with the provisions of Regulation T as promulgated from time to time
by the Board of Governors of the Federal Reserve System). The Board reserves, at any and all
times, the right, in the Board’s sole and absolute discretion, to establish, decline to approve or
terminate any program or procedures for the exercise of Options by means of a Cashless Exercise,
including with respect to one or more Participants specified by the Board notwithstanding that such
program or procedures may be available to other Participants.
(iii) Net Exercise. A “Net Exercise” means the delivery of a properly executed exercise
notice followed by a procedure pursuant to which (1) the Company will reduce the number of Units
otherwise issuable to a Participant upon the exercise of an Option by the largest whole number of
Units having a Fair Market Value that does not exceed the aggregate exercise price for the Units
with respect to which the Option is exercised, and (2) the Participant shall pay to the Company in
cash the remaining balance of such aggregate exercise price not satisfied by such reduction in the
number of whole Units to be issued.
6.4 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the Option as otherwise provided
by this Plan and unless a longer exercise period is provided by the Board, an Option shall
terminate immediately upon the Participant’s termination of Service to the extent that it is then
unvested and shall be exercisable after the Participant’s termination of Service to the extent it
is then vested only during the applicable time period determined in accordance with this Section
and thereafter shall terminate:
10
(i) Disability. If the Participant’s Service terminates because of the Disability of the
Participant, the Option, to the extent unexercised and exercisable for vested Units on the date on
which the Participant’s Service terminated, may be exercised by the Participant (or the
Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12)
months after the date on which the Participant’s Service terminated, but in any event no later than
the date of expiration of the Option’s term as set forth in the Award Agreement evidencing such
Option (the “Option Expiration Date”).
(ii) Death. If the Participant’s Service terminates because of the death of the Participant,
the Option, to the extent unexercised and exercisable for vested Units on the date on which the
Participant’s Service terminated, may be exercised by the Participant’s legal representative or
other person who acquired the right to exercise the Option by reason of the Participant’s death at
any time prior to the expiration of twelve (12) months after the date on which the Participant’s
Service terminated, but in any event no later than the Option Expiration Date. The Participant’s
Service shall be deemed to have terminated on account of death if the Participant dies within three
(3) months after the Participant’s termination of Service.
(iii) Termination for Cause. Notwithstanding any other provision of the Plan to the contrary,
if the Participant’s Service is terminated for Cause, the Option shall terminate in its entirety
and cease to be exercisable immediately upon such termination of Service.
(iv) Other Termination of Service. If the Participant’s Service terminates for any reason,
except Disability, death or Cause, the Option, to the extent unexercised and exercisable for vested
Units on the date on which the Participant’s Service terminated, may be exercised by the
Participant at any time prior to the expiration of three (3) months after the date on which the
Participant’s Service terminated, but in any event no later than the Option Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the foregoing other than
termination of Service for Cause, if the exercise of an Option within the applicable time periods
set forth in Section 6.4(a) is prevented by the provisions of Section 12 below, the Option shall
remain exercisable until the later of (i) thirty (30) days after the date such exercise first would
no longer be prevented by such provisions or (ii) the end of the applicable time period under
Section 6.4(a), but in any event no later than the Option Expiration Date.
6.5 Transferability of Options. During the lifetime of the Participant, an Option shall be
exercisable only by the Participant or the Participant’s guardian or legal representative. An
Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the
Participant’s beneficiary, except transfer by will or by the laws of descent and distribution and
in accordance with the Operating Agreement. Notwithstanding the foregoing, to the extent permitted
by the Board, in its discretion, and set forth in the Award Agreement evidencing such Option, an
Option shall be assignable or transferable subject to the applicable limitations, if any, described
in Rule 701 under the Securities Act and the Operating Agreement.
11
7. Restricted Unit Awards.
Restricted Unit Awards shall be evidenced by Award Agreements specifying whether the Award is
a Restricted Unit Bonus or a Restricted Unit Purchase Right and the number of Units subject to the
Award, in such form as the Board shall from time to time establish. Such Award Agreements shall
incorporate all applicable terms of the Plan by reference and shall comply with and be subject to
the following terms and conditions:
7.1 Types of Restricted Unit Awards Authorized. Restricted Unit Awards may be granted in the
form of either a Restricted Unit Bonus or a Restricted Unit Purchase Right. Restricted Unit Awards
may be granted upon such conditions as the Board shall determine, including, without limitation,
upon the attainment of one or more performance goals.
7.2 Purchase Price. The purchase price for Units issuable under each Restricted Unit Purchase
Right shall be established by the Board in its discretion. No monetary payment (other than
applicable tax withholding) shall be required as a condition of receiving Units pursuant to a
Restricted Unit Bonus, the consideration for which shall be services actually rendered to a
Participating Company or for its benefit.
7.3 Purchase Period. A Restricted Unit Purchase Right shall be exercisable within a period
established by the Board, which shall in no event exceed thirty (30) days from the effective date
of the grant of the Restricted Unit Purchase Right.
7.4 Payment of Purchase Price. Except as otherwise provided below, payment of the purchase
price for the number of Units being purchased pursuant to any Restricted Unit Purchase Right shall
be made (a) in cash, by check or in cash equivalent, (b) by such other consideration as may be
approved by the Board from time to time to the extent permitted by applicable law, or (c) by any
combination thereof.
7.5 Vesting and Restrictions on Transfer. Units issued pursuant to any Restricted Unit Award
may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such
Service requirements, conditions, restrictions or performance criteria as shall be established by
the Board and set forth in the Award Agreement evidencing such Award. During any period in which
Units acquired pursuant to a Restricted Unit Award remain subject to Vesting Conditions, such Units
may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than
pursuant to an Ownership Change Event or as provided in Section 7.8. Upon request by the Board
and/or the Company, a Participant shall execute any agreement evidencing such transfer restrictions
prior to the receipt of Units hereunder and shall promptly present to the Company any and all
certificates representing Units acquired hereunder for the placement on such certificates of
appropriate legends evidencing any such transfer restrictions.
7.6 Voting Rights; Dividends and Distributions. Except as provided in this Section, Section
7.5 and any Award Agreement, during any period in which Units acquired pursuant to a Restricted
Unit Award remain subject to Vesting Conditions, the Participant shall have all of the rights of a
member of the Company holding Units, including the right to vote such Units and to receive all
dividends and other distributions paid with respect to such Units; provided, however, that if so
determined by the Board and provided by the Award Agreement, such dividends and distributions shall
be subject to the same Vesting Conditions as the Units subject to the Restricted Unit Award with
respect to which such
12
dividends or distributions were paid. In the event of a dividend or distribution paid in
Units or other property or any other adjustment made upon a change in the capital structure of the
Company as described in Section 4.3, any and all new, substituted or additional securities or other
property (other than normal cash dividends) to which the Participant is entitled by reason of the
Participant’s Restricted Unit Award shall be immediately subject to the same Vesting Conditions as
the Units subject to the Restricted Unit Award with respect to which such dividends or
distributions were paid or adjustments were made.
7.7 Effect of Termination of Service. Unless otherwise provided by the Board in the Award
Agreement evidencing a Restricted Unit Award, if a Participant’s Service terminates for any reason,
whether voluntary or involuntary (including the Participant’s death or disability), then (a) the
Company (or its assignee) shall have the option to repurchase for the purchase price paid by the
Participant any Units acquired by the Participant pursuant to a Restricted Unit Purchase Right
which remain subject to Vesting Conditions as of the date of the Participant’s termination of
Service and (b) the Participant shall forfeit to the Company any Units acquired by the Participant
pursuant to a Restricted Unit Bonus which remain subject to Vesting Conditions as of the date of
the Participant’s termination of Service. The Company shall have the right to assign at any time
any repurchase right it may have, whether or not such right is then exercisable, to one or more
persons as may be selected by the Company.
7.8 Nontransferability of Restricted Unit Award Rights. Rights to acquire Units pursuant to a
Restricted Unit Award shall not be subject in any manner to anticipation, alienation, sale,
exchange, transfer, assignment, pledge, encumbrance or garnishment by creditors of the Participant
or the Participant’s beneficiary, except transfer by will or the laws of descent and distribution.
All rights with respect to a Restricted Unit Award granted to a Participant hereunder shall be
exercisable during his or her lifetime only by such Participant or the Participant’s guardian or
legal representative and in accordance with the Operating Agreement.
8. Deferred Unit Awards.
Deferred Unit Awards shall be evidenced by Award Agreements specifying the number of Deferred
Units subject to the Award, in such form as the Board shall from time to time establish. Such
Award Agreements shall incorporate all applicable terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
8.1 Purchase Price. No monetary payment (other than applicable tax withholding, if any) shall
be required as a condition of receiving a Deferred Unit Award, the consideration for which shall be
services actually rendered to a Participating Company or for its benefit.
8.2 Vesting. Deferred Unit Awards may (but need not) be made subject to Vesting Conditions
based upon the satisfaction of such Service requirements, conditions, restrictions or performance
criteria as shall be established by the Board and set forth in the Award Agreement evidencing such
Award.
8.3 Voting Rights, Dividend Equivalent Rights and Distributions. Participants shall have no
voting rights with respect to Units represented by Deferred Unit Awards until the date of the
issuance of such Units (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company). However,
13
the Board, in its discretion, may provide in the Award Agreement evidencing any Deferred Unit
Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the
payment of cash dividends on Units during the period beginning on the date such Award is granted
and ending, with respect to each Unit subject to the Award, on the earlier of the date the Award is
settled or the date on which it is terminated. Such Dividend Equivalent Rights, if any, shall be
paid by crediting the Participant a cash amount (or additional whole Deferred Units as of the date
of payment of such cash dividends on Units, as determined by the Board), which amounts shall be
subject to the same terms and conditions and shall be settled in the same manner and at the same
time as the Deferred Units originally subject to the Deferred Unit Award. In the event of a
dividend or distribution paid in Units or other property or any other adjustment made upon a change
in the capital structure of the Company as described in Section 4.3, appropriate adjustments shall
be made in the Participant’s Deferred Unit Award so that it represents the right to receive upon
settlement any and all new, substituted or additional securities or other property to which the
Participant would be entitled by reason of the Units issuable upon settlement of the Award, and all
such new, substituted or additional securities or other property shall be immediately subject to
the same Vesting Conditions as are applicable to the Award.
8.4 Effect of Termination of Service. Unless otherwise provided by the Board and set forth in
the Award Agreement evidencing a Deferred Unit Award, if a Participant’s Service terminates for any
reason, whether voluntary or involuntary (including the Participant’s death or disability), then
the Participant shall forfeit to the Company any Deferred Units pursuant to the Award which remain
subject to Vesting Conditions as of the date of the Participant’s termination of Service, and, in
the event of the Participant’s termination for Cause, such Deferred Unit Award to the extent not
yet settled.
8.5 Settlement of Deferred Unit Awards. The Company shall issue to a Participant on the date
on which Deferred Units subject to the Participant’s Deferred Unit Award vest or on such other date
determined by the Board, in its discretion, and set forth in the Award Agreement one (1) Unit
(and/or any other new, substituted or additional securities or other property pursuant to an
adjustment described in Section 8.3) for each Deferred Unit then becoming vested or otherwise to be
settled on such date, subject to the withholding of applicable taxes, if any. If permitted by the
Board, the Participant may elect, consistent with the requirements of Section 409A of the Code, to
defer receipt of all or any portion of the Units or other property otherwise issuable to the
Participant pursuant to this Section, and such deferred issuance date(s) and amount(s) elected by
the Participant shall be set forth in the Award Agreement. Notwithstanding the foregoing, the
Board, in its discretion, may provide for settlement of any Deferred Unit Award by payment to the
Participant in cash of an amount equal to the Fair Market Value on the payment date of the Units or
other property otherwise issuable to the Participant pursuant to this Section.
8.6 Nontransferability of Deferred Unit Awards. The right to receive Units pursuant to a
Deferred Unit Award shall not be subject in any manner to anticipation, alienation, sale, exchange,
transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the
Participant’s beneficiary, except transfer by will or by the laws of descent and distribution. All
rights with respect to a Deferred Unit Award granted to a Participant hereunder shall be
exercisable during his or her lifetime only by such Participant or the Participant’s guardian or
legal representative.
14
9. Standard Forms of Award Agreements.
9.1 Award Agreements. Each Award shall comply with and be subject to the terms and conditions
set forth in the appropriate form of Award Agreement approved by the Board and as amended from time
to time. No Award or purported Award shall be a valid and binding obligation of the Company
unless evidenced by a fully executed Award Agreement.
9.2 Authority to Vary Terms. The Board shall have the authority from time to time to vary the
terms of any standard form of Award Agreement either in connection with the grant or amendment of
an individual Award or in connection with the authorization of a new standard form or forms;
provided, however, that the terms and conditions of any such new, revised or amended standard form
or forms of Award Agreement are not inconsistent with the terms of the Plan.
10. Change in Control.
Subject to the requirements and limitations of Section 409A of the Code, if applicable, the
Board may provide for any one or more of the following:
10.1 Accelerated Vesting. The Board may, in its discretion, provide in any Award Agreement
or, in the event of a Change in Control, may take such actions as it deems appropriate to provide
for the acceleration of the exercisability and/or vesting in connection with such Change in Control
of each or any outstanding Award or portion thereof and Units acquired pursuant thereto upon such
conditions, including termination of the Participant’s Service prior to, upon, or following such
Change in Control, to such extent as the Board shall determine.
10.2 Assumption, Continuation or Substitution of Awards. In the event of a Change in Control,
the surviving, continuing, successor, or purchasing entity or parent thereof, as the case may be
(the “Acquiror”), may, without the consent of any Participant, assume or continue the Company’s
rights and obligations under each or any Award or portion thereof outstanding immediately prior to
the Change in Control or substitute for each or any such outstanding Award or portion thereof a
substantially equivalent award with respect to the Acquiror’s securities. For purposes of this
Section, if so determined by the Board, in its discretion, an Award or any portion thereof shall be
deemed assumed if, following the Change in Control, the Award confers the right to receive, subject
to the terms and conditions of the Plan and the applicable Award Agreement, for each Unit subject
to such portion of the Award immediately prior to the Change in Control, the consideration (whether
units, stock, cash, other securities or property or a combination thereof) to which a holder of a
Unit on the effective date of the Change in Control was entitled; provided, however, that if such
consideration is not solely common equity of the Acquiror, the Board may, with the consent of the
Acquiror, provide for the consideration to be received upon the exercise of the Award for each Unit
to consist solely of common equity of the Acquiror equal in Fair Market Value to the per Unit
consideration received by holders of Units pursuant to the Change in Control. If any portion of
such consideration may be received by holders of Units pursuant to the Change in Control on a
contingent or delayed basis, the Board may, in its discretion, determine such Fair Market Value per
Unit as of the time of the Change in Control on the basis of the Board’s good faith estimate of the
present value of the probable future payment of such consideration. Any Award or portion thereof
which is neither assumed or continued by the Acquiror in connection with the Change in Control nor
exercised as of the time of
15
consummation of the Change in Control shall terminate and cease to be outstanding effective as
of the time of consummation of the Change in Control. Notwithstanding the foregoing, Units
acquired upon exercise of an Award prior to the Change in Control and any consideration received
pursuant to the Change in Control with respect to such Units shall continue to be subject to all
applicable provisions of the Award Agreement evidencing such Award except as otherwise provided in
such Award Agreement.
10.3 Cash-Out of Outstanding Awards. The Board may, in its discretion and without the consent
of any Participant, determine that, upon the occurrence of a Change in Control, each or any Award
or portion thereof outstanding immediately prior to the Change in Control and not previously
exercised shall be canceled in exchange for a payment with respect to each vested Unit (and each
unvested Unit, if so determined by the Board) subject to such canceled Award in (i) cash, (ii)
securities of the Company or of another business entity a party to the Change in Control, or (iii)
other property which, in any such case, shall be in an amount having a Fair Market Value equal to
the Fair Market Value of the consideration to be paid per Unit in the Change in Control, reduced
(but not below zero) by the exercise or purchase price per Unit, if any, under such Award. If any
portion of such consideration may be received by holders of Units pursuant to the Change in Control
on a contingent or delayed basis, the Board may, in its sole discretion, determine such Fair Market
Value per Unit as of the time of the Change in Control on the basis of the Board’s good faith
estimate of the present value of the probable amount of future payment of such consideration. In
the event such determination is made by the Board, an Award having an exercise or purchase price
per share equal to or greater than the Fair Market Value of the consideration to be paid per Unit
in the Change in Control may be canceled without payment of consideration to the holder thereof.
Payment pursuant to this Section (reduced by applicable withholding taxes, if any) shall be made to
Participants in respect of the vested portions of their canceled Awards as soon as practicable
following the date of the Change in Control and in respect of the unvested portions of their
canceled Awards in accordance with the vesting schedules applicable to such Awards.
11. Tax Withholding.
11.1 Tax Withholding in General. The Company shall have the right to deduct from any and all
payments made under the Plan, or to require the Participant, through payroll withholding, cash
payment or otherwise, to make adequate provision for, the federal, state, local and foreign taxes
(including any social insurance tax), if any, required by law to be withheld by the Participating
Company Group with respect to an Award or the Units acquired pursuant thereto. The Company shall
have no obligation to deliver Units or to release Units from an escrow established pursuant to an
Award Agreement until the Participating Company Group’s tax withholding obligations have been
satisfied by the Participant.
11.2 Withholding in Units. The Company shall have the right, but not the obligation, to
deduct from the Units issuable to a Participant upon the exercise or vesting of an Award, or to
accept from the Participant the tender of, a number of whole Units having a Fair Market Value, as
determined by the Board, equal to all or any part of the tax withholding obligations of the
Participating Company Group. The Fair Market Value of any Units withheld or tendered to satisfy
any such tax withholding obligations shall not exceed the amount determined by the applicable
minimum statutory withholding rates. Notwithstanding the foregoing, this Section 11.2 shall not
apply with respect to an Option to purchase Units or
16
shares of stock of a corporation either of which is not publicly traded in an established
securities market.
12. Compliance with Securities Law.
The grant of Awards and the issuance of Units pursuant to any Award shall be subject to
compliance with all applicable requirements of federal, state and foreign law with respect to such
securities and the requirements of any stock exchange or market system upon which the securities of
the Company may then be listed. No Award may be exercised or Units issued pursuant to an Award
unless (a) a registration statement under the Securities Act shall at the time of such exercise or
issuance be in effect with respect to the securities issuable pursuant to the Award or (b) in the
opinion of legal counsel to the Company, the securities issuable pursuant to the Award may be
issued in accordance with the terms of an applicable exemption from the registration requirements
of the Securities Act. Furthermore, except as otherwise determined by the Board, in its
discretion, no Option may be exercised if the number of record holders of Units immediately
following such exercise and issuance of Units would exceed ninety percent (90%) of the number of
such record holders that would require the Company to register the Units pursuant to Section 12(g)
of the Exchange Act, in which case the Board can, among other things, toll the stated exercise
period or unilaterally cancel Options in exchange for a cash payment equal to the excess of the
Fair Market Value on the attempted date of exercise over the stated exercise price for such Option.
The inability of the Company to obtain from any regulatory body having jurisdiction the authority,
if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of
any securities hereunder shall relieve the Company of any liability in respect of the failure to
issue or sell such securities as to which such requisite authority shall not have been obtained.
As a condition to issuance of any securities, the Company may require the Participant to satisfy
any qualifications that may be necessary or appropriate, to evidence compliance with any applicable
law or regulation and to make any representation or warranty with respect thereto as may be
requested by the Company.
13. Amendment or Termination of Plan.
The Board may amend, suspend or terminate the Plan at any time. However, without the approval
of the Company’s members, there shall be (a) no increase in the maximum aggregate number of Units
that may be issued under the Plan (except by operation of the provisions of Section 4.3) and (b) no
other amendment of the Plan that would require approval of the Company’s members under any
applicable law, regulation or rule, including the rules of any stock exchange or market system upon
which the securities of the Company may then be listed. No amendment, suspension or termination of
the Plan shall affect any then outstanding Award unless expressly provided by the Board. Except as
provided by the next sentence, no amendment, suspension or termination of the Plan may have a
materially adverse effect on any then outstanding Award without the consent of the Participant.
Notwithstanding any other provision of the Plan or any Award Agreement to the contrary, the Board
may, in its sole and absolute discretion and without the consent of any Participant, amend the Plan
or any Award Agreement, to take effect retroactively or otherwise, as it deems necessary or
advisable for the purpose of conforming the Plan or such Award Agreement to any present or future
law, regulation or rule applicable to the Plan.
17
14. Miscellaneous Provisions.
14.1 Repurchase Rights. Units issued under the Plan may be subject to a right of first
refusal, one or more repurchase options, or other conditions and restrictions as determined by the
Board in its discretion at the time the Award is granted or as required by the Operating Agreement.
The Company shall have the right to assign at any time any repurchase right it may have, whether
or not such right is then exercisable, to one or more persons as may be selected by the Company.
Upon request by the Company, each Participant shall execute any agreement evidencing such transfer
restrictions prior to the receipt of Units hereunder and shall promptly present to the Company any
and all certificates representing Units acquired hereunder for the placement on such certificates
of appropriate legends evidencing any such transfer restrictions.
14.2 Provision of Information. At least annually, copies of the Company’s balance
sheet and income statement for the just completed fiscal year shall be made available to each
Participant and purchaser of Units upon the exercise of an Award; provided, however, that this
requirement shall not apply if all offers and sales of securities pursuant to the Plan comply with
all applicable conditions of Rule 701 under the Securities Act. Except as otherwise provided by
the Operating Agreement, the Company shall not be required to provide such information to key
persons whose duties in connection with the Company assure them access to equivalent information.
The Company shall deliver to each Participant such disclosures as are required in accordance with
Rule 701 under the Securities Act and by the Operating Agreement.
14.3 Rights as Employee, Consultant or Manager. No person, even though eligible pursuant to
Section 5, shall have a right to be selected as a Participant, or, having been so selected, to be
selected again as a Participant. Nothing in the Plan or any Award granted under the Plan shall
confer on any Participant a right to remain an Employee, Consultant or Manager or interfere with or
limit in any way any right of a Participating Company to terminate the Participant’s Service at any
time. To the extent that an Employee of a Participating Company other than the Company receives an
Award under the Plan, that Award shall in no event be understood or interpreted to mean that the
Company is the Employee’s employer or that the Employee has an employment relationship with the
Company.
14.4 Rights as a Member. A Participant shall have no rights as a member with respect to any
Units covered by an Award until the date of the issuance of such Units (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer agent of the
Company). No adjustment shall be made for dividends, distributions or other rights for which the
record date is prior to the date such Units are issued, except as provided in Section 4.3 or
another provision of the Plan.
14.5 Delivery of Title to Securities. Subject to any governing rules or regulations, the
Company shall issue or cause to be issued the securities acquired pursuant to an Award and shall
deliver such securities to or for the benefit of the Participant by means of one or more of the
following: (a) by delivering to the Participant evidence of securities credited to the account of
the Participant on the books of the Company or an agent of the Company, (b) by depositing such
securities for the benefit of the Participant with any broker with which the Participant has an
account relationship, or (c) by delivering such securities to the Participant in certificate form.
18
14.6 Fractional Units. The Company shall not be required to issue fractional Units upon the
exercise or settlement of any Award.
14.7 Retirement and Welfare Plans. Neither Awards made under this Plan nor Units or cash paid
pursuant to such Awards shall be included as “compensation” for purposes of computing the benefits
payable to any Participant under any Participating Company’s retirement plans (both qualified and
non-qualified) or welfare benefit plans unless such other plan expressly provides that such
compensation shall be taken into account in computing such benefits.
14.8 Beneficiary Designation. Subject to local laws and procedures, each Participant may file
with the Company a written designation of a beneficiary who is to receive any benefit under the
Plan to which the Participant is entitled in the event of such Participant’s death before he or she
receives any or all of such benefit. Each designation will revoke all prior designations by the
same Participant, shall be in a form prescribed by the Company, and will be effective only when
filed by the Participant in writing with the Company during the Participant’s lifetime. If a
married Participant designates a beneficiary other than the Participant’s spouse, the effectiveness
of such designation may be subject to the consent of the Participant’s spouse. If a Participant
dies without an effective designation of a beneficiary who is living at the time of the
Participant’s death, the Company will pay any remaining unpaid benefits to the Participant’s legal
representative.
14.9 Severability. If any one or more of the provisions (or any part thereof) of this Plan
shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so
as to make it valid, legal and enforceable, and the validity, legality and enforceability of the
remaining provisions (or any part thereof) of the Plan shall not in any way be affected or impaired
thereby.
14.10 No Constraint on Company Action. Nothing in this Plan shall be construed to: (a) limit,
impair, or otherwise affect the Company’s or another Participating Company’s right or power to make
adjustments, reclassifications, reorganizations, or changes of its capital or business structure,
or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its
business or assets; or (b) limit the right or power of the Company or another Participating Company
to take any action which such entity deems to be necessary or appropriate.
14.11 Choice of Law. Except to the extent governed by applicable federal law, the validity,
interpretation, construction and performance of the Plan and each Award Agreement shall be governed
by the laws of the State of California, without regard to its conflict of law rules.
14.12 Member Approval. The Plan or any increase in the maximum aggregate number of Units
issuable hereunder as provided in Section 4.1 (the “Authorized Units”) shall be approved by a
majority of the outstanding securities of the Company entitled to vote by the later of (a) a period
beginning twelve (12) months before and ending twelve (12) months after the date of adoption
thereof by the Board or (b) the first issuance of any security pursuant to the Plan in the State of
California (within the meaning of Section 25008 of the California Corporations Code). Awards
granted prior to security holder approval of the Plan or in excess of the Authorized Units
previously approved by the security holders shall become exercisable no earlier than the date of
security holder approval of the Plan or such increase in the Authorized Units, as the case may be,
and such Awards shall be
19
rescinded if such security holder approval is not received in the manner described in the
preceding sentence.
14.13 Foreign Plans/Sub-Plans. With respect to Participants who reside or work outside of the
United States of America, Awards granted hereunder shall be interpreted in accordance with, and
shall be deemed amended to the minimum extent necessary so as to comply with, applicable law and in
a manner that preserves to the extent possible the original intent of such Awards.
20
PLAN HISTORY
December 8, 2009
|
Board adopts Plan, with an initial reserve of 30,000,000 Units. | |
December 8, 2009
|
Members of the Company approve Plan. |
Exhibit 10.21
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE BEEN OFFERED IN AN OFFSHORE TRANSACTION
TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. SUCH SECURITIES HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT AND, AS SUCH,
THEY MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, HYPOTHECATED OR
EXERCISED (AS APPLICABLE) IN THE ABSENCE OF SUCH REGISTRATION IN THE UNITED STATES OR TO OR FOR THE
ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER
THE SECURITIES ACT, PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OR PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT. THE HOLDER OF THE SUCH SECURITIES AGREES
NOT TO ENGAGE IN HEDGING TRANSACTIONS WITH REGARD TO THE SECURITIES UNLESS IN COMPLIANCE WITH THE
SECURITIES ACT.
MAGNACHIP SEMICONDUCTOR LLC
OPTION AGREEMENT
[Non-US Participants]
OPTION AGREEMENT
[Non-US Participants]
MagnaChip Semiconductor LLC has granted to the Participant named in the Notice of Grant of
Unit Option (the “Grant Notice”) to which this Option Agreement (the “Option Agreement”) is
attached an option (the “Option”) to purchase certain Units upon the terms and conditions set forth
in the Grant Notice and this Option Agreement. The Option has been granted pursuant to and shall
in all respects be subject to the terms and conditions of the MagnaChip Semiconductor LLC 2009
Common Unit Plan (the “Plan”), as amended to the Date of Grant, the provisions of which are
incorporated herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges
receipt of, and represents that the Participant has read and is familiar with, the Grant Notice,
this Option Agreement, the Plan and the Operating Agreement, (b) accepts the Option subject to all
of the terms and conditions of the Grant Notice, Option Agreement, the Plan and the Operating
Agreement, and (c) agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board upon any questions arising under such documents.
1. Definitions and Construction.
1.1 Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings
assigned to such terms in the Grant Notice or the Plan.
1.2 Construction. Captions and titles contained herein are for convenience only and shall not
affect the meaning or interpretation of any provision of this Option Agreement. Except when
otherwise indicated by the context, the singular shall
1
include the plural and the plural shall include the singular. Use of the term “or” is not
intended to be exclusive, unless the context clearly requires otherwise.
2. Certain Conditions of the Option.
2.1 Compliance with Local Law. The Participant agrees that the Participant will not acquire
Units pursuant to the Option or transfer, assign, sell or otherwise deal with such Units except in
compliance with Local Law.
2.2 Employment Conditions. In accepting the Option, the Participant acknowledges that:
(a) Any notice period mandated under Local Law shall not be treated as Service for the purpose
of determining the vesting of the Option; and the Participant’s right to exercise the Option after
termination of Service, if any, will be measured by the date of termination of the Participant’s
active Service and will not be extended by any notice period mandated under Local Law. Subject to
the foregoing and the provisions of the Plan, the Company, in its sole discretion, shall determine
whether the Participant’s Service has terminated and the effective date of such termination.
(b) The Plan is established voluntarily by the Company. It is discretionary in nature and it
may be modified, amended, suspended or terminated by the Company at any time, unless otherwise
provided in the Plan and this Option Agreement.
(c) The grant of the Option is voluntary and occasional and does not create any contractual or
other right to receive future grants of Options, or benefits in lieu of Options, even if Options
have been granted repeatedly in the past.
(d) All decisions with respect to future Option grants, if any, will be at the sole discretion
of the Company.
(e) The Participant’s participation in the Plan shall not create a right to further Service
with any Participating Company and shall not interfere with the ability of any Participating
Company to terminate the Participant’s Service at any time, with or without cause.
(f) The Participant is voluntarily participating in the Plan.
(g) The Option is an extraordinary item that does not constitute compensation of any kind for
Service of any kind rendered to any Participating Company, and which is outside the scope of the
Participant’s employment contract, if any.
(h) The Option is not part of normal or expected compensation or salary for any purpose,
including, but not limited to, calculating any severance, resignation, termination, redundancy,
end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar
payments.
(i) In the event that the Participant is not an employee of the Company, the Option grant will
not be interpreted to form an employment contract or relationship with the Company; and furthermore
the Option grant will not be interpreted to form an employment contract with any other
Participating Company.
2
(j) The future value of the underlying Units is unknown and cannot be predicted with
certainty. If the underlying Units do not increase in value, the Option will have no value. If
the Participant exercises the Option and obtains Units, the value of those Units acquired upon
exercise may increase or decrease in value, even below the Exercise Price.
(k) No claim or entitlement to compensation or damages arises from termination of the Option
or diminution in value of the Option or Units purchased through exercise of the Option resulting
from termination of the Participant’s Service (for any reason whether or not in breach of Local
Law) and the Participant irrevocably releases the Company and each other Participating Company from
any such claim that may arise. If, notwithstanding the foregoing, any such claim is found by a
court of competent jurisdiction to have arisen then, by signing this Option Agreement, the
Participant shall be deemed irrevocably to have waived the Participant’s entitlement to pursue such
a claim.
2.3 Data Privacy Consent.
(a) The Participant hereby explicitly and unambiguously consents to the collection, use and
transfer, in electronic or other form, of the Participant’s personal data as described in this
document by and among the members of the Participating Company Group for the exclusive purpose of
implementing, administering and managing the Participant’s participation in the Plan.
(b) The Participant understands that the Participating Company Group holds certain personal
information about the Participant, including, but not limited to, the Participant’s name, home
address and telephone number, date of birth, social insurance number or other identification
number, salary, nationality, job title, any securities or directorships held in the Company,
details of all Options or any other entitlement to securities awarded, canceled, exercised, vested,
unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering
and managing the Plan (“Data”). The Participant understands that Data may be transferred to any
third parties assisting in the implementation, administration and management of the Plan, that
these recipients may be located in the Participant’s country or elsewhere, and that the recipient’s
country may have different data privacy laws and protections than the Participant’s country. The
Participant understands that he or she may request a list with the names and addresses of any
potential recipients of the Data by contacting the Participant’s local human resources
representative. The Participant authorizes the recipients to receive, possess, use, retain and
transfer the Data, in electronic or other form, for the purposes of implementing, administering and
managing the Participant’s participation in the Plan, including any requisite transfer of such Data
as may be required to a broker or other third party with whom the Participant may elect to deposit
any securities acquired upon exercise of the Option. The Participant understands that Data will be
held only as long as is necessary to implement, administer and manage the Participant’s
participation in the Plan. The Participant understands that he or she may, at any time, view Data,
request additional information about the storage and processing of Data, require any necessary
amendments to Data or refuse or withdraw the consents herein, in any case without cost, by
contacting in writing the Participant’s local human resources representative. The Participant
understands, however, that refusing or withdrawing the Participant’s consent may affect the
Participant’s ability to participate in the Plan. For more information on the consequences of the
Participant’s refusal to consent or withdrawal of consent, the Participant understands that he or
she may contact the Participant’s local human resources representative.
3
2.4 Acknowledgements, Representations and Warranties of the Participant.
(a) The Participant acknowledges, understands and agrees that:
(i) Neither the Option nor any Units that may be acquired by exercise of the Option (together,
the “Securities”) have been registered under the United States Securities Act of 1933, as amended
(the “Securities Act”), and, unless so registered, may not be offered or sold in the United States
or, directly or indirectly, to U.S. Persons (as defined in subsection (c) below), except in
accordance with the provisions of Regulation S of the Securities Act (“Regulation S”), pursuant to
an effective registration statement under the Securities Act, or pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the Securities Act;
(ii) The Participant will only offer, transfer or sell the Securities in accordance with the
provisions of Regulation S, pursuant to an effective registration statement under the Securities
Act, or pursuant to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities;
(iii) The Participant will not engage in hedging transactions with regard to the Securities
unless in compliance with the Securities Act;
(iv) The Company will refuse to register any transfer of the Securities not made in accordance
with the provisions of Regulation S, pursuant to an effective registration statement under the
Securities Act or pursuant to an available exemption from the registration requirements of the
Securities Act; and
(v) The Company and others will rely upon the truth and accuracy of the acknowledgements,
representations and agreements contained in this Option Agreement, and agrees that if any of such
acknowledgements, representations and agreements are no longer accurate or have been breached, the
Participant shall promptly notify the Company.
(b) The Participant represents and warrants to the Company that:
(i) The Participant is not a U.S. Person and the Participant is not acquiring the Securities
for the account or benefit of, directly or indirectly, any U.S. Person; and
(ii) The Participant is outside the United States when receiving and executing this Option
Agreement and is acquiring the Securities for investment only and not with a view to resale or
distribution and, in particular, it has no intention to distribution either directly or indirectly
any of the Securities in the United States or to U.S. Persons.
(c) For purposes of this Option Agreement, “U.S. Person” means: (i) any natural person
resident in the United States; (ii) any partnership or corporation organized or incorporated under
the laws of the United States; (iii) any estate of which any executor or administrator is a U.S.
Person; (iv) any trust of which any trustee is a U.S. Person; (v) any agency or branch of a foreign
entity located in the United States; (vi) any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or
4
other fiduciary for the benefit of or account of a U.S. Person; (vii) any discretionary
account or similar account (other than an estate or trust) held by a dealer or other fiduciary
organized, incorporated, or (if an individual) resident in the United States; and (viii) any
partnership or corporation if (A) organized or incorporated under the laws of any non-U.S.
jurisdiction and (B) formed by a U.S. Person principally for the purpose of investing in securities
not registered under the Securities Act, unless it is organized or incorporated, and owned, by
accredited investors (as defined below) who are not natural persons, estates or trusts.
3. Administration.
All questions of interpretation concerning the Grant Notice, this Option Agreement and the
Plan, the Operating Agreement, and any other form of agreement or other document employed by the
Board or the Company in the administration of the Plan or the Option shall be determined by the
Board. All such determinations by the Board shall be final, binding and conclusive upon all
persons having an interest in the Option, unless fraudulent or made in bad faith. Any and all
actions, decisions and determinations taken or made by the Board in the exercise of its discretion
pursuant to the Plan or the Option or other agreement thereunder (other than determining questions
of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon
all persons having an interest in the Option. Any Officer shall have the authority to act on
behalf of the Company with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the Officer has actual
authority with respect to such matter, right, obligation, or election.
4. Exercise of the Option.
4.1 Right to Exercise. Except as otherwise provided herein, the Option shall be exercisable
on and after the Initial Vesting Date and prior to the termination of the Option (as provided in
Section 6) in an amount not to exceed the number of Vested Units less the number of Units
previously acquired upon exercise of the Option, subject to the Company’s repurchase rights set
forth in Section 11 and Section 12. In no event shall the Option be exercisable for more Units
than the Number of Option Units, as adjusted pursuant to Section 9.
4.2 Method of Exercise. Exercise of the Option shall be by means of electronic or written
notice (the “Exercise Notice”) in a form authorized by the Company. An electronic Exercise Notice
must be digitally signed or authenticated by the Participant in such manner as required by the
notice and transmitted to the Company or an authorized representative of the Company (including a
third-party administrator designated by the Company). In the event that the Participant is not
authorized or is unable to provide an electronic Exercise Notice, the Option shall be exercised by
a written Exercise Notice addressed to the Company, which shall be signed by the Participant and
delivered in person, by certified or registered mail, return receipt requested, by confirmed
facsimile transmission, or by such other means as the Company may permit, to the Company, or an
authorized representative of the Company (including a third-party administrator designated by the
Company). Each Exercise Notice, whether electronic or written, must state the Participant’s
election to exercise the Option, the number of whole Units for which the Option is being exercised
and such other representations and agreements as to the Participant’s investment intent with
respect to such Units as may be required pursuant to the provisions of this Option Agreement.
Further, each Exercise Notice must be received by the Company prior to the termination of the
Option as set forth in Section 6 and must be accompanied by (a) full
5
payment of the aggregate Exercise Price for the number of Units being purchased and (b) such
executed documents, if any, as may be required pursuant to Section 4.3. The Option shall be deemed
to be exercised upon receipt by the Company of such electronic or written Exercise Notice, the
aggregate Exercise Price, and, if required by the Company, such additional executed documents.
4.3 Issuance of Units Subject to Operating Agreement. If required by the Board, the
Participant shall not be entitled to acquire any Units pursuant to this Option and to be admitted
as a member of the Company thereby unless and until the Participant has executed and delivered to
the Company a written undertaking in a form acceptable to the Board to be bound by the terms and
conditions of the Operating Agreement and/or any lock-up or other documents the Board reasonably
determines to be necessary or appropriate in connection with the issuance of such Units.
4.4 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the
aggregate Exercise Price for the number of Units for which the Option is being exercised shall be
made (i) in cash, by check or in cash equivalent, (ii) if permitted by the Board and subject to the
limitations contained in Section 4.4(b), by means of (1) a Unit Tender Exercise, (2) a Cashless
Exercise, or (3) a Net-Exercise; or (iii) by any combination of the foregoing.
(b) Limitations on Forms of Consideration. The Board reserves, at any and all times, the
right, in the Board’s sole and absolute discretion, to establish, decline to approve or terminate
any program or procedure providing for payment of the Exercise Price through any of the means
described below, including with respect to the Participant notwithstanding that such program or
procedures may be available to others.
(i) Unit Tender Exercise. A “Unit Tender Exercise” means the delivery of a properly executed
Exercise Notice accompanied by (1) the Participant’s tender to the Company, or attestation to the
ownership, in a form acceptable to the Board of whole Units having a Fair Market Value that does
not exceed the aggregate Exercise Price for the Units with respect to which the Option is
exercised, and (2) the Participant’s payment to the Company in cash of the remaining balance of
such aggregate Exercise Price not satisfied by such Units’ Fair Market Value. A Unit Tender
Exercise shall not be permitted if it would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Units. If required by the Board, the
Option may not be exercised by tender to the Company, or attestation to the ownership, of Units
unless such Units either have been owned by the Participant for a period of time required by the
Board (and not used for another option exercise by attestation during such period) or were not
acquired, directly or indirectly, from the Company.
(ii) Cashless Exercise. A Cashless Exercise shall be permitted only following a conversion of
Options into options for shares of stock of a corporation having shares of the same class which
have become publicly traded in an established securities market. A “Cashless Exercise” means the
delivery of a properly executed Exercise Notice together with irrevocable instructions to a broker
in a form acceptable to the Board providing for the assignment to the Company of the proceeds of a
sale or loan with respect to some or all of the shares being acquired upon the exercise of the
Option in an amount not less than the aggregate Exercise Price for such shares (including,
6
without limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve System).
(iii) Net-Exercise. A “Net-Exercise” means the delivery of a properly executed Exercise
Notice electing a procedure pursuant to which (1) the Company will reduce the number of Units
otherwise issuable to the Participant upon the exercise of the Option by the largest whole number
of Units having a Fair Market Value that does not exceed the aggregate Exercise Price for the Units
with respect to which the Option is exercised, and (2) the Participant shall pay to the Company in
cash the remaining balance of such aggregate Exercise Price not satisfied by such reduction in the
number of whole Units to be issued. Following a Net-Exercise, the number of Units remaining
subject to the Option, if any, shall be reduced by the sum of (1) the net number of Units issued to
the Participant upon such exercise, and (2) the number of Units deducted by the Company for payment
of the aggregate Exercise Price.
4.5 Tax Withholding.
(a) In General. Regardless of any action taken by the Company or any other Participating
Company with respect to any or all income tax, social insurance, payroll tax, payment on account or
other tax-related withholding (the “Tax Obligations”), the Participant acknowledges that the
ultimate liability for all Tax Obligations legally due by the Participant is and remains the
Participant’s responsibility and that the Company (a) makes no representations or undertakings
regarding the treatment of any Tax Obligations in connection with any aspect of the Option,
including the grant, vesting or exercise of the Option, the subsequent sale of Units acquired
pursuant to such exercise, or the receipt of any dividends and (b) does not commit to structure the
terms of the grant or any other aspect of the Option to reduce or eliminate the Participant’s
liability for Tax Obligations. At the time of exercise of the Option, the Participant shall pay or
make adequate arrangements satisfactory to the Company to satisfy all withholding obligations of
the Company and any other Participating Company. In this regard, at the time the Option is
exercised, in whole or in part, or at any time thereafter as requested by the Company or any other
Participating Company, the Participant hereby authorizes withholding of all applicable Tax
Obligations from payroll and any other amounts payable to the Participant, and otherwise agrees to
make adequate provision for withholding of all applicable Tax Obligations, if any, by each
Participating Company which arise in connection with the Option. Alternatively, or in addition, if
permissible under applicable law, including Local Law, the Company or any other Participating
Company may sell or arrange for the sale of securities acquired by the Participant to satisfy the
Tax Obligations. Finally, the Participant shall pay to the Company or any other Participating
Company any amount of the Tax Obligations that any such company may be required to withhold as a
result of the Participant’s participation in the Plan that cannot be satisfied by the means
previously described. The Company shall have no obligation to process the exercise of the Option
or to deliver Units until the Tax Obligations as described in this Section have been satisfied by
the Participant.
(b) Withholding in Units. If permissible under applicable law, including Local Law, the
Company shall have the right, but not the obligation, to require the Participant to satisfy all or
any portion of a Participating Company’s tax withholding obligations upon exercise of the Option by
deducting from the Units otherwise issuable to the Participant upon such exercise a number of whole
Units having a Fair Market Value, as determined by the Board as of the date of exercise, not in
excess of the amount of such tax withholding obligations determined by the applicable minimum
statutory withholding rates.
7
Notwithstanding the foregoing, this Section 4.5(b) shall not apply to the Option to purchase
Units or shares of stock of a corporation either of which is not publicly traded in an established
securities market.
4.6 Beneficial Ownership of Units; Certificate Registration. The Participant hereby
authorizes the Company, in its sole discretion, to deposit for the benefit of the Participant with
any broker with which the Participant has an account relationship of which the Company has notice
any or all securities acquired by the Participant pursuant to the exercise of the Option. Except
as provided by the preceding sentence, Units as to which the Option is exercised shall be
registered in book entry form with the Company or its transfer agent or shall be issued in
certificate form, in either case registered in the name of the Participant, or, if applicable, in
the names of the heirs of the Participant.
4.7 Restrictions on Grant of the Option and Issuance of Units. The grant of the Option and
the issuance of Units upon exercise of the Option shall be subject to compliance with all
applicable requirements of United States federal or state law or Local Law with respect to such
securities. The Option may not be exercised if the issuance of Units upon exercise would
constitute a violation of any applicable federal, state or foreign securities laws, including Local
Law, or other law or regulations or the requirements of any stock exchange or market system upon
which the Units may then be listed. In addition, the Option may not be exercised unless (i) a
registration statement under the Securities Act shall at the time of exercise of the Option be in
effect with respect to the Units issuable upon exercise of the Option or (ii) in the opinion of
legal counsel to the Company, the Units issuable upon exercise of the Option may be issued in
accordance with the terms of an applicable exemption from the registration requirements of the
Securities Act. Furthermore, except as otherwise determined by the Board, in its discretion, the
Option may not be exercised if the number of record holders of Units immediately following such
exercise and issuance of Units would exceed ninety percent (90%) of the number of such record
holders that would require the Company to register the Units pursuant to Section 12(g) of the
Exchange Act, in which case the Board can, among other things, toll the stated exercise period or
unilaterally cancel the Option in exchange for a cash payment per share equal to the Fair Market
Value on the attempted date of exercise over the Exercise Price. THE PARTICIPANT IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE
PARTICIPANT MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.
The inability of the Company to obtain from any regulatory body having jurisdiction the authority,
if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of
any Units subject to the Option shall relieve the Company of any liability in respect of the
failure to issue or sell such Units as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require the Participant to
satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any
applicable law or regulation and to make any representation or warranty with respect thereto as may
be requested by the Company.
4.8 Fractional Units. The Company shall not be required to issue fractional Units upon the
exercise of the Option.
8
5. Nontransferability of the Option.
During the lifetime of the Participant, the Option shall be exercisable only by the
Participant or the Participant’s guardian or legal representative. The Option shall not be subject
in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge,
encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary,
except transfer by will or by the laws of descent and distribution. Following the death of the
Participant, the Option, to the extent provided in Section 7, may be exercised by the Participant’s
legal representative or by any person empowered to do so under the deceased Participant’s will or
under the then applicable laws of descent and distribution.
6. Termination of the Option.
The Option shall terminate and may no longer be exercised after the first to occur of (a) the
close of business on the Option Expiration Date, (b) the close of business on the last date for
exercising the Option following termination of the Participant’s Service as described in Section 7,
or (c) a Change in Control to the extent provided in Section 8.
7. Effect of Termination of Service.
7.1 Option Exercisability. The Option shall terminate immediately upon the Participant’s
termination of Service to the extent that it is then unvested and shall be exercisable after the
Participant’s termination of Service to the extent it is then vested only during the applicable
time period as determined below and thereafter shall terminate.
(a) Disability. If the Participant’s Service terminates because of the Disability of the
Participant, the Option, to the extent unexercised and exercisable for Vested Units on the date on
which the Participant’s Service terminated, may be exercised by the Participant (or the
Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12)
months after the date on which the Participant’s Service terminated, but in any event no later than
the Option Expiration Date.
(b) Death. If the Participant’s Service terminates because of the death of the Participant,
the Option, to the extent unexercised and exercisable for Vested Units on the date on which the
Participant’s Service terminated, may be exercised by the Participant’s legal representative or
other person who acquired the right to exercise the Option by reason of the Participant’s death at
any time prior to the expiration of twelve (12) months after the date on which the Participant’s
Service terminated, but in any event no later than the Option Expiration Date. The Participant’s
Service shall be deemed to have terminated on account of death if the Participant dies within three
(3) months after the Participant’s termination of Service.
(c) Termination for Cause. Notwithstanding any other provision of this Option Agreement, if
the Participant’s Service is terminated for Cause, the Option shall terminate in its entirety and
cease to be exercisable immediately upon such termination of Service.
(d) Other Termination of Service. If the Participant’s Service terminates for any reason,
except Disability, death or Cause, the Option, to the extent unexercised and exercisable for Vested
Units by the Participant on the date on which the Participant’s Service terminated, may be
exercised by the Participant at any time prior to the
9
expiration of three (3) months after the date on which the Participant’s Service terminated,
but in any event no later than the Option Expiration Date.
7.2 Extension if Exercise Prevented by Law. Notwithstanding the foregoing other than
termination of the Participant’s Service for Cause, if the exercise of the Option within the
applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.7, the
Option shall remain exercisable until the later of (a) thirty (30) days after the date such
exercise first would no longer be prevented by such provisions or (b) the end of the applicable
time period under Section 7.1, but in any event no later than the Option Expiration Date.
8. Effect of Change in Control.
In the event of a Change in Control, and provided that the Participant’s Service has not
terminated prior to such date, the Option shall be immediately exercisable and vested in full
immediately prior to the consummation of the Change in Control. Except to the extent that the
Board determines to cash out the Option in accordance with Section 9.3 of the Plan, the surviving,
continuing, successor, or purchasing corporation or other business entity or parent thereof, as the
case may be (the “Acquiror”), may, without the consent of the Participant, assume or continue in
full force and effect the Company’s rights and obligations under all or any portion of the Option
or substitute for all or any portion of the Option a substantially equivalent option for the
Acquiror’s securities. For purposes of this Section, the Option or any portion thereof shall be
deemed assumed if, following the Change in Control, the Option confers the right to receive,
subject to the terms and conditions of the Plan and this Option Agreement, for each Unit subject to
such portion of the Option immediately prior to the Change in Control, the consideration (whether
units, stock, cash, other securities or property or a combination thereof) to which a holder of a
Unit on the effective date of the Change in Control was entitled; provided, however, that if such
consideration is not solely common equity of the Acquiror, the Board may, with the consent of the
Acquiror, provide for the consideration to be received upon the exercise of the Option for each
Unit to consist solely of common equity of the Acquiror equal in Fair Market Value to the per Unit
consideration received by holders of Units pursuant to the Change in Control. If any portion of
such consideration may be received by holders of Units pursuant to the Change in Control on a
contingent or delayed basis, the Board may, in its discretion, determine such Fair Market Value per
Unit as of the time of the Change in Control on the basis of the Board’s good faith estimate of the
present value of the probable future payment of such consideration. The Option shall terminate and
cease to be outstanding effective as of the time of consummation of the Change in Control to the
extent that the Option is neither assumed or continued by the Acquiror in connection with the
Change in Control nor exercised as of the time of the Change in Control. Notwithstanding the
foregoing, Units acquired upon exercise of the Option prior to the Change in Control and any
consideration received pursuant to the Change in Control with respect to such Units shall continue
to be subject to all applicable provisions of this Option Agreement except as otherwise provided
herein.
9. Adjustments for Changes in Capital Structure.
Subject to any required action by the members of the Company and the requirements of Sections
409A of the Code to the extent applicable, in the event of any change in the Units effected without
receipt of consideration by the Company, whether through merger, consolidation, reorganization,
reincorporation, recapitalization, reclassification, Unit dividend, split, reverse split, split-up,
split-off, spin-off, combination of
10
Units, exchange of Units, Solvent Reorganization (as defined by the Operating Agreement) or
similar change in the capital structure of the Company, adjustments shall be made as the Board
determines appropriate in order to prevent dilution or enlargement of the Participant’s rights
under the Option, including, without limitation, (i) adjusting the number and/or kind of Units
subject to the Option, (ii) adjusting the Exercise Price, (iii) adjusting the Vesting Conditions;
(iv) providing for substitute awards, accelerating exercisability and/or vesting, effecting the
lapse of restrictions and the termination of the Option, and/or providing for a period of time to
exercise the Option prior to the applicable event; and/or (v) cancelling the Option; provided,
however, that in the case of any “equity restructuring” (within the meaning of the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), the
Board shall make an equitable or proportionate adjustment to the Option to reflect such equity
restructuring. For purposes of the foregoing, conversion of any convertible securities of the
Company shall not be treated as “effected without receipt of consideration by the Company.” Any
fractional Unit resulting from an adjustment pursuant to this Section shall be rounded down to the
nearest whole number, and the Exercise Price shall be rounded up to the nearest whole cent. Such
adjustments shall be determined by the Board, and its determination shall be final, binding and
conclusive.
10. Rights as a Member, Manager, Employee or Consultant.
The Participant shall have no rights as a member with respect to any Units covered by the
Option until the date of the issuance of the Units for which the Option has been exercised (as
evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date the Units are issued, except as provided in Section
9. If the Participant is an Employee, the Participant understands and acknowledges that, except as
otherwise provided in a separate, written employment agreement between a Participating Company and
the Participant, the Participant’s employment is “at will” and is for no specified term. Nothing
in this Option Agreement shall confer upon the Participant any right to continue in the Service of
a Participating Company or interfere in any way with any right of the Participating Company Group
to terminate the Participant’s Service as a Manager, an Employee or Consultant, as the case may be,
at any time.
11. Right of First Refusal.
11.1 Grant of Right of First Refusal. Except as provided in Section 11.7 and Section 16
below, in the event the Participant, the Participant’s legal representative, or other holder of
Units acquired upon exercise of the Option proposes to sell, exchange, transfer, pledge, or
otherwise dispose of any Vested Units (the “Transfer Units”) to any person or entity, including,
without limitation, any securities holder of a Participating Company, the Company shall have the
right to repurchase the Transfer Units under the terms and subject to the conditions set forth in
this Section 11 (the “Right of First Refusal”).
11.2 Notice of Proposed Transfer. Prior to any proposed transfer of the Transfer Units, the
Participant shall deliver written notice (the “Transfer Notice”) to the Company describing fully
the proposed transfer, including the number of Transfer Units, the name and address of the proposed
transferee (the “Proposed Transferee”) and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of the proposed
transfer. In the event of a bona fide gift or involuntary transfer, the proposed transfer price
shall be deemed to be the Fair Market Value of the
11
Transfer Units, as determined by the Board in good faith. If the Participant proposes to
transfer any Transfer Units to more than one Proposed Transferee, the Participant shall provide a
separate Transfer Notice for the proposed transfer to each Proposed Transferee. The Transfer
Notice shall be signed by both the Participant and the Proposed Transferee and must constitute a
binding commitment of the Participant and the Proposed Transferee for the transfer of the Transfer
Units to the Proposed Transferee subject only to the Right of First Refusal.
11.3 Bona Fide Transfer. If the Company determines that the information provided by the
Participant in the Transfer Notice is insufficient to establish the bona fide nature of a proposed
voluntary transfer, the Company shall give the Participant written notice of the Participant’s
failure to comply with the procedure described in this Section 11, and the Participant shall have
no right to transfer the Transfer Units without first complying with the procedure described in
this Section 11. The Participant shall not be permitted to transfer the Transfer Units if the
proposed transfer is not bona fide.
11.4 Exercise of Right of First Refusal. If the Company determines the proposed transfer to
be bona fide, the Company shall have the right to purchase all, but not less than all, of the
Transfer Units (except as the Company and the Participant otherwise agree) at the purchase price
and on the terms set forth in the Transfer Notice by delivery to the Participant of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice
is delivered to the Company. The Company’s exercise or failure to exercise the Right of First
Refusal with respect to any proposed transfer described in a Transfer Notice shall not affect the
Company’s right to exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer Notice is issued by the
Participant or issued by a person other than the Participant with respect to a proposed transfer to
the same Proposed Transferee. If the Company exercises the Right of First Refusal, the Company and
the Participant shall thereupon consummate the sale of the Transfer Units to the Company on the
terms set forth in the Transfer Notice within sixty (60) days after the date the Transfer Notice is
delivered to the Company (unless a longer period is offered by the Proposed Transferee); provided,
however, that in the event the Transfer Notice provides for the payment for the Transfer Units
other than in cash, the Company shall have the option of paying for the Transfer Units by the
present value cash equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Company. For purposes of the foregoing, cancellation of any indebtedness of the
Participant to any Participating Company shall be treated as payment to the Participant in cash to
the extent of the unpaid principal and any accrued interest canceled. Notwithstanding anything
contained in this Section to the contrary, the period during which the Company may exercise the
Right of First Refusal and consummate the purchase of the Transfer Units from the Participant shall
terminate no sooner than the later of (a) the date eight (8) months following the date on which the
Participant acquired the Transfer Units upon exercise of the Option or (b) the date thirty (30)
days after the date that exercise of the Right of First Refusal and payment for the Transfer Units
would no longer be prevented by the provisions of any law, regulation or agreement that would
prohibit the redemption by the Company of the Transfer Units.
11.5 Failure to Exercise Right of First Refusal. If the Company fails to exercise the Right
of First Refusal in full (or to such lesser extent as the Company and the Participant otherwise
agree) within the period specified in Section 11.4 above, the Participant may conclude a transfer
to the Proposed Transferee of the Transfer Units on the terms and
12
conditions described in the Transfer Notice, provided such transfer occurs not later than
ninety (90) days following delivery to the Company of the Transfer Notice or, if applicable,
following the end of the period described in the last sentence of Section 11.4. The Company shall
have the right to demand further assurances from the Participant and the Proposed Transferee (in a
form satisfactory to the Company) that the transfer of the Transfer Units was actually carried out
on the terms and conditions described in the Transfer Notice. No Transfer Units shall be
transferred on the books of the Company until the Company has received such assurances, if so
demanded, and has approved the proposed transfer as bona fide. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as well as any subsequent
proposed transfer by the Participant, shall again be subject to the Right of First Refusal and
shall require compliance by the Participant with the procedure described in this Section 11.
11.6 Transferees of Transfer Units. All transferees of the Transfer Units or any interest
therein, other than the Company, shall be required as a condition of such transfer to agree in
writing (in a form satisfactory to the Company) that such transferee shall receive and hold such
Transfer Units or interest therein subject to all of the terms and conditions of this Option
Agreement, including this Section 11 providing for the Right of First Refusal with respect to any
subsequent transfer. Any sale or transfer of any Units acquired upon exercise of the Option shall
be void unless the provisions of this Section 11 are met.
11.7 Transfers Not Subject to Right of First Refusal. The Right of First Refusal shall not
apply to any transfer or exchange of the Units acquired upon exercise of the Option if such
transfer or exchange is in connection with an Ownership Change Event. If the consideration
received pursuant to such transfer or exchange consists of securities of a Participating Company,
such consideration shall remain subject to the Right of First Refusal unless the provisions of
Section 11.9 below result in a termination of the Right of First Refusal.
11.8 Assignment of Right of First Refusal. The Company shall have the right to assign the
Right of First Refusal at any time, whether or not there has been an attempted transfer, to one or
more persons as may be selected by the Company.
11.9 Early Termination of Right of First Refusal. The other provisions of this Option
Agreement notwithstanding, the Right of First Refusal shall terminate and be of no further force
and effect upon the existence of a public market for the class of securities subject to the Right
of First Refusal. A “public market” shall be deemed to exist if (i) such securities are listed on
a national securities exchange (as that term is used in the Exchange Act) or (ii) such securities
are traded on the over-the-counter market and prices therefor are published daily on business days
in a recognized financial journal.
12. Vested Unit Repurchase Option.
12.1 Grant of Vested Unit Repurchase Option. Except as provided in Section 12.4 below, in the
event of the occurrence of any Repurchase Event, as defined below, the Company shall have the right
to repurchase the Units acquired by the Participant pursuant to the Option (the “Repurchase Units”)
under the terms and subject to the conditions set forth in this Section (the “Vested Unit
Repurchase Option”). Each of the following events shall constitute a “Repurchase Event”:
13
(a) Termination of the Participant’s Service for any reason or no reason, with or without
cause, including death or Disability. The Repurchase Period, as defined below, shall commence on
the date of termination of the Participant’s Service.
(b) The Participant, the Participant’s legal representative, or other holder of Units acquired
upon exercise of the Option attempts to sell, exchange, transfer, pledge, or otherwise dispose of
any Repurchase Units without complying with the provisions of Section 11. The Repurchase Period,
as defined below, shall commence on the date the Company receives actual notice of such attempted
sale, exchange, transfer, pledge or other disposition.
(c) The receivership, bankruptcy or other creditor’s proceeding regarding the Participant or
the taking of any of the Participant’s Units by legal process, such as a levy of execution. The
Repurchase Period, as defined below, shall commence on the date the Company receives actual notice
of the commencement of pendency of the receivership, bankruptcy or other creditor’s proceeding or
the date of such taking, as the case may be. The Fair Market Value of the Repurchase Units shall
be determined as of the last day of the month preceding the month in which the proceeding involved
commenced or the taking occurred.
12.2 Exercise of Vested Unit Repurchase Option. The Company may exercise the Vested Unit
Repurchase Option by written notice to the Participant, the Participant’s legal representative, or
other holder of the Repurchase Units, as the case may be, during the Repurchase Period. The
“Repurchase Period” shall be the period commencing at the time set forth in Section 12.1 above and
ending on the later of (a) the date ninety (90) days after the commencement of the Repurchase
Period or (b) the date nine (9) months after the Option is last exercised; provided, however, that
if the redemption by the Company of the Repurchase Units during any portion of the Repurchase
Period would violate the provisions of any law, regulation or agreement, the Vested Unit Repurchase
Option shall remain exercisable until the later of (the “Extended Repurchase Period”) (a) thirty
(30) days after the date such exercise would no longer be prevented by such provisions or (b) the
end of the Repurchase Period. If the Company fails to give notice during the Repurchase Period or
the Extended Repurchase period, as applicable, the Vested Unit Repurchase Option shall terminate
(unless the Company and the Participant have extended the time for the exercise of the Vested Unit
Repurchase Option) unless and until there is a subsequent Repurchase Event. Notwithstanding a
termination of the Vested Unit Repurchase Option, the remaining provisions of this Option Agreement
shall remain in full force and effect, including, without limitation, the Right of First Refusal
set forth in Section 11. If there is a subsequent Repurchase Event, the Vested Unit Repurchase
Option shall again become exercisable as provided in this Section 12. The Vested Unit Repurchase
Option must be exercised, if at all, for all of the Repurchase Units, except as the Company and the
Participant otherwise agree.
12.3 Payment for Repurchase Units. The repurchase price per Unit being repurchased by the
Company pursuant to the Vested Unit Repurchase Option shall be an amount equal to the Fair Market
Value of the Units determined as of the date of the Repurchase Event (except as otherwise provided
in Section 12.1(c)) by the Board in good faith; provided, however, that if the Repurchase Event is
the termination of the Participant’s Service for Cause, the repurchase price per Unit shall be the
lesser of such Fair Market Value or the Exercise Price paid by the Participant to acquire such
Unit. Payment by the Company to the Participant shall be made in cash on or before the last day of
the Repurchase Period. For purposes of the foregoing, cancellation of any indebtedness of the
Participant to any
14
Participating Company shall be treated as payment to the Participant in cash to the extent of
the unpaid principal and any accrued interest canceled.
12.4 Transfers Not Subject to Vested Unit Repurchase Option. The Vested Unit Repurchase
Option shall not apply to any transfer or exchange of Units acquired upon exercise of the Option if
such transfer or exchange is in connection with an Ownership Change Event. If the consideration
received pursuant to such transfer or exchange consists of securities of a Participating Company,
such consideration will remain subject to the Vested Unit Repurchase Option unless the provisions
of Section 12.6 result in a termination of the Vested Unit Repurchase Option.
12.5 Assignment of Vested Unit Repurchase Option. The Company shall have the right to assign
the Vested Unit Repurchase Option at any time, whether or not such option is then exercisable, to
one or more persons as may be selected by the Company.
12.6 Early Termination of Vested Unit Repurchase Option. The other provisions of this Option
Agreement notwithstanding, the Vested Unit Repurchase Option shall terminate and be of no further
force and effect upon the existence of a public market, as defined in Section 11.9, for the class
of securities subject to the Vested Unit Repurchase Option.
13. Distributions Subject to Option Agreement.
If, from time to time, there is any Unit dividend, split or other change, as described in
Section 9, in the character or amount of any of the outstanding securities of the entity the
securities of which is subject to the provisions of this Option Agreement, then in such event any
and all new, substituted or additional securities to which the Participant is entitled by reason of
the Participant’s ownership of the Units acquired upon exercise of the Option shall be immediately
subject to the Right of First Refusal and the Vested Unit Repurchase Option with the same force and
effect as the Units subject to the Right of First Refusal and the Vested Unit Repurchase Option
immediately before such event.
14. Legends.
If the Units are at any time evidenced by certificates, the Company may at any time place
legends referencing the Right of First Refusal, the Vested Unit Repurchase Option and any
applicable federal, state or foreign securities law, including Local Law, restrictions on all
certificates representing the securities subject to the provisions of this Option Agreement. The
Participant shall, at the request of the Company, promptly present to the Company any and all
certificates representing securities acquired pursuant to the Option in the possession of the
Participant in order to carry out the provisions of this Section. Unless otherwise specified by
the Company, legends placed on such certificates may include, but shall not be limited to, the
following:
14.1 “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS AND, AS SUCH, THEY MAY
NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF SUCH REGISTRATION IN THE UNITED
15
STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT. THE
HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AGREES NOT TO ENGAGE IN HEDGING
TRANSACTIONS WITH REGARD TO THE SECURITIES UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.”
14.2 “THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AND REPURCHASE OPTIONS IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN
AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER’ S PREDECESSOR
IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.”
15. Lock-Up Agreement.
The Participant hereby agrees that in the event of any underwritten public offering of
securities, including an initial public offering of securities, made by the Company pursuant to an
effective registration statement filed under the Securities Act, the Participant shall not offer,
sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any securities of the Company or any rights to acquire securities of
the Company for such period of time from and after the effective date of such registration
statement as may be established by the underwriter for such public offering; provided, however,
that such period of time shall not exceed one hundred eighty (180) days from the effective date of
the registration statement to be filed in connection with such public offering; provided, further,
however, that such one hundred eighty (180) day period may be extended for an additional period,
not to exceed twenty (20) days, upon the request of the Company or the underwriter to accommodate
regulatory restrictions on (i) the publication or other distribution of research reports and (ii)
analyst recommendations and opinions, including but not limited to, the restrictions contained in
NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
The foregoing limitation shall not apply to securities registered in the public offering under the
Securities Act. The Participant hereby agrees to enter into any agreement reasonably required by
the underwriters to implement the foregoing within a reasonable timeframe if so requested by the
Company.
