Table of Contents
As filed with the Securities
and Exchange Commission on April 20,
2010
Registration
No. 333-165467
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1 to
Form S-1
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(2 | ) | |||||
|
Depositary Shares(3)
|
— | — | ||||||||
| (1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o). Includes depositary shares and common stock underlying depositary shares that the underwriters have an option to purchase. |
| (2) | Previously paid. |
| (3) | 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. Forty-five 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 April 20, 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 17 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
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| EX-10.18 | ||||||||
| EX-10.27 | ||||||||
| EX-10.30 | ||||||||
| EX-10.50 | ||||||||
| EX-10.51 | ||||||||
| EX-10.52 | ||||||||
| EX-10.54 | ||||||||
| EX-23.1 | ||||||||
No dealer, salesperson or other person has been 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 2,550 novel
registered patents and 1,050 pending novel patent applications,
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
that cover 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 combined
twelve-month
period 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.
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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.
For 2009 on an a combined pro forma basis, we generated net
sales of $560.1 million, income from continuing operations of
$46.7 million, Adjusted EBITDA of $98.7 million and Adjusted Net
Income of $33.7 million. 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. For 2008, we generated net sales of $601.7
million, losses from continuing operations of $325.8 million,
Adjusted EBITDA of $59.8 million and Adjusted Net Loss of $71.7
million. See “Unaudited Pro Forma Consolidated Financial
Information” beginning on page 48 for an explanation
regarding our pro forma presentation and “Prospectus
Summary—Summary Historical and Unaudited Pro Forma
Consolidated Financial Data,” beginning on page 9 for an
explanation of our use of Adjusted EBITDA and Adjusted Net
Income.
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. Our
Display Solutions business represented 50.5%, 50.5% and 46.7% of
our net sales for the fiscal years ended December 31, 2009 (on a
combined basis), 2008 and 2007, respectively.
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. Our Power Solutions business represented
2.2% and 0.9% of our net sales for the fiscal years ended
December 31, 2009 (on a combined basis) and 2008, respectively.
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
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of products, including display drivers, LED drivers, audio
encoding and decoding devices, microcontrollers, electronic tags
and power management semiconductors. Our Semiconductor
Manufacturing Services business represented 46.7%, 47.7% and
45.2% of our net sales for the fiscal years ended December 31,
2009 (on a combined basis), 2008 and 2007, respectively.
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 distinguished by design and process
implementation expertise rather than the use of the most
advanced equipment or leading-edge geometries. 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, our cash flow and
profitability and to establish 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 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; |
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| • | 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 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; |
| • | Through our reorganization proceedings, 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 and retiring $149 million of redeemable convertible preferred units; |
| • | 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. |
On April 9, 2010 we completed the sale of $250 million
in aggregate principal amount of 10.500% senior notes due 2018.
Of the $239.6 million of net proceeds, $130.7 million
was used to make a distribution to our unitholders and
$61.8 million was used to repay all outstanding borrowings
under our term loan. The remaining proceeds were retained to
fund working capital and for general corporate purposes.
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 17 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; |
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| • | 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; | |
| • | 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
B-97483, 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 with our
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management team remaining in place. Our Chapter 11 plan of
reorganization implemented a comprehensive financial
reorganization that significantly reduced our outstanding
indebtedness. Additionally, 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. Avenue Capital Management II, L.P. is a
global investment management firm, and it and its affiliated
funds specialize in distressed and undervalued securities. In
this prospectus, we refer to funds affiliated with Avenue
Capital Management II, L.P. collectively as Avenue.
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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, including any net proceeds received by us in connection with the underwriters’ option to purchase additional shares, 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” beginning on page 17 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 |
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| (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 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. |
8
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 combined twelve-month period ended
December 31, 2009 to give pro forma effect to the
reorganization proceedings and related events, the corporate
conversion and the issuance of $250 million senior notes
and the application of the net proceeds therefrom, in each case
as if they had occurred at the beginning of the period presented
with respect to consolidated statement 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, the corporate conversion and the issuance of
$250 million senior notes and the application of the net
proceeds therefrom been consummated on the dates indicated, and
do not purport to be indicative of balance sheet data or our
results of operations for any future period.
9
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
|
28.7 | 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 | — | — | ||||||||||||||||
|
|
24.1 | 8.1 | 816.8 | (286.5 | ) | (65.0 | ) | ||||||||||||||
|
Income (loss) from continuing operations before income taxes
|
$ | 55.9 | $ | (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
|
$ | 46.7 | $ | (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
|
46.7 | (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
|
$ | 112.1 | $ | 64.9 | $ | 4.0 | $ | 64.3 | |||||||||||||
|
Total assets
|
507.6 | 453.3 | 399.2 | 707.9 | |||||||||||||||||
|
Total indebtedness(2)
|
246.7 | 61.8 | 845.0 | 830.0 | |||||||||||||||||
|
Long-term obligations(3)
|
247.0 | 61.5 | 143.2 | 879.4 | |||||||||||||||||
|
Total unitholders’/stockholders’ equity (deficit)
|
85.0 | 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)
|
33.7 | 13.3 | 9.3 | (71.7 | ) | (82.6 | ) | ||||||||||||||
10
Table of Contents
| (1) | Gives effect to the reorganization proceedings and related events, the corporate conversion and the issuance of $250 million senior notes and the application of the net proceeds therefrom. 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; and |
| • | in certain of our compensation plans as a performance measure for determining incentive compensation payments. |
11
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
|
46.7 | (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
|
28.7 | 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 |
12
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-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 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; |
13
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).
14
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
|
$ | 46.7 | (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)
|
$ | 33.7 | $ | 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 |
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| 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.
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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. As a
result, the price of our common stock could decline and you
could lose all or part of your investment in our common stock.
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
unitholders’ 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.
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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
controls. 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 recent 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, including
smaller geometries, 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.
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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 and 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.
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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 26% 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 |
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| • | 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
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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 following the completion of this offering
could be adversely affected.
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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 global
recession and related financial crisis negatively affected our
business. Poor economic conditions may negatively affect our
future business, results of operations and financial
condition.
The global recession and related financial crisis 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 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 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
caused U.S. and foreign businesses to slow spending on our
products. Although recently there have been indications of
improved economic conditions generally and in the semiconductor
industry specifically, we cannot assure you of the extent to
which such conditions will continue to improve or whether the
improvement will be sustainable. If the global economic recovery
is not sustained or the global economy experiences another
recession, such adverse economic conditions 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. As a result, our business, financial condition and
result of operations could be materially adversely affected in
future periods as a result of economic downturns.
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.
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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.
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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, were constrained in recent years due to an
increased demand for silicon. Silicon is also a key raw material
for solar cells, the demand for which has increased in recent
years. Although supplies of silicon have recently improved due
to the entrance of additional suppliers and capacity expansion
by existing suppliers, we cannot assure you that such supply
increases will match demand increases. 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.
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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. We cannot assure you that other
countries in which we market our services will protect our
intellectual property rights to the same extent as the United
States. In particular, the validity, enforceability and scope of
protection of intellectual property in China, where we derive a
significant portion of our net sales, and certain other
countries where we derive net sales, are uncertain and still
evolving and historically have not protected and may not protect
in the future, intellectual property rights to the same extent
as do the laws and enforcement procedures in 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.
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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 April 2010, the Korean government’s Enforcement Decree
to the Framework Act on Low Carbon Green Growth, or the
Enforcement Decree, became effective. 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. Our Korean subsidiary meets
the thresholds under the Enforcement Decree and we expect that
that it will be designated as a regulated business by the end of
June 2010. If our Korean subsidiary is designated as a regulated
business, we could be subject to additional and potentially
costly compliance or remediation expenses that 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 of equity or other securities convertible into
equity, our existing stockholders could suffer significant
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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 not be
able to bring an action or enforce any judgment obtained in
United States courts, or bring an action in any other
jurisdiction, against us or our subsidiaries or our directors,
officers or independent auditors that are organized or residing
in jurisdictions other than the United States.
Most of our subsidiaries are organized or incorporated outside
of the United States and some of our directors and executive
officers as well as our independent auditors are organized or
reside outside of the United States. Most of our and our
subsidiaries’ assets are located outside of the United
States and in particular, in Korea. Accordingly, any judgment
obtained in the United States against us or our subsidiaries may
not be collectible in the United States. As a result, it may not
be possible for you to effect service of process within the
United States upon these persons or to enforce against them or
us court judgments obtained in the United States that are
predicated upon the civil liability provisions of the federal
securities laws of the United States or of the securities laws
of any state of the United States. In particular, there is doubt
as to the enforceability in Korea or any other jurisdictions
outside the United States, either in original actions or in
actions for enforcement of judgments of United States courts, of
civil liabilities predicated on the federal securities laws of
the United States or the securities laws of any state of the
United States.
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
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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 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.
Our level of
indebtedness is substantial, and we may not be able to generate
sufficient cash to service all of our indebtedness and may be
forced to take other actions to satisfy our obligations under
our indebtedness, which may not be successful. A decline in the
ratings of our existing or future indebtedness may make the
terms of any new indebtedness we choose to incur more
costly.
As of December 31, 2009, our total indebtedness on a pro
forma basis was $246.7 million. See
“Capitalization” for additional information. Our
substantial debt could have important consequences, including:
| • | increasing our vulnerability to general economic and industry conditions; |
| • | requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; |
| • | exposing us to the risk of increased interest rates because some of our borrowings are at variable rates of interest; |
| • | limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and |
| • | limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have less debt. |
Our ability to make scheduled payments on or to refinance our
debt obligations depends on our financial condition and
operating performance, which is subject to prevailing economic
and competitive conditions and to certain financial, business
and other factors beyond our control. We cannot assure you that
we will generate a level of cash flows from operating activities
sufficient to permit us to pay the principal, premium, if any,
and interest on our indebtedness.
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The credit ratings assigned to our debt reflect each rating
agency’s opinion of our ability to make payments on the
debt obligations when such payments are due. A rating may be
subject to revision or withdrawal at any time by the assigning
rating agency. We may experience downgrades in our debt ratings
in the future. Any lowering of our debt ratings would adversely
impact our ability to raise additional debt financing and
increase the cost of any such financing that is obtained. In the
event any ratings downgrades are significant, we may choose not
to incur new debt or refinance existing debt if we are unable to
incur or refinance such debt at favorable interest rates or on
favorable terms.
If our cash flows and capital resources are insufficient to fund
our debt service obligations or if we are unable to refinance
existing indebtedness on favorable terms, we may be forced to
reduce or delay capital expenditures, sell assets, seek
additional capital or restructure or refinance our indebtedness.
These alternative measures may not be successful and may not
permit us to meet our scheduled debt service obligations. In the
absence of such operating results and resources, we could face
substantial liquidity problems and might be required to dispose
of material assets or operations to meet our debt service and
other obligations. The indentures governing our notes restrict
our ability to dispose of assets and use the proceeds from the
disposition. We may not be able to consummate those dispositions
or be able to obtain the proceeds which we could realize from
them and these proceeds may not be adequate to meet any debt
service obligations then due.
Restrictions
on MagnaChip Korea’s ability to make payments on its
intercompany loans from MagnaChip Semiconductor B.V., or on its
ability to pay dividends in excess of statutory limitations,
could hinder our ability to make payments on our 10.500% senior
notes due 2018.
We anticipate that payments under our 10.500% senior notes due
2018 will be funded in part by MagnaChip Korea’s repayment
of its existing loans from MagnaChip Semiconductor B.V., with
MagnaChip Semiconductor B.V. using such repayments in turn to
repay the loans owed to MagnaChip Semiconductor S.A. Under the
Korean Foreign Exchange Transaction Act, the minister of the
Ministry of Strategy and Finance is authorized to temporarily
suspend payments in foreign currencies in the event of natural
calamities, wars, conflicts of arms, grave and sudden changes in
domestic or foreign economic conditions, or other similar
situations. In addition, under the Korean Commercial Code, a
Korean company is permitted to make a dividend payment in
accordance with the provisions in its articles of incorporation
out of retained earnings (as determined in accordance with the
Korean Commercial Code and the generally accepted accounting
principles in Korea), but no more than twice a year. If
MagnaChip Korea is prevented from making payments under its
intercompany loans due to restrictions on payments of foreign
currency or if it has an insufficient amount of retained
earnings under the Korean Commercial Code to make dividend
payments to MagnaChip Semiconductor B.V., we may not have
sufficient funds to make payments on the notes.
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
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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.
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
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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 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.
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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; | |
| • | 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
33
Table of Contents
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 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 the indenture for
our senior notes. 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.
34
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.
35
Table of Contents
USE OF
PROCEEDS
We estimate that the 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 discretionary incentive payments to all of our employees, excluding our executive officers; 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, including any additional proceeds raised as a
result of the exercise of the underwriters’ option to
purchase additional depositary shares, 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 the indenture governing our senior
notes.
CORPORATE
CONVERSION
In connection with this offering, our board of directors and the
holders of a majority of our outstanding common units 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 .
36
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 issuance of $250 million senior notes and (ii) the corporate conversion, as adjusted for 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
|
|||||||
|
Indebtedness (including current maturities)
|
||||||||
|
Senior secured credit facility
|
$ | 61.8 | $ | — | ||||
|
10.500% senior notes due 2018(1)
|
— | 246.7 | ||||||
|
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 | (2) | ||||||
|
Accumulated deficit
|
(2.0 | ) | ||||||
|
Accumulated other comprehensive loss
|
(6.2 | ) | ||||||
|
Total unitholders’ / stockholders’ equity
|
215.7 | |||||||
|
Total capitalization
|
$ | 277.4 | ||||||
| (1) | Represents principal amount of notes net of original issue discount of $3.3 million. |
| (2) | Reflects a $130.7 million distribution to unitholders using a portion of the proceeds from the issuance of our $250 million in aggregate principal amount senior notes and the corporate conversion. |
| (3) | 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. |
37
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 $ , 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 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.
If the underwriters exercise their option to purchase additional
shares of our common stock from us in full in this offering, the
pro forma net tangible book value per share after the offering
would be $ per share, the increase
in pro forma net tangible book value per share to existing
stockholders would be $ per share
and the dilution to new investors purchasing shares in this
offering would be $ per share.
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. |
38
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. The
total consideration paid by our existing stockholders would be
$ ,
or %, and the total consideration
paid by our new investors would be
$ ,
or % and the average price per
share paid by our existing stockholders and new investors would
be $ and
$ , respectively.
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. The
total consideration paid by our existing stockholders would be
$ ,
or %, and the total consideration
paid by our new investors would be
$ ,
or % and the average price per
share paid by our existing stockholders and new investors would
be $ and
$ , respectively.
39
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.
40
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 | ) | |||||||||||||||||||
41
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| (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; and |
| • | in certain of our compensation plans as a performance measure for determining incentive compensation payments. |
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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. |
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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-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 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; |
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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).
45
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 |
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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.
47
Table of Contents
UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION
We have prepared the unaudited pro forma condensed consolidated
financial information of MagnaChip for the combined twelve-month
period ended December 31, 2009 in accordance with
Article 11 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; |
| • | the corporate conversion; and |
| • | the issuance of $250 million senior notes by MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company, our wholly-owned subsidiaries, and the application of the net proceeds therefrom. |
The unaudited consolidated pro forma balance sheet as of
December 31, 2009 is derived from the historical
consolidated balance sheet of MagnaChip Semiconductor LLC and
gives pro forma effect to the following as if it occurred on
December 31, 2009.
| • | the corporate conversion; and |
| • | the issuance of $250 million senior notes by MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company, and the application of the net proceeds therefrom. |
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 combined twelve-month period
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 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 consolidated
financial statements, included elsewhere in this prospectus.
The
Reorganization Proceedings and Fresh-Start Reporting
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.
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Table of Contents
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.
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 combined twelve-month period 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 combined twelve-month period 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
49
Table of Contents
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.
Issuance of
$250 Million Senior Notes and Applications of Net
Proceeds
On April 9, 2010, MagnaChip Semiconductor S.A. and MagnaChip
Semiconductor Finance Company, our wholly-owned subsidiaries,
completed the sale of $250 million in aggregate principal
amount of 10.500% senior notes due 2018 at an offering price of
98.674%. Net proceeds from the notes offering were
$239.6 million which represents $250 million of
principal amount net of $3.3 million of original issue
discount and $7.1 million of debt issuance costs, including
professional fees. Of the $239.6 million of net proceeds,
$130.7 million was used to make a distribution to our
unitholders and $61.8 million was used to repay all
outstanding borrowings under our term loan. The remaining
proceeds were retained to fund working capital and for general
corporate purposes.
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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 per 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 | (3.7 | )(3) | 28.7 | |||||||||||
|
Foreign currency gain, net
|
9.3 | 43.4 | — | 52.8 | ||||||||||||
|
Reorganization items, net
|
— | 804.6 | (804.6 | )(4) | — | |||||||||||
| 8.1 | 816.8 | 24.1 | ||||||||||||||
|
Income (loss) from continuing operations before income taxes
|
(0.5 | ) | 841.8 | — | 55.9 | |||||||||||
|
Income tax expenses
|
1.9 | 7.3 | — | (5) | 9.2 | |||||||||||
|
Income (loss) from continuing operations
|
$ | (2.5 | ) | $ | 834.5 | $ | 46.7 | |||||||||
|
Dividends accrued on preferred unit
|
— | 6.3 | (6.3 | )(6) | — | |||||||||||
|
Income (loss) from continuing operations attributable to common
unit/share
|
$ | (2.5 | ) | $ | 828.2 | $ | $ | 46.7 | ||||||||
|
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 | ||||||||||||||
51
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 | 47.1 | (8) | $ | 112.1 | ||||||
|
Accounts receivables, net
|
74.2 | — | 74.2 | |||||||||
|
Inventories, net
|
63.4 | — | 63.4 | |||||||||
|
Other
|
19.5 | — | 19.5 | |||||||||
|
Total current assets
|
222.1 | 269.2 | ||||||||||
|
Property, plant and equipment, net
|
156.3 | — | 156.3 | |||||||||
|
Intangible assets, net
|
50.2 | — | 50.2 | |||||||||
|
Other non-current assets
|
24.8 | 7.1 | (9) | 31.9 | ||||||||
|
Total assets
|
$ | 453.3 | $ | 507.6 | ||||||||
|
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 | )(10) | 0.0 | ||||||||
|
Other current liabilities
|
3.9 | — | 3.9 | |||||||||
|
Total current liabilities
|
93.6 | 92.9 | ||||||||||
|
Long-term borrowings
|
61.1 | (61.1 | )(10) | 246.7 | ||||||||
| 246.7 | (10) | |||||||||||
|
Accrued severance benefits, net
|
72.4 | 72.4 | ||||||||||
|
Other non-current liabilities
|
10.5 | — | 10.5 | |||||||||
|
Total liabilities
|
237.6 | 422.6 | ||||||||||
|
Commitments and contingencies
|
||||||||||||
|
Unitholders’ / stockholders’ equity
|
||||||||||||
|
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 | (55.1 | )(11) | — | ||||||||
|
Common
stock; shares
authorized, 0 shares issued and outstanding at
December 31, 2009,
actual, shares
issued and outstanding at December 31, 2009, pro forma
|
— | (11) | ||||||||||
|
Additional paid-in capital
|
168.7 | (11)(12) | ||||||||||
|
Accumulated deficit
|
(2.0 | ) | — | (2.0 | ) | |||||||
|
Accumulated other comprehensive (loss)
|
(6.2 | ) | — | (6.2 | ) | |||||||
|
Total unitholders’ / stockholders’ equity
|
215.7 | 85.0 | ||||||||||
|
Total liabilities and unitholders’ /
stockholders’ equity
|
$ | 453.3 | $ | 507.6 | ||||||||
52
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 $30.8 million of
which $29.6 million was incurred on our indebtedness
outstanding prior to our reorganization proceedings which was
recognized in the ten-month period ended October 25, 2009
and $1.2 million was incurred on our new term loan of
$61.8 million which was recognized in the two-month period
ended December 31, 2009. The $29.6 million incurred on
our indebtedness outstanding prior to our reorganization
proceedings was comprised of $21.6 million incurred on
notes of $750.0 million and $8.0 million incurred
under the senior secured credit facility of $95.0 million
which was recognized in the ten-month period ended
October 25, 2009. In addition, the pro forma adjustment
assumes the 10.500% senior notes in the aggregate principal
amount of $250.0 million, issued on April 9, 2010,
were outstanding as of January 1, 2009. The resulting
additional interest expense from our 10.500% senior notes
would have been $27.1 million using the effective interest
rate method.
(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 related to
the reorganization proceedings and adoption of fresh-start
reporting and the issuance of $250 million aggregate
principal amount of senior notes and the application of the net
proceeds should not have an impact on income tax expense for
2009. Those pro forma adjustments which would have income tax
impacts, such as increase or decrease in depreciation and
amortization expenses and decrease in interest expenses, net are
primarily related to our foreign subsidiaries that have
sufficient amounts of operating loss carry forwards and,
accordingly, such pro forma adjustments will have no income tax
impact.
In addition, we believe that there would be no income tax impact
from the corporate conversion and the change in tax status to a
corporation. The corporate conversion does not impact MagnaChip
Semiconductor LLC’s operating structure which is a holding
company without its own revenue or income generating activities
with a history of consecutive losses. Accordingly, the converted
MagnaChip Semiconductor Corporation is expected to have minimal
net taxable income or loss in 2009 and in subsequent years and
therefore any tax consequences would be immaterial.
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Table of Contents
Consequently, even if the corporate conversion had occurred as
of January 1 2009, we would expect that any tax consequences
would have been immaterial.
(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 common
unit/share from continuing operations reflects (a) the
impact from the implementation of our plan of reorganization
which represents the cancellation of our old common units and
issuance of new common units, (b) 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
(c) the automatic conversion of all of the outstanding
common units of MagnaChip Semiconductor LLC for shares of our
common stock at a ratio
of .
The following table sets forth the computation of unaudited pro
forma basic and diluted income per common unit/share from
continuing operations:
|
Earnings |
||||||||
|
Weighted Average |
per Common |
|||||||
|
Common Units/ |
Unit/Share from |
|||||||
| Shares | Continuing Operations | |||||||
|
Historical ten-month period ended October 25, 2009
|
52,923,483 | $ | 15.65 | |||||
|
Historical two-month period ended December 31, 2009
|
300,862,764 | (0.01 | ) | |||||
|
Pro forma adjustment for the ten-month period ended
October 25, 2009 in conjunction with the implementation of
the Plan of Reorganization
|
(53,625,516 | ) | ||||||
|
Pro forma for the combined twelve-month period ended
December 31, 2009 before the impacts from the corporate
conversion
|
300,160,731 | |||||||
|
Pro forma adjustment for the corporate conversion
|
||||||||
|
Pro forma for the combined twelve-month period ended
December 31, 2009
|
$ | |||||||
(8) To reflect $47.1 million of increase in cash and
cash equivalents which represents a portion of the net proceeds
from the issuance of $250 million aggregate principal
amount of senior notes applied to fund working capital and for
general corporate purpose.
(9) To reflect $7.1 million of debt issuance costs in
connection with the offering of $250 million aggregate
principal amount of senior notes.
(10) To reflect the issuance of $250.0 million
aggregate principal amount of senior notes with
$3.3 million of original issue discount and application of
$61.8 million of net proceeds to repay our existing term
loan of $61.8 million of which $0.6 million was
classified as short-term as of December 31, 2009.
(11) 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.
(12) To reflect the application of $130.7 million of
the net proceeds from the issuance of $250 million
aggregate principal amount of senior notes to make a
distribution to our unitholders.
54
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 2,550 novel
registered patents and 1,050 pending novel patent applications
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
that cover 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
55
Table of Contents
from OEMs and consumers in China and Taiwan relative to overall
demand for our products and 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.
In contrast to fabless semiconductor companies, our internal
manufacturing capacity provides us with greater control over
manufacturing costs and the ability to implement process and
production improvements which can favorably impact gross profit
margins. Our internal manufacturing capacity also allows for
better control over delivery schedules, improved consistency
over product quality and reliability and improved ability to
protect intellectual property from misappropriation. However,
having internal manufacturing capacity exposes us to the risk of
under-utilization of manufacturing capacity which results in
lower gross profit margins, particularly during downturns in the
semiconductor industry.
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 or leading-edge geometries. 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.
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Table of Contents
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.
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. As a result of these actions, we were
able to reduce our costs and improve our margins. Although our
goal is to continue to focus on lower costs and improved margins
on an ongoing basis, we expect that the financial benefits
derived from our ongoing efforts will be incremental and any
such benefits may be offset by other negative factors affecting
our operations.
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
voluntary 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. In June, we returned to our employees
one-third of the amount by which their salaries had been
reduced. 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
57
Table of Contents
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-month
period ended October 25, 2009 and the two-month period
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 $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
$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.
On April 9, 2010, we completed the sale of $250 million in
aggregate principal amount of 10.500% senior notes due 2018. Of
the $239.6 million of net proceeds, $130.7 million was used
to make a distribution to our unitholders and $61.8 million
was used to repay all outstanding borrowings under our term
loan. The remaining proceeds were retained to fund working
capital and for general corporate purposes.
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 |
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Table of Contents
| 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. Our Display Solutions business represented 50.5%, 50.5% and 46.7% of our net sales for the fiscal years ended December 31, 2009 (on a combined basis), 2008 and 2007, respectively. |
| • | 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. Our Power Solutions business represented 2.2% and 0.9% of our net sales for the fiscal years ended December 31, 2009 (on a combined basis) and 2008, respectively. |
| • | 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 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. Our Semiconductor Manufacturing Services business represented 46.7%, 47.7% and 45.2% of our net sales for the fiscal years ended December 31, 2009 (on a combined basis), 2008 and 2007, respectively. |
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), net.
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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 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; and |
| • | in certain of our compensation plans as a performance measure for determining incentive compensation payments. |
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 combined twelve-month period ended
December 31, 2009 were $98.7 million and
$33.7 million, respectively. Our Adjusted EBITDA and
Adjusted Net Income for the year ended December 31, 2008
were $59.8 million and a loss of $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
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Table of Contents
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 combined twelve-month
period ended December 31, 2009, we sold products to over
185 customers, and our net sales to our ten largest customers
represented 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. Gross profit varies
by our operating segments. For 2009, our Semiconductor
Manufacturing Services segment utilized approximately 60% of our
manufacturing capacity.
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.
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
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Table of Contents
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 was 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 bore interest at six-month LIBOR plus
12%, and was minimally offset by interest income on cash
balances. In April 2010, we repaid our new term loan with a
portion of the proceeds from our sale of $250 million in
aggregate principal amount of 10.500% senior notes due 2018. 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.
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
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Table of Contents
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-month period ended October 25, 2009
|
1,302:1 | |||
|
Two-month period 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. In
order to provide more detailed information regarding the impact
of foreign currency fluctuations on our results of operations,
in our discussion of period to period comparisons under the
heading “Results of Operations,” we have included
information regarding the impact of the year-to-year change in
the Korean won/U.S. dollar exchange rate. The information
presented, which is described as the impact of the depreciation
of the Korean won against the U.S. dollar, represents the
change in net sales or expense reported by our main operating
subsidiary located in Korea measured based on its functional
currency of Korean won for the periods presented adjusted by the
change in the exchange rate from the average exchange rate
during the prior period to the average exchange rate during the
current period. A substantial portion of the net sales recorded
at our Korean subsidiary are in U.S. dollars and are
converted into Korean won for reporting purposes at the
subsidiary level. Although this approach does not reflect the
fluctuations of the currency exchange rates during the course of
the year on a transaction by transaction basis, we believe that
it provides a useful indication of the magnitude of the exchange
rate impact for the periods presented.
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 28 to the
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Table of Contents
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 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. Our capital expenditures include our payments
for the purchase of property, plant and equipment as well as
payments for the registration of intellectual property rights.
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.
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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 | % | ||||||||||||||||||
65
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
66
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. This decrease was principally due to the impact of
the depreciation of the Korean won against the U.S. dollar in
the amount of $61.1 million and a decrease in average
selling prices of our products, both of which were partially
offset by increases in product sales volume. 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
as demand and shipments for consumer electronics products such
as digital televisions, PCs, and smartphones increased.
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. Such increases in volume were partially offset by a
29.4% decrease in average sales prices. 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.
67
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 primarily attributable to a $2.7 million favorable
impact resulting from the depreciation of the Korean won against
the U.S. dollar. These increases were partially offset by
increases in sales volume and 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. Cost of sales for the combined
twelve-month period ended December 31, 2009 decreased by
$43.7 million compared to 2008. The decreases in cost of
sales were primarily due to a
68
Table of Contents
$63.2 million favorable impact resulting from the
depreciation of the Korean won against the U.S. dollar, a
$10.2 million decrease in labor costs and a
$3.2 million decrease in depreciation, which were partially
offset by a $20.2 million increase in material costs
resulting from the increase in sales volume and a
$2.1 million increase of overhead costs. 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 primarily due to a
decrease in unit costs resulting from a 24.6% increase in sales
volume compared to 2008 offset in part by lower average selling
prices and the impact of the write-up of our inventory in
accordance with fresh-start accounting. Cost of sales for the
combined twelve-month period ended December 31, 2009 decreased
by $34.3 million compared to 2008, primarily due to a $34.1
million favorable impact resulting from the depreciation of the
Korean won against the U.S. dollar, a $7.0 million decrease
in labor costs and a $3.7 million decrease in depreciation,
which were partially offset by a $12.7 million increase in
material costs due to increased sales volume.
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 primarily due to lower
unit costs resulting from the 221.3% increase in sales volume
offset in part by lower average selling prices and the impact of
the write-up of our inventory in accordance with fresh-start
accounting. Cost of sales for the combined twelve-month period
ended December 31, 2009 increased by $0.5 million
compared to 2008, primarily due to a $2.6 million increase
in material costs and a $1.1 million increase in overhead
costs, which were partially offset by a $1.3 million
favorable impact resulting from of the depreciation of the
Korean won against the U.S. dollar. 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 in an aggregate amount of
$18.2 million, partially offset by a $2.3 million favorable
impact resulting from the depreciation of the Korean won against
the U.S. dollar. Cost of sales for the combined
twelve-month period ended December 31, 2009 decreased by
$9.8 million compared to 2008, which was primarily
attributable to a $27.8 million favorable impact resulting
from the depreciation of the Korean won against the
U.S. dollar, which was offset in part by a
$4.9 million increase in material costs and a
$10.9 million increase resulting from the
step-up of
our inventory valuation as a result of our adoption of
fresh-start accounting.
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,
69
Table of Contents
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 a decrease of $8.9 million due
to the depreciation of the Korean won against the U.S. dollar
and a decrease of $3.6 million due to 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 $4.9 million. These decreases were partially offset by a
$7.7 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 of
$9.4 million, a $3.2 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 $4.1 million and outside
service fees decreased by $2.3 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.
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.
70
Table of Contents
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
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 taxes
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.
71
Table of Contents
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 | ) | |||||||
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,
72
Table of Contents
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 lower due to a $54.4 million unfavorable impact
resulting from 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 and a 4.6% decline in sales
volume.
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.
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.
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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 a $40.8 favorable impact due 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.
Cost of sales in 2008 decreased by $133.6 million compared
to 2007, primarily due to a $80.7 million favorable impact
resulting from the depreciation of Korean won against U.S.
dollar, a $17.4 million decrease in depreciation and a
$10.7 million decrease in overhead costs, which were
partially offset by a $15.3 million increase in material
costs. In addition, $34.2 million in cost of sales for unit
processing services which were incurred during 2007 were not
incurred in 2008 as we no longer rendered the services.
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 primarily due to a $14.9 million favorable
impact resulting from the depreciation of the Korean won against
the U.S. dollar. Cost of sales for 2008 decreased by
$43.5 million compared to 2007, which was primarily
attributable to a $44.8 million favorable impact resulting
from the depreciation of Korean won against U.S. dollar and a
$5.5 million decrease in depreciation, which were offset in
part by a $6.9 million increase in material costs.
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 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, primarily due to a
$25.2 million favorable impact resulting from the
depreciation of the Korean won against the U.S. dollar. Cost of
sales for 2008 decreased by $65.2 million compared to 2007.
The decrease was primarily attributable to a $33.9 million
favorable impact resulting from the depreciation of Korean won
against U.S. dollar, a $12.3 million decrease in
depreciation and a $11.3 million decrease in overhead
costs, which were partially offset by a $6.8 million
increase in material costs.
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.
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Table of Contents
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 primarily attributable to a
$11.6 million favorable impact resulting from the
depreciation of the Korean won against the U.S. dollar and a
$3.1 million decrease in depreciation and amortization
expenses. These decreases were partially offset by a
$10.9 million increase in outside service fees and a
$3.6 million increase in salaries.
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 primarily
attributable to a $13.5 million favorable impact resulting
from the depreciation of the Korean won against the U.S. dollar
partially offset by a $7.1 million increase in salaries, a
$2.2 million increase in outside service fees and a
$1.6 million increase in material costs.
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 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
75
Table of Contents
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 taxes
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. We calculate working capital
as current assets less current liabilities.
Our principal sources of liquidity are our cash and cash
equivalents, our cash flows from operations and our financing
activities, including approximately $47.1 million of net
proceeds from the $250 million aggregate principal amount
senior notes offering and 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 were cash flow negative for the two-month
period ended December 31, 2009 as well as for 2008 and 2007
and 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 and could be
adversely impacted by our 2009 reorganization proceedings and
our non-compliance with bank covenants that preceded the filing.
We cannot assure you that additional financing will be available
to us on favorable terms when required, or at all. The current
rating of our senior notes is B2 by Moody’s and B+ by
Standard and Poors. Any lowering of these ratings would
adversely impact our ability to raise additional debt financing
and increase the cost of any such financing that is obtained. 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 unfavorable 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 our cash, cash equivalents and
restricted cash balance of $15.8 million 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 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.
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Table of Contents
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.
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
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Table of Contents
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.
Seasonality
Our net sales and number of distinct products sold are affected
by market variations from quarter to quarter due to business
cycles, and resulting product demand, of our customers. Our
Display Solutions business typically experiences demand
increases in the third and fourth calendar quarters due to
increased holiday demand for the consumer products that serve as
the end markets for our products. During the first quarter, by
contrast, consumer products manufacturers generally reduce
orders in order to reduce excess inventory remaining from the
holiday season. In our Semiconductor Manufacturing Services
business, the supply-demand cycle is usually one quarter ahead
of the broader semiconductor market due to lead time from wafer
input to shipment to our customers, so the demand for these
products tends to peak in the third quarter and is slower in the
fourth and first quarters.
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 new term loan was repaid in full in April
2010 with a portion of the proceeds from our $250 million
senior notes offering.
The indenture relating to our $250 million senior notes
contains covenants that limit our ability and the ability of our
restricted subsidiaries to: (i) declare or pay any dividend
or make any payment or distribution on account of or purchase or
redeem our capital stock or equity interests of our restricted
subsidiaries; (ii) make any principal payment on, or redeem
or repurchase, prior to any scheduled repayment, sinking fund
payment or maturity, any subordinated indebtedness;
(iii) make certain investments, including capital
expenditures; (iv) incur additional indebtedness and issue
certain types of capital stock; (v) create or incur any
lien (except for permitted liens) that secures obligations under
any indebtedness or related guarantee; (vi) merge with or
into or sell all or substantially all of our assets to other
companies; (vii) enter into certain types of transactions
with affiliates; (viii) guarantee the payment of any
indebtedness; (ix) enter into sale-leaseback transactions;
(x) enter into agreements that would restrict the ability
of the restricted subsidiaries to make distributions with
respect to their equity, to make loans to us or other restricted
subsidiaries or to transfer assets to us or other restricted
subsidiaries; and (xi) designate unrestricted 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
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Table of Contents
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.
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
On April 9, 2010, we completed the sale of
$250 million in aggregate principal amount of 10.500%
senior notes due 2018. The $61.8 million of total
outstanding borrowings under our term loan was repaid on the
same date. The $250 million 10.500% senior notes due 2018
are subject to changes in fair value due to interest rate
changes. If the market interest rate increases by 10% and all
other variables were held constant from their levels at
April 9, 2010, we estimate that the fair value of this
fixed rate note would decrease by $13.6 million and we
would have additional interest expense costs over the market
rate of $1.0 million (on a
360-day
basis). If the market interest rate decreased by 10% and all
other variables were held constant from their levels at
April 9, 2010, we estimate that the fair value of this
fixed rate note would increase by $14.6 million and we
would have a reduction in interest expense costs over the market
rate of $1.2 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.
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Table of Contents
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. Certain sale
arrangements include customer acceptance provisions that require
written notification of acceptance within the pre-determined
period from the date of delivery of the product. If the
pre-determined period has ended without written notification,
customer acceptance is deemed to have occurred pursuant to the
underlying sales arrangements. In such cases, we recognize
revenue the earlier of the written notification or the
pre-determined period from date of delivery. 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.
Our revenue recognition policy is consistent across our product
lines, marketing venues and all geographic areas. 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.
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
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Table of Contents
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.
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
our 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.
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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.
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
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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.
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 increase the number of our financial personnel with the
requisite financial accounting expertise. 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.
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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 2,550 registered novel patents and
1,050 pending novel patent applications 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 that cover 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 combined twelve-month period 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 $560.1 million, income from continuing operations of
$46.7 million, Adjusted EBITDA of $98.7 million and Adjusted Net
Income of $33.7 million. 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. For 2008, we generated net sales of $601.7
million, losses from continuing operations of $325.8 million,
Adjusted EBITDA of $59.8 million and Adjusted Net Loss of $71.7
million. See “Unaudited Pro Forma Consolidated Financial
Information” beginning on page 48 for an explanation
regarding our pro forma presentation and “Prospectus
Summary—Summary Historical and Unaudited Pro Forma
Consolidated Financial Data,” beginning on page 9 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
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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, 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 |
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| 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 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 |
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| 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 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 establish 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 |
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| 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. |
| • | 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 and we improved our manufacturing productivity per operator by 22% from the fourth quarter of 2008 to the fourth quarter of 2009. |
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| • | 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 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.
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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 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. For example, we have
implemented several solutions to reduce die size in display
drivers, such as optimizing design schemes and design rules and
applying specific technologies that we have developed
internally. We have recently introduced a number of new large
display drivers with reduced die size.
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The table below sets forth the features of our products, both in
mass production and in customer qualification, which is the
final stage of product 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 |
| * | In customer qualification stage |
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.
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The following table summarizes the features of our products,
both in mass production and in customer qualification, which is
the final stage of product 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 |
| * | In customer qualification stage |
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. |
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| • | 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 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 customer qualification, which is
the final stage of product 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 |
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|
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 |
| * | In customer qualification stage |
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.
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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 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:
|
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
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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 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
facilities are suitable and adequate for the conduct of our
business for the foreseeable future and that we have sufficient
production capacity to service our business as currently
contemplated without significant capital investment.
A substantial majority of our assembly, test and packaging
services for our Display Solutions business and all of such
services for our Power Solutions business are outsourced with
the balance handled in-house. Our independent providers of these
services are located in Korea, China, Taiwan, Malaysia and
Thailand. The relative cost of outsourced services, as compared
to in-house services, depends upon many factors specific to each
product and circumstance. However, we generally incur higher
costs for outsourced services, which can result in lower margins.
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. The services agreement continues for an
indefinite term subject to each party having a right to
terminate in the event of an uncured breach by the other party.
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-month
period ended October 25, 2009 and the two-month period
ended December 31, 2009, we derived 82% of net sales
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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.
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 combined twelve-month period ended December 31, 2009,
our ten largest customers accounted for 69% of our net sales,
and we had one customer, LG Display, representing 26% of our net
sales. Our relationships with some of our ten largest customers
were and may continue to be adversely impacted by our
reorganization proceedings. 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 3,300 registered patents
and 1,300 pending patent applications. Approximately 2,550 and
1,050 of our patents and pending patents are novel in that they
are not a foreign counterpart of an existing patent or patent
application. 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. Our
license with Silicon Works Co., Ltd. relates to our large
display drivers and our license from ARM Limited primarily
relates to product lines in our Semiconductor Manufacturing
Services business. The loss of either license could have a
material adverse impact on our results of operations.
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
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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 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.
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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
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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. Due to the percentage of our equity owned or
controlled by Avenue, Avenue is considered our affiliate. 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,
including more than 15 years of management experience in the
investment management sector, as well as prior and ongoing
active board service for other Avenue portfolio companies.
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Randal Klein, Director. Mr. Klein
became our director in November 2009. Mr. Klein joined
Avenue, our affiliate, 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 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 retired
from full time employment in October 2008. 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 retired from full
time employment in July 2009. 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, our affiliate, 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
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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.
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 filed a voluntary petition for reorganization under
Chapter 11 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. Avenue has the right to
appoint a majority of our board pursuant to our Fifth Amended
and Restated Limited Liability Company Operating Agreement which
will terminate upon the completion of the corporate conversion.
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. A majority of our
board is not currently independent as defined under SEC and NYSE
rules.
Upon the completion of this offering, our board of directors
will be divided into three classes with staggered three-year
terms as follows:
| • | Class I directors will be Messrs. Norby and Shroff, and their terms will expire at the annual general meeting of stockholders to be held in 2011; |
| • | Class II directors will be Messrs. Klein and Tavakoli, and their terms will expire at the annual general meeting of stockholders to be held in 2012; and |
| • | Class III directors will be Mssrs. Elkins, Park and Tan, and their terms will expire at the annual general meeting of stockholders to be held in 2013. |
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. The board has
determined that Mr. Klein is not an independent director.
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. We expect that prior to the one year
anniversary of our initial NYSE listing, Mr. Klein will
resign from the audit committee and at least one new independent
director
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will be appointed. If we fail to comply with the NYSE listing
rules, our common stock could be de-listed from the NYSE.
Compensation
Committee
The compensation committee of the board has 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. We
expect that our compensation committee will consist of
Messrs. Elkins, Klein and Tavakoli as of the effectiveness
of the offering. Our board has determined that Mr. Tavakoli
is “independent” under NYSE and SEC rules. In making
this determination, our board of directors considered the
relationships that Mr. Tavakoli has with our company and
all other facts and circumstances our board of directors deemed
relevant in determining his independence, including any
beneficial ownership of our equity. The board has determined
that Mssrs. Elkins and Klein are not independent directors. 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 compensation 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. We expect that prior to the applicable dates,
the composition of our compensation committee will be changed
such that we will be in compliance with the independent
compensation committee requirement.
Nominating and
Governance Committee
The nominating and governance committee has the responsibility
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. We
expect that our nominating and corporate governance committee
will consist of Messrs. Elkins, Shroff and Tan as of the
effectiveness of the offering. Our board has determined that
Mr. Shroff is “independent” under NYSE and SEC
rules. In making this determination, our board of directors
considered the relationships that Mr. Shroff has with our
company and all other facts and circumstances our board of
directors deemed relevant in determining his independence,
including any beneficial ownership of our equity. The board has
determined that Messrs. Elkins and Tan are not independent
directors. 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 nominating and corporate
governance 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.
We expect that prior to the applicable dates, the composition of
our nominating and corporate governance committee will be
changed such that we will be in compliance with the independent
nominating and corporate governance committee requirement.
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,
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
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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 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.
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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 takes this information into account when it 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.
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.
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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
Historically, the Committee has taken a variety of factors into
consideration when determining changes to overall compensation
levels and levels of individual annual compensation elements, as
further described below. In the beginning of 2009, however, the
Committee assessed the overall functioning of our compensation
plans against our goals, and, due to our financial condition and
impending reorganization proceedings, determined no changes from
the prior year to the allocation of compensation elements, or
the structure or level of any particular compensation element,
were warranted for 2009. Subsequently, in connection with our
emergence from our reorganization proceedings, the Committee
made certain determinations with respect to executive
compensation. Accordingly, unless otherwise referenced in the
context of our emergence from our reorganization proceedings and
the Committee’s compensation decisions made thereafter, the
below disclosure is a general discussion of the manner in which
the Committee has made decisions regarding compensation levels
in prior years, and the underlying reasons for those decisions.
The Committee seeks to establish a total cash compensation
package for our named executive officers that is competitive and
within the ranges for overall compensation reflected in
compensation data for similarly-situated executives in the peer
group 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 Committee members, we measured total
cash compensation for our named executive officers against cash
compensation paid to executives at similarly situated companies
which we determined to be our select peer group. Base salaries
for our named executive officers were benchmarked to median
levels for companies in the select peer group, and were adjusted
upward or downward for performance, and short-term cash
incentives were put in place to provide for opportunities that
may result in higher than median levels of cash compensation as
compared to our select peer group if, and depending upon the
extent to which, our performance and that of our named executive
officers exceeded expectations and the goals established by the
Committee for the year in question.
Historically, our select peer group has included other major
Korean based semiconductor companies, including Fairchild Korea,
Dongbu Hitek, ChipPac Korea and Hynix Semiconductor. In
addition, we also reviewed compensation data from TowersPerrin
Korea, an independent compensation consultant, which surveyed
the companies listed below, to assess how compensation for our
select peer group related to compensation paid to executives in
a broader range of technology companies.
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|
• 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
|
The Committee makes annual determinations regarding cash
incentive compensation based on our annual operating plan, which
is adopted in the December preceding each fiscal year, including
the expected performance of our business in the coming fiscal
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 select peer group with a view to
maintaining internal consistency and parity.
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 median levels of equity compensation at the select peer group
companies. 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 may approve additional incentive payments or
equity compensation grants from time to time during the year in
its discretion.
Base
Salary
Base salary is the guaranteed element of an employee’s
annual cash compensation. Changes in base salary may be approved
by the Committee for an executive if the median levels of base
salary compensation for similarly-situated executives in our
select peer group have changed, and may be further adjusted
based upon the employee’s long-term performance, skill set
and the value of that skill. 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 makes 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 our Chief Executive Officer. The
Committee then makes a subjective decision regarding any changes
in base salary based on these factors and the data from our
select peer group. 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 completion of our
reorganization proceedings, our board of directors approved a
one-time payment of 20% of then monthly base salary to all
employees who voluntarily accepted pay reductions earlier in the
year, which group included all of our named executive officers.
The amount paid to named executive officers are reported as
bonus in the Summary Compensation Table below. The Committee
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also granted additional special discretionary incentives to
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 modify the annual targets for our cash incentive plans for
2009. As a result, our short-term cash incentive plan was
effectively suspended for 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 based upon the select peer group 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 and why we use Adjusted EBITDA.
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.
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.
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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,
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. These
amounts are reported in the Summary Compensation Table in the
column labeled “Bonus.” In addition, Messrs. Park and
Rowe were each entitled to fixed bonuses pursuant to their
employment agreements subject to continued employment. In the
case of Mr. Park, he elected to forego $300,000 of the
bonus otherwise payable to him in order for such amounts to be
available for bonuses to other executives, including
discretionary bonuses paid to Mr. Hwang, Ms. Sakai and
Mr. McFarland.
For 2010, the implementation of the Profit Sharing Plan has been
modified to provide our employees with an opportunity to share
in our 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 make Profit Share payments in
the first normal pay period following the conclusion of each of
the first two fiscal quarters in which we reach the
corresponding quarterly target. The total Profit Share payable
for meeting the Base Target for 2010 is capped for each employee
at his or her respective percentage of annual base salary, such
that the amount of any Profit Share payable for 2010 performance
after the end of 2010 will be offset by any portion of the
Profit Share paid during 2010 for reaching either or both of the
quarterly targets. In addition, for 2010, if we exceed the Base
Target our employees will not be eligible to earn the additional
Profit Share of 25% of our annual consolidated Adjusted EBITDA
in excess of the Base Target. As a result, our executive
officers and employees will only be entitled to receive a cash
incentive equal to the percentage of their salary disclosed
above.
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. Following the completion of this offering, 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
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Table of Contents
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.
The Committee considers granting additional equity compensation
in the event of new employment, a promotion or change in job
responsibility or a change in median levels of equity
compensation for similarly-situated executives at companies in
our select peer group 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 generally seeks to award equity compensation at levels
consistent with the median levels for executives at companies in
our select peer group, and will also make subjective
determinations regarding adjustments to award amounts in light
of factors such as the available pool, individual performance
and role of executives. For example, the Committee may adjust
the size of an award for an individual executive above the
option award level for his or her position if the Committee
determines that the executive has provided exceptional
performance, or may increase the option award level for a
position above the median level reflected in the select peer
group if the position is 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. Stock option awards are not tied to base
salary or cash incentive amounts.
As a result of our reorganization proceedings, all previously
outstanding common and preferred units and options held by our
named executive officers were cancelled. In December 2009, we
granted new options to our executives with the option award
amounts generally determined based upon the median levels of our
select peer group. 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. In December
2009, in recognition of services provided in guiding us through
our reorganization proceedings, our board of directors also
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.
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 our
overall compensation program to better enable us to attract and
retain superior employees for key positions. Generally
perquisites are determined based upon what the Committee
considers to be the most customary perquisites offered by the
select peer group and are not based upon a median cost for
specific perquisites or for the perquisites in aggregate. The
Committee determines the level and types of expatriate benefits
for the executive officers based on local market surveys taken
by our human resources group. These surveys are not limited to
our select peer group, but include a broad range of non-Korea
based companies with significant operations in Korea. 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
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Table of Contents
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.
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) | ($) | ($)(2) | ($)(2) | ($)(3) | ($) | ($) | ||||||||||||||||||||||||
|
Sang Park
|
2009 | 376,980 | 613,893 | (4) | 1,769,600 | 488,070 | 314,785 | (5) | 3,563,328 | |||||||||||||||||||||||
|
Chairman and
|
2008 | 442,128 | 351,897 | (6) | 794,025 | |||||||||||||||||||||||||||
|
Chief Executive Officer
|
2007 | 450,148 | 309,330 | 244,468 | (7) | 1,003,946 | ||||||||||||||||||||||||||
|
Tae Young Hwang,
|
2009 | 189,748 | 106,544 | 663,600 | 305,044 | 119,541 | 10,884 | (8) | 1,395,361 | |||||||||||||||||||||||
|
Chief Operating
|
2008 | 212,307 | 99,095 | 20,293 | (9) | 331,695 | ||||||||||||||||||||||||||
|
Officer and President
|
2007 | 236,830 | 119,339 | 19,735 | 11,476 | (10) | 387,380 | |||||||||||||||||||||||||
|
Brent Rowe
|
2009 | 293,054 | 176,000 | (11) | 442,400 | 183,026 | 12,231 | (12) | 1,106,711 | |||||||||||||||||||||||
|
Senior Vice President,
|
2008 | 226,308 | 176,000 | (13) | 25,673 | (14) | 427,981 | |||||||||||||||||||||||||
|
Worldwide Sales
|
2007 | 220,846 | 176,000 | (15) | 142,191 | (16) | 539,037 | |||||||||||||||||||||||||
|
Margaret Sakai
|
2009 | 238,347 | 46,549 | 265,440 | 73,211 | 12,143 | 163,668 | (17) | 799,358 | |||||||||||||||||||||||
|
Senior Vice President,
|
2008 | 250,934 | 37,683 | 180,025 | (18) | 468,642 | ||||||||||||||||||||||||||
|
Chief Financial Officer
|
2007 | 250,082 | 21,569 | 24,086 | 167,791 | (19) | 463,528 | |||||||||||||||||||||||||
|
John McFarland,
|
2009 | 172,229 | 44,764 | 265,440 | 48,807 | 14,369 | 99,615 | (20) | 645,224 | |||||||||||||||||||||||
|
Senior Vice President,
|
2008 | 191,147 | 21,492 | 79,790 | (21) | 292,429 | ||||||||||||||||||||||||||
|
General Counsel and
|
2007 | 201,839 | 75,930 | 23,195 | 22,802 | 97,334 | (22) | 421,100 | ||||||||||||||||||||||||
|
Secretary
|
||||||||||||||||||||||||||||||||
|
Robert J. Krakauer,
|
2009 | 467,265 | 176,554 | (23) | 643,819 | |||||||||||||||||||||||||||
|
Former President
|
2008 | 468,426 | 820,236 | (24) | 1,288,662 | |||||||||||||||||||||||||||
|
and Chief Financial Officer
|
2007 | 375,123 | 270,903 | 707,831 | (25) | 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 average
exchange rates during the respective periods. After
October 25, 2009, a monthly average exchange rate was used.
Footnotes:
| (1) | Includes one-time payment of 30% of then monthly base salary to all employees that voluntarily accepted pay reductions earlier in the year. |
| (2) | 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. |
| (3) | 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. |
| (4) | Represents bonus payments made in December 2009 pursuant to Mr. Park’s Amended and Restated Service Agreement and an additional $11,250 discretionary bonus. Mr. Park elected to forego $298,000 of the bonus specified in order for such amounts to be available for bonuses to other executives. |
| (5) | Includes the following personal benefits paid to Mr. Park: (a) $125,073, which is the annual aggregate monthly pro rata amount of prepaid housing expenses for Mr. Park’s 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. |
| (6) | Includes the following personal benefits paid to Mr. Park: (a) $70,838, which is the aggregate monthly pro rata amount of prepaid housing expenses for Mr. Park’s housing lease for six months, $82,828, which is the total monthly rental payments for seven months’ rent for Mr. Park’s housing, and $8,192, which is the imputed benefit to Mr. Park from a refundable deposit held by the lessor of Mr. Park’s housing during the lease term; (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. |
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| (7) | Includes the following personal benefits paid to Mr. Park: (a) $154,798 which is the annual aggregate monthly pro rata amount of prepaid housing expenses for Mr. Park’s housing lease; (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. |
| (8) | 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. |
| (9) | 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. |
| (10) | 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. |
| (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. Effective as of April 2009, the right to receive the bonus became fixed and was no longer discretionary. One-third of this amount ($176,000) was earned in 2009. |
| (12) | 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. |
| (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 2008. |
| (14) | 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. |
| (15) | 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. |
| (16) | 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. |
| (17) | Includes the following personal benefits paid to Ms. Sakai: (a) $25,590, which is the total monthly rental payments for four months rent for MS. Sakai’s housing, and $32,650, which is the imputed benefit to Ms. Sakai from a refundable deposit held by the lessor of Ms. Sakai’s housing during the lease term; (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. |
| (18) | Includes the following personal benefits paid to Ms. Sakai: (a) $61,438, which is the imputed benefit to Ms. Sakai from a refundable deposit held by the lessor of Ms. Sakai’s housing during the lease term; (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. |
| (19) | Includes the following personal benefits paid to Ms. Sakai: (a) $72,661, which is the imputed benefit to Ms. Sakai from a refundable deposit held by the lessor of Ms. Sakai’s housing during the lease term; (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. |
| (20) | 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. |
| (21) | 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. |
| (22) | 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. |
| (23) | 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). |
| (24) | 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. |
| (25) | Includes the following personal benefits paid to Mr. Krakauer: (a) $208,962, which is the annual aggregate monthly pro rata amount of prepaid housing expenses for Mr. Krakauer’s housing lease; (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; |
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| (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) $86,868 for reimbursement of Korean tax, the employee contribution portion of the Korean national health insurance program and employee fringe benefits. |
Grants of
Plan-Based Awards
The following table sets forth certain information with respect
to unit and option awards and other plan-based awards granted
during the year ended December 31, 2009 to our named
executive officers:
|
All Other |
||||||||||||||||||||
|
All Other |
Option |
|||||||||||||||||||
|
Stock |
Awards: |
Exercise or |
||||||||||||||||||
|
Awards: |
Number of |
Base |
||||||||||||||||||
|
Number of |
Securities |
Price of |
Grant Date Fair |
|||||||||||||||||
|
Shares of |
Underlying |
Option |
Value of Unit |
|||||||||||||||||
|
Stock or |
Options |
Awards |
and Option |
|||||||||||||||||
|
Name
|
Grant Date
|
Units (#)(1)
|
(#)(1)
|
($/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 unit fair market value of our common unit on the grant date ($0.79), as determined by our board of directors based on various factors. |
| (3) | Represents ASC 718 grant date fair value. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Accounting for Unit-based Compensation” for a description of how we valued our units as a private company. |
| Outstanding Equity Awards at Fiscal Year End 2009(1) | ||||||||||||||||||||||||
| Option Awards | Unit Awards | |||||||||||||||||||||||
|
Number of |
Market |
|||||||||||||||||||||||
|
Number of |
Number of |
Shares or |
Value of |
|||||||||||||||||||||
|
Securities |
Securities |
Units of |
Shares or |
|||||||||||||||||||||
|
Underlying |
Underlying |
Stock That |
Units of |
|||||||||||||||||||||
|
Unexercised |
Unexercised |
Option |
Option |
Have Not |
Stock That |
|||||||||||||||||||
|
Options (#) |
Options (#) |
Exercise |
Expiration |
Vested |
Have Not |
|||||||||||||||||||
|
Name
|
Exercisable
|
Unexercisable(2)
|
Price ($)
|
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 the next three-month periods, an additional 9% of the options vest upon the completion of the next |
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| 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 our company and our 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 MagnaChip Semiconductor LLC 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 of our common
stock and shares of restricted common stock at a ratio of
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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 our common units
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 units
subject to an option over the exercise price per unit 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.
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.
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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 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.
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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.
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
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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
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.
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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 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
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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.
Termination. Our named executive
officers are eligible to receive certain payments and benefits
in connection with certain service termination events pursuant
to the terms of our employment agreements with them, as further
described under the section entitled “Agreements with
Executives and Potential Payments Upon Termination or Change in
Control.” The terms “cause” and “resignation
for good reason” used below have the meanings given to them
in the applicable agreements with us.
Change in Control. Mr. Park is entitled
to receive certain payments and benefits in connection with a
change in control of our company pursuant to our employment
agreement with him, as further described under the section
entitled “Agreements with Executives and Potential Payments
Upon Termination or Change in Control.” In addition, 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 units subject to an option over the exercise price per
unit of such option. For purposes of the foregoing, a
“change in control” is generally defined as the
acquisition by a person or entity of more than 51% of the
combined voting power of our then outstanding voting securities
or a sale or transfer of all or substantially all of our
consolidated assets to a person or entity that is not our
affiliate. The offering will not constitute a change of control
for the purposes of these provisions.
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
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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. |
|
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 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 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 |
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| 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.” | |
| (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
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. The base
statutory severance accrues at the rate of approximately one
month of base salary per year of service and is calculated on a
monthly basis based upon the officer’s salary for the prior
three month period. Accordingly, if the named executive officers
in the following table had retired on the last day of our fiscal
year ended December 31, 2009, they would have been entitled
to the statutory severance payments described below. Assuming no
change in the applicable law, each of these executives will
continue to accrue additional statutory severance benefits at
the rate described above until his or her service with us
terminates.
|
Number |
Present |
Payments |
||||||||||||
|
of Years |
Value of |
During |
||||||||||||
|
of Credited |
Accumulated |
the Last |
||||||||||||
|
Name
|
Plan Name
|
Service (#)
|
Benefit ($)
|
Fiscal Year
|
||||||||||
|
Tae Young Hwang
|
Statutory Severance with | |||||||||||||
| Multiplier for Partial Period | 14 | (1) | 686,058 | |||||||||||
|
Margaret Sakai
|
Statutory Severance | 3 | 68,155 | |||||||||||
|
John McFarland
|
Statutory Severance | 5 | 81,129 | |||||||||||
Footnote:
| (1) | Mr. Hwang accrued severance for his fourteen years of service at MagnaChip and its predecessor corporation. Although the minimum legal severance accrual is one month of base salary per year of service, Mr. Hwang was eligible for accrual of a multiple of two to three months of base salary per year of service during approximately the first ten of his fourteen years of service. |
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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)
|
— | — | — | — | ||||||||||||
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
In March 2010, we issued to our director Nader Tavakoli a
restricted unit bonus for 150,000 common units pursuant to the
2009 Plan for service as a director to date. In March 2010, we
also adopted a new director compensation policy. Under the new
policy, 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. In March 2010, pursuant to this policy, we issued
options to purchase 200,000 common units to each of our
directors R. Douglas Norby, Gidu Shroff and Nader Tavakoli
pursuant to the 2009 Plan at an exercise price of $2.12 per unit.
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,
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Table of Contents
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.
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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 will acquire 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 under our plan
of reorganization in November 2009. All of the common units
issued to the selling stockholders were in satisfaction of their
claims as creditors. In accordance
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Table of Contents
with our plan of reorganization, in exchange for the claims,
(i) holders of our Floating Rate Second Priority Senior
Secured Notes due 2011, or the Floating Rate Notes, and
67/8%
Second Priority Senior Secured Notes due 2011, or the
67/8% Notes,
received their pro rata share of newly issued common units equal
to five percent of the then outstanding common units, which was
equal to 29.667627 common units per $1,000 principal amount of
Floating Rate Notes and 30.498559 common units per $1,000
principal amount of 6.875% Notes, and (ii) the holders
of our 8% Senior Subordinated Notes due 2014, or the
Subordinated Notes, received their pro rata share of
(a) newly issued common units equal to one percent of the
then outstanding common units, which was equal to 12 common
units per $1,000 principal amount of Subordinated Notes and
(b) warrants to purchase five percent of MagnaChip
Semiconductor LLC’s then outstanding equity, which was
equal to 60 warrants per $1,000 principal amount of Subordinated
Notes.
In addition, under our plan of reorganization, holders of the
Floating Rate Notes and the
67/8% Notes
who were accredited investors received a pro-rata right to
participate in an offering of up to $35 million in new
common units, which was equal to 84% of the outstanding common
units following the completion of the offering at a price per
common unit of $0.14. Subject to certain conditions, Avenue
agreed to purchase any unsubscribed common units. In
consideration of this obligation, Avenue received a backstop fee
equal to 10% of the then outstanding common units, or 30,000,000
common units. In addition, Avenue acquired 176,131,368 common
units in the offering. Avenue also received 4,260,449 common
units in exchange for the release of their claims on the
Floating Rate Notes, 3,198,353 common units in exchange for the
release of their claims on the
67/8% Notes
and 889,536 common units in exchange for the release of their
claims on the Subordinated Notes. Tennenbaum Multi-Strategy
Fund SPV (Cayman) Ltd., or Tennenbaum, acquired 19,540,080
common units in the offering and received 445,014 common units
in exchange for the release of its claims on the Floating Rate
Notes and 724,951 common units in exchange for the release of
its claims on the
67/3%Notes.
Southpaw Credit Opportunity Master Fund LP acquired
21,613,032 common units in the offering and received 1,272,237
common units in exchange for the release of their claims on the
Floating Rate Notes. Wilshire Institutional Master
Fund SPC — Wilshire Southpaw Opportunity
Segregated Portfolio acquired 546,840 common units in the
offering and 32,189 common units in exchange for the release of
their claims on the Floating Rate Notes. GPC 76, LLC received
90,931 common units in exchange for the release of their claims
on the Floating Rate Notes.
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.
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Table of Contents
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. | |
| (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. |
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Table of Contents
| 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 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. |
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Table of Contents
| (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. | |
| (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. |
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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 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. Our board of directors will only approve
those related party transactions that, in light of known
circumstances, are in, or are not inconsistent with, our best
interests.
Senior
Debt
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) was 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, $22.6 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 as of 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. Our senior secured
credit agreement was repaid in April 2010 with a portion of
the proceeds from our $250 million senior notes offering.
Avenue purchased $35 million in principal amount of these
notes. See “Description of Certain Indebtedness” for
additional information.
Issuance of
Common Units
In connection with our plan of reorganization, Avenue received
an aggregate of 8,348,338 common units and warrants to purchase
up to an aggregate of 4,447,680 common units in exchange for the
release of claims relating to outstanding indebtedness in an
aggregate principal amount of approximately $322.6 million.
Avenue also acquired 176,131,368 common units at $0.14 per share
pursuant to a $35 million rights offering that we completed
in November 2009 and an additional 30,000,000 common units for
providing a backstop service in agreeing to purchase any
unsubscribed units in the offering.
In connection with our plan of reorganization, Tennenbaum
Multi-Strategy Fund SPV (Cayman) Ltd., or Tennenbaum,
received 1,169,965 common units in exchange for the release of
claims relating to approximately the principal amount of
$38.8 million of outstanding indebtedness. Tennenbaum also
acquired 19,540,080 common units in the rights offering.
In connection with our plan of reorganization, Southpaw Credit
Opportunity Master Fund LP, or Southpaw Master Fund,
received 1,272,237 common units in exchange for the release of
their claims relating to approximately the principal amount of
$42.9 million of outstanding indebtedness. Southpaw Master
Fund also acquired 21,613,032 common units in the rights
offering. Wilshire Institutional Master
Fund SPC — Wilshire Southpaw Opportunity
Segregated Portfolio, or Wilshire Institutional,
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received 32,189 common units in exchange for the release of
their claims relating to approximately the principal amount of
$1.1 million of outstanding indebtedness. Wilshire
Institutional also acquired 546,840 common units in the rights
offering. Lastly, GPC 76, LLC received 90,931 common units in
exchange for the release of their claims relating to
approximately the principal amount of $3.1 million of
outstanding indebtedness.
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.
Senior Advisor
Agreement
In April 2009, we entered into a Senior Advisor Agreement with
Mr. Krakauer, who formerly served as our President, Chief
Financial Officer and director, pursuant to which he remained
available to consult with us through April 10, 2010. Under
this agreement, Mr. Krakauer was entitled to payments in
the aggregate amount of $375,000, payable over a one-year
period, plus the repayment 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.
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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
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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.
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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 our 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; |
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| • | 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 our common stock. 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. |
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| • | 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 our director. |
| • | 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.
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.
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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.
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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
Corporation, American Stock Transfer &
Trust Company, LLC, as the depositary, and the holders from
time to time of the depositary receipts evidencing the
depositary shares. 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.
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.
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, we expect that our shares of common stock will be listed
on the New York Stock Exchange under the symbol “MX.”
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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. |
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; |
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| • | 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.
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DESCRIPTION OF
CERTAIN INDEBTEDNESS
On April 9, 2010, MagnaChip Semiconductor S.A. and
MagnaChip Semiconductor Finance Company, or the Issuers, two of
our wholly-owned subsidiaries, issued $250,000,000 aggregate
principal amount of 10.500% Senior Notes due 2018, or the
Senior Notes. The Senior Notes mature on April 15, 2018, at
which time the principal amount outstanding thereunder will be
due and payable. The Issuers may issue additional Senior Notes
from time to time under the indenture governing the Senior
Notes, or the Indenture, subject to compliance with the terms of
the Indenture.
Ranking
The Senior Notes are the Issuers’ general unsecured senior
obligations, rank equally in right of payment with all of their
existing and future unsecured senior indebtedness, are
effectively subordinated to all their secured indebtedness, to
the extent of the value of the collateral securing such
indebtedness, and rank senior in right of payment to all of
their subordinated indebtedness.
Interest
Interest on the Senior Notes accrues at the rate of 10.500% per
annum and is payable semi-annually in arrears on April 15 and
October 15 to the holders of the Senior Notes of record on the
immediately preceding April 1 and October 1. Interest on
the Senior Notes will be computed on the basis of a
360-day year
comprised of twelve
30-day
months. Special interest may accrue on the Senior Notes in
certain circumstances if we fail to comply with our registration
obligations with respect to the Senior Notes pursuant to an
exchange and registration rights agreement. Any special interest
on the Senior Notes will be payable in cash.
Guarantees
The obligations under the Senior Notes are fully and
unconditionally guaranteed on an unsecured senior basis by us
and all of our subsidiaries, other than our insignificant
subsidiaries, as defined in the Indenture, our unrestricted
subsidiaries, as defined in the Indenture, our subsidiaries
organized under the laws of the People’s Republic of China,
and MagnaChip Korea. The guarantees of the Senior Notes rank
equally in right of payment with or senior to all indebtedness
of us and all such subsidiaries. Such guarantees are effectively
subordinated in right of payment to all secured indebtedness of
us and all such subsidiaries, to the extent of the value of the
collateral securing such indebtedness, and rank senior in right
of payment to all of subordinated indebtedness of us and all
such subsidiaries.
Optional
Redemption
At any time prior to April 15, 2013, the Issuers may, on
one or more occasions, redeem up to 35% of the aggregate
principal amount of the Senior Notes with the net cash proceeds
of certain qualified equity offerings by us, at a redemption
price equal to 110.500% of the principal amount of the Senior
Notes to be redeemed, plus accrued and unpaid interest and
special interest, if any, to the redemption date.
Also, at any time prior to April 15, 2014, the Issuers may,
on one or more occasions, redeem some or all of the Senior Notes
at a redemption price equal to 100% of the principal amount of
the Senior Notes redeemed, plus accrued and unpaid interest and
special interest, if any, to the redemption date and a
“make-whole” premium calculated as provided in the
Indenture.
In addition, on or after April 15, 2014, the Issuers may,
on one or more occasions, redeem some or all of the Senior Notes
at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest and
special interest, if any, to the redemption date, if redeemed
during the twelve-month period beginning on April 15 of each of
the years indicated below:
|
Year
|
Percentage | |||
|
2014
|
105.250 | % | ||
|
2015
|
102.625 | % | ||
|
2016 and thereafter
|
100.000 | % | ||
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Change of
Control
Upon the occurrence of a change of control, as defined in the
Indenture, unless the Issuers have mailed a redemption notice
with respect to the Senior Notes and do not default in the
payment of the applicable redemption price or a third party
makes a similar offer to purchase all of the Senior Notes, we
must make an offer to purchase all of the Senior Notes at a
price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and special interest,
if any, to the date of purchase.
Asset
Sales
The Indenture provides that we and our restricted subsidiaries
(including MagnaChip Korea but excluding unrestricted
subsidiaries, as defined in the Indenture) will not consummate
an asset sale, as defined in the Indenture, unless certain
conditions are met, including that the consideration received is
at least equal to the fair market value of the assets sold, and
that a specified percentage of such consideration is in the form
of cash. If we do not use the sale proceeds in our business as
specified in the Indenture, we must apply such proceeds to an
offer to repurchase Senior Notes at a price in cash equal to
100% of the aggregate principal amount thereof plus accrued and
unpaid interest and special interest, if any, to the repurchase
date.
Redemption Upon
Changes in Withholding Taxes
Payments on the Senior Notes are to be made without withholding
or deduction for any current or future taxes, unless required by
law. If such withholding is required, we will pay such
additional amounts as are needed for the net amounts received by
the holders of the Senior Notes to equal the amount that they
would have received if the taxes had not been withheld. We may
redeem all of the Senior Notes at a redemption price equal to
the aggregate principal amount of the Senior Notes outstanding
plus accrued and unpaid interest, special interest, if any, and
the additional amounts due, if any, to the redemption date, if
we are required to pay such amounts as a result of changes in
law.
Covenants
The Indenture contains covenants that limit our ability and the
ability of our restricted subsidiaries to:
| • | declare or pay any dividend or make any payment or distribution on account of or purchase or redeem our capital stock or equity interests of our restricted subsidiaries; |
| • | make any principal payment on, or redeem or repurchase, prior to any scheduled repayment, sinking fund payment or maturity, any subordinated indebtedness; |
| • | make certain investments, including capital expenditures; |
| • | incur additional indebtedness and issue certain types of capital stock; |
| • | create or incur any lien (except for permitted liens) that secures obligations under any indebtedness or related guarantee; |
| • | merge with or into or sell all or substantially all of our assets to other companies; |
| • | enter into certain types of transactions with affiliates; |
| • | guarantee the payment of any indebtedness; |
| • | enter into sale-leaseback transactions; |
| • | enter into agreements that would restrict the ability of the restricted subsidiaries to make distributions with respect to their equity, to make loans to us or other restricted subsidiaries or to transfer assets to us or other restricted subsidiaries; and |
| • | designate unrestricted subsidiaries. |
Certain of these covenant restrictions will be suspended during
any time period that the Senior Notes are rated investment grade.
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Events of
Default
The Indenture includes certain events of default, including
payment defaults, covenant defaults, cross-defaults to certain
indebtedness, certain events of bankruptcy with respect to us,
the Issuers and the restricted subsidiaries that are defined in
the Indenture as significant subsidiaries, failure to pay
certain judgments, and invalidation or unenforceability of the
guarantees of the Senior Notes.
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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 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
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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.”
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MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES
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 U.S. holder or
non-U.S.
holder (each, as defined below) who purchases our common stock
in this offering. For purposes of this discussion, a U.S. holder
is any beneficial owner (other than an entity treated as a
partnership for U.S. federal income tax purposes) of our common
stock that for U.S. federal income tax purposes is:
| • | 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. |
A non-U.S.
holder is any beneficial owner of our common stock that is not a
U.S. holder and is not an entity treated as a partnership for
U.S. federal income tax purposes.
If a partnership or other pass-through entity holds our 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 shares of our common stock issued
pursuant to the offering will be held 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 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 our 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.
The depositary shares should represent ownership in the
underlying shares of stock of the company for U.S. federal
income tax purposes because, among other things, the holders of
the depositary shares have the right to receive dividends, if
declared and paid, with respect to the underlying shares, the
right to vote with respect to the underlying shares, and the
right to receive the underlying shares upon cancellation of the
depositary shares. On the date that the depositary shares are
cancelled and each holder is credited with a number of shares of
common stock equal to the number of depositary shares held by
such holder, the holder should retain ownership in the shares of
common stock for U.S. federal income tax purposes without
recognition of gain or loss and with such holder’s holding
period of the underlying common stock including the period
during which the depositary shares are outstanding.
All references in this discussion to “our common
stock” include references to “the depositary shares
representing ownership rights in the underlying common
stock”.
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U.S.
Holders
Distributions
If we make distributions on our common stock, those payments
will generally 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.
With respect to certain non-corporate U.S. holders, including
individual U.S. holders, for taxable years beginning before
January 1, 2011, dividends will be taxed at the lower
capital gains rate applicable to “qualified dividend
income,” provided that certain holding period requirements
are met. 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 U.S.
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. Dividends received
by a corporation may be eligible for a dividends received
deduction, subject to applicable limitations.
Disposition of
Shares of Common Stock
A U.S. holder generally will recognize gain or loss upon the
taxable sale or other disposition of shares of our common stock
in an amount equal to the difference between the amount realized
upon such sale or disposition and the U.S. holder’s tax
basis in the shares of our common stock. Such gain or loss
generally will be capital gain or loss. Capital gain will be
long-term capital gain if the U.S. holder’s holding period
for such shares is more than one year at the time of
disposition. Long-term capital gains are generally subject to a
reduced rate of taxation for non-corporate U.S. holders. A
deduction with respect to a capital loss may be subject to
limitation.
Non-U.S.
Holders
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 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 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.
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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.
Backup
Withholding and Information Reporting
Payments of dividends or of proceeds on the disposition of
shares made to a U.S. holder may be subject to information
reporting and backup withholding at the then effective rate
unless the U.S. holder provides a correct taxpayer
identification number (which, in the case of an individual, is
his or her social security number) and certifies whether such
U.S. holder is subject to backup withholding of U.S. federal
income tax by completing
Form W-9
or otherwise establishing a basis for exemption from backup
withholding. U.S. holders who fail to provide their correct
taxpayer identification numbers and the appropriate
certifications or fail to establish an exemption as described
above will be subject to backup withholding and may be subject
to a penalty imposed by the IRS.
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.
Even if a
non-U.S.
holder establishes an exemption from information reporting, we
may still be required to 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
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treaties or other agreements, the IRS may make its reports
available to tax authorities in the recipient’s country of
residence.
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.
New Legislation
Relating to Foreign Accounts
Newly enacted legislation may impose withholding taxes on
certain types of payments made to “foreign financial
institutions” and certain other
non-U.S.
entities. Under this legislation, 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 U.S.
holders who own the shares through foreign accounts or foreign
intermediaries and certain
non-U.S.
holders. The legislation imposes a 30% withholding tax on
dividends on, or gross proceeds from the sale or other
disposition of, our common stock paid to a foreign financial
institution or to a foreign non-financial entity, unless
(i) the foreign financial institution undertakes certain
diligence and reporting obligations or (ii) the foreign
non-financial entity either certifies it does not have any
substantial U.S. owners or furnishes identifying information
regarding each substantial U.S. owner. In addition, if the payee
is a foreign financial institution, it must enter into an
agreement with the U.S. Treasury requiring, among other things,
that it undertake to identify accounts held by certain U.S.
persons or
U.S.-owned
foreign entities, annually report certain information about such
accounts and withhold 30% on payments to account holders whose
actions prevent it from complying with these reporting and other
requirements. The legislation applies to payments made after
December 31, 2012. Prospective investors should consult
their tax advisors regarding this legislation.
Surtax on Certain
Net Investment Income.
Under recent legislation, certain U.S. holders who are
individuals, estates or trusts will be required to pay an
additional 3.8% tax on, among other things, dividends and
capital gains from the sale or other disposition of stock for
taxable years beginning after December 31, 2012.
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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.
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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.
We intend to apply to have our 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,
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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
and 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 does not 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.
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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 Financial Instruments and Exchange Law of Japan, or the
Financial Instruments 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 Financial
Instruments 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. An affiliate of Goldman,
Sachs & Co. is the counterparty to our currency
hedging transactions. Goldman, Sachs & Co., Barclays
Capital Inc., Deutsche Bank Securities, Inc., Citigroup Global
Markets Inc. and UBS Securities LLC acted as initial purchasers
in our private placement of $250 million in aggregate
principal amount of notes, which closed on April 9, 2010
and for which they received discounts and commissions. Goldman,
Sachs & Co., Barclays Capital Inc., Deutsche Bank
Securities, Inc., Citigroup Global Markets Inc. and UBS
Securities LLC are managing underwriters in this offering.
Prior to the reorganization proceedings, affiliates of Citigroup
Global Markets Inc. directly or indirectly held in excess of 10%
of our outstanding common units and preferred units, and were
considered our affiliates. In the reorganization proceedings,
all equity interests in our company, including interests in
common units and preferred units, were assigned to Class 8
of our plan of reorganization. Members of Class 8,
including the affiliates of Citigroup Global Markets Inc. that
directly or indirectly held common or preferred units in our
company, received no distributions or
153
Table of Contents
recoveries on account of their equity interests and these
equity interests were cancelled and extinguished as of the
effective date of our plan of reorganization.
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.
154
Table of Contents
LEGAL
MATTERS
The validity of our depositary shares and the common stock
represented by the depositary shares offered hereby will be
passed upon for us by DLA Piper LLP (US), East Palo Alto,
California. Certain matters will be passed upon 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. 333-165467).
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.
155
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 | |||||||||||
|
Pro Forma |
||||||||||||
|
Historical |
(Unaudited) |
Historical |
||||||||||
| (Audited) | (Note 27) | (Audited) | ||||||||||
|
(In thousands of US dollars, |
||||||||||||
| except unit data) | ||||||||||||
|
Assets
|
||||||||||||
|
Current assets
|
||||||||||||
|
Cash and cash equivalents
|
$ | 64,925 | $ | 64,925 | $ | 4,037 | ||||||
|
Restricted cash
|
— | — | 11,768 | |||||||||
|
Accounts receivable, net
|
74,233 | 74,233 | 76,295 | |||||||||
|
Inventories, net
|
63,407 | 63,407 | 47,110 | |||||||||
|
Other receivables
|
3,433 | 3,433 | 4,701 | |||||||||
|
Prepaid expenses
|
12,625 | 12,625 | 9,268 | |||||||||
|
Other current assets
|
3,433 | 3,433 | 4,799 | |||||||||
|
Total current assets
|
222,056 | 222,056 | 157,978 | |||||||||
|
Property, plant and equipment, net
|
156,337 | 156,337 | 183,955 | |||||||||
|
Intangible assets, net
|
50,158 | 50,158 | 34,892 | |||||||||
|
Long-term prepaid expenses
|
10,542 | 10,542 | 7,714 | |||||||||
|
Other non-current assets
|
14,238 | 14,238 | 14,631 | |||||||||
|
Total assets
|
$ | 453,331 | $ | 453,331 | $ | 399,170 | ||||||
|
Liabilities and Unitholders’ Equity
|
||||||||||||
|
Current liabilities
|
||||||||||||
|
Accounts payable
|
$ | 59,705 | 59,705 | $ | 70,158 | |||||||
|
Other accounts payable
|
7,190 | 7,190 | 15,040 | |||||||||
|
Payable to unitholders
|
— | 130,700 | — | |||||||||
|
Accrued expenses
|
22,114 | 22,114 | 38,554 | |||||||||
|
Short-term borrowings
|
— | — | 95,000 | |||||||||
|
Current portion of long-term debt
|
618 | 618 | 750,000 | |||||||||
|
Other current liabilities
|
3,937 | 3,937 | 3,735 | |||||||||
|
Total current liabilities
|
93,564 | 224,264 | 972,487 | |||||||||
|
Long-term borrowings
|
61,132 | 61,132 | — | |||||||||
|
Accrued severance benefits, net
|
72,409 | 72,409 | 61,939 | |||||||||
|
Other non-current liabilities
|
10,536 | 10,536 | 9,874 | |||||||||
|
Total liabilities
|
237,641 | 368,341 | 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 | 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 | 38,000 | 3,150 | |||||||||
|
Accumulated deficit
|
(1,963 | ) | (1,963 | ) | (995,007 | ) | ||||||
|
Accumulated other comprehensive income (loss)
|
(6,182 | ) | (6,182 | ) | 151,135 | |||||||
|
Total unitholders’ equity (deficit)
|
215,690 | 84,990 | (787,799 | ) | ||||||||
|
Total liabilities, redeemable convertible preferred units and
unitholders’ equity
|
$ | 453,331 | $ | 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”) 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. The Company is
permitted to select an accounting convenience date (“the
Fresh-Start Adoption Date”) proximate to the emergence date
for purposes of fresh-start reporting, provided that an analysis
of the activity between the date of emergence and an accounting
convenience date does not result in a material difference in the
fresh-start reporting results. The Company evaluated transaction
activity between October 25, 2009 and the Reorganization
Effective Date and concluded an accounting convenience date of
October 25, 2009 which was the Company’s October
accounting period end was appropriate. 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
F-10
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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 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
F-11
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
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. Assumptions used in our valuation models that have
the most significant effect on our estimated fair value include
discount rates and future cash flow projections.
Discount rate — The discount rate is an overall rate
based upon the individual rates of return for invested capital
components of the Company (such as rate of return on debt
capital and rate of return on common equity capital). As the
Company is emerging from bankruptcy and, therefore, has some of
the characteristics of a distressed company, the Company
incorporated an alpha factor in its calculation of an industry
based discount rate, to better reflect the return that an
investor would require for an investment in a company. The
resulting discount rate of 46.7% approximates the venture
capital rate of return required by investors in companies with
similar risk profiles as the Company.
Cash flow projections — The Company projected its
future cash flow on various assumptions depending on the nature
of cash flow components. Some of the major accounts projected
were based on the following assumptions.
| • | Revenue — The Company based 2009 and 2010 revenue on the historical ten-month period ended October 25, 2009 and the Company’s business plan. For the subsequent four years, revenue projections were based on market growth trends and plans for market share growth. Overall, the Company projected a compound revenue growth for this purpose of 12% for the period between 2009 and 2014. |
| • | Cost of Sales — The Company estimated three sub-components — variable cost, depreciation and other fixed costs. Variable cost was defined as those cost elements directly in proportion to sales and estimated as a certain percentage of projected sales. Depreciation is estimated considering expected depreciation of existing assets and depreciation of assets from the Company’s capital expenditure forecast. Other fixed costs are assumed to be increased by a fixed percentage which was implied by the CPI (Consumer Price Index) rate increases during the projection period. The Company projected cost of sales for the periods between 2009 and 2014 to vary between 70.1% and 62.6%. |
| • | Working capital changes — Working capital levels were estimated on the historical levels and benchmarking. |
| • | Capital expenditures — Capital expenditures for 2009 and 2010 was determined based on the Company’s capital expenditure forecast. The Company assumed that the capital expenditure level for subsequent years would be determined at 5% of its future projected revenue. |
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
F-12
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
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. 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. 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 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,
F-16
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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 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.
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
F-17
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
Borrowing costs incurred during the construction period of
assets are capitalized as part of the related assets.
F-18
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
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,”
F-19
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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
actual settlement. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company
could realize in a current market exchange.
F-20
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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. Certain sale arrangements
include customer acceptance provisions that require written
notification of acceptance within the pre-determined period from
the date of delivery of the product. If the pre-determined
period has ended without written notification, customer
acceptance is deemed to have occurred pursuant to the underlying
sales arrangements. In such cases, the Company recognizes
revenue the earlier of the written notification or the
pre-determined period from date of delivery. The Company’s
revenue recognition policy is consistent across its product
lines, marketing venues, and all geographic areas.
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.
Other than product warranty obligations and customer acceptance
provisions, sales contracts do not include any other
post-shipment obligations that could have an impact on revenue
recognition. In addition, the Company does not currently provide
any credits, rebates or price protection or similar privileges
that could have an impact on revenue recognition.
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.
F-21
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
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
F-22
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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 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 of its
products. The Company carries two types of royalties, lump-sum
or running basis. Lump-sum royalties which require 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
agreements and the costs are amortized over the contract period
using the straight-line method.
Running royalty is paid based on the revenue of related products
sold by the Company. For example, the Company entered into an
agreement with a semiconductor design company, who comprised
88.4%, 94.4%, 92.4% and 88.2% of total running royalty expenses
in 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, respectively. Pursuant to the
agreement with the semiconductor design company, royalty rates
range from 2.5% to 6% of the related product revenue and payment
is made monthly. 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
F-23
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
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
F-24
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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
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
F-25
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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 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.
F-26
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
| 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.
F-27
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 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 | ||
| 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
|
||||||||||||||||||||||
|
Technology
|
14,745 | 14,745 | 13,095 | (C)-I, II, III | ||||||||||||||||||
|
Customer relationships
|
26,100 | 26,100 | 3,132 | (C)-I, II | ||||||||||||||||||
|
Intellectual property assets
|
4,655 | 4,655 | 2,387 | (C)-I, III | ||||||||||||||||||
|
In-process research and development
|
9,700 | 9,700 | 9,700 | (C)-I, II | ||||||||||||||||||
|
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 | ) | |||||||||
|
Change in 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.
As part of its application of fresh-start reporting, the Company
recognized fair value associated with IPR&D of $9,700
thousand. The Company accounted for IPR&D as an
indefinite-lived intangible
F-32
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
asset until completion or abandonment of the associated research
and development (“R&D”) projects. The IPR&D
charges incurred by the Company’s Semiconductor
Manufacturing Services (“SMS”) segment related to
design of a product to the point that it met specific technical
requirements, directly targeted at customers. The Large Display
Solution (“LDS”) reporting unit incurs IPR&D
charges related to the design of possible products. These
R&D efforts are intended to incur incremental sales with
the Company’s existing and new customers. Fair value of
IPR&D was based on estimating the future cash flows by the
Company’s SMS segment and LDS reporting unit 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 segment 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. 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.
In the SMS segment, management determined that a small number of
in-process projects were behind schedule based on a review of
the status of each project as of December 31, 2009.
Expected completion term ranges from 0.5 to 3.5 years from
a project start date. Incurred costs as of December 31,
2009 totaled $5.6 million and costs to complete the
projects are estimated at $1.5 million to be spent over the
next one or two years from the year ended December 31,
2009. In the LDS reporting unit, management determined that none
of the in-process projects were behind schedule based on a
review of the status of each project as of December 31,
2009. All projects are expected to be completed within
2 years from a project start date. Incurred costs as of
December 31, 2009 totaled $5.6 million and costs to
complete the projects are estimated at $2.3 million to be
spent within a year from the year ended December 31, 2009.
The primary risks associated with the above projects include
uncertainties in completing development projects on schedule due
to technological feasibility and resource capacity, which could
lead to lower demand at a lower selling point given the market
trends. Such delay in development and production could adversely
affect the related customer relationship. Additionally, there
can be no assurance that meaningful sales will occur on a
continuing basis considering market changes.
The Company periodically evaluates the existence of impairment
for its IPR&D assets. If a project is completed, the
carrying value of the related intangible asset is amortized over
the remaining estimated life of the asset beginning in the
period in which the project is completed and sales of related
product commenced. If a project becomes impaired or abandoned,
the carrying value of the related intangible asset would be
written down to its fair value and an impairment charge would be
taken in the period in which the impairment occurs.
F-33
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
| 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 | |||||||
F-34
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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
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.
F-35
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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 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.”
F-36
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 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
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
F-37
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
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.
F-38
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
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,
F-39
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
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
F-40
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
| 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.
F-41
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 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
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
F-42
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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-43
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-44
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-45
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-46
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-47
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 | ) | ||||||||||
In prior years the Company had entered into an agreement with a
software company to purchase licensed software products (the
“Purchase Agreement”), including the licensed CAD
software, for the three-year period from January 31, 2008
to January 30, 2011. The licensed CAD software has been
used across all lines of the Company’s business for
purposes of developing products by the Imaging Solutions
business and the Display Solution business and verifying the
origin of defects in the manufacturing process of the
Semiconductor Manufacturing Services.
During the third quarter of 2009, due to the discontinuation of
its Imaging Solutions business segment and the related declining
usage of the licensed CAD software, the Company was able to
renegotiate the Purchase Agreement with a software company. Such
renegotiation resulted in a reduction of the total fee, which
lowered the Company’s future scheduled payments. Therefore,
the Company adjusted the previously recorded restructuring
charges related to this agreement’s non-refundable future
scheduled payments in the amount of $1,120 thousand. The Company
had considered such payments as a contract termination cost. The
adjustment of $1,120 thousand represents the amount by which the
non-cancellable future payments that were to be incurred by the
Imaging Solutions business segment were reduced as a result of
the revised payment terms.
The Company renewed the Purchase Agreement exclusively for the
use of other business segments and not for the use of the
Imaging Solutions business segment and the Company has no
continuing involvement in the Imaging Solutions business.
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
F-48
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
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.
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.
F-49
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 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.
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 the
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-50
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-51
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-52
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-53
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-54
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 believes it is probable that
the pending claim will have an unfavorable outcome and further
believes the associated loss can be reasonably estimated
according
F-55
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
to ASC 450 ‘Contingencies‘ (“ASC 450”).
The Company accrued $718 thousand of estimated liabilities as of
October 25 and December 31, 2009 as the Company believes
its accrual of $718 thousand is its best estimate if the
final outcome is unfavorable. Estimation was based on the
Company’s most recent communication with Samsung Fiber
Optics. Accordingly, 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-56
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-57
Table of Contents
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements — (Continued)
(Tabular dollars
in thousands, except unit data)
| 27. | Unaudited Pro forma December 31, 2009 Balance Sheet |
Subsequent to December 31, 2009, the Company declared a
distribution to unitholders would be made using the proceeds
from the sale of $250 million in aggregate principal amount
of 10.5% senior notes. As the declaration was made after the
balance sheet date, an unaudited pro forma balance sheet has
been presented to show the pro forma liability due to
unitholders and decrease in additional paid in capital as if the
declaration of the distribution to unitholders was made prior to
December 31, 2009.
| 28. | 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.
Cash Flow
Hedge Transactions
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.
Issuance of
$250 million of Senior Notes and Applications of Net
Proceeds (Unaudited)
On April 9, 2010 the Company’s Luxembourg subsidiary
and United States finance subsidiary completed the sale of
$250 million in aggregate principal amount of
10.500% senior notes due 2018. Of the $239.6 million
of net proceeds, $130.7 million was used to make a
distribution to the Company’s unitholders and
$61.8 million was used to repay all outstanding borrowings
under the term loan. The remaining proceeds were retained to
fund working capital and for general corporate purposes.
Regarding the distribution made to unitholders, the Company has
presented pro forma balance sheet information in the face of
consolidated balance sheets.
F-58
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 April 2010, our subsidiaries, MagnaChip Semiconductor S.A.
and MagnaChip Semiconductor Finance Company, sold (and certain
of our subsidiaries guaranteed) $250 million aggregate
principal amount of 10.500% senior notes due 2018. We
received net proceeds of approximately $239.6 million
pursuant to the sale of such notes. The initial purchasers of
the foregoing notes were Goldman, Sachs & Co.,
Barclays Capital Inc., Deutsche Bank Securities Inc., Morgan
Stanley & Co. Incorporated, Citigroup Global Markets
Inc., Credit Suisse Securities (USA) LLC and UBS Securities LLC.