16. Restrictions on Transfer of Units.
No Units acquired upon exercise of the Option may be sold, exchanged, transferred (including,
without limitation, any transfer to a nominee or agent of the Participant), assigned, pledged,
hypothecated or otherwise disposed of, including by operation of law in any manner which violates
any of the provisions of this Option Agreement or the Operating Agreement, and any such attempted
disposition shall be void. The Company shall not be required (a) to transfer on its books any
Units which will have been transferred in violation of any of the provisions set forth in this
Option Agreement or the Operating Agreement or (b) to treat as owner of such Units or to accord the
right to vote as such owner or to pay dividends to any transferee to whom such Units will have been
so transferred.
16
17. Miscellaneous Provisions.
17.1 Termination or Amendment. The Board may terminate or amend the Plan or the Option at any
time; provided, however, that except as provided in Section 8 in connection with a Change in
Control, no such termination or amendment may have a materially adverse effect on the Option or any
unexercised portion hereof without the consent of the Participant unless such termination or
amendment is necessary to comply with any applicable law or government regulation. No amendment or
addition to this Option Agreement shall be effective unless in writing.
17.2 Further Instruments. The parties hereto agree to execute such further instruments and to
take such further action as may reasonably be necessary to carry out the intent of this Option
Agreement.
17.3 Binding Effect. This Option Agreement shall inure to the benefit of the successors and
assigns of the Company and, subject to the restrictions on transfer set forth herein, be binding
upon the Participant and the Participant’s heirs, executors, administrators, successors and
assigns.
17.4 Delivery of Documents and Notices. Any document relating to participation in the Plan,
or any notice required or permitted hereunder shall be given in writing and shall be deemed
effectively given (except to the extent that this Option Agreement provides for effectiveness only
upon actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail
address, if any, provided for the Participant by a Participating Company, or upon deposit in the
U.S. Post Office or foreign postal service, by registered or certified mail, or with a nationally
recognized overnight courier service, with postage and fees prepaid, addressed to the other party
at the address of such party set forth in the Grant Notice or at such other address as such party
may designate in writing from time to time to the other party.
(a) Description of Electronic Delivery. The Plan documents, which may include but do not
necessarily include: the Plan, the Grant Notice, this Option Agreement, the Operating Agreement and
any reports of the Company provided generally to the Company’s Unit holders, may be delivered to
the Participant electronically. In addition, if permitted by the Company, the Participant may
deliver electronically the Grant Notice and Exercise Notice called for by Section 4.2 to the
Company or to such third party involved in administering the Plan as the Company may designate from
time to time. Such means of electronic delivery may include but do not necessarily include the
delivery of a link to a Company intranet or the Internet site of a third party involved in
administering the Plan, the delivery of the document via e-mail or such other means of electronic
delivery specified by the Company.
(b) Consent to Electronic Delivery. The Participant acknowledges that the Participant has
read Section 17.4(a) of this Option Agreement and consents to the electronic delivery of the Plan
documents and, if permitted by the Company, the delivery of the Grant Notice and Exercise Notice,
as described in Section 17.4(a). The Participant acknowledges that he or she may receive from the
Company a paper copy of any documents delivered electronically at no cost to the Participant by
contacting the Company by telephone or in writing. The Participant further acknowledges that the
Participant will be provided with a paper copy of any documents if the attempted electronic
delivery of such documents fails. Similarly, the Participant understands that the Participant must
provide the
17
Company or any designated third party administrator with a paper copy of any documents if the
attempted electronic delivery of such documents fails. The Participant may revoke his or her
consent to the electronic delivery of documents described in Section 17.4(a) or may change the
electronic mail address to which such documents are to be delivered (if Participant has provided an
electronic mail address) at any time by notifying the Company of such revoked consent or revised
e-mail address by telephone, postal service or electronic mail. Finally, the Participant
understands that he or she is not required to consent to electronic delivery of documents described
in Section 17.4(a).
17.5 Integrated Agreement. The Grant Notice, this Option Agreement and the Plan, together
with the Operating Agreement and any employment, service or other agreement with the Participant
and a Participating Company referring to the Option, shall constitute the entire understanding and
agreement of the Participant and the Participating Company Group with respect to the subject matter
contained herein or therein and supersede any prior agreements, understandings, restrictions,
representations, or warranties among the Participant and the Participating Company Group with
respect to such subject matter. To the extent contemplated herein or therein, the provisions of
the Grant Notice, the Option Agreement, the Plan and the Operating Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
17.6 Applicable Law. This Option Agreement shall be governed by the laws of the State of
California as such laws are applied to agreements between California residents entered into and to
be performed entirely within the State of California. For purposes of litigating any dispute that
arises directly or indirectly from the relationship of the parties as evidenced by this Option
Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California
and agree that such litigation shall be conducted only in the courts of the County of Santa Clara,
California, or the federal courts of the United States for the Northern District of California, and
no other courts, where this Option Agreement is made and/or performed.
17.7 Counterparts. The Grant Notice may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same instrument.
18
Participant:
Date:
UNIT OPTION EXERCISE NOTICE
MagnaChip Semiconductor LLC
Attention: General Counsel
Attention: General Counsel
Ladies and Gentlemen:
1. Option. I was granted an option (the “Option”) to purchase Common Units (the
“Units”) of MagnaChip Semiconductor LLC (the “Company”) pursuant to the Company’s 2009 Common Unit
Plan (the “Plan”), my Notice of Grant of Unit Option (the “Grant Notice”) and my Option Agreement
(the “Option Agreement”) as follows:
| Date of Grant: | ||||||
| Number of Option Units: | ||||||
| Exercise Price per Unit: | US$ |
2. Exercise of Option. I hereby elect to exercise the Option to purchase the
following number of Units, all of which are Vested Units, in accordance with the Grant Notice and
the Option Agreement:
| Total Units Purchased: | ||||||
| Total Exercise Price (Total Units X Price per Unit) | US$ |
3. Payments. I enclose payment in full of the total exercise price for the Units in
the following form(s), as authorized by my Option Agreement:
| Cash: | US$ |
|||||
| Check: | US$ |
|||||
| Unit Tender Exercise: | Contact Plan Administrator | |||||
| Cashless Exercise: | Contact Plan Administrator | |||||
| Net Exercise: | Contact Plan Administrator |
4. Tax Withholding. I authorize payroll withholding and otherwise will make adequate
provision for the federal, state, local and foreign tax withholding obligations of the Company, if
any, in connection with the Option. I enclose payment in full of my withholding taxes, if any, as
follows:
(Contact Plan Administrator for amount of tax due.)
| Check: | US$ |
|||||
| Unit Withholding: | Contact Plan Administrator |
1
5. Participant Information.
| My address is: | ||||
| My Tax Identification Number is: | ||||
6. Binding Effect. I agree that the Units are being acquired in accordance with and
subject to the terms, provisions and conditions of the Grant Notice, the Option Agreement,
including the Right of First Refusal and Vested Unit Repurchase Option set forth therein, the Plan
and the Operating Agreement, to all of which I hereby expressly assent. This Agreement shall inure
to the benefit of and be binding upon my heirs, executors, administrators, successors and assigns.
7. Joinder Agreement. I have executed and am hereby delivering to the Company along
with this Exercise Notice a Joinder Agreement, pursuant to which I agree to become a party to, to
by bound by, and to comply with all of the provisions of the Operating Agreement.
8. Transfer. I understand, acknowledge and agree that:
(a) The Units have not been, and there is no assurance that the Units will ever be, registered
under the Securities Act, and in issuing the Units to me, the Company is relying upon the “safe
harbor” provided by Regulation S under the Securities Act;
(b) It is a condition to the availability of the Regulation S “safe harbor” that the Units not
be offered or sold in the United States or to a U.S. person until the expiration of a period of one
year (or six months if the Company is a “reporting issuer” (as defined in Regulation S)) following
the purchase of the Units (the “Distribution Compliance Period”);
(c) Until the expiration of the Distribution Compliance Period:
(i) I have not and will not solicit offers to buy, offer for sale or sell any of the Units or
any beneficial interest therein in the United States or to or for the account of a U.S. Person;
(ii) Notwithstanding the foregoing, prior the expiration of the Distribution Compliance
Period, the Units may be offered and sold by me only if: (A) the Units are offered and sold
pursuant to an effective registration statement or pursuant to an exemption from the registration
requirements of the Securities Act if the offer or sale is within the United States or for the
account of a U.S. person (as such terms are defined in Regulation S); or (B) the offer and sale is
outside the United States and to other than a U.S. person; and
(iii) The foregoing restrictions are binding upon subsequent transferees of the Units, except
for transferees pursuant to an effective registration statement.
I agree that after the Distribution Compliance Period, the Units may be offered or sold within the
United States or to or for the account of a U.S. person only pursuant to applicable securities
laws.
(d) I have not engaged, nor am I aware that any party has engaged, and I will not engage or
cause any third party to engage, in any directed selling efforts (as such term is defined in
Regulation S) in the United States with respect to the Units;
(e) I am not a “distributor” (as defined in Regulation S) or a “dealer” (as defined in the
Securities Act); and
(f) I acknowledge that the Company shall make a notation in its stock books regarding the
restrictions on transfer set forth in this Section 8 and shall transfer Units on the books of the
Company only to the extent consistent herewith. In particular, I acknowledge that the Company
shall refuse to register any transfer of the Units not made in accordance with the provisions of
Regulation S, pursuant to registration under the Securities Act or pursuant to an available
exemption from registration.
(g) I will notify any purchaser of the Units of the restrictions relating to the Units noted
herewith.
2
(h) I have the full power and authority to deliver these representations in connection with my
purchase of the Units.
(i) I acknowledge that the Company is entitled to rely on the truth and accuracy of the
foregoing representations and warranties and that the foregoing representations and warranties will
survive my admission as a member of the Company.
(j) I acknowledge that these representations and warranties may be translated into one or more
languages other than English. In case of any inconsistency between the English version of these
representations and warranties and a version in any other language, the English version shall
prevail. In the event I execute and deliver a non-English version of these representations and
warranties, such execution and delivery will also be deemed to be execution and delivery of the
English version of these representations and warranties.
(k) I represent and warrant that the above acknowledgements, representations and agreements
are true and accurate as of the date hereof. I also agree to inform the Company should any of the
information contained in these representations and warranties cease to be true and/or accurate. I
acknowledge that in the event I do not inform the Company of any change to the information
contained in these representations and warranties, the Company and its respective professional
advisers will be entitled to continue to rely on the truth and accuracy of the foregoing
representations and warranties until and including the date I purchase the Units.
I understand that I am purchasing the Units pursuant to the terms of the Plan, the Grant
Notice, my Option Agreement and the Operating Agreement, copies of which I have received and
carefully read and understand.
| Very truly yours, |
||||
| (Signature) | ||||
Receipt of the above is hereby acknowledged.
| MagnaChip Semiconductor LLC |
||||
| By: | ||||
| Title: | ||||
| Dated: | ||||
3
Exhibit 10.22
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR
25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
MAGNACHIP SEMICONDUCTOR LLC
OPTION AGREEMENT
[US Participants]
OPTION AGREEMENT
[US Participants]
MagnaChip Semiconductor LLC has granted to the Participant named in the Notice of Grant of
Unit Option (the “Grant Notice”) to which this Option Agreement (the “Option Agreement”) is
attached an option (the “Option”) to purchase certain Units upon the terms and conditions set forth
in the Grant Notice and this Option Agreement. The Option has been granted pursuant to and shall
in all respects be subject to the terms and conditions of the MagnaChip Semiconductor LLC 2009
Common Unit Plan (the “Plan”), as amended to the Date of Grant, the provisions of which are
incorporated herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges
receipt of, and represents that the Participant has read and is familiar with, the Grant Notice,
this Option Agreement, the Plan and the Operating Agreement, (b) accepts the Option subject to all
of the terms and conditions of the Grant Notice, Option Agreement, the Plan and the Operating
Agreement, and (c) agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board upon any questions arising under such documents.
1. Definitions and Construction.
1.1 Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings
assigned to such terms in the Grant Notice or the Plan.
1.2 Construction. Captions and titles contained herein are for convenience only and shall not
affect the meaning or interpretation of any provision of this Option Agreement. Except when
otherwise indicated by the context, the singular shall include the plural and the plural shall
include the singular. Use of the term “or” is not intended to be exclusive, unless the context
clearly requires otherwise.
1
2. Tax Status of Option.
This Option is intended to be a nonstatutory option and shall not be treated as an incentive
stock option within the meaning of Section 422(b) of the Code.
3. Administration.
All questions of interpretation concerning the Grant Notice, this Option Agreement and the
Plan, the Operating Agreement, and any other form of agreement or other document employed by the
Board or the Company in the administration of the Plan or the Option shall be determined by the
Board. All such determinations by the Board shall be final, binding and conclusive upon all
persons having an interest in the Option, unless fraudulent or made in bad faith. Any and all
actions, decisions and determinations taken or made by the Board in the exercise of its discretion
pursuant to the Plan or the Option or other agreement thereunder (other than determining questions
of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon
all persons having an interest in the Option. Any Officer shall have the authority to act on
behalf of the Company with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the Officer has actual
authority with respect to such matter, right, obligation, or election.
4. Exercise of the Option.
4.1 Right to Exercise. Except as otherwise provided herein, the Option shall be exercisable
on and after the Initial Vesting Date and prior to the termination of the Option (as provided in
Section 6) in an amount not to exceed the number of Vested Units less the number of Units
previously acquired upon exercise of the Option, subject to the Company’s repurchase rights set
forth in Section 11 and Section 12. In no event shall the Option be exercisable for more Units
than the Number of Option Units, as adjusted pursuant to Section 9.
4.2 Method of Exercise. Exercise of the Option shall be by means of electronic or written
notice (the “Exercise Notice”) in a form authorized by the Company. An electronic Exercise Notice
must be digitally signed or authenticated by the Participant in such manner as required by the
notice and transmitted to the Company or an authorized representative of the Company (including a
third-party administrator designated by the Company). In the event that the Participant is not
authorized or is unable to provide an electronic Exercise Notice, the Option shall be exercised by
a written Exercise Notice addressed to the Company, which shall be signed by the Participant and
delivered in person, by certified or registered mail, return receipt requested, by confirmed
facsimile transmission, or by such other means as the Company may permit, to the Company, or an
authorized representative of the Company (including a third-party administrator designated by the
Company). Each Exercise Notice, whether electronic or written, must state the Participant’s
election to exercise the Option, the number of whole Units for which the Option is being exercised
and such other representations and agreements as to the Participant’s investment intent with
respect to such Units as may be required pursuant to the provisions of this Option Agreement.
Further, each Exercise Notice must be received by the Company prior to the termination of the
Option as set forth in Section 6 and must be accompanied by (a) full payment of the aggregate
Exercise Price for the number of Units being purchased and (b) such executed documents, if any, as
may be required pursuant to Section 4.3. The Option shall be deemed to be exercised upon receipt
by the Company of such electronic or written
2
Exercise Notice, the aggregate Exercise Price, and, if required by the Company, such
additional executed documents.
4.3 Issuance of Units Subject to Operating Agreement. If required by the Board, the
Participant shall not be entitled to acquire any Units pursuant to this Option and to be admitted
as a member of the Company thereby unless and until the Participant has executed and delivered to
the Company a written undertaking in a form acceptable to the Board to be bound by the terms and
conditions of the Operating Agreement and/or any lock-up or other documents the Board reasonably
determines to be necessary or appropriate in connection with the issuance of such Units.
4.4 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the
aggregate Exercise Price for the number of Units for which the Option is being exercised shall be
made (i) in cash, by check or in cash equivalent, (ii) if permitted by the Board and subject to the
limitations contained in Section 4.4(b), by means of (1) a Unit Tender Exercise, (2) a Cashless
Exercise, or (3) a Net-Exercise; or (iii) by any combination of the foregoing.
(b) Limitations on Forms of Consideration. The Board reserves, at any and all times, the
right, in the Board’s sole and absolute discretion, to establish, decline to approve or terminate
any program or procedure providing for payment of the Exercise Price through any of the means
described below, including with respect to the Participant notwithstanding that such program or
procedures may be available to others.
(i) Unit Tender Exercise. A “Unit Tender Exercise” means the delivery of a properly executed
Exercise Notice accompanied by (1) the Participant’s tender to the Company, or attestation to the
ownership, in a form acceptable to the Board of whole Units having a Fair Market Value that does
not exceed the aggregate Exercise Price for the Units with respect to which the Option is
exercised, and (2) the Participant’s payment to the Company in cash of the remaining balance of
such aggregate Exercise Price not satisfied by such Units’ Fair Market Value. A Unit Tender
Exercise shall not be permitted if it would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Units. If required by the Board, the
Option may not be exercised by tender to the Company, or attestation to the ownership, of Units
unless such Units either have been owned by the Participant for a period of time required by the
Board (and not used for another option exercise by attestation during such period) or were not
acquired, directly or indirectly, from the Company.
(ii) Cashless Exercise. A Cashless Exercise shall be permitted only following a conversion of
Options into options for shares of stock of a corporation having shares of the same class which
have become publicly traded in an established securities market. A “Cashless Exercise” means the
delivery of a properly executed Exercise Notice together with irrevocable instructions to a broker
in a form acceptable to the Board providing for the assignment to the Company of the proceeds of a
sale or loan with respect to some or all of the shares being acquired upon the exercise of the
Option in an amount not less than the aggregate Exercise Price for such shares (including, without
limitation, through an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System).
3
(iii) Net-Exercise. A “Net-Exercise” means the delivery of a properly executed Exercise
Notice electing a procedure pursuant to which (1) the Company will reduce the number of Units
otherwise issuable to the Participant upon the exercise of the Option by the largest whole number
of Units having a Fair Market Value that does not exceed the aggregate Exercise Price for the Units
with respect to which the Option is exercised, and (2) the Participant shall pay to the Company in
cash the remaining balance of such aggregate Exercise Price not satisfied by such reduction in the
number of whole Units to be issued. Following a Net-Exercise, the number of Units remaining
subject to the Option, if any, shall be reduced by the sum of (1) the net number of Units issued to
the Participant upon such exercise, and (2) the number of Units deducted by the Company for payment
of the aggregate Exercise Price.
4.5 Tax Withholding.
(a) In General. At the time the Option is exercised, in whole or in part, or at any time
thereafter as requested by a Participating Company, the Participant hereby authorizes withholding
from payroll and any other amounts payable to the Participant, and otherwise agrees to make
adequate provision for any sums required to satisfy the federal, state, local and foreign tax
(including any social insurance) withholding obligations of the Participating Company Group, if
any, which arise in connection with the Option. The Company shall have no obligation to deliver
Units until the tax withholding obligations of the Participating Company Group have been satisfied
by the Participant.
(b) Withholding in Units. The Company shall have the right, but not the obligation, to
require the Participant to satisfy all or any portion of a Participating Company’s tax withholding
obligations upon exercise of the Option by deducting from the Units otherwise issuable to the
Participant upon such exercise a number of whole Units having a Fair Market Value, as determined by
the Board as of the date of exercise, not in excess of the amount of such tax withholding
obligations determined by the applicable minimum statutory withholding rates. Notwithstanding the
foregoing, this Section 4.5(b) shall not apply to the Option to purchase Units or shares of stock
of a corporation either of which is not publicly traded in an established securities market.
4.6 Beneficial Ownership of Units; Certificate Registration. The Participant hereby
authorizes the Company, in its sole discretion, to deposit for the benefit of the Participant with
any broker with which the Participant has an account relationship of which the Company has notice
any or all securities acquired by the Participant pursuant to the exercise of the Option. Except
as provided by the preceding sentence, Units as to which the Option is exercised shall be
registered in book entry form with the Company or its transfer agent or shall be issued in
certificate form, in either case registered in the name of the Participant, or, if applicable, in
the names of the heirs of the Participant.
4.7 Restrictions on Grant of the Option and Issuance of Units. The grant of the Option and
the issuance of Units upon exercise of the Option shall be subject to compliance with all
applicable requirements of federal, state or foreign law with respect to such securities. The
Option may not be exercised if the issuance of Units upon exercise would constitute a violation of
any applicable federal, state or foreign securities laws or other law or regulations or the
requirements of any stock exchange or market system upon which the Units may then be listed. In
addition, the Option may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the Units issuable
upon exercise of the Option or (ii) in the opinion of
4
legal counsel to the Company, the Units issuable upon exercise of the Option may be issued in
accordance with the terms of an applicable exemption from the registration requirements of the
Securities Act. Furthermore, except as otherwise determined by the Board, in its discretion, the
Option may not be exercised if the number of record holders of Units immediately following such
exercise and issuance of Units would exceed ninety percent (90%) of the number of such record
holders that would require the Company to register the Units pursuant to Section 12(g) of the
Exchange Act, in which case the Board can, among other things, toll the stated exercise period or
unilaterally cancel the Option in exchange for a cash payment per share equal to the Fair Market
Value on the attempted date of exercise over the Exercise Price. THE PARTICIPANT IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE
PARTICIPANT MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.
The inability of the Company to obtain from any regulatory body having jurisdiction the authority,
if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of
any Units subject to the Option shall relieve the Company of any liability in respect of the
failure to issue or sell such Units as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require the Participant to
satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any
applicable law or regulation and to make any representation or warranty with respect thereto as may
be requested by the Company.
4.8 Fractional Units. The Company shall not be required to issue fractional Units upon the
exercise of the Option.
5. Nontransferability of the Option.
During the lifetime of the Participant, the Option shall be exercisable only by the
Participant or the Participant’s guardian or legal representative. The Option shall not be subject
in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge,
encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary,
except transfer by will or by the laws of descent and distribution. Following the death of the
Participant, the Option, to the extent provided in Section 7, may be exercised by the Participant’s
legal representative or by any person empowered to do so under the deceased Participant’s will or
under the then applicable laws of descent and distribution.
6. Termination of the Option.
The Option shall terminate and may no longer be exercised after the first to occur of (a) the
close of business on the Option Expiration Date, (b) the close of business on the last date for
exercising the Option following termination of the Participant’s Service as described in Section 7,
or (c) a Change in Control to the extent provided in Section 8.
7. Effect of Termination of Service.
7.1 Option Exercisability. The Option shall terminate immediately upon the Participant’s
termination of Service to the extent that it is then unvested and shall be exercisable after the
Participant’s termination of Service to the extent it is then vested only during the applicable
time period as determined below and thereafter shall terminate.
5
(a) Disability. If the Participant’s Service terminates because of the Disability of the
Participant, the Option, to the extent unexercised and exercisable for Vested Units on the date on
which the Participant’s Service terminated, may be exercised by the Participant (or the
Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12)
months after the date on which the Participant’s Service terminated, but in any event no later than
the Option Expiration Date.
(b) Death. If the Participant’s Service terminates because of the death of the Participant,
the Option, to the extent unexercised and exercisable for Vested Units on the date on which the
Participant’s Service terminated, may be exercised by the Participant’s legal representative or
other person who acquired the right to exercise the Option by reason of the Participant’s death at
any time prior to the expiration of twelve (12) months after the date on which the Participant’s
Service terminated, but in any event no later than the Option Expiration Date. The Participant’s
Service shall be deemed to have terminated on account of death if the Participant dies within three
(3) months after the Participant’s termination of Service.
(c) Termination for Cause. Notwithstanding any other provision of this Option Agreement, if
the Participant’s Service is terminated for Cause, the Option shall terminate in its entirety and
cease to be exercisable immediately upon such termination of Service.
(d) Other Termination of Service. If the Participant’s Service terminates for any reason,
except Disability, death or Cause, the Option, to the extent unexercised and exercisable for Vested
Units by the Participant on the date on which the Participant’s Service terminated, may be
exercised by the Participant at any time prior to the expiration of three (3) months after the date
on which the Participant’s Service terminated, but in any event no later than the Option Expiration
Date.
7.2 Extension if Exercise Prevented by Law. Notwithstanding the foregoing other than
termination of the Participant’s Service for Cause, if the exercise of the Option within the
applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.7, the
Option shall remain exercisable until the later of (a) thirty (30) days after the date such
exercise first would no longer be prevented by such provisions or (b) the end of the applicable
time period under Section 7.1, but in any event no later than the Option Expiration Date.
8. Effect of Change in Control.
In the event of a Change in Control, and provided that the Participant’s Service has not
terminated prior to such date, the Option shall be immediately exercisable and vested in full
immediately prior to the consummation of the Change in Control. Except to the extent that the
Board determines to cash out the Option in accordance with Section 9.3 of the Plan, the surviving,
continuing, successor, or purchasing corporation or other business entity or parent thereof, as the
case may be (the “Acquiror”), may, without the consent of the Participant, assume or continue in
full force and effect the Company’s rights and obligations under all or any portion of the Option
or substitute for all or any portion of the Option a substantially equivalent option for the
Acquiror’s securities. For purposes of this Section, the Option or any portion thereof shall be
deemed assumed if, following the Change in Control, the Option confers the right to receive,
subject to the terms and conditions of the Plan and this Option Agreement, for each Unit subject to
such portion of the Option immediately prior to
6
the Change in Control, the consideration (whether units, stock, cash, other securities or
property or a combination thereof) to which a holder of a Unit on the effective date of the Change
in Control was entitled; provided, however, that if such consideration is not solely common equity
of the Acquiror, the Board may, with the consent of the Acquiror, provide for the consideration to
be received upon the exercise of the Option for each Unit to consist solely of common equity of the
Acquiror equal in Fair Market Value to the per Unit consideration received by holders of Units
pursuant to the Change in Control. If any portion of such consideration may be received by holders
of Units pursuant to the Change in Control on a contingent or delayed basis, the Board may, in its
discretion, determine such Fair Market Value per Unit as of the time of the Change in Control on
the basis of the Board’s good faith estimate of the present value of the probable future payment of
such consideration. The Option shall terminate and cease to be outstanding effective as of the
time of consummation of the Change in Control to the extent that the Option is neither assumed or
continued by the Acquiror in connection with the Change in Control nor exercised as of the time of
the Change in Control. Notwithstanding the foregoing, Units acquired upon exercise of the Option
prior to the Change in Control and any consideration received pursuant to the Change in Control
with respect to such Units shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein.
9. Adjustments for Changes in Capital Structure.
Subject to any required action by the members of the Company and the requirements of Sections
409A of the Code to the extent applicable, in the event of any change in the Units effected without
receipt of consideration by the Company, whether through merger, consolidation, reorganization,
reincorporation, recapitalization, reclassification, Unit dividend, split, reverse split, split-up,
split-off, spin-off, combination of Units, exchange of Units, Solvent Reorganization (as defined by
the Operating Agreement) or similar change in the capital structure of the Company, adjustments
shall be made as the Board determines appropriate in order to prevent dilution or enlargement of
the Participant’s rights under the Option, including, without limitation, (i) adjusting the number
and/or kind of Units subject to the Option, (ii) adjusting the Exercise Price; (iii) adjusting the
Vesting Conditions; (iv) providing for substitute awards, accelerating exercisability and/or
vesting, effecting the lapse of restrictions and the termination of the Option, and/or providing
for a period of time to exercise the Option prior to the applicable event; and/or (v) cancelling
the Option; provided, however, that in the case of any “equity restructuring” (within the meaning
of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123
(revised 2004)), the Board shall make an equitable or proportionate adjustment to the Option to
reflect such equity restructuring. For purposes of the foregoing, conversion of any convertible
securities of the Company shall not be treated as “effected without receipt of consideration by the
Company.” Any fractional Unit resulting from an adjustment pursuant to this Section shall be
rounded down to the nearest whole number, and the Exercise Price shall be rounded up to the nearest
whole cent. Such adjustments shall be determined by the Board, and its determination shall be
final, binding and conclusive.
10. Rights as a Member, Manager, Employee or Consultant.
The Participant shall have no rights as a member with respect to any Units covered by the
Option until the date of the issuance of the Units for which the Option has been exercised (as
evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date the Units are issued,
7
except as provided in Section 9. If the Participant is an Employee, the Participant
understands and acknowledges that, except as otherwise provided in a separate, written employment
agreement between a Participating Company and the Participant, the Participant’s employment is “at
will” and is for no specified term. Nothing in this Option Agreement shall confer upon the
Participant any right to continue in the Service of a Participating Company or interfere in any way
with any right of the Participating Company Group to terminate the Participant’s Service as a
Manager, an Employee or Consultant, as the case may be, at any time.
11. Right of First Refusal.
11.1 Grant of Right of First Refusal. Except as provided in Section 11.7 and Section 16
below, in the event the Participant, the Participant’s legal representative, or other holder of
Units acquired upon exercise of the Option proposes to sell, exchange, transfer, pledge, or
otherwise dispose of any Vested Units (the “Transfer Units”) to any person or entity, including,
without limitation, any securities holder of a Participating Company, the Company shall have the
right to repurchase the Transfer Units under the terms and subject to the conditions set forth in
this Section 11 (the “Right of First Refusal”).
11.2 Notice of Proposed Transfer. Prior to any proposed transfer of the Transfer Units, the
Participant shall deliver written notice (the “Transfer Notice”) to the Company describing fully
the proposed transfer, including the number of Transfer Units, the name and address of the proposed
transferee (the “Proposed Transferee”) and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of the proposed
transfer. In the event of a bona fide gift or involuntary transfer, the proposed transfer price
shall be deemed to be the Fair Market Value of the Transfer Units, as determined by the Board in
good faith. If the Participant proposes to transfer any Transfer Units to more than one Proposed
Transferee, the Participant shall provide a separate Transfer Notice for the proposed transfer to
each Proposed Transferee. The Transfer Notice shall be signed by both the Participant and the
Proposed Transferee and must constitute a binding commitment of the Participant and the Proposed
Transferee for the transfer of the Transfer Units to the Proposed Transferee subject only to the
Right of First Refusal.
11.3 Bona Fide Transfer. If the Company determines that the information provided by the
Participant in the Transfer Notice is insufficient to establish the bona fide nature of a proposed
voluntary transfer, the Company shall give the Participant written notice of the Participant’s
failure to comply with the procedure described in this Section 11, and the Participant shall have
no right to transfer the Transfer Units without first complying with the procedure described in
this Section 11. The Participant shall not be permitted to transfer the Transfer Units if the
proposed transfer is not bona fide.
11.4 Exercise of Right of First Refusal. If the Company determines the proposed transfer to
be bona fide, the Company shall have the right to purchase all, but not less than all, of the
Transfer Units (except as the Company and the Participant otherwise agree) at the purchase price
and on the terms set forth in the Transfer Notice by delivery to the Participant of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice
is delivered to the Company. The Company’s exercise or failure to exercise the Right of First
Refusal with respect to any proposed transfer described in a Transfer Notice shall not affect the
Company’s right to exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether
8
or not such other Transfer Notice is issued by the Participant or issued by a person other
than the Participant with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Participant shall thereupon
consummate the sale of the Transfer Units to the Company on the terms set forth in the Transfer
Notice within sixty (60) days after the date the Transfer Notice is delivered to the Company
(unless a longer period is offered by the Proposed Transferee); provided, however, that in the
event the Transfer Notice provides for the payment for the Transfer Units other than in cash, the
Company shall have the option of paying for the Transfer Units by the present value cash equivalent
of the consideration described in the Transfer Notice as reasonably determined by the Company. For
purposes of the foregoing, cancellation of any indebtedness of the Participant to any Participating
Company shall be treated as payment to the Participant in cash to the extent of the unpaid
principal and any accrued interest canceled. Notwithstanding anything contained in this Section to
the contrary, the period during which the Company may exercise the Right of First Refusal and
consummate the purchase of the Transfer Units from the Participant shall terminate no sooner than
the later of (a) the date eight (8) months following the date on which the Participant acquired the
Transfer Units upon exercise of the Option or (b) the date thirty (30) days after the date that
exercise of the Right of First Refusal and payment for the Transfer Units would no longer be
prevented by the provisions of any law, regulation or agreement that would prohibit the redemption
by the Company of the Transfer Units.
11.5 Failure to Exercise Right of First Refusal. If the Company fails to exercise the Right
of First Refusal in full (or to such lesser extent as the Company and the Participant otherwise
agree) within the period specified in Section 11.4 above, the Participant may conclude a transfer
to the Proposed Transferee of the Transfer Units on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days following delivery
to the Company of the Transfer Notice or, if applicable, following the end of the period described
in the last sentence of Section 11.4. The Company shall have the right to demand further
assurances from the Participant and the Proposed Transferee (in a form satisfactory to the Company)
that the transfer of the Transfer Units was actually carried out on the terms and conditions
described in the Transfer Notice. No Transfer Units shall be transferred on the books of the
Company until the Company has received such assurances, if so demanded, and has approved the
proposed transfer as bona fide. Any proposed transfer on terms and conditions different from those
described in the Transfer Notice, as well as any subsequent proposed transfer by the Participant,
shall again be subject to the Right of First Refusal and shall require compliance by the
Participant with the procedure described in this Section 11.
11.6 Transferees of Transfer Units. All transferees of the Transfer Units or any interest
therein, other than the Company, shall be required as a condition of such transfer to agree in
writing (in a form satisfactory to the Company) that such transferee shall receive and hold such
Transfer Units or interest therein subject to all of the terms and conditions of this Option
Agreement, including this Section 11 providing for the Right of First Refusal with respect to any
subsequent transfer. Any sale or transfer of any Units acquired upon exercise of the Option shall
be void unless the provisions of this Section 11 are met.
11.7 Transfers Not Subject to Right of First Refusal. The Right of First Refusal shall not
apply to any transfer or exchange of the Units acquired upon exercise of the Option if such
transfer or exchange is in connection with an Ownership Change Event. If the
9
consideration received pursuant to such transfer or exchange consists of securities of a
Participating Company, such consideration shall remain subject to the Right of First Refusal unless
the provisions of Section 11.9 below result in a termination of the Right of First Refusal.
11.8 Assignment of Right of First Refusal. The Company shall have the right to assign the
Right of First Refusal at any time, whether or not there has been an attempted transfer, to one or
more persons as may be selected by the Company.
11.9 Early Termination of Right of First Refusal. The other provisions of this Option
Agreement notwithstanding, the Right of First Refusal shall terminate and be of no further force
and effect upon the existence of a public market for the class of securities subject to the Right
of First Refusal. A “public market” shall be deemed to exist if (i) such securities are listed on
a national securities exchange (as that term is used in the Exchange Act) or (ii) such securities
are traded on the over-the-counter market and prices therefor are published daily on business days
in a recognized financial journal.
12. Vested Unit Repurchase Option.
12.1 Grant of Vested Unit Repurchase Option. Except as provided in Section 12.4 below, in the
event of the occurrence of any Repurchase Event, as defined below, the Company shall have the right
to repurchase the Units acquired by the Participant pursuant to the Option (the “Repurchase Units”)
under the terms and subject to the conditions set forth in this Section (the “Vested Unit
Repurchase Option”). Each of the following events shall constitute a “Repurchase Event”:
(a) Termination of the Participant’s Service for any reason or no reason, with or without
cause, including death or Disability. The Repurchase Period, as defined below, shall commence on
the date of termination of the Participant’s Service.
(b) The Participant, the Participant’s legal representative, or other holder of Units acquired
upon exercise of the Option attempts to sell, exchange, transfer, pledge, or otherwise dispose of
any Repurchase Units without complying with the provisions of Section 11. The Repurchase Period,
as defined below, shall commence on the date the Company receives actual notice of such attempted
sale, exchange, transfer, pledge or other disposition.
(c) The receivership, bankruptcy or other creditor’s proceeding regarding the Participant or
the taking of any of the Participant’s Units by legal process, such as a levy of execution. The
Repurchase Period, as defined below, shall commence on the date the Company receives actual notice
of the commencement of pendency of the receivership, bankruptcy or other creditor’s proceeding or
the date of such taking, as the case may be. The Fair Market Value of the Repurchase Units shall
be determined as of the last day of the month preceding the month in which the proceeding involved
commenced or the taking occurred.
12.2 Exercise of Vested Unit Repurchase Option. The Company may exercise the Vested Unit
Repurchase Option by written notice to the Participant, the Participant’s legal representative, or
other holder of the Repurchase Units, as the case may be, during the Repurchase Period. The
“Repurchase Period” shall be the period commencing at the time set forth in Section 12.1 above and
ending on the later of (a) the date
10
ninety (90) days after the commencement of the Repurchase Period or (b) the date nine (9)
months after the Option is last exercised; provided, however, that if the redemption by the Company
of the Repurchase Units during any portion of the Repurchase Period would violate the provisions of
any law, regulation or agreement, the Vested Unit Repurchase Option shall remain exercisable until
the later of (the “Extended Repurchase Period”) (a) thirty (30) days after the date such exercise
would no longer be prevented by such provisions or (b) the end of the Repurchase Period. If the
Company fails to give notice during the Repurchase Period or the Extended Repurchase period, as
applicable, the Vested Unit Repurchase Option shall terminate (unless the Company and the
Participant have extended the time for the exercise of the Vested Unit Repurchase Option) unless
and until there is a subsequent Repurchase Event. Notwithstanding a termination of the Vested Unit
Repurchase Option, the remaining provisions of this Option Agreement shall remain in full force and
effect, including, without limitation, the Right of First Refusal set forth in Section 11. If
there is a subsequent Repurchase Event, the Vested Unit Repurchase Option shall again become
exercisable as provided in this Section 12. The Vested Unit Repurchase Option must be exercised,
if at all, for all of the Repurchase Units, except as the Company and the Participant otherwise
agree.
12.3 Payment for Repurchase Units. The repurchase price per Unit being repurchased by the
Company pursuant to the Vested Unit Repurchase Option shall be an amount equal to the Fair Market
Value of the Units determined as of the date of the Repurchase Event (except as otherwise provided
in Section 12.1(c)) by the Board in good faith; provided, however, that if the Repurchase Event is
the termination of the Participant’s Service for Cause, the repurchase price per Unit shall be the
lesser of such Fair Market Value or the Exercise Price paid by the Participant to acquire such
Unit. Payment by the Company to the Participant shall be made in cash on or before the last day of
the Repurchase Period. For purposes of the foregoing, cancellation of any indebtedness of the
Participant to any Participating Company shall be treated as payment to the Participant in cash to
the extent of the unpaid principal and any accrued interest canceled.
12.4 Transfers Not Subject to Vested Unit Repurchase Option. The Vested Unit Repurchase
Option shall not apply to any transfer or exchange of Units acquired upon exercise of the Option if
such transfer or exchange is in connection with an Ownership Change Event. If the consideration
received pursuant to such transfer or exchange consists of securities of a Participating Company,
such consideration will remain subject to the Vested Unit Repurchase Option unless the provisions
of Section 12.6 result in a termination of the Vested Unit Repurchase Option.
12.5 Assignment of Vested Unit Repurchase Option. The Company shall have the right to assign
the Vested Unit Repurchase Option at any time, whether or not such option is then exercisable, to
one or more persons as may be selected by the Company.
12.6 Early Termination of Vested Unit Repurchase Option. The other provisions of this Option
Agreement notwithstanding, the Vested Unit Repurchase Option shall terminate and be of no further
force and effect upon the existence of a public market, as defined in Section 11.9, for the class
of securities subject to the Vested Unit Repurchase Option.
13. Distributions Subject to Option Agreement.
If, from time to time, there is any Unit dividend, split or other change, as described in
Section 9, in the character or amount of any of the outstanding securities of the
11
entity the securities of which is subject to the provisions of this Option Agreement, then in
such event any and all new, substituted or additional securities to which the Participant is
entitled by reason of the Participant’s ownership of the Units acquired upon exercise of the Option
shall be immediately subject to the Right of First Refusal and the Vested Unit Repurchase Option
with the same force and effect as the Units subject to the Right of First Refusal and the Vested
Unit Repurchase Option immediately before such event.
14. Legends.
If the Units are at any time evidenced by certificates, the Company may at any time place
legends referencing the Right of First Refusal, the Vested Unit Repurchase Option and any
applicable federal, state or foreign securities law restrictions on all certificates representing
the securities subject to the provisions of this Option Agreement. The Participant shall, at the
request of the Company, promptly present to the Company any and all certificates representing
securities acquired pursuant to the Option in the possession of the Participant in order to carry
out the provisions of this Section. Unless otherwise specified by the Company, legends placed on
such certificates may include, but shall not be limited to, the following:
14.1 “THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE
SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SUCH ACT.”
14.2 “THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AND REPURCHASE OPTIONS IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN
AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER’ S PREDECESSOR
IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.”
15. Lock-Up Agreement.
The Participant hereby agrees that in the event of any underwritten public offering of
securities, including an initial public offering of securities, made by the Company pursuant to an
effective registration statement filed under the Securities Act, the Participant shall not offer,
sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any securities of the Company or any rights to acquire securities of
the Company for such period of time from and after the effective date of such registration
statement as may be established by the underwriter for such public offering; provided, however,
that such period of time shall not exceed one hundred eighty (180) days from the effective date of
the registration statement to be filed in connection with such public offering; provided, further,
however, that such one hundred eighty (180) day period may be extended for an additional period,
not to exceed twenty (20) days, upon the request of the Company or the underwriter to accommodate
regulatory restrictions on (i) the publication or
12
other distribution of research reports and (ii) analyst recommendations and opinions,
including but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule
472(f)(4), or any successor provisions or amendments thereto). The foregoing limitation shall not
apply to securities registered in the public offering under the Securities Act. The Participant
hereby agrees to enter into any agreement reasonably required by the underwriters to implement the
foregoing within a reasonable timeframe if so requested by the Company.
16. Restrictions on Transfer of Units.
No Units acquired upon exercise of the Option may be sold, exchanged, transferred (including,
without limitation, any transfer to a nominee or agent of the Participant), assigned, pledged,
hypothecated or otherwise disposed of, including by operation of law in any manner which violates
any of the provisions of this Option Agreement or the Operating Agreement, and any such attempted
disposition shall be void. The Company shall not be required (a) to transfer on its books any
Units which will have been transferred in violation of any of the provisions set forth in this
Option Agreement or the Operating Agreement or (b) to treat as owner of such Units or to accord the
right to vote as such owner or to pay dividends to any transferee to whom such Units will have been
so transferred.
17. Miscellaneous Provisions.
17.1 Termination or Amendment. The Board may terminate or amend the Plan or the Option at any
time; provided, however, that except as provided in Section 8 in connection with a Change in
Control, no such termination or amendment may have a materially adverse effect on the Option or any
unexercised portion hereof without the consent of the Participant unless such termination or
amendment is necessary to comply with any applicable law or government regulation. No amendment or
addition to this Option Agreement shall be effective unless in writing.
17.2 Compliance with Section 409A. The Company intends that income realized by the
Participant pursuant to the Plan and this Option Agreement will not be subject to taxation under
Section 409A of the Code. The provisions of the Plan and this Option Agreement shall be
interpreted and construed in favor of satisfying any applicable requirements of Section 409A of the
Code. The Company, in its reasonable discretion, may amend (including retroactively) the Plan and
this Agreement in order to conform to the applicable requirements of Section 409A of the Code,
including amendments to facilitate the Participant’s ability to avoid taxation under Section 409A
of the Code. However, the preceding provisions shall not be construed as a guarantee by the
Company of any particular tax result for income realized by the Participant pursuant to the Plan or
this Option Agreement. In any event, and except for the responsibilities of the Company set forth
in Section 4.5, no Participating Company shall be responsible for the payment of any applicable
taxes incurred by the Participant on income realized by the Participant pursuant to the Plan or
this Option Agreement.
17.3 Further Instruments. The parties hereto agree to execute such further instruments and to
take such further action as may reasonably be necessary to carry out the intent of this Option
Agreement.
13
17.4 Binding Effect. This Option Agreement shall inure to the benefit of the successors and
assigns of the Company and, subject to the restrictions on transfer set forth herein, be binding
upon the Participant and the Participant’s heirs, executors, administrators, successors and
assigns.
17.5 Delivery of Documents and Notices. Any document relating to participation in the Plan,
or any notice required or permitted hereunder shall be given in writing and shall be deemed
effectively given (except to the extent that this Option Agreement provides for effectiveness only
upon actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail
address, if any, provided for the Participant by a Participating Company, or upon deposit in the
U.S. Post Office or foreign postal service, by registered or certified mail, or with a nationally
recognized overnight courier service, with postage and fees prepaid, addressed to the other party
at the address of such party set forth in the Grant Notice or at such other address as such party
may designate in writing from time to time to the other party.
(a) Description of Electronic Delivery. The Plan documents, which may include but do not
necessarily include: the Plan, the Grant Notice, this Option Agreement, the Operating Agreement and
any reports of the Company provided generally to the Company’s Unit holders, may be delivered to
the Participant electronically. In addition, if permitted by the Company, the Participant may
deliver electronically the Grant Notice and Exercise Notice called for by Section 4.2 to the
Company or to such third party involved in administering the Plan as the Company may designate from
time to time. Such means of electronic delivery may include but do not necessarily include the
delivery of a link to a Company intranet or the Internet site of a third party involved in
administering the Plan, the delivery of the document via e-mail or such other means of electronic
delivery specified by the Company.
(b) Consent to Electronic Delivery. The Participant acknowledges that the Participant has
read Section 17.5(a) of this Option Agreement and consents to the electronic delivery of the Plan
documents and, if permitted by the Company, the delivery of the Grant Notice and Exercise Notice,
as described in Section 17.5(a). The Participant acknowledges that he or she may receive from the
Company a paper copy of any documents delivered electronically at no cost to the Participant by
contacting the Company by telephone or in writing. The Participant further acknowledges that the
Participant will be provided with a paper copy of any documents if the attempted electronic
delivery of such documents fails. Similarly, the Participant understands that the Participant must
provide the Company or any designated third party administrator with a paper copy of any documents
if the attempted electronic delivery of such documents fails. The Participant may revoke his or
her consent to the electronic delivery of documents described in Section 17.5(a) or may change the
electronic mail address to which such documents are to be delivered (if Participant has provided an
electronic mail address) at any time by notifying the Company of such revoked consent or revised
e-mail address by telephone, postal service or electronic mail. Finally, the Participant
understands that he or she is not required to consent to electronic delivery of documents described
in Section 17.5(a).
17.6 Integrated Agreement. The Grant Notice, this Option Agreement and the Plan, together
with the Operating Agreement and any employment, service or other agreement with the Participant
and a Participating Company referring to the Option, shall constitute the entire understanding and
agreement of the Participant and the Participating
14
Company Group with respect to the subject matter contained herein or therein and supersede any
prior agreements, understandings, restrictions, representations, or warranties among the
Participant and the Participating Company Group with respect to such subject matter. To the extent
contemplated herein or therein, the provisions of the Grant Notice, the Option Agreement, the Plan
and the Operating Agreement shall survive any exercise of the Option and shall remain in full force
and effect.
17.7 Applicable Law. This Option Agreement shall be governed by the laws of the State of
California as such laws are applied to agreements between California residents entered into and to
be performed entirely within the State of California.
17.8 Counterparts. The Grant Notice may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same instrument.
15
Participant:
Date:
UNIT OPTION EXERCISE NOTICE
MagnaChip Semiconductor LLC
Attention: General Counsel
Attention: General Counsel
Ladies and Gentlemen:
1. Option. I was granted an option (the “Option”) to purchase Common Units (the
“Units”) of MagnaChip Semiconductor LLC (the “Company”) pursuant to the Company’s 2009 Common Unit
Plan (the “Plan”), my Notice of Grant of Unit Option (the “Grant Notice”) and my Option Agreement
(the “Option Agreement”) as follows:
| Date of Grant: | ||||||
| Number of Option Units: | ||||||
| Exercise Price per Unit: | US$ |
2. Exercise of Option. I hereby elect to exercise the Option to purchase the
following number of Units, all of which are Vested Units, in accordance with the Grant Notice and
the Option Agreement:
| Total Units Purchased: | ||||||
| Total Exercise Price (Total Units X Price per Unit) | US$ |
3. Payments. I enclose payment in full of the total exercise price for the Units in
the following form(s), as authorized by my Option Agreement:
| Cash: | US$ |
|||||
| Check: | US$ |
|||||
| Unit Tender Exercise: | Contact Plan Administrator | |||||
| Cashless Exercise: | Contact Plan Administrator | |||||
| Net Exercise: | Contact Plan Administrator |
4. Tax Withholding. I authorize payroll withholding and otherwise will make adequate
provision for the federal, state, local and foreign tax withholding obligations of the Company, if
any, in connection with the Option. I enclose payment in full of my withholding taxes, if any, as
follows:
(Contact Plan Administrator for amount of tax due.)
| Check: | US$ |
|||||
| Unit Withholding: | Contact Plan Administrator |
1
5. Participant Information.
| My address is: |
||
| My Social Security Number is: |
6. Binding Effect. I agree that the Units are being acquired in accordance with and
subject to the terms, provisions and conditions of the Grant Notice, the Option Agreement,
including the Right of First Refusal and Vested Unit Repurchase Option set forth therein, the Plan
and the Operating Agreement, to all of which I hereby expressly assent. This Agreement shall inure
to the benefit of and be binding upon my heirs, executors, administrators, successors and assigns.
7. Joinder Agreement. I have executed and am hereby delivering to the Company along
with this Exercise Notice a Joinder Agreement, pursuant to which I agree to become a party to, to
by bound by, and to comply with all of the provisions of the Operating Agreement.
8. Transfer. I understand and acknowledge that the Units have not been registered
under the Securities Act of 1933, as amended (the “Securities Act”), and that consequently the
Units must be held indefinitely unless they are subsequently registered under the Securities Act,
an exemption from such registration is available, or they are sold in accordance with Rule 144 or
Rule 701 under the Securities Act. I further understand and acknowledge that the Company is under
no obligation to register the Units. I understand that any certificate or certificates evidencing
the Units will be imprinted with legends which prohibit the transfer of the Units unless they are
registered or such registration is not required in the opinion of legal counsel satisfactory to the
Company.
I am aware that Rule 144 under the Securities Act, which permits limited public resale of
securities acquired in a nonpublic offering, is not currently available with respect to the Units
and, in any event, is available only if certain conditions are satisfied. I understand that any
sale of the Units that might be made in reliance upon Rule 144 may only be made in limited amounts
in accordance with the terms and conditions of such rule and that a copy of Rule 144 will be
delivered to me upon request.
I understand that I am purchasing the Units pursuant to the terms of the Plan, the Grant
Notice, my Option Agreement and the Operating Agreement, copies of which I have received and
carefully read and understand.
| Very truly yours, |
||||
| (Signature) | ||||
Receipt of the above is hereby acknowledged.
MagnaChip Semiconductor LLC
By: |
||
Title: |
||
Dated: |
2
Exhibit 10.23
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE BEEN OFFERED IN AN OFFSHORE TRANSACTION
TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. SUCH SECURITIES HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT AND, AS SUCH,
THEY MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, HYPOTHECATED OR
EXERCISED (AS APPLICABLE) IN THE ABSENCE OF SUCH REGISTRATION IN THE UNITED STATES OR TO OR FOR THE
ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER
THE SECURITIES ACT, PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OR PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT. THE HOLDER OF THE SUCH SECURITIES AGREES
NOT TO ENGAGE IN HEDGING TRANSACTIONS WITH REGARD TO THE SECURITIES UNLESS IN COMPLIANCE WITH THE
SECURITIES ACT.
MAGNACHIP SEMICONDUCTOR LLC
RESTRICTED UNIT AGREEMENT
[Non-US Participants]
RESTRICTED UNIT AGREEMENT
[Non-US Participants]
MagnaChip Semiconductor LLC has granted to the Participant named in the Notice of Grant of
Restricted Units (the “Grant
Notice”) to which this Restricted Unit Agreement
(the “Agreement”) is
attached an Award consisting of Units subject to the terms and conditions set forth in the Grant
Notice and this Agreement. The Award has been granted pursuant to and shall in all respects be
subject to the terms and conditions of the MagnaChip Semiconductor LLC 2009 Common Unit Plan (the
“Plan”), as amended to the Date of Grant, the provisions of which are incorporated herein by
reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of, and
represents that the Participant has read and is familiar with, the Grant Notice, this Agreement,
the Plan and the Operating Agreement, (b) accepts the Award subject to all of the terms and
conditions of the Grant Notice, this Agreement, the Plan and the Operating, and (c) agrees to
accept as binding, conclusive and final all decisions or interpretations of the Board upon any
questions arising under such documents.
1. Definitions and Construction.
1.1 Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings
assigned to such terms in the Grant Notice or the Plan.
1.2 Construction. Captions and titles contained herein are for convenience only and shall not
affect the meaning or interpretation of any provision of this Agreement. Except when otherwise
indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term “or” is not intended to be
exclusive, unless the context clearly requires otherwise.
1
2. Certain Conditions of the Award.
2.1 Compliance with Local Law. The Participant agrees that the Participant will not acquire
Units pursuant to the Award or transfer, assign, sell or otherwise deal with such Units except in
compliance with Local Law.
2.2 Employment Conditions. In accepting the Award, the Participant acknowledges that:
(a) Any notice period mandated under Local Law shall not be treated as Service for the purpose
of determining the vesting of the Award. Subject to the foregoing and the provisions of the Plan,
the Company, in its sole discretion, shall determine whether the Participant’s Service has
terminated and the effective date of such termination.
(b) The Plan is established voluntarily by the Company. It is discretionary in nature and it
may be modified, amended, suspended or terminated by the Company at any time, unless otherwise
provided in the Plan and this Agreement.
(c) The grant of the Award is voluntary and occasional and does not create any contractual or
other right to receive future grants of Awards, or benefits in lieu of Awards, even if Awards have
been granted repeatedly in the past.
(d) All decisions with respect to future grants of Awards, if any, will be at the sole
discretion of the Company.
(e) The Participant’s participation in the Plan shall not create a right to further Service
with any Participating Company and shall not interfere with the ability of any Participating
Company to terminate the Participant’s Service at any time, with or without cause.
(f) The Participant is voluntarily participating in the Plan.
(g) The Award is an extraordinary item that does not constitute compensation of any kind for
Service of any kind rendered to any Participating Company, and which is outside the scope of the
Participant’s employment contract, if any.
(h) The Award is not part of normal or expected compensation or salary for any purpose,
including, but not limited to, calculating any severance, resignation, termination, redundancy,
end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar
payments.
(i) In the event that the Participant is not an employee of the Company, the grant of the
Award will not be interpreted to form an employment contract or relationship with the Company; and
furthermore the grant of the Award will not be interpreted to form an employment contract with any
other Participating Company.
(j) The future value of the Units is unknown and cannot be predicted with certainty. If the
Units do not increase in value, the Award will have no value.
(k) No claim or entitlement to compensation or damages arises from termination of the Award or
diminution in value of the Units resulting from termination of the Participant’s Service (for any
reason whether or not in breach of Local Law) and the
2
Participant irrevocably releases the Company
and each other Participating Company from any such claim that may arise. If, notwithstanding the
foregoing, any such claim is found by a court of competent jurisdiction to have arisen then, by
signing this Agreement, the Participant shall be deemed irrevocably to have waived the
Participant’s entitlement to pursue such a claim.
2.3 Data Privacy Consent.
(a) The Participant hereby explicitly and unambiguously consents to the collection, use and
transfer, in electronic or other form, of the Participant’s personal data as described in this
document by and among the members of the Participating Company Group for the exclusive purpose of
implementing, administering and managing the Participant’s participation in the Plan.
(b) The Participant understands that the Participating Company Group holds certain personal
information about the Participant, including, but not limited to, the Participant’s name, home
address and telephone number, date of birth, social insurance number or other identification
number, salary, nationality, job title, any securities or directorships held in the Company,
details of all Awards or any other entitlement to securities awarded, canceled, exercised, vested,
unvested or outstanding in the Participant’s favor, for the purpose of implementing, administering
and managing the Plan (“Data”). The Participant understands that Data may be transferred to any
third parties assisting in the implementation, administration and management of the Plan, that
these recipients may be located in the Participant’s country or elsewhere, and that the recipient’s
country may have different data privacy laws and protections than the Participant’s country. The
Participant understands that he or she may request a list with the names and addresses of any
potential recipients of the Data by contacting the Participant’s local human resources
representative. The Participant authorizes the recipients to receive, possess, use, retain and
transfer the Data, in electronic or other form, for the purposes of implementing, administering and
managing the Participant’s participation in the Plan, including any requisite transfer of such Data
as may be required to a broker or other third party with whom the Participant may elect to deposit
any securities acquired pursuant to the Award. The Participant understands that Data will be held
only as long as is necessary to implement, administer and manage the Participant’s participation in
the Plan. The Participant understands that he or she may, at any time, view Data, request
additional information about the storage and processing of Data, require any necessary amendments
to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in
writing the Participant’s local human resources representative. The Participant understands,
however, that refusing or withdrawing the Participant’s consent may affect the Participant’s
ability to participate in the Plan. For more information on the consequences of the Participant’s
refusal to consent or withdrawal of consent, the Participant understands that he or she may contact
the Participant’s local human resources representative.
2.4 Acknowledgements, Representations and Warranties of the Participant.
(a) The Participant acknowledges, understands and agrees that:
(i) The Units acquired pursuant to the Award have not been registered under the United States
Securities Act of 1933, as amended (the “Securities
Act”), and, unless so registered, may not be
offered or sold in the United States or, directly or
3
indirectly, to U.S. Persons (as defined in
subsection (c) below), except in accordance with the provisions of Regulation S of the Securities
Act (“Regulation S”), pursuant to an effective registration statement under the Securities Act, or
pursuant to an exemption from, or in a transaction not subject to, the registration requirements of
the Securities Act;
(ii) In issuing the Units to the Participant, the Company is relying upon the “safe harbor”
provided by Regulation S;
(iii) It is a condition to the availability of the Regulation S “safe harbor” that the Units
not be offered or sold in the United States or to a U.S. person until the expiration of a period of
one year (or six months if the Company is a “reporting issuer” (as defined in Regulation S))
following the purchase of the Units (the
“Distribution Compliance Period”);
(iv) Until the expiration of the Distribution Compliance Period:
a) The Participant will not solicit offers to buy, offer for sale or sell any of the Units or
any beneficial interest therein in the United States or to or for the account of a U.S. Person;
b) Notwithstanding the foregoing, prior the expiration of the Distribution Compliance Period,
the Units may be offered and sold only if: (A) the Units are offered and sold pursuant to an
effective registration statement or pursuant to an exemption from the registration requirements of
the Securities Act if the offer or sale is within the United States or for the account of a U.S.
person (as such terms are defined in Regulation S); or (B) the offer and sale is outside the United
States and to other than a U.S. person;
c) The foregoing restrictions are binding upon subsequent transferees of the Units, except for
transferees pursuant to an effective registration statement;
(v) After the Distribution Compliance Period, the Units may be offered or sold within the
United States or to or for the account of a U.S. person only pursuant to applicable securities
laws;
(vi) The Participant will not engage in hedging transactions with regard to the Units unless
in compliance with the Securities Act;
(vii) The Participant will notify any purchaser of the Units of the restrictions relating to
the Units noted herein.
(viii) The Company will make a notation in its stock books regarding the restrictions on
transfer set forth in this Section, will transfer Units on the books of the Company only to the
extent consistent herewith, and will refuse to register any transfer of the Units not made in
accordance with the provisions of Regulation S, pursuant to an effective registration statement under the Securities Act or pursuant to an available
exemption from the registration requirements of the Securities Act; and
4
(ix) The Company and others will rely upon the truth and accuracy of the acknowledgements,
representations and agreements contained in this Agreement, and the Participant agrees that if any
of such acknowledgements, representations and agreements are no longer accurate or have been
breached, the Participant shall promptly notify the Company.
(b) The Participant represents and warrants to the Company that:
(i) The Participant is not a U.S. Person and the Participant is not acquiring the Units for
the account or benefit of, directly or indirectly, any U.S. Person;
(ii) The Participant is outside the United States when receiving and executing this Agreement
and is acquiring the Units for investment only and not with a view to resale or distribution and,
in particular, it has no intention to distribution either directly or indirectly any of the Units
in the United States or to U.S. Persons;
(iii) The Participant has not engaged, nor is the Participant aware that any party has
engaged, and the Participant will not engage or cause any third party to engage, in any directed
selling efforts (as such term is defined in Regulation S) in the United States with respect to the
Units;
(iv) The Participant is not a “distributor” (as defined in Regulation S) or a “dealer” (as
defined in the Securities Act); and
(v) The Participant has the full power and authority to deliver these representations in
connection with the Participant’s acquisition of the Units.
(c) For purposes of this Agreement, “U.S. Person” means: (i) any natural person resident in
the United States; (ii) any partnership or corporation organized or incorporated under the laws of
the United States; (iii) any estate of which any executor or administrator is a U.S. Person; (iv)
any trust of which any trustee is a U.S. Person; (v) any agency or branch of a foreign entity
located in the United States; (vi) any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary for the benefit of or account of a U.S.
Person; (vii) any discretionary account or similar account (other than an estate or trust) held by
a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United
States; and (viii) any partnership or corporation if (A) organized or incorporated under the laws
of any non-U.S. jurisdiction and (B) formed by a U.S. Person principally for the purpose of
investing in securities not registered under the Securities Act, unless it is organized or
incorporated, and owned, by accredited investors (as defined below) who are not natural persons,
estates or trusts.
(d) The Participant acknowledges that these representations and warranties may be translated
into one or more languages other than English. In case of any inconsistency between the English
version of these representations and warranties and a version in any other language, the English
version shall prevail. In the event that the Participant executes and delivers a non-English
version of these representations and warranties, such execution and delivery will also be deemed to be execution and delivery of
the English version of these representations and warranties.
5
(e) The Participant represents and warrants that the above acknowledgements, representations
and agreements are true and accurate as of the date hereof. The Participant also agrees to inform
the Company should any of the information contained in these representations and warranties cease
to be true and/or accurate. The Participant acknowledges that in the event the Participant does
not inform the Company of any change to the information contained in these representations and
warranties, the Company and its respective professional advisers will be entitled to continue to
rely on the truth and accuracy of the foregoing representations and warranties.
3. Tax Matters.
3.1 Tax Withholding. Regardless of any action taken by the Company or any other Participating
Company with respect to any or all income tax, social insurance, payroll tax, payment on account or
other tax-related withholding (the “Tax
Obligations”), the Participant acknowledges that the
ultimate liability for all Tax Obligations legally due by the Participant is and remains the
Participant’s responsibility and that the Company (a) makes no representations or undertakings
regarding the treatment of any Tax Obligations in connection with any aspect of the Award,
including the grant or vesting of the Award, the subsequent sale of Units acquired pursuant to the
Award, or the receipt of any dividends and (b) does not commit to structure the terms of the grant
or any other aspect of the Award to reduce or eliminate the Participant’s liability for Tax
Obligations. At the time the Grant Notice is executed, or at any time thereafter as requested by a
Participating Company, the Participant shall pay or make adequate arrangements satisfactory to the
Company to satisfy all withholding obligations of the Company and any other Participating Company.
In this regard, the Participant hereby authorizes withholding of all applicable Tax Obligations
from payroll and any other amounts payable to the Participant, and otherwise agrees to make
adequate provision for withholding of all applicable Tax Obligations, if any, by each Participating
Company which arise in connection with the Award. Alternatively, or in addition, if permissible
under applicable law, including Local Law, the Company or any other Participating Company may (i)
sell or arrange for the sale of securities acquired by the Participant to satisfy the Tax
Obligations, and/or (ii) withhold in Units, provided that only the amount of Units necessary to
satisfy the minimum withholding amount required by applicable law, including Local Law, is
withheld. Finally, the Participant shall pay to the Company or any other Participating Company any
amount of the Tax Obligations that any such company may be required to withhold as a result of the
Participant’s participation in the Plan that cannot be satisfied by the means previously described.
The Company shall have no obligation to deliver Units until the Tax Obligations as described in
this Section have been satisfied by the Participant.
3.2 Valuation of the Units. The Units have been valued by the Company, and the Company
believes this valuation represents a fair attempt at reaching an accurate appraisal of their worth.
The Participant understands, however, that the Company can give no assurances that such valuation
is in fact the fair market value of the Units and that it is possible that with the benefit of
hindsight, the applicable tax authorities would successfully assert that the value of the Units on
any relevant date is greater than so determined.
4. Administration.
All questions of interpretation concerning the Grant Notice, this Agreement and the Plan, the
Operating Agreement, and any other form of agreement or other document employed by the Board or the
Company in the administration of the Plan or the Award shall
6
be determined by the Board. All such
determinations by the Board shall be final, binding and conclusive upon all persons having an
interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and
determinations taken or made by the Board in the exercise of its discretion pursuant to the Plan or
the Award or other agreement thereunder (other than determining questions of interpretation
pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having
an interest in the Award. Any Officer shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the responsibility of or which
is allocated to the Company herein, provided the Officer has actual authority with respect to such
matter, right, obligation, or election.
5. The Award.
5.1 Grant and Issuance of Units. On the Date of Grant, the Participant shall acquire and the
Company shall issue, subject to the provisions of this Agreement, a number of Units equal to the
Total Number of Units. As a condition to the issuance of the Units, the Participant shall execute
and deliver the Grant Notice to the Company, accompanied by (a) an Assignment Separate from
Certificate duly endorsed (with date and number of Units blank) in the form provided by the Company
and (b) such executed documents, if any, as may be required pursuant to Section 5.2.
5.2 Issuance of Units Subject to Operating Agreement. If required by the Board, the
Participant shall not be entitled to acquire any Units pursuant to the Award and to be admitted as
a member of the Company thereby unless and until the Participant has executed and delivered to the
Company a written undertaking in a form acceptable to the Board to be bound by the terms and
conditions of the Operating Agreement and/or any lock-up or other documents the Board reasonably
determines to be necessary or appropriate in connection with the issuance of such Units.
5.3 No Monetary Payment Required. The Participant is not required to make any monetary
payment (other than to satisfy applicable tax withholding, if any, with respect to the issuance or
vesting of the Units) as a condition to receiving the Units, the consideration for which shall be
past services actually rendered or future services to be rendered to a Participating Company or for
its benefit.
5.4 Beneficial Ownership of Units; Certificate Registration. The Participant hereby
authorizes the Company, in its sole discretion, to deposit the Units with the Company’s transfer
agent, including any successor transfer agent, to be held in book entry form during the term of the
Escrow pursuant to Section 9. Furthermore, the Participant hereby authorizes the Company, in its
sole discretion, to deposit, following the term of such Escrow, for the benefit of the Participant
with any broker with which the Participant has an account relationship of which the Company has
notice any or all Units which are no longer subject to such Escrow. Except as provided by the
foregoing, the Units shall be registered in book entry form with the Company or its transfer agent
or shall be in certificate form, in either case registered in the name of the Participant, or, if
applicable, in the names of the heirs of the Participant.
5.5 Issuance of Units in Compliance with Law. The issuance of Units shall be subject to
compliance with all applicable requirements of United States federal or state law or Local Law with
respect to such securities. No Units shall be issued hereunder if their issuance would constitute
a violation of any applicable federal, state or foreign securities
7
laws, including Local Law, or
other law or regulations or the requirements of any stock exchange or market system upon which the
Units may then be listed. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the
lawful issuance of any Units shall relieve the Company of any liability in respect of the failure
to issue such Units as to which such requisite authority shall not have been obtained. As a
condition to the issuance of the Units, the Company may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as may be requested
by the Company.
6. Vesting of Units.
6.1 Normal Vesting. Units acquired pursuant to this Agreement shall become Vested Units as
provided in the Grant Notice. For purposes of determining the number of Vested Units following an
Ownership Change Event, credited Service shall include all Service with any corporation which is a
Participating Company at the time the Service is rendered, whether or not such corporation is a
Participating Company both before and after the Ownership Change Event.
6.2 Acceleration of Vesting Upon a Change in Control. In the event of a Change in Control,
the vesting of the Units shall be accelerated in full, and the Total Number of Units shall be
deemed Vested Units effective as of the consummation of the Change in Control, provided that the
Participant’s Service has not terminated prior to such date.
7. Company Reacquisition Right.
7.1 Grant of Company Reacquisition Right. In the event that (a) the Participant’s Service
terminates for any reason or no reason, with or without cause, or, (b) the Participant, the
Participant’s legal representative, or other holder of the Units, attempts to sell, exchange,
transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership Change Event),
including, without limitation, any transfer to a nominee or agent of the Participant, any Units
which are not Vested Units (“Unvested
Units”), the Participant shall forfeit and the Company shall
automatically reacquire the Unvested Units, and the Participant shall not be entitled to any
payment therefor (the “Company Reacquisition Right”).
7.2 Ownership Change Event, Dividends, Distributions and Adjustments. Upon the occurrence of
an Ownership Change Event, a dividend or distribution to the Unit holders of the Company paid in
Units or other property, or any other adjustment upon a change in the capital structure of the
Company as described in Section 12, any and all new, substituted or additional securities or other
property to which the Participant is entitled by reason of the Participant’s ownership of Unvested
Units shall be immediately subject to the Company Reacquisition Right and included in the terms
“Units” and “Unvested Units” for all purposes of the Company Reacquisition Right with the same
force and effect as the Unvested Units immediately prior to the Ownership Change Event, dividend,
distribution or adjustment, as the case may be. For purposes of determining the number of Vested
Units following an Ownership Change Event, dividend, distribution or adjustment, credited Service
shall include all Service with any corporation which is a Participating Company at the time the
Service is rendered, whether or not such corporation is a Participating Company both before and
after any such event.
8
8. Right of First Refusal.
8.1 Grant of Right of First Refusal. Except as provided in Section 8.7 and Section 16 below,
in the event the Participant, the Participant’s legal representative, or other holder of Units
subject to the Award proposes to sell, exchange, transfer, pledge, or otherwise dispose of any
Vested Units (the “Transfer Units”) to any person or entity, including, without limitation, any
Unit holder of a Participating Company, the Company shall have the right to repurchase the Transfer
Units under the terms and subject to the conditions set forth in this Section (the “Right of First
Refusal”).
8.2 Notice of Proposed Transfer. Prior to any proposed transfer of the Transfer Units, the
Participant shall deliver written notice (the
“Transfer Notice”) to the Company describing fully
the proposed transfer, including the number of Transfer Units, the name and address of the proposed
transferee (the “Proposed Transferee”) and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of the proposed
transfer. In the event of a bona fide gift or involuntary transfer, the proposed transfer price
shall be deemed to be the Fair Market Value of the Transfer Units, as determined by the Board in
good faith. If the Participant proposes to transfer any Transfer Units to more than one Proposed
Transferee, the Participant shall provide a separate Transfer Notice for the proposed transfer to
each Proposed Transferee. The Transfer Notice shall be signed by both the Participant and the
Proposed Transferee and must constitute a binding commitment of the Participant and the Proposed
Transferee for the transfer of the Transfer Units to the Proposed Transferee subject only to the
Right of First Refusal.
8.3 Bona Fide Transfer. If the Company determines that the information provided by the
Participant in the Transfer Notice is insufficient to establish the bona fide nature of a proposed
voluntary transfer, the Company shall give the Participant written notice of the Participant’s
failure to comply with the procedure described in this Section 8, and the Participant shall have no
right to transfer the Transfer Units without first complying with the procedure described in this
Section 8. The Participant shall not be permitted to transfer the Transfer Units if the proposed
transfer is not bona fide.
8.4 Exercise of Right of First Refusal. If the Company determines the proposed transfer to be
bona fide, the Company shall have the right to purchase all, but not less than all, of the Transfer
Units (except as the Company and the Participant otherwise agree) at the purchase price and on the
terms set forth in the Transfer Notice by delivery to the Participant of a notice of exercise of
the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered
to the Company. The Company’s exercise or failure to exercise the Right of First Refusal with
respect to any proposed transfer described in a Transfer Notice shall not affect the Company’s
right to exercise the Right of First Refusal with respect to any proposed transfer described in any
other Transfer Notice, whether or not such other Transfer Notice is issued by the Participant or
issued by a person other than the Participant with respect to a proposed transfer to the same
Proposed Transferee. If the Company exercises the Right of First Refusal, the Company and the
Participant shall thereupon consummate the sale of the Transfer Units to the Company on the terms
set forth in
the Transfer Notice within sixty (60) days after the date the Transfer Notice is delivered to
the Company (unless a longer period is offered by the Proposed Transferee); provided, however, that
in the event the Transfer Notice provides for the payment for the Transfer Units other than in
cash, the Company shall have the option of paying for the Transfer Units by the present value cash
equivalent of the consideration described in the Transfer Notice as
9
reasonably determined by the
Company. For purposes of the foregoing, cancellation of any indebtedness of the Participant to any
Participating Company shall be treated as payment to the Participant in cash to the extent of the
unpaid principal and any accrued interest canceled. Notwithstanding anything contained in this
Section to the contrary, the period during which the Company may exercise the Right of First
Refusal and consummate the purchase of the Transfer Units from the Participant shall terminate no
sooner than the later of (a) the date eight (8) months following the date on which the Participant
acquired the Transfer Units or (b) the date thirty (30) days after the date that exercise of the
Right of First Refusal and payment for the Transfer Units would no longer be prevented by the
provisions of any law, regulation or agreement that would prohibit the redemption by the Company of
the Transfer Units..
8.5 Failure to Exercise Right of First Refusal. If the Company fails to exercise the Right of
First Refusal in full (or to such lesser extent as the Company and the Participant otherwise agree)
within the period specified in Section 8.4 above, the Participant may conclude a transfer to the
Proposed Transferee of the Transfer Units on the terms and conditions described in the Transfer
Notice, provided such transfer occurs not later than ninety (90) days following delivery to the
Company of the Transfer Notice or, if applicable, following the end of the period described in the
last sentence of Section 8.4. The Company shall have the right to demand further assurances from
the Participant and the Proposed Transferee (in a form satisfactory to the Company) that the
transfer of the Transfer Units was actually carried out on the terms and conditions described in
the Transfer Notice. No Transfer Units shall be transferred on the books of the Company until the
Company has received such assurances, if so demanded, and has approved the proposed transfer as
bona fide. Any proposed transfer on terms and conditions different from those described in the
Transfer Notice, as well as any subsequent proposed transfer by the Participant, shall again be
subject to the Right of First Refusal and shall require compliance by the Participant with the
procedure described in this Section.
8.6 Transferees of Transfer Units. All transferees of the Transfer Units or any interest
therein, other than the Company, shall be required as a condition of such transfer to agree in
writing (in a form satisfactory to the Company) that such transferee shall receive and hold such
Transfer Units or interest therein subject to all of the terms and conditions of this Agreement,
including this Section providing for the Right of First Refusal with respect to any subsequent
transfer. Any sale or transfer of any Units shall be void unless the provisions of this Section
are met.
8.7 Transfers Not Subject to Right of First Refusal. The Right of First Refusal shall not
apply to any transfer or exchange of the Units if such transfer or exchange is in connection with
an Ownership Change Event. If the consideration received pursuant to such transfer or exchange
consists of securities of a Participating Company, such consideration shall remain subject to the
Right of First Refusal unless the provisions of Section 8.9 result in a termination of the Right of
First Refusal.
8.8 Assignment of Right of First Refusal. The Company shall have the right to assign the
Right of First Refusal at any time, whether or not there has been an attempted transfer, to one or
more persons as may be selected by the Company.
8.9 Early Termination of Right of First Refusal. The other provisions of this Agreement
notwithstanding, the Right of First Refusal shall terminate and be of no further force and effect
upon the existence of a public market for the class of securities
10
subject to the Right of First
Refusal. A “public market” shall be deemed to exist if (i) such securities listed on a national
securities exchange (as that term is used in the Exchange Act) or (ii) such securities are traded
on the over-the-counter market and prices therefor are published daily on business days in a
recognized financial journal.
9. Vested Unit Repurchase Option.
9.1 Grant of Vested Unit Repurchase Option. Except as provided in Section 9.4 below, in the
event of the occurrence of any Repurchase Event, as defined below, the Company shall have the right
to repurchase the Vested Units acquired by the Participant pursuant to the Award (the “Repurchase
Units”) under the terms and subject to the conditions set forth in this Section (the “Vested Unit
Repurchase Option”). Each of the following events
shall constitute a “Repurchase Event”:
(a) Termination of the Participant’s Service for any reason or no reason, with or without
cause, including death or Disability. The Repurchase Period, as defined below, shall commence on
the date of termination of the Participant’s Service.
(b) The Participant, the Participant’s legal representative, or other holder of Vested Units
acquired pursuant to the Award attempts to sell, exchange, transfer, pledge, or otherwise dispose
of any Repurchase Units without complying with the provisions of Section 8. The Repurchase Period,
as defined below, shall commence on the date the Company receives actual notice of such attempted
sale, exchange, transfer, pledge or other disposition.
(c) The receivership, bankruptcy or other creditor’s proceeding regarding the Participant or
the taking of any of the Participant’s Vested Units by legal process, such as a levy of execution.
The Repurchase Period, as defined below, shall commence on the date the Company receives actual
notice of the commencement of pendency of the receivership, bankruptcy or other creditor’s
proceeding or the date of such taking, as the case may be. The Fair Market Value of the Repurchase
Units shall be determined as of the last day of the month preceding the month in which the
proceeding involved commenced or the taking occurred.
9.2 Exercise of Vested Unit Repurchase Option. The Company may exercise the Vested Unit
Repurchase Option by written notice to the Participant, the Participant’s legal representative, or
other holder of the Repurchase Units, as the case may be, during the Repurchase Period. The
“Repurchase Period” shall be the period commencing at the time set forth in Section 9.1 above and
ending on the later of (a) the date ninety (90) days after the commencement of the Repurchase
Period or (b) the date nine (9) months after the Units acquired pursuant to the Award have become
Vested Units; provided, however, that if the redemption by the Company of the Repurchase Units
during any portion of the Repurchase Period would violate the provisions of any law, regulation or
agreement, the Vested Unit Repurchase Option shall remain exercisable until the later of the (the “Extended Repurchase Period”) (a) thirty (30) days after the date such exercise would no
longer be prevented by such provisions or (b) the end of the Repurchase Period. If the Company
fails to give notice during the Repurchase Period or the Extended Repurchase Period, as applicable,
the Vested Unit Repurchase Option shall terminate (unless the Company and the Participant have
extended the time for the exercise of the Vested Unit Repurchase Option) unless and until there is
a subsequent Repurchase Event. Notwithstanding a termination of the Vested Unit Repurchase Option,
the remaining provisions of this Agreement shall remain
11
in full force and effect, including,
without limitation, the Right of First Refusal set forth in Section 8. If there is a subsequent
Repurchase Event, the Vested Unit Repurchase Option shall again become exercisable as provided in
this Section 9. The Vested Unit Repurchase Option must be exercised, if at all, for all of the
Repurchase Units, except as the Company and the Participant otherwise agree.
9.3 Payment for Repurchase Units. The repurchase price per Unit being repurchased by the
Company pursuant to the Vested Unit Repurchase Option shall be an amount equal to the Fair Market
Value of the Units determined as of the date of the Repurchase Event (except as otherwise provided
in Section 9.1(c)) by the Board in good faith; provided, however, that if the Repurchase Event is
the termination of the Participant’s Service for Cause, the repurchase price per Unit shall be the
lesser of such Fair Market Value or the purchase price, if any, paid by the Participant to acquire
such Unit. Payment by the Company to the Participant shall be made in cash on or before the last
day of the Repurchase Period. For purposes of the foregoing, cancellation of any indebtedness of
the Participant to any Participating Company shall be treated as payment to the Participant in cash
to the extent of the unpaid principal and any accrued interest canceled.
9.4 Transfers Not Subject to Vested Unit Repurchase Option. The Vested Unit Repurchase Option
shall not apply to any transfer or exchange of Vested Units if such transfer or exchange is in
connection with an Ownership Change Event. If the consideration received pursuant to such transfer
or exchange consists of securities of a Participating Company, such consideration will remain
subject to the Vested Unit Repurchase Option unless the provisions of Section 9.6 result in a
termination of the Vested Unit Repurchase Option.
9.5 Assignment of Vested Unit Repurchase Option. The Company shall have the right to assign
the Vested Unit Repurchase Option at any time, whether or not such option is then exercisable, to
one or more persons as may be selected by the Company.
9.6 Early Termination of Vested Unit Repurchase Option. The other provisions of this
Agreement notwithstanding, the Vested Unit Repurchase Option shall terminate and be of no further
force and effect upon the existence of a public market, as defined in Section 8.9, for the class of
securities subject to the Vested Unit Repurchase Option.
10. Escrow.
10.1 Appointment of Agent. To ensure that Units subject to the Company Reacquisition Right
will be available for reacquisition, the Participant and the Company hereby appoint the Secretary
of the Company, or any other person designated by the Company, as their agent and as
attorney-in-fact for the Participant (the
“Agent”) to hold any and all Unvested Units and to sell,
assign and transfer to the Company any such Unvested Units reacquired by the Company pursuant to
the Company Reacquisition Right. The
Participant understands that appointment of the Agent is a material inducement to make this
Agreement and that such appointment is coupled with an interest and is irrevocable. The Agent
shall not be personally liable for any act the Agent may do or omit to do hereunder as escrow
agent, agent for the Company, or attorney in fact for the Participant while acting in good faith
and in the exercise of the Agent’s own good judgment, and any act done or omitted by the Agent
pursuant to the advice of the Agent’s own attorneys shall be conclusive evidence
12
of such good
faith. The Agent may rely upon any letter, notice or other document executed by any signature
purporting to be genuine and may resign at any time.
10.2 Establishment of Escrow. The Participant authorizes the Company to deposit the Unvested
Units with the Company’s transfer agent to be held in book entry form, as provided by Section 5.4,
and the Participant agrees to deliver to and deposit with the Agent each certificate, if any,
evidencing the Units and an Assignment Separate from Certificate with respect to such book entry
Units and each such certificate duly endorsed (with date and number of Units blank) in the form
attached to this Agreement, to be held by the Agent under the terms and conditions of this Section
(the “Escrow”). Upon the occurrence of an Ownership Change Event, a dividend or distribution to
the Unit holders of the Company paid in Units or other property, or any other adjustment upon a
change in the capital structure of the Company, as described in Section 12, any and all new,
substituted or additional securities or other property to which the Participant is entitled by
reason of his or her ownership of the Units that remain, following such Ownership Change Event,
dividend, distribution or change described in Section 12, subject to the Company Reacquisition
Right shall be immediately subject to the Escrow to the same extent as the Units immediately before
such event. The Company shall bear the expenses of the Escrow.
10.3 Delivery of Units to Participant. The Escrow shall continue with respect to any Units
for so long as such Units remain subject to the Company Reacquisition Right. Upon termination of
the Company Reacquisition Right with respect to Units, the Company shall so notify the Agent and
direct the Agent to deliver such number of Units to the Participant. As soon as practicable after
receipt of such notice, the Agent shall cause the Units specified by such notice to be delivered to
the Participant, and the Escrow shall terminate with respect to such Units.
10.4 Notices and Payments. In the event the Units and any other property held in escrow are
subject to the Company’s exercise of the Company Reacquisition Right, the Right of First Refusal or
the Vested Unit Repurchase Option, the notices required to be given to the Participant shall be
given to the Agent, and any payment required to be given to the Participant shall be given to the
Agent. Within thirty (30) days after payment by the Company, the Agent shall deliver the Units and
any other property which the Company has purchased to the Company and shall deliver the payment
received from the Company to the Participant.
11. Effect of Change in Control.
In the event of a Change in Control, the surviving, continuing, successor, or purchasing
corporation or other business entity or parent thereof, as the case
may be (the “Acquiror”), may,
without the consent of the Participant, assume or continue in full force and effect the Company’s
rights and obligations under the Award or substitute for the Award a substantially equivalent award
for the Acquiror’s securities. For purposes of this Section, the Award shall be deemed assumed if,
following the Change in Control, the Award confers the right to receive, subject to the terms and
conditions of the Plan and this Agreement, for
each Unit subject to the Award immediately prior to the Change in Control, the consideration
(whether units, stock, cash, other securities or property or a combination thereof) to which a
holder of a Unit on the effective date of the Change in Control was entitled. Notwithstanding the
foregoing, Units acquired pursuant to the Award prior to the Change in Control and any
consideration received pursuant to the Change in Control with respect to such Units shall
13
continue
to be subject to all applicable provisions of this Agreement except as otherwise provided herein.
12. Adjustments for Changes in Capital Structure.
Subject to any required action by the members of the Company, in the event of any change in
the Units effected without receipt of consideration by the Company, whether through merger,
consolidation, reorganization, reincorporation, recapitalization, reclassification, Unit dividend,
split, reverse split, split-up, split-off, spin-off, combination of Units, exchange of Units,
Solvent Reorganization (as defined by the Operating Agreement) or similar change in the capital
structure of the Company, adjustments shall be made as the Board determines appropriate in order to
prevent dilution or enlargement of the Participant’s rights under the Award, including, without
limitation, (i) adjusting the number and/or kind of Units subject to the Award; (ii) adjusting the
Vesting Conditions, and/or (iii) providing for substitute awards, accelerating vesting, and/or
effecting the lapse of restrictions; provided, however, that in the case of any “equity
restructuring” (within the meaning of the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123 (revised 2004), the Board shall make an equitable or
proportionate adjustment to the Option to reflect such equity restructuring. For purposes of the
foregoing, conversion of any convertible securities of the Company shall not be treated as
“effected without receipt of consideration by the Company.” Any and all new, substituted or
additional securities or other property to which Participant is entitled by reason of ownership of
Units acquired pursuant to the Award will be immediately subject to the provisions of the Award on
the same basis as all Units originally acquired hereunder. Any fractional Unit resulting from an
adjustment pursuant to this Section shall be rounded down to the nearest whole number. Such
adjustments shall be determined by the Board, and its determination shall be final, binding and
conclusive.
13. Rights as a Member, Manager, Employee or Consultant.
The Participant shall have no rights as a member with respect to any Units subject to the
Award until the date of the issuance of the Units (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall
be made for dividends, distributions or other rights for which the record date is prior to the date
the Units are issued, except as provided in Section 12. Subject to the provisions of this
Agreement, the Participant shall exercise all rights and privileges of a member of the Company with
respect to Units deposited in the Escrow pursuant to Section 9. If the Participant is an Employee,
the Participant understands and acknowledges that, except as otherwise provided in a separate,
written employment agreement between a Participating Company and the Participant, the Participant’s
employment is “at will” and is for no specified term. Nothing in this Agreement shall confer upon
the Participant any right to continue in the Service of a Participating Company or interfere in any
way with any right of the Participating Company Group to terminate the Participant’s Service, as
the case may be, at any time.
14. Legends.
If the Units are at any time evidenced by certificates, the Company may at any time place
legends referencing the Company Reacquisition Right, Right of First Refusal, the Vested Unit
Repurchase Option and any applicable federal, state or foreign securities law, including Local Law,
restrictions on all certificates representing Units. The Participant shall, at the request of the
Company, promptly present to the Company any and all certificates
14
representing securities acquired
pursuant to the Award in the possession of the Participant in order to carry out the provisions of
this Section. Unless otherwise specified by the Company, legends placed on such certificates may
include, but shall not be limited to, the following:
14.1 “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS AND, AS SUCH, THEY MAY
NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF SUCH REGISTRATION IN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S.
PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT
TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
AGREES NOT TO ENGAGE IN HEDGING TRANSACTIONS WITH REGARD TO THE SECURITIES UNLESS IN COMPLIANCE
WITH THE SECURITIES ACT.”
14.2 “THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AND REPURCHASE OPTIONS IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN
AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER’S PREDECESSOR IN
INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.”
15. Lock-Up Agreement.
The Participant hereby agrees that in the event of any underwritten public offering of
securities, including an initial public offering of securities, made by the Company pursuant to an
effective registration statement filed under the Securities Act, the Participant shall not offer,
sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any securities of the Company or any rights to acquire securities of
the Company for such period of time from and after the effective date of such registration
statement as may be established by the underwriter for such public offering; provided, however,
that such period of time shall not exceed one hundred eighty (180) days from the effective date of
the registration statement to be filed in connection with such public offering; provided, further,
however, that such one hundred eighty (180) day period may be extended for an additional period,
not to exceed twenty (20) days, upon the request of the Company or the underwriter to accommodate
regulatory restrictions on (i) the publication or other distribution of research reports and (ii)
analyst recommendations and opinions, including but not limited to, the restrictions contained in
NASD Rule 2711(f)(4) or NYSE Rule 472(f0(4), or any successor provisions or amendments thereto.
The foregoing limitation
shall not apply to securities registered in the public offering under the Securities Act. The
Participant hereby agrees to enter into any agreement reasonably required by the underwriters to
implement the foregoing within a reasonable timeframe if so requested by the Company.
15
16. Transfers in Violation of Agreement.
No Units may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise
disposed of, including by operation of law, in any manner which violates any of the provisions of
this Agreement or the Operating Agreement and, except pursuant to an Ownership Change Event, until
the date on which such Units become Vested Units, and any such attempted disposition shall be void.
The Company shall not be required (a) to transfer on its books any Units which will have been
transferred in violation of any of the provisions set forth in this Agreement or the Operating
Agreement or (b) to treat as owner of such Units or to accord the right to vote as such owner or to
pay dividends to any transferee to whom such Units will have been so transferred. In order to
enforce its rights under this Section, the Company shall be authorized to give a stop transfer
instruction with respect to the Units to the Company’s transfer agent.
17. Miscellaneous Provisions.
17.1 Termination or Amendment. The Board may terminate or amend the Plan or this Agreement at
any time; provided, however, that no such termination or amendment may have a materially adverse
effect on the Participant’s rights under this Agreement without the consent of the Participant,
unless such termination or amendment is necessary to comply with any applicable law or government
regulation. No amendment or addition to this Agreement shall be effective unless in writing.
17.2 Nontransferability of the Award. The right to acquire Units pursuant to the Award shall
not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment,
pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s
beneficiary, except transfer by will or by the laws of descent and distribution. All rights with
respect to the Award shall be exercisable during the Participant’s lifetime only by the Participant
or the Participant’s guardian or legal representative.
17.3 Further Instruments. The parties hereto agree to execute such further instruments and to
take such further action as may reasonably be necessary to carry out the intent of this Agreement.
17.4 Binding Effect. This Agreement shall inure to the benefit of the successors and assigns
of the Company and, subject to the restrictions on transfer set forth herein, be binding upon the
Participant and the Participant’s heirs, executors, administrators, successors and assigns.
17.5 Delivery of Documents and Notices. Any document relating to participation in the Plan,
or any notice required or permitted hereunder shall be given in writing and shall be deemed
effectively given (except to the extent that this Agreement provides for effectiveness only upon
actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail address,
if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post
Office or foreign postal service, by registered or certified mail, or with a nationally recognized
overnight courier service, with postage and fees prepaid, addressed to the other party at the
address of such party set forth in the Grant
Notice or at such other address as such party may designate in writing from time to time to
the other party.
16
(a) Description of Electronic Delivery. The Plan documents, which may include but do not
necessarily include: the Plan, the Grant Notice, this Agreement, the Operating Agreement and any
reports of the Company provided generally to the Company’s Unit holders, may be delivered to the
Participant electronically. In addition, if permitted by the Company, the Participant may deliver
electronically the Grant Notice to the Company or to such third party involved in administering the
Plan as the Company may designate from time to time. Such means of electronic delivery may include
but do not necessarily include the delivery of a link to a Company intranet or the Internet site of
a third party involved in administering the Plan, the delivery of the document via e-mail or such
other means of electronic delivery specified by the Company.
(b) Consent to Electronic Delivery. The Participant acknowledges that the Participant has
read Section 17.5(a) of this Agreement and consents to the electronic delivery of the Plan
documents and, if permitted by the Company, the delivery of the Grant Notice and notices in
connection with the Escrow, as described in Section 17.5(a). The Participant acknowledges that he
or she may receive from the Company a paper copy of any documents delivered electronically at no
cost to the Participant by contacting the Company by telephone or in writing. The Participant
further acknowledges that the Participant will be provided with a paper copy of any documents if
the attempted electronic delivery of such documents fails. Similarly, the Participant understands
that the Participant must provide the Company or any designated third party administrator with a
paper copy of any documents if the attempted electronic delivery of such documents fails. The
Participant may revoke his or her consent to the electronic delivery of documents described in
Section 17.5(a) or may change the electronic mail address to which such documents are to be
delivered (if Participant has provided an electronic mail address) at any time by notifying the
Company of such revoked consent or revised e-mail address by telephone, postal service or
electronic mail. Finally, the Participant understands that he or she is not required to consent to
electronic delivery of documents described in Section 17.5(a).
17.6 Integrated Agreement. The Grant Notice, this Agreement and the Plan, together with the
Operating Agreement and any employment, service or other agreement between the Participant and a
Participating Company referring to the Award, shall constitute the entire understanding and
agreement of the Participant and the Participating Company Group with respect to the subject matter
contained herein or therein and supersede any prior agreements, understandings, restrictions,
representations, or warranties among the Participant and the Participating Company Group with
respect to such subject matter. To the extent contemplated herein or therein, the provisions of
the Grant Notice, this Agreement, the Plan and the Operating Agreement shall survive any settlement
of the Award and shall remain in full force and effect.
17.7 Applicable Law. The Agreement shall be governed by the laws of the State of California
as such laws are applied to agreements between California residents entered into and to be
performed entirely within the State of California. For purposes of litigating any dispute that
arises directly or indirectly from the relationship of the parties as evidenced by this Option
Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California
and agree that such litigation shall be conducted only in the courts of the County of Santa Clara,
California, or the federal courts of the United States for the Northern District of California, and no other courts, where this Option Agreement is
made and/or performed.
17
17.8 Counterparts. The Grant Notice may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same instrument.
18
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR
VALUE RECEIVED the undersigned does hereby sell, assign and transfer unto ( ) Units of MagnaChip Semiconductor LLC standing in the
undersigned’s name on the books of said corporation and does hereby irrevocably constitute and
appoint Attorney to transfer the said Units on the books of said
corporation with full power of substitution in the premises.
Dated:
|
Signature |
||||
| Print Name | ||||
Instructions: Please do not fill in any blanks other than the signature line. The purpose
of this assignment is to enable the Company to exercise its Company Reacquisition Right set forth
in the Restricted Unit Agreement without requiring additional signatures on the part of the
Participant.
Exhibit 10.24
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR
25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
MAGNACHIP SEMICONDUCTOR LLC
RESTRICTED UNIT AGREEMENT
[US Participants]
RESTRICTED UNIT AGREEMENT
[US Participants]
MagnaChip Semiconductor LLC has granted to the Participant named in the Notice of Grant of
Restricted Units (the “Grant Notice”) to which this Restricted Unit Agreement (the “Agreement”) is
attached an Award consisting of Units subject to the terms and conditions set forth in the Grant
Notice and this Agreement. The Award has been granted pursuant to and shall in all respects be
subject to the terms and conditions of the MagnaChip Semiconductor LLC 2009 Common Unit Plan (the
“Plan”), as amended to the Date of Grant, the provisions of which are incorporated herein by
reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of, and
represents that the Participant has read and is familiar with, the Grant Notice, this Agreement,
the Plan and the Operating Agreement, (b) accepts the Award subject to all of the terms and
conditions of the Grant Notice, this Agreement, the Plan and the Operating, and (c) agrees to
accept as binding, conclusive and final all decisions or interpretations of the Board upon any
questions arising under such documents.
1. Definitions and Construction.
1.1 Definitions. Unless otherwise defined herein, capitalized terms shall have the meanings
assigned to such terms in the Grant Notice or the Plan.
1.2 Construction. Captions and titles contained herein are for convenience only and shall not
affect the meaning or interpretation of any provision of this Agreement. Except when otherwise
indicated by the context, the singular shall include the plural and the plural shall include the
singular. Use of the term “or” is not intended to be exclusive, unless the context clearly
requires otherwise.
1
2. Tax Matters.
2.1 Election under Section 83(b) of the Code. The Participant understands that Section 83 of
the Code taxes as ordinary income the difference between the amount paid for the Units, if
anything, and the fair market value of the Units as of the date on which the Units are
“substantially vested,” within the meaning of Section 83. In this context, “substantially vested”
means that the right of the Company to reacquire the Units pursuant to the Company Reacquisition
Right has lapsed. The Participant understands that he or she may elect to have his or her taxable
income determined at the time he or she acquires the Units rather than when and as the Company
Reacquisition Right lapses by filing an election under Section 83(b) of the Code with the Internal
Revenue Service no later than thirty (30) days after the date of acquisition of the Units. The
Participant understands that failure to make a timely filing under Section 83(b) will result in his
or her recognition of ordinary income, as the Company Reacquisition Right lapses, on the difference
between the purchase price, if anything, and the fair market value of the Units at the time such
restrictions lapse. The Participant further understands, however, that if Units with respect to
which an election under Section 83(b) has been made are forfeited to the Company pursuant to its
Company Reacquisition Right, such forfeiture will be treated as a sale on which there is realized a
loss equal to the excess (if any) of the amount paid (if any) by the Participant for the forfeited
Units over the amount realized (if any) upon their forfeiture. If the Participant has paid nothing
for the forfeited Units and has received no payment upon their forfeiture, the Participant
understands that he or she will be unable to recognize any loss on the forfeiture of the Units even
though the Participant incurred a tax liability by making an election under Section 83(b).
2.2 Notice to Company. The Participant will notify the Company in writing if the Participant
files an election pursuant to Section 83(b) of the Code. The Company intends, in the event it does
not receive from the Participant evidence of such filing, to claim a tax deduction for any amount
which would otherwise be taxable to the Participant in the absence of such an election.
2.3 Valuation of the Units.
(a) The Units have been valued by the Company, and the Company believes this valuation
represents a fair attempt at reaching an accurate appraisal of their worth. The Participant
understands, however, that the Company can give no assurances that such valuation is in fact the
fair market value of the Units and that it is possible that with the benefit of hindsight, the
Internal Revenue Service would successfully assert that the value of the Units on any relevant date
is greater than so determined.
(b) If the Internal Revenue Service were to succeed in a tax determination under the Code that
the Units received have a value greater than that determined by the Company, the additional value
would constitute ordinary income as of the date of the Participant’s realization of income. The
additional taxes (and interest) due would be payable by the Participant, and there is no provision
for the Company to reimburse him or her for that tax liability, and the Participant assumes all
responsibility for such potential tax liability. Under present law, in the event such additional
value would represent more than twenty-five (25%) of the Participant’s gross income for the year in
which the value of the Units were taxable, the Internal Revenue Service would have six (6) years
from the due date for filing the return (or the actual filing date of the return if filed
thereafter) within which to access the Participant the additional tax and interest which would then
be due. The Company
2
undertakes no obligation to inform the Participant of any change in the tax laws which may
effect this Agreement or its consequences.
2.4 Consultation with Tax Advisors. The Participant understands that he or she should consult
with his or her tax advisor regarding the advisability of filing with the IRS an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days after the date of the
acquisition or the Units pursuant to this Agreement. Failure to file an election under Section
83(b), if appropriate, may result in adverse tax consequences to the Participant. The Participant
acknowledges that he or she has been advised to consult with a tax advisor regarding the tax
consequences to the Participant of the purchase of Units hereunder. ANY ELECTION UNDER SECTION
83(b) THE PARTICIPANT WISHES TO MAKE MUST BE FILED NO LATER THAN 30 DAYS AFTER THE DATE ON WHICH
THE PARTICIPANT ACQUIRES THE UNITS. THIS TIME PERIOD CANNOT BE EXTENDED. THE PARTICIPANT
ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE PARTICIPANT’S SOLE
RESPONSIBILITY, EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH
ELECTION ON HIS OR HER BEHALF.
2.5 Tax Withholding.
(a) In General. At the time the Grant Notice is executed, or at any time thereafter as
requested by a Participating Company, the Participant hereby authorizes withholding from payroll
and any other amounts payable to the Participant, and otherwise agrees to make adequate provision
for, any sums required to satisfy the federal, state, local and foreign tax (including any social
insurance) withholding obligations of the Participating Company, if any, which arise in connection
with the Award, including, without limitation, obligations arising upon (a) the transfer of Units
to the Participant, (b) the lapsing of any restriction with respect to any Units, (c) the filing of
an election to recognize tax liability, or (d) the transfer by the Participant of any Units. The
Company shall have no obligation to deliver the Units or to release any Units from the Escrow
established pursuant to Section 8 until the tax withholding obligations of the Participating
Company have been satisfied by the Participant.
(b) Withholding in Units. The Company shall have the right, but not the obligation, to
require the Participant to satisfy all or any portion of a Participating Company’s tax withholding
obligations by withholding a number of whole Vested Units otherwise deliverable to the Participant
or by the Participant’s tender to the Company of a number of whole Vested Units or vested Units
acquired otherwise than pursuant to the Award having, in any such case, a fair market value, as
determined by the Company as of the date on which the tax withholding obligations arise, not in
excess of the amount of such tax withholding obligations determined by the applicable minimum
statutory withholding rates.
3. Administration.
All questions of interpretation concerning the Grant Notice, this Agreement and the Plan, the
Operating Agreement, and any other form of agreement or other document employed by the Board or the
Company in the administration of the Plan or the Award shall be determined by the Board. All such
determinations by the Board shall be final, binding and conclusive upon all persons having an
interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and
determinations taken or made by the Board in the exercise of its discretion pursuant to the Plan or
the Award or other agreement thereunder
3
(other than determining questions of interpretation pursuant to the preceding sentence) shall
be final, binding and conclusive upon all persons having an interest in the Award. Any Officer
shall have the authority to act on behalf of the Company with respect to any matter, right,
obligation, or election which is the responsibility of or which is allocated to the Company herein,
provided the Officer has actual authority with respect to such matter, right, obligation, or
election.
4. The Award.
4.1 Grant and Issuance of Units. On the Date of Grant, the Participant shall acquire and the
Company shall issue, subject to the provisions of this Agreement, a number of Units equal to the
Total Number of Units. As a condition to the issuance of the Units, the Participant shall execute
and deliver the Grant Notice to the Company, accompanied by (a) an Assignment Separate from
Certificate duly endorsed (with date and number of Units blank) in the form provided by the Company
and (b) such executed documents, if any, as may be required pursuant to Section 4.2.
4.2 Issuance of Units Subject to Operating Agreement. If required by the Board, the
Participant shall not be entitled to acquire any Units pursuant to the Award and to be admitted as
a member of the Company thereby unless and until the Participant has executed and delivered to the
Company a written undertaking in a form acceptable to the Board to be bound by the terms and
conditions of the Operating Agreement and/or any lock-up or other documents the Board reasonably
determines to be necessary or appropriate in connection with the issuance of such Units.
4.3 No Monetary Payment Required. The Participant is not required to make any monetary
payment (other than to satisfy applicable tax withholding, if any, with respect to the issuance or
vesting of the Units) as a condition to receiving the Units, the consideration for which shall be
past services actually rendered or future services to be rendered to a Participating Company or for
its benefit.
4.4 Beneficial Ownership of Units; Certificate Registration. The Participant hereby
authorizes the Company, in its sole discretion, to deposit the Units with the Company’s transfer
agent, including any successor transfer agent, to be held in book entry form during the term of the
Escrow pursuant to Section 8. Furthermore, the Participant hereby authorizes the Company, in its
sole discretion, to deposit, following the term of such Escrow, for the benefit of the Participant
with any broker with which the Participant has an account relationship of which the Company has
notice any or all Units which are no longer subject to such Escrow. Except as provided by the
foregoing, the Units shall be registered in book entry form with the Company or its transfer agent
or shall be in certificate form, in either case registered in the name of the Participant, or, if
applicable, in the names of the heirs of the Participant.
4.5 Issuance of Units in Compliance with Law. The issuance of Units shall be subject to
compliance with all applicable requirements of federal, state or foreign law with respect to such
securities. No Units shall be issued hereunder if their issuance would constitute a violation of
any applicable federal, state or foreign securities laws or other law or regulations or the
requirements of any stock exchange or market system upon which the Units may then be listed. The
inability of the Company to obtain from any regulatory body having jurisdiction the authority, if
any, deemed by the Company’s legal counsel to be necessary to the lawful issuance of any Units
shall relieve the Company of any liability in respect of the
4
failure to issue such Units as to which such requisite authority shall not have been obtained.
As a condition to the issuance of the Units, the Company may require the Participant to satisfy
any qualifications that may be necessary or appropriate, to evidence compliance with any applicable
law or regulation and to make any representation or warranty with respect thereto as may be
requested by the Company.
5. Vesting of Units.
5.1 Normal Vesting. Units acquired pursuant to this Agreement shall become Vested Units as
provided in the Grant Notice. For purposes of determining the number of Vested Units following an
Ownership Change Event, credited Service shall include all Service with any corporation which is a
Participating Company at the time the Service is rendered, whether or not such corporation is a
Participating Company both before and after the Ownership Change Event.
5.2 Acceleration of Vesting Upon a Change in Control. In the event of a Change in Control,
the vesting of the Units shall be accelerated in full, and the Total Number of Units shall be
deemed Vested Units effective as of the consummation of the Change in Control, provided that the
Participant’s Service has not terminated prior to such date.
6. Company Reacquisition Right.
6.1 Grant of Company Reacquisition Right. In the event that (a) the Participant’s Service
terminates for any reason or no reason, with or without cause, or, (b) the Participant, the
Participant’s legal representative, or other holder of the Units, attempts to sell, exchange,
transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership Change Event),
including, without limitation, any transfer to a nominee or agent of the Participant, any Units
which are not Vested Units (“Unvested Units”), the Participant shall forfeit and the Company shall
automatically reacquire the Unvested Units, and the Participant shall not be entitled to any
payment therefor (the “Company Reacquisition Right”).
6.2 Ownership Change Event, Dividends, Distributions and Adjustments. Upon the occurrence of
an Ownership Change Event, a dividend or distribution to the Unit holders of the Company paid in
Units or other property, or any other adjustment upon a change in the capital structure of the
Company as described in Section 11, any and all new, substituted or additional securities or other
property to which the Participant is entitled by reason of the Participant’s ownership of Unvested
Units shall be immediately subject to the Company Reacquisition Right and included in the terms
“Units” and “Unvested Units” for all purposes of the Company Reacquisition Right with the same
force and effect as the Unvested Units immediately prior to the Ownership Change Event, dividend,
distribution or adjustment, as the case may be. For purposes of determining the number of Vested
Units following an Ownership Change Event, dividend, distribution or adjustment, credited Service
shall include all Service with any corporation which is a Participating Company at the time the
Service is rendered, whether or not such corporation is a Participating Company both before and
after any such event.
7. Right of First Refusal.
7.1 Grant of Right of First Refusal. Except as provided in Section 7.7 and Section 15 below,
in the event the Participant, the Participant’s legal representative, or
5
other holder of Units subject to the Award proposes to sell, exchange, transfer, pledge, or
otherwise dispose of any Vested Units (the “Transfer Units”) to any person or entity, including,
without limitation, any Unit holder of a Participating Company, the Company shall have the right to
repurchase the Transfer Units under the terms and subject to the conditions set forth in this
Section (the “Right of First Refusal”).
7.2 Notice of Proposed Transfer. Prior to any proposed transfer of the Transfer Units, the
Participant shall deliver written notice (the “Transfer Notice”) to the Company describing fully
the proposed transfer, including the number of Transfer Units, the name and address of the proposed
transferee (the “Proposed Transferee”) and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of the proposed
transfer. In the event of a bona fide gift or involuntary transfer, the proposed transfer price
shall be deemed to be the Fair Market Value of the Transfer Units, as determined by the Board in
good faith. If the Participant proposes to transfer any Transfer Units to more than one Proposed
Transferee, the Participant shall provide a separate Transfer Notice for the proposed transfer to
each Proposed Transferee. The Transfer Notice shall be signed by both the Participant and the
Proposed Transferee and must constitute a binding commitment of the Participant and the Proposed
Transferee for the transfer of the Transfer Units to the Proposed Transferee subject only to the
Right of First Refusal.
7.3 Bona Fide Transfer. If the Company determines that the information provided by the
Participant in the Transfer Notice is insufficient to establish the bona fide nature of a proposed
voluntary transfer, the Company shall give the Participant written notice of the Participant’s
failure to comply with the procedure described in this Section 7, and the Participant shall have no
right to transfer the Transfer Units without first complying with the procedure described in this
Section 7. The Participant shall not be permitted to transfer the Transfer Units if the proposed
transfer is not bona fide.
7.4 Exercise of Right of First Refusal. If the Company determines the proposed transfer to be
bona fide, the Company shall have the right to purchase all, but not less than all, of the Transfer
Units (except as the Company and the Participant otherwise agree) at the purchase price and on the
terms set forth in the Transfer Notice by delivery to the Participant of a notice of exercise of
the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered
to the Company. The Company’s exercise or failure to exercise the Right of First Refusal with
respect to any proposed transfer described in a Transfer Notice shall not affect the Company’s
right to exercise the Right of First Refusal with respect to any proposed transfer described in any
other Transfer Notice, whether or not such other Transfer Notice is issued by the Participant or
issued by a person other than the Participant with respect to a proposed transfer to the same
Proposed Transferee. If the Company exercises the Right of First Refusal, the Company and the
Participant shall thereupon consummate the sale of the Transfer Units to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the Transfer Notice is
delivered to the Company (unless a longer period is offered by the Proposed Transferee); provided,
however, that in the event the Transfer Notice provides for the payment for the Transfer Units
other than in cash, the Company shall have the option of paying for the Transfer Units by the
present value cash equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Company. For purposes of the foregoing, cancellation of any indebtedness of the
Participant to any Participating Company shall be treated as payment to the Participant in cash to
the extent of the unpaid principal and any accrued interest canceled.
6
Notwithstanding anything contained in this Section to the contrary, the period during which
the Company may exercise the Right of First Refusal and consummate the purchase of the Transfer
Units from the Participant shall terminate no sooner than the later of (a) the date eight (8)
months following the date on which the Participant acquired the Transfer Units or (b) the date
thirty (30) days after the date that exercise of the Right of First Refusal and payment for the
Transfer Units would no longer be prevented by the provisions of any law, regulation or agreement
that would prohibit the redemption by the Company of the Transfer Units.
7.5 Failure to Exercise Right of First Refusal. If the Company fails to exercise the Right of
First Refusal in full (or to such lesser extent as the Company and the Participant otherwise agree)
within the period specified in Section 7.4 above, the Participant may conclude a transfer to the
Proposed Transferee of the Transfer Units on the terms and conditions described in the Transfer
Notice, provided such transfer occurs not later than ninety (90) days following delivery to the
Company of the Transfer Notice or, if applicable, following the end of the period described in the
last sentence of Section 7.4. The Company shall have the right to demand further assurances from
the Participant and the Proposed Transferee (in a form satisfactory to the Company) that the
transfer of the Transfer Units was actually carried out on the terms and conditions described in
the Transfer Notice. No Transfer Units shall be transferred on the books of the Company until the
Company has received such assurances, if so demanded, and has approved the proposed transfer as
bona fide. Any proposed transfer on terms and conditions different from those described in the
Transfer Notice, as well as any subsequent proposed transfer by the Participant, shall again be
subject to the Right of First Refusal and shall require compliance by the Participant with the
procedure described in this Section.
7.6 Transferees of Transfer Units. All transferees of the Transfer Units or any interest
therein, other than the Company, shall be required as a condition of such transfer to agree in
writing (in a form satisfactory to the Company) that such transferee shall receive and hold such
Transfer Units or interest therein subject to all of the terms and conditions of this Agreement,
including this Section providing for the Right of First Refusal with respect to any subsequent
transfer. Any sale or transfer of any Units shall be void unless the provisions of this Section
are met.
7.7 Transfers Not Subject to Right of First Refusal. The Right of First Refusal shall not
apply to any transfer or exchange of the Units if such transfer or exchange is in connection with
an Ownership Change Event. If the consideration received pursuant to such transfer or exchange
consists of securities of a Participating Company, such consideration shall remain subject to the
Right of First Refusal unless the provisions of Section 7.9 result in a termination of the Right of
First Refusal.
7.8 Assignment of Right of First Refusal. The Company shall have the right to assign the
Right of First Refusal at any time, whether or not there has been an attempted transfer, to one or
more persons as may be selected by the Company.
7.9 Early Termination of Right of First Refusal. The other provisions of this Agreement
notwithstanding, the Right of First Refusal shall terminate and be of no further force and effect
upon the existence of a public market for the class of securities subject to the Right of First
Refusal. A “public market” shall be deemed to exist if (i) such securities listed on a national
securities exchange (as that term is used in the Exchange Act)
7
or (ii) such securities are traded on the over-the-counter market and prices therefor are
published daily on business days in a recognized financial journal.
8. Vested Unit Repurchase Option.
8.1 Grant of Vested Unit Repurchase Option. Except as provided in Section 8.4 below, in the
event of the occurrence of any Repurchase Event, as defined below, the Company shall have the right
to repurchase the Vested Units acquired by the Participant pursuant to the Award (the “Repurchase
Units”) under the terms and subject to the conditions set forth in this Section (the “Vested Unit
Repurchase Option”). Each of the following events shall constitute a “Repurchase Event”:
(a) Termination of the Participant’s Service for any reason or no reason, with or without
cause, including death or Disability. The Repurchase Period, as defined below, shall commence on
the date of termination of the Participant’s Service.
(b) The Participant, the Participant’s legal representative, or other holder of Vested Units
acquired pursuant to the Award attempts to sell, exchange, transfer, pledge, or otherwise dispose
of any Repurchase Units without complying with the provisions of Section 7. The Repurchase Period,
as defined below, shall commence on the date the Company receives actual notice of such attempted
sale, exchange, transfer, pledge or other disposition.
(c) The receivership, bankruptcy or other creditor’s proceeding regarding the Participant or
the taking of any of the Participant’s Vested Units by legal process, such as a levy of execution.
The Repurchase Period, as defined below, shall commence on the date the Company receives actual
notice of the commencement of pendency of the receivership, bankruptcy or other creditor’s
proceeding or the date of such taking, as the case may be. The Fair Market Value of the Repurchase
Units shall be determined as of the last day of the month preceding the month in which the
proceeding involved commenced or the taking occurred.
8.2 Exercise of Vested Unit Repurchase Option. The Company may exercise the Vested Unit
Repurchase Option by written notice to the Participant, the Participant’s legal representative, or
other holder of the Repurchase Units, as the case may be, during the Repurchase Period. The
“Repurchase Period” shall be the period commencing at the time set forth in Section 8.1 above and
ending on the later of (a) the date ninety (90) days after the commencement of the Repurchase
Period or (b) the date nine (9) months after the Units acquired pursuant to the Award have become
Vested Units; provided, however, that if the redemption by the Company of the Repurchase Units
during any portion of the Repurchase Period would violate the provisions of any law, regulation or
agreement, the Vested Unit Repurchase Option shall remain exercisable until the later of (the
“Extended Repurchase Period”) (a) thirty (30) days after the date such exercise would no longer be
prevented by such provisions or (b) the end of the Repurchase Period. If the Company fails to give
notice during the Repurchase Period or the Extended Repurchase Period, as applicable, the Vested
Unit Repurchase Option shall terminate (unless the Company and the Participant have extended the
time for the exercise of the Vested Unit Repurchase Option) unless and until there is a subsequent
Repurchase Event. Notwithstanding a termination of the Vested Unit Repurchase Option, the
remaining provisions of this Agreement shall remain in full force and effect, including, without
limitation, the Right of First Refusal set forth in Section 7. If there is a subsequent Repurchase
Event, the Vested Unit Repurchase Option
8
shall again become exercisable as provided in this Section 8. The Vested Unit Repurchase
Option must be exercised, if at all, for all of the Repurchase Units, except as the Company and the
Participant otherwise agree.
8.3 Payment for Repurchase Units. The repurchase price per Unit being repurchased by the
Company pursuant to the Vested Unit Repurchase Option shall be an amount equal to the Fair Market
Value of the Units determined as of the date of the Repurchase Event (except as otherwise provided
in Section 8.1(c)) by the Board in good faith; provided, however, that if the Repurchase Event is
the termination of the Participant’s Service for Cause, the repurchase price per Unit shall be the
lesser of such Fair Market Value or the purchase price, if any, paid by the Participant to acquire
such Unit.. Payment by the Company to the Participant shall be made in cash on or before the last
day of the Repurchase Period. For purposes of the foregoing, cancellation of any indebtedness of
the Participant to any Participating Company shall be treated as payment to the Participant in cash
to the extent of the unpaid principal and any accrued interest canceled.
8.4 Transfers Not Subject to Vested Unit Repurchase Option. The Vested Unit Repurchase Option
shall not apply to any transfer or exchange of Vested Units if such transfer or exchange is in
connection with an Ownership Change Event. If the consideration received pursuant to such transfer
or exchange consists of securities of a Participating Company, such consideration will remain
subject to the Vested Unit Repurchase Option unless the provisions of Section 8.6 result in a
termination of the Vested Unit Repurchase Option.
8.5 Assignment of Vested Unit Repurchase Option. The Company shall have the right to assign
the Vested Unit Repurchase Option at any time, whether or not such option is then exercisable, to
one or more persons as may be selected by the Company.
8.6 Early Termination of Vested Unit Repurchase Option. The other provisions of this
Agreement notwithstanding, the Vested Unit Repurchase Option shall terminate and be of no further
force and effect upon the existence of a public market, as defined in Section 7.9, for the class of
securities subject to the Vested Unit Repurchase Option.
9. Escrow.
9.1 Appointment of Agent. To ensure that Units subject to the Company Reacquisition Right
will be available for reacquisition, the Participant and the Company hereby appoint the Secretary
of the Company, or any other person designated by the Company, as their agent and as
attorney-in-fact for the Participant (the “Agent”) to hold any and all Unvested Units and to sell,
assign and transfer to the Company any such Unvested Units reacquired by the Company pursuant to
the Company Reacquisition Right. The Participant understands that appointment of the Agent is a
material inducement to make this Agreement and that such appointment is coupled with an interest
and is irrevocable. The Agent shall not be personally liable for any act the Agent may do or omit
to do hereunder as escrow agent, agent for the Company, or attorney in fact for the Participant
while acting in good faith and in the exercise of the Agent’s own good judgment, and any act done
or omitted by the Agent pursuant to the advice of the Agent’s own attorneys shall be conclusive
evidence of such good faith. The Agent may rely upon any letter, notice or other document executed
by any signature purporting to be genuine and may resign at any time.
9
9.2 Establishment of Escrow. The Participant authorizes the Company to deposit the Unvested
Units with the Company’s transfer agent to be held in book entry form, as provided by Section 4.4,
and the Participant agrees to deliver to and deposit with the Agent each certificate, if any,
evidencing the Units and an Assignment Separate from Certificate with respect to such book entry
Units and each such certificate duly endorsed (with date and number of Units blank) in the form
attached to this Agreement, to be held by the Agent under the terms and conditions of this Section
(the “Escrow”). Upon the occurrence of an Ownership Change Event, a dividend or distribution to
the Unit holders of the Company paid in Units or other property, or any other adjustment upon a
change in the capital structure of the Company, as described in Section 11, any and all new,
substituted or additional securities or other property to which the Participant is entitled by
reason of his or her ownership of the Units that remain, following such Ownership Change Event,
dividend, distribution or change described in Section 11, subject to the Company Reacquisition
Right shall be immediately subject to the Escrow to the same extent as the Units immediately before
such event. The Company shall bear the expenses of the Escrow.
9.3 Delivery of Units to Participant. The Escrow shall continue with respect to any Units for
so long as such Units remain subject to the Company Reacquisition Right. Upon termination of the
Company Reacquisition Right with respect to Units, the Company shall so notify the Agent and direct
the Agent to deliver such number of Units to the Participant. As soon as practicable after receipt
of such notice, the Agent shall cause the Units specified by such notice to be delivered to the
Participant, and the Escrow shall terminate with respect to such Units.
9.4 Notices and Payments. In the event the Units and any other property held in escrow are
subject to the Company’s exercise of the Company Reacquisition Right, the Right of First Refusal or
the Vested Unit Repurchase Option, the notices required to be given to the Participant shall be
given to the Agent, and any payment required to be given to the Participant shall be given to the
Agent. Within thirty (30) days after payment by the Company, the Agent shall deliver the Units and
any other property which the Company has purchased to the Company and shall deliver the payment
received from the Company to the Participant.
10. Effect of Change in Control.
In the event of a Change in Control, the surviving, continuing, successor, or purchasing
corporation or other business entity or parent thereof, as the case may be (the “Acquiror”), may,
without the consent of the Participant, assume or continue in full force and effect the Company’s
rights and obligations under the Award or substitute for the Award a substantially equivalent award
for the Acquiror’s securities. For purposes of this Section, the Award shall be deemed assumed if,
following the Change in Control, the Award confers the right to receive, subject to the terms and
conditions of the Plan and this Agreement, for each Unit subject to the Award immediately prior to
the Change in Control, the consideration (whether units, stock, cash, other securities or property
or a combination thereof) to which a holder of a Unit on the effective date of the Change in
Control was entitled. Notwithstanding the foregoing, Units acquired pursuant to the Award prior to
the Change in Control and any consideration received pursuant to the Change in Control with respect
to such Units shall continue to be subject to all applicable provisions of this Agreement except as
otherwise provided herein.
10
11. Adjustments for Changes in Capital Structure.
Subject to any required action by the members of the Company, in the event of any change in
the Units effected without receipt of consideration by the Company, whether through merger,
consolidation, reorganization, reincorporation, recapitalization, reclassification, Unit dividend,
split, reverse split, split-up, split-off, spin-off, combination of Units, exchange of Units,
Solvent Reorganization (as defined by the Operating Agreement) or similar change in the capital
structure of the Company, adjustments shall be made as the Board determines appropriate in order to
prevent dilution or enlargement of the Participant’s rights under the Award, including, without
limitation, (i) adjusting the number and/or kind of Units subject to the Award; (ii) adjusting the
Vesting Conditions; and/or (iii) providing for substitute awards, accelerating vesting, and/or
effecting the lapse of restrictions; provided, however, that in the case of any “equity
restructuring” (within the meaning of the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123 (revised 2004)), the Board shall make an equitable or
proportionate adjustment to the Option to reflect such equity restructuring. For purposes of the
foregoing, conversion of any convertible securities of the Company shall not be treated as
“effected without receipt of consideration by the Company.” Any and all new, substituted or
additional securities or other property to which Participant is entitled by reason of ownership of
Units acquired pursuant to the Award will be immediately subject to the provisions of the Award on
the same basis as all Units originally acquired hereunder. Any fractional Unit resulting from an
adjustment pursuant to this Section shall be rounded down to the nearest whole number. Such
adjustments shall be determined by the Board, and its determination shall be final, binding and
conclusive.
12. Rights as a Member, Manager, Employee or Consultant.
The Participant shall have no rights as a member with respect to any Units subject to the
Award until the date of the issuance of the Units (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall
be made for dividends, distributions or other rights for which the record date is prior to the date
the Units are issued, except as provided in Section 11. Subject to the provisions of this
Agreement, the Participant shall exercise all rights and privileges of a member of the Company with
respect to Units deposited in the Escrow pursuant to Section 8. If the Participant is an Employee,
the Participant understands and acknowledges that, except as otherwise provided in a separate,
written employment agreement between a Participating Company and the Participant, the Participant’s
employment is “at will” and is for no specified term. Nothing in this Agreement shall confer upon
the Participant any right to continue in the Service of a Participating Company or interfere in any
way with any right of the Participating Company Group to terminate the Participant’s Service, as
the case may be, at any time.
13. Legends.
If the Units are at any time evidenced by certificates, the Company may at any time place
legends referencing the Company Reacquisition Right, Right of First Refusal, the Vested Unit
Repurchase Option and any applicable federal, state or foreign securities law restrictions on all
certificates representing Units. The Participant shall, at the request of the Company, promptly
present to the Company any and all certificates representing securities acquired pursuant to the
Award in the possession of the Participant in order to carry out the provisions of this Section.
Unless otherwise specified by the Company, legends placed on such certificates may include, but
shall not be limited to, the following:
11
13.1 “THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE
SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SUCH ACT.”
13.2 “THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER AND REPURCHASE OPTIONS IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN
AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER’S PREDECESSOR IN
INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.”
14. Lock-Up Agreement.
The Participant hereby agrees that in the event of any underwritten public offering of
securities, including an initial public offering of securities, made by the Company pursuant to an
effective registration statement filed under the Securities Act, the Participant shall not offer,
sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any securities of the Company or any rights to acquire securities of
the Company for such period of time from and after the effective date of such registration
statement as may be established by the underwriter for such public offering; provided, however,
that such period of time shall not exceed one hundred eighty (180) days from the effective date of
the registration statement to be filed in connection with such public offering; provided, further,
however, that such one hundred eighty (180) day period may be extended for an additional period,
not to exceed twenty (20) days, upon the request of the Company or the underwriter to accommodate
regulatory restrictions on (i) the publication or other distribution of research reports and
(ii) analyst recommendations and opinions, including but not limited to, the restrictions contained
in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
The foregoing limitation shall not apply to securities registered in the public offering under the
Securities Act. The Participant hereby agrees to enter into any agreement reasonably required by
the underwriters to implement the foregoing within a reasonable timeframe if so requested by the
Company.
15. Transfers in Violation of Agreement.
No Units may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise
disposed of, including by operation of law, in any manner which violates any of the provisions of
this Agreement or the Operating Agreement and, except pursuant to an Ownership Change Event, until
the date on which such Units become Vested Units, and any such attempted disposition shall be void.
The Company shall not be required (a) to transfer on its books any Units which will have been
transferred in violation of any of the provisions set forth in this Agreement or the Operating
Agreement or (b) to treat as owner of such Units or to accord the right to vote as such owner or to
pay dividends to any transferee to whom such Units will have been so transferred. In order to
enforce its rights
12
under this Section, the Company shall be authorized to give a stop transfer instruction with
respect to the Units to the Company’s transfer agent.
16. Miscellaneous Provisions.
16.1 Termination or Amendment. The Board may terminate or amend the Plan or this Agreement at
any time; provided, however, that no such termination or amendment may have a materially adverse
effect on the Participant’s rights under this Agreement without the consent of the Participant,
unless such termination or amendment is necessary to comply with any applicable law or government
regulation. No amendment or addition to this Agreement shall be effective unless in writing.
16.2 Nontransferability of the Award. The right to acquire Units pursuant to the Award shall
not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment,
pledge, encumbrance, or garnishment by creditors of the Participant or the Participant’s
beneficiary, except transfer by will or by the laws of descent and distribution. All rights with
respect to the Award shall be exercisable during the Participant’s lifetime only by the Participant
or the Participant’s guardian or legal representative.
16.3 Further Instruments. The parties hereto agree to execute such further instruments and to
take such further action as may reasonably be necessary to carry out the intent of this Agreement.
16.4 Binding Effect. This Agreement shall inure to the benefit of the successors and assigns
of the Company and, subject to the restrictions on transfer set forth herein, be binding upon the
Participant and the Participant’s heirs, executors, administrators, successors and assigns.
16.5 Delivery of Documents and Notices. Any document relating to participation in the Plan,
or any notice required or permitted hereunder shall be given in writing and shall be deemed
effectively given (except to the extent that this Agreement provides for effectiveness only upon
actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail address,
if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post
Office or foreign postal service, by registered or certified mail, or with a nationally recognized
overnight courier service, with postage and fees prepaid, addressed to the other party at the
address of such party set forth in the Grant Notice or at such other address as such party may
designate in writing from time to time to the other party.
(a) Description of Electronic Delivery. The Plan documents, which may include but do not
necessarily include: the Plan, the Grant Notice, this Agreement, the Operating Agreement and any
reports of the Company provided generally to the Company’s Unit holders, may be delivered to the
Participant electronically. In addition, if permitted by the Company, the Participant may deliver
electronically the Grant Notice to the Company or to such third party involved in administering the
Plan as the Company may designate from time to time. Such means of electronic delivery may include
but do not necessarily include the delivery of a link to a Company intranet or the Internet site of
a third party involved in administering the Plan, the delivery of the document via e-mail or such
other means of electronic delivery specified by the Company.
13
(b) Consent to Electronic Delivery. The Participant acknowledges that the Participant has
read Section 16.5(a) of this Agreement and consents to the electronic delivery of the Plan
documents and, if permitted by the Company, the delivery of the Grant Notice and notices in
connection with the Escrow, as described in Section 16.5(a). The Participant acknowledges that he
or she may receive from the Company a paper copy of any documents delivered electronically at no
cost to the Participant by contacting the Company by telephone or in writing. The Participant
further acknowledges that the Participant will be provided with a paper copy of any documents if
the attempted electronic delivery of such documents fails. Similarly, the Participant understands
that the Participant must provide the Company or any designated third party administrator with a
paper copy of any documents if the attempted electronic delivery of such documents fails. The
Participant may revoke his or her consent to the electronic delivery of documents described in
Section 16.5(a) or may change the electronic mail address to which such documents are to be
delivered (if Participant has provided an electronic mail address) at any time by notifying the
Company of such revoked consent or revised e-mail address by telephone, postal service or
electronic mail. Finally, the Participant understands that he or she is not required to consent to
electronic delivery of documents described in Section 16.5(a).
16.6 Integrated Agreement. The Grant Notice, this Agreement and the Plan, together with the
Operating Agreement and any employment, service or other agreement between the Participant and a
Participating Company referring to the Award, shall constitute the entire understanding and
agreement of the Participant and the Participating Company Group with respect to the subject matter
contained herein or therein and supersede any prior agreements, understandings, restrictions,
representations, or warranties among the Participant and the Participating Company Group with
respect to such subject matter. To the extent contemplated herein or therein, the provisions of
the Grant Notice, this Agreement, the Plan and the Operating Agreement shall survive any settlement
of the Award and shall remain in full force and effect.
16.7 Applicable Law. The Agreement shall be governed by the laws of the State of California
as such laws are applied to agreements between California residents entered into and to be
performed entirely within the State of California.
16.8 Counterparts. The Grant Notice may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same instrument.
14
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED the undersigned does hereby sell, assign and transfer unto
( ) Units of MagnaChip
Semiconductor LLC standing in the undersigned’s name on the books of said corporation and does
hereby irrevocably constitute and appoint Attorney to transfer the said
Units on the books of said corporation with full power of substitution in the premises.
Dated:
| Signature | ||||
| Print Name | ||||
Instructions: Please do not fill in any blanks other than the signature line. The purpose
of this assignment is to enable the Company to exercise its Company Reacquisition Right set forth
in the Restricted Unit Agreement without requiring additional signatures on the part of the
Participant.
SAMPLE
Internal Revenue Service
[IRS Service Center
where Form 1040 is Filed]
where Form 1040 is Filed]
Re: Section 83(b) Election
Dear Sir or Madam:
The following information is submitted pursuant to section 1.83-2 of the Treasury Regulations in
connection with this election by the undersigned under section 83(b) of the Internal Revenue Code
of 1986, as amended (the “Code”).
| 1. | The name, address and taxpayer identification number of the taxpayer are: |
| Name: | ||||||||||
| Address: | ||||||||||
| Social Security Number: | ||||||||||
| 2. | The following is a description of each item of property with respect to which the election is made: |
Common Units of MagnaChip Semiconductor LLC (the “Units”), acquired
from MagnaChip Semiconductor LLC (the “Company”) pursuant to a Restricted Unit
grant.
| 3. | The property was transferred to the undersigned on: |
Restricted Unit grant date:
| The taxable year for which the election is made is: |
Calendar Year
| 4. | The nature of the restriction to which the property is subject: |
The Units are subject to automatic forfeiture to the Company upon the occurrence of
certain events. This forfeiture provision lapses with regard to a portion of the
Units based upon the continued performance of services by the taxpayer over time.
| 5. | The following is the fair market value at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) of the property with respect to which the election is made: |
$ ( Units at $
per Unit).
The property was transferred to the taxpayer pursuant to the grant of an award of
Restricted Units.
| 6. | The following is the amount paid for the property: |
No monetary consideration was provided in exchange for the Units.
| 7. | A copy of this election has been furnished to the Company, the corporation for which the services were performed by the undersigned. |
Please acknowledge receipt of this election by date or received-stamping the enclosed copy of this
letter and returning it to the undersigned. A self-addressed stamped envelope is provided for your
convenience.