The issuance of the notes to the initial purchasers was made in
reliance on Section 4(2) under the Securities Act and the
notes were subsequently resold by the initial purchasers
pursuant to Rule 144A and Regulation S thereunder.
In March 2010, we issued to our director Nader Tavakoli a
restricted unit bonus for 150,000 common units pursuant to
the MagnaChip Semiconductor LLC 2009 Common Unit Plan. In March
2010, we also issued to certain of our directors and employees
options to purchase up to 914,000 common units pursuant to
the MagnaChip Semiconductor LLC 2009 Common Unit Plan at an
exercise price of $2.12 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 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.
II-2
Table of Contents
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 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* | ||
| 2 | .1 | Second Amended Chapter 11 Plan of Reorganization Proposed by the Official Committee of Unsecured Creditors of MagnaChip Semiconductor Finance Company, et al., dated as of September 24, 2009 | ||
| 3 | .1 | Certificate of Formation of MagnaChip Semiconductor LLC (formerly System Semiconductor Holding LLC)(3) | ||
| 3 | .2 | Certificate of Amendment to Certificate of Formation of MagnaChip Semiconductor LLC(3) | ||
| 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) | ||
| 3 | .5 | Form of Bylaws of MagnaChip Semiconductor Corporation(3) | ||
| 3 | .6 | Plan of Conversion 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 Corporation, 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)* | ||
| 4 | .4 | Indenture, dated as of April 9, 2010, by and among MagnaChip Semiconductor S.A., MagnaChip Semiconductor Finance Company, the guarantors as named therein and Wilmington Trust FSB, as trustee | ||
| 4 | .5 | Form of 10.500% Senior Notes due 2018 and related notation of guarantee (included in Exhibit 4.4) | ||
| 4 | .6 | Exchange and Registration Rights Agreement, dated as of April 9, 2010, by and among MagnaChip Semiconductor S.A., MagnaChip Semiconductor Finance Company, the guarantors named therein, and Goldman, Sachs & Co., Barclays Capital Inc., Deutsche Bank Securities Inc. and Morgan Stanley & Co. Incorporated, as representatives of the several purchasers named therein | ||
| 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)(2) | ||
| 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)(1)(3) | ||
| 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)(3) | ||
| 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)(3) |
II-4
Table of Contents
| 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)(3) | ||
| 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)(3) | ||
| 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)(3) | ||
| 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)(3) | ||
| 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)(3) | ||
| 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.)(3) | ||
| 10 | .16 | Design Migration Agreement, dated as of May 1, 2007, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(2)(3) | ||
| 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)(3) | ||
| 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(3) | ||
| 10 | .20 | MagnaChip Semiconductor LLC 2009 Common Unit Plan(3) | ||
| 10 | .21 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (Non-U.S. Participants)(3) | ||
| 10 | .22 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (U.S. Participants)(3) | ||
| 10 | .23 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (Non-U.S. Participants)(3) | ||
| 10 | .24 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (U.S. Participants)(3) | ||
| 10 | .25 | MagnaChip Semiconductor Corporation 2010 Equity Incentive Plan(3) | ||
| 10 | .26 | MagnaChip Semiconductor Corporation 2010 Employee Stock Purchase Plan(3) | ||
| 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(3) | ||
| 10 | .29 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Sang Park(3) | ||
| 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(3) | ||
| 10 | .32 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Young Hwang(3) |
II-5
Table of Contents
| 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(3) | ||
| 10 | .34 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Brent Rowe(3) | ||
| 10 | .35 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Brent Rowe(3) | ||
| 10 | .36 | Offer Letter dated September 5, 2006, from MagnaChip Semiconductor LLC and MagnaChip Semiconductor, Ltd. to Margaret Sakai(3) | ||
| 10 | .37 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Margaret Sakai(3) | ||
| 10 | .38 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Margaret Sakai(3) | ||
| 10 | .39 | Offer Letter, dated as of July 1, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Heung Kyu Kim(3) | ||
| 10 | .40 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Heung Kyu Kim(3) | ||
| 10 | .41 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Heung Kyu Kim(3) | ||
| 10 | .42 | Offer Letter, dated as of June 20, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Tae Jong Lee(3) | ||
| 10 | .43 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Jong Lee(3) | ||
| 10 | .44 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Jong Lee(3) | ||
| 10 | .45 | Service Agreement, dated as of April 1, 2006, by and between MagnaChip Semiconductor, Ltd. (Korea) and John McFarland(3) | ||
| 10 | .46 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and John McFarland(3) | ||
| 10 | .47 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and John McFarland(3) | ||
| 10 | .48 | Senior Advisor Agreement, dated as of April 10, 2009, by and between MagnaChip Semiconductor, Ltd.(Korea) and Robert J. Krakauer(3) | ||
| 10 | .49 | MagnaChip Semiconductor Corporation Form of Indemnification Agreement with Directors and Officers(3) | ||
| 10 | .50 | Form of Accredited Investor Certification delivered to the Official Committee of Unsecured Creditors of MagnaChip Semiconductor Finance Company, et al. | ||
| 10 | .51 | Form of Subscription Agreement for common units of MagnaChip Semiconductor LLC (in connection with the Committee’s Plan of Reorganization under Chapter 11 of the Bankruptcy Code) | ||
| 10 | .52 | Subscription Form for Rights Offering in connection with the Committee’s Plan of Reorganization under Chapter 11 of the Bankruptcy Code | ||
| 10 | .53 | $35,000,000 Common Stock Backstop Commitment letter, dated as of September 23, 2009, from Avenue Capital Management II, L.P., solely in its capacity as investment advisor to Avenue Investments, L.P., Avenue International Master, L.P., Avenue Special Situations Fund IV, L.P., Avenue Special Situations Fund V, L.P. and Avenue CDP-Global Opportunities Fund, L.P. (included in Exhibit 2.1) | ||
| 10 | .54 | MagnaChip Semiconductor LLC Profit Sharing Plan as adopted on December 31, 2009 and as amended on February 15, 2010(2) | ||
| 21 | .1 | Subsidiaries of the Registrant(3) | ||
| 23 | .1 | Consent of Samil PricewaterhouseCoopers |
II-6
Table of Contents
| 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(3) |
| * | 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. |
| (3) | Previously filed. |
| 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 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 has duly caused this Amendment
No. 1 to 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 April 20,
2010.
MagnaChip Semiconductor LLC
| By: |
/s/ Sang
Park
|
Sang Park, Chief Executive
Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to 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) |
April 20, 2010 | ||||
|
* Margaret Sakai |
Chief Financial Officer (Principal Financial and Accounting Officer) | April 20, 2010 | ||||
|
* Michael Elkins |
Director | April 20, 2010 | ||||
|
* Randal Klein |
Director | April 20, 2010 | ||||
|
* R. Douglas Norby |
Director | April 20, 2010 | ||||
|
* Gidu Shroff |
Director | April 20, 2010 | ||||
|
* Steven Tan |
Director | April 20, 2010 | ||||
|
* Nader Tavakoli |
Director | April 20, 2010 | ||||
| *By |
/s/ Sang
Park Attorney-in-fact |
|||||
II-8
Table of Contents
Exhibit
Index
| 1 | .1 | Form of Underwriting Agreement* | ||
| 2 | .1 | Second Amended Chapter 11 Plan of Reorganization Proposed by the Official Committee of Unsecured Creditors of MagnaChip Semiconductor Finance Company, et al., dated as of September 24, 2009 | ||
| 3 | .1 | Certificate of Formation of MagnaChip Semiconductor LLC (formerly System Semiconductor Holding LLC)(3) | ||
| 3 | .2 | Certificate of Amendment to Certificate of Formation of MagnaChip Semiconductor LLC(3) | ||
| 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) | ||
| 3 | .5 | Form of Bylaws of MagnaChip Semiconductor Corporation(3) | ||
| 3 | .6 | Plan of Conversion 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 Corporation, 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)* | ||
| 4 | .4 | Indenture, dated as of April 9, 2010, by and among MagnaChip Semiconductor S.A., MagnaChip Semiconductor Finance Company, the guarantors as named therein and Wilmington Trust FSB, as trustee | ||
| 4 | .5 | Form of 10.500% Senior Notes due 2018 and notation of guarantee (included in Exhibit 4.4) | ||
| 4 | .6 | Exchange and Registration Rights Agreement, dated as of April 9, 2010, by and among MagnaChip Semiconductor S.A., MagnaChip Semiconductor Finance Company, the guarantors named therein, and Goldman, Sachs & Co., Barclays Capital Inc., Deutsche Bank Securities Inc. and Morgan Stanley & Co. Incorporated, as representatives of the several purchasers named therein | ||
| 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)(2) | ||
| 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)(1)(3) | ||
| 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)(3) | ||
| 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)(3) | ||
| 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)(3) |
Table of Contents
| 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)(3) | ||
| 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)(3) | ||
| 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)(3) | ||
| 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)(3) | ||
| 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.)(3) | ||
| 10 | .16 | Design Migration Agreement, dated as of May 1, 2007, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(2)(3) | ||
| 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)(3) | ||
| 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(3) | ||
| 10 | .20 | MagnaChip Semiconductor LLC 2009 Common Unit Plan(3) | ||
| 10 | .21 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (Non-U.S. Participants)(3) | ||
| 10 | .22 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (U.S. Participants)(3) | ||
| 10 | .23 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (Non-U.S. Participants)(3) | ||
| 10 | .24 | MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (U.S. Participants)(3) | ||
| 10 | .25 | MagnaChip Semiconductor Corporation 2010 Equity Incentive Plan(3) | ||
| 10 | .26 | MagnaChip Semiconductor Corporation 2010 Employee Stock Purchase Plan(3) | ||
| 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(3) | ||
| 10 | .29 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Sang Park(3) | ||
| 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(3) | ||
| 10 | .32 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Young Hwang(3) | ||
| 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(3) | ||
| 10 | .34 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Brent Rowe(3) |
Table of Contents
| 10 | .35 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Brent Rowe(3) | ||
| 10 | .36 | Offer Letter dated September 5, 2006, from MagnaChip Semiconductor LLC and MagnaChip Semiconductor, Ltd. to Margaret Sakai(3) | ||
| 10 | .37 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Margaret Sakai(3) | ||
| 10 | .38 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Margaret Sakai(3) | ||
| 10 | .39 | Offer Letter, dated as of July 1, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Heung Kyu Kim(3) | ||
| 10 | .40 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Heung Kyu Kim(3) | ||
| 10 | .41 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Heung Kyu Kim(3) | ||
| 10 | .42 | Offer Letter, dated as of June 20, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Tae Jong Lee(3) | ||
| 10 | .43 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Jong Lee(3) | ||
| 10 | .44 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and Tae Jong Lee(3) | ||
| 10 | .45 | Service Agreement, dated as of April 1, 2006, by and between MagnaChip Semiconductor, Ltd. (Korea) and John McFarland(3) | ||
| 10 | .46 | Notice of Grant of Unit Option, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and John McFarland(3) | ||
| 10 | .47 | Notice of Grant of Restricted Units, dated as of December 8, 2009, by and between MagnaChip Semiconductor LLC and John McFarland(3) | ||
| 10 | .48 | Senior Advisor Agreement, dated as of April 10, 2009, by and between MagnaChip Semiconductor, Ltd.(Korea) and Robert J. Krakauer(3) | ||
| 10 | .49 | MagnaChip Semiconductor Corporation Form of Indemnification Agreement with Directors and Officers(3) | ||
| 10 | .50 | Form of Accredited Investor Certification delivered to the Official Committee of Unsecured Creditors of MagnaChip Semiconductor Finance Company, et al. | ||
| 10 | .51 | Form of Subscription Agreement for common units of MagnaChip Semiconductor LLC (in connection with the Committee’s Plan of Reorganization under Chapter 11 of the Bankruptcy Code) | ||
| 10 | .52 | Subscription Form for Rights Offering in connection with the Committee’s Plan of Reorganization under Chapter 11 of the Bankruptcy Code | ||
| 10 | .53 | $35,000,000 Common Stock Backstop Commitment letter, dated as of September 23, 2009, from Avenue Capital Management II, L.P., solely in its capacity as investment advisor to Avenue Investments, L.P., Avenue International Master, L.P., Avenue Special Situations Fund IV, L.P., Avenue Special Situations Fund V, L.P. and Avenue CDP-Global Opportunities Fund, L.P. (included in Exhibit 2.1) | ||
| 10 | .54 | MagnaChip Semiconductor LLC Profit Sharing Plan as adopted on December 31, 2009 and as amended on February 15, 2010(2) | ||
| 21 | .1 | Subsidiaries of the Registrant(3) | ||
| 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(3) |
| * | To be filed by amendment. |
Table of Contents
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. |
| (3) | Previously filed. |
Exhibit 2.1
N THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
| In re: | ) | Chapter 11 | ||||||
| ) | ||||||||
| MAGNACHIP SEMICONDUCTOR FINANCE | ) | Case No. 09-12008 (PJW) | ||||||
| COMPANY, et al.,1 | ) | (Jointly Administered) | ||||||
| ) | ||||||||
| Debtors. | ) | |||||||
SECOND AMENDED CHAPTER 11 PLAN OF REORGANIZATION PROPOSED
BY THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS
OF MAGNACHIP SEMICONDUCTOR FINANCE COMPANY, ET AL,
BY THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS
OF MAGNACHIP SEMICONDUCTOR FINANCE COMPANY, ET AL,
DRINKER BIDDLE & REATH LLP
|
- and - | LOWENSTEIN SANDLER PC | ||
Howard A. Cohen, Esq.
|
Kenneth A. Rosen, Esq. | |||
1100 N. Market Street
|
John K. Sherwood, Esq. | |||
Wilmington, DE 19801-1254
|
65 Livingston Avenue | |||
Tel: (302) 467-4213
|
Roseland, New Jersey 07068 | |||
Fax:
(302) 467-4201
|
Tel: (973) 597-2500 | |||
| Fax: (973) 597-2400 |
Co-Counsel to the Official Committee of Unsecured Creditors
Dated: September 24, 2009
| 1 | The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, if applicable, and their respective addresses, are: MagnaChip Semiconductor Finance Company (4144), 787 N. Mary Avenue, Sunnyvale, CA 94085; MagnaChip Semiconductor LLC (5772), 787 N. Mar Avenue, Sunnyvale, CA 94085; MagnaChip Semiconductor SA Holdings LLC, 787 N. Mary Avenue, Sunnyvale, CA 94085; MagnaChip Semiconductor, Inc. (8632), 787 N. Mary Avenue, Sunnyvale, CA 94085; MagnaChip Semiconductor SA (9734), 74 Rue de Merl, B.P. 709, L-2017 Luxembourg; and MagnaChip Semiconductor B.V. (9827), 1043 BW Amsterdam, Naritaweg 165, the Netherlands. |
Table of Contents
| Page | ||||
I. INTRODUCTION |
1 | |||
II. DEFINED TERMS, RULES OF INTERPRETATION, COMPUTATION OF TIME,
AND GOVERNING LAW |
2 | |||
A. Rules of Interpretation, Computation of Time, and Governing Law |
2 | |||
B. Defined Terms |
2 | |||
III. TREATMENT OF ADMINISTRATIVE EXPENSES AND TAX CLAIMS |
14 | |||
A. Introduction |
14 | |||
B. Administrative Expenses |
15 | |||
C. Superpriority Claims |
15 | |||
D. Tax Claims |
15 | |||
IV. CLASSIFICATION AND TREATMENT OF CLASSIFIED CLAIMS AND
INTERESTS |
15 | |||
A. Summary |
15 | |||
B. Classification and Treatment of Claims and Interests |
16 | |||
1. Class 1 (A-F) — Priority Non-Tax Claims |
16 | |||
2. Class 2 (A-F) — Other Secured Claims |
16 | |||
3. Class 3 (A-F) — First Lien Lender Secured Claims |
17 | |||
4. Classes 4 (A-F) — Second Lien Noteholder Claims |
17 | |||
5. Class 5 (A-F) — General Unsecured Claims |
18 | |||
6. Class 6 (A-F) — Subordinated Note Claims |
18 | |||
7. Class 7 (A-F) — Intercompany Claims against the Debtors |
19 | |||
8. Class 8 (A-F) — Interests in the Debtors |
19 | |||
A. Identification of Classes |
20 | |||
1. Class 1 (A-F) — Priority Non-Tax Claims |
20 | |||
2. Class 2 (A-F) — Other Secured Claims |
20 | |||
3. Class 3 (A-F) — First Lien Lender Secured Claims |
20 | |||
4. Class 4 (A-F) — Second Lien Noteholder Claims |
20 | |||
5. Class 5 (A-F) — General Unsecured Claims |
20 | |||
6. Class 6 (A-F) — Subordinated Note Claims |
20 | |||
7. Class 7 (A-F) — Intercompany Claims against the Debtors |
20 | |||
8. Class 8 (A-F) — Interests in the Debtors |
20 | |||
i
| Page | ||||
B. Classes Permitted and Not Permitted to Vote |
20 | |||
C. Nonconsensual Confirmation |
20 | |||
D. Postpetition Interest |
21 | |||
VI. MEANS FOR IMPLEMENTATION OF THE PLAN |
21 | |||
A. Restructuring and Other Transactions |
21 | |||
1. Intercompany Claims and Interests in Subsidiaries |
21 | |||
2. Cancellation of Existing Securities and Agreements and Related Indentures/Discharge of Second Lien Noteholder Trustee and Subordinated Note Trustee |
21 | |||
3. Issuance of New Common Units, Warrants and Subscription Rights |
22 | |||
4. Incurrence of New Indebtedness |
23 | |||
B. Release of Liens/Secured Lien Guaranties/Subordinated Note Guaranties |
23 | |||
1. Release of Liens |
23 | |||
2. Release of Second Lien Guarantees |
23 | |||
3. Release of Subordinated Note Guarantees |
24 | |||
C. Continued Corporate Existence |
25 | |||
A. The Offering |
25 | |||
1. Issuance of Subscription Rights |
25 | |||
2. Subscription Period |
26 | |||
3. Subscription Purchase Price |
26 | |||
4. Exercise of Subscription Rights |
26 | |||
5. Offering Procedures |
27 | |||
6. Transfer
Restriction; Revocation |
27 | |||
7. Offering Backstop |
27 | |||
8. Backstop Fees and Expenses/Backstop Units |
28 | |||
9. Distribution of the New Common Units |
29 | |||
10. Backstop Purchaser’s Minimum Allocation |
29 | |||
11. Private Placement Exemption |
29 | |||
12. Disputed Claims |
29 | |||
13. Validity of Exercise of Subscription Rights |
29 | |||
14. Indemnification of Backstop Purchaser |
30 | |||
B. Retained Rights of Action |
31 | |||
C. Claims Objections |
32 | |||
ii
| Page | ||||
D. Corporate Governance |
32 | |||
1. General |
32 | |||
2. Postconfirmation Board |
32 | |||
3. Filing of Postconfirmation Organizational Documents |
32 | |||
4. Long-Term Incentive Plan |
32 | |||
E. Exemption from Securities Laws |
32 | |||
F. Issuance and Resale of New Securities Under the Committee’s Plan |
33 | |||
G. Registration Rights Agreement |
33 | |||
H. Payment of Plan Expenses |
34 | |||
I. Dissolution of the Official Committee |
34 | |||
J. Actions in Korea |
34 | |||
VII. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES |
34 | |||
A. Assumption and Rejection of Executory Contracts and Unexpired Leases |
34 | |||
B. Objections to Assumption of Executory Contracts and Unexpired Leases |
35 | |||
C. Payment Related to Assumption of Executory Contracts and Unexpired
Leases |
35 | |||
D. Bar Date for Rejection Damages |
36 | |||
E. Insurance Policies |
36 | |||
VIII. DISTRIBUTIONS AND RELATED MATTERS |
36 | |||
A. Dates of Distribution |
36 | |||
B. Cash Distributions |
37 | |||
C. Rounding of Payments |
37 | |||
D. Disputed Claims |
37 | |||
E. Undeliverable and Unclaimed Distributions |
37 | |||
F. Compliance With Tax Requirements |
38 | |||
G. Record Date in Respect to Distributions |
38 | |||
H. Conditions to Receiving Distributions |
39 | |||
I. Surrender of Instruments |
39 | |||
IX. LITIGATION, OBJECTIONS TO CLAIMS, AND DETERMINATION OF TAXES |
39 | |||
A. Litigation: Objections to Claims; Objection Deadline |
39 | |||
B. Temporary or Permanent Resolution of Disputed Claims |
40 | |||
C. Release of Avoidance Actions |
40 | |||
D. Preservation of Retained Rights of Action |
40 | |||
iii
| Page | ||||
X. EFFECT OF CONFIRMATION AND RELATED PROVISIONS |
41 | |||
A. Effect of Confirmation |
41 | |||
1. Binding Effect of Plan |
41 | |||
B. Injunction |
41 | |||
1. Generally |
41 | |||
2. Injunction Related to Rights of Action and Terminated Claims, Administrative Expenses or Interests |
42 | |||
3. Exculpation |
42 | |||
C. Debtor Release |
43 | |||
D. Third Party Release |
43 | |||
E. Subsequent Discovery of Facts Does Not Affect Enforceability of
Releases |
43 | |||
XI. PENSION PLANS, OTHER RETIREE BENEFITS AND LABOR CONTRACTS |
44 | |||
XII. NO REGULATED RATE CHANGE WITHOUT GOVERNMENT APPROVAL |
44 | |||
XIII. EXEMPTION FROM CERTAIN TRANSFER TAXES |
44 | |||
XIV. RETENTION OF JURISDICTION AND MISCELLANEOUS MATTERS |
44 | |||
A. Retention of Jurisdiction |
44 | |||
B. Miscellaneous Matters |
47 | |||
1. Headings |
47 | |||
2. Services by and Fees for Professionals and Certain Parties |
47 | |||
3. Bar Date for Administrative Expenses |
47 | |||
4. Notices |
48 | |||
5. Successors and Assigns |
48 | |||
6. Severability of Plan Provisions |
49 | |||
7. No Waiver |
49 | |||
8. Inconsistencies |
49 | |||
9. Plan Supplement |
49 | |||
10. Ancillary Proceedings |
||||
XV. CONDITIONS TO CONFIRMATION AND EFFECTIVENESS |
50 | |||
A. Conditions Precedent to Plan Effectiveness |
50 | |||
B. Effect of Non-Occurrence of Conditions to Effective Date |
50 | |||
XVI. EFFECT OF CONFIRMATION |
50 | |||
A. Binding Effect of Confirmation |
50 | |||
iv
| Page | ||||
B. Good Faith |
51 | |||
C. No Limitations on Effect of Confirmation |
51 | |||
XVII. MODIFICATION OR WITHDRAWAL OF PLAN |
51 | |||
A. Modification of Plan |
51 | |||
B. Withdrawal of Plan |
51 | |||
XVIII. CONFIRMATION REQUEST |
52 | |||
v
Exhibits
| Exhibit | Description | |
A
|
Backstop Commitment Agreement |
vi
The Official Committee of Unsecured Creditors (the “Creditors’ Committee”) of MagnaChip
Semiconductor Finance Company; MagnaChip Semiconductor LLC; MagnaChip Semiconductor SA Holdings
LLC; MagnaChip Semiconductor, Inc.; MagnaChip Semiconductor S.A.; and MagnaChip Semiconductor B.V.
(collectively, the “Debtors”), appointed in the Chapter 11 Cases pursuant to Section 1102 of the
Bankruptcy Code, hereby propose the following Plan of Reorganization pursuant to chapter 11 of
title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the “Committee’s Plan”):
I.
INTRODUCTION1
INTRODUCTION1
The Committee’s Plan provides for the satisfaction of Claims against the Debtors through (a)
the issuance of a New Term Loan in full and complete satisfaction of the First Lien Lender Claims,
(b) the conversion of the Second Lien Noteholder Claims and Subordinated Note Claims to the Second
Lien Noteholder Distribution and the Subordinated Note Distribution, respectively, and (c) the
Offering. Upon the Effective Date of the Committee’s Plan, the liens of the First Lien Lender
Parties and the Second Lien Noteholders shall be released and extinguished, and the Second Lien
Guarantees in favor of the Second Lien Noteholders from the Non-Korean Guarantors and the
Subordinated Note Guaranties in favor of the Holders of the Subordinated Note Claims shall be
released; provided, however, that the Liens securing the First Lien Lender Secured Claims
shall remain in effect for the sole purpose of securing the New Term Loan. In addition, the Korean
Guarantee shall be released as of the Effective Date.
The Committee’s Disclosure Statement, distributed with the Committee’s Plan, contains a
discussion of the Debtors’ history, a summary of the Debtors’ assets and liabilities, a summary of
what Holders of Claims and Interests will receive under the Committee’s Plan and the Joint Chapter
11 Plan of Liquidation Proposed by MagnaChip Semiconductor Finance Company, et al. and UBS AG,
Stamford Branch, As Creditor Agreement Agent and Priority Lien Collateral Agent (the “Debtors’
Plan”), a discussion of certain alternatives to the Committee’s Plan, and a summary of the
procedures and voting requirements necessary for Confirmation of the Committee’s Plan. The
Disclosure Statement is intended to provide Holders of Claims and Interests with information
sufficient to enable such Holders to vote on the Committee’s
Plan and the Debtors’ Plan. All
Holders of Claims entitled to vote on the Committee’s Plan are encouraged to carefully read the
Committee’s Disclosure Statement and the Committee’s Plan before voting to accept or reject the
Committee’s Plan. No solicitation materials, other than the Committee’s Disclosure Statement and
related materials transmitted herewith and approved by the Bankruptcy Court, have been authorized
for use in soliciting acceptance or rejection of the Committee’s Plan.
| 1 | Unless otherwise noted, capitalized terms used in the Committee’s Plan have the meanings ascribed in Article II herein. |
II.
DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME, AND GOVERNING LAW
DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME, AND GOVERNING LAW
A.
Rules of Interpretation, Computation of Time, and Governing Law
For purposes of the Committee’s Plan: (a) whenever from the context it is appropriate, each
term, whether stated in the singular or the plural, shall include both the singular and the plural,
and pronouns stated in the masculine, feminine, or neuter gender shall include the masculine,
feminine, and neuter gender; (b) any reference in the Committee’s Plan to an existing document or
exhibit filed, or to be filed, shall mean such document or exhibit, as it may have been or may be
amended, modified, or supplemented from time to time in accordance with the terms thereof and
hereof; (c) unless otherwise specified, all references in the Committee’s Plan to sections and
exhibits are references to sections and exhibits of or to the Committee’s Plan; (d) the words
“herein” and “hereto” refer to the Committee’s Plan in its entirety rather than to a particular
portion of the Committee’s Plan; (e) captions and headings to sections are inserted for convenience
of reference only and are not intended to be a part of or to affect the interpretation of the
Committee’s Plan; (f) the rules of construction set forth in section 102 of the Bankruptcy Code
shall apply; and (g) any term used in capitalized form in the Committee’s Plan that is not defined
in the Committee’s Plan but that is used in the Bankruptcy Code or the Bankruptcy Rules shall have
the meaning ascribed to such term in the Bankruptcy Code or the Bankruptcy Rules, as the case may
be.
In computing any period of time prescribed or allowed by the Committee’s Plan, the
provisions of Federal Rule of Bankruptcy Procedure 9006(a) shall apply.
Except to the extent that the Bankruptcy Code, Bankruptcy Rules, or other federal law is
applicable, and subject to the provisions of any contract, instrument, release, indenture, or other
agreement or document entered into in connection with the Committee’s Plan, the rights and
obligations arising under the Committee’s Plan shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware, without giving effect to the principles of
conflict of laws thereof.
B. Defined Terms
The following definitions shall apply to capitalized terms used in the Committee’s Plan:
1. “Accredited Investor” means an accredited investor as defined in Rule 501(a) of Regulation
D under the Securities Act, as of the Offering Record Date.
2. “Administrative Expense” means an unpaid administrative expense of the kind described in
sections 503(b) and 507(a)(2) of the Bankruptcy Code against any of the Debtors (other than the
Superpriority Claims), including, without limitation, (i) the actual, necessary costs and expenses
of preserving the Estates of the Debtors, including wages, salaries, or commissions for services
rendered after the commencement of the Chapter 11 Cases; (ii) compensation and reimbursement of
expenses of professionals to the extent allowable under sections 327, 328, 330(a), 331, 503(b) or
1103 of the Bankruptcy Code (including the reasonable fees and expenses of the legal and financial
advisors to the Creditors’ Committee); and (iii) all fees and charges
2
assessed
against the Estates under chapter 123 of title 28, United States Code, 28 U.S.C. §§ 1911–1930, including the fees, if any, due to the United States Trustee.
3. “Agent” means UBS AG, Stamford Branch, in its capacity as administrative agent and
collateral agent for the First Lien Lenders under the First Lien Credit Agreement.
4. “Allowed” means, with respect to any Claim, except as otherwise provided herein: (a) a
Claim that has been scheduled by any Debtor in its Schedules as other than disputed, contingent, or
unliquidated that has not been superseded by a Filed proof of Claim and as to which a Debtor or any
other party in interest has not Filed an objection; (b) a Claim that has been allowed by a Final
Order; (c) a Claim that is allowed: (i) in any stipulation of amount and nature of Claim executed
by a Debtor prior to the Effective Date and approved by the Bankruptcy Court; (ii) in any
stipulation of amount and nature of Claim executed by a Reorganized Debtor, as the case may be, on
or after the Effective Date and, to the extent necessary, approved by the Bankruptcy Court; or
(iii) in any contract, instrument, indenture, or other agreement entered into or assumed by a
Debtor in connection with and in accordance with the Committee’s Plan; (d) a Claim relating to a
rejected executory contract or unexpired lease that either (i) is not a Disputed Claim or (ii) has
been allowed by a Final Order, in either case only if a proof of Claim has been Filed by the Bar
Date or has otherwise been deemed timely Filed under applicable law; or (e) a Claim that is allowed
pursuant to the terms of the Committee’s Plan.
5. “Avoidance Claims” means any Right of Action for the recovery of transfers arising under
sections 510(c), 542, 543, 544, 547, 548, 549 or 550 of the Bankruptcy Code or applicable state
law.
6. “Backstop Approval Order” means that order, in form and substance satisfactory to the
Backstop Purchasers, authorizing and approving the Backstop Commitment Agreement.
7. “Backstop
Commitment Agreement” means that certain agreement, dated August 21, 2009, among
the Creditors’ Committee and the Backstop Purchaser, as amended, annexed hereto as Exhibit A.
8. “Backstop Purchaser” means Avenue Capital Management II, L.P., solely in its capacity as
its investment advisor to Avenue Investments, L.P., Avenue International Master, L.P., Avenue
Special Situations Fund IV, L.P., Avenue Special Situations Fund V, L.P., and Avenue CDP-Global
Opportunities Fund, L.P.
9. “Bankruptcy Code” means the Bankruptcy Reform Act of 1978, as amended, as set forth in
title 11 of the United States Code, 11 U.S.C. §§ 101 et seq., as now in effect or hereafter amended.
10. “Bankruptcy Court” means the United States Bankruptcy Court for the District of Delaware
or such other court of competent jurisdiction as may be administering the Chapter 11 Cases or any
party thereof.
11. “Bankruptcy Rules” means the Federal Rules of Bankruptcy Procedure promulgated pursuant to
28 U.S.C. § 2075, as now in effect or hereinafter amended, together with the local rules of the
Bankruptcy Court.
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12. “Bar
Date” means, July 29, 2009, the date set as the deadline for filing proofs of Claims
or Interests (whether or not each and every proof of Claim or Interest is subject to such deadline)
pursuant to the Order (A) Fixing the Procedures and Deadlines to File Proofs of Claim, (B)
Approving the Form and Manner of Notice of Bar Dates, and (C) Granting Related Relief entered on
June 25, 2009 by the Bankruptcy Court.
13. “Business Day” means any day, other than a Saturday, a Sunday or a “legal holiday,”
as defined in Bankruptcy Rule 9006(a).
14. “Cash” means currency of the United States of America and cash equivalents, including, but
not limited to, bank deposits, immediately available or cleared checks, drafts, wire transfers and
other similar forms of payment.
15. “Chapter 11
Cases” means the cases commenced under chapter 11 of the Bankruptcy Code by
each of the Debtors on the Petition Date and pending before the
Bankruptcy Court.
16. “Claim” means any claim against the Debtors, or any of them, within the meaning of section
101(5) of the Bankruptcy Code that is not an Administrative Expense or Superpriority Claim,
including, without limitation, claims of the kind specified in sections 502(g), 502(h) or 502(i)
of the Bankruptcy Code.
17. “Claims Agent” means Omni Management Group, in its capacity as claims agent for the
Debtors.
18. “Class”
means each category of Claims or Interests classified in Section IV of the
Committee’s Plan pursuant to section 1122 of the Bankruptcy Code.
19. “Collateral Trustee” means U.S. Bank, National Association, in its capacity as collateral
trustee under the Collateral Trust Agreement dated as of December 23, 2004, by and among the Agent,
the Second Lien Noteholder Trustee and the Collateral Trustee.
20. “Committee’s Disclosure Statement” means the Disclosure Statement in Support of Chapter II
Plan of Reorganization Proposed by the Official Committee of Unsecured Creditors of MagnaChip
Semiconductor Finance Company, as may be amended, modified, or supplemented from time to time in
accordance with the terms hereof, submitted pursuant to section 1125
of the Bankruptcy Code in
connection with the solicitation of acceptances of the Committee’s Plan.
21. “Committee’s Plan” means this Plan of Reorganization for the Debtors.
22. “Confirmation”
means the approval by the Bankruptcy Court of the Committee’s Plan in
accordance with the provisions of chapter 11 of the Bankruptcy Code, as effectuated by the entry
of the Confirmation Order.
23. “Confirmation
Date” means the date on which the clerk of the Bankruptcy Court enters the
Confirmation Order on the docket in the Chapter 11 Cases.
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24. “Confirmation
Hearing” means the date or dates established by the Bankruptcy Court for
the hearing(s) on confirmation of the Committee’s Plan pursuant to section 1129 of the Bankruptcy
Code, as it may be adjourned or continued from time to time.
25. “Confirmation Order” means the order entered by the Bankruptcy Court confirming
(approving) the Committee’s Plan in accordance with the provisions of chapter 11 of the Bankruptcy
Code, in form and substance acceptable to the Creditors’ Committee and the Backstop Purchaser.
26. “Consummation” means substantial consummation of the Committee’s Plan as that term is used
in section 1127(b) of the Bankruptcy Code.
27. “Creditor” means any Person who is the Holder of a Claim, Administrative Expense, or
Superpriority Claim against any of the Debtors.
28. “Creditors’ Committee” means the official committee of unsecured creditors of the Debtors
appointed in the Chapter 11 Cases pursuant to section 1102 of the Bankruptcy Code. The Creditors’
Committee is comprised of the following entities: Avenue Special Situations Fund V, L.P.; Bank of
New York Mellon; and Law Debenture Corporation.
29. “Debtors” means (i) Finco; (ii) LLC; (iii) Holdco; (iv) MSA; (v) Luxco; and (vi) Dutchco;
in their corporate capacities, other capacities and, as appropriate, in their capacities as debtors
and debtors in possession under chapter 11 of the Bankruptcy Code in their Chapter 11 Cases and,
when the context so requires, in their capacities as the Reorganized Debtors.
30. “Deficiency Claims” means, with respect to any Claim secured by a valid Lien on any
property of any Debtor having a value of less than the amount of such Claim (after taking into
account other Liens of higher priority on such property), the portion of such Claim equal to the
difference between (a) the amount of the Claim and (b) the Allowed amount of the secured portion of
such Claim (which Allowed secured amount may be set pursuant to the Committee’s Plan).
31. “Disallowed” means, with respect to a Claim, Interest, or Administrative Expense, all or a
portion thereof that it is determined is not allowed under the Bankruptcy Code either by a Final
Order, the Committee’s Plan, any Plan Document or under a stipulation or settlement with any of the
Debtors entered into after the Effective Date.
32. “Disputed Claim” means (i) a Claim, Interest, or Administrative Expense that is
subject to a pending objection or for which the Bankruptcy Court’s order allowing or
disallowing
such Claim, Interest, or Administrative Expense is on appeal; or (ii) until the Objection
Deadline.
a. a Claim for which a corresponding Claim has not been listed in the Debtors’
Schedules or for which the corresponding Claim is listed in the Debtors’ Schedules with a differing
amount (to the extent of such difference), with a differing classification, or as disputed,
contingent, or unliquidated; and
5
b. a Claim that has not been Allowed either by a Final Order, the Committee’s
Plan, any Plan Document, or under a stipulation or settlement with any of the Debtors entered
into’ after the Effective Date.
33. “Distributable Cash and Claims” means, as to each Debtor, any Cash, deposit accounts,
reserves, and deposits remaining in the Estate of such Debtor as of the Effective Date, together
with any Retained Rights of Action of such Debtor (including Intercompany Claims against Non-Debtor
Subsidiaries), but excluding other real and personal property of such Debtor.
34. “Dutchco” means MagnaChip Semiconductor B.V., a company incorporated in the Netherlands.
35. “Effective Date” means the first Business Day after the Confirmation Date immediately
following the first day upon which all of the conditions to the occurrence of the Effective
Date have been satisfied or waived in accordance with the Committee’s Plan.
36. “Eligible Holder” means a holder of a Second Lien Noteholder Claim as of the Offering
Record Date who is an Accredited Investor.
37. “Entity” and “Entities” mean an entity as defined in section 101(5) of the Bankruptcy
Code or more than one thereof.
38. “Estate(s)” means each estate created pursuant to section 541(a) of the
Bankruptcy Code upon the commencement of each Chapter 11 Case.
39. “Fee Applications” mean applications of Professional Persons under sections 330, 331 or
503 of the Bankruptcy Code for allowance of compensation and reimbursement of expenses in the
Chapter 11 Cases.
40. “Fee Claims” means Administrative Expenses for compensation and reimbursement of
expenses of professionals to the extent allowable under sections 327, 328, 330(a), 331, 503(b)
or 1103 of the Bankruptcy Code.
41. “File” or “Filed” means filed of record and entered on the docket in the Chapter 11 Cases
or, in the case of a proof of Claim, delivered to the Claims Agent.
42. “Final Cash Collateral Order” means the Final Order Pursuant to Sections 105, 361, 362 and
363 of the Bankruptcy Code Authorizing the Use of Cash Collateral Pursuant to the Enforcement
Agreement and Granting Adequate Protection to First Lien Lenders and Second Lien Noteholders,
entered by the Bankruptcy Court in the Chapter 11 Cases on July 13, 2009.
43. “Final Allocation” means with respect to any Offering Participant that has elected to
exercise its Rights, such holder’s Pro Rata Share of the Rights after taking into account the
Minimum Allocation.
44. “Final Order” means a judgment, order, ruling, or other decree issued and entered by the
Bankruptcy Court or by any state or other federal court or other tribunal, which judgment, order,
ruling, or other decree has not been reversed, stayed, modified, or amended and as to
6
which (a) the time to appeal or petition for review, rehearing, or certiorari has expired and as to
which no appeal or petition for review, rehearing or certiorari is pending; or (b) any appeal or
petition for review, rehearing, or certiorari has been finally decided and no further appeal or
petition for review, rehearing, or certiorari can be taken or granted.
45. “Final Resolution Date” means the date on which all Disputed Claims of Creditors
shall have been resolved by Final Order or otherwise finally determined.
46. “Finco” means MagnaChip Semiconductor Finance Company, a Delaware corporation.
47. “First Lien Credit Agreement” means that Credit Agreement, dated as of December 23, 2004,
by and among the First Lien Lender Parties; Luxco and Finco, as borrowers; and the First Lien
Guarantors; and any ancillary documents issued in connection therewith or related thereto.
48. “First Lien Guarantee” means the guarantee by the First Lien Guarantors of the obligations
of the First Lien Lender Parties, Luxco and Finco under the First Lien Credit Agreement.
49. “First Lien Guarantors” means LLC; Dutchco; MSK; Holdco; MagnaChip Semiconductor Limited,
a company incorporated in the United Kingdom; MagnaChip Semiconductor Holding Company Limited, a
British Virgin Islands company; MagnaChip Semiconductor Inc., a company incorporated in Japan;
MagnaChip Semiconductor Limited, a company incorporated in Hong Kong SAR; MagnaChip Semiconductor
Limited, a company incorporated in Taiwan; and MSA.
50. “First Lien Lender” means a “Lender” under and as defined in the First Lien
Credit Agreement.
51. “First Lien Lender Parties” means the Agent, the First Lien Lenders, UBS Securities LLC,
as Arranger, Syndication Agent and Documentation Agent, UBS Loan
Finance LLC, as Swingline Lender,
and Korea Exchange Bank, as Issuing Bank.
52. “First Lien Lender Secured Claims” means the Secured Claims, including accrued and unpaid
interest, fees and costs, of the First Lien Lender Parties arising under, in connection with or
pursuant to the First Lien Credit Agreement and the Final Cash Collateral Order and all other
documents, instruments, guarantees and other agreements related to either thereof.
53. “General Unsecured Claim” means a Claim against any of the Debtors other than (a) an
Administrative Expense, (b) a Superpriority Claim, (c) a Tax Claim, (d) a Priority Non-Tax Claim,
(e) an Other Secured Claim, (f) a First Lien Lender Secured Claim, (g) a Second Lien Noteholder
Claim, (h) a Subordinated Note Claim, and (i) an Intercompany Claim. General Unsecured Claims
include, without limitation, and any Deficiency Claim of the First Lien Lender Parties.
54. “Holdco” means MagnaChip Semiconductor SA Holdings LLC, a Delaware limited liability
company.
7
55. “Holder” means the beneficial owner of any Claim, Interest, Administrative Expense,
or Superpriority Claim.
56. “Impaired”
has the meaning set forth in section 1124 of the Bankruptcy Code.
57. “Indenture Trustee Fees and Expenses” means any and all fees, expenses, disbursements and
advances of each Indenture Trustee (and its counsel, agents and advisors) that are provided for
under the Second Lien Notes Indenture and the Subordinated Note Indenture (including, without
limitation, in connection with service on the Creditors’ Committee and in connection with
distributions under the Committee’s Plan), which are incurred at any time prior to or after the
Effective Date.
58. “Intercompany Claim” means any Claim or Administrative Claim asserted against a Debtor or
Non-Debtor Affiliate by any other Debtor or Non-Debtor Affiliate, including, without limitation,
any subrogation claim that has not been waived and any contribution claim.
59. “Intercreditor Agreement” means that certain intercreditor agreement dated as of December
23, 2004, among Luxco, Finco, the First Lien Guarantors, the Agent, the Second Lien Noteholder
Trustee, the Second Lien Collateral Agent and the Collateral Trustee.
60. “Interest” means an equity security of any Debtor within the meaning of section 101(16) of
the Bankruptcy Code.
61. “Korean Guarantee” means the guarantee by MSK of Luxco’s and Finco’s obligations under the
Second Lien Indenture and the notes executed pursuant to the Second Lien Indenture.
62. “Lenders” means, collectively, the First Lien Lenders and the Second Lien
Noteholders.
63. “Lien” means any charge against or security interest in property to secure payment
or performance of a Claim, debt, or obligation, against Debtor or Non-Debtor Subsidiaries.
64. “LLC” means MagnaChip Semiconductor LLC, a Delaware limited liability company.
65. “Long-Term Incentive Plan” means an incentive Plan for management, selected employees and
directors of the Reorganized Debtors, the terms of which are described in Article VI.G4 of the
Committee’ Plan.
66. “Luxco”
means MagnaChip Semiconductor S.A., a société anonyme and organized under the
laws of Luxembourg.
67. “Minimum Allocation” means 67% of the New Common Unit that is issued pursuant to the
Offering.
68. “MSA” means MagnaChip Semiconductor, Inc., a California corporation.
8
69. “MSK” means MagnaChip Semiconductor, Ltd., a Korean limited liability company.
70. “New Term Loan” means the term loan as evidenced by the amended and restated First Lien
Credit Agreement in the initial aggregate amount of $0-$61.75 million, the material terms of which
are set forth on Schedule 1 of the Committee’s Plan.
71. “New Common Units” means the common units of LLC to be issued on the Effective Date
pursuant to the Committee’s Plan.
72. “Non-Debtor Subsidiaries” means MSK, MagnaChip Semiconductor Limited (Hong Kong),
MagnaChip Semiconductor Inc. (Japan), MagnaChip Semiconductor Limited (Taiwan), MagnaChip
Semiconductor Limited (U.K.), MagnaChip Semiconductor Holding Company Limited, a company
incorporated under the laws of the British Virgin Islands, and MagnaChip Semiconductor (Shanghai)
Company Limited, a Chinese corporation.
73. “Non-Korean Guarantors” means all First Lien Guarantors other than MSK.
74. “Objection Deadline” means the deadline to object to Claims specified in Article IX(A) of
the Committee’s Plan.
75. “Offering” means the offering of $35 million in aggregate New Common Units, (i) on a pro
rata basis to each Eligible Holder of Second Lien Noteholder Claims and (ii) to the extent less
than the full Offering Amount is issued to the Eligible Holders of Second Lien Noteholder Claim, to
the Backstop Purchaser; provided, however, that the Backstop Purchaser shall
receive the Minimum Allocation of the Offering Amount pursuant to the Offering; provided,
further, that the Offering shall be subject to the New Common Units issued to the Backstop
Purchaser for the Standby Commitment Fee and the Long-Term Incentive Plan. The Offering will only
be made to accredited investors in a fashion that will be exempt from registration under the
Securities Act of 1933.
76. “Offering Amount” means $35 million.
77. “Offering Participant” means an Eligible Holder of a Second Lien Noteholder Claim as of
the Offering Record Date, including the Backstop Purchaser.
78. “Offering Procedures” means those certain rights offering procedures, setting forth the
terms and conditions of the Offering, as more fully described in Article VI(D) hereof.
79. “Offering Pro Rata Share” means with respect to the Subscription Rights of each Offering
Participant, the ratio (expressed as a percentage) of such participant’s Offering Participation
Claim Amount to the aggregate amount of all Offering Participation Claim Amounts, determined as of
the Subscription Expiration Date.
80. “Offering Record Date” means the Confirmation Date.
81. “Other Secured Claim” means any Secured Claim other than a First Lien Lender Secured Claim
or a Second Lien Noteholder Claim.
9
82. “PECs” means preferred equity certificates to be issued by Luxco in an amount and
upon terms that are similar to the terms of the Second Lien Notes and the Subordinated Notes but
without guarantees or Liens being granted by any Person.
83. “Per Unit Price” means the price per Unit for each New Common Unit purchased in the
Offering.
84. “Person” means an individual, partnership, corporation, limited liability company,
business trust, joint stock company, trust, unincorporated association, joint venture, governmental
authority, governmental unit, or other entity of whatever nature.
85. “Petition
Date” means June 12, 2009, the date on which each of the Debtors Filed their
petitions for relief under chapter 11 of the Bankruptcy Code.
86. “Plan Documents” means the Committee’s Plan, the Disclosure Statement, and all exhibits
and schedules to either of the foregoing.
87. “Plan Expenses” means the expenses incurred by the Reorganized Debtors following the
Effective Date (including the reasonable fees and costs of attorneys and other professionals) for
the purpose of (i) resolving Disputed Claims, if any, and effectuating distributions to Creditors
under the Committee’s Plan, (ii) otherwise implementing the Committee’s Plan and closing the
Chapter 11 Cases, or (iii) undertaking any other matter relating to the Committee’s Plan.
88. “Plan Proponent” means the Creditors’ Committee.
89. “Plan Supplement” means the supplement or supplements to the Committee’s Plan containing
certain documents relevant to the implementation of the Committee’s Plan specified in section XIV.9
of the Committee’s Plan; provided, however, that the Committee’s Plan Supplement
and the documents contained therein shall be in form, scope and substance satisfactory to the
Backstop Purchaser.
90. “Postconfirmation Board” means the board of directors of the Reorganized Debtors
which shall be disclosed in the Committee’s Plan Supplement and acceptable to the Backstop
Purchaser.
91. “Postconfirmation Organizational Documents” means the certificate of formation, limited
liability company agreement, certificate of incorporation, bylaws, and other organizational
documents for the Reorganized Debtors, the forms of which shall be reasonably satisfactory to the
Backstop Purchaser and consistent with Section 1123(a)(6) of the Bankruptcy Code. The
Postconfirmation Organizational Documents shall be included in the Committee’s Plan Supplement.
92. “Priority Claim Distributions” shall mean distributions on account of all unpaid Allowed
Tax Claims and Priority Non-Tax Claims as required by the Committee’s Plan.
93. “Priority Non-Tax Claim” means any Claim, other than a Tax Claim, to the extent entitled
to priority under section 507(a) of the Bankruptcy Code.
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94. “Pro Rata” means proportionately, so that with respect to any distribution, the ratio of
(a) (i) the amount of property to be actually or theoretically distributed on account of a
particular Claim and/or Interest or particular group of Claims and/or Interests to (ii) the amount
of such particular Claim and/or Interest or group of Claims and/or Interests, is the same as the
ratio of (b) (i) the amount of property to be actually or theoretically distributed on account of
all Claims and/or Interests or groups of Claims and/or Interests sharing in such distribution to
(ii) the amount of all Claims and/or Interests or groups of Claims and/or Interests sharing in such
distribution.
95. “Professional Person” shall mean Persons retained or to be compensated pursuant to
sections 326, 327, 328, 330, 503(b), and 1103 of the Bankruptcy Code.
96. “Record Date” means the Effective Date.
97. “Released Parties” means the parties described in Article X(C) of the Committee’s Plan.
98. “Reorganized Debtors” means all or each of the Debtors from and after the Effective
Date.
99. “Representative” means, as to the referenced Person, such Person’s present and former
officers, directors, shareholders, trustees, partners and partnerships, members, agents, employees,
representatives, professionals, and successors or assigns, in each case solely in their capacity as
such.
100. “Restructuring Transactions” means those transactions described in Article VI(A) of the
Committee’s Plan.
101. “Reorganized Debtors” means all or each of the Debtors from and after the
Effective Date.
102. “Retained Rights of Action” means all Rights of Action belonging to any of the Estates as
of the Effective Date, other than those Rights of Action specifically released under the
Committee’s Plan, including Avoidance Claims released pursuant to Article IX(C) hereof.
103. “Rights of Action” means any and all claims, demands, rights, defenses, actions, causes
of action, suits, contracts, agreements, obligations, accounts, defenses, offsets, powers and
privileges of any kind or character whatsoever, known or unknown, suspected or unsuspected, whether
arising prior to, on, or after the Petition Date, in contract or in tort, at law or in equity, or
under any other theory of law, held by any Person against any other
Person.
104. “Schedules” means the schedules Filed by the Debtors with the clerk of the Bankruptcy
Court pursuant to Bankruptcy Rule 1007, as they have been or may be amended from time to time.
105. “Second Lien Collateral Agent” means The Bank of New York Mellon, As successor to The
Bank of New York, in its capacity as “Parity Lien Collateral Agent” as defined in the Second Lien
Indenture.
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106. “Second Lien Guarantees” means the guarantees by the Second Lien Guarantors of Luxco’s
and Finco’s obligations under the Second Lien Indenture and the notes executed pursuant to the
Second Lien Indenture.
107. “Second Lien Guarantors” means the Non-Korean Guarantors and MSK.
108. “Second Lien Indenture” means that certain Indenture, dated as of December 23, 2004,
providing for the issuance of Floating Rate Second Priority Senior Secured Notes due 2011 and 6
7/8% Second Priority Senior Secured Notes due 2011, by and among the Second Lien Noteholder
Trustee; the Collateral Trustee; Luxco and Finco, as issuers, and the Second Lien Guarantors.
109. “Second Lien Notes” means the senior secured notes issued under the Second Lien
Indenture.
110. “Second Lien Noteholder Claim” means the Claims of the Second Lien Noteholder Trustee and
the Second Lien Noteholders arising under, in connection with or pursuant to the Second Lien
Indenture, the Final Cash Collateral Order and all other documents, instruments, guarantees and
agreements related to either thereof.
111. “Second Lien Noteholder Distribution” means the distribution made to Holders of Second
Lien Noteholder Claims pursuant to Article IV(B)(4) of the Committee’s Plan.
112. “Second Lien Noteholder Trustee” means Bank of New York, as trustee under the Second Lien
Indenture.
113. “Second Lien Noteholders” means the “Holders” under and as defined in the Second
Lien Indenture.
114. “Secured Claim” means any Claim of any Person that is secured by a Lien on property in
which any of the Debtors or the Estates has an interest, which Lien is valid, perfected, and
enforceable under applicable law or by reason of a Final Order, or that is subject to setoff under
section 553 of the Bankruptcy Code, but only to the extent of the
value, as determined by the
Bankruptcy Court pursuant to section 506(a) of the Bankruptcy Code, of any interest of the claimant
in the property of the Estate securing such Claim or subject to setoff.
115. “Standby Commitment Fee” means the 10% of the New Common Units to be issued to the
Backstop Purchaser pursuant to and in accordance with the terms of the Backstop Commitment
Agreement.
116. “Subordinated Note Claim” means any Claim of the Subordinated Note Trustee or any
Subordinated Noteholder arising under, in connection with or pursuant to the Subordinated Note
Indenture and any documents, instruments or agreements related thereto.
117. “Subordinated Note Distribution” means the distribution, which shall be gifted by the
Holders of Second Lien Noteholder Claims, to the Holders of Subordinated Note Claims pursuant to
Article IV(B)(6) of the Committee’s Plan.
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118. “Subordinated Note Guarantors” means the Non-Korean Guarantors.
119. “Subordinated Note Guarantees” means the guarantees by the Subordinated Note Guarantors
of Luxco’s and Finco’s obligations under the Subordinated Note Indenture and the notes executed
pursuant to the Subordinated Note Indenture.
120. “Subordinated
Note Indenture” means that certain Indenture dated as of December 23, 2004,
providing for the issuance of 8% Senior Subordinated Notes due 2014, by and among Luxco and Finco,
as issuers; the Subordinated Note Trustee; and the Subordinated Note Guarantors.
121. “Subordinated Note Trustee” means Law Debenture Corporation, as trustee under the
Subordinated Note Indenture.
122. “Subordinated
Notes” means the senior subordinated notes issued under the
Subordinated Note Indenture.
123. “Subordinated Noteholder” means each “Holder” under and as defined in the
Subordinated Note Indenture.
124. “Subscription Agent” means Omni Management Group, LLC, in its capacity as a
subscription agent in connection with the Offering.
125. “Subscription Commencement Date” means the date on which Subscription Forms are mailed to
Holders of Second Lien Noteholder Claims, which date shall be no sooner than the Confirmation Date.
126. “Subscription Expiration Date” means the date set forth in the Subscription Form as the
expiration date for the Offering, which date shall be no later than one Business Days prior to
the Effective Date, subject to the Creditor’s Committee’s right to extend such date, and which
shall be the final date by which an Offering Participant may elect to subscribe to the Offering.
127. “Subscription Form” means the form to be used by an Offering Participant pursuant to
which such holder may exercise such Subscription Rights, which shall be in form and substance
acceptable to the Creditors’ Committee.
128. “Subscription Purchase Price” means, for each Offering Participant, such Offering
Participant’s Final Allocation multiplied by the Per Unit Price, with the amount of New Common
Units such Offering Participant is entitled to subscribe for being subject to rounding as provided
in section D.9 of this Plan.
129. “Subscription Rights” means the non-transferable, non-certified subscription rights to
purchase New Common Units in connection with the Offering on the terms and subject to the
conditions set forth in Article VI(D) of the Committee’s Plan.
130. “Superpriority Claims” means administrative expenses with priority in payment over any
and all administrative expenses of the kinds specified or ordered pursuant to any
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provision
of the Bankruptcy Code, including, but not limited to, Bankruptcy Code sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(b), 726, 1113 and 1114.
131. “Tax” means any tax, charge, fee, levy, impost, or other assessment by any federal,
state, local or foreign taxing authority, including, without limitation, income, excise, property,
sales, transfer, employment, payroll, franchise, profits, license, use, ad valorem, estimated,
severance, stamp, occupation, and withholding tax. “Tax” shall include any interest or additions
attributable to, imposed on or with respect to such assessments.
132. “Tax Claim” means any Claim for any Tax to the extent that it is entitled to
priority in payment under section 507(a)(8) of the Bankruptcy Code.
133. “Tax Code” means the Internal Revenue Code of 1986, as amended.
134. “Timely Filed” means, with respect to a Claim, Interest, or Administrative Expense, that
a proof of such Claim or Interest or request for payment of such Administrative Expense was Filed
with the Bankruptcy Court or the Claims Agent, as applicable, within such applicable period of time
fixed by the Committee’s Plan, statute, or pursuant to both Bankruptcy Rule 3003(c)(3) and a Final
Order (e.g., the Bar Date).
135. “Unclaimed Property” means all Cash deemed to be “Unclaimed Property” pursuant to
Article VIII(E) of the Committee’s Plan.
136. “Unimpaired” means, with respect to a Class of Claims or Interests, not Impaired, as
defined in Section 1124 of the Bankruptcy Code.
137. “Unsubscribed Units” means those New Common Units to be issued in connection with the
Offering that are not subscribed for pursuant to the Offering prior to the Subscription Expiration
Date.
138. “Warrants” means the warrants described in Article IV(B)(6) of the Committee’s Plan.
III.
TREATMENT OF ADMINISTRATIVE EXPENSES AND TAX CLAIMS
TREATMENT OF ADMINISTRATIVE EXPENSES AND TAX CLAIMS
A. Introduction
As required by the Bankruptcy Code, Administrative Expenses, Superpriority Claims, and Tax
Claims are not placed into voting Classes. Instead, they are left unclassified, are not considered
Impaired, do not vote on the Committee’s Plan, and receive treatment specified by statute or
agreement of the parties. All postpetition payments by or on behalf of any of the Debtors in
respect of an Administrative Expense or Tax Claim shall either reduce the Allowed amount thereof or
reduce the amount to be paid under the Committee’s Plan in respect of any Allowed amount thereof;
and, unless the Bankruptcy Court has specified otherwise prior to Confirmation, the Debtors or the
Reorganized Debtors shall, in their sole and absolute discretion, determine which such method of
application to employ.
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B. Administrative Expenses
Under the Committee’s Plan, on the Effective Date, each Holder of an Allowed Administrative
Expense will receive, in full satisfaction, settlement and release of such Allowed Administrative
Expense, Cash equal to the full amount of such Allowed Administrative Expense, unless such Holder
and any of the Debtors have mutually agreed in writing to other terms, or an order of the
Bankruptcy Court provides for other terms; provided, however, that (a) requests for payment of all
Administrative Expenses must be filed and served as described in
Article XIV(B)(3) of the
Committee’s Plan, and (b) certain different and additional requirements shall apply to the
Administrative Expenses that are Fee Claims as set forth in
Article XIV(B)(2) of the Committee’s
Plan.
C.
Superpriority Claims
No distributions to the First Lien Lender Parties shall be made on account of any
Superpriority Claims except as set forth in Article IV(B)(3) of the Committee’s Plan.
D. Tax Claims
Pursuant to section 1123(a)(1) of the Bankruptcy Code, Tax Claims are not to be
classified and thus Holders of Tax Claims are not entitled to vote to accept or reject the
Committee’s Plan.
As required by section 1129(a)(9) of the Bankruptcy Code, on or as soon as practicable after
the Effective Date, each Holder of an Allowed Tax Claim against any of the Debtors will receive, at
the sole option of the Debtors or the Reorganized Debtors, (i) on the Effective Date, or as soon
thereafter as is practicable, Cash in an amount equal to such Allowed Tax Claim or, (ii) commencing
on the Effective Date, or as soon thereafter as is practicable, and continuing over a period not
exceeding five (5) years from and after the Petition Date, equal semi-annual Cash payments in an
aggregate amount equal to such Allowed Tax Claim, together with interest for the period after the
Effective Date at the rate determined under applicable non-bankruptcy law as of the calendar month
in which the Plan is confirmed, subject to the sole option of the Debtors or Reorganized Debtors to
prepay the entire amount of the Allowed Tax Claim. Any Allowed Tax Claim (or portion thereof) not
yet due and payable as of the Effective Date will be paid by the Reorganized Debtors in the
ordinary course of business as such obligations become due. Any Holder of an Allowed Tax Claim may
agree to accept different treatment as to which the Debtors and such Holder have agreed upon in
writing.
IV.
CLASSIFICATION AND TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS
CLASSIFICATION AND TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS
| A. | Summary |
The categories of Claims and Interests listed below classify Claims and Interests for all
purposes, including voting, confirmation and distribution pursuant to the Committee’s Plan and
pursuant to sections 1122 and 1123(a)(1) of the Bankruptcy Code. A Claim or Interest is classified
in a particular Class only to the extent that the Claim or Interest qualifies with the description
of that Class and is classified in other Classes only to the extent that any remainder of
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the Claim or Interest qualifies within the description of such other Classes. A Claim or Interest
is also classified in a particular Class only to the extent that such Claim or Interest is an
Allowed Claim or Allowed Interest in that Class and has not been paid, released or otherwise
satisfied prior to the Effective Date.
In accordance with section 1122 of the Bankruptcy Code, the Committee’s Plan provides for the
classification of seven Classes of Claims and/or Interests against each Debtor. For purposes of
voting and distribution, each Debtor will be assigned a subclass of each Class as follows: (A) LLC;
(B) Holdco; (C) MSA; (D) Luxco; (E) Finco; and (F) Dutchco. Administrative Expenses, Superpriority
Claims and Tax Claims have not been classified and are excluded from the following Classes in
accordance with section 1123(a)(I) of the Bankruptcy Code.
| B. | Classification and Treatment of Claims and Interests |
The treatment of each Class of Claims and/or Interests is set forth below. Unless the
Bankruptcy Court has specified otherwise prior to Confirmation, the Debtors shall, in their sole
and absolute discretion, determine whether a postpetition payment by or on behalf of any of the
Debtors in respect of a Claim either (x) shall reduce the Allowed amount thereof or (y) shall
reduce the amount to be paid under the Committee’s Plan in respect of any Allowed amount thereof.
1.
Class 1 (A-F) — Priority Non-Tax Claims
a. Classification: Classes 1 (A-F) consist of all Priority Non-Tax Claims
against any of the Debtors.
b. Treatment: The Holder of each Priority Non-Tax Claim shall receive, in
full satisfaction, settlement and release of such Priority Non-Tax Claim, a Cash payment equal
to the Allowed amount of such Claim on or as soon as practicable after the later of the Effective
Date or the date upon which the Bankruptcy Court enters a Final Order determining or allowing
such Claim. Any Holder of a Priority Non-Tax Claim may agree to accept different treatment as
to which the Debtors and such Holder have agreed upon in writing.
c. Impairment/Voting: Classes 1 (A-F) are impaired. Holders of Class 1 (A-
F) Claims therefore are therefore entitled to vote to accept or reject the Committee’s Plan.
2. Class 2
(A-F) — Other Secured Claims
a. Classification: Classes 2 (A-F) consist of all Other Secured Claims (if any
such Claims exist) against any of the Debtors.
b. Treatment: Except to the extent that a holder of an Allowed Other
Secured Claim agrees to a different treatment, at the sole option of the Debtors or the Reorganized
Debtors, (i) on the Effective Date or as soon thereafter as is practicable, each Allowed Other
Secured Claim shall be reinstated and rendered Unimpaired in accordance with section 1124(2) of the
Bankruptcy Code, (ii) each holder of an Allowed Other Secured Claim shall receive Cash in an amount
equal to such Allowed Other Secured Claim, including any
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interest on such Allowed Other Secured Claim required to be paid pursuant to section 506(b) of the
Bankruptcy Code, on the later of the Effective Date and the date such Allowed Other Secured Claim
becomes an Allowed Other Secured Claim, or as soon thereafter as is practicable or (iii) each
holder of an Allowed Other Secured Claim shall receive the Collateral securing its Allowed Other
Secured Claim and any interest on such Allowed Other Secured Claim required to be paid pursuant to
section 506(b) of the Bankruptcy Code, in full and complete satisfaction of such Allowed Other
Secured Claim on the later of the Effective Date and the date such Allowed Other Secured Claim
becomes an Allowed Other Secured Claim, or as soon thereafter as is practicable.
c. Impairment Voting: Classes 2 (A-F) are impaired. Holders of Class 2 (A-F)
Claims are therefore entitled to vote to accept or reject the Committee’s Plan.
3. Class 3 (A-F) — First Lien Lender Secured Claims
a. Classification: Classes 3 (A-F) consist of the First Lien Lender Secured
Claims against any of the Debtors.
b. Treatment: On the Effective Date, in connection with the enforcement of
the First Lien Lender Secured Claims, each First Lien Lender Party shall receive a Cash payment
equal to 35% of its First Lien Lender Secured Claim, plus its Pro Rata share of the New Term Loan,
in full and complete satisfaction of such First Lien Lender Secured Claim. All distributions to the
First Lien Lender Parties under the Committee’s Plan shall be effectuated through the Agent. The
Liens securing the First Lien Lender Secured Claims will remain in effect and will secure the New
Term Loan. The First Lien Lender Secured Claims, together with any Deficiency Claims of the First
Lien Lender Parties, are deemed Allowed in the full amount reflected on the Agent’s books and
records as of the Record Date.
c. Impairment/Voting: Classes 3 (A-F) are Impaired. Holders of Class 3 (A-F)
Claims are therefore entitled to vote to accept or reject the Committee’s Plan.
4. Classes 4 (A-F) — Second Lien Noteholder Claims
a. Classification: Classes 4 (A-F) consist of the Second Lien Noteholder
Claims against any of the Debtors.
b. Treatment: On the Effective Date, in full and complete satisfaction of its
Second Lien Noteholder Claim, each Second Lien Noteholder shall receive its Pro Rata share of
5% of the New Common Units, subject to dilution on account of the Long-Term Incentive Plan.
The Second Lien Noteholder Claims will be exchanged for the New Common Units in LLC and
LLC will then receive PECs from Luxco in exchange for the cancellation of such Second Lien
Noteholder Claims. In addition, each Eligible Holder of a Second Lien Noteholder Claim shall
be entitled to participate in the Offering pursuant to the terms of the Offering Procedures.
However, to the extent that the Offering Participants do not exercise the Subscription Rights
by the Effective Date, the Backstop Purchaser, subject to the terms and conditions of the
Backstop Commitment Agreement, shall subscribe for and purchase all Unsubscribed Units as of the
Subscription Expiration Date.
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Notwithstanding anything contained in the Committee’s Plan, as described above, only
Accredited Investors that are holders of Second Lien Noteholder Claims will be entitled to
participate in the Offering. No payment in lieu of the Subscription Rights will be made to any
holder of a Second Lien Noteholder Claim that is not an Accredited Investor and therefore unable to
subscribe for New Common Units pursuant to the Offering.
Notwithstanding the foregoing, the Reorganized Debtors shall pay, on or as soon as reasonably
practicable after the Effective Date, all Indenture Trustee Fees and Expenses arising under the
Second Lien Notes Indenture, in full in Cash, without application to or approval of the Bankruptcy
Court. All distributions to the Second Lien Noteholders under the Committee’s Plan, except in
connection with the Offering, shall be effectuated though the Second Lien Noteholder Trustee (i.e.,
the Reorganized Debtors shall distribute the portion of the New Common Units payable to the Second
Lien Noteholders to the Second Lien Noteholder Trustee and the Second Lien Noteholder Trustee shall
make proportionate distributions thereof to the Second Lien Noteholders), Pursuant to section
5.1(a)(2) of the Intercreditor Agreement, the existing Liens securing the Second Lien Noteholder
Claims shall be released and extinguished effective as of the Effective Date and of no further
force or effect. Notwithstanding any subordination or intercreditor agreement applicable under
nonbankruptcy law, the Holders of Second Lien Noteholder Claims shall receive the Second Lien
Noteholder Distribution as described herein. In addition, the distributions to Holders of Second
Lien Noteholder Claims and the surrender of Second Lien Notes by Luxco to the Second Lien
Noteholder Trustee, as described in Article VIII.I herein, shall constitute a satisfaction and
discharge of the Second Lien Indenture pursuant to section 12.05(d) of the Second Lien Indenture.
Impairment/Voting: Classes 4 (A-F) are Impaired. Holders of Class 4 (A-F) Claims are
therefore entitled to vote to accept or reject the Committee’s Plan.
5.
Class 5 (A-F) — General Unsecured Claims
a. Classification: Classes 5 (A-F) consist of the General Unsecured Claims
against any of the Debtors.
b. Treatment: The Holder of each Class 5 (A-F) Claim shall receive, as a gift
from the Holders of Second Lien Noteholder Claims, in full satisfaction, settlement and
release of such Class 5 (A-F) Claim, a Cash payment equal to 10% of the Allowed amount of such
Claim on or as soon as practicable after the later of the Effective Date or the date upon
which the Bankruptcy Court enters a Final Order determining or allowing such Claim; provided,
however, that the aggregate Cash payments to Holders of Class 5 (A-F) Claims shall not exceed $324,000.
Any Holder of a Class 5 (A-F) Claim may agree to accept different treatment as to which the
Debtors and such Holder have agreed upon in writing.
c. Impairment/Voting: Classes 5 (A-F) are Impaired. Holders of Class 5 (A-F) Claims are therefore entitled to vote to accept or reject the Committee’s Plan.
6. Class 6 (A-F) — Subordinated Note Claims
a. Classification: Classes 6 (A-F) consist of the Subordinated Note Claims
against any of the Debtors.
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Treatment:
On the Effective Date,_in connection with the enforcement of the
Subordinated Note Claims, each Subordinated Noteholder shall receive, as a gift from the Second
Lien Noteholders, (i) its Pro Rata share of 1% of the New Common Units, subject to dilution on
account of the Long-Term Incentive Plan, and (ii) warrants to purchase 5% of the New Common Units
with a strike price equivalent to a $600 million total enterprise value, in full and complete
satisfaction of such Subordinated Noteholder Claim. The Subordinated Noteholder Claims will be
exchanged for the New Common Units and Warrants in LLC and LLC will then receive PECs from Luxco in
exchange for the cancellation of such Subordinated Noteholder Claims.
Notwithstanding the foregoing, the Reorganized Debtors shall pay, on or as soon as reasonably
practicable after the Effective Date, all Indenture Trustee Fees and Expenses arising under the
Subordinated Notes Indenture, in full in Cash, without application to or approval of the Bankruptcy
Court. Notwithstanding any subordination or intercreditor agreement applicable under nonbankruptcy
law, the Holders of Subordinated Note Claims shall receive the Subordinated Note Distribution as
described herein as a gift from the Second Lien Noteholders. In addition, the distributions to
holders of Subordinated Note Claims and the surrender of Subordinated Notes by Luxco to the
Subordinated Note Trustee, as described in Article VIII.I herein, shall constitute a satisfaction
and discharge of the Subordinated Note Indenture under section 12.05(d) of the Subordinated Note
Indenture.
b. Impairment/Voting: Class 6 is Impaired. Holders of Class 6 Claims are
therefore entitled to vote to accept or reject the Committee’s Plan.
7. Class 7 (A-F) — Intercompany Claims against the Debtors
a. Classification: Classes 7 (A-F) consist of Intercompany Claims of
Debtors and Non-Debtor Subsidiaries against the Debtors.
b. Treatment: Notwithstanding anything to the contrary herein,
Intercompany Claims, at the election of the Reorganized Debtors, shall be (i) adjusted,
released, waived and/or discharged as of the Effective Date, (ii) contributed to the capital of the
obligor, or
(iii) reinstated and left Unimpaired; provided, however, that Intercompany Claims of
the Debtors, the Non-Debtor Subsidiaries, and the Reorganized Debtors shall at all times remain
subordinated to the security interests of the holders of the New Term Loan.
c. Impairment/Voting: Classes 7 (A-F) are Impaired. Because Holders of
Class 7 (A-F) Claims receive no recovery on account of such Claims under the Committee’s
Plan, they are conclusively presumed to reject the Committee’s Plan.
8. Class 8
(A-F) — Interests in the Debtors
a.
Classification: Classes 8 (A-F) consist of Interests in the Debtors.
b. Treatment: Holders of Interests in the Debtors shall receive no
distributions or recoveries on account of such Interests and Interests on account of LLC shall
be extinguished on the Effective Date. Interests of each Debtor, other than LLC, will continue to
exist and not be extinguished.
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c. Impairment/Voting: Classes 8 (A-F) are Impaired. Because Holders of Interests
in Class 8 (A-F) receive no recovery on account of such Interests under the Committee’s Plan, they
are conclusively presumed to reject the Committee’s Plan.
V.
ACCEPTANCE OR REJECTION OF PLAN
ACCEPTANCE OR REJECTION OF PLAN
| A. | Identification of Classes |
| 1. | Class 1 (A-F) — Priority Non-Tax Claims | ||
| 2. | Class 2 (A-F) — Other Secured Claims | ||
| 3. | Class 3 (A-F) — First Lien Lender Secured Claims | ||
| 4. | Class 4 (A-F) — Second Lien Noteholder Claims | ||
| 5. | Class 5 (A-F) — General Unsecured Claims | ||
| 6. | Class 6 (A-F) — Subordinated Note Claims | ||
| 7. | Class 7 (A-F) — Intercompany Claims against the Debtors | ||
| 8. | Class 8 (A-F) — Interests in the Debtors |
B. Classes Permitted and Not Permitted to Vote
| Classes 3, 4, 5, 6, 7 and 8 are Impaired. Holders of Claims in Classes 3, 4, 5 and 6 are permitted to vote to accept or reject the Committee’s Plan. Holders of Class 7 Claims and Holders of Class 8 Interests are conclusively presumed to reject the Committee’s Plan. Holders of Class 1 Claims and Class 2 Claims are conclusively presumed to accept the Committee’s Plan. An Impaired Class of Claims that votes shall have accepted the Committee’s Plan if (a) the Holders (other than any Holder designated by the Bankruptcy Court based on their vote or its solicitation not being in good faith under Bankruptcy Code section 1126(e)) of at least two-thirds in amount of the Allowed Claims actually voting in such Class have voted to accept the Committee’s Plan and (b) the Holders (other than any Holder designated under Bankruptcy Code section 1126(e)) of more than one-half in number of the Allowed Claims actually voting in such Class have voted to accept the Committee’s Plan. |
C. Nonconsensual Confirmation
In the event any Class of Claims votes to reject the Committee’s Plan, the Creditors’
Committee intends to request that the Bankruptcy Court confirm the Committee’s Plan notwithstanding
such rejection pursuant to section 1129(b) of the Bankruptcy Code on the basis that the Committee’s
Plan is fair and equitable and does not discriminate unfairly as to the Holders of any Class of
Claims.
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D. Postpetition Interest
Except as set forth in the Final Cash Collateral Order, nothing in the Committee’s Plan or the
Disclosure Statement shall be deemed to entitle the Holder of a Claim to receive from any Debtor
any postpetition interest on account of such Claim.
VI.
MEANS FOR IMPLEMENTATION OF THE PLAN
MEANS FOR IMPLEMENTATION OF THE PLAN
A. Restructuring and Other Transactions
| 1. | Intercompany Claims and Interests in Subsidiaries |
Notwithstanding anything to the contrary herein, Intercompany Claims will be adjusted,
continued, or discharged to the extent deemed appropriate by the
Creditors’ Committee. Any such
transaction may be effected on or subsequent to the Effective Date without any further action by
the holders of Claims or Interests. As of the Effective Date but only until the reorganization of
the Reorganized Debtors, except as expressly provided in the Committee’s Plan, the Reorganized
Debtors shall retain any stock or interests they may hold in the Non-Debtor Subsidiaries or
affiliates and retain any rights to which such Interests may be entitled under applicable law with
respect to such shares or other interests. Notwithstanding anything to the contrary herein, the
Non-Debtor Subsidiaries may not sell, transfer or dispose of any assets without the consent of LLC.
| 2. | Cancellation of Existing Securities and Agreements and Related Indentures/Discharge of Second Lien Noteholder Trustee and Subordinated Note Trustee |
(a) Except (i) as otherwise expressly provided in the Committee’s Plan, (ii) with
respect to executory contracts or unexpired leases that have been assumed by the Debtors, (iii) for
purposes of evidencing a right to distributions under the Committee’s Plan, or (iv) with respect to
any Claim that is rendered Unimpaired under the Committee’s Plan, on the Effective Date, the Second
Lien Indenture and Subordinated Note Indenture, all Interests of LLC and other instruments
evidencing any Claims against the Debtors and Non-Debtor Subsidiaries shall be deemed automatically
cancelled without further act or action under any applicable agreement, law, regulation, order or
rule and the obligations of the Debtors and Non-Debtor Subsidiaries thereunder shall be discharged;
provided, however, the Second Lien Notes and the Subordinated Notes will be exchanged for the New
Common Units in the LLC and the LLC will then receive PECs from the Luxco in exchange for the
cancellation of such debt and the Holders thereof shall have no further rights or entitlements in
respect thereof against the Debtors or Non-Debtor Subsidiaries except the rights to receive the
distributions to be made to such Holders under the Committee’s Plan and all guarantees or liens
against Non-Debtor Subsidiaries shall be automatically released. The First Lien Credit Agreement
shall be amended and restated such that the amended and restated
First Lien Credit Agreement shall evidence the New Term Loan and the existing Claims under the First Lien Credit Agreement shall be
converted to Claims under the New Term Loan. Distributions to be made under the Committee’s Plan to
the beneficial owners of the Second Lien Indenture and the Subordinated Note Indenture shall be
made to the
21
Indenture Trustee for the benefit of such holders. The Indenture Trustee shall, in turn, administer
the distributions of New Common Units and Warrants to holders of Second Lien Noteholder Claims and
Subordinated Note Claims in accordance with the terms of the Indenture. The Confirmation Order
shall authorize the Reorganized Debtors, the Second Lien Noteholder Trustee, and the Subordinated
Note Trustee to take whatever action may be necessary or appropriate, in its reasonable discretion,
to deliver the distributions, without further application to or order of the Bankruptcy Court.
(b) On the Effective Date, the Second Lien Noteholder Trustee and the Subordinated Note
Trustee and their respective agents shall be discharged of all their obligations associated with
(i) the Second Lien Indenture, (ii) the Second Lien
Noteholder Claims, (iii) the Subordinated Note
Indenture, (iv) Subordinated Note Claims and (v) any related documents, and released from all
Claims arising in the Reorganization Cases, except to the extent necessary to allow the Second Lien
Noteholder Trustee and the Subordinated Note Trustee to receive distributions pursuant to the Plan
and make distributions under the Indenture on account of allowed Claims based upon the Indenture.
As of the Effective Date, the Second Lien Indenture and the Subordinated Note Indenture shall be
deemed fully satisfied, discharged and cancelled, except that such cancellation shall not impair
the rights of the Holders of the Second Lien Noteholder Claims or the Subordinated Note Claims to
receive distributions under the Committee’s Plan, or the obligations of the Second Lien Noteholder
Trustee or the Subordinated Note Trustee to discharge Liens, the Second Lien Guarantees and the
Subordinated Note Guarantees. All Liens and Second Lien Guarantees in favor of the Second Lien
Indenture for the benefit of the Holders of the Second Lien Claims or otherwise arising under the
Second Lien Indenture shall be deemed released, satisfied and discharged. In addition, all Liens,
if any, and Subordinated Note Guarantees in favor of the Subordinated Note Indenture for the
benefit of the Holders of the Subordinated Note Claims or otherwise arising under the Subordinated
Note Indenture shall be deemed released, satisfied and discharged.
3. Issuance of New Common Units, Warrants and Subscription Rights
The issuance by LLC of the New Common Units, Warrants and Subscription Rights on and after the
Effective Date is hereby authorized without the need for any further corporate action and without
any further action by holders of Claims or Interests. Such Interests shall be distributed as
provided in Article IV.B.4 and Article IV.B.6 herein.
All of the New Common Units and Subscription Rights issued pursuant to the Plan shall be duly
authorized, validly issued and, if applicable, fully paid and non-assessable. Each distribution and
issuance referred to in Article VIII hereof shall be governed by the terms and conditions set forth
herein applicable to such distribution or issuance and by the terms and conditions of the
instruments evidencing or relating to such distribution or issuance, which terms and conditions
shall bind each Holder receiving such distribution or issuance. Such Interests shall be distributed
as provided in Article IV.B.4 and Article IV.B.6 herein. As provided in the Postconfirmation
Organizational Documents, the New Common Units shall be subject to certain restrictions on
transfer. Any New Common Units issued in connection with the Warrants shall be subject to the terms
of the LLC Agreement. As provided in the Postconfirmation Organizational Documents, the New Common
Units shall be subject to certain restrictions on transfer. As provided in the Postconfirmation
Organizational Documents, which are incorporated herein by
22
reference, New Common Units may be issued in more than one series, shall be identical in all
respects, and shall have equal rights and privileges. In compliance with 1123(a)(6) of the
Bankruptcy Code, the Postconfirmation Organizational Documents shall provide that the Reorganized
Debtors shall not issue nonvoting equity securities to the extent prohibited by section 1123(a)(6)
of the Bankruptcy Code.
Upon the Effective Date, the amended and restated limited liability company operating
agreement of LLC (the “LLC Agreement”) and the Registration Rights Agreement shall each be deemed
to become valid, binding and enforceable in accordance with its respective terms, and each holder
of New Common Units shall be bound thereby, in each case, without need for execution by any party
thereto other than the Backstop Purchaser and LLC, to the extent required. Also upon the Effective
Date, the Warrant Agreement shall be deemed to become valid, binding and enforceable in accordance
with its terms, and each holder of a Warrant shall be bound thereby, in each case, without need for
execution by any party thereto other than the Backstop Purchaser and LLC.
4. Incurrence of New Indebtedness
The Reorganized Debtors’ entry into the New Term Loan is hereby authorized without the need
for any further corporate action, except as set forth in the New Term Loan, and without any further
action by holders of Claims or equity interests. The First Lien Credit Agreement shall be amended
and restated such that the amended and restated First Lien Credit Agreement shall evidence the New
Term Loan and the existing Claims under the First Lien Credit Agreement shall be converted to
Claims under the New Term Loan.
B. Release of Second Liens/Second Lien Guaranties/Subordinated Note Guaranties
1. Release of Liens
On the Effective Date, all Liens securing the Second Lien Noteholder Claims shall be deemed
fully released. The Second Lien Noteholder Trustee, the Second Lien Collateral Agent and the
Collateral Trustee shall be authorized and directed to release any collateral or other property
held by them on behalf of Holders of the Second Lien Noteholder Claims and to take such actions and
execute and deliver such documents as may be requested by the Creditors’ Committee or the
Reorganized Debtors to evidence the release of all Liens securing the Second Lien Noteholder
Claims, including, without limitation, the execution, delivery and filing or recording of such
releases as may be requested by Debtors or the Reorganized Debtors, in lieu of delivery of the
documents otherwise required pursuant to section 5.1(b) of the Intercreditor Agreement.
2. Release of Second Lien Guarantees
The Non-Korean Guarantors’ obligations under the Second Lien Guarantees shall be deemed fully
released on the Effective Date as a result of the Restructuring Transactions. The Second Lien
Noteholder Trustee shall be authorized and directed to take any action and execute and deliver any
documents as may be requested by the Debtors to release any collateral or other property of the
Debtors held by the Second Lien Noteholder Trustee. In addition, the Korean Guarantee shall be
released as of the Effective Date. The distributions to holders of Second Lien
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Noteholder Claims and the surrender of Second Lien Notes to the Second Lien Noteholder
Trustee, as described in Article VIII.I herein, shall constitute a satisfaction and discharge of
the Second Lien Indenture under section 12.05(d) of the Second Lien Indenture.
3. Release of Subordinated Note Guarantees
The Subordinated Note Guarantors’ obligations under the Subordinated Note Guarantees shall be
deemed fully released on the Effective Date. The Subordinated Noteholder Trustee shall be
authorized and directed to take any action and execute and deliver any documents as may be
requested by the Debtor to acknowledge the release of any claims against the Non-Korean Guarantors
on account of the Subordinated Note Guarantees. The distributions to holders of Subordinated Note
Claims and the surrender of Subordinated Notes to the Subordinated Note Trustee, as described in
Article VIII.I herein, shall constitute a satisfaction and discharge of the Subordinated Note
Indenture under section 12.05(d) of the Subordinated Note Indenture.
4. Release and Discharge of Debtors
Upon the occurrence of the Effective Date and in consideration of the distributions to be made
hereunder, except as otherwise expressly provided herein, each holder (as well as any trustees and
agents on behalf of each holder) of a Claim or Interest and any affiliate of such holder shall be
deemed to have forever waived, released, and discharged the Debtors, to the fullest extent
permitted by section 1141 of the Bankruptcy Code, of and from any and all Claims, Interests,
rights, and liabilities that arose prior to the Effective Date. Upon the Effective Date, all such
persons shall be forever precluded and enjoined, pursuant to section 524 of the Bankruptcy Code,
from prosecuting or asserting any such discharged Claim against or terminated Interest in the
Debtors.
5. Release and Discharge of Non-Debtor Subsidiaries
In addition to the terms of section B.4 above, each Holder of a Secured Claim, the Second Lien
Noteholder Trustee of the Second Lien Notes, the Subordinated Note Trustee of the Subordinated
Notes, any agent under the First Lien Credit Agreement, the Second Lien Indenture, the Subordinated
Note Indenture shall be deemed to have forever waived, released, and discharged the Non-Debtor
Subsidiaries of any Liens, Claims, claims, causes of action, rights, or liabilities arising from
guarantees granted to the Holders of (i) the Second Lien Noteholder Claims under the Second Lien
Indenture, (ii) the First Lien Lender Secured Claims under the First Lien Credit Agreement, or
(iii) the Subordinated Note Claims under the Subordinated Note Indenture, as well as any respective
Deficiency Claims; provided, however, that the Liens securing the First Lien Lender Secured
Claims shall remain in effect for the sole purpose of securing the New Term Loan.
In addition, the Confirmation Order shall authorize the Reorganized Debtors, Second Lien
Noteholder Trustee and the Subordinated Note Trustee to take whatever action may be necessary or
appropriate, in their reasonable discretion, to effectuate the foregoing, including, without
limitation, providing a release of the Liens, the First Lien Guarantees, the Second Lien
Guarantees, and the Subordinated Note Guarantees; provided,
however, that the Liens
securing
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the First Lien Lender Secured Claims shall remain in effect for the sole purpose of securing the
New Term Loan.
C. Continued Corporate Existence
Except as otherwise provided in the Committee’s Plan, each Debtor shall continue to exist
after the Effective Date as a separate corporate entity, limited liability company, partnership or
other form, as the case may be, with all the powers of a corporation, limited liability company,
partnership or other form, as the case may be, pursuant to the applicable law in the jurisdiction
in which each applicable Debtor is incorporated or formed and pursuant to the respective
certificate of incorporation and bylaws (or other formation documents) in effect prior to the
Effective Date, except with respect to the Postconfirmation Organizational Documents (or other
formation documents) that are amended by the Committee’s Plan, the Committee’s Plan Supplement or
otherwise, and to the extent such documents are amended, such documents are deemed to be pursuant
to the Committee’s Plan and require no further action or approval. Notwithstanding the foregoing,
on or as of the Effective Date, or as soon as practicable thereafter, and without the need for any
further action, the Reorganized Debtors may, subject to the consent of the Backstop Purchaser: (i)
cause any or all of the Reorganized Debtors to be merged into one or more of the Reorganized
Debtors of Non-Debtor Subsidiaries, dissolved or otherwise consolidated, (ii) cause the transfer of
assets between or among the Reorganized Debtors or Non-Debtor Subsidiaries, or (iii) engage in any
other transaction in furtherance of the Committee’s Plan.
D. The Offering
1. Issuance of Subscription Rights
Each Offering Participant that identifies itself as an accredited investor to the Subscription
Agent shall be entitled to receive Subscription Rights entitling such Offering Participant the
right to subscribe for up to its Offering Pro Rata Share of New Common Units to be issued pursuant
to the Offering. After giving effect to the issuance of New Common Units pursuant to the Second
Lien Noteholder Distribution, the Subordinated Note Distribution and the Standby Commitment Fee,
but without giving effect to the Warrants to be issued to holders of Subordinated Note Claims, the
amount of the equity ownership of LLC represented by the New Common Units to be offered pursuant to
the exercise of Subscription Rights is 84% of the equity of LLC (the “Offering Available Equity”),
subject to dilution on account of the Long-Term Incentive Plan; provided that, under the Backstop
Commitment Agreement, the Minimum Allocation to be available for sale to the Backstop Purchaser is
67% of the Offering Available Equity, or approximately 56.28% of the New Common Units, subject to
dilution on account of the Long-Term Incentive Plan. Accordingly, after giving effect to the
Minimum Allocation, the percentage of the equity of LLC represented by the New Common Units
available in the Offering to Offering Participants other than the Backstop Purchaser is
approximately 27.72% of the New Common Units, subject to dilution on account of the Long-Term
Incentive Plan. Since the Backstop Purchaser is entitled to a Minimum Allocation of 67% of the
Subscription Rights, if more than 33% of the Subscription Rights are subscribed for by Eligible
Holders other than the Backstop Purchaser, then the Subscription Rights to be purchased by each
such Eligible Holder will be reduced on a pro rata basis so that the amount to be purchased by all
such Eligible Holders equals 33% of the aggregate number of Subscription Rights. Each such Eligible
Holder
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will be notified of the reduced subscription amount and the difference in payment will be refunded
to such Eligible Holder without interest. Offering Participants have the right, but not the
obligation, to participate in the Offering as provided herein.
However, to the extent that the Offering Participants do not exercise the Subscription Rights
by the Subscription Expiration Date, the Backstop Purchaser, subject to the terms and conditions of
the Backstop Commitment Agreement, shall subscribe for and purchase all Unsubscribed Units as of
the Subscription Expiration Date. No payment in lieu of the Subscription Rights will be made to any
holder of a Second Lien Noteholder Claim that is not an Accredited Investor and therefore unable to
subscribe for New Common Units pursuant to the Offering.
2. Subscription Period
The Offering shall commence on the Subscription Commencement Date and shall expire on the
Subscription Expiration Date. Each Offering Participant intending to participate in the Offering
must affirmatively elect to exercise its Subscription Rights on or prior to the Subscription
Expiration Date. After the Subscription Expiration Date, the Unsubscribed Units shall be treated as
acquired by the Backstop Purchaser in accordance with and subject to the terms and conditions
contained in the Backstop Commitment Agreement and the Committee’s Plan, and any exercise of such
Subscription Rights by any entity other than the Backstop Purchaser or any of its affiliates or any
permitted assignee of the Backstop Purchaser’s rights under the Backstop Commitment Agreement shall
be null and void and there shall be no obligation to honor any such purported exercise received by
the Subscription Agent after the Subscription Expiration Date, regardless of when the documents
relating to such exercise were sent.
3. Subscription Purchase Price
Each Offering Participant choosing to exercise its Subscription Rights shall be required to
pay such participant’s Subscription Purchase Price for New Common Units.
4. Exercise of Subscription Rights
In order to exercise the Subscription Rights, each Offering Participant must return a duly
completed Subscription Form and Subscription Agreement to the Subscription Agent so that such form
is actually received by the Subscription Agent on or before the Subscription Expiration Date. Each
such Offering Participant must tender the Offering Participant’s Subscription Purchase Price to the
Subscription Agent so that it is actually received by the Subscription Expiration Date. The
Offering Participant’s Subscription Purchase Price must be paid in accordance with the wire
instructions set forth on the Subscription Form or by bank or cashier’s check delivered to the
Subscription Agent. Each Offering Participant may exercise all or any portion of such Offering
Participant’s Subscription Rights pursuant to the Subscription Form, but the exercise of any
Subscription Rights shall be irrevocable. If the Subscription Agent for any reason does not receive
from a given Offering Participant (a) a duly completed Subscription Form on or prior to the
Subscription Expiration Date, and (b) immediately available funds in an amount equal to such
Offering Participant’s Subscription Purchase Price on or prior to the
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Subscription Expiration Date, such Offering Participant shall be deemed to have relinquished and
waived its right to participate in the Offering. The payments made in accordance with the Offering
shall be deposited and held by the Subscription Agent in a trust account, or similarly segregated
account or accounts which shall be separate and apart from the Subscription Agent’s general
operating funds and any other funds subject to any lien or similar encumbrance and which segregated
account or accounts will be maintained for the purpose of holding the money for administration of
the Offering until the Effective Date, or such other later date, at the option of the Creditors’
Committee, but not later than twenty (20) days after the Effective Date. The Subscription Agent
shall not use such funds for any other purpose prior to such date and shall not encumber or permit
such funds to be encumbered with any lien or similar encumbrance.