Very truly yours,
| Date: | ||||
Enclosures
cc: MagnaChip Semiconductor LLC
cc: MagnaChip Semiconductor LLC
Exhibit 10.25
MAGNACHIP SEMICONDUCTOR CORPORATION
2010 EQUITY INCENTIVE PLAN
TABLE OF CONTENTS
| Page | ||||
1. Establishment, Purpose and Term of Plan |
1 | |||
1.1 Establishment |
1 | |||
1.2 Purpose |
1 | |||
1.3 Term of Plan |
1 | |||
2. Definitions and Construction |
1 | |||
2.1 Definitions |
1 | |||
2.2 Construction |
8 | |||
3. Administration |
9 | |||
3.1 Administration by the Committee |
9 | |||
3.2 Authority of Officers |
9 | |||
3.3 Administration with Respect to Insiders |
9 | |||
3.4 Committee Complying with Section 162(m) |
9 | |||
3.5 Powers of the Committee |
9 | |||
3.6 Option or SAR Repricing |
10 | |||
3.7 Indemnification |
11 | |||
4. Shares Subject to Plan |
11 | |||
4.1 Maximum Number of Shares Issuable |
11 | |||
4.2 Annual Increase in Maximum Number of Shares Issuable |
11 | |||
4.3 Adjustment for Unissued or Forfeited Predecessor Plan Shares |
11 | |||
4.4 Share Counting |
12 | |||
4.5 Adjustments for Changes in Capital Structure |
12 | |||
4.6 Assumption or Substitution of Awards |
13 | |||
5. Eligibility, Participation and Award Limitations |
13 | |||
5.1 Persons Eligible for Awards |
13 | |||
5.2 Participation in the Plan |
13 | |||
5.3 Incentive Stock Option Limitations |
13 | |||
6. Stock Options |
14 | |||
6.1 Exercise Price |
14 | |||
6.2 Exercisability and Term of Options |
14 | |||
6.3 Payment of Exercise Price |
15 | |||
6.4 Effect of Termination of Service |
16 | |||
6.5 Transferability of Options |
17 | |||
7. Stock Appreciation Rights |
17 | |||
7.1 Types of SARs Authorized |
17 | |||
i
TABLE OF CONTENTS
(continued)
(continued)
| Page | ||||
7.2 Exercise Price |
17 | |||
7.3 Exercisability and Term of SARs |
18 | |||
7.4 Exercise of SARs |
18 | |||
7.5 Deemed Exercise of SARs |
18 | |||
7.6 Effect of Termination of Service |
19 | |||
7.7 Transferability of SARs |
19 | |||
8. Restricted Stock Awards |
19 | |||
8.1 Types of Restricted Stock Awards Authorized |
19 | |||
8.2 Purchase Price |
19 | |||
8.3 Purchase Period |
20 | |||
8.4 Payment of Purchase Price |
20 | |||
8.5 Vesting and Restrictions on Transfer |
20 | |||
8.6 Voting Rights; Dividends and Distributions |
20 | |||
8.7 Effect of Termination of Service |
21 | |||
8.8 Nontransferability of Restricted Stock Award Rights |
21 | |||
9. Restricted Stock Unit Awards |
21 | |||
9.1 Grant of Restricted Stock Unit Awards |
21 | |||
9.2 Purchase Price |
21 | |||
9.3 Vesting |
22 | |||
9.4 Voting Rights, Dividend Equivalent Rights and Distributions |
22 | |||
9.5 Effect of Termination of Service |
22 | |||
9.6 Settlement of Restricted Stock Unit Awards |
23 | |||
9.7 Nontransferability of Restricted Stock Unit Awards |
23 | |||
10. Performance Awards |
23 | |||
10.1 Types of Performance Awards Authorized |
23 | |||
10.2 Initial Value of Performance Shares and Performance Units |
23 | |||
10.3 Establishment of Performance Period, Performance Goals and Performance
Award Formula |
24 | |||
10.4 Measurement of Performance Goals |
24 | |||
10.5 Settlement of Performance Awards |
26 | |||
10.6 Voting Rights; Dividend Equivalent Rights and Distributions |
27 | |||
10.7 Effect of Termination of Service |
28 | |||
10.8 Nontransferability of Performance Awards |
28 | |||
11. Cash-Based Awards and Other Stock-Based Awards |
28 | |||
11.1 Grant of Cash-Based Awards |
28 | |||
11.2 Grant of Other Stock-Based Awards |
29 | |||
11.3 Value of Cash-Based and Other Stock-Based Awards |
29 | |||
ii
TABLE OF CONTENTS
(continued)
(continued)
| Page | ||||
11.4 Payment or Settlement of Cash-Based Awards and Other Stock-Based Awards |
29 | |||
11.5 Voting Rights; Dividend Equivalent Rights and Distributions |
29 | |||
11.6 Effect of Termination of Service |
30 | |||
11.7 Nontransferability of Cash-Based Awards and Other Stock-Based Awards |
30 | |||
12. Standard Forms of Award Agreement |
30 | |||
12.1 Award Agreements |
30 | |||
12.2 Authority to Vary Terms |
30 | |||
13. Change in Control |
31 | |||
13.1 Effect of Change in Control on Awards |
31 | |||
13.2 Effect of Change in Control on Nonemployee Director Awards |
32 | |||
13.3 Federal Excise Tax Under Section 4999 of the Code |
32 | |||
14. Compliance with Securities Law |
32 | |||
15. Compliance with Section 409A |
33 | |||
15.1 Awards Subject to Section 409A |
33 | |||
15.2 Deferral and/or Distribution Elections |
33 | |||
15.3 Subsequent Elections |
34 | |||
15.4 Payment of Section 409A Deferred Compensation |
34 | |||
16. Tax Withholding |
36 | |||
16.1 Tax Withholding in General |
36 | |||
16.2 Withholding in or Directed Sale of Shares |
37 | |||
17. Amendment, Suspension or Termination of Plan |
37 | |||
18. Miscellaneous Provisions |
37 | |||
18.1 Repurchase Rights |
37 | |||
18.2 Forfeiture Events |
38 | |||
18.3 Provision of Information |
38 | |||
18.4 Rights as Employee, Consultant or Director |
38 | |||
18.5 Rights as a Stockholder |
38 | |||
18.6 Delivery of Title to Shares |
39 | |||
18.7 Fractional Shares |
39 | |||
18.8 Retirement and Welfare Plans |
39 | |||
18.9 Beneficiary Designation |
39 | |||
18.10 Severability |
39 | |||
18.11 No Constraint on Corporate Action |
39 | |||
18.12 Unfunded Obligation |
39 | |||
18.13 Choice of Law |
40 | |||
iii
MagnaChip Semiconductor Corporation
2010 Equity Incentive Plan
2010 Equity Incentive Plan
1. Establishment, Purpose and Term of Plan.
1.1 Establishment. The MagnaChip Semiconductor Corporation 2010 Equity Incentive Plan (the
“Plan”) is hereby established effective as of [•], 2010, the effective date of the Conversion (the
“Effective Date”).
1.2 Purpose. The purpose of the Plan is to advance the interests of the Participating Company
Group and its stockholders by providing an incentive to attract, retain and reward persons
performing services for the Participating Company Group and by motivating such persons to
contribute to the growth and profitability of the Participating Company Group. The Plan seeks to
achieve this purpose by providing for Awards in the form of Options, Stock Appreciation Rights,
Restricted Stock Purchase Rights, Restricted Stock Bonuses, Restricted Stock Units, Performance
Shares, Performance Units, Cash-Based Awards and Other Stock-Based Awards.
1.3 Term of Plan. The Plan shall continue in effect until its termination by the Committee;
provided, however, that all Awards shall be granted, if at all, within ten (10) years from the
Effective Date.
2. Definitions and Construction.
2.1 Definitions. Whenever used herein, the following terms shall have their respective
meanings set forth below:
(a) “Affiliate” means (i) a parent entity, other than a Parent Corporation, that directly, or
indirectly through one or more intermediary entities, controls the Company or (ii) a subsidiary
entity, other than a Subsidiary Corporation, that is controlled by the Company directly or
indirectly through one or more intermediary entities. For this purpose, the terms “parent,”
“subsidiary,” “control” and “controlled by” shall have the meanings assigned such terms for the
purposes of registration of securities on Form S-8 under the Securities Act.
(b) “Award” means any Option, Stock Appreciation Right, Restricted Stock Purchase Right,
Restricted Stock Bonus, Restricted Stock Unit, Performance Share, Performance Unit, Cash-Based
Award or Other Stock-Based Award granted under the Plan.
(c) “Award Agreement” means a written or electronic agreement between the Company and a
Participant setting forth the terms, conditions and restrictions applicable to an Award.
(d) “Board” means the Board of Directors of the Company.
(e) “Cash-Based Award” means an Award denominated in cash and granted pursuant to Section 11.
(f) “Cashless Exercise” means a Cashless Exercise as defined in Section 6.3(b)(i).
(g) “Cause” means, unless such term or an equivalent term is otherwise defined by the
applicable Award Agreement or other written agreement between a Participant and a Participating
Company applicable to an Award, any of the following: (i) the Participant’s failure to
substantially perform the Participant’s customary duties with a Participating Company in the
ordinary course (other than such failure resulting from the Participant’s incapacity due to
physical or mental illness) that, if susceptible to cure, has not been cured as determined by the
Participating Company within 30 days after a written demand for substantial performance is
delivered to the Participant by the Participating Company, which demand specifically identifies the
manner in which the Participating Company believes that the Participant has not substantially
performed the Participant’s duties; (ii) the Participant’s gross negligence, intentional misconduct
or fraud in the performance of his or her Service; (iii) the Participant’s indictment (or
equivalent) for a felony or to a crime involving fraud or dishonesty; (iv) a judicial determination
that the Participant committed fraud or dishonesty against any natural person, firm, partnership,
limited liability company, association, corporation, company, trust, business trust, governmental
authority or other entity; (v) the Participant’s material violation of one or more of the
Participating Company Group’s policies applicable to the Participant’s Service as may be in effect
from time to time; or (vi) the Participant’s conduct that brings or could reasonably be expected to
bring the Participating Company Group into public disgrace or disrepute and that has a material
adverse effect on the business of the Participating Company Group.
(h) “Change in Control” means, unless such term or an equivalent term is otherwise defined by
the applicable Award Agreement, the occurrence of any one or a combination of the following:
(i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
becomes the “beneficial owner” (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities of the Company representing more than fifty
percent (50%) of the total Fair Market Value or total combined voting power of the Company’s
then-outstanding securities entitled to vote generally in the election of Directors; provided,
however, that a Change in Control shall not be deemed to have occurred if such degree of beneficial
ownership results from any of the following: (A) an acquisition by any person who on the Effective
Date is the beneficial owner of more than fifty percent (50%) of such voting power, (B) any
acquisition directly from the Company, including, without limitation, pursuant to or in connection
with a public offering of securities, (C) any acquisition by the Company, (D) any acquisition by a
trustee or other fiduciary under an employee benefit plan of a Participating Company or (E) any
acquisition by an entity owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the voting securities of the Company; or
(ii) an Ownership Change Event or series of related Ownership Change Events (collectively, a
“Transaction”) in which the stockholders of the Company immediately before the Transaction do not
retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty
percent (50%) of the total combined voting
2
power of the outstanding securities entitled to vote
generally in the election of Directors or, in the case of an Ownership Change Event described in
Section 2.1(ee)(iii), the entity to which the assets of the Company were transferred (the
“Transferee”), as the case may be; or
(iii) approval by the stockholders of a plan of complete liquidation or dissolution of the
Company;
provided, however, that a Change in Control shall be deemed not to include a transaction described
in subsections (i) or (ii) of this Section 2.1(h) in which a majority of the members of the board
of directors of the continuing, surviving or successor entity, or parent thereof, immediately after
such transaction is comprised of Incumbent Directors.
For purposes of the preceding sentence, indirect beneficial ownership shall include, without
limitation, an interest resulting from ownership of the voting securities of one or more
corporations or other business entities which own the Company or the Transferee, as the case may
be, either directly or through one or more subsidiary corporations or other business entities. The
Committee shall determine whether multiple acquisitions of the voting securities of the Company
and/or multiple Ownership Change Events are related and to be treated in the aggregate as a single
Change in Control, and its determination shall be final, binding and conclusive.
(i) “Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations
or administrative guidelines promulgated thereunder.
(j) “Committee” means the Compensation Committee and such other committee or subcommittee of
the Board, if any, duly appointed to administer the Plan and having such powers in each instance as
shall be specified by the Board. If, at any time, there is no committee of the Board then
authorized or properly constituted to administer the Plan, the Board shall exercise all of the
powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise
any or all of such powers.
(k) “Company” means MagnaChip Semiconductor Corporation, a Delaware corporation, or any
successor corporation thereto.
(l) “Consultant” means a person engaged to provide consulting or advisory services (other than
as an Employee or a member of the Board) to a Participating Company, provided that the identity of
such person, the nature of such services or the entity to which such services are provided would
not preclude the Company from offering or selling securities to such person pursuant to the Plan in
reliance on registration on Form S-8 under the Securities Act.
(m) “Conversion” means the conversion of MagnaChip Semiconductor LLC, a Delaware limited
liability company, into the Company pursuant to Section 18-216 of the Delaware Limited Liability
Company Act.
(n) “Covered Employee” means, at any time the Plan is subject to Section 162(m), any Employee
who is or may reasonably be expected to become a “covered employee” as defined in Section 162(m),
or any successor statute, and who is designated, either
3
as an individual Employee or a member of a class of Employees, by the Committee
no later than the earlier of (i) the date that is ninety (90)
days after the beginning of the Performance Period, or (ii) the date on which twenty-five percent
(25%) of the Performance Period has elapsed, as a “Covered Employee” under this Plan for such
applicable Performance Period.
(o) “Director” means a member of the Board.
(p) “Disability” means the permanent and total disability of the Participant, within the
meaning of Section 22(e)(3) of the Code.
(q) “Dividend Equivalent Right” means the right of a Participant, granted at the discretion of
the Committee or as otherwise provided by the Plan, to receive a credit for the account of such
Participant in an amount equal to the cash dividends paid on one share of Stock for each share of
Stock represented by an Award held by such Participant.
(r) “Employee” means any person treated as an employee (including an Officer or a member of
the Board who is also treated as an employee) in the records of a Participating Company and, with
respect to any Incentive Stock Option granted to such person, who is an employee for purposes of
Section 422 of the Code; provided, however, that neither service as a member of the Board nor
payment of a director’s fee shall be sufficient to constitute employment for purposes of the Plan.
The Company shall determine in good faith and in the exercise of its discretion whether an
individual has become or has ceased to be an Employee and the effective date of such individual’s
employment or termination of employment, as the case may be. For purposes of an individual’s
rights, if any, under the terms of the Plan as of the time of the Company’s determination of
whether or not the individual is an Employee, all such determinations by the Company shall be
final, binding and conclusive as to such rights, if any, notwithstanding that the Company or any
court of law or governmental agency subsequently makes a contrary determination as to such
individual’s status as an Employee.
(s) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(t) “Fair Market Value” means, as of any date, the value of a share of Stock or other property
as determined by the Committee, in its discretion, or by the Company, in its discretion, if such
determination is expressly allocated to the Company herein, subject to the following:
(i) Except as otherwise determined by the Committee, if, on such date, the Stock is listed or
quoted on a national or regional securities exchange or quotation
system, the Fair Market Value of a share of Stock shall be the closing price of a share of
Stock as quoted on the national or regional securities exchange or quotation system constituting
the primary market for the Stock, as reported in The Wall Street Journal or such other source as
the Company deems reliable. If the relevant date does not fall on a day on which the Stock has
traded on such securities exchange or quotation system, the date on which the Fair Market Value
shall be established shall be the last day on which the Stock was so traded or quoted prior to the
relevant date, or such other appropriate day as shall be determined by the Committee, in its
discretion.
4
(ii) Notwithstanding the foregoing, the Committee may, in its discretion, determine the Fair
Market Value of a share of Stock on the basis of the opening, closing, or average of the high and
low sale prices of a share of Stock on such date or the preceding trading day, the actual sale
price of a share of Stock received by a Participant, any other reasonable basis using actual
transactions in the Stock as reported on a national or regional securities exchange or quotation
system, or on any other basis consistent with the requirements of Section 409A. The Committee may
also determine the Fair Market Value upon the average selling price of the Stock during a specified
period that is within thirty (30) days before or thirty (30) days after such date, provided that,
with respect to the grant of an Option or SAR, the commitment to grant such Award based on such
valuation method must be irrevocable before the beginning of the specified period. The Committee
may vary its method of determination of the Fair Market Value as provided in this Section for
different purposes under the Plan to the extent consistent with the requirements of Section 409A.
(iii) If, on such date, the Stock is not listed or quoted on a national or regional securities
exchange or quotation system, the Fair Market Value of a share of Stock shall be as determined by
the Committee in good faith without regard to any restriction other than a restriction which, by
its terms, will never lapse, and in a manner consistent with the requirements of Section 409A.
(u) “Incentive Stock Option” means an Option intended to be (as set forth in the Award
Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of
the Code.
(v) “Incumbent Director” means a director who either (i) is a member of the Board as of the
Effective Date or (ii) is elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the Incumbent Directors at the time of such election or nomination
(but excluding a director who was elected or nominated in connection with an actual or threatened
proxy contest relating to the election of directors of the Company).
(w) “Insider” means an Officer, Director or any other person whose transactions in Stock are
subject to Section 16 of the Exchange Act.
(x) “Net Exercise” means a Net Exercise as defined in Section 6.3(b)(iii).
(y) “Nonemployee Director” means a Director who is not an Employee.
(z) “Nonemployee Director Award” means any Award granted to a Nonemployee Director.
(aa) “Nonstatutory Stock Option” means an Option not intended to be (as set forth in the Award
Agreement) or which does not qualify as an incentive stock option within the meaning of Section
422(b) of the Code.
(bb) “Officer” means any person designated by the Board as an officer of the Company.
5
(cc) “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant
to the Plan.
(dd) “Other Stock-Based Award” means an Award denominated in shares of Stock and granted
pursuant to Section 11.
(ee) “Ownership Change Event” means the occurrence of any of the following with respect to the
Company: (i) the direct or indirect sale or exchange in a single or series of related transactions
by the stockholders of the Company of securities of the Company representing more than fifty
percent (50%) of the total combined voting power of the Company’s then outstanding securities
entitled to vote generally in the election of Directors; (ii) a merger or consolidation in which
the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange or transfer to one or more subsidiaries of the
Company).
(ff) “Parent Corporation” means any present or future “parent corporation” of the Company, as
defined in Section 424(e) of the Code.
(gg) “Participant” means any eligible person who has been granted one or more Awards.
(hh) “Participating Company” means the Company or any Parent Corporation, Subsidiary
Corporation or Affiliate.
(ii) “Participating Company Group” means, at any point in time, the Company and all other
entities collectively which are then Participating Companies.
(jj) “Performance Award” means an Award of Performance Shares or Performance Units.
(kk) “Performance Award Formula” means, for any Performance Award, a formula or table
established by the Committee pursuant to Section 10.3 which provides the basis for computing the
value of a Performance Award at one or more levels of attainment of the applicable Performance
Goal(s) measured as of the end of the applicable Performance Period.
(ll) "Performance-Based Compensation” means compensation under an Award that satisfies the
requirements of Section 162(m) for certain performance-based compensation paid to Covered
Employees.
(mm) “Performance Goal” means a performance goal established by the Committee pursuant to
Section 10.3.
(nn) “Performance Period” means a period established by the Committee pursuant to Section 10.3
at the end of which one or more Performance Goals are to be measured.
6
(oo) “Performance Share” means a right granted to a Participant pursuant to Section 10 to
receive a payment equal to the value of a Performance Share, as determined by the Committee, based
upon attainment of applicable Performance Goal(s).
(pp) “Performance Unit” means a right granted to a Participant pursuant to Section 10 to
receive a payment equal to the value of a Performance Unit, as determined by the Committee, based
upon attainment of applicable Performance Goal(s).
(qq) “Predecessor Plan” means the MagnaChip Semiconductor LLC 2009 Common Unit Plan, as
amended.
(rr) “Restricted Stock Award” means an Award of a Restricted Stock Bonus or a Restricted Stock
Purchase Right.
(ss) “Restricted Stock Bonus” means Stock granted to a Participant pursuant to Section 8.
(tt) “Restricted Stock Purchase Right” means a right to purchase Stock granted to a
Participant pursuant to Section 8.
(uu) “Restricted Stock Unit” means a right granted to a Participant pursuant to Section 9 to
receive on a future date or event a share of Stock or cash in lieu thereof, as determined by the
Committee.
(vv) “Rule 16b-3” means Rule 16b-3 under the Exchange Act, as amended from time to time, or
any successor rule or regulation.
(ww) “SAR” or “Stock Appreciation Right” means a right granted to a Participant pursuant to
Section 7 to receive payment, for each share of Stock subject to such Award, of an amount equal to
the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise of the
Award over the exercise price thereof.
(xx) “Section 162(m)”
means Section 162(m) of the Code.
(yy) “Section 409A” means Section 409A of the Code.
(zz) “Section 409A Deferred Compensation” means compensation provided pursuant to an Award
that constitutes nonqualified deferred compensation within the meaning of Section 409A.
(aaa) “Securities Act” means the Securities Act of 1933, as amended.
(bbb) “Service” means a Participant’s employment or service with the Participating Company
Group, whether as an Employee, a Director or a Consultant. Unless otherwise provided by the
Committee, a Participant’s Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Participant renders such Service or a change in the
Participating Company for which the Participant renders such Service, provided that there is no
interruption or termination of the Participant’s Service. Furthermore, a
7
Participant’s Service shall not be deemed to have been interrupted or terminated if the Participant takes any military
leave, sick leave, or other bona fide leave of absence approved by the Company. However, unless
otherwise provided by the Committee, if any such leave taken by a Participant exceeds ninety (90)
days, then on the ninety-first (91st) day following the commencement of such leave the
Participant’s Service shall be deemed to have terminated, unless the Participant’s right to return
to Service is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise
designated by the Company or required by law, an unpaid leave of absence shall not be treated as
Service for purposes of determining vesting under the Participant’s Award Agreement. A
Participant’s Service shall be deemed to have terminated either upon an actual termination of
Service or upon the business entity for which the Participant performs Service ceasing to be a
Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine
whether the Participant’s Service has terminated and the effective date of such termination.
(ccc) “Stock” means the common stock of the Company, as adjusted from time to time in
accordance with Section 4.5.
(ddd) “Stock Tender Exercise” means a Stock Tender Exercise as defined in Section 6.3(b)(ii).
(eee) “Subsidiary Corporation” means any present or future “subsidiary corporation” of the
Company, as defined in Section 424(f) of the Code.
(fff) “Ten Percent Owner” means a Participant who, at the time an Option is granted to the
Participant, owns stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of a Participating Company (other than an Affiliate) within the meaning of
Section 422(b)(6) of the Code.
(ggg) “Trading Compliance Policy” means the written policy of the Company pertaining to the
purchase, sale, transfer or other disposition of the Company’s equity securities by Directors,
Officers, Employees or other service providers who may possess material, nonpublic information
regarding the Company or its securities.
(hhh) “Vesting Conditions” mean those conditions established in accordance with the Plan prior
to the satisfaction of which an Award or shares subject to an Award remain subject to forfeiture or
a repurchase option in favor of the Company exercisable for the Participant’s monetary purchase
price, if any, for such shares upon the Participant’s termination of Service.
2.2 Construction. Captions and titles contained herein are for convenience only and shall not
affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated
by the context, the singular shall include the plural and the plural shall include the singular.
Use of the term “or” is not intended to be exclusive, unless the context clearly requires
otherwise.
8
3. Administration.
3.1 Administration by the Committee. The Plan shall be administered by the Committee. All
questions of interpretation of the Plan, of any Award Agreement or of any other form of agreement
or other document employed by the Company in the administration of the Plan or of any Award shall
be determined by the Committee, and such determinations shall be final, binding and conclusive upon
all persons having an interest in the Plan or such Award, unless fraudulent or made in bad faith.
Any and all actions, decisions and determinations taken or made by the Committee in the exercise of
its discretion pursuant to the Plan or Award Agreement or other agreement thereunder (other than
determining questions of interpretation pursuant to the preceding sentence) shall be final, binding
and conclusive upon all persons having an interest therein. All expenses reasonably incurred by
the Company in the administration of the Plan shall be paid by the Company.
3.2 Authority of Officers. Any Officer shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, determination or election that is the
responsibility of or that is allocated to the Company herein, provided that the Officer has actual
authority with respect to such matter, right, obligation, determination or election. The Board or
Committee may, in its discretion, delegate to a committee comprised of one or more Officers the
authority to grant one or more Awards, without further approval of the Board or the Committee, to
any Employee, other than a person who, at the time of such grant, is an Insider or a Covered
Person; provided, however, that (a) the exercise price per share of each such Award which is an
Option or SAR shall be not less than the Fair Market Value per share of the Stock on the effective
date of grant (or, if the Stock has not traded on such date, on the last day preceding the
effective date of grant on which the Stock was traded), (b) each such Award shall be subject to the
terms and conditions of the appropriate standard form of Award Agreement approved by the Board or
the Committee and shall conform to the provisions of the Plan, and (c) each such Award shall
conform to guidelines as shall be established from time to time by resolution of the Board or the
Committee.
3.3 Administration with Respect to Insiders. With respect to participation by Insiders in the
Plan, at any time that any class of equity security of the Company is registered pursuant to
Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements,
if any, of Rule 16b-3.
3.4 Committee Complying with Section 162(m). If the Company is a “publicly held corporation”
within the meaning of Section 162(m), the Board may establish a Committee of “outside directors”
within the meaning of Section 162(m) to approve the grant of any Award intended to result in the
payment of Performance-Based Compensation.
3.5 Powers of the Committee. In addition to any other powers set forth in the Plan and
subject to the provisions of the Plan, the Committee shall have the full and final power and
authority, in its discretion:
(a) to determine the persons to whom, and the time or times at which, Awards shall be granted
and the number of shares of Stock, units or monetary value to be subject to each Award;
9
(b) to determine the type of Award granted;
(c) to determine the Fair Market Value of shares of Stock or other property;
(d) to determine the terms, conditions and restrictions applicable to each Award (which need
not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the
exercise or purchase price of shares pursuant to any Award, (ii) the method of payment for shares
purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with any Award, including by the withholding or delivery of
shares, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any
shares acquired pursuant thereto, (v) the Performance Measures, Performance Period, Performance
Award Formula and Performance Goals applicable to any Award and the extent to which such
Performance Goals have been attained, (vi) the time of the expiration of any Award, (vii) the
effect of the Participant’s termination of Service on any of the foregoing, and (viii) all other
terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not
inconsistent with the terms of the Plan;
(e) to determine whether an Award will be settled in shares of Stock, cash, other property or
in any combination thereof;
(f) to approve one or more forms of Award Agreement;
(g) to amend, modify, extend, cancel or renew any Award or to waive any restrictions or
conditions applicable to any Award or any shares acquired pursuant thereto;
(h) to accelerate, continue, extend or defer the exercisability or vesting of any Award or any
shares acquired pursuant thereto, including with respect to the period following a Participant’s
termination of Service;
(i) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to
adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without
limitation, as the Committee deems necessary or desirable to comply with the
laws or regulations of or to accommodate the tax policy, accounting principles or custom of,
foreign jurisdictions whose citizens may be granted Awards; and
(j) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or
any Award Agreement and to make all other determinations and take such other actions with respect
to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with
the provisions of the Plan or applicable law.
3.6 Option or SAR Repricing. Without the affirmative vote of holders of a majority of the
shares of Stock cast in person or by proxy at a meeting of the stockholders of the Company at which
a quorum representing a majority of all outstanding shares of Stock is present or represented by
proxy, the Committee shall not approve a program providing for either (a) the cancellation of
outstanding Options or SARs having exercise prices per share greater than the then Fair Market
Value of a share of Stock (“Underwater
Awards”) and the grant in substitution therefore of new
Options or SARs having a lower exercise price or payments in cash, or (b) the
10
amendment of outstanding Underwater Awards to reduce the exercise price thereof. This Section shall not apply
to adjustments pursuant to the assumption of or substitution for an Option or SAR in a manner that
would comply with Section 424(a) or Section 409A of the Code or to an adjustment pursuant to
Section 4.5.
3.7 Indemnification. In addition to such other rights of indemnification as they may have as
members of the Board or the Committee or as officers or employees of the Participating Company
Group, to the extent permitted by applicable law, members of the Board or the Committee and any
officers or employees of the Participating Company Group to whom authority to act for the Board,
the Committee or the Company is delegated shall be indemnified by the Company against all
reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection
with the defense of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or failure to act under or
in connection with the Plan, or any right granted hereunder, and against all amounts paid by them
in settlement thereof (provided such settlement is approved by independent legal counsel selected
by the Company) or paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in
duties; provided, however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the opportunity at its own
expense to handle and defend the same.
4. Shares Subject to Plan.
4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in Sections 4.2,
4.3, 4.4 and 4.5, the maximum aggregate number of shares of Stock
that may be issued under the Plan shall be equal to [•] ([•])1 and shall consist of
authorized but unissued or reacquired shares of Stock or any combination thereof.
4.2 Annual Increase in Maximum Number of Shares Issuable. Subject to adjustment as provided
in Section 4.5, the maximum aggregate number of shares of Stock that may be issued under the Plan
as set forth in Section 4.1 shall be cumulatively increased automatically on January 1, 2011 and on
each subsequent January 1 through and including January 1, 2020, by a number of shares (the “Annual
Increase”) equal to the smaller of (a) two percent (2%) of the number of shares of Stock issued and
outstanding on the immediately preceding December 31, or (b) an amount determined by the Board.
4.3 Adjustment for Unissued or Forfeited Predecessor Plan Shares. The maximum aggregate
number of shares of Stock that may be issued under the Plan as set forth in Section 4.1 shall be
cumulatively increased from time to time by:
(a) the number of shares of Stock subject to that portion of any option or other award
outstanding pusuant to the Predecessor Plan as of the Effective Date which, on or
| 1 | Amount to equal number of shares of common stock (as adjusted by the conversion ratio in the Conversion) remaining available for grant under 2009 Common Unit Plan upon its termination immediately following the Conversion. Number to be determined and inserted prior to approval of plan by Company stockholders. |
11
after the Effective Date, expires or is terminated or canceled for any reason without having been exercised
or settled in full; and
(b) the number of shares of Stock acquired pursuant to the Predecessor Plan subject to
forfeiture or repurchase by the Company at the Participant’s purchase price which, on or after the
Effective Date, is so forfeited or repurchased;
provided further, however, that the aggregate number of shares of Stock authorized for issuance
under the Predecessor Plan that may become authorized for issuance under the Plan pursuant to this
Section 4.3 shall not exceed [•] ([•]2).
4.4 Share Counting. If an outstanding Award for any reason expires or is terminated or
canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant
to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company for an
amount not greater than the Participant’s purchase price, the shares of Stock allocable to the
terminated portion of such Award or such forfeited or repurchased shares of Stock shall again be
available for issuance under the Plan. Shares of Stock shall not be deemed to have been issued
pursuant to the Plan with respect to any portion of an Award that is settled in cash. Shares
withheld or reacquired by the Company in satisfaction of tax withholding obligations pursuant to
Section 16.2 shall not again be available for issuance under the Plan. Upon payment in shares of
Stock pursuant to the exercise of an SAR, the number of shares available for issuance under the
Plan shall be reduced by the gross number of shares for which
such SAR was exercised. If the exercise price of an Option is paid by tender to the Company,
or attestation to the ownership, of shares of Stock owned by the Participant, or by means of a Net
Exercise, the number of shares available for issuance under the Plan shall be reduced by the gross
number of shares for which the Option is exercised.
4.5 Adjustments for Changes in Capital Structure. Subject to any required action by the
stockholders of the Company and the requirements of Sections 409A and 424 of the Code to the extent
applicable, in the event of any change in the Stock effected without receipt of consideration by
the Company, whether through merger, consolidation, reorganization, reincorporation,
recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up,
split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital
structure of the Company, or in the event of payment of a dividend or distribution to the
stockholders of the Company in a form other than Stock (excepting regular, periodic cash dividends)
that has a material effect on the Fair Market Value of shares of Stock, appropriate and
proportionate adjustments shall be made in the number and kind of shares subject to the Plan and to
any outstanding Awards, the number of shares resulting from any prior Annual Increase, the Award
limits set forth in Section 5.3, and in the exercise or purchase price per share under any
outstanding Award in order to prevent dilution or enlargement of Participants’ rights under the
Plan. For purposes of the foregoing, conversion of any convertible securities of the Company shall
not be treated as “effected without receipt of consideration by the Company.” If a majority of the
shares which are of the same class as the shares that are subject to outstanding Awards are
| 2 | Amount to equal number of unvested shares (as adjusted by the conversion ratio in the Conversion) subject to options and restricted stock awards outstanding under the 2009 Common Unit Plan at the time of its termination immediately following the Conversion. Number to be determined and inserted prior to approval of plan by Company stockholders. |
12
exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change
Event) shares of another corporation (the “New
Shares”), the Committee may unilaterally amend the
outstanding Awards to provide that such Awards are for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise or purchase price per share of, the
outstanding Awards shall be adjusted in a fair and equitable manner as determined by the Committee,
in its discretion. Any fractional share resulting from an adjustment pursuant to this Section
shall be rounded down to the nearest whole number, and in no event may the exercise or purchase
price under any Award be decreased to an amount less than the par value, if any, of the stock
subject to such Award. The Committee in its discretion, may also make such adjustments in the
terms of any Award to reflect, or related to, such changes in the capital structure of the Company
or distributions as it deems appropriate, including modification of Performance Goals, Performance
Award Formulas and Performance Periods. The adjustments determined by the Committee pursuant to
this Section shall be final, binding and conclusive.
4.6 Assumption or Substitution of Awards. The Committee may, without affecting the number of
shares of Stock reserved or available hereunder, authorize the issuance or assumption of benefits
under this Plan in connection with any merger, consolidation, acquisition of property or stock, or
reorganization upon such terms and conditions as it may deem appropriate, subject to compliance
with Section 409A and any other applicable provisions of the Code.
5. Eligibility, Participation and Award Limitations.
5.1 Persons Eligible for Awards. Awards may be granted only to Employees, Consultants and
Directors.
5.2 Participation in the Plan. Awards are granted solely at the discretion of the Committee.
Eligible persons may be granted more than one Award. However, eligibility in accordance with this
Section shall not entitle any person to be granted an Award, or, having been granted an Award, to
be granted an additional Award.
5.3 Incentive Stock Option Limitations.
(a) Maximum Number of Shares Issuable Pursuant to Incentive Stock Options. Subject to
adjustment as provided in Section 4.5, the maximum aggregate number of shares of Stock that may be
issued under the Plan pursuant to the exercise of Incentive Stock Options shall not exceed
[•]3 shares, cumulatively increased on January 1, 2011 and on each subsequent January 1,
through and including January 1, 2020, by a number of shares equal to the smaller of the Annual
Increase determined under Section 4.2 or [•]4 shares. The maximum aggregate number of
shares of Stock that may be issued under the Plan pursuant to all
| 3 | Amount to equal the number in Sec. 4.1, as determined under footnote 1. Number to be determined and inserted prior to approval of plan by Company stockholders. | |
| 4 | Amount to equal 4% of the number of shares of common stock estimated to be outstanding immediately after completion of the IPO. Number to be determined and inserted prior to approval of plan by Company stockholders. This number (required by Sec. 422 regs) is intentionally set at twice the 2% annual evergreen increase so that the 2% evergreen will continue to apply regardless of future dilution. |
13
Awards other than Incentive Stock Options shall be the number of shares determined in accordance with Section 4.1, subject to
adjustment as provided in Sections 4.2, 4.3, 4.4 and 4.5.
(b) Persons Eligible. An Incentive Stock Option may be granted only to a person who, on the
effective date of grant, is an Employee of the Company, a Parent Corporation or a Subsidiary
Corporation (each being an “ISO-Qualifying
Corporation”). Any person who is not an Employee of an
ISO-Qualifying Corporation on the effective date of the grant of an Option to such person may be
granted only a Nonstatutory Stock Option.
(c) Fair Market Value Limitation. To the extent that options designated as Incentive Stock
Options (granted under all stock option plans of the Participating Company Group, including the
Plan) become exercisable by a Participant for the first time during any calendar year for stock
having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of
such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For
purposes of this Section, options designated as Incentive Stock Options shall be taken into account
in the order in which they were granted, and the Fair Market Value of stock shall be determined as
of the time the option with respect to such stock is granted. If the Code is amended to provide
for a limitation different from that set forth in this Section, such different limitation shall be
deemed incorporated herein effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in
part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section, the Participant may designate
which portion of such Option the Participant is exercising. In the absence of such designation,
the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option
first. Upon exercise, shares issued pursuant to each such portion shall be separately identified.
6. Stock Options.
Options shall be evidenced by Award Agreements specifying the number of shares of Stock
covered thereby, in such form as the Committee shall from time to time establish. Award Agreements
evidencing Options may incorporate all or any of the terms of the Plan by reference and shall
comply with and be subject to the following terms and conditions:
6.1 Exercise Price. The exercise price for each Option shall be established in the discretion
of the Committee; provided, however, that (a) the exercise price per share shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the Option and (b) no
Incentive Stock Option granted to a Ten Percent Owner shall have an exercise price per share less
than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective
date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum
exercise price set forth above if such Option is granted pursuant to an assumption or substitution
for another option in a manner that would qualify under the provisions of Section 409A or 424(a) of
the Code.
6.2 Exercisability and Term of Options. Options shall be exercisable at such time or times,
or upon such event or events, and subject to such terms, conditions, performance criteria and
restrictions as shall be determined by the Committee and set forth in the
14
Award Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the
expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive
Stock Option granted to a Ten Percent Owner shall be exercisable after the expiration of five (5)
years after the effective date of grant of such Option and (c) no Option granted to an Employee who
is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, shall be
first exercisable until at least six (6) months following the date of grant of such Option (except
in the event of such Employee’s death, disability or retirement, upon a Change in Control, or as
otherwise permitted by the Worker Economic Opportunity Act). Subject to the foregoing, unless
otherwise specified by the Committee in the grant of an Option, each Option shall terminate ten
(10) years after the effective date of grant of the Option, unless earlier terminated in accordance
with its provisions.
6.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the
exercise price for the number of shares of Stock being purchased pursuant to any Option shall be
made (i) in cash, by check or in cash equivalent; (ii) if permitted by the Committee and subject to
the limitations contained in Section 6.3(b), by means of (1) a Cashless Exercise, (2) a Stock
Tender Exercise or (3) a Net Exercise; (iii) by such other consideration as may be approved by the
Committee from time to time to the extent permitted by
applicable law, or (iv) by any combination thereof. The Committee may at any time or from
time to time grant Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more forms of
consideration.
(b) Limitations on Forms of Consideration.
(i) Cashless Exercise. A “Cashless Exercise” means the delivery of a properly executed notice
of exercise together with irrevocable instructions to a broker providing for the assignment to the
Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired
upon the exercise of the Option (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board of Governors of the
Federal Reserve System). The Company reserves, at any and all times, the right, in the Company’s
sole and absolute discretion, to establish, decline to approve or terminate any program or
procedures for the exercise of Options by means of a Cashless Exercise, including with respect to
one or more Participants specified by the Company notwithstanding that such program or procedures
may be available to other Participants.
(ii) Stock Tender Exercise. A “Stock Tender Exercise” means the delivery of a property
executed exercise notice accompanies by a Participant’s tender to the Company, or attestation to
the ownership, in a form acceptable to the Company of whole shares of Stock owned by the
Participant having a Fair Market Value that does not exceed the aggregate exercise price for the
shares with respect to which the Option is exercised. A Stock Tender Exercise shall not be
permitted if it would constitute a violation of the provisions of any law, regulation or agreement
restricting the redemption of the Company’s stock. If required by the Company, an Option may not
be exercised by tender to the Company, or attestation to the
15
ownership, of shares of Stock unless such shares either have been owned by the Participant for a period of time required by the Company
(and not used for another option exercise by attestation during such period) or were not acquired,
directly or indirectly, from the Company.
(iii) Net Exercise. A “Net Exercise” means the delivery of a properly executed exercise
notice followed by a procedure pursuant to which (1) the Company will reduce the number of shares
otherwise issuable to a Participant upon the exercise of an Option by the largest whole number of
shares having a Fair Market Value that does not exceed the aggregate exercise price for the shares
with respect to which the Option is exercised, and (2) the Participant shall pay to the Company in
cash the remaining balance of such aggregate exercise price not satisfied by such reduction in the
number of whole shares to be issued.
6.4 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the Option as otherwise provided
by this Plan and unless otherwise provided by the Committee, an Option shall terminate immediately
upon the Participant’s termination of Service to the extent that it is then unvested and shall be
exercisable after the Participant’s termination of Service to the extent
it is then vested only during the applicable time period determined in accordance with this
Section and thereafter shall terminate.
(i) Disability. If the Participant’s Service terminates because of the Disability of the
Participant, the Option, to the extent unexercised and exercisable for vested shares on the date on
which the Participant’s Service terminated, may be exercised by the Participant (or the
Participant’s guardian or legal representative) at any time prior to the expiration of twelve (12)
months after the date on which the Participant’s Service terminated, but in any event no later than
the date of expiration of the Option’s term as set forth in the Award Agreement evidencing such
Option (the “Option Expiration Date”).
(ii) Death. If the Participant’s Service terminates because of the death of the Participant,
the Option, to the extent unexercised and exercisable for vested shares on the date on which the
Participant’s Service terminated, may be exercised by the Participant’s legal representative or
other person who acquired the right to exercise the Option by reason of the Participant’s death at
any time prior to the expiration of twelve (12) months after the date on which the Participant’s
Service terminated, but in any event no later than the Option Expiration Date. The Participant’s
Service shall be deemed to have terminated on account of death if the Participant dies within three
(3) months after the Participant’s termination of Service.
(iii) Termination for Cause. Notwithstanding any other provision of the Plan to the contrary,
if the Participant’s Service is terminated for Cause or if, following the Participant’s termination
of Service and during any period in which the Option otherwise would remain exercisable, the
Participant engages in any act that would constitute Cause, the Option shall terminate in its
entirety and cease to be exercisable immediately upon such termination of Service or act.
(iv) Other Termination of Service. If the Participant’s Service terminates for any reason,
except Disability, death or Cause, the Option, to the extent
16
unexercised and exercisable for vested shares on the date on which the Participant’s Service terminated, may be exercised by the
Participant at any time prior to the expiration of three (3) months after the date on which the
Participant’s Service terminated, but in any event no later than the Option Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the foregoing, other than
termination of Service for Cause, if the exercise of an Option within the applicable time periods
set forth in Section 6.4(a) is prevented by the provisions of Section 14 below, the Option shall
remain exercisable until the later of (i) thirty (30) days after the date such exercise first would
no longer be prevented by such provisions or (ii) the end of the applicable time period under
Section 6.4(a), but in any event no later than the Option Expiration Date.
6.5 Transferability of Options. During the lifetime of the Participant, an Option shall be
exercisable only by the Participant or the Participant’s guardian or legal representative. An
Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the
Participant’s beneficiary, except transfer by will or by the laws of descent and
distribution. Notwithstanding the foregoing, to the extent permitted by the Committee, in its
discretion, and set forth in the Award Agreement evidencing such Option, an Option shall be
assignable or transferable subject to the applicable limitations, if any, described in the General
Instructions to Form S-8 under the Securities Act or, in the case of an Incentive Stock Option,
only as permitted by applicable regulations under Section 421 of the Code in a manner that does not
disqualify such Option as an Incentive Stock Option.
7. Stock Appreciation Rights.
Stock Appreciation Rights shall be evidenced by Award Agreements specifying the number of
shares of Stock subject to the Award, in such form as the Committee shall from time to time
establish. Award Agreements evidencing SARs may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and conditions:
7.1 Types of SARs Authorized. SARs may be granted in tandem with all or any portion of a
related Option (a “Tandem SAR”) or may be granted independently of any Option (a “Freestanding
SAR”). A Tandem SAR may only be granted concurrently with the grant of the related Option.
7.2 Exercise Price. The exercise price for each SAR shall be established in the discretion of
the Committee; provided, however, that (a) the exercise price per share subject to a Tandem SAR
shall be the exercise price per share under the related Option and (b) the exercise price per share
subject to a Freestanding SAR shall be not less than the Fair Market Value of a share of Stock on
the effective date of grant of the SAR. Notwithstanding the foregoing, an SAR may be granted with
an exercise price lower than the minimum exercise price set forth above if such SAR is granted
pursuant to an assumption or substitution for another stock appreciation right in a manner that
would qualify under the provisions of Section 409A of the Code.
17
7.3 Exercisability and Term of SARs.
(a) Tandem SARs. Tandem SARs shall be exercisable only at the time and to the extent, and
only to the extent, that the related Option is exercisable, subject to such provisions as the
Committee may specify where the Tandem SAR is granted with respect to less than the full number of
shares of Stock subject to the related Option. The Committee may, in its discretion, provide in
any Award Agreement evidencing a Tandem SAR that such SAR may not be exercised without the advance
approval of the Company and, if such approval is not given, then the Option shall nevertheless
remain exercisable in accordance with its terms. A Tandem SAR shall terminate and cease to be
exercisable no later than the date on which the related Option expires or is terminated or
canceled. Upon the exercise of a Tandem SAR with respect to some or all of the shares subject to
such SAR, the related Option shall be canceled automatically as to the number of shares with
respect to which the Tandem SAR was exercised. Upon the exercise of an Option related to a Tandem
SAR as to some or all of the shares subject to such Option, the related Tandem SAR shall be
canceled automatically as to the number of shares with respect to which the related Option was
exercised.
(b) Freestanding SARs. Freestanding SARs shall be exercisable at such time or times, or upon
such event or events, and subject to such terms, conditions, performance criteria and restrictions
as shall be determined by the Committee and set forth in the Award Agreement evidencing such SAR;
provided, however, that (i) no Freestanding SAR shall be exercisable after the expiration of ten
(10) years after the effective date of grant of such SAR and (ii) no Freestanding SAR granted to an
Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as
amended, shall be first exercisable until at least six (6) months following the date of grant of
such SAR (except in the event of such Employee’s death, disability or retirement, upon a Change in
Control, or as otherwise permitted by the Worker Economic Opportunity Act). Subject to the
foregoing, unless otherwise specified by the Committee in the grant of a Freestanding SAR, each
Freestanding SAR shall terminate ten (10) years after the effective date of grant of the SAR,
unless earlier terminated in accordance with its provisions.
7.4 Exercise of SARs. Upon the exercise (or deemed exercise pursuant to Section 7.5) of an
SAR, the Participant (or the Participant’s legal representative or other person who acquired the
right to exercise the SAR by reason of the Participant’s death) shall be entitled to receive
payment of an amount for each share with respect to which the SAR is exercised equal to the excess,
if any, of the Fair Market Value of a share of Stock on the date of exercise of the SAR over the
exercise price. Payment of such amount shall be made (a) in the case of a Tandem SAR, solely in
shares of Stock in a lump sum upon the date of exercise of the SAR and (b) in the case of a
Freestanding SAR, in cash, shares of Stock, or any combination thereof as determined by the
Committee, in a lump sum upon the date of exercise of the SAR. When payment is to be made in
shares of Stock, the number of shares to be issued shall be determined on the basis of the Fair
Market Value of a share of Stock on the date of exercise of the SAR. For purposes of Section 7, an
SAR shall be deemed exercised on the date on which the Company receives notice of exercise from the
Participant or as otherwise provided in Section 7.5.
7.5 Deemed Exercise of SARs. If, on the date on which an SAR would otherwise terminate or
expire, the SAR by its terms remains exercisable immediately prior to
18
such termination or expiration and, if so exercised, would result in a payment to the holder of such SAR, then any
portion of such SAR which has not previously been exercised shall automatically be deemed to be
exercised as of such date with respect to such portion.
7.6 Effect of Termination of Service. Subject to earlier termination of the SAR as otherwise
provided herein and unless otherwise provided by the Committee, an SAR shall be exercisable after a
Participant’s termination of Service only to the extent and during the applicable time period
determined in accordance with Section 6.4 (treating the SAR as if it were an Option) and thereafter
shall terminate.
7.7 Transferability of SARs. During the lifetime of the Participant, an SAR shall be
exercisable only by the Participant or the Participant’s guardian or legal representative. An SAR
shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the
Participant’s beneficiary, except transfer by will or by the laws of descent and distribution.
Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and
set forth in the Award Agreement evidencing such Award, a Tandem SAR related to a Nonstatutory
Stock Option or a Freestanding SAR shall be assignable or transferable subject to the applicable
limitations, if any, described in the General Instructions to Form S-8 under the Securities Act.
8. Restricted Stock Awards.
Restricted Stock Awards shall be evidenced by Award Agreements specifying whether the Award is
a Restricted Stock Bonus or a Restricted Stock Purchase Right and the number of shares of Stock
subject to the Award, in such form as the Committee shall from time to time establish. Award
Agreements evidencing Restricted Stock Awards may incorporate all or any of the terms of the Plan
by reference and shall comply with and be subject to the following terms and conditions:
8.1 Types of Restricted Stock Awards Authorized. Restricted Stock Awards may be granted in
the form of either a Restricted Stock Bonus or a Restricted Stock Purchase Right. Restricted Stock
Awards may be granted upon such conditions as the Committee shall determine, including, without
limitation, upon the attainment of one or more Performance Goals described in Section 10.4. If
either the grant of or satisfaction of Vesting Conditions applicable to a Restricted Stock Award is
to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow
procedures substantially equivalent to those set forth in Sections 10.3 through 10.5(a).
8.2 Purchase Price. The purchase price for shares of Stock issuable under each Restricted
Stock Purchase Right shall be established by the Committee in its discretion. No monetary payment
(other than applicable tax withholding) shall be required as a condition of receiving shares of
Stock pursuant to a Restricted Stock Bonus, the consideration for which shall be services actually
rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required
by applicable state corporate law, the Participant shall furnish consideration in the form of cash
or past services rendered to a Participating Company or for its
19
benefit having a value not less than the par value of the shares of Stock subject to a Restricted Stock Award.
8.3 Purchase Period. A Restricted Stock Purchase Right shall be exercisable within a period
established by the Committee, which shall in no event exceed thirty (30) days from the effective
date of the grant of the Restricted Stock Purchase Right.
8.4 Payment of Purchase Price. Except as otherwise provided below, payment of the purchase
price for the number of shares of Stock being purchased pursuant to any Restricted Stock Purchase
Right shall be made (a) in cash, by check or in cash equivalent, (b) by such other consideration as
may be approved by the Committee from time to time to the extent permitted by applicable law, or
(c) by any combination thereof.
8.5 Vesting and Restrictions on Transfer. Shares issued pursuant to any Restricted Stock
Award may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such
Service requirements, conditions, restrictions or performance criteria,
including, without limitation, Performance Goals as described in Section 10.4, as shall be
established by the Committee and set forth in the Award Agreement evidencing such Award. During
any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting
Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise
disposed of other than pursuant to an Ownership Change Event or as provided in Section 8.8. The
Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock
Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to such
Restricted Stock Award would otherwise occur on a day on which the sale of such shares would
violate the provisions of the Trading Compliance Policy, then satisfaction of the Vesting
Conditions automatically shall be determined on the next trading day on which the sale of such
shares would not violate the Trading Compliance Policy. Upon request by the Company, each
Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt
of shares of Stock hereunder and shall promptly present to the Company any and all certificates
representing shares of Stock acquired hereunder for the placement on such certificates of
appropriate legends evidencing any such transfer restrictions.
8.6 Voting Rights; Dividends and Distributions. Except as provided in this Section, Section
8.5 and any Award Agreement, during any period in which shares acquired pursuant to a Restricted
Stock Award remain subject to Vesting Conditions, the Participant shall have all of the rights of a
stockholder of the Company holding shares of Stock, including the right to vote such shares and to
receive all dividends and other distributions paid with respect to such shares; provided, however,
that unless otherwise determined by the Committee and provided by the Award Agreement, such
dividends and distributions shall be subject to the same Vesting Conditions as the shares subject
to the Restricted Stock Award with respect to which such dividends or distributions were paid, and
otherwise shall be paid no later than the end of the calendar year in which such dividends or
distributions are paid to stockholders (or, if later, the 15th day of the third month following the
date such dividends or distributions are paid to stockholders). In the event of a dividend or
distribution paid in shares of Stock or other property or any other adjustment made upon a change
in the capital structure of the Company as described in Section 4.5, any and all new, substituted
or additional securities or other property (other than regular, periodic cash dividends) to which
the Participant is entitled by reason of the
20
Participant’s Restricted Stock Award shall be
immediately subject to the same Vesting Conditions as the shares subject to the Restricted Stock
Award with respect to which such dividends or distributions were paid or adjustments were made.
8.7 Effect of Termination of Service. Unless otherwise provided by the Committee in the Award
Agreement evidencing a Restricted Stock Award, if a Participant’s Service terminates for any
reason, whether voluntary or involuntary (including the Participant’s death or disability), then
(a) the Company shall have the option to repurchase for the purchase price paid by the Participant
any shares acquired by the Participant pursuant to a Restricted Stock Purchase Right which remain
subject to Vesting Conditions as of the date of the Participant’s termination of Service and
(b) the Participant shall forfeit to the Company any shares acquired by the Participant pursuant to
a Restricted Stock Bonus which remain subject to Vesting Conditions as of the date of the
Participant’s termination of Service. The Company shall have
the right to assign at any time any repurchase right it may have, whether or not such right is
then exercisable, to one or more persons as may be selected by the Company.
8.8 Nontransferability of Restricted Stock Award Rights. Rights to acquire shares of Stock
pursuant to a Restricted Stock Award shall not be subject in any manner to anticipation,
alienation, sale, exchange, transfer, assignment, pledge, encumbrance or garnishment by creditors
of the Participant or the Participant’s beneficiary, except transfer by will or the laws of descent
and distribution. All rights with respect to a Restricted Stock Award granted to a Participant
hereunder shall be exercisable during his or her lifetime only by such Participant or the
Participant’s guardian or legal representative.
9. Restricted Stock Unit Awards.
Restricted Stock Unit Awards shall be evidenced by Award Agreements specifying the number of
Restricted Stock Units subject to the Award, in such form as the Committee shall from time to time
establish. Award Agreements evidencing Restricted Stock Units may incorporate all or any of the
terms of the Plan by reference and shall comply with and be subject to the following terms and
conditions:
9.1 Grant of Restricted Stock Unit Awards. Restricted Stock Unit Awards may be granted upon
such conditions as the Committee shall determine, including, without limitation, upon the
attainment of one or more Performance Goals described in Section 10.4. If either the grant of a
Restricted Stock Unit Award or the Vesting Conditions with respect to such Award is to be
contingent upon the attainment of one or more Performance Goals, the Committee shall follow
procedures substantially equivalent to those set forth in Sections 10.3 through 10.5(a).
9.2 Purchase Price. No monetary payment (other than applicable tax withholding, if any) shall
be required as a condition of receiving a Restricted Stock Unit Award, the consideration for which
shall be services actually rendered to a Participating Company or for its benefit. Notwithstanding
the foregoing, if required by applicable state corporate law, the Participant shall furnish
consideration in the form of cash or past services rendered to a Participating Company or for its
benefit having a value not less than the par value of the shares of Stock issued upon settlement of
the Restricted Stock Unit Award.
21
9.3 Vesting. Restricted Stock Unit Awards may (but need not) be made subject to Vesting
Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or
performance criteria, including, without limitation, Performance Goals as described in
Section 10.4, as shall be established by the Committee and set forth in the Award Agreement
evidencing such Award. The Committee, in its discretion, may provide in any Award Agreement
evidencing a Restricted Stock Unit Award that, if the satisfaction of Vesting Conditions with
respect to any shares subject to the Award would otherwise occur on a day on which the sale of such
shares would violate the provisions of the Trading Compliance Policy, then the satisfaction of the
Vesting Conditions automatically shall be determined on the first to occur of (a) the next trading
day on which the sale of such shares would not violate the Trading Compliance Policy or (b) the
later of (i) last day of the calendar year in which the original
vesting date occurred or (ii) the last day of the Company’s taxable year in which the original
vesting date occurred.
9.4 Voting Rights, Dividend Equivalent Rights and Distributions. Participants shall have no
voting rights with respect to shares of Stock represented by Restricted Stock Units until the date
of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion,
may provide in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant
shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on
Stock during the period beginning on the date such Award is granted and ending, with respect to
each share subject to the Award, on the earlier of the date the Award is settled or the date on
which it is terminated. Such Dividend Equivalent Rights, if any, shall be paid by crediting the
Participant with a cash amount or with additional whole Restricted Stock Units as of the date of
payment of such cash dividends on Stock, as determined by the Committee. The number of additional
Restricted Stock Units (rounded to the nearest whole number), if any, to be so credited shall be
determined by dividing (a) the amount of cash dividends paid on such date with respect to the
number of shares of Stock represented by the Restricted Stock Units previously credited to the
Participant by (b) the Fair Market Value per share of Stock on such date. Such cash amounts and/or
additional Restricted Stock Units shall be subject to the same terms and conditions and shall be
settled in the same manner and at the same time as the Restricted Stock Units originally subject to
the Restricted Stock Unit Award. In the event of a dividend or distribution paid in shares of
Stock or other property or any other adjustment made upon a change in the capital structure of the
Company as described in Section 4.5, appropriate adjustments shall be made in the Participant’s
Restricted Stock Unit Award so that it represents the right to receive upon settlement any and all
new, substituted or additional securities or other property (other than regular, periodic cash
dividends) to which the Participant would be entitled by reason of the shares of Stock issuable
upon settlement of the Award, and all such new, substituted or additional securities or other
property shall be immediately subject to the same Vesting Conditions as are applicable to the
Award.
9.5 Effect of Termination of Service. Unless otherwise provided by the Committee and set
forth in the Award Agreement evidencing a Restricted Stock Unit Award, if a Participant’s Service
terminates for any reason, whether voluntary or involuntary (including the Participant’s death or
disability), then the Participant shall forfeit to the Company any Restricted Stock Units pursuant
to the Award which remain subject to Vesting Conditions as of the date of the Participant’s
termination of Service.
22
9.6 Settlement of Restricted Stock Unit Awards. The Company shall issue to a Participant on
the date on which Restricted Stock Units subject to the Participant’s Restricted Stock Unit Award
vest or on such other date determined by the Committee, in its discretion, and set forth in the
Award Agreement one (1) share of Stock (and/or any other new, substituted or additional securities
or other property pursuant to an adjustment described in Section 9.4) for each Restricted Stock
Unit then becoming vested or otherwise to be settled on such date, subject to the withholding of
applicable taxes, if any. If permitted by the Committee, the Participant may elect, consistent
with the requirements of Section 409A, to defer receipt of all or any portion of the shares of
Stock or other property otherwise issuable to the Participant
pursuant to this Section, and such deferred issuance date(s) and amount(s) elected by the
Participant shall be set forth in the Award Agreement. Notwithstanding the foregoing, the
Committee, in its discretion, may provide for settlement of any Restricted Stock Unit Award by
payment to the Participant in cash of an amount equal to the Fair Market Value on the payment date
of the shares of Stock or other property otherwise issuable to the Participant pursuant to this
Section.
9.7 Nontransferability of Restricted Stock Unit Awards. The right to receive shares pursuant
to a Restricted Stock Unit Award shall not be subject in any manner to anticipation, alienation,
sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the
Participant or the Participant’s beneficiary, except transfer by will or by the laws of descent and
distribution. All rights with respect to a Restricted Stock Unit Award granted to a Participant
hereunder shall be exercisable during his or her lifetime only by such Participant or the
Participant’s guardian or legal representative.
10. Performance Awards.
Performance Awards shall be evidenced by Award Agreements in such form as the Committee shall
from time to time establish. Award Agreements evidencing Performance Awards may incorporate all or
any of the terms of the Plan by reference and shall comply with and be subject to the following
terms and conditions:
10.1 Types of Performance Awards Authorized. Performance Awards may be granted in the form of
either Performance Shares or Performance Units. Each Award Agreement evidencing a Performance
Award shall specify the number of Performance Shares or Performance Units subject thereto, the
Performance Award Formula, the Performance Goal(s) and Performance Period applicable to the Award,
and the other terms, conditions and restrictions of the Award.
10.2 Initial Value of Performance Shares and Performance Units. Unless otherwise provided by
the Committee in granting a Performance Award, each Performance Share shall have an initial
monetary value equal to the Fair Market Value of one (1) share of Stock, subject to adjustment as
provided in Section 4.5, on the effective date of grant of the Performance Share, and each
Performance Unit shall have an initial monetary value established by the Committee at the time of
grant. The final value payable to the Participant in settlement of a Performance Award determined
on the basis of the applicable Performance Award Formula will depend on the extent to which
Performance Goals established by the Committee are attained within the applicable Performance
Period established by the Committee.
23
10.3 Establishment of Performance Period, Performance Goals and Performance Award Formula. In
granting each Performance Award, the Committee shall establish in writing the applicable
Performance Period, Performance Award Formula and one or more Performance Goals which, when
measured at the end of the Performance Period, shall determine on the basis of the Performance
Award Formula the final value of the Performance Award to be paid to the Participant. Unless
otherwise permitted in compliance with the requirements under Section 162(m) with respect to each
Performance Award intended to result in the payment of Performance-Based Compensation, the Committee shall establish the Performance
Goal(s) and Performance Award Formula applicable to each Performance Award no later than the
earlier of (a) the date ninety (90) days after the commencement of the applicable Performance
Period or (b) the date on which 25% of the Performance Period has elapsed, and, in any event, at a
time when the outcome of the Performance Goals remains substantially uncertain. Once established,
the Performance Goals and Performance Award Formula applicable to a Covered Employee shall not be
changed during the Performance Period. The Company shall notify each Participant granted a
Performance Award of the terms of such Award, including the Performance Period, Performance Goal(s)
and Performance Award Formula.
10.4 Measurement of Performance Goals. Performance Goals shall be established by the
Committee on the basis of targets to be attained
(“Performance Targets”) with respect to one or
more measures of business or financial performance (each, a
“Performance Measure”), subject to the
following:
(a) Performance Measures. Performance Measures shall be calculated in accordance with the
Company’s financial statements, or, if such terms are not used in the Company’s financial
statements, they shall be calculated in accordance with generally accepted accounting principles, a
method used generally in the Company’s industry, or in accordance with a methodology established by
the Committee prior to the grant of the Performance Award. Performance Measures shall be
calculated with respect to the Company and each Subsidiary Corporation consolidated therewith for
financial reporting purposes or such division or other business unit as may be selected by the
Committee. Unless otherwise determined by the Committee prior to the grant of the Performance
Award, the Performance Measures applicable to the Performance Award shall be calculated prior to
the accrual of expense for any Performance Award for the same Performance Period and excluding the
effect (whether positive or negative) on the Performance Measures of any change in accounting
standards or any extraordinary, unusual or nonrecurring item, as determined by the Committee,
occurring after the establishment of the Performance Goals applicable to the Performance Award.
Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis
from period to period for the calculation of Performance Measures in order to prevent the dilution
or enlargement of the Participant’s rights with respect to a Performance Award. Performance
Measures may be one or more of the following, as determined by the Committee:
(i) revenue;
(ii) sales;
(iii) expenses;
24
(iv) operating income;
(v) gross margin;
(vi) operating margin;
(vii) earnings before any one or more of: stock-based compensation expense, interest, taxes,
depreciation and amortization;
(viii) pre-tax profit;
(ix) net operating income;
(x) net income;
(xi) economic value added;
(xii) free cash flow;
(xiii) operating cash flow;
(xiv) balance of cash, cash equivalents and marketable securities;
(xv) stock price;
(xvi) earnings per share;
(xvii) return on stockholder equity;
(xviii) return on capital;
(xix) return on assets;
(xx) return on investment;
(xxi) total stockholder return;
(xxii) employee satisfaction;
(xxiii) employee retention;
(xxiv) market share;
(xxv) customer satisfaction;
(xxvi) product development;
(xxvii) research and development expenses;
(xxviii) completion of an identified special project; and
25
(xxix) completion of a joint venture or other corporate transaction.
(b) Performance Targets. Performance Targets may include a minimum, maximum, target level and
intermediate levels of performance, with the final value of a Performance Award determined under
the applicable Performance Award Formula by the level attained during the applicable Performance
Period. A Performance Target may be stated as an absolute value, an increase or decrease in a
value, or as a value determined relative to an index, budget or other standard selected by the
Committee.
10.5 Settlement of Performance Awards.
(a) Determination of Final Value. As soon as practicable following the completion of the
Performance Period applicable to a Performance Award, the Committee shall certify in writing the
extent to which the applicable Performance Goals have been attained and the resulting final value
of the Award earned by the Participant and to be paid upon its settlement in accordance with the
applicable Performance Award Formula.
(b) Discretionary Adjustment of Award Formula. In its discretion, the Committee may, either
at the time it grants a Performance Award or at any time thereafter, provide for the positive or
negative adjustment of the Performance Award Formula applicable to a Performance Award granted to
any Participant who is not a Covered Employee to reflect such Participant’s individual performance
in his or her position with the Company or such other factors as the Committee may determine. If
permitted under a Covered Employee’s Award Agreement, the Committee shall have the discretion, on
the basis of such criteria as may be established by the Committee, to reduce some or all of the
value of the Performance Award that would otherwise be paid to the Covered Employee upon its
settlement notwithstanding the attainment of any Performance Goal and the resulting value of the
Performance Award determined in accordance with the Performance Award Formula. No such reduction
may result in an increase in the amount payable upon settlement of another Participant’s
Performance Award that is intended to result in Performance-Based Compensation.
(c) Effect of Leaves of Absence. Unless otherwise required by law or a Participant’s Award
Agreement, payment of the final value, if any, of a Performance Award held by a Participant who has
taken in excess of thirty (30) days in unpaid leaves of absence during a Performance Period shall
be prorated on the basis of the number of days of the Participant’s Service during the Performance
Period during which the Participant was not on an unpaid leave of absence.
(d) Notice to Participants. As soon as practicable following the Committee’s determination
and certification in accordance with Sections 10.5(a) and (b), the Company shall notify each
Participant of the determination of the Committee.