In order to facilitate the exercise of the Subscription Rights, on the Subscription
Commencement Date, the Subscription Form will be provided by mail, electronic mail, or facsimile
transmission to (i) each holder of a Second Lien Noteholder Claim that the Creditors’ Committee
knows to be an Eligible Holder and (ii) to each holder of a Second Lien Noteholder Claim who
identifies itself to the Subscription Agent as an Eligible Holder, together with appropriate
instructions for the proper completion, due execution and timely delivery of the Subscription Form,
as well as instructions for the payment of the applicable Subscription Purchase Price for that
portion of the Subscription Rights sought to be exercised by such Eligible Holder.
5. Offering Procedures
Notwithstanding anything contained herein to the contrary, the Creditors’ Committee, with the
consent of the Backstop Purchaser, may modify the procedures relating to the Offering or adopt such
additional detailed procedures consistent with the provisions of this Article VI(D) to more
efficiently administer the exercise of the Subscription Rights; provided, however, that the
Creditors’ Committee shall be provided prompt written notice to the Offering Participants of any
material modification to such procedures.
6. Transfer Restriction: Revocation
The Subscription Rights are not transferable. Any such transfer or attempted transfer will be
null and void, and no purported transferee will be treated as the holder of any Subscription
Rights. Once an Offering Participant has properly exercised its Subscription Rights, such exercise
cannot be revoked.
7. Offering Backstop
Subject to the terms and conditions in the Backstop Commitment Agreement, the Backstop
Purchaser has agreed to subscribe for and purchase on the Effective Date, at the aggregate
Subscription Purchase Price therefor, its Backstop Commitment (as set forth on Schedule 1 to the
Backstop Commitment Agreement) of all Unsubscribed Units as of the Subscription Expiration Date.
The Backstop Purchaser shall pay to the Subscription Agent, by wire transfer in immediately
available funds on or prior to the Effective Date, Cash in an amount equal to the aggregate
Subscription Purchase Price attributable to such Unsubscribed Units as provided in the Backstop
Commitment Agreement. The Subscription Agent shall deposit such
27
payment into the same trust account into which were deposited the Subscription Purchase Price
payments of Offering Participants on the exercise of their Subscription Rights. The Debtors and the
Subscription Agent shall give the Backstop Purchaser by e-mail and electronic facsimile
transmission written notification setting forth either (i) a true and accurate calculation of the
number of Unsubscribed Units, and the aggregate Subscription Purchase Price therefor (a “Purchase
Notice”) or (ii) in the absence of any Unsubscribed Units, the fact that there are no Unsubscribed
Units and that the Backstop Commitments are terminated (a “Satisfaction Notice”) as soon as
practicable after the Subscription Expiration Date. In addition, the Subscription Agent shall
notify the Backstop Purchaser, on each Friday during the Subscription Period, on each Business Day
during the five (5) Business Days prior to the Subscription Expiration Date (and any extensions
thereto) or more frequently if requested by the Backstop Purchaser, of the aggregate number of
Subscription Rights known by the Subscription Agent to have been exercised pursuant to the Offering
as of the close of business on the preceding Business Day or the most recent practicable time
before such request, as the case may be. The Subscription Agent shall determine the number of
Unsubscribed Units, if any, in good faith, and provide the Backstop Purchaser with a Purchase
Notice or a Satisfaction Notice that accurately reflects the number of Unsubscribed Units as so
determined. On the Effective Date, the Backstop Purchaser will purchase only such number of
Unsubscribed Units as are listed in the Purchase Notice, without prejudice to the rights of the
Backstop Purchaser to seek later an upward or downward adjustment if the number of Unsubscribed
Units in such Purchase Notice is inaccurate. Delivery of the Unsubscribed Units will be made to the
account of the Backstop Purchaser (or to such other accounts as the Backstop Purchaser may
designate) on the Effective Date against payment of the aggregate Subscription Purchase Price for
the Unsubscribed Units by wire transfer of immediately available funds to a bank account in the
United States specified by the Debtors to the Backstop Purchaser at least 24 hours in advance. All
Unsubscribed Units will be delivered with any and all issue, stamp, transfer or similar taxes or
duties payable in connection with such delivery duly paid by the Debtors or the Reorganized Debtors
to the extent required under the Confirmation Order or applicable law. Notwithstanding anything
contained herein to the contrary, the Backstop Purchaser, in its sole discretion, may designate
that some or all of the Unsubscribed Units be issued in the name of, and delivered to, one or more
of its affiliates, or to other financial institutions reasonably acceptable to Debtors.
The obligations of the Backstop Purchaser are subject to certain conditions including, among
other things, the entry of an order of the Bankruptcy Court on or before September 25, 2009, in
form and substance satisfactory to the Backstop Purchaser and its counsel, approving the Backstop
Commitment Agreement and the Committee’s Plan, which order shall become a final order not subject
to stay, appeal or modification on or before October 7, 2009.
8. Backstop Fees and Expenses/Backstop Units
In consideration for its agreement to backstop the Offering, in the event the Committee’s Plan
is confirmed and the Effective Date occurs, the Backstop Purchaser shall receive the Standby
Commitment Fee to be allocated in the manner set forth in the Backstop Commitment Agreement. The
Standby Commitment Fee shall be deemed fully earned and payable in full on the Effective Date and
following the entry of the Backstop Approval Order and Confirmation Order by the Bankruptcy Court,
regardless of whether the Offering is fully subscribed by eligible holders of the Second Lien
Noteholder Claims.
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Under the Backstop Commitment Agreement, if the Committee’s Plan is confirmed and becomes
effective, on the Effective Date, the Reorganized Debtors shall pay the reasonable and documented
fees, expenses, disbursements and charges of the Backstop Purchaser incurred after July 29, 2009
relating to the exploration and discussion of alternative financing structures to the Backstop
Commitment or to the preparation and negotiation of the Backstop Commitment Agreement, the
Committee’s Plan Documents, the Postconfirmation Organizational Documents, and the proposed
documentation and the transactions contemplated thereby, including, without limitation, the
reasonable fees and expenses of counsel and financial advisors to the Backstop Purchasers.
9. Distribution of the New Common Units
On the Effective Date, the LLC shall distribute the New Common Units purchased by each
Offering Participant that has properly exercised its Subscription Rights to such holder and to the
Backstop Purchaser. If the exercise of a Subscription Right would result in the issuance of a
fractional share of New Common Units, then the number of shares of New Common Units to be issued in
respect of such Subscription Right will be rounded down to the closest unit.
10. Backstop Purchaser’s Minimum Allocation
Notwithstanding anything to the contrary in Article VI(D) of the Committee’s Plan, the
Backstop Purchaser shall receive the Minimum Allocation of the New Common Units issued pursuant to
the Offering.
11. Private Placement Exemption
The Creditor’s Committee will only make the Offering available to Eligible Holders. Therefore,
the New Common Units issued pursuant to the Offering to the Eligible Holders will be exempt from
registration under the Securities Act by virtue of Section 4(2) thereof and Regulation D
promulgated thereunder. Unlike the New Common Units issued to holders of Allowed Claims (Classes
4A-4F and Classes 6A-6F), such New Common Units issued to the Eligible Holders pursuant to the
Offering will not be exempted under section 1145 of the Bankruptcy Code.
12. Disputed Claims
For all purposes of this Article VI(D), each Offering Participant is entitled to participate
in the Rights Offering solely to the extent of its Offering Pro Rata Share, if any;
provided, however, that the Backstop Purchaser shall receive a minimum allocation
of two-thirds (2/3) of the New Common Units issued pursuant to the Offering.
13. Validity of Exercise of Subscription Rights
All questions concerning the timeliness, viability, form and eligibility of any exercise of
Subscription Rights shall be determined by the Creditors’ Committee, whose good faith
determinations shall be final and binding. The Creditors’ Committee, in its discretion, may waive
any defect or irregularity, or permit a defect or irregularity to be corrected within such times as
they may determine, or reject the purported exercise of any Subscription Rights. Subscription
29
Forms shall be deemed not to have been received or accepted until all irregularities have been
waived or cured within such time as the Creditors’ Committee determines in its discretion. The
Creditors’ Committee will use commercially reasonable efforts to give notice to any Offering
Participants regarding any defect or irregularity in connection with any purported exercise of
Subscription Rights by such participant and, may permit such defect or irregularity to be cured
within such time as they may determine in good faith to be appropriate; provided, however, that
neither the Creditors’ Committee nor the Subscription Agent shall incur any liability for failure
to give such notification
14. Indemnification of Backstop Purchaser
Upon the Effective Date of the Committee’s Plan, the Debtors or the Reorganized Debtors, as
the case may be (in such capacity, the “Indemnifying Parties”) shall indemnify and hold harmless
the Backstop Purchaser and each of its respective affiliates, members, partners, officers,
directors, employees, agents, advisors, controlling persons and professionals (each an “Indemnified
Person”) from and against any and all losses, claims, damages, liabilities and reasonable expenses,
joint or several, to which any such Indemnified Person may become subject arising out of or in
connection with any claim, challenge, litigation, investigation or proceeding with respect to the
Offering, the Backstop Commitment Agreement, the Committee’s Plan or the transactions contemplated
hereby or thereby, including without limitation, distribution of the Standby Commitment Fee if any,
distribution of the Subscription Rights, the purchase and sale of New Common Units in the Offering
and purchase and sale of Unsubscribed Units pursuant to the Backstop Commitment Agreement,
regardless of whether any of such Indemnified Persons is a party thereto, and to reimburse such
Indemnified Persons for any reasonable legal or other reasonable out-of-pocket expenses as they are
incurred in connection with investigating, responding to or defending any of the foregoing,
provided that the foregoing indemnification will not, as to any Indemnified Person, apply to
losses, claims, damages, liabilities or expenses to the extent that they are finally judicially
determined to have resulted from gross negligence or willful misconduct on the part of such
Indemnified Person. If for any reason the foregoing indemnification is unavailable to any
Indemnified Person or insufficient to hold it harmless, then the Indemnifying Parties shall
contribute to the amount paid or payable by such Indemnified Person as a result of such loss,
claim, damage, liability or expense in such proportion as is appropriate to reflect not only the
relative benefits received by the Indemnifying Parties on the one hand and such Indemnified Person
on the other hand but also the relative fault of the Indemnifying Parties, on the one hand, and
such Indemnified Person, on the other hand, as well as any relevant equitable considerations. The
relative benefits to the Indemnifying Parties on the one hand and all Indemnified Persons on the
other hand shall be deemed to be in the same proportion as (i) the total value received or proposed
to be received by the Debtors pursuant to the sale of New Common Units contemplated by the Backstop
Commitment Agreement bears to (ii) the fee paid or proposed to be paid to the Backstop Purchaser in
connection with such sale. The Indemnifying Parties also agree that no Indemnified Person shall
have any liability based on their exclusive or contributory negligence or otherwise to the
Indemnifying Parties, any person asserting claims on behalf of or in right of any of the
Indemnifying Parties, or any other person in connection with or as a result of the Offering or the
transactions contemplated thereby, except as to any Indemnified Person to the extent that any
losses, claims, damages, liability or expenses incurred by the Debtors are finally judicially
determined to have resulted from gross negligence or willful misconduct of such Indemnified Person
in performing the services that are the subject
30
of the Backstop Commitment Agreement. The indemnity and reimbursement obligations of the
Indemnifying Parties described in this Article VI(D) shall be in addition to any liability that the
Indemnifying Parties may otherwise have to an Indemnified Person and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal representatives of the
Indemnifying Parties and any Indemnified Person.
Promptly after receipt by an Indemnified Person of notice of the commencement of any claim,
litigation, investigation or proceeding relating to the backstop Agreement or any of the
transactions contemplated thereby (“Proceedings”), such Indemnified Person will, if a claim is to
be made hereunder against the Indemnifying Parties in respect thereof, notify the Indemnifying
Parties in writing of the commencement thereof; provided that (i) the omission so to notify the
Indemnifying Parties will not relieve it from any liability that it may have hereunder except to
the extent it has been materially prejudiced by such failure and (ii) the omission so to notify the
Indemnifying Parties will not relieve it from any liability that it may have to an Indemnified
Person otherwise than on account of the provisions described in this Article VI(D). In case any
such Proceedings are brought against any Indemnified Person and it notifies the Indemnifying Person
of the commencement thereof, if the Indemnifying Parties commits in writing to fully indemnify and
hold harmless the Indemnified Person with respect to such Proceedings without regard to whether the
Effective Date occurs, the Indemnifying Parties will be entitled to participate in such
Proceedings, and, to the extent that it may elect by written notice delivered to such Indemnified
Person, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified
Person, provided that if the defendants in any such Proceedings include both such Indemnified
Person and the Indemnifying Parties and such Indemnified Person shall have concluded that there may
be legal defenses available to it that are different from or additional to those available to the
Indemnifying Parties, such Indemnified Person shall have the right to select separate counsel to
assert such legal defenses and to otherwise participate in the defense of such Proceedings on
behalf of such Indemnified Person. Upon receipt of such indemnification commitment from the
Indemnifying Parties and notice from the Indemnifying Parties to such Indemnified Person of its
election so to assume the defense of such Proceedings and approval by such Indemnified Person of
counsel, the Indemnifying Parties shall not be liable to such Indemnified Person for expenses
incurred by such Indemnified Person in connection with the defense thereof (other than reasonable
costs of investigation) unless (i) such Indemnified Person shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with the proviso to the next
preceding sentence (it being understood, however, that the Indemnifying Parties shall not be liable
for the expenses of more than one separate counsel, representing the Indemnified Persons who are
parties to such Proceedings), (ii) the Indemnifying Parties shall not have employed counsel
reasonably satisfactory to such Indemnified Person to represent such Indemnified Person at the
Indemnifying Parties’ expense within a reasonable time after notice of commencement of the
Proceedings or (iii) the Indemnifying Parties shall have authorized in writing the employment of
counsel for such Indemnified Person.
E. Retained Rights of Action
Unless a Right of Action is in writing, expressly waived, relinquished, released, compromised,
or settled in the Committee’s Plan, or in a Final Order, as of the Effective Date, all rights with
respect to such Retained Right of Action are expressly preserved for the benefit of the Reorganized
Debtors.
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F. Claims Objections
Unless an objection to a Claim is in writing, expressly waived, relinquished, released,
assigned, compromised, or settled in the Committee’s Plan, or in a Final Order, all rights with
respect to such Claim objection are expressly preserved for the benefit of, and fully vested in,
the Reorganized Debtors. The Reorganized Debtors may pursue, or decline to pursue, objections to
Claims, as appropriate, in the business judgment of the Reorganized Debtors and in consultation
with the Plan Proponent. The Reorganized Debtors may settle, release, sell, assign, otherwise
transfer, or compromise objections to Claims without need for notice or order of the Bankruptcy
Court.
G. Corporate Governance
1. General
On the Effective Date, the management, control and operation of the Reorganized Debtors shall
become the general responsibility of the Postconfirmation Board. The Backstop Purchaser has no
current intention of changing current management or their current compensation.
2. Postconfirmation Board
The Postconfirmation Board of each of the Reorganized Debtors shall consist of 5 members,
including the chief executive officer of the Reorganized Debtors, each of whom shall be selected by
the Backstop Purchaser. All directors shall stand for election annually.
3. Filing of Postconfirmation Organizational Documents
On the Effective Date, or as soon thereafter as practicable, to the extent necessary, the
Reorganized Debtors shall file their Postconfirmation Organizational Documents, as required or
deemed appropriate, with the appropriate Persons in their respective jurisdictions of incorporation
or establishment.
4. Long-Term Incentive Plan
The Long-Term Incentive Plan will provide for a certain percentage of New Common Units, not to
exceed 10% of the issued and outstanding New Common Units on the Effective Date, to be reserved for
issuance as options, equity or equity-based grants in connection with the Reorganized Debtors’
Long-Term Incentive Plan. The amount of New Common Units, if any, to be issued pursuant to the
Long-Term Incentive Plan, and the terms thereof shall be determined by the Postconfirmation Board.
H. Exemption from Securities Laws
Holders of Allowed Claims in Classes 4A-4F (Second Lien Noteholder Claims) will receive New
Common Units and holders of Allowed Claims in Classes 6A-6F (Subordinated Note Claims) will receive
New Common Units and Warrants pursuant to the Plan. Section 1145 of the Bankruptcy Code provides an
exemption from the securities registration requirements of
32
federal and state securities laws with respect certain distributions of securities under a plan of
reorganization. Pursuant to the Committee’s Plan, the New Common Units and Warrants issued to
holders of Allowed Claims in Classes 4A-4F (Second Lien Noteholder Claims) and holders of Allowed
Claims in Classes 6A-6F (Subordinated Note Claims) will be exempt from registration under otherwise
applicable federal and state securities laws pursuant to section 1145 of the Bankruptcy Code.
As set forth herein, the New Common Units issued pursuant to the Offering to the
Offering Participants will be exempt from registration under the Securities Act by virtue of
section 4(2) thereof and Regulation D promulgated thereunder.
I. Issuance and Resale of New Securities Under the Committee’s Plan
Section 1145(a) of the Bankruptcy Code generally exempts from registration under the
Securities Act of 1933 (as amended, the “Securities Act”) the offer or sale of a debtor’s
securities under a chapter 11 plan if such securities are offered or sold in exchange for a claim
against, or an equity interest in, such debtor, and in the case of warrants so issued under a
chapter 11 plan, also generally exempts the issuance of the securities issued upon exercise of such
warrants. In reliance upon this exemption, the New Common Units and New Warrants will be issued on
the Effective Date as provided in the Committee’s Plan, and will be exempt from the registration
requirements of the Securities Act, except to the extent described below. Accordingly, such
securities may be resold without registration under the Securities Act or other federal securities
laws subject to (i) the provisions of section 1145(b)(1) of the Bankruptcy Code relating to the
definition of an underwriter in section 2(a)(11) of the Securities Act, and compliance with any
rules and regulations of the Securities and Exchange Commission, if any, applicable at the time of
any future transfer of such Securities or instruments; (ii) the restrictions, if any, on the
transferability of such Securities and instruments set forth in the Stockholders Agreement; and
(iii) applicable regulatory approval. However, recipients of securities issued under the
Committee’s Plan are advised to consult with their own legal advisors as to the availability of any
such exemption from registration under state law in any given instance and as to any applicable
requirements or conditions to such availability.
As set forth herein and in the Committee’s Plan, the New Common Units issued pursuant to the
Offering to the Offering Participants will be exempt from registration under the Securities Act by
virtue of section 4(2) thereof and Regulation D promulgated thereunder. The New Common Units being
issued in the offering are “restricted securities” within the meaning of Rule 144(a)(3) under the
Securities Act and accordingly may not be offered, sold, resold, pledged, delivered, allotted or
otherwise transferred except in transactions that are exempt from, or in transactions not subject
to, the registration requirements of the Securities Act and in compliance with any applicable state
securities laws. The New Common Units issued in the Offering shall bear a legend restricting their
transferability until no longer required under applicable requirements of the Securities Act and
state securities laws.
J. Registration Rights Agreement
Other than as provided in the Registration Rights Agreement, the Reorganized Debtors shall not
be obligated to list the New Common Units on a national securities exchange. In order
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to ensure that the Reorganized Debtors will not become subject to the reporting requirements of the
Exchange Act except in connection with a public offering, the Postconfirmation Organizational
Documents will impose certain trading restrictions to limit the number of record holders thereof.
On the Effective Date, the Reorganized Debtors expect to enter into a registration rights agreement
(the “Registration Rights Agreement”) with the Backstop Purchaser and the other Offering
Participants who purchase their Offering Pro Rata Share of New Common Units in the Offering (the
“Other Full Offering Participants”). Pursuant to the Registration Rights Agreement, the Backstop
Purchaser would have the right to require the Reorganized Debtors to effect registered,
underwritten secondary offerings of the Backstop Purchaser’s New Common Units on terms and
conditions to be negotiated and reflected in such Registration Rights Agreement, with the number of
demand registration rights to be determined and the Other Full Offering Participants would have
certain piggy-back registration rights. A form of the Registration Rights Agreement will be
included in the Committee’s Plan Supplement.
K. Payment of Plan Expenses
The Reorganized Debtors may pay all reasonable Plan Expenses without further notice to
Creditors or Holders of Interests or approval of the Bankruptcy Court.
L. Dissolution of the Official Committee
As of the Effective Date, the Committee shall be dissolved, provided, however, that
notwithstanding such dissolution, the Committee’s Professional Persons may seek payment of any
unpaid Administrative Expenses pursuant to the Committee’s Plan.
M. Actions in Korea
The Debtors or the Reorganized Debtors, as the case may be, shall take whatever action
necessary to implement the Confirmation Order in Korea.
VII.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. Assumption and Rejection of Executory Contracts and Unexpired Leases
Except for any executory contracts or unexpired leases: (i) that are listed as Rejected
Contracts in the Plan Supplement (ii) that previously were assumed or rejected by an order of the
Bankruptcy Court, pursuant to section 365 of the Bankruptcy Code; (iii) as to which a motion for
approval of the assumption or rejection of such contracts or leases has been Filed and served prior
to Confirmation; or (iv) that constitute contracts of insurance in favor of, or that benefit, the
Debtors or the Estates, each executory contract and unexpired lease entered into by the Debtors
prior to the Petition Date that has not previously expired or terminated pursuant to its own terms
shall be deemed assumed pursuant to section 365 of the Bankruptcy Code as of the Effective Date.
The Confirmation Order shall constitute an Order of the Bankruptcy Court approving such
assumptions, pursuant to section 365 of the Bankruptcy Code, as of the Effective Date. On the
Effective Date, the Debtors shall pay any cure costs associated with any assumed contracts owned by
the Debtors (i.e., claims of non-Debtor contract parties against the Debtors for
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monetary damages for breaches of such assumed contracts) from the Cash of the Reorganized Debtors.
B. Objections to Assumption of Executory Contracts and Unexpired Leases
1. Objection Procedure Generally
Any party objecting to any Debtor’s proposed assumption of an executory contract or unexpired
lease based on a lack of adequate assurance of future performance or on any other ground including
the adequacy of the “cure” amount set forth in the Plan Supplement shall file and serve a written
objection to the assumption of such contract or lease by the deadline to object to Confirmation.
Failure to timely file an objection shall constitute consent to the assumption and assignment of
those contracts and leases, including an acknowledgment that the proposed assumption provides
adequate assurance of future performance and that the applicable “cure” amount set forth in the
Plan Supplement is proper and sufficient for purposes of section 365 of the Bankruptcy Code.
2. Objection Based on Grounds Other Than “Cure” Amount
If any party timely and properly files an objection to assumption based on any ground other than
the adequacy of the applicable “cure” amount set forth in the Plan Supplement and the Bankruptcy
Court ultimately determines that any Debtor cannot assume the executory contract or then the
unexpired lease or executory contract shall automatically thereupon be deemed to have been excluded
from the Plan Supplement and shall be rejected.
3. Objection Based on “Cure” Amount
If any party timely and properly files an objection to assumption based on the adequacy of the
applicable “cure” amount set forth in the Plan Supplement and such objection is not resolved
between the Debtors and the objecting party, the Bankruptcy Court shall resolve such dispute at the
Confirmation Hearing or another hearing date to be determined by the Bankruptcy Court. The
resolution of such dispute shall not affect the assumption of the executory contract or lease that
is the subject of such dispute but rather shall affect only the “cure” amount the Debtors must pay
in order to assume such contract or lease. Notwithstanding the immediately preceding sentence, if
the Debtors in their discretion determine that the amount asserted to be the necessary “cure”
amount would, if ordered by the Bankruptcy Court, make the assumption of the executory contract or
lease imprudent, then the Debtors may elect to (1) reject the executory contract or lease, or (2)
request an expedited hearing on the resolution of the “cure” dispute, exclude assumption or
rejection of the contract or lease from the scope of the Confirmation Order, and retain the right
to reject the executory contract or lease pending the outcome of such dispute.
C. Payment Related to Assumption of Executory Contracts and Unexpired Leases
If not the subject of dispute as of the Confirmation Date, any monetary defaults under each
executory contract and unexpired lease to be assumed under the Committee’s Plan shall be satisfied
by the Debtors from the Cash of MSA, pursuant to section 365(b) of the Bankruptcy Code: (i) by
payment of (1) the applicable “cure” amount, (2) such other amount as ordered by the Bankruptcy
Court, or (3) such other amount as agreed upon by the Debtors, in Cash within
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thirty (30) days following the Effective Date; or (ii) on such other terms as agreed to by the
parties to such executory contract or unexpired lease. In the event of a dispute regarding the
appropriate “cure” amount, payment of the amount otherwise payable hereunder shall be made
following entry of a Final Order or agreement by the Debtors or Reorganized Debtors, as the case
may be.
D. Bar Date for Rejection Damages
If the rejection of an executory contract or unexpired lease pursuant to the Committee’s Plan
or otherwise gives rise to a Claim by the other party or parties to such contract or lease, such
Claim shall be forever barred and shall not be enforceable against the Debtors, the Reorganized
Debtors or their Estates unless a proof of Claim is Filed and served on the Debtors and their
counsel within thirty days after the earlier of (a) Confirmation or (b) service of a notice that
the executory contract or unexpired lease has been rejected. All such Claims for which proofs of
Claim are required to be Filed, if Allowed, will be, and will be treated as, General Unsecured
Claims, subject to the provisions of the Committee’s Plan.
E. Insurance Policies
Unless specifically rejected by order of the Bankruptcy Court, all of the Debtors’ insurance
policies which are executory, if any, and any agreements, documents or instruments relating
thereto, shall be assumed under the Committee’s Plan. Nothing contained in this section shall
constitute or be deemed a waiver of any cause of action that the Debtors or Reorganized Debtors may
hold against any entity, including, without limitation, the insurer, under any of the Debtors’
policies of insurance.
VIII.
DISTRIBUTIONS AND RELATED MATTERS
DISTRIBUTIONS AND RELATED MATTERS
A. Dates of Distribution
The sections of the Committee’s Plan on treatment of Administrative Expenses, Claims, and
Interests specify the times for distributions. Whenever any payment or distribution to be made
under the Committee’s Plan shall be due on a day other than a Business Day, such payment or
distribution shall instead be made, without interest, on the immediately following Business Day.
Distributions due on the Effective Date will be paid on such date or as soon as practicable
thereafter, provided that if other provisions of the Committee’s Plan require the surrender of
securities or establish other conditions precedent to receiving a distribution, the distribution
may be delayed until such surrender occurs or conditions are satisfied.
If, under the terms of the Committee’s Plan, the resolution of a particular Disputed Claim,
e.g., it is Disallowed, entitles other Holders of Claims to a further distribution, either (a) the
Reorganized Debtors may make such further distribution as soon as practicable after the resolution
of the Disputed Claim or (b) if the further distribution is determined in good faith, by the
Reorganized Debtors to be less than $100 for any Creditor, then, in order to afford the Reorganized
Debtors an opportunity to minimize costs and aggregate such distributions, the Reorganized Debtors
may make such further distribution any time prior to sixty days after the Final Resolution Date.
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B. Cash Distributions
Distributions of Cash may be made either by check drawn on a domestic bank or wire transfer
from a domestic bank, at the option of the Reorganized Debtors, except that Cash payments made to
foreign Creditors may be made in such funds and by such means as are necessary or customary in a
particular foreign jurisdiction.
C. Rounding of Payments
Whenever payment of a fraction of a cent would otherwise be called for, the actual
payment shall reflect a rounding down of such fraction to the nearest whole cent.
D. Disputed Claims
Notwithstanding all references in the Committee’s Plan to Claims that are Allowed, in
undertaking the calculations concerning Allowed Claims or Allowed Administrative Expenses under the
Committee’s Plan, including the determination of the amount or number of distributions due to the
Holders of Allowed Claims and Allowed Administrative Expenses, each Disputed Claim shall be treated
as if it were an Allowed Claim or Allowed Administrative Expense, except that if the Bankruptcy
Court estimates the likely portion of a Disputed Claim to be Allowed or authorized or otherwise
determines the amount or number that would constitute a sufficient reserve for a Disputed Claim
(which estimates and determinations may be requested by the Debtors), such amount or number as
determined by the Bankruptcy Court shall be used as to such Claim.
Distributions of non-Cash consideration due in respect of a Disputed Claim shall be held and
not made pending resolution of the Disputed Claim.
After an objection to a Disputed Claim is withdrawn, resolved by agreement, or determined by
Final Order, the distributions due on account of any resulting Allowed Claim, Allowed Interest, or
Allowed Administrative Expense shall be made by the Reorganized Debtors. Such distribution shall be
made within forty-five days of the date that the Disputed Claim becomes an Allowed Claim or Allowed
Administrative Expense. No interest shall be due to a Holder of a Disputed Claim based on the delay
attendant to determining the allowance of such Claim, Interest, or Administrative Expense.
E. Undeliverable and Unclaimed Distributions
If any distribution under the Committee’s Plan is returned to the Reorganized Debtors as
undeliverable or the check or other similar instrument or distribution by the Reorganized Debtors
remains uncashed or unclaimed, as applicable, for 120 days, such Cash shall be deemed to be
“Unclaimed Property.” Upon property becoming Unclaimed Property, it immediately shall be revested
in the Reorganized Debtors.
Pending becoming Unclaimed Property, such Cash will remain in the possession of the
Reorganized Debtors, and, if the Reorganized Debtors are notified in writing of a new address for
the relevant Holder, they shall cause distribution of the Cash within forty-five days thereafter.
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Once there becomes Unclaimed Property for a Holder, no subsequent distributions for such
Holder that may otherwise be due under the Committee’s Plan will accrue or be held for such
Holder, provided that, if the applicable agent is notified in writing of such Holder’s then
current address and status as a Holder under the Committee’s Plan, thereafter, the Holder will
become entitled to its share of distributions, if any, which first become due after such
notification.
F. Compliance With Tax Requirements
The Reorganized Debtors shall comply with all withholding and reporting requirements imposed
by federal, state, or local taxing authorities in connection with making distributions pursuant to
the Committee’s Plan.
In connection with each distribution with respect to which the filing of an information return
(such as an IRS Form 1099 or 1042) or withholding is required, the Reorganized Debtors shall file
such information return with the IRS and provide any required statements in connection therewith to
the recipients of such distribution, or effect any such withholding and deposit all moneys so
withheld to the extent required by law. With respect to any Person from whom a tax identification
number, certified tax identification number, or other tax information required by law to avoid
withholding has not been received by the Reorganized Debtors, the Reorganized Debtors may, in their
sole option, withhold the amount required and distribute the balance to such Person or decline to
make such distribution until the information is received; provided, however, that the Reorganized
Debtors shall not be obligated to liquidate any securities to perform such withholding.
G. Record Date in Respect to Distributions
Except as set forth below, the record date and time for the purpose of determining which
Persons are entitled to receive any and all distributions on account of any Allowed Claims or
Interests, irrespective of the date of or number of distributions, shall be the same as the Record
Date.
At the date and time of the Record Date, the Agent’s registers with respect to the First Lien
Lender Secured Claims, the Second Lien Noteholder Claim and the Subordinated Note Claim shall be
deemed closed for purposes of determining whether a Holder of a First Lien Lender Secured Claim, a
Second Lien Noteholder Claim or a Subordinated Note Claim is a record holder entitled to
distributions under the Committee’s Plan. Neither the Reorganized Debtors nor the Agent shall have
any obligation to recognize, for purposes of distributions pursuant to or in any way arising under
the Committee’s Plan, any First Lien Lender Secured Claim Lender Secured Claim, a Second Lien
Noteholder Claim or a Subordinated Note Claim, or Claim arising therefrom or in connection
therewith that is transferred after the time of the Record Date. Instead, they all shall be
entitled to recognize and deal for distribution purposes with only those record holders of the
First Lien Lender Secured Claims, the Second Lien Noteholder Claim or the Subordinated Note Claim
as of the Record Date irrespective of the number of distributions to be made under the Committee’s
Plan or the date of such distributions.
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H. Conditions to Receiving Distributions
As a condition to receiving any distribution under the Committee’s Plan, each Holder of an
Allowed Claim shall have executed and delivered such agreements, documents and instruments as may
be reasonably required by the Debtors or Reorganized Debtors. Any Holder of an Allowed Claim that
fails to execute and deliver such agreements, documents, and instruments or fails to take such
action as may be reasonably requested by the Debtors or Reorganized Debtors before the first
anniversary of the later to occur of (a) the availability of the agreements, documents and
instruments required by the Debtors or the Reorganized Debtors and (b) the Effective Date may not
participate in any distribution under the Committee’s Plan with respect to such Allowed Claim. Any
distribution forfeited hereunder shall be ratably reallocated among complying Holders of the
applicable Class. The Debtors acknowledge that the First Lien Lender Parties have delivered all
necessary agreements, documents and instruments and have taken all necessary actions required
pursuant to this Article VIII.H.
I. Surrender of Instruments
As a condition to receiving any distribution under the Committee’s Plan, each Holder of Second
Lien Notes or Subordinated Notes must either (a) surrender such (i) Second Lien Notes to Luxco who
will surrender such Second Lien Notes to the Second Lien Noteholder Trustee, or (ii) Subordinated
Notes to Luxco who will surrender such Subordinated Notes to the Subordinated Note Trustee, or (b)
submit evidence satisfactory to (i) the Second Lien Noteholder Trustee with respect to the Secured
Lien Notes, and (ii) the Subordinated Note Trustee with respect to the Subordinated Notes. Any
Holder that fails to do either (a) or (b) above shall be deemed to have forfeited all rights and
Claims and may not participate in any distribution under the Committee’s Plan.
IX.
LITIGATION, OBJECTIONS TO CLAIMS, AND DETERMINATION OF TAXES
LITIGATION, OBJECTIONS TO CLAIMS, AND DETERMINATION OF TAXES
A.
Litigation: Objections to Claims; Objection Deadline
Except as may be expressly provided otherwise in the Committee’s Plan, the Reorganized Debtors
shall be responsible for any objection to the allowance of any Claim, and the determination of Tax
issues and liabilities.
As of the Effective Date, the Reorganized Debtors shall have exclusive authority to file
objections, settle, compromise, withdraw, or litigate to judgment objections to Claims. Unless
another date is established by the Bankruptcy Court (which may so act without notice or hearing) or
is established by other provisions of the Committee’s Plan, any objection to a Claim shall be Filed
with the Bankruptcy Court and served on the Person holding such Claim within ninety days after the
Effective Date (the “Objection Deadline”), provided that the Reorganized Debtors may seek
extension(s) thereof subject to Bankruptcy Court approval.
In addition to any other available remedies or procedures with respect to Tax issues or
liabilities, the Reorganized Debtors, at any time, may utilize (and receive the benefits of)
section 505 of the Bankruptcy Code with respect to: (1) any Tax issue or liability relating to an
act or event occurring prior to the Effective Date or (2) any Tax liability arising prior to the
Effective
39
Date. If the Reorganized Debtors utilize section 505(b) of the Bankruptcy Code: (1) the Bankruptcy
Court shall determine the amount of the subject Tax liability in the event that the appropriate
governmental entity timely determines a Tax to be due in excess of the amount indicated on the
subject return and (2) if the prerequisites are met for obtaining a discharge of Tax liability in
accordance with section 505(b) of the Bankruptcy Code, the Reorganized Debtors shall be entitled to
such discharge, which shall apply to any and all Taxes relating to the period covered by such
return.
B. Temporary or Permanent Resolution of Disputed Claims
The Reorganized Debtors may request, at any time prior to the Effective Date or on and after
the Effective Date, that the Bankruptcy Court estimate any contingent or unliquidated Disputed
Claim pursuant to section 502(c) of the Bankruptcy Code, irrespective of whether any party has
previously objected to such Disputed Claim or whether the Bankruptcy Court has ruled on any such
objection. The Bankruptcy Court will retain jurisdiction to estimate any contingent or unliquidated
Disputed Claim at any time during litigation concerning any objection to the Disputed Claim,
including during the pendency of any appeal relating to any such objection. If the Bankruptcy Court
estimates any contingent or unliquidated Disputed Claim, that estimated amount would constitute
either the Allowed amount of such Disputed Claim or a maximum limitation on such Disputed Claim, as
determined by the Bankruptcy Court. If the estimated amount constitutes a maximum limitation on
such Disputed Claim, the Reorganized Debtors may elect to pursue any supplemental proceedings to
object to any ultimate payment on account of such Disputed Claim. In addition, the Reorganized
Debtors may resolve or adjudicate any Disputed Claim in the manner in which the amount of such
Claim, Interest, or Administrative Expense and the rights of the Holder of such Claim, Interest, or
Administrative Expense would have been resolved or adjudicated if the Chapter 11 Cases had not been
commenced. All of the aforementioned objection, estimation, and resolution procedures are
cumulative and not necessarily exclusive of one another.
C. Release of Avoidance Actions
Each of the Debtors releases, waives and agrees not to prosecute or pursue any Avoidance
Claims.
D. Preservation of Retained Rights of Action
In accordance with section 1123(b) of the Bankruptcy Code, the Reorganized Debtors will retain
and may exclusively enforce any Retained Rights of Action and the Confirmation Order shall be
deemed a res judicata determination of such rights to retain and exclusively enforce such Retained
Rights of Action. The Retained Rights of Action may be asserted or prosecuted before or after
solicitation of votes on the Committee’s Plan or before or after the Effective Date.
Absent an express waiver or release set forth in the Committee’s Plan, nothing in the
Committee’s Plan shall (or is intended to) prevent, estop, or be deemed to preclude the Reorganized
Debtors from utilizing, pursuing, prosecuting, or otherwise acting upon all or any of their
Retained Rights of Action and, therefore, no preclusion doctrine, including, without
40
limitation, the doctrines of res judicata, collateral estoppel, issue preclusion, claim preclusion,
estoppel (judicial, equitable or otherwise), or laches shall apply to such Retained Rights of
Action upon or after Confirmation or Consummation.
X.
EFFECT OF CONFIRMATION AND RELATED PROVISIONS
EFFECT OF CONFIRMATION AND RELATED PROVISIONS
A. Effect of Confirmation
1. Binding Effect of Plan
The provisions of the confirmed Plan shall bind the Debtors, the Reorganized Debtors, any
entity acquiring property under the Committee’s Plan, and any Creditor or Interest Holder, whether
or not such Creditor or Interest Holder has Filed a proof of Claim or Interest in the Chapter 11
Cases, whether or not the Claim of such Creditor or the Interest of such Interest Holder is
impaired under the Committee’s Plan, and whether or not such Creditor or Interest Holder has
accepted or rejected the Committee’s Plan. All Claims and debts shall be as fixed and adjusted
pursuant to the Committee’s Plan. With respect to any taxes of the kind specified in Bankruptcy
Code section 1146(c), the Committee’s Plan shall also bind any taxing authority, recorder of deeds
or similar official for any county, state, or governmental unit or parish in which any instrument
related to the Committee’s Plan or related to any transaction contemplated under the Committee’s
Plan is to be recorded.
B. Injunction
1. Generally
Unless otherwise provided in the Committee’s Plan or the Confirmation Order, all injunctions
and stays provided for in the Chapter 11 Cases pursuant to sections 105 and 362 of the Bankruptcy
Code or otherwise in effect on the Confirmation Date shall remain in full force and effect until
the Effective Date. From and after the Effective Date, all Persons are permanently enjoined from,
and restrained against, commencing or continuing in any court any suit, action, or other
proceeding, or otherwise asserting any Claim or interest, (a) seeking to hold (i) the Reorganized
Debtors, (ii) the Plan Proponent, (iii) the Backstop Purchaser; (iv) the Second Lien Noteholder
Trustee; (v) the Subordinated Noteholder Trustee or (vi) the property of the Reorganized Debtors,
liable for any Claim, obligation, right, interest, debt, or liability that has been satisfied,
discharged or released pursuant the Committee’s Plan.
From and after the Effective Date, the Agent, the Collateral Trustee and all Holders of Claims
are permanently enjoined from and restrained against, commencing or continuing in any court any
suit, action, or other proceeding, or otherwise asserting any Claim or Interest against the
Non-Debtor Subsidiaries, except as provided under the New Term Loan. The Second Lien Noteholder
Trustee, the Subordinated Note Trustee, the Second Lien Collateral Agent and the Collateral Trustee
hereby release all Liens, the Second Lien Guarantees, and the Subordinated Note Guarantee, except
for the Liens securing the First Lien Lender Secured Claims, which shall remain in effect for the
sole purpose of securing the New Term Loan.
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| 2. | Injunction Related to Rights of Action and Terminated Claims, Administrative Expenses or Interests |
Except as provided in the Committee’s Plan or in the Confirmation Order, as of the Effective
Date, all Entities that have held, currently hold or may hold a Claim, Administrative Expense,
Superpriority Claim, Interest, or other debt or liability that is stayed, Impaired, or terminated
pursuant to the terms of the Committee’s Plan are permanently enjoined from taking any of the
following actions either (x) against the Plan Proponent, the Backstop Purchaser, the Second Lien
Noteholder Trustee, the Subordinated Noteholder Trustee, any of the present or former First Lien
Lender Parties, any of the present or former officers or directors of the Debtors and their
affiliates, the Debtors and their affiliates or the Reorganized Debtors, or their property on
account of all or such portion of any such Claims, Administrative Expenses, Superpriority Claims,
Interests, debts, or liabilities that are stayed, Impaired, or terminated or (y) against any Person
with respect to any Right of Action or any objection to a Claim, Administrative Expense,
Superpriority Claim, or Interest, which Right of Action or objection, under the Committee’s Plan,
is waived, released, assigned or exclusively retained by any of the Debtors: (a) commencing or
continuing, in any manner or in any place, any action or other proceeding; (b) enforcing,
attaching, collecting, or recovering in any manner any judgment, award, decree or order, (c)
creating, perfecting, or enforcing any lien or encumbrance; (d) asserting a setoff, right of
subrogation or recoupment of any kind against any debt, liability, or obligation due; and (e)
commencing or continuing, in any manner or in any place, any action that does not comply with or is
inconsistent with the provisions of the Committee’s Plan. To avoid any doubt, except as otherwise
expressly noted in the Committee’s Plan, nothing in the Committee’s Plan or herein shall be
construed or is intended to affect, enjoin, modify, release, or waive any claims, rights, and
actions that a third party may have against a person other than the Plan Proponent, the Backstop
Purchaser, the Second Lien Noteholder Trustee, the Subordinated Noteholder Trustee, any of the
present or former First Lien Lender Parties, any of the present or former officers or directors of
the Debtors and their affiliates, the Debtors and their affiliates or the Reorganized Debtors,
provided that such claims, rights, and actions are wholly separate and exist independently from any
claims, rights, and actions of the Estates.
3. Exculpation
As of and subject to the occurrence of the Effective Date, each of the Plan Proponent and its
Representatives, the Backstop Purchaser, the Second Lien Noteholder Trustee, the Subordinated
Noteholder Trustee, any present or former First Lien Lender Parties and their respective
Representatives, the present and former directors and officers of the Debtors and their
affiliates, the Debtors and their affiliates, the Reorganized Debtors and the members of the
Committee (acting in such capacity), shall neither have nor incur any liability to any Person or
Entity for any act taken or omitted to be taken, in connection with, or related to, the
formulation, preparation, dissemination, implementation, administration, Confirmation or
Consummation of the Committee’s Plan or any contract, instrument, waiver, release or other
agreement or document created or entered into, in connection with the Committee’s Plan, or any
other act taken or omitted to be taken in connection with the
Chapter 11 Cases; provided, however, that the foregoing provisions of
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this subsection shall have no effect on the liability of any Person or Entity that results from any
such act or omission that is determined in a Final Order to have constituted gross negligence or
willful misconduct.
C. Debtor Release
Each Debtor, for itself and its affiliates, its respective successors, assigns, transferees,
those officers and directors, acting in such capacities as of the Petition Date, agents, members,
financial advisors, attorneys, employees, partners, affiliates, representatives, in each case in
their capacity as such, shall be deemed to have released any and all claims and causes of action
against Interest holders of LLC, the Plan Proponent, the Backstop Purchaser, any of the present or
former First Lien Lender Parties, any of the present or former officers or directors of the Debtors
or their affiliates, the Second Lien Noteholder Trustee, the Subordinated Noteholder Trustee and
the Reorganized Debtors, and their respective officers, directors, managers, employees, agents,
advisors, accountants, attorneys and representatives, and their respective property, arising prior
to the Effective Date. The Creditors’ Committee is not aware of the existence of any Rights of
Action that are the subject of the release described under this Article X.C. As of the date of the
Committee’s Plan, the Creditors’ Committee has not performed a formal investigation of the Rights
of Action described in this Article X.C.
D. Third Party Release
Each Creditor that does not elect to opt out of this release by checking the appropriate box
on the ballot provided to such Creditor in connection with solicitation of such Creditors’ vote to
accept to reject the Committee’s Plan, for itself and its respective successors, assigns,
transferees, those officers and directors, acting in such capacities as of the Petition Date,
agents, members, financial advisors, attorneys, employees, partners, affiliates, representatives,
in each case in their capacity as such, shall, by virtue of its vote, be deemed to have released
any and all claims and causes of action against the Plan Proponent, the Backstop Purchaser, any of
the present or former First Lien Lender Parties, the Second Lien Noteholder Trustee, the
Subordinated Noteholder Trustee, any of the present or former officers or directors of the Debtors
and their affiliates, the Debtors and their affiliates, and the Reorganized Debtors, and their
respective officers, directors, managers, employees, agents, advisors, accountants, attorneys and
representatives, and their respective property, arising prior to the Effective Date. The Creditors’
Committee is not aware of the existence of any Rights of Action that are the subject of the release
described under this Article X.D. As of the date of the Committee’s Plan, the Creditors’ Committee
has not performed a formal investigation of the Rights of Action described in this Article X.D.
E. Subsequent Discovery of Facts Does Not Affect Enforceability of Releases
Each releasing party under Article X.C. and Article X.D. of the Committee’s Plan shall be
deemed to have granted the releases set forth herein, notwithstanding that it may hereafter
discover facts in addition to, or different from, those which it now knows or believes to be true,
and without regard to the subsequent discovery or existence of such different or additional facts,
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and such party expressly waives any and all rights that it may have under any statute or common law
principle, including section 1542 of the California Civil Code, which would limit the effect of
such releases to those Claims or causes of action actually known or suspected to exist at the time
of Confirmation. Section 1542 of the California Civil Code generally provides as follows: “A
general release does not extend to claims which the creditor does not know or suspect to exist in
his or her favor at the time of executing the release, which if known by him or her must have
materially affected his or her settlement with the debtor.” The Creditors’ Committee is not aware
of the existence of any Rights of Action that are the subject of the release described under this
Article X.E. As of the date of the Committee’s Plan, the Creditors’ Committee has not performed a
formal investigation of the Rights of Action described in this Article X.E.
XI.
PENSION PLANS, OTHER RETIREE BENEFITS AND LABOR CONTRACTS
PENSION PLANS, OTHER RETIREE BENEFITS AND LABOR CONTRACTS
The
Debtors are not obligated pursuant to section 1129(a)(13) of the Bankruptcy Code to pay any
“retiree benefits” (as that term is defined in section 1114(a) of the Bankruptcy Code).
XII.
NO REGULATED RATE CHANGE WITHOUT GOVERNMENT APPROVAL
NO REGULATED RATE CHANGE WITHOUT GOVERNMENT APPROVAL
The Debtors do not charge any rates for purposes of section 1129(a)(6) that are regulated
by any governmental regulatory commission with jurisdiction under applicable nonbankruptcy law.
XIII.
EXEMPTION FROM CERTAIN TRANSFER TAXES
EXEMPTION FROM CERTAIN TRANSFER TAXES
Pursuant to section 1146(c) of the Bankruptcy Code, any transfers by the Debtors or the
Reorganized Debtors pursuant to the Committee’s Plan shall not be subject to any document recording
tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, stamp act, real estate
transfer tax, mortgage recording tax, or other similar Tax or governmental assessment.
XIV.
RETENTION OF JURISDICTION AND MISCELLANEOUS MATTERS
RETENTION OF JURISDICTION AND MISCELLANEOUS MATTERS
A. Retention of Jurisdiction
Notwithstanding the entry of the Confirmation Order or the occurrence of the Effective Date,
the Bankruptcy Court shall retain jurisdiction over the Chapter 11 Cases and any of the proceedings
related to the Chapter 11 Cases pursuant to section 1142 of the Bankruptcy Code and 28 U.S.C. §
1334 to the fullest extent permitted by the Bankruptcy Code and other applicable law, including,
without limitation, such jurisdiction as is necessary to ensure that the purpose and intent of the
Committee’s Plan are carried out. Without limiting the generality of the foregoing, the Bankruptcy
Court shall retain jurisdiction for the following purposes:
1. establish the priority or secured or unsecured status of, allow,
disallow, determine, liquidate, classify, or estimate any Claim,
Administrative Expense or Interest (including, without limitation and by
example only,
44
determination of Tax issues or liabilities in accordance with section 505 of the Bankruptcy Code),
resolve any objections to the allowance or priority of Claims, Administrative Expense or Interests,
or resolve any dispute as to the treatment necessary to reinstate a Claim, Administrative Expense
or Interest pursuant to the Committee’s Plan;
2. grant or deny any applications for allowance of compensation or reimbursement of expenses
authorized pursuant to the Bankruptcy Code or the Committee’s Plan, for periods ending on or before
the Effective Date;
3. resolve any matters related to the rejection of any executory contract or unexpired lease to
which any of the Debtors is a party or with respect to which any of the Debtors may be liable, and
to hear, determine, and, if necessary, liquidate any Claims or Administrative Expenses arising
therefrom;
4. ensure that distributions to Holders of Allowed Claims, Administrative Expenses, or Interests
are made pursuant to the provisions of the Committee’s Plan, and to effectuate performance of the
provisions of the Committee’s Plan;
5. decide or resolve any motions, adversary proceedings, contested or litigated matters, and any
other matters and grant or deny any applications involving the Debtors that may be pending before
the Effective Date or that may be commenced thereafter as provided in the Committee’s Plan;
6. enter such orders as may be necessary or appropriate to implement or consummate the provisions
of the Committee’s Plan and all contracts, instruments, releases, indentures, and other agreements
or documents created in connection with the Committee’s Plan, the Disclosure Statement, or the
Confirmation Order, except as otherwise provided in the Confirmation Order or in the Committee’s
Plan, including, without limitation, any stay orders as may be appropriate in the event that the
Confirmation Order is for any reason stayed, revoked, modified, or vacated;
7. resolve any cases, controversies, suits, or disputes that may arise in connection with the
consummation, interpretation, or enforcement of the Committee’s Plan or the Confirmation
Order;
8. subject to the restrictions on modifications provided in any contract, instrument, release,
indenture, or other agreement or document created in connection with the Committee’s Plan, modify
the Committee’s Plan before or after the Effective Date pursuant to section 1127 of the Bankruptcy
Code or modify the Disclosure Statement, the Confirmation Order, or any contract, instrument,
release, indenture, or other agreement or document created in connection with the Committee’s Plan,
the Disclosure Statement, or the Confirmation Order; or remedy any defect or omission or reconcile
45
any inconsistency in any Bankruptcy Court order, the Committee’s Plan, the Disclosure Statement,
the Confirmation Order or any contract, instrument, release, indenture or other agreement or
document created in connection with the Committee’s Plan, the Disclosure Statement, or the
Confirmation Order, in such manner as may be necessary or appropriate to consummate the Committee’s
Plan, to the extent authorized by the Bankruptcy Code;
9. issue injunctions, enter and implement other orders, or take such other actions as may be
necessary or appropriate to restrain interference by any Person with the consummation,
implementation, or enforcement of the Committee’s Plan or the Confirmation Order;
10. consider and act on the compromise and settlement of any Claim against the Debtors;
11. enter such orders as may be necessary or appropriate in connection with the recovery of the
assets of the Debtors wherever located;
12. hear and determine any motions or contested matters involving Tax Claims or Taxes either
arising prior (or for periods including times prior) to the Effective Date or relating to the
administration of the Chapter 11 Cases, including, without limitation (i) matters involving
federal, state and local Taxes in accordance with sections 346, 505 and 1146 of the Bankruptcy
Code, (ii) matters concerning Tax refunds due for any period including times prior to the Effective
Date, and (iii) any matters arising prior to the Effective Date affecting Tax attributes of the
Debtors;
13. determine such other matters as may be provided for in the Confirmation Order or as may from
time to time be authorized under the provisions of the Bankruptcy Code or any other applicable law;
14. enforce all orders, judgments, injunctions, releases, exculpations, indemnifications,
and rulings issued or entered in connection with the Chapter 11 Cases or the Committee’s
Plan;
15. remand to state court any claim, cause of action, or proceeding involving the Debtors that was
removed to federal court in whole or in part in reliance upon 28 U.S.C. § 1334;
16. determine any other matters that may arise in connection with or relate to the Committee’s
Plan, the Disclosure Statement, the Confirmation Order, or any contract, instrument, release,
indenture, or other agreement or document created in connection with the Committee’s Plan, the
Disclosure Statement, or the Confirmation Order, except as otherwise provided in the Committee’s
Plan;
17. determine any other matter not inconsistent with the Bankruptcy Code;
and
46
18. enter an order or final decree concluding the Chapter 11 Cases.
B. Miscellaneous Matters
1. Headings
The headings used in the Committee’s Plan are inserted for convenience only and neither
constitute a portion of the Committee’s Plan nor in any manner affect the construction of the
provisions of the Committee’s Plan.
2. Services by and Fees for Professionals and Certain Parties
Reasonable fees and expenses for the Professional Persons retained by the Debtors or the
Committee for services rendered and costs incurred after the Petition Date and prior to the
Effective Date will be fixed by the Bankruptcy Court after notice and a hearing and such fees and
expenses will be paid by the Reorganized Debtors (less deductions for any and all amounts thereof
already paid to such Persons with respect thereto) after a Final Order of the Bankruptcy Court
approving such fees and expenses. Without limiting the Reorganized Debtors’ obligations after the
Effective Date under applicable law, from and after the Effective Date, the Reorganized Debtors
shall, in the ordinary course of business and without the necessity for any approval by the
Bankruptcy Court, pay from the Cash on hand of MSA, the reasonable fees and expenses of the
Professional Persons thereafter incurred by the Reorganized Debtors related to: (a) the
implementation or consummation of the Committee’s Plan or (b) the prosecution of any objections to
Claims, Administrative Expenses, or Interests.
3. Bar Date for Administrative Expenses
Requests for payment of all Administrative Expenses, other than for those for which a request
and/or proof of Claim has previously been Filed, must be Filed and served on the Debtors and the
United States Trustee no later than thirty days after the Effective Date. The Debtors shall have
until sixty days after the Effective Date to bring an objection to a Timely Filed request for
payment of an Administrative Expense. Nothing in the Committee’s Plan shall prohibit the Debtors
from paying Administrative Expenses in the ordinary course in accordance with applicable law during
or after the Chapter 11 Cases, but after the Effective Date, the Reorganized Debtors’ obligation to
pay an Administrative Expense will depend upon the claimant’s compliance with this section and such
Administrative Expense being Allowed under the provisions of the Committee’s Plan. Notwithstanding
the foregoing provisions of this Section, but except as may be expressly provided in other sections
of the Committee’s Plan, Professional Persons or other entities requesting compensation or
reimbursement of expenses pursuant to sections 327, 328, 330, 331, 503(b) and 1103 of the
Bankruptcy Code for services rendered or expenses incurred after the Petition Date and prior to the
Effective Date must file and serve, on all parties entitled to notice thereof, an application for
final allowance of compensation and reimbursement of expenses in accordance with the various orders
of the Bankruptcy Court establishing procedures for submission and review of such applications;
provided that, if no last date is set in such procedures for filing such applications, they must be
Filed no later than sixty days after the Effective Date and any objections to such applications
must be made in accordance with applicable rules of the Bankruptcy Court.
47
4. Notices
All notices and requests in connection with the Committee’s Plan shall be in writing and shall
be hand delivered or sent by mail addressed to:
Co-Counsel for the Creditors’ Committee:
Howard A. Cohen, Esq.
Drinker Biddle & Reath LLP
1100 N. Market Street
Wilmington, DE 19801-1254
Tel: (302) 467-4213
Fax: (302) 467-4201
Drinker Biddle & Reath LLP
1100 N. Market Street
Wilmington, DE 19801-1254
Tel: (302) 467-4213
Fax: (302) 467-4201
-and-
John K. Sherwood, Esq.
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
Telephone: (973) 597-2538
Facsimile: (973) 597-2539
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
Telephone: (973) 597-2538
Facsimile: (973) 597-2539
Counsel for the Backstop Purchaser:
Ira S. Dizengoff
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, New York 10036
Telephone: (212) 872-1096
Facsimile: (212) 872-1002
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, New York 10036
Telephone: (212) 872-1096
Facsimile: (212) 872-1002
All notices and requests to any Person holding of record any Claim, Administrative Expense, or
Interest shall be sent to such Person at the Person’s last known address or to the last known
address of the Person’s attorney of record. Any such Person may designate in writing any other
address for purposes of this Section of the Committee’s Plan, which designation will be effective
on receipt.
5. Successors and Assigns
The rights, duties and obligations of any Person named or referred to in the Committee’s Plan
shall be binding upon, and shall inure to the benefit of, the successors and assigns of such
Person.
48
6. Severability of Plan Provisions
If, prior to Confirmation, any nonmaterial term or provision of the Committee’s Plan is held
by the Bankruptcy Court to be invalid, void, or unenforceable, the Bankruptcy Court will have the
power to alter and interpret such term or provision to make it valid or enforceable to the maximum
extent practicable, consistent with the original purpose of the term or provision held to be
invalid, void, or unenforceable, and such term or provision will then be applicable as altered or
interpreted. Notwithstanding any such holding, alteration, or interpretation, the remainder of the
terms and provisions of the Committee’s Plan will remain in full force and effect and will in no
way be affected, Impaired, or invalidated by such holding, alteration, or interpretation. The
Confirmation Order will constitute a judicial determination that each term and provision of the
Committee’s Plan, as it may have been altered or interpreted in accordance with the foregoing, is
valid and enforceable pursuant to their terms.
7. No Waiver
Neither the failure of the Debtors to list a Claim in the Debtors’ Schedules; the failure of
the Debtors to object to any Claim or Interest for purposes of voting; the failure of the Debtors
to object to a Claim, Administrative Expense, or Interest prior to Confirmation or the Effective
Date; the failure of the Debtors to assert a Retained Right of Action prior to Confirmation or the
Effective Date; the absence of a proof of Claim having been Filed with respect to a Claim; nor any
action or inaction of the Debtors or any other party with respect to a Claim, Administrative
Expense, Interest, or Retained Right of Action other than a legally effective express waiver or
release shall be deemed a waiver or release of the right of the Debtors or their successors or
assigns, before or after solicitation of votes on the Committee’s Plan or before or after
Confirmation or the Effective Date, to (a) object to or examine such Claim, Administrative Expense,
or Interest, in whole or in part or (b) assign to the Agent (and for the Agent to subsequently
assign or exclusively assert, pursue, prosecute, utilize, otherwise act, or otherwise enforce) any
Retained Rights of Action.
8. Inconsistencies
In the event the terms or provisions of the Committee’s Plan are inconsistent with the terms
and provisions of the exhibits to the Committee’s Plan or documents executed in connection with the
Committee’s Plan, the terms of the Committee’s Plan shall control.
9. Plan Supplement
The Plan Supplement and the documents contained therein shall be in form, scope and substance
satisfactory to the Backstop Purchaser, and shall be filed with the Bankruptcy Court no later than
to ten (10) days before the deadline for voting to accept or reject the Committee’s Plan, provided
that the documents included therein may thereafter be amended and supplemented, subject to the
consent of the Backstop Purchaser, prior to execution, so long as no such amendment or supplement
materially affects the rights of holders of Claims. The Plan Supplement and the documents contained
therein are incorporated into and made a part of the Committee’s Plan as if set forth in full
herein.
49
XV.
CONDITIONS TO CONFIRMATION AND EFFECTIVENESS
CONDITIONS TO CONFIRMATION AND EFFECTIVENESS
A. Conditions Precedent to Plan Effectiveness
The Plan will not be consummated and the Effective Date will not occur unless and until (A)
the Confirmation Order is in a form acceptable to the Plan Proponent and is entered by the
Bankruptcy Court; (B) the Confirmation Order shall either be a Final Order or, if an appeal has
been Filed, no stay has been obtained; (C) all conditions set forth in the Backstop Commitment
Agreement shall have been satisfied; (D) the Offering shall have been fully funded; (E) all
documents necessary to effectuate the release of the Liens, the Second Lien Guarantees, and the
Subordinated Note Guarantee against the Debtors and Non-Debtor Subsidiaries, except for the Liens
securing the First Lien Lender Secured Claims, which shall remain in effect for the sole purpose of
securing the New Term Loan, shall have been fully executed and delivered; and (F) all distributions
payable on the Effective Date hereunder shall have promptly been paid in accordance with the terms
hereof; (G) all necessary government approvals have been obtained; and (H) UBS, AG, Stamford Branch
has been replaced as Agent and all fees and expenses incurred by UBS, AG, Stamford Branch in its
capacity as Agent shall have been paid in full. The foregoing conditions, other than subparts (F)
and (H) above, may be waived by the Plan Proponent (such waiver shall not require any notice,
Bankruptcy Court order, or any further action). The foregoing conditions may be waived by the Plan
Proponent (such waiver shall not require any notice, Bankruptcy Court order, or any further
action).
B. Effect of Non-Occurrence of Conditions to Effective Date
Each of the conditions to the Effective Date must be satisfied or duly waived, as provided
above, within thirty-five days after the Confirmation Date. If each condition to the Effective Date
has not been satisfied or duly waived, as described above, within thirty-five days after the
Confirmation Date, then upon motion by the Debtors made before the time that each of such
conditions has been satisfied or duly waived and upon notice to such parties in interest as the
Bankruptcy Court may direct, the Confirmation Order shall be vacated by the Bankruptcy Court.
Notwithstanding the filing of such motion, however, the Confirmation Order may not be vacated if
each of the conditions to the Effective Date is either satisfied or duly waived before the
Bankruptcy Court enters an order granting such motion. If the Confirmation Order is vacated for
failure to satisfy a condition to the Effective Date, the Committee’s Plan shall be deemed null and
void in all respects.
XVI.
EFFECT OF CONFIRMATION
EFFECT OF CONFIRMATION
A. Binding Effect of Confirmation
Confirmation will bind the Debtors; all Holders of Claims, Administrative Expenses,
Superpriority Claims, or Interests; and other parties in interest to the provisions of the
Committee’s Plan whether or not the Claim, Administrative Expense, Superpriority Claim, or Interest
of such Holder is Impaired under the Committee’s Plan and whether or not the Holder of
50
such Claim, Administrative Expense, Superpriority Claim, or Interest has accepted the
Committee’s Plan.
B. Good Faith
Confirmation of the Committee’s Plan shall constitute a finding that: (i) the Committee’s Plan
has been proposed in good faith and in compliance with applicable provisions of the Bankruptcy Code
and (ii) all Persons’ solicitations of acceptances or rejections of the Committee’s Plan and the
offer, issuance, sale, or purchase of a security offered or sold under the Committee’s Plan have
been in good faith and in compliance with applicable provisions of the Bankruptcy Code.
C. No Limitations on Effect of Confirmation
Nothing contained in the Committee’s Plan will limit the effect of Confirmation as
described in section 1141 of the Bankruptcy Code.
XVII.
MODIFICATION OR WITHDRAWAL OF PLAN
MODIFICATION OR WITHDRAWAL OF PLAN
A. Modification of Plan
The Plan Proponent may seek to amend or modify the Committee’s Plan at any time prior to its
Confirmation in the manner provided by section 1127 of the Bankruptcy Code or as otherwise
permitted by law without additional disclosure pursuant to section 1125 of the Bankruptcy Code,
except as the Bankruptcy Court may otherwise order, and except as otherwise set forth herein, the
Plan Proponent reserves the right to amend the terms of the Committee’s Plan or waive any
conditions to its Confirmation, effectiveness or consummation if the Plan Proponent determines that
such amendments or waivers are necessary or desirable to confirm, effectuate or consummate the
Committee’s Plan.
After Confirmation of the Committee’s Plan, but prior to the Effective Date, the Plan
Proponent may apply to the Bankruptcy Court, pursuant to section 1127 of the Bankruptcy Code, to
modify the Committee’s Plan. After the Effective Date, the Reorganized Debtors and the Plan
Proponent may apply to remedy defects or omissions in the Committee’s Plan or to reconcile
inconsistencies in the Committee’s Plan.
B. Withdrawal of Plan
The Plan Proponent reserves the right to revoke and withdraw the Committee’s Plan at any
time prior to the Effective Date, in which case the Committee’s Plan will be deemed to be null
and void.
51
XVIII.
CONFIRMATION REQUEST
CONFIRMATION REQUEST
The Creditors’ Committee requests that the Bankruptcy Court confirm the Committee’s Plan and
that it do so, if applicable, pursuant to section 1129(b) of the Bankruptcy Code notwithstanding
the rejection of the Committee’s Plan by any Impaired Class.
| Official Committee of Unsecured Creditors: |
||||
| By: | ||||
| DRINKER BIDDLE & REATH LLP | ||||
| Howard A. Cohen, Esq. 1100 N. Market Street Wilmington, DE 19801-1254 Tel: (302) 467-4213 Fax: (302) 467-4201 -and- LOWENSTEIN SANDLER PC John K. Sherwood, Esq. 65 Livingston Avenue Roseland, New Jersey 07068 Telephone: (973) 597-2538 Facsimile: (973) 597-2539 As Co-Counsel for the Official Committee of Unsecured Creditors |
||||
52
Schedule 1
New Term Loan
New Term Loan
Borrower:
|
Reorganized Luxco and Reorganized Finco. | |
Guarantors:
|
The following Reorganized Debtors: LLC, MSK, MSA, Holdco, Dutchco, MagnaChip Semiconductor Limited (UK), MagnaChip Semiconductor Inc. (Japan), MagnaChip Semiconductor Limited (Taiwan), MagnaChip Semiconductor Holding Company Limited (British Virgin Islands) and MagnaChip Semiconductor Limited (Hong Kong SAR). | |
Principal:
|
$0-61.75 million. | |
Maturity:
|
4 years from the Effective Date. | |
Interest Rate:
|
LIBOR plus 1200 | |
Covenants:
|
Usual and customary affirmative and negative covenants, including but not limited to limitations on indebtedness, liens, restricted payments and disposition and investments. | |
Collateral:
|
First lien on substantially all assets of the Reorganized Debtors and the Non-Debtor Subsidiaries. |
53
EXHIBIT A
AVENUE CAPITAL MANAGEMENT II, L.P.
September 23, 2009
John K. Sherwood
Lowenstein Sandler LLP
65 Livingston Avenue
Roseland, New Jersey 07068
Lowenstein Sandler LLP
65 Livingston Avenue
Roseland, New Jersey 07068
| Re: | $35,000,000 Common Stock Backstop Commitment |
Mr. Sherwood:
Reference is made to the chapter 11 bankruptcy cases, lead case no. 09-12008 (the
“Chapter 11 Cases”), currently pending before the United States Bankruptcy Court
for the District of Delaware (the “Bankruptcy Court”), in which MagnaChip Semiconductor,
LLC (“LLC”) and certain of its affiliates are debtors and debtors in possession
(collectively, the “Debtors”). Reference is further made to: (i) a plan of reorganization
attached hereto as Exhibit A (as such plan of reorganization may be modified or amended
from time to time, the “Committee’s Plan”) and (ii) a disclosure statement attached hereto
as Exhibit B (as it may be modified or amended from time to time, the
“Committee’s Disclosure Statement”). Capitalized terms used in this letter
agreement (the “Backstop Commitment Agreement”) and not otherwise defined
herein shall have the meanings provided in the Committee’s Plan.
The Committee’s Plan proposes to obtain exit financing required for the emergence of the
Debtors from Chapter 11 by offering to eligible Second Lien Noteholders (the “Offering
Participants”) a right to participate in an offering (the “Offering”) of new common
units (the “New Common Units”) of MagnaChip Semiconductor, LLC, representing approximately
84% of the New Common Units of LLC on the Effective Date, subject to dilution on account of the
Long-Term Incentive Plan, as more fully described in the Committee’s Plan. The aggregate purchase
price of New Common Units (the “Offering Amount”) shall be $35 million. Pursuant to the
Committee’s Plan, each Offering Participant will be permitted to participate in the Offering up to
their respective pro rata holdings and will be required to accept such offer by one business day
before the Effective Date in accordance with the procedures established in the Committee’s
Disclosure Statement; provided, however, that the Backstop Purchaser (as defined
below) shall be entitled to purchase a minimum allocation of 67% of the New Common Units issued,
pursuant to the Offering (the “Minimum Allocation”). For purposes of this Backstop
Commitment Agreement, the term “pro rata” means (x) the total principal amount of Second Lien
Noteholder Claims held by such Offeree divided by (y) the aggregate principal amount of Second Lien
Noteholder Claims outstanding.
To provide assurance that the Offering will be fully subscribed, the undersigned (the
“Backstop Purchaser”) hereby commits to backstop the Offering (the “Backstop
Commitment”), for the full Offering Amount, on the terms described herein and in the
Committee’s Plan.
In consideration for the Backstop Commitment, in the event the Committee’s Plan is confirmed
and becomes Effective, the Backstop Purchaser shall be paid an amount in New Common Units equal to
10.0% of the New Common Units (the “Standby Commitment Fee”). Subject to the provisions
below, the Standby Commitment Fee shall be deemed fully earned and payable upon the Effective
Date,, regardless of whether the Offering is fully subscribed by eligible holders of the Second
Lien Noteholder Claims. The Creditors’ Committee agrees that the Standby Commitment Fee shall be
nonrefundable and that the Standby Commitment Fee and any other payments hereunder shall be paid
without setoff or recoupment and shall not be subject to defense or offset on account of any
claim, defense or counterclaim. The Standby Commitment Fee and other amounts payable hereunder
shall be paid in New Common Units.
All matters relating to the confirmation and consummation of the Committee’s Plan,
including, without limitation, the form of the Committee’s Plan as ultimately confirmed by the
Bankruptcy Court and the terms of the Offering and of any guarantees and intercreditor
arrangements relating to other indebtedness of Debtors must be in form and substance reasonably
satisfactory to the Backstop Purchaser and its counsel.
The agreement of the Backstop Purchaser hereunder is conditioned upon satisfaction of each of
the conditions set forth in the Committee’s Plan, including (without limitation) the entry of an
order of the Bankruptcy Court on or before September 25, 2009, in form and substance satisfactory
to the Backstop Purchaser and its counsel, approving the Backstop Commitment Agreement and the
Committee’s Plan, including the Standby Commitment Fee, and upon the Effective Date of the
Committee’s Plan, the payment of expenses pursuant to the expense reimbursement provisions provided
in this Backstop Commitment Agreement, which order shall become a final order not subject to stay,
appeal or modification on or before October 15, 2009 (the “Approval Order”).
The obligation of the Backstop Purchaser hereunder is further conditioned upon the entry by
the Bankruptcy Court of an order (which has become final) confirming the Committee’s Plan (with
such changes as are reasonably satisfactory to the Backstop Purchasers and their counsel) (the
Committee’s Plan in the form confirmed by the Bankruptcy Court, the “Confirmed Plan”), and
the effectiveness of such Confirmed Plan, on or before October 30, 2009.
The obligation of the Backstop Purchaser is further conditioned upon these two conditions as
of the Effective Date: (a) the ability of LLC to perform its obligations under the
Postconfirmation Organizational Documents, or (b) the ability of the Backstop Purchaser to enforce
its rights under the Postconfirmation Organizational Documents.
In the event the Committee’s Plan is confirmed and becomes Effective, the Backstop Purchaser
shall be: (y) paid within 10 days of demand the reasonable and documented fees, expenses,
disbursements and charges of the Backstop Purchaser incurred after July 29, 2009 relating to the
exploration and discussion of alternative financing structures to the Backstop Commitment or to
the preparation and negotiation of this Backstop Commitment Agreement, the Committee’s Plan, the
Postconfirmation Organizational Documents, and the proposed documentation and the transactions
contemplated hereby and thereby, including, without
2
limitation, the reasonable fees and expenses of counsel to the Backstop Purchasers, and (z)
indemnified and held harmless from and against any and all losses, claims, damages, liabilities
and expenses, joint or several, which any such person or entity may incur, have asserted against
it or be involved in as a result of or arising out of or in any way related to this letter, the
matters referred to herein, the proposed Backstop Commitment contemplated hereby, the use of
proceeds thereunder or any related transaction or any claim, litigation, investigation or
proceeding relating to any of the foregoing, regardless of whether any of such indemnified persons
is a party thereto, and to reimburse each of such indemnified persons upon 10 days of demand for
any legal or other expenses incurred in connection with any of the foregoing; provided,
however, that the foregoing indemnity will not, as to any indemnified person, apply to
losses, claims, damages, liabilities or related expenses to the extent they have resulted from the
bad faith, willful misconduct or gross negligence of such indemnified person. Notwithstanding any
other provision of this letter, no indemnified person will be liable for any special, indirect,
consequential or punitive damages in connection with its activities related to the Backstop
Commitment and the Offering. The terms set forth in this paragraph survive termination of this
Backstop Commitment Agreement and shall remain in full force and effect regardless of whether the
documentation for the Offering is executed and delivered.
This letter (a) is not assignable by the Creditors’ Committee without the prior written
consent of the Backstop Purchasers (and any purported assignment without such consent shall be
null and void), and (b) is intended to be solely for the benefit of the parties hereto and is not
intended to confer any benefits upon, or create any rights in favor of, any person other than the
parties hereto; provided, however, the First Lien Lender Parties shall be
considered third party beneficiaries of the parties hereof.
This Backstop Commitment Agreement sets forth the agreement of the Backstop Purchaser to fund
the Backstop Commitment on the terms described herein and shall be considered withdrawn if the
Backstop Purchaser has not received from the Creditors’ Committee a fully executed counterpart to
this’ Backstop Commitment Agreement on or before 5:00 p.m. on September 25, 2009.
The obligations of the Backstop Purchaser to fund the Backstop Commitment shall terminate and
all of the obligations of the Debtors (other than the obligations of the Debtors to pay the
reimbursable expenses and to satisfy their indemnification obligations as set forth herein) shall
be of no further force or effect, upon the giving of written notice of termination by the Backstop
Purchaser, in the event that items (a)-(c) set forth in the Committee’s Plan under the heading
“Conditions Precedent to Plan Effectiveness” shall not occur, each of which may be waived in
writing by the Backstop Purchaser.
THIS COMMITMENT LETTER WILL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
This Backstop Commitment Agreement may not be amended or waived except in writing signed by
the Creditors’ Committee and the Backstop Purchaser. This Backstop Commitment Agreement may be
executed in any number of counterparts, each of which will be an original,
3
and all of which, when taken together, will constitute one agreement. Delivery of an executed
counterpart of this Backstop Commitment Agreement by facsimile or portable document format (PDF)
will be effective as delivery of a manually executed counterpart of this Backstop Commitment
Agreement.
This Backstop Commitment Agreement constitutes the entire understanding among the parties
hereto with respect to the subject matter hereof and replaces and supersedes all prior agreements
and understandings, both written and oral, between the parties hereto with respect to the subject
matter hereof and shall become effective and binding upon (i) the mutual exchange of fully executed
counterparts and (ii) the entry of the Approval Order.
The Official Committee of Unsecured Creditors will use reasonable efforts to obtain an order
approving this Backstop Commitment Agreement by the Bankruptcy Court no later than September 25,
2009.
[SIGNATURE PAGES FOLLOW]
4
If the foregoing is in accordance with your understanding of our agreement,
please sign this letter in the space indicated below and return it to us.
| Very truly yours, |
||||
| By: | Avenue Capital Management II, L.P., solely in its |
|||
| capacity as its investment advisor | ||||
| to Avenue Investments, L.P., Avenue International Master, L. P., Avenue Special Situations Fund IV, L.P., Avenue Special Situations Fund V, L.P., and Avenue CDP-Global Opportunities Fund, L.P. |
||||
| By: | [ILLEGIBLE] | ||||
| Name: | |||||
| Title: | |||||
| Address: 535 Madison Avenue New York, NY 10022 Attention: Randal Klein Fax: (212) 486-1891 |
|||||
THE FOREGOING IS HEREBY
AGREED TO AND ACCEPTED:
AGREED TO AND ACCEPTED:
OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF MAGNACHIP
SEMICONDUCTOR FINANCE COMPANY ET AL.
| By: | /s/ John K. Sherwood | |||
| Name: | John K. Sherwood | |||
| Title: | Counsel to the Official Committee of Unsecured Creditors of MagnaChip Semiconductor Finance et al. | |||
Schedule I
Backstop Purchasers
Backstop Purchasers
| Commitment | ||||||||
| Backstop Purchasers1 | Percentage | Commitment Amount | ||||||
Avenue Investments, L.P. Avenue International |
100 | % | $ | 35,000,000 | ||||
Master, L.P., Avenue Special Situations Fund
IV, |
||||||||
L.P., Avenue Special Situations Fund V,
L.P., and |
||||||||
Avenue CDP-Global Opportunities Fund, L.P. |
||||||||
| 1 | The Backstop Purchaser may be funds and/or accounts managed or advised by the entity liseted above. |
Exhibit A
Plan
Exhibit B
Disclosure Statement
EXHIBIT B
Exit Facility
Summary of Principal Terms and Conditions
Summary of Principal Terms and Conditions
Borrower:
|
MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company. | |
Holdings:
|
MagnaChip Semiconductor LLC (“Holdings”). | |
Agent and Collateral
Agent:
|
To be determined. | |
Facility:
|
The existing pre-petition senior secured credit facility will be amended and restated so that only up to $61,750,000 of senior secured term loans (the “Initial Term Loans”) will be outstanding upon exit of the Debtors from Chapter 11 (the date of exit from Chapter 11 is referred to herein as the “Effective Date”). | |
Incremental Facilities:
|
The borrowers will be permitted after the Effective Date (so long as (x) no default or event of default shall have occurred and be continuing or would result therefrom and (y) after giving effect to the incremental facilities, all representations and warranties shall be true and correct in all material respects) to add additional revolving or term loan credit facilities in an aggregate principal amount of up to $85,000,000 less the aggregate principal amount of term loans on the Effective Date less the amount of senior secured pari passu debt incurred pursuant to the Senior Secured Debt Basket (as defined below); provided, that: | |
| (i) the maturity date of the new loans shall not be earlier than the maturity date of the Initial Term Loans; | ||
| (ii) the weighted average life to maturity of any incremental term loans shall be no shorter than the weighted average life to maturity of the Initial Term Loans; | ||
| (iii) the interest rate margins shall be determined by the borrowers and the new lenders; | ||
| (iv) subject to clauses (i) and (ii) above, any incremental term loans shall have the same terms as the Initial Term Loans (other than as to pricing, maturity and amortization); and | ||
| (v) subject to clauses (i) through (iii) above, any |
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| incremental revolving loans shall have the same terms as the Initial Term Loans (other than as to pricing, maturity, amortization and any 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 of the Initial Term Loans. | ||
| The financial institutions, if not existing lenders or affiliates of existing lenders, shall be reasonably satisfactory to the majority lenders and the borrowers. Such financial institutions will become Lenders under the facility. No lender will be required to participate in any such incremental facility. | ||
| The Credit Documentation shall contain a “most favored nation” provision with respect to the pricing of the Incremental Facilities. | ||
Interest Rates and Fees:
|
As set forth on Annex I hereto. | |
Default Rate:
|
Consistent with the existing pre-petition senior secured credit facility. | |
Final Maturity and
Amortization:
|
The facility will mature on the date that is 4 years after the Effective Date, and will amortize in equal quarterly installments in an aggregate annual amount equal to 1% of the original principal amount of the facility (beginning with the quarter ended March 31, 2010) with the balance payable upon the final maturity date of the facility. | |
Guarantees:
|
All obligations of the borrowers under the facility will be guaranteed by Holdings and each existing and subsequently acquired or organized direct or indirect subsidiary of Holdings, subject to exceptions to be agreed upon by the lenders and the borrowers. | |
Security:
|
The facility and the guarantees will be secured to the extent legally permissible by substantially all the assets of Holdings, the borrowers and the subsidiary guarantors, and the scope of such collateral will be consistent with the collateral securing the existing pre-petition senior secured credit facility. | |
| There shall be no lockbox arrangements nor any control agreements relating to the borrowers’ and its |
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| any purpose under the Credit Documentation. | ||||||
| Conditions Precedent to the Effective Date: |
Usual and customary for facilities and transactions of this type, but to be no more expansive than in the existing pre-petition senior secured credit facility and otherwise reasonably satisfactory to the lenders and the borrowers. | |||||
| Only unaudited annual financial statements for fiscal year 2008 will be required to be delivered. | ||||||
| Affirmative Covenants: | The affirmative covenants shall be usual and customary for facilities and transactions of this type, but no more restrictive to the borrowers than under the existing pre-petition senior secured credit facility and otherwise reasonably satisfactory to the lenders and the borrowers. | |||||
| The Credit Documentation will provide that financial reporting shall be limited to the following: | ||||||
| (i) | delivery of annual audited financial statements within 90 days after the end of each fiscal year of Holdings; | |||||
| (ii) | delivery of quarterly financial statements within 45 days after the end of each fiscal quarter of Holdings; and | |||||
| (iii) | delivery of annual budgets for each fiscal year within 60 days after the beginning of each fiscal year of Holdings. | |||||
| Negative Covenants: | The negative covenants shall be usual and customary for facilities and transactions of this type, but no more restrictive to the borrowers than under the existing pre-petition senior secured credit facility and otherwise reasonably satisfactory to the lenders and the borrowers. | |||||
| The Credit Documentation will provide for the following carveouts to the negative covenants: | ||||||
| (i) | the incurrence of senior secured pari passu debt of up to $85,000,000 less the amount of Initial Term Loans on the Effective Date less the amount of any incremental loans incurred after the Effective Date (the “Senior Secured | |||||
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| Debt Basket”); provided that there shall be a “most favored nation” provision with respect to the pricing of debt incurred under the Senior Secured Debt Basket; | ||||||
| (ii) | additional unsecured and junior lien secured debt if the pro forma leverage ratio (to be defined in a manner reasonably satisfactory to the lenders and borrowers) will not exceed a level to be agreed by the lenders and the borrowers; provided that, if such debt is junior lien secured debt, it will be subject to intercreditor arrangements reasonably satisfactory to the Supermajority Required Lenders; | |||||
| (iii) | a general investment basket of $10,000,000; | |||||
| (iv) | the ability to make acquisitions in an aggregate amount equal to $100,000,000 as long as Holdings and its subsidiaries would be in pro forma compliance with the financial covenant; provided that, the consideration for a single acquisition may not exceed $50,000,000 of which up to $25,000,000 may be cash; | |||||
| (v) | a general asset sale basket of $10,000,000 in any four quarter period; | |||||
| (vi) | no limitation on capital expenditures; | |||||
| (vii) | dividends up to an amount equal to the sum of (x) $5,000,000, plus (y) 50% of excess cash flow for each fiscal quarter ending after the Effective Date, plus (z) the sum of certain cash contributions to the equity of Holdings to be agreed by the lenders and the borrowers and cash proceeds from the issuance of equity of Holdings after the Effective Date (the sum of (x), (y) and (z) to the extent not otherwise applied, the “Cumulative Credit”), so long as the pro forma leverage ratio (to be defined in a manner reasonably satisfactory to the lenders and borrowers) will not exceed a level to be agreed by the lenders and the borrowers; provided that, if a dividend is |
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| made from Cumulative Credit prior to the date of the first excess cash flow mandatory prepayment, the borrowers shall concurrently prepay the facility in an amount equal to such dividend; | ||||||
| (viii) | the ability to enter into arrangements to pay management fees not to exceed $2,000,000 per fiscal year, so long as the pro forma leverage ratio (to be defined in a manner reasonably satisfactory to the lenders and borrowers) will not exceed a level to be agreed by the lenders and the borrowers; | |||||
| (ix) | the ability to prepay, purchase or otherwise retire junior debt up to an amount equal to the Cumulative Credit; provided that, if a prepayment, purchase or retirement of junior debt is made from Cumulative Credit prior to the date of the first excess cash flow mandatory prepayment, the borrowers shall concurrently prepay the facility in an amount equal to such dividend; and | |||||
| (x) | a general lien basket of $5,000,000; provided that if any such liens extend to collateral securing the facility, such liens, other than any such liens securing assets or indebtedness of up to $1,000,000, must be junior to the liens securing the facility. | |||||
| Financial Covenant: | Only a minimum liquidity (cash and cash equivalents) of $10,000,000 to be tested at the end of each fiscal quarter. | |||||
| For purposes of determining compliance with such financial covenant, any cash equity contribution made to Holdings after the Effective Date and on or prior to the day that is thirty days after the fiscal quarter end will, at the request of the borrowers, be included in the calculation of liquidity for the purposes of determining compliance with such financial covenant at the end of such fiscal quarter; provided that cure amounts shall not build Cumulative Credit and in any four fiscal quarter period there shall be at least two fiscal quarters in which no cure right is exercised. | ||||||
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Events of Default:
|
The events of default shall be usual and customary for facilities and transactions of this type, but no more restrictive to the borrowers than under the existing pre-petition senior secured credit facility and otherwise reasonably satisfactory to the lenders and the borrowers. | |
| Permitted Holders for purposes of the change of control event of default will include Avenue Investments, LP and its affiliates. | ||
Voting:
|
Amendments and waivers of the Credit Documentation will require the approval of lenders holding more than 50% of the aggregate amount of the loans and commitments under the facility; provided that, (a) the consent of each lender adversely affected thereby shall be required with respect to changes and waivers requiring the consent of each adverse affected lender in the existing pre-petition senior secured credit facility; and (b) to the extent that one lender holds more than 50% of the aggregate amount of the loans and commitments under the facility, any change or waiver to the limitation on dividends or the financial covenant, any change or waiver that will permit additional senior secured pari passu debt (other than senior secured pari passu debt that would be permitted immediately prior to such proposed change or waiver) and certain other items to be agreed by the lenders and the borrowers shall require the vote of at least two lenders who hold in the aggregate at least 70% of the loans outstanding under the facility (the “Supermajority Required Lenders”). | |
Cost and Yield Protection:
|
Consistent with the pre-petition senior secured credit facility. | |
Assignments and
Participations:
|
Consistent with the pre-petition senior secured credit facility; provided that, assignments to the borrowers and their affiliates will be permitted, subject to customary restrictions with respect to assignments to Holdings and its subsidiaries (including, without limitation, restrictions on voting rights, attendance at lender meetings and pro rata treatment of lenders in offers to purchase). | |
Expenses and Indemnification:
|
Consistent with the pre-petition senior secured credit facility; provided that (i) Avenue Investments, LP and |
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| its affiliates (as long as they collectively hold more than 50% of the loans) will be reimbursed by the borrowers for all reasonable out-of-pocket expenses (including the reasonable fees, charges and disbursements of counsel) in connection with the preparation, negotiation, execution, delivery and administration of the Credit Documentation and any modifications, amendments or waivers to the provisions thereof (whether or not the transactions contemplated thereby shall be consummated) and (ii) the other lenders as of the Effective Date (other than Avenue Investments, LP and its affiliates) will be reimbursed by the borrowers for all reasonable out-of-pocket expenses (including the reasonable fees, charges and disbursements of a single counsel) in connection with the preparation, negotiation, execution, delivery and administration of the Credit Documentation incurred on or prior to the Effective Date; provided that, such expenses specified in clause (ii) shall in no event exceed an amount to be agreed by the lenders and the borrowers. | ||
Governing Law and Forum:
|
New York. |
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Annex I
Interest and Fees
Interest Rates:
|
At the option of the borrowers, Adjusted LIBOR plus 12.00% or ABR plus 11.00%. | |
Interest Periods:
|
The Borrower may elect interest periods of 1, 2, 3 or 6 months (or, if agreed to by all relevant Lenders, 9 months) for Adjusted LIBOR borrowings. | |
Interest Calculation:
|
Calculation of interest shall be on the basis of the actual days elapsed in a year of 360 days (or 365 or 366 days, as the case may be, in the case of (i) ABR loans based on the Prime Rate or (ii) loans in any jurisdiction where the relevant interbank market practice is to use a 365 or 366 day year) and interest shall be payable at the end of each interest period and, in any event, at least every 3 months. | |
ABR:
|
ABR is the Alternate Base Rate, which is the higher of a Prime Rate to be determined by the administrative agent and the Federal Funds Effective Rate plus 1/2 of 1.0%. | |
Adjusted LIBOR
|
Adjusted LIBOR will at all times include statutory reserves. | |
Commitment Fees:
|
None. | |
Administrative Agent Fees:
|
To be determined. |
EXHIBIT C
Execution Version
FORBEARANCE AGREEMENT
This FORBEARANCE AGREEMENT (this “Agreement”) is entered into as of September 25,
2009, by and 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 10, rue de Vianden,
L-2680 Luxembourg, Grand Duchy of Luxembourg, registered with the Luxembourg Register of commerce
and companies under the number B 97,483 (“MagnaChip S.A.”), MAGNACHIP SEMICONDUCTOR
FINANCE COMPANY, a Delaware corporation (“MagnaChip Finance” and collectively with
MagnaChip S.A., “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
Section 1) (together with the Borrowers and Holdings, the “Loan Parties”), UBS AG,
STAMFORD BRANCH (the “Agent”), as Administrative Agent and Collateral Agent for the
financial institutions party to the Credit Agreement (as hereinafter defined) as Lenders
(collectively, the “Lenders”).
RECITALS
A. Borrowers, Loan Parties, Agent, Lenders, 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 has been or may be further amended, restated, supplemented or otherwise
modified from time to time, the “Credit Agreement”), pursuant to which, among other
things, Lenders
agreed, subject to the terms and conditions set forth in the Credit Agreement, to make certain
loans and
other financial accommodations to Borrowers.
B. As of the date hereof, the Events of Default set forth on Exhibit A hereto have
occurred
and are continuing (the “Specified Defaults”).
C. As a result of the occurrence and continuation of the Specified Defaults, the Agent and
the Lenders have heretofore accelerated the Obligations and the Agent and the Lenders are
entitled to
exercise their default-related rights and remedies against the Borrowers and the other Loan
Parties under
the Credit Agreement and the other Loan Documents, including, without limitation, their right
to enforce
their Liens on the Collateral.
D. Pursuant to that certain Enforcement, Consent, Cash Collateral and Limited Forbearance
Agreement, dated as of June 11, 2009 (the “Enforcement Agreement”), among, inter
alios, the Agent,
certain of the Lenders, and the Loan Parties, the Lender Parties (as defined therein) agreed,
subject to the
terms and conditions thereof, among other things, to forbear from exercising their
default-related rights
and remedies against Borrowers or any other Loan Party solely with respect to the “Specified
Defaults”
referred to therein.
E. In accordance with the Enforcement Agreement, the Borrowers and certain other Loan
Parties commenced Chapter 11 cases by the filing of voluntary petitions for relief
(collectively, the “Case”) under Chapter 11 of Title 11 of the United States Code entitled “Bankruptcy” with the
United
States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).
F. The Forbearance Period (as defined in the Enforcement Agreement) has terminated
because the Confirmation Order has not been entered by the Bankruptcy Court by the date hereof
and,
therefore, the Agent and the Lenders are no longer under any obligation to forbear from
exercising their
default-related rights and remedies against Borrowers or any other Loan Party solely with respect
to the “Specified Defaults” referred to therein or the Specified Defaults defined above.
G. Notwithstanding the failure of the Bankruptcy Court to enter the Confirmation Order, the
Bankruptcy Court has entered an order confirming that certain Second Amended Chapter 11 Plan of
Reorganization Proposed by the Official Committee of Unsecured Creditors of MagnaChip
Semiconductor Finance Company, et al. (the “Confirmed Plan”), and the Agent and the
Lenders support the Confirmed Plan.
H. In light of the foregoing, the Loan Parties have requested that the Agent and the Lenders
agree to temporarily forbear from exercising their default-related remedies against the Borrowers
and the other Loan Parties with respect to the Specified Defaults notwithstanding the existence of
the Specified Defaults and subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the terms, covenants and conditions
contained herein and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Confirmation by Borrowers of Obligations and Specified Defaults and Acknowledgment
of Certain Additional Matters. Each Borrower and each other Loan Party acknowledges and agrees
that, as of September 25, 2009, the aggregate principal balance of the outstanding Obligations
under the Credit Agreement is at least $95,000,000.00, and that the respective principal balances
of the various Loans and LC Exposure as of such date were not less than the following:
Revolving Loans (excluding LC Exposure) |
$ | 95,000,000.00 | ||
LC Exposure |
$ | 0 |
The foregoing amounts do not include interest, fees, expenses and other amounts which are
chargeable or otherwise reimbursable under the Credit Agreement and the other Loan Documents. All
of the Obligations, including those set forth above, are currently due and payable, and none of
Borrowers or the other Loan Parties have any rights of offset, defenses, claims or counterclaims
with respect to any of the
Obligations.
(b) Each Borrower and each other Loan Party acknowledges and agrees that (i) each of the
Specified Defaults constitutes a material Event of Default that has occurred and is continuing as
of the date hereof, (ii) the Specified Defaults have not been cured as of the date hereof, and
(iii) except for the Specified Defaults, no other Events of Default have occurred and are
continuing as of the date hereof. Prior to the effectiveness of this Agreement, the Specified
Defaults: (i) relieve the Agent and the Lenders from any obligation to extend any Loan or provide
other financial accommodations under the Credit Agreement or other Loan Documents, and (ii) permit
the Agent and the Lenders to, among other things, (A) suspend or terminate any commitment to
provide Loans or make other extensions of credit under any or all of the Credit Agreement and the
other Loan Documents, (B) accelerate all or any portion of the Obligations, (C) charge the Default
Rate with respect to any and all of the Obligations and terminate Borrowers’ ability to obtain or
maintain Eurodollar Borrowings, (D) commence any legal or other action to collect any or all of the
Obligations from Borrowers, any other Loan Party and/or any Collateral or any other property as to
which any other Person granted the Agent or any Lender a security interest therein as security for
the Obligations or any guaranty thereof (collectively, the “Other Collateral”), (E)
foreclose or otherwise realize on any or all of the Collateral and Other Collateral, and/or
appropriate, set-off and apply to the payment of any or all of the Obligations, any or all of the
Collateral and Other Collateral, and/or (F)
2
take any other enforcement action or otherwise exercise any or all rights and remedies
provided for by any or all of the Credit Agreement, the other Loan Documents or applicable law.
For purposes of this Agreement, “Forbearance Period” means the period beginning on
the Effective Date and ending on the earliest to occur of (the occurrence of any event described
in clauses (a) through (c) below, a “Termination Event”) (a) a Forbearance Default, (b)
the date on which the Confirmed Plan becomes effective, and (c) October 30, 2009; and
“Forbearance Default” shall mean (x) the occurrence of any Event of Default other than the
Specified Defaults, (y) the failure of either Borrower or any other Loan Party to timely comply
with any term, condition, or covenant set forth in this Agreement, or (z) any Loan Party shall,
during any period, make any payments of any costs, fees or expenses (other than the costs, fees
and expenses set forth in Section 6 hereof) that, in the aggregate, would exceed 110% of
the amount of all such costs, fees and expenses projected to be incurred by the Loan Parties
during such period in the cash flow forecast attached hereto as Exhibit B.
SECTION
2. Forbearance; Forbearance Default Rights and Remedies.
(a) Effective as of the Effective Date, each of the Agent and the Lenders agrees that, until
the expiration or termination of the Forbearance Period, it will temporarily forbear from
exercising its default-related rights and remedies against Borrowers or any other Loan Party solely
with respect to the Specified Defaults; provided,
however, (i) except as expressly provided
for in this Agreement, the Agent and the Lenders shall have no obligation to make any further Loans
or other Credit Extensions to Borrowers or any other Loan Party, (ii) Borrowers shall not be
entitled to make any request for Eurodollar Borrowings or elect to have any Loans converted into or
be continued Eurodollar Borrowings, (iii) Borrowers and each other Loan Party shall comply with all
limitations, restrictions or prohibitions that would otherwise be effective or applicable under the
Credit Agreement or any of the other Loan Documents during the continuance of any Event of Default,
including, without limitation, any limitations, restrictions or prohibitions against payments by
(A) Borrowers or any other Loan Party, (B) any Affiliate of Borrowers or any other Loan Party, (C)
any direct or indirect owner of an equity interest in the Borrowers, any other Loan Party or any
Affiliate of any of the foregoing, (iv) nothing herein shall restrict, impair or otherwise affect
the Agent’s or any Lender’s rights and remedies under any agreements (including, without
limitation, the Senior Subordinated Notes, the Senior Secured Notes and the Intercreditor
Agreement) containing subordination or other provisions in favor of any or all of the Agent and the
Lenders (including, without limitation, any rights or remedies available to the Agent or the
Lenders as a result of the occurrence or continuation of any Specified Default (such as the right
to issue a Payment Blockage Notice under (and as defined in) the Senior Subordinated Notes
Indenture)) or amend or modify any provision thereof, (v) nothing herein shall restrict, impair or
otherwise affect Agent’s right to file, record, publish or deliver a notice of default or document
of similar effect under any state foreclosure law, and (vi) nothing herein shall restrict, impair
or otherwise affect Agent’s or its representatives right to file, record, publish or deliver any
notice, filing, statement or any other document under any Loan Document (including, without
limitation, this Agreement) or laws of any jurisdiction in connection with the creation,
attachment, protection, preservation and/or perfection of any Liens of Agent on any of the
Collateral or Other Collateral. Any Forbearance Default shall constitute an immediate Event of
Default under the Credit Agreement and the other Loan Documents.
(b) Upon the occurrence of a Termination Event, the agreement of the Agent and the Lenders
hereunder to forbear from exercising their respective default-related rights and remedies
shall immediately terminate without the requirement of any demand, presentment, protest, or notice
of any kind, all of which each Borrower and each other Loan Party hereby waives. Each Borrower
and each other Loan Party agrees that any or all of the Agent and the Lenders may at any time
thereafter proceed to exercise any and all of their respective rights and remedies under any or all
of this Agreement, the Credit Agreement, any other Loan Document and/or applicable law, including,
without limitation, their
3
respective rights and remedies with respect to the Specified Defaults. Without limiting the
generality of the foregoing, upon the occurrence of a Termination Event, the Agent and the Lenders
may, in their sole discretion and without the requirement of any demand, presentment, protest, or
notice of any kind, (i) suspend or terminate any commitment to provide Loans or other Credit
Extensions under any or all of the Credit Agreement and the other Loan Documents, (ii) charge
interest on any or all of the Obligations at the Default Rate, (iii) commence any legal or other
action to collect any or all of the Obligations from Borrowers, any other Loan Party, any
Collateral and/or Other Collateral, (iv) foreclose or otherwise realize on any or all of the
Collateral and Other Collateral, and/or appropriate, setoff or apply to the payment of any or all
of the Obligations, any or all of the Collateral and Other Collateral, and (v) take any other
enforcement action or otherwise exercise any or all rights and remedies provided for by any or all
of the Credit Agreement, any other Loan Documents and/or applicable law, all of which rights and
remedies are fully reserved by the Agent and the Lenders.
(c) Any agreement by the Agent and the Lenders to extend the Forbearance Period or to waive
any Termination Event, if any, must be set forth in writing and signed by a duly authorized
signatory of each of Agent and the Required Lenders.
(d) Each Borrower and each other Loan Party acknowledges that the Agent and the Lenders have
not made any assurances concerning any possibility of an extension of the Forbearance Period,
waiver of any Termination Event or any other forbearance.
(e) The parties hereto agree that the running of all statutes of limitation or doctrine of
laches applicable to all claims or causes of action that Agent or any Lender may be entitled to
take or bring in order to enforce its rights and remedies against Borrowers or any other Loan Party
is, to the fullest extent permitted by law, tolled and suspended
during the Forbearance Period.
(f) Each Borrower and each other Loan Party acknowledges and agrees that Agent and each Lender
are entering into this Agreement and agreeing to the provisions herein in reliance upon, and as
consideration for, among other things, the general releases and indemnities contained in
Section 3 hereof and the other covenants, agreements, representations and warranties of
Borrowers and the other Loan Parties hereunder.
SECTION 3. General Release; Indemnity.
(a) In consideration of, among other things, Agent’s and Lenders’ execution and delivery
of this Agreement, each Borrower and the other Loan Parties, on behalf of itself and its agents,
representatives, officers, directors, advisors, employees, subsidiaries, affiliates, successors and
assigns (collectively, “Releasors”), hereby forever agrees and covenants not to sue or
prosecute against any Releasee (as hereinafter defined) and hereby forever waives, releases and
discharges, to the fullest extent permitted by law, each Releasee (as hereinafter defined) from any
and all claims (including, without limitation, crossclaims, counterclaims, rights of set-off and
recoupment), actions, causes of action, suits, debts, accounts, interests, liens, promises,
warranties, damages and consequential damages, demands, agreements, bonds, bills, specialties,
covenants, controversies, variances, trespasses, judgments, executions, costs, expenses or claims
whatsoever, but excluding claims for a breach of this Agreement and claims to the extent the
liability of any Releasee 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
(collectively, the “Claims”), that such Releasor now has or hereafter may have, of
whatsoever nature and kind, whether known or unknown, whether now existing or hereafter arising,
whether arising at law or in equity, against any or all of the Agent and the Lenders in any
capacity and their respective affiliates, subsidiaries, shareholders and “controlling persons”
(within the meaning of the federal securities laws), and their respective successors and assigns
and each and all of the officers, directors,
4
employees, agents, attorneys and other representatives of each of the foregoing (collectively, the
“Releasees”), based in whole or in part on facts, whether or not now known, existing on or
before the Effective Date, that relate to, arise out of or otherwise are in connection with: (i)
any or all of the Loan Documents or transactions contemplated thereby or any actions or omissions
in connection therewith, (ii) any aspect of the dealings or relationships between or among
Borrowers and the other Loan Parties, on the one hand, and any or all of the Agent and the
Lenders, on the other hand, relating to any or all of the documents, transactions, actions or
omissions referenced in clause (i) hereof, or (iii) any aspect of the dealings or relationships
between or among any or all of the Sponsors, on the one hand, and the Agent and the Lenders, on
the other hand, but only to the extent such dealings or relationships relate to any or all of the
documents, transactions, actions or omissions referenced in clause (i) hereof. To the extent Agent
or any Lender makes any Loans, Credit Extensions or other financial accommodations after the date
hereof, the receipt by Borrower or any other Loan Party of such Loans or other financial
accommodations shall constitute a ratification, adoption, and confirmation by such party of the
foregoing general release of all Claims against the Releasees which are based in whole or in part
on facts, whether or not now known or unknown, existing on or prior to the date of receipt of any
such Loans or other financial accommodations. In entering into this Agreement, each Borrower and
each other Loan Party consulted with, and has been represented by, legal counsel and expressly
disclaims any reliance on any representations, acts or omissions by any of the Releasees and
hereby agrees and acknowledges that the validity and effectiveness of the releases set forth above
do not depend in any way on any such representations, acts and/or omissions or the accuracy,
completeness or validity hereof. The provisions of this Section shall survive the termination or
expiration of the Forbearance Period, this Agreement, the Credit Agreement, the other Loan
Documents and payment in full of the Obligations.
(b) Each Borrower and each other Loan Party hereby agrees that it shall be jointly and
severally obligated to indemnify and hold the Releasees harmless with respect to any and all
liabilities, obligations, losses, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever incurred by the Releasees, or any of them, whether
direct, indirect or consequential, as a result of or arising from or relating to any proceeding by,
or on behalf of any Person, including, without limitation, the respective officers, directors,
agents, trustees, creditors, partners or shareholders of Borrowers, any other Loan Party, or any of
their respective Subsidiaries, whether threatened or initiated, in respect of any claim for legal
or equitable remedy under any statue, regulation or common law principle arising from or in
connection with the negotiation, preparation, execution, delivery, performance, administration
and enforcement of the Credit Agreement, the other Loan Documents, this Agreement or any other
document executed and/or delivered in connection herewith; provided, that neither Borrowers
nor any other Loan Party shall have any obligation to indemnify or hold harmless any Releasee
hereunder with respect to liabilities to the extent they result from the gross negligence or
willful misconduct of that Releasee as finally determined by a court of competent jurisdiction.
If and to the extent that the foregoing undertaking may be unenforceable for any reason, Borrowers
and the other Loan Parties each agrees to make the maximum contribution to the payment and
satisfaction thereof which is permissible under applicable law. The foregoing indemnity shall
survive the termination or expiration of the Forbearance Period, this Agreement, the Credit
Agreement, the other Loan Documents and the payment in full of the Obligations.
(c) Each Borrower and each other Loan Party, on behalf of itself and its successors, assigns,
and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and
agrees with and in favor of each Releasee that it will not sue (at law, in equity, in any
regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remised and
discharged by Borrowers or any other Loan Party pursuant to Section 3(a) hereof. If either
Borrower, any other Loan Party or any of their respective successors, assigns or other legal
representatives violates the foregoing covenant, Borrowers and the other Loan Parties, each for
itself and its successors, assigns and legal representatives, agrees to
5
pay, in addition to such other damages as any Releasee may sustain as a result of such
violation, all attorneys’ fees and costs incurred by any Releasee as a result of such violation.
SECTION 4. Ratification of Liability.
Each Borrower and each other Loan Party, as debtor, grantor, pledgor, guarantor, assignor, or
in other similar capacities in which such Loan Parties grant liens or security interests in their
properties or otherwise act as accommodation parties or guarantors, as the case may be, under the
Loan Documents, hereby ratifies and reaffirms all of its payment and performance obligations and
obligations to indemnify, contingent or otherwise, under each of such Loan Documents to which such
Loan Party is a party, and each such Loan Party hereby ratifies and reaffirms its grant of liens
on or security interests in its properties pursuant to such Loan Documents to which it is a party
as security for the Obligations under or with respect to the Credit Agreement and each other Loan
Document, and confirms and agrees that such liens and security interests hereafter secure all of
the Obligations, including, without limitation, all additional Obligations hereafter arising or
incurred pursuant to or in connection with this Agreement, the Credit Agreement or any other Loan
Document. Each Borrower and each other Loan Party further agrees and reaffirms that the Loan
Documents to which it is a party now apply to all Obligations as defined in the Credit Agreement
(including, without limitation, all additional Obligations hereafter arising or incurred pursuant
to or in connection with this Agreement, the Credit Agreement or any other Loan Document). Each
such Loan Party (i) further acknowledges receipt of a copy of this Agreement and all other
agreements, documents, and instruments executed and/or delivered in connection herewith, (ii)
consents to the terms and conditions of same, and (iii) agrees and acknowledges that each of the
Loan Documents remains in full force and effect and is hereby ratified and confirmed. Except as
expressly provided herein, the execution of this Agreement shall not operate as a waiver of any
right, power or remedy of Agent or any Lender, constitute a waiver of any provision of any of the
Loan Documents or constitute a novation of any of the Obligations under the Credit Agreement or
the other Loan Documents.
SECTION 5. Reference to and Effect Upon the Credit Agreement.
(a) All terms, conditions, covenants, representations and warranties contained in the Credit
Agreement and the other Loan Documents, and all rights of the Agent and the Lenders and all of the
Obligations, shall remain in full force and effect. Each of Borrowers and the other Loan Parties
hereby confirms that the Credit Agreement and the other Loan Documents are in full force and effect
and that neither Borrowers nor any other Loan Party has any right of setoff, recoupment or other
offset or any defense, claim or counterclaim with respect to any of the Obligations, the Credit
Agreement or any other Loan Document.
(b) Except as expressly set forth herein, the execution, delivery and effectiveness of this
Agreement shall not directly or indirectly (i) create any obligation to make any further Loans or
other Credit Extensions or to continue to defer any enforcement action after the occurrence of any
Default or Event of Default (including, without limitation, any Forbearance Default) other than the
Specified Defaults, (ii) constitute a consent or waiver of any past, present or future violations
of any provisions of the Credit Agreement or any other Loan Documents, (iii) amend, modify or
operate as a waiver of any provision of the Credit Agreement or any other Loan Documents or any
right, power or remedy of Agent or any Lender, (iv) constitute a consent to any merger or other
transaction or to any sale, restructuring or refinancing transaction, (v) constitute a course of
dealing or other basis for altering any Obligations or any other contract or instrument. Except as
expressly set forth herein, Agent and each Lender reserves all of its rights, powers, and remedies
under the Credit Agreement, the other Loan Documents and applicable law. All of the provisions of
the Credit Agreement and the other Loan Documents, including, without limitation, the time of the
essence provisions, are hereby reiterated, and if ever waived, are hereby reinstated.
6
(c) From and after the Effective Date, the term “Loan Documents” in the Credit Agreement
and the other Loan Documents shall include, without limitation, this Agreement and any agreements,
instruments and other documents executed and/or delivered in connection herewith.
(d) Neither Agent nor any Lender has waived, is by this Agreement waiving, and has no
intention of waiving (regardless of any delay in exercising such rights and remedies), any Default
or Event of Default (including, without limitation, the Specified Defaults) which may be continuing
on the date hereof or any Event of Default which may occur after the date hereof (whether the same
or similar to the Specified Defaults or otherwise), and neither Agent nor any Lender has agreed to
forbear with respect to any of its rights or remedies concerning any Events of Default (other than,
during the Forbearance Period, the Specified Defaults solely to the extent expressly set forth
herein), which may have occurred or are continuing as of the date hereof, or which may occur after
the date hereof.
(e) Each Borrower and each other Loan Party agrees and acknowledges that the Agent and the
Lenders’ agreement to forbear from exercising certain of their default-related rights and remedies
with respect to the Specified Defaults during the Forbearance Period does not in any manner
whatsoever limit their right to insist upon strict compliance by Borrowers and the other Loan
Parties with the Credit Agreement, this Agreement or any other Loan Document during the Forbearance
Period, except as expressly set forth herein.
(f) This Agreement (and the provisions contained herein) shall not be deemed or construed to
be a satisfaction, reinstatement, novation or release of the Credit Agreement or any other Loan
Document.
SECTION 6. Costs And Expenses.
Notwithstanding anything to the contrary in this Agreement, in any other Loan Document
or in any other agreement (including, without limitation, any agreements of Borrowers and the other
Loan Parties to comply with any budget or forecast or that may otherwise restrict their payment
thereof), (a) in addition to (to the extent not otherwise provided in the Credit Agreement), and
not in lieu of, the terms of the Credit Agreement and the other Loan Documents relating to the
reimbursement of Agent’s and each Lender’s fees and expenses, Borrowers shall pay directly or
otherwise reimburse each of the Agent and the Lenders, as the case may be, promptly on demand for
all fees, costs, charges and expenses (including, without limitation, the fees, costs, charges and
expenses of any counsel, financial advisor or other representative of Agent) incurred in connection
with this Agreement, the other Loan Documents and the other agreements and documents executed
and/or delivered in connection herewith, as well as any and all other fees, costs, charges and
expenses incurred by Agent and Lenders in connection with the Case, the Credit Agreement, the other
Loan Documents or any matter arising from or relating thereto (including, without limitation, any
and all expenses incurred by Agent or the Lenders in connection with the release or transfer of
Collateral security upon the effectiveness of the Confirmed Plan), and (b) all fees, costs,
charges, expenses and other amounts payable under Section 10.03 of the Credit Agreement shall be
due and payable on demand. In addition, it is hereby understood and agreed that, if the Loan
Parties shall fail to timely pay any such amounts, the Agent may, in sole discretion, direct Korea
Exchange Bank (which is hereby also authorized and directed), to apply amounts on deposit in any
account held by it in the name of any Loan Party or otherwise constituting Collateral to the
payment of any and all such amounts.
SECTION 7. Governing Law; Consent to Jurisdiction and Venue.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE STATE OF NEW YORK, WITHOUT REGARD TO SUCH JURISDICTION’S CONFLICTS OF LAWS PRINCIPLES. EACH
BORROWER AND EACH LOAN
7
PARTY CONSENTS AND AGREES THAT THE BANKRUPTCY COURT AND ANY APPELLATE COURT THEREFROM SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY OR ALL OF THE LOAN
PARTIES THAT ARE DEBTORS-IN-POSSESSION IN THE CASE AND THE OTHER LOAN PARTIES, THE AGENT OR ANY
LENDER PERTAINING TO THIS AGREEMENT OR ANY MATTER ARISING OUT OF OR OTHERWISE RELATING TO THIS
AGREEMENT AND THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND THE UNITED
STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY
THEREOF, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
ANY OR ALL OF THE LOAN PARTIES THAT ARE NOT DEBTORS-IN-POSSESSION IN THE CASE AND THE AGENT OR ANY
LENDER PERTAINING TO THIS AGREEMENT OR ANY MATTER ARISING OUT OF OR OTHERWISE RELATING TO THIS
AGREEMENT; PROVIDED, THAT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE STATES OF DELAWARE OR NEW YORK AND
PROVIDED FURTHER. THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE
AGENT OR ANY LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO
COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL, OTHER COLLATERAL OR ANY OTHER SECURITY FOR
THE OBLIGATIONS, OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. EACH
BORROWER AND EACH OTHER LOAN PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND WAIVES ANY OBJECTION WHICH IT MAY HAVE
BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS, AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT. EACH BORROWER AND EACH OTHER LOAN PARTY WAIVES PERSONAL SERVICE
OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OR SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO SUCH BORROWERS OR SUCH OTHER LOAN PARTY AT THE ADDRESS SET FORTH IN SECTION 10.01 OF
THE CREDIT AGREEMENT. THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH LOAN
PARTY’S ACTUAL RECEIPT THEREOF OR THREE (3) BUSINESS DAYS AFTER DEPOSIT IN THE U.S. MAIL, PROPER
POSTAGE PRE-PAID.
SECTION 8. Counterparts. This Agreement may be executed in any number of counterparts, each
of which when so executed shall be deemed an original, but all such counterparts shall constitute
one and the same instrument, and all signatures need not appear on any one counterpart. Any party
hereto may execute and deliver a counterpart of this Agreement by delivering a signature page of
this Agreement signed by such party by facsimile or other electronic transmission, and any such
facsimile or other electronic signature shall be treated in all respects as having the same effect
as an original signature. Any party delivering by facsimile or other electronic transmission a
counterpart executed by it shall promptly thereafter also deliver a manually signed counterpart of
this Agreement.
SECTION 9. Section Headings. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute part of this Agreement for any other
purpose.
SECTION 10. Agreement Effectiveness. This Agreement shall become effective on the date
(the “Effective Date”) on which all of the following conditions precedent have been met
(or waived) as determined by Agent in its sole discretion:
8
(a) Agreement; Acknowledgment and Consent. Agent shall have received duly executed
signature pages to this Agreement signed by Agent, Borrowers and the other Loan Parties.
(b) Bankruptcy Court Approval. The Bankruptcy Court shall have entered an order
approving this Agreement and the use of the cash collateral set forth in the budget attached hereto
as Exhibit B and granting the Agent and Lenders relief from the automatic stay set forth in
Section 362 of the Bankruptcy Code to exercise their rights and remedies against the
debtor-in-possession Loan Parties, the Collateral and the Other Collateral upon the occurrence of a
Termination Event hereunder.
(c) Fees and Expenses. Agent shall have received payment of all fees and expenses
(including, without limitation, the invoiced legal fees and expenses of Latham & Watkins LLP,
special counsel to the Agent, and the invoiced fees and expenses of any local counsel, foreign
counsel and any other representative or consultant of Agent) outstanding as of the Effective Date.
SECTION 11. Waivers by Borrowers and other Loan Parties.
EACH BORROWER AND EACH OTHER LOAN PARTY HEREBY WAIVES (a) THE RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT,
THE CREDIT AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS, THE COLLATERAL OR THE OTHER
COLLATERAL; (b) PRESENTMENT, DEMAND AND PROTEST, AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT,
NONPAYMENT, MATURITY, RELEASE WITH RESPECT TO ALL OR ANY PART OF THE OBLIGATIONS OR ANY COMMERCIAL
PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME
HELD BY AGENT OR ANY LENDER ON WHICH EITHER BORROWER OR ANY OTHER LOAN PARTY MAY IN ANY WAY BE
LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER SUCH PERSON MAY DO IN THIS REGARD; (c) NOTICE
PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL, THE OTHER COLLATERAL OR ANY BOND OR
SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING AGENT OR ANY LENDER TO EXERCISE ANY
OF THEIR RESPECTIVE RIGHTS AND REMEDIES; (d) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS AND ALL RIGHTS WAIVABLE UNDER ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE; (e) ANY
RIGHT BORROWERS OR ANY OTHER LOAN PARTY MAY HAVE UPON PAYMENT IN FULL OF THE OBLIGATIONS TO REQUIRE
AGENT OR ANY LENDER TO TERMINATE ITS SECURITY INTEREST IN THE COLLATERAL, OTHER COLLATERAL OR IN
ANY OTHER PROPERTY OF BORROWERS OR ANY OTHER LOAN PARTY UNTIL TERMINATION OF THE CREDIT AGREEMENT
IN ACCORDANCE WITH ITS TERMS AND THE EXECUTION BY BORROWERS, AND BY ANY PERSON WHO PROVIDES FUNDS
TO BORROWERS WHICH ARE USED IN WHOLE OR IN PART TO SATISFY THE OBLIGATIONS, OF AN AGREEMENT
INDEMNIFYING ANY OR ALL OF THE AGENT AND THE LENDERS FROM ANY LOSS OR DAMAGE ANY SUCH PARTY MAY
INCUR AS THE RESULT OF DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED BY SUCH PERSON FROM
BORROWERS, OR ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS AND RELEASING AND INDEMNIFYING, IN
THE SAME MANNER AS DESCRIBED IN SECTION 3 OF THIS AGREEMENT, THE RELEASEES FROM ALL CLAIMS ARISING
ON OR BEFORE THE DATE OF SUCH TERMINATION STATEMENT; AND (f) NOTICE OF ACCEPTANCE HEREOF, AND EACH
BORROWER AND EACH OTHER LOAN PARTY ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO AGENT’S ENTERING INTO THIS AGREEMENT AND THAT SUCH PARTIES ARE RELYING UPON THE
FOREGOING WAIVERS IN THEIR FUTURE DEALINGS WITH BORROWERS AND THE OTHER LOAN PARTIES. BORROWERS AND
THE OTHER LOAN PARTIES EACH WARRANTS AND
9
REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND
VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT
OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
SECTION 12. Assignments; No Third Party Beneficiaries. This Agreement shall be binding
upon and inure to the benefit of Borrowers, the other Loan Parties, the Agent and the Lenders and
their respective successors and assigns; provided, that neither Borrower nor any other
Loan Party shall be entitled to delegate any of its duties hereunder and shall not assign any of
its rights or remedies set forth in this Agreement without the prior written consent of Agent in
its sole discretion. No Person other than the parties hereto, and in the case of Section 3
hereof, the Releasees, shall have any rights hereunder or be entitled to rely on this Agreement
and all third-party beneficiary rights (other than the rights of the Releasees under Section
3 hereof) are hereby expressly disclaimed.
SECTION
13. Final Agreement. This Agreement, the Credit Agreement, the other Loan
Documents, and the other written agreements, instruments, and documents entered into in connection
therewith (collectively, the “Borrowers/Lender Documents”) set forth in full the terms of
agreement between the parties hereto and thereto and are intended as the full, complete, and
exclusive contracts governing the relationship between such parties, superseding all other
discussions, promises, representations, warranties, agreements, and understandings between the
parties with respect thereto. No term of the Borrowers/Lender Documents may be modified or amended,
nor may any rights thereunder be waived, except in a writing signed by the party against whom
enforcement of the modification, amendment, or waiver is sought (provided that the Loan
Documents may be amended as provided in Section 10.02 of the Credit Agreement). Any waiver of any
condition in, or breach of, any of the foregoing in a particular instance shall not operate as a
waiver of other or subsequent conditions or breaches of the same or a different kind. Agent’s or
any Lender’s exercise or failure to exercise any rights or remedies under any of the foregoing in a
particular instance shall not operate as a waiver of its right to exercise the same or different
rights and remedies in any other instances. There are no oral agreements among the parties hereto.
[Signature pages to follow]
10
IN WITNESS WHEREOF, this Forbearance Agreement has been executed by the parties hereto as
of the date first written above.
MAGNACHIP SEMICONDUCTOR S.A, a
company organized under the laws of
Luxembourg, as Borrower |
MAGNACHIP SEMICONDUCTOR LLC,
a
Delaware limited liability company, as Holdings |
|||
By:
|
By: | |||
Name:
|
Name: | |||
Title:
|
Title: | |||
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY, a Delaware limited
liability company, as Borrower |
||||
By: |
||||
Name: |
||||
Title: |
||||
SIGNATURE PAGE TO FORBEARANCE AGREEMENT
MAGNACHIP SEMICONDUCTOR, INC., a
California corporation, as Subsidiary Guarantor |
MAGNACHIP SEMICONDUCTOR SA HOLDINGS LLC, a Delaware limited liability
company, as Subsidiary Guarantor |
|||
By:
|
By: | |||
Name:
|
Name: | |||
Title:
|
Title: | |||
MAGNACHIP SEMICONDUCTOR
LIMITED, a company incorporated in England
and Wales with registered number 05232381, as Subsidiary Guarantor |
MAGNACHIP SEMICONDUCTOR, INC., a
company organized under the laws of Japan, as Subsidiary Guarantor |
|||
By:
|
By: | |||
Name:
|
Name: | |||
Title:
|
Title: | |||
MAGNACHIP SEMICONDUCTOR, LTD., a
company organized under the laws of Taiwan, as Subsidiary Guarantor |
MAGNACHIP SEMICONDUCTOR B.V.,
a company organized under the laws of
Netherlands, as Subsidiary Guarantor |
|||
By:
|
By: | |||
Name:
|
Name: | |||
Title:
|
Title: | |||
MAGNACHIP SEMICONDUCTOR HOLDING COMPANY LIMITED, a company
organized under the laws of British Virgin
Islands, as Subsidiary Guarantor |
MAGNACHIP SEMICONDUCTOR, LTD., a
company organized under the laws of Korea, as Subsidiary Guarantor |
|||
By:
|
By: | |||
Name:
|
Name: | |||
Title:
|
Title: | |||
SIGNATURE PAGE TO FORBEARANCE AGREEMENT
MAGNACHIP SEMICONDUCTOR LIMITED, a company organized under the laws
of Hong Kong, as Subsidiary Guarantor |
||
By: |
||
Name: |
||
Title: |
||
SIGNATURE PAGE TO FORBEARANCE AGREEMENT
| UBS AG, STAMFORD BRANCH, | ||||
| as Agent | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
SIGNATURE PAGE TO FORBEARANCE AGREEMENT
EXHIBIT A (Specified Defaults)
| 1. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Minimum Consolidated EBITDA covenant set forth in Section 6.10(e) of the Credit Agreement for the period ending October 31, 2008. |
| 2. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Minimum Consolidated EBITDA covenant set forth in Section 6.10(e) of the Credit Agreement for the period ending November 30, 2008. |
| 3. | The Event of Default pursuant to Section 8.01(f) of the Credit Agreement, as a result of the Borrowers’ failure to make the interest payment required to be made on December 15, 2008 under the Senior Secured Notes. |
| 4. | The Event of Default pursuant to Section 8.01(f) of the Credit Agreement, as a result of the Borrowers’ failure to make the interest payment required to be made on December 15, 2008 under the Senior Subordinated Notes. |
| 5. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Minimum Consolidated EBITDA covenant set forth in Section 6.10(e) of the Credit Agreement for the period ending December 31, 2008. |
| 6. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Liquidity Requirement covenant set forth in Section 6.10(f) of the Credit Agreement for the fiscal month ending January 31, 2009. |
| 7. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Liquidity Requirement covenant set forth in Section 6.10(f) of the Credit Agreement for the fiscal month ending February 28, 2009. |
| 8. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Maximum Total Leverage Ratio covenant set forth in Section 6.10(a) of the Credit Agreement for the fiscal month ending March 31, 2009. |
| 9. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Minimum Interest Coverage Ratio covenant set forth in Section 6.10(b) of the Credit Agreement for the Test Period ending March 31, 2009. |
| 10. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Minimum Interest Coverage Ratio (Excluding CapEx) covenant set forth in Section 6.10(c) of the Credit Agreement for the Test Period ending March 31, 2009. |
| 11. | The Event of Default pursuant to Section 8.01(f) of the Credit Agreement, as a result of the Borrowers’ failure to make the interest payment required to be made on March 15, 2008 under the Senior Subordinated Notes. |
| 12. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Liquidity Requirement covenant set forth in Section 6.10(f) of the Credit Agreement for the fiscal month ending March 31, 2009. |
| 13. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Liquidity Requirement covenant set forth in Section 6.10(f) of the Credit Agreement for the fiscal month ending April 30, 2009. |
| 14. | The Event of Default pursuant to Section 8.01(e) of the Credit Agreement, as a result of the Borrowers’ failure to satisfy the delivery requirements set forth in clauses (a), (c), (d) and (h) of Section 5.01 of the Credit Agreement for the fiscal year ending December 31, 2008. |
| 15. | The Event of Default pursuant to Section 8.01(e) of the Credit Agreement, as a result of the Borrowers’ failure to satisfy the delivery requirements set forth in clauses (b) and (c)(i) of Section 5.01 of the Credit Agreement for the fiscal quarter ending March 31, 2009. |
| 16. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Liquidity Requirement covenant set forth in Section 6.10(f) of the Credit Agreement for the fiscal month ending May 31, 2009. |
| 17. | The Event of Default pursuant to Section 8.01(a) of the Credit Agreement, as a result of the Borrowers’ failure to make payment of the outstanding principal amount of the Loans upon the acceleration thereof on December 22, 2008 (the “Payment Default”), so long as such principal and all other Obligations, including interest and fees to be paid under the Budget, otherwise thereafter coming due under the Loan Documents (including, without limitation, the Prior Forbearance Agreement and this Agreement) are paid as and when the same otherwise become due thereunder. |
| 18. | The Event of Default pursuant to Section 8.01(f) of the Credit Agreement, as a result of the “Event of Default” under and as defined in Section 6.01(5)(A) of both the Senior Secured Notes and the Senior Subordinated Notes as a result of the Payment Default. |
| 19. | The Events of Default pursuant to Sections 8.01(g) and 8.01(h) of the Credit Agreement, as a result of the Debtor Loan Parties’ commencement of the Case. |
| 20. | The Event of Default pursuant to Section 8.01(f) of the Credit Agreement, as a result of the Borrowers’ failure to make the interest payment required to be made on June 15, 2009 under the Senior Secured Notes. |
| 21. | The Event of Default pursuant to Section 8.01(f) of the Credit Agreement, as a result of the Borrowers’ failure to make the interest payment required to be made on June 15, 2009 under the Senior Subordinated Notes. |
| 22. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Liquidity Requirement covenant set forth in Section 6.10(f) of the Credit Agreement for the fiscal month ending June 30, 2009. |
| 23. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Maximum Total Leverage Ratio covenant set forth in Section 6.10(a) of the Credit Agreement for the fiscal month ending June 30, 2009. |
| 24. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Minimum Interest Coverage Ratio covenant set forth in Section 6.10(b) of the Credit Agreement for the Test Period ending June 30, 2009. |
| 25. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Minimum Interest Coverage Ratio (Excluding CapEx) covenant set forth in Section 6.10(c) of the Credit Agreement for the Test Period ending June 30, 2009. |
| 26. | The Event of Default pursuant to Section 8.01(e) of the Credit Agreement, as a result of the Borrowers’ failure to satisfy the delivery requirements set forth in clauses (b) and (c)(i) of Section 5.01 of the Credit Agreement for the fiscal quarter ending June 30, 2009. |
| 27. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Liquidity Requirement covenant set forth in Section 6.10(f) of the Credit Agreement for the fiscal month ending July 31, 2009. |
| 28. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Liquidity Requirement covenant set forth in Section 6.10(f) of the Credit Agreement for the fiscal month ending August 31, 2009. |
| 29. | The Event of Default pursuant to Section 8.01(d) of the Credit Agreement, as a result of the Borrowers’ failure to meet the Liquidity Requirement covenant set forth in Section 6.10(f) of the Credit Agreement for the fiscal month ending September 30, 2009. |
| 30. | The Event of Default pursuant to Section 8.01(f) of the Credit Agreement, as a result of the Borrowers’ failure to make the interest payment required to be made on September 15, 2009 under the Senior Secured Notes. |
EXHIBIT B (Cash Flow Forecast)
[See attached.]
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
Account |
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 | |||||
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| 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 | ||||
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| 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
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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
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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.
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(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
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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.
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(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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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.
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(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.
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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.
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(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 | ||||
| /s/ Sonia E. Gardner | ||||
| Name: Sonia E. Gardner | ||||
| Title: Director | ||||
| AVENUE INVESTMENTS, L.P. | ||||
| By: Avenue Partners, LLC, its General Partner | ||||
| /s/ Sonia E. Gardner | ||||
| Name: Sonia E. Gardner | ||||
| Title: Member | ||||
| AVENUE SPECIAL SITUATIONS FUND V, L.P. | ||||
| By: Avenue Capital Partners V, LLC, its General Partner | ||||
| By: GL Partners V, LLC, its Managing Member | ||||
| /s/ Sonia E. Gardner | ||||
| Name: Sonia E. Gardner | ||||
| Title: Member | ||||
| AVENUE SPECIAL SITUATIONS FUND IV, L.P. | ||||
| By: Avenue Capital Partners IV, LLC, General Partner | ||||
| By: GL Partners IV, LLC, its Managing Member | ||||
| /s/ Sonia E. Gardner | ||||
| Name: Sonia E. Gardner | ||||
| Title: Member | ||||
| AVENUE-CDP GLOBAL OPPORTUNITIES FUND, L.P. | ||||
| By: Avenue Global Opportunities Fund GenPar, LLC, its General Partner |
||||
| /s/ Sonia E. Gardner | ||||
| Name: Sonia E. Gardner | ||||
| Title: Member |
[Signature Page to Fifth Amended and Restated Limited Liability Company Operating Agreement
of MagnaChip Semiconductor LLC]
of MagnaChip Semiconductor LLC]
Schedule I
INITIAL DIRECTORS
Sang Park, Chairman of the Board and Chief Executive Officer
Michael Elkins
Randal Klein
Steven Tan
Nader Tavakoli
Michael Elkins
Randal Klein
Steven Tan
Nader Tavakoli
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;
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(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: | /s/ John McFarland | |||
| Name: John McFarland | ||||
| Title: Senior Vice President, General Counsel and Secretary |
||||
SECURITYHOLDERS:
|
AVENUE INTERNATIONAL MASTER, L.P. | |||
| By: Avenue International Master GenPar, Ltd., its General Partner | ||||
| /s/ Sonia E. Gardner | ||||
| Name: Sonia E. Gardner | ||||
| Title: Director | ||||
| AVENUE INVESTMENTS, L.P. | ||||
| By: Avenue Partners, LLC, its General Partner | ||||
| /s/ Sonia E. Gardner | ||||
| Name: Sonia E. Gardner | ||||
| Title: Member | ||||
| AVENUE SPECIAL SITUATIONS FUND V, L.P. | ||||
| By: Avenue Capital Partners V, LLC, its General Partner | ||||
| By: GL Partners V, LLC, its Managing Member | ||||
| /s/ Sonia E. Gardner | ||||
| Name: Sonia E. Gardner | ||||
| Title: Member | ||||
| AVENUE SPECIAL SITUATIONS FUND IV, L.P. | ||||
| By: Avenue Capital Partners IV, LLC, General Partner | ||||
| By: GL Partners IV, LLC, its Managing Member | ||||
| /s/ Sonia E. Gardner | ||||
| Name: Sonia E. Gardner | ||||
| Title: Member | ||||
| AVENUE-CDP GLOBAL OPPORTUNITIES FUND, L.P. | ||||
| By: Avenue Global Opportunities Fund GenPar, LLC, its General Partner |
||||
| /s/ Sonia E. Gardner | ||||
| Name: Sonia E. Gardner | ||||
| Title: Member | ||||
Exhibit 4.4
EXECUTION VERSION
MAGNACHIP SEMICONDUCTOR S.A.
AND
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY,
as the Issuers,
AND
EACH OF THE GUARANTORS PARTY HERETO
10.500% SENIOR NOTES DUE 2018
INDENTURE
Dated as of April 9, 2010
WILMINGTON TRUST FSB,
as Trustee
CROSS-REFERENCE TABLE
| Trust Indenture | ||
| Act Section | Indenture Section | |
310(a)(1) |
7.10 | |
(a)(2) |
7.10 | |
(a)(3) |
N.A. | |
(a)(4) |
N.A. | |
(a)(5) |
7.10 | |
(b) |
7.10 | |
(c) |
N.A. | |
311(a) |
7.11 | |
(b) |
7.11 | |
(c) |
N.A. | |
312(a) |
2.05 | |
(b) |
12.03 | |
(c) |
12.03 | |
313(a) |
7.06 | |
(b)(1) |
N.A. | |
(b)(2) |
7.06; 7.07 | |
(c) |
7.06; 12.02 | |
(d) |
7.06 | |
314(a) |
4.03; 12.02; 12.05 | |
(b) |
N.A. | |
(c)(1) |
12.04 | |
(c)(2) |
12.04 | |
(c)(3) |
N.A. | |
(d) |
N.A. | |
(e) |
12.05 | |
(f) |
N.A. | |
315(a) |
7.01 | |
(b) |
7.05; 12.02 | |
(c) |
7.01 | |
(d) |
7.01 | |
(e) |
6.11 | |
316(a) (last sentence) |
2.09 | |
(a)(1)(A) |
6.05 | |
(a)(1)(B) |
6.04 | |
(a)(2) |
N.A. | |
(b) |
6.07 | |
(c) |
2.12 | |
317(a)(1) |
6.08 | |
(a)(2) |
6.09 | |
(b) |
2.04 | |
318(a) |
12.01 | |
(b) |
N.A. | |
(c) |
12.01 |
N.A. means not applicable.
| * | This Cross Reference Table is not part of the Indenture. |
TABLE OF CONTENTS
| Page | ||||
| ARTICLE 1 |
||||
| DEFINITIONS AND INCORPORATION |
||||
| BY REFERENCE |
||||
Section 1.01 Definitions |
1 | |||
Section 1.02 Other Definitions |
23 | |||
Section 1.03 Incorporation by Reference of Trust Indenture Act |
23 | |||
Section 1.04 Rules of Construction |
24 | |||
| ARTICLE 2 |
||||
| THE NOTES |
||||
Section 2.01 Form and Dating |
24 | |||
Section 2.02 Execution and Authentication |
25 | |||
Section 2.03 Registrar and Paying Agent |
26 | |||
Section 2.04 Paying Agent to Hold Money in Trust |
26 | |||
Section 2.05 Holder Lists |
27 | |||
Section 2.06 Transfer and Exchange |
27 | |||
Section 2.07 Replacement Notes |
38 | |||
Section 2.08 Outstanding Notes |
39 | |||
Section 2.09 Treasury Notes |
39 | |||
Section 2.10 Temporary Notes |
39 | |||
Section 2.11 Cancellation |
39 | |||
Section 2.12 Defaulted Interest |
40 | |||
| ARTICLE 3 |
||||
| REDEMPTION AND PREPAYMENT |
||||
Section 3.01 Notices to Trustee |
40 | |||
Section 3.02 Selection of Notes to Be Redeemed or Purchased |
40 | |||
Section 3.03 Notice of Redemption |
41 | |||
Section 3.04 Effect of Notice of Redemption |
41 | |||
Section 3.05 Deposit of Redemption or Purchase Price |
42 | |||
Section 3.06 Notes Redeemed or Purchased in Part |
42 | |||
Section 3.07 Optional Redemption |
42 | |||
Section 3.08 Mandatory Redemption |
43 | |||
Section 3.09 Offer to Purchase by Application of Excess Proceeds |
43 | |||
Section 3.10 Redemption for Changes in Taxes |
45 | |||
| ARTICLE 4 |
||||
| COVENANTS |
||||
Section 4.01 Payment of Notes |
46 | |||
Section 4.02 Maintenance of Office or Agency |
46 | |||
Section 4.03 Reports |
47 | |||
Section 4.04 Compliance Certificate |
48 | |||
Section 4.05 Taxes |
48 | |||
Section 4.06 Stay, Extension and Usury Laws |
48 | |||
Section 4.07 Restricted Payments |
49 | |||
Section 4.08 Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries |
52 | |||
| Page | ||||
Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock |
53 | |||
Section 4.10 Asset Sales |
57 | |||
Section 4.11 Transactions with Affiliates |
59 | |||
Section 4.12 Liens |
61 | |||
Section 4.13 Business Activities of FinanceCo. |
61 | |||
Section 4.14 Corporate Existence |
61 | |||
Section 4.15 Offer to Repurchase Upon Change of Control |
61 | |||
Section 4.16 Additional Amounts |
63 | |||
Section 4.17 Limitation on Sale and Leaseback Transactions |
65 | |||
Section 4.18 Payments for Consent |
65 | |||
Section 4.19 Additional Note Guarantees |
65 | |||
Section 4.20 Designation of Restricted and Unrestricted Subsidiaries |
66 | |||
Section 4.21 Changes in Covenants When Notes are Rated Investment Grade |
67 | |||
| ARTICLE 5 |
||||
| SUCCESSORS |
||||
Section 5.01 Parent Merger, Consolidation or Sale of Assets |
67 | |||
Section 5.02 Parent Successor Corporation Substituted |
68 | |||
Section 5.03 MagnaChip Merger, Consolidation or Sale of Assets |
68 | |||
Section 5.04 MagnaChip Successor Corporation Substituted |
70 | |||
Section 5.05 FinanceCo Merger, Consolidation or Sale of Assets |
70 | |||
Section 5.06 FinanceCo Successor Corporation Substituted |
70 | |||
| ARTICLE 6 |
||||
| DEFAULTS AND REMEDIES |
||||
Section 6.01 Events of Default |
71 | |||
Section 6.02 Acceleration |
72 | |||
Section 6.03 Other Remedies |
73 | |||
Section 6.04 Waiver of Past Defaults |
73 | |||
Section 6.05 Control by Majority |
74 | |||
Section 6.06 Limitation on Suits |
74 | |||
Section 6.07 Rights of Holders of Notes to Receive Payment |
74 | |||
Section 6.08 Collection Suit by Trustee |
74 | |||
Section 6.09 Trustee May File Proofs of Claim |
75 | |||
Section 6.10 Priorities |
75 | |||
Section 6.11 Undertaking for Costs |
75 | |||
| ARTICLE 7 |
||||
| TRUSTEE |
||||
Section 7.01 Duties of Trustee |
76 | |||
Section 7.02 Rights of Trustee |
77 | |||
Section 7.03 Individual Rights of Trustee |
78 | |||
Section 7.04 Trustee’s Disclaimer |
78 | |||
Section 7.05 Notice of Defaults |
78 | |||
Section 7.06 Reports by Trustee to Holders of the Notes |
78 | |||
Section 7.07 Compensation and Indemnity |
79 | |||
Section 7.08 Replacement of Trustee |
79 | |||
Section 7.09 Successor Trustee by Merger, etc. |
80 | |||
Section 7.10 Eligibility; Disqualification |
80 | |||
Section 7.11 Preferential Collection of Claims Against the Issuers |
81 | |||
ii
| Page | ||||
| ARTICLE 8 |
||||
| LEGAL DEFEASANCE AND COVENANT DEFEASANCE |
||||
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance |
81 | |||
Section 8.02 Legal Defeasance and Discharge |
81 | |||
Section 8.03 Covenant Defeasance |
81 | |||
Section 8.04 Conditions to Legal or Covenant Defeasance |
82 | |||
Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions |
83 | |||
Section 8.06 Repayment to MagnaChip |
84 | |||
Section 8.07 Reinstatement |
84 | |||
| ARTICLE 9 |
||||
| AMENDMENT, SUPPLEMENT AND WAIVER |
||||
Section 9.01 Without Consent of Holders of Notes |
84 | |||
Section 9.02 With Consent of Holders of Notes |
85 | |||
Section 9.03 Compliance with Trust Indenture Act |
86 | |||
Section 9.04 Revocation and Effect of Consents |
86 | |||
Section 9.05 Notation on or Exchange of Notes |
87 | |||
Section 9.06 Trustee to Sign Amendments, etc. |
87 | |||
| ARTICLE 10 |
||||
| NOTE GUARANTEES |
||||
Section 10.01 Guarantee |
87 | |||
Section 10.02 Limitation on Guarantor Liability |
88 | |||
Section 10.03 Execution and Delivery of Note Guarantee |
88 | |||
Section 10.04 Guarantors May Consolidate, etc., on Certain Terms |
89 | |||
Section 10.05. Releases |
90 | |||
| ARTICLE 11 |
||||
| SATISFACTION AND DISCHARGE |
||||
Section 11.01 Satisfaction and Discharge |
90 | |||
Section 11.02 Application of Trust Money |
91 | |||
| ARTICLE 12 |
||||
| MISCELLANEOUS |
||||
Section 12.01 Trust Indenture Act Controls |
92 | |||
Section 12.02 Notices |
92 | |||
Section 12.03 Communication by Holders of Notes with Other Holders of Notes |
93 | |||
Section 12.04 Certificate and Opinion as to Conditions Precedent |
93 | |||
Section 12.05 Statements Required in Certificate or Opinion |
93 | |||
Section 12.06 Rules by Trustee and Agents |
94 | |||
Section 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders |
94 | |||
Section 12.08 Governing Law |
94 | |||
Section 12.09 No Adverse Interpretation of Other Agreements |
94 | |||
Section 12.10 Successors |
94 | |||
Section 12.11 Severability |
95 | |||
Section 12.12 Counterpart Originals |
95 | |||
Section 12.13 Table of Contents, Headings, etc. |
95 | |||
iii
EXHIBITS
Exhibit A1
|
FORM OF NOTE | |
Exhibit A2
|
FORM OF REGULATION S TEMPORARY GLOBAL NOTE | |
Exhibit B
|
FORM OF CERTIFICATE OF TRANSFER | |
Exhibit C
|
FORM OF CERTIFICATE OF EXCHANGE | |
Exhibit D
|
FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR | |
Exhibit E
|
FORM OF NOTATION OF GUARANTEE | |
Exhibit F
|
FORM OF SUPPLEMENTAL INDENTURE |
ii
INDENTURE dated as of April 9, 2010 among MAGNACHIP SEMICONDUCTOR S.A., a Luxembourg public
limited liability company (société anonyme) with a registered office at 74, rue de Merl, B.P. 709,
L-2146 Luxembourg registered with the register of commerce and companies of Luxembourg under number
B-97483 (“MagnaChip”), MAGNACHIP SEMICONDUCTOR FINANCE COMPANY, a Delaware corporation (“FinanceCo”
and, together with MagnaChip, the “Issuers”), the Guarantors (as defined below) and WILMINGTON
TRUST FSB, as Trustee (the “Trustee”).
The Issuers, the Guarantors and the Trustee agree as follows for the benefit of each other and
for the equal and ratable benefit of the Holders (as defined) of the 10.500% Senior Notes due 2018
(the “Notes”):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions.
“144A Global Note” means a Global Note substantially in the form of Exhibit A1 hereto bearing
the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and
registered in the name of, the Depositary or its nominee that will be issued in a denomination
equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A.
“2009 Registration Rights Agreement” means the Registration Rights Agreement, dated as of
November 9, 2009, among Parent and each of the securityholders party thereto.
“2009 Warrant Agreement” means the Warrant Agreement, dated as of November 9, 2009, between
Parent and American Stock Transfer & Trust Company, as warrant agent.
“Acquired Debt” means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is merged with or
into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred
in connection with, or in contemplation of, such other Person merging with or into, or becoming a
Restricted Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
“Additional Notes” means additional Notes (other than the Initial Notes) issued under this
Indenture in accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the
Initial Notes.
“Affiliate” of any specified Person means any other Person directly or indirectly controlling
or controlled by or under direct or indirect common control with such specified Person. For
purposes of this definition, “control”, as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the management or policies
of such Person, whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to
be control. For purposes of this definition, the terms “controlling”, “controlled by” and “under
common control with” have correlative meanings.
“Agent” means any Registrar, co-registrar, Paying Agent or additional paying agent.
1
“Applicable Premium” means, with respect to any Note on any redemption date, the greater of:
(3) 1.0% of the principal amount of the Note; or
(4) the excess of: (a) the present value at such redemption date of (i) the redemption price
of the Note at April 15, 2014 (such redemption price being set forth in the table appearing in
Section 3.07 hereof), plus (ii) all required interest payments due on the Note through April 15,
2014 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate
equal to the Treasury Rate as of such redemption date plus 50 basis points; over (b) the principal
amount of the Note.
“Applicable Procedures” means, with respect to any transfer or exchange of or for beneficial
interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream
that apply to such transfer or exchange.
“Asset Sale” means:
(1) the sale, lease, conveyance or other disposition of any assets or rights by Parent or any
of its Restricted Subsidiaries; provided that the sale, lease, conveyance or other disposition of
all or substantially all of the assets of Parent and its Restricted Subsidiaries taken as a whole
will be governed by Section 4.15 and/or Article 5 hereof and not by Section 4.10 hereof; and
(2) the issuance of Equity Interests by any of Parent’s Restricted Subsidiaries or the sale by
Parent or any of its Restricted Subsidiaries of Equity Interests in any of Parent’s Subsidiaries.
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(1) any single transaction or series of related transactions that involves assets
having a Fair Market Value of less than $5.0 million;
(2) a transfer of assets between or among Parent and its Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary of Parent to Parent or
to a Restricted Subsidiary of Parent;
(4) the sale, lease or other transfer of products, services or accounts receivable in
the ordinary course of business and any sale or other disposition of damaged, worn-out or
obsolete assets in the ordinary course of business (including the abandonment or other
disposition of intellectual property that is, in the reasonable judgment of MagnaChip, no
longer economically practicable to maintain or useful in the conduct of the business of
Parent and its Restricted Subsidiaries taken as whole);
(5) licenses and sublicenses by Parent or any of its Restricted Subsidiaries of
software or intellectual property in the ordinary course of business;
(6) any surrender or waiver of contract rights or settlement, release, recovery on or
surrender of contract, tort or other claims in the ordinary course of business;
(7) the granting of Liens not prohibited by Section 4.12 hereof;
(8) the sale or other disposition of cash or Cash Equivalents;
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(9) any exchange of like property pursuant to Section 1031 of the Internal Revenue Code
for use in a Permitted Business; and
(10) a Restricted Payment that does not violate Section 4.07 hereof or a Permitted
Investment.
“Attributable Debt” in respect of a sale and leaseback transaction means, at the time of
determination, the present value of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction including any period
for which such lease has been extended or may, at the option of the lessor, be extended. Such
present value shall be calculated using a discount rate equal to the rate of interest implicit in
such transaction, determined in accordance with GAAP; provided, however, that if such sale and
leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented
thereby will be determined in accordance with the definition of “Capital Lease Obligation.”
“Bankruptcy Law” means Title 11, U.S. Code or any similar federal or state law for the relief
of debtors.
“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that in calculating the beneficial ownership of any particular “person”
(as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to
have beneficial ownership of all securities that such “person” has the right to acquire by
conversion or exercise of other securities, whether such right is currently exercisable or is
exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned”
have a corresponding meaning.
“Board of Directors” means:
(1) with respect to a corporation, the board of directors of the corporation or any committee
thereof duly authorized to act on behalf of such board;
(2) with respect to a partnership, the board of directors of the general partner of the
partnership;
(3) with respect to a limited liability company, the managing member or members or any
controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such Person serving a similar
function.
“Borrowing Base” means, as of any date, an amount equal to:
(1) 85% of the face amount of all accounts receivable owned by Parent and its
Restricted Subsidiaries as of the end of the most recent fiscal quarter preceding such date
that were not more than 180 days past due; plus
(2) 50% of the book value of all inventory, net of reserves owned by Parent and its
Restricted Subsidiaries as of the end of the most recent fiscal quarter preceding such date.
“Broker-Dealer” means any broker or dealer registered with the SEC under the Exchange Act.
“Business Day” means any day other than a Legal Holiday.
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“Capital Lease Obligation” means, at the time any determination is to be made, the amount of
the liability in respect of a capital lease that would at that time be required to be capitalized
on a balance sheet prepared in accordance with GAAP, and the Stated Maturity thereof shall be the
date of the last payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be prepaid by the lessee without payment of a penalty.
“Capital Stock” means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership interests (whether
general or limited) or membership interests; and
(4) 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 assets of, the issuing Person, but excluding from
all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt
securities include any right of participation with Capital Stock.
“Cash Equivalents” means:
(1) United States dollars, South Korean Won, Pound Sterling, Hong Kong dollars, New Taiwan
dollars, Euros and Japanese yen;
(2) securities issued or directly and fully guaranteed or insured by the United States
government, South Korean government, governments of EU member states with a S&P 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;
(3) United States dollar denominated and South Korean Won denominated certificates of deposit,
eurodollar time deposits and similar instruments in 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 domestic
commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch
Rating of “B” or better or a comparable rating by a comparable rating agency in the relevant
jurisdiction if such Thomson Bank Watch Rating is not available;
(4) repurchase obligations with a term of not more than seven days for underlying securities
of the types described in clauses (2) and (3) above entered into with any financial institution
meeting the qualifications specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable from Moody’s or S&P and,
in each case, maturing within one year after the date of acquisition;
(6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (1) through (5) of this definition; and
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(7) in the case of a Foreign Subsidiary, (a) currency of the countries in which such Foreign
Subsidiary conducts business, and (b) investments of the type and maturity described in clause (3)
above of foreign obligors, which investments or obligors have the rating described in such clause.
“Change of Control” means the occurrence of any of the following:
(1) the direct or indirect sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related transactions,
of all or substantially all of the properties or assets of Parent and its Subsidiaries taken
as a whole to any Person (including any “person” (as that term is used in Section 13(d)(3)
of the Exchange Act)) other than one or more of its Restricted Subsidiaries or a Principal
or a Related Party of a Principal;
(2) the formal adoption of a plan relating to the liquidation or dissolution of Parent
(Parent’s statutory conversion into a corporation at any time prior to the consummation of
the Initial Public Offering shall not be deemed a liquidation or dissolution);
(3) the consummation of any transaction (including, without limitation, any merger or
consolidation), the result of which is that any Person (including any “person” (as defined
above), other than the Principals and their Related Parties or a Permitted Group, becomes
the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of
Parent, measured by voting power rather than number of shares;
(4) the first day on which a majority of the members of the Board of Directors of
Parent are not Continuing Directors; or
(5) the first day on which Parent ceases to own, directly or indirectly, 100% of the
outstanding Equity Interests of MagnaChip (excluding for purposes of such calculation all
director qualifying shares, if any, that are outstanding).
“Clearstream” means Clearstream Banking, S.A.
“Consolidated EBITDA” means with respect to any specified Person for any period, the
Consolidated Net Income of such Person for such period plus, without duplication:
(1) provision for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was deducted in
computing such Consolidated Net Income; plus
(2) the Fixed Charges of such Person and its Restricted Subsidiaries for such period,
to the extent that such Fixed Charges were deducted in computing such Consolidated Net
Income; plus
(3) any foreign currency translation losses (including losses related to currency
remeasurements of Indebtedness) of such Person and its Restricted Subsidiaries for such
period, to the extent that such losses were taken into account in computing such
Consolidated Net Income; plus
(4) all depreciation, amortization (including amortization of intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and other non-cash
charges and expenses (excluding any such non-cash charge or expense to the extent that it
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represents an accrual of or reserve for cash charges or expenses in any future period
or amortization of a prepaid cash charge or expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash charges or expenses were deducted in computing such
Consolidated Net Income; plus
(5) all unusual or non-recurring charges or expenses of such Person and its Restricted
Subsidiaries for such period, to the extent the same were deducted in computing such
Consolidated Net Income; plus
(6) all restructuring and impairment charges or expenses of such Person and its
Restricted Subsidiaries for such period, to the extent the same were deducted in computing
such Consolidated Net Income; plus
(7) any increase to cost of goods sold of such Person and its Restricted Subsidiaries
for such period arising out of the “fresh start” accounting treatment of the Reorganization;
minus
(8) any foreign currency translation gains (including gains related to currency
remeasurements of Indebtedness) of such Person and its Restricted Subsidiaries for such
period, to the extent such gains were taken into account in computing such Consolidated Net
Income; minus
(9) non-cash items increasing such Consolidated Net Income for such period, other than
the accrual of revenue in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with GAAP.
“Consolidated Net Income” means, with respect to any specified Person for any period, the
aggregate of the net income (loss) of such Person and its Restricted Subsidiaries for such period,
on a consolidated basis (excluding the net income (loss) of any Unrestricted Subsidiary of such
Person), determined in accordance with GAAP and without any reduction in respect of preferred stock
dividends; provided that:
(1) all extraordinary gains (and losses) and all gains (and losses) realized in
connection with any Asset Sale or the disposition of securities or the early extinguishment
of Indebtedness, together with any related provision for taxes on any such gain, will be
excluded;
(2) the net income (but not loss) of any Person that is not a Restricted Subsidiary of
the specified Person or that is accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends or similar distributions paid in cash
to the specified Person or a Restricted Subsidiary of the Person;
(3) for purposes of Section 4.07(c)(A) through (E), the net income (but not loss) of
any Restricted Subsidiary will be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that net income is not
at the date of determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, except to the extent that a
dividend or similar distribution is actually and lawfully made to such Person or to another
Restricted Subsidiary of such Person that is not subject to any such restriction on
dividends or similar distributions;
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provided that restrictions under the laws of South Korea or restrictions in any Credit
Facilities that were permitted by the terms of this Indenture to be incurred will be
disregarded for purposes of this clause (3);
(4) the cumulative effect of a change in accounting principles will be excluded; and
(5) non-cash gains and losses attributable to movement in the mark-to-market valuation
of Hedging Obligations pursuant to Financial Accounting Standards Board Statement No. 133
will be excluded.
“continuing” means, with respect to any default, Default or Event of Default, that such
default, Default or Event of Default has not been cured or waived. In the case of an Event of
Default under clause (6) of the definition of Event of Default, such Event of Default shall no
longer be continuing upon the cure or waiver of the default of the Indebtedness described therein
that causes such Event of Default to occur or the rescission of the declaration of acceleration of
such Indebtedness.
“Continuing Directors” means, as of any date of determination, any member of the Board of
Directors of Parent who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected or appointed to such Board of Directors with
the approval of a majority of the Continuing Directors who were members of such Board of
Directors at the time of such nomination or election.
“Corporate Trust Office of the Trustee” will be at the address of the Trustee specified in
Section 12.02 hereof or such other address as to which the Trustee may give notice to the Issuers.
“Credit Agreement” means the Amended and Restated Credit Agreement, dated as of November 6,
2009, among MagnaChip, FinanceCo, Parent, the guarantors party thereto, the lenders party thereto
and Wilmington Trust FSB, as Administrative Agent.
“Credit Facilities” means one or more indentures, purchase agreements, debt facilities or
commercial paper facilities providing for the issuance of debt securities, revolving credit loans,
term loans, receivables financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such receivables) or letters of
credit, in each case, as amended, restated, modified, renewed, refunded, replaced in any manner
(whether upon or after termination or otherwise) or refinanced (including by means of sales of debt
securities to institutional investors) in whole or in part from time to time.
“Custodian” means the Trustee, as custodian with respect to the Notes in global form, or any
successor entity thereto.
“Default” means any event that is, or with the passage of time or the giving of notice or both
would be, an Event of Default.
“Definitive Note” means a certificated Note registered in the name of the Holder thereof and
issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A1 hereto
except that such Note shall not bear the Global Note Legend and shall not have the “Schedule of
Exchanges of Interests in the Global Note” attached thereto.
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“Depositary” means, with respect to the Notes issuable or issued in whole or in part in global
form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and
any and all successors thereto appointed as depositary hereunder and having become such pursuant to
the applicable provision of this Indenture.
“Designated Non-cash Consideration” means the Fair Market Value of non-cash consideration
received by Parent or a Restricted Subsidiary in connection with an Asset Sale that is so
designated as Designated Non-cash Consideration pursuant to an officers’ certificate, setting forth
the basis of such valuation, executed by Parent’s chief financial officer, less the amount of cash
or Cash Equivalents received in a subsequent sale of or collection on such Designated Non-cash
Consideration.
“Director Indemnification Agreements” means indemnification agreements between Parent and the
members of Parent’s Board of Directors.
“Disqualified Stock” means any Capital Stock that, by its terms (or by the terms of any
security into which it is convertible, or for which it is exchangeable, in each case, at the option
of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that
would constitute Disqualified Stock solely because the holders of the Capital Stock have the right
to require Parent to repurchase such Capital Stock upon the occurrence of a change of control or an
asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that
Parent may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such
repurchase or redemption complies with Section 4.07 hereof. The amount of Disqualified Stock
deemed to be outstanding at any time for purposes of this Indenture will be the maximum amount that
Parent and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or
pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued
dividends.
“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire
Capital Stock (but excluding any debt security that is convertible into, or exchangeable for,
Capital Stock).
“Euroclear” means Euroclear Bank, S.A./N.V., as operator of the Euroclear system.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Exchange Notes” means the Notes issued in the Exchange Offer pursuant to Section 2.06(f)
hereof.
“Exchange Offer” has the meaning set forth in the Registration Rights Agreement.
“Exchange Offer Registration Statement” has the meaning set forth in the Registration Rights
Agreement.
“Existing Indebtedness” means all Indebtedness of Parent and its Restricted Subsidiaries in
existence on the Issue Date, until such amounts are repaid.
“Fair Market Value” means the value that would be paid by a willing buyer to an unaffiliated
willing seller in a transaction not involving distress or necessity of either party, determined in
good faith by the Board of Directors of Parent (unless otherwise provided in this Indenture).
8
“Fixed Charge Coverage Ratio” means with respect to any specified Person for any period, the
ratio of the Consolidated EBITDA of such Person for such period to the Fixed Charges of such Person
for such period. In the event that the specified Person or any of its Restricted Subsidiaries
incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any
Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems
preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated and on or prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage
Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee,
repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance,
repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its Restricted
Subsidiaries, including through mergers or consolidations, or any Person or any of its
Restricted Subsidiaries acquired by the specified Person or any of its Restricted
Subsidiaries, and including all related financing transactions and including increases in
ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent
to such reference period and on or prior to the Calculation Date, or that are to be made on
the Calculation Date, will be given pro forma effect as if they had occurred on the first
day of the four-quarter reference period, including all Pro Forma Cost Savings, as if the
same had been realized at the beginning of such four-quarter period;
(2) the Consolidated EBITDA attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses (and ownership interests therein)
disposed of prior to the Calculation Date, will be excluded;
(3) the Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses (and ownership interests therein)
disposed of prior to the Calculation Date, will be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of the specified
Person or any of its Restricted Subsidiaries following the Calculation Date;
(4) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed
to have been a Restricted Subsidiary at all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary on the Calculation Date will be
deemed not to have been a Restricted Subsidiary at any time during such four-quarter period;
(6) if any Indebtedness bears a floating rate of interest, the interest expense on such
Indebtedness will be calculated as if the rate in effect on the Calculation Date had been
the applicable rate for the entire period (taking into account any Hedging Obligation
applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the
Calculation Date in excess of 12 months); and
(7) in the case of any four-quarter reference period that includes any period of time
prior to the consummation of the Reorganization, pro forma effect shall be given to the
Reorganization as if the same had occurred at the beginning of such four-quarter period.
9
“Fixed Charges” means, with respect to any specified Person for any period, the sum, without
duplication, of:
(1) the consolidated interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued, including, without limitation, amortization of
debt issuance costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of letter of
credit or bankers’ acceptance financings, and net of the effect of all payments made or
received pursuant to Hedging Obligations in respect of interest rates; plus
(2) the consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period; plus
(3) any interest on Indebtedness of another Person that is guaranteed by such Person or
one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of
its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and whether or not in
cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries,
other than dividends on Equity Interests payable solely in Equity Interests of Parent (other
than Disqualified Stock) or to Parent or a Restricted Subsidiary of Parent, times (b) a
fraction, the numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, determined on a consolidated basis in accordance with GAAP.
“Foreign Subsidiary” means any Restricted Subsidiary that is not formed under the laws of the
United States or any state of the United States or the District of Columbia.
“GAAP” means United States generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a significant segment of the
accounting profession in the United States, which are in effect from time to time.
“Global Note Legend” means the legend set forth in Section 2.06(g)(2) hereof, which is
required to be placed on all Global Notes issued under this Indenture.
“Global Notes” means, individually and collectively, each of the Restricted Global Notes and
the Unrestricted Global Notes deposited with or on behalf of and registered in the name of the
Depository or its nominee, substantially in the form of Exhibit A1 hereto and that bears the Global
Note Legend and that has the “Schedule of Exchanges of Interests in the Global Note” attached
thereto, issued in accordance with Section 2.01, 2.06(b)(3), 2.06(b)(4), 2.06(d)(2) or 2.06(f)
hereof.
“Government Securities” means direct obligations of, or obligations guaranteed by, the United
States of America (including any agency or instrumentality thereof) for the payment of which
obligations or guarantees the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer’s option.
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“Guarantee” means a guarantee other than by endorsement of negotiable instruments for
collection in the ordinary course of business, direct or indirect, in any manner including, without
limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements
in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or
services, to take or pay or to maintain financial statement conditions or otherwise).
“Guarantors” means Parent and any Restricted Subsidiary of Parent (other than the Issuers)
that executes a Note Guarantee in accordance with the provisions of this Indenture, and their
respective successors and assigns, in each case, until the Note Guarantee of such Person has been
released in accordance with the provisions of this Indenture.
“Hedging Obligations” means, with respect to any specified Person, the obligations of such
Person under:
(1) interest rate swap agreements (whether from fixed to floating or from floating to
fixed), interest rate cap agreements and interest rate collar agreements;
(2) other agreements or arrangements designed to manage interest rates or interest rate
risk; and
(3) other agreements or arrangements designed to protect such Person against
fluctuations in currency exchange rates or commodity prices.
“Holder” means a Person in whose name a Note is registered.
“Immaterial Subsidiary” means, as of any date, any Restricted Subsidiary whose total assets,
as of that date, are less than $500,000 and whose total revenues for the most recent twelve-month
period do not exceed $500,000; provided that a Restricted Subsidiary will not be considered to be
an Immaterial Subsidiary if it, directly or indirectly, Guarantees any Indebtedness of Parent.
“Indebtedness” means, with respect to any specified Person, any indebtedness of such Person
(excluding accrued expenses and trade payables), whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit
(or reimbursement agreements in respect thereof);
(3) in respect of banker’s acceptances;
(4) representing Capital Lease Obligations or Attributable Debt in respect of sale and
leaseback transactions;
(5) representing the balance deferred and unpaid of the purchase price of any property
or services due more than six months after such property is acquired or such services are
completed; or
(6) representing any Hedging Obligations,
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if and to the extent any of the preceding items (other than letters of credit, Attributable Debt
and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person
prepared in accordance with GAAP. In addition, the term “Indebtedness” includes all Indebtedness
of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness
is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the
specified Person of any Indebtedness of any other Person. Indebtedness shall be calculated without
giving effect to the effects of Statement of Financial Accounting Standards No. 133 and related
interpretations to the extent such effects would otherwise increase or decrease an amount of
Indebtedness for any purpose under this Indenture as a result of accounting for any embedded
derivatives created by the terms of such Indebtedness.
“Indenture” means this Indenture, as amended or supplemented from time to time.
“Indirect Participant” means a Person who holds a beneficial interest in a Global Note through
a Participant.
“Initial Notes” means the first $250 million aggregate principal amount of Notes issued under
this Indenture on the date hereof.
“Initial Public Offering” means the first public sale of Qualifying Equity Interests of Parent
in an offering that is registered under the Securities Act that is consummated after the Issue
Date.
“Institutional Accredited Investor” means an institution that is an “accredited investor” as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs.
“Investments” means, with respect to any Person, all direct or indirect investments by such
Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other
obligations), advances or capital contributions (excluding commission, travel and similar advances
to officers and employees made in the ordinary course of business), purchases or other acquisitions
for consideration of Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in accordance with GAAP.
If Parent or any Restricted Subsidiary of Parent sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of Parent such that, after giving effect
to any such sale or disposition, such Person is no longer a Restricted Subsidiary of Parent, Parent
will be deemed to have made an Investment on the date of any such sale or disposition equal to the
Fair Market Value of Parent’s Investments in such Subsidiary that were not sold or disposed of in
an amount determined as provided in the final paragraph of Section 4.07 hereof. The acquisition by
Parent or any Restricted Subsidiary of Parent of a Person that holds an Investment in a third
Person will be deemed to be an Investment by Parent or such Restricted Subsidiary in such third
Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person
in such third Person in an amount determined as provided in the final paragraph of Section 4.07
hereof. Except as otherwise provided in this Indenture, the amount of an Investment will be
determined at the time the Investment is made and without giving effect to subsequent changes in
value.
“Issue Date” means April 9, 2010.
“Legal Holiday” means a Saturday, a Sunday or a day on which banking institutions in the City
of New York or at a place of payment are authorized by law, regulation or executive order to remain
closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that
place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such
payment for the intervening period.
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“Letter of Transmittal” means the letter of transmittal to be prepared by the Issuers and sent
to all Holders of the Notes for use by such Holders in connection with the Exchange Offer.
“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise
perfected under applicable law, including any conditional sale or other title retention agreement,
any lease in the nature thereof, any option or other agreement to sell or give a security interest
in and any filing of or agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction.
“MagnaChip China Subsidiaries” means MagnaChip Semiconductor (Shanghai) Company Limited and
all other Subsidiaries of Parent at any time organized under the laws of the People’s Republic of
China.
“MagnaChip Korea” means MagnaChip Semiconductor, Ltd.
“Moody’s” means Moody’s Investors Service, Inc.
“Net Proceeds” means the aggregate cash proceeds and Cash Equivalents received by Parent or
any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any
cash or Cash Equivalents received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to such Asset Sale, including,
without limitation, legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of
the Asset Sale, in each case, after taking into account any available tax credits or deductions and
any tax sharing arrangements, and any reserve for adjustment or indemnification obligations in
respect of the sale price of such asset or assets established in accordance with GAAP.
“Non-Recourse Debt” means Indebtedness:
(1) as to which neither Parent nor any of its Restricted Subsidiaries (a) provides
credit support of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness) or (b) is directly or indirectly liable as a guarantor or
otherwise; and
(2) as to which the lenders have been notified in writing that they will not have any
recourse to the stock or assets of Parent or any of its Restricted Subsidiaries (other than
the Equity Interests of an Unrestricted Subsidiary).
“Non-U.S. Person” means a Person who is not a U.S. Person.
“Note Guarantee” means the Guarantee by each Guarantor of the Issuers’ obligations under this
Indenture and the Notes, executed pursuant to the provisions of this Indenture.
“Notes” has the meaning assigned to it in the preamble to this Indenture. The Initial Notes
and the Additional Notes shall be treated as a single class for all purposes under this Indenture,
and unless the context otherwise requires, all references to the Notes shall include the Initial
Notes and any Additional Notes.
“Obligations” means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation governing any
Indebtedness.
13
“Officer” means, with respect to any Person, the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer,
any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person.
“Officers’ Certificate” means a certificate signed on behalf of an entity by two Officers of
the entity, one of whom must be the principal executive officer, the principal financial officer,
the treasurer or the principal accounting officer of the entity, that meets the requirements of
Section 12.05 hereof.
“Opinion of Counsel” means an opinion from legal counsel who is reasonably acceptable to the
Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or
counsel to the Issuers, any Subsidiary of Parent or the Trustee.
“Parent” means MagnaChip Semiconductor LLC, the direct parent company of MagnaChip, and any
successor thereto.
“Pari Passu Indebtedness” means any Indebtedness of either Issuer or any Guarantor other than
unsecured Indebtedness that:
(1) is contractually subordinated to the prior payment in full in cash of the Notes,
the Guarantees and all related Obligations under this Indenture (including interest accruing
after the commencement of a bankruptcy or insolvency proceeding, whether or not such
interest constitutes an allowable claim) on terms customary for “high yield” securities as
of the date of incurrence of such Indebtedness; and
(2) has a longer Weighted Average Life to Maturity than the remaining Weighted Average
Life to Maturity of the Notes as of the date of such incurrence.
“Participant” means, with respect to the Depositary, Euroclear or Clearstream, a Person who
has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to
DTC, shall include Euroclear and Clearstream).
“Permitted Business” means the businesses of MagnaChip, its direct and indirect parents, and
their respective subsidiaries as of the Issue Date and any other business ancillary, supplementary
or complementary to the semiconductor business, as determined in good faith by Parent’s Board of
Directors.
“Permitted Group” means any group of investors that is deemed to be a “person” (as that term
is used in Section 13(d)(3) of the Exchange Act); provided that at least a majority of the shares
of Voting Stock Beneficially Owned by such group of investors are Beneficially Owned by the
Principals and their Related Parties. For purposes of this definition, shares Beneficially Owned
by one person will not be attributed to any other Person solely by virtue of being part of the same
group of investors for purposes of Section 13(d)(3).
“Permitted Investments” means:
(1) any Investment in Parent or in a Restricted Subsidiary of Parent;
(2) any Investment in Cash Equivalents;
(3) any Investment by Parent or any Restricted Subsidiary of Parent in a Person that is
not a Restricted Subsidiary, if as a result of such Investment:
14
(a) such Person becomes a Restricted Subsidiary of Parent; or
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, Parent or a Restricted
Subsidiary of Parent;
(4) any Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof;
(5) any acquisition of assets or Capital Stock solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Parent;
(6) any Investments received in compromise or resolution of (A) obligations of trade
creditors or customers that were incurred in the ordinary course of business of Parent or
any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or
(B) litigation, arbitration or other disputes;
(7) Investments represented by Hedging Obligations;
(8) loans or advances to employees made in the ordinary course of business of Parent or
any Restricted Subsidiary of Parent in an aggregate principal amount not to exceed $5.0
million at any one time outstanding;
(9) repurchases of the Notes;
(10) (a) advances to customers in the ordinary course of business that are recorded as
accounts receivable on the consolidated balance sheet of such Person and (b) payroll, travel
and similar advances to cover matters that are expected at the time of the advances
ultimately to be treated as expenses for accounting purposes and that are made in the
ordinary course of business;
(11) any guarantee of Indebtedness permitted to be incurred by Section 4.09 other than
a guarantee of Indebtedness of an Affiliate of Parent that is not a Restricted Subsidiary of
Parent;
(12) any Investment existing on, or made pursuant to binding commitments existing on,
the Issue Date and any Investment consisting of an extension, modification or renewal of any
Investment existing on, or made pursuant to a binding commitment existing on, the Issue
Date; provided that the amount of any such Investment may be increased (a) as required by
the terms of such Investment as in existence on the Issue Date or (b) as otherwise permitted
under this Indenture;
(13) Investments in any Person to the extent such Investments consist of prepaid
expenses, negotiable instruments held for collection and lease, utility and workers’
compensation, performance and other similar deposits made in the ordinary course of business
by Parent or any Restricted Subsidiary;
(14) Investments acquired after the Issue Date as a result of the acquisition by Parent
or any Restricted Subsidiary of Parent of another Person, including by way of a merger,
amalgamation or consolidation with or into Parent or any of its Restricted Subsidiaries in a
transaction that is not prohibited by Section 5.01, Section 5.03 or Section 5.05 after the
Issue Date
15
to the extent that such Investments were not made in contemplation of such acquisition,
merger, amalgamation or consolidation and were in existence on the date of such acquisition,
merger, amalgamation or consolidation; and
(15) other Investments in any Person having an aggregate Fair Market Value (measured on
the date each such Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to this clause (15)
that are at the time outstanding not to exceed the greater of (a) $25.0 million or (b) 5% of
Total Assets as of the date of such Investment.
“Permitted Liens” means:
(1) Liens on assets of Parent or any of its Restricted Subsidiaries securing
Indebtedness and other Obligations under Credit Facilities that was permitted by the terms
of this Indenture to be incurred pursuant to clauses (1) or (16) of the definition of
Permitted Debt and/or securing Hedging Obligations and/or Obligations with regard to
Treasury Management Arrangements;
(2) Liens in favor of the Issuers or the Guarantors;
(3) Liens on property of a Person existing at the time such Person becomes a Restricted
Subsidiary of Parent or is merged with or into or consolidated with Parent or any Restricted
Subsidiary of Parent; provided that such Liens were in existence prior to the contemplation
of such Person becoming a Restricted Subsidiary of Parent or such merger or consolidation
and do not extend to any assets other than those of the Person that becomes a Restricted
Subsidiary of Parent or is merged with or into or consolidated with Parent or any Restricted
Subsidiary of Parent;
(4) Liens on property (including Capital Stock) existing at the time of acquisition of
the property by Parent or any Restricted Subsidiary of Parent; provided that such Liens were
in existence prior to such acquisition and not incurred in contemplation of, such
acquisition;
(5) Liens or deposits made in the ordinary course of business to secure the performance
of tenders, bids, leases, contracts (except those related to borrowed money), statutory
obligations, insurance, surety or appeal bonds, workers compensation obligations,
performance bonds or other obligations of a like nature (including Liens to secure letters
of credit issued to assure payment of such obligations) or arising as a result of progress
payments under government contracts;
(6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by
Section 4.09(b)(4) covering only the assets acquired with or financed by such Indebtedness;
(7) Liens existing on the Issue Date;
(8) Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided that any reserve or other appropriate
provision as is required in conformity with GAAP has been made therefor;
16
(9) Liens imposed by law, such as carriers’, warehousemen’s, landlord’s, mechanics’,
materialmen’s, repairmen’s, suppliers’ or similar Liens, in each case, incurred in the
ordinary course of business;
(10) survey exceptions, easements or reservations of, or rights of others for,
licenses, rights-of- way, sewers, electric lines, telegraph and telephone lines and other
similar purposes, or zoning or other restrictions as to the use of real property that were
not incurred in connection with Indebtedness and that do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in the
operation of the business of such Person;
(11) Liens created for the benefit of (or to secure) the Notes (or the Note
Guarantees);
(12) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred
under this Indenture; provided, however, that:
(a) the new Lien is limited to all or part of the same property and assets that secured
or, under the written agreements pursuant to which the original Lien arose, could secure the
original Lien (plus improvements and accessions to, such property or proceeds or
distributions thereof); and
(b) the Indebtedness secured by the new Lien is not increased to any amount greater
than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of
the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged with such
Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses,
including premiums, related to such renewal, refunding, refinancing, replacement, defeasance
or discharge;
(13) Liens on insurance policies and proceeds thereof, or other deposits, to secure
insurance premium financings;
(14) filing of Uniform Commercial Code financing statements as a precautionary measure
in connection with operating leases;
(15) bankers’ Liens, rights of setoff, Liens arising out of judgments or awards not
constituting an Event of Default and notices of lis pendens and associated rights related to
litigation being contested in good faith by appropriate proceedings and for which adequate
reserves have been made;
(16) Liens on cash, Cash Equivalents or other property arising in connection with the
defeasance, discharge or redemption of Indebtedness;
(17) Liens on specific items of inventory or other goods (and the proceeds thereof) of
any Person securing such Person’s obligations in respect of bankers’ acceptances issued or
created in the ordinary course of business for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(18) grants of software and other technology licenses in the ordinary course of
business;
(19) leases or subleases granted in the ordinary course of business to third Persons
not materially interfering with the business of Parent and its Restricted Subsidiaries taken
as a whole;
17
(20) Liens arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into in the ordinary course of business;
(21) Liens in favor of customs and revenue authorities to secure payment of customs
duties in connection with the importation of goods in the ordinary course of business and
other similar Liens arising in the ordinary course of business;
(22) Liens in connection with escrow deposits made in connection with any acquisition
of assets; and
(23) Liens incurred in the ordinary course of business of Parent or any Restricted
Subsidiary of Parent with respect to obligations that do not exceed $10.0 million at any one
time outstanding.
“Permitted Refinancing Indebtedness” means any Indebtedness of Parent or any of its Restricted
Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund,
refinance, replace, defease or discharge other Indebtedness of Parent or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness renewed, refunded, refinanced, replaced, defeased or
discharged (plus all accrued interest on the Indebtedness and the amount of all fees and
expenses, including premiums, incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity that is (a) equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed,
refunded, refinanced, replaced, defeased or discharged or (b) more than 90 days after the
final maturity date of the Notes;
(3) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or
discharged is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness is subordinated in right of payment to the Notes on terms at least as favorable
to the Holders of Notes as those contained in the documentation governing the Indebtedness
being renewed, refunded, refinanced, replaced, defeased or discharged; and
(4) such Indebtedness is incurred either by Parent or by the Restricted Subsidiary of
Parent that was the obligor on the Indebtedness being renewed, refunded, refinanced,
replaced, defeased or discharged and is guaranteed only by Persons who were obligors on the
Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged.
“Permitted Tax Payments” means, for so long as Parent is treated as a partnership for U.S.
federal income tax purposes, payments by Parent to direct owners of Parent’s equity interests in
respect of tax liabilities of Parent’s investors arising from direct or indirect ownership of
Parent’s equity interests under Section 951 of the Internal Revenue Code. Permitted Tax Payments
shall be calculated by reference to the amount of Parent’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 Parent shall determine the amount of Permitted Tax
Payments.
18
“Person” means any individual, corporation, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization, limited liability company or government or
other entity.
“Principals” means Avenue International Master, L.P., Avenue Investments, L.P., Avenue Special
Situations Fund IV, L.P., Avenue Special Situations Fund V, L.P. and Avenue CDP-Global
Opportunities Fund, L.P.
“Private Placement Legend” means the legend set forth in Section 2.06(g)(1) hereof to be
placed on all Notes issued under this Indenture except where otherwise permitted by the provisions
of this Indenture.
“Pro Forma Cost Savings” means, with respect to any four-quarter period, the reduction in net
costs and expenses that:
(1) were directly attributable to an acquisition, Investment, disposition, merger,
consolidation or discontinued operation or other specified action that occurred during the
four-quarter period or after the end of the four-quarter period and on or prior to the
Calculation Date and that would properly be reflected in a pro forma income statement
prepared in accordance with Regulation S-X under the Securities Act, as then in effect;
(2) were actually implemented prior to the Calculation Date in connection with or as a
result of an acquisition, Investment, disposition, merger, consolidation or discontinued
operation or other specified action and that are supportable and quantifiable by the
underlying accounting records; or
(3) relate to an acquisition, Investment, disposition, merger, consolidation or
discontinued operation or other specified action and that Parent reasonably determines are
probable based upon specifically identifiable actions to be taken within six months of the
date of the closing of the acquisition, Investment, disposition, merger, consolidation or
discontinued operation or specified action;
provided that in each case contemplated by clause (3), to the extent such reductions in cost and
expense are described in an officers’ certificate signed by the chief financial officer of Parent
and delivered to the Trustee, which officers’ certificate outlines the specific actions taken or to
be taken, the net reductions in cost and expenses achieved or to be achieved from each such action
and states that Parent’s chief financial officers has determined that such cost and expense savings
are probable.
“QIB” means a “qualified institutional buyer” as defined in Rule 144A.
“Qualifying Equity Interests” means Equity Interests of Parent other than Disqualified Stock.
“Qualifying Equity Offering” means a public sale either (1) of Equity Interests of Parent by
Parent (other than Disqualified Stock and other than to a Subsidiary of Parent and other than
Equity Interests sold in the Initial Public Offering) or (2) of Equity Interests of a direct or
indirect parent entity of Parent (other than to Parent or a Subsidiary of Parent) to the extent
that the net proceeds therefrom are contributed to the common equity capital of Parent.
“Registration Rights Agreement” means the Exchange and Registration Rights Agreement, dated
April 9, 2010, among the Issuers, the Guarantors and the other parties named on the signature pages
thereof, as such agreement may be amended, modified or supplemented from time to time, and, with
respect to any Additional Notes, one or more registration rights agreements among the Issuers, the
19
Guarantors and the other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Issuers to the purchasers of
Additional Notes to register such Additional Notes under the Securities Act.
“Regulation S” means Regulation S promulgated under the Securities Act.
“Regulation S Global Note” means a Regulation S Temporary Global Note or Regulation S
Permanent Global Note, as appropriate.
“Regulation S Permanent Global Note” means a permanent Global Note in the form of Exhibit A1
hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on
behalf of and registered in the name of the Depositary or its nominee, issued in a denomination
equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration
of the Restricted Period.
“Regulation S Temporary Global Note” means a temporary Global Note in the form of Exhibit A2
hereto deposited with or on behalf of and registered in the name of the Depositary or its nominee,
issued in a denomination equal to the outstanding principal amount of the Notes initially sold in
reliance on Rule 903 of Regulation S.
“Related Party” means:
(1) any controlling person, limited partner, majority owned Subsidiary, or immediate
family member (in the case of an individual) of any Principal; or
(2) any trust, corporation, partnership, limited liability company or other entity, the
beneficiaries, stockholders, partners, members, owners or Persons beneficially holding a
majority (and controlling) interest of which consist of any one or more Principals and/or
such other Persons referred to in the immediately preceding clause (1).
“Reorganization” means the plan of reorganization that was adopted and became effective on
November 9, 2009 in the bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code in which
Parent and certain of its Subsidiaries were debtors.
“Responsible Officer,” when used with respect to the Trustee, means any officer within the
Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other
officer of the Trustee customarily performing functions similar to those performed by any of the
above designated officers and also means, with respect to a particular corporate trust matter, any
other officer to whom such matter is referred because of his knowledge of and familiarity with the
particular subject.
“Restricted Definitive Note” means a Definitive Note bearing the Private Placement Legend.
“Restricted Global Note” means a Global Note bearing the Private Placement Legend.
“Restricted Investment” means an Investment other than a Permitted Investment.
“Restricted Period” means the 40-day distribution compliance period as defined in Regulation
S.
“Restricted Subsidiary” of a Person means any Subsidiary of the referent Person that is not an
Unrestricted Subsidiary. Unless otherwise indicated herein, all references to Restricted
Subsidiaries shall mean Restricted Subsidiaries of Parent, including the Issuers.
20
“Rule 144” means Rule 144 promulgated under the Securities Act.
“Rule 144A” means Rule 144A promulgated under the Securities Act.
“Rule 903” means Rule 903 promulgated under the Securities Act.
“Rule 904” means Rule 904 promulgated under the Securities Act.
“S&P” means Standard & Poor’s Ratings Group.
“SEC” means the Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
“Shelf Registration Statement” means the Shelf Registration Statement as defined in the
Registration Rights Agreement.
“Significant Subsidiary” means any Restricted Subsidiary that would be a “significant
subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the
Securities Act, as such Regulation is in effect on the Issue Date.