(e) Payment in Settlement of Performance Awards. As soon as practicable following the
Committee’s determination and certification in accordance with Sections 10.5(a) and (b), but in any
event within the Short-Term Deferral Period described in Section 15.1 (except as otherwise provided
below or consistent with the requirements of Section 409A), payment shall be made to each eligible
Participant (or such Participant’s legal
26
representative or other person who acquired the right to
receive such payment by reason of the Participant’s death) of the final value of the Participant’s Performance Award. Payment of
such amount shall be made in cash, shares of Stock, or a combination thereof as determined by the
Committee. Unless otherwise provided in the Award Agreement evidencing a Performance Award,
payment shall be made in a lump sum. If permitted by the Committee, the Participant may elect,
consistent with the requirements of Section 409A, to defer receipt of all or any portion of the
payment to be made to the Participant pursuant to this Section, and such deferred payment date(s)
elected by the Participant shall be set forth in the Award Agreement. If any payment is to be made
on a deferred basis, the Committee may, but shall not be obligated to, provide for the payment
during the deferral period of Dividend Equivalent Rights or interest.
(f) Provisions Applicable to Payment in Shares. If payment is to be made in shares of Stock,
the number of such shares shall be determined by dividing the final value of the Performance Award
by the Fair Market Value of a share of Stock determined by the method specified in the Award
Agreement. Shares of Stock issued in payment of any Performance Award may be fully vested and
freely transferable shares or may be shares of Stock subject to Vesting Conditions as provided in
Section 8.5. Any shares subject to Vesting Conditions shall be evidenced by an appropriate Award
Agreement and shall be subject to the provisions of Sections 8.5 through 8.8 above.
10.6 Voting Rights; Dividend Equivalent Rights and Distributions. Participants shall have no
voting rights with respect to shares of Stock represented by Performance Share Awards until the
date of the issuance of such shares, if any (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). However, the Committee, in its
discretion, may provide in the Award Agreement evidencing any Performance Share Award that the
Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash
dividends on Stock during the period beginning on the date the Award is granted and ending, with
respect to each share subject to the Award, on the earlier of the date on which the Performance
Shares are settled or the date on which they are forfeited. Such Dividend Equivalent Rights, if
any, shall be credited to the Participant either in cash or in the form of additional whole
Performance Shares as of the date of payment of such cash dividends on Stock, as determined by the
Committee. The number of additional Performance Shares (rounded to the nearest whole number), if
any, to be so credited shall be determined by dividing (a) the amount of cash dividends paid on the
dividend payment date with respect to the number of shares of Stock represented by the Performance
Shares previously credited to the Participant by (b) the Fair Market Value per share of Stock on
such date. Dividend Equivalent Rights may be paid currently or may be accumulated and paid to the
extent that Performance Shares become nonforfeitable, as determined by the Committee. Settlement
of Dividend Equivalent Rights may be made in cash, shares of Stock, or a combination thereof as
determined by the Committee, and may be paid on the same basis as settlement of the related
Performance Share as provided in Section 10.5. Dividend Equivalent Rights shall not be paid with
respect to Performance Units. In the event of a dividend or distribution paid in shares of Stock
or other property or any other adjustment made upon a change in the capital structure of the
Company as described in Section 4.5, appropriate adjustments shall be made in the Participant’s
Performance Share Award so that it represents the right to receive upon settlement any and all new,
substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be
entitled
27
by reason of the shares of Stock issuable upon settlement of the Performance Share Award,
and all such new, substituted or additional securities or other property shall be immediately
subject to the same Performance Goals as are applicable to the Award.
10.7 Effect of Termination of Service. Unless otherwise provided by the Committee and set
forth in the Award Agreement evidencing a Performance Award, the effect of a Participant’s
termination of Service on the Performance Award shall be as follows:
(a) Death or Disability. If the Participant’s Service terminates because of the death or
Disability of the Participant before the completion of the Performance Period applicable to the
Performance Award, the final value of the Participant’s Performance Award shall be determined by
the extent to which the applicable Performance Goals have been attained with respect to the entire
Performance Period and shall be prorated based on the number of months of the Participant’s Service
during the Performance Period. Payment shall be made following the end of the Performance Period
in any manner permitted by Section 10.5.
(b) Other Termination of Service. If the Participant’s Service terminates for any reason
except death or Disability before the completion of the Performance Period applicable to the
Performance Award, such Award shall be forfeited in its entirety; provided, however, that in the
event of an involuntary termination of the Participant’s Service, the Committee, in its discretion,
may waive the automatic forfeiture of all or any portion of any such Award and determine the final
value of the Performance Award in the manner provided by Section 10.7(a). Payment of any amount
pursuant to this Section shall be made following the end of the Performance Period in any manner
permitted by Section 10.5.
10.8 Nontransferability of Performance Awards. Prior to settlement in accordance with the
provisions of the Plan, no Performance Award shall be subject in any manner to anticipation,
alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors
of the Participant or the Participant’s beneficiary, except transfer by will or by the laws of
descent and distribution. All rights with respect to a Performance Award granted to a Participant
hereunder shall be exercisable during his or her lifetime only by such Participant or the
Participant’s guardian or legal representative.
11. Cash-Based Awards and Other Stock-Based Awards.
Cash-Based Awards and Other Stock-Based Awards shall be evidenced by Award Agreements in such
form as the Committee shall from time to time establish. Award Agreements evidencing Cash-Based
Awards and Other Stock-Based Awards may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and conditions:
11.1 Grant of Cash-Based Awards. Subject to the provisions of the Plan, the Committee, at any
time and from time to time, may grant Cash-Based Awards to Participants in such amounts and upon
such terms and conditions, including the achievement of performance criteria, as the Committee may
determine.
28
11.2 Grant of Other Stock-Based Awards. The Committee may grant other types of equity-based
or equity-related Awards not otherwise described by the terms of this Plan (including the grant or
offer for sale of unrestricted securities, stock-equivalent units, stock appreciation units,
securities or debentures convertible into common stock or other forms determined by the Committee)
in such amounts and subject to such terms and conditions as the Committee shall determine. Other
Stock-Based Awards may be made available as a form of payment in the settlement of other Awards or
as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock-Based
Awards may involve the transfer of actual shares of Stock to Participants, or payment in cash or
otherwise of amounts based on the value of Stock and may include, without limitation, Awards
designed to comply with or take advantage of the applicable local laws of jurisdictions other than
the United States.
11.3 Value of Cash-Based and Other Stock-Based Awards. Each Cash-Based Award shall specify a
monetary payment amount or payment range as determined by the Committee. Each Other Stock-Based
Award shall be expressed in terms of shares of Stock or units based on such shares of Stock, as
determined by the Committee. The Committee may require the satisfaction of such Service
requirements, conditions, restrictions or performance criteria, including, without limitation,
Performance Goals as described in Section 10.4, as shall be established by the Committee and set
forth in the Award Agreement evidencing such Award. If the Committee exercises its discretion to
establish performance criteria, the final value of Cash-Based Awards or Other Stock-Based Awards
that will be paid to the Participant will depend on the extent to which the performance criteria
are met. The establishment of performance criteria with respect to the grant or vesting of any
Cash-Based Award or Other Stock-Based Award intended to result in Performance-Based Compensation
shall follow procedures substantially equivalent to those applicable to Performance Awards set
forth in Section 10.
11.4 Payment or Settlement of Cash-Based Awards and Other Stock-Based Awards. Payment or
settlement, if any, with respect to a Cash-Based Award or an Other Stock-Based Award shall be made
in accordance with the terms of the Award, in cash, shares of Stock or other securities or any
combination thereof as the Committee determines. The determination and certification of the final
value with respect to any Cash-Based Award or Other Stock-Based Award intended to result in
Performance-Based Compensation shall comply with the requirements applicable to Performance Awards
set forth in Section 10. To the extent applicable, payment or settlement with respect to each
Cash-Based Award and Other Stock-Based Award shall be made in compliance with the requirements of
Section 409A.
11.5 Voting Rights; Dividend Equivalent Rights and Distributions. Participants shall have no
voting rights with respect to shares of Stock represented by Other Stock-Based Awards until the
date of the issuance of such shares of Stock (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company), if any, in settlement of such
Award. However, the Committee, in its discretion, may provide in the Award Agreement evidencing
any Other Stock-Based Award that the Participant shall be entitled to Dividend Equivalent Rights
with respect to the payment of cash dividends on Stock during the period beginning on the date such
Award is granted and ending, with respect to each share subject to the Award, on the earlier of the
date the Award is settled or the date on which it is terminated. Such Dividend Equivalent Rights, if any, shall be paid in accordance
29
with the provisions set forth in Section 9.4. Dividend Equivalent Rights shall not
be granted with respect to Cash-Based Awards. In the event of a dividend or distribution paid in
shares of Stock or other property or any other adjustment made upon a change in the capital
structure of the Company as described in Section 4.5, appropriate adjustments shall be made in the
Participant’s Other Stock-Based Award so that it represents the right to receive upon settlement
any and all new, substituted or additional securities or other property (other than regular,
periodic cash dividends) to which the Participant would be entitled by reason of the shares of
Stock issuable upon settlement of such Award, and all such new, substituted or additional
securities or other property shall be immediately subject to the same Vesting Conditions and
performance criteria, if any, as are applicable to the Award.
11.6 Effect of Termination of Service. Each Award Agreement evidencing a Cash-Based Award or
Other Stock-Based Award shall set forth the extent to which the Participant shall have the right to
retain such Award following termination of the Participant’s Service. Such provisions shall be
determined in the discretion of the Committee, need not be uniform among all Cash-Based Awards or
Other Stock-Based Awards, and may reflect distinctions based on the reasons for termination,
subject to the requirements of Section 409A, if applicable.
11.7 Nontransferability of Cash-Based Awards and Other Stock-Based Awards. Prior to the
payment or settlement of a Cash-Based Award or Other Stock-Based Award, the Award shall not be
subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge,
encumbrance, or garnishment by creditors of the Participant or the Participant’s beneficiary,
except transfer by will or by the laws of descent and distribution. The Committee may impose such
additional restrictions on any shares of Stock issued in settlement of Cash-Based Awards and Other
Stock-Based Awards as it may deem advisable, including, without limitation, minimum holding period
requirements, restrictions under applicable federal securities laws, under the requirements of any
stock exchange or market upon which such shares of Stock are then listed and/or traded, or under
any state securities laws or foreign law applicable to such shares of Stock.
12. Standard Forms of Award Agreement.
12.1 Award Agreements. Each Award shall comply with and be subject to the terms and conditions
set forth in the appropriate form of Award Agreement approved by the Committee and as amended from
time to time. No Award or purported Award shall be a valid and binding obligation of the Company
unless evidenced by a fully executed Award Agreement, which execution may be evidenced by
electronic means.
12.2 Authority to Vary Terms. The Committee shall have the authority from time to time to vary
the terms of any standard form of Award Agreement either in connection with the grant or amendment
of an individual Award or in connection with the authorization of a new standard form or forms;
provided, however, that the terms and conditions of any such new, revised or amended standard form
or forms of Award Agreement are not inconsistent with the terms of the Plan.
30
13. Change in Control.
13.1 Effect of Change in Control on Awards. Subject to the requirements and limitations of
Section 409A, if applicable, the Committee may provide for any one or more of the following:
(a) Accelerated Vesting. In its discretion, the Committee may provide in the grant of any
Award or at any other time may take such action as it deems appropriate to provide for acceleration
of the exercisability, vesting and/or settlement in connection with a Change in Control of each or
any outstanding Award or portion thereof and shares acquired pursuant thereto upon such conditions,
including termination of the Participant’s Service prior to, upon, or following such Change in
Control, and to such extent as the Committee shall determine.
(b) Assumption, Continuation or Substitution. In the event of a Change in Control, the
surviving, continuing, successor, or purchasing corporation or other business entity or parent
thereof, as the case may be (the “Acquiror”), may, without the consent of any Participant, assume
or continue the Company’s rights and obligations under each or any Award or portion thereof
outstanding immediately prior to the Change in Control or substitute for each or any such
outstanding Award or portion thereof a substantially equivalent award with respect to the
Acquiror’s stock, as applicable. For purposes of this Section, if so determined by the Committee
in its discretion, an Award denominated in shares of Stock shall be deemed assumed if, following
the Change in Control, the Award confers the right to receive, subject to the terms and conditions
of the Plan and the applicable Award Agreement, for each share of Stock subject to the Award
immediately prior to the Change in Control, the consideration (whether stock, cash, other
securities or property or a combination thereof) to which a holder of a share of Stock on the
effective date of the Change in Control was entitled (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of the outstanding
shares of Stock); provided, however, that if such consideration is not solely common stock of the
Acquiror, the Committee may, with the consent of the Acquiror, provide for the consideration to be
received upon the exercise or settlement of the Award, for each share of Stock subject to the
Award, to consist solely of common stock of the Acquiror equal in Fair Market Value to the per
share consideration received by holders of Stock pursuant to the Change in Control. Any Award or
portion thereof which is neither assumed or continued by the Acquiror in connection with the Change
in Control nor exercised or settled as of the time of consummation of the Change in Control shall
terminate and cease to be outstanding effective as of the time of consummation of the Change in
Control.
(c) Cash-Out of Outstanding Stock-Based Awards. The Committee may, in its discretion and
without the consent of any Participant, determine that, upon the occurrence of a Change in Control,
each or any Award denominated in shares of Stock or portion thereof outstanding immediately prior
to the Change in Control and not previously exercised or settled shall be canceled in exchange for
a payment with respect to each vested share (and each unvested share, if so determined by the
Committee) of Stock subject to such canceled Award in (i) cash, (ii) stock of the Company or of a
corporation or other business entity a party to the Change in Control, or (iii) other property
which, in any such case, shall be in an amount having a Fair Market Value equal to the Fair Market
Value of the consideration to be paid per share of Stock in the Change in Control, reduced (but not
below zero) by the exercise or purchase price
31
per share, if any, under such Award. In the event such determination is made by the
Committee, an Award having an exercise or purchase price per share equal to or greater than the
Fair Market Value of the consideration to be paid per share of Stock in the Change in Control may
be canceled without payment of consideration to the holder thereof. Payment pursuant to this
Section (reduced by applicable withholding taxes, if any) shall be made to Participants in respect
of the vested portions of their canceled Awards as soon as practicable following the date of the
Change in Control and in respect of the unvested portions of their canceled Awards in accordance
with the vesting schedules applicable to such Awards.
13.2 Effect of Change in Control on Nonemployee Director Awards. Subject to the requirements
and limitations of Section 409A, if applicable, including as provided by Section 15.4(f), in the
event of a Change in Control, each outstanding Nonemployee Director Award shall become immediately
exercisable and vested in full and, except to the extent assumed, continued or substituted for
pursuant to Section 13.1(b), shall be settled effective immediately prior to the time of
consummation of the Change in Control.
13.3 Federal Excise Tax Under Section 4999 of the Code.
(a) Excess Parachute Payment. In the event that any acceleration of vesting pursuant to an
Award and any other payment or benefit received or to be received by a Participant would subject
the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization
of such acceleration of vesting, payment or benefit as an “excess parachute payment” under Section
280G of the Code, the Participant may elect to reduce the amount of any acceleration of vesting
called for under the Award in order to avoid such characterization.
(b) Determination by Independent Accountants. To aid the Participant in making any election
called for under Section 13.3(a), no later than the date of the occurrence of any event that might
reasonably be anticipated to result in an “excess parachute payment” to the Participant as
described in Section 13.3(a), the Company shall request a determination in writing by independent
public accountants selected by the Company (the “Accountants”). As soon as practicable thereafter,
the Accountants shall determine and report to the Company and the Participant the amount of such
acceleration of vesting, payments and benefits which would produce the greatest after-tax benefit
to the Participant. For the purposes of such determination, the Accountants may rely on
reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Participant shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make their required determination.
The Company shall bear all fees and expenses the Accountants charge in connection with their
services contemplated by this Section.
14. Compliance with Securities Law.
The grant of Awards and the issuance of shares of Stock pursuant to any Award shall be subject
to compliance with all applicable requirements of federal, state and foreign law with respect to
such securities and the requirements of any stock exchange or market system upon which the Stock
may then be listed. In addition, no Award may be exercised or shares
32
issued pursuant to an Award unless (a) a registration statement under the Securities Act shall
at the time of such exercise or issuance be in effect with respect to the shares issuable pursuant
to the Award, or (b) in the opinion of legal counsel to the Company, the shares issuable pursuant
to the Award may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to obtain from any
regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to
be necessary to the lawful issuance and sale of any shares under the Plan shall relieve the Company
of any liability in respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to issuance of any Stock, the Company may
require the Participant to satisfy any qualifications that may be necessary or appropriate, to
evidence compliance with any applicable law or regulation and to make any representation or
warranty with respect thereto as may be requested by the Company.
15. Compliance with Section 409A.
15.1 Awards Subject to Section 409A. The Company intends that Awards granted pursuant to the
Plan shall either be exempt from or comply with Section 409A, and the Plan shall be so construed.
The provisions of this Section 15 shall apply to any Award or portion thereof that constitutes or
provides for payment of Section 409A Deferred Compensation. Such Awards may include, without
limitation:
(a) A Nonstatutory Stock Option or SAR that includes any feature for the deferral of
compensation other than the deferral of recognition of income until the later of (i) the exercise
or disposition of the Award or (ii) the time the stock acquired pursuant to the exercise of the
Award first becomes substantially vested.
(b) Any Restricted Stock Unit Award, Performance Award, Cash-Based Award or Other Stock-Based
Award that either (i) provides by its terms for settlement of all or any portion of the Award at a
time or upon an event that will or may occur later than the end of the Short-Term Deferral Period
(as defined below) or (ii) permits the Participant granted the Award to elect one or more dates or
events upon which the Award will be settled after the end of the Short-Term Deferral Period.
Subject to the provisions of Section 409A, the term “Short-Term Deferral Period” means the 21/2
month period ending on the later of (i) the 15th day of the third month following the end of the
Participant’s taxable year in which the right to payment under the applicable portion of the Award
is no longer subject to a substantial risk of forfeiture or (ii) the 15th day of the third month
following the end of the Company’s taxable year in which the right to payment under the applicable
portion of the Award is no longer subject to a substantial risk of forfeiture. For this purpose,
the term “substantial risk of forfeiture” shall have the meaning provided by Section 409A.
15.2 Deferral and/or Distribution Elections. Except as otherwise permitted or required by
Section 409A, the following rules shall apply to any compensation deferral and/or payment elections
(each, an “Election”) that may be permitted or required by the Committee pursuant to an Award
providing Section 409A Deferred Compensation:
33
(a) Elections must be in writing and specify the amount of the payment in settlement of an
Award being deferred, as well as the time and form of payment as permitted by this Plan.
(b) Elections shall be made by the end of the Participant’s taxable year prior to the year in
which services commence for which an Award may be granted to such Participant.
(c) Elections shall continue in effect until a written revocation or change in Election is
received by the Company, except that a written revocation or change in Election must be received by
the Company prior to the last day for making the Election determined in accordance with paragraph
(b) above or as permitted by Section 15.3.
15.3 Subsequent Elections. Except as otherwise permitted or required by Section 409A, any
Award providing Section 409A Deferred Compensation which permits a subsequent Election to delay the
payment or change the form of payment in settlement of such Award shall comply with the following
requirements:
(a) No subsequent Election may take effect until at least twelve (12) months after the date on
which the subsequent Election is made.
(b) Each subsequent Election related to a payment in settlement of an Award not described in
Section 15.4(a)(ii), 15.4(a)(iii) or 15.4(a)(vi) must result in a delay of the payment for a period
of not less than five (5) years from the date on which such payment would otherwise have been made.
(c) No subsequent Election related to a payment pursuant to Section 15.4(a)(iv) shall be made
less than twelve (12) months before the date on which such payment would otherwise have been made.
(d) Subsequent Elections shall continue in effect until a written revocation or change in the
subsequent Election is received by the Company, except that a written revocation or change in a
subsequent Election must be received by the Company prior to the last day for making the subsequent
Election determined in accordance the preceding paragraphs of this Section 15.3.
15.4 Payment of Section 409A Deferred Compensation.
(a) Permissible Payments. Except as otherwise permitted or required by Section 409A, an Award
providing Section 409A Deferred Compensation must provide for payment in settlement of the Award
only upon one or more of the following:
(i) The Participant’s “separation from service” (as defined by Section 409A);
(ii) The Participant’s becoming “disabled” (as defined by Section 409A);
34
(iii) The Participant’s death;
(iv) A time or fixed schedule that is either (i) specified by the Committee upon the grant of
an Award and set forth in the Award Agreement evidencing such Award or (ii) specified by the
Participant in an Election complying with the requirements of Section 15.2 or 15.3, as applicable;
(v) A change in the ownership or effective control or the Company or in the ownership of a
substantial portion of the assets of the Company determined in accordance with Section 409A; or
(vi) The occurrence of an “unforeseeable emergency” (as defined by Section 409A).
(b) Installment Payments. It is the intent of this Plan that any right of a Participant to
receive installment payments (within the meaning of Section 409A) shall, for all purposes of
Section 409A, be treated as a right to a series of separate payments.
(c) Required Delay in Payment to Specified Employee Pursuant to Separation from Service.
Notwithstanding any provision of the Plan or an Award Agreement to the contrary, except as
otherwise permitted by Section 409A, no payment pursuant to Section 15.4(a)(i) in settlement of an
Award providing for Section 409A Deferred Compensation may be made to a Participant who is a
“specified employee” (as defined by Section 409A) as of the date of the Participant’s separation
from service before the date (the “Delayed Payment Date”) that is six (6) months after the date of
such Participant’s separation from service, or, if earlier, the date of the Participant’s death.
All such amounts that would, but for this paragraph, become payable prior to the Delayed Payment
Date shall be accumulated and paid on the Delayed Payment Date.
(d) Payment Upon Disability. All distributions of Section 409A Deferred Compensation payable
by reason of a Participant becoming disabled shall be paid in a lump sum or in periodic
installments as established by the Participant’s Election. If the Participant has made no Election
with respect to distributions of Section 409A Deferred Compensation upon becoming disabled, all
such distributions shall be paid in a lump sum upon the determination that the Participant has
become disabled.
(e) Payment Upon Death. If a Participant dies before complete distribution of amounts payable
upon settlement of an Award subject to Section 409A, such undistributed amounts shall be
distributed to his or her beneficiary under the distribution method for death established by the
Participant’s Election upon receipt by the Committee of satisfactory notice and confirmation of the
Participant’s death. If the Participant has made no Election with respect to distributions of
Section 409A Deferred Compensation upon death, all such distributions shall be paid in a lump sum
upon receipt by the Committee of satisfactory notice and confirmation of the Participant’s death.
(f) Payment Upon Change in Control. Notwithstanding any provision of the Plan or an Award
Agreement to the contrary, to the extent that any amount constituting Section 409A Deferred
Compensation would become payable under this Plan by
35
reason of a Change in Control, such amount
shall become payable only if the event constituting a
Change in Control would also constitute a change in ownership or effective control of the
Company or a change in the ownership of a substantial portion of the assets of the Company within
the meaning of Section 409A. Any Award which constitutes Section 409A Deferred Compensation and
which would vest and otherwise become payable upon a Change in Control as a result of the failure
of the Acquiror to assume, continue or substitute for such Award in accordance with Section 13.1(b)
shall vest to the extent provided by such Award but shall be converted automatically at the
effective time of such Change in Control into a right to receive, in cash on the date or dates such
award would have been settled in accordance with its then existing settlement schedule (or as
required by Section 15.4(c)), an amount or amounts equal in the aggregate to the intrinsic value of
the Award at the time of the Change in Control.
(g) Payment Upon Unforeseeable Emergency. The Committee shall have the authority to provide
in the Award Agreement evidencing any Award providing for Section 409A Deferred Compensation for
payment in settlement of all or a portion of such Award in the event that a Participant
establishes, to the satisfaction of the Committee, the occurrence of an unforeseeable emergency.
In such event, the amount(s) distributed with respect to such unforeseeable emergency cannot exceed
the amounts reasonably necessary to satisfy the emergency need plus amounts necessary to pay taxes
reasonably anticipated as a result of such distribution(s), after taking into account the extent to
which such emergency need is or may be relieved through reimbursement or compensation by insurance
or otherwise, by liquidation of the Participant’s assets (to the extent the liquidation of such
assets would not itself cause severe financial hardship) or by cessation of deferrals under the
Award. All distributions with respect to an unforeseeable emergency shall be made in a lump sum
upon the Committee’s determination that an unforeseeable emergency has occurred. The Committee’s
decision with respect to whether an unforeseeable emergency has occurred and the manner in which,
if at all, the payment in settlement of an Award shall be altered or modified, shall be final,
conclusive, and not subject to approval or appeal.
(h) Prohibition of Acceleration of Payments. Notwithstanding any provision of the Plan or an
Award Agreement to the contrary, this Plan does not permit the acceleration of the time or schedule
of any payment under an Award providing Section 409A Deferred Compensation, except as permitted by
Section 409A.
(i) No Representation Regarding Section 409A Compliance. Notwithstanding any other provision
of the Plan, the Company makes no representation that Awards shall be exempt from or comply with
Section 409A. No Participating Company shall be liable for any tax, penalty or interest imposed on
a Participant by Section 409A.
16. Tax Withholding.
16.1 Tax Withholding in General. The Company shall have the right to deduct from any and all
payments made under the Plan, or to require the Participant, through payroll withholding, cash
payment or otherwise, to make adequate provision for, the federal, state, local and foreign taxes
(including social insurance), if any, required by law to be withheld by any Participating Company
with respect to an Award or the shares acquired pursuant thereto. The Company shall have no
obligation to deliver shares of Stock, to release shares of Stock from
36
an escrow established
pursuant to an Award Agreement, or to make any payment in cash under
the Plan until the Participating Company Group’s tax withholding obligations have been
satisfied by the Participant.
16.2 Withholding in or Directed Sale of Shares. The Committee shall have the right, but not
the obligation, to cause the Company to deduct from the shares of Stock issuable to a Participant
upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a
number of whole shares of Stock having a Fair Market Value, as determined by the Committee, equal
to all or any part of the tax withholding obligations of any Participating Company (provided such
shares of Stock are not pledged or otherwise serve as security and the withholding of which would
not trigger adverse accounting treatment). The Fair Market Value of any shares of Stock withheld
or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined
by the applicable minimum statutory withholding rates. The Committee may require a Participant to
direct a broker, upon the vesting, exercise or settlement of an Award, to sell a portion of the
shares subject to the Award determined by the Committee in its discretion to be sufficient to cover
the tax withholding obligations of any Participating Company and to remit an amount equal to such
tax withholding obligations to such Participating Company in cash.
17. Amendment, Suspension or Termination of Plan.
The Committee may amend, suspend or terminate the Plan at any time. However, without the
approval of the Company’s stockholders, there shall be (a) no increase in the maximum aggregate
number of shares of Stock that may be issued under the Plan (except by operation of the provisions
of Section 4.5), (b) no change in the class of persons eligible to receive Incentive Stock Options,
and (c) no other amendment of the Plan that would require approval of the Company’s stockholders
under any applicable law, regulation or rule, including the rules of any stock exchange or
quotation system upon which the Stock may then be listed or quoted. No amendment, suspension or
termination of the Plan shall affect any then outstanding Award unless expressly provided by the
Committee. Except as provided by the next sentence, no amendment, suspension or termination of the
Plan may have a materially adverse effect on any then outstanding Award without the consent of the
Participant. Notwithstanding any other provision of the Plan to the contrary, the Committee may,
in its sole and absolute discretion and without the consent of any Participant, amend the Plan or
any Award Agreement, to take effect retroactively or otherwise, as it deems necessary or advisable
for the purpose of conforming the Plan or such Award Agreement to any present or future law,
regulation or rule applicable to the Plan, including, but not limited to, Section 409A.
18. Miscellaneous Provisions.
18.1 Repurchase Rights. Shares issued under the Plan may be subject to one or more repurchase
options, or other conditions and restrictions as determined by the Committee in its discretion at
the time the Award is granted. The Company shall have the right to assign at any time any
repurchase right it may have, whether or not such right is then exercisable, to one or more persons
as may be selected by the Company. Upon request by the Company, each Participant shall execute any
agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder
and shall promptly present to the Company any and all certificates
37
representing shares of Stock acquired hereunder for the placement on such certificates of
appropriate legends evidencing any such transfer restrictions.
18.2 Forfeiture Events.
(a) The Committee may specify in an Award Agreement that the Participant’s rights, payments,
and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or
recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting
or performance conditions of an Award. Such events may include, but shall not be limited to,
termination of Service for Cause or any act by a Participant, whether before or after termination
of Service, that would constitute Cause for termination of Service.
(b) If the Company is required to prepare an accounting restatement due to the material
noncompliance of the Company, as a result of misconduct, with any financial reporting requirement
under the securities laws, any Participant who knowingly or through gross negligence engaged in the
misconduct, or who knowingly or through gross negligence failed to prevent the misconduct, and any
Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the
Sarbanes-Oxley Act of 2002, shall reimburse the Company for (i) the amount of any payment in
settlement of an Award received by such Participant during the twelve- (12-) month period following
the first public issuance or filing with the United States Securities and Exchange Commission
(whichever first occurred) of the financial document embodying such financial reporting
requirement, and (ii) any profits realized by such Participant from the sale of securities of the
Company during such twelve- (12-) month period.
18.3 Provision of Information. Each Participant shall be given access to information
concerning the Company equivalent to that information generally made available to the Company’s
common stockholders.
18.4 Rights as Employee, Consultant or Director. No person, even though eligible pursuant to
Section 5, shall have a right to be selected as a Participant, or, having been so selected, to be
selected again as a Participant. Nothing in the Plan or any Award granted under the Plan shall
confer on any Participant a right to remain an Employee, Consultant or Director or interfere with
or limit in any way any right of a Participating Company to terminate the Participant’s Service at
any time. To the extent that an Employee of a Participating Company other than the Company
receives an Award under the Plan, that Award shall in no event be understood or interpreted to mean
that the Company is the Employee’s employer or that the Employee has an employment relationship
with the Company.
18.5 Rights as a Stockholder. A Participant shall have no rights as a stockholder with respect
to any shares covered by an Award until the date of the issuance of such shares (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized transfer agent of the
Company). No adjustment shall be made for dividends, distributions or other rights for which the
record date is prior to the date such shares are issued, except as provided in Section 4.5 or
another provision of the Plan.
38
18.6 Delivery of Title to Shares. Subject to any governing rules or regulations, the Company
shall issue or cause to be issued the shares of Stock acquired pursuant to an Award and shall
deliver such shares to or for the benefit of the Participant by means of one or more of the
following: (a) by delivering to the Participant evidence of book entry shares of Stock credited to
the account of the Participant, (b) by depositing such shares of Stock for the benefit of the
Participant with any broker with which the Participant has an account relationship, or (c) by
delivering such shares of Stock to the Participant in certificate form.
18.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the
exercise or settlement of any Award.
18.8 Retirement and Welfare Plans. Neither Awards made under this Plan nor shares of Stock or
cash paid pursuant to such Awards may be included as “compensation” for purposes of computing the
benefits payable to any Participant under any Participating Company’s retirement plans (both
qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides
that such compensation shall be taken into account in computing a Participant’s benefit.
18.9 Beneficiary Designation. Subject to local laws and procedures, each Participant may file
with the Company a written designation of a beneficiary who is to receive any benefit under the
Plan to which the Participant is entitled in the event of such Participant’s death before he or she
receives any or all of such benefit. Each designation will revoke all prior designations by the
same Participant, shall be in a form prescribed by the Company, and will be effective only when
filed by the Participant in writing with the Company during the Participant’s lifetime. If a
married Participant designates a beneficiary other than the Participant’s spouse, the effectiveness
of such designation may be subject to the consent of the Participant’s spouse. If a Participant
dies without an effective designation of a beneficiary who is living at the time of the
Participant’s death, the Company will pay any remaining unpaid benefits to the Participant’s legal
representative.
18.10 Severability. If any one or more of the provisions (or any part thereof) of this Plan
shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so
as to make it valid, legal and enforceable, and the validity, legality and enforceability of the
remaining provisions (or any part thereof) of the Plan shall not in any way be affected or impaired
thereby.
18.11 No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (a)
limit, impair, or otherwise affect the Company’s or another Participating Company’s right or power
to make adjustments, reclassifications, reorganizations, or changes of its capital or business
structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of
its business or assets; or (b) limit the right or power of the Company or another Participating
Company to take any action which such entity deems to be necessary or appropriate.
18.12 Unfunded Obligation. Participants shall have the status of general unsecured creditors
of the Company. Any amounts payable to Participants pursuant to the Plan shall be considered
unfunded and unsecured obligations for all purposes, including, without
39
limitation, Title I of the Employee Retirement Income Security Act of 1974. No Participating
Company shall be required to segregate any monies from its general funds, or to create any trusts,
or establish any special accounts with respect to such obligations. The Company shall retain at
all times beneficial ownership of any investments, including trust investments, which the Company
may make to fulfill its payment obligations hereunder. Any investments or the creation or
maintenance of any trust or any Participant account shall not create or constitute a trust or
fiduciary relationship between the Committee or any Participating Company and a Participant, or
otherwise create any vested or beneficial interest in any Participant or the Participant’s
creditors in any assets of any Participating Company. The Participants shall have no claim against
any Participating Company for any changes in the value of any assets which may be invested or
reinvested by the Company with respect to the Plan.
18.13 Choice of Law. Except to the extent governed by applicable federal law, the validity,
interpretation, construction and performance of the Plan and each Award Agreement shall be governed
by the laws of the State of California, without regard to its conflict of law rules.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing sets
forth the MagnaChip Semiconductor Corporation 2010 Equity Incentive Plan as duly adopted by the
Board on [•], 2010.
| John McFarland, Corporate Secretary | ||||
40
PLAN HISTORY AND NOTES TO COMPANY
[•]
|
Board of Directors of MagnaChip Semiconductor LLC adopts Plan with a reserve of [•] shares (subject to increases and other adjustments as provided by the Plan), subject to approval by the stockholders of MagnaChip Semiconductor Corporation and to be effective upon the Conversion. | |
[•]
|
Effective date of statutory conversion of MagnaChip Semiconductor LLC into the Company. | |
[•]
|
Plan approved by the stockholders of the Company. | |
[•]
|
Effective date of registration of Stock under Section 12 of the Exchange Act. | |
[•]
|
Effective date of initial Form S-8 under the Plan. | |
IMPORTANT NOTE: At
first annual
stockholders meeting
following close of
3rd calendar year
following the
calendar year of IPO
(unless plan is
materially amended at
an earlier date),
obtain public company
stockholder approval
of amendment to plan
to add Section 162(m)
grant limits as
described in sample
Section 5.4 and to
approve the material
terms of the
performance goals as
required by Treas.
Reg. 1.162-27(e)(4).
See Treas. Reg.
1.162-27(f) (private
to public company
transition rule).
|
5.4(c) Section 162(m) Award Limits. Subject to adjustment as provided in Section 4.5, no Covered Employee shall be granted within any fiscal year of the Company one or more Awards intended to qualify for treatment as Performance-Based Compensation which in the aggregate are for more than [•] shares or, if applicable, which could result in such Covered Employee receiving more than $[•] for each full fiscal year of the Company contained in the Performance Period for such Award. | |
IMPORTANT NOTE: IRC
162(m) 5 year
reapproval of
performance goals
|
Because the Committee may change the targets under performance goals, Section 162(m) requires stockholder reapproval of the material terms of performance goals no later than the annual meeting in the 5th year following the year in which the public company stockholders initially approved such material terms. See Treas. Reg. 1.162-27(e)(4)(vi). |
Exhibit 10.26
MAGNACHIP SEMICONDUCTOR
CORPORATION
CORPORATION
2010 EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
| Page | |||||||
| 1. | Establishment, Purpose and Term of Plan | 1 | |||||
| 1.1 | Establishment | 1 | |||||
| 1.2 | Purpose | 1 | |||||
| 1.3 | Term of Plan | 1 | |||||
| 2. | Definitions and Construction | 1 | |||||
| 2.1 | Definitions | 1 | |||||
| 2.2 | Construction | 5 | |||||
| 3. | Administration | 6 | |||||
| 3.1 | Administration by the Committee | 6 | |||||
| 3.2 | Authority of Officers | 6 | |||||
| 3.3 | Power to Adopt Sub-Plans or Varying Terms with Respect to Non-U.S. | ||||||
| Employees | 6 | ||||||
| 3.4 | Power to Establish Separate Offerings with Varying Terms | 6 | |||||
| 3.5 | Policies and Procedures Established by the Company | 6 | |||||
| 3.6 | Indemnification | 7 | |||||
| 4. | Shares Subject to Plan | 7 | |||||
| 4.1 | Maximum Number of Shares Issuable | 7 | |||||
| 4.2 | Annual Increase in Maximum Number of Shares Issuable | 8 | |||||
| 4.3 | Adjustments for Changes in Capital Structure | 8 | |||||
| 5. | Eligibility | 8 | |||||
| 5.1 | Employees Eligible to Participate | 8 | |||||
| 5.2 | Exclusion of Certain Stockholders | 9 | |||||
| 5.3 | Determination by Company | 9 | |||||
| 6. | Offerings | 9 | |||||
| 7. | Participation in the Plan | 10 | |||||
| 7.1 | Initial Participation | 10 | |||||
| 7.2 | Continued Participation | 10 | |||||
| 8. | Right to Purchase Shares | 11 | |||||
| 8.1 | Grant of Purchase Right | 11 | |||||
| 8.2 | Calendar Year Purchase Limitation | 11 | |||||
| 9. | Purchase Price | 12 | |||||
| 10. | Accumulation of Purchase Price through Payroll Deduction | 12 | |||||
-i-
TABLE OF CONTENTS
(continued)
(continued)
| Page | |||||||
| 10.1 | Amount of Payroll Deductions | 12 | |||||
| 10.2 | Commencement of Payroll Deductions | 12 | |||||
| 10.3 | Election to Decrease or Stop Payroll Deductions | 12 | |||||
| 10.4 | Administrative Suspension of Payroll Deductions | 13 | |||||
| 10.5 | Participant Accounts | 13 | |||||
| 10.6 | No Interest Paid | 13 | |||||
| 11. | Purchase of Shares | 13 | |||||
| 11.1 | Exercise of Purchase Right | 13 | |||||
| 11.2 | Pro Rata Allocation of Shares | 14 | |||||
| 11.3 | Delivery of Title to Shares | 15 | |||||
| 11.4 | Return of Plan Account Balance | 15 | |||||
| 11.5 | Tax Withholding | 15 | |||||
| 11.6 | Expiration of Purchase Right | 15 | |||||
| 11.7 | Provision of Reports and Stockholder Information to Participants | 15 | |||||
| 12. | Withdrawal from Plan | 16 | |||||
| 12.1 | Voluntary Withdrawal from the Plan | 16 | |||||
| 12.2 | Return of Plan Account Balance | 16 | |||||
| 13. | Termination of Employment or Eligibility | 16 | |||||
| 14. | Effect of Change in Control on Purchase Rights | 16 | |||||
| 15. | Nontransferability of Purchase Rights | 17 | |||||
| 16. | Compliance with Securities Law | 17 | |||||
| 17. | Rights as a Stockholder and Employee | 17 | |||||
| 18. | Notification of Disposition of Shares | 18 | |||||
| 19. | Legends | 18 | |||||
| 20. | Designation of Beneficiary | 18 | |||||
| 20.1 | Designation Procedure | 18 | |||||
| 20.2 | Absence of Beneficiary Designation | 19 | |||||
| 21. | Notices | 19 | |||||
| 22. | Amendment or Termination of the Plan | 19 | |||||
-ii-
MagnaChip Semiconductor Corporation
2010 Employee Stock Purchase Plan
2010 Employee Stock Purchase Plan
1. Establishment, Purpose and Term of Plan.
1.1 Establishment. The MagnaChip Semiconductor Corporation 2010 Employee Stock Purchase Plan
(the “Plan”) is hereby established effective as of the effective date of the initial registration
by the Company of its Stock under Section 12 of the Securities Exchange Act of 1934, as amended
(the “Effective Date”).
1.2 Purpose. The purpose of the Plan is to advance the interests of the Company and its
stockholders by providing an incentive to attract, retain and reward Eligible Employees of the
Participating Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group. The Plan provides such Eligible Employees with
an opportunity to acquire a proprietary interest in the Company through the purchase of Stock. The
Company intends that the Plan qualify as an “employee stock purchase plan” under Section 423 of the
Code (including any amendments or replacements of such section), and the Plan shall be so
construed.
1.3 Term of Plan. The Plan shall continue in effect until its termination by the Committee.
2. Definitions and Construction.
2.1 Definitions. Any term not expressly defined in the Plan but defined for purposes of
Section 423 of the Code shall have the same definition herein. Whenever used herein, the following
terms shall have their respective meanings set forth below:
(a) “Board” means the Board of Directors of the Company.
(b) “Cash Exercise Notice” means a written notice in such form as specified by the Company
which states a Participant’s election to exercise, as of the next Purchase Date, a Purchase Right
granted to such Participant with respect to a Pre-Registration Offering Period.
(c) “Change in Control” means the occurrence of any one or a combination of the following:
(i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
becomes the “beneficial owner” (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities of the Company representing more than fifty
percent (50%) of the total Fair Market Value or total combined voting power of the Company’s
then-outstanding securities entitled to vote generally in the election of Directors; provided,
however, that a Change in Control shall not be deemed to have occurred if such degree of beneficial
ownership results from any of the following: (A) an acquisition by any person who on the Effective
Date is the beneficial owner of more than fifty
1
percent (50%) of such voting power, (B) any acquisition directly from the Company, including,
without limitation, pursuant to or in connection with a public offering of securities, (C) any
acquisition by the Company, (D) any acquisition by a trustee or other fiduciary under an employee
benefit plan of a Participating Company or (E) any acquisition by an entity owned directly or
indirectly by the stockholders of the Company in substantially the same proportions as their
ownership of the voting securities of the Company; or
(ii) an Ownership Change Event or series of related Ownership Change Events (collectively, a
“Transaction”) in which the stockholders of the Company immediately before the Transaction do not
retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty
percent (50%) of the total combined voting power of the outstanding securities entitled to vote
generally in the election of Directors or, in the case of an Ownership Change Event described in
Section 2.1(q)(iii), the entity to which the assets of the Company were transferred (the
“Transferee”), as the case may be; or
(iii) approval by the stockholders of a plan of complete liquidation or dissolution of the
Company;
provided, however, that a Change in Control shall be deemed not to include a transaction described
in subsections (i) or (ii) of this Section 2.1(c) in which a majority of the members of the board
of directors of the continuing, surviving or successor entity, or parent thereof, immediately after
such transaction is comprised of Incumbent Directors.
For purposes of the preceding sentence, indirect beneficial ownership shall include, without
limitation, an interest resulting from ownership of the voting securities of one or more
corporations or other business entities which own the Company or the Transferee, as the case may
be, either directly or through one or more subsidiary corporations or other business entities. The
Committee shall determine whether multiple acquisitions of the voting securities of the Company
and/or multiple Ownership Change Events are related and to be treated in the aggregate as a single
Change in Control, and its determination shall be final, binding and conclusive.
(d) “Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations
promulgated thereunder.
(e) “Committee” means the Compensation Committee and such other committee or subcommittee of
the Board, if any, duly appointed to administer the Plan and having such powers in each instance as
shall be specified by the Board. If, at any time, there is no committee of the Board then
authorized or properly constituted to administer the Plan, the Board shall exercise all of the
powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise
any or all of such powers.
(f) “Company” means MagnaChip Semiconductor Corporation, a Delaware corporation, or any
successor corporation thereto.
(g) “Compensation” means, with respect to any Offering Period, base wages or salary, overtime,
bonuses, commissions, shift differentials, payments for paid time off, payments in lieu of notice,
and compensation deferred under any program or plan, including,
2
without limitation, pursuant to Section 401(k) or Section 125 of the Code. Compensation shall
be limited to amounts actually payable in cash or deferred during the Offering Period.
Compensation shall not include moving allowances, payments pursuant to a severance agreement,
termination pay, relocation payments, sign-on bonuses, any amounts directly or indirectly paid
pursuant to the Plan or any other stock purchase, stock option or other stock-based compensation
plan, or any other compensation not included above.
(h) “Eligible Employee” means an Employee who meets the requirements set forth in Section 5
for eligibility to participate in the Plan.
(i) “Employee” means a person treated as an employee of a Participating Company for purposes
of Section 423 of the Code. A Participant shall be deemed to have ceased to be an Employee either
upon an actual termination of employment or upon the corporation employing the Participant ceasing
to be a Participating Company. For purposes of the Plan, an individual shall not be deemed to have
ceased to be an Employee while on any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. If an individual’s leave of absence
exceeds ninety (90) days, the individual shall be deemed to have ceased to be an Employee on the
ninety-first (91st) day of such leave unless the individual’s right to reemployment with the
Participating Company Group is guaranteed either by statute or by contract.
(j) “Fair Market Value” means, as of any date:
(i) Except as otherwise determined by the Committee, if, on such date, the Stock is listed or
quoted on a national or regional securities exchange or quotation system, the closing price of a
share of Stock as quoted on the national or regional securities exchange or quotation system
constituting the primary market for the Stock, as reported in The Wall Street Journal or such other
source as the Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or quotation system, the date on which the Fair Market
Value is established shall be the last day on which the Stock was so traded or quoted prior to the
relevant date, or such other appropriate day as determined by the Committee, in its discretion.
(ii) If, on the relevant date, the Stock is not then listed on a national or regional
securities exchange or quotation system, the Fair Market Value of a share of Stock shall be as
determined in good faith by the Committee.
(iii) Notwithstanding the foregoing, if a Pre-Registration Offering Period commences on the
Effective Date, then the Fair Market Value of a share of Stock on such date shall be deemed to be
the public offering price set forth in the final prospectus filed with the Securities and Exchange
Commission in connection with the Company’s initial public offering of the Stock.
(k) “Incumbent Director” means a director who either (i) is a member of the Board as of the
Effective Date, or (ii) is elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the Incumbent Directors at the time of such
3
election or nomination (but excluding a director who was elected or nominated in connection
with an actual or threatened proxy contest relating to the election of directors of the Company).
(l) “Non-United States Offering” means a separate Offering covering Eligible Employees of one
or more Participating Companies whose Eligible Employees are subject to a prohibition under
applicable law on payroll deductions, as described in Section 11.1(c).
(m) “Offering” means an offering of Stock pursuant to the Plan, as provided in Section 6.
(n) “Offering Date” means, for any Offering Period, the first day of such Offering Period.
(o) “Offering Period” means a period, established by the Committee in accordance with
Section 6, during which an Offering is outstanding.
(p) “Officer” means any person designated by the Board as an officer of the Company.
(q) “Ownership Change Event” means the occurrence of any of the following with respect to the
Company: (i) the direct or indirect sale or exchange in a single or series of related transactions
by the stockholders of the Company of securities of the Company representing more than fifty
percent (50%) of the total combined voting power of the Company’s then outstanding securities
entitled to vote generally in the election of Directors; (ii) a merger or consolidation in which
the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange or transfer to one or more subsidiaries of the
Company).
(r) “Parent Corporation” means any present or future “parent corporation” of the Company, as
defined in Section 424(e) of the Code.
(s) “Participant” means an Eligible Employee who has become a participant in an Offering
Period in accordance with Section 7 and remains a participant in accordance with the Plan.
(t) “Participating Company” means the Company and any Parent Corporation or Subsidiary
Corporation designated by the Committee as a corporation the Employees of which may, if Eligible
Employees, participate in the Plan. The Committee shall have the discretion to determine from time
to time which Parent Corporations or Subsidiary Corporations shall be Participating Companies.
(u) “Participating Company Group” means, at any point in time, the Company and all other
corporations collectively which are then Participating Companies.
(v) “Pre-Registration Offering Period” means an Offering Period commencing prior to the
Registration Date with respect to the shares of Stock issuable pursuant to such Offering Period.
4
(w) “Purchase Date” means, for any Offering Period, the last day of such Offering Period, or,
if so determined by the Committee, the last day of each Purchase Period occurring within such
Offering Period.
(x) “Purchase Period” means a period, established by the Committee in accordance with
Section 6, included within an Offering Period and on the final date of which outstanding Purchase
Rights are exercised.
(y) “Purchase Price” means the price at which a share of Stock may be purchased under the
Plan, as determined in accordance with Section 9.
(z) “Purchase Right” means an option granted to a Participant pursuant to the Plan to purchase
such shares of Stock as provided in Section 8, which the Participant may or may not exercise during
the Offering Period in which such option is outstanding. Such option arises from the right of a
Participant to withdraw any payroll deductions or other funds accumulated on behalf of the
Participant and not previously applied to the purchase of Stock under the Plan, and to terminate
participation in the Plan at any time during an Offering Period.
(aa) “Registration Date” means the effective date of the registration on Form S-8 of shares of
Stock issuable pursuant to the Plan.
(bb) “Securities Act” means the Securities Act of 1933, as amended.
(cc) “Stock” means the common stock of the Company, as adjusted from time to time in
accordance with Section 4.3.
(dd) “Subscription Agreement” means a written or electronic agreement, in such form as is
specified by the Company, stating an Employee’s election to participate in the Plan and authorizing
payroll deductions under the Plan from the Employee’s Compensation or other method of payment
authorized by the Committee pursuant to Section 11.1(c).
(ee) “Subscription Date” means the last business day prior to the Offering Date of an Offering
Period or such earlier date as the Company shall establish.
(ff) “Subsidiary Corporation” means any present or future “subsidiary corporation” of the
Company, as defined in Section 424(f) of the Code.
2.2 Construction. Captions and titles contained herein are for convenience only and shall not
affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated
by the context, the singular shall include the plural and the plural shall include the singular.
Use of the term “or” is not intended to be exclusive, unless the context clearly requires
otherwise.
5
3. Administration.
3.1 Administration by the Committee. The Plan shall be administered by the Committee. All
questions of interpretation of the Plan, of any form of agreement or other document employed by the
Company in the administration of the Plan, or of any Purchase Right shall be determined by the
Committee, and such determinations shall be final, binding and conclusive upon all persons having
an interest in the Plan or the Purchase Right, unless fraudulent or made in bad faith. Subject to
the provisions of the Plan, the Committee shall determine all of the relevant terms and conditions
of Purchase Rights; provided, however, that all Participants granted Purchase Rights pursuant to an
Offering shall have the same rights and privileges within the meaning of Section 423(b)(5) of the
Code. Any and all actions, decisions and determinations taken or made by the Committee in the
exercise of its discretion pursuant to the Plan or any agreement thereunder (other than determining
questions of interpretation pursuant to the second sentence of this Section 3.1) shall be final,
binding and conclusive upon all persons having an interest therein. All expenses reasonably
incurred by the Company in the administration of the Plan shall be paid by the Company.
3.2 Authority of Officers. Any Officer shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, determination or election that is the
responsibility of or that is allocated to the Company herein, provided that the Officer has actual
authority with respect to such matter, right, obligation, determination or election.
3.3 Power to Adopt Sub-Plans or Varying Terms with Respect to Non-U.S. Employees. The
Committee shall have the power, in its discretion, to adopt one or more sub-plans of the Plan as
the Committee deems necessary or desirable to comply with the laws or regulations, tax policy,
accounting principles or custom of foreign jurisdictions applicable to employees of a subsidiary
business entity of the Company, provided that any such sub-plan shall not be within the scope of an
“employee stock purchase plan” within the meaning of Section 423 of the Code. Any of the
provisions of any such sub-plan may supersede the provisions of this Plan, other than Section 4.
Except as superseded by the provisions of a sub-plan, the provisions of this Plan shall govern such
sub-plan. Alternatively and in order to comply with the laws of a foreign jurisdiction, the
Committee shall have the power, in its discretion, to grant Purchase Rights in an Offering to
citizens or residents of a non-U.S. jurisdiction (without regard to whether they are also citizens
of the United States or resident aliens) that provide terms which are less favorable than the terms
of Purchase Rights granted under the same Offering to Employees resident in the United States.
3.4 Power to Establish Separate Offerings with Varying Terms. The Committee shall have the
power, in its discretion, to establish separate, simultaneous or overlapping Offerings having
different terms and conditions and to designate the Participating Company or Companies that may
participate in a particular Offering, provided that each Offering shall individually comply with
the terms of the Plan and the requirements of Section 423(b)(5) of the Code that all Participants
granted Purchase Rights pursuant to such Offering shall have the same rights and privileges within
the meaning of such section.
3.5 Policies and Procedures Established by the Company. Without regard to whether any
Participant’s Purchase Right may be considered adversely affected, the Company
6
may, from time to time, consistent with the Plan and the requirements of Section 423 of the
Code, establish, change or terminate such rules, guidelines, policies, procedures, limitations, or
adjustments as deemed advisable by the Company, in its discretion, for the proper administration of
the Plan, including, without limitation, (a) a minimum payroll deduction amount required for
participation in an Offering, (b) a limitation on the frequency or number of changes permitted in
the rate of payroll deduction during an Offering, (c) an exchange ratio applicable to amounts
withheld or paid in a currency other than United States dollars, (d) a payroll deduction greater
than or less than the amount designated by a Participant in order to adjust for the Company’s delay
or mistake in processing a Subscription Agreement or in otherwise effecting a Participant’s
election under the Plan or as advisable to comply with the requirements of Section 423 of the Code,
and (e) determination of the date and manner by which the Fair Market Value of a share of Stock is
determined for purposes of administration of the Plan. All such actions by the Company shall be
taken consistent with the requirements under Section 423(b)(5) of the Code that all Participants
granted Purchase Rights pursuant to an Offering shall have the same rights and privileges within
the meaning of such section, except as otherwise permitted by Section 3.3 and the regulations under
Section 423 of the Code.
3.6 Indemnification. In addition to such other rights of indemnification as they may have as
members of the Board or the Committee or as officers or employees of the Participating Company
Group, to the extent permitted by applicable law, members of the Board or the Committee and any
officers or employees of the Participating Company Group to whom authority to act for the Board,
the Committee or the Company is delegated shall be indemnified by the Company against all
reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection
with the defense of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or failure to act under or
in connection with the Plan, or any right granted hereunder, and against all amounts paid by them
in settlement thereof (provided such settlement is approved by independent legal counsel selected
by the Company) or paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in
duties; provided, however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the opportunity at its own
expense to handle and defend the same.
4. Shares Subject to Plan.
4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in Sections 4.2
and 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be
[•]1 and shall consist of authorized but unissued or reacquired shares of Stock, or any
combination thereof. If an outstanding Purchase Right for any reason expires or is terminated or
canceled, the shares of Stock allocable to the unexercised portion of that Purchase Right shall
again be available for issuance under the Plan.
| 1 | Amount to equal 2% of the number of shares of common stock estimated to be outstanding immediately after completion of the IPO. Number to be determined and inserted prior to approval of plan by Company stockholders. |
7
4.2 Annual Increase in Maximum Number of Shares Issuable. Subject to adjustment as provided
in Section 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan
as set forth in Section 4.1 shall be cumulatively increased automatically on January 1, 2011 and on
each subsequent January 1, through and including January 1, 2020, by a number of shares (the
“Annual Increase”) equal to the smallest of (a) one percent (1.0%) of the number of shares of Stock
issued and outstanding on the immediately preceding December 31,
(b) [•]2 shares, or
(c) an amount determined by the Board.
4.3 Adjustments for Changes in Capital Structure. Subject to any required action by the
stockholders of the Company and the requirements of Section 424 of the Code to the extent
applicable, in the event of any change in the Stock effected without receipt of consideration by
the Company, whether through merger, consolidation, reorganization, reincorporation,
recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up,
split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital
structure of the Company, or in the event of payment of a dividend or distribution to the
stockholders of the Company in a form other than Stock (excepting regular, periodic cash dividends)
that has a material effect on the Fair Market Value of shares of Stock, appropriate and
proportionate adjustments shall be made in the number and kind of shares subject to the Plan, the
Annual Increase, the limit on the shares which may be purchased by any Participant during an
Offering (as described in Sections 8.1 and 8.2) and each Purchase Right, and in the Purchase Price
in order to prevent dilution or enlargement of Participants’ rights under the Plan. For purposes
of the foregoing, conversion of any convertible securities of the Company shall not be treated as
“effected without receipt of consideration by the Company.” If a majority of the shares which are
of the same class as the shares that are subject to outstanding Purchase Rights are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares
of another corporation (the “New Shares”), the Committee may unilaterally amend the outstanding
Purchase Rights to provide that such Purchase Rights are for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise price per share of, the outstanding
Purchase Rights shall be adjusted in a fair and equitable manner as determined by the Committee, in
its discretion. Any fractional share resulting from an adjustment pursuant to this Section shall
be rounded down to the nearest whole number, and in no event may the Purchase Price be decreased to
an amount less than the par value, if any, of the stock subject to the Purchase Right. The
adjustments determined by the Committee pursuant to this Section 4.3 shall be final, binding and
conclusive.
5. Eligibility.
5.1 Employees Eligible to Participate. Each Employee of a Participating Company is eligible
to participate in the Plan and shall be deemed an Eligible Employee, except the following:
| 2 | Amount to equal 2% of the number of shares of common stock estimated to be outstanding immediately after completion of the IPO. Number to be determined and inserted prior to approval of plan by Company stockholders. |
8
(a) Any Employee who is customarily employed by the Participating Company Group for twenty
(20) hours or less per week; or
(b) Any Employee who is customarily employed by the Participating Company Group for not more
than five (5) months in any calendar year.
5.2 Exclusion of Certain Stockholders. Notwithstanding any provision of the Plan to the
contrary, no Employee shall be treated as an Eligible Employee and granted a Purchase Right under
the Plan if, immediately after such grant, the Employee would own, or hold options to purchase,
stock of the Company or of any Parent Corporation or Subsidiary Corporation possessing five percent
(5%) or more of the total combined voting power or value of all classes of stock of such
corporation, as determined in accordance with Section 423(b)(3) of the Code. For purposes of this
Section 5.2, the attribution rules of Section 424(d) of the Code shall apply in determining the
stock ownership of such Employee.
5.3 Determination by Company. The Company shall determine in good faith and in the exercise
of its discretion whether an individual has become or has ceased to be an Employee or an Eligible
Employee and the effective date of such individual’s attainment or termination of such status, as
the case may be. For purposes of an individual’s participation in or other rights, if any, under
the Plan as of the time of the Company’s determination of whether or not the individual is an
Employee, all such determinations by the Company shall be final, binding and conclusive as to such
rights, if any, notwithstanding that the Company or any court of law or governmental agency
subsequently makes a contrary determination as to such individual’s status as an Employee.
6. Offerings.
The Plan shall be implemented by sequential Offerings of approximately three (3) months
duration or such other duration as the Committee shall determine. Offering Periods shall commence
on or about the first trading days of February, May, August and November of each year and end on or
about the last trading days of the next April, July, October and January, respectively, occurring
thereafter. However, if so determined by the Committee, a Pre-Registration Offering Period shall
commence on the Effective Date and end on or about July 31, 2010. Notwithstanding the foregoing,
the Committee may establish additional or alternative concurrent, sequential or overlapping
Offering Periods, a different duration for one or more Offering Periods or different commencing or
ending dates for such Offering Periods; provided, however, that no Offering Period may have a
duration exceeding twenty-seven (27) months. If the Committee shall so determine in its
discretion, each Offering Period may consist of two (2) or more consecutive Purchase Periods having
such duration as the Committee shall specify, and the last day of each such Purchase Period shall
be a Purchase Date. If the first or last day of an Offering Period or a Purchase Period is not a
day on which the principal stock exchange or quotation system on which the Stock is then listed is
open for trading, the Company shall specify the trading day that will be deemed the first or last
day, as the case may be, of the Offering Period or Purchase Period.
9
7. Participation in the Plan.
7.1 Initial Participation.
(a) Generally. Except as provided in Section 7.1(b), an Eligible Employee may become a
Participant in an Offering Period by delivering a properly completed written or electronic
Subscription Agreement to the Company office or representative designated by the Company (including
a third-party administrator designated by the Company) not later than the close of business on the
Subscription Date established by the Company for that Offering Period. An Eligible Employee who
does not deliver a properly completed Subscription Agreement in the manner permitted or required on
or before the Subscription Date for an Offering Period shall not participate in the Plan for that
Offering Period or for any subsequent Offering Period unless the Eligible Employee subsequently
delivers a properly completed Subscription Agreement to the appropriate Company office or
representative on or before the Subscription Date for such subsequent Offering Period. An Employee
who becomes an Eligible Employee after the Offering Date of an Offering Period shall not be
eligible to participate in that Offering Period but may participate in any subsequent Offering
Period provided the Employee is still an Eligible Employee as of the Offering Date of such
subsequent Offering Period.
(b) Automatic Participation in Pre-Registration Offering Period. Notwithstanding
Section 7.1(a), each Employee who is an Eligible Employee as of the Offering Date of a
Pre-Registration Offering Period shall automatically become a Participant in the Pre-Registration
Offering Period and shall be granted automatically a Purchase Right consisting of an option to
purchase the lesser of (i) a number of whole shares of Stock determined in accordance with
Section 8, or (ii) a number of whole shares of Stock determined by dividing twenty percent (20%) of
such Participant’s Compensation paid during the Pre-Registration Offering Period by the Purchase
Price applicable to the Pre-Registration Offering Period. The Company shall not require or permit
any Participant to deliver a Subscription Agreement for participation in the Pre-Registration
Offering Period; provided, however, that following the applicable Registration Date a Participant
may deliver a Subscription Agreement to the office or representative designated by the Company if
the Participant wishes to change the terms of the Participant’s participation in the
Pre-Registration Offering Period. Such changes may include, for example, an election to commence
payroll deductions in accordance with Section 10.
7.2 Continued Participation.
(a) Generally. Except as provided in Section 7.2(b), a Participant shall automatically
participate in the next Offering Period commencing immediately after the final Purchase Date of
each Offering Period in which the Participant participates provided that the Participant remains an
Eligible Employee on the Offering Date of the new Offering Period and has not either (a) withdrawn
from the Plan pursuant to Section 12.1, or (b) terminated employment or otherwise ceased to be an
Eligible Employee as provided in Section 13. A Participant who may automatically participate in a
subsequent Offering Period, as provided in this Section, is not required to deliver any additional
Subscription Agreement for the subsequent Offering Period in order to continue participation in the
Plan. However, a Participant may deliver a new Subscription Agreement for a subsequent Offering
Period in accordance with the
10
procedures set forth in Section 7.1(a) if the Participant desires to change any of the
elections contained in the Participant’s then effective Subscription Agreement.
(b) Participation Following Pre-Registration Offering Period. Notwithstanding Section 7.1(a),
an Eligible Employee who was automatically enrolled in a Pre-Registration Offering Period and who
wishes to participate in an Offering Period which begins after the Pre-Registration Offering Period
shall deliver a Subscription Agreement in accordance with Section 7.1(a) no earlier than the
applicable Registration Date and no later than the Subscription Date for such Offering Period,
unless the Employee delivered a Subscription Agreement with respect to the Pre-Registration
Offering Period as provided in Section 7.1(b).
8. Right to Purchase Shares.
8.1 Grant of Purchase Right. Except as provided in Section 7.1(b) with respect to a
Pre-Registration Offering Period or as otherwise provided below, on the Offering Date of each
Offering Period, each Participant in such Offering Period shall be granted automatically a Purchase
Right consisting of an option to purchase the lesser of (a) that number of whole shares of Stock
determined by dividing the Dollar Limit (determined as provided below) by the Fair Market Value of
a share of Stock on such Offering Date or (b) the Share Limit (determined as provided below). The
Committee may, in its discretion and prior to the Offering Date of any Offering Period, (i) change
the method of, or any of the foregoing factors in, determining the number of shares of Stock
subject to Purchase Rights to be granted on such Offering Date, or (ii) specify a maximum aggregate
number of shares that may be purchased by all Participants in an Offering or on any Purchase Date
within an Offering Period. No Purchase Right shall be granted on an Offering Date to any person
who is not, on such Offering Date, an Eligible Employee. For the purposes of this Section, the
“Dollar Limit” shall be determined by multiplying $2,083.33 by the number of months (rounded to the
nearest whole month) in the Offering Period and rounding to the nearest whole dollar, and the
“Share Limit” shall be determined by multiplying four hundred (400) shares3 by the
number of months (rounded to the nearest whole month) in the Offering Period and rounding to the
nearest whole share.
8.2 Calendar Year Purchase Limitation. Notwithstanding any provision of the Plan to the
contrary, no Participant shall be granted a Purchase Right which permits his or her right to
purchase shares of Stock under the Plan to accrue at a rate which, when aggregated with such
Participant’s rights to purchase shares under all other employee stock purchase plans of a
Participating Company intended to meet the requirements of Section 423 of the Code, exceeds
Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or such other limit, if any, as may be
imposed by the Code) for each calendar year in which such Purchase Right is outstanding at any
time. For purposes of the preceding sentence, the Fair Market Value of shares purchased during a
given Offering Period shall be determined as of the Offering Date for such
| 3 | Determined so that a stock price below approximately $5 per share will not further increase the number of shares a participant may purchase in any offering period, assuming a purchase price equal to 95% of the purchase date stock price. |
11
Offering Period. The limitation described in this Section shall be applied in conformance
with Section 423(b)(8) of the Code and the regulations thereunder.
9. Purchase Price.
The Purchase Price at which each share of Stock may be acquired in an Offering Period upon the
exercise of all or any portion of a Purchase Right shall be established by the Committee; provided,
however, that the Purchase Price on each Purchase Date shall not be less than eighty-five percent
(85%) of the lesser of (a) the Fair Market Value of a share of Stock on the Offering Date of the
Offering Period or (b) the Fair Market Value of a share of Stock on the Purchase Date. Subject to
adjustment as provided by the Plan and unless otherwise provided by the Committee, the Purchase
Price for each Offering Period shall be ninety-five percent (95%) of the Fair Market Value of a
share of Stock on the Purchase Date.