“Special Interest” has the meaning assigned to that term pursuant to the Registration Rights
Agreement.
“Stated Maturity” means, with respect to any installment of interest or principal on any
series of Indebtedness, the date on which the payment of interest or principal was scheduled to be
paid in the documentation governing such Indebtedness as of the Issue Date, and will not include
any contingent obligations to repay, redeem or repurchase any such interest or principal prior to
the date originally scheduled for the payment thereof.
“Subsidiary” means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the occurrence of any
contingency and after giving effect to any voting agreement or stockholders’ agreement that
effectively transfers voting power) to vote in the election of directors, managers or trustees of
the corporation, association or other business entity is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a
combination thereof); and
(2) any partnership or limited liability company of which (a) more than 50% of the capital
accounts, distribution rights, total equity and voting interests or general and limited partnership
interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person or a combination thereof, whether in the form of
membership, general, special or limited partnership interests or otherwise, and (b) such Person or
any Subsidiary of such Person is a controlling general partner or otherwise controls such entity.
“TIA” means the Trust Indenture Act of 1939, as amended (15 U.S.C. §§ 77aaa-77bbbb).
“Total Assets” means, as of any date, the total consolidated assets of Parent and its
Subsidiaries as of the most recent date for which internal financial statements are available as of
that date, calculated in accordance with GAAP.
21
“Treasury Management Arrangement” means any agreement or other arrangement governing the
provision of treasury or cash management services, including deposit accounts, overdraft, credit or
debit card, funds transfer, automated clearinghouse, zero balance accounts, returned check
concentration, controlled disbursement, lockbox, account reconciliation and reporting and trade
finance services and other cash management services.
“Treasury Rate” means, as of any redemption date, the yield to maturity as of such redemption
date of United States Treasury securities with a constant maturity (as compiled and published in
the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available
at least two Business Days prior to the redemption date (or, if such Statistical Release is no
longer published, any publicly available source of similar market data)) most nearly equal to the
period from the redemption date to April 15, 2014; provided, however, that if the period from the
redemption date to April 15, 2014, is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one year will be used.
“Trustee” means Wilmington Trust FSB, until a successor replaces it in accordance with the
applicable provisions of this Indenture and thereafter means the successor serving hereunder.
“Unrestricted Definitive Note” means a Definitive Note that does not bear and is not required
to bear the Private Placement Legend.
“Unrestricted Global Note” means a Global Note that does not bear and is not required to bear
the Private Placement Legend.
“Unrestricted Subsidiary” means any Subsidiary of Parent that is designated by the Board of
Directors of Parent as an Unrestricted Subsidiary pursuant to a resolution of the Board of
Directors of Parent, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) except as permitted by Section 4.11 hereof, is not party to any agreement,
contract, arrangement or understanding with Parent or any Restricted Subsidiary of Parent
unless the terms of any such agreement, contract, arrangement or understanding are no less
favorable to Parent or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of Parent;
(3) is a Person with respect to which neither Parent nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity
Interests or (b) to maintain or preserve such Person’s financial condition or to cause such
Person to achieve any specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of Parent or any of its Restricted Subsidiaries; provided, however, that
Parent and its Restricted Subsidiaries may Guarantee the performance of Unrestricted
Subsidiaries in the ordinary course of business except for Guarantees of Indebtedness.
“U.S. Person” means a U.S. Person as defined in Rule 902(k) promulgated under the Securities
Act.
“Voting Stock” of any specified Person as of any date means the Capital Stock of such Person
that is at the time entitled to vote in the election of the Board of Directors of such Person.
22
“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the
number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect of the Indebtedness, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between such date
and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
Section 1.02 Other Definitions.
| Defined in | ||||
| Term | Section | |||
“Affiliate Transaction” |
4.11 | |||
“Asset Sale Offer” |
3.09 | |||
“Authentication Order” |
2.02 | |||
“Change of Control Offer” |
4.15 | |||
“Change of Control Payment” |
4.15 | |||
“Change of Control Payment Date” |
4.15 | |||
“Covenant Defeasance” |
8.03 | |||
“DTC” |
2.03 | |||
“Event of Default” |
6.01 | |||
“Excess Proceeds” |
4.10 | |||
“incur” |
4.09 | |||
“Legal Defeasance” |
8.02 | |||
“Offer Amount” |
3.09 | |||
“Offer Period” |
3.09 | |||
“Paying Agent” |
2.03 | |||
“Permitted Debt” |
4.09 | |||
“Payment Default” |
6.01 | |||
“Purchase Date” |
3.09 | |||
“Register” |
2.03 | |||
“Registrar” |
2.03 | |||
“Restricted Payments” |
4.07 | |||
“Subordinated Debt” |
4.07 | |||
Section 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by
reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
“indenture securities” means the Notes;
“indenture security Holder” means a Holder of a Note;
“indenture to be qualified” means this Indenture;
23
“indenture Trustee” or “institutional trustee” means the Trustee; and
“obligor” on the Notes and the Note Guarantees means Issuers and the Guarantors, respectively,
and any successor obligor upon the Notes and the Note Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA, defined by TIA reference
to another statute or defined by SEC rule under the TIA have the meanings so assigned to them.
Section 1.04 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it in
accordance with GAAP;
(3) “or” is not exclusive;
(4) words in the singular include the plural, and in the plural include the singular;
(5) “will” shall be interpreted to express a command;
(6) provisions apply to successive events and transactions; and
(7) references to sections of or rules under the Securities Act will be deemed to
include substitute, replacement of successor sections or rules adopted by the SEC from time
to time.
ARTICLE 2
THE NOTES
THE NOTES
Section 2.01 Form and Dating.
(a) General. The Notes and the Trustee’s certificate of authentication will be substantially
in the form of Exhibits A1 and A2 hereto. The Notes may have notations, legends or endorsements
required by law, stock exchange rule or usage. Each Note will be dated the date of its
authentication. The Notes shall be in denominations of $2,000 and integral multiples of $1,000 in
excess thereof.
The terms and provisions contained in the Notes will constitute, and are hereby expressly
made, a part of this Indenture and the Issuers, the Guarantors and the Trustee, by their execution
and delivery of this Indenture, expressly agree to such terms and provisions and to be bound
thereby. However, to the extent any provision of any Note conflicts with the express provisions of
this Indenture, the provisions of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form will be substantially in the form of Exhibits
A1 or A2 hereto (including the Global Note Legend thereon and the “Schedule of Exchanges of
Interests in the Global Note” attached thereto). Notes issued in definitive form will be
substantially in the form of Exhibit A1 hereto (but without the Global Note Legend thereon and
without the “Schedule of Exchanges of Interests in the Global Note” attached thereto). Each Global
Note will represent such of the outstanding Notes as will be specified therein and each shall
provide that it represents the aggregate principal amount of outstanding Notes from time to time
endorsed thereon and that the aggregate
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principal amount of outstanding Notes represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note
to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding
Notes represented thereby will be made by the Trustee or the Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06
hereof.
(c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S will be issued
initially in the form of the Regulation S Temporary Global Note, which will be deposited on behalf
of the purchasers of the Notes represented thereby with the Trustee, as custodian for the
Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the
accounts of designated agents holding on behalf of Euroclear or Clearstream, duly executed by the
Issuers and authenticated by the Trustee as hereinafter provided. The Restricted Period will be
terminated upon the receipt by the Trustee of:
(1) a written certificate from the Depositary, together with copies of certificates
from Euroclear and Clearstream certifying that they have received certification of
non-United States beneficial ownership of 100% of the aggregate principal amount of the
Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof
who acquired an interest therein during the Restricted Period pursuant to another exemption
from registration under the Securities Act and who will take delivery of a beneficial
ownership interest in a 144A Global Note bearing a Private Placement Legend, all as
contemplated by Section 2.06(b) hereof); and
(2) an Officers’ Certificate from the Issuers.
Following the termination of the Restricted Period, beneficial interests in the Regulation S
Temporary Global Note will be exchanged for beneficial interests in the Regulation S Permanent
Global Note pursuant to the Applicable Procedures. Simultaneously with the authentication of the
Regulation S Permanent Global Note, the Trustee will cancel the Regulation S Temporary Global Note.
The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S
Permanent Global Note may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee, as the case may be, in connection with
transfers of interest as hereinafter provided.
(3) Euroclear and Clearstream Procedures Applicable. The provisions of the “Operating
Procedures of the Euroclear System” and “Terms and Conditions Governing Use of Euroclear”
and the “General Terms and Conditions of Clearstream Banking” and “Customer Handbook” of
Clearstream will be applicable to transfers of beneficial interests in the Regulation S
Temporary Global Note and the Regulation S Permanent Global Note that are held by
Participants through Euroclear or Clearstream.
Section 2.02 Execution and Authentication.
At least one Officer must sign the Notes for each of the Issuers by manual or facsimile
signature.
If an Officer whose signature is on a Note no longer holds that office at the time a Note is
authenticated, the Note will nevertheless be valid.
A Note will not be valid until authenticated by the manual signature of the Trustee. The
signature will be conclusive evidence that the Note has been authenticated under this Indenture.
25
The Trustee will, upon receipt of a written order of the Issuers signed by one Officer of each
Issuer (an “Authentication Order”), authenticate Notes for original issue that may be validly
issued under this Indenture, including any Additional Notes up to the aggregate principal amount
stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time
may not exceed the aggregate principal amount of Notes authorized for issuance by the Issuers
pursuant to one or more Authentication Orders, except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the Issuers to authenticate
Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes authentication by such agent.
An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of
the Issuers.
Section 2.03 Registrar and Paying Agent.
The Issuers will maintain an office or agency where Notes may be presented for registration of
transfer or for exchange (“Registrar”) and an office or agency where Notes may be presented for
payment (“Paying Agent”). The Registrar will keep a register of the Notes and of their transfer
and exchange (the “Register”). The Issuers may appoint one or more co-registrars and one or more
additional paying agents. The term “Registrar” includes any co-registrar and the term “Paying
Agent” includes any additional paying agent. The Issuers may change any Paying Agent or Registrar
without notice to any Holder. The Issuers will notify the Trustee in writing of the name and
address of any Agent not a party to this Indenture. If the Issuers fail to appoint or maintain
another entity as Registrar or Paying Agent, the Trustee shall act as such. The Issuers or any of
their Subsidiaries may act as Paying Agent or Registrar.
The Issuers initially appoint The Depository Trust Company (“DTC”) to act as Depositary with
respect to the Global Notes.
The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act
as Custodian with respect to the Global Notes.
The Trustee will send or will cause to be sent a copy of the Register to MagnaChip and will
ensure to send an updated copy of the Register to MagnaChip as soon as practicable after any change
of the name of the Holder(s) of the Notes or of the total outstanding aggregate amount of Notes
held by each Holder made to the Register. MagnaChip will maintain a register based on the Register
at its registered office and will update it as soon as it receives an updated Register from the
Trustee. The Trustee shall in addition, in any event, provide MagnaChip with a copy of the
Register each semi-annual period following the record date for payment on the Notes. In case of
discrepancy between the Register and the register maintained at the registered office of MagnaChip,
the former will prevail.
Section 2.04 Paying Agent to Hold Money in Trust.
The Issuers will require each Paying Agent other than the Trustee to agree in writing that the
Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the
Paying Agent for the payment of principal of, premium on, if any, interest or Special Interest, if
any, on, the Notes, and will notify the Trustee of any default by the Issuers in making any such
payment. While any such default continues, the Trustee may require a Paying Agent to pay all money
held by it to the Trustee. The Issuers at any time may require a Paying Agent to pay all money
held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the
Issuers, Parent or a Subsidiary of Parent) will have no further liability for the money. If an
Issuer, Parent or a Subsidiary of Parent acts as Paying Agent, it will segregate and hold in a
separate trust fund for the benefit of the Holders all money held by it
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as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Issuers,
the Trustee will serve as Paying Agent for the Notes.
Section 2.05 Holder Lists.
The Trustee will preserve in as current a form as is reasonably practicable the most recent
list available to it of the names and addresses of all Holders and shall otherwise comply with TIA
§312(a). If the Trustee is not the Registrar, the Issuers will furnish to the Trustee at least
seven Business Days before each interest payment date and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may reasonably require
of the names and addresses of the Holders of Notes and the Issuers shall otherwise comply with TIA
§312(a).
Section 2.06 Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be transferred except as a
whole by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the
Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged
by the Issuers for Definitive Notes if:
(1) the Issuers deliver to the Trustee notice from the Depositary that it is unwilling
or unable to continue to act as Depositary or that it is no longer a clearing agency
registered under the Exchange Act and, in either case, a successor Depositary is not
appointed by the Issuers within 120 days after the date of such notice from the Depositary;
(2) the Issuers in their sole discretion determine that the Global Notes (in whole but
not in part) should be exchanged for Definitive Notes and deliver a written notice to such
effect to the Trustee; provided that in no event shall the Regulation S Temporary Global
Note be exchanged by the Issuers for Definitive Notes prior to (A) the expiration of the
Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant
to Rule 903(b)(3)(ii)(B) under the Securities Act; or
(3) there has occurred and is continuing a Default or Event of Default with respect to
the Notes.
Upon the occurrence of any of the preceding events in (1), (2) or (3) above, Definitive Notes
shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may
be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every
Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion
thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and
delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for
another Note other than as provided in this Section 2.06(a); provided, however, that beneficial
interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or
(f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and
exchange of beneficial interests in the Global Notes will be effected through the Depositary, in
accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial
interests in the Restricted Global Notes will be subject to restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act. Transfers of beneficial
interests in the Global Notes also will require compliance with either subparagraph (1) or (2)
below, as applicable, as well as one or more of the other following subparagraphs, as applicable:
27
(1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in
any Restricted Global Note may be transferred to Persons who take delivery thereof in the
form of a beneficial interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend; provided, however, that
prior to the expiration of the Restricted Period, transfers of beneficial interests in the
Regulation S Temporary Global Note may not be made to a U.S. Person or
for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial
interests in any Unrestricted Global Note may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in an Unrestricted Global Note. No written
orders or instructions shall be required to be delivered to the Registrar to effect the
transfers described in this Section 2.06(b)(1).
(2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In
connection with all transfers and exchanges of beneficial interests that are not subject to
Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the
Registrar either:
(A) both:
(i) a written order from a Participant or an Indirect Participant given
to the Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or exchanged; and
(ii) instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be credited with
such increase; or
(B) both:
(i) a written order from a Participant or an Indirect Participant given
to the Depositary in accordance with the Applicable Procedures directing the
Depositary to cause to be issued a Definitive Note in an amount equal to the
beneficial interest to be transferred or exchanged; and
(ii) instructions given by the Depositary to the Registrar containing
information regarding the Person in whose name such Definitive Note shall be
registered to effect the transfer or exchange referred to in (1) above;
provided that in no event shall Definitive Notes be issued upon the transfer
or exchange of beneficial interests in the Regulation S Temporary Global
Note prior to (A) the expiration of the Restricted Period and (B) the
receipt by the Registrar of any certificates required pursuant to Rule 903
under the Securities Act.
Upon consummation of an Exchange Offer by the Issuers in accordance with Section 2.06(f) hereof,
the requirements of this Section 2.06(b)(2) shall be deemed to have been satisfied upon receipt by
the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of
such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the
requirements for transfer or exchange of beneficial interests in Global Notes contained in this
Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust
the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
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(3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial
interest in any Restricted Global Note may be transferred to a Person who takes delivery
thereof in the form of a beneficial interest in another Restricted Global Note if the
transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar
receives the following:
(A) if the transferee will take delivery in the form of a beneficial interest
in the 144A Global Note, then the transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form of a beneficial interest
in the Regulation S Temporary Global Note or the Regulation S Permanent Global Note,
then the transferor must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (2) thereof.
(4) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for
Beneficial Interests in an Unrestricted Global Note. A beneficial interest in any
Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in
an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer
complies with the requirements of Section 2.06(b)(2) above and:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in
accordance with the Registration Rights Agreement and the holder of the beneficial
interest to be transferred, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal that it is not
(i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange
Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of either
Issuer;
(B) such transfer is effected pursuant to the Shelf Registration Statement in
accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the holder of such beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a beneficial interest
in an Unrestricted Global Note, a certificate from such holder in the form
of Exhibit C hereto, including the certifications in item (1)(a) thereof; or
(ii) if the holder of such beneficial interest in a Restricted Global
Note proposes to transfer such beneficial interest to a Person who shall
take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note, a certificate from such holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so
requests or if the Applicable Procedures so require, an Opinion of Counsel in form
reasonably acceptable to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on transfer
contained herein and in the
29
Private Placement Legend are no longer required in order to maintain compliance with
the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an
Unrestricted Global Note has not yet been issued, the Issuers shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or
more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal
amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to
Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global
Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(1) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If
any holder of a beneficial interest in a Restricted Global Note proposes to exchange such
beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest
to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted Global Note
proposes to exchange such beneficial interest for a Restricted Definitive Note, a
certificate from such holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB in accordance
with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a Non-U.S. Person in an
offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in item (2)
thereof;
(D) if such beneficial interest is being transferred pursuant to an exemption
from the registration requirements of the Securities Act in accordance with Rule
144, a certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an Institutional
Accredited Investor in reliance on an exemption from the registration requirements
of the Securities Act other than those listed in subparagraphs (B) through (D)
above, a certificate to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
(F) if such beneficial interest is being transferred to an Issuer or any of
such Issuer’s Subsidiaries, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant to an effective
registration statement under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (3)(c) thereof,
30
the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.06(h) hereof, and the Issuers shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a Definitive Note in the
appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in
a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names
and in such authorized denomination or denominations as the holder of such beneficial interest
shall instruct the Registrar through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose
names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section 2.06(c)(1) shall bear the Private
Placement Legend and shall be subject to all restrictions on transfer contained therein.
(2) Beneficial Interests in Regulation S Temporary Global Note to Definitive Notes.
Notwithstanding Sections 2.06(c)(1)(A) and (C) hereof, a beneficial interest in the
Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred
to a Person who takes delivery thereof in the form of a Definitive Note prior to (A) the
expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates
required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act, except in the case of a
transfer pursuant to an exemption from the registration requirements of the Securities Act
other than Rule 903 or Rule 904.
(3) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes.
A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial
interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a
Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in
accordance with the Registration Rights Agreement and the holder of such beneficial
interest, in the case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (i) a
Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes
or (iii) a Person who is an affiliate (as defined in Rule 144) of either Issuer;
(B) such transfer is effected pursuant to the Shelf Registration Statement in
accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the holder of such beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for an Unrestricted
Definitive Note, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(b) thereof; or
(ii) if the holder of such beneficial interest in a Restricted Global
Note proposes to transfer such beneficial interest to a Person who shall
take delivery thereof in the form of an Unrestricted Definitive Note, a
certificate from such holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
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and, in each such case set forth in this subparagraph (D), if the Registrar
so requests or if the Applicable Procedures so require, an Opinion of Counsel in
form reasonably acceptable to the Registrar to the effect that such exchange or
transfer is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no longer required
in order to maintain compliance with the Securities Act.
(4) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes.
If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange
such beneficial interest for a Definitive Note or to transfer such beneficial interest to a
Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction
of the conditions set forth in Section 2.06(b)(2) hereof, the Trustee will cause the
aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant
to Section 2.06(h) hereof, and the Issuers will execute and the Trustee will authenticate
and deliver to the Person designated in the instructions a Definitive Note in the
appropriate principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(4) will be registered in such name or names and in
such authorized denomination or denominations as the holder of such beneficial interest
requests through instructions to the Registrar from or through the Depositary and the
Participant or Indirect Participant. The Trustee will deliver such Definitive Notes to the
Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange
for a beneficial interest pursuant to this Section 2.06(c)(4) will not bear the Private
Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If
any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial
interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a
Person who takes delivery thereof in the form of a beneficial interest in a Restricted
Global Note, then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to exchange such
Note for a beneficial interest in a Restricted Global Note, a certificate from such
Holder in the form of Exhibit C hereto, including the certifications in item (2)(b)
thereof;
(B) if such Restricted Definitive Note is being transferred to a QIB in
accordance with Rule 144A, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a Non-U.S.
Person in an offshore transaction in accordance with Rule 903 or Rule 904, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred pursuant to an
exemption from the registration requirements of the Securities Act in accordance
with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to an Institutional
Accredited Investor in reliance on an exemption from the registration requirements
of the Securities Act other than those listed in subparagraphs (B) through (D)
above, a
32
certificate to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
(F) if such Restricted Definitive Note is being transferred to an Issuer or any
of such Issuer’s Subsidiaries, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred pursuant to an
effective registration statement under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in item (3)(c)
thereof,
the Trustee will cancel the Restricted Definitive Note, increase or cause to be
increased the aggregate principal amount of, in the case of clause (A) above, the
appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global
Note, and in the case of clause (C) above, the Regulation S Global Note.
(2) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes.
A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in
an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who
takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note
only if:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in
accordance with the Registration Rights Agreement and the Holder, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person
participating in the distribution of the Exchange Notes or (iii) a Person who is an
affiliate (as defined in Rule 144) of either Issuer;
(B) such transfer is effected pursuant to the Shelf Registration Statement in
accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(i) if the Holder of such Definitive Notes proposes to exchange such
Notes for a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit C hereto, including the
certifications in item (1)(c) thereof; or
(ii) if the Holder of such Definitive Notes proposes to transfer such
Notes to a Person who shall take delivery thereof in the form of a
beneficial interest in the Unrestricted Global Note, a certificate from such
Holder in the form of Exhibit B hereto, including the certifications in item
(4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so
requests or if the Applicable Procedures so require, an Opinion of Counsel in form
reasonably acceptable to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on transfer
contained herein and in the
33
Private Placement Legend are no longer required in order to maintain compliance with
the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this Section
2.06(d)(2), the Trustee will cancel the Definitive Notes and increase or cause to be
increased the aggregate principal amount of the Unrestricted Global Note.
(3) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes.
A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial
interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who
takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note
at any time. Upon receipt of a request for such an exchange or transfer, the Trustee will
cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a beneficial interest is
effected pursuant to subparagraphs (2)(B), (2)(D) or (3) above at a time when an
Unrestricted Global Note has not yet been issued, the Issuers will issue and, upon receipt
of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will
authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to
the principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder
of Definitive Notes and such Holder’s compliance with the provisions of this Section 2.06(e), the
Registrar will register the transfer or exchange of Definitive Notes. Prior to such registration
of transfer or exchange, the requesting Holder must present or surrender to the Registrar the
Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in
writing. In addition, the requesting Holder must provide any additional certifications, documents
and information, as applicable, required pursuant to the following provisions of this Section
2.06(e).
(1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted
Definitive Note may be transferred to and registered in the name of Persons who take
delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the
following:
(A) if the transfer will be made pursuant to Rule 144A, then the transferor
must deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the
transferor must deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any other exemption from the
registration requirements of the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if applicable.
(2) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted
Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note
or
34
transferred to a Person or Persons who take delivery thereof in the form of an
Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the Exchange Offer in
accordance with the Registration Rights Agreement and the Holder, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person
participating in the distribution of the Exchange Notes or (iii) a Person who is an
affiliate (as defined in Rule 144) of either Issuer;
(B) any such transfer is effected pursuant to the Shelf Registration Statement
in accordance with the Registration Rights Agreement;
(C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange
Offer Registration Statement in accordance with the Registration Rights Agreement;
or
(D) the Registrar receives the following:
(i) if the Holder of such Restricted Definitive Notes proposes to
exchange such Notes for an Unrestricted Definitive Note, a certificate from
such Holder in the form of Exhibit C hereto, including the certifications in
item (1)(d) thereof; or
(ii) if the Holder of such Restricted Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in the form
of an Unrestricted Definitive Note, a certificate from such Holder in the
form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so
requests, an Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the Securities Act
and that the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the Securities
Act.
(3) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of
Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof
in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such
a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the
instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the
Registration Rights Agreement, the Issuers will issue and, upon receipt of an Authentication Order
in accordance with Section 2.02 hereof, the Trustee will authenticate:
(1) one or more Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of the beneficial interests in the Restricted Global Notes accepted for
exchange in the Exchange Offer by Persons that certify in the applicable Letters of
Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a
distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144)
of the Issuers; and
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(2) Unrestricted Definitive Notes in an aggregate principal amount equal to the
principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange
Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not
Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and
(C) they are not affiliates (as defined in Rule 144) of the Issuers.
Concurrently with the issuance of such Notes, the Trustee will cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and the Issuers will
execute and the Trustee will authenticate and deliver to the Persons designated by the Holders of
Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount.
(g) Legends. The following legends will appear on the face of all Global Notes and Definitive
Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions
of this Indenture.
(1) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global Note and each
Definitive Note (and all Notes issued in exchange therefor or substitution thereof)
shall bear the legend in substantially the following form:
“THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”) AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF
REGULATION S UNDER THE
SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL INVESTOR THAT IS AN ACCREDITED INVESTOR
WITHIN THE MEANING OF RULE 501 OF REGULATION D UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS”
(B) Notwithstanding the foregoing, any Global Note or Definitive Note issued
pursuant to subparagraphs (b)(4), (c)(3), (c)(4), (d)(2), (d)(3), (e)(2), (e)(3) or
(f) of this Section 2.06 (and all Notes issued in exchange therefor or substitution
thereof) will not bear the Private Placement Legend.
(2) Global Note Legend. Each Global Note will bear a legend in substantially the
following form:
“THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR
ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS
MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS
36
GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF
THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR
WRITTEN CONSENT OF THE ISSUERS.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY
NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (“DTC”), TO THE ISSUERS OR THEIR AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.”
(3) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note
will bear a Legend in substantially the following form:
“THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES
GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED
HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE
SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.”
(h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests
in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note
has been redeemed, repurchased or canceled in whole and not in part, each such Global Note will be
returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any
time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or
transferred to a Person who will take delivery thereof in the form of a beneficial interest in
another Global Note or for Definitive Notes, the principal amount of Notes represented by such
Global Note will be reduced accordingly and an endorsement will be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the
beneficial interest is being exchanged for or transferred to a Person who will take delivery
thereof in the form of a beneficial interest in another Global Note, such other Global Note will be
increased accordingly and an endorsement will be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(1) To permit registrations of transfers and exchanges, the Issuers will execute and
the Trustee will authenticate Global Notes and Definitive Notes upon receipt of an
Authentication Order in accordance with Section 2.02 hereof or at the Registrar’s request.
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(2) No service charge will be made to a Holder of a beneficial interest in a Global
Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but
the Issuers may require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such transfer taxes or
similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10,
3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
(3) The Registrar will not be required to register the transfer of or exchange of any
Note selected for redemption in whole or in part, except the unredeemed portion of any Note
being redeemed in part.
(4) All Global Notes and Definitive Notes issued upon any registration of transfer or
exchange of Global Notes or Definitive Notes will be the valid obligations of the Issuers,
evidencing the same debt, and entitled to the same benefits under this Indenture, as the
Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.
(5) Neither the Registrar nor the Issuers will be required:
(A) to issue, to register the transfer of or to exchange any Notes during a
period beginning at the opening of business 15 days before the day of any selection
of Notes for redemption under Section 3.02 hereof and ending at the close of
business on the day of selection;
(B) to register the transfer of or to exchange any Note selected for redemption
in whole or in part, except the unredeemed portion of any Note being redeemed in
part; or
(C) to register the transfer of or to exchange a Note between a record date and
the next succeeding interest payment date.
(6) Prior to due presentment for the registration of a transfer of any Note, the
Trustee, any Agent and the Issuers may deem and treat the Person in whose name any Note is
registered as the absolute owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other purposes, and none of the Trustee,
any Agent or the Issuers shall be affected by notice to the contrary.
(7) The Trustee will authenticate Global Notes and Definitive Notes in accordance with
the provisions of Section 2.02 hereof.
(8) All certifications, certificates and Opinions of Counsel required to be submitted
to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or
exchange may be submitted by facsimile.
Section 2.07 Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Issuers and the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any Note, the Issuers will issue
and the Trustee, upon receipt of an Authentication Order, will authenticate a replacement Note if
the Trustee’s requirements are met. If required by the Trustee or the Issuers, an indemnity bond
must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Issuers to
protect the Issuers, the
38
Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a
Note is replaced. The Issuers may charge for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the Issuers and will be entitled to all
of the benefits of this Indenture equally and proportionately with all other Notes duly issued
hereunder.
Section 2.08 Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the Trustee except for
those canceled by it, those delivered to it for cancellation, those reductions in the interest in a
Global Note effected by the Trustee in accordance with the provisions hereof, and those described
in this Section 2.08 as not outstanding. Except as set forth in Section 2.09 hereof, a Note does
not cease to be outstanding because the Issuers or an Affiliate of either Issuer holds the Note;
however, Notes held by an Issuer or a Subsidiary of an Issuer shall not be deemed to be outstanding
for purposes of Section 3.07(a) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the
Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser.
If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to
be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than Parent or any of its Subsidiaries or an Affiliate of any
thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on
that date, then on and after that date such Notes will be deemed to be no longer outstanding and
will cease to accrue interest.
Section 2.09 Treasury Notes.
In determining whether the Holders of the required principal amount of Notes have concurred in
any direction, waiver or consent, Notes owned by the Issuers or any Guarantor, or by any Person
directly or indirectly controlling or controlled by or under direct or indirect common control with
the Issuers or any Guarantor, will be considered as though not outstanding, except that for the
purposes of determining whether the Trustee will be protected in relying on any such direction,
waiver or consent, only Notes that the Trustee knows are so owned will be so disregarded.
Section 2.10 Temporary Notes.
Until certificates representing Notes are ready for delivery, the Issuers may prepare and the
Trustee, upon receipt of an Authentication Order, will authenticate temporary Notes. Temporary
Notes will be substantially in the form of certificated Notes but may have variations that the
Issuers consider appropriate for temporary Notes and as may be reasonably acceptable to the
Trustee. Without unreasonable delay, the Issuers will prepare and the Trustee will authenticate
definitive Notes in exchange for temporary Notes.
Holders of temporary Notes will be entitled to all of the benefits of this Indenture.
Section 2.11 Cancellation.
The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and
Paying Agent will forward to the Trustee any Notes surrendered to them for registration of
transfer, exchange or payment. The Trustee and no one else will cancel all Notes surrendered for
registration of
39
transfer, exchange, payment, replacement or cancellation and will destroy canceled Notes
(subject to the record retention requirement of the Exchange Act). Certification of the
destruction of all canceled Notes will be delivered to the Issuers. The Issuers may not issue new
Notes to replace Notes that they have paid or that have been delivered to the Trustee for
cancellation.
Section 2.12 Defaulted Interest.
If the Issuers default in a payment of interest on the Notes, they will pay the defaulted
interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special record date, in each case at the
rate provided in the Notes and in Section 4.01 hereof. The Issuers will notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and the date of the
proposed payment. The Issuers will fix or cause to be fixed each such special record date and
payment date; provided that no such special record date may be less than 10 days prior to the
related payment date for such defaulted interest. At least 15 days before the special record date,
the Issuers (or, upon the written request of the Issuers, the Trustee in the name and at the
expense of the Issuers) will mail or cause to be mailed to Holders a notice that states the special
record date, the related payment date and the amount of such interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
REDEMPTION AND PREPAYMENT
Section 3.01 Notices to Trustee.
If the Issuers elect to redeem Notes pursuant to the optional redemption provisions of Section
3.07 hereof, they must furnish to the Trustee, at least 30 days but not more than 60 days before a
redemption date, an Officers’ Certificate setting forth:
| (1) | the clause of this Indenture pursuant to which the redemption shall occur; | ||
| (2) | the redemption date; | ||
| (3) | the principal amount of Notes to be redeemed; and | ||
| (4) | the redemption price. |
Section 3.02 Selection of Notes to Be Redeemed or Purchased.
If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any
time, the Trustee will select Notes for redemption or purchase on a pro rata basis (or, in the case
of Notes issued in global form pursuant to Article 2 hereof, based on a method that most nearly
approximates a pro rata selection as the Trustee deems fair and appropriate) unless otherwise
required by law or applicable stock exchange or depositary requirements. No Notes of $2,000 or
less may be redeemed or purchased in part.
In the event of partial redemption, the particular Notes to be redeemed or purchased will be
selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption or purchase date by the Trustee from the outstanding Notes not previously called for
redemption or purchase.
The Trustee will promptly notify the Issuers in writing of the Notes selected for redemption
or purchase and, in the case of any Note selected for partial redemption or purchase, the principal
amount
40
thereof to be redeemed or purchased. Notes and portions of Notes selected will be in amounts
of $2,000 or whole multiples of $1,000 in excess thereof; except that if all of the Notes of a
Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder
shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes
called for redemption or purchase.
Section 3.03 Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days
before a redemption date, the Issuers will mail or cause to be mailed, by first class mail, a
notice of redemption to each Holder whose Notes are to be redeemed at its registered address,
except that redemption notices may be mailed more than 60 days prior to a redemption date if the
notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of
this Indenture pursuant to Articles 8 or 11 hereof.
The notice will identify the Notes to be redeemed and will state:
(1) the redemption date;
(2) the redemption price;
(3) if any Note is being redeemed in part, the portion of the principal amount of such
Note to be redeemed and that, after the redemption date upon surrender of such Note, a new
Note or Notes in principal amount equal to the unredeemed portion will be issued in the name
of the Holder of such Note upon cancellation of the original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the Paying Agent to collect
the redemption price;
(6) that, unless the Issuers default in making such redemption payment, interest on
Notes called for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the
Notes called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy of the CUSIP
number, if any, listed in such notice or printed on the Notes.
At the Issuers’ request, the Trustee will give the notice of redemption in the Issuers’ names
and at their expense; provided, however, that the Issuers have delivered to the Trustee, at least
45 days prior to the redemption date, an Officers’ Certificate requesting that the Trustee give
such notice and setting forth the information to be stated in such notice as provided in the
preceding paragraph.
Section 3.04 Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for
redemption become irrevocably due and payable on the redemption date at the redemption price. A
notice of redemption may not be conditional.
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Section 3.05 Deposit of Redemption or Purchase Price.
One Business Day prior to the redemption or purchase date, the Issuers will deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of,
accrued interest and Special Interest, if any, on all Notes to be redeemed or purchased on that
date. The Trustee or the Paying Agent will promptly return to the Issuers any money deposited with
the Trustee or the Paying Agent by the Issuers in excess of the amounts necessary to pay the
redemption or purchase price of, accrued interest and Special Interest, if any, on all Notes to be
redeemed or purchased.
If the Issuers comply with the provisions of the preceding paragraph, on and after the
redemption or purchase date, interest will cease to accrue on the Notes or the portions of Notes
called for redemption or purchase. If a Note is redeemed or purchased on or after an interest
record date but on or prior to the related interest payment date, then any accrued and unpaid
interest shall be paid to the Person in whose name such Note was registered at the close of
business on such record date. If any Note called for redemption or purchase is not so paid upon
surrender for redemption or purchase because of the failure of the Issuers to comply with the
preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or
purchase date until such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof.
Section 3.06 Notes Redeemed or Purchased in Part.
Upon surrender of a Note that is redeemed or purchased in part, the Issuers will issue and,
upon receipt of an Authentication Order, the Trustee will authenticate for the Holder at the
expense of the Issuers a new Note equal in principal amount to the unredeemed or unpurchased
portion of the Note surrendered.
Section 3.07 Optional Redemption.
(a) At any time prior to April 15, 2013, MagnaChip may on any one or more occasions redeem up
to 35% of the aggregate principal amount of Notes issued under this Indenture, upon not less than
30 nor more than 60 days’ notice, at a redemption price equal to 110.500% of the principal amount
of the Notes redeemed, plus accrued and unpaid interest and Special Interest, if any, to the date
of redemption (subject to the rights of holders of Notes on the relevant record date to receive
interest on the relevant interest payment date), with the net cash proceeds of a Qualifying Equity
Offering by Parent; provided that:
(1) at least 65% of the aggregate principal amount of Notes originally issued under
this Indenture (excluding Notes held by Parent and its Subsidiaries) remains outstanding
immediately after the occurrence of such redemption; and
(2) the redemption occurs within 90 days of the date of the closing of such Qualifying
Equity Offering.
(b) At any time prior to April 15, 2014, MagnaChip may on any one or more occasions redeem all
or a part of the Notes, upon not less than 30 nor more than 60 days’ notice, at a redemption price
equal to 100% of the principal amount of the Notes redeemed, plus the Applicable Premium as of, and
accrued and unpaid interest and Special Interest, if any, to the date of redemption, subject to the
rights of holders of Notes on the relevant record date to receive interest due on the relevant
interest payment date.
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(c) Except pursuant to the preceding paragraphs and in Section 3.10, the Notes will not be
redeemable at MagnaChip’s option prior to April 15, 2014.
(d) On or after April 15, 2014, MagnaChip may on any one or more occasions redeem all or a
part of the Notes, upon not less than 30 nor more than 60 days’ notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest
and Special Interest, if any, on the Notes redeemed, to the applicable date of redemption, if
redeemed during the twelve-month period beginning on April 15 of the years indicated below, subject
to the rights of holders of Notes on the relevant record date to receive interest on the relevant
interest payment date:
| Year | Percentage | |||
2014
|
105.250 | % | ||
2015
|
102.625 | % | ||
2016 and thereafter
|
100.000 | % | ||
Unless MagnaChip defaults in the payment of the redemption price, interest will cease to
accrue on the Notes or portions thereof called for redemption on the applicable redemption date.
(e) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
Section 3.08 Mandatory Redemption.
The Issuers are not required to make mandatory redemption or sinking fund payments with
respect to the Notes.
Section 3.09 Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Issuers are required to commence an
offer to all Holders to purchase Notes (an “Asset Sale Offer”), they will follow the procedures
specified below.
The Asset Sale Offer shall be made to all Holders and all holders of other Indebtedness that
is pari passu with the Notes containing provisions similar to those set forth in this Indenture
with respect to offers to purchase, prepay or redeem with the proceeds of sales of assets. The
Asset Sale Offer will remain open for a period of at least 20 Business Days following its
commencement and not more than 30 Business Days, except to the extent that a longer period is
required by applicable law (the “Offer Period”). No later than three Business Days after the
termination of the Offer Period (the “Purchase Date”), MagnaChip will apply all Excess Proceeds
(the “Offer Amount”) to the purchase of Notes and such other pari passu Indebtedness (on a pro rata
basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered, if
applicable) or, if less than the Offer Amount has been tendered, all Notes and other Indebtedness
tendered in response to the Asset Sale Offer. Payment for any Notes so purchased will be made in
the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or before the related
interest payment date, any accrued and unpaid interest and Special Interest, if any, will be paid
to the Person in whose name a Note is registered at the close of business on such record date, and
no additional interest will be payable to Holders who tender Notes pursuant to the Asset Sale
Offer.
Upon the commencement of an Asset Sale Offer, the Issuers will send, by first class mail, a
notice to each of the Holders, with a copy to the Trustee. The notice will contain all
instructions and materials
43
necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The
notice, which will govern the terms of the Asset Sale Offer, will state:
(1) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section
4.10 hereof and the length of time the Asset Sale Offer will remain open;
(2) the Offer Amount, the purchase price and the Purchase Date;
(3) that any Note not tendered or accepted for payment will continue to accrue
interest;
(4) that, unless the Issuers default in making such payment, any Note accepted for
payment pursuant to the Asset Sale Offer will cease to accrue interest after the Purchase
Date;
(5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may
elect to have Notes purchased in denominations of $2,000 or an integral multiple of $1,000
in excess thereof;
(6) that Holders electing to have Notes purchased pursuant to any Asset Sale Offer will
be required to surrender the Notes, with the form entitled “Option of Holder to Elect
Purchase” attached to the Notes completed, or transfer by book-entry transfer, to the
Issuers, a Depositary, if appointed by the Issuers, or a Paying Agent at the address
specified in the notice at least three days before the Purchase Date;
(7) that Holders will be entitled to withdraw their election if the Issuers, the
Depositary or the Paying Agent, as the case may be, receives, not later than the expiration
of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such Note purchased;
(8) that, if the aggregate principal amount of Notes and other pari passu Indebtedness
surrendered by holders thereof exceeds the Offer Amount, the Trustee will select the Notes
and the agent or trustee for such other pari passu Indebtedness will select such other pari
passu Indebtedness to be purchased on a pro rata basis based on the principal amount of
Notes and such other pari passu Indebtedness surrendered (with such adjustments as may be
deemed appropriate by the Issuers so that only Notes in denominations of $2,000, or an
integral multiple of $1,000 in excess thereof, will be purchased); and
(9) that Holders whose Notes were purchased only in part will be issued new Notes equal
in principal amount to the unpurchased portion of the Notes surrendered (or transferred by
book-entry transfer).
On or before the Purchase Date, the Issuers will, to the extent lawful, accept for payment, on
a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes
tendered, and will deliver or cause to be delivered to the Trustee the Notes properly accepted
together with an Officers’ Certificate stating that such Notes or portions thereof were accepted
for payment by the Issuers in accordance with the terms of this Section 3.09. The Issuers, the
Depositary or the Paying Agent, as the case may be, will promptly (but in any case not later than
five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the
purchase price of the Notes tendered by such Holder and accepted by the Issuers for purchase, and
the Issuers will promptly issue a new Note, and the
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Trustee, upon written request from the Issuers, will authenticate and mail or deliver (or
cause to be transferred by book entry) such new Note to such Holder, in a principal amount equal to
any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed
or delivered by the Issuers to the Holder thereof. The Issuers will publicly announce the results
of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase pursuant to this
Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof.
Section 3.10 Redemption for Changes in Taxes
(a) MagnaChip may redeem the Notes, in whole but not in part, upon not less than 30 nor more
than 60 days’ notice, at a redemption price equal to the principal amount thereof, together with
accrued and unpaid interest and Special Interest, if any, to the date of redemption (a “Tax
Redemption Date”) and all Additional Amounts (if any) then due and that will become due on the Tax
Redemption Date as a result of the redemption or otherwise (subject to the right of holders of the
Notes on the relevant record date to receive interest (including Special Interest) due on the
relevant interest payment date and Additional Amounts (if any) in respect thereof), if on the next
date on which any amount would be payable in respect of the Notes, MagnaChip is or would be
required to pay Additional Amounts, and MagnaChip cannot avoid any such payment obligation taking
reasonable measures available, and the requirement arises as a result of:
(1) any change in, or amendment to, the laws or treaties (or any regulations or rulings
promulgated thereunder) of the relevant Tax Jurisdiction (as defined in Section 4.16)
affecting taxation; or
(2) any change in, or amendment to, the existing official position regarding the
application, administration or interpretation of such laws, treaties, regulations or rulings
(including a holding, judgment or order by a court of competent jurisdiction or a change in
published practice),
which change or amendment is publicly announced as formally proposed after and becomes effective
after the Issue Date (or, if the relevant Tax Jurisdiction was not a Tax Jurisdiction on the Issue
Date, the date on which the then current Tax Jurisdiction became the applicable Tax Jurisdiction
under this Indenture). MagnaChip shall not have the right to redeem the Notes under this Section
3.10 based on Additional Amounts being due as a result of a merger or consolidation of MagnaChip in
which MagnaChip is not the surviving Person in such merger or consolidation.
MagnaChip will not give any such notice of redemption earlier than 60 days prior to the
earliest date on which the relevant Issuer would be obligated to make such payment or withholding
if a payment in respect of the Notes were then due, and at the time such notice is given, the
obligation to pay Additional Amounts must remain in effect. Prior to the publication or, where
relevant, mailing of any notice of redemption of the Notes pursuant to the foregoing, the Issuers
will deliver to the Trustee a written opinion of independent tax counsel to the effect that there
has been a change or amendment that would entitle MagnaChip to redeem the Notes under this Section
3.10. In addition, before the Issuers publish or mail notice of redemption of the Notes as
described above, they will deliver to the Trustee an Officers’ Certificate to the effect that the
relevant Issuer cannot avoid its obligation to pay Additional Amounts by the relevant Issuer taking
reasonable measures available to it.
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The Trustee shall rely on such Officers’ Certificate and Opinion of Counsel as sufficient
evidence of the existence and satisfaction of the conditions precedent as described above, in which
event it will be conclusive and binding on the Note holders.
For the avoidance of doubt, the implementation of European Council Directive 2003/48/EC or any
other directive implementing the conclusions of the ECOFIN Council meeting of 26 and 27 November
2000 on the taxation of savings income or any law implementing or complying with or introduced in
order to conform to such directive will not be a change or amendment for such purposes.
ARTICLE 4
COVENANTS
COVENANTS
Section 4.01 Payment of Notes.
MagnaChip will pay or cause to be paid the principal of, premium on, if any, interest and
Special Interest, if any, on, the Notes on the dates and in the manner provided in the Notes.
Principal, premium, if any, interest and Special Interest, if any, will be considered paid on the
date due if the Paying Agent, if other than Parent or any Subsidiary thereof, holds as of 10:00
a.m. Eastern Time on the due date money deposited by MagnaChip in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and interest, if any, then
due. MagnaChip will pay all Special Interest, if any, in the same manner on the dates and in the
amounts set forth in the Registration Rights Agreement.
MagnaChip will pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal at a rate that is 1% higher than the then applicable interest
rate on the Notes to the extent lawful; it will pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest,
if any (without regard to any applicable grace period), at the same rate to the extent lawful.
Section 4.02 Maintenance of Office or Agency.
The Issuers will maintain an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or upon the Issuers in
respect of the Notes and this Indenture may be served. The Issuers will give prompt written notice
to the Trustee of the location, and any change in the location, of such office or agency. If at
any time the Issuers fail to maintain any such required office or agency or fails to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee.
The Issuers may also from time to time designate one or more other offices or agencies where
the Notes may be presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or rescission will in any
manner relieve the Issuers of their obligation to maintain an office or agency for such purposes.
The Issuers will give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Issuers hereby designate the Corporate Trust Office of the Trustee as one such office or
agency of the Issuers in accordance with Section 2.03 hereof.
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Section 4.03 Reports.
(a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are
outstanding, Parent will furnish to the holders of Notes or cause the Trustee to furnish to the
holders of Notes (or file with the SEC for public availability), not later than 30 days after
expiration of the time periods specified in the SEC’s rules and regulations:
(1) all quarterly and annual reports that would be required to be filed with the SEC on
Forms 10-Q and 10-K if Parent were required to file such reports, including a “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and, with respect
to the annual information only, a report thereon by Parent’s certified independent
accountants; and
(2) all current reports that would be required to be filed with the SEC on Form 8-K if
Parent were required to file such reports.
All such reports will be prepared in all material respects in accordance with all of the rules
and regulations applicable to such reports. In addition, following the consummation of the
Exchange Offer contemplated by the Registration Rights Agreement, Parent will file a copy of each
of the reports referred to in clauses (1) and (2) above with the SEC for public availability within
the time periods specified in the rules and regulations applicable to such reports (unless the SEC
will not accept such a filing) and will post the reports on its website within those time periods.
Parent will at all times comply with § 314(a) of the Trust Indenture Act.
If, at any time after the consummation of the Exchange Offer contemplated by the Registration
Rights Agreement, Parent is no longer subject to the periodic reporting requirements of the
Exchange Act for any reason, Parent will nevertheless continue filing the reports specified in the
preceding paragraphs of this Section 4.03 with the SEC within the time periods specified above
unless the SEC will not accept such a filing. Parent will not take any action for the purpose of
causing the SEC not to accept any such filings. If, notwithstanding the foregoing, the SEC will
not accept Parent’s filings for any reason, Parent will post the reports referred to in the
preceding paragraphs on its website within the time periods that would apply if Parent were
required to file those reports with the SEC.
(b) If Parent has designated any of its Subsidiaries as Unrestricted Subsidiaries, then Parent
will disclose in Management’s Discussion and Analysis of Financial Condition and Results of
Operations, the revenues for the applicable period and assets as of the end of the applicable
period attributable to Unrestricted Subsidiaries of Parent.
(c) For so long as any Notes remain outstanding, if at any time the Issuers and the Guarantors
are not required to file with the SEC the reports required by paragraphs (a) and (b) of this
Section 4.03, they will furnish to the holders of Notes and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
(d) Notwithstanding the foregoing, Parent will be deemed to have furnished the reports
referred to above to the Trustee and the Holders on the date Parent files such reports with the SEC
via the EDGAR filing system (or any successor thereto, including Interactive Data Electronic
Applications) and such reports become publicly available. For the avoidance of doubt, prior to the
consummation of the Exchange Offer contemplated by the Registration Rights Agreement, Parent will
be deemed to have furnished the reports referred to above to the Trustee and the Holders on the
date that all material disclosures that would be required to be included in such reports are filed
with the SEC via the EDGAR
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filing system (or any successor thereto, including Interactive Data Electronic Applications)
in a registration statement on Form S-1 in connection with the Initial Public Offering.
Section 4.04 Compliance Certificate.
(a) MagnaChip and each Guarantor (to the extent that such Guarantor is so required under the
TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers’
Certificate stating that a review of the activities of the Parent and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing Officers with a view to
determining whether the Issuers have kept, observed, performed and fulfilled their obligations
under this Indenture, and further stating, as to each such Officer signing such certificate, that
to the best of his or her knowledge the Issuers have kept, observed, performed and fulfilled each
and every covenant contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default has occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge and what action the Issuers are taking or propose to take with respect thereto)
and that to the best of his or her knowledge no event has occurred and remains in existence by
reason of which payments on account of the principal of, premium on, if any, interest or Special
Interest, if any, on, the Notes is prohibited or if such event has occurred, a description of the
event and what action the Issuers are taking or propose to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the American Institute of
Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03
above shall be accompanied by a written statement of MagnaChip’s independent public accountants
(who shall be a firm of established national reputation) that in making the examination necessary
for certification of such financial statements, nothing has come to their attention that would lead
them to believe that the Issuers have violated any provisions of Article 4 or Article 5 hereof or,
if any such violation has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(c) So long as any of the Notes are outstanding, MagnaChip will deliver to the Trustee,
forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers’
Certificate specifying such Default or Event of Default and what action MagnaChip is taking or
proposes to take with respect thereto.
Section 4.05 Taxes.
The Issuers will pay, and will cause each of their Subsidiaries and Parent to pay, prior to
delinquency, all material taxes, assessments, and governmental levies except such as are contested
in good faith and by appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
Section 4.06 Stay, Extension and Usury Laws.
Each of the Issuers and each of the Guarantors covenants (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this Indenture; and the
Issuers and the Guarantors (to the extent that they may lawfully do so) hereby expressly waive all
benefit or advantage of any such law, and covenants that they will not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law has been enacted.
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Section 4.07 Restricted Payments.
(a) Parent will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly:
(1) declare or pay any dividend or make any other payment or distribution on account of
Parent’s or any of its Restricted Subsidiaries’ Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving Parent or
any of its Restricted Subsidiaries) or to the direct or indirect holders of Parent’s or any
of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than Disqualified Stock) of
Parent and other than dividends or distributions payable to Parent or a Restricted
Subsidiary of Parent);
(2) purchase, redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving Parent) any Equity
Interests of Parent or any direct or indirect parent of Parent;
(3) make any payment on or with respect to, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness of the Issuers or any Guarantor that is
contractually subordinated to the Notes or to any Note Guarantee (excluding any intercompany
Indebtedness between or among Parent and any of its Restricted Subsidiaries) (collectively,
“Subordinated Debt”), except a payment of interest or principal at the Stated Maturity
thereof; or
(4) make any Restricted Investment (all such payments and other actions set forth in
these clauses (1) through (4) above being collectively referred to as “Restricted
Payments”),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or would occur as a
consequence of such Restricted Payment;
(b) Parent would, at the time of such Restricted Payment and after giving pro forma
effect thereto as if such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a)
hereof; and
(c) such Restricted Payment, together with the aggregate amount of all other Restricted
Payments made by Parent and its Restricted Subsidiaries since the Issue Date (excluding
Restricted Payments permitted by clauses (2) through (12) of Section 4.07(b)), is less than
the sum, without duplication, of:
(A) 50% of the Consolidated Net Income of Parent for the period (taken as one
accounting period) from the beginning of the first fiscal quarter commencing after
the Issue Date to the end of Parent’s most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less 100% of such
deficit); plus
(B) 100% of the aggregate cash proceeds, including cash and Cash Equivalents,
and the Fair Market Value of assets (as to which an opinion or appraisal issued by
an accounting, appraisal or investment bank firm of national standing shall be
49
required if the Fair Market Value exceeds $15.0 million), received by Parent
since the Issue Date as a contribution to its common equity capital or from the
issue or sale of Qualifying Equity Interests of Parent or from the issue or sale of
convertible or exchangeable Disqualified Stock of Parent or convertible or
exchangeable debt securities of Parent, in each case that have been converted into
or exchanged for Qualifying Equity Interests of Parent (other than Qualifying Equity
Interests and convertible or exchangeable Disqualified Stock or debt securities (a)
sold to a Subsidiary of Parent or (b) sold in the Initial Public Offering); plus
(C) to the extent that any Restricted Investment that was made after the Issue
Date is (a) sold for cash or otherwise cancelled, liquidated or repaid for cash, or
(b) made in an entity that subsequently becomes a Restricted Subsidiary of Parent,
the initial amount of such Restricted Investment (or, if less, the amount of cash
received upon repayment or sale); plus
(D) to the extent that any Unrestricted Subsidiary of Parent designated as such
after the Issue Date is redesignated as a Restricted Subsidiary after the Issue
Date, the lesser of (i) the Fair Market Value of Parent’s Restricted Investment in
such Subsidiary as of the date of such redesignation or (ii) such Fair Market Value
as of the date on which such Subsidiary was originally designated as an Unrestricted
Subsidiary after the Issue Date; plus
(E) 100% of any dividends received in cash by Parent or a Restricted Subsidiary
after the Issue Date from an Unrestricted Subsidiary, to the extent that such
dividends were not otherwise included in the Consolidated Net Income of Parent for
such period;
provided, however, that the aggregate amount of Restricted Payments of the type described in
clauses (1) and (2) of the definition of “Restricted Payments” in this Section 4.07(a) shall
not exceed 50% of the aggregate amount of Restricted Payments otherwise permitted by this
clause (c).
(b) The provisions of Section 4.07(a) hereof will not prohibit:
(1) the payment of any dividend or the consummation of any irrevocable redemption
within 60 days after the date of declaration of the dividend or giving of the redemption
notice, as the case may be, if at the date of declaration or notice, the dividend or
redemption payment would have complied with the provisions of this Indenture;
(2) the making of any Restricted Payment in exchange for, or out of or with the net
cash proceeds of the substantially concurrent sale (other than to a Subsidiary of Parent)
of, Equity Interests of Parent (other than Disqualified Stock or Equity Interests sold in
the Initial Public Offering) or from the substantially concurrent contribution of common
equity capital to Parent; provided that the amount of any such net cash proceeds that are
utilized for any such Restricted Payment will not be considered to be net proceeds of
Qualifying Equity Interests for purposes of Section 4.07(a)(4)(c)(B);
(3) the payment of any dividend (or, in the case of any partnership or limited
liability company, any similar distribution) by a Restricted Subsidiary to the holders of
its Equity Interests on a pro rata basis;
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(4) the repurchase, redemption, defeasance or other acquisition or retirement for value
of Indebtedness of either Issuer or any Guarantor that is contractually subordinated to the
Notes or to any Note Guarantee with the net cash proceeds from a substantially concurrent
incurrence of Permitted Refinancing Indebtedness;
(5) so long as no Default or Event of Default has occurred and is continuing, the
repurchase, redemption or other acquisition or retirement for value of any Equity Interests
of Parent or any Restricted Subsidiary of Parent held by any current or former officer,
director or employee of Parent or any of its Restricted Subsidiaries pursuant to any
employment agreement, equity subscription agreement, stock option agreement, stockholders’
agreement or similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million in
any twelve-month period plus the amount of cash proceeds from any key man life insurance
received during such twelve-month period; provided, further, that such amount may be
increased by an amount not to exceed the cash proceeds from the sale of Equity Interests of
Parent to current or former members of management, directors, managers or consultants of
Parent or any of its Subsidiaries that occurs after the Issue Date, to the extent the cash
proceeds from the sale of such Equity Interests have not otherwise been applied to the
making of Restricted Payments by virtue of Section 4.07(a)(4)(c)(B);
(6) the repurchase of Equity Interests deemed to occur upon the exercise of stock
options to the extent such Equity Interests represent a portion of the exercise price of
those stock options, and repurchases of Equity Interests deemed to occur upon the
withholding of a portion of the Equity Interests granted or awarded to a current or former
officer, director, employee or consultant to pay for the taxes payable by such Person upon
such grant or award (or upon vesting thereof);
(7) so long as no Default or Event of Default has occurred and is continuing, the
declaration and payment of regularly scheduled or accrued dividends to holders of any class
or series of Disqualified Stock of Parent or any preferred stock of any Restricted
Subsidiary of Parent issued on or after the Issue Date in accordance with the Fixed Charge
Coverage Ratio test described in Section 4.09(a) hereof;
(8) payments of cash, dividends, distributions, advances or other Restricted Payments
by Parent or any of its Restricted Subsidiaries to allow the payment of cash in lieu of the
issuance of fractional shares upon (i) the exercise of options or warrants or (ii) the
conversion or exchange of Capital Stock of any such Person;
(9) Permitted Tax Payments;
(10) upon the occurrence of a Change of Control and within 60 days after the completion
of the offer to repurchase the Notes pursuant to Section 4.15 hereof, any purchase or
redemption of Subordinated Debt required pursuant to the terms thereof as a result of such
Change of Control; provided, however, that at the time of such purchase or redemption no
Event of Default shall have occurred and be continuing (or would result therefrom);
(11) any purchase or redemption of Subordinated Debt using any remaining Excess
Proceeds of an Asset Sale within 60 days after completion of an Asset Sale Offer; provided,
however, that at the time of such purchase or redemption no Event of Default shall have
occurred and be continuing (or would result therefrom);
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(12) the application of the proceeds of the Notes issued on the Issue Date as follows:
approximately $129.7 million to make a distribution to the unitholders of Parent,
approximately $61.8 million to repay the aggregate principal balance of the Indebtedness
under the Credit Agreement and the remaining proceeds to fund working capital and for
general corporate purposes; and
(13) other Restricted Payments in an aggregate amount not to exceed $25.0 million since
the Issue Date; provided, however, that the aggregate amount of Restricted Payments of the
type described in clauses (1) and (2) of the definition of “Restricted Payments” in Section
4.07(a) hereof permitted by this clause (13) shall not exceed $12.5 million since the Issue
Date.
The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the
date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued
by Parent or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The Fair Market Value of any assets or securities that are required to be valued by this Section
4.07 will be determined by the Board of Directors of Parent, whose resolution with respect thereto
will be delivered to the Trustee.
Section 4.08 Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.
(a) Parent will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or permit to exist or become effective any consensual encumbrance or restriction
on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to Parent or any
of its Restricted Subsidiaries, or with respect to any other interest or participation in,
or measured by, its profits, or pay any indebtedness owed to Parent or any of its Restricted
Subsidiaries;
(2) make loans or advances to Parent or any of its Restricted Subsidiaries; or
(3) sell, lease or transfer any of its properties or assets to Parent or any of its
Restricted Subsidiaries.
(b) The restrictions in Section 4.08(a) hereof will not apply to encumbrances or restrictions
existing under or by reason of:
(1) agreements governing Existing Indebtedness as in effect on the Issue Date and any
amendments, restatements, modifications, renewals, supplements, refundings, replacements or
refinancings of those agreements; provided that the amendments, restatements, modifications,
renewals, supplements, refundings, replacements or refinancings are not materially more
restrictive, taken as a whole, with respect to such dividend and other payment restrictions
than those contained in those agreements on the Issue Date;
(2) this Indenture, the Notes and the Note Guarantees;
(3) agreements governing other Indebtedness permitted to be incurred under Section 4.09
hereof and any amendments, restatements, modifications, renewals, supplements, refundings,
replacements or refinancings of those agreements; provided that the Board of Directors of
Parent determines in good faith that the encumbrances and restrictions in the agreements
governing such Indebtedness (or any such amendment, restatement, modification,
52
renewal, supplement, refunding, replacement or refinancing) will not materially
adversely affect the ability of MagnaChip to make payments on the Notes when due;
(4) applicable law, rule, regulation or order;
(5) any instrument governing Indebtedness or Capital Stock of a Person acquired by
Parent or any of its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness or Capital Stock was incurred in connection with or
in contemplation of such 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
property or assets of the Person, so acquired; provided that, in the case of Indebtedness,
such Indebtedness was permitted by the terms of this Indenture to be incurred;
(6) customary non-assignment provisions in contracts and licenses entered into in the
ordinary course of business;
(7) purchase money obligations for property acquired in the ordinary course of business
and Capital Lease Obligations that impose restrictions on the property purchased or leased
of the nature described in clause (4) of Section 4.09(b) hereof;
(8) any agreement for the sale or other disposition of a Restricted Subsidiary or all
or substantially all of the assets thereof that restricts distributions by that Restricted
Subsidiary pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness; provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are not materially more
restrictive, taken as a whole, than those contained in the agreements governing the
Indebtedness being refinanced;
(10) Liens permitted to be incurred under the provisions of Section 4.12 hereof that
limit the right of the debtor to dispose of the assets subject to such Liens;
(11) provisions limiting the disposition or distribution of assets or property in joint
venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements
and other similar agreements (including agreements entered into in connection with a
Restricted Investment) entered into with the approval of Parent’s Board of Directors, which
limitation is applicable only to the assets that are the subject of such agreements;
(12) restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business; and
(13) restrictions under customary provisions in partnership agreements, limited
liability company organizational or governance documents, joint venture agreements,
corporate charters, stockholders’ agreements and other similar agreements and documents on
the transfer of ownership interests in such partnership, limited liability company, joint
venture or similar Person.
Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock.
(a) Parent will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to (collectively, “incur”) any Indebtedness
(including Acquired
53
Debt), and Parent will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that Parent may
incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and the Issuers and the
Guarantors (other than Parent) may incur Indebtedness (including Acquired Debt) or issue preferred
stock, if:
(1) the Fixed Charge Coverage Ratio for Parent’s most recently ended four full fiscal
quarters for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified Stock or such
preferred stock is issued, as the case may be, would have been at least (a) at any time
prior to the completion of the Initial Public Offering, 2.25 to 1.0, and (b) at any time on
or after completion of the Initial Public offering, 2.0 to 1.0, in each case determined on a
pro forma basis (including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred or the Disqualified Stock or the preferred stock
had been issued, as the case may be, at the beginning of such four-quarter period; and
(2) in the case of any such Indebtedness that is Pari Passu Indebtedness, the sum of
the aggregate principal amount of Pari Passu Indebtedness incurred pursuant to this
paragraph since the Issue Date that is outstanding on the date of such incurrence plus the
aggregate principal amount of notes outstanding on the date of such incurrence (in each
case, after giving pro forma effect to the incurrence of such Pari Passu Indebtedness and
application of the net proceeds therefrom) does not exceed (a) at any time prior to the
completion of the Initial Public Offering, $350.0 million, or (b) at any time on or after
completion of the Initial Public Offering, $500.0 million.
(b) The provisions of Section 4.09(a) hereof will not prohibit the incurrence of any of the
following items of Indebtedness (collectively, “Permitted Debt”):
(1) the incurrence by Parent and any of its Restricted Subsidiaries of additional
Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount
at any one time outstanding under this clause (1)(with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of Parent and its
Restricted Subsidiaries thereunder) not to exceed the greater of (a) $75.0 million or (b)
the Borrowing Base as of the date of incurrence;
(2) the incurrence by Parent and its Restricted Subsidiaries of the Existing
Indebtedness;
(3) the incurrence by Issuers and the Guarantors of Indebtedness represented by the
Notes and the related Note Guarantees to be issued under this Indenture and the Exchange
Notes and the related Note Guarantees to be issued pursuant to the Registration Rights
Agreement;
(4) the incurrence by Parent or any of its Restricted Subsidiaries of Indebtedness
represented by Capital Lease Obligations, mortgage financings or purchase money obligations,
in each case, incurred for the purpose of financing all or any part of the purchase price,
taxes or cost of design, construction, installation or improvement of property, plant or
equipment (including software) used in the business of Parent or any of its Restricted
Subsidiaries, in an aggregate principal amount, including all Permitted Refinancing
Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any
Indebtedness incurred pursuant to this clause (4), not to exceed the greater of (a) $25.0
million or (b) 5% of Total Assets as of any date of incurrence;
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(5) the incurrence by Parent or any of its Restricted Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew,
refund, refinance, replace, defease or discharge any Indebtedness (other than intercompany
Indebtedness) that was permitted by this Indenture to be incurred under Section 4.09(a)
hereof or clauses (2), (3), (4), (5) or (16) of this Section 4.09(b);
(6) the incurrence by Parent or any of its Restricted Subsidiaries of intercompany
Indebtedness between or among Parent and any of its Restricted Subsidiaries; provided,
however, that:
(A) if either Issuer or any Guarantor is the obligor on such Indebtedness and
the payee is not an Issuer or a Guarantor, such Indebtedness must be unsecured and
expressly subordinated to the prior payment in full in cash of all Obligations then
due with respect to the Notes, in the case of an Issuer, or the Note Guarantee, in
the case of a Guarantor; and
(B) (1) any subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than Parent or a Restricted
Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a Person
that is not either Parent or a Restricted Subsidiary of Parent,
will be deemed, in each case, to constitute an incurrence of such Indebtedness by Parent or
such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6);
(7) the issuance by any of Parent’s Restricted Subsidiaries to Parent or to any of its
Restricted Subsidiaries of shares of preferred stock; provided, however, that:
(A) any subsequent issuance or transfer of Equity Interests that results in any
such preferred stock being held by a Person other than Parent or a Restricted
Subsidiary of Parent; and
(B) any sale or other transfer of any such preferred stock to a Person that is
not either Parent or a Restricted Subsidiary of Parent,
will be deemed, in each case, to constitute an issuance of such preferred stock by such
Restricted Subsidiary that was not permitted by this clause (7);
(8) the incurrence by Parent or any of its Restricted Subsidiaries of Hedging
Obligations in the ordinary course of business;
(9) the guarantee by the Issuers or any of the Guarantors of Indebtedness of Parent or
a Restricted Subsidiary of Parent to the extent that the guaranteed Indebtedness was
permitted to be incurred by another provision of this Section 4.09; provided that if the
Indebtedness being guaranteed is subordinated to or pari passu with the Notes, then the
Guarantee must be subordinated or pari passu, as applicable, to the same extent as the
Indebtedness guaranteed;
(10) the incurrence by Parent or any of its Restricted Subsidiaries of Indebtedness in
respect of workers’ compensation claims, health, disability or other employee benefits or
property, casualty or liability insurance, self-insurance obligations and bankers’
acceptances in the ordinary course of business;
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(11) the incurrence by Parent or any of its Restricted Subsidiaries of Indebtedness
arising from the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently drawn against insufficient funds, so long as such
Indebtedness is covered within five Business Days;
(12) the incurrence of Indebtedness by Parent or any of its Restricted Subsidiaries in
the form of performance bonds, completion guarantees and surety or appeal bonds and similar
obligations entered into by Parent or any of its Restricted Subsidiaries in the ordinary
course of their business;
(13) Indebtedness of Parent or any Restricted Subsidiary issued to any of its
directors, employees, officers or consultants or to a Restricted Subsidiary in connection
with the redemption or purchase of Capital Stock that, by its terms or by operation of law,
is subordinated to the Notes, is not secured by any of the assets of Parent or the
Restricted Subsidiaries and does not require cash payments prior to the Stated Maturity of
the Notes, in an aggregate principal amount which, when added with the amount of
Indebtedness incurred under this clause (13) and then outstanding, does not exceed $5.0
million at any one time outstanding;
(14) the incurrence of Indebtedness by Parent or any of the Restricted Subsidiaries
arising from agreements of Parent or any of the Restricted Subsidiaries providing for
adjustment of purchase price or other similar obligations, in each case, incurred or assumed
in connection with the acquisition or disposition of any business, assets or a Restricted
Subsidiary of Parent;
(15) Indebtedness incurred by Parent or any of the Restricted Subsidiaries constituting
reimbursement obligations under letters of credit issued in the ordinary course of business,
including, without limitation, letters of credit to procure raw materials or relating to
workers’ compensation claims or self-insurance, or other Indebtedness relating to
reimbursement-type obligations regarding workers’ compensation claims; and
(16) the incurrence by the Issuers or any of the Guarantors of additional Indebtedness
or Disqualified Stock in an aggregate principal amount (or accreted value, as applicable) at
any time outstanding, including all Permitted Refinancing Indebtedness incurred to renew,
refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this
clause (16), not to exceed $25.0 million.
Parent will not, and will not permit any Guarantor to, incur any Indebtedness (including
Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of
the Issuers or such Guarantor unless such Indebtedness is also contractually subordinated in right
of payment to the Notes and the applicable Note Guarantee on substantially identical terms;
provided, however, that no Indebtedness will be deemed to be contractually subordinated in right of
payment to any other Indebtedness of the Issuers or any Guarantor solely by virtue of being
unsecured or by virtue of being secured on a junior priority basis.
For purposes of determining compliance with this Section 4.09, in the event that an item of
Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in
clauses (1) through (16) above, or is entitled to be incurred pursuant to Section 4.09(a) hereof,
MagnaChip will be permitted to classify such item of Indebtedness on the date of its incurrence, or
later reclassify all or a portion of such item of Indebtedness, in any manner that complies with
this Section 4.09. The accrual of interest or preferred stock dividends, the accretion or
amortization of original issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, the reclassification of preferred stock as
Indebtedness due to a change in accounting principles, and the
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payment of dividends on preferred stock or Disqualified Stock in the form of additional shares
of the same class of preferred stock or Disqualified Stock will not be deemed to be an incurrence
of Indebtedness or an issuance of preferred stock or Disqualified Stock for purposes of this
Section 4.09; provided, in each such case, that the amount thereof is included in Fixed Charges of
Parent as accrued. For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of
Indebtedness denominated in a foreign currency shall be utilized, calculated based on the relevant
currency exchange rate in effect on the date such Indebtedness was incurred. Notwithstanding any
other provision of this Section 4.09, the maximum amount of Indebtedness that Parent or any
Restricted Subsidiary may incur pursuant to this Section 4.09 shall not be deemed to be exceeded
solely as a result of fluctuations in exchange rates or currency values.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with
original issue discount;
(2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
(3) in respect of Indebtedness of another Person secured by a Lien on the assets of the
specified Person, the lesser of:
(A) the Fair Market Value of such assets at the date of determination; and
(B) the amount of the Indebtedness of the other Person.
Section 4.10 Asset Sales.
Parent will not, and will not permit any of its Restricted Subsidiaries to, consummate an
Asset Sale unless:
(1) Parent (or the Restricted Subsidiary, as the case may be) receives consideration at
the time of the Asset Sale at least equal to the Fair Market Value (measured as of the date
of the definitive agreement with respect to such Asset Sale) of the assets or Equity
Interests issued or sold or otherwise disposed of; and
(2) at least 75% of the consideration received in the Asset Sale by Parent or such
Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this
provision, each of the following will be deemed to be cash:
(A) any liabilities of Parent or such Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to the
Notes or any Note Guarantee) that are assumed by the transferee of any such assets
pursuant to a customary novation or indemnity agreement that releases Parent or such
Restricted Subsidiary from or indemnifies against further liability;
(B) any securities, notes or other obligations received by Parent or any such
Restricted Subsidiary from such transferee that are converted by Parent or such
Restricted Subsidiary into cash or Cash Equivalents within 60 days of consummation
of such Asset Sale, to the extent of the cash and Cash Equivalents received in that
conversion;
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(C) any Designated Non-cash Consideration received by Parent or such Restricted
Subsidiary in such Asset Sale having an aggregate Fair Market Value, taken together
will all other Designated Non-cash Consideration received pursuant to this clause
(C) that is at that time outstanding, not to exceed 5.0% of Total Assets at the time
of the receipt of such Designated Non-cash Consideration, with the Fair Market Value
of each item of Designated Non-cash Consideration being measured at the time
received and without giving effect to subsequent changes in value; and
(D) any stock or assets of the kind referred to in clauses (2) or (4) of the
next paragraph of this Section 4.10.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale, Parent (or the
applicable Restricted Subsidiary, as the case may be) may apply such Net Proceeds:
(1) to repay (a) Obligations under a Credit Facility that are secured by a Lien
permitted by this Indenture; or (b) other Indebtedness (other than Subordinated
Indebtedness) of Parent or any Restricted Subsidiary that is secured by a Lien permitted by
this Indenture;
(2) to acquire all or substantially all of the assets of, or any Capital Stock of,
another Permitted Business, if, after giving effect to any such acquisition of Capital
Stock, the Permitted Business is or becomes a Restricted Subsidiary of Parent;
(3) to make a capital expenditure;
(4) to acquire other assets that are not classified as current assets under GAAP and
that are used or useful in a Permitted Business; or
(5) any combination of (1) through (4) of this paragraph.
In the case of clauses (2) and (4), Parent will be deemed to have complied with its obligations
above if it enters into a binding commitment to acquire such assets or Capital Stock within the
required time frame above, provided that such binding commitment shall be subject only to customary
conditions and such acquisition shall be consummated within six months from the date of signing
such binding commitment
Pending the final application of any Net Proceeds, Parent (or the applicable Restricted
Subsidiary) may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds
in any manner that is not prohibited by this Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second
paragraph of this Section 4.10 will constitute “Excess Proceeds.” When the aggregate amount of
Excess Proceeds exceeds $20.0 million, within 30 days thereof, MagnaChip will make an offer (an
“Asset Sale Offer”) to all holders of Notes and all holders of other Indebtedness that is pari
passu with the Notes containing provisions similar to those set forth in this Indenture with
respect to offers to purchase, prepay or redeem with the proceeds of sales of assets to purchase,
prepay or redeem the maximum principal amount of Notes and such other pari passu Indebtedness (plus
all accrued interest on the Indebtedness and the amount of all fees and expenses, including
premiums, incurred in connection therewith) that may be purchased, prepaid or redeemed out of the
Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal
amount, plus accrued and unpaid interest and Special Interest, if any, to the date of purchase,
prepayment or redemption, subject to the rights of holders of Notes on the relevant record date to
receive interest due on the relevant interest payment date, and will be payable in cash. If any
Excess Proceeds remain after consummation of an Asset Sale Offer, MagnaChip may use
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those Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate
principal amount of Notes and other pari passu Indebtedness tendered in (or required to be prepaid
or redeemed in connection with) such Asset Sale Offer exceeds the amount of Excess Proceeds, the
Trustee will select the Notes and the agent or trustee for such pari passu Indebtedness shall
select such other pari passu Indebtedness to be purchased on a pro rata basis, based on the amounts
tendered or required to be prepaid or redeemed (with such adjustments as may be deemed appropriate
by MagnaChip so that only Notes in denominations of $2,000, or an integral multiple of $1,000 in
excess thereof, will be purchased). Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds will be reset at zero.
MagnaChip will comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent those laws and regulations are applicable
in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that
the provisions of any securities laws or regulations conflict with the provisions of Section 3.09
hereof or this Section 4.10, MagnaChip will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under Section 3.09 hereof or
this Section 4.10 by virtue of such compliance.
Section 4.11 Transactions with Affiliates.
(a) Parent will not, and will not permit any of its Restricted Subsidiaries to, make any
payment to or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of
MagnaChip (each, an “Affiliate Transaction”) involving aggregate payments or consideration in
excess of $2.5 million, unless:
(1) the Affiliate Transaction is on terms that are no less favorable to Parent or the
relevant Restricted Subsidiary than those that would have been obtained in a comparable
transaction by Parent or such Restricted Subsidiary with an unrelated Person; and
(2) MagnaChip delivers to the Trustee:
(A) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, a
resolution of the Board of Directors of Parent set forth in an officers’ certificate
certifying that such Affiliate Transaction complies with this Section 4.11(a) and
that such Affiliate Transaction has been approved by a majority of the disinterested
members of the Board of Directors of Parent; and
(B) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $20.0 million, an
opinion by (A) a nationally recognized investment banking firm or (B) an accounting
or appraisal firm nationally recognized in making determinations of this kind that
such Affiliate Transaction is fair, from a financial standpoint, to Parent or the
applicable Restricted Subsidiary.
(b) The following items will not be deemed to be Affiliate Transactions and, therefore, will
not be subject to the provisions of Section 4.11(a) hereof:
(1) any employment agreement, employee compensation or benefit plan, officer or
director indemnification agreement or any similar arrangement entered into by Parent or any
of its
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Restricted Subsidiaries, and payments made pursuant thereto, in the ordinary course of
business and payments pursuant thereto;
(2) transactions between or among Parent and/or its Restricted Subsidiaries;
(3) transactions with a Person (other than an Unrestricted Subsidiary of Parent) that
is an Affiliate of MagnaChip solely because Parent owns, directly or through a Restricted
Subsidiary, an Equity Interest in, or controls, such Person;
(4) payment of reasonable and customary fees and reimbursements of expenses (pursuant
to indemnity arrangements or otherwise) of officers, directors, employees or consultants of
Parent or any of its Restricted Subsidiaries;
(5) the grant of equity incentives or similar rights to employees and directors of
Parent or MagnaChip Korea pursuant to plans approved by the Board of Directors of Parent or
MagnaChip Korea or a committee thereof comprised solely of independent directors;
(6) any issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock options and
stock ownership plans approved by Parent’s Board of Directors or a committee thereof
comprised solely of independent directors;
(7) any issuance of Equity Interests (other than Disqualified Stock) of Parent to
Affiliates of MagnaChip;
(8) Restricted Payments that do not violate Section 4.07 hereof;
(9) transactions pursuant to any contract or agreement with Parent or any of the
Restricted Subsidiaries in effect on the Issue Date, as the same may be amended, modified or
replaced from time to time so long as any such amendment, modification or replacement is not
more disadvantageous to the holders of the Notes in any material respect than the terms
contained in such contract or agreement as in effect on the Issue Date;
(10) transactions pursuant to or under the 2009 Registration Rights Agreement, the 2009
Warrant Agreement, the Director Indemnification Agreements and the Credit Agreement as in
effect on the Issue Date or any similar agreement or any amendment, modification or
replacement of the 2009 Registration Rights Agreement, the 2009 Warrant Agreement, the
Director Indemnification Agreements or the Credit Agreement or similar agreement; provided
that the terms of such amendment, modification or replacement are not more disadvantageous
to the holders of the Notes in any material respect than the terms contained in the 2009
Registration Rights Agreement, the 2009 Warrant Agreement, the Director Indemnification
Agreements or the Credit Agreement, as the case may be, as in effect on the Issue Date, and
the repayment of the obligations outstanding under the Credit Agreement;
(11) the payment of management, consulting and advisory fees and related expenses made
pursuant to the Advisory Agreements and the payment of other customary management,
consulting and advisory fees and related expenses to the Principals and any of their
respective Affiliates in connection with transactions of Parent or its Subsidiaries or
pursuant to any management, consulting, financial advisory, financing, underwriting or
placement agreement or in respect of other investment banking activities, including in
connection with acquisitions or
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divestitures, which fees and expenses are made pursuant to arrangements approved by the
Board of Directors of Parent or such Subsidiary in good faith;
(12) the provision by an Affiliate of commercial banking or lending services or other
similar services on terms that are no less favorable to Parent or the relevant Restricted
Subsidiary than those that would have been obtained by an unaffiliated party and that are
approved in good faith by the Board of Directors of Parent; and
(13) loans or advances to employees in the ordinary course of business not to exceed
$5.0 million in the aggregate at any one time outstanding.
Section 4.12 Liens.
Parent will not, and will not permit any of its Restricted Subsidiaries to, create, incur,
assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than
Permitted Liens) securing Indebtedness, Attributable Debt or trade payables upon any of its or
their property or assets, now owned or hereafter acquired, unless all payments due under this
Indenture and the Notes are secured on an equal and ratable basis with the obligations so secured
until such time as such obligations are no longer secured by a Lien.
Section 4.13 Business Activities of FinanceCo.
FinanceCo will not hold any material assets, become liable for any material obligations or
engage in any significant business activities; provided that FinanceCo may be a co-obligor or
guarantor with respect to Indebtedness if MagnaChip is an obligor on such Indebtedness and the net
proceeds of such Indebtedness are received by MagnaChip, FinanceCo or one or more Guarantors.
Section 4.14 Corporate Existence.
Subject to Article 5 hereof, each of the Issuers shall do or cause to be done all things
necessary to preserve and keep in full force and effect:
(1) its corporate existence, and the corporate, partnership or other existence of each
of Parent and its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of such Issuer, Parent or any such
Subsidiary; and
(2) the rights (charter and statutory), licenses and franchises of the Parent and its
Subsidiaries; provided, however, that an Issuer shall not be required to preserve any such
right, license or franchise, or the corporate, partnership or other existence of any of its
Subsidiaries, if the Board of Directors of Parent shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Issuers, Parent and
Parent’s Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
Section 4.15 Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, MagnaChip will make an offer (a “Change of
Control Offer”) to each Holder to repurchase all or any part (equal to $2,000 or an integral
multiple of $1,000 in excess thereof) of that Holder’s Notes at a purchase price in cash equal to
101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid interest and
Special Interest, if any, on the Notes repurchased to the date of purchase, subject to the rights
of holders of Notes on the relevant record date to receive interest due on the relevant interest
payment date (the “Change of Control
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Payment”). Within 30 days following any Change of Control, MagnaChip will mail a notice to
each Holder describing the transaction or transactions that constitute the Change of Control and
offering to repurchase Notes on the Change of Control Payment Date specified in the notice, which
date will be no earlier than ten Business Days and no later than 60 days from the date such notice
is mailed:
(1) that the Change of Control Offer is being made pursuant to this Section 4.15 and
that all Notes tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be no earlier than 30 days
and no later than 60 days from the date such notice is mailed (the “Change of Control
Payment Date”);
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Issuers default in the payment of the Change of Control Payment,
all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue
interest after the Change of Control Payment Date;
(5) that Holders electing to have any Notes purchased pursuant to a Change of Control
Offer will be required to surrender the Notes, with the form entitled “Option of Holder to
Elect Purchase” attached to the Notes completed, or transfer by book-entry transfer, to the
Paying Agent at the address specified in the notice prior to the close of business on the
third Business Day preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day preceding the
Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have the Notes purchased; and
(7) that Holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $2,000 in principal amount or an integral multiple of
$1,000 in excess thereof.
MagnaChip will comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent those laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a Change of Control. To the extent
that the provisions of any securities laws or regulations conflict with Section 4.15 hereof,
MagnaChip will comply with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this Section 4.15 by virtue of such compliance.
(b) On the Change of Control Payment Date, MagnaChip will, to the extent lawful:
(1) accept for payment all Notes or portions of Notes properly tendered pursuant to the
Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control Payment in
respect of all Notes or portions of Notes properly tendered; and
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(3) deliver or cause to be delivered to the Trustee the Notes properly accepted
together with an Officers’ Certificate stating the aggregate principal amount of Notes or
portions of Notes being purchased by MagnaChip.
The Paying Agent will promptly mail to each Holder of Notes properly tendered the Change of
Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered, if any; provided that each such new Note will be in a
denomination of $2,000 or an integral multiple of $1,000 in excess thereof. MagnaChip will
publicly announce the results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
(c) Notwithstanding anything to the contrary in this Section 4.15, MagnaChip will not be
required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the
Change of Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Section 4.15 hereof made by MagnaChip and purchases all Notes
properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption
has been given pursuant to Section 3.07 hereof, unless and until there is a default in payment of
the applicable redemption price.
(d) Notwithstanding anything to the contrary contained herein, a Change of Control Offer may
be made in advance of a Change of Control, conditioned upon the consummation of such Change of
Control, if a definitive agreement is in place for the Change of Control at the time the Change of
Control Offer is made.
Section 4.16 Additional Amounts
(a) All payments made under or with respect to the Notes (whether or not in the form of
Certificated Notes) or with respect to any Note Guarantee will be made free and clear of and
without withholding or deduction for, or on account of, any present or future tax, duty, levy,
impost, assessment or other governmental charge (including, without limitation, penalties, interest
and other similar liabilities related thereto) of whatever nature (collectively, “Taxes”) unless
the withholding or deduction of such Taxes is then required by law. If any deduction or
withholding for, or on account of, any Taxes imposed or levied by or on behalf of any jurisdiction
in which either of the Issuers or any Guarantor (including any successor entity), is then
incorporated, engaged in business or resident for tax purposes or any jurisdiction from or through
which payment is made by or on behalf of either of the Issuers or any Guarantor (including any
successor entity), including, without limitation, the jurisdiction of any paying agent, or in each
case any political subdivision thereof or therein (each, a “Tax Jurisdiction”), will at any time be
required to be made from any payments made under or with respect to the Notes or with respect to
any Note Guarantee, including, without limitation, payments of principal, redemption price,
purchase price, interest, Special Interest or premium, the relevant Issuer, the relevant Guarantor
or other payor, as applicable, will pay such additional amounts (the “Additional Amounts”) as may
be necessary in order that the net amounts received in respect of such payments (including
Additional Amounts) by each holder after such withholding, deduction or imposition will equal the
respective amounts that would have been received in respect of such payments in the absence of such
withholding or deduction; provided, however, that no Additional Amounts will be payable with
respect to:
(1) any Taxes that would not have been imposed but for the Holder or the beneficial
owner of the Notes being a citizen or resident or national of, incorporated in or carrying
on a business in the relevant Tax Jurisdiction in which such Taxes are imposed or having any
other present or former connection with the relevant Tax Jurisdiction other than the mere
acquisition, holding, enforcement or receipt of payment in respect of the Notes or with
respect to any Note Guarantee;
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(2) any Taxes that are imposed or withheld as a result of the failure of the Holder of
the Note or beneficial owner of the Note to comply with any reasonable written request, made
to that Holder or beneficial owner in writing at least 90 days before any such withholding
or deduction would be payable, by either of the Issuers or any of the Guarantors to provide
timely and accurate information concerning the nationality, residence or identity of such
Holder or beneficial owner or to make any valid and timely declaration or similar claim or
satisfy any certification information or other reporting requirement, in each case which is
required or imposed by a statute, treaty, regulation or administrative practice of the
relevant Tax Jurisdiction as a precondition to any exemption from or reduction in all or
part of such Taxes to which such Holder or beneficial owner is entitled;
(3) any Taxes that are imposed or levied by reason of the presentation (where
presentation is required in order to receive payment) of such Notes for payment on a date
more than 30 days after the date on which such payment became due and payable or the date on
which payment thereof is duly provided for, whichever is later, except to the extent that
the beneficial owner or Holder thereof would have been entitled to Additional Amounts had
the Notes been presented for payment on any date during such 30-day period;
(4) any estate, inheritance, gift, sales, transfer, personal property or similar Taxes;
(5) any Taxes withheld, deducted or imposed on a payment to an individual, which
withholding, deduction or imposition is required to be made pursuant to European Council
Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN
Council meeting of 26 and 27 November 2000 on the taxation of savings income or any law
implementing or complying with or introduced in order to conform to, such Directive;
(6) any Note presented for payment by or on behalf of a Holder of Notes who would have
been able to avoid such withholding or deduction by presenting the relevant Note to another
paying agent in a member state of the European Union; or
(7) any combination of items (1) through (6) above.
(b) In addition to the foregoing, the Issuers and the Guarantors will also pay and indemnify
each holder of Notes for any present or future stamp, issue, registration, court, documentary,
excise, property and any other similar Taxes which are levied by any Tax Jurisdiction on the
execution, issuance, delivery, registration or enforcement of any of the Notes, this Indenture, any
Note Guarantee, or any other document or instrument referred to therein or the receipt of any
payment with respect to the Notes, this Indenture or any Note Guarantee.
(c) At least 30 calendar days prior to each date on which any payment under or with respect to
the Notes or a Note Guarantee is due and payable, if either of the Issuers or any Guarantor, as the
case may be, becomes aware that it will be obligated to pay Additional Amounts with respect to such
payment (unless such obligation to pay Additional Amounts arises after the 30th day prior to the
date on which payment under or with respect to the Notes or a Note Guarantee is due and payable, in
which case it will be promptly thereafter), the relevant Issuer or the relevant Guarantor, as the
case may be, will deliver to the Trustee an officers’ certificate stating the fact that Additional
Amounts will be payable and the amount estimated to be so payable. The officers’ certificate must
also set forth any other information reasonably necessary to enable the paying agents to pay
Additional Amounts to holders on the relevant payment date. The Trustee shall be entitled to rely
solely on such officers’ certificate as conclusive proof that such payments are necessary. The
relevant Issuer or the relevant Guarantor will provide the Trustee with documentation evidencing
the payment of Additional Amounts.
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(d) The relevant Issuer or the relevant Guarantor will make all withholdings and deductions
required by law and will remit the full amount deducted or withheld to the relevant Tax authority
in accordance with applicable law. The relevant Issuer or the relevant Guarantor will provide to
the Trustee an official receipt or, if official receipts are not obtainable, other documentation
evidencing the payment of any Taxes so deducted or withheld. The relevant Issuer or the relevant
Guarantor will attach to each certified copy or other document a certificate stating the amount of
such Taxes paid per $1,000 in principal amount of Notes then outstanding. Upon request, copies of
those receipts or other documentation, as the case may be, will be made available by the Issuers to
the Holders of the Notes.
(e) Whenever in this Indenture there is mentioned, in any context, the payment of amounts
based upon the principal amount of the Notes or of principal, interest, Special Interest or of any
other amount payable under, or with respect to, any Note or Note Guarantee, such mention shall be
deemed to include mention of the payment of Additional Amounts to the extent that, in such context,
Additional Amounts are, were or would be payable in respect thereof.
Section 4.17 Limitation on Sale and Leaseback Transactions.
Parent will not, and will not permit any of its Restricted Subsidiaries to, enter into any
sale and leaseback transaction; provided that Parent or any Restricted Subsidiary may enter into a
sale and leaseback transaction if:
(1) Parent or that Restricted Subsidiary, as applicable, could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback
transaction under the Fixed Charge Coverage Ratio test in Section 4.09(a) hereof and (b)
incurred a Lien to secure such Indebtedness pursuant to Section 4.12 hereof;
(2) the gross cash proceeds of that sale and leaseback transaction are at least equal
to the Fair Market Value, as determined in good faith by the Board of Directors of Parent
and set forth in an officers’ certificate delivered to the Trustee, of the property that is
the subject of that sale and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is permitted by, and
Parent applies the proceeds of such transaction in compliance with, Section 4.10 hereof.
Section 4.18 Payments for Consent.
Parent will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes
for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of
this Indenture or the Notes unless such consideration is offered to be paid and is paid to all
Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Section 4.19 Additional Note Guarantees.
If Parent or any of its Restricted Subsidiaries acquires or creates another Subsidiary after
the Issue Date, then that newly acquired or created Subsidiary will become a Guarantor and execute
a supplemental Indenture and deliver an opinion of counsel satisfactory to the Trustee within 10
Business Days of the date on which it was acquired or created; provided that:
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(1) any Subsidiary that constitutes an Immaterial Subsidiary need not become a
Guarantor until such time as it ceases to be an Immaterial Subsidiary;
(2) in the event Parent or a Restricted Subsidiary forms or otherwise acquires,
directly or indirectly, a Restricted Subsidiary organized under the laws of a jurisdiction
other than the United States and such jurisdiction prohibits by law, regulation or order
such Restricted Subsidiary from becoming a Guarantor, Parent shall use all commercially
reasonable efforts (including pursuing required waivers) over a period up to one year, to
have such Subsidiary become a Restricted Subsidiary; provided, however, that Parent shall
not be required to use such commercially reasonable efforts with respect to such Restricted
Subsidiaries for more than a one-year period or such shorter period as it shall determine in
good faith that it has used all commercially reasonable efforts and if Parent or such
Restricted Subsidiary is unable during such period to obtain an enforceable Guarantee in
such jurisdiction, then such Restricted Subsidiary will not be required to provide a
Guarantee of the Notes pursuant to the Note Guarantee so long as such Restricted Subsidiary
does not Guarantee any other Indebtedness of Parent and its Restricted Subsidiaries and no
Default or Event of Default shall be deemed to exist during the period that Parent uses its
commercially reasonable efforts to have such Restricted Subsidiary enter into a Note
Guarantee; and
(3) neither MagnaChip Korea nor any of its Subsidiaries nor any of the MagnaChip China
Subsidiaries will be required to become a Guarantor under any circumstances.
Section 4.20 Designation of Restricted and Unrestricted Subsidiaries.
The Board of Directors of Parent may designate any Restricted Subsidiary of Parent (other than
the Issuers) to be an Unrestricted Subsidiary if that designation would not cause a Default;
provided that in no event will the business currently operated by MagnaChip Korea be transferred to
or held by an Unrestricted Subsidiary. If a Restricted Subsidiary is designated as an Unrestricted
Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by Parent and its
Restricted Subsidiaries in the Subsidiary designated as Unrestricted will be deemed to be an
Investment made as of the time of the designation and will reduce the amount available for
Restricted Payments under Section 4.07 hereof or under one or more clauses of the definition of
Permitted Investments, as determined by MagnaChip. That designation will only be permitted if the
Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. The Board of Directors of Parent may redesignate any
Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a
Default.
Any designation of a Subsidiary of Parent as an Unrestricted Subsidiary will be evidenced to
the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors
of Parent giving effect to such designation and an officers’ certificate certifying that such
designation complied with the preceding conditions and was permitted by Section 4.07 hereof. If,
at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of
this Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a
Restricted Subsidiary of Parent as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09 hereof, MagnaChip will be in default of such covenant.
The Board of Directors of Parent may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary of Parent; provided that such designation will be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of Parent of any outstanding Indebtedness of such
Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is
permitted under Section 4.09 hereof, calculated on a pro forma basis as if such designation had
occurred at the
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beginning of the applicable reference period; and (2) no Default or Event of Default would be
in existence following such designation.
Section 4.21 Changes in Covenants When Notes are Rated Investment Grade
(a) If on any date following the Issue Date:
(1) the Notes are rated Baa3 or better by Moody’s and BBB- or better by S&P (or, if
either such entity ceases to rate the Notes for reasons outside of the control of Parent,
the equivalent investment grade credit rating from any other “nationally recognized
statistical rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the
Exchange Act selected by Parent as a replacement agency); and
(2) no Default or Event of Default shall have occurred and be continuing,
then, beginning on that day and continuing at all times thereafter regardless of any subsequent
changes in the rating of the Notes, the provisions and covenants specifically listed in Section
4.07, Section 4.08, Section 4.09, Section 4.10, Section 4.11, Section 4.17(1)(a), Section 4.17(3),
Section 4.20, Section 5.01(4) and Section 5.03(4) of this Indenture will be suspended.
(b) During any period that the covenants listed in Section 4.07, Section 4.08, Section 4.09,
Section 4.10, Section 4.11, Section 4.17(1)(a), Section 4.17(3), Section 4.20, Section 5.01(4) and
Section 5.03(4) of this Indenture have been suspended, Parent’s Board of Directors may not
designate any of its Subsidiaries as Unrestricted Subsidiaries pursuant to Section 4.20 or clause
(2) of the definition of “Unrestricted Subsidiary” in Section 1.01.
(c) Notwithstanding clause (a) or (b) of this Section 4.21, if the rating assigned by either
such rating agency should subsequently decline to below Baa3 or BBB-, respectively, the covenants
listed in Section 4.07, Section 4.08, Section 4.09, Section 4.10, Section 4.11, Section 4.17(1)(a),
Section 4.17(3), Section 4.20, Section 5.01(4) and Section 5.03(4) of this Indenture will be
reinstated as of and from the date of such rating decline. Calculations under Section 4.07 hereof
will be made as if Section 4.07 had been in effect since the date of this Indenture except that no
Default will be deemed to have occurred solely by reason of a Restricted Payment made while Section
4.07 was suspended.
(d) The Issuers shall give the Trustee prompt written notice of the suspension or reimposition
of the covenants in accordance with this Section 4.21; delay or failure in providing such notice
shall not affect the effectiveness of such covenant suspension or reimposition.
ARTICLE 5
SUCCESSORS
SUCCESSORS
Section 5.01 Parent Merger, Consolidation or Sale of Assets.
Parent will not, directly or indirectly: (1) consolidate or merge with or into another Person
(whether or not Parent is the surviving corporation), or (2) sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of Parent and its
Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person,
unless:
(1) either:
(A) Parent is the surviving entity; or
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(B) the Person formed by or surviving any such consolidation or merger (if
other than Parent) or to which such sale, assignment, transfer, conveyance or other
disposition has been made is an entity organized or existing under the laws of the
United States, any state of the United States or the District of Columbia; and, if
such entity is not a corporation, a co-obligor of the Notes is a corporation
organized or existing under any such laws;
(2) the Person formed by or surviving any such consolidation or merger (if other than
Parent) or the Person to which such sale, assignment, transfer, conveyance or other
disposition has been made assumes all the obligations of Parent under the Notes, its Note
Guarantee, this Indenture and the Registration Rights Agreement pursuant to agreements as
required under the terms of this Indenture and the Registration Rights Agreement;
(3) immediately after such transaction, no Default or Event of Default exists; and
(4) Parent or the Person formed by or surviving any such consolidation or merger (if
other than Parent), or to which such sale, assignment, transfer, conveyance or other
disposition has been made would, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
Section 4.09(a) hereof.
In addition, Parent will not, directly or indirectly, lease all or substantially all of the
properties and assets of it and its Restricted Subsidiaries, taken as a whole, in one or more
related transactions, to any other Person. This Section 5.01 will not apply to any sale,
assignment, transfer, conveyance, lease or other disposition of assets between or among Parent and
its Restricted Subsidiaries. Clauses (3) and (4) of this Section 5.01 will not apply to (1) any
merger or consolidation of Parent with or into (A) one of its Restricted Subsidiaries for any
purpose or (B) an Affiliate solely for the purpose of reincorporating Parent in another
jurisdiction, or (2) the corporate conversion at any time prior to the consummation of the Initial
Public Offering.
Section 5.02 Parent Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of the properties or assets of Parent in a
transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof, the
successor Person formed by such consolidation or into or with which Parent is merged or to which
such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to,
and be substituted for (so that from and after the date of such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition, the provisions of this Indenture
referring to the “Parent” shall refer instead to the successor Person and not to Parent), and may
exercise every right and power of Parent under this Indenture with the same effect as if such
successor Person had been named as Parent herein; provided, however, that the predecessor Parent
shall not be relieved from the obligation to pay the principal of, premium on, if any, interest and
Special Interest, if any, on, the Notes except in the case of a sale of all of Parent’s assets in a
transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof.
Section 5.03 MagnaChip Merger, Consolidation or Sale of Assets.
MagnaChip will not, directly or indirectly: (1) consolidate or merge with or into another
Person (whether or not MagnaChip is the surviving corporation), or (2) sell, assign, transfer,
convey or otherwise
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dispose of all or substantially all of the properties or assets of MagnaChip and its
Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person,
unless:
(1) either:
(A) MagnaChip is the surviving corporation; or
(B) the Person formed by or surviving any such consolidation or merger (if
other than MagnaChip) or to which such sale, assignment, transfer, conveyance or
other disposition has been made is an entity organized or existing under the laws of
South Korea, Luxembourg, the Netherlands, Bermuda, the United States, any state of
the United States or the District of Columbia; and, if such entity is not a
corporation, a co-obligor of the Notes is a corporation organized or existing under
any such laws;
(2) the Person formed by or surviving any such consolidation or merger (if other than
MagnaChip) or the Person to which such sale, assignment, transfer, conveyance or other
disposition has been made assumes all the obligations of MagnaChip under the Notes, this
Indenture and the Registration Rights Agreement pursuant to agreements necessary under the
terms of this Indenture and Registration Rights Agreement;
(3) immediately after such transaction, no Default or Event of Default exists;
(4) MagnaChip or the Person formed by or surviving any such consolidation or merger (if
other than MagnaChip), or to which such sale, assignment, transfer, conveyance or other
disposition has been made would, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
Section 4.09(a) hereof; and
(5) if MagnaChip is not the surviving Person in such consolidation or merger, MagnaChip
shall have delivered to the Trustee an opinion of counsel from Luxembourg and any other
jurisdiction as necessary that no Taxes on income, including capital gains, other than Taxes
to the extent that Additional Amounts are required to be paid with respect thereto, will be
payable by holders of the Notes under the laws of any jurisdiction where the Person formed
by or surviving any such consolidation or merger is or becomes organized, resident or
engaged in business for tax purposes relating to the acquisition, ownership or disposition
of the Notes, including the receipt of interest or principal thereon; provided that the
Holder does not use or hold, and for relevant tax purposes is not deemed to use or hold, the
Notes in carrying on a business in the jurisdiction where the Person formed by or surviving
any such consolidation or merger is or becomes organized, resident or engaged in business
for tax purposes.
In addition, MagnaChip will not, directly or indirectly, lease all or substantially all of the
properties and assets of it and its Restricted Subsidiaries taken as a whole, in one or more
related transactions, to any other Person. This Section 5.03 will not apply to any sale,
assignment, transfer, conveyance, lease or other disposition of assets between or among Parent and
its Restricted Subsidiaries. Clauses (3) and (4) of this Section 5.03 will not apply to any merger
or consolidation of MagnaChip with or into (1) one of its Restricted Subsidiaries for any purpose
or (2) an Affiliate solely for the purpose of reincorporating MagnaChip in another jurisdiction.
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Section 5.04 MagnaChip Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of the properties or assets of MagnaChip in a
transaction that is subject to, and that complies with the provisions of, Section 5.03 hereof, the
successor Person formed by such consolidation or into or with which MagnaChip is merged or to which
such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to,
and be substituted for (so that from and after the date of such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition, the provisions of this Indenture
referring to the “MagnaChip” shall refer instead to the successor Person and not to MagnaChip), and
may exercise every right and power of MagnaChip under this Indenture with the same effect as if
such successor Person had been named as MagnaChip herein; provided, however, that the predecessor
MagnaChip shall not be relieved from the obligation to pay the principal of, premium on, if any,
interest and Special Interest, if any, on, the Notes except in the case of a sale of all of
MagnaChip’s assets in a transaction that is subject to, and that complies with the provisions of,
Section 5.03 hereof.
Section 5.05 FinanceCo Merger, Consolidation or Sale of Assets.
FinanceCo may not, directly or indirectly, consolidate or merge with or into (whether or not
FinanceCo is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of FinanceCo’s properties or assets, in one or more related
transactions, to any Person unless:
(1) concurrently therewith, a corporate wholly-owned Restricted Subsidiary of MagnaChip
organized and validly existing under the laws of the United States, any state of the United
States or the District of Columbia (which may be the successor Person as a result of such
transaction) expressly assumes all the obligations of FinanceCo under the under the Notes,
this Indenture and the Registration Rights Agreement pursuant to agreements as required
under the terms of this Indenture and the Registration Rights Agreement; and
(2) immediately after such transaction, no Default or Event of Default exists.
Section 5.06 FinanceCo Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of the properties or assets of FinanceCo in a
transaction that is subject to, and that complies with the provisions of, Section 5.05 hereof, the
successor Person formed by such consolidation or into or with which FinanceCo is merged or to which
such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to,
and be substituted for (so that from and after the date of such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition, the provisions of this Indenture
referring to the “FinanceCo” shall refer instead to the successor Person and not to FinanceCo), and
may exercise every right and power of FinanceCo under this Indenture with the same effect as if
such successor Person had been named as FinanceCo herein; provided, however, that the predecessor
FinanceCo shall not be relieved from the obligation to pay the principal of, premium on, if any,
interest and Special Interest, if any, on, the Notes except in the case of a sale of all of
FinanceCo’s assets in a transaction that is subject to, and that complies with the provisions of,
Section 5.05 hereof.
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ARTICLE 6
DEFAULTS AND REMEDIES
DEFAULTS AND REMEDIES
Section 6.01 Events of Default.
Each of the following is an “Event of Default”:
(1) default for 30 days in the payment when due of interest and Special Interest, if
any, on, the Notes;
(2) default in the payment when due (at maturity, upon redemption or otherwise) of the
principal of, or premium on, if any, the Notes;
(3) failure by Parent or any of its Restricted Subsidiaries to comply with the
provisions of Article 5 hereof;
(4) failure by Parent or any of its Restricted Subsidiaries for 30 days after notice to
MagnaChip by the Trustee or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, voting as a single class, to comply with Section 4.10 or Section
4.15 hereof;
(5) failure by Parent or any of its Restricted Subsidiaries for 60 days after notice to
MagnaChip by the Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding voting as a single class to comply with any of the other agreements
in this Indenture;
(6) default under any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any Indebtedness for money borrowed by Parent
or any of its Restricted Subsidiaries (or the payment of which is guaranteed by Parent or
any of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists, or
is created after the date of this Indenture, if that default:
(A) is caused by a failure to pay principal of, premium on, if any, or interest
on, if any, such Indebtedness in an aggregate amount in excess of $250,000 prior to
the expiration of the grace period provided in such Indebtedness on the date of such
default (a “Payment Default”); or
(B) results in the acceleration of such Indebtedness prior to its express
maturity,
and, in each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $25.0 million
or more;
(7) failure by Parent or any of its Restricted Subsidiaries to pay final judgments
entered by a court or courts of competent jurisdiction aggregating in excess of $25.0
million (excluding amounts covered by insurance provided by a carrier that has acknowledged
coverage in writing and has the ability to perform), which judgments are not paid, bonded,
discharged, stayed, annulled or rescinded for a period of 60 days;
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(8) except as permitted by this Indenture, any Note Guarantee is held in any judicial
proceeding to be unenforceable or invalid or ceases for any reason to be in full force and
effect, or any Guarantor, or any Person acting on behalf of any Guarantor, denies or
disaffirms its obligations under its Note Guarantee; and
(9) Parent or any of its Restricted Subsidiaries that is a Significant Subsidiary or
any group of Restricted Subsidiaries of Parent that, taken together, would constitute a
Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an involuntary
case,
(C) consents to the appointment of a custodian of it or for all or
substantially all of its property,
(D) makes a general assignment for the benefit of its creditors, or
(E) generally is not paying its debts as they become due;
(10) a court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that:
(A) is for relief against Parent or any of its Restricted Subsidiaries that is
a Significant Subsidiary or any group of Restricted Subsidiaries of Parent that,
taken together, would constitute a Significant Subsidiary in an involuntary case;
(B) appoints a custodian of Parent or any of its Restricted Subsidiaries that
is a Significant Subsidiary or any group of Restricted Subsidiaries of Parent that,
taken together, would constitute a Significant Subsidiary or for all or
substantially all of the property of Parent or any of its Restricted Subsidiaries
that is a Significant Subsidiary or any group of Restricted Subsidiaries of Parent
that, taken together, would constitute a Significant Subsidiary; or
(C) orders the liquidation of Parent or any of its Restricted Subsidiaries that
is a Significant Subsidiary or any group of Restricted Subsidiaries of Parent that,
taken together, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days.
Section 6.02 Acceleration.
In the case of an Event of Default specified in clause (9) or (10) of Section 6.01 hereof,
with respect to Parent, either Issuer or any of the other Restricted Subsidiaries of Parent that is
a Significant Subsidiary or any group of Restricted Subsidiaries of Parent that, taken together,
would constitute a Significant Subsidiary, all outstanding Notes will become due and payable
immediately without further action or notice. If any other Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately; provided that no
such declaration will be permitted with respect to an Event of
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Default of the type referred to in clause (6) of Section 6.01 hereof if the underlying Payment
Default has been cured or waived or the underlying acceleration has been waived or rescinded, as
the case may be.
Upon any such declaration, the Notes shall become due and payable immediately.
The Holders of a majority in aggregate principal amount of the then outstanding Notes by
written notice to the Trustee may, on behalf of all of the Holders of all the Notes, rescind an
acceleration and its consequences hereunder, if the rescission would not conflict with any judgment
or decree and if all existing Events of Default (except nonpayment of principal of, premium on, if
any, interest or Special Interest, if any, on the Notes that has become due solely because of the
acceleration) have been cured or waived.
To the extent that the Issuers elect, the sole remedy for an Event of Default relating to the
reporting obligations in this Indenture, as set forth in Section 4.03, will, for the 180 days after
the occurrence of such Event of Default, consist exclusively of the right to receive additional
interest on the Notes at a rate equal to 0.50% per annum of the principal amount of the Notes.
This additional interest will be payable in the same manner and on the same dates as the stated
interest payable on the Notes. The additional interest will accrue on all outstanding Notes from,
and including, the date on which an Event of Default relating to a failure to comply with the
reporting obligations in this Indenture first occurs to, but not including, the 180th day
thereafter (or such earlier date on which the Event of Default relating to the reporting
obligations shall have been cured or waived). On such 180th day, such additional interest shall
cease to accrue and the Notes will be subject to acceleration as provided above. If the Issuers do
not elect to pay the additional interest during the continuance of such an Event of Default in
accordance with this paragraph, the Notes will be subject to acceleration as provided above.
Section 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy
to collect the payment of principal of, premium on, if any, interest or Special Interest, if any,
on, the Notes or to enforce the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not
produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note
in exercising any right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.04 Waiver of Past Defaults.
The Holders of a majority in aggregate principal amount of the then outstanding Notes by
written notice to the Trustee may, on behalf of the Holders of all of the Notes waive any existing
Default or Event of Default and its consequences hereunder, except a continuing Default or Event of
Default in the payment of principal of, premium on, if any, interest or Special Interest, if any,
on, the Notes (including in connection with an offer to purchase); provided, however, that the
Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an
acceleration and its consequences, including any related payment default that resulted from such
acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
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Section 6.05 Control by Majority.
Holders of a majority in aggregate principal amount of the then outstanding Notes may direct
the time, method and place of conducting any proceeding for exercising any remedy available to the
Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to
follow any direction that conflicts with law or this Indenture that the Trustee determines may be
unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in
personal liability. The Trustee may withhold from Holders of the Notes notice of any Default or
Event of Default if it determines that withholding notice is in the Holders’ interest, except a
Default or Event of Default specified in clauses (1), (2), (9) or (10) of Section 6.01.
Section 6.06 Limitation on Suits.
No Holder of a Note may pursue any remedy with respect to this Indenture or the Notes unless:
(1) such Holder has previously given to the Trustee written notice that an Event of
Default is continuing;
(2) Holders of at least 25% in aggregate principal amount of the then outstanding Notes
make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer and, if requested, provide to the Trustee security or
indemnity reasonably satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with such request within 60 days after receipt of the
request and the offer of security or indemnity; and
(5) during such 60-day period, Holders of a majority in aggregate principal amount of
the then outstanding Notes do not give the Trustee a direction inconsistent with such
request.
A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a
Note or to obtain a preference or priority over another Holder of a Note.
Section 6.07 Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to
receive payment of principal of, premium on, if any, interest or Special Interest, if any, on, the
Note, on or after the respective due dates expressed in the Note (including in connection with an
offer to purchase), or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such Holder.
Section 6.08 Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) hereof occurs and is continuing,
the Trustee is authorized to recover judgment in its own name and as trustee of an express trust
against the Issuers for the whole amount of principal of, premium on, if any, interest and Special
Interest, if any, remaining unpaid on, the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel.
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Section 6.09 Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and
counsel) and the Holders of the Notes allowed in any judicial proceedings relative to either of the
Issuers (or any other obligor upon the Notes), its creditors or its property and shall be entitled
and empowered to collect, receive and distribute any money or other property payable or deliverable
on any such claims and any custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and
counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder
in any such proceeding.
Section 6.10 Priorities.
If the Trustee collects any money or property pursuant to this Article 6, it shall pay out the
money or property in the following order:
First: to the Trustee, its agents and attorneys for amounts due under Section 7.07
hereof, including payment of all compensation, expenses and liabilities incurred, and all
advances made, by the Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for principal,
premium, if any, interest and Special Interest, if any, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Notes for principal,
premium, if any, interest and Special Interest, if any, respectively; and
Third: to the Issuers or to such party as a court of competent jurisdiction shall
direct.
The Trustee may fix a record date and payment date for any payment to Holders of Notes
pursuant to this Section 6.10.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture or in any suit
against the Trustee for any action taken or omitted by it as a trustee, a court in its discretion
may require the filing by any party litigant in the suit of an undertaking to pay the costs of the
suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’
fees, against any party litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the
Trustee, a suit by a Holder of a Note pursuant to Section 6.07
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hereof, or a suit by Holders of more than 10% in aggregate principal amount of the then
outstanding Notes.
ARTICLE 7
TRUSTEE
TRUSTEE
Section 7.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee will exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of care and skill in
its exercise, as a prudent person would exercise or use under the circumstances in the conduct of
such person’s own affairs.
(b) Except during the continuance of an Event of Default:
(1) the duties of the Trustee will be determined solely by the express provisions of
this Indenture and the Trustee need perform only those duties that are specifically set
forth in this Indenture and no others, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee will examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;
(2) the Trustee will not be liable for any error of judgment made in good faith by a
Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(3) the Trustee will not be liable with respect to any action it takes or omits to take
in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this Indenture that in
any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture will require the Trustee to expend or risk its own funds or
incur any liability. The Trustee will be under no obligation to exercise any of its rights and
powers under this Indenture at the request of any Holders, unless such Holder has offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or expense.
(f) The Trustee will not be liable for interest on any money received by it except as the
Trustee may agree in writing with the Issuers. Money held in trust by the Trustee need not be
segregated from other funds except to the extent required by law.
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(g) The Trustee shall not be liable with respect to any action taken or omitted to be taken by
it in good faith in accordance with the written direction of the Holders of not less than a
majority in principal amount of the Notes at the time outstanding determined as provided in Section
2.08.
(h) The Trustee shall not be liable in respect of any payment (as to the correctness of
amount, entitlement to receive or any other matters relating to payment) or notice effected by the
Issuers or any Paying Agent (other than the Trustee) or any records maintained by any co-registrar
(other than the Trustee) with respect to the Notes.
(i) If any party fails to deliver a notice relating to an event the fact of which, pursuant to
this Indenture, requires notice to be sent to the Trustee, the Trustee may conclusively rely on its
failure to receive such notice as reason to act as if no such event occurred unless a Responsible
Officer of the Trustee has actual knowledge therefore or unless the Trustee has otherwise received
written notice thereof.
(j) The Trustee shall not be deemed to have knowledge of any Event of Default hereunder unless
a Responsible Officer of the Trustee has actual knowledge thereof or unless the Trustee shall have
been notified in writing of such Event of Default by the Issuers or a Holder.
Section 7.02 Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to be genuine and to
have been signed or presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate
or an Opinion of Counsel or both. The Trustee will not be liable for any action it takes or omits
to take in good faith in reliance on such Officers’ Certificate or Opinion of Counsel. The Trustee
may consult with counsel and the written advice of such counsel or any Opinion of Counsel will be
full and complete authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and will not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) The Trustee will not be liable for any action it takes or omits to take in good faith that
it believes to be authorized or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction
or notice from either of the Issuers will be sufficient if signed by an Officer of the relevant
Issuer.
(f) The Trustee will be under no obligation to exercise any of the rights or powers vested in
it by this Indenture at the request or direction of any of the Holders unless such Holders have
offered to the Trustee reasonable indemnity or security satisfactory to it against the losses,
liabilities and expenses that might be incurred by it in compliance with such request or direction.
(g) The rights, privileges, protections, immunities and benefits given to the Trustee,
including, without limitation, its right to be indemnified, are extended to, and shall be
enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and
other Person employed to act hereunder.
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(h) The Trustee may request that the Issuers deliver an Officers’ Certificate setting forth
the names of individuals and/or titles of officers authorized at such time to take specified
actions pursuant to this Indenture, which Officers’ Certificate may be signed by any person
authorized to sign an Officers’ Certificate, including any person specified as so authorized in any
such certificate previously delivered and not superseded.
(i) Any permissive right or authority granted to the Trustee shall not be construed as a
mandatory duty.
Section 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of Notes
and may otherwise deal with the Issuers or any Affiliate of the Issuers with the same rights it
would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for permission to
continue as Trustee (if this Indenture has been qualified under the TIA) or resign. Any Agent may
do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
Section 7.04 Trustee’s Disclaimer.
The Trustee will not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the Issuers’ use of the
proceeds from the Notes or any money paid to the Issuers or upon the Issuers’ direction under any
provision of this Indenture, it will not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it will not be responsible for any
statement or recital herein or any statement in the Notes or any other document in connection with
the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.
Section 7.05 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is known to the Trustee,
the Trustee will mail to Holders of Notes a notice of the Default or Event of Default within 90
days after it occurs. Except in the case of a Default or Event of Default in payment of principal
of, premium on, if any, interest or Special Interest, if any, on, any Note, the Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of the Notes.
Section 7.06 Reports by Trustee to Holders of the Notes.
(a) Within 60 days after each May 15 beginning with the May 15 following the date of this
Indenture, and for so long as Notes remain outstanding, the Trustee will mail to the Holders of the
Notes a brief report dated as of such reporting date that complies with TIA §313(a) (but if no
event described in TIA §313(a) has occurred within the twelve months preceding the reporting date,
no report need be transmitted). The Trustee also will comply with TIA §313(b)(2). The Trustee
will also transmit by mail all reports as required by TIA §313(c).
(b) A copy of each report at the time of its mailing to the Holders of Notes will be mailed by
the Trustee to the Issuers and filed by the Trustee with the SEC and each stock exchange on which
the Notes are listed in accordance with TIA §313(d). The Issuers will promptly notify the Trustee
when the Notes are listed on any stock exchange.
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Section 7.07 Compensation and Indemnity.
(a) The Issuers will pay to the Trustee from time to time compensation as agreed to in writing
for its acceptance of this Indenture and services hereunder. The Trustee’s compensation will not
be limited by any law on compensation of a Trustee of an express trust. The Issuers will reimburse
the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred
or made by it in addition to the compensation for its services. Such expenses will include the
reasonable compensation, disbursements and expenses of the Trustee’s agents and counsel.
(b) The Issuers and the Guarantors will indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and expenses of enforcing
this Indenture against the Issuers and the Guarantors (including this Section 7.07) and defending
itself against any claim (whether asserted by the Issuers, the Guarantors, any Holder or any other
Person) or liability in connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee will notify the Issuers promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the Issuers will not relieve the Issuers
or any of the Guarantors of their obligations hereunder. The Issuers or such Guarantor will defend
the claim and the Trustee will cooperate in the defense. The Trustee may have separate counsel and
the Issuers will pay the reasonable fees and expenses of such counsel. Neither of the Issuers nor
any Guarantor need pay for any settlement made without its consent, which consent will not be
unreasonably withheld.
(c) The obligations of the Issuers and the Guarantors under this Section 7.07 will survive the
satisfaction and discharge of this Indenture.
(d) To secure the Issuers’ and the Guarantors’ payment obligations in this Section 7.07, the
Trustee will have a Lien prior to the Notes on all money or property held or collected by the
Trustee, except that held in trust to pay principal of, premium on, if any, interest or Special
Interest, if any, on, particular Notes. Such Lien will survive the satisfaction and discharge of
this Indenture.
(e) When the Trustee incurs expenses or renders services after an Event of Default specified
in Section 6.01(9) or (10) hereof occurs, the expenses and the compensation for the services
(including the fees and expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
(f) The Trustee will comply with the provisions of TIA §313(b)(2) to the extent applicable.
Section 7.08 Replacement of Trustee.
(a) A resignation or removal of the Trustee and appointment of a successor Trustee will become
effective only upon the successor Trustee’s acceptance of appointment as provided in this Section
7.08.
(b) The Trustee may resign in writing at any time and be discharged from the trust hereby
created by so notifying the Issuers. The Holders of a majority in aggregate principal amount of
the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Issuers in
writing. The Issuers may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10 hereof;
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(2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is
entered with respect to the Trustee under any Bankruptcy Law;
(3) a custodian or public officer takes charge of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
(c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for
any reason, the Issuers will promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in aggregate principal amount of the then
outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the
Issuers.
(d) If a successor Trustee does not take office within 60 days after the retiring Trustee
resigns or is removed, the retiring Trustee, the Issuers, or the Holders of at least 10% in
aggregate principal amount of the then outstanding Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(e) If the Trustee, after written request by any Holder who has been a Holder for at least six
months, fails to comply with Section 7.10 hereof, such Holder may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(f) A successor Trustee will deliver a written acceptance of its appointment to the retiring
Trustee and to the Issuers. Thereupon, the resignation or removal of the retiring Trustee will
become effective, and the successor Trustee will have all the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee will mail a notice of its succession to
Holders. The retiring Trustee will promptly transfer all property held by it as Trustee to the
successor Trustee; provided all sums owing to the Trustee hereunder have been paid and subject to
the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Issuers’ obligations under Section 7.07 hereof will continue for the
benefit of the retiring Trustee.
Section 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or substantially all of
its corporate trust business to, another corporation, the successor corporation without any further
act will be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
There will at all times be a Trustee hereunder that is a corporation organized and doing
business under the laws of the United States of America or of any state thereof that is authorized
under such laws to exercise corporate Trustee power, that is subject to supervision or examination
by federal or state authorities and that has a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition.
This Indenture will always have a Trustee who satisfies the requirements of TIA §310(a)(1),
(2) and (5). The Trustee is subject to TIA §310(b).
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Section 7.11 Preferential Collection of Claims Against the Issuers.
The Trustee is subject to TIA §311(a), excluding any creditor relationship listed in TIA
§311(b). A Trustee who has resigned or been removed shall be subject to TIA §311(a) to the extent
indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.
MagnaChip may at any time, at the option of its Board of Directors evidenced by a resolution
set forth in an Officers’ Certificate, elect to have either Section 8.02 or 8.03 hereof be applied
to all outstanding Notes upon compliance with the conditions set forth below in this Article 8.
Section 8.02 Legal Defeasance and Discharge.
Upon the MagnaChip’s exercise under Section 8.01 hereof of the option applicable to this
Section 8.02, the Issuers and each of the Guarantors will, subject to the satisfaction of the
conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their
obligations with respect to all outstanding Notes (including the Note Guarantees) on the date the
conditions set forth below are satisfied (hereinafter, “Legal Defeasance”). For this purpose,
Legal Defeasance means that the Issuers and the Guarantors will be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes (including the Note
Guarantees), which will thereafter be deemed to be “outstanding” only for the purposes of Section
8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and (2) below, and
to have satisfied all their other obligations under such Notes, the Note Guarantees and this
Indenture (and the Trustee, on demand of and at the expense of the Issuers, shall execute proper
instruments acknowledging the same), except for the following provisions which will survive until
otherwise terminated or discharged hereunder:
(1) the rights of Holders of outstanding Notes to receive payments in respect of the
principal of, premium on, if any, interest or Special Interest, if any, on, such Notes when
such payments are due from the trust referred to in Section 8.04 hereof;
(2) the Issuers’ obligations with respect to such Notes under Article 2 and Section
4.02 hereof;
(3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the
Issuers’ and the Guarantors’ obligations in connection therewith; and
(4) this Article 8.
Subject to compliance with this Article 8, MagnaChip may exercise its option under this
Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof.
Section 8.03 Covenant Defeasance.
Upon MagnaChip’s exercise under Section 8.01 hereof of the option applicable to this Section
8.03, the Issuers and each of the Guarantors will, subject to the satisfaction of the conditions
set forth in Section 8.04 hereof, be released from each of their obligations under the covenants
contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19 and
4.20 hereof and clause (4) of
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Section 5.01 and clause (4) of Section 5.03 hereof with respect to the outstanding Notes on
and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter,
“Covenant Defeasance”), and the Notes will thereafter be deemed not “outstanding” for the purposes
of any direction, waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but will continue to be deemed “outstanding” for all
other purposes hereunder (it being understood that such Notes will not be deemed outstanding for
accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes and Note Guarantees, the Issuers and the Guarantors may omit to comply with and
will have no liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other provision herein or in any
other document and such omission to comply will not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such
Notes and Note Guarantees will be unaffected thereby. In addition, upon MagnaChip’s exercise under
Section 8.01 hereof of the option applicable to this Section 8.03, subject to the satisfaction of
the conditions set forth in Section 8.04 hereof, Sections 6.01(3), (4), (5), (6), (7) and (8)
hereof will not constitute Events of Default.
Section 8.04 Conditions to Legal or Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02
or 8.03 hereof:
(1) MagnaChip must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized
investment bank, appraisal firm, or firm of independent public accountants, to pay the
principal of, premium on, if any, interest and Special Interest, if any, on, the outstanding
Notes on the stated date for payment thereof or on the applicable redemption date, as the
case may be, and MagnaChip must specify whether the Notes are being defeased to such stated
date for payment or to a particular redemption date;
(2) in the case of an election under Section 8.02 hereof, MagnaChip must deliver to the
Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that:
(A) MagnaChip has received from, or there has been published by, the Internal
Revenue Service a ruling; or
(B) since the date of this Indenture, there has been a change in the applicable
federal income tax law,
in either case to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income, gain,
deduction or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of an election under Section 8.03 hereof, MagnaChip must deliver to the
Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes will not recognize income, gain, deduction or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be subject to
federal
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income tax on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and is continuing on the date of
such deposit (other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit (and any similar concurrent deposit relating to other
Indebtedness), and the granting of Liens to secure such borrowings);
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under, any material agreement or instrument (other
than this Indenture and the agreements governing any other Indebtedness being defeased,
discharged or replaced) to which the Issuers or any of the Guarantors is a party or by which
either of the Issuers or any of the Guarantors is bound;
(6) MagnaChip must deliver to the Trustee an Officers’ Certificate stating that the
deposit was not made by MagnaChip with the intent of preferring the Holders of Notes over
the other creditors of MagnaChip with the intent of defeating, hindering, delaying or
defrauding any creditors of MagnaChip or others; and
(7) MagnaChip must deliver to the Trustee an Officers’ Certificate and an Opinion of
Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous
Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government Securities (including
the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 8.05, the “Trustee”) pursuant to Section 8.04 hereof in respect of the
outstanding Notes will be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or through any Paying
Agent (including the Issuers acting as Paying Agent) as the Trustee may determine, to the Holders
of such Notes of all sums due and to become due thereon in respect of principal, premium, if any,
interest and Special Interest, if any, but such money need not be segregated from other funds
except to the extent required by law.
The Issuers will pay and indemnify the Trustee against any tax, fee or other charge imposed on
or assessed against the cash or non-callable Government Securities deposited pursuant to Section
8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the outstanding Notes.
Notwithstanding anything in this Article 8 to the contrary, the Trustee will deliver or pay to
the Issuers from time to time upon the request of the Issuers any money or non-callable Government
Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in
excess of the amount thereof that would then be required to be deposited to effect an equivalent
Legal Defeasance or Covenant Defeasance.
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Section 8.06 Repayment to MagnaChip.
Subject to any applicable abandoned property laws, any money deposited with the Trustee or any
Paying Agent, or then held by the Issuers, in trust for the payment of the principal of, premium
on, if any, interest or Special Interest, if any, on, any Note and remaining unclaimed for two
years after such principal, premium, if any, interest or Special Interest, if any, has become due
and payable shall be paid to MagnaChip on its request or (if then held by MagnaChip) will be
discharged from such trust; and the Holder of such Note will thereafter be permitted to look only
to the Issuers for payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Issuers as Trustee thereof, will thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being required to make any
such repayment, may at the expense of the Issuers cause to be published once, in the New York Times
and The Wall Street Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which will not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining will be repaid to
MagnaChip.
Section 8.07 Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. dollars or non-callable Government
Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any
order or judgment of any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Issuers’ and the Guarantors’ obligations under this
Indenture and the Notes and the Note Guarantees will be revived and reinstated as though no deposit
had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent
is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case
may be; provided, however, that, if the Issuers make any payment of principal of, premium on, if
any, interest or Special Interest, if any, on, any Note following the reinstatement of their
obligations, the Issuers will be subrogated to the rights of the Holders of such Notes to receive
such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, without the consent of any Holder of Notes,
the Issuers, the Guarantors and the Trustee may amend or supplement this Indenture, the Notes or
the Note Guarantees:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated
Notes;
(3) to provide for the assumption of the Issuers’ or a Guarantor’s obligations to the
Holders of the Notes and Note Guarantees by a successor to the Issuers or such Guarantor
pursuant to Article 5 or Article 10 hereof;
(4) to make any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights hereunder of any
Holder;
(5) to comply with requirements of the SEC in order to effect or maintain the
qualification of this Indenture under the TIA;
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(6) to conform the text of this Indenture, the Notes, the Note Guarantees to any
provision of the “Description of Notes” section of the Issuers’ Offering Circular, dated
April 6, 2010, relating to the initial offering of the Notes, to the extent that such
provision in that “Description of Notes” was intended to be a verbatim recitation of a
provision of this Indenture, the Notes, the Note Guarantees, which intent may be evidenced
by an Officers’ Certificate to that effect;
(7) to provide for the issuance of Additional Notes in accordance with the limitations
set forth in this Indenture as of the date hereof; or
(8) to allow any Guarantor to execute a supplemental Indenture and/or a Note Guarantee
with respect to the Notes.
Upon the request of the Issuers accompanied by a resolution of each Issuer’s Board of
Directors authorizing the execution of any such amended or supplemental indenture, and upon receipt
by the Trustee of the documents described in Section 7.02 hereof, the Trustee will join with the
Issuers and the Guarantors in the execution of any amended or supplemental indenture authorized or
permitted by the terms of this Indenture and to make any further necessary agreements and
stipulations that may be therein contained, but the Trustee will not be obligated to enter into
such amended or supplemental indenture that affects its own rights, duties or immunities under this
Indenture or otherwise.
Section 9.02 With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Issuers and the Trustee may amend or
supplement this Indenture (including, without limitation, Section 3.09, 4.10 and 4.15 hereof) and
the Notes and the Note Guarantees with the consent of the Holders of at least a majority in
aggregate principal amount of the then outstanding Notes (including, without limitation, Additional
Notes, if any) voting as a single class (including, without limitation, consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to
Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or
Event of Default in the payment of the principal of, premium on, if any, interest or Special
Interest, if any, on, the Notes, except a payment default resulting from an acceleration that has
been rescinded) or compliance with any provision of this Indenture or the Notes or the Note
Guarantees may be waived with the consent of the Holders of a majority in aggregate principal
amount of the then outstanding Notes (including, without limitation, Additional Notes, if any)
voting as a single class (including, without limitation, consents obtained in connection with a
tender offer or exchange offer for, or purchase of, the Notes). Section 2.08 hereof shall determine
which Notes are considered to be “outstanding” for purposes of this Section 9.02.
Upon the request of the Issuers accompanied by a resolution of each Issuer’s Board of
Directors authorizing the execution of any such amended or supplemental indenture, and upon the
filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of
Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee will join with the Issuers and the Guarantors in the execution of such amended
or supplemental indenture unless such amended or supplemental indenture directly affects the
Trustee’s own rights, duties or immunities under this Indenture or otherwise, in which case the
Trustee may in its discretion, but will not be obligated to, enter into such amended or
supplemental indenture.
It is not necessary for the consent of the Holders of Notes under this Section 9.02 to approve
the particular form of any proposed amendment, supplement or waiver, but it is sufficient if such
consent approves the substance thereof.
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After an amendment, supplement or waiver under this Section 9.02 becomes effective, the
Issuers will mail to the Holders of Notes affected thereby a notice briefly describing the
amendment, supplement or waiver. Any failure of the Issuers to mail such notice, or any defect
therein, will not, however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding voting as a single class may
waive compliance in a particular instance by the Issuers with any provision of this Indenture, the
Notes or the Note Guarantees. However, without the consent of each Holder affected, an amendment,
supplement or waiver under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or alter or waive
any of the provisions with respect to the redemption of the Notes (except as provided above
with respect to Sections 3.09, 4.10 and 4.15 hereof);
(3) reduce the rate of or change the time for payment of interest, including default
interest, on any Note;
(4) waive a Default or Event of Default in the payment of principal of, premium on, if
any, interest or Special Interest, if any, on, the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate principal
amount of the then outstanding Notes and a waiver of the payment default that resulted from
such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of this Indenture relating to waivers of past
Defaults or the rights of Holders of Notes to receive payments of principal of, premium on,
if any, interest or Special Interest, if any, on, the Notes;
(7) waive a redemption payment with respect to any Note (other than a payment required
by Sections 3.09, 4.10 or 4.15 hereof);
(8) release any Guarantor from any of its obligations under its Note Guarantee or this
Indenture, except in accordance with the terms of this Indenture; or
(9) make any change in the preceding amendment and waiver provisions.
Section 9.03 Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes will be set forth in a amended or
supplemental indenture that complies with the TIA as then in effect.
Section 9.04 Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a
Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder’s Note, even if notation of
the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written notice of revocation
before the date the amendment,
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supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective
in accordance with its terms and thereafter binds every applicable Holder.
Section 9.05 Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment, supplement or waiver on any
Note thereafter authenticated. The Issuers in exchange for all Notes may issue and the Trustee
shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note will not affect the validity and
effect of such amendment, supplement or waiver.
Section 9.06 Trustee to Sign Amendments, etc.
The Trustee will sign any amended or supplemental indenture authorized pursuant to this
Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities
or immunities of the Trustee. The Issuers may not sign an amended or supplemental indenture until
the Board of Directors of each Issuer approves it. In executing any amended or supplemental
indenture, the Trustee will be entitled to receive and (subject to Section 7.01 hereof) will be
fully protected in relying upon, in addition to the documents required by Section 12.04 hereof, an
Officers’ Certificate and an Opinion of Counsel stating that the execution of such amended or
supplemental indenture is authorized or permitted by this Indenture.
ARTICLE 10
NOTE GUARANTEES
NOTE GUARANTEES
Section 10.01 Guarantee.
(a) Subject to this Article 10, each of the Guarantors hereby, jointly and severally,
unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and
to the Trustee and its successors and assigns, irrespective of the validity and enforceability of
this Indenture, the Notes or the obligations of the Issuers hereunder or thereunder, that:
(1) the principal of, premium on, if any, interest and Special Interest, if any, on,
the Notes will be promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of, premium on, if any,
interest and Special Interest, if any, on, the Notes, if lawful, and all other obligations
of the Issuers to the Holders or the Trustee hereunder or thereunder will be promptly paid
in full or performed, all in accordance with the terms hereof and thereof; and
(2) in case of any extension of time of payment or renewal of any Notes or any of such
other obligations, that same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any performance so guaranteed for
whatever reason, the Guarantors will be jointly and severally obligated to pay the same
immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of
collection.
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(b) The Guarantors hereby agree that their obligations hereunder are unconditional,
irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment against the Issuers, any
action to enforce the same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Issuers, any right to require a proceeding first against the Issuers, protest,
notice and all demands whatsoever and covenant that this Note Guarantee will not be discharged
except by complete performance of the obligations contained in the Notes and this Indenture.
(c) If any Holder or the Trustee is required by any court or otherwise to return to the
Issuers, the Guarantors or any custodian, trustee, liquidator or other similar official acting in
relation to either the Issuers or the Guarantors, any amount paid by either to the Trustee or such
Holder, this Note Guarantee, to the extent theretofore discharged, will be reinstated in full force
and effect.
(d) Each Guarantor agrees that it will not be entitled to any right of subrogation in relation
to the Holders in respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on
the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes
of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any
declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations
(whether or not due and payable) will forthwith become due and payable by the Guarantors for the
purpose of this Note Guarantee. The Guarantors will have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the rights of the
Holders under the Note Guarantee.
Section 10.02 Limitation on Guarantor Liability.
Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the
intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent
transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any
Note Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors
hereby irrevocably agree that the obligations of such Guarantor will be limited to the maximum
amount that will, after giving effect to such maximum amount and all other contingent and fixed
liabilities of such Guarantor that are relevant under such laws, and after giving effect to any
collections from, rights to receive contribution from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under this Article 10, result in
the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent transfer
or conveyance.
Section 10.03 Execution and Delivery of Note Guarantee.
To evidence its Note Guarantee set forth in Section 10.01 hereof, each Guarantor hereby agrees
that a notation of such Note Guarantee substantially in the form attached as Exhibit E hereto will
be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee
and that this Indenture will be executed on behalf of such Guarantor by one of its Officers.
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Each Guarantor hereby agrees that its Note Guarantee set forth in Section 10.01 hereof will
remain in full force and effect notwithstanding any failure to endorse on each Note a notation of
such Note Guarantee.
If an Officer whose signature is on this Indenture or on the Note Guarantee no longer holds
that office at the time the Trustee authenticates the Note on which a Note Guarantee is endorsed,
the Note Guarantee will be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof hereunder, will
constitute due delivery of the Note Guarantee set forth in this Indenture on behalf of the
Guarantors.
In the event that Parent or any of its Restricted Subsidiaries creates or acquires any
Subsidiary after the Issue Date, if required by Section 4.19 hereof, the Issuers will cause such
Subsidiary to comply with the provisions of Section 4.19 hereof and this Article 10, to the extent
applicable.
Section 10.04 Guarantors May Consolidate, etc., on Certain Terms.
Except as otherwise provided in Section 10.05 hereof, no Guarantor may sell or otherwise
dispose of all or substantially all of its assets to, or consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person) another Person, other than either Issuer or
another Guarantor, unless:
(1) immediately after giving effect to such transaction, no Default or Event of Default
exists; and
(2) either:
(a) subject to Section 10.05 hereof, the Person acquiring the property in any such sale
or disposition or the Person formed by or surviving any such consolidation or merger
unconditionally assumes all the obligations of that Guarantor under its Note Guarantee, this
Indenture and the Registration Rights Agreement on the terms set forth herein or therein,
pursuant to a supplemental indenture in form and substance reasonably satisfactory to the
Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in accordance with
the applicable provisions of this Indenture, including without limitation, Section 4.10
hereof to the extent that such sale or disposition constitutes an Asset Sale.
In case of any such consolidation, merger, sale or conveyance and upon the assumption by the
successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of the Note Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be performed by the
Guarantor, such successor Person will succeed to and be substituted for the Guarantor with the same
effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to
be signed any or all of the Note Guarantees to be endorsed upon all of the Notes issuable hereunder
which theretofore shall not have been signed by the Issuers and delivered to the Trustee. All the
Note Guarantees so issued will in all respects have the same legal rank and benefit under this
Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of
this Indenture as though all of such Note Guarantees had been issued at the date of the execution
hereof.
Except as set forth in Articles 4 and 5 hereof, and notwithstanding clauses 2(a) and (b)
above, nothing contained in this Indenture or in any of the Notes will prevent any consolidation or
merger of a
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Guarantor with or into the Issuers or another Guarantor, or will prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the
Issuers or another Guarantor.
Section 10.05. Releases.
(a) In the event of any sale or other disposition of all or substantially all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, to a Person that is not (either before
or after giving effect to such transaction) Parent or a Restricted Subsidiary of Parent, then the
corporation acquiring the property will be released and relieved of any obligations under the Note
Guarantee;
(b) In the event of any sale or other disposition of Capital Stock of any Guarantor to a
Person that is not (either before or after giving effect to such transaction) Parent or a
Restricted Subsidiary of Parent and such Guarantor ceases to be a Restricted Subsidiary of Parent
as a result of the sale or other disposition, then such Guarantor will be released and relieved of
any obligations under its Note Guarantee;
provided, in both cases, that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of this Indenture, including without limitation Section
4.10 hereof. Upon delivery by the Issuers to the Trustee of an Officers’ Certificate and an
Opinion of Counsel to the effect that such sale or other disposition was made by the Issuers in
accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof,
the Trustee will execute any documents reasonably required, as prepared by the Issuers and
delivered to the Trustee, in order to evidence the release of any Guarantor from its obligations
under its Note Guarantee.
(c) Upon designation of any Restricted Subsidiary that is a Guarantor as an Unrestricted
Subsidiary in accordance with the terms of this Indenture, such Guarantor will be released and
relieved of any obligations under its Note Guarantee.
(d) Upon Legal Defeasance or Covenant Defeasance in accordance with Article 8 hereof or
satisfaction and discharge of this Indenture in accordance with Article 11 hereof, each Guarantor
will be released and relieved of any obligations under its Note Guarantee.
Any Guarantor not released from its obligations under its Note Guarantee as provided in this
Section 10.05 will remain liable for the full amount of principal of, premium on, if any, interest
and Special Interest, if any, on, the Notes and for the other obligations of any Guarantor under
this Indenture as provided in this Article 10.
ARTICLE 11
SATISFACTION AND DISCHARGE
SATISFACTION AND DISCHARGE
Section 11.01 Satisfaction and Discharge.
This Indenture will be discharged and will cease to be of further effect as to all Notes
issued hereunder, when:
(1) either:
(a) all Notes that have been authenticated, except lost, stolen or destroyed Notes that
have been replaced or paid and Notes for whose payment money has been deposited in trust and
thereafter repaid to MagnaChip, have been delivered to the Trustee for cancellation; or
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(b) all Notes that have not been delivered to the Trustee for cancellation have become
due and payable by reason of the mailing of a notice of redemption or otherwise or will
become due and payable within one year and MagnaChip or any Guarantor has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust solely for the
benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient, without consideration of any
reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not
delivered to the Trustee for cancellation for principal, premium, if any, interest and
Special Interest, if any, to the date of maturity or redemption;
(2) in respect of subclause (b) of clause (1) of this Section 11.01, no Default or
Event of Default has occurred and is continuing on the date of the deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied to such
deposit and any similar deposit relating to other Indebtedness and, in each case, the
granting of Liens to secure such borrowings) and the deposit will not result in a breach or
violation of, or constitute a default under, any other instrument to which either Issuer or
any Guarantor is a party or by which the Issuers or any Guarantor is bound (other than with
respect to the borrowing of funds to be applied concurrently to make the deposit required to
effect such satisfaction and discharge and any similar concurrent deposit relating to other
Indebtedness, and in each case the granting of Liens to secure such borrowings);
(3) an Issuer or any Guarantor has paid or caused to be paid all sums payable by it
under this Indenture; and
(4) an Issuer has delivered irrevocable instructions to the Trustee under this
Indenture to apply the deposited money toward the payment of the Notes at maturity or on the
redemption date, as the case may be.
In addition, the Issuers must deliver an Officers’ Certificate and an Opinion of Counsel to the
Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited
with the Trustee pursuant to subclause (b) of clause (1) of this Section 11.01, the provisions of
Sections 11.02 and 8.06 hereof will survive. In addition, nothing in this Section 11.01 will be
deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the
satisfaction and discharge of this Indenture.
Section 11.02 Application of Trust Money.
Subject to the provisions of Section 8.06 hereof, all money deposited with the Trustee
pursuant to Section 11.01 hereof shall be held in trust and applied by it, in accordance with the
provisions of the Notes and this Indenture, to the payment, either directly or through any Paying
Agent (including the Issuers acting as their own Paying Agent) as the Trustee may determine, to the
Persons entitled thereto, of the principal, premium, if any, interest and Special Interest, if any,
for whose payment such money has been deposited with the Trustee; but such money need not be
segregated from other funds except to the extent required by law.
If the Trustee or Paying Agent is unable to apply any money or Government Securities in
accordance with Section 11.01 hereof by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Issuers’ and any Guarantor’s obligations under this Indenture and the Notes
shall be
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revived and reinstated as though no deposit had occurred pursuant to Section 11.01 hereof;
provided that if the Issuers have made any payment of principal of, premium on, if any, interest or
Special Interest, if any, on, any Notes because of the reinstatement of their obligations, the
Issuers shall be subrogated to the rights of the Holders of such Notes to receive such payment from
the money or Government Securities held by the Trustee or Paying Agent.
ARTICLE 12
MISCELLANEOUS
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by
TIA §318(c), the imposed duties will control.
Section 12.02 Notices.
Any notice or communication by the Issuers, any Guarantor or the Trustee to the others is duly
given if in writing and delivered in Person or by first class mail (registered or certified, return
receipt requested), facsimile transmission or overnight air courier guaranteeing next day delivery,
to the others’ address:
If to the Issuers and/or any Guarantor:
MagnaChip Semiconductor, Inc.
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Facsimile No.: (408) 625-5990
Attention: General Counsel
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Facsimile No.: (408) 625-5990
Attention: General Counsel
With a copy (which shall not constitute notice to an Issuer or a Guarantor) to:
DLA Piper LLP (US)
2000 University Avenue
East Palo Alto, California 94303
Facsimile No.: (650) 833-2000
Attention: Micheal J. Reagan
2000 University Avenue
East Palo Alto, California 94303
Facsimile No.: (650) 833-2000
Attention: Micheal J. Reagan
If to the Trustee:
Wilmington Trust FSB
Corporate Capital Markets
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402-1544
Facsimile No.: (612) 217-5651
Attention: MagnaChip Semiconductor Administrator
Corporate Capital Markets
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402-1544
Facsimile No.: (612) 217-5651
Attention: MagnaChip Semiconductor Administrator
An Issuer, any Guarantor or the Trustee, by notice to the others, may designate additional or
different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) will be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five Business Days after being
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deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if transmitted
by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery.
Any notice or communication to a Holder will be mailed by first class mail, certified or
registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to
its address shown on the register kept by the Registrar. Any notice or communication will also be
so mailed to any Person described in TIA §313(c), to the extent required by the TIA. Failure to
mail a notice or communication to a Holder or any defect in it will not affect its sufficiency with
respect to other Holders.
If a notice or communication is mailed in the manner provided above within the time
prescribed, it is duly given, whether or not the addressee receives it.
If the Issuers mail a notice or communication to Holders, they will mail a copy to the Trustee
and each Agent at the same time.
Section 12.03 Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA §312(b) with other Holders with respect to their
rights under this Indenture or the Notes. The Issuers, the Trustee, the Registrar and anyone else
shall have the protection of TIA §312(c).
Section 12.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuers to the Trustee to take any action under this
Indenture, the Issuers shall furnish to the Trustee:
(1) an Officers’ Certificate in form and substance reasonably satisfactory to the
Trustee (which must include the statements set forth in Section 12.05 hereof) stating that,
in the opinion of the signers, all conditions precedent and covenants, if any, provided for
in this Indenture relating to the proposed action have been satisfied; and
(2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee
(which must include the statements set forth in Section 12.05 hereof) stating that, in the
opinion of such counsel, all such conditions precedent and covenants have been satisfied.
Section 12.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or covenant provided
for in this Indenture (other than a certificate provided pursuant to TIA §314(a)(4)) must comply
with the provisions of TIA §314(e) and must include:
(1) a statement that the Person making such certificate or opinion has read such
covenant or condition;
(2) a brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he or she has made such
examination or investigation as is necessary to enable him or her to express an informed
opinion as to whether or not such covenant or condition has been satisfied; and
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(4) a statement as to whether or not, in the opinion of such Person, such condition or
covenant has been satisfied.
Section 12.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar
or Paying Agent may make reasonable rules and set reasonable requirements for its functions.
Section 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders.
No director, officer, employee, incorporator, stockholder, member or manager of either Issuer
or any Guarantor, as such, will have any liability for any obligations of the Issuers or the
Guarantors under the Notes, this Indenture, the Note Guarantees, or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to waive liabilities
under the federal securities laws.
Section 12.08 Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE,
THE NOTES AND THE NOTE GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF
LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY. FOR THE AVOIDANCE OF DOUBT, ARTICLES 86 TO 94-8 OF THE LUXEMBOURG LAW OF 10 AUGUST 1915
ON COMMERCIAL COMPANIES AS AMENDED ARE HEREBY EXCLUDED. The Issuers and the Guarantors agree that
any suit or proceeding arising in respect of this Indenture will be tried exclusively in the U.S.
District Court for the Southern District of New York or, if that court does not have subject matter
jurisdiction, in any state court located in The City and County of New York and the Issuers and the
Guarantors agree to submit to the jurisdiction of, and to venue in, such courts.
Luxco and each Guarantor not organized under the laws of the United States or any state
thereof acknowledges that it has, by separate written agreement, irrevocably designated and
appointed National Corporate Research, Ltd. (and its successors and assigns) as its authorized
agent for service of process in any suit, action or proceeding arising out of or relating to this
Agreement or brought with respect to the Notes under U.S. federal or state securities laws.
Section 12.09 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or debt agreement of the
Issuers, Parent or Parent’s Subsidiaries or of any other Person. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 12.10 Successors.
All agreements of the Issuers in this Indenture and the Notes will bind their successors. All
agreements of the Trustee in this Indenture will bind its successors. All agreements of each
Guarantor in this Indenture will bind its successors, except as otherwise provided in Section 10.05
hereof.
94
Section 12.11 Severability.
In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions will not in any way be
affected or impaired thereby.
Section 12.12 Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed copy will be an
original, but all of them together represent the same agreement.
Section 12.13 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be considered a part of
this Indenture and will in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
95
SIGNATURES
Dated as of the date first written above.
| MAGNACHIP SEMICONDUCTOR S.A. |
||||
| By: | /s/ John McFarland | |||
| Name: | John McFarland | |||
| Title: | Director | |||
| MAGNACHIP SEMICONDUCTOR FINANCE COMPANY |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Chief Financial Officer | |||
| MAGNACHIP SEMICONDUCTOR LLC |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Senior Vice President and Chief Financial Officer | |||
| MAGNACHIP SEMICONDUCTOR SA HOLDINGS LLC |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Chief Financial Officer | |||
| MAGNACHIP SEMICONDUCTOR, INC. (U.S.) |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Treasurer and Chief Financial Officer | |||
[Signature Page to Indenture]
| MAGNACHIP SEMICONDUCTOR B.V. (NETHERLANDS) |
||||
| By: | /s/ John McFarland | |||
| Name: | John McFarland | |||
| Title: | Attorney-in-fact | |||
| MAGNACHIP SEMICONDUCTOR LTD. (TAIWAN) |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Director | |||
| MAGNACHIP SEMICONDUCTOR LTD. (UNITED KINGDOM) |
||||
| By: | /s/ Brent Rowe | |||
| Name: | Brent Rowe | |||
| Title: | Director | |||
| MAGNACHIP SEMICONDUCTOR INC. (JAPAN) |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Director | |||
| MAGNACHIP SEMICONDUCTOR HOLDING COMPANY LIMITED (BRITISH VIRGIN ISLANDS) |
||||
| By: | /s/ John McFarland | |||
| Name: | John McFarland | |||
| Title: | Director | |||
[Signature Page to Indenture]
| MAGNACHIP SEMICONDUCTOR LTD. (HONG KONG) |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Director | |||
SEALED with the COMMON SEAL of
|
) | |||||||
MAGNACHIP SEMICONDUCTOR
|
) | |||||||
LIMITED
|
) | |||||||
and SIGNED by
|
) | |||||||
in the presence of:
|
) | |||||||
Witness: /s/ [ILLEGIBLE]
|
Witness: /s/ [ILLEGIBLE]
|
|||||||
Address:
|
Address: |
[Signature Page to Indenture]
| WILMINGTON TRUST FSB, as Trustee |
||||
| By: | /s/ Jane Schwelger | |||
| Name: | Jane Schwelger | |||
| Title: | Vice President | |||
[Signature Page to Indenture]
EXHIBIT A1
[Face of Senior Note]
CUSIP/CINS [55932R AG2][L62495 AD5]
ISIN[US55932RAG20][USL62495AD58]
ISIN[US55932RAG20][USL62495AD58]
10.500% Senior Notes due 2018
| No. ___ | $ |
MAGNACHIP SEMICONDUCTOR S.A.
and
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY
and
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY
jointly and severally promise to pay to or registered assigns,
the principal sum of
DOLLARS* on April 15, 2018.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Dated: , 2010
| MAGNACHIP SEMICONDUCTOR S.A. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| MAGNACHIP SEMICONDUCTOR FINANCE COMPANY |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
A1-1
This is one of the Notes referred to
in the within-mentioned Indenture:
in the within-mentioned Indenture:
WILMINGTON TRUST FSB,
as Trustee
as Trustee
By: |
||||
Date: |
||||
A1-2
[Back of Note]
10.500% Senior Notes due 2018
10.500% Senior Notes due 2018
[Insert the following Global Note Legend, if applicable pursuant to the provisions of the
Indenture:
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS
NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE
REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE
BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED
TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE
MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY
NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (“DTC”), TO THE ISSUERS OR THEIR AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
[Insert the following Private Placement Legend, if applicable pursuant to the provisions of the
Indenture:
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”) AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (A) (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL INVESTOR THAT IS AN ACCREDITED INVESTOR
WITHIN THE MEANING OF RULE 501 OF REGULATION D UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.]
A1-3
Capitalized terms used herein have the meanings assigned to them in the Indenture referred to
below unless otherwise indicated.
(1) Interest. MagnaChip Semiconductor S.A., a Luxembourg public
limited liability company (société anonyme) with a registered office at 74, rue de Merl,
B.P. 709 L-2146 Luxembourg registered with the register of commerce and companies of
Luxembourg under number B-97483 (“MagnaChip”), and MagnaChip Semiconductor Finance Company,
a Delaware corporation (“FinanceCo” and, together with MagnaChip, the “Issuers”), jointly
and severally promise to pay or cause to be paid interest on the principal amount of this
Note at 10.500% per annum from , ___until maturity and shall pay the
Special Interest, if any, payable pursuant to the Registration Rights Agreement referred to
below. The Issuers will pay interest and Special Interest, if any, semi-annually in arrears
on April 15 and October 15 of each year, or if any such day is not a Business Day, on the
next succeeding Business Day (each, an “Interest Payment Date”). Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance; provided that if there is no existing Default in the
payment of interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall accrue from
such next succeeding Interest Payment Date; provided further that the first Interest Payment
Date shall be , 20___. The Issuers will pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is 1% higher than the then applicable
interest rate on the Notes to the extent lawful; they will pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments
of interest and Special Interest, if any (without regard to any applicable grace period),
from time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
(2) Method of Payment. The Issuers will pay interest on the Notes
(except defaulted interest) and Special Interest, if any, to the Persons who are registered
Holders of Notes at the close of business on the April 1 or October 1 next preceding the
Interest Payment Date, even if such Notes are canceled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with
respect to defaulted interest. The Notes will be payable as to principal, premium, if any,
interest and Special Interest, if any, at the office or agency of the Paying Agent and
Registrar or, at the option of the Issuers, payment of interest and Special Interest, if
any, may be made by check mailed to the Holders at their addresses set forth in the register
of Holders; provided that payment by wire transfer of immediately available funds will be
required with respect to principal of, premium on, if any, interest and Special Interest, if
any, on, all Global Notes and all other Notes the Holders of which will have provided wire
transfer instructions to the Issuers or the Paying Agent. Such payment will be in such coin
or currency of the United States of America as at the time of payment is legal tender for
payment of public and private debts.
(3) Paying Agent and Registrar. Initially, Wilmington Trust FSB, the
Trustee under the Indenture, will act as Paying Agent and Registrar. The Issuers may change
the Paying Agent or Registrar without prior notice to the Holders of the Notes. The Issuers
or any of their Subsidiaries may act as Paying Agent or Registrar.
(4) Indenture. The Issuers issued the Notes under an Indenture dated
as of April 9, 2010 (the “Indenture”) among the Issuers, the Guarantors and the Trustee.
The terms of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are
referred to the Indenture and
A1-4
such Act for a statement of such terms. To the extent any provision of this Note
conflicts with the express provisions of the Indenture, the provisions of the Indenture
shall govern and be controlling. The Notes are unsecured obligations of the Issuers. The
Indenture does not limit the aggregate principal amount of Notes that may be issued
thereunder.
(5) Optional Redemption.
(a) At any time prior to April 15, 2013, MagnaChip may on any one or more occasions
redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture, upon
not less than 30 nor more than 60 days’ notice, at a redemption price equal to 110.500% of
the principal amount of the Notes redeemed, plus accrued and unpaid interest and Special
Interest, if any, to the date of redemption (subject to the rights of holders of Notes on
the relevant record date to receive interest on the relevant interest payment date), with
the net cash proceeds of a Qualifying Equity Offering by Parent; provided that:
(A) at least 65% of the aggregate principal amount of Notes originally issued
under the Indenture (excluding Notes held by Parent and its Subsidiaries) remains
outstanding immediately after the occurrence of such redemption; and
(B) the redemption occurs within 90 days of the date of the closing of such
Qualifying Equity Offering.
(b) At any time prior to April 15, 2014, MagnaChip may on any one or more occasions
redeem all or a part of the Notes, upon not less than 30 nor more than 60 days’ notice, at a
redemption price equal to 100% of the principal amount of the Notes redeemed, plus the
Applicable Premium as of, and accrued and unpaid interest and Special Interest, if any, to
the applicable date of redemption, subject to the rights of Holders on the relevant record
date to receive interest due on the relevant Interest Payment Date.
(c) Except pursuant to the preceding paragraphs and in paragraph 10 hereof, the Notes
will not be redeemable at MagnaChip’s option prior to April 15, 2014.
(d) On or after April 15, 2014, MagnaChip may on any one or more occasions redeem all
or a part of the Notes, upon not less than 30 nor more than 60 days’ notice, at the
redemption prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest and Special Interest, if any, on the Notes redeemed, to the
applicable date of redemption, if redeemed during the twelve-month period beginning on April
15 of the years indicated below, subject to the rights of Holders on the relevant record
date to receive interest on the relevant Interest Payment Date:
| Year | Percentage | |||
2014 |
105.250 | % | ||
2015 |
102.625 | % | ||
2016 and thereafter |
100.000 | % | ||
Unless MagnaChip defaults in the payment of the redemption price, interest will cease to
accrue on the Notes or portions thereof called for redemption on the applicable redemption
date.
(6) Mandatory Redemption. The Issuers are not required to make
mandatory redemption or sinking fund payments with respect to the Notes.
A1-5
(7) Repurchase at the Option of Holder.
(a) If there is a Change of Control, MagnaChip will be required to make an offer (a
“Change of Control Offer”) to each Holder to repurchase all or any part (equal to $2,000 or
an integral multiple of $1,000 in excess thereof) of each Holder’s Notes at a purchase price
in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Special Interest, if any, thereon to the date of purchase, subject to the
rights of Holders on the relevant record date to receive interest due on the relevant
interest payment date (the “Change of Control Payment”). Within 30 days following any
Change of Control, the Issuers will mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Indenture.
(b) If Parent or any of its Restricted Subsidiaries consummates any Asset Sales, within
30 days of each date on which the aggregate amount of Excess Proceeds exceeds $20.0 million,
MagnaChip will make an Asset Sale Offer to all Holders of Notes and all holders of other
Indebtedness that is pari passu with the Notes containing provisions similar to those set
forth in the Indenture with respect to offers to purchase, prepay or redeem with the
proceeds of sales of assets in accordance with the Indenture to purchase, prepay or redeem
the maximum principal amount of Notes and such other pari passu Indebtedness (plus all
accrued interest on the Indebtedness and the amount of all fees and expenses, including
premiums, incurred in connection therewith) that may be purchased, prepaid or redeemed out
of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of
the principal amount, plus accrued and unpaid interest and Special Interest, if any, to the
date of purchase, prepayment or redemption, subject to the rights of Holders of Notes on the
relevant record date to receive interest due on the relevant interest payment date, and will
be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale
Offer, MagnaChip may use those Excess Proceeds for any purpose not otherwise prohibited by
the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness
tendered in (or required to be prepaid or redeemed in connection with) such Asset Sale Offer
exceeds the amount of Excess Proceeds, the Trustee will select the Notes and such other pari
passu Indebtedness to be purchased on a pro rata basis, based on the amounts tendered or
required to be prepaid or redeemed (with such adjustments as may be deemed appropriate by
MagnaChip so that only Notes in denominations of $2,000, or an integral multiple of $1,000
in excess thereof, will be purchased). Upon completion of each Asset Sale Offer, the amount
of Excess Proceeds will be reset at zero.. Holders of Notes that are the subject of an
offer to purchase will receive an Asset Sale Offer from MagnaChip prior to any related
purchase date and may elect to have such Notes purchased by completing the form entitled
“Option of Holder to Elect Purchase” attached to the Notes.
(8) Notice of Redemption. At least 30 days but not more than 60 days
before a redemption date, the Issuers will mail or cause to be mailed, by first class mail,
a notice of redemption to each Holder whose Notes are to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior to a
redemption date if the notice is issued in connection with a defeasance of the Notes or a
satisfaction and discharge of the Indenture pursuant to Articles 8 or 11 thereof. Notes in
denominations larger than $2,000 may be redeemed in part but only in whole multiples of
$1,000 unless all of the Notes held by a Holder are to be redeemed or purchased.
(9) Denominations, Transfer, Exchange. The Notes are in registered
form in denominations of $2,000 and integral multiples of $1,000 in excess thereof. The
transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and
A1-6
transfer documents and the Issuers may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. The Issuers need not exchange or register
the transfer of any Note or portion of a Note selected for redemption, except for the
unredeemed portion of any Note being redeemed in part. Also, the Issuers need not exchange
or register the transfer of any Notes for a period of 15 days before a selection of Notes to
be redeemed or during the period between a record date and the next succeeding Interest
Payment Date.
(10) REDEMPTION FOR CHANGES IN TAXES. MagnaChip may redeem the Notes, in whole but not
in part, upon not less than 30 nor more than 60 days’ notice, at a redemption price equal to
the principal amount thereof, together with accrued and unpaid interest and Special
Interest, if any, to the date of redemption (a “Tax Redemption Date”) and all Additional
Amounts (if any) then due and that will become due on the Tax Redemption Date as a result of
the redemption or otherwise (subject to the right of holders of the Notes on the relevant
record date to receive interest (including Special Interest) due on the relevant interest
payment date and Additional Amounts (if any) in respect thereof), if on the next date on
which any amount would be payable in respect of the Notes, MagnaChip is or would be required
to pay Additional Amounts, and MagnaChip cannot avoid any such payment obligation taking
reasonable measures available, and the requirement arises as a result of:
(a) any change in, or amendment to, the laws or treaties (or any regulations or rulings
promulgated thereunder) of the relevant Tax Jurisdiction (as defined above) affecting
taxation; or
(b) any change in, or amendment to, the existing official position regarding the
application, administration or interpretation of such laws, treaties, regulations or rulings
(including a holding, judgment or order by a court of competent jurisdiction or a change in
published practice), which change or amendment is publicly announced as formally proposed
after and becomes effective after the Issue Date (or, if the relevant Tax Jurisdiction was
not a Tax Jurisdiction on the Issue Date, the date on which the then current Tax
Jurisdiction became the applicable Tax Jurisdiction under this Indenture). MagnaChip shall
not have the right to redeem the Notes under this paragraph based on Additional Amounts
being due as a result of a merger or consolidation of MagnaChip in which MagnaChip is not
the surviving Person in such merger or consolidation.
MagnaChip will not give any such notice of redemption earlier than 60 days prior to the
earliest date on which the relevant Issuer would be obligated to make such payment or
withholding if a payment in respect of the Notes were then due, and at the time such notice
is given, the obligation to pay Additional Amounts must remain in effect. Prior to the
publication or, where relevant, mailing of any notice of redemption of the Notes pursuant to
the foregoing, the Issuers will deliver to the Trustee a written opinion of independent tax
counsel to the effect that there has been a change or amendment that would entitle MagnaChip
to redeem the Notes under this provision. In addition, before the Issuers publish or mail
notice of redemption of the Notes as described above, they will deliver to the Trustee an
Officers’ Certificate to the effect that the relevant Issuer cannot avoid its obligation to
pay Additional Amounts by the relevant Issuer taking reasonable measures available to it.
(11) Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes. Only registered Holders have rights under the
Indenture.
(12) Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture, the Notes or the Note Guarantees may be amended or supplemented
with the consent
A1-7
of the Holders of at least a majority in aggregate principal amount of the then
outstanding Notes including Additional Notes, if any, voting as a single class, and any
existing Default or Event of Default or compliance with any provision of the Indenture or
the Notes or the Note Guarantees may be waived with the consent of the Holders of a majority
in aggregate principal amount of the then outstanding Notes including Additional Notes, if
any, voting as a single class. Without the consent of any Holder of Notes, the Indenture,
the Notes or the Note Guarantees may be amended or supplemented to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of either Issuer’s or a Guarantor’s
obligations to Holders of the Notes and Note Guarantees by a successor to such Issuer or
such Guarantor pursuant to the Indenture, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not adversely affect
the legal rights under the Indenture of any Holder, to comply with the requirements of the
SEC in order to effect or maintain the qualification of the Indenture under the TIA, to
conform the text of the Indenture, the Notes, the Note Guarantees to any provision of the
“Description of Notes” section of the Issuers’ Offering Circular dated April 6, 2010,
relating to the initial offering of the Notes, to the extent that such provision in that
“Description of Notes” was intended to be a verbatim recitation of a provision of the
Indenture, the Notes, the Note Guarantees, which intent may be evidenced by an Officers’
Certificate to that effect, to provide for the issuance of Additional Notes in accordance
with the limitations set forth in the Indenture or to allow any Guarantor to execute a
supplemental indenture to the Indenture and/or a Note Guarantee with respect to the Notes.
(13) Defaults and Remedies. Events of Default include: (i) default
for 30 days in the payment when due of interest and Special Interest, if any, on, the Notes;
(ii) default in the payment when due (at maturity, upon redemption or otherwise) of the
principal of, or premium on, if any, the Notes, (iii) failure by Parent or any of its
Restricted Subsidiaries to comply with the provisions of Article 5 of the Indenture; (iv)
failure by Parent or any of its Restricted Subsidiaries for 30 days after notice to
MagnaChip by the Trustee or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, voting as a single class, to comply with Section 4.10 or Section
4.15 of the Indenture; (v) failure by Parent or any of its Restricted Subsidiaries for 60
days after notice to MagnaChip by the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding voting as a single class to comply with any
of the other agreements in the Indenture; (vi) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Parent or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by Parent or any of its Restricted Subsidiaries), whether
such Indebtedness or Guarantee now exists, or is created after the date of this Indenture,
if that default: (A) is caused by a failure to pay principal of, premium on, if any, or
interest on, if any, such Indebtedness in an aggregate amount in excess of $250,000 prior to
the expiration of the grace period provided in such Indebtedness on the date of such default
(a “Payment Default”) or (B) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million
or more; (vii) failure by Parent or any of its Restricted Subsidiaries to pay final
judgments entered by a court or courts of competent jurisdiction aggregating in excess of
$25.0 million (excluding amounts covered by insurance provided by a carrier that has
acknowledged coverage in writing and has the ability to perform), which judgments are not
paid, bonded, discharged, stayed, annulled or rescinded for a period of 60 days; (viii)
certain events of bankruptcy or insolvency with respect to Parent, either Issuer or any of
the other Restricted Subsidiaries of Parent that is a Significant Subsidiary or any group of
Restricted Subsidiaries of Parent that, taken together, would constitute a Significant
Subsidiary; and (ix)
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except as permitted by the Indenture, any Note Guarantee is held in any judicial
proceeding to be unenforceable or invalid or ceases for any reason to be in full force and
effect, or any Guarantor, or any Person acting on behalf of any Guarantor, denies or
disaffirms its obligations under its Note Guarantee. In the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to Parent, either
Issuer or any of the other Restricted Subsidiaries of Parent that is a Significant
Subsidiary or any group of Restricted Subsidiaries of Parent that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become due and payable
immediately without further action or notice. If any other Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the
then outstanding Notes may declare all the Notes to be due and payable immediately; provided
that no such declaration will be permitted with respect to an Event of Default of the type
referred to in clause (vi) of this paragraph 13 if the underlying Payment Default has been
cured or waived or the underlying acceleration has been waived or rescinded, as the case may
be. Holders may not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in aggregate principal amount of the
then outstanding Notes may direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default relating to the
payment of principal, premium, if any, interest or Special Interest, if any,) if it
determines that withholding notice is in their interest. The Holders of a majority in
aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on
behalf of all the Holders, rescind an acceleration or waive an existing Default or Event of
Default and its respective consequences under the Indenture except a continuing Default or
Event of Default in the payment of principal of, premium on, if any, interest or Special
Interest, if any, on, the Notes (including in connection with an offer to purchase).
MagnaChip is required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and MagnaChip is required, upon becoming aware of any Default or Event
of Default, to deliver to the Trustee a statement specifying such Default or Event of
Default.
(14) Trustee Dealings with Issuers. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform services for the
Issuers or their Affiliates, and may otherwise deal with the Issuers or their Affiliates, as
if it were not the Trustee.
(15) No Recourse Against Others. No director, officer, employee,
incorporator, stockholder, member or manager of either Issuer or any Guarantor, as such,
will have any liability for any obligations of the Issuers or the Guarantors under the
Notes, the Indenture, the Note Guarantees or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to waive
liabilities under the federal securities laws.
(16) Authentication. This Note will not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
(17) Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(18) Additional Rights of Holders of Restricted Global Notes and
Restricted Definitive Notes. In addition to the rights provided to Holders of Notes
under the
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Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have
all the rights set forth in the Exchange and Registration Rights Agreement dated as of April
9, 2010, among the Issuers, the Guarantors and the other parties named on the signature
pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and
Restricted Definitive Notes will have the rights set forth in one or more registration
rights agreements, if any, among the Issuers, the Guarantors and the other parties thereto,
relating to rights given by the Issuers and the Guarantors to the purchasers of any
Additional Notes (collectively, the “Registration Rights Agreement”).
(19) CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP
numbers to be printed on the Notes, and the Trustee may use CUSIP numbers in notices of
redemption as a convenience to Holders. No representation is made as to the accuracy of
such numbers either as printed on the Notes or as contained in any notice of redemption, and
reliance may be placed only on the other identification numbers placed thereon.
(20) GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK WILL
GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THIS NOTE AND THE NOTE GUARANTEES WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. FOR THE AVOIDANCE
OF DOUBT, ARTICLES 86 TO 94-8 OF THE LUXEMBOURG LAW OF 10 AUGUST 1915 ON COMMERCIAL
COMPANIES AS AMENDED ARE HEREBY EXCLUDED.
The Issuers will furnish to any Holder upon written request and without charge a copy of the
Indenture and/or the Registration Rights Agreement. Requests may be made to:
MagnaChip Semiconductor, Inc.
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Attention: General Counsel
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Attention: General Counsel
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Assignment Form
To assign this Note, fill in the form below:
| (I) or (we) assign and transfer this Note to: |
(Insert assignee’s legal name)
(Insert assignee’s soc. sec. or tax I.D. no.)
(Print or type assignee’s name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Issuers. The agent may substitute another to act for
him.
Date:
| Your Signature: | ||||||
| (Sign exactly as your name appears on the face of this Note) | ||||||
Signature Guarantee*: |
||||||
| * | Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). |
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Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.10
or 4.15 of the Indenture, check the appropriate box below:
| -Section 4.10 | -Section 4.15 |
If you want to elect to have only part of the Note purchased by the Issuers pursuant to
Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:
$
Date:
| Your Signature: | ||||||
| (Sign exactly as your name appears on the face of this Note) | ||||||
| Tax Identification No.: | ||||||
Signature Guarantee*: |
||||||
| * | Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). |
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Schedule of Exchanges of Interests in the Global Note *
The following exchanges of a part of this Global Note for an interest in another Global
Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for
an interest in this Global Note, have been made:
| Principal Amount | ||||||||
| of this Global Note | ||||||||
| Amount of decrease in | Amount of increase in | following such | Signature of authorized | |||||
| Principal Amount of | Principal Amount of | decrease | officer of Trustee or | |||||
| Date of Exchange | this Global Note | this Global Note | (or increase) | Custodian | ||||
| * | This schedule should be included only if the Note is issued in global form. |
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EXHIBIT A2
[Face of Regulation S Temporary Global Note]
CUSIP/CINS [55932R AG2][L62495 AD5]
ISIN[US55932RAG20][USL62495AD58]
ISIN[US55932RAG20][USL62495AD58]
10.500% Senior Notes due 2018
| No. ___ | $ |
MAGNACHIP SEMICONDUCTOR S.A.
and
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY
and
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY
jointly and severally promise to pay to CEDE & CO. or registered assigns,
the principal sum of DOLLARS on April
15, 2018.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Dated: , 2010
| MAGNACHIP SEMICONDUCTOR S.A. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| MAGNACHIP SEMICONDUCTOR FINANCE COMPANY |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
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This is one of the Notes referred to
in the within-mentioned Indenture:
in the within-mentioned Indenture:
WILMINGTON TRUST FSB,
as Trustee
as Trustee
By: |
||||
Date: |
||||
A2-2
[Back of Regulation S Temporary Global Note]
10.500% Senior Notes due 2018
10.500% Senior Notes due 2018
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES
GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED
HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE
SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS
NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE
REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE
BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED
TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE
MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY
NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (“DTC”), TO THE ISSUERS OR THEIR AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”) AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (A) (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL INVESTOR THAT IS AN ACCREDITED INVESTOR
WITHIN THE MEANING OF RULE 501 OF REGULATION D UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT
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AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND
OTHER JURISDICTIONS.
Capitalized terms used herein have the meanings assigned to them in the Indenture
referred to below unless otherwise indicated.
(1) Interest. MagnaChip Semiconductor S.A., a Luxembourg public
limited liability company (société anonyme) with a registered office at 74, rue de Merl,
B.P. 709 L-2146 Luxembourg registered with the register of commerce and companies of
Luxembourg under number B-97483 (“MagnaChip”), and MagnaChip Semiconductor Finance Company,
a Delaware corporation (“FinanceCo” and, together with MagnaChip, the “Issuers”) , jointly
and severally promise to pay or cause to be paid interest on the principal amount of this
Note at 10.500% per annum from , ___until maturity and shall pay the
Special Interest, if any, payable pursuant to the Registration Rights Agreement referred to
below. The Issuers will pay interest and Special Interest, if any, semi-annually in arrears
on April 15 and October 15 of each year, or if any such day is not a Business Day, on the
next succeeding Business Day (each, an “Interest Payment Date”). Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance; provided that if there is no existing Default in the
payment of interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall accrue from
such next succeeding Interest Payment Date; provided further that the first Interest Payment
Date shall be , 20___. The Issuers will pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is 1% higher than the then applicable
interest rate on the Notes to the extent lawful; they will pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments
of interest and Special Interest, if any (without regard to any applicable grace period),
from time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S
Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of
interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall
in all other respects be entitled to the same benefits as other Notes under the Indenture.
(2) Method of Payment. The Issuers will pay interest on the Notes
(except defaulted interest) and Special Interest, if any, to the Persons who are registered
Holders of Notes at the close of business on the April 1 or October 1 next preceding the
Interest Payment Date, even if such Notes are canceled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with
respect to defaulted interest. The Notes will be payable as to principal, premium, if any,
interest and Special Interest, if any, at the office or agency of the Paying Agent and
Registrar or, at the option of the Issuers, payment of interest and Special Interest, if
any, may be made by check mailed to the Holders at their addresses set forth in the register
of Holders; provided that payment by wire transfer of immediately available funds will be
required with respect to principal of, premium on, if any, interest and Special Interest, if
any, on, all Global Notes and all other Notes the Holders of which will have provided wire
transfer instructions to the Issuers or the Paying Agent. Such payment will be in such coin
or currency of the United States of America as at the time of payment is legal tender for
payment of public and private debts.
A2-4
(3) Paying Agent and Registrar. Initially, Wilmington Trust FSB, the
Trustee under the Indenture, will act as Paying Agent and Registrar. The Issuers may change
the Paying Agent or Registrar without prior notice to the Holders of the Notes. The Issuers
or any of their Subsidiaries may act as Paying Agent or Registrar.
(4) Indenture. The Issuers issued the Notes under an Indenture dated
as of April 9, 2010 (the “Indenture”) among the Issuers, the Guarantors and the Trustee.
The terms of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement of such terms. To the extent any
provision of this Note conflicts with the express provisions of the Indenture, the
provisions of the Indenture shall govern and be controlling. The Notes are unsecured
obligations of the Issuers. The Indenture does not limit the aggregate principal amount of
Notes that may be issued thereunder.
(5) Optional Redemption.
(a) At any time prior to April 15, 2013, MagnaChip may on any one or more occasions
redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture, upon
not less than 30 nor more than 60 days’ notice, at a redemption price equal to 110.500% of
the principal amount of the Notes redeemed, plus accrued and unpaid interest and Special
Interest, if any, to the date of redemption (subject to the rights of holders of Notes on
the relevant record date to receive interest on the relevant interest payment date), with
the net cash proceeds of a Qualifying Equity Offering by Parent; provided that:
(A) at least 65% of the aggregate principal amount of Notes originally issued
under the Indenture (excluding Notes held by Parent and its Subsidiaries) remains
outstanding immediately after the occurrence of such redemption; and
(B) the redemption occurs within 90 days of the date of the closing of such
Qualifying Equity Offering.
(b) At any time prior to April 15, 2014, MagnaChip may on any one or more occasions
redeem all or a part of the Notes, upon not less than 30 nor more than 60 days’ notice, at a
redemption price equal to 100% of the principal amount of the Notes redeemed, plus the
Applicable Premium as of, and accrued and unpaid interest and Special Interest, if any, to
the applicable date of redemption, subject to the rights of Holders on the relevant record
date to receive interest due on the relevant Interest Payment Date.
(c) Except pursuant to the preceding paragraphs and in paragraph 10 hereof, the Notes
will not be redeemable at MagnaChip’s option prior to April 15, 2014.
(d) On or after April 15, 2014, MagnaChip may on any one or more occasions redeem all
or a part of the Notes, upon not less than 30 nor more than 60 days’ notice, at the
redemption prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest and Special Interest, if any, on the Notes redeemed, to the
applicable date of redemption, if redeemed during the twelve-month period beginning on April
15 of the years indicated below, subject to the rights of Holders on the relevant record
date to receive interest on the relevant Interest Payment Date:
A2-5
| Year | Percentage | |||
2014 |
105.250 | % | ||
2015 |
102.625 | % | ||
2016 and thereafter |
100.000 | % | ||
Unless MagnaChip defaults in the payment of the redemption price, interest will cease to
accrue on the Notes or portions thereof called for redemption on the applicable redemption
date.
(6) Mandatory Redemption. The Issuers are not required to make
mandatory redemption or sinking fund payments with respect to the Notes.
(7) REPURCHASE AT THE OPTION OF HOLDER.
(a) If there is a Change of Control, MagnaChip will be required to make an offer (a
“Change of Control Offer”) to each Holder to repurchase all or any part (equal to $2,000 or
an integral multiple of $1,000 in excess thereof) of each Holder’s Notes at a purchase price
in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Special Interest, if any, thereon to the date of purchase, subject to the
rights of Holders on the relevant record date to receive interest due on the relevant
interest payment date (the “Change of Control Payment”). Within 30 days following any
Change of Control, the Issuers will mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Indenture.
(b) If Parent or any of its Restricted Subsidiaries consummates any Asset Sales, within
30 days of each date on which the aggregate amount of Excess Proceeds exceeds $20.0 million,
MagnaChip will make an Asset Sale Offer to all Holders of Notes and all holders of other
Indebtedness that is pari passu with the Notes containing provisions similar to those set
forth in the Indenture with respect to offers to purchase, prepay or redeem with the
proceeds of sales of assets in accordance with the Indenture to purchase, prepay or redeem
the maximum principal amount of Notes and such other pari passu Indebtedness (plus all
accrued interest on the Indebtedness and the amount of all fees and expenses, including
premiums, incurred in connection therewith) that may be purchased, prepaid or redeemed out
of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of
the principal amount, plus accrued and unpaid interest and Special Interest, if any, to the
date of purchase, prepayment or redemption, subject to the rights of Holders of Notes on the
relevant record date to receive interest due on the relevant interest payment date, and will
be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale
Offer, MagnaChip may use those Excess Proceeds for any purpose not otherwise prohibited by
the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness
tendered in (or required to be prepaid or redeemed in connection with) such Asset Sale Offer
exceeds the amount of Excess Proceeds, the Trustee will select the Notes and such other pari
passu Indebtedness to be purchased on a pro rata basis, based on the amounts tendered or
required to be prepaid or redeemed (with such adjustments as may be deemed appropriate by
MagnaChip so that only Notes in denominations of $2,000, or an integral multiple of $1,000
in excess thereof, will be purchased). Upon completion of each Asset Sale Offer, the amount
of Excess Proceeds will be reset at zero.. Holders of Notes that are the subject of an
offer to purchase will receive an Asset Sale Offer from MagnaChip prior to any related
purchase date and may elect to have such Notes purchased by completing the form entitled
“Option of Holder to Elect Purchase” attached to the Notes.
(8) Notice of Redemption. At least 30 days but not more than 60 days
before a redemption date, the Issuers will mail or cause to be mailed, by first class mail,
a notice of redemption to each Holder whose Notes are to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior to a
redemption date if the notice is
A2-6
issued in connection with a defeasance of the Notes or a satisfaction and discharge of
the Indenture pursuant to Articles 8 or 11 thereof. Notes in denominations larger than
$2,000 may be redeemed in part but only in whole multiples of $1,000 unless all of the Notes
held by a Holder are to be redeemed or purchased.
(9) Denominations, Transfer, Exchange. The Notes are in registered
form in denominations of $2,000 and integral multiples of $1,000 in excess thereof. The
transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Issuers may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Issuers need not
exchange or register the transfer of any Note or portion of a Note selected for redemption,
except for the unredeemed portion of any Note being redeemed in part. Also, the Issuers
need not exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and the next
succeeding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or in part for one or
more Global Notes only (i) on or after the termination of the 40-day distribution compliance
period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied
by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon
exchange of this Regulation S Temporary Global Note for one or more Global Notes, the
Trustee shall cancel this Regulation S Temporary Global Note.
(10) REDEMPTION FOR CHANGES IN TAXES. MagnaChip may redeem the Notes, in whole but not
in part, upon not less than 30 nor more than 60 days’ notice, at a redemption price equal to
the principal amount thereof, together with accrued and unpaid interest and Special
Interest, if any, to the date of redemption (a “Tax Redemption Date”) and all Additional
Amounts (if any) then due and that will become due on the Tax Redemption Date as a result of
the redemption or otherwise (subject to the right of holders of the Notes on the relevant
record date to receive interest (including Special Interest) due on the relevant interest
payment date and Additional Amounts (if any) in respect thereof), if on the next date on
which any amount would be payable in respect of the Notes, MagnaChip is or would be required
to pay Additional Amounts, and MagnaChip cannot avoid any such payment obligation taking
reasonable measures available, and the requirement arises as a result of:
(a) any change in, or amendment to, the laws or treaties (or any regulations or rulings
promulgated thereunder) of the relevant Tax Jurisdiction (as defined above) affecting
taxation; or
(b) any change in, or amendment to, the existing official position regarding the
application, administration or interpretation of such laws, treaties, regulations or rulings
(including a holding, judgment or order by a court of competent jurisdiction or a change in
published practice), which change or amendment is publicly announced as formally proposed
after and becomes effective after the Issue Date (or, if the relevant Tax Jurisdiction was
not a Tax Jurisdiction on the Issue Date, the date on which the then current Tax
Jurisdiction became the applicable Tax Jurisdiction under this Indenture). MagnaChip shall
not have the right to redeem the Notes under this paragraph based on Additional Amounts
being due as a result of a merger or consolidation of MagnaChip in which MagnaChip is not
the surviving Person in such merger or consolidation.
A2-7
MagnaChip will not give any such notice of redemption earlier than 60 days prior to the
earliest date on which the relevant Issuer would be obligated to make such payment or
withholding if a payment in respect of the Notes were then due, and at the time such notice
is given, the obligation to pay Additional Amounts must remain in effect. Prior to the
publication or, where relevant, mailing of any notice of redemption of the Notes pursuant to
the foregoing, the Issuers will deliver to the Trustee a written opinion of independent tax
counsel to the effect that there has been a change or amendment that would entitle MagnaChip
to redeem the Notes under this provision. In addition, before the Issuers publish or mail
notice of redemption of the Notes as described above, they will deliver to the Trustee an
Officers’ Certificate to the effect that the relevant Issuer cannot avoid its obligation to
pay Additional Amounts by the relevant Issuer taking reasonable measures available to it.