10. Accumulation of Purchase Price through Payroll Deduction.
Except as provided in Section 11.1(b) with respect to a Pre-Registration Offering Period and
in Section 11.1(c) with respect to a Non-United States Offering, shares of Stock acquired pursuant
to the exercise of all or any portion of a Purchase Right may be paid for only by means of payroll
deductions from the Participant’s Compensation accumulated during the Offering Period for which
such Purchase Right was granted, subject to the following:
10.1 Amount of Payroll Deductions. Except as otherwise provided herein, the amount to be
deducted under the Plan from a Participant’s Compensation on each pay day during an Offering Period
shall be determined by the Participant’s Subscription Agreement. The Subscription Agreement shall
set forth the percentage of the Participant’s Compensation to be deducted on each pay day during an
Offering Period in whole percentages of not less than one percent (1%) (except as a result of an
election pursuant to Section 10.3 to stop payroll deductions effective following the first pay day
during an Offering) or more than twenty percent (20%). The Committee may change the foregoing
limits on payroll deductions effective as of any Offering Date.
10.2 Commencement of Payroll Deductions. Payroll deductions shall commence on the first pay
day following the Offering Date and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided herein; provided, however, that with respect to a
Pre-Registration Offering Period, payroll deductions shall commence as soon as practicable
following the Company’s receipt of the Participant’s Subscription Agreement (delivered no earlier
than the applicable Registration Date), if any.
10.3 Election to Decrease or Stop Payroll Deductions. During an Offering Period, a
Participant may elect to decrease the rate of or to stop deductions from his or her Compensation by
delivering to the Company office or representative designated by the Company (including a
third-party administrator designated by the Company) an amended Subscription Agreement authorizing
such change on or before the “Change Notice Date.” The “Change Notice Date” shall be a date prior
to the beginning of the first pay period for which such election is to be effective as established
by the Company from time to time and announced to the Participants. A Participant who elects,
effective following the first pay day of an Offering
12
Period, to decrease the rate of his or her payroll deductions to zero percent (0%) shall
nevertheless remain a Participant in such Offering Period unless the Participant withdraws from the
Plan as provided in Section 12.1.
10.4 Administrative Suspension of Payroll Deductions. The Company may, in its discretion,
suspend a Participant’s payroll deductions under the Plan as the Company deems advisable to avoid
accumulating payroll deductions in excess of the amount that could reasonably be anticipated to
purchase the maximum number of shares of Stock permitted (a) under the Participant’s Purchase
Right, or (b) during a calendar year under the limit set forth in Section 8.2. Unless the
Participant has either withdrawn from the Plan as provided in Section 12.1 or has ceased to be an
Eligible Employee, suspended payroll deductions shall be resumed at the rate specified in the
Participant’s then effective Subscription Agreement either (i) at the beginning of the next
Offering Period if the reason for suspension was clause (a) in the preceding sentence, or (ii) at
the beginning of the next Offering Period having a first Purchase Date that falls within the
subsequent calendar year if the reason for suspension was clause (b) in the preceding sentence.
10.5 Participant Accounts. Individual bookkeeping accounts shall be maintained for each
Participant. All payroll deductions from a Participant’s Compensation (and other amounts received
from the Participant in a Pre-Registration Offering Period pursuant to Section 11.1(b) or a
non-United States Participant pursuant to Section 11.1(c)) shall be credited to such Participant’s
Plan account and shall be deposited with the general funds of the Company. All such amounts
received or held by the Company may be used by the Company for any corporate purpose.
10.6 No Interest Paid. Interest shall not be paid on sums deducted from a Participant’s
Compensation pursuant to the Plan or otherwise credited to the Participant’s Plan account.
11. Purchase of Shares.
11.1 Exercise of Purchase Right.
(a) Generally. Except as provided in Section 11.1(b) and Section 11.1(c), on each Purchase
Date of an Offering Period, each Participant who has not withdrawn from the Plan and whose
participation in the Offering has not otherwise terminated before such Purchase Date shall
automatically acquire pursuant to the exercise of the Participant’s Purchase Right the number of
whole shares of Stock determined by dividing (a) the total amount of the Participant’s payroll
deductions accumulated in the Participant’s Plan account during the Offering Period and not
previously applied toward the purchase of Stock by (b) the Purchase Price. However, in no event
shall the number of shares purchased by the Participant during an Offering Period exceed the number
of shares subject to the Participant’s Purchase Right. No shares of Stock shall be purchased on a
Purchase Date on behalf of a Participant whose participation in the Offering or the Plan has
terminated before such Purchase Date.
13
(b) Purchase in Pre-Registration Period. Notwithstanding Section 11.1(a), on the Purchase
Date of a Pre-Registration Offering Period, each Participant who has not withdrawn from the Plan
and whose participation in such Offering Period has not otherwise terminated before such Purchase
Date shall automatically acquire pursuant to the exercise of the Participant’s Purchase Right (i) a
number of whole shares of Stock determined in accordance with Section 11.1(a) to the extent of the
total amount of the Participant’s payroll deductions accumulated in the Participant’s Plan account
during the Pre-Registration Offering Period, if any, and not previously applied toward the purchase
of Stock, and (ii) such additional shares of Stock (not exceeding in the aggregate the
Participant’s Purchase Right) as determined in accordance with a Cash Exercise Notice delivered to
the Company office or representative designated by the Company (including a third-party
administrator designated by the Company) no earlier than the applicable Registration Date and not
later than the close of business on the business day immediately preceding the Purchase Date or
such earlier date as the Company shall establish, accompanied by payment of the Purchase Price for
such additional shares in cash or by check. However, in no event shall the aggregate number of
shares purchased by a Participant during the Pre-Registration Offering Period exceed the number of
shares subject to the Participant’s Purchase Right. In addition, if a Participant delivers a
Subscription Agreement to the Company after the applicable Registration Date, the Participant may
not elect to exercise a Purchase Right pursuant to a Cash Exercise Notice in an amount which, when
aggregated with payroll deductions pursuant to such Subscription Agreement, exceeds twenty percent
(20%) of the Participant’s Compensation during the Pre-Registration Offering Period. The Company
shall refund to the Participant in accordance with Section 11.4 any excess Purchase Price payment
received from the Participant.
(c) Purchase by Non-United States Participants for Whom Payroll Deductions Are Prohibited by
Applicable Law. Notwithstanding Section 11.1(a), where payroll deductions on behalf of
Participants who are citizens or residents of countries other than the United States (without
regard to whether they are also citizens of the United States or resident aliens) are prohibited by
applicable law, the Committee may establish a separate Offering (a “Non-United States Offering”)
covering all Eligible Employees of one or more Participating Companies subject to such prohibition
on payroll deductions. The Non-United States Offering shall provide another method for payment of
the Purchase Price with such terms and conditions as shall be administratively convenient and
comply with applicable law. On each Purchase Date of the Offering Period applicable to a
Non-United States Offering, each Participant who has not withdrawn from the Plan and whose
participation in such Offering Period has not otherwise terminated before such Purchase Date shall
automatically acquire pursuant to the exercise of the Participant’s Purchase Right a number of
whole shares of Stock determined in accordance with Section 11.1(a) to the extent of the total
amount of the Participant’s Plan account balance accumulated during the Offering Period in
accordance with the method established by the Committee and not previously applied toward the
purchase of Stock. However, in no event shall the number of shares purchased by a Participant
during such Offering Period exceed the number of shares subject to the Participant’s Purchase
Right. The Company shall refund to a Participant in a Non-United States Offering in accordance
with Section 11.4 any excess Purchase Price payment received from such Participant.
11.2 Pro Rata Allocation of Shares. If the number of shares of Stock which might be purchased
by all Participants on a Purchase Date exceeds the number of shares of Stock
14
available in the Plan as provided in Section 4.1 or the maximum aggregate number of shares of
Stock that may be purchased on such Purchase Date pursuant to a limit established by the Committee
pursuant to Section 8.1, the Company shall make a pro rata allocation of the shares available in as
uniform a manner as practicable and as the Company determines to be equitable. Any fractional
share resulting from such pro rata allocation to any Participant shall be disregarded.
11.3 Delivery of Title to Shares. Subject to any governing rules or regulations, as soon as
practicable after each Purchase Date, the Company shall issue or cause to be issued to or for the
benefit of each Participant the shares of Stock acquired by the Participant on such Purchase Date
by means of one or more of the following: (a) by delivering to the Participant evidence of book
entry shares of Stock credited to the account of the Participant, (b) by depositing such shares of
Stock for the benefit of the Participant with any broker with which the Participant has an account
relationship, or (c) by delivering such shares of Stock to the Participant in certificate form.
11.4 Return of Plan Account Balance. Any cash balance remaining in a Participant’s Plan
account following any Purchase Date shall be refunded to the Participant as soon as practicable
after such Purchase Date. However, if the cash balance to be returned to a Participant pursuant to
the preceding sentence is less than the amount that would have been necessary to purchase an
additional whole share of Stock on such Purchase Date, the Company may retain the cash balance in
the Participant’s Plan account to be applied toward the purchase of shares of Stock in the
subsequent Purchase Period or Offering Period.
11.5 Tax Withholding. At the time a Participant’s Purchase Right is exercised, in whole or in
part, or at the time a Participant disposes of some or all of the shares of Stock he or she
acquires under the Plan, the Participant shall make adequate provision for the federal, state,
local and foreign taxes (including social insurance), if any, required to be withheld by any
Participating Company upon exercise of the Purchase Right or upon such disposition of shares,
respectively. A Participating Company may, but shall not be obligated to, withhold from the
Participant’s compensation the amount necessary to meet such withholding obligations.
11.6 Expiration of Purchase Right. Any portion of a Participant’s Purchase Right remaining
unexercised after the end of the Offering Period to which the Purchase Right relates shall expire
immediately upon the end of the Offering Period.
11.7 Provision of Reports and Stockholder Information to Participants. Each Participant who
has exercised all or part of his or her Purchase Right shall receive, as soon as practicable after
the Purchase Date, a report of such Participant’s Plan account setting forth the total amount
credited to his or her Plan account prior to such exercise, the number of shares of Stock
purchased, the Purchase Price for such shares, the date of purchase and the cash balance, if any,
remaining immediately after such purchase that is to be refunded or retained in the Participant’s
Plan account pursuant to Section 11.4. The report required by this Section may be delivered in
such form and by such means, including by electronic transmission, as the Company may determine.
In addition, each Participant shall be provided information concerning the Company equivalent to
that information provided generally to the Company’s common stockholders.
15
12. Withdrawal from Plan .
12.1 Voluntary Withdrawal from the Plan. A Participant may withdraw from the Plan by signing
and delivering to the Company office or representative designated by the Company (including a
third-party administrator designated by the Company) a written or electronic notice of withdrawal
on a form provided by the Company for this purpose. Such withdrawal may be elected at any time
prior to the end of an Offering Period; provided, however, that if a Participant withdraws from the
Plan after a Purchase Date, the withdrawal shall not affect shares of Stock acquired by the
Participant on such Purchase Date. A Participant who voluntarily withdraws from the Plan is
prohibited from resuming participation in the Plan in the same Offering from which he or she
withdrew, but may participate in any subsequent Offering by again satisfying the requirements of
Sections 5 and 7.1. The Company may impose, from time to time, a requirement that the notice of
withdrawal from the Plan be on file with the Company office or representative designated by the
Company for a reasonable period prior to the effectiveness of the Participant’s withdrawal.
12.2 Return of Plan Account Balance. Upon a Participant’s voluntary withdrawal from the Plan
pursuant to Section 12.1, the Participant’s accumulated Plan account balance which has not been
applied toward the purchase of shares of Stock shall be refunded to the Participant as soon as
practicable after the withdrawal, without the payment of any interest, and the Participant’s
interest in the Plan and the Offering shall terminate. Such amounts to be refunded in accordance
with this Section may not be applied to any other Offering under the Plan.
13. Termination of Employment or Eligibility.
Upon a Participant’s ceasing, prior to a Purchase Date, to be an Employee of the Participating
Company Group for any reason, including retirement, disability or death, or upon the failure of a
Participant to remain an Eligible Employee, the Participant’s participation in the Plan shall
terminate immediately. In such event, the Participant’s Plan account balance which has not been
applied toward the purchase of shares of Stock shall, as soon as practicable, be returned to the
Participant or, in the case of the Participant’s death, to the Participant’s beneficiary designated
in accordance with Section 20, if any, or legal representative, and all of the Participant’s rights
under the Plan shall terminate. Interest shall not be paid on sums returned pursuant to this
Section 13. A Participant whose participation has been so terminated may again become eligible to
participate in the Plan by satisfying the requirements of Sections 5 and 7.1.
14. Effect of Change in Control on Purchase Rights.
In the event of a Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent thereof, as the case may be (the “Acquiring Corporation”), may, without the
consent of any Participant, assume or continue the Company’s rights and obligations under
outstanding Purchase Rights or substitute substantially equivalent purchase rights for the
Acquiring Corporation’s stock. If the Acquiring Corporation elects not to assume, continue or
substitute for the outstanding Purchase Rights, the Purchase Date of the then current Offering
Period shall be accelerated to a date before the date of the Change in Control specified by the
Committee, but the number of shares of Stock subject to outstanding Purchase Rights
16
shall not be adjusted. All Purchase Rights which are neither assumed or continued by the
Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the
Change in Control shall terminate and cease to be outstanding effective as of the date of the
Change in Control.
15. Nontransferability of Purchase Rights.
Neither payroll deductions or other amounts credited to a Participant’s Plan account nor a
Participant’s Purchase Right may be assigned, transferred, pledged or otherwise disposed of in any
manner other than as provided by the Plan or by will or the laws of descent and distribution. (A
beneficiary designation pursuant to Section 20 shall not be treated as a disposition for this
purpose.) Any such attempted assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw from the Plan as
provided in Section 12.1. A Purchase Right shall be exercisable during the lifetime of the
Participant only by the Participant.
16. Compliance with Securities Law.
The issuance of shares under the Plan shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities. A Purchase Right
may not be exercised if the issuance of shares upon such exercise would constitute a violation of
any applicable federal, state or foreign securities laws or other law or regulations or the
requirements of any securities exchange or market system upon which the Stock may then be listed.
In addition, no Purchase Right may be exercised unless (a) a registration statement under the
Securities Act shall at the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of legal counsel to the
Company, the shares issuable upon exercise of the Purchase Right may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the Securities Act. The
inability of the Company to obtain from any regulatory body having jurisdiction the authority, if
any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any
shares under the Plan shall relieve the Company of any liability in respect of the failure to issue
or sell such shares as to which such requisite authority shall not have been obtained. As a
condition to the exercise of a Purchase Right, the Company may require the Participant to satisfy
any qualifications that may be necessary or appropriate, to evidence compliance with any applicable
law or regulation, and to make any representation or warranty with respect thereto as may be
requested by the Company.
17. Rights as a Stockholder and Employee.
A Participant shall have no rights as a stockholder by virtue of the Participant’s
participation in the Plan until the date of the issuance of the shares of Stock purchased pursuant
to the exercise of the Participant’s Purchase Right (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall
be made for dividends, distributions or other rights for which the record date is prior to the date
such shares are issued, except as provided in Section 4.3. Nothing herein shall confer upon a
Participant any right to continue in the employ of the Participating Company Group or interfere
17
in any way with any right of the Participating Company Group to terminate the Participant’s
employment at any time.
18. Notification of Disposition of Shares.
The Company may require the Participant to give the Company prompt notice of any disposition
of shares of Stock acquired by exercise of a Purchase Right. The Company may require that until
such time as a Participant disposes of shares of Stock acquired upon exercise of a Purchase Right,
the Participant shall hold all such shares in the Participant’s name until the later of two years
after the date of grant of such Purchase Right or one year after the date of exercise of such
Purchase Right. The Company may direct that the certificates evidencing shares of Stock acquired
by exercise of a Purchase Right refer to such requirement to give prompt notice of disposition.
19. Legends.
The Company may at any time place legends or other identifying symbols referencing any
applicable federal, state or foreign securities law restrictions or any provision convenient in the
administration of the Plan on some or all of the certificates representing shares of Stock issued
under the Plan. The Participant shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to a Purchase Right in the
possession of the Participant in order to carry out the provisions of this Section. Unless
otherwise specified by the Company, legends placed on such certificates may include but shall not
be limited to the following:
“THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER
UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER
HEREOF. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED
HOLDER’S NAME (AND NOT IN THE NAME OF ANY NOMINEE).”
20. Designation of Beneficiary.
20.1 Designation Procedure. Subject to local laws and procedures, a Participant may file a
written designation of a beneficiary who is to receive (a) shares and cash, if any, from the
Participant’s Plan account if the Participant dies subsequent to a Purchase Date but prior to
delivery to the Participant of such shares and cash, or (b) cash, if any, from the Participant’s
Plan account if the Participant dies prior to the exercise of the Participant’s Purchase Right. If
a married Participant designates a beneficiary other than the Participant’s spouse, the
effectiveness of such designation may be subject to the consent of the Participant’s spouse. A
Participant may change his or her beneficiary designation at any time by written notice to the
Company.
18
20.2 Absence of Beneficiary Designation. If a Participant dies without an effective
designation pursuant to Section 20.1 of a beneficiary who is living at the time of the
Participant’s death, the Company shall deliver any shares or cash credited to the Participant’s
Plan account to the Participant’s legal representative or as otherwise required by applicable law.
21. Notices.
All notices or other communications by a Participant to the Company under or in connection
with the Plan shall be deemed to have been duly given when received in the form specified by the
Company at the location, or by the person, designated by the Company for the receipt thereof.
22. Amendment or Termination of the Plan.
The Committee may at any time amend, suspend or terminate the Plan, except that (a) no such
amendment, suspension or termination shall affect Purchase Rights previously granted under the Plan
unless expressly provided by the Committee, and (b) no such amendment, suspension or termination
may adversely affect a Purchase Right previously granted under the Plan without the consent of the
Participant, except to the extent permitted by the Plan or as may be necessary to qualify the Plan
as an employee stock purchase plan pursuant to Section 423 of the Code or to comply with any
applicable law, regulation or rule. In addition, an amendment to the Plan must be approved by the
stockholders of the Company within twelve (12) months of the adoption of such amendment if such
amendment would authorize the sale of more shares than are then authorized for issuance under the
Plan or would change the definition of the corporations that may be designated by the Committee as
Participating Companies. Notwithstanding the foregoing, in the event that the Committee determines
that continuation of the Plan or an Offering would result in unfavorable financial accounting
consequences to the Company, the Committee may, in its discretion and without the consent of any
Participant, including with respect to an Offering Period then in progress: (i) terminate the Plan
or any Offering Period, (ii) accelerate the Purchase Date of any Offering Period, (iii) reduce the
discount or the method of determining the Purchase Price in any Offering Period (e.g., by
determining the Purchase Price solely on the basis of the Fair Market Value on the Purchase Date),
(iv) reduce the maximum number of shares of Stock that may be purchased in any Offering Period, or
(v) take any combination of the foregoing actions.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing sets
forth the MagnaChip Semiconductor Corporation 2010 Employee Stock Purchase Plan as duly adopted by
the Board on [•], 2010.
John McFarland, Corporate Secretary |
19
PLAN HISTORY
| [•] | Board of Directors of MagnaChip Semiconductor LLC adopts Plan with a
reserve of [•] shares (subject to increases and other adjustments as
provided by the Plan), subject to approval by the stockholders of
MagnaChip Semiconductor Corporation following the Conversion and to be
effective upon the registration of the Company’s common stock under
Section 12 of the Exchange Act. |
|
| [•] | Effective date of statutory conversion of MagnaChip Semiconductor LLC
into the Company. |
|
| [•] | Plan approved by the stockholders of MagnaChip Semiconductor
Corporation. |
|
| [•] | Effective date of registration of Stock under Section 12 of the
Exchange Act. |
|
| [•] | Date on which Pre-Registration Offering Period commenced. |
|
| [•] | Registration Date (date on which initial Form S-8 registration is
effective). |
APPENDIX A
Participating Companies
MagnaChip Semiconductor Corporation
MagnaChip Semiconductor S.A.
MagnaChip Semiconductor B.V.
MagnaChip Semiconductor, Ltd.
MagnaChip Semiconductor, Inc.
MagnaChip Semiconductor SA Holdings LLC
MagnaChip Semiconductor Finance Company
MagnaChip Semiconductor Limited
MagnaChip Semiconductor Limited
MagnaChip Semiconductor Limited
MagnaChip Semiconductor Inc.
MagnaChip Semiconductor Holding Company Limited
MagnaChip Semiconductor (Shanghai) Company Limited
MagnaChip Semiconductor S.A.
MagnaChip Semiconductor B.V.
MagnaChip Semiconductor, Ltd.
MagnaChip Semiconductor, Inc.
MagnaChip Semiconductor SA Holdings LLC
MagnaChip Semiconductor Finance Company
MagnaChip Semiconductor Limited
MagnaChip Semiconductor Limited
MagnaChip Semiconductor Limited
MagnaChip Semiconductor Inc.
MagnaChip Semiconductor Holding Company Limited
MagnaChip Semiconductor (Shanghai) Company Limited
APPENDIX B
FORMS OF
ENROLLMENT/CHANGE NOTICE/WITHDRAWAL FORM
AND
SUBSCRIPTION AGREEMENT
AND
SUBSCRIPTION AGREEMENT
Exhibit 10.27
AMENDED AND RESTATED
SERVICE AGREEMENT
SERVICE AGREEMENT
THIS AMENDED AND RESTATED SERVICE AGREEMENT (the “Agreement”) is dated as of this 8th
day of May 2008 (the “Effective Date”) by and between MagnaChip Semiconductor, Ltd., a
Korean yuhan hoesa (the “Company”), and Sang Park, an individual (the “Officer”).
W I T N E S S E T H:
WHEREAS, the Company and the Officer entered into a Service Agreement, dated as of the 27th
day of May 2006 (the “Original Agreement”), pursuant to which the Officer was employed by
the Company as its President and Chief Executive Officer and is currently employed as its Chairman
of the Board of Directors and Chief Executive Officer; and
WHEREAS, the Company desires to continue to have the benefits of the Officer’s knowledge and
experience as a full-time officer and to employ the Officer in the manner hereinafter specified and
to make provision for payment of reasonable compensation to the Officer for such services, and the
Officer is willing to continue to be employed by the Company to perform the duties incident to such
employment upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants, terms and
conditions set forth herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby amend and restate the Original Agreement as this
Amended and Restated Service Agreement as follows:
1. EFFECTIVENESS OF THIS AGREEMENT
This Agreement shall constitute a binding obligation of the Officer and the Company upon the
execution of this Agreement.
2. EMPLOYMENT AND DUTIES
(a) General. Effective as of the date of the Original Agreement (the “Original
Effective Date”), on the terms and conditions set forth herein, the Company has employed the
Officer as President and Chief Executive Officer of the Company, and the Company currently employs
the Officer as its Chief Executive Officer and Chairman. From the Effective Date, the Company shall
hereby employ the Officer as the Chairman of the Board of Directors and Chief Executive Officer of
the Company, and the Officer agrees upon the terms and conditions herein set forth to be employed
by the Company. The Officer has been appointed as a member of the Board of Directors of the Company
(the “Board”) and from the Effective Date, the Company agrees that the Officer shall
continue to serve as a member of the Board and that, for so long as the Officer is employed by the
Company, the Company shall nominate the Officer to serve as a director at each annual stockholder
meeting; provided that, if the Company has a class of equity securities registered pursuant
to the Securities Exchange Act of 1934, as amended, the Company shall not be obligated to nominate
the Officer to serve as a director if the Officer has previously been nominated as a director at an
annual or special stockholder meeting and the stockholders holding a majority of the voting power
of the Company at such meeting shall not have voted to elect the Officer. The Officer agrees that
upon the termination of his employment as President and Chief Executive Officer of the Company, he
shall resign from the Board and from all other Boards of Directors of the Company’s affiliates of
which he is a member. The Officer shall diligently perform such duties and have such
responsibilities as the Board may establish from time to time, and the Officer shall report to the
Board.
1
(b) Term. Unless terminated at an earlier date in accordance with Section 4 hereof,
the term of the Officer’s employment with the Company under the Original Agreement and continuing
under this
Agreement shall be for a term commencing on the Original Effective Date and ending on the
second anniversary of the Original Effective Date (the “Initial Term”). Thereafter, unless
terminated at an earlier date in accordance with Section 4 hereof, the Initial Term and each
Additional Term shall be automatically extended for successive two-year periods (each, an
“Additional Term”), in each case, commencing upon the expiration of the Initial Term or the
then current Additional Term, unless at least 90 days prior to the expiration of such term, either
party gives written notice to the other party of its intention not to extend the term of the
Officer’s employment. The Company’s delivery of a notice of its intention not to extend the term of
the Officer’s employment shall not be deemed to be an Involuntary Termination (as defined below).
(c) Services. The Officer shall well and faithfully serve the Company, and shall
devote all of his business time and attention to the performance of the duties of such employment
and the advancement of the best interests of the Company and shall not, directly or indirectly,
render services to any other person or organization for which the Officer receives compensation
without the prior written approval of the Company. The Officer hereby agrees to refrain from
engaging in any activity that does, shall or could reasonably be deemed to conflict with the best
interests of the Company. The Officer shall be entitled to serve on a maximum of two other company
boards of directors, provided those companies are not competitors of the Company and the
Company shall make reasonable accommodation for travel and service in connection with these outside
boards of directors.
3. COMPENSATION AND OTHER BENEFITS
Subject to the provisions of this Agreement, including, without limitation, the termination
provisions contained in Section 4, the Company shall pay and provide the following compensation and
other benefits to the Officer as compensation for all services rendered hereunder:
(a) Salary. The Company shall pay the Officer a base salary at the rate of
US$450,000.00 per annum (the “Salary”), payable to the Officer in accordance with the
standard payroll practices of the Company as are in effect from time to time, less all such
deductions or withholdings required by applicable law. Annual increases in the Salary will be
determined by the compensation committee of the Board (the “Committee”) in accordance with
the Committee’s policies and procedures.
(b) Bonuses.
(i) Annual Incentive. The Officer shall be eligible to earn an annual cash bonus (the
“Annual Incentive”). The Annual Incentive shall be 100% of the Officer’s Salary. The
Officer’s Annual Incentive shall be payable upon achievement of performance goals set by the
Committee, after consultation with the Officer, and ratified by the Board. The actual bonus paid
may be higher or lower than the Annual Incentive for over- or under-achievement of the Officer’s
performance goals, as determined by the Committee. Any Annual Incentive earned by the Officer shall
be shall be paid in accordance with the terms of the applicable plans and policies of the Company
following the determination by the Committee of the extent of achievement of the applicable
performance goals, but in any event no earlier than January 1 or later than March 15 of the year
following the applicable plan year. The amount of the Annual Incentive in respect of the 2006 plan
year shall be pro-rated to reflect the number of days the Officer was actually employed with the
Company during the 2006 plan year following the Effective Date.
(ii) Performance Bonus. The Officer shall be paid an additional, one-time cash bonus (the
“Performance Bonus”) in an amount equal to US$900,000 on the earlier of (A) June 30, 2009
or (B) the date (but not before January 1, 2009) which is six months after a closing of
2
the first to occur of a “Change of Control” or the Company’s “First Public Offering” (as such terms
are defined in that certain Second Amended and Restated Securityholders’ Agreement dated as of
October 6, 2004, among MagnaChip Semiconductor LLC and the other signatories thereto, as amended
from time to time), provided the Officer remains in continuous employment with the Company through
the applicable date.
(c) Benefits. The Officer shall be eligible to participate in or purchase as necessary
and be reimbursed for medical, disability and life insurance plans and to receive other benefits
applicable to senior officers of the Company generally in accordance with the terms of such plans
as are in effect from time to time. In addition, the Company shall pay for the cost of housing
accommodations and expenses related thereto in accordance with the policies currently applicable to
senior executive officers of the Company and as set forth on Schedule A attached hereto (the
“Housing Accommodation”), and except as otherwise provided in Section 4, during the term of
this Agreement, the Officer shall be entitled to the expatriate, repatriation, and international
service benefits that are described in Schedule A. Any reimbursement or in-kind benefit the Officer
is entitled to receive pursuant to Schedule A shall (A) be paid no later than the last day of the
Officer’s taxable year following the taxable year in which the expense was incurred, (B) not be
affected by the amount of expenses eligible for reimbursement or in-kind benefits provided in any
other taxable year, and (C) not be subject to liquidation or exchange for another benefit.
(d) Expenses. The Company shall pay or reimburse the Officer for all reasonable
out-of-pocket expenses incurred by the Officer in connection with his employment hereunder upon
submission of appropriate documentation or receipts in accordance with the policies and procedures
of the Company as are in effect from time to time. Any reimbursement or expense payment the Officer
is entitled to receive pursuant to this Section 3(d) shall (i) be paid no later than the last day
of the Officer’s taxable year following the taxable year in which the expense was incurred, (ii)
not be affected by the amount of expenses eligible for reimbursement or payment in any other
taxable year and (iii) not be subject to liquidation or exchange for another benefit.
(e) Vacation. The Officer shall be entitled to annual vacation of three calendar weeks
per year.
(f) Equity.
(i) Upon the Effective Date, the Officer shall be granted options to purchase 800,000
restricted Common Units (the “Options”) of MagnaChip Semiconductor LLC, a Delaware limited
liability company (“MagnaChip LLC”), at a purchase price equal to US$1.02 per Common Unit.
The Options, and the restricted Common Units issued upon the exercise of the Options (the
“Restricted Units”), shall be subject to restrictions contained in the MagnaChip
Semiconductor LLC California Equity Incentive Plan (as the same may be amended from time to time,
the “Incentive Plan”).
(ii) The Options and the Restricted Units shall be subject to forfeiture or to repurchase by
the Company upon the Officer’s termination of service in accordance with the terms of the Incentive
Plan, but, generally, upon the Officer’s termination of service (other than for Cause) (1) unvested
Options shall be subject to repurchase by the Company at a repurchase price of US$1.02 per Option
and (2) vested Options and Restricted Units shall be subject to repurchase by the Company at a
repurchase price equal to fair market value, as determined by the Board of Directors of MagnaChip
LLC in good faith at the time of the repurchase. Upon a termination of service for Cause, the
unvested and vested Options and Restricted Units shall be subject to repurchase by the Company at a
repurchase price of US$1.02 per Option or Restricted Unit, as the case may be. The Options shall
vest in accordance with the schedule set forth in the Incentive Plan, but generally 25% of the
Options shall be scheduled to vest on the first anniversary of the date hereof and an additional
6.25% of the Options shall be scheduled to vest each calendar quarter thereafter. On any scheduled
vesting date, the Options shall vest only if the Officer is still employed by the Company (except
as otherwise provided in this Agreement).
3
4. TERMINATION OF EMPLOYMENT
Subject to the notice and other provisions of this Section 4, the Company shall have the right
to terminate the Officer’s employment hereunder, at any time for any reason or for no stated
reason, and the Officer shall have the right to resign, at any time for any reason or for no stated
reason.
(a) Termination for Cause or Resignation.
(i) If, prior to the expiration of the Initial Term or any Additional Term, the Officer’s
employment is terminated by the Company for “Cause” (as hereinafter defined) or if the
Officer resigns for any reason other than Good Reason (as hereinafter defined) from his employment
hereunder, the Officer shall be paid all accrued but unpaid Salary, vacation, expense
reimbursements, and other benefits due to the Officer through his termination date under any
Company-provided or paid plans, policies and arrangements, in accordance with their terms. Except
to the extent required by the terms of the benefits provided under Section 3(f) or applicable law,
the Officer shall have no right under this Agreement or otherwise to receive any other compensation
or to participate in any other plan, program or arrangement after such termination or resignation
of employment with respect to the year of such termination or resignation and later years. The
treatment of any outstanding Options held by the Officer as of the date of the termination shall be
governed by the agreements and equity incentive plans pursuant to which the Options were granted.
(ii) Termination for “Cause” shall mean a termination of the Officer’s employment with
the Company because of (A) a failure by the Officer to substantially perform the Officer’s
customary duties with the Company in the ordinary course (other than such failure resulting from
the Officer’s incapacity due to physical or mental illness or any such actual or anticipated
failure after the Officer provides written notification to the Company of resignation of employment
for Good Reason under this Agreement) that, if susceptible to cure, has not been cured as
determined by the Company within 30 days after a written demand for substantial performance is
delivered to the Officer by the Company, which demand specifically identifies the manner in which
the Company believes that the Officer has not substantially performed the Officer’s duties; (B) the
Officer’s gross negligence, intentional misconduct or material fraud in the performance of his
employment; (C) the Officer’s conviction of, or plea of nolo contendere to, a felony or to a crime
involving fraud or dishonesty; (D) a judicial determination that the Officer committed fraud or
dishonesty against any natural person, firm, partnership, limited liability company, association,
corporation, company, trust, business trust, governmental authority or other entity (each, a
“Person”); or (E) the Officer’s material violation of this Agreement or of one or more of
the Company’s material policies applicable to the Officer’s employment as may be in effect from
time to time.
(iii) Termination of the Officer’s employment for Cause shall be communicated by delivery to
the Officer of a written notice from the Company stating that the Officer will be terminated for
Cause, specifying the particulars thereof and the effective date of such termination. The date of a
resignation other than for Good Reason by the Officer shall be the date specified in a written
notice of resignation from the Officer to the Company provided that the Officer shall provide at
least 30 days’ advance written notice of his resignation other than for Good Reason.
4
(b) Involuntary Termination.
(i) If, prior to the expiration of the Initial Term or any Additional Term, the Company
terminates the Officer’s employment for any reason other than Disability, death or Cause or if the
Officer resigns from his employment for Good Reason (such termination or resignation being
hereinafter referred to as an “Involuntary Termination”), the Officer shall be entitled to
(A) payment of his Salary and vacation accrued up to and including the date of the Involuntary
Termination, (B) payment of any unreimbursed expenses and (C) severance (the “Severance”),
consisting of the following:
If the Involuntary Termination is not in connection with a Change of Control then:
(1) Provided that the Officer has not become entitled to the Performance Bonus on or
prior to the date of the Involuntary Termination, the Company shall pay to the Officer an
amount equal to twelve months of Salary at the monthly rate in effect on the date of the
Involuntary Termination. Such amount shall be paid over a period of twelve months, which,
subject to Section 4(f), shall be payable to the Officer in accordance with the Company’s
normal payroll schedule as in effect on the date of the Involuntary Termination, commencing
with the first payroll date occurring at least thirty (30) days following the date of the
Involuntary Termination. The Company and the Officer agree that for purposes of Section 409A
of the Code, the payments pursuant to this Section shall be treated as a right to a series of
separate payments.
(2) The Company shall pay to the Officer the Annual Incentive for the year in which the
Involuntary Termination occurs. Such amount shall be paid in accordance with the terms of the
applicable plans and policies of the Company following the determination by the Committee of
the extent of achievement of the applicable performance objectives, but in any event no
earlier than January 1 or later than March 15 of the year following the applicable plan year.
(3) The Officer shall receive 12 months’ accelerated vesting with respect to the
Officer’s outstanding equity awards and a 12-month post-termination equity award exercise
period.
(4) The Company shall continue to provide the “Enumerated Benefits” to the Officer and
his eligible dependents for a period of twelve (12) months commencing on the date of the
Involuntary Termination. To the extent that all or any portion of the Company’s payment of the
cost of the Enumerated Benefits would be for a type of benefit or exceed an amount for which,
or continue for a period of time in excess of which, such Enumerated Benefits would qualify
for an exemption from treatment as a deferral of compensation within the meaning of the
Treasury Regulations issued pursuant to Section 409A of the Internal Revenue Code (the
“Section 409A Regulations”), the Company shall, for the duration of the twelve month period,
pay for the Enumerated Benefits in an amount not to exceed US$600,000 per calendar year or any
portion thereof. The amount of the Enumerate Benefits furnished in any taxable year of the
Officer shall not affect the amount of Enumerated Benefits furnished by the Company in any
other taxable year of the Officer. Any right of the Officer to Enumerated Benefits shall not
be subject to liquidation or exchange for another benefit. Any reimbursement for Enumerated
Benefits to which the Officer is entitled shall be paid no later than the last day of the
Officer’s taxable year following the taxable year in which the Officer’s expense for the
Enumerated Benefits was incurred. The “Enumerated Benefits” shall consist of medical benefits,
tax equalization (taking into account only U.S. federal taxes), tax preparation services,
international health insurance, home leave flights, company-paid housing and a driver.
If the Involuntary Termination is in connection with a Change of Control then:
(1) Provided that the Officer has not become entitled to the Performance Bonus on or
prior to the date of the Involuntary Termination, the Company shall pay
5
to the Officer an amount equal to twenty-four months of Salary at the monthly rate in effect
on the date of the Involuntary Termination. Such amount shall be paid over a period of
twenty-four months, which, subject to Section 4(f), shall be payable to the Officer in
accordance with the Company’s normal payroll schedule as in effect on the date of the
Involuntary Termination, commencing with the first payroll date occurring at least thirty (30)
days following the date of the Involuntary Termination. The Company and the Officer agree that
for purposes of Section 409A of the Code, the payments pursuant to this Section shall be
treated as a right to a series of separate payments.
(2) The Company shall pay to the Officer the Annual Incentive for the year in which the
Involuntary Termination occurs. Such amount shall be paid in accordance with the terms of the
applicable plans and policies of the Company following the determination by the Committee of
the extent of achievement of the applicable performance objectives, but in any event no
earlier than January 1 or later than March 15 of the year following the applicable plan year.
(3) The Officer shall receive 24 months’ accelerated vesting with respect to the
Officer’s outstanding equity awards and a 12 month post-termination equity award exercise
period.
(4) The Company shall continue to provide the Enumerated Benefits to the Officer and his
eligible dependents for a period of twenty-four (24) months commencing on the date of the
Involuntary Termination. To the extent that all or any portion of the Company’s payment of the
cost of the Enumerated Benefits would be for a type of benefit or exceed an amount for which,
or continue for a period of time in excess of which, such Enumerated Benefits would qualify
for an exemption from treatment as a deferral of compensation within the meaning of the
Section 409A Regulations, the Company shall, for the duration of the twenty-four month period,
pay for the Enumerated Benefits in an amount not to exceed US$600,000 per calendar year or any
portion
thereof. The amount of the Enumerate Benefits furnished in any taxable year of the
Officer shall not affect the amount of Enumerated Benefits furnished by the Company in any
other taxable year of the Officer. Any right of the Officer to Enumerated Benefits shall not
be subject to liquidation or exchange for another benefit. Any reimbursement for Enumerated
Benefits to which the Officer is entitled shall be paid no later than the last day of the
Officer’s taxable year following the taxable year in which the Officer’s expense for the
Enumerated Benefits was incurred.
The Severance payable to the Officer pursuant to this section shall be reduced to the extent
that the Company makes any severance payments pursuant to the Korean Commercial Code or any other
statute.
Without the prior consent of the Officer, neither the Company nor any affiliate shall enter
into a severance arrangement with any other officer of the Company that provides such officer with
severance payments and/or benefits greater than those to which the Officer is entitled pursuant to
this Agreement. In addition, if the Company or any affiliate already has entered into such a
severance arrangement, the Officer shall be entitled to receive equivalent severance payments and
benefits.
For purposes of this Section 4(b)(i), an Involuntary Termination is “in connection with a
Change of Control” if the date of the Involuntary Termination (or, if applicable, the commencement
of the cure period that leads to the Involuntary Termination) is within nine months following a
Change of Control.
6
(ii) Resignation for “Good Reason” shall mean resignation by the Officer because of,
unless the Officer otherwise consents in writing, one or more of the following circumstances if and
only if the Officer informs the Company in writing within 30 days following its initial occurrence
that one or more of such circumstances has occurred and such circumstances have not, if susceptible
to cure, been cured as determined by the Company within 30 days after a written demand for
substantial performance is delivered to the Company by the Officer, which demand specifically
identifies the manner in which the Officer believes that the Company has not performed its
obligations:
(1) a reduction in the Officer’s base Salary or Annual Incentive target other than a
one-time reduction of not more than 10% that also is applied to substantially all of the other
Company executive officers;
(2) a material reduction in the kind or level of benefits and perquisites (including
office space and location) that the Officer is eligible to receive other than a reduction that
also is applied to substantially all other Company executive officers;
(3) failure to provide, or any reduction in, the Housing Accommodation;
(4) the nature or status of the Officer’s authorities, duties or responsibilities has
been materially and adversely altered;
(5) the Company fails to initially appoint or, subject to the proviso contained in
Section 2(a), subsequently nominate the Officer to serve as a director as required by this
Agreement;
(6) the members of MagnaChip LLC have removed the Officer from the Board of Directors of
MagnaChip LLC, unless the Officer shall have been removed for “cause” (as such term is defined
in the Second Amended and Restated Securityholders Agreement, dated October 6, 2004, among
MagnaChip LLC and the members of MagnaChip LLC); or
(7) the Officer has not been appointed chief executive officer of MagnaChip LLC or any
other affiliate of the Company immediately following an initial public offering of the equity
securities of such entity.
(iii) Resignation for Good Reason shall be communicated by delivery to the Company of a
written notice from the Officer stating that the Officer will be resigning for Good Reason,
specifying the particulars thereof and the effective date of such resignation, which shall be a
date no later than six months after the first occurrence of the circumstance(s) constituting Good
Reason. If the Officer provides such written notice to the Company, the Company shall have 30 days
from the date of receipt of such notice to effect a
cure of the material breach described therein and, upon cure thereof by the Company, such
material breach shall no longer constitute Good Reason for purposes of this Agreement.
(iv) The date of termination of employment without Cause shall be the date specified in a
written notice of termination to the Officer. The date of resignation for Good Reason shall be the
date specified in a written notice of resignation from the Officer to the Company;
provided, however, that no such written notice shall be effective unless the cure
period specified in Section 4(b)(ii) above has expired without the Company having corrected the
event or events subject to cure.
(c) Termination Due to Disability. In the event of the Officer’s Disability, the
Company shall be entitled to terminate his employment. In the case that the Company terminates the
Officer’s employment due to Disability, the Officer shall be entitled to (i) payment of his Salary
and
7
accrued vacation up to and including the date of termination, (ii) payment of any unpaid expense
reimbursements, (iii) payment of the Annual Incentive, in a prorated amount based on the number of
days the Officer was actually employed during the applicable plan year, based on actual performance
objectives satisfied by the Company, and payable in a lump sum payment in accordance with the terms
of the applicable plans and policies of the Company following the determination by the Committee of
the extent of achievement of the applicable performance objectives, but in any event, no earlier
than January 1 or later than Marcy 15 of the year following the applicable plan year, and (iv)
other benefits due to the Officer through his termination date under any Company-provided or paid
plans, policies and arrangements, in accordance with their terms. As used herein, the term
“Disability” shall mean that the Company determines that due to physical or mental illness
or incapacity, whether total or partial, the Officer is substantially unable to perform his duties
hereunder for a period of 180 consecutive days or shorter periods aggregating 180 days during any
period of 365 consecutive days. The Officer shall permit a licensed physician agreed to by the
Company and the Officer (or, in the event that the Company and the Officer cannot agree, by a
licensed physician agreed upon by a physician selected by the Company and a physician selected by
the Officer) to examine the Officer from time to time prior to the Officer’s being determined to be
Disabled, as reasonably requested by the Company, to determine whether the Officer has suffered a
Disability hereunder.
(d) Death. In the event of the Officer’s death while employed by the Company, the
Officer’s estate or named beneficiary shall be entitled to (i) payment of his Salary and accrued
vacation up to and including the date of termination (ii) payment of any unpaid expense
reimbursements, (iii) payment of the Annual Incentive, in a prorated amount based on the number of
days the Officer was actually employed during the applicable plan year, based on actual performance
objectives satisfied by the Company, and payable in a lump sum payment in accordance with the terms
of the applicable plans and policies of the Company following the determination by the Committee of
the extent of achievement of the applicable performance objectives, but in any event, no earlier
than January 1 or later than March 15 of the year following the applicable plan year, and (iv)
other benefits due to the Officer through his termination date under any Company-provided or paid
plans, policies and arrangements, in accordance with their terms.
(e) Parachutes. Notwithstanding any other provisions of this Agreement to the
contrary, in the event that any payments or benefits received or to be received by the Officer in
connection with the Officer’s employment with the Company (or termination thereof) would subject
the Officer to the excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended (the “Excise Tax”), and if the net-after tax amount (taking into account all
applicable taxes payable by the Officer, including without limitation any Excise Tax) that the
Officer would receive with respect to such payments or benefits does not exceed the net-after tax
amount the Officer would receive if the amount of such payments and benefits were reduced to the
maximum amount which could otherwise be payable to the Officer without the imposition of the Excise
Tax, then, only the to the extent necessary to eliminate the imposition of the Excise Tax, such
payments and benefits shall be reduced.
(f) Compliance with Section 409A. Notwithstanding anything set forth herein to the
contrary, no amount payable pursuant to this Agreement on account of the Officer’s termination of
employment with the
Company which constitutes a “deferral of compensation” within the meaning of the Section 409A
Regulations shall be paid unless and until the Officer has incurred a “separation from service”
within the meaning of the Section 409A Regulations. Furthermore, to the extent that the Officer is
a “specified employee” within the meaning of the Section 409A Regulations as of the date of the
Officer’s separation from service, no amount that constitutes a deferral of compensation which is
payable on account of the Officer’s separation from service shall paid to the Officer before the
date (the “Delayed Payment Date”) which is first day of the seventh month after the date of
the Officer’s separation from service or, if earlier, the date of the Officer’s death following
such separation from service. All such amounts that would, but for this Section, become payable
prior to the Delayed Payment Date will be accumulated and paid on the Delayed Payment Date.
8
5. COVENANTS
(a) Confidential Information. As an officer of the Company, the Officer acknowledges
that he has had and will have access to confidential or proprietary information or both relating to
the business of, or belonging to, the Company or any affiliates or third parties including, but not
limited to, proprietary or confidential information, technical data, trade secrets, or know-how in
respect of research, product plans, products, services, customer lists, customers, markets,
computer software (including object code and source code), data and databases, outcomes research,
documentation, instructional material, developments, inventions, processes, formulas, technology,
designs, drawings, engineering, hardware, configuration information, models, manufacturing
processes, sales information, cost information, business plans, business opportunities, marketing,
finances or other business information disclosed to the Officer in any manner including by drawings
or observations of parts or equipment, etc., all of which have substantial value to the Company
(collectively, “Confidential Information”).
(i) The Officer agrees that while employed with the Company and after the termination of the
Officer’s employment for any reason, the Officer shall not: (A) use any Confidential Information
except in the course of his employment by the Company; or (B) disclose any Confidential Information
to any other person or entity, except to personnel of the Company utilizing it in the course of
their employment by the Company or to persons identified to the Officer in writing by the Company,
without the prior written consent of the Company.
(ii) While the Officer is employed with the Company and after the termination of the Officer’s
employment for any reason, the Officer shall respect and adhere to any non-disclosure,
confidentiality or similar agreements to which the Company or any of its affiliates are, or during
the period of the Officer’s employment by the Company, become, a party or subject. Upon the request
of the Officer, the Company shall disclose to the Officer any such agreements to which it is a
party or is subject.
(iii) The Officer hereby confirms that all Confidential Information and “Company Materials”
(as hereinafter defined) are and shall remain the exclusive property of the Company. Immediately
upon the termination of the Officer’s employment for any reason, or during the Officer’s employment
with the Company upon the request of the Company, the Officer shall return all Company Materials,
or any reproduction of such materials, apparatus, equipment and other physical property. For
purposes of this Agreement, “Company Materials” are documents or other media or tangible
items that contain or embody Confidential Information or any other information concerning the
business, operations or plans of the Company or its affiliates, whether such documents have been
prepared by the Officer or others.
(b) Disclosure of Previously Acquired Information to Company. The Officer hereby
agrees not to disclose to the Company, and not to induce the Company to utilize, any proprietary
information or trade secrets of any other party that are in his possession, unless and to the
extent that he has authority to do so.
(c) Non-Competition. While the Officer is employed by the Company and for a two-year
period thereafter, the Officer (and any entity or business in which the Officer or any affiliate of
the Officer has any direct or indirect ownership or financial interest) shall not, except with the
prior written consent of the Board of Directors, directly or indirectly, own any interest in,
operate, join, control or participate as a
partner, director, principal, officer, or agent of, enter into any employment of, act as a
consultant to, or perform any services for, any business which at any time during such period is in
competition with any material business in which the Company, or any of its affiliates, has taken
substantial steps to engage or is engaged on or prior to the termination of Officer’s employment by
the Company, anywhere in the world. This provision shall not be construed to prohibit the ownership
by the Officer of less than 2% of any class of securities of any corporation, so long as he remains
a passive investor in such entity
9
(d) No Solicitation. While the Officer is employed by the Company and for a three-year
period thereafter, the Officer shall not, directly or indirectly, for the Officer’s own account or
for the account of any other Person (i) solicit, employ, retain as a consultant, interfere with or
attempt to entice away from the Company or any of its affiliates, or any successor to any of the
foregoing, any individual who is, has agreed to be or within one year of such solicitation,
employment, retention, interference or enticement has been, employed or retained by the Company or
any of its subsidiaries or any successor to any of the foregoing and who had frequent contact with
the Officer during the Officer’s employment (provided, however, it shall not be a
violation of this provision if the Officer solicits or employs his administrative assistant) or
(ii) solicit or attempt to solicit the trade of any Person which, at the time of such solicitation,
is a significant customer of the Company or its affiliates, or any successor to any of the
foregoing, or which the Company or its affiliates, or any successor to any of the foregoing, is
undertaking reasonable steps to procure as a customer at the time of or immediately preceding the
termination of Officer’s employment by the Company and which the Company reasonably believes could
become a significant customer (provided, however, that this limitation shall only
apply to any product or service which is in competition with a product or service of the Company or
its affiliates).
(e) Non-Disparagement. The Officer and the Company agree that at any time during his
employment with the Company or at any time thereafter, neither the Company nor the Officer shall
make, or cause or assist any other person to make, any statement or other communication which
impugns or attacks, or is otherwise critical of, the reputation, business or character of the
other, any subsidiary or any of their respective officers, directors, employees, products or
services. The foregoing restrictions shall not apply to any statements that are made truthfully in
response to a subpoena or other compulsory legal process.
(f) Enforcement. The Officer hereby acknowledges that he has carefully reviewed the
provisions of this Agreement and agrees that the provisions are fair and equitable. However, in
light of the possibility of differing interpretations of law and change in circumstances, the
parties hereto agree that if any one or more of the provisions of this Agreement is determined by a
court of competent jurisdiction to be invalid, void or unenforceable under circumstances then
existing, the parties hereto agree that the maximum period, scope or geographical area reasonable
or enforceable under such circumstances shall be substituted for the stated period, scope or area.
6. GENERAL PROVISIONS
(a) Tax Withholding. All amounts paid to Officer hereunder shall be subject to all
applicable wage withholding.
(b) Notices. Any notice hereunder by either party to the other shall be given in
writing by personal delivery, or certified mail, return receipt requested, or (if to the Company)
by telex or facsimile, in any case delivered to the applicable address set forth below:
| (i) To the Company: | MagnaChip Semiconductor, Ltd. | |||
| 891 Daechi-dong, Gangnam-gu | ||||
| Seoul 135-738 Korea | ||||
| Facsimile No: +82-2-6903-3898 | ||||
| Attn: General Counsel | ||||
| With a copy to: | Court Square Capital Partners | |||
| Park Avenue Plaza, 34th Floor | ||||
| 55 East 52nd Street | ||||
| New York, NY 10055 USA | ||||
| Facsimile No: +1-212-752-6184 | ||||
| Attn: David Thomas |
10
| and | ||||
| Francisco Partners, L.P. | ||||
| One Letterman Drive | ||||
| Building C, Suite 410 | ||||
| San Francisco, CA 94129 USA | ||||
| Facsimile No.: +1-415-418-2999 | ||||
| Attn: Dipanjan Deb | ||||
| and | ||||
| DLA Piper US LLP | ||||
| 2000 University Avenue | ||||
| East Palo Alto, CA 94303 | ||||
| Facsimile No.: +1-650-833-2001 | ||||
| Attn: Micheal Reagan, Esq. | ||||
| (ii) To the Officer: | at the last known residential address. |
or to such other persons or other addresses as either party may specify to the other in writing.
(c) Assignment; Assumption of Agreement. This Agreement shall be binding upon and
inure to the benefit of (i) the heirs, executors, and legal representatives of the Officer upon the
Officer’s death, and (ii) any successor of the Company. Any such successor of the Company shall be
deemed substituted for the Company under the terms of this Agreement for all purposes. For this
purpose, “successor” means (i) any person, firm, corporation, or other business entity which at any
time, whether by purchase, merger, or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company or (ii) any corporation or business
entity which is an affiliate of the Company and which expressly assumes the Company’s obligations
hereunder in writing. None of the rights of the Officer to receive any form of compensation payable
pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and
distribution. Any other attempted assignment, transfer, conveyance, or other disposition of the
Officer’s right to compensation or other benefits will be null and void.
(d) Amendment. No provision of this Agreement may be amended, modified, waived or
discharged unless such amendment, modification, waiver or discharge is agreed to in writing and
signed by the parties. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
(e) Severability. If any term or provision hereof is determined to be invalid or
unenforceable in a final court or arbitration proceeding, (i) the remaining terms and provisions
hereof shall be unimpaired and (ii) the invalid or unenforceable term or provision shall be deemed
replaced by a term or provision that is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or provision.
(f) Governing Law and Venue. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware and venue shall be Wilmington, Delaware.
(g) Relocation Expenses. The Company shall reimburse the Officer up to US$200,000 for
reasonable relocation expenses incurred by him in connection with his relocation to Korea.
11
(h) Entire Agreement. This Agreement, the Incentive Plan and the award agreements
thereunder evidencing the equity awards granted in accordance with this Agreement, contain the
entire agreement of the Officer, the Company and any predecessors or affiliates thereof with
respect to the subject matter hereof and all prior agreements and negotiations are superseded
hereby as of the date of this Agreement.
(i) Counterparts. This Agreement may be executed by the parties hereto in
counterparts, each of which shall be deemed an original, but both such counterparts shall together
constitute one and the same document.
(j) Acknowledgment Regarding Section 409A. The Company intends that income provided to
the Officer pursuant to this Agreement will not be subject to taxation under Section 409A of the
Code. The provisions of this Agreement shall be interpreted and construed in favor of satisfying
any applicable requirements of Section 409A of the Code. However, the Company does not guarantee
any particular tax effect for income provided to the Officer pursuant to this Agreement. In any
event, except for the Company’s responsibility to withhold applicable income and employment taxes
from compensation paid or provided to the Officer, the Company shall not be responsible for the
payment of any applicable taxes incurred by the Employee on compensation paid or provided to the
Employee pursuant to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement, effective as of the day and year
first written above.
| MAGNACHIP SEMICONDUCTOR, LTD. |
||||
| By: | /s/ Dipanjan Deb | |||
| Name: | Dipanjan Deb | |||
| Title: | Director | |||
| OFFICER |
||||
| /s/ Sang Park | ||||
| Sang Park | ||||
12
Exhibit 10.28
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF UNIT OPTION
[Non-US Participants]
NOTICE OF GRANT OF UNIT OPTION
[Non-US Participants]
The Participant has been granted an option (the “Option”) to purchase certain Common Units of
MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009 Common Unit Plan (the
“Plan”), as follows:
Participant: |
Sang Park | |
Date of Grant: |
December 8, 2009 | |
Number of Option Units: |
2,240,000, subject to adjustment as provided by the Option Agreement. | |
Exercise Price: |
US $1.16 | |
Initial Vesting Date: |
The date one (1) year after the Date of Grant | |
Option Expiration Date: |
The date ten (10) years after the Date of Grant | |
Local Law: |
The laws, rules and regulations of [Name of Country], of which the Participant is a resident. | |
Vested Units: |
Except as provided in the Option Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Number of Option Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||
| Prior to Initial Vesting Date | 0.00 | |
| On Initial Vesting Date | 0.34 | |
| Plus, on completion of next period of three (3) months | 0.09 | |
| Plus, on completion of each of next three (3) periods of three (3) months | 0.08 | |
| Plus, on completion of next period of three (3) months | 0.09 | |
| Plus, on completion of each of next three (3) periods of three (3) months | 0.08 |
By their signatures below, the Company and the Participant agree that the Option and the Units that
may be acquired upon the exercise of the Option are governed by this Grant Notice, by the
provisions of the Plan and the Option Agreement, and by the Operating Agreement, all of which are
attached to and made a part of this document. The Participant acknowledges receipt of copies of the
Plan, the Option Agreement and the Operating Agreement, represents that the Participant has read
and is familiar with their provisions, and hereby accepts the Option subject to all of their terms
and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ John McFarland | /s/ Sang Park | ||
| Signature | ||||
Its:
|
SVP & General Counsel | 12/18/09 | ||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Option Agreement and Exercise Notice; and Operating Agreement |
Exhibit 10.29
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
The Participant has been granted an award (the “Award”) of certain Common Units (the “Units”)
of MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009
Common Unit Plan (the “Plan”), as follows:
Participant: |
Sang Park | |
Date of Grant: |
December 8, 2009 | |
Total Number of Units: |
2,240,000, subject to adjustment as provided by the Restricted Unit Agreement. | |
Fair Market Per Unit on Date
of Grant: |
US $0.74 | |
Initial Vesting Date: |
The Date of Grant | |
Local Law: |
The laws, rules and regulations of [Name of Country], of which the Participant is a resident. | |
Vested Units: |
Except as provided in the Restricted Unit Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Total Number of Units by the cumulative “Vested Ratio”(not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||||
| Prior to Initial Vesting Date | 0.0 | |||
| On Initial Vesting Date | 0.34 | |||
| Plus, on completion of next period of one (1) year | 0.33 | |||
| Plus, on completion of next period of one (1) year | 0.33 |
By their signatures below, the Company and the Participant agree that the Award is
governed by this Grant Notice, by the provisions of the Plan and the Restricted Unit
Agreement, and by the Operating Agreement, all of which are attached
to and made a part of this document. The Participant acknowledges receipt of copies of the Plan, the Restricted
Unit Agreement and the Operating Agreement, represents that the Participant has read and
is familiar with their provisions, and hereby accepts the Award subject to all of their
terms and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||||||||
| By: | /s/ John McFarland | /s/ Sang Park | ||||||||
| Its: SVP & General Counsel | Signature | |||||||||
| Date 12/18/2009 | ||||||||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
Address | ||||||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Restricted Unit Agreement; Assignment Separate from Certificate; and Operating Agreement |
Exhibit 10.30
Entrustment Agreement
MagnaChip Semiconductor Ltd. (“A”) and Tae Young Hwang, an individual (“B”), shall execute
this Entrustment Agreement (the “Agreement”) subject to the following terms:
Article 1 (Delegation by A)
A shall appoint B to a position pursuant to Article 4 hereof, delegating authority to handle
business matters necessary to ensure A’s successful achievement of its business objectives for
current projects and future business plans by effectively utilizing B’s academic and technological
knowledge and capabilities, and B hereby agrees to the terms and conditions hereinafter set forth.
Article 2 (Term of Agreement)
| 1) | This Agreement shall be in effect for one (1) year from October 1, 2004 to September 30, 2005 (the “Initial Term”). | ||
| 2) | Prior to the expiration of the Initial Term, A and B may renew this Agreement or enter into a new agreement based on mutual consensus. |
Article 3 (Duties of B)
| 1) | B shall devote his academic and technological knowledge and capabilities to serve the best interests of A. | ||
| 2) | During the term of this Agreement, B shall faithfully perform his duties in accordance with national laws and regulations, A’s articles of association and its internal rules and regulations, and the decisions made by A’s Board of Directors. | ||
| 3) | B shall only work to advance the interests of A during the term of this Agreement and shall not execute any transactions related to A’s business based on his or any third party’s calculations without the prior written approval of A. B shall not be hired as an employee or a director of other companies that are competitors of A. |
Article 4 (General Benefits)
| 1) | Position: A shall hereby employ B as Executive Vice President of A. In the event of a change in A’s management hierarchy, B shall follow the applicable guidelines. | ||
| 2) | Salary |
| 1. | A shall pay B a base salary at the rate of KRW 220 million per annum (the “Salary”), payable to B in accordance with the standard payroll practices of A. In the event of a change in A’s payroll system, B shall follow the applicable guidelines. |
| 2. | B shall be eligible to earn a bonus and incentives based on his management performance and the results of his project. |
| 3) | Severance Pay: B’s severance pay for the service period following the expiration of this Agreement shall follow A’s applicable rules and regulations. |
Article 5 (Other Welfare Benefits)
| 1) | B shall participate in the public insurance system as required by law, including health insurance, national pension and employment insurance, etc., and A shall support such benefits in accordance with the law. | ||
| 2) | Vacation | ||
| B shall be entitled to annual vacation in accordance with the terms of A’s executive annual vacation system. |
Article 6 (Termination of Agreement)
| 1) | Prior to the expiration of this Agreement, A shall terminate this Agreement with a written notice if B falls into any of the following categories (as hereinafter listed). |
| 1. | Indicted for a crime and sentenced to probation or higher degree of penalty. | ||
| 2. | Declared as mentally total incompetent, mentally partial incompetent or bankrupt. | ||
| 3. | Misrepresented his identity, qualifications, or work experiences, or committed fraud in entering into this Agreement. | ||
| 4. | B cannot work in his capacity for one (1) month or longer due to his own faults. | ||
| 5. | A determines that due to physical or mental illness or incapacity, B is unable to perform his duties. | ||
| 6. | A determines that due to cancellation or reduction of business plans, the purpose of hiring B is lost. | ||
| 7. | Material violation of the provisions specified in this Agreement. |
| 2) | Termination of this Agreement in accordance with the causes listed in the previous clause (except sub-clauses 1 and 4) shall be communicated by delivery to B of a 30 days’ advance written notice from A. Termination pursuant to sub-clauses 1 and 4 in the previous clause shall occur immediately concurrent with the occurrence of the cause. |
Article 7 (Service Inventions, Etc.)
| 1) | During the effect of this Agreement, B shall immediately notify A in the event that B has invented, found or created any items in connection with his employment with A or using A’s time and resources, and B hereby agrees to transfer all intellectual property rights, including patents, utility models, software, and copyrights, thereby acknowledging the automatic possession of all intellectual property rights by A. At the |
| request of A, B hereby agrees to produce and submit documents (i.e., application forms) required for intellectual property rights registration including, but not limited to, patents, through a dedicated agent at home or abroad. In such cases, the costs required for intellectual property rights registrations shall be paid by A, but B is not entitled to receive any additional compensation other than the compensation stipulated in A’s standard compensation guidelines governing such inventions. | |||
| 2) | Pursuant to the previous clause, during the effective period of this Agreement, B shall immediately notify A on the details of his inventions, findings or creations except those related to the intellectual property rights automatically possessed by A (i.e., inventions other than the service inventions). A shall possess a preferential right to negotiate with B (i.e., first negotiation rights) on the acquisition by transfer or usage rights of such inventions other than service inventions. B hereby agrees that he will not transfer or grant usage rights to third parties in more favorable terms than the terms offered by A regarding such inventions other than service inventions, unless A surrenders the aforementioned first negotiation rights in writing. However, A’s first negotiation rights shall expire in the event that A fails to request a priority negotiation in writing to B within three (3) months from the date when A receives such notice from B. | ||
| 3) | As to the inventions, findings or creations, for which B desires to be exempt from the aforementioned clauses 1 and 2 due to violation against an existing agreement signed with a third party, and the not-yet-filed inventions, which B wants to exclude from the aforementioned clauses 1 and 2, B shall list such inventions, findings or creations in the attached sheet together with the description thereon, and represent that the descriptions are true without omission. If B does not fill in the attached sheet, it shall be assumed that there are neither other agreements with third parties nor any items B wants to be excluded from the aforementioned clauses 1 and 2. |
Article 8 (Confidentiality and Non-Competition)
| 1) | During the effect of this Agreement and after the termination of this Agreement, B shall maintain confidentiality of all confidential or proprietary information including, but not limited to, business management data, technical data, drawings, and documentation of A, its affiliates, and customers that B will gain knowledge of or acquire in the course of business. B shall not disclose such confidential or proprietary information or use them for the benefit of B or other third parties. Until the first anniversary of the date of termination of this Agreement, B shall not, directly and indirectly in the name of a third party, own any interest in, operate or perform any services for any business which is in competition with any business of A. However, this restriction shall not apply in the event that B negotiates with A in advance and receives approval from A. |
Article 9 (Supplementary Clause)
| 1) | Provisions not specified in this Agreement shall follow the rules and regulations articulated by A, and the laws and regulations of the Republic of Korea. | ||
| 2) | B hereby understands and agrees that this Agreement is not a labor contract pursuant to the Labor Standard Act, and therefore the rights and benefits applied to A’s employees based on the labor laws of the Republic of Korea, A’s employment policies, and collective bargaining agreements, etc., that are not stipulated in this Agreement, shall not apply to B. | ||
| 3) | In the event of legal disputes arising out of or related to this Agreement, the governing court shall be the court located in the territory of the headquarter of A. |
To prove this agreement, two copies of the agreement shall be produced, signed by each party
concerned, and each party shall keep one copy.
___,___, 200_
“A” MagnaChip Semiconductor Ltd.