(11) Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes. Only registered Holders have rights under the
Indenture.
(12) Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture, the Notes or the Note Guarantees may be amended or supplemented
with the consent of the Holders of at least a majority in aggregate principal amount of the
then outstanding Notes including Additional Notes, if any, voting as a single class, and any
existing Default or Event of Default or compliance with any provision of the Indenture or
the Notes or the Note Guarantees may be waived with the consent of the Holders of a majority
in aggregate principal amount of the then outstanding Notes including Additional Notes, if
any, voting as a single class. Without the consent of any Holder of Notes, the Indenture,
the Notes or the Note Guarantees may be amended or supplemented to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of either Issuer’s or a Guarantor’s
obligations to Holders of the Notes and Note Guarantees by a successor to such Issuer or
such Guarantor pursuant to the Indenture, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not adversely affect
the legal rights under the Indenture of any Holder, to comply with the requirements of the
SEC in order to effect or maintain the qualification of the Indenture under the TIA, to
conform the text of the Indenture, the Notes, the Note Guarantees to any provision of the
“Description of Notes” section of the Issuers’ Offering Circular dated April 6, 2010,
relating to the initial offering of the Notes, to the extent that such provision in that
“Description of Notes” was intended to be a verbatim recitation of a provision of the
Indenture, the Notes, the Note Guarantees, which intent may be evidenced by an Officers’
Certificate to that effect, to provide for the issuance of Additional Notes in accordance
with the limitations set forth in the Indenture or to allow any Guarantor to execute a
supplemental indenture to the Indenture and/or a Note Guarantee with respect to the Notes.
(13) Defaults and Remedies. Events of Default include: (i) default
for 30 days in the payment when due of interest and Special Interest, if any, on, the Notes;
(ii) default in the payment when due (at maturity, upon redemption or otherwise) of the
principal of, or premium on, if any, the Notes, (iii) failure by Parent or any of its
Restricted Subsidiaries to comply with the provisions of Article 5 of the Indenture; (iv)
failure by Parent or any of its Restricted Subsidiaries for 30 days after notice to
MagnaChip by the Trustee or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, voting as a single class, to comply with Section 4.10 or Section
4.15 of the Indenture; (v) failure by Parent or any of its Restricted Subsidiaries for 60
days after notice to MagnaChip by the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding voting as a single class to comply with any
of the other agreements in the Indenture; (vi) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or evidenced any
A2-8
Indebtedness for money borrowed by Parent or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by Parent or any of its Restricted Subsidiaries), whether
such Indebtedness or Guarantee now exists, or is created after the date of this Indenture,
if that default: (A) is caused by a failure to pay principal of, premium on, if any, or
interest on, if any, such Indebtedness in an aggregate amount in excess of $250,000 prior to
the expiration of the grace period provided in such Indebtedness on the date of such default
(a “Payment Default”) or (B) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million
or more; (vii) failure by Parent or any of its Restricted Subsidiaries to pay final
judgments entered by a court or courts of competent jurisdiction aggregating in excess of
$25.0 million (excluding amounts covered by insurance provided by a carrier that has
acknowledged coverage in writing and has the ability to perform), which judgments are not
paid, bonded, discharged, stayed, annulled or rescinded for a period of 60 days; (viii)
certain events of bankruptcy or insolvency with respect to Parent, either Issuer or any of
the other Restricted Subsidiaries of Parent that is a Significant Subsidiary or any group of
Restricted Subsidiaries of Parent that, taken together, would constitute a Significant
Subsidiary; and (ix) except as permitted by the Indenture, any Note Guarantee is held in any
judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full
force and effect, or any Guarantor, or any Person acting on behalf of any Guarantor, denies
or disaffirms its obligations under its Note Guarantee. In the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to Parent, either
Issuer or any of the other Restricted Subsidiaries of Parent that is a Significant
Subsidiary or any group of Restricted Subsidiaries of Parent that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become due and payable
immediately without further action or notice. If any other Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the
then outstanding Notes may declare all the Notes to be due and payable immediately; provided
that no such declaration will be permitted with respect to an Event of Default of the type
referred to in clause (vi) of this paragraph 13 if the underlying Payment Default has been
cured or waived or the underlying acceleration has been waived or rescinded, as the case may
be. Holders may not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in aggregate principal amount of the
then outstanding Notes may direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default relating to the
payment of principal, premium, if any, interest or Special Interest, if any,) if it
determines that withholding notice is in their interest. The Holders of a majority in
aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on
behalf of all the Holders, rescind an acceleration or waive an existing Default or Event of
Default and its respective consequences under the Indenture except a continuing Default or
Event of Default in the payment of principal of, premium on, if any, interest or Special
Interest, if any, on, the Notes (including in connection with an offer to purchase).
MagnaChip is required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and MagnaChip is required, upon becoming aware of any Default or Event
of Default, to deliver to the Trustee a statement specifying such Default or Event of
Default.
(14) Trustee Dealings with Issuers. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform services for the
Issuers or their Affiliates, and may otherwise deal with the Issuers or their Affiliates, as
if it were not the Trustee.
A2-9
(15) No Recourse Against Others. No director, officer, employee,
incorporator, stockholder, member or manager of either Issuer or any Guarantor, as such,
will have any liability for any obligations of the Issuers or the Guarantors under the
Notes, the Indenture, the Note Guarantees or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to waive
liabilities under the federal securities laws.
(16) Authentication. This Note will not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
(17) Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
(18) Additional Rights of Holders of Restricted Global Notes and
Restricted Definitive Notes. In addition to the rights provided to Holders of Notes
under the Indenture, Holders of Restricted Global Notes (including Holders of this
Regulation S Temporary Global Note) and of Restricted Definitive Notes will have all the
rights set forth in the Exchange and Registration Rights Agreement dated as of April 9,
2010, among the Issuers, the Guarantors and the other parties named on the signature pages
thereof or, in the case of Additional Notes, Holders of Restricted Global Notes (including
Holders of this Regulation S Temporary Global Note) and of Restrictive Definitive Notes will
have the rights set forth in one or more registration rights agreements, if any, among the
Issuers, the Guarantors and the other parties thereto, relating to rights given by the
Issuers and the Guarantors to the purchasers of any Additional Notes (collectively, the
“Registration Rights Agreement”).
(19) CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP
numbers to be printed on the Notes, and the Trustee may use CUSIP numbers in notices of
redemption as a convenience to Holders. No representation is made as to the accuracy of
such numbers either as printed on the Notes or as contained in any notice of redemption, and
reliance may be placed only on the other identification numbers placed thereon.
(20) GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK WILL
GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THIS NOTE AND THE NOTE GUARANTEES WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. FOR THE
AVOIDANCE OF DOUBT, ARTICLES 86 TO 94-8 OF THE LUXEMBOURG LAW OF 10 AUGUST 1915 ON
COMMERCIAL COMPANIES AS AMENDED ARE HEREBY EXCLUDED.
The Issuers will furnish to any Holder upon written request and without charge a copy of the
Indenture and/or the Registration Rights Agreement. Requests may be made to:
MagnaChip Semiconductor, Inc.
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Attention: General Counsel
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Attention: General Counsel
A2-10
Assignment Form
To assign this Note, fill in the form below:
| (I) or (we) assign and transfer this Note to: |
(Insert assignee’s legal name)
(Insert assignee’s soc. sec. or tax I.D. no.)
(Print or type assignee’s name, address and zip code)
and irrevocably appoint
to transfer this Note on the books of the Issuers. The agent may substitute another to act for
him.
Date:
| Your Signature: | ||||||
| (Sign exactly as your name appears on the face of this Note) | ||||||
Signature Guarantee*: |
||||||
| * | Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). |
A2-11
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.10
or 4.15 of the Indenture, check the appropriate box below:
| -Section 4.10 | -Section 4.15 |
If you want to elect to have only part of the Note purchased by the Issuers pursuant to
Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:
$_______________
Date:
| Your Signature: | ||||||
| (Sign exactly as your name appears on the face of this Note) | ||||||
| Tax Identification No.: | ||||||
Signature Guarantee*: |
||||||
| * | Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). |
A2-12
Schedule of Exchanges of Interests in the Regulation S Temporary Global Note
The following exchanges of a part of this Regulation S Temporary Global Note for an
interest in another Global Note, or exchanges of a part of another other Restricted Global Note for
an interest in this Regulation S Temporary Global Note, have been made:
| Principal Amount of | ||||||||
| this Global Note | ||||||||
| Amount of decrease in | Amount of increase in | following such | Signature of authorized | |||||
| Principal Amount of | Principal Amount of | decrease | officer of Trustee or | |||||
| Date of Exchange | this Global Note | this Global Note | (or increase) | Custodian | ||||
A2-13
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
MagnaChip Semiconductor, Inc.
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Attention: General Counsel
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Attention: General Counsel
Wilmington Trust FSB
Corporate Capital Markets
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402-1544
Attention: MagnaChip Semiconductor Administrator
Corporate Capital Markets
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402-1544
Attention: MagnaChip Semiconductor Administrator
Re: 10.500% Senior Notes due 2018
Reference is hereby made to the Indenture, dated as of April 9, 2010 (the “Indenture”), among
MagnaChip Semiconductor S.A., a Luxembourg public limited liability company (société anonyme) with
a registered office at 74, rue de Merl, B.P. 709 L-2146 Luxembourg registered with the register of
commerce and companies of Luxembourg under number B-97483 (“MagnaChip”), MagnaChip Semiconductor
Finance Company, a Delaware corporation (“FinanceCo” and, together with MagnaChip, the “Issuers”),
the Guarantors party thereto and Wilmington Trust FSB, as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
, (the “Transferor”) owns and proposes to transfer the Note[s] or interest
in such Note[s] specified in Annex A hereto, in the principal amount of $ in such
Note[s] or interests (the “Transfer”), to (the “Transferee”), as
further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby
certifies that:
[CHECK ALL THAT APPLY]
1. ¨ Check if Transferee will take delivery of a beneficial interest in the 144A
Global Note or a Restricted Definitive Note pursuant to Rule 144A. The Transfer is being
effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended
(the “Securities Act”), and, accordingly, the Transferor hereby further certifies that the
beneficial interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believes is purchasing the beneficial interest or Definitive Note for its own account,
or for one or more accounts with respect to which such Person exercises sole investment discretion,
and such Person and each such account is a “qualified institutional buyer” within the meaning of
Rule 144A in a transaction meeting the requirements of Rule 144A, and such Transfer is in
compliance with any applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Restricted
Definitive Note and in the Indenture and the Securities Act.
2. ¨ Check if Transferee will take delivery of a beneficial interest in the
Regulation S Temporary Global Note, the Regulation S Permanent Global Note or a Restricted
Definitive Note pursuant to Regulation S. The Transfer is being effected pursuant to and in
accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor
hereby further certifies that (i) the Transfer is not being made to a Person in the United States
and (x) at the time the buy order was
B-1
originated, the Transferee was outside the United States or such Transferor and any Person
acting on its behalf reasonably believed and believes that the Transferee was outside the United
States or (y) the transaction was executed in, on or through the facilities of a designated
offshore securities market and neither such Transferor nor any Person acting on its behalf knows
that the transaction was prearranged with a buyer in the United States, (ii) no directed selling
efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act and (iv) if the proposed transfer is
being made prior to the expiration of the Restricted Period, the transfer is not being made to a
U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon
consummation of the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer
enumerated in the Private Placement Legend printed on the Regulation S Permanent Global Note, the
Regulation S Temporary Global Note and/or the Restricted Definitive Note and in the Indenture and
the Securities Act.
3. ¨ Check and complete if Transferee will take delivery of a beneficial interest
in a Restricted Definitive Note pursuant to any provision of the Securities Act other than Rule
144A or Regulation S. The Transfer is being effected in compliance with the transfer
restrictions applicable to beneficial interests in Restricted Global Notes and Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue
sky securities laws of any state of the United States, and accordingly the Transferor hereby
further certifies that (check one):
(a) ¨ such Transfer is being effected pursuant to and in accordance with Rule
144 under the Securities Act;
or
(b) ¨ such Transfer is being effected to an Issuer or a subsidiary thereof;
or
(c) ¨ such Transfer is being effected pursuant to an effective registration
statement under the Securities Act and in compliance with the prospectus delivery
requirements of the Securities Act;
or
(d) ¨ such Transfer is being effected to an Institutional Accredited Investor
and pursuant to an exemption from the registration requirements of the Securities Act
other than Rule 144A, Rule 144, Rule 903 or Rule 904, and the Transferor hereby further
certifies that it has not engaged in any general solicitation within the meaning of
Regulation D under the Securities Act and the Transfer complies with the transfer
restrictions applicable to beneficial interests in a Restricted Global Note or Restricted
Definitive Notes and the requirements of the exemption claimed, which certification is
supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the
time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor
or the Transferee (a copy of which the Transferor has attached to this certification), to
the effect that such Transfer is in compliance with the Securities Act. Upon consummation
of the proposed transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Definitive Notes and
in the Indenture and the Securities Act.
B-2
4. ¨ Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) ¨ Check if Transfer is pursuant to Rule 144. (i) The Transfer is being effected
pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the
transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with the Securities Act.
Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on
Restricted Definitive Notes and in the Indenture.
(b) ¨ Check if Transfer is Pursuant to Regulation S. (i) The Transfer is being
effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in
compliance with the transfer restrictions contained in the Indenture and any applicable blue sky
securities laws of any state of the United States and (ii) the restrictions on transfer contained
in the Indenture and the Private Placement Legend are not required in order to maintain compliance
with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms
of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject
to the restrictions on transfer enumerated in the Private Placement Legend printed on the
Restricted Global Notes, on Restricted Definitive Notes and in the Indenture.
(c) ¨ Check if Transfer is Pursuant to Other Exemption. (i) The Transfer is being
effected pursuant to and in compliance with an exemption from the registration requirements of the
Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky securities laws of any State of
the United States and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the Securities Act. Upon
consummation of the proposed Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will not be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or
Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your benefit and the benefit
of the Issuers.
| [Insert Name of Transferor] | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
| Dated: | ||||||||
B-3
ANNEX A TO CERTIFICATE OF TRANSFER
| 1. | The Transferor owns and proposes to transfer the following: |
[CHECK ONE OF (a) OR (b)]
| (a) | ¨ a beneficial interest in the: |
| (i) | ¨ 144A Global Note (CUSIP 55932R AG2), or | ||
| (ii) | ¨ Regulation S Global Note (CUSIP L62495 AD5), or | ||
| (b) | ¨ a Restricted Definitive Note. |
| 2. | After the Transfer the Transferee will hold: |
[CHECK ONE]
| (a) | ¨ a beneficial interest in the: |
| (i) | ¨ 144A Global Note (CUSIP 55932R AG2), or | ||
| (ii) | ¨ Regulation S Global Note (CUSIP L62495 AD5), or | ||
| (iii) | ¨ Unrestricted Global Note (CUSIP ___); or |
| (b) | ¨ a Restricted Definitive Note; or | ||
| (c) | ¨ an Unrestricted Definitive Note, |
| in accordance with the terms of the Indenture. |
B-4
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
MagnaChip Semiconductor, Inc.
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Attention: General Counsel
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Attention: General Counsel
Wilmington Trust FSB
Corporate Capital Markets
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402-1544
Attention: MagnaChip Semiconductor Administrator
Corporate Capital Markets
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402-1544
Attention: MagnaChip Semiconductor Administrator
Re: 10.500% Senior Notes due 2018
(CUSIP [55932R AG2][L62495 AD5])
Reference is hereby made to the Indenture, dated as of April 9, 2010 (the “Indenture”), among
MagnaChip Semiconductor S.A., a Luxembourg public limited liability company (société anonyme) with
a registered office at 74, rue de Merl, B.P. 709 L-2146 Luxembourg registered with the register of
commerce and companies of Luxembourg under number B-97483 (“MagnaChip”), MagnaChip Semiconductor
Finance Company, a Delaware corporation (“FinanceCo” and, together with MagnaChip, the “Issuers”),
the Guarantors party thereto and Wilmington Trust FSB, as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
, (the “Owner”) owns and proposes to exchange the Note[s] or
interest in such Note[s] specified herein, in the principal amount of $ in such Note[s]
or interests (the “Exchange”). In connection with the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a Restricted Global
Note for Unrestricted Definitive Notes or Beneficial Interests in an Unrestricted Global Note
(a) ¨ Check if Exchange is from beneficial interest in a Restricted Global Note to
beneficial interest in an Unrestricted Global Note. In connection with the Exchange of the Owner’s
beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global
Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being
acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in
accordance with the Securities Act of 1933, as amended (the “Securities Act”), (iii) the
restrictions on transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the beneficial interest
in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.
(b) ¨ Check if Exchange is from beneficial interest in a Restricted Global Note to
Unrestricted Definitive Note. In connection with the Exchange of the Owner’s beneficial interest
in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the
Definitive Note is being acquired for the Owner’s own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the Restricted Global
Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in order to maintain
compliance with the
C-1
Securities Act and (iv) the Definitive Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(c) ¨ Check if Exchange is from Restricted Definitive Note to beneficial interest in an
Unrestricted Global Note. In connection with the Owner’s Exchange of a Restricted Definitive Note
for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner’s own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions applicable to Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions
on transfer contained in the Indenture and the Private Placement Legend are not required in order
to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired
in compliance with any applicable blue sky securities laws of any state of the United States.
(d) ¨ Check if Exchange is from Restricted Definitive Note to Unrestricted Definitive
Note. In connection with the Owner’s Exchange of a Restricted Definitive Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired
for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in
accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain compliance with the
Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in Restricted Global
Notes for Restricted Definitive Notes or Beneficial Interests in Restricted Global Notes
(a) ¨ Check if Exchange is from beneficial interest in a Restricted Global Note to
Restricted Definitive Note. In connection with the Exchange of the Owner’s beneficial interest in
a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner
hereby certifies that the Restricted Definitive Note is being acquired for the Owner’s own account
without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the
Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and
in the Indenture and the Securities Act.
(b) ¨ Check if Exchange is from Restricted Definitive Note to beneficial interest in a
Restricted Global Note. In connection with the Exchange of the Owner’s Restricted Definitive Note
for a beneficial interest in the [CHECK ONE] ¨ 144A Global Note, ¨ Regulation S Global
Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner’s own account without transfer and (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and
pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue
sky securities laws of any state of the United States. Upon consummation of the proposed Exchange
in accordance with the terms of the Indenture, the beneficial interest issued will be subject to
the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant
Restricted Global Note and in the Indenture and the Securities Act.
This certificate and the statements contained herein are made for your benefit and the benefit
of the Issuers.
C-2
| [Insert Name of Transferor] | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
| Dated: | ||||||||
C-3
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
MagnaChip Semiconductor, Inc.
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Attention: General Counsel
20400 Stevens Creek Boulevard, Suite 370
Cupertino, CA 95014
Attention: General Counsel
Wilmington Trust FSB
Corporate Capital Markets
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402-1544
Attention: MagnaChip Semiconductor Administrator
Corporate Capital Markets
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402-1544
Attention: MagnaChip Semiconductor Administrator
Re: 10.500% Senior Notes due 2018
Reference is hereby made to the Indenture, dated as of April 9, 2010 (the “Indenture”), among
MagnaChip Semiconductor S.A., a Luxembourg public limited liability company (société anonyme) with
a registered office at 74, rue de Merl, B.P. 709 L-2146 Luxembourg registered with the register of
commerce and companies of Luxembourg under number B-97483 (“MagnaChip”), MagnaChip Semiconductor
Finance Company, a Delaware corporation (“FinanceCo” and, together with MagnaChip, the “Issuers”),
the Guarantors party thereto and Wilmington Trust FSB, as Trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $ aggregate principal amount of:
(a) ¨ a beneficial interest in a Global Note, or
(b) ¨ a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any interest therein is subject
to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be
bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except
in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended
(the “Securities Act”).
2. We understand that the offer and sale of the Notes have not been registered under the
Securities Act, and that the Notes and any interest therein may not be offered or sold except as
permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for
which we are acting as hereinafter stated, that if we should sell the Notes or any interest
therein, we will do so only (A) to an Issuer or any subsidiary thereof, (B) in accordance with Rule
144A under the Securities Act to a “qualified institutional buyer” (as defined therein), (C) to an
institutional “accredited investor” (as defined below) that, prior to such transfer, furnishes (or
has furnished on its behalf by a U.S. broker-dealer) to you and to the Issuers a signed letter
substantially in the form of this letter and, if such transfer is in respect of a principal amount
of Notes, at the time of transfer of less than $250,000, an Opinion of Counsel in form reasonably
acceptable to the Issuers to the effect that such transfer is in compliance with the Securities
Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities
Act, (E) pursuant to the provisions of Rule 144 under the Securities Act or (F) pursuant to an
effective registration statement under the Securities Act, and we further agree to provide to any
Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a
transaction meeting the
D-1
requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser
that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we
will be required to furnish to you and the Issuers such certifications, legal opinions and other
information as you and the Issuers may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect.
4. We are an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D under the Securities Act) and have such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of our investment in the
Notes, and we and any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased by us for our own
account or for one or more accounts (each of which is an institutional “accredited investor”) as to
each of which we exercise sole investment discretion.
You and the Issuers are entitled to rely upon this letter and are irrevocably authorized to
produce this letter or a copy hereof to any interested party in any administrative or legal
proceedings or official inquiry with respect to the matters covered hereby.
| [Insert Name of Accredited Investor] | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
| Dated: | ||||||||
D-2
EXHIBIT E
[FORM OF NOTATION OF GUARANTEE]
For value received, each Guarantor (which term includes any successor Person under the
Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the
Indenture and subject to the provisions in the Indenture, dated as of April 9, 2010 (the
“Indenture”), among MagnaChip Semiconductor S.A., a Luxembourg public limited liability company
(société anonyme) with a registered office at 74, rue de Merl, B.P. 709 L-2146 Luxembourg
registered with the register of commerce and companies of Luxembourg under number B-97483
(“MagnaChip”), MagnaChip Semiconductor Finance Company, a Delaware corporation (“FinanceCo” and,
together with MagnaChip, the “Issuers”), the Guarantors party thereto and Wilmington Trust FSB, as
Trustee (the “Trustee”), (a) the due and punctual payment of the principal of, premium on, if any,
interest and Special Interest, if any, on, the Notes, whether at maturity, by acceleration,
redemption or otherwise, the due and punctual payment of interest on overdue principal of, premium
on, if any, interest and Special Interest, if any, on, the Notes, if any, if lawful, and the due
and punctual performance of all other obligations of the Issuers to the Holders or the Trustee all
in accordance with the terms of the Indenture and (b) in case of any extension of time of payment
or renewal of any Notes or any of such other obligations, that the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of
Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth
in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms
of the Note Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be
bound by such provisions (b) authorizes and directs the Trustee, on behalf of such Holder, to take
such action as may be necessary or appropriate to effectuate the subordination as provided in the
Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided,
however, that the Indebtedness evidenced by this Note Guarantee shall cease to be so subordinated
and subject in right of payment upon any defeasance of this Note in accordance with the provisions
of the Indenture.
Capitalized terms used but not defined herein have the meanings given to them in the
Indenture.
| [Name of Guarantor(s)] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
E-1
EXHIBIT F
[FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS]
TO BE DELIVERED BY SUBSEQUENT GUARANTORS]
Supplemental Indenture (this “Supplemental Indenture”), dated as of ___,
among ___(the “Guaranteeing Subsidiary”), a subsidiary of [ ] (or its
permitted successor), a [Delaware] corporation (the “Company”), the Issuers (as defined in the
Indenture referred to herein), the other Guarantors (as defined in the Indenture referred to
herein) and [ ], as Trustee under the Indenture referred to below (the “Trustee”).
W I T N E S S E T H
WHEREAS, the Issuers have heretofore executed and delivered to the Trustee an Indenture (the
“Indenture”), dated as of April 9, 2010 providing for the issuance of 10.500% Senior Notes due 2018
(the “Notes”);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary
shall execute and deliver to the Trustee a supplemental indenture pursuant to which the
Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers’ Obligations under the
Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and
deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the
Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes
as follows:
1. Capitalized Terms. Capitalized terms used herein without definition shall have
the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees to provide an
unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee
and in the Indenture including but not limited to Article 10 thereof.
4. No Recourse Against Others. No director, officer, employee, incorporator,
stockholder, member or manager of the Issuers or any Guarantor, as such, will have any liability
for any obligations of the Issuers or the Guarantors under the Notes, this Indenture, the Note
Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
5. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS SUPPLEMENTAL INDENTURE WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS
OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
6. Counterparts. The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together represent the same
agreement.
F-1
7. Effect of Headings. The Section headings herein are for convenience only and
shall not affect the construction hereof.
8. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or
in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of
the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary
and the Issuers.
F-2
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly
executed and attested, all as of the date first above written.
Dated: ,
| [Guaranteeing Subsidiary] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| [Issuer] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| [Issuer] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| [Existing Guarantors] | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| [Trustee], | ||||
| as Trustee | ||||
| By: | ||||
| Authorized Signatory | ||||
F-3
Exhibit 4.6
EXECUTION VERSION
EXECUTION VERSION
MagnaChip Semiconductor S.A.
MagnaChip Semiconductor Finance Company
10.500% Senior Notes due 2018
unconditionally guaranteed as to the
payment of principal, premium,
if any, and interest by
payment of principal, premium,
if any, and interest by
MagnaChip Semiconductor LLC and the other Guarantors named herein
Exchange and Registration Rights Agreement
April 9, 2010
Goldman, Sachs & Co.
Barclays Capital Inc.
Deutsche Bank Securities Inc.
Morgan Stanley & Co. Incorporated
Barclays Capital Inc.
Deutsche Bank Securities Inc.
Morgan Stanley & Co. Incorporated
As representatives of the several Purchasers
named in Schedule I to the Purchase
Agreement (as defined herein)
c/o Goldman, Sachs & Co.
555 California Street, 45th Floor
San Francisco, CA 94104
555 California Street, 45th Floor
San Francisco, CA 94104
Ladies and Gentlemen:
MagnaChip Semiconductor S.A., a public company limited by shares (société anonyme) organized
under the laws of the Grand Duchy of Luxembourg, duly registered with the Luxembourg Registre
Commerce et des Sociétés under number B 97483, with its registered address at 74, rue de Merl,
L-2146 Luxembourg (“Luxco”), and its wholly owned subsidiary, MagnaChip Semiconductor Finance
Company, a Delaware corporation (“Finco,” and together with Luxco, the “Issuers”), propose to issue
and sell to the Purchasers (as defined herein) upon the terms set forth in the Purchase Agreement
(as defined herein) $250,000,000 in aggregate principal amount of the Issuers’ 10.500% Senior Notes
due 2018, which are unconditionally guaranteed by MagnaChip Semiconductor LLC, a Delaware limited
liability company (“Parent”), and each of the other guarantors party to this Agreement
(collectively, including Parent, the “Guarantors”). As an inducement to the Purchasers to enter
into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchasers
thereunder, the Issuers and the Guarantors agree with the Purchasers for the benefit of holders (as
defined herein) from time to time of the Registrable Securities (as defined herein) as follows:
1. Certain Definitions. For purposes of this Exchange and Registration Rights Agreement (this
“Agreement”), the following terms shall have the following respective meanings:
“Base Interest” shall mean the interest that would otherwise accrue on the Securities under
the terms thereof and the Indenture, without giving effect to the provisions of this Agreement.
The term “broker-dealer” shall mean any broker or dealer registered with the Commission
under the Exchange Act.
“Business Day” shall have the meaning set forth in Rule 13e-4(a)(3) promulgated by the
Commission under the Exchange Act, as the same may be amended or succeeded from time to time.
“Closing Date” shall mean the date on which the Securities are initially issued.
“Commission” shall mean the United States Securities and Exchange Commission, or any other
federal agency at the time administering the Exchange Act or the Securities Act, whichever is
the relevant statute for the particular purpose.
“EDGAR System” means the EDGAR filing system of the Commission and the rules and
regulations pertaining thereto promulgated by the Commission in Regulation S-T under the
Securities Act and the Exchange Act, in each case as the same may be amended or succeeded from
time to time (and without regard to format).
“Effective Time,” in the case of (i) an Exchange Registration, shall mean the time and date
as of which the Commission declares the Exchange Registration Statement effective or as of which
the Exchange Registration Statement otherwise becomes effective and (ii) a Shelf Registration,
shall mean the time and date as of which the Commission declares the Shelf Registration
Statement effective or as of which the Shelf Registration Statement otherwise becomes effective.
“Electing Holder” shall mean any holder of Registrable Securities that has returned a
completed and signed Notice and Questionnaire to the Issuers in accordance with Section 3(d)(ii)
or Section 3(d)(iii) and the instructions set forth in the Notice and Questionnaire.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated by the Commission thereunder, as the same may be amended or
succeeded from time to time.
“Exchange Offer” shall have the meaning assigned thereto in Section 2(a).
“Exchange Registration” shall have the meaning assigned thereto in Section 3(c).
“Exchange Registration Statement” shall have the meaning assigned thereto in Section 2(a).
“Exchange Securities” shall have the meaning assigned thereto in Section 2(a).
“Filing Deadline” shall mean the earlier of (a) 120 days after the Closing Date or (b) 30
days after the closing of the MagnaChip IPO; provided, however, that the Filing Deadline shall
not be earlier than 90 days after the Closing Date.
“Guarantors” shall have the meaning assigned thereto in the Indenture.
The term “holder” shall mean each of the Purchasers and other persons who acquire
Securities from time to time (including any successors or assigns), in each case for so long as
such person owns any Securities.
“Indenture” shall mean the trust indenture, dated as of April 9, 2010, between the Issuers,
the Guarantors and Wilmington Trust FSB, as trustee, as the same may be amended from time to
time.
2
“MagnaChip IPO” shall the first public sale of common equity securities of MagnaChip
Semiconductor, LLC (or any successor corporation) that is registered under the Securities Act
that is consummated after the Closing Date.
“Notice and Questionnaire” means a Notice of Registration Statement and Selling
Securityholder Questionnaire substantially in the form of Exhibit A hereto.
The term “person” shall mean a corporation, limited liability company, association,
partnership, organization, business, individual, government or political subdivision thereof or
governmental agency.
“Purchase Agreement” shall mean the Purchase Agreement, dated as of April 6, 2010, between
you, as representatives of the Purchasers, the Issuers and the Guarantors relating to the
Securities.
“Purchasers” shall mean the Purchasers named in Schedule I to the Purchase Agreement.
“Registrable Securities” shall mean the Securities; provided, however, that a Security
shall cease to be a Registrable Security upon the earliest to occur of the following: (i) in the
circumstances contemplated by Section 2(a), the date on which the Security has been exchanged
for an Exchange Security in an Exchange Offer as contemplated in Section 2(a) (provided that any
Exchange Security that, pursuant to the last two sentences of Section 2(a), is included in a
prospectus for use in connection with resales by broker-dealers shall be deemed to be a
Registrable Security with respect to Sections 5, 6 and 9 until resale of such Registrable
Security has been effected within the Resale Period); (ii) in the circumstances contemplated by
Section 2(b), a Shelf Registration Statement registering such Security under the Securities Act
has been declared or becomes effective and such Security has been sold or otherwise transferred
by the holder thereof pursuant to and in a manner contemplated by such effective Shelf
Registration Statement; (iii) subject to Section 8(b), such Security is actually sold by the
holder thereof pursuant to Rule 144 under circumstances in which any legend borne by such
Security relating to restrictions on transferability thereof, under the Securities Act or
otherwise, is removed by the Issuers or pursuant to the Indenture; or (iv) such Security shall
cease to be outstanding. For the absence of doubt, Securities that have been resold pursuant to
a private transaction shall remain Registrable Securities while outstanding until publicly
resold in a transaction described in (i) through (iii).
“Registration Default” shall have the meaning assigned thereto in Section 2(c).
“Registration Default Period” shall have the meaning assigned thereto in Section 2(c).
“Registration Expenses” shall have the meaning assigned thereto in Section 4.
“Resale Period” shall have the meaning assigned thereto in Section 2(a).
“Restricted Holder” shall mean (i) a holder that is an affiliate of the Issuers within the
meaning of Rule 405, (ii) a holder who acquires Exchange Securities outside the ordinary course
of such holder’s business, (iii) a holder who has arrangements or understandings with any person
to participate in the Exchange Offer for the purpose of distributing Exchange Securities and
(iv) a holder that is a broker-dealer, but only with respect to Exchange Securities received by
such broker-dealer pursuant to an Exchange Offer in exchange for Registrable Securities acquired
by the broker-dealer directly from the Issuers.
3
“Rule 144,” “Rule 405”, “Rule 415”, “Rule 424”, “Rule 430B” and “Rule 433” shall mean, in
each case, such rule promulgated by the Commission under the Securities Act (or any successor
provision), as the same may be amended or succeeded from time to time.
“Securities” shall mean, collectively, the $250,000,000 in aggregate principal amount of
the Issuers’ 10.500% Senior Notes due 2018 to be issued and sold to the Purchasers, and
securities issued in exchange therefor or in lieu thereof pursuant to the Indenture. Each
Security is entitled to the benefit of the guarantees provided by the Guarantors in the
Indenture (the “Guarantees”) and, unless the context otherwise requires, any reference herein to
a “Security,” an “Exchange Security” or a “Registrable Security” shall include a reference to
the related Guarantees.
“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and
regulations promulgated by the Commission thereunder, as the same may be amended or succeeded
from time to time.
“Shelf Registration” shall have the meaning assigned thereto in Section 2(b).
“Shelf Registration Statement” shall have the meaning assigned thereto in Section 2(b).
“Special Interest” shall have the meaning assigned thereto in Section 2(c).
“Suspension Period” shall have the meaning assigned thereto in Section 2(b).
“Trust Indenture Act” shall mean the Trust Indenture Act of 1939, as amended, and the rules
and regulations promulgated by the Commission thereunder, as the same may be amended or
succeeded from time to time.
“Trustee” shall mean Wilmington Trust FSB, as trustee under the Indenture, together with
any successors thereto in such capacity.
Unless the context otherwise requires, any reference herein to a “Section” or “clause” refers
to a Section or clause, as the case may be, of this Agreement, and the words “herein,” “hereof” and
“hereunder” and other words of similar import refer to this Agreement as a whole and not to any
particular Section or other subdivision.
2. Registration Under the Securities Act.
(a) Except as set forth in Section 2(b) below, the Issuers and the Guarantors agree to file
under the Securities Act, on or prior to the Filing Deadline, a registration statement relating
to an offer to exchange (such registration statement, the “Exchange Registration Statement”, and
such offer, the “Exchange Offer”) any and all of the Securities for a like aggregate principal
amount of debt securities issued by the Issuers and guaranteed by the Guarantors, which debt
securities and guarantees are substantially identical to the Securities and the related
Guarantees, respectively (and are entitled to the benefits of the Indenture), except that they
have been registered pursuant to an effective registration statement under the Securities Act
and do not contain provisions for Special Interest contemplated in Section 2(c) below (such new
debt securities hereinafter called “Exchange Securities”). The Issuers and the Guarantors agree
to use all commercially reasonable efforts to cause the Exchange Registration Statement to
become effective under the Securities Act on or prior to 90 days after the Filing Deadline. The
Exchange Offer will be registered under the Securities Act on the appropriate form and will
comply with all applicable tender offer rules and regulations under the Exchange Act. Unless
the Exchange
4
Offer would not be permitted by applicable law or Commission policy, the Issuers further
agree to use all commercially reasonable efforts to (i) commence the Exchange Offer promptly
(but no later than 10 Business Days) following the Effective Time of such Exchange Registration
Statement, (ii) hold the Exchange Offer open for at least 20 Business Days in accordance with
Regulation 14E promulgated by the Commission under the Exchange Act and (iii) exchange Exchange
Securities for all Registrable Securities that have been properly tendered and not withdrawn
promptly following the expiration of the Exchange Offer. The Exchange Offer will be deemed to
have been “completed” only upon the Issuers having exchanged, pursuant to the Exchange Offer,
Exchange Securities for all Registrable Securities that have been properly tendered and not
withdrawn before the expiration of the Exchange Offer, which shall be on a date that is at least
20 and not more than 30 Business Days following the commencement of the Exchange Offer. The
Issuers and the Guarantors agree (x) to include in the Exchange Registration Statement a
prospectus for use in any resales by any holder of Exchange Securities that is a broker-dealer
and (y) to keep such Exchange Registration Statement effective for a period (the “Resale
Period”) beginning when Exchange Securities are first issued in the Exchange Offer and ending
upon the earlier of the expiration of the 180th day after the Exchange Offer has been
completed or such time as such broker-dealers no longer own any Registrable Securities. With
respect to such Exchange Registration Statement, such holders shall have the benefit of the
rights and obligations of indemnification and contribution set forth in Section 6.
(b) If (i) on or prior to the time the Exchange Offer is completed existing law or
Commission interpretations are changed such that the debt securities or the related guarantees
received by holders other than Restricted Holders in the Exchange Offer for Registrable
Securities are not or would not be, upon receipt, transferable by each such holder without
restriction under the Securities Act, (ii) the Effective Time of the Exchange Registration
Statement is not within 90 days after the Filing Deadline and the Exchange Offer has not been
completed within 30 Business Days of such Effective Time or (iii) any holder of Registrable
Securities notifies the Issuers prior to the 20th Business Day following the
completion of the Exchange Offer that: (A) it is prohibited by law or Commission policy from
participating in the Exchange Offer (including but not limited to its status as a Restricted
Holder), (B) it may not resell the Exchange Securities to the public without delivering a
prospectus and the prospectus supplement contained in the Exchange Registration Statement is not
appropriate or available for such resales or (C) it is a broker-dealer and owns Securities
acquired directly from the Issuers or an affiliate of the Issuers, then the Issuers and the
Guarantors shall, in lieu of (or, in the case of clause (iii), in addition to) conducting the
Exchange Offer contemplated by Section 2(a), file under the Securities Act no later than 30 days
after the time such obligation to file arises (but there shall be no obligation of the Issuers
and the Guarantors to file earlier than the Filing Deadline), a “shelf” registration statement
providing for the registration of, and the sale on a continuous or delayed basis by the holders
of, all of the Registrable Securities, pursuant to Rule 415 or any similar rule that may be
adopted by the Commission (such filing, the “Shelf Registration” and such registration
statement, the “Shelf Registration Statement”) to cover resales of Securities by Electing
Holders. The Issuers and the Guarantors agree to use all commercially reasonable efforts to
cause the Shelf Registration Statement to become or be declared effective no later than 90 days
after such Shelf Registration Statement filing obligation arises (but there shall be no
obligation of the Issuers and the Guarantors to cause the Shelf Registration Statement to
become or be declared effective earlier than 210 days after the Closing Date); provided, that if
at any time either Issuer is or becomes a “well-known seasoned issuer” (as defined in Rule 405)
and is eligible to file an “automatic shelf registration statement” (as defined in Rule 405),
then the Issuers and the Guarantors shall file the Shelf Registration Statement in the form of
an automatic shelf registration statement
5
as provided in Rule 405. The Issuers and the Guarantors agree to use all commercially
reasonable efforts to keep such Shelf Registration Statement continuously effective for a period
ending on the earlier of the second anniversary of the Effective Time or such time as there are
no longer any Registrable Securities outstanding. No holder shall be entitled to be named as a
selling securityholder in the Shelf Registration Statement or to use the prospectus forming a
part thereof for resales of Registrable Securities unless such holder is an Electing Holder.
The Issuers and the Guarantors agree, after the Effective Time of the Shelf Registration
Statement and promptly upon the request of any holder of Registrable Securities that is not then
an Electing Holder or upon the request of any Electing Holder that was not eligible to sell
Registrable Securities under the Shelf Registration Statement at the time of its delivery of a
Notice and Questionnaire but is subsequently eligible to sell under the Shelf Registration
Statement, to use all commercially reasonable efforts to enable such holder to use the
prospectus forming a part thereof for resales of Registrable Securities, including, without
limitation, any action necessary to identify such holder as a selling securityholder in the
Shelf Registration Statement (whether by post-effective amendment thereto or by filing a
prospectus pursuant to Rules 430B and 424(b) under the Securities Act identifying such holder)
or filing a post-effective amendment on a different form that would allow such holder to sell
such Registrable Securities, provided, however, that nothing in this sentence shall relieve any
such holder of the obligation to return a completed and signed Notice and Questionnaire to the
Issuers in accordance with Section 3(d)(iii) and provided further, that no holder shall have any
right to require inclusion of Registrable Securities held by such holder until such holder has
returned a completed and signed Notice and Questionnaire. In the event that such amendment or
supplement to the Shelf Registration Statement does not enable such holder of Registrable
Securities to sell its Registrable Securities under such Shelf Registration Statement (an
“Ineligible Electing Holder”), then the Issuers and Guarantors agree that they shall use all
commercially reasonable efforts to file one additional Shelf Registration Statement (the
“Additional Shelf Registration Statement”), when necessary to enable such Ineligible Electing
Holder to sell such Registrable Securities, no later than 30 days after receipt of a written
request from such Ineligible Electing Holder, and shall use all commercially reasonable efforts
to cause such Shelf Registration Statement to become or be declared effective as promptly as
reasonably practicable after filing. If such written notice is not received by the Issuers and
the Guarantors prior to the second anniversary of the Effective Date of the initial Shelf
Registration Statement, the Issuers and Guarantors shall have no obligation to file the
Additional Shelf Registration Statement. The Issuers and the Guarantors agree to use all
commercially reasonable efforts to keep such Additional Shelf Registration Statement
continuously effective for a period ending on the earlier of the second anniversary of the
Effective Time of such Additional Shelf Registration statement or such time as there are no
longer any Registrable Securities of such Ineligible Electing Holder outstanding. The Issuers
and the Guarantors agree, after the Effective Time of the Additional Shelf Registration
Statement and promptly upon the request of any other Ineligible Electing Holder that is not then
named as a selling securityholder in the Additional Registration Statement, to use all
commercially reasonable efforts to enable such Ineligible Electing Holder to use the prospectus
forming a part thereof for resales of Registrable Securities, including, without limitation, any
action necessary to identify such Ineligible Electing Holder as a selling securityholder in the
Additional Shelf Registration Statement (whether by post-effective amendment thereto or by
filing a prospectus pursuant to Rules 430B and 424(b) under the Securities Act identifying such
holder).
Notwithstanding anything to the contrary in this Section 2(b), upon notice to the Electing
Holders or the Ineligible Electing Holders, as applicable, the Issuers may suspend the use or
the effectiveness of such Shelf Registration Statement or the Additional Shelf Registration
Statement, or extend the time period in which it is required to file the Shelf Registration
6
Statement or the Additional Shelf Registration Statement, for up to 30 consecutive days and up
to 60 days in the aggregate, in each case in any 12-month period (a “Suspension Period”) if the
Board of Directors of Parent determines that there is a valid business purpose for suspension of
the Shelf Registration Statement or the Additional Shelf Registration Statement; provided that
the Issuers shall promptly notify the Electing Holders when the Shelf Registration Statement may
once again be used or is effective and shall promptly notify the Ineligible Electing Holders
when the Additional Shelf Registration Statement may once again be used or is effective. The
Electing Holders agree not to offer or sell any Registrable Securities pursuant to the Shelf
Registration Statement during the Suspension Period and the Ineligible Electing Holders agree
not to offer or sell any Registrable Securities pursuant to the Additional Shelf Registration
Statement during the Suspension Period. If 100% of the Electing Holders or Ineligible Electing
Holders named or to be named in any Shelf Registration Statement or Additional Shelf
Registration statement, as applicable, agree with the Guarantors and the Issuers, the Guarantors
and the Issuers may delay the filing of such Shelf Registration Statement or the Additional
Shelf Registration Statement, as applicable, without negatively affecting the rights of the
Electing Holders and Ineligible Electing Holders hereunder, and any such agreed upon delay shall
be deemed to extend the period for filing such Shelf Registration Statement or Additional Shelf
Registration Statement, as applicable, for purposes of Section 2(c) below.
(c) In the event that (i) the Issuers and the Guarantors have not filed the Exchange
Registration Statement or any Shelf Registration Statement on or before the date on which such
registration statement is required to be filed pursuant to Section 2(a) or Section 2(b) (except
as specifically permitted herein during any applicable Suspension Period in accordance with
Section 2(b)), respectively, or (ii) such Exchange Registration Statement or Shelf Registration
Statement has not become effective or been declared effective by the Commission on or before the
date on which such registration statement is required to become or be declared effective
pursuant to Section 2(a) or Section 2(b), respectively, or (iii) the Exchange Offer has not been
consummated within 30 Business Days after the commencement of the related Exchange Offer (if the
Exchange Offer is then required to be made) or (iv) any Exchange Registration Statement or Shelf
Registration Statement required by Section 2(a) or Section 2(b) is filed and declared effective
but shall thereafter either be withdrawn or otherwise made unavailable for use by the Issuers or
shall become subject to an effective stop order issued pursuant to Section 8(d) of the
Securities Act suspending the effectiveness of such registration statement (except as
specifically permitted herein with respect to any Shelf Registration Statement during any
applicable Suspension Period in accordance with Section 2(b)) without being succeeded
immediately by an additional registration statement filed and declared effective (each such
event referred to in clauses (i) through (iv), a “Registration Default” and each period during
which a Registration Default has occurred and is continuing, a “Registration Default Period”),
then, as liquidated damages for such Registration Default, subject to the provisions of
Section 9(b), special interest (“Special Interest”), in addition to the Base Interest, shall
accrue on all Registrable Securities then outstanding at a per annum rate of 0.25% for the first
90 days of the Registration Default Period, at a per annum rate of 0.50% for the second 90 days
of the Registration Default Period, at a per annum rate of 0.75% for the third 90 days of the
Registration Default Period and at a per annum rate of 1.0% thereafter for the remaining portion
of the Registration Default Period. Special Interest shall accrue and be payable only with
respect to a single Registration Default at any given time, notwithstanding the fact that
multiple Registration Defaults may exist at such time.
(d) Each of the Issuers shall take, and shall cause each of the Guarantors to take, all
actions necessary or advisable to be taken by it to ensure that the transactions
7
contemplated herein are effected as so contemplated, including all actions necessary or
desirable to register the Guarantees under any Exchange Registration Statement or Shelf
Registration Statement.
(e) Any reference herein to a registration statement or prospectus as of any time shall be
deemed to include any document incorporated, or deemed to be incorporated, therein by reference
as of such time; and any reference herein to any post-effective amendment to a registration
statement or to any prospectus supplement as of any time shall be deemed to include any document
incorporated, or deemed to be incorporated, therein by reference as of such time.
3. Registration Procedures.
If the Issuers and the Guarantors file a registration statement pursuant to Section 2(a) or
Section 2(b), the following provisions shall apply:
(a) At or before the Effective Time of the Exchange Registration or any Shelf Registration,
whichever may occur first, the Issuers shall qualify the Indenture under the Trust Indenture
Act.
(b) In the event that such qualification would require the appointment of a new trustee
under the Indenture, the Issuers shall appoint a new trustee thereunder pursuant to the
applicable provisions of the Indenture.
(c) In connection with the Issuers’ and the Guarantors’ obligations with respect to the
registration of Exchange Securities as contemplated by Section 2(a) (the “Exchange
Registration”), if applicable, the Issuers and the Guarantors shall:
(i) prepare and file with the Commission, no later than the Filing Deadline, an
Exchange Registration Statement on any form which may be utilized by the Issuers and the
Guarantors and which shall permit the Exchange Offer and resales of Exchange Securities
by broker-dealers during the Resale Period to be effected as contemplated by
Section 2(a), and use all commercially reasonable efforts to cause such Exchange
Registration Statement to become effective no later than 90 days after the Filing
Deadline;
(ii) as soon as practicable prepare and file with the Commission such amendments
and supplements to such Exchange Registration Statement and the prospectus included
therein as may be necessary to effect and maintain the effectiveness of such Exchange
Registration Statement for the periods and purposes contemplated in Section 2(a) and as
may be required by the applicable rules and regulations of the Commission and the
instructions applicable to the form of such Exchange Registration Statement, and
promptly provide each broker-dealer holding Exchange Securities with such number of
copies of the prospectus included therein (as then amended or supplemented), in
conformity in all material respects with the requirements of the Securities Act and the
Trust Indenture Act, as such broker-dealer reasonably may request prior to the
expiration of the Resale Period, for use in connection with resales of Exchange
Securities;
(iii) promptly notify each broker-dealer that has requested or received from the
Issuers copies of the prospectus included in such Exchange Registration Statement, and
confirm such advice in writing, (A) when such Exchange Registration Statement or the
prospectus included therein or any prospectus amendment or supplement or
8
post-effective amendment has been filed, and, with respect to such Exchange
Registration Statement or any post-effective amendment, when the same has become
effective, (B) of any comments by the Commission and by the blue sky or securities
commissioner or regulator of any state with respect thereto or any request by the
Commission for amendments or supplements to such Exchange Registration Statement or
prospectus or for additional information, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of such Exchange Registration Statement or the
initiation or threatening of any proceedings for that purpose, (D) if at any time the
representations and warranties of the Issuers contemplated by Section 5 cease to be true
and correct in all material respects, (E) of the receipt by the Issuers of any
notification with respect to the suspension of the qualification of the Exchange
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (F) the occurrence of any event that causes either of the
Issuers to become an “ineligible issuer” as defined in Rule 405, or (G) if at any time
during the Resale Period when a prospectus is required to be delivered under the
Securities Act, that such Exchange Registration Statement, prospectus, prospectus
amendment or supplement or post-effective amendment does not conform in all material
respects to the applicable requirements of the Securities Act and the Trust Indenture
Act or 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 then existing;
(iv) in the event that the Issuers and the Guarantors would be required, pursuant
to Section 3(c)(iii)(G), to notify any broker-dealers holding Exchange Securities
(except as otherwise permitted during any Suspension Period), promptly prepare and
furnish to each such holder a reasonable number of copies of a prospectus supplemented
or amended so that, as thereafter delivered to purchasers of such Exchange Securities
during the Resale Period, such prospectus shall conform in all material respects to the
applicable requirements of the Securities Act and the Trust Indenture Act and shall not
contain an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading in light
of the circumstances then existing;
(v) use all commercially reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of such Exchange Registration Statement or any
post-effective amendment thereto at the earliest practicable date;
(vi) use all commercially reasonable efforts to (A) register or qualify the
Exchange Securities under the securities laws or blue sky laws of such jurisdictions as
are contemplated by Section 2(a) no later than the commencement of the Exchange Offer,
to the extent required by such laws, (B) subject to any Suspension Period, keep such
registrations or qualifications in effect and comply with such laws so as to permit the
continuance of offers, sales and dealings therein in such jurisdictions until the
expiration of the Resale Period, (C) take any and all other actions as may be reasonably
necessary or advisable to enable each broker-dealer holding Exchange Securities to
consummate the disposition thereof in such jurisdictions and (D) obtain the consent or
approval of each governmental agency or authority, whether federal, state or local,
which may be required to effect the Exchange Registration, the Exchange Offer and the
offering and sale of Exchange Securities by broker-dealers during the Resale Period;
provided, however, that
9
neither the Issuers nor the Guarantors shall be required for any such purpose to
(1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise
be required to qualify but for the requirements of this Section 3(c)(vi), (2) consent to
general service of process in any such jurisdiction or become subject to taxation in any
such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws
or other governing documents or any agreement between it and its stockholders;
(vii) obtain a CUSIP number for all Exchange Securities, not later than the
applicable Effective Time; and
(viii) comply in all material respects with all applicable rules and regulations of
the Commission, and make generally available to its securityholders no later than
eighteen months after the Effective Time of such Exchange Registration Statement, an
“earning statement” of Parent and its subsidiaries complying with Section 11(a) of the
Securities Act (including, at the option of the Issuers, Rule 158 thereunder).
(d) In connection with the Issuers’ and the Guarantors’ obligations with respect to the
Shelf Registration, if applicable, the Issuers and the Guarantors shall:
(i) use all commercially reasonable efforts to prepare and file with the
Commission, within the time periods specified in Section 2(b), a Shelf Registration
Statement on any form which may be utilized by the Issuers and which shall register all
of the Registrable Securities for resale by the holders thereof in accordance with such
method or methods of disposition as may be specified by the holders of Registrable
Securities as, from time to time, may be Electing Holders and use all commercially
reasonable efforts to cause such Shelf Registration Statement to become effective within
the time periods specified in Section 2(b);
(ii) mail the Notice and Questionnaire to persons identified to the Issuers as
holders of Registrable Securities (A) not less than 20 days prior to the anticipated
Effective Time of the Shelf Registration Statement or (B) in the case of an “automatic
shelf registration statement” (as defined in Rule 405), mail the Notice and
Questionnaire to the holders of Registrable Securities not later than the Effective Time
of such Shelf Registration Statement, and in any such case no holder shall be entitled
to be named as a selling securityholder in the Shelf Registration Statement, and no
holder shall be entitled to use the prospectus forming a part thereof for resales of
Registrable Securities at any time, unless and until such holder has returned a
completed and signed Notice and Questionnaire to the Issuers;
(iii) after the Effective Time of the Shelf Registration Statement, upon the
request of any holder of Registrable Securities that is not then an Electing Holder,
promptly send a Notice and Questionnaire to such holder; provided that the Issuers shall
not be required to take any action to name such holder as a selling securityholder in
the Shelf Registration Statement or to enable such holder to use the prospectus forming
a part thereof for resales of Registrable Securities until such holder has returned a
completed and signed Notice and Questionnaire to the Issuers;
(iv) as soon as practicable prepare and file with the Commission such amendments
and supplements to such Shelf Registration Statement and the prospectus included therein
as may be necessary to effect and maintain the effectiveness of such Shelf Registration
Statement for the period specified in
10
Section 2(b) and as may be required by the applicable rules and regulations of the
Commission and the instructions applicable to the form of such Shelf Registration
Statement, and furnish to the Electing Holders copies of any such supplement or
amendment as soon as reasonably practicable following its filing with the Commission to
the extent such documents are not publicly available on the Commission’s EDGAR System;
(v) comply in all material respects with the provisions of the Securities Act with
respect to the disposition of all of the Registrable Securities covered by such Shelf
Registration Statement in accordance with the intended methods of disposition by the
Electing Holders provided for in such Shelf Registration Statement;
(vi) provide the Electing Holders and not more than one counsel for all the
Electing Holders the opportunity to participate in the preparation of such Shelf
Registration Statement, each prospectus included therein or filed with the Commission
and each amendment or supplement thereto;
(vii) for a reasonable period prior to the filing of such Shelf Registration
Statement, and throughout the period specified in Section 2(b), make available at
reasonable times at the Issuers’ principal place of business within the United States or
such other reasonable place within the United States for inspection by the persons
referred to in Section 3(d)(vi) who shall certify to the Issuers that they have a
current intention to sell the Registrable Securities pursuant to the Shelf Registration
such financial and other information and books and records of the Issuers, and cause the
officers, employees, counsel and independent certified public accountants of the Issuers
to respond to such inquiries, as shall be reasonably necessary (and in the case of
counsel, not violate an attorney-client privilege, in such counsel’s reasonable belief),
in the judgment of the respective counsel referred to in Section 3(d)(vi), to conduct a
reasonable investigation within the meaning of Section 11 of the Securities Act;
provided, however, that the foregoing inspection and information gathering on behalf of
the Electing Holders shall be conducted by one counsel designated by the holders of at
least a majority in aggregate principal amount of the Registrable Securities held by the
Electing Holders at the time outstanding and provided further that each such party shall
be required to maintain in confidence and not to disclose to any other person any
information or records reasonably designated by the Issuers as being confidential, until
such time as (A) such information becomes a matter of public record (whether by virtue
of its inclusion in such Shelf Registration Statement or otherwise), or (B) such person
shall be required so to disclose such information pursuant to a subpoena or order of any
court or other governmental agency or body having jurisdiction over the matter (subject
to the requirements of such order, and only after such person shall have given the
Issuers prompt prior written notice of such requirement), or (C) such information is
required to be set forth in such Shelf Registration Statement or the prospectus included
therein or in an amendment to such Shelf Registration Statement or an amendment or
supplement to such prospectus in order that such Shelf Registration Statement,
prospectus, amendment or supplement, as the case may be, complies with applicable
requirements of the federal securities laws and the rules and regulations of the
Commission and does not contain an untrue statement of a material fact or omit to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
11
(viii) promptly notify each of the Electing Holders and confirm such advice in
writing, (A) when such Shelf Registration Statement or the prospectus included therein
or any prospectus amendment or supplement or post-effective amendment has been filed,
and, with respect to such Shelf Registration Statement or any post-effective amendment,
when the same has become effective, (B) of any comments by the Commission and by the
blue sky or securities commissioner or regulator of any state with respect thereto or
any request by the Commission for amendments or supplements to such Shelf Registration
Statement or prospectus or for additional information, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of such Shelf Registration
Statement or the initiation or threatening of any proceedings for that purpose, (D) if
at any time the representations and warranties of the Issuers set forth in Section 5
cease to be true and correct in all material respects, (E) of the receipt by the Issuers
of any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose, (F) the occurrence of any event that causes either of
the Issuers to become an “ineligible issuer” as defined in Rule 405, or (G) if at any
time when a prospectus is required to be delivered under the Securities Act, that such
Shelf Registration Statement, prospectus, prospectus amendment or supplement or
post-effective amendment does not conform in all material respects to the applicable
requirements of the Securities Act and the Trust Indenture Act or 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 then existing;
(ix) use all commercially reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of such Shelf Registration Statement or any post-effective
amendment thereto at the earliest practicable date;
(x) if requested by any Electing Holder, promptly incorporate in a prospectus
supplement or post-effective amendment such information as is required by the applicable
rules and regulations of the Commission and as such Electing Holder reasonably specifies
should be included therein relating to the terms of the sale of such Registrable
Securities, including information with respect to the principal amount of Registrable
Securities being sold by such Electing Holder, the name and description of such Electing
Holder, the offering price of such Registrable Securities and any discount, commission
or other compensation payable in respect thereof and with respect to any other material
terms of the offering of the Registrable Securities to be sold by such Electing Holder;
and make all required filings of such prospectus supplement or post-effective amendment
as promptly as reasonably practicable after notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
(xi) furnish to each Electing Holder and the counsel referred to in
Section 3(d)(vi) an executed copy (or a conformed copy) of such Shelf Registration
Statement, each such amendment and supplement thereto (in each case including all
exhibits thereto (in the case of an Electing Holder of Registrable Securities, upon
request) and documents incorporated by reference therein) and such number of copies of
such Shelf Registration Statement (excluding exhibits thereto and documents incorporated
by reference therein unless specifically so requested by such Electing Holder) and of
the prospectus included in such Shelf Registration Statement (including each preliminary
prospectus and any summary prospectus), in
12
conformity in all material respects with the applicable requirements of the
Securities Act and the Trust Indenture Act to the extent such documents are not
available through the Commission’s EDGAR System (or any successor system), and such
other documents, as such Electing Holder may reasonably request in order to facilitate
the offering and disposition of the Registrable Securities owned by such Electing Holder
and to permit such Electing Holder to satisfy the prospectus delivery requirements of
the Securities Act; and subject to Section 3(e), the Issuers hereby consent to the use
of such prospectus (including such preliminary and summary prospectus) and any amendment
or supplement thereto by each such Electing Holder (subject to any applicable Suspension
Period), in each case in the form most recently provided to such person by the Issuers,
in connection with the offering and sale of the Registrable Securities covered by the
prospectus (including such preliminary and summary prospectus) or any supplement or
amendment thereto; provided that such Electing Holder shall cease using such prospectus
upon receipt of any notice from the Issuers pursuant to Section 3(d)(iii) until such
prospectus is subsequently supplemented or amended in accordance with Section 3(e);
(xii) use all commercially reasonable efforts to (A) register or qualify the
Registrable Securities to be included in such Shelf Registration Statement under such
securities laws or blue sky laws of such jurisdictions as any Electing Holder shall
reasonably request, (B) keep such registrations or qualifications in effect and comply
with such laws so as to permit the continuance of offers, sales and dealings therein in
such jurisdictions during the period the Shelf Registration Statement is required to
remain effective under Section 2(b) and for so long as may be necessary to enable any
such Electing Holder to complete its distribution of Registrable Securities pursuant to
such Shelf Registration Statement, (C) take any and all other actions as may be
reasonably necessary or advisable to enable each such Electing Holder to consummate the
disposition in such jurisdictions of such Registrable Securities and (D) obtain the
consent or approval of each governmental agency or authority, whether federal, state or
local, which may be required to effect the Shelf Registration or the offering or sale in
connection therewith or to enable the selling holder or holders to offer, or to
consummate the disposition of, their Registrable Securities; provided, however, that
neither the Issuers nor the Guarantors shall be required for any such purpose to
(1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise
be required to qualify but for the requirements of this Section 3(d)(xii), (2) consent
to general service of process in any such jurisdiction or become subject to taxation in
any such jurisdiction or (3) make any changes to its certificate of incorporation or
by-laws or other governing documents or any agreement between it and its stockholders;
(xiii) unless any Registrable Securities shall be in book-entry only form,
cooperate with the Electing Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold, which
certificates, if so required by any securities exchange upon which any Registrable
Securities are listed, shall be printed, penned, lithographed, engraved or otherwise
produced by any combination of such methods, on steel engraved borders, and which
certificates shall not bear any restrictive legends;
(xiv) obtain a CUSIP number for all Securities that have been registered under the
Securities Act, not later than the applicable Effective Time;
13
(xv) notify in writing each holder of Registrable Securities of any proposal by the
Issuers to amend or waive any provision of this Agreement pursuant to Section 9(h) and
of any amendment or waiver effected pursuant thereto, each of which notices shall
contain the text of the amendment or waiver proposed or effected, as the case may be;
and
(xvi) comply in all material respects with all applicable rules and regulations of
the Commission, and make generally available to its securityholders no later than
eighteen months after the Effective Time of such Shelf Registration Statement an
“earning statement” of Parent and its subsidiaries complying with Section 11(a) of the
Securities Act (including, at the option of the Issuers, Rule 158 thereunder).
(e) In the event that the Issuers would be required, pursuant to Section 3(d)(viii)(G), to
notify the Electing Holders, the Issuers shall promptly prepare and furnish to each of the
Electing Holders a reasonable number of copies of a prospectus supplemented or amended so that,
as thereafter delivered to purchasers of Registrable Securities, such prospectus shall conform
in all material respects to the applicable requirements of the Securities Act and the Trust
Indenture Act and shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing. Each Electing Holder agrees that upon
receipt of any notice from the Issuers pursuant to Section 3(d)(viii)(G), such Electing Holder
shall forthwith discontinue the disposition of Registrable Securities pursuant to the Shelf
Registration Statement applicable to such Registrable Securities until such Electing Holder
shall have received copies of such amended or supplemented prospectus, and if so directed by the
Issuers, such Electing Holder shall deliver to the Issuers (at the Issuers’ expense) all copies,
other than permanent file copies, of the prospectus covering such Registrable Securities in such
Electing Holder’s possession at the time of receipt of such notice.
(f) In the event of a Shelf Registration, in addition to the information required to be
provided by each Electing Holder in its Notice and Questionnaire, the Issuers may require such
Electing Holder to furnish to the Issuers such additional information regarding such Electing
Holder and such Electing Holder’s intended method of distribution of Registrable Securities as
may be required in order to comply with the Securities Act. Each such Electing Holder agrees to
notify the Issuers as promptly as practicable of any inaccuracy or change in information
previously furnished by such Electing Holder to the Issuers or of the occurrence of any event in
either case as a result of which any prospectus relating to such Shelf Registration contains or
would contain an untrue statement of a material fact regarding such Electing Holder or such
Electing Holder’s intended method of disposition of such Registrable Securities or omits to
state any material fact regarding such Electing Holder or such Electing Holder’s intended method
of disposition of such Registrable Securities required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then existing, and promptly
to furnish to the Issuers any additional information required to correct and update any
previously furnished information or required so that such prospectus shall not contain, with
respect to such Electing Holder or the disposition of such Registrable Securities, an untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the circumstances then
existing.
(g) Until the expiration of one year after the Closing Date, the Issuers will not, and will
not permit any of its “affiliates” (as defined in Rule 144) that are controlled by the Issuers
to, resell any of the Securities that have been reacquired by any of them except pursuant to an
14
effective registration statement, or a valid exemption from the registration requirements,
under the Securities Act.
(h) As a condition to its participation in the Exchange Offer, each holder of Registrable
Securities shall furnish, upon the request of the Issuers, a written representation to the
Issuers (which may be contained in the letter of transmittal or “agent’s message” transmitted
via The Depository Trust Company’s Automated Tender Offer Procedures, in either case
contemplated by the Exchange Registration Statement) to the effect that (A) it is not an
“affiliate”, as defined in Rule 405 of the Securities Act, of the Issuers or if it is such an
“affiliate”, it will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (B) it is not engaged in and does not intend to engage
in, and has no arrangement or understanding with any person to participate in, a distribution of
the Exchange Securities to be issued in the Exchange Offer, (C) it is acquiring the Exchange
Securities in its ordinary course of business, (D) if it is a broker-dealer that holds
Securities that were acquired for its own account as a result of market-making activities or
other trading activities (other than Securities acquired directly from the Issuers or any of
their affiliates), it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resales of the Exchange Securities received by it in the Exchange Offer,
(E) if it is a broker-dealer, that it did not purchase the Securities to be exchanged in the
Exchange Offer from the Issuers or any of their affiliates, and (F) it is not acting on behalf
of any person who could not truthfully and completely make the representations contained in the
foregoing subclauses (A) through (E).
4. Registration Expenses.
The Issuers agree to bear and to pay or cause to be paid promptly all expenses incident to the
Issuers’ performance of or compliance with this Agreement, including (a) all Commission and any
FINRA registration, filing and review fees and expenses including reasonable fees and disbursements
of counsel for the Electing Holders in connection with such registration, filing and review,
(b) all fees and expenses in connection with the qualification of the Registrable Securities, the
Securities and the Exchange Securities, as applicable, for offering and sale under the State
securities and blue sky laws referred to in Section 3(d)(xii) and determination of their
eligibility for investment under the laws of such jurisdictions as the Electing Holders may
designate, including reasonable fees and disbursements of counsel for the Electing Holders in
connection with such qualification and determination, (c) all expenses relating to the preparation,
printing, production, distribution and reproduction of each registration statement required to be
filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto,
each amendment or supplement to the foregoing, the expenses of preparing the Securities or Exchange
Securities, as applicable, for delivery and the expenses of printing or producing any selling
agreements and blue sky or legal investment memoranda and all other documents in connection with
the offering, sale or delivery of Securities or Exchange Securities, as applicable, to be disposed
of (including certificates representing the Securities or Exchange Securities, as applicable),
(d) messenger, telephone and delivery expenses relating to the offering, sale or delivery of
Securities or Exchange Securities, as applicable, and the preparation of documents referred in
clause (c) above, (e) fees and expenses of the Trustee under the Indenture, any agent of the
Trustee and any counsel for the Trustee and of any collateral agent or custodian, (f) internal
expenses (including all salaries and expenses of the Issuers’ officers and employees performing
legal or accounting duties), (g) reasonable fees, disbursements and expenses of counsel and
independent certified public accountants of the Issuers, (h) reasonable fees, disbursements and
expenses of one counsel for the Electing Holders retained in connection with a Shelf Registration,
as selected by the Electing Holders of at least a majority in aggregate principal amount of the
Registrable Securities held by Electing
15
Holders (which counsel shall be reasonably satisfactory to the Issuers), (i) any fees charged
by securities rating services for rating the Registrable Securities, the Securities or the Exchange
Securities, as applicable, and (j) fees, expenses and disbursements of any other persons, including
special experts, retained by the Issuers in connection with such registration (collectively, the
“Registration Expenses”). To the extent that any Registration Expenses are incurred, assumed or
paid by any holder of Registrable Securities, Securities or Exchange Securities, as applicable, the
Issuers shall reimburse such person for the full amount of the Registration Expenses so incurred,
assumed or paid promptly after receipt of an appropriately documented request therefor.
Notwithstanding the foregoing, the holders of the Registrable Securities being registered shall pay
all agency fees and commissions and underwriting discounts and commissions, if any, and transfer
taxes, if any, attributable to the sale of such Registrable Securities, Securities and Exchange
Securities, as applicable, and the fees and disbursements of any counsel or other advisors or
experts retained by such holders (severally or jointly), other than the counsel and experts
specifically referred to above.
5. Representations and Warranties.
Each of the Issuers and each of the Guarantors, jointly and severally, represents and warrants
to, and agrees with, each Purchaser and each of the holders from time to time of Registrable
Securities that:
(a) Each registration statement covering Registrable Securities, Securities or Exchange
Securities, as applicable, and each prospectus (including any preliminary or summary prospectus)
contained therein or furnished pursuant to Section 3(c) or Section 3(d) and any further
amendments or supplements to any such registration statement or prospectus, when it becomes
effective or is filed with the Commission, as the case may be, will conform in all material
respects to the requirements of the Securities Act and the Trust Indenture Act and will not
contain an untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; and at all times
subsequent to the Effective Time when a prospectus would be required to be delivered under the
Securities Act, other than (A) from (i) such time as a notice has been given to holders of
Registrable Securities pursuant to Section 3(c)(iii)(G) or Section 3(d)(viii)(G) until (ii) such
time as the Issuers furnish an amended or supplemented prospectus pursuant to Section 3(c)(iv)
or Section 3(e) or (B) during any applicable Suspension Period, each such registration
statement, and each prospectus (including any summary prospectus) contained therein or furnished
pursuant to Section 3(c) or Section 3(d), as then amended or supplemented, will conform in all
material respects to the requirements of the Securities Act and the Trust Indenture Act and will
not contain an untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in the light of the
circumstances then existing; provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Issuers by a holder of Registrable Securities expressly for use
therein.
(b) Any documents incorporated by reference in any prospectus referred to in Section 5(a),
when they become or became effective or are or were filed with the Commission, as the case may
be, will conform or conformed in all material respects to the requirements of the Securities Act
or the Exchange Act, as applicable, and none of such documents will contain or contained an
untrue statement of a material fact or will omit or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading; provided, however,
that this representation and warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with
16
information furnished in writing to the Issuers by a holder of Registrable Securities
expressly for use therein.
(c) The compliance by the Issuers with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not (i) conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the
Issuers, the Guarantors or any of their respective subsidiaries is a party or by which the
Issuers, the Guarantors or any of their respective subsidiaries is bound or to which any of the
property or assets of the Issuers, the Guarantors or any of their respective subsidiaries is
subject, (ii) result in any violation of the provisions of the Certificate of Incorporation,
By-laws or other governing documents, of the Issuers or the Guarantors or (iii) result in any
violation of any statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Issuers, the Guarantors or any of their respective
subsidiaries or any of their properties, except in the case of clause (i) or clause (iii) for
any default, breach, violation or conflict which would not reasonably be expected to have a
Material Adverse Effect (as defined in the Purchase Agreement); and no consent, approval,
authorization, order, registration or qualification of or with any such court or governmental
agency or body is required for the consummation by the Issuers and the Guarantors of the
transactions contemplated by this Agreement, except (x) the registration under the Securities
Act of the Registrable Securities, the Securities and the Exchange Securities, as applicable,
and qualification of the Indenture under the Trust Indenture Act, (y) such consents, approvals,
authorizations, registrations or qualifications as may be required under state securities or
blue sky laws in connection with the offering and distribution of the Registrable Securities,
the Securities and the Exchange Securities, as applicable, and (z) such consents, approvals,
authorizations, registrations or qualifications that have been obtained and are in full force
and effect as of the date hereof.
(d) This Agreement has been duly authorized, executed and delivered by the Issuers and by
the Guarantors.
6. Indemnification and Contribution.
(a) Indemnification by the Issuers and the Guarantors. The Issuers and the Guarantors,
jointly and severally, will indemnify and hold harmless each of the holders of Registrable
Securities included in an Exchange Registration Statement and each of the Electing Holders as
holders of Registrable Securities included in a Shelf Registration Statement against any
losses, claims, damages or liabilities, joint or several, to which such holder or such Electing
Holder may become subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any Exchange Registration
Statement or any Shelf Registration Statement, as the case may be, under which such Registrable
Securities, Securities or Exchange Securities were registered under the Securities Act, or any
preliminary, final or summary prospectus (including, without limitation, any “issuer free
writing prospectus” as defined in Rule 433) contained therein or furnished by the Issuers to any
such holder or any such Electing Holder, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, and will reimburse
each such holder and each such Electing Holder for any and all legal or other expenses
reasonably incurred by them in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that neither the Issuers nor the
Guarantors
17
shall be liable to any such person in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon (i) an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration statement, or
preliminary, final or summary prospectus (including, without limitation, any “issuer free
writing prospectus” as defined in Rule 433), or amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Issuers by such person
expressly for use therein (ii) the use of any such registration statement, or preliminary, final
or summary prospectus (including, without limitation, any “issuer free writing prospectus” as
defined in Rule 433), or amendment or supplement thereto after notice has been given to holders
of Eligible Securities pursuant to Section 3(c)(iii)(G) or Section 3(d)(viii)(G) prior to such
time as the Company furnishes an amended or supplemented prospectus pursuant to Section 3(c)(iv)
or Section 3(e).
(b) Indemnification by the Electing Holders. The Issuers may require, as a condition to
including any Registrable Securities in any Shelf Registration Statement filed pursuant to
Section 2(b), that the Issuers shall have received an undertaking reasonably satisfactory to it
from each Electing Holder of Registrable Securities included in such Shelf Registration
Statement, severally and not jointly, to (i) indemnify and hold harmless the Issuers, the
Guarantors and all other Electing Holders of Registrable Securities included in such Shelf
Registration Statement, against any losses, claims, damages or liabilities to which the Issuers,
the Guarantors or such other Electing Holders may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in such registration statement, or any preliminary, final or summary
prospectus (including, without limitation, any “issuer free writing prospectus” as defined in
Rule 433) contained therein or furnished by the Issuers to any Electing Holder, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Issuers by such Electing Holder
expressly for use therein, and (ii) reimburse the Issuers and the Guarantors for any legal or
other expenses reasonably incurred by the Issuers and the Guarantors in connection with
investigating or defending any such action or claim as such expenses are incurred; provided,
however, that no such Electing Holder shall be required to undertake liability to any person
under this Section 6(b) for any amounts in excess of the dollar amount of the proceeds to be
received by such Electing Holder from the sale of such Electing Holder’s Registrable Securities
pursuant to such registration.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party under
subsection (a) or (b) above of written notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an indemnifying
party pursuant to the indemnification provisions of or contemplated by this Section 6, notify
such indemnifying party in writing of the commencement of such action; but the omission so to
notify the indemnifying party shall not relieve it from any liability which it may have to any
indemnified party otherwise than under the indemnification provisions of or contemplated by
Section 6(a) or Section 6(b). In case any such action shall be brought against any indemnified
party and it shall notify an indemnifying party of the commencement thereof, such indemnifying
party shall be entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
18
after notice from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, such indemnifying party shall not be liable to such indemnified
party for any legal expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior 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 (i) includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) 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.
(d) Contribution. If for any reason the indemnification provisions contemplated by
Section 6(a) or Section 6(b) are unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or liabilities (or actions
in respect thereof) in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by such indemnifying party or by such indemnified
party, and the parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The parties hereto agree that it would not be
just and equitable if contributions pursuant to this Section 6(d) were determined by pro rata
allocation (even if the holders were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations referred to in
this Section 6(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall
be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 6(d), no Electing Holder shall be required to contribute any
amount in excess of the amount by which the dollar amount of the proceeds received by such
holder from the sale of any Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) exceeds the amount of any damages which such holder has
otherwise been required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The holders’ obligations in this Section 6(d)
to contribute shall be several in proportion to the principal amount of Registrable Securities
registered by them and not joint.
(e) The obligations of the Issuers and the Guarantors under this Section 6 shall be in
addition to any liability which the Issuers or the Guarantors may otherwise have and shall
extend, upon the same terms and conditions, to each officer, director and partner of each
holder, each Electing Holder, and each person, if any, who controls any of the foregoing within
the meaning of the Securities Act; and the obligations of the holders and the Electing
19
Holders contemplated by this Section 6 shall be in addition to any liability which the
respective holder or Electing Holder may otherwise have and shall extend, upon the same terms
and conditions, to each officer and director of the Issuers or the Guarantors (including any
person who, with his consent, is named in any registration statement as about to become a
director of the Issuers or the Guarantors) and to each person, if any, who controls the Issuers
within the meaning of the Securities Act, as well as to each officer and director of the other
holders and to each person, if any, who controls such other holders within the meaning of the
Securities Act.
7. Underwritten Offerings.
Each holder of Registrable Securities hereby agrees with the Issuers and each other such
holder that no holder of Registrable Securities may participate in any underwritten offering
hereunder unless (a) each of the Issuers gives its prior written consent to such underwritten
offering, which consent shall not be unreasonably withheld (b) the managing underwriter or
underwriters thereof shall be designated by Electing Holders holding at least a majority in
aggregate principal amount of the Registrable Securities to be included in such offering, provided
that such designated managing underwriter or underwriters is or are reasonably acceptable to the
Issuers, (c) each holder of Registrable Securities participating in such underwritten offering
agrees to sell such holder’s Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons selecting the managing underwriter or underwriters hereunder
and (d) each holder of Registrable Securities participating in such underwritten offering completes
and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements. Each of the
Issuers hereby agrees with each holder of Registrable Securities that, to the extent it consents to
an underwritten offering hereunder, it will negotiate in good faith and execute all indemnities,
underwriting agreements and other documents reasonably required under the terms of such
underwriting arrangements, including using all commercially reasonable efforts to procure customary
legal opinions and auditor “comfort” letters.
8. Rule 144.
(a) Facilitation of Sales Pursuant to Rule 144. Each of the Issuers covenants to the
holders of Registrable Securities that to the extent it shall be required to do so under the
Exchange Act, the Issuers shall timely file the reports required to be filed by it under the
Exchange Act or the Securities Act (including the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144), and shall take such further action
as any holder of Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without registration under the
Securities Act within the limitations of the exemption provided by Rule 144. Upon the request
of any holder of Registrable Securities in connection with that holder’s sale pursuant to
Rule 144, the Issuers shall deliver to such holder a written statement as to whether it has
complied with such requirements.
(b) Availability of Rule 144 Not Excuse for Obligations under Section 2. The fact that
holders of Registrable Securities may become eligible to sell such Registrable Securities
pursuant to Rule 144 shall not (1) cause such Securities to cease to be Registrable Securities
or (2) excuse the Issuers’ and the Guarantors’ obligations set forth in Section 2 of this
Agreement, including without limitation the obligations in respect of an Exchange Offer, Shelf
Registration and Special Interest.
20
9. Miscellaneous.
(a) No Inconsistent Agreements. Each of the Issuers represents, warrants, covenants and
agrees that it has not granted, and shall not grant, registration rights with respect to
Registrable Securities, Exchange Securities or Securities, as applicable, or any other
securities which would be inconsistent with the terms contained in this Agreement.
(b) Specific Performance. The parties hereto acknowledge that there would be no adequate
remedy at law if the Issuers fail to perform any of their obligations hereunder and that the
Purchasers and the holders from time to time of the Registrable Securities may be irreparably
harmed by any such failure, and accordingly agree that the Purchasers and such holders, in
addition to any other remedy to which they may be entitled at law or in equity, shall be
entitled to compel specific performance of the obligations of the Issuers under this Agreement
in accordance with the terms and conditions of this Agreement, in any court of the United States
or any State thereof having jurisdiction. Time shall be of the essence in this Agreement.
(c) Notices. All notices, requests, claims, demands, waivers and other communications
hereunder shall be in writing and shall be deemed to have been duly given when delivered by
hand, if delivered personally, by facsimile or by courier, or three days after being deposited
in the mail (registered or certified mail, postage prepaid, return receipt requested) as
follows: If to the Issuers, to MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance
Company, c/o MagnaChip Semiconductor, Inc., at 20400 Stevens Creek Boulevard, Suite 370,
Cupertino, CA 95014, Attention: General Counsel, and if to a holder, to the address of such
holder set forth in the security register or other records of the Issuers, or to such other
address as the Issuers or any such holder may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be effective only upon
receipt.
(d) Parties in Interest. All the terms and provisions of this Agreement shall be binding
upon, shall inure to the benefit of and shall be enforceable by the parties hereto, the holders
from time to time of the Registrable Securities and the respective successors and assigns of the
foregoing. In the event that any transferee of any holder of Registrable Securities shall
acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of
law or otherwise, such transferee shall, without any further writing or action of any kind, be
deemed a beneficiary hereof for all purposes and such Registrable Securities shall be held
subject to all of the terms of this Agreement, and by taking and holding such Registrable
Securities such transferee shall be entitled to receive the benefits of, and be conclusively
deemed to have agreed to be bound by all of the applicable terms and provisions of this
Agreement. If the Issuers shall so request, any such successor, assign or transferee shall
agree in writing to acquire and hold the Registrable Securities subject to all of the applicable
terms hereof.
(e) Survival. The respective indemnities, agreements, representations, warranties and each
other provision set forth in this Agreement or made pursuant hereto shall remain in full force
and effect regardless of any investigation (or statement as to the results thereof) made by or
on behalf of any holder of Registrable Securities, any director, officer or partner of such
holder, or any controlling person of any of the foregoing, and shall survive delivery of and
payment for the Registrable Securities pursuant to the Purchase Agreement, the transfer and
registration of Registrable Securities by such holder and the consummation of an Exchange Offer.
21
(f) Governing Law. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
(g) Headings. The descriptive headings of the several Sections and paragraphs of this
Agreement are inserted for convenience only, do not constitute a part of this Agreement and
shall not affect in any way the meaning or interpretation of this Agreement.
(h) Entire Agreement; Amendments. This Agreement and the other writings referred to herein
(including the Indenture and the form of Securities) or delivered pursuant hereto which form a
part hereof contain the entire understanding of the parties with respect to its subject matter.
This Agreement supersedes all prior agreements and understandings between the parties with
respect to its subject matter. This Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a written instrument duly executed by the Issuers and
the holders of at least a majority in aggregate principal amount of the Registrable Securities
at the time outstanding. Each holder of any Registrable Securities at the time or thereafter
outstanding shall be bound by any amendment or waiver effected pursuant to this Section 9(h),
whether or not any notice, writing or marking indicating such amendment or waiver appears on
such Registrable Securities or is delivered to such holder.
(i) Inspection. For so long as this Agreement shall be in effect, this Agreement and a
complete list of the names and addresses of all the record holders of Registrable Securities
shall be made available for inspection and copying on any Business Day by any holder of
Registrable Securities for proper purposes only (which shall include any purpose related to the
rights of the holders of Registrable Securities under the Securities, the Indenture and this
Agreement) at the offices of Issuers at the address thereof set forth in Section 9(c) and at the
office of the Trustee under the Indenture.
(j) Counterparts. This Agreement may be executed by the parties in counterparts, each of
which shall be deemed to be an original, but all such respective counterparts shall together
constitute one and the same instrument.
(k) Severability. If any provision of this Agreement, or the application thereof in any
circumstance, is held to be invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of such provision in every other respect and of the
remaining provisions contained in this Agreement shall not be affected or impaired thereby.
(l) Agent for Service; Submission to Jurisdiction. Luxco and each Guarantor not organized
under the laws of the United States or any state thereof acknowledges that it has, by separate
written agreement, irrevocably designated and appointed National Corporate Research, Ltd.
(together with its successors and assigns, the “Agent”) as its authorized agent for service of
process in any suit, action or proceeding arising out of or relating to this Agreement or
brought with respect to the Securities under U.S. federal or state securities laws, in each case
instituted in any federal or state court located in the State and City of New York. Each of the
Issuers and Guarantors agree that any suit or proceeding arising in respect of this Agreement
will be tried exclusively in the U.S. District Court for the Southern District of New York or,
if that court does not have subject matter jurisdiction, in any state court located in The City
and County of New York and the Issuers and the Guarantors agree to submit to the jurisdiction
of, and to venue in, such courts. Luxco and each Guarantor not organized under the laws of the
United States or any state thereof agrees that service
22
of process upon Agent with written notice thereof to the Issuers shall be deemed to be
effective service of process upon such entity in such suit, action or proceeding.
(m) In respect of any judgment or order given or made for any amount due hereunder that is
expressed and paid in a currency (the “judgment currency”) other than United States dollars, the
Issuers and the Guarantors, as applicable, will indemnify each Purchaser, and the Purchasers
will indemnify the Issuers and the Guarantors, against any loss incurred by such Purchaser as a
result of any variation as between (i) the rate of exchange at which the United States dollar
amount is converted into the judgment currency for the purpose of such judgment or order and
(ii) the spot rate of exchange in The City of New York at which such party on the date of
payment of such judgment or order is able to purchase United States dollars with the amount of
the judgment currency actually received by such party. The foregoing indemnity shall constitute
a separate and independent obligation of each of the Issuers, the Guarantors and the Purchasers
and shall continue in full force and effect notwithstanding any such judgment or order as
aforesaid. The term “rate of exchange” shall include any premiums and costs of exchange payable
in connection with the purchase of or conversion into United States dollars.
23
If the foregoing is in accordance with your understanding, please sign and return to us
counterparts hereof for the Issuers, the Guarantors and each of the Representatives plus one for
each counsel, and upon the acceptance hereof by you, on behalf of each of the Purchasers, this
letter and such acceptance hereof shall constitute a binding agreement between each of the
Purchasers, the Issuers and the Guarantors. It is understood that your acceptance of this letter
on behalf of each of the Purchasers is pursuant to the authority set forth in a form of Agreement
among Purchasers, the form of which shall be submitted to the Issuers for examination upon request,
but without warranty on your part as to the authority of the signers thereof.
| Very truly yours, MagnaChip Semiconductor S.A. |
||||
| By: | /s/ John McFarland | |||
| Name: | John McFarland | |||
| Title: | Director | |||
| MagnaChip Semiconductor Finance Company |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Chief Financial Officer | |||
| MagnaChip Semiconductor LLC |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Senior Vice President and Chief Financial Officer | |||
| MagnaChip Semiconductor SA Holdings LLC |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Chief Financial Officer | |||
| MagnaChip Semiconductor, Inc. (U.S.) |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Treasurer and Chief Financial Officer | |||
[Signature Page to Registration Rights Agreement]
| MagnaChip Semiconductor B.V. (Netherlands) |
||||
| By: | /s/ John McFarland | |||
| Name: | John McFarland | |||
| Title: | Attorney-in-fact | |||
| MagnaChip Semiconductor Limited (Taiwan) |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Director | |||
| MagnaChip Semiconductor Limited (United Kingdom) |
||||
| By: | /s/ Brent Rowe | |||
| Name: | Brent Rowe | |||
| Title: | Director | |||
| MagnaChip Semiconductor Inc. (Japan) |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Director | |||
| MagnaChip Semiconductor Holding Company Limited (British Virgin Islands) |
||||
| By: | /s/ John McFarland | |||
| Name: | John McFarland | |||
| Title: | Director | |||
| MagnaChip Semiconductor Limited (Hong Kong) |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Director | |||
[Signature Page to Registration Rights Agreement]
| Accepted as of the date hereof: GOLDMAN, SACHS & CO. |
||||
| By: | /s/ Goldman, Sachs & Co | |||
| (Goldman, Sachs & Co.) | ||||
| BARCLAYS CAPITAL INC. |
||||
| By: | /s/ Joseph P. Coleman | |||
| Name: | Joseph P. Coleman | |||
| Title: | Managing Director | |||
| DEUTSCHE BANK SECURITIES INC. |
||||
| By: | /s/ Nicholas Hayes | |||
| Name: | Nicholas Hayes | |||
| Title: | Managing Director | |||
| By: | /s/ Scott Sartorius | |||
| Name: | Scott Sartorius | |||
| Title: | Managing Director | |||
| MORGAN STANLEY & CO. INCORPORATED |
||||
| By: | /s/ Subhalakshmi Ghosh-Kohli | |||
| Name: | Subhalakshmi Ghosh-Kohli | |||
| Title: | VP | |||
On their own behalf and on behalf of each of the Purchasers
[Signature Page to Registration Rights Agreement]
Exhibit A
MagnaChip Semiconductor S.A.
MagnaChip Semiconductor Finance Company
INSTRUCTION TO DTC PARTICIPANTS
(Date of Mailing)
URGENT — IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: [DATE] *
The Depository Trust Company (“DTC”) has identified you as a DTC Participant through which
beneficial interests in the 10.500% Senior Notes due 2018 (the “Securities”) of MagnaChip
Semiconductor S.A. and MagnaChip Semiconductor Finance Company (together, the “Issuers”) are held.
The Issuers are in the process of registering the Securities under the Securities Act of 1933 for
resale by the beneficial owners thereof. In order to have their Securities included in the
registration statement, beneficial owners must complete and return the enclosed Notice of
Registration Statement and Selling Securityholder Questionnaire.
It is important that beneficial owners of the Securities receive a copy of the enclosed
materials as soon as possible as their rights to have the Securities included in the
registration statement depend upon their returning the Notice and Questionnaire by [ ].*
Please forward a copy of the enclosed documents to each beneficial owner that holds interests in
the Securities through you. If you require more copies of the enclosed materials or have any
questions pertaining to this matter, please contact the Issuers at [ ].
| * | Not less than 28 calendar days from date of mailing. |
A-1
MagnaChip Semiconductor S.A.
MagnaChip Semiconductor Finance Company
Notice of Registration Statement
and
Selling Securityholder Questionnaire
and
Selling Securityholder Questionnaire
[ ], 2010
Reference is hereby made to the Exchange and Registration Rights Agreement (the “Exchange and
Registration Rights Agreement”) among MagnaChip Semiconductor S.A., MagnaChip Semiconductor Finance
Company (together, the “Issuers”), the Guarantors named therein and the Purchasers named therein.
Pursuant to the Exchange and Registration Rights Agreement, the Issuers have filed or will file
with the United States Securities and Exchange Commission (the “Commission”) a registration
statement on Form [___] (the “Shelf Registration Statement”) for the registration and resale under
Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Issuers’ 10.500%
Senior Notes due 2018 (the “Securities”). A copy of the Exchange and Registration Rights Agreement
has been filed as an exhibit to the Shelf Registration Statement and can be obtained from the
Commission’s website at www.sec.gov. All capitalized terms not otherwise defined herein
shall have the meanings ascribed thereto in the Exchange and Registration Rights Agreement.
Each beneficial owner of Registrable Securities (as defined below) is entitled to have the
Registrable Securities beneficially owned by it included in the Shelf Registration Statement. In
order to have Registrable Securities included in the Shelf Registration Statement, this Notice of
Registration Statement and Selling Securityholder Questionnaire (“Notice and Questionnaire”) must
be completed, executed and delivered to the Issuers’ counsel at the address set forth herein for
receipt ON OR BEFORE [ ]. Beneficial owners of Registrable Securities who do not properly
complete, execute and return this Notice and Questionnaire by such date (i) will not be named as
selling securityholders in the Shelf Registration Statement and (ii) may not use the Prospectus
forming a part thereof for resales of Registrable Securities.
Certain legal consequences arise from being named as a selling securityholder in the Shelf
Registration Statement and related Prospectus. Accordingly, holders and beneficial owners of
Registrable Securities are advised to consult their own securities law counsel regarding the
consequences of being named or not being named as a selling securityholder in the Shelf
Registration Statement and related Prospectus.
The term “Registrable Securities” is defined in the Exchange and Registration Rights Agreement.
A-2
ELECTION
The undersigned holder (the “Selling Securityholder”) of Registrable Securities hereby elects to
include in the Shelf Registration Statement the Registrable Securities beneficially owned by it and
listed below in Item (3). The undersigned, by signing and returning this Notice and Questionnaire,
agrees to be bound with respect to such Registrable Securities by the terms and conditions of this
Notice and Questionnaire and the Exchange and Registration Rights Agreement, including, without
limitation, Section 6 of the Exchange and Registration Rights Agreement, as if the undersigned
Selling Securityholder were an original party thereto.
Pursuant to the Exchange and Registration Rights Agreement, the undersigned has agreed to indemnify
and hold harmless the Issuers, its officers who sign any Shelf Registration Statement, and each
person, if any, who controls the Issuers within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act of 1934, as amended (the “Exchange Act”), against certain
loses arising out of an untrue statement, or the alleged untrue statement, of a material fact in
the Shelf Registration Statement or the related prospectus or the omission, or alleged omission, to
state a material fact required to be stated in such Shelf Registration Statement or the related
prospectus, but only to the extent such untrue statement or omission, or alleged untrue statement
or omission, was made in reliance on and in conformity with the information provided in this Notice
and Questionnaire.
Upon any sale of Registrable Securities pursuant to the Shelf Registration Statement, the Selling
Securityholder will be required to deliver to the Issuers and Trustee the Notice of Transfer set
forth in Appendix A to the Prospectus and as Exhibit B to the Exchange and Registration Rights
Agreement.
The Selling Securityholder hereby provides the following information to the Issuers and represents
and warrants that such information is accurate and complete:
A-3
QUESTIONNAIRE
| (1) | (a) Full legal name of Selling Securityholder: |
| (b) | Full legal name of registered Holder (if not the same as in (a) above) of Registrable Securities listed in Item (3) below: | ||
| (c) | Full legal name of DTC Participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in Item (3) below are held: | ||
| (2) | Address for notices to Selling Securityholder: |
| Telephone: | ||||||
| Fax: | ||||||
| Contact Person: | ||||||
| E-mail for Contact Person: | ||||||
| (3) | Beneficial Ownership of Securities: |
| Except as set forth below in this Item (3), the undersigned does not beneficially own any Securities. | |||
| (a) | Principal amount of Registrable Securities beneficially owned: | ||
| CUSIP No(s). of such Registrable Securities: | |||
| (b) | Principal amount of Securities other than Registrable Securities beneficially owned: | ||
| CUSIP No(s). of such other Securities: | |||
| (c) | Principal amount of Registrable Securities that the undersigned wishes to be included in the Shelf Registration Statement: | ||
| CUSIP No(s). of such Registrable Securities to be included in the Shelf Registration Statement: |
| (4) | Beneficial Ownership of Other Securities of the Issuers: |
| Except as set forth below in this Item (4), the undersigned Selling Securityholder is not the beneficial or registered owner of any other securities of the Issuers, other than the Securities listed above in Item (3). | |||
| State any exceptions here: | |||
A-4
| (5) | Individuals who exercise dispositive powers with respect to the Securities: |
| If the Selling Securityholder is not an entity that is required to file reports with the Commission pursuant to Section 13 or 15(d) of the Exchange Act (a “Reporting Company”), then the Selling Securityholder must disclose the name of the natural person(s) who exercise sole or shared dispositive powers with respect to the Securities. Selling Securityholders should disclose the beneficial holders, not nominee holders or other such others of record. In addition, the Commission has provided guidance that Rule 13d-3 of the Securities Exchange Act of 1934 should be used by analogy when determining the person or persons sharing voting and/or dispositive powers with respect to the Securities. | |||
| (a) | Is the holder a Reporting Company? | ||
| Yes No | |||
| If “No”, please answer Item (5)(b). | |||
| (b) | List below the individual or individuals who exercise dispositive powers with respect to the Securities: | ||
| Please note that the names of the persons listed in (b) above will be included in the Shelf Registration Statement and related Prospectus. |
| (6) | Relationships with the Issuers: |
| Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Issuers (or its predecessors or affiliates) during the past three years. | |||
| State any exceptions here: | |||
| (7) | Plan of Distribution: |
| Except as set forth below, the undersigned Selling Securityholder intends to distribute the Registrable Securities listed above in Item (3) only as follows (if at all): Such Registrable Securities may be sold from time to time directly by the undersigned Selling Securityholder. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registered Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of the |
A-5
| Registrable Securities or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities in the course of hedging the positions they assume. The Selling Securityholder may also sell Registrable Securities short and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. |
| State any exceptions here: | |||
| Note: In no event may such method(s) of distribution take the form of an underwritten offering of Registrable Securities without the prior written agreement of the Issuers. |
| (8) | Broker-Dealers: |
| The Commission requires that all Selling Securityholders that are registered broker-dealers or affiliates of registered broker-dealers be so identified in the Shelf Registration Statement. In addition, the Commission requires that all Selling Securityholders that are registered broker-dealers be named as underwriters in the Shelf Registration Statement and related Prospectus, even if they did not receive the Registrable Securities as compensation for underwriting activities. | |||
| (a) | State whether the undersigned Selling Securityholder is a registered broker-dealer: |
| Yes No | |||
| (b) | If the answer to (a) is “Yes”, you must answer (i) and (ii) below, and (iii) below if applicable. Your answers to (i) and (ii) below, and (iii) below if applicable, will be included in the Shelf Registration Statement and related Prospectus. |
| (i) | Were the Securities acquired as compensation for underwriting activities? |
| Yes No |
| If you answered “Yes”, please provide a brief description of the transaction(s) in which the Securities were acquired as compensation: | |||
| (ii) | Were the Securities acquired for investment purposes? |
| Yes No |
| (iii) | If you answered “No” to both (i) and (ii), please explain the Selling Securityholder’s reason for acquiring the Securities: |
A-6
| (c) | State whether the undersigned Selling Securityholder is an affiliate of a registered broker-dealer and, if so, list the name(s) of the broker-dealer affiliate(s): | ||
| Yes No | |||
| (d) | If you answered “Yes” to question (c) above: |
| (i) | Did the undersigned Selling Securityholder purchase Registrable Securities in the ordinary course of business? |
| Yes No | |||
| If the answer is “No” to question (d)(i), provide a brief explanation of the circumstances in which the Selling Securityholder acquired the Registrable Securities: | |||
| (ii) | At the time of the purchase of the Registrable Securities, did the undersigned Selling Securityholder have any agreements, understandings or arrangements, directly or indirectly, with any person to dispose of or distribute the Registrable Securities? |
| Yes No | |||
| If the answer is “Yes” to question (d)(ii), provide a brief explanation of such agreements, understandings or arrangements: | |||
| If the answer is “No” to Item (8)(d)(i) or “Yes” to Item (8)(d)(ii), you will be named as an underwriter in the Shelf Registration Statement and the related Prospectus. |
| (9) | Hedging and short sales: |
| (a) | State whether the undersigned Selling Securityholder has or will enter into “hedging transactions” with respect to the Registrable Securities: | ||
| Yes No | |||
| If “Yes”, provide below a complete description of the hedging transactions into which the undersigned Selling Securityholder has entered or will enter and the purpose of such hedging transactions, including the extent to which such hedging transactions remain in place: | |||
A-7
| (b) | Set forth below is Interpretation A.65 of the Commission’s July 1997 Manual of Publicly Available Interpretations regarding short selling: | ||
| “An issuer filed a Form S-3 registration statement for a secondary offering of common stock which is not yet effective. One of the selling shareholders wanted to do a short sale of common stock “against the box” and cover the short sale with registered shares after the effective date. The issuer was advised that the short sale could not be made before the registration statement becomes effective, because the shares underlying the short sale are deemed to be sold at the time such sale is made. There would, therefore, be a violation of Section 5 if the shares were effectively sold prior to the effective date.” | |||
| By returning this Notice and Questionnaire, the undersigned Selling Securityholder will be deemed to be aware of the foregoing interpretation. |
* * * * *
By signing below, the Selling Securityholder acknowledges that it understands its obligation to
comply, and agrees that it will comply, with the provisions of the Exchange Act and the rules and
regulations thereunder, particularly Regulation M (or any successor rule or regulation).
The Selling Securityholder hereby acknowledges its obligations under the Exchange and Registration
Rights Agreement to indemnify and hold harmless the Issuers and certain other persons as set forth
in the Exchange and Registration Rights Agreement.
In the event that the Selling Securityholder transfers all or any portion of the Registrable
Securities listed in Item (3) above after the date on which such information is provided to the
Issuers, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer
of its rights and obligations under this Notice and Questionnaire and the Exchange and Registration
Rights Agreement.
The Selling Securityholder hereby acknowledges its obligations under the Exchange and Registration
Rights Agreement to suspend use of the Shelf Registration Statement under certain circumstances as
set forth in the Exchange and Registration Rights Agreement.
By signing below, the Selling Securityholder consents to the disclosure of the information
contained herein in its answers to Items (1) through (9) above and the inclusion of such
information in the Shelf Registration Statement and related Prospectus. The Selling Securityholder
understands that such information will be relied upon by the Issuers in connection with the
preparation of the Shelf Registration Statement and related Prospectus.
In accordance with the Selling Securityholder’s obligation under Section 3(d) of the Exchange and
Registration Rights Agreement to provide such information as may be required by law for inclusion
in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the
Issuers of any inaccuracies or changes in the information provided herein which may occur
subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect
and to provide such additional information that the Issuers may reasonably request regarding such
Selling Securityholder and the intended method of distribution of Registrable Securities in order
to comply with the Securities Act. Except as otherwise provided in the Exchange and Registration
Rights Agreement, all notices hereunder and pursuant to the
A-8
Exchange and Registration Rights Agreement shall be made in writing, by hand-delivery, first-class
mail, or air courier guaranteeing overnight delivery as follows:
| (i) To the Issuers: | ||||
| (ii) With a copy to: | ||||
Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the
Issuers’ counsel, the terms of this Notice and Questionnaire, and the representations and
warranties contained herein, shall be binding on, shall inure to the benefit of and shall be
enforceable by the respective successors, heirs, personal representatives, and assigns of the
Issuers and the Selling Securityholder (with respect to the Registrable Securities beneficially
owned by such Selling Securityholder and listed in Item (3) above. This Notice and Questionnaire
shall be governed in all respects by the laws of the State of New York.
A-9
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and
Questionnaire to be executed and delivered either in person or by its duly authorized agent.
Dated:
| Selling Securityholder | ||||
| (Print/type full legal name of beneficial owner of Registrable Securities) | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON OR BEFORE [ ]
TO THE ISSUERS’ COUNSEL AT:
A-10
Exhibit B
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
Wilmington Trust FSB
MagnaChip Semiconductor S.A.
MagnaChip Semiconductor Finance Company
c/o Wilmington Trust FSB
[Address of Trustee]
MagnaChip Semiconductor S.A.
MagnaChip Semiconductor Finance Company
c/o Wilmington Trust FSB
[Address of Trustee]
Attention: Trust Officer
Re: 10.500% Senior Notes due 2018 (the ”Notes”)of MagnaChip Semiconductor S.A. and MagnaChip
Semiconductor Finance Company (together, the “Issuers”)
Dear Sirs:
Please be advised that ___has transferred $ aggregate principal amount of the above-referenced
Notes pursuant to an effective Registration Statement on Form [ ] (File No. 333- ) filed by the Issuers.
We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933,
as amended, have been satisfied and that the above-named beneficial owner of the Notes is named as
a “Selling Holder” in the Prospectus dated [ ] or in supplements thereto, and that the
aggregate principal amount of the Notes transferred are the Notes listed in such Prospectus
opposite such owner’s name.
Dated:
| Very truly yours, |
||||
| (Name) | ||||
| By: | ||||
| (Authorized Signature) | ||||
B-1
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.
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“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.
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“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.
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“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
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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
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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.
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“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.
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“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.
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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:
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(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).
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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.
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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.
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(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.
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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.
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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
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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
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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.
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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.
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(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,
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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
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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;
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(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
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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
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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;
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(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).
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(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
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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.
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(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
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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.
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(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
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(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
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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.
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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
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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;
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(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;
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(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
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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;
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(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.
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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.
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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;
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(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
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(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.
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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
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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.
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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:
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(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.
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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
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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
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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
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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.
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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
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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
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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.
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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
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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 |
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| (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);
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(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
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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);
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(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;
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(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),
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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.
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(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
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(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
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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
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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
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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
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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
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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: | /s/ John McFarland | |||
| Name: | John McFarland | |||
| Title: | Director | |||
| MAGNACHIP SEMICONDUCTOR FINANCE COMPANY, a Delaware limited liability company |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Chief Financial Officer | |||
| MAGNACHIP SEMICONDUCTOR LLC, a Delaware limited
liability company |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Senior Vice President and Chief Financial Officer | |||
Signature Page to Credit Agreement
| SUBSIDIARY GUARANTORS MAGNACHIP SEMICONDUCTOR, INC., a California company |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Chief Financial Officer and Treasurer | |||
Signature Page to Credit Agreement
| MAGNACHIP SEMICONDUCTOR SA HOLDINGS LLC, a Delaware limited liability company |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Chief Financial Officer | |||
Signature Page to Credit Agreement
MAGNACHIP SEMICONDUCTOR LIMITED, a company
incorporated in England and Wales with
registered number 05232381 |
||||
| By: | /s/ Brent Rowe | |||
| Name: | Brent Rowe | |||
| Title: | Director | |||
Signature Page to Credit Agreement
MAGNACHIP SEMICONDUCTOR HOLDING COMPANY LIMITED, a
company incorporated in the British Virgin Islands |
||||
| By: | /s/ John McFarland | |||
| Name: | John McFarland | |||
| Title: | Director | |||
Signature Page to Credit Agreement
MAGNACHIP SEMICONDUCTOR, INC., a Japanese company |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Director | |||
Signature Page to Credit Agreement
For execution as a deed:
SEALED WITH THE COMMON SEAL
|
) | ||
OF MAGNACHIP SEMICONDUCTOR
|
) | ||
LIMITED AND SIGNED
|
) | ||
BY
/s/ Margaret Sakai
|
) | ||
in the presence of:
|
) |
Witness:
|
/s/ John McFarland | Witness: | /s/ Misun Jung | |||||||
Name:
|
John McFarland | Name: | Misun Jung | |||||||
Address:
|
Seoul, Korea | Address: | Seoul, Korea |
Signature Page to Credit Agreement
MAGNACHIP SEMICONDUCTOR LIMITED, a Taiwan company |
||||
| By: | /s/ Margaret Sakai | |||
| Name: | Margaret Sakai | |||
| Title: | Director | |||
Signature Page to Credit Agreement
| MAGNACHIP SEMICONDUCTOR B.V. |
||||
| By: | /s/ John McFarland | |||
| Name: | John McFarland | |||
| Title: | Attorney-in-Fact | |||
Signature Page to Credit Agreement
| WILMINGTON TRUST FSB, as Administrative Agent and
Collateral Agent |
||||
| By: | /s/ Renee Kuhl | |||
| Name: | Renee Kuhl | |||
| Title: | Assistant Vice President | |||
| By: | [Intentionally Blank] | |||
| Name: | ||||
| Title: | ||||
Signature Page to Credit Agreement
| AVENUE INVESTMENTS, L.P. |
||||
| By: | Avenue Partners, LLC, its General Partner | |||
| By: | /s/ Sonia E. Gardner | |||
| Name: | Sonia E. Gardner | |||
| Title: | Member | |||
Signature Page to Credit Agreement
| GOLDMAN SACHS LENDING PARTNERS LLC |
||||
| By: | /s/ Sandip Khosla | |||
| Name: | Sandip Khosla | |||
| Title: | Assistant Secretary & Counsel | |||
Signature Page to Credit Agreement
| CITICORP NORTH AMERICA INC. |
||||
| By: | /s/ David Mode | |||
| Name: | David Mode | |||
| Title: | Managing Director | |||
Signature
Page to Credit Agreement
Annex I
Outstanding Term Loans
| Lender | Term Loans | |||
Avenue Investments, LP |
$ | 42,055,000.00 | ||
Goldman Sachs Lending Partners LLC |
$ | 12,285,000.00 | ||
Citicorp North America, Inc. |
$ | 7,410,000.00 | ||
Total |
$ | 61,750,000.00 | ||
SCHEDULE 1.01(a)
Korean Opco Security Documents
Amended and Restated Factory Kun-Mortgage Agreement
Amended and Restated Intellectual Property Kun-Pledge Agreement
Amended and Restated Accounts Kun-Pledge Agreement
Amended and Restated Unit Kun-Pledge Agreement
Amended and Restated Accounts Receivable Assignment Agreement
Amended and Restated Security Assignment Agreement
Amended and Restated Insurance Assignment Agreement
Amended and Restated Yangdo-Dambo Agreement (Equipment)
Amended and Restated Yangdo-Dambo Agreement (Inventory)
Amended and Restated Share Kun-Pledge Agreement
SCHEDULE 1.01(d)
Subsidiary Guarantors
MagnaChip Semiconductor SA Holdings LLC (U.S.)
MagnaChip Semiconductor, Inc. (U.S.)
MagnaChip Semiconductor B.V. (The Netherlands)
MagnaChip Semiconductor Limited (U.K.)
MagnaChip Semiconductor Limited (Taiwan)
MagnaChip Semiconductor Limited. (Hong Kong)
MagnaChip Semiconductor Holding Company Limited (B.V.I.)
MagnaChip Semiconductor Inc. (Japan)
SCHEDULE 3.03
Governmental Approvals; Compliance with Laws
None
SCHEDULE 3.05(b)
REAL PROPERTY
[Omitted]
SCHEDULE 3.06(c)
Violations or Proceedings
None
SCHEDULE 3.07(a)
Equity Interests
Subsidiary Capital Ownership
| Number of | ||||||
| Subsidiary | Jurisdiction | Shares/Units | Holder | |||
MagnaChip Semiconductor SA Holdings LLC |
U.S. | 100% ownership | MagnaChip Semiconductor LLC (U.S.) | |||
MagnaChip Semiconductor, Inc.
|
U.S. | 100.00 | MagnaChip Semiconductor LLC (U.S.) | |||
MagnaChip Semiconductor S.A.
|
Luxembourg | 36,717.00 | MagnaChip Semiconductor LLC (U.S.) | |||
| 1.00 | MagnaChip Semiconductor SA Holdings LLC (U.S.) | |||||
MagnaChip Semiconductor Finance Company |
U.S. | 1.00 | MagnaChip Semiconductor S.A. (Lux.) | |||
MagnaChip Semiconductor B.V.
|
Netherlands | 18,200.00 | MagnaChip Semiconductor S.A.(Lux.) | |||
MagnaChip Semiconductor Limited |
Hong Kong | 2.00 | MagnaChip Semiconductor S.A. (Lux.) | |||
MagnaChip Semiconductor Limited |
Taiwan | NTD 5,000,000 (100% ownership) |
MagnaChip Semiconductor S.A. (Lux.) | |||
MagnaChip Semiconductor Limited |
U.K. | 408,194.00 | MagnaChip Semiconductor S.A. (Lux.) | |||
MagnaChip Semiconductor Holding Company Limited |
British Virgin Islands |
500,000.00 | MagnaChip Semiconductor S.A. (Lux.) | |||
MagnaChip Semiconductor, Ltd.
|
Korea | 4,438,080.00 | MagnaChip Semiconductor B.V. (Net.) | |||
MagnaChip Semiconductor Inc.
|
Japan | 23,500.00 | MagnaChip Semiconductor B.V. (Net.) | |||
MagnaChip Semiconductor (Shanghai) Company Limited |
China | USD 160,000 (100% ownership) |
MagnaChip Semiconductor Holding Company Limited (B.V.I.) |
SCHEDULE 3.07(c)
Corporate Organizational Chart
SCHEDULE 3.20
Financing Statements
Financing Statements
| Type of Filing | Entity | Jurisdictions | ||
UCC Financing Statement
|
MagnaChip Semiconductor S.A. | Washington D.C., New York and California | ||
UCC Financing Statement
|
MagnaChip Semiconductor Finance Company |
Delaware | ||
UCC Financing Statement
|
MagnaChip Semiconductor LLC | Delaware | ||
UCC Financing Statement
|
MagnaChip Semiconductor SA Holdings LLC |
Delaware | ||
UCC Financing Statement
|
MagnaChip Semiconductor B.V. | Washington D.C. and Delaware | ||
UCC Financing Statement
|
MagnaChip Semiconductor Ltd. | Washington D.C., New York and California | ||
UCC Financing Statement
|
MagnaChip Semiconductor, Inc. | Washington D.C., New York and California | ||
UCC Financing Statement
|
MagnaChip Semiconductor Ltd. | Washington D.C., New York and California | ||
UCC Financing Statement
|
MagnaChip Semiconductor Ltd. | Washington D.C., New York and California | ||
UCC Financing Statement
|
MagnaChip Semiconductor Ltd. | Washington D.C., New York and California | ||
UCC Financing Statement
|
MagnaChip Semiconductor Ltd. | Washington D.C., New York and California | ||
UCC Financing Statement
|
MagnaChip Semiconductor Holdings Company Limited |
Washington D.C., New York and California |
SCHEDULE 4.01(d)
Extinguished Indebtedness
The
67/8% Second Priority Senior Secured Notes Due 2011, issued under the indenture, dated as of
December 23, 2004.
SCHEDULE 4.01(g)
Local and Foreign Counsel
| Jurisdiction | Outside Counsel | |
U.S.
|
DLA Piper LLP (US) | |
Korea
|
Kim & Chang | |
Luxembourg
|
Dechert Luxembourg | |
Netherlands
|
NautaDutilh N.V. | |
Hong Kong
|
DLA Piper Hong Kong | |
Taiwan
|
Lee, Tsai & Partners | |
U.K.
|
DLA Piper UK LLP | |
British Virgin Islands
|
Harney Westwood & Riegels | |
Japan
|
DLA Piper Tokyo Partnership | |
China
|
DLA Piper Hong Kong |
SCHEDULE 5.13
Post-Closing Matters
On or prior to the date that is 30 days after the Effective Date, deliver to the Administrative
Agent:
(1) a duly executed Reaffirmation of Guaranty, Waiver and Consent between MagnaChip Semiconductor
Limited (Taiwan) and a sub-agent pledgee that is reasonably satisfactory to the Administrative
Agent;
(2) a duly executed Capital Contribution Pledge Agreement between MagnaChip Semiconductor S.A. and
a sub-agent pledgee that is reasonably satisfactory to the Administrative Agent, and a Notice of
Pledge with respect thereto;
(3) Share certification issued by MagnaChip Semiconductor Limited (Taiwan) evidencing MagnaChip
Semiconductor S.A.’s capital contribution in MagnaChip Semiconductor Limited (Taiwan);
(4) Intercompany Loan Pledge Agreement between MagnaChip Semiconductor S.A. and a sub-agent
pledgee that is reasonably satisfactory to the Administrative Agent, and a Notice of Pledge with
respect thereto;
(5) Loan Agreement between MagnaChip Semiconductor Limited (Taiwan) and MagnaChip Semiconductor
S.A.
(6) an Update of the Register of Mortgages for MagnaChip Semiconductor Holding Company Limited
(BVI) replacing UBS AG, Stamford Branch with the Administrative Agent;
(7) an Update of the Register of Mortgages for MagnaChip Semiconductor Holding Company Limited
(BVI) for removal of the lien securing the Indebtedness set forth on Schedule 4.01(d);
(8) a filed copy of Form MG02 for MagnaChip Semiconductor Limited (UK);
(9) a Pledge Agreement with respect to 287,500 tracking preferred equity certificates and
7,983,924 tracking preferred equity certificates issued by MagnaChip Semiconductor S.A. to
MagnaChip Semiconductor LLC;
(10) a written opinion of Taiwan counsel to the Loan Parties, in form and substance reasonably
satisfactory to the Administrative Agent, covering such matters relating to the Taiwan Security
Documents, as the Administrative Agent shall reasonably request; and
(11) a written opinion of Luxembourg counsel to the Loan Parties, in form and substance reasonably
satisfactory to the Administrative Agent, covering such matters relating to the agreement set forth
in clause (9) above, as the Administrative Agent shall reasonably request.
EXHIBIT A
[Form of]
ADMINISTRATIVE QUESTIONNAIRE
ADMINISTRATIVE QUESTIONNAIRE
MAGNACHIP SEMICONDUCTOR S.A. AND
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY
Lending Institution: |
||||
Name for Signature Pages: |
||||
Will sign Credit Agreement: o
Will come via Assignment: o Number of Days post-closing:
Will come via Assignment: o Number of Days post-closing:
Name for Signature Blocks: |
||||
Name for Publicity: |
||||
Address: |
||||
Main Telephone: |
||||
Telex No./Answer back: |
||||
CONTACT-Credit
|
Name: | |||||
| Address: | ||||||
| Telephone: | ||||||
| Fax: | ||||||
CONTACT-Operations
|
Name: | |||||
| Address: | ||||||
| Telephone: | ||||||
| Fax: | ||||||
PAYMENT INSTRUCTIONS
Bank Name: |
||
ABA/Routing No. |
||
Account Name |
||
Account No. |
||
For further credit: |
||
Account No. |
||
Attention: |
||
Reference: |
||
WILMINGTON TRUST FSB, ADMINISTRATIVE DETAILS
Wilmington Trust FSB
|
Account Administrator | |
50 South Sixth Street, Suite 1290
|
Attn: Renee Kuhl | |
Minneapolis, MN 55402
|
Tel: (612) 217-5635 | |
| Fax: (612) 217-5651 |
A-1
EXHIBIT A
| Wire Instructions: | The Agent’s wire instructions will be disclosed at the time of closing |
A-2
EXHIBIT B
[Form of]
ASSIGNMENT AND ACCEPTANCE
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Amended and Restated Credit Agreement, dated as of November 6, 2009 (as
amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit
Agreement”), among MAGNACHIP SEMICONDUCTOR S.A., a Luxembourg corporation, MAGNACHIP SEMICONDUCTOR
FINANCE COMPANY, a Delaware corporation (collectively, “Borrowers”), MAGNACHIP SEMICONDUCTOR LLC, a
Delaware limited liability company (“Holdings”), the Subsidiary Guarantors (such term and each
other capitalized term used but not defined herein having the meaning given it in Article I
of the Credit Agreement), the Lenders, and 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.
The Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee
hereby purchases and assumes, without recourse, from the Assignor, effective as of the Closing Date
set forth below (but not prior to the registration of the information contained herein in the
Register pursuant to Section 10.04(b) of the Credit Agreement), the interests set forth
below (the “Assigned Interest”) in the Assignor’s rights and obligations under the Credit Agreement
and the other Loan Documents, including, without limitation, the Term Loans which are outstanding
on the Closing Date. From and after the Closing Date (i) the Assignee shall be a party to and be
bound by the provisions of the Credit Agreement and, to the extent of the interests assigned by
this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and under
the Loan Documents and (ii) the Assignor shall, to the extent of the interests assigned by this
Assignment and Acceptance, relinquish its rights and be released from its obligations under the
Credit Agreement.
The Assignor (i) warrants that it is the legal and beneficia1 owner of the interest being
assigned hereby free and clear of any adverse claim and that its Commitment, and the outstanding
balances of its Loans, without giving effect to assignments thereof which have not become
effective, are as set forth in such Assignment and Acceptance; (ii) except as set forth in (i)
above, the Assignor makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with the Credit
Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement, any other Loan Document or any other instrument or document furnished
pursuant thereto, or the financial condition of Holdings, Borrowers or any Subsidiary or the
performance or observance by Holdings, Borrowers or any Subsidiary of any of its obligations under
the Credit Agreement, any other Loan Document or any other instrument or document furnished
pursuant thereto.
B-1
The Assignee (a) represents and warrants that it is legally authorized to enter into this
Assignment and Acceptance; (b) confirms that it has received a copy of the Credit Agreement, and
such other documents and information as it has deemed appropriate to make its own credit analysis
and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently
and without reliance upon the Assignor, the Administrative Agent, the Collateral Agent or any other
Lender and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under the Credit
Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto
or thereto; (d) appoints and authorizes the Administrative Agent and the Collateral Agent to take
such action as agent on its behalf and to exercise such powers and discretion under the Credit
Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto
or thereto as are delegated to the Administrative Agent and the Collateral Agent, respectively, by
the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will
be bound by the provisions of the Credit Agreement and will perform in accordance with its terms
all the obligations which by the terms of the Credit Agreement are required to be performed by it
as a Lender.
This Assignment and Acceptance is being delivered to the Administrative Agent together with
(i) if the Assignee is a Foreign Lender (as defined in the Credit Agreement), the forms specified
in Section 2.14(e) of the Credit Agreement, duly completed and executed by such Assignee;
(ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative
Questionnaire in the form of Exhibit A to the Credit Agreement; and (iii) a processing and
recordation fee of $3,500.
This Assignment and Acceptance shall be construed in accordance with and governed by the law
of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee’s Address for Notices:
Closing Date of Assignment (may not be fewer than 5 Business Days after the Date of assignment
unless the Administrative Agent shall otherwise agree):
Percentage Assigned of Applicable Loan/Commitment:
| Percentage Assigned of | ||||||||
| Applicable Loan/Commitment | ||||||||
| (set forth, to at least 8 decimals, | ||||||||
| as a percentage of the Loan and | ||||||||
| the aggregate Commitments of | ||||||||
| Loan/Commitment | Principal Amount Assigned | Lenders thereunder) | ||||||
Term Loans |
$ | % | ||||||
[Signature Page Follows]
B-2
| The terms set forth above are hereby agreed to: | ||||||
| [ ], | ||||||
| as Assignor | ||||||
| By: | ||||||
| Title: | ||||||
| [ ], | ||||||
| as Assignee | ||||||
| By: | ||||||
| Title: | ||||||
B-3
Accepted:*
| MAGNACHIP SEMICONDUCTOR S.A., | ||||
| a Borrower | ||||
By: |
||||
| Title: | ||||
| MAGNACHIP SEMICONDUCTOR FINANCE COMPANY, | ||||
| a Borrower | ||||
By: |
||||
| Title: | ||||
| * | To be completed to the extent consent is required under Section 10.04(b) of the Credit Agreement. Supermajority Lender approval will be required if necessary pursuant to the terms of the Credit Agreement. |
B-4
| WILMINGTON TRUST FSB, | ||||
| as Administrative Agent and | ||||
| and Collateral Agent | ||||
By: |
||||
| Title: | ||||
By: |
||||
| Name: | ||||
| Title: | ||||
B-5
EXHIBIT C
[Form of]
BORROWING REQUEST
BORROWING REQUEST
Wilmington Trust FSB,
as Administrative Agent for
the Lenders referred to below,
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402
Attention: Renee Kuhl
as Administrative Agent for
the Lenders referred to below,
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402
Attention: Renee Kuhl
Re: MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company
[Date]
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement dated as of November 6, 2009 (as
amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit
Agreement”) among MAGNACHIP SEMICONDUCTOR S.A., a Luxembourg corporation (“MagnaChip S.A.”),
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY, a Delaware corporation (“MagnaChip Finance” and
together with MagnaChip S.A., the “Borrowers”), MAGNACHIP SEMICONDUCTOR LLC, a Delaware limited
liability company (“Holdings”), the Subsidiary Guarantors (such term and each other capitalized
term used but not defined herein having the meaning given it in Article I of the Credit
Agreement), the Lenders and 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. Borrowers hereby give you notice pursuant to Section
2.03 of the Credit Agreement that they request a Borrowing under the Credit Agreement, and
in that connection sets forth below the terms on which such Borrowing is requested to be made:
(A)
|
Date of Borrowing (which is a Business Day) | |||||
(B)
|
Principal amount of Borrowing | |||||
(C)
|
Type of Borrowinga | [Eurodollar] [ABR] | ||||
(D)
|
Interest Period and the last day thereofb | |||||
| (E) | Funds are requested to be disbursed to MagnaChip S.A.’s account with: | |||||
| a | Specify Eurodollar Borrowing or ABR Borrowing. | |
| b | Shall be subject to the definition of “Interest Period” in the Credit Agreement. |
C-1
Borrowers hereby represent and warrant that the conditions to lending specified in Sections
4.01 and 4.02, as applicable, of the Credit Agreement have been satisfied.
[Signature Page Follows]
C-2
| MAGNACHIP SEMICONDUCTOR S.A |
||||
| By: | ||||
| Name: | ||||
| Title: | [Responsible Officer] | |||
| MAGNACHIP SEMICONDUCTOR FINANCE COMPANY |
||||
| By: | ||||
| Name: | ||||
| Title: | [Responsible Officer] | |||
C-3
EXHIBIT D
[Form of]
COMPLIANCE CERTIFICATE
COMPLIANCE CERTIFICATE
I, [ ], the [ ] of [ ] (in such capacity and
not in my individual capacity), hereby certify that, with respect to that certain Amended and
Restated Credit Agreement, dated as of November 6, 2009 (as amended, amended and restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”) among MAGNACHIP
SEMICONDUCTOR S.A., a Luxembourg corporation, MAGNACHIP SEMICONDUCTOR FlNANCE COMPANY, a
Delaware corporation (collectively, “Borrowers”), MAGNACHIP SEMICONDUCTOR LLC, a Delaware
limited liability company (“Holdings”), the Subsidiary Guarantors (such term and each other
capitalized term used but not defined herein having the meaning given it in Article I of
the Credit Agreement), the Lenders, and 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:
1. The Borrowers were in compliance with the covenant set forth in Section 6.10
of the Credit Agreement on the last day of the applicable fiscal quarter.
2. No Default has occurred under the Credit Agreement which has not been previously disclosed,
in writing, to the Administrative Agent pursuant to a Compliance
Certificate.a
| a | If a Default shall have occurred, an explanation specifying the nature and extent of such Default shall be provided on a separate page together with an explanation of the corrective action taken or proposed to be taken with respect thereto (include, as applicable, information regarding actions, if any, taken since prior certificate). |
D-1
Dated this [ ] day of [ ], 20[ ].
| MAGNACHIP SEMICONDUCTOR S.A. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| MAGNACHIP SEMICONDUCTOR FINANCE COMPANY |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
D-2
EXHIBIT E
[Form of]
INTEREST ELECTION REQUEST
INTEREST ELECTION REQUEST
Wilmington Trust, FSB,
as Administrative Agent
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402
Attention: Renee Kuhl
as Administrative Agent
50 South Sixth Street, Suite 1290
Minneapolis, MN 55402
Attention: Renee Kuhl
[Date]
Re: MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company
Ladies and Gentlemen:
This Interest Election Request is delivered to you pursuant to Section 2.08 of the
Amended and Restated Credit Agreement, dated as of November 6, 2009 (as amended, amended and
restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among
MAGNACHIP SEMICONDUCTOR S.A., a Luxembourg corporation, MAGNACHIP SEMICONDUCTOR FINANCE COMPANY,
a Delaware corporation (collectively, the “Borrowers”), MAGNACHIP SEMICONDUCTOR LLC, a Delaware
limited liability company (“Holdings”), the Subsidiary Guarantors (such term and each other
capitalized term used but not defined herein having the meaning given it in Article I of
the Credit Agreement), the Lenders, and 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.
Borrowers
hereby request that on [ ]a (the “Interest Election
Date”),
| 1. | [ ] of the presently outstanding principal amount of the Loans originally made on | ||
| 2. | and all presently being maintained as [ABR Loans] [Eurodollar Loans], | ||
| 3. | be [converted into] [continued as], | ||
| 4. | [Eurodollar Loans having an Interest Period of [one/two/three/six months] [ABR Loans]. |
| a | Shall be a Business Day that is (a) at least one Business Day prior to the date hereof in the case of an interest election/continuation of ABR Revolving Loans to the extent this Interest Election Request is delivered to the Administrative Agent prior to 10:00 a.m. New York City time and (b) at least three Business Days prior to the date hereof in the case of a conversion into/continuation of Eurodollar Revolving Loans to the extent this Interest Election Request is delivered to the Administrative Agent prior to 11:00 a.m. New York City time on such initial Business Day. |
E-1
The undersigned hereby certifies that the following statements are true on the date hereof,
and will be true on the proposed Interest Election Date, both before and after giving effect
thereto and to the application of the proceeds therefrom:
(a) the foregoing [interest election] [continuation] complies with the terms and conditions of
the Credit Agreement (including, without limitation, Section 2.08 of the Credit
Agreement); and
(b) no Default or Event of Default has occurred and is continuing, or would result from such
proposed [interest election] [continuation].
[Signature Page Follows]
E-2
Each Borrower has caused this Interest Election Request to be executed and delivered by its duly
authorized officer as of the date first written above.
| MAGNACHIP SEMICONDUCTOR S.A. |
||||
| By: | ||||
| Name: | ||||
| Title: | [Responsible Officer] | |||
| MAGNACHIP SEMICONDUCTOR FINANCE COMPANY |
||||
| By: | ||||
| Name: | ||||
| Title: | [Responsible Officer] | |||
E-3
EXHIBIT F
[Form of]
JOINDER AGREEMENT
JOINDER AGREEMENT
Reference is made to the Amended and Restated Credit Agreement, dated as of November 6, 2009 (as
amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit
Agreement”) among MAGNACHIP SEMICONDUCTOR S.A., a Luxembourg corporation, MAGNACHIP
SEMICONDUCTOR FINANCE COMPANY, a Delaware corporation (collectively, the “Borrowers”), MAGNACHIP
SEMICONDUCTOR LLC, a Delaware limited liability company (“Holdings”), the Subsidiary Guarantors
(such term and each other capitalized term used but not defined herein having the meaning given
it in Article I of the Credit Agreement), the Lenders, and 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.
W I T N E S S E T H:
WHEREAS, the Guarantors have entered into the Credit Agreement in order to induce the Lenders to
make the Loans to or for the benefit of Borrowers;
WHEREAS, pursuant to Section 5.10(b) of the Credit Agreement, the undersigned is
required to become a Guarantor under the Credit Agreement by executing a Joinder Agreement. The
undersigned Subsidiary (the “New Guarantor”) is executing this joinder agreement (“Joinder
Agreement”) to the Credit Agreement in order to induce the Lenders to make additional Loans and
as consideration for the Loans previously made.
NOW, THEREFORE, the Administrative Agent, Collateral Agent and the New Guarantor hereby agree as
follows:
1. Guarantee. In accordance with Section 5.10(b) of the Credit Agreement, the New
Guarantor by its signature below becomes a Guarantor under the Credit Agreement with the same force
and effect as if originally named therein as a Guarantor.
2. Representations and Warranties. The New Guarantor hereby (a) agrees to all the terms and
provisions of the Credit Agreement applicable to it as a Guarantor, respectively, thereunder and
(b) represents and warrants that the representations and warranties made by it as a Guarantor
thereunder are 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 hereof. Each reference to a Guarantor in the Credit
Agreement shall be deemed to include the New Guarantor.
3. Severability. Any provision of this Joinder Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.
4. Counterparts. This Joinder Agreement may be executed in counterparts, each of which shall
constitute an original. Delivery of an executed signature page to this Joinder Agreement by
facsimile transmission shall be as effective as delivery of a manually executed counterpart of this
Joinder Agreement.
F-1
5. No Waiver. Except as expressly supplemented hereby, the Credit Agreement and the Security
Documents shall remain in full force and effect.
6. Notices. All notices, requests and demands to or upon the New Guarantor, any Agent or any
Lender shall be governed by the terms of Section 10.01 of the Credit Agreement.
7. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
[Signature Pages Follow]
F-2
IN WITNESS WHEREOF, the undersigned has caused this Joinder Agreement to be duly executed and
delivered by its duly authorized officer as of the day and year first above written.
| [NEW GUARANTOR] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Address for Notices: WILMINGTON TRUST FSB, as Administrative Agent and Collateral Agent |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
F-3
EXHIBIT G
[Form of]
NOTE
NOTE
| $ | New York, New York [Date] |
FOR VALUE RECEIVED, the undersigned, MAGNACHIP SEMICONDUCTOR S.A., a Luxembourg corporation and
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY, a Delaware corporation (collectively, the “Borrowers”),
hereby, jointly and severally, promise to pay to the order of WILMINGTON TRUST FSB, as
administrative agent (the “Agent”) for the Lenders (as defined in the Credit Agreement referred
to below) on the Maturity Date (as defined in the Credit Agreement referred to below), in lawful
money of the United States and in immediately available funds, the principal amount of the
lessor of (a) DOLLARS ($ ) and (b) the aggregate unpaid principal
amount of all Loans of the Lenders outstanding under the Credit Agreement. Borrowers further
agree to pay interest in like money at such office on the unpaid principal amount hereof from
time to time from the date hereof at the rates, and on the dates, specified in Section
2.06 of such Credit Agreement.
This Note is one of the Notes referred to in the Credit Agreement, dated as of November 6, 2009
(as amended, amended and restated, supplemented or otherwise modified from time to time, the
“Credit Agreement”), among Borrowers, MagnaChip Semiconductor LLC, a Delaware limited liability
company (“Holdings”), the Subsidiary Guarantors, the Lenders, and Wilmington Trust FSB, as
Administrative Agent for the Lenders and Collateral Agent for the Secured Parties, and is
subject to the provisions thereof and is subject to optional and mandatory prepayment in whole
or in part as provided therein. Terms used herein which are defined in the Credit Agreement
shall have such defined meanings unless otherwise defined herein or unless the context otherwise
requires.
This Note is secured and guaranteed as provided in the Credit Agreement and the Security
Documents. Reference is hereby made to the Credit Agreement and the Security Documents for a
description of the properties and assets in which a security interest has been granted, the
nature and extent of the security and guarantees, the terms and conditions upon which the
security interest and each guarantee was granted and the rights of the holder of this Note in
respect thereof.
Upon the occurrence of any one or more of the Events of Default specified in the Credit
Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided therein.
All parties now and hereafter liable with respect to this Note, whether maker, principal,
surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all
other notices of any kind.
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE CREDIT AGREEMENT.
TRANSFERS OF THIS NOTE MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT
PURSUANT TO THE TERMS OF THE CREDIT AGREEMENT.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK.
[Signature Page Follows]
G-1
| MAGNACHIP SEMICONDUCTOR S.A. |
||||
| By: | ||||
| Name: | ||||
| Title: | [Responsible Officer] | |||
| MAGNACHIP SEMICONDUCTOR FINANCE COMPANY |
||||
| By: | ||||
| Name: | ||||
| Title: | [Responsible Officer] | |||
G-2
EXHIBIT H
[Form of]
SECURITY AGREEMENT
H-1
Execution Version
AMENDED AND RESTATED SECURITY AGREEMENT
By
MAGNACHIP SEMICONDUCTOR S.A.
as a Borrower
and
THE GUARANTORS PARTY HERETO
and
WILMINGTON TRUST FSB,
as Collateral Agent
Dated as of November 6, 2009
TABLE OF CONTENTS
| Page | ||||
ARTICLE I. DEFINITIONS AND INTERPRETATION |
2 | |||
Section 1.1 Definitions |
2 | |||
Section 1.2 Interpretation |
8 | |||
Section 1.3 Resolution of Drafting Ambiguities |
8 | |||
ARTICLE II. GRANT OF SECURITY AND SECURED OBLIGATIONS |
8 | |||
Section 2.1 Pledge |
8 | |||
Section 2.2 Secured Obligations |
9 | |||
Section 2.3 Security Interest |
9 | |||
Section 2.4 Conflicts with Foreign Pledge Agreement |
10 | |||
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS |
10 | |||
Section 3.1 Title |
10 | |||
Section 3.2 Chief Executive Office; Change of Name; Jurisdiction of Organization |
10 | |||
ARTICLE IV. REMEDIES |
11 | |||
Section 4.1 Remedies |
11 | |||
Section 4.2 Notice of Sale |
12 | |||
Section 4.3 Waiver of Notice and Claims |
12 | |||
Section 4.4 Certain Sales of Pledged Collateral |
13 | |||
Section 4.5 No Waiver; Cumulative Remedies |
14 | |||
Section 4.6 Certain Additional Actions Regarding Intellectual Property |
14 | |||
ARTICLE V. PROCEEDS OF CASUALTY EVENTS AND COLLATERAL DISPOSITIONS/APPLICATION OF PROCEEDS |
14 | |||
Section 5.1 Proceeds of Casualty Events and Collateral Dispositions |
14 | |||
Section 5.2 Application of Proceeds |
14 | |||
ARTICLE VI. MISCELLANEOUS |
15 | |||
Section 6.1 Concerning Collateral Agent |
15 | |||
Section 6.2 Collateral Agent May Perform; Collateral Agent Appointed Attorney-in-Fact |
15 | |||
Section 6.3 Expenses |
16 | |||
Section 6.4 Continuing Security Interest; Assignment |
17 | |||
Section 6.5 Termination; Release |
17 | |||
Section 6.6 Modification in Writing |
17 | |||
Section 6.7 Notices |
17 | |||
Section 6.8 GOVERNING LAW |
17 | |||
Section 6.9 CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER OF JURY TRIAL |
17 | |||
Section 6.10 Severability of Provisions |
18 | |||
i
| Page | ||||
Section 6.11 Execution in Counterparts |
18 | |||
Section 6.12 Business Days |
18 | |||
Section 6.13 Waiver of Stay |
18 | |||
Section 6.14 No Credit for Payment of Taxes or Imposition |
18 | |||
Section 6.15 No Claims Against Collateral Agent |
18 | |||
Section 6.16 No Release |
19 | |||
Section 6.17 Obligations Absolute |
19 | |||
Section 6.18 [Intentionally Omitted]. |
20 | |||
Section 6.19 Joinder of Additional Guarantors |
20 | |||
Section 6.20 Effect of Amendment and Restatement |
20 | |||
SCHEDULE A Commercial Tort Claims |
||||
SCHEDULE B Chief Executive Office; Change of Name; Jurisdiction of Organization |
||||
EXHIBIT A Form of Joinder Agreement |
||||
ii
AMENDED AND RESTATED SECURITY AGREEMENT
This AMENDED AND RESTATED SECURITY AGREEMENT, dated as of November 6, 2009 (as amended, amended
and restated, supplemented or otherwise modified from time to time in accordance with the
provisions hereof, the “Agreement”), is made by MAGNACHIP SEMICONDUCTOR S.A., a société
anonyme, organized and existing under the laws of the Grand Duchy of Luxembourg, having its
registered office at 10, rue de Vianden, L-2680 Luxembourg, Grand Duchy of Luxembourg,
registered with the Luxembourg Register of commerce and companies under the number B 97,483 (the
“Borrower”) and THE GUARANTORS LISTED ON THE SIGNATURE PAGES HERETO (the “Non-U.S.
Guarantors”) OR FROM TIME TO TIME PARTY HERETO BY EXECUTION OF A JOINDER AGREEMENT (the
“Additional Guarantors,” and together with the “Non-U.S. Guarantors,” the
“Guarantors”), as pledgors, assignors and debtors (the Borrower, together with the
Guarantors, in such capacities and together with any successors in such capacities, the
“Pledgors” and each, a “Pledgor”), in favor of the WILMINGTON TRUST FSB, in its
capacity as collateral agent pursuant to the Credit Agreement (as hereinafter defined), as
pledgee, assignee and secured party (in such capacities and together with any successors in such
capacities, the “Collateral Agent”).
RECITALS:
A. The Pledgors are party to that certain Credit Agreement, dated as of December 23, 2004, (as
amended, supplemented or otherwise modified prior to the date hereof, the “Pre-Petition Credit
Agreement”), among MagnaChip Semiconductor Finance Company, a Delaware corporation
(“MagnaChip Finance”), the Borrower, UBS AG, Stamford Branch, as administrative agent and
collateral agent (in such capacity, the “Pre-Petition Collateral Agent”), the other Persons
named therein as Loan Parties, and the Persons signatory thereto from time to time as Lenders.
B. The Pledgors are entering into an Amended and Restated Credit Agreement (as amended,
amended and restated, supplemented or otherwise modified from time to time, the “Credit
Agreement”), dated as of the date hereof, among MagnaChip Finance, Borrower (and together with
the MagnaChip Finance, collectively, the “Borrowers”), Wilmington Trust FSB, as
Administrative Agent (in such capacity, the “Administrative Agent”) and Collateral Agent,
the other Persons named therein as Loan Parties and the Lenders, which amends and restates the
Pre-Petition Credit Agreement in its entirety.
C. Pursuant to the Pre-Petition Credit Agreement, the Non-U.S. Guarantors have entered into
that certain Security Agreement, dated as of December 23, 2004 (as in effect immediately prior to
the date hereof, the “Pre-Petition Security Agreement”), pursuant to which the Pledgors
granted to UBS AG, Stamford Branch, as collateral agent under the Pre-Petition Credit Agreement
(the “Pre-Petition Collateral Agent”), on behalf of and for the ratable benefit of the
Secured Parties (as defined in the Pre-Petition Security Agreement), a security interest in the
Collateral (as defined in the Pre-Petition Security Agreement) as security for the prompt and
complete payment and performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations (as defined in the Pre-Petition Security Agreement).
D. Each Non-U.S. Guarantor has, pursuant to the Credit Agreement and together with certain
other guarantors signatory to the Credit Agreement (the “U.S. Guarantors”), among other
things, unconditionally guaranteed the obligations of the Borrowers under the Credit Agreement and
the other Loan Documents (as hereinafter defined).
1
E. The Borrower and each Non-U.S. Guarantor will receive substantial benefits from the
execution, delivery and performance of the obligations under the Credit Agreement and the other
Loan Documents and each is, therefore, willing to enter into this Agreement.
F. It is contemplated that one or more of the Pledgors may enter (or may have entered) into
one or more Interest Rate Protection Agreements or other Hedging Agreements with one or more of the
Lenders or their respective Affiliates.
G. Each Pledgor is or, as to Pledged Collateral (as hereinafter defined) acquired by such
Pledgor after the date hereof will be, the legal and/or beneficial owner of the Pledged Collateral
pledged by it hereunder.
H. This Agreement is given by each Pledgor in favor of the Collateral Agent for the benefit
of the Secured Parties (as hereinafter defined) to reaffirm its agreement to secure, and to secure,
the payment and performance of all of the Secured Obligations (as hereinafter defined).
I. It is a condition precedent to the amendment and restatement of the Pre-Petition Credit
Agreement, that the parties hereto shall have amended and restated the Pre-Petition Security
Agreement in the form hereof.
AGREEMENT:
NOW THEREFORE, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, each Pledgor and
the Collateral Agent hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.01 Definitions.
(a) Unless otherwise defined herein, terms used herein that are defined in the UCC shall have
the meanings assigned to them in the UCC.
(b) Capitalized terms used but not otherwise defined herein that are defined in the Credit
Agreement shall have the meanings given to them in the Credit Agreement.
(c) The following terms shall have the following meanings:
“Additional Guarantors” shall have the meaning assigned to such term in the Preamble
hereof.
“Additional Pledged Interests” shall mean, collectively, with respect to each Pledgor,
(i) all options, warrants, rights, agreements, additional membership, partnership or other
equity interests of whatever class of any issuer of Initial Pledged Interests or any interest in
any such issuer, together with all rights, privileges, authority and powers of such Pledgor
relating to such interests in each issuer or under the Operative Agreement of any such issuer,
and the certificates, instruments and agreements representing such membership, partnership or
other interests and any and all interest of such Pledgor in the entries on the books of any
financial intermediary pertaining to such membership, partnership or other equity interests from
time to time acquired by such Pledgor in any manner and (ii) all
membership, partnership or other equity interests, as applicable, of each limited liability
company, partnership or other entity (other than a corporation) hereafter acquired or formed by
such Pledgor
2
and all options, warrants, rights, agreements, additional membership, partnership
or other equity interests of whatever class of such limited liability company, partnership or
other entity together with all rights, privileges, authority and powers of such Pledgor relating
to such interests or under the Operative Agreement of any such issuer, and the certificates,
instruments and agreements representing such membership, partnership or other equity interests
and any and all interest of such Pledgor in the entries on the books of any financial
intermediary pertaining to such membership, partnership or other interests, from time to time
acquired by such Pledgor in any manner.
“Additional Pledged Shares” shall mean, collectively, with respect to each Pledgor, (i)
all options, warrants, rights, agreements, additional shares of capital stock of whatever class
of any issuer of the Initial Pledged Shares or any other equity interest in any such issuer,
together with all rights, privileges, authority and powers of such Pledgor relating to such
interests issued by any such issuer under the Operative Agreement of any such issuer, and the
certificates, instruments and agreements representing such interests and any and all interest of
such Pledgor in the entries on the books of any financial intermediary pertaining to such
interests, from time to time acquired by such Pledgor in any manner and (ii) all the issued and
outstanding shares of capital stock of each corporation hereafter acquired or formed by such
Pledgor and all options, warrants, rights, agreements or additional shares of capital stock of
whatever class of such corporation together with all rights, privileges, authority and powers of
such Pledgor relating to such shares or under the Operative Agreement of such corporation and
the certificates, instruments and agreements representing such shares and any and all interest
of such Pledgor in the entries on the books of any financial intermediary pertaining to such
shares, from time to time acquired by such Pledgor in any manner.
“Agreement” shall have the meaning assigned to such in the Preamble hereof.
“Bankruptcy Code” shall mean 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.
“Borrower” shall have the meaning assigned to such term in the Preamble hereof.
“Claims” shall mean any and all property taxes and other taxes, assessments and special
assessments, levies, fees and all governmental charges imposed upon or assessed against, and all
claims (including, without limitation, landlords’, carriers’, mechanics’, workmen’s,
repairmen’s, laborers’, materialmen’s, suppliers’ and warehousemen’s Liens and other claims
arising by operation of law) against, all or any portion of the Pledged Collateral.
“Collateral Agent” shall have the meaning assigned to such term in the Preamble hereof.
“Contracts” shall mean, collectively, with respect to each Pledgor, all sale, service,
performance, equipment or property lease contracts, agreements and grants and all other
contracts, agreements or grants (in each case, whether written or oral, or third party or
intercompany), between such Pledgor and third parties, and all assignments, amendments,
restatements, supplements, extensions, renewals, replacements or modifications thereof.
“Copyrights” shall mean, collectively, with respect to each Pledgor, all copyrights
(whether statutory or common law, whether established or registered in the United States or any
other country or any political subdivision thereof whether registered or unregistered and
whether published or unpublished) and all copyright registrations and applications made by such
Pledgor, in each case, whether now owned or hereafter created or acquired by or assigned to such
Pledgor, together with any and all (i) rights and privileges arising under applicable law with
respect to such Pledgor’s use of such copyrights, (ii) reissues, renewals, continuations and
extensions thereof, (iii) income, fees, royalties, damages, claims and payments now or hereafter
due and/or payable with respect thereto, including,
without limitation, damages and payments for past, present or future infringements thereof, (iv)
rights
3
corresponding thereto throughout the world and (v) rights to sue for past, present or
future infringements thereof.
“Credit Agreement” shall have the meaning assigned to such term in Recital B
hereof.
“Deposit Accounts” shall mean, collectively, with respect to each Pledgor, (i) all
“deposit accounts” as such term is defined in the UCC and in any event shall include, without
limitation all accounts and sub-accounts relating to any of the foregoing accounts and (ii) all
cash, funds, checks, notes and instruments from time to time on deposit in any of the accounts
or sub-accounts described in clause (i) of this definition.
“Distributions” shall mean, collectively, with respect to each Pledgor, all dividends,
cash, options, warrants, rights, instruments, distributions, returns of capital or principal,
income, interest, profits and other property, interests (debt or equity) or proceeds, including
as a result of a split, revision, reclassification or other like change of the Pledged
Securities, from time to time received, receivable or otherwise distributed to such Pledgor in
respect of or in exchange for any or all of the Pledged Securities or Intercompany Loan
Documents.
“Effective Date” shall mean November 6, 2009.
“Excluded Property” shall mean Special Property other than the following:
(a) the right to receive any payment of money (including, without limitation, Accounts,
General Intangibles and Payment Intangibles) or any other rights referred to in Sections
9-406(f), 9-407(a) or 9-408(a) of the UCC; and
(b) any Proceeds, substitutions or replacements of any Special Property (unless such
Proceeds, substitutions or replacements would constitute Special Property).
“Foreign Pledge Agreement” means a pledge agreement or debenture securing the Secured
Obligations or any of them that is governed by the law of a jurisdiction other than the United
States and reasonably satisfactory in form and substance to the Administrative Agent.
“General Intangibles” shall mean, collectively, with respect to each Pledgor, all
“general intangibles,” as such term is defined in the UCC, of such Pledgor and, in any event,
shall include, without limitation, (i) all of such Pledgor’s rights, title and interest in, to
and under all insurance policies and Contracts, (ii) all know-how and warranties relating to any
of the Pledged Collateral or the Mortgaged Property, (iii) any and all other rights, claims,
choses-in-action and causes of action of such Pledgor against any other Person and the benefits
of any and all collateral or other security given by any other Person in connection therewith,
(iv) all guarantees, endorsements and indemnifications on, or of, any of the Pledged Collateral
or any of the Mortgaged Property, (v) all lists, books, records, correspondence, ledgers,
print-outs, files (whether in printed form or stored electronically), tapes and other papers or
materials containing information relating to any of the Pledged Collateral or any of the
Mortgaged Property, including, without limitation, all customer or tenant lists, identification
of suppliers, data, plans, blueprints, specifications, designs, drawings, appraisals, recorded
knowledge, surveys, studies, engineering reports, test reports, manuals, standards, processing
standards, performance standards, catalogs, research data, computer and automatic machinery
software and programs and the like, field repair data, accounting information pertaining to such
Pledgor’s operations or any of the Pledged Collateral or any of the Mortgaged Property and all
media in which or on which any of the information or knowledge or data or records may be
recorded or stored and all computer programs used for the compilation or printout of such
information, knowledge, records or data, (vi) all licenses, consents, permits, variances,
certifications, authorizations and approvals, however characterized, of any Governmental
Authority (or any Person acting on behalf of a Governmental Authority) now or hereafter acquired
or held by such Pledgor pertaining to operations
now or hereafter conducted by such Pledgor or any of the Pledged Collateral or any of the
Mortgaged
4
Property including, without limitation, building permits, certificates of occupancy,
environmental certificates, industrial permits or licenses and certificates of operation and
(vii) all rights to reserves, deferred payments, deposits, refunds, indemnification of claims to
the extent the foregoing relate to any Pledged Collateral or Mortgaged Property and claims for
tax or other refunds against any Governmental Authority relating to any Pledged Collateral or
any of the Mortgaged Property.
“Goodwill” shall mean, collectively, with respect to each Pledgor, the goodwill
connected with such Pledgor’s business including, without limitation, (i) all goodwill connected
with the use of and symbolized by any of the Intellectual Property Collateral in which such
Pledgor has any interest, (ii) all know-how, trade secrets, customer and supplier lists,
proprietary information, inventions, methods, procedures, formulae, descriptions, compositions,
technical data, drawings, specifications, name plates, catalogs, confidential information and
the right to limit the use or disclosure thereof by any Person, pricing and cost information,
business and marketing plans and proposals, consulting agreements, engineering contracts and
such other assets which relate to such goodwill and (iii) all product lines of such Pledgor’s
business.
“Governmental Authority” shall mean any Federal, state, local, foreign or other
governmental, quasi-governmental or administrative (including self-regulatory) body,
instrumentality, department, agency, authority, board, bureau, commission, office of any nature
whatsoever or other subdivision thereof, or any court, tribunal, administrative hearing body,
arbitration panel or other similar dispute-resolving body, whether now or hereafter in
existence, or any officer or official thereof, having jurisdiction over any Pledgor or the
Pledged Collateral or the Mortgaged Property or any portion thereof.
“Guarantors” shall have the meaning assigned to such term in the Preamble hereof.
“Indemnitee” shall have the meaning assigned to such term in Section 6.3(b)
hereof.
“Instruments” shall mean, collectively, with respect to each Pledgor, all “instruments,”
as such term is defined in Article 9 of the UCC and shall include, without limitation, all
promissory notes, drafts, bills of exchange or acceptances.
“Intellectual Property Collateral” shall mean, collectively, the Patents, Trademarks,
Copyrights, Licenses and Goodwill.
“Initial Pledged Interests” shall mean, with respect to each Pledgor, all membership,
partnership or other equity interests (other than in a corporation), as applicable, of each
issuer, together with all rights, privileges, authority and powers of such Pledgor in and to
each such issuer or under the Operative Agreement of each such issuer, and the certificates,
instruments and agreements representing such membership, partnership or other interests and any
and all interest of such Pledgor in the entries on the books of any financial intermediary
pertaining to such membership, partnership or other interests.
“Initial Pledged Shares” shall mean, collectively, with respect to each Pledgor, the
issued and outstanding shares of capital stock of each issuer together with all rights,
privileges, authority and powers of such Pledgor relating to such interests in each such issuer
or under the Operative Agreement of each such issuer, and the certificates, instruments and
agreements representing such shares of capital stock and any and all interest of such Pledgor in
the entries on the books of any financial intermediary pertaining to the Initial Pledged Shares.
“Investment Property” shall mean a security, whether certificated or uncertificated,
security entitlement, securities account, commodity contract or commodity account, excluding,
however, the Securities Collateral.
“Licenses” shall mean, collectively, with respect to each Pledgor, all license and
distribution agreements with, and covenants not to sue, any other party with respect to any
Patent, Trademark or
Copyright or any other patent, trademark or copyright, whether such Pledgor is a licensor or
licensee,
5
distributor or distributee under any such license or distribution agreement, together
with any and all (i) renewals, extensions, supplements and continuations thereof, (ii) income,
fees, royalties, damages, claims and payments now and hereafter due and/or payable thereunder
and with respect thereto including, without limitation, damages and payments for past, present
or future infringements or violations thereof, (iii) rights to sue for past, present and future
infringements or violations thereof and (iv) other rights to use, exploit or practice any or all
of the Patents, Trademarks or Copyrights or any other patent, trademark or copyright.
“MagnaChip Finance” shall have the meaning assigned to such term in the Recital
A hereof.
“Mortgaged Property” shall mean property of any Pledgor subject to the lien of a
Mortgage.
“Mortgages” means any mortgage, deed of trust, deed to secured debt, leasehold mortgage,
leasehold deed of trust, collateral lease assignment or other instrument, agreement or document
executed by any of the Pledgors granting a lien on or security interest in any interest of a
Pledgor in any real property, whether owned or leased.
“Non-U.S. Guarantors” shall have the meaning assigned to such term in the Preamble
hereof.
“Operative Agreement” shall mean (i) in the case of any limited liability company or
partnership or other non-corporate entity, any membership or partnership agreement or other
organizational agreement or document thereof and (ii) in the case of any corporation, any
charter or certificate of incorporation and by-laws thereof.
“Patents” shall mean, collectively, with respect to each Pledgor, all patents
issued or assigned to and all patent applications and registrations made by such Pledgor
(whether established or registered or recorded in the United States or any other country or any
political subdivision thereof), together with any and all (i) rights and privileges arising
under applicable law with respect to such Pledgor’s use of any patents, (ii) inventions and
improvements described and claimed therein, (iii) reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, (iv) income, fees, royalties, damages, claims and
payments now or hereafter due and/or payable thereunder and with respect thereto including,
without limitation, damages and payments for past, present or future infringements thereof, (v)
rights corresponding thereto throughout the world and (vi) rights to sue for past, present or
future infringements thereof.
“Pledged Collateral” shall have the meaning assigned to such term in Section 2.1
hereof.
“Pledged Interests” shall mean, collectively, the Initial Pledged Interests and the
Additional Pledged Interests.
“Pledged Securities” shall mean, collectively, the Pledged Interests, the Pledged Shares
and the Successor Interests.
“Pledged Shares” shall mean, collectively, the Initial Pledged Shares and the Additional
Pledged Shares.
“Pledgor” shall have the meaning assigned to such term in the Preamble hereof.
“Pre-Petition Collateral Agent” shall have the meaning assigned to such term in
Recital C hereof.
“Pre-Petition Credit Agreement” shall have the meaning assigned to such term in
Recital A hereof.
“Pre-Petition Security Agreement” shall have the meaning assigned to such term in
Recital C hereof.
“Requirements of Law” shall mean, collectively, any and all requirements of any
Governmental Authority including, without limitation, any and all laws, ordinances, rules,
regulations or similar statutes or case law.
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“Secured Obligations” shall mean all “Secured Obligations” as defined in the Credit
Agreement, including, without limitation, all obligations (whether or not constituting future
advances, obligatory or otherwise) of the Borrowers and any and all of the Pledgors from time to
time arising under or in respect of this Agreement, the Credit Agreement and the other Loan
Documents (including, without limitation, the obligations to pay principal, interest and all
other charges, fees, expenses, commissions, reimbursements, premiums, indemnities and other
payments related to or in respect of the obligations contained in this Agreement, the Credit
Agreement and the other Loan Documents), in each case whether (A) such obligations are direct or
indirect, secured or unsecured, joint or several, absolute or contingent, reduced to judgment or
not, liquidated or unliquidated, disputed or undisputed, legal or equitable, due or to become
due whether at stated maturity, by acceleration or otherwise, (B) arising in the regular course
of business or otherwise, (C) for payment or performance and/or (D) now existing or hereafter
arising (including, without limitation, interest and other obligations arising or accruing after
the commencement of any bankruptcy, insolvency, reorganization or similar proceeding with
respect to any Pledgor or any other Person, or which would have arisen or accrued but for the
commencement of such proceeding, even if such obligation or the claim therefor is not
enforceable or allowable in such proceeding), but excluding the obligations of any Pledgor under
a “Covenant to Pay” as defined in the respective Security Documents expressed to be governed by
Dutch law.
“Secured Parties” shall mean, collectively, the Administrative Agent, the Collateral
Agent, the Lenders and each party to a Hedging Agreement if such Person is a Lender or an
Affiliate of a Lender and, if an Affiliate, such Affiliate 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
Section 10.3 of the Credit Agreement.
“Securities Collateral” shall mean, collectively, the Pledged Securities, the
Intercompany Loan Documents and the Distributions.
“Special Property” shall mean:
(a) any permit, lease, license, contract or other agreement held by any Pledgor that
validly prohibits the creation by such Pledgor of a security interest therein;
(b) any permit, lease, license contract or other agreement held by any Pledgor to the
extent that any Requirement of Law applicable thereto prohibits the creation of a security
interest therein; and
(c) Equipment owned by any Pledgor on the date hereof or hereafter acquired that is
subject to a Lien securing a Purchase Money Obligation or Capital Lease Obligation permitted
to be incurred pursuant to the provisions of the Credit Agreement if the contract or other
agreement in which such Lien is granted (or the documentation providing for such Purchase
Money Obligation or Capital Lease Obligation) validly prohibits the creation of any other
Lien on such Equipment;
provided, however, that in each case described in clauses (a), (b) and (c) of this
definition, such property shall constitute “Special Property” only to the extent and for so long as
such permit, lease, license, contract or other agreement or Requirement of Law applicable thereto,
validly prohibits the creation of a Lien on such property in favor of the Collateral Agent and,
upon the termination of such prohibition (howsoever occurring), such property shall cease to
constitute “Special Property.”
“Successor Interests” shall mean, collectively, with respect to each Pledgor, all shares
of each class of the capital stock of the successor corporation or interests or certificates of
the successor limited
7
liability company, partnership or other entity owned by such Pledgor (unless such successor is
such Pledgor itself) formed by or resulting from any consolidation or merger in which any Loan
Party is not the surviving entity.
“Trademarks” shall mean, collectively, with respect to each Pledgor, all trademarks
(including service marks), slogans, logos, certification marks, trade dress, uniform resource
locations (URL’s), domain names, corporate names and trade names, whether registered or
unregistered, owned by or assigned to such Pledgor and all registrations and applications for
the foregoing (whether statutory or common law and whether established or registered in the
United States or any other country or any political subdivision thereof), together with any and
all (i) rights and privileges arising under applicable law with respect to such Pledgor’s use of
any trademarks, (ii) reissues, continuations, extensions and renewals thereof, (iii) income,
fees, royalties, damages and payments now and hereafter due and/or payable thereunder and with
respect thereto, including, without limitation, damages, claims and payments for past, present
or future infringements thereof, (iv) rights corresponding thereto throughout the world and (v)
rights to sue for past, present and future infringements thereof.
“UCC” shall mean the Uniform Commercial Code as in effect on the date hereof in the
State of New York; provided, however, that if by reason of mandatory provisions
of law, any or all of the attachment, perfection or priority of the Collateral Agent’s and the
Secured Parties’ security interest in any item or portion of the Pledged Collateral is governed
by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York,
the term “UCC” shall mean the Uniform Commercial Code as in effect on the date hereof in such
other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection
or priority and for purposes of definitions relating to such provisions.
“U.S. Guarantors” shall have the meaning assigned to such term in Recital D hereof.
SECTION 1.02 Interpretation. The rules of interpretation specified in the Credit Agreement shall be applicable to this
Agreement. If any conflict or inconsistency exists between this Agreement and the Credit
Agreement, the Credit Agreement shall govern.
SECTION 1.03 Resolution of Drafting Ambiguities. Each Pledgor acknowledges and agrees that it was represented by counsel in connection with
the execution and delivery hereof, that it and its counsel reviewed and participated in the
preparation and negotiation hereof and that any rule of construction to the effect that ambiguities
are to be resolved against the drafting party (i.e., the Collateral Agent) shall not be
employed in the interpretation hereof.
ARTICLE II
GRANT OF SECURITY AND SECURED OBLIGATIONS
SECTION 2.01 Pledge. As collateral security for the payment and performance in full of all the Secured
Obligations, each Pledgor hereby pledges and grants to the Collateral Agent for its benefit and for
the benefit of the Secured Parties, a lien on and security interest in and to all of the right,
title and interest of such Pledgor in, to and under all personal property and interests in
property, wherever located, whether now existing or hereafter arising or acquired from time to time
(collectively, the “Pledged Collateral”), including, without limitation:
(i) all Accounts;
(ii) all Equipment, Goods, Inventory and Fixtures;
(iii) all Documents, Instruments and Chattel Paper;
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(iv) all Letters of Credit and Letter of Credit Rights;
(v) all Securities Collateral;
(vi) all Investment Property;
(vii) all Intellectual Property Collateral;
(viii) the Commercial Tort Claims described on Schedule A hereto;
(ix) all General Intangibles;
(x) all Deposit Accounts;
(xi) all Supporting Obligations;
(xii) all books and records relating to the Pledged Collateral; and
(xiii) to the extent not covered by clauses (i) through (xii) of this
sentence, all other personal property of such Pledgor, whether tangible or
intangible and all Proceeds and products of each of the foregoing and all
accessions to, substitutions and replacements for, and rents, profits and
products of, each of the foregoing, any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to such Pledgor from time to time
with respect to any of the foregoing.
Notwithstanding anything to the contrary contained in clauses (i) through (xiii) above, the
security interest created by this Agreement shall not extend to, and the term “Pledged
Collateral” shall not include, any Excluded Property and (i) the Pledgors shall from time to
time at the reasonable request of the Collateral Agent give written notice to the Collateral
Agent identifying in reasonable detail the Special Property (and stating in such notice that
such Special Property constitutes “Excluded Property”) and shall provide to the Collateral Agent
such other information regarding the Special Property as the Collateral Agent may reasonably
request and (ii) from and after the Loans, no Pledgor shall permit to become effective in any
document creating, governing or providing for any permit, lease or license, a provision that
would prohibit the creation of a Lien on such permit, lease or license in favor of the
Collateral Agent unless such Pledgor believes, in its reasonable judgment, that such prohibition
is usual and customary in transactions of such type.
SECTION 2.02 Secured Obligations. This Agreement secures, and the Pledged Collateral is collateral security for, the payment
and performance in full when due of the Secured Obligations.
SECTION 2.03 Security Interest. (a) Each Pledgor hereby irrevocably authorizes the Collateral Agent at any time and from
time to time to authenticate and file in any relevant jurisdiction any initial financing statements
(including fixture filings) and amendments thereto that contain the information required by Article
9 of the Uniform Commercial Code of each applicable jurisdiction for the filing of any financing
statement or amendment relating to the Pledged Collateral, including, without limitation, (i)
whether such Pledgor is an organization, the type of organization and any organizational
identification number issued to such Pledgor, (ii) any financing or continuation statements or
other documents without the signature of such Pledgor where permitted by law, including, without
limitation, the filing of a financing statement describing the Pledged Collateral as “all assets in
which the Pledgor now owns or hereafter acquires rights” and (iii) in the case of a financing
statement filed as a fixture filing or covering Pledged
9
Collateral constituting minerals or the
like to be extracted or timber to be cut, a sufficient description of the real property to which
such Pledged Collateral relates. Each Pledgor agrees to provide all information described in the
immediately preceding sentence to the Collateral Agent promptly upon request.
(a) Each Pledgor hereby ratifies its authorization for the Collateral Agent to file in any
relevant jurisdiction any initial financing statements or amendments thereto relating to the
Pledged Collateral if filed prior to the date hereof.
(b) Each Pledgor hereby further authorizes the Collateral Agent to file filings with the
United States Patent and Trademark Office and United States Copyright Office (or any successor
office or any similar office in any other country) or other documents for the purpose of
perfecting, confirming, continuing, enforcing or protecting the security interest granted by such
Pledgor hereunder, without the signature of such Pledgor, and naming such Pledgor, as debtor, and
the Collateral Agent, as secured party.
SECTION 2.04 Conflicts with Foreign Pledge Agreement. To the extent that there is any overlap between, or conflict with, the provisions of this
Agreement and any Foreign Pledge Agreement, such Foreign Pledge Agreement shall prevail with
respect only to (i) any provision relating to the pledged collateral described in and covered under
such Foreign Pledge Agreement and (ii) any provision where adherence to the law governing such
Foreign Pledge Agreement is required for such Foreign Pledge Agreement to be enforceable in
accordance with its terms.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Pledgor represents, warrants and covenants as follows:
SECTION 3.01 Title.
(a) With respect to such Pledgor’s jurisdiction of organization, there is no centralized
filing office or system for registering liens with respect to the Pledged Collateral.
(b) Pledgor’s chief executive office is not located in any State or other political
subdivision of the United States.
(c) No financing statement or other public notice with respect to all or any part of the
Pledged Collateral is on file or of record in any public office, including any public office in the
jurisdiction of organization of such Pledgor, except such as have been filed in favor of the
Collateral Agent pursuant to this Agreement or as are permitted by the Credit Agreement. No Person
other than the Collateral Agent has control or possession of all or any part of the Pledged
Collateral, except as permitted by the Credit Agreement.
SECTION 3.02 Chief Executive Office; Change of Name; Jurisdiction of Organization.
(a) The exact legal name, type of organization, jurisdiction of organization, and chief
executive office of such Pledgor as of the date hereof is indicated next to its name in
Schedule B hereto. Such Pledgor shall not change (i) its corporate name, (ii) the location
of its chief executive office, its principal place of business, any office in which it maintains
books or records relating to Pledged Collateral owned by it or any office or facility at which
Pledged Collateral owned by it is located (including the establishment of any such new office or
facility), (iii) its identity or type of organization or corporate structure or (iv) its
jurisdiction of organization (in each case, including, without limitation, by
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merging with or into
any other entity, reorganizing, dissolving, liquidating, reincorporating or incorporating in any
other jurisdiction) until (A) it shall have given the Collateral Agent not less than thirty (30)
days’ prior written notice (in the form of an Officers’ Certificate) of its intention so to do,
clearly describing such change and providing such other information in connection therewith as the
Collateral Agent may reasonably request and (B) with respect to such change, such Pledgor shall
have taken all action reasonably satisfactory to the Collateral Agent to maintain the perfection
and priority of the security interest of the Collateral Agent for the benefit of the Secured
Parties in the Pledged Collateral intended to be granted hereunder, including, without limitation,
using commercially reasonable efforts to obtain waivers of landlord’s or warehousemen’s liens with
respect to such new location, if applicable. Each Pledgor agrees to promptly provide the Collateral
Agent with certified organizational documents reflecting any of the changes described in the
preceding sentence.
ARTICLE IV
REMEDIES
SECTION 4.01 Remedies. (a) Upon the occurrence and during the continuance of any Event of Default, the Collateral
Agent may from time to time exercise in respect of the Pledged Collateral, in addition to the other
rights and remedies provided for herein or otherwise available to it:
(i) Personally, or by agents or attorneys, immediately take possession of the Pledged
Collateral or any part thereof, from any Pledgor or any other Person who then has possession of any
part thereof with or without notice or process of law, and for that purpose may enter upon any
Pledgor’s premises where any of the Pledged Collateral is located, remove such Pledged Collateral,
remain present at such premises to receive copies of all communications and remittances relating to
the Pledged Collateral and use in connection with such removal and possession any and all services,
supplies, aids and other facilities of any Pledgor;
(ii) Demand, sue for, collect or receive any money or property at any time payable or
receivable in respect of the Pledged Collateral including, without limitation, instructing the
obligor or obligors on any agreement, instrument or other obligation constituting part of the
Pledged Collateral to make any payment required by the terms of such agreement, instrument or other
obligation directly to the Collateral Agent, and in connection with any of the foregoing,
compromise, settle, extend
the time for payment and make other modifications with respect thereto; provided,
however, that in the event that any such payments are made directly to any Pledgor, prior
to receipt by any such obligor of such instruction, such Pledgor shall segregate all amounts
received pursuant thereto in trust for the benefit of the Collateral Agent and shall promptly (but
in no event later than one (1) Business Day after receipt thereof) pay such amounts to the
Collateral Agent;
(iii) Sell, assign or grant a license to use or otherwise liquidate, or direct any Pledgor to
sell, assign or grant a license to use or otherwise liquidate, any and all investments made in
whole or in part with the Pledged Collateral or any part thereof, and take possession of the
proceeds of any such sale, assignment, license or liquidation;
(iv) Take possession of the Pledged Collateral or any part thereof, by directing any Pledgor
in writing to deliver the same to the Collateral Agent at any place or places so designated by the
Collateral Agent, in which event such Pledgor shall at its own expense: (A) forthwith cause the
same to be moved to the place or places designated by the Collateral Agent and there delivered to
the Collateral Agent, (B) store and keep any Pledged Collateral so delivered to the Collateral
Agent at such place or places pending further action by the Collateral Agent and (C) while the
Pledged Collateral shall be so stored and kept, provide such security and maintenance services as
shall be necessary to
11
protect the same and to preserve and maintain them in good condition. Each
Pledgor’s obligation to deliver the Pledged Collateral as contemplated in this Section
4.1(a)(iv) is of the essence hereof. Upon application to a court of equity having jurisdiction,
the Collateral Agent shall be entitled to a decree requiring specific performance by any Pledgor of
such obligation;
(v) Withdraw all moneys, instruments, securities and other property in any bank, financial
securities, deposit or other account of any Pledgor constituting Pledged Collateral for application
to the Secured Obligations as provided in Article V hereof;
(vi) Retain and apply the Distributions to the Secured Obligations as provided in Article
V hereof;
(vii) Exercise any and all rights as beneficial and legal owner of the Pledged Collateral,
including, without limitation, perfecting assignment of and exercising any and all voting,
consensual and other rights and powers with respect to any Pledged Collateral; and
(viii) Exercise all the rights and remedies of a secured party under the UCC, and the
Collateral Agent may also in its sole discretion, without notice except as specified in
Section 4.2 hereof, sell, assign or grant a license to use the Pledged Collateral or any
part thereof in one or more parcels at public or private sale, at any exchange, broker’s board or
at any of the Collateral Agent’s offices or elsewhere, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as the Collateral Agent may deem commercially
reasonable. The Collateral Agent or any other Secured Party or any of their respective Affiliates
may be the purchaser, licensee, assignee or recipient of any or all of the Pledged Collateral at
any such sale and shall be entitled, for the purpose of bidding and making settlement or payment of
the purchase price for all or any portion of the Pledged Collateral sold, assigned or licensed at
such sale, to use and apply any of the Secured Obligations owed to such Person as a credit on
account of the purchase price of any Pledged Collateral payable by such Person at such sale. Each
purchaser, assignee, licensee or recipient at any such sale shall acquire the property sold,
assigned or licensed absolutely free from any claim or right on the part of any Pledgor, and each
Pledgor hereby waives, to the fullest extent permitted by law, all rights of redemption, stay
and/or appraisal which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. The Collateral Agent shall not be obligated to make any
sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Agent may
adjourn any public or
private sale from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was so adjourned. Each
Pledgor hereby waives, to the fullest extent permitted by law, any claims against the Collateral
Agent arising by reason of the fact that the price at which any Pledged Collateral may have been
sold, assigned or licensed at such a private sale was less than the price which might have been
obtained at a public sale, even if the Collateral Agent accepts the first offer received and does
not offer such Pledged Collateral to more than one offeree.
SECTION 4.02 Notice of Sale. Each Pledgor acknowledges and agrees that, to the extent notice of sale or other
disposition of Pledged Collateral shall be required by law, ten (10) days’ prior notice to such
Pledgor of the time and place of any public sale or of the time after which any private sale or
other intended disposition is to take place shall be commercially reasonable notification of such
matters. No notification need be given to any Pledgor if it has signed, after the occurrence of an
Event of Default, a statement renouncing or modifying (as permitted under law) any right to
notification of sale or other intended disposition.
SECTION 4.03 Waiver of Notice and Claims. Each Pledgor hereby waives, to the fullest extent permitted by applicable law, notice or
judicial hearing in connection with the Collateral Agent’s taking possession or the Collateral
Agent’s disposition of any of the Pledged Collateral, including, without
12
limitation, any and all
prior notice and hearing for any prejudgment remedy or remedies and any such right which such
Pledgor would otherwise have under law, and each Pledgor hereby further waives, to the fullest
extent permitted by applicable law: (a) all damages occasioned by such taking of possession, (b)
all other requirements as to the time, place and terms of sale or other requirements with respect
to the enforcement of the Collateral Agent’s rights hereunder and (c) all rights of redemption,
appraisal, valuation, stay, extension or moratorium now or hereafter in force under any applicable
law. The Collateral Agent shall not be liable for any incorrect or improper payment made pursuant
to this Article IV in the absence of gross negligence or willful misconduct. Any sale of,
or the grant of options to purchase, or any other realization upon, any Pledged Collateral shall
operate to divest all right, title, interest, claim and demand, either at law or in equity, of the
applicable Pledgor therein and thereto, and shall be a perpetual bar both at law and in equity
against such Pledgor and against any and all Persons claiming or attempting to claim the Pledged
Collateral so sold, optioned or realized upon, or any part thereof, from, through or under such
Pledgor.
SECTION 4.04 Certain Sales of Pledged Collateral.
(i) Each Pledgor recognizes that, by reason of certain prohibitions contained in law, rules,
regulations or orders of any Governmental Authority, the Collateral Agent may be compelled, with
respect to any sale of all or any part of the Pledged Collateral, to limit purchasers to those who
meet the requirements of such Governmental Authority. Each Pledgor acknowledges that any such sales
may be at prices and on terms less favorable to the Collateral Agent than those obtainable through
a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any
such restricted sale shall be deemed to have been made in a commercially reasonable manner and
that, except as may be required by applicable law, the Collateral Agent shall have no obligation to
engage in public sales.
(ii) Each Pledgor recognizes that, by reason of certain prohibitions contained in the
Securities Act, and applicable state securities laws, the Collateral Agent may be compelled, with
respect to any sale of all or any part of the Securities Collateral and Investment Property, to
limit
purchasers to Persons who will agree, among other things, to acquire such Securities
Collateral or Investment Property for their own account, for investment and not with a view to the
distribution or resale thereof. Each Pledgor acknowledges that any such private sales may be at
prices and on terms less favorable to the Collateral Agent than those obtainable through a public
sale without such restrictions (including, without limitation, a public offering made pursuant to a
registration statement under the Securities Act), and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially reasonable manner
and that the Collateral Agent shall have no obligation to engage in public sales and no obligation
to delay the sale of any Securities Collateral or Investment Property for the period of time
necessary to permit the issuer thereof to register it for a form of public sale requiring
registration under the Securities Act or under applicable state securities laws, even if such
issuer would agree to do so.
(iii) If the Collateral Agent determines to exercise its right to sell any or all of the
Securities Collateral or Investment Property, upon written request, the applicable Pledgor shall
from time to time furnish to the Collateral Agent all such information as the Collateral Agent may
request in order to determine the number of securities included in the Securities Collateral or
Investment Property which may be sold by the Collateral Agent as exempt transactions under the
Securities Act and the rules of the Securities and Exchange Commission thereunder, as the same are
from time to time in effect.
(iv) Each Pledgor further agrees that a breach of any of the covenants contained in this
Section 4.4 will cause irreparable injury to the Collateral Agent and other Secured
Parties, that the Collateral Agent and the other Secured Parties have no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant contained in this
Section 4.4 shall be
13
specifically enforceable against such Pledgor, and such Pledgor hereby
waives and agrees not to assert any defenses against an action for specific performance of such
covenants except for a defense that no Event of Default has occurred and is continuing.
SECTION 4.05 No Waiver; Cumulative Remedies.
(i) No failure on the part of the Collateral Agent to exercise, no course of dealing with
respect to, and no delay on the part of the Collateral Agent in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or remedy; nor shall the Collateral Agent be required to look
first to, enforce or exhaust any other security, collateral or guaranties. The remedies herein
provided are cumulative and are not exclusive of any remedies provided by law.
(ii) In the event that the Collateral Agent shall have instituted any proceeding to enforce
any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such
proceeding shall have been discontinued or abandoned for any reason or shall have been determined
adversely to the Collateral Agent, then and in every such case, the Pledgors, the Collateral Agent
and each other Secured Party shall be restored to their respective former positions and rights
hereunder with respect to the Pledged Collateral, and all rights, remedies and powers of the
Collateral Agent and the other Secured Parties shall continue as if no such proceeding had been
instituted.
SECTION 4.06 Certain Additional Actions Regarding Intellectual Property. If any Event of Default shall have occurred and be continuing, upon the written demand of
Collateral Agent, each Pledgor shall execute and deliver to Collateral Agent an assignment or
assignments of the registered Patents, Trademarks and/or Copyrights and such other documents
as are necessary or appropriate to carry out the intent and purposes hereof. Within five (5)
Business Days of written notice thereafter from Collateral Agent, each Pledgor shall make available
to Collateral Agent, to the extent within such Pledgor’s power and authority, such personnel in
such Pledgor’s employ on the date of the Event of Default as Collateral Agent may reasonably
designate to permit such Pledgor to continue, directly or indirectly, to produce, advertise and
sell the products and services sold by such Pledgor under the registered Patents, Trademarks and/or
Copyrights, and such Persons shall be available to perform their prior functions on Collateral
Agent’s behalf.
ARTICLE V
PROCEEDS OF CASUALTY EVENTS AND COLLATERAL DISPOSITIONS/APPLICATION OF PROCEEDS
SECTION 5.01 Proceeds of Casualty Events and Collateral Dispositions. The Pledgors shall take all actions required by the Credit Agreement with respect to any
Net Cash Proceeds of any Casualty Event or from the sale or disposition of any Pledged Collateral.
SECTION 5.02 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, together with any other sums then held by the Collateral
Agent pursuant to this Agreement, in accordance with the terms of the Credit Agreement.
14
MISCELLANEOUS
SECTION 5.03 Concerning Collateral Agent.
(i) The Collateral Agent has been appointed as collateral agent pursuant to the Credit
Agreement. The actions of the Collateral Agent hereunder are subject to the provisions of the
Credit Agreement. The Collateral Agent shall have the right hereunder to make demands, to give
notices, to exercise or refrain from exercising any rights, and to take or refrain from taking
action (including, without limitation, the release or substitution of the Pledged Collateral), in
accordance with this Agreement and the Credit Agreement. The Collateral Agent may employ agents and
attorneys-in-fact in connection herewith and shall not be liable for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it in good faith. The Collateral Agent may
resign and a successor Collateral Agent may be appointed in the manner provided in the Credit
Agreement. Upon the acceptance of any appointment as the Collateral Agent by a successor Collateral
Agent, that successor Collateral Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Collateral Agent under this Agreement, and
the retiring Collateral Agent shall thereupon be discharged from its duties and obligations under
this Agreement. After any retiring Collateral Agent’s resignation, the provisions hereof shall
inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement
while it was the Collateral Agent.
(ii) The Collateral Agent shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral in its possession if such Pledged Collateral is accorded
treatment substantially equivalent to that which the Collateral Agent, in its individual capacity,
accords its own property consisting of similar instruments or interests, it being understood that
neither the Collateral Agent nor any of the Secured Parties shall have responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relating to any Securities Collateral, whether or not the Collateral Agent or any
other Secured Party has or is deemed to have knowledge of such matters or (ii) taking any necessary
steps to preserve rights against any Person with respect to any Pledged Collateral.
(iii) The Collateral Agent shall be entitled to rely upon any written notice, statement,
certificate, order or other document or any telephone message believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person, and, with respect to all
matters pertaining to this Agreement and its duties hereunder, upon advice of counsel selected by
it.
(iv) If any item of Pledged Collateral also constitutes collateral granted to Collateral Agent
under any other deed of trust, mortgage, security agreement, pledge or instrument of any type, in
the event of any conflict between the provisions hereof and the provisions of such other deed of
trust, mortgage, security agreement, pledge or instrument of any type in respect of such
collateral, Collateral Agent, in its sole discretion, shall select which provision or provisions
shall control.
SECTION 5.04 Collateral Agent May Perform; Collateral Agent Appointed Attorney-in-Fact. If any Pledgor shall fail to perform any covenants contained in this Agreement or in the
Credit Agreement or if any warranty on the part of any Pledgor contained herein shall be breached,
the Collateral Agent may (but shall not be obligated to) do the same or cause it to be done or
remedy any such breach, and may expend funds for such purpose; provided, however,
that Collateral Agent shall in no event be bound to inquire into the validity of any tax, lien,
imposition or other obligation which such Pledgor fails to pay or perform as and when required
hereby and which such Pledgor does not contest in accordance with the provisions of the Credit
Agreement. Any and all amounts so expended by the Collateral Agent shall be paid
15
by the Pledgors in
accordance with the provisions of Section 6.3 hereof. Neither the provisions of this
Section 6.2 nor any action taken by Collateral Agent pursuant to the provisions of this
Section 6.2 shall prevent any such failure to observe any covenant contained in this
Agreement nor any breach of warranty form constituting an Event of Default. Each Pledgor hereby
appoints the Collateral Agent its attorney-in-fact, with full authority in the place and stead of
such Pledgor and in the name of such Pledgor, or otherwise, from time to time following an Event of
Default which is continuing in the Collateral Agent’s discretion to take any action and to execute
any instrument consistent with the terms of the Credit Agreement and the other Security Documents
which the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof. The
foregoing grant of authority is a power of attorney coupled with an interest and such appointment
shall be irrevocable for the term hereof. Each Pledgor hereby ratifies all that such attorney shall
lawfully do or cause to be done by virtue hereof.
SECTION 5.05 Expenses.
(a) Each Pledgor will upon demand pay to the Collateral Agent the amount of any and all
reasonable costs and expenses, including the reasonable fees and expenses of its counsel and the
reasonable fees and expenses of any experts and agents which the Collateral Agent may incur in
connection with (i) any action, suit or other proceeding affecting the Pledged Collateral or any
part
thereof commenced, in which action, suit or proceeding the Collateral Agent is made a party or
participates or in which the right to use the Pledged Collateral or any part thereof is threatened,
or in which it becomes necessary in the reasonable judgment of the Collateral Agent to defend or
uphold the Lien hereof (including, without limitation, any action, suit or proceeding to establish
or uphold the compliance of the Pledged Collateral with any requirements of any Governmental
Authority or law), (ii) the collection of the Secured Obligations, (iii) the enforcement and
administration hereof, (iv) the custody or preservation of, or the sale of, collection from, or
other realization upon, any of the Pledged Collateral, (v) the exercise or enforcement of any of
the rights of the Collateral Agent or any Secured Party hereunder or (vi) the failure by any
Pledgor to perform or observe any of the provisions hereof. All amounts expended by the Collateral
Agent and payable by any Pledgor under this Section 6.3 shall be due upon demand therefor
(together with interest thereon accruing at the highest rate then in effect under the Credit
Agreement during the period from and including the date on which such funds were so expended to the
date of repayment) and shall be part of the Secured Obligations.
(b) The Pledgors agree, jointly and severally, to indemnify the Collateral Agent, the
Administrative Agent, each Lender, each Affiliate of any of the foregoing Persons and each of their
respective directors, officers, trustees