CEO (sign)
“B” Address:
Citizen registration No.:
Name: (sign)
Exhibit 10.31
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF UNIT OPTION
NOTICE OF GRANT OF UNIT OPTION
[Non-US Participants)
The
Participant has been granted an option (the
“Option”) to purchase certain Common Units of MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC
2009 Common Unit Plan (the “Plan”), as follows:
Participant:
|
Taeyoung Hwang | |
Date of Grant:
|
December 8, 2009 | |
Number of Option Units:
|
1,400,000, subject to adjustment as provided by the Option Agreement. | |
Exercise Price:
|
US $1.16 | |
Initial Vesting Date:
|
The date one (1) year after the Date of Grant | |
Option Expiration Date:
|
The date ten (10) years after the Date of Grant | |
Local Law:
|
The laws, rules and regulations of [Name of Country], of which the Participant is a resident. | |
Vested Units:
|
Except as provided in the Option Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Number of Option Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||||
Prior to Initial Vesting Date |
0.00 | |||
On Initial Vesting Date |
0.34 | |||
Plus, on
completion of next periods of three (3) months |
0.09 | |||
Plus, on
completion of each of next three (3) periods of three (3) months |
0.08 | |||
Plus, on
completion of next period of three (3) months |
0.09 | |||
Plus, on
completion of each of next three (3) periods of three (3) months |
0.08 | |||
By their signatures below, the Company and the Participant agree that the Option and the
Units that may be acquired upon the exercise of the Option are governed by this Grant Notice, by
the provisions of the Plan and the Option Agreement, and by the Operating Agreement, all of which
are attached to and made a part of this document. The Participant acknowledges receipt of copies of the Plan, the Option Agreement and the Operating Agreement,
represents that the Participant has read and is familiar with their provisions, and hereby accepts
the Option subject to all of their terms and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ Taeyoung Hwang | ||
Its:
|
CEO & Chairman | Signature | ||
| Dec. 15, 2009 | ||||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Option Agreement and Exercise Notice; and Operating Agreement |
Exhibit 10.32
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
The
Participant has been granted an award (the “Award”) of certain in Common Units (the “Units”) of
MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009 Common Unit Plan (the
“Plan”), as follows:
Participant:
|
Taeyoung Hwang | |
Date of Grant:
|
December 8, 2009 | |
Total Number of Units:
|
840,000, subject to adjustment as provided by the Restricted Unit Agreement. | |
Fair Market Per Unit on Date
of Grant:
|
US $0.74 | |
Initial Vesting Date:
|
The Date of Grant | |
Local Law:
|
The laws, rules and regulations of [Name of Country], of which the Participant is a resident. | |
Vested Units:
|
Except as provided in the Restricted Unit Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Total Number of Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||||
Prior to Initial Vesting Date |
0.0 | |||
On Initial Vesting Date |
0.34 | |||
Plus, on completion of next period of one (1) year |
0.33 | |||
Plus, on completion of next period of one (1) year |
0.33 | |||
By their signatures below, the Company and the Participant agree that the Award is governed by
this Grant Notice, by the provisions of the Plan and the Restricted Unit Agreement, and by the
Operating Agreement, all of which are attached to and made a part of this document. The Participant
acknowledges receipt of copies of the Plan, the Restricted Unit Agreement and the Operating
Agreement, represents that the Participant has read and is familiar with their provisions, and
hereby accepts the Award subject to all of their terms and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ Taeyoung Hwang | ||
Its:
|
CEO & Chairman | Signature | ||
| Dec. 15, 2009 | ||||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Restricted Unit Agreement; Assignment Separate from Certificate; and Operating Agreement |
Exhibit 10.33
MagnaChip Semiconductor, Ltd.
891 Daechi-dong. Kangnam-gu
Seoul 135-738 Korea
Tel. +82 2 3459-3007
youm.huh@magnachip.com
891 Daechi-dong. Kangnam-gu
Seoul 135-738 Korea
Tel. +82 2 3459-3007
youm.huh@magnachip.com
March 7, 2006
Mr. Brent A. Rowe
2 Russell Road
Cumberland-Foreside, Maine 04105
USA
2 Russell Road
Cumberland-Foreside, Maine 04105
USA
Dear Mr. Rowe:
MagnaChip Semiconductor LLC (“MagnaChip”) is pleased to present you with an offer for
employment with MagnaChip Semiconductor, Inc. (the “Company”), a wholly-owned subsidiary of
MagnaChip, in the position of Senior Vice President, Worldwide Sales. We believe that you have the
potential to make valuable contributions to MagnaChip, and we hope you will find your employment
with us to be a rewarding experience.
You will be based in Santa Clara, California, but will be expected to travel as needed to
other destinations as the job may require, including spending a substantial portion of the first
six months of your employment travelling in Asia.
Your salary will be US$220,000 per annum. You will be paid in accordance with the Company’s
normal payroll practices and your compensation will be subject to payroll deductions and all
required withholdings. Annual salary increases will be determined in accordance with MagnaChip’s
internal policies and procedures. In addition, you will be eligible to earn an annual incentive of
up to 80% of your base salary. The annual incentive will be based on company performance and
attainment of your management objectives under a plan to be established and approved MagnaChip’s
Board of Directors.
You will be paid a sign-on bonus of US$50,000 on the first normal pay date after your
employment begins. You may elect to receive your first year annual bonus of 80% of base pay, in
advance, to facilitate the purchase of a new home in California. You may elect to continue
advancing your annual bonus each year for the first three years of your employment with the
understanding that should you leave employment of the company at any time and for any reason, you
will refund to the Company the prorated portion of the bonus for the remainder of the calendar year
in which your employment is terminated.
Upon approval of MagnaChip’s Board of Directors, you will be granted options to purchase
200,000 common units of MagnaChip at an exercise price per unit of the greater of (i) $1.04 or (ii)
the fair market value of a common unit at the time you begin your employment.
You will be eligible to participate in the company’s employee benefits programs for which you
qualify, including medical, disability, and life insurance plans applicable to senior officers of
the Company generally in accordance with the terms of such plans as are in effect from time to
time. The Company will also provide reasonable household relocation expenses from your home in
Maine to your workplace in California, including surface transportation
MagnaChip Semiconductor Ltd., 891 Daechi-dong, Kangnam-gu, Seoul 135-798 Korea
MagnaChip Semiconductor, Ltd.
891 Daechi-dong. Kangnam-gu
Seoul 135-738 Korea
Tel. +82 2 3459-3007
youm.huh@magnachip.com
891 Daechi-dong. Kangnam-gu
Seoul 135-738 Korea
Tel. +82 2 3459-3007
youm.huh@magnachip.com
for your household goods, air transportation for you and your family, temporary housing,
household goods storage and real estate brokerage fees for the sale and purchase of a home.
Additionally, we will provide reimbursement of the annual tuition and fees for your son to attend
high school at a school of your choice in California, for the period of your employment.
We understand that you have a large household in Maine and may require a larger than normal
transportation and/or storage fee to facilitate your move to California. Temporary housing for your
family to facilitate marketing and sale of your home and transition into your new home will be
provided for four months (this does not include your business travel related hotel expenses which
will be reimbursed separately).
Your employment relationship with the Company is at-will, although we shall provide a
six-month severance payment should we terminate your employment without cause. You may terminate
your employment with the Company at any time and for any reason whatsoever simply by notifying us.
Likewise, the Company may terminate your employment at any time and for any reason whatsoever, with
or without cause or advance notice. As required by law, this offer is subject to satisfactory proof
of your right to work in the United States.
As an employee in the MagnaChip organization, you will be expected to abide by MagnaChip’s and
the Company’s rules and regulations and sign and comply with the Company’s form Employee
Proprietary Information and Invention Assignment Agreement, which prohibits unauthorized use or
disclosure of the Company’s proprietary information and requires you to assign any inventions
created while employed at the Company to the Company.
To ensure the rapid and economical resolution of disputes which arise in connection with your
employment with the Company, you and the Company agree that any and all disputes, claims or causes
of action arising from or relating to your employment with the Company will be resolved to the
fullest extent permitted by law by final and binding confidential arbitration held in Santa Clara,
California, through the American Arbitration Association (“AAA”) under its National Rules for the
Resolution of Employment Disputes; provided, however, that either party may obtain injunctive
relief from a court if necessary to prevent irreparable damage prior to a final decision under
arbitration or in situations where arbitrator lacks authority to issue injunctive relief. By
agreeing to this arbitration procedure, both parties waive the right to a trial by jury or by a
court or to an administrative proceeding. Nothing in this offer letter should be construed as
restricting your access or resort to the Equal Employment Opportunity Commission. The Company shall
pay all arbitration fees.
This letter forms the complete and exclusive offer of your employment with the Company. Any
modification to this offer must be in writing and signed by Youm Huh, President and CEO of
MagnaChip. Please indicate your acceptance of this offer of employment by signing in the space
below. Please return the two executed copies of this letter to me as soon as possible.
We look forward to your participation in the future growth of MagnaChip. If you have any
questions, please call me at 82-2-3459-3007 or contact me via e-mail at
youm.huh@magnachip.com.
MagnaChip Semiconductor Ltd., 891 Daechi-dong, Kangnam-gu, Seoul 135-798 Korea
MagnaChip Semiconductor, Ltd.
891 Daechi-dong. Kangnam-gu
Seoul 135-738 Korea
Tel. +82 2 3459-3007
youm.huh@magnachip.com
891 Daechi-dong. Kangnam-gu
Seoul 135-738 Korea
Tel. +82 2 3459-3007
youm.huh@magnachip.com
Sincerely,
MAGNACHIP SEMICONDUCTOR LLC
Youm Huh, Ph.D.
President and Chief Executive Officer
President and Chief Executive Officer
ACCEPTED BY:
Brent A. Rowe
Brent A. Rowe
| Signature | /s/ Brent A. Rowe
|
|||||
| Date | 3/15/06 |
MagnaChip Semiconductor Ltd., 891 Daechi-dong, Kangnam-gu, Seoul 135-798 Korea
891 Daechi-dong, Kangnam-gu, Seoul,
135-178, Korea
Tel: 82-2-3459-3675
Fax: 82-2-3459-3686
www.magnachip.com
135-178, Korea
Tel: 82-2-3459-3675
Fax: 82-2-3459-3686
www.magnachip.com
Strictly Confidential
December 20, 2006
OFFER LETTER SUPPLEMENT REGARDING BONUS
To: Brent A Rowe
Dear Brent:
As a way to enable you to complete the move of your household from Maine to California, and as an
incentive to succeed in your career at MagnaChip Semiconductor LLC (or a subsidiary thereof), we
offer this Offer Letter Supplement regarding your eligibility for an advance on your prospective
performance bonus.
Your current employment terms provide that you are eligible to receive an annual bonus of 80% of
base pay based on Company performance and achievement of your management objectives. You may elect
to receive your first year annual bonus in advance.
Under the terms of this Offer Letter Supplement, we agree to allow you to elect to receive your
first three years of annual bonus payments at a rate of 80% of base pay in advance up to a
payment of US$528,000 (0.80*220,000*3). Should you elect to take this advance, no annual incentive
payments will be paid to you until the earlier of (i) April 4, 2009, or (ii) the date on which the
cumulative annual performance bonus payments you have accrued reaches US$528,000.
Should your employment with the Company terminate at any time for any reason, whether voluntary or
involuntary, or for cause or for no cause, you will refund to the Company a pro rata portion of the
advance determined as the lesser of:
| 1. | an annualized payment determined by subtracting from US$528,000 the amount determined by multiplying US$528,000 by the number of calendar days from April 4, 2006, to the date of termination, divided by 1,096; and | ||
| 2. | an accrued bonus payment determined by subtracting from US$528,000 all performance-based bonuses accruing during the period from April 4, 2006, to the date of termination. For purposes of this Offer Letter Supplement, a bonus does not accrue until the date the bonus would have been paid in accordance with the normal policies and procedures of the Company. For example, if executives of the Company receive FY2007 bonuses on February 25, 2008, then no FY2007 bonus accrues for purposes of this calculation until February 25, 2008. |
For the avoidance of doubt, we offer the following examples of a refund calculated per the
foregoing formula:
| 1. | You leave voluntarily on April 4, 2008, and the performance based payout on February 25, 2007, totals 40% of your base salary and on March 31, 2008, totals 80% of your base salary. You would refund the Company $176,321.17, which is the lesser of $176,321.17 ($528,000 – $528,000*730 / 1096) or $264,000.00 ($528,000 – (0.40*$220,000) – (0.80*$220,000)). |
1
| 2. | You are terminated for cause on December 4, 2007, and you are not granted a performance based payout in 2007 covering the fiscal year 2006. You would refund the Company $255,328.47, which is the lesser of $255,328.47 ($528,000–$528,000*566 / 1096) or $528,000.00 ($528,000 – (0.0*220,000) – (0.0*220,000)). | ||
| 3. | You are terminated without cause on June 30, 2008, and the performance based payout on April 30, 2007, totals 20% of your base salary, and on February 1, 2008, totals 80% of your base salary, which was raised to $250,000 on January 1, 2008. You would refund the Company $159,459.85, which is the lesser of $159,459.85 ($528,000–$528,000*765 / 1096) or $284,000.00 ($528,000 – (0.20*$220,000) – (0.80*$250,000)). | ||
| 4. | You leave voluntarily on March 4, 2007, and the performance based payout on March 1, 2007, totals 80% of your base salary. You would refund the Company $352,000.00, which is the lesser of $367,094.89 ($528,000–$528,000*334 / 1096) or $352,000.00 ($528,000 – (0.80*$220,000)). | ||
| 5. | You are terminated without cause on March 31, 2009, and the performance based payout on April 30, 2007, totals 20% of your base salary, and on February 1, 2008, totals 80% of your base salary, and the Company has said that it would pay you a performance bonus of 60% of your base salary on April 1, 2009. You would refund the Company $1,927.01, which is the lesser of $1,927.01 ($528,000–$528,000*1092 / 1096) or $308,000.00 ($528,000 – (0.20*$220,000) – (0.80*$220,000) – (0.0*220,000)). |
You may elect at any time to voluntarily repay all or a portion of your bonus advance. For purposes
of calculating any refund due to the Company, the $528,000 term in the refund calculations will be
reduced by aggregate amounts repaid.
You and the Company agree that any and all disputes, claims or causes of action arising from or
relating to this Offer Letter Supplement or your employment with the Company will be resolved to
the fullest extent permitted by law by final and binding confidential arbitration held in Santa
Clara, California, through the American Arbitration Association (“AAA”) under its National Rules
for the Resolution of Employment Disputes; provided, however, that either party may obtain
injunctive relief from a court if necessary to prevent irreparable damage prior to a final decision
under arbitration or in situations where arbitrator lacks authority to issue injunctive relief. By
agreeing to this arbitration procedure, both parties waive the right to a trial by jury or by a
court or to an administrative proceeding. Nothing in this offer letter should be construed as
restricting your access or resort to the Equal Employment Opportunity Commission. The Company shall
pay all arbitration fees.
Again, thank you for your continued performance and contributions.
| Regards, MagnaChip Semiconductor LLC |
||
| /s/ Sang Park | ||
| President and CEO Sang Park |
I have read and understood this Offer Letter Supplement. I agree that this Offer Letter Supplement
is strictly confidential and must not be disclosed to any internal and external parties. I
understand that any such disclosure could lead to disciplinary action up to and including
termination.
| Acknowledged and Agreed: | ||
| /s/ Brent Rowe 12/20/06 | ||
| Brent A. Rowe |
2
Exhibit 10.34
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF UNIT OPTION
[US Participants]
NOTICE OF GRANT OF UNIT OPTION
[US Participants]
The
Participant has been granted an option (the “Option”) to purchase certain Common Units of
MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009 Common Unit Plan (the
“Plan”), as follows:
Participant: |
Brent Rowe | |
Date of Grant: |
December 8, 2009 | |
Number of Option Units: |
840,000, subject to adjustment as provided by the Option Agreement. | |
Exercise Price: |
US $1.16 | |
Initial Vesting Date: |
The date one (1) year after the Date of Grant | |
Option Expiration Date: |
The date ten (10) years after the Date of Grant | |
Tax Status of Option: |
Nonstatutory Option | |
Vested Units: |
Except as provided in the Option Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Number of Option Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||
| Prior to Initial Vesting Date | 0.00 | |
| On Initial Vesting Date | 0.34 | |
| Plus, on completion of next period of three (3) months | 0.09 | |
| Plus, on completion of each of next three (3) periods of three (3) months | 0.08 | |
| Plus, on completion of next period of three (3) months | 0.09 | |
| Plus, on completion of each of next three (3) periods of three (3) months | 0.08 |
The
Exercise Price represents an amount the Company believes to be no less than the fair market
value of a Unit as of the Date of Grant, determined in good faith in compliance with the
requirements of Section 409A of the Code. However, there is no guarantee that the Internal Revenue
Service will agree with the Company’s determination. A subsequent IRS determination that the
Exercise Price is less than such fair market value could result in adverse tax consequences to the
Participant. By signing below, the Participant agrees that the Company, its directors, officers and
members shall not be held liable for any tax, penalty, interest or cost incurred by the
Participant as a result of such determination by the IRS. The Participant is urged to consult with
his or her own tax advisor regarding the tax consequences of the Option, including the application
of Section 409A.
By their signatures below, the Company and the Participant agree that the Option and the Units
that may be acquired upon the exercise of the Option are governed by this Grant Notice, by the
provisions of the Plan and the Option Agreement, and by the Operating Agreement, all of which are
attached to and made a part of this document. The Participant acknowledges receipt of copies of the
Plan, the Option Agreement and the Operating Agreement, represents that the Participant has read
and is familiar with their provisions, and hereby accepts the Option subject to all of their terms
and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ Brent Rowe | ||
| Signature | ||||
Its:
|
CEO & Chairman | 12/16/09 | ||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plant, as amended to the Date of Grant; Option Agreement and Exercise Notice; and Operating Agreement |
Exhibit 10.35
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF RESTRICTED UNITS
[US Participants]
NOTICE OF GRANT OF RESTRICTED UNITS
[US Participants]
The Participant has been granted an award (the “Award”) of certain Common Units (the “Units”)
of MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009
Common Unit Plan (the “Plan”), as follows:
Participant: |
Brent Rowe | |
Date of Grant: |
December 8, 2009 | |
Total Number of Units: |
560,000, subject to adjustment as provided by the Restricted Unit Agreement. | |
Fair Market Per Unit on Date
of Grant: |
US $0.74 | |
Initial Vesting Date: |
The Date of Grant | |
Vested Units: |
Except as provided in the Restricted Unit Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Total Number of Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||
| Prior to Initial Vesting Date | 0.0 | |
| On Initial Vesting Date | 0.34 | |
| Plus, on completion of next period of one (1) year | 0.33 | |
| Plus, on completion of next period of one (1) year | 0.33 |
By their signatures below, the Company and the Participant agree that the Award is
governed by this Grant Notice, by the provisions of the Plan and Restricted Unit
Agreement, and by the Operating Agreement, all of which are attached to and the made part
this document. The Participant acknowledges receipt of copies of the Plan, the Restricted
Unit Agreement and the Operating Agreement, represents that the Participant has read and
is familiar with their provisions, and hereby accepts the Award subject to all of their
terms and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ Brent Rowe | ||
| Signature | ||||
Its:
|
CEO & Chairman | 12/16/2009 | ||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Restricted Unit Agreement; Assignment Separate from Certificate; form of Section 83(b) Election; and Operating Agreement |
Exhibit 10.36
891 Daechi-dong, Kangnam-gu,
Seoul,
135-178, Korea
Tel: 82-2-3459-3675
Fax: 82-2-3459-3686
www.magnachip.com
Seoul,
135-178, Korea
Tel: 82-2-3459-3675
Fax: 82-2-3459-3686
www.magnachip.com
Confidential
September 5, 2006
Margaret Sakai
#104 World Meridian,
231 Gumi-Dong, Bundang-Gu,
Seongnam-Si, Gyeonggi-Do
#104 World Meridian,
231 Gumi-Dong, Bundang-Gu,
Seongnam-Si, Gyeonggi-Do
Dear Margaret:
MagnaChip Semiconductor, Ltd. (“MagnaChip”) is pleased to present you with an offer for
employment in the position of Senior Vice President and Corporate Controller, reporting to Robert
Krakauer, Executive Vice President, Corporate Operations, and Chief Financial Officer. We believe
that you have significant potential to make valuable contributions to MagnaChip, and we hope you
will find your employment with us a rewarding experience.
You will be based at MagnaChip’s Seoul office, but will be expected to travel as needed within
Korea and to other destinations as the job may require. The expected start date of your employment
is November 1, 2006.
Your annual salary will be USD250,000 per annum. You will be paid in accordance with
MagnaChip’s normal payroll practices and your compensation will be subject to payroll deductions
and all required withholdings. Annual salary increases will be determined by MagnaChip in
accordance with MagnaChip’s internal policies and procedures. You will be eligible to earn an
annual incentive of up to 50% of your base salary. The annual incentive will be based on company
performance and attainment of your management objectives under a plan to be established and
approved the Board of Directors of MagnaChip’s parent company (the “Board”). MagnaChip may from
time to time in its sole discretion adjust the salary and benefits paid to you and its other
employees in the normal course of operations.
Upon approval by the Board of Directors of MagnaChip Semiconductor LLC (the “Board”), you will
be granted options to purchase 75,000 MagnaChip common units (the “Option”) pursuant to the
MagnaChip Semiconductor LLC Equity Incentive Plan at the exercise price of $3.00 per common unit.
An installment of 25% of the common units subject to the Option shall become vested and exercisable
on the first anniversary of the commencement date of your employment and 6.25% of the common units
subject to the Option shall become vested and exercisable at the end of each three month period
thereafter on the same day of the month as the commencement date (or, if earlier, the last day of
such month), subject to your continuing employment with the Company. Other terms of the Option
shall be as determined by the Board, and prior to receiving the Option you must execute an option
agreement in the form as approved by the Board.
| • Page 2 | September 5, 2006 |
You will be eligible to participate in MagnaChip’s employee benefits programs for which
you qualify and as are applicable to other MagnaChip employees of your level based in Korea. In
addition to that, you shall be entitled to the following expatriate benefits:
| (a) | Visas and Work Permits. The Company will provide the necessary services and cover the cost to obtain the necessary visas and/or work permits to enable the employee to legally work and stay in Korea for the duration that the employee is assigned to perform services in Korea. | ||
| (b) | School tuition for children. The Company will pay gross tuition, including school bus fees, for your two children at a foreign school in Korea. | ||
| (c) | Housing support. The Company understands that you have located rental housing in Seoul (the “apartment”) for which you the lessor requires a key money deposit (jeonse) in the amount of KRW750,000,000 (the “key money deposit”). Subject to the conditions set forth herein, the Company agrees to enter a lease arrangement with the apartment owner for your benefit in which the Company leases the apartment and pays the key money deposit in the Company’s name; provided, however, that (i) the Company shall in no event be obligated for more than the KRW750,000,000 key money deposit; (ii) the Company shall retain all rights to and under the key money deposit; (iii) you, the apartment owner, and all other holders of security on the apartment agree to provide the Company with a first-priority jeonse right registration on the apartment as first-priority security for the Company’s key money deposit; (iv) you and the apartment owner shall provide all required assistance to effect such jeonse right registration; (v) you shall be responsible for all maintenance fees, resident fees, utilities, and other costs and expenses related to your occupancy of the apartment; and (vi) upon termination of your employment with the Company for any reason, you will immediately (x) vacate the apartment, or (y) arrange for the substitution of the Company on the apartment lease, the return of the full key money deposit to the Company, and the release of the Company from all obligations related to the apartment and this housing support provision. This offer of housing support is conditional upon your tender to the Company of an accurate, up-to-date copy of the real property registry and current and prospective lease agreements for the apartment. If the Company in its sole discretion determines that entering the lease, providing the key money deposit, and effecting the jeonse registration are impractical or not in the reasonable best interests of the Company, you and the Company agree to negotiate a suitable substitute arrangement that effects the intent of you and the Company parties under this housing support provision. | ||
| (d) | Company Car. The Company will furnish a company car with a driver to go to and from work, but during the day, driver will be in a pool for general corporate use. | ||
| (e) | Tax treatment. The Company shall provide for tax equalization commencing in the tax year when the employment begins through the end of tax year of termination of employment. The employee shall minimize U.S. taxes as permitted by Section 901 and 911 of the Internal Revenue Code. For the avoidance of doubt, this provision shall be interpreted to mean that the employee’s total tax liability shall not be higher than it would have been had the employee remained in the U.S. The Company will provide tax preparation services to assist the Company with the preparation of the employee’s personal income tax returns for the U.S. and Korea. |
| • Page 3 | September 5, 2006 |
| (f) | Vacation. The employee shall be entitled to annual vacation of three weeks per year and, while in an expatriate status in Korea, an additional two weeks of home leave per year, inclusive of business-class flight expenses for one trip to the U.S. for employee. | ||
| (g) | Health insurance. The employee shall be eligible to participate in or purchase as necessary and be reimbursed for medical, disability and life insurance plans as per the Company’s plans and policies. | ||
| (h) | The Company shall pay or reimburse the employee for all reasonable out-of-pocket expenses incurred by the employee in connection with the employee’s employment hereunder upon submission of appropriate documentation or receipts in accordance with the policy and procedures of the Company as are in effect from time to time. |
As an employee of MagnaChip organization, you will be expected to abide by MagnaChip’s rules
and regulations and sign and comply with MagnaChip’s form employment agreement for employees based
in Korea that includes confidentiality and non-competition provisions. Your employment relationship
with MagnaChip is at-will, although you will be eligible for severance programs as required by
Korean law. You may terminate your employment with MagnaChip at any time and for any reason
whatsoever simply by notifying us. Likewise, MagnaChip may terminate your employment at any time
and for any reason whatsoever, with or without cause or advance notice. Upon termination of your
employment by MagnaChip without cause, MagnaChip will pay you (i) severance in the form of a
continuation of your salary, at the rate in effect on the date of the involuntary termination
without cause, for a period of six months, commencing on the date next following the date of the
involuntary termination, (ii) payment of the annual incentive, in a prorated amount based on the
number of days you were actually employed during the applicable plan year and on deemed
satisfactory performance by you and MagnaChip, and (iii) will provide six months’ Company-paid
benefits for you and your dependents; provided the severance payable to you shall be reduced to the
extent that the Company makes any severance payments pursuant to the Korean Commercial Code or any
other statute.
This letter forms the complete and exclusive offer of your employment with MagnaChip. No other
representative has any authority to modify or enter into an agreement or modification, express or
implied, contrary to the foregoing. Any such modification or agreement must be in writing and
signed by Sang-ho Park, Robert Krakauer, or Victoria Miller Nam and must clearly and expressly
specify an intent to change the at-will nature of your employment.
We look forward to your participation in the future growth of MagnaChip. Please indicate your
acceptance of this offer of employment by signing in the space below. Please fax or e-mail an
executed copy of this letter to me as soon as possible, with the original to follow by mail.
| Sincerely, |
||||
| /s/ Robert Krakauer | ||||
| Robert Krakauer | ||||
| Executive Vice President, Corporate Operations,
and Chief Financial Officer MagnaChip Semiconductor LLC |
||||
| • Page 4 | September 5, 2006 |
THIS EMPLOYMENT OFFER IS WHOLLY AGREED AND ACCEPTED BY:
/s/ Margaret Sakai
|
Exhibit 10.37
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF UNIT OPTION
[Non-US Participants]
NOTICE OF GRANT OF UNIT OPTION
[Non-US Participants]
The
Participant has been granted an option (the “Option”) to purchase certain Common Units of
MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009 Common Unit Plan (the
“Plan”), as follows:
Participant:
|
Margaret Sakai | |
Date of Grant:
|
December 8, 2009 | |
Number of Option Units:
|
336,000 subject to adjustment as provided by the Option Agreement. | |
Exercise Price:
|
US$1.16 | |
Initial Vesting Date:
|
The date one (1) year after the Date of Grant | |
Option Expiration Date:
|
The date ten (10) years after the Date of Grant | |
Local Law:
|
The laws, rules and regulations of [Name of Country], of which the Participant is a resident. | |
Vested Units:
|
Except as provided in the Option Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Number of Option Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||||
| Prior to Initial Vesting Date | 0.00 | |||
| On Initial Vesting Date | 0.34 | |||
| Plus, on completion of next period of three (3) months | 0.09 | |||
| Plus, on completion of each of next three (3) periods of three (3) months | 0.08 | |||
| Plus, on completion of next period of three (3) months | 0.09 | |||
| Plus, on completion of each of next three (3) periods of three (3) months | 0.08 | |||
By their signatures below, the Company and the Participant agree that the Option and the Units
that may be acquired upon the exercise of the Option are governed by this Grant Notice, by the
provisions of the Plan and the Option Agreement, and by the Operating Agreement, all of which are
attached to and made a part of this document. The Participant acknowledges receipt of copies of the
Plan, the Option Agreement and the Operating Agreement, represents that the Participant has read
and is familiar with their provisions, and hereby accepts the Option subject to all of their terms
and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ Margaret Sakai | ||
| Signature | ||||
Its:
|
CEO & Chairman | 12.18.2009 | ||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Option Agreement and Exercise Notice; and Operating Agreement |
Exhibit 10.38
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
The
Participant has been granted an award (the “Award”) of certain Common Units (the “Units”) of
MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009 Common Unit Plan (the
“Plan”), as follows:
Participant:
|
Margaret Sakai | |
Date of Grant:
|
December 8, 2009 | |
Total Number of Units:
|
336,000, subject to adjustment as provided by the Restricted Unit Agreement. | |
Fair Market Per Unit on Date of Grant:
|
US $0.74 | |
Initial Vesting Date:
|
The Date of Grant | |
Local Law:
|
The laws, rules and regulations of [Name of Country], of which the Participant is a resident. | |
Vested Units:
|
Except as provided in the Restricted Unit Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Total Number of Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||
| Prior to Initial Vesting Date | 0.0 | |
| On Initial Vesting Date | 0.34 | |
| Plus, on completion of next period of one (1) year | 0.33 | |
| Plus, on completion of next period of one (1) year | 0.33 |
By their signatures below, the Company and the Participant agree that the Award is governed by
this Grant Notice, by the provisions of the Plan and the Restricted Unit Agreement, and by the
Operating Agreement, all of which are attached to and made a part of this document. The Participant
acknowledges receipt of copies of the Plan, the Restricted Unit Agreement and the Operating
Agreement, represents that the Participant has read and is familiar with their provisions, and
hereby accepts the Award subject to all of their terms and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ Margaret Sakai | ||
| Signature | ||||
Its:
|
CEO & Chairman | 12.18.2009 | ||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Restricted Unit Agreement; Assignment Separate from Certificate; and Operating Agreement |
Exhibit 10.39
 |
||
| 891 Daechi-dong, Kangnam-gu, Seoul, | ||
| 135-178, Korea | ||
| Tel: 82-2-3459-3675 | ||
| Fax: 82-2-3459-3686 | ||
| www. magnachip.com |
Confidential
Dear Mr. Heung Kyu Kim
MagnaChip Semiconductor, Ltd. (“MagnaChip”) is pleased to present you with an offer for
employment in the position of Senior Vice President of New Business Development, reporting to Sang
Park, CEO & Chairman. We believe that you have significant potential to make valuable
contributions to MagnaChip, and we hope you will find your employment with us a rewarding
experience.
You will be based at MagnaChip’s Seoul office, but will be expected to travel as needed within
Korea and to other destinations as the job may require. The expected start date of your employment
is July 1, 2007.
Your annual salary will be KRW190,000,000 per annum. You will be paid in accordance with
MagnaChip’s normal payroll practices and your compensation will be subject to payroll deductions
and all required withholdings. Annual salary increases will be determined by MagnaChip in
accordance with MagnaChip’s internal policies and procedures. You will be eligible to earn an
annual incentive of up to 60% of your base salary. The annual incentive will be based on
company performance and attainment of your management objectives under a plan to be established and
approved the Board of Directors of MagnaChip’s parent company (the “Board”). MagnaChip may from
time to time in its sole discretion adjust the salary and benefits paid to you and its other
employees in the normal course of operations.
Upon approval by the Board of Directors of MagnaChip Semiconductor LLC (the “Board”), you will
be granted options to purchase 60,000 MagnaChip Semiconductor LLC common units (the “Option”)
pursuant to the MagnaChip Semiconductor LLC Equity Incentive Plan at the exercise price of the
greater of (i) $3.00 per common unit or (ii) the fair market value of a common unit at the time you
begin your employment. An installment of 25% of the common units subject to the Option shall become
vested and exercisable on the first anniversary of the commencement date of your employment and
6.25% of the common units subject to the Option shall become vested and exercisable at the end of
each three month period thereafter on the same day of the month as the commencement date (or, if
earlier, the last day of such month), subject to your continuing employment with the Company. Other
terms of the Option shall be as determined by the Board, and prior to receiving the Option you must
execute an option agreement in the form as approved by the Board. In addition to that, MagnaChip
will pay sign-on bonus of up to KRW50,000,000 for HBS tuition sponsorship reimbursement; provided,
however, that MagnaChip will pay such reimbursement only upon receiving receipts and other
documentation acceptable to MagnaChip, and provided, further, however, that you must fully refund
such reimbursement to the Company in the event your employment terminates for any reason prior to
the first anniversary of your employment start date. The Company will also furnish a company car to
allow you to commute to and from work.
As an employee of MagnaChip organization, you will be expected to abide by MagnaChip’s rules
and regulations and sign and comply with MagnaChip’s form employment agreement for employees based
in Korea that includes confidentiality and non-competition provisions. Your employment relationship
with MagnaChip is at-will, although you will be eligible for severance programs as required by
Korean law. You may terminate your employment with MagnaChip at any time and for any reason
whatsoever simply by notifying us, although you agree to provide one month’s notice prior to your
resignation. Likewise, MagnaChip may terminate your employment in accordance with Korean law.
This letter forms the complete and exclusive offer of your employment with MagnaChip. No other
representative has any authority to modify or enter into an agreement or modification, express or
implied, contrary to the foregoing. Any such modification or agreement must be in writing and
signed by Sang Park and must clearly and expressly specify intent to change the at-will nature of
your employment.
We
look forward to your participation in the future growth of MagnaChip. Please indicate your
acceptance of this offer of employment by signing in the space below. Please fax or e-mail an
executed copy of this letter to me as soon as possible, with the original to follow by mail.
| Sincerely, |
||||
| /s/ Sang Park | ||||
| Sang Park/CEO & Chairman | ||||
| MagnaChip Semiconductor, Ltd. | ||||
THIS EMPLOYMENT OFFER IS WHOLLY AGREED AND ACCEPTED BY:
| /s/ Heung Kyu Kim | ||||
| Heung Kyu Kim | ||||
Exhibit
10.40
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF UNIT OPTION
[Non-US Participants]
NOTICE OF GRANT OF UNIT OPTION
[Non-US Participants]
The Participant has been granted an option (the “Option”) to purchase certain Common Units of
MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009 Common Unit Plan (the
“Plan”), as follows:
Participant:
|
Heungkyu Kim | |
Date of Grant:
|
December 8, 2009 | |
Number of Option Units:
|
560,000, subject to adjustment as provided by the Option Agreement. | |
Exercise Price:
|
US $ 1.16 | |
Initial Vesting Date:
|
The date one (1) year after the Date of Grant | |
Option Expiration Date:
|
The date ten (10) years after the Date of Grant | |
Local Law:
|
The laws, rules and regulations of [Name of Country], of which the Participant is a resident. | |
Vested Units:
|
Except as provided in the Option Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Number of Option Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||||
Prior to Initial Vesting Date |
0.00 | |||
On Initial Vesting Date |
0.34 | |||
Plus, on completion of next period of three (3) months |
0.09 | |||
Plus, on completion of each of next three (3) periods of three (3) months |
0.08 | |||
Plus, on completion of next period of three (3) months |
0.09 | |||
Plus, on completion of each of next three (3) periods of three (3) months |
0.08 | |||
By their signatures below, the Company and the Participant agree that the Option and the Units that
may be acquired upon the exercise of the Option are governed by this Grant Notice, by the
provisions of the Plan and the Option Agreement, and by the Operating Agreement, all of which are
attached to and made a part of this document. The Participant acknowledges receipt of copies of the
Plan, the Option Agreement and the Operating Agreement, represents that the Participant has read
and is familiar with their provisions, and hereby accepts the Option subject to all of their terms
and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ Heungkyu Kim | ||
| Signature | ||||
Its:
|
CEO & Chairman | Dec. 18, 2009 | ||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Option Agreement and Exercise Notice; and Operating Agreement |
Exhibit
10.41
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
The
Participant has been granted an award (the
“Award”) of certain Common Units (the
“Units”) of MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009 Common Unit Plan (the
“Plan”), as follows:
Participant:
|
Heungkyu Kim | |
Date of Grant:
|
December 8, 2009 | |
Total Number of Option Units:
|
280,000, subject to adjustment as provided by the Restricted Unit Agreement. | |
Fair Marker Per Unit on Date of Grant:
|
US $ 0.74 | |
Initial Vesting Date:
|
The Date of Grant | |
Local Law:
|
The laws, rules and regulations of [Name of Country], of which the Participant is a resident. | |
Vested Units:
|
Except as provided in the Restricted Unit Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Total Number of Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||||
Prior to Initial Vesting Date |
0.0 | |||
On Initial Vesting Date |
0.34 | |||
Plus, on completion of next period of one (1) year |
0.33 | |||
Plus, on completion of next period of one (1) year |
0.33 | |||
By
their signatures below, the Company and the Participant agree that
the Award is governed by this Grant Notice, by the
provisions of the Plan and the Restricted Unit Agreement, and by the Operating Agreement, all of which are
attached to and made a part of this document. The Participant acknowledges receipt of copies of the
Plan, the Restricted Unit Agreement and the Operating Agreement, represents that the Participant has read
and is familiar with their provisions, and hereby accepts the Award subject to all of their terms
and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ Heungkyu Kim | ||
| Signature | ||||
Its:
|
CEO & Chairman | Dec. 18, 2009 | ||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Restricted Unit Agreement; Assignment Separate from Certificate; and Operating Agreement |
Exhibit 10.42
|
||
| 891 Daechi-dong, Gangnam-gu Seoul, 135-178 Korea Tel: 82-2-3459-3675 Fax: 82-2-3459-3686 |
||
| www.magnachip.com |
Confidential
June 20,
2007
Dear Dr. Taejong Lee
MagnaChip Semiconductor, Ltd. (“MagnaChip”) is pleased to present you with an offer for
employment in the position of VP of Corporate Engineering, reporting to Sang Park, CEO/Chairman of
MagnaChip Semiconductor Ltd. We believe that you have significant potential to make valuable
contributions to MagnaChip, and we hope you will find your employment with us a rewarding
experience.
You will be based at MagnaChip’s office in Seoul and Cheongju, Korea, but will be expected to
travel as needed within Korea and to other destinations as the job may require. The expected start
date of your employment is September 03, 2007.
Your annual salary will be KRW 170,000,000 per annum. You will be paid in accordance with
MagnaChip’s normal payroll practices and your compensation will be subject to payroll deductions
and all required withholdings. Annual salary increases will be determined by MagnaChip in
accordance with MagnaChip’s internal policies and procedures. In addition, you will be paid a
sign-on of KRW20,000,000 on the first normal pay day date after your employment begins, provided
that, should you resign for any reason or be terminated for cause at any time prior to completion
of one year of employment with the Company, you must pay the pro-rated amount of sign-on bonus to
the Company. MagnaChip may from time to time in its sole discretion adjust the salary and benefits
paid to you and its other employees in the normal course of operations. Your target annual
incentive is targeted to be 50% of your base salary. The annual incentive will be based on company
performance and attainment of your management objectives under a plan to be established and
approved by the Board of Directors of MagnaChip’s parent company. MagnaChip may from time to time
in its sole discretion adjust the salary and benefits paid to you and its other employees in the
normal course of operations.
Upon Approval by the Board of Directors of MagnaChip Semiconductor LLC (the “Board), you will
be granted options to purchase 40,000 MagnaChip common units (the “Option”) pursuant to the
MagnaChip Semiconductor LLC Equity Incentive Plan at the exercise price per common unit of the
greater of (i) $3.00 or (ii) the fair market value of a common unit. An installment of 25% of the
common units subject to the option shall become vested and exercisable on the first anniversary of
the commencement date of your employment and 6.25% of the common units subject to the option shall
become vested and exercisable at the end of each three month period thereafter on the same day of
the month as the commencement date (or, if earlier, the last day of such month), subject to your
continuing employment with the Company. Other terms of the option shall be as determined by the
Board, and
prior to receiving the option you must execute an option agreement in the form as approved by the
Board.
You
will be eligible to participate in MagnaChip’s employee benefits programs for which you
qualify and as are applicable to other MagnaChip employees of your level based in Korea. In
addition to that, you shall be entitled to the following benefits:
| (a) | School tuition for children. MagnaChip will reimburse middle and high school tuition for your two children at a foreign school upon receiving a tuition receipt and other documentation acceptable to MagnaChip. The reimbursement amount shall not exceed KRW32,400,000 in total per each year’s reimbursement. | ||
| (b) | Housing support. MagnaChip will reimburse temporary housing fee in the amount of up to KRW4,000,000 for your first month of employment upon receiving a receipt and/or other documentation acceptable to MagnaChip. You will also be provided with housing allowance in the amount of KRW3,600,000 per month upon receiving a receipt and/or other documentation acceptable to MagnaChip.. | ||
| (c) | Moving expenses & Others. MagnaChip will pay reasonable, fully justified moving expenses in the amount of up to KRW8,000,000 upon receiving a receipt and/or other documentation acceptable to MagnaChip. MagnaChip will also pay one-way airline tickets from your country origin to Korea in economy class for you, and upon their relocation to Korea, for your spouse and up to two children upon receiving a receipt and/or other documentation acceptable to MagnaChip. |
As an
employee of MagnaChip organizations, you will expected to abide by
MagnaChip’s rules
and regulations and sign and comply with MagnaChip’s form employment agreement for employees based
in Korea that includes confidentiality and non-competition provisions. Your employment relationship
with MagnaChip is at-will, although you will be eligible for severance programs as required by
Korean law. You may terminate your employment with MagnaChip at any time and for any reason
whatsoever simply by notifying us, although you agree to provide one month’s notice prior to your
resignation. Likewise, MagnaChip may terminate your employment in accordance with Korean law.
As an employee in the MagnaChip organization, you will be expected to abide by MagnaChip’s
rules and regulations and sign and comply with MagnaChip’s form employment agreement for employees
who are Korean citizens and based in Korea that includes confidentiality and non-competition
provisions.
This letter forms the complete and exclusive offer of your employment with MagnaChip. No other
representative has any authority to modify or enter into an agreement or modification, express or
implied, contrary to the foregoing. Any such modification or agreement must be in writing and
signed by Sang Park, Robert Krakauer or Dongjin Kim and must clearly and expressly specify an
intent to change the at-will nature of your employment.
We look forward to your participation in the future growth of MagnaChip. Please indicate your
acceptance of this offer of employment by signing in the space below. Please fax or e-mail an
executed copy of this letter to me as soon as possible, with the original to follow by mail.
Sincerely,
| MAGNACHIP SEMICONDUCTOR, LTD. |
||||
| /s/ Sang Park | ||||
| Sang Park | ||||
| CEO/Chairman MagnaChip Semiconductor, Ltd. |
||||
THIS EMPLOYMENT OFFER IS WHOLLY AGREED AND ACCEPTED BY:
| Dr. Taejong Lee |
||||
| Signature: | /s/ Taejong Lee | |||
Exhibit 10.43
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF UNIT OPTION
[Non-US Participants]
NOTICE OF GRANT OF UNIT OPTION
[Non-US Participants]
The Participant has been granted an option (the “Option”) to purchase certain Common Units of
MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009 Common Unit Plan (the
“Plan”), as follows:
Participant:
|
Taejong Lee | |
Date of Grant:
|
December 8, 2009 | |
Number of Option Units:
|
392,000, subject to adjustment as provided by the Option Agreement. | |
Exercise Price:
|
US $1.16 | |
Initial Vesting Date:
|
The date one (1) year after the Date of Grant | |
Option Expiration Date:
|
The date ten (10) years after the Date of Grant | |
Local Law:
|
The laws, rules and regulations of [Name of Country], of which the Participant is a resident. | |
Vested Units:
|
Except as provided in the Option Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Number of Option Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||||
| Prior to Initial Vesting Date | 0.00 | |||
| On Initial Vesting Date | 0.34 | |||
| Plus, on completion of next period of three (3) months | 0.09 | |||
| Plus, on completion of each of next three (3) periods of three (3) months | 0.08 | |||
| Plus, on completion of next period of three (3) months | 0.09 | |||
| Plus, on completion of each of next three (3) periods of three (3) months | 0.08 | |||
By their signatures below, the Company and the Participant agree that the Option and the Units that
may be acquired upon the exercise of the Option are governed by this Grant Notice, by the
provisions of the Plan and the Option Agreement, and by the Operating Agreement, all of which are
attached to and made a part of this document. The Participant acknowledges receipt of copies of the
Plan, the Option Agreement and the Operating Agreement, represents that the Participant has read
and is familiar with their provisions, and hereby accepts the Option subject to all of their terms
and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ Taejong Lee | ||
| Signature | ||||
Its:
|
CEO & Chairman | Dec. 18, 2009 | ||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Option Agreement and Exercise Notice; and Operating Agreement |
Exhibit 10.44
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
The Participant has been granted an award (the “Award”) of certain Common Units (the “Units”)
of MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009 Common Unit Plan
(the “Plan”), as follows:
Participant:
|
Taejong Lee | |
Date of Grant:
|
December 8, 2009 | |
Total Number of Units:
|
168,000, subject to adjustment as provided by the Restricted Unit Agreement. | |
Fair Market Per Unit on Date
of Grant:
|
US $ 0.74 | |
Initial Vesting Date:
|
The Date of Grant | |
Local Law:
|
The laws, rules and regulations of [Nome of Country], of which the Participant is | |
| a resident. | ||
Vested Units:
|
Except as provided in the Restricted Unit Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Total Number of Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||||
| Prior to Initial Vesting Date | 0.0 | |||
| On Initial Vesting Date | 0.34 | |||
| Plus, on completion of next period of one (1) year | 0.33 | |||
| Plus, on completion of next period of one (1) year | 0.33 | |||
By their signatures below, the Company and the Participant agree that the Award is governed by
this Grant Notice, by the provisions of the Plan and the Restricted Unit Agreement, and by the
Operating Agreement, all of which are attached to and made a part of this document. The Participant
acknowledges receipt of copies of the Plan, the Restricted Unit Agreement and the Operating
Agreement, represents that the Participant has read and is familiar with their provisions, and
hereby accepts the Award subject to all of their terms and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ Taejong Lee | ||
| Signature | ||||
Its:
|
CEO & Chairman | Dec. 18, ’09 | ||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Restricted Unit Agreement; Assignment Separate from Certificate; and Operating Agreement |
Exhibit 10.45
SERVICE AGREEMENT
THIS SERVICE AGREEMENT (“Agreement”) is executed by and between MagnaChip Semiconductor, Ltd.,
a Korean limited liability company (the “Company”), and John McFarland, an individual (the
“Officer”), effective as April 1, 2006.
WHEREAS, the Officer began his employment with the Company on November 22, 2004, pursuant to
an offer letter entered by and between the Officer and the Company (the “Offer Letter”) and now the
Company and the Officer wish to modify the current terms of the Officer’s employment and
memorialize such terms in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants, terms and
conditions set forth herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Officer hereby agree as follows:
1. EFFECTIVENESS OF SERVICE AGREEMENT
This Agreement shall constitute a binding obligation of the Officer and the Company as of
April 1, 2006 (the “Effective Date”).
2. EMPLOYMENT AND DUTIES
(a) General. The Company shall hereby employ the Officer as Senior Vice President,
General Counsel, and Secretary, and the Officer agrees upon the terms and conditions herein set
forth to be employed by the Company. The Officer shall diligently perform such duties and have such
responsibilities as the Board of Directors of the Company may establish from time to time, and the
Officer shall report to the Executive Vice President, Strategic Operations and Chief Financial
Officer of the Company.
(b) Term. Unless terminated at an earlier date in accordance with Section 4 below, the
term of the Officer’s employment with the Company hereunder shall be for a term commencing on the
Effective Date and ending on the third anniversary of the Effective Date (the “Initial
Term”). Thereafter, unless terminated at an earlier date in accordance with Section 4 below,
the Initial Term and each Additional Term shall be automatically extended for successive one-year
periods (each, an “Additional Term”), in each case, commencing upon the expiration of the
Initial Term or the then-current Additional Term, unless at least 90 days prior to the expiration
of such term, either party gives written notice to the other party of its intention not to extend
the term of the Officer’s employment.
(c) Services. The Officer shall well and faithfully serve the Company, and shall
devote all of the Officer’s business time and attention to the performance of the duties of such
employment and the advancement of the best interests of the Company and shall not, directly or
indirectly, render services to any other person or organization for which the Officer receives
compensation without the prior written approval of the Company. The Officer hereby agrees to
refrain from engaging in any activity that does, shall or could reasonably be deemed to conflict
with the best interests of the Company.
(d) Location of Employment. The Officer’s place of employment shall be at the
Company’s facility located in Seoul, Korea, but the Officer shall travel to the extent and to the
places necessary for the performance of the Officer’s duties to the Company.
1
3. COMPENSATION AND OTHER BENEFITS
Subject to the provisions of this Agreement, including, without limitation, the
termination provisions contained in Section 4 below, the Company shall pay and provide the
following compensation and other benefits to the Officer as compensation for all services rendered
hereunder:
(a) Salary. The Company shall pay the Officer a base salary at the rate of
KRW175,000,000 (the “Salary”), payable to the Officer in accordance with the standard
payroll practices of the Company as are in effect from time to time, less all such deductions or
withholdings required by applicable law. The Salary is payable in Korean won to a bank account
designated from time to time by the Officer. Should the Officer’s place of employment be moved
outside Korea, the Officer and the Company agree to reasonably determine an
equivalent salary payable in U.S. dollars. Annual salary increases will be determined by the
compensation committee of the Board of Directors of the Company (the “Committee”) in
accordance with the Committee’s policies and procedures.
(b) Annual Incentive. The Officer shall be eligible to earn an annual cash bonus in
accordance with the annual short-term incentive plan approved annually by the compensation
committee of the Company (the “Annual Incentive”). The Annual Incentive shall be a target
of 50% of the Officer’s annual salary.
(c) Expenses. The Company shall pay or reimburse the Officer for all reasonable
out-of-pocket expenses incurred by the Officer in connection with the Officer’s employment
hereunder upon submission of appropriate documentation or receipts in accordance with the policies
and procedures of the Company as are in effect from time to time.
(d) Benefits. The Officer shall be eligible to participate in or purchase as necessary
and be reimbursed for medical, disability and life insurance plans and to receive other benefits
applicable to senior officers of the Company generally in accordance with the terms of such plans
as are in effect from time to time. The Officer shall be entitled to the following expatriate
benefits:
(i) Visas and Work Permits. The Company will provide the necessary services
and cover the cost to obtain the necessary visas and/or work permits to enable the
Officer and the Officer’s family to legally work and stay in Korea for the duration that the
Officer is assigned to perform services in Korea.
(ii) School Tuition for Child. The Company will pay gross tuition, including
school bus fees, for the Officer’s one minor child at a foreign school in Korea.
(iii) Tax Treatment. The Company shall provide for tax equalization (to U.S.
federal and California state) for all salary and benefits commencing in the tax year
when the expatriate assignment begins through the end of the tax year of repatriation
(regardless of whether the Officer is still employed by the Company at that time). The Officer shall
minimize U.S. taxes as permitted by Section 901 and 911 of the Internal Revenue Code.
For the avoidance of doubt, this provision shall be interpreted to mean that the Officer’s
total tax liability shall not be higher than it would have been had the Officer remained in the
U.S. The Company will provide tax preparation services to assist the Officer with the
preparation of the Officer’s personal income tax returns for the U.S. and Korea.
(e) Vacation. The Officer shall be entitled to annual vacation of three weeks per
year.
(f) Equity. The Officer has been granted options to purchase 30,000 units of MagnaChip
Semiconductor LLC common units at a price of $1.00 per unit. Effective as of the Effective
Date, the Officer will be granted options to purchase an additional 25,000 MagnaChip Semiconductor LLC
common units (the “Option”) pursuant to the MagnaChip Semiconductor LLC Equity
Incentive Plan at a purchase price equal to $2.00 per common unit. Twenty-five percent of the Option will
vest upon
2
the earlier of (i) the first closing of a firmly underwritten public offering for any equity
securities of the Company, (ii) the date as designated by the compensation committee of the Board
as the date upon which the unitholders of the company as of October 6, 2004, have achieved a 2.5x
return on their investment. The remaining 75% of the Option will vest at the rate of 25% on each of
the three successive annual anniversaries of the first vesting event. Other terms of the Option
shall be as determined by the Board of Directors of MagnaChip Semiconductor LLC but shall not be
less favorable than the terms of options granted to other Company employees.
(g) Indemnification. To the fullest extent permitted by law and the governing
documents of the Company, the Company will indemnify and hold the Officer harmless from and against
all losses, costs, and expenses arising from or relating to the Officer’s services as an officer or
employee of the Company.
4. TERMINATION OF EMPLOYMENT
Subject to the notice and other provisions of this Section 4, the Company shall have the right
to terminate the Officer’s employment hereunder, at any time for any reason or for no stated
reason, and the Officer shall have the right to resign, at any time for any reason or for no stated
reason.
(a) Termination for Cause or Resignation.
(i) If, prior to the expiration of the Initial Term or any Additional Term, the
Officer’s employment is terminated by the Company for Cause, the Officer shall be
entitled to payment of (A) the Officer’s Salary accrued up to and including the date of
termination or resignation, and any unreimbursed expenses. Except to the extent required by the terms
of the benefits provided under Section 3(f) or applicable law, the Officer shall have no
right under this Agreement or otherwise to receive any other compensation or to participate in any
other plan, program or arrangement after such termination or resignation of employment with
respect to the year of such termination or resignation and later years. The treatment
of any outstanding options held by the Officer as of the date of the termination shall be
governed by the agreements and equity incentive plans pursuant to which the options were granted.
(ii)
Termination for “Cause” shall mean a termination of the Officer’s
employment with the Company because of (A) a failure by the Officer to substantially
perform the Officer’s customary duties with the Company in the ordinary course (other
than such failure resulting from the Officer’s incapacity due physical or mental illness)
that, if susceptible to cure, has not been cured as determined by the Company within 30 days
after a written demand for substantial performance is delivered to the Officer by the Company,
which demand specifically identifies the manner in which the Company believes that the
Officer has not substantially performed the Officer’s duties; (B) the Officer’s gross
negligence, intentional misconduct or fraud in the performance of the Officer’s
employment; (C) the Officer’s indictment for a felony or for a crime involving fraud or
dishonesty; (D) a judicial determination that the Officer committed fraud or dishonesty against any
natural person, firm, partnership, limited liability company, association, corporation,
company, trust, business trust, governmental authority or other entity (each, a “Person”); or (E) the Officer’s
material violation of this Agreement or of one or more of the Company’s policies applicable
to the Officer’s employment as may be in effect from time to time.
(iii) Termination of the Officer’s employment for Cause shall be communicated
by delivery to the Officer of a written notice from the Company stating that the
Officer will be terminated for Cause, specifying the particulars thereof and the effective date of
such termination. If the Company provides such written notice to the Officer, to the extent
the Officer is being terminated for a failure to perform the Officer’s customary duties,
as described in Section 4(a)(ii)(A) above, the Officer shall have 30 days from the date
of receipt
3
of such notice to effect a cure and, upon cure thereof by the Company, such failure to
perform shall no longer constitute Cause for purposes of this Agreement.
(b) Involuntary Termination.
(i) If, prior to the expiration of the Initial Term or any Additional Term, the Company terminates the Officer’s employment for any reason other than Disability, death
or Cause (such termination or resignation being hereinafter referred to as an
“Involuntary Termination”), the Officer shall be entitled to (A) payment of the Officer’s
Salary accrued up to and including the date of the Involuntary Termination, (B) the dollar value of all
accrued and unused vacation benefits based upon the Officer’s most recent level of Salary, (C)
any Annual Incentive amount actually earned pursuant to Section 3(b) for one or more fiscal
years but not previously paid to the Officer, (D) payment of any unreimbursed expenses, and
(E) severance (the “Severance”), consisting of:
(1) continuation of the Officer’s Salary, at the rate in effect on the date of
the Involuntary Termination, for a period of six months, commencing on the date next
following the date of the Involuntary Termination;
(2) six months’ Company-paid benefits continuation for the Officer and the
Officer’s eligible dependents; and
(3) payment of the Annual Incentive, in a prorated amount based on the number
of days the Officer was actually employed during the applicable plan year and on
deemed satisfactory performance by the Officer, but based on actual performance
objectives satisfied by the Company, payable in a lump sum payment within 30 days
after the date that the Annual Incentive is normally paid under the terms of the
plans and policies of the Company (but in no event more than 12 months following the
date of the Involuntary Termination);
provided, however, that the Severance payable to the Officer pursuant to this section shall
be reduced to the extent that the Company makes any severance payments pursuant to the Korean
Commercial Code or any other statute.
(ii) The date of termination of employment without Cause shall be the date
specified in a written notice of termination to the Officer.
(c) Termination Due to Disability. In the event of the Officer’s Disability, the
Company shall be entitled to terminate the Officer’s employment. In the case that the Company
terminates the Officer’s employment due to Disability, the Officer shall be entitled to (i) payment of the
Officer’s Salary up to and including the date of termination, (ii) the dollar value of all accrued and
unused vacation benefits based upon the Officer’s most recent level of Salary, (iii) any Annual
Incentive amount actually earned pursuant to Section 3(b) for one or more fiscal years but not
previously paid to the Officer, (iv) payment of any unpaid expense reimbursements, and (v) payment of the Annual
Incentive, in a prorated amount based on the number of days the Officer was actually employed
during the applicable plan year, based on actual performance objectives satisfied by the
Company, payable in a lump sum payment within 30 days of the date that the Annual Incentive is normally
paid under the terms of the plans and policies of the Company. As used in this Section 4(c), the
term “Disability” shall mean that the Company reasonably determines that due to physical or
mental illness or incapacity, whether total or partial, the Officer is substantially unable to perform the
Officer’s
duties hereunder for a period of 180 consecutive days or shorter periods aggregating 180 days
during any period of 365 consecutive days. The Officer shall permit a licensed physician agreed to by
the Company and the Officer (or, in the event that the Company and the Officer cannot agree, by a
licensed physician agreed upon by a physician selected by the Company and a physician selected
by the Officer) to examine the Officer from time to time prior to the Officer’s being determined
to be
4
Disabled, as reasonably requested by the Company, to determine whether the Officer has suffered a
Disability hereunder.
(d) Death. In the event of the Officer’s death while employed by the Company, the
Officer’s estate or named beneficiary shall be entitled to (i) payment of the Officer’s Salary up
to and including the date of termination, (ii) the dollar value of all accrued and unused vacation
benefits based upon the Officer’s most recent level of Salary, (iii) any Annual Incentive amount
actually earned pursuant to Section 3(b) for one or more fiscal years but not previously paid to
the Officer, (iv) payment of any unpaid expense reimbursements,
and (v) payment of the Annual Incentive, in a prorated amount based on the number of days the
Officer was actually employed during the applicable plan year payable in a lump sum payment within
30 days of the date that the Annual Incentive is normally paid under the terms of the plans and
policies of the Company.
5. COVENANTS
(a) Confidential Information. As an officer of the Company, the Officer acknowledges
that the Officer has had and will have access to confidential or proprietary information or
both relating to the business of, or belonging to, the Company or any affiliates or third parties
including, but not limited to, proprietary or confidential information, technical data, trade secrets, or
know-how in respect of research, product plans, products, services, customer lists, customers, markets,
computer software (including object code and source code), data and databases, outcomes research,
documentation, instructional material, developments, inventions, processes, formulas,
technology, designs, drawings, engineering, hardware, configuration information, models, manufacturing
processes, sales information, cost information, business plans, business opportunities,
marketing, finances or other business information disclosed to the Officer in any manner including by
drawings or observations of parts or equipment, etc., all of which have substantial value to the
Company (collectively, “Confidential Information”).
(i) The Officer agrees that while employed with the Company and after the
termination of the Officer’s employment for any reason, the Officer shall not: (A) use
any Confidential Information except in the course of the Officer’s employment by the
Company; or (B) disclose any Confidential Information to any other person or entity, except to
personnel of the Company utilizing it in the course of their employment by the Company
or to persons identified to the Officer in writing by the Company, without the prior written
consent of the Company.
(ii) While the Officer is employed with the Company and after the termination of
the Officer’s employment for any reason, the Officer shall respect and adhere to any
non-disclosure, confidentiality or similar agreements to which the Company or any of its
affiliates are, or during the period of the Officer’s employment by the Company, become, a party
or subject. Upon the request of the Officer, the Company shall disclose to the Officer any
such agreements to which it is a party or is subject.
(iii) The Officer hereby confirms that all Confidential Information and “Company
Materials” (as hereinafter defined) are and shall remain the exclusive property of the
Company. Immediately upon the termination of the Officer’s employment for any reason,
or during the Officer’s employment with the Company upon the request of the Company, the
Officer shall return all Company Materials, or any reproduction of such materials,
apparatus, equipment and other physical property. For purposes of this Agreement, “Company
Materials” are documents or other media or tangible items that contain or embody
Confidential Information or any other information concerning the business, operations
or plans of the Company, whether such documents have been prepared by the Officer or
others.
(b) Disclosure of Previously Acquired Information to Company. The Officer hereby
agrees not to disclose to the Company, and not to induce the Company to utilize, any
proprietary
5
information or trade secrets of any other party that are in the Officer’s possession, unless and to
the extent that the Officer has authority to do so.
(c) Non-Competition. While the Officer is employed by the Company and, after the
Officer’s termination of employment for any reason, until the earlier of (i) the first anniversary
of the date of termination and (ii) November 22, 2007, the Officer (and any entity or business in
which the Officer or any affiliate of the Officer has any direct or indirect ownership or financial
interest) shall not, except with the prior written consent of the Board of Directors, directly or
indirectly, own any interest in, operate, join, control or participate as a partner, director,
principal, officer, or agent of, enter into any employment of, act as a consultant to, or perform
any services for any business which at any time during such period is in competition with any
business in which the Company, or any of its affiliates, is planning to be engaged in the near
future or is engaged on or prior to the termination of Officer’s employment by the Company,
anywhere in the world. This provision shall not be construed to prohibit the ownership by the
Officer of less than 2% of any class of securities of any corporation that has a class of
securities registered pursuant to the Securities Exchange Act of 1934, as amended, so long as the
Officer remains a passive investor in such entity.
(c) No Solicitation. While the Officer is employed by the Company and for a two-year
period thereafter, the Officer shall not, directly or indirectly, for the Officer’s own account or
for the account of any other Person (i) solicit, employ, retain as a consultant, interfere with or
attempt to entice away from the Company or any of its affiliates, or any successor to any of the
foregoing, any individual who is, has agreed to be or within one year of such solicitation,
employment, retention, interference or enticement has been, employed or retained by the Company or
any of its subsidiaries or any successor to any of the foregoing or (ii) solicit or attempt to
solicit the trade of any Person which, at the time of such solicitation, is a customer of the
Company or its affiliates, or any successor to any of the foregoing, or which the Company or its
affiliates, or any successor to any of the foregoing, is undertaking reasonable steps to procure as
a customer at the time of or immediately preceding the termination of Officer’s employment by the
Company; provided, however, that this limitation shall only apply to any product or service which
is in competition with a product or service of the Company or its affiliates.
(d) Non-Disparagement. The Officer and the Company agree that at any time during the
Officer’s employment with the Company or at any time thereafter, neither the Company nor the
Officer shall make, or cause or assist any other person to make, any statement or other
communication which impugns or attacks, or is otherwise critical of, the reputation, business or
character of the other, any subsidiary or any of their respective officers, directors, employees,
products or services. The foregoing restrictions shall not apply to any statements that are made
truthfully in response to a subpoena or other compulsory legal process.
(e) Enforcement. The Officer hereby acknowledges that the Officer has carefully
reviewed the provisions of this Agreement and agrees that the provisions are fair and equitable.
However, in light of the possibility of differing interpretations of law and change in
circumstances, the parties hereto agree that if any one or more of the provisions of this Agreement
is determined by a court of competent jurisdiction to be invalid, void or unenforceable under
circumstances then existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable or enforceable under such circumstances shall be substituted for the
stated period, scope or area.
6. GENERAL PROVISIONS
(a) Tax Withholding. All amounts paid to the Officer hereunder shall be subject
to all applicable federal, state, and local wage withholding.
6
(b) Notices. Any notice hereunder by either party to the other shall be given in
writing by personal delivery, or certified mail, return receipt requested, or (if to the Company) by
telex or facsimile, in any case delivered to the applicable address set forth below:
| (i) | If to the Company: | MagnaChip Semiconductor, Ltd. 891 Daechi-dong, Kangnam-gu Seoul 135-738 Korea Fax: 82-2-3459-3898 Attn: Executive Vice President, Strategic Operations and Chief Financial Officer |
||||
| (ii) | If to the Officer: | at the last known residential address on the personnel records of the Company; |
or to such other persons or other addresses as either party may specify to the other in writing.
(c) Assignment; Assumption of Agreement. This Agreement shall not be assignable, in
whole or in part, by either party without the prior written consent of the other party, except as
provided herein. The Company may assign its rights and obligations under this Agreement to any
corporation or other business entity (i) which is an affiliate of the Company, (ii) with which the
Company may merge or consolidate, or (iii) to which the Company may sell or transfer all or
substantially all of its assets or 50% or more of the voting stock entitled to elect the members of
the Board of Directors of the Company, provided that in each case such successor company expressly
assumes the Company’s obligations hereunder in writing. After any such assignment by the Company,
the Company shall be discharged from all further liability hereunder and such assignee shall
thereafter be deemed to be the “Company” for purposes of all terms and conditions of this
Agreement, including this Section 6(c). For purposes of this Section 6(c), “affiliate” means any
company that the Company controls, that controls the Company, or that is under common control with
the Company.
(d) Amendment. No provision of this Agreement may be amended, modified, waived or
discharged unless such amendment, modification, waiver or discharge is agreed to in writing and
signed by the parties. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
(e) Severability. If any term or provision hereof is determined to be invalid or
unenforceable in a final court or arbitration proceeding, (i) the remaining terms and provisions
hereof shall be unimpaired and (ii) the invalid or unenforceable term or provision shall be deemed
replaced by a term or provision that is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or provision.
(f) Governing Law and Venue. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, and the venue for all disputes arising out of
this Agreement shall be the state or federal courts located therein.
(g) Entire Agreement. This Agreement contains the entire agreement of the Officer, the
Company and any predecessors or affiliates thereof with respect to the subject matter hereof and
all prior agreements and negotiations are superseded hereby as of the date of this Agreement.
(h) Counterparts. This Agreement may be executed by the parties hereto in
counterparts, each of which shall be deemed an original, but both such counterparts shall together
constitute one and the same document.
7
IN WITNESS WHEREOF, the Company and Officer have executed this Agreement effective as of the
Effective Date.
| MAGNACHIP SEMICONDUCTOR, LTD. |
||||
| By: | /s/ Dr. Youm Huh | |||
| Name: | Dr. Youm Huh | |||
| Title: | Representative Director | |||
| OFFICER |
|||||
| /s/ John McFarland | |||||
| John McFarland | |||||
[Signature Page to Service Agreement]
8
Exhibit 10.46
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF UNIT OPTION
[Non-US Participants]
NOTICE OF GRANT OF UNIT OPTION
[Non-US Participants]
The Participant has been granted an option (the “Option”) to purchase certain Common Units of
MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009 Common Unit Plan (the
“Plan”), as follows:
Participant: |
John McFarland | |
Date of Grant: |
December 8, 2009 | |
Number of Option Units: |
224,000, subject to adjustment as provided by the Option Agreement. | |
Exercise Price: |
US $1.16 | |
Initial Vesting Date: |
The date one (1) year after the Date of Grant | |
Option Expiration Date: |
The date ten (10) years after the Date of Grant | |
Local Law: |
The laws, rules and regulations of [Name of Country], of which the Participant is a resident. | |
Vested Units: |
Except as provided in the Option Agreement and provided the Participant’s Service has not terminated prior to the applicable date, the number of Vested Units (disregarding any resulting fractional Unit) as of any date is determined by multiplying the Number of Option Units by the cumulative “Vested Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||
| Prior to Initial Vesting Date | 0.00 | |
| On Initial Vesting Date | 0.34 | |
| Plus, on completion of next period of three (3) months | 0.09 | |
| Plus, on completion of each of next three (3) periods of three (3) months | 0.08 | |
| Plus, on completion of next period of three (3) months | 0.09 | |
| Plus, on completion of each of next three (3) periods of three (3) months | 0.08 |
By their signatures below, the Company and the Participant agree that the Option and the Units that
may be acquired upon the exercise of the Option are governed by this Grant Notice, by the
provisions of the Plan and the Option Agreement, and by the Operating Agreement, all of which are
attached to and made a part of this document. The Participant acknowledges receipt of copies of the
Plan, the Option Agreement and the Operating Agreement, represents that the Participant has read
and is familiar with their provisions, and hereby accepts the Option subject to all of their terms
and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ John McFarland | ||
| Signature | ||||
Its:
|
CEO & Chairman | 12/18/09 | ||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
891 Daechi-dong, | ||
| Address | ||||
| Gangnam-gu Seoul, Korea 135-738 | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Option Agreement and Exercise Notice; and Operating Agreement |
Exhibit 10.47
MAGNACHIP SEMICONDUCTOR LLC
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
NOTICE OF GRANT OF RESTRICTED UNITS
[Non-US Participants]
The Participant has been granted an award (the “Award”) of certain Common Units (the “Units”)
of MagnaChip Semiconductor LLC pursuant to the MagnaChip Semiconductor LLC 2009
Common Unit Plan (the “Plan”), as follows:
Participant: |
John McFarland | |
Date of Grant: |
December 8, 2009 | |
Total Number of Units: |
336,000, subject to adjustment as provided by the Restricted Unit Agreement. | |
Fair Market Per Unit on Date
of Grant: |
US $0.74 | |
Initial Vesting Date: |
The Date of Grant | |
Local Law: |
The laws, rules and regulations of [Name of Country], of which the Participant is | |
| a resident. | ||
Vested Units: |
Except as provided in the Restricted Unit Agreement and provided the | |
| Participant’s Service has not terminated prior to the applicable date, the number | ||
| of Vested Units (disregarding any resulting fractional Unit) as of any date is | ||
| determined by multiplying the Total Number of Units by the cumulative “Vested | ||
| Ratio” (not to exceed 1.0) determined as of such date as follows: |
| Vested Ratio | ||
| Prior to Initial Vesting Date | 0.0 | |
| On Initial Vesting Date | 0.34 | |
| Plus, on completion of next period of one (1) year | 0.33 | |
| Plus, on completion of next period of one (1) year | 0.33 |
By their signatures below, the Company and the Participant agree that the Award is
governed by this Grant Notice, by the provisions of the Plan and Restricted Unit
Agreement, and by the Operating Agreement, all of which are attached
to and made a part of this document. The Participant acknowledges receipt of copies of the Plan, the Restricted
Unit Agreement and the Operating Agreement, represents that the Participant has read and
is familiar with their provisions, and hereby accepts the Award subject to all of their
terms and conditions.
| MAGNACHIP SEMICONDUCTOR LLC | PARTICIPANT | |||
By:
|
/s/ Sang Park | /s/ John McFarland | ||
| Signature | ||||
Its:
|
CEO & Chairman | 12/18/2009 | ||
| Date | ||||
Address:
|
891 Daechi-dong, Gangnam-gu Seoul, Korea 135-738 |
|||
| Address | ||||
| ATTACHMENTS: | 2009 Common Unit Plan, as amended to the Date of Grant; Restricted Unit Agreement; Assignment Separate from Certificate; and Operating Agreement |
Exhibit 10.48
SENIOR ADVISOR AGREEMENT
THIS SENIOR ADVISOR AGREEMENT (the “Agreement”) is entered into as [April 10, 2009]
(the “Effective Date”), by and between MagnaChip Semiconductor, Ltd., a Korean limited
liability company (the “Company”), and Robert Krakauer, an individual (“Advisor”).
BACKGROUND
A. Advisor is a director of the Company, MagnaChip Semiconductor LLC, the parent
entity of the Company (“MagnaChip LLC”), and several other affiliated entities of the
Company, and is the President and Chief Financial Officer of MagnaChip LLC and the Company pursuant to that
certain Amended and Restated Service Agreement dated as of
May 8, 2008, by and between the Advisor and
the Company (the “Service Agreement”).
B. Advisor desires to resign as a director of the Company, MagnaChip LLC, and the
affiliates, and resign as President and Chief Financial Officer of MagnaChip LLC and the
Company and become, and the Company accepts such resignation and desires to retain Advisor as, a senior
advisor to the Company to provide and render certain services on the terms and conditions specified
below.
C. The parties hereto now desire to enter into this Agreement to amend and supersede the
Service Agreement in its entirety and set forth the terms and conditions of the Company’s
engagement of Advisor as a senior advisor to the Company.
NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained, and
for other good and valuable consideration, intending to be legally bound, the parties hereto do
hereby agree as follows:
TERMS
1. Resignation; Amendment of Service Agreement. Advisor hereby resigns from all director
and officer (or equivalent) positions (including any membership in any committee of directors or
the like) with the Company and its affiliates, effective as of the Effective Date. In accordance
with Section 6(d) of the Service Agreement, the parties agree that the Service Agreement is hereby
amended and superseded in its entirety by this Agreement.
2. Scope of Services.
(a) Subject to the terms and conditions hereinafter provided, the Company engages
Advisor to provide such services as the Company shall reasonably request, such services to
include,without limitation:
(i) Assisting the officers of the Company with effecting the sale and debt
restructuring of the Company and its affiliates; and
(ii)
consulting with and advising the Chief Executive Officer of the Company.
(b) During the Term (as defined below), Advisor shall be available as needed to perform
Advisor’s duties pursuant to this Agreement and as mutually agreed between Company and
Advisor. Both parties hereto agree that Advisor’s duties under this Agreement will be limited in
nature, and both parties hereto agree to schedule the duties in good faith with regard to the needs and
requirements of the other. Advisor shall perform Advisor’s services at a location or locations mutually agreed
upon by the parties hereto. During the Term, Advisor shall adhere to such policies of the Company
applicable to the conduct of senior executive officers as may be in effect from time to time. The Company
acknowledges and agrees that Advisor has accepted employment with, and during the Term will be employed by,
another employer that Advisor will separately identify to the Company. The Company consents to such
1
employment provided that the other employer has consented to the arrangement set forth in this
Agreement. Advisor will promptly notify the Company in writing of any changes of employer during
the Term, and Advisor will procure that such new employer consents to the arrangement set forth in
this Agreement.
(c) At all times during the Term and thereafter, Advisor will assist the Company in the
performance of its duties hereunder by providing promptly providing such assistance and
documentation, including governance documents, contracts, tax forms and receipts, as are reasonably
requested by the Company.
3. Compensation.
(a) Subject to the terms and conditions of this Agreement, the Company shall pay and
provide the following compensation and other benefits to Advisor as consideration for
Advisor’s performance under this Agreement:
(i) Salary. Advisor shall receive a salary at the rate of US$375,000.00 per annum
(the “Salary”) during the Term, payable to Advisor on a monthly basis in accordance
with the standard payroll practices of the Company as are in effect from time to time for senior executive
officers, less all such deductions or withholdings required by applicable law. The Salary amount expressly
includes any severance benefit due under Korean law. Advisor agrees that upon termination of this Agreement
for any reason, no severance under law or otherwise will accrue to Advisor.
(ii)
Benefits. Advisor shall be entitled to the continuation of the following
Company-paid benefits and perquisites for Advisor and Advisor’s eligible dependents: (x)
continuation of existing health insurance benefits until the earlier of the expiration of the Term or the
date on which Advisor becomes eligible to participate in a new employer’s medical plan; (y) the continuation
of the $7,034.30 monthly lease payment and sales/use taxes for Advisor’s personal car until the
maturity of such lease in May 2009, and the continuation of the $1,989.85 monthly lease payment and
sales/use taxes for the personal car of Advisor’s spouse until the maturity of such lease in August
2009, provided that upon request of Advisor and approval of the respective lessor, Company will transfer
either or both car leases to Advisor, provided, further, that in no event will Company pay any lease transfer
fee,termination fee, return fee, mileage penalty, repurchase fee, or other fees associated with
lease transfer, maturity, or termination for the lease of either car; and (z) reimbursement of tax preparation
expenses for the tax year 2009 up to a maximum amount of $5,000.
(iii)
Expenses. During the Term, the Company shall reimburse Advisor for all
reasonable and itemized out-of-pocket expenses incurred by Advisor in rendering services
hereunder upon submission of appropriate documentation or receipts in accordance with the policies and
procedures of the Company as are in effect from time to time.
(b) The Company acknowledges that Advisor has accrued certain unused vacation days under the
Company’s vacation policy for executives. The Company further acknowledges that Advisor voluntarily
accepted a base salary reduction of 10 to 20% of Advisor’s base salary during the December 2008
through March 2009 Company pay periods. In addition to the consideration payable pursuant to
Section 3(a) above, the Company agrees to pay to Advisor upon the execution of this Agreement, less
any applicable taxes or other withholdings as required by law, (i) such accrued vacation amount;
(ii) the equivalent of the difference between Advisor’s base monthly salary under the Service
Agreement and the salary paid to Advisor during each of the December 2008 through March 2009 pay
periods; and (iii) a lump-sum housing stipend payment equivalent to the aggregate amount of
Advisor’s monthly housing stipend from the Effective Date
through June 30, 2009.
(c) The Company acknowledges that Advisor is eligible for a tax equalization benefit applying
to all salary, bonuses, and certain other benefits earned by Advisor in the tax year 2008 while
Advisor served in Korea. Company agrees that this benefit shall survive the termination of the
Service
2
Agreement to the extent that any documentation or payments are not concluded on the Effective Date,
Company will reimburse Advisor for reasonable federal or any other tax return preparation expenses
on a basis consistent with past practice for the tax year 2008, but not the tax year 2009 (except
as set forth in Section 3(a)(ii)(z) above) or any following years.
(d) Notwithstanding anything to the contrary in the Service Agreement or any other
agreement executed between Advisor and the Company or any of its affiliates, Advisor shall not be
entitled to any salary, incentive, performance bonus, accelerated vesting or other compensation,
benefits, or perquisites of any kind whatsoever from the Company or any of its affiliates in
connection with Advisor’s resignation under the Service Agreement and appointment as senior
advisor, the termination or expiration of this Agreement or otherwise, except as expressly set
forth in this Section 3. Except as set forth in this Section 3, Advisor’s participation in all
other benefits and incidents of employment cease on the Effective Date. Advisor ceases accruing
employee benefits, including but not limited to severance, incentives, vacation time and paid time
off, as of the Effective Date. Advisor acknowledges and represents that the Company has paid all
salary, wages, bonuses, annual incentives, accrued vacation and paid time off, commissions, expense
reimbursements, severance or separation benefits, and any and all other benefits due to Advisor as
of the Effective Date. Advisor represents and warrants that Advisor never suffered an on-the-job or
occupational injury or incurred any wage, overtime or leave claims while working at the Company.
4. Equity Interests.
(a) Pursuant to the terms of the MagnaChip Semiconductor LLC Equity Incentive Plan (“Plan”),
the Option Agreements effective as of November 30,2004, executed by and between Advisor and
MagnaChip LLC, and the Restricted Unit Subscription Agreements effective as of November 30, 2004,
executed by and between Advisor and MagnaChip LLC (the “RUSAs”), under which MagnaChip LLC
granted to Advisor options to purchase common units of MagnaChip LLC and Advisor exercised the
options and received restricted common units of MagnaChip LLC (the “Restricted Units”), as of the
Effective Date: (i) the Restricted Period (as defined in the RUSAs) has lapsed as to all of the
Restricted Units, and (ii) MagnaChip LLC waives its right pursuant to Article 4 of the RUSAs to
repurchase any of the Restricted Units. The Restricted Units remain subject to all other
restrictions in the RUS As and other agreements required to be executed pursuant to the RUSAs.
(b) Pursuant to the terms of the Plan and the Option Agreement effective as of March 9, 2006,
executed by and between Advisor and MagnaChip LLC, under which MagnaChip LLC granted to Advisor
options to purchase common units of MagnaChip LLC (the “IPO Option”), as of the Effective Date: (i)
Advisor’s IPO Option fully terminates without vesting, (ii) Advisor has and shall have no right to
exercise all or any portion of the IPO Option, and (iii) Advisor does not have and shall not have
any rights under the IPO Option to purchase units or shares of MagnaChip LLC or any of its
affiliates or successors.
(c) Advisor does not have and shall not have any rights or entitlements to purchase units or
shares of MagnaChip LLC or any of its affiliates or successors.
5. Term and Termination.
(a) This Agreement shall be effective as of the Effective Date and, unless sooner terminated
pursuant to the terms hereof, shall continue until [April 10, 2010] (the “Term”).
(b) This Agreement may be terminated by the Company for Cause at any time, effective
immediately upon notice to Advisor. For purposes of this Agreement, “Cause” shall mean (i)
Advisor’s breach of this Agreement that, if susceptible to cure, has not been cured as determined
by the Company within 10 days after a written demand for cure is delivered to Advisor by the
Company; (ii) Advisor’s gross negligence, intentional misconduct or fraud in the performance of
Advisor’s duties hereunder; (iii) Advisor’s plea of nolo contendre or guilty to, or conviction of,
any felony or any crime involving
3
misappropriation, embezzlement, fraud, dishonesty or the like; or (iv) a judicial determination
that Advisor committed fraud or dishonesty against any natural person, firm, partnership, limited
liability company, association, corporation, company, trust, business trust, governmental authority
or other entity (“Person”).
(c) Following any termination or expiration of this Agreement for any reason, all
obligations of the Company under this Agreement (other than any obligations with respect to the
payment of accrued and unpaid Salary and expense reimbursement under Section 3 through the date of
termination or expiration, subject to Section 11) shall terminate and Advisor shall not be entitled
to any compensation or benefits, including without limitation any Salary or Annual Incentive
payments, from the Company or any of its affiliates hereunder or otherwise. Notwithstanding the
expiration or termination of this Agreement for any reason, Sections 1 and 4 through 12 shall
survive such expiration or termination.
6. Waiver and Release. In consideration of the items set forth in Sections
3(a)(ii)(y), 3(a)(ii)(z), 3(b)(ii), and 3(b)(iii) above, and other benefits provided to Advisor
hereunder, Advisor hereby agrees to the following:
(a) Except for a claim based on a breach of this Agreement by the Company, Advisor, for
Advisor and on behalf of Advisor’s heirs, executors, administrators, legal representatives,
assignees and successors in interest (in such capacity, the “Releasing Party”), hereby
irrevocably and unconditionally settles, waives, releases, remises, acquits and discharges any and
all claims, demands, actions or causes of action, known or unknown, which the Releasing Parties may
have or could claim against the Company and each of its affiliates, parents, subsidiaries,
successors, assigns, and predecessors, and all of their respective employees, agents, officers and
directors, and all Persons acting by, through, under or in conceit with any of them or that might
be claimed to be jointly or severally liable with them (collectively, the “Company Released
Parties”) and the Releasing Party covenants not to sue or bring any action or proceeding
against the Company Released Parties with respect to such claims, demands, actions or causes of
action. The Releasing Party recognizes that it is giving up all claims, demands, actions and causes
of action, which it now may have, whether known or unknown, and whether specifically mentioned or
not. The Releasing Party specifically waives any claim or right to assert that any cause of action
or alleged cause of action or claim has been, through oversight or error, intentionally or
unintentionally omitted from this Agreement. The Releasing Party waives any right to seek
reinstatement or re-employment with the Company or any of its affiliates.
(b) The Releasing Party expressly acknowledges and agrees that the payments set forth in this
Agreement constitute consideration for the settlement, waiver, release and discharge of and
covenant not to sue with respect to any and all claims or actions arising from Advisor’s
employment, or the terms and conditions of Advisor’s employment, including claims arising under
express or implied contract, tort, public policy, common law or any national, state or local
statute, ordinance, regulation, rule, order or constitutional provision.
(c) The Releasing Party acknowledges that this Agreement is being entered into as a settlement
and compromise of any claims and is not to be construed in any manner as an admission of any
liability on the part of the Company or any Company Released Party.
(d) The
Releasing Party acknowledges that the only consideration for signing this Agreement
and all that the Releasing Party is ever to receive from the Company or its affiliates are the
terms expressly stated herein, and that no other promises or agreements of any kind have been made
to or with the Releasing Party by any Person whatsoever to cause Advisor to sign this Agreement.
(e) Advisor acknowledges that it has read and fully understands all of the provisions of this
Agreement and is entering into this Agreement freely and voluntarily. Advisor has been and is
hereby advised to consult with an attorney prior to signing.
4
(f) Advisor represents that Advisor is not aware of any claim by Advisor other than the claims
that are released by this Agreement. Advisor acknowledges that Advisor has had the opportunity to
be advised by legal counsel and is familiar with the provisions of California Civil Code Section
1542, which provides as follows; A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN ADVISOR’S FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY ADVISOR MUST HAVE MATERIALLY AFFECTED ADVISOR’S SETTLEMENT WITH THE DEBTOR. Advisor, being
aware of said code section, agrees to expressly waive any rights Advisor may have thereunder, as
well as under any other statute or common law principles of similar effect.
(g) Advisor agrees to execute a release of claims substantially in the form as set forth in
this Section 6 upon the conclusion of the Term or the termination of this Agreement for any reason.
7. Non-Compete. Without the Company’s prior written consent, during the Term, Advisor shall
not, directly or indirectly, own any interest in, operate, join, control or participate as a
partner, director, principal, officer, manager, or agent of, enter into any employment of, act as a
consultant or advisor to, or perform any services for, any business which at any time during such
period is in competition with any material business in which the Company, or any of its affiliates,
has taken substantial steps to engage or is engaged at any time during such period, anywhere in the
world. This provision shall not be construed to prohibit the ownership by Advisor of less than 2%
of any class of securities of any corporation, so long as Advisor remains a passive investor in
such entity.
8. Non-Solicitation. Without the Company’s prior written consent, during the Term, Advisor
shall not, directly or indirectly, for Advisor’s own account or for the account of any other Person
(i) solicit, interfere with, or attempt to entice away from the Company or any of its affiliates,
or any successor to any of the foregoing, any individual who is or has agreed to be employed or
retained by the Company or any of its affiliates or any successor to any of the foregoing; or (ii)
solicit or attempt to solicit the trade of any Person which, at the time of such solicitation, is a
significant customer of the Company or any of its affiliates, or any successor to any of the
foregoing, or which the Company or any of its affiliates, or any successor to any of the foregoing,
is undertaking reasonable steps to procure as a customer.
9. Non-Disparagement. Advisor agrees that, at all times during the Term and thereafter,
Advisor shall not make, or cause or assist any other Person to make, any statement or other
communication which impugns or attacks, or is otherwise critical of, the reputation, business or
character of any of the Company Released Parties or any of their respective products or services.
The foregoing restrictions shall not apply to any statements that are made truthfully in response
to a subpoena or other compulsory legal process.
10. Non-Disclosure.
(a) Advisor acknowledges that Advisor has had, and may during the Term have, access to
confidential or proprietary information or both relating to the business of, or belonging to, the
Company or any of its affiliates or third parties including, but not limited to, proprietary or
confidential information, technical data, trade secrets, or know-how in respect of research,
product plans, products, services, customer lists, customers, markets, computer software (including
object code and source code), data and databases, outcomes research, documentation, instructional
material, developments, inventions, processes, formulas, technology, designs, drawings,
engineering, hardware, configuration information, models, manufacturing processes, sales
information, cost information, business plans, business opportunities, marketing, finances or other
business information disclosed to Advisor in any manner including by drawings or observations of
parts or equipment, etc. (collectively, “Confidential Information”), all of which have
substantial value to the Company, its affiliates or such third parties.
(b) Advisor agrees that, at all times during the Term and thereafter, except as authorized by
the Company in writing, Advisor shall: (i) not use any Confidential Information except, during the
5
Term, in furtherance of Advisor’s duties hereunder; (ii) not disclose any Confidential Information
to any other Person, except to personnel of the Company utilizing it in the course of their
employment by the Company or to Persons identified to Advisor in writing by the Company; and (iii) respect and adhere
to any non-disclosure, confidentiality or similar agreements to which the Company or any of its
affiliates are, or during the Term become, a party or subject.
(c) Advisor hereby confirms that all Confidential Information and “Company Materials” (as
hereinafter defined) are and shall remain the exclusive property of the Company. Immediately upon
the termination or expiration of this Agreement, or during the Term upon the request of the
Company, Advisor shall return all Company Materials, or any reproduction of such materials,
apparatus, equipment and other physical property. For purposes of this Agreement, “Company
Materials” are documents or other media or tangible items that contain or embody Confidential
Information or any other information concerning the business, operations or plans of the Company,
whether such documents have been prepared by Advisor or others.
(d) Advisor hereby agrees not to disclose to the Company, and not to induce the Company to
utilize, any proprietary information or trade secrets of any other party that are in Advisor’s
possession, unless and to the extent that Advisor has authority to do so.
11. Severability and Equitable Relief. The provisions of this Agreement, including without
limitation Sections 6 through 10, are separate and independent provisions, and the invalidity or
unenforceability of one or more of these provisions or covenants shall not affect the validity or
enforceability of the remaining provisions or of the other covenants of this Agreement. Advisor
hereby acknowledges that Advisor has carefully reviewed the provisions of this Agreement, including
without limitation Sections 6 through 10, and agrees that the provisions are fair and equitable.
However, if any one or more of the provisions of this Agreement is determined by a court of
competent jurisdiction to be invalid, void or unenforceable under circumstances then existing, the
parties hereto agree that the maximum period, scope or geographical area reasonable or enforceable
under such circumstances shall be substituted for the stated period, scope or area. Advisor agrees
that the Company would suffer irreparable injury if Advisor were to breach any of the provisions of
Sections 6 through 10, and that in the event of such violation, the Company shall (in addition to
all other rights and remedies available to it) be entitled to an injunction restraining Advisor
from such breach, specific performance of Sections 6 through 10 and/or other equitable relief,
without the necessity of proving the inadequacy of any legal remedy or posting any bond or other
security.
12. Miscellaneous.
(a) Advisory Relationship.
(i) Advisor shall be considered a part-time temporary employee of the Company.
Advisor shall not be an agent of the Company or any of its affiliates and shall have no power
to bind or to otherwise obligate the Company or any of its affiliates in any manner whatsoever, nor shall
Advisor be authorized to enter into agreements or any other contractual relationships on behalf of the
Company or any of its affiliates, without the prior written consent of the Company.
(ii) Advisor acknowledges, and agrees, that Advisor will not be entitled to
participate in, or accrue any benefit under, any employee benefit plan of the Company or any
of its affiliates, on account of the services rendered pursuant to this Agreement (except, during the
Term, as expressly set forth in Section 3(a)(ii) above).
(b) Tax Withholding. All amounts paid to Advisor hereunder shall be subject to all
applicable tax withholding as required by law.
6
(c) Notices. Any notice hereunder by either party to the other shall be given in
writing by personal delivery, or certified mail, return receipt requested, or (if to the Company)
by telex or facsimile, in any case delivered to the applicable address set forth below:
To the Company:
|
MagnaChip Semiconductor, Ltd. | |
| 891 Daechi-dong, Gangnam-Gu Seoul 135-738 Korea |
||
| Facsimile No: 82-2-6903-3898 | ||
| Attn: General Counsel | ||
To the Officer:
|
at the last known residential address. |
or to such other Persons or other addresses as either party may specify to the other by notice.
(d) Assignment; Assumption of Agreement This Agreement shall be binding upon and inure
to the benefit of (i) the heirs, executors, and legal representatives of Advisor upon Advisor’s
death, and (ii) any successor of the Company. Any such successor of the Company shall be deemed
substituted for the Company under the terms of this Agreement for all purposes. For this purpose, “successor”
means (i) any Person which at any time, whether by purchase, merger, or otherwise, directly or
indirectly acquires all or substantially all of the assets or business of the Company or (ii) any
corporation or business entity which is an affiliate of the Company and which expressly assumes the
Company’s obligations hereunder in writing. None of the rights of Advisor to receive any form of
compensation payable pursuant to this Agreement may be assigned or transferred except by will or
the laws of descent and distribution. Any other attempted assignment, delegation, transfer,
conveyance, or other disposition of Advisor’s rights or obligations under this Agreement shall be
null and void.
(e) Amendment. No provision of this Agreement may be amended, modified, waived or
discharged unless such amendment, modification, waiver or discharge is agreed to in writing and
signed by the parties. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of any similar or dissimilar provision or condition at
the same or at any prior or subsequent time.
(f) Severability. If any term or provision of this Agreement or the application
thereof to any Person or circumstance shall, to any extent, be held invalid or unenforceable by a
court of competent jurisdiction, the remainder of this Agreement or the application of any such
term or provision to Persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law. If any of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to duration, scope,
activity or subject, it shall be construed by limiting and reducing it, so as to be valid and
enforceable to the extent compatible with the applicable law or the determination by a court of
competent jurisdiction,
(g) GOVERNING LAW, VENUE AND JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF DELAWARE, UNITED STATES OF AMERICA, WITHOUT GIVING EFFECT TO ANY PRINCIPLES OR
RULES OF CONFLICT OF LAWS TO THE EXTENT SUCH PRINCIPLES OR RULES WOULD REQUIRE OR PERMIT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF DELAWARE IN ANY
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AGREE NOT TO COMMENCE ANY SUIT, ACTION OR
PROCEEDING RELATING THERETO EXCEPT IN SUCH COURTS, WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW,
THE RIGHT TO MOVE TO DISMISS OR
7
TRANSFER ANY SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURT ON THE BASIS OF ANY OBJECTION TO
PERSONAL JURISDICTION, VENUE OR INCONVENIENT FORUM AND WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
SUIT, ACTION OR PROCEEDING WITH RESPECT TO ANY MATTER WHATSOEVER RELATING TO OR ARISING OUT OF THIS
AGREEMENT AND CONSENT TO SERVICE OF PROCESS BY MAIL OR ANY OTHER MANNER PERMITTED BY SUCH COURTS.
(h) Remedies Cumulative; Set Off. Any and all remedies herein expressly conferred upon
a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity, upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy. The Company may set off any amount which is or may subsequently
become due or payable by it or any of its affiliates to Advisor in terms of this Agreement or
otherwise, against any amount which is or may subsequently become due or payable to the Company by
Advisor, in terms of this Agreement or otherwise.
(i) Entire Agreement. This Agreement constitutes the entire agreement of Advisor, the
Company and any predecessors or affiliates thereof with respect to the subject matter hereof
and replaces and supersedes as of the Effective Date any and all prior oral or written agreements,
understandings or arrangements between such Persons, including, without limitation, the
Service Agreement and the Subscription Agreements.
(j) Headings and Interpretive Issues. The headings preceding the text of the
sections and subsections hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Agreement or affect its meaning, construction or effect. In the event any
ambiguity or question of interpretation or intent arises, this Agreement shall be construed as if
drafted jointly by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this Agreement. For purposes
of interpretation or resolving ambiguities, this Agreement, as executed in English, will prevail
over any translation. Capitalized terms used but not defined herein shall have the meaning
attributed to them in the Service Agreement.
(k) Counterparts. This Agreement may be executed in one or more counterparts, each
of which shall be considered one and the same agreement and each of which shall be deemed an
original. Delivery of an executed counterpart of a signature page to this Agreement by electronic means, such as
facsimile or portable document format, shall be as effective as delivery of a manually executed
counterpart of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
| MAGNACHIP SEMICONDUCTOR, LTD.: |
||||
| By: | /s/Sang Park | |||
| Sang Park | ||||
| Chairman and Chief Executive Officer | ||||
| ADVISOR: |
||||
| /s/Robert Krakauer | ||||
| Robert Krakauer | ||||
8
Exhibit 10.49
INDEMNIFICATION AGREEMENT
This Agreement entered into and effective this day of , 20 , (the
“Agreement”), by and between MagnaChip Semiconductor Corporation, a Delaware corporation
(the “Company,”) and (the “Indemnitee”).
RECITALS
WHEREAS, it is essential to the Company that it be able to retain and attract as directors to
serve on its Board of Directors (the “Board”) and officers, the most capable persons
available;
WHEREAS, the Company desires to provide Indemnitee with specific contractual assurance of
Indemnitee’s rights to full indemnification and advancement of Expenses (as defined below) against
litigation risks and Expenses (regardless, among other things, of any amendment to or revocation of
the Certificate (as defined below) or Bylaws (as defined below) or any change in the ownership of
the Company or the composition of the Board);
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate
itself to indemnify, and to advance Expenses on behalf of, such persons to the fullest extent
permitted under applicable law so that they will serve or continue to serve the Company free from
undue concern that they will not be so indemnified;
WHEREAS, the Company’s Certificate of Incorporation (the “Certificate”) and Bylaws
(the “Bylaws”) require it to indemnify its directors and officers and permit it to make
other indemnification arrangements and agreements;
WHEREAS, this Agreement is a supplement to and in furtherance of the Certificate and the
Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor,
nor to diminish or abrogate any rights of Indemnitee thereunder;
WHEREAS, both the Company and the Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers of companies in today’s environment;
[and]
WHEREAS, Indemnitee does not regard the protection available under the Certificate and the
Bylaws and insurance as adequate in the present circumstances, and may not be willing to serve as a
director without adequate protection, and the Company desires Indemnitee to serve in such capacity.
Indemnitee is willing to serve, continue to serve and to take on additional service for or on
behalf of the Company on the condition that he be so indemnified; [and]
[WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by the
Other Indemnitors (as defined below), which Indemnitee and the Other Indemnitors intend to be
secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with
the Company’s acknowledgement and agreement to the foregoing being a material condition to
Indemnitee’s willingness to serve on the Board.]
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the mutual sufficiency of which is hereby
acknowledged, the Company and Indemnitee hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. Capitalized terms used and not otherwise defined herein
shall have the meanings given to them below:
“Affiliate” means, in relation to an Entity (a) such Entity’s general partner, manager
and investment manager and affiliates thereof; (b) any entity with the same general partner,
manager or investment manager as such Entity or a general partner,
manager or investment manager
affiliated with such general partner, manager or investment manager of such Entity; and (c) any
other Entity that directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the first Entity, the general partner of such
Entity, investment manager of such Entity or an affiliate of such Entity, general partner or
investment manager. The term “control” (including the terms “controlled by” and “under common
control with”) means the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person, whether through the ownership of voting
securities, by contract or credit arrangement, as trustee or executor, or otherwise.
“Disinterested Director” means a director of the Company who is not and was not a
party to the Proceeding in respect of which indemnification is sought by the Indemnitee.
“Entity” means any corporation, partnership, limited liability company, joint venture,
trust, foundation, association, organization or other legal entity.
“Expenses” means all fees, costs and expenses incurred by Indemnitee in connection
with any Proceeding (as defined below), including, without limitation, reasonable attorneys’ fees,
disbursements and retainers (including, without limitation, any such fees, disbursements and
retainers incurred by Indemnitee pursuant to Articles VI and VII of this Agreement), fees and
disbursements of expert witnesses, private investigators and professional advisors (including,
without limitation, accountants and investment bankers), court costs, transcript costs, fees of
experts, travel expenses, duplicating, printing and binding costs, telephone and fax transmission
charges, postage, delivery services, secretarial services, and other disbursements and expenses.
Expenses also shall include Expenses incurred in connection with any appeal resulting from any
Proceeding, including without limitation the premium, security for, and other costs relating to any
cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not
include amounts paid in settlement by Indemnitee or the amount of judgments or fines against
Indemnitee.
“Independent Legal Counsel” means an attorney or firm of attorneys who is experienced
in matters of corporate law and who shall not have otherwise performed services for the Company or
Indemnitee or any other party to the particular claim within the last five years (other than with
respect to serving as Independent Legal Counsel with respect to matters concerning the
2
rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity
agreements).
“Liabilities” means judgments, damages, liabilities, losses, penalties (whether civil,
criminal or otherwise), foreign, federal, state and local taxes (including taxes payable by
Indemnitee as a result of the actual or deemed receipt of payments under this Agreement), fines
(including excise taxes and penalties assessed with respect to employee benefit plans) and amounts
paid in settlement and all interest, assessments and other charges paid or payable in connection
with or in respect of any of the foregoing.
[“Other Indemnitors” means (a) any employer of an Indemnitee; (b) any Entity in which
an Indemnitee is a partner, member or equity holder; (c) any Entity for whom an Indemnitee is
serving as a director of the Company at the request of such Entity; (d) any insurer of an Other
Indemnitor, and in each such case, the Indemnitee has certain rights to indemnification and/or
insurance provided by such Entity in connection with their service as a director of the Company.]
“Proceeding” means any threatened, pending or completed claim, action, suit,
arbitration, alternate dispute resolution process, investigation (whether instituted by the Company
or any governmental agency or any other party), administrative hearing, appeal, or any other
proceeding, whether civil, criminal, administrative, arbitrative or investigative, whether formal
or informal, including a proceeding initiated by Indemnitee pursuant to Article VI of this
Agreement to enforce Indemnitee’s rights hereunder.
“Status” describes the status of a person who is serving, has served or may be deemed
to have served (i) as a director, member, manager, partner, tax matters partner, trustee,
fiduciary, controlling person, officer, employee, or agent of the Company or any Subsidiary of the
Company, (ii) in any capacity with respect to any employee benefit plan of the Company, or (iii) as
a director, manager, partner, trustee, fiduciary, controlling person, officer, employee, or agent
of, or in any other capacity with, any other Entity at the request of the Company.
“Subsidiary” means any corporation, partnership, limited liability company, joint
venture, trust or other Entity of which the Company owns (either directly or through or together
with another Subsidiary of the Company) either (i) a general partner, managing member or similar
interest of such Entity or (ii) (A) 50% or more of the voting power of the voting capital stock or
other voting equity interests of such corporation, partnership, limited liability company, joint
venture or other Entity, or (B) 50% or more of the outstanding voting capital stock or other voting
equity interests of such corporation, partnership, limited liability company, joint venture or
other Entity.
ARTICLE II
SERVICES OF INDEMNITEE
SERVICES OF INDEMNITEE
2.1 Services of Indemnitee. In consideration of the Company’s covenants and
commitments hereunder, Indemnitee agrees to serve or continue to serve as a director [or officer]
of the Company, so long as the Indemnitee is duly elected or appointed and until such time as the
Indemnitee is removed, terminated, or tenders a resignation.
3
ARTICLE III
AGREEMENT TO INDEMNIFY
AGREEMENT TO INDEMNIFY
3.1 General.
(a) To the fullest extent permitted by Delaware law in effect on the date hereof and as
amended from time to time, the Company shall indemnify, defend and hold harmless the Indemnitee
from any Liabilities and Expenses incurred by the Indemnitee in connection with any Proceeding to
which Indemnitee is a party (or is threatened to be made a party) or is otherwise involved
(including as a witness) by reason of (or arising in whole or in part out of) (a) Indemnitee’s
Status or (b) any act performed or omitted to be performed by the Indemnitee in connection with
such Status, in each case whether the event or occurrence to which such Proceeding relates (if any)
occurred or was omitted before, on, or after the date of this Agreement (collectively,
“Indemnifiable Amounts”); provided, however, that no change in Delaware law
shall have the effect of reducing the benefits available to the Indemnitee hereunder based on
Delaware law as in effect on the date hereof or as such benefits may improve as a result of
amendments after the date hereof.
(b) Notwithstanding the foregoing, the indemnification obligations of the Company under
Section 3.1(a) above shall be subject to the condition that it shall not have been determined in
accordance with Section 3.1(c) below that Indemnitee would not be permitted to be indemnified under
applicable law; provided, however, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a determination that he
or she should be indemnified under applicable law, any determination made by the Reviewing Party
(as defined below) that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding until a final judicial determination is made (as to which all rights of appeal
therefrom have been exhausted or lapsed) that Indemnitee is not entitled to be so indemnified under
applicable law. Any determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and the Indemnitee. For purposes of this Agreement, a “Reviewing Party”
shall mean (i) if so requested in writing by the Indemnitee, Independent Legal Counsel, selected by
the Company and approved by the Indemnitee (which approval shall not be unreasonably withheld,
conditioned or delayed), whose determination shall be given in a written opinion to the Board; or
(ii) (A) a majority of the Disinterested Directors, even though less than a quorum of the Board, or
(B) a committee of Disinterested Directors designated by majority vote of the Disinterested
Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested
Directors or, if such Disinterested Directors so direct, Independent Legal Counsel, selected by the
Company and approved by the Indemnitee (which approval shall not be unreasonably withheld,
conditioned or delayed), whose determination shall be given in a written opinion to the Board, or
(D) the Company’s stockholders in accordance with applicable law. The Company agrees to pay the
reasonable fees and expenses of any Independent Legal Counsel.
(c) The Reviewing Party shall determine whether or not the Indemnitee would be permitted to be
indemnified under applicable law. If the Reviewing Party shall not have made a determination
within sixty (60) days after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification absent (i) a misstatement by
4
Indemnitee of a material fact, or an omission of a material fact necessary to make
Indemnitee’s statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable law;
provided, however, that such 60-day period may be extended for a reasonable time,
not to exceed an additional thirty (30) days, if the Reviewing Party in good faith requires such
additional time to obtain or evaluate documentation and/or information relating thereto. Notice in
writing of any determination as to the Indemnitee’s entitlement to indemnification shall be
delivered to the Indemnitee promptly after such determination is made, and if such determination of
entitlement to indemnification has been made by Independent Legal Counsel in a written opinion to
the Board, then such notice shall be accompanied by a copy of such written opinion. If the
Reviewing Party determines that Indemnitee would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence litigation in any court in
the State of Delaware having subject matter jurisdiction thereof and in which venue is proper
seeking an initial determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the
Company hereby consents to service of process and to appear in any such proceeding.
(d) To the extent that the Indemnitee has been successful on the merits or otherwise in
defense of any or all Proceedings, or in defense of any claim, issue, or matter therein, to which
Indemnitee is a party (or is threatened to be made a party) or is otherwise involved by reason of
(or arising out of) (i) Indemnitee’s Status or (ii) any act performed or omitted to be performed by
the Indemnitee in connection with such Status, in each case, whether the event or occurrence to
which such Proceeding relates occurred or was omitted before, on, or after the date of this
Agreement, the Indemnitee shall be indemnified against all Indemnifiable Amounts actually and
reasonably incurred in connection therewith, notwithstanding any determination by the Reviewing
Party that the Indemnitee is not entitled to indemnification under applicable law. For purposes of
this Agreement, the termination of any claim, issue, or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such claim, issue, or
matter.
3.2 Indemnification for Additional Expenses. To the fullest extent permissible under
applicable law, the Company shall indemnify, or cause the indemnification of, the Indemnitee
against any and all Expenses and, if requested by the Indemnitee, shall advance such Expenses to
the Indemnitee subject to and in accordance with Article V, which are incurred by or on behalf of
the Indemnitee in connection with any action (i) brought by the Indemnitee for indemnification or
an Expense Advance by the Company under this Agreement or provision of the Certificate or Bylaws
now or hereafter in effect, (ii) brought by the Company against Indemnitee seeking to recover any
advances of Expenses, and/or (iii) brought by the Indemnitee for recovery under any directors’ and
officers’ liability insurance policies maintained by the Company.
3.3 Insurance. The Company shall pay for standard director and officer liability
insurance covering liability of the Indemnitee for performance of his or her duties in such
amounts, and with the scope of such coverage, to be customary for a Company of like size with
similar operations. If, at the time of the receipt by the Company of a notice of a claim from
Indemnitee pursuant to this Agreement, the Company has liability insurance in effect which may
cover such claim, the Company shall use commercially reasonable efforts to provide prompt written
notice of the commencement of such claim to such insurers in accordance with the
5
procedures set forth in each of such policies. The Company shall thereafter use commercially
reasonable efforts to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a
result of such claim in accordance with the terms of such policies.
3.4 Indemnification for Expenses of a Witness. Notwithstanding any other provision of
this Agreement, to the extent that the Indemnitee is required to be a witness by reason of
Indemnitee’s Status in any Proceeding to which the Indemnitee is not a party, he or she shall be
indemnified against all Expenses actually incurred by him or her or on his or her behalf in
connection therewith.
3.5 Conclusive Presumption Regarding Standard of Care. In making any determination
required to be made under law with respect to entitlement to indemnification hereunder, the person,
persons or entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the
burden of proof and the burden of persuasion by clear and convincing evidence.
3.6 Procedure for Payment of Indemnifiable Amounts. Indemnitee shall submit to the
Company a written request specifying the Indemnifiable Amounts for which Indemnitee seeks payment
under this Article III or Article IV of this Agreement and the basis for the claim. If it is
determined that the Indemnitee is entitled to indemnification, then payment to the Indemnitee of
all amounts to which the Indemnitee is determined to be entitled shall be made within twenty (20)
calendar days after such determination. If it is determined that the Indemnitee is not entitled to
indemnification, then the written notice to the Indemnitee (or, if such determination has been made
by Independent Legal Counsel in a written opinion, the copy of such written opinion delivered to
the Indemnitee) shall disclose the basis upon which such determination is based. At the request of
the Company, Indemnitee shall furnish such documentation and information as are reasonably
available to Indemnitee and reasonably necessary to evaluate whether the Indemnitee is entitled to
indemnification hereunder. Notwithstanding the foregoing, the failure or delay in providing such
request and other information shall not affect Indemnitee’s right to indemnification or advancement
of Expenses hereunder unless, and only to the extent that, the Company is materially prejudiced
thereby.
3.7 Reliance as Safe Harbor. Without limiting the remaining provisions of this
Agreement, to the fullest extent permissible under applicable law, the Indemnitee shall be entitled
to indemnification for any action or omission to act undertaken (a) in good faith reliance upon the
records of the Company, including its financial statements, or upon information, opinions, reports
or statements furnished to the Indemnitee by the officers or employees of the Company or any of its
Subsidiaries in the course of their duties, or by committees of the Board or by any other person or
Entity as to matters the Indemnitee reasonably believes are within such other person’s or Entity’s
professional or expert competence, or (b) on behalf of the Company in furtherance of the interests
of the Company in good faith in reliance upon, and in accordance with, the advice of legal counsel
or accountants, provided such legal counsel or accountants were selected with reasonable care by or
on behalf of the Company. In addition, the knowledge and/or actions, or failures to act, of any
director, officer, agent or employee of the Company shall not be imputed to the Indemnitee for
purposes of determining the right to indemnity hereunder.
6
3.8 Change in Law. To the extent that a change in law (whether by statute or judicial
decision) shall permit broader indemnification or advancement of Expenses than is provided under
the terms of the Certificate, the Bylaws and this Agreement, Indemnitee shall be entitled to such
broader indemnification and advancements, and this Agreement shall be deemed to be amended to such
extent.
3.9 Effect of Certain Resolutions. Neither the settlement or termination of any
Proceeding nor the failure of the Company to award indemnification or to determine that
indemnification is payable shall create a presumption that Indemnitee is not entitled to
indemnification hereunder or did not meet any particular standard of conduct or have any particular
belief or that a court has determined that indemnification is not permitted by applicable law. In
addition, the termination of any proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent shall not create a presumption that Indemnitee is not
entitled to indemnification hereunder or did not meet any particular standard of conduct or have
any particular belief or that a court has determined that indemnification is not permitted by
applicable law.
ARTICLE IV
PARTIAL INDEMNIFICATION
PARTIAL INDEMNIFICATION
4.1 Contribution.
(a) Without diminishing Indemnitee’s rights under Article III hereof, and whether or not the
indemnification provided in Article III hereof is available, in respect of any Proceeding in which
the Company is jointly liable with the Indemnitee (or would be if joined in such Proceeding), the
Company shall (without duplication of amounts paid by the Company under Article III), to the
fullest extent permissible under applicable law, pay, or cause to be paid, in the first instance,
the entire amount of any judgment or settlement of such Proceedings equal to the amount of Expenses
and Liabilities actually incurred and paid or payable by the Indemnitee in proportion to the
relative benefits received by the Company and all officers, directors or employees of the Company,
other than the Indemnitee, who are jointly liable with the Indemnitee (or would be if joined in
such action, suit or proceeding), on the one hand, and the Indemnitee, on the other hand. The
Company shall not enter into any settlement of any Proceedings in which the Company is jointly
liable with the Indemnitee (or would be if joined in such Proceeding) unless such settlement
provides for a full and final release of all claims asserted against the Indemnitee.
(b) Without diminishing or impairing the obligations of the Company set forth in the preceding
subparagraph or Article III hereof, if, for any reason, the Indemnitee shall elect or be required
to pay all or any portion of any judgment or settlement in any Proceeding in which the Company is
jointly liable with the Indemnitee (or would be if joined in such Proceeding), the Company shall
(without duplication with amounts paid the Company under Article III), to the fullest extent
permissible under applicable law, contribute, or cause to be contributed, to the amount of Expenses
and Liabilities actually and reasonably incurred and paid or payable by the Indemnitee in
proportion to the relative benefits received by the Company and all officers, directors or
employees of the Company, other than the Indemnitee, who are jointly liable with the Indemnitee (or
would be if joined in such action, suit or proceeding), on the one hand, and
7
the Indemnitee, on the other hand, from the transaction from which such action, suit or
proceeding arose; provided, however, that the proportion determined on the basis of
relative benefit may, to the extent necessary to conform to law, be further adjusted by reference
to the relative fault of the Company and all officers, directors or employees of the Company, other
than the Indemnitee, who are jointly liable with the Indemnitee (or would be if joined in such
Proceeding), on the one hand, and the Indemnitee, on the other hand, in connection with the events
that resulted in such Expenses and Liabilities, as well as any other equitable considerations which
the law may require to be considered.
(c) To the fullest extent permissible under applicable law, the Company hereby agrees to fully
indemnify and hold the Indemnitee harmless from any claims for contribution which may be brought by
reason of the Indemnitee’s Status by officers, directors or employees of the Company, other than
the Indemnitee, who may be jointly liable with the Company.
(d) To the fullest extent permissible under applicable law, if the indemnification provided
for in this Agreement is unavailable to the Indemnitee for any reason whatsoever, the Company, in
lieu of indemnifying the Indemnitee, shall contribute to the amount incurred by the Indemnitee,
whether for Liabilities and/or for Expenses, in connection with any claim relating to an
indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in
light of all of the circumstances of such Proceeding as determined in a final non-appealable
judgment reached by a court of competent jurisdiction in order to reflect (i) the relative benefits
received by the Company and the Indemnitee as a result of the event(s) and/or transactions(s)
giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors,
officers, employees and agents) and the Indemnitee in connection with such event(s) and/or
transactions(s).
ARTICLE V
ADVANCEMENT OF EXPENSES
ADVANCEMENT OF EXPENSES
5.1 Agreement to Advance Expenses; Undertaking. Subject to Section 3.2 hereof, the
Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding to which Indemnitee is a party (or is threatened to be made a party) or in which
Indemnitee is otherwise involved (including as a witness) by reason of (or arising in whole or in
part out of) such Indemnitee’s Status or an act performed or omitted to be performed by such
Indemnitee in connection with such Status, in each case whether the event of occurrence that gave
rise to such Proceeding (if any) occurred or was omitted before, on, or after the date of this
Agreement (an “Expense Advance”), within twenty (20) days after the receipt by the Company
of a written statement from Indemnitee requesting such advance or advances from time to time.
5.2 Procedure for Advance Payment of Expenses. Indemnitee shall submit to the Company
a written request specifying the Expenses for which Indemnitee seeks an advancement under this
Article V, together with documentation evidencing that Indemnitee has incurred or expects to incur
such Expenses. Payment of Expenses, if indemnifiable, under this Article V shall be made no later
than twenty (20) days after the Company’s receipt of such request. Notwithstanding the foregoing,
the failure or delay in providing such request or other information shall not affect Indemnitee’s
right to indemnification or advancement of Expenses hereunder unless, and then only to the extent
that, the Company is materially prejudiced thereby.
8
Indemnitee hereby undertakes to repay any Expense Advance if it shall ultimately be determined
by final judicial decision (as to which all rights of appeal therefrom have been exhausted or
lapsed) that the Indemnitee is not entitled to be indemnified under applicable law, this Agreement,
or otherwise. Indemnitee’s obligation to reimburse the Company for any Expense Advance shall be
unsecured and no interest shall be charged thereon.
ARTICLE VI
REMEDIES OF INDEMNITEE
REMEDIES OF INDEMNITEE
6.1 Right to Petition Court. In the event that Indemnitee makes a request for payment
of Indemnifiable Amounts under Article III above or a request for an advancement of Expenses under
Article V above and the Company fails to make such payment or advancement in a timely manner
pursuant to the terms of this Agreement, without limitation as to remedy, Indemnitee may petition
any court in any court in the State of Delaware having subject matter jurisdiction thereof and in
which venue is proper to enforce the Company’s obligations under this Agreement.
6.2 Indemnitee as Plaintiff. Except as provided in Section 3.2 and in the next
sentence, Indemnitee shall not be entitled to payment of Indemnifiable Amounts or advancement of
Expenses with respect to any Proceeding brought by Indemnitee against the Company, any Entity it
controls, or any manager, director, or officer thereof, unless the Company has consented to the
initiation of such Proceeding. This Section shall not apply to (a) affirmative defenses asserted
by Indemnitee or any counterclaims by Indemnitee which are resolved successfully in an action
brought against Indemnitee or (b) a Proceeding instituted by Indemnitee to enforce or interpret
this Agreement.
ARTICLE VII
DEFENSE OF THE UNDERLYING PROCEEDING
DEFENSE OF THE UNDERLYING PROCEEDING
7.1 Notice by Indemnitee. Indemnitee agrees to notify the Company promptly upon being
served with any summons, citation, subpoena, complaint, indictment, information, or other document
relating to any Proceeding which may result in the payment of Indemnifiable Amounts or the
advancement of Expenses hereunder; provided, however, that the failure to give any
such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any
right of Indemnitee, to receive payments of Indemnifiable Amounts or advancements of Expenses
unless, and then only to the extent of, the Company’s ability to defend in such Proceeding is
materially prejudiced thereby.
7.2 Defense by Company. Subject to the provisions of the last sentence of this
Section 7.2 and of Section 7.3 below, the Company shall have the right to defend Indemnitee in any
Proceeding for which the Company becomes obligated hereunder to pay the Indemnitee’s Expenses with
counsel reasonably satisfactory to the Indemnitee; provided, however that the
Company shall notify Indemnitee of any such decision to defend within ten (10) calendar days of
receipt of notice of any such Proceeding under Section 7.1 above. The Company shall not, without
the prior written consent of Indemnitee, consent to the entry of any judgment against Indemnitee or
enter into any settlement or compromise which (a) includes an admission of fault of Indemnitee, (b)
does not include, as an unconditional term thereof, the full release of
9
Indemnitee from all liability in respect of such Proceeding, which release shall be in form
and substance reasonably satisfactory to Indemnitee or (c) does not solely involve the payment of
money. The Company shall not be liable to the Indemnitee under this Agreement for any amounts paid
in settlement of any Proceeding relating to an indemnifiable event effected without the Company’s
prior written consent. Neither the Company nor the Indemnitee shall unreasonably withhold its or
his or her consent to any proposed settlement or compromise; provided that the
Indemnitee may withhold consent to any settlement that does not satisfy the clauses (a), (b) and
(c) set forth in this Section 7.2. This Section 7.2 shall not apply to a Proceeding brought by
Indemnitee under Section 3.2 or Section 6.2 above.
7.3 Indemnitee’s Right to Counsel. Notwithstanding the provisions of Section 7.2
above, if, in a Proceeding to which Indemnitee is a party (or threatened to be made a party) or is
otherwise involved (including as a witness) by reason of (or arising in whole or in part out of)
(i) Indemnitee’s Status or (ii) any act performed or omitted to be performed by the Indemnitee in
connection with such Status, in each case whether the event or occurrence to which such Proceeding
relates occurred or was omitted before, on, or after the date of this Agreement, (a) Indemnitee
reasonably concludes that he or she may have separate defenses or counterclaims to assert with
respect to any issue which may not be consistent with the position of other defendants in such
Proceeding, (b) Indemnitee reasonably concludes that a conflict of interest or potential conflict
of interest exists between Indemnitee and the Company, or (c) if the Company fails to assume the
defense of such proceeding in a timely manner, Indemnitee shall be entitled to be represented by
separate legal counsel of Indemnitee’s choice at the expense of the Company. In addition, if the
Company fails to comply with any of its obligations under this Agreement or in the event that the
Company or any other person takes any action to declare this Agreement void or unenforceable, or
institutes any action, suit or proceeding to deny or to recover from Indemnitee the benefits
intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel
of Indemnitee’s choice, at the expense of the Company, to represent Indemnitee in connection with
any such matter.
ARTICLE VIII
MISCELLANEOUS
MISCELLANEOUS
8.1 Non-Exclusivity; Survival of Rights; Primacy of Indemnification; Subrogation.
(a) The right to payment of Indemnifiable Amounts and advancement of Expenses provided by this
Agreement shall be in addition to, but not exclusive of, any other rights to which Indemnitee may
at any time be entitled under applicable law, the Certificate, the Bylaws, any agreement, a vote of
stockholders, a resolution of the Board or otherwise, of the Company. No amendment, alteration or
repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee
under this Agreement in respect of any action taken or omitted by such Indemnitee in his Status
prior to such amendment, alteration or repeal. To the extent that a change in the Delaware law,
whether by statute or judicial decision, permits greater indemnification than would be afforded
currently under the Certificate of Incorporation, By-laws and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded
by such change. No right or remedy herein conferred is intended to be exclusive of any other right
or remedy, and every other right and remedy shall be cumulative and in addition to every other
right and remedy given hereunder or now or
10
hereafter existing at law or in equity or otherwise. The assertion or employment of any right
or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any
other right or remedy.
(b) [The Company hereby acknowledges that Indemnitee has certain rights to indemnification,
advancement of Expenses and/or insurance provided by the Other Indemnitors. The Company hereby
agrees that (i) the Company is the indemnitor of first resort (i.e., its obligations to Indemnitee
are primary and any obligation of the Other Indemnitors to advance Expenses or to pay Indemnifiable
Amounts are secondary), (ii) that the Company shall be required to advance the full amount of
Expenses incurred by Indemnitee and shall be liable to indemnify the Indemnitee for the full amount
of all Indemnifiable Amounts, in each case to the extent legally permitted and as required by the
terms of this Agreement, the Bylaws and the Certificate (or any other agreement between the Company
and Indemnitee), without regard to any rights Indemnitee may have against the Other Indemnitors,
and, (iii) that the Company irrevocably waives, relinquishes and releases the Other Indemnitors
from any and all claims against the Other Indemnitors for contribution, subrogation or any other
recovery of any kind in respect thereof in connection with any such indemnification or advance of
Expenses to Indemnitee. The Company further agrees that no advancement or payment by the Other
Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought
indemnification from the Company shall affect the foregoing and the Other Indemnitors shall have a
right of contribution and/or be subrogated to the extent of such advancement or payment to all of
the rights of recovery of Indemnitee against the Company, who shall execute all papers reasonably
required and shall do all things that may be reasonably necessary to secure such rights, including
the execution of such documents as may be necessary to enable such Other Indemnitors to effectively
bring suit to enforce such rights. The Company and Indemnitee agree that the Other Indemnitors are
express third party beneficiaries of the terms of this Section 8.1(b) and are entitled to enforce
this Section 8.1(b) against the Company as though each such Other Indemnitor were a party to this
Agreement.]
(c) [Except as provided in paragraph (b) above,] in the event of any payment of Indemnifiable
Amounts or Expenses under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of Indemnitee [(other than against the Other Indemnitors)]
against other persons, and Indemnitee shall take, at the request of the Company, commercially
reasonable action necessary to secure such rights, including execution of such documents as are
necessary to enable the Company to bring suit to enforce such rights.
(d) [Except as provided in paragraph (b) above,] the Company shall not be liable under this
Agreement to make any payment of Indemnifiable Amounts hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance policy, contract,
agreement or otherwise.
(e) [Except as provided in paragraph (b) above,] the Company’s obligation to indemnify or
advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a
director, officer, employee or agent of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually
received as indemnification or advancement of Expenses from such other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise.
11
8.2 Notices. All notices, requests and other communications provided for or permitted
to be given under this Agreement must be in writing and shall be given by personal delivery, by a
nationally recognized overnight delivery service for next day delivery, by facsimile transmission
or by email, as follows (or to such other address as any party may give in a notice given in
accordance with the provisions hereof):
If to the Company:
MagnaChip Semiconductor Corporation
c/o MagnaChip Semiconductor Ltd.
891 Daechi-dong, Gangnam-gu
Seoul 135-738 Korea
Attn: General Counsel
Fax: 82-2-6903-3898
c/o MagnaChip Semiconductor Ltd.
891 Daechi-dong, Gangnam-gu
Seoul 135-738 Korea
Attn: General Counsel
Fax: 82-2-6903-3898
If to the Indemnitee, to the address, facsimile number or email address set forth on
the signature page hereto.
8.3 Entire Agreement. This Agreement contains the entire understanding of the parties
in respect of the subject matter hereof and supersedes all prior agreements and understandings
(oral or written) between or among the parties with respect to such subject matter;
provided, however, it is agreed that the provisions contained in this Agreement are
a supplement to, and not a substitute for, any provisions regarding the same subject matter
contained in the Certificate, the Bylaws and any employments or similar agreement between the
parties.
8.4 Amendment; Waiver. This Agreement may not be modified, amended, supplemented,
canceled or discharged, except by written instrument executed by the Company and Indemnitee. No
failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement
shall operate as a waiver, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any
breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the
same or any other provision, nor shall any waiver be implied from any course of dealing among the
parties. No extension of time for performance of any obligations or other acts hereunder or under
any other agreement shall be deemed to be an extension of the time for performance of any other
obligations or any other acts.
8.5 Binding Effect; Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, successors and assigns. [Except as set
forth in Section 8.1,] nothing expressed or implied herein shall be construed to give any person
other than the Company or an assignee or designee of the Company any legal or equitable rights
hereunder. The Company shall require and cause any successor (whether direct or indirect by
purchase, merger, consolidation, or otherwise) to all or a substantial portion of the business
and/or assets of the Company and/or its Subsidiaries, by written agreement in form and substance
satisfactory to the Indemnitee and his or her counsel, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. This Agreement shall continue in
12
effect regardless of whether the Indemnitee continues to serve as an officer and/or director
of the Company or in any other Status. Neither this Agreement nor any duties or responsibilities
pursuant hereto may be assigned by the Company to any other person or Entity without the prior
written consent of the Indemnitee.
8.6 Counterparts. This Agreement may be executed in any number of counterparts, each
of which will be deemed an original but all of which together will constitute one and the same
instrument. This Agreement will become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party.
8.7 Interpretation. When a reference is made in this Agreement to an article,
section, paragraph, clause, schedule or exhibit, such reference shall be deemed to be to this
Agreement unless otherwise indicated. The headings contained herein are for reference purposes
only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the
words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be
followed by the words “without limitation.”
8.8 Governing Law. This Agreement will be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to any choice of law principles.
8.9 Jurisdiction and Waiver of Jury Trial.
(a) ANY SUIT, ACTION OR PROCEEDING AGAINST ANY PARTY ARISING OUT OF, OR WITH RESPECT TO, THIS
AGREEMENT OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF SHALL BE BROUGHT EXCLUSIVELY IN
THE COURT OF CHANCERY OF THE STATE OF DELAWARE AND THE PARTIES HERETO ACCEPT THE EXCLUSIVE
JURISDICTION OF SUCH COURT FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING.
(b) IN ADDITION, EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, 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 THIS AGREEMENT OR ANY JUDGMENT ENTERED BY ANY COURT IN
RESPECT THEREOF BROUGHT IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE AND HEREBY FURTHER
IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDINGS BROUGHT IN THE COURT OF CHANCERY
OF THE STATE OF DELAWARE HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH PARTY ACKNOWLEDGES THAT ANY DISPUTE THAT MAY ARISE OUT OF OR RELATING TO THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE SUCH PARTY HEREBY
EXPRESSLY WAIVES ITS RIGHT TO JURY TRIAL OF ANY DISPUTE BASED UPON OR ARISING OUT OF THIS AGREEMENT
OR ANY OTHER AGREEMENTS RELATING HERETO OR ANY DEALINGS AMONG THEM RELATING TO THE TRANSACTIONS
CONTEMPLATED HEREBY. THE SCOPE OF THIS WAIVER IS INTENDED TO
13
ENCOMPASS ANY AND ALL ACTIONS, SUITS AND PROCEEDINGS THAT RELATE TO THE SUBJECT MATTER OF THE
TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS,
AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY REPRESENTS THAT (i) NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT IN THE EVENT OF ANY ACTION, SUIT OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER,
(ii) SUCH PARTY UNDERSTANDS AND WITH THE ADVICE OF COUNSEL HAS CONSIDERED THE IMPLICATIONS OF THIS
WAIVER, (iii) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) SUCH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND REPRESENTATIONS IN THIS
SECTION 8.9(c).
8.10 Arm’s Length Negotiations; Drafting. Each party herein expressly represents and
warrants to all other parties hereto that before executing this Agreement, said party has fully
informed itself of the terms, contents, conditions and effects of this Agreement; said party has
relied solely and completely upon its own judgment in executing this Agreement; said party has had
the opportunity to seek and has obtained the advice of counsel before executing this Agreement;
said party has acted voluntarily and of its own free will in executing this Agreement; said party
is not acting under duress, whether economic or physical, in executing this Agreement; and this
Agreement are the result of arm’s length negotiations conducted by and among the parties and their
respective counsel. This Agreement shall be deemed drafted jointly by the parties and nothing
shall be construed against one party or another as the drafting party.
8.11 Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law. In the event that
any provision of this Agreement shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its being extended over too great a period of time or too large a
geographic area or over too great a range of activities, it shall be interpreted to extend only
over the maximum lesser period of time, geographic area, or range of activities as to which it may
be enforceable. Each of the covenants herein shall be deemed a separate and severable covenant.
It is the desire and intent of the parties that the provisions of this Agreement shall be enforced
to the fullest extent permissible under applicable law. Accordingly, a court of competent
jurisdiction is directed to modify any provision to the extent necessary to render such provision
enforceable.
8.12 Specific Performance, Etc. The parties recognize that if any provision of this
Agreement is violated by the Company, the Indemnitee may be without an adequate remedy at law.
Accordingly, in the event of any such violation, the Indemnitee shall be entitled, if the
Indemnitee so elects, to institute proceedings, either in law or at equity, to obtain damages, to
enforce specific performance, to enjoin such violation, or to obtain any relief or any combination
of the foregoing as the Indemnitee may elect to pursue.
8.13 Survival. This Agreement shall continue in force for the benefit of the
Indemnitee and such heirs, personal representatives, executors and administrators after Indemnitee
has ceased to have Status. All agreements and obligations of the Company contained herein shall
continue during the period Indemnitee has any Status and shall continue thereafter so long as
14
Indemnitee shall be subject or potentially subject to any Proceeding (or any proceeding
commenced under Article VI hereof) by reason of (or arising in whole or in part out of) (i)
Indemnitee’s Status or (ii) any act performed or omitted to be performed by the Indemnitee in
connection with such Status, in each case whether the event or occurrence to which such Proceeding
relates occurred or was omitted before, on, or after the date of this Agreement, and whether or not
Indemnitee is acting or serving in any such capacity at the time any liability or expense is
incurred for which indemnification can be provided under this Agreement. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve in any Status.
[Signature Page Follows]
15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.
| MAGNACHIP SEMICONDUCTOR CORPORATION | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| INDEMNITEE | ||||||
| Address: | ||||||
| Facsimile: | ||||||
| E-mail: | ||||||
Signature Page to Indemnification Agreement
Exhibit 21.1
Subsidiaries of the Registrant
| Jurisdiction of | ||
| Subsidiary | Incorporation | |
MagnaChip Semiconductor S.A.
|
Luxembourg | |
MagnaChip Semiconductor B.V.
|
The Netherlands | |
MagnaChip Semiconductor, Ltd.
|
Korea | |
MagnaChip Semiconductor, Inc.
|
California | |
MagnaChip Semiconductor SA Holdings LLC
|
Delaware | |
MagnaChip Semiconductor Finance Company
|
Delaware | |
MagnaChip Semiconductor Limited
|
United Kingdom | |
MagnaChip Semiconductor Limited
|
Taiwan | |
MagnaChip Semiconductor Limited
|
Hong Kong SAR | |
MagnaChip Semiconductor Inc.
|
Japan | |
MagnaChip Semiconductor Holding Company Limited
|
British Virgin Islands | |
MagnaChip Semiconductor (Shanghai) Company Limited
|
China |
Exhibit 23.1
CONSENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on
Form S-1
of our reports dated March 13, 2010 relating to the
consolidated financial statements of MagnaChip Semiconductor LLC
and subsidiaries, which appear in such Registration Statement.
We also consent to the reference to us under the heading
“Experts” in such Registration Statement.
/s/ Samil PricewaterhouseCoopers
Seoul, Korea
March 14, 2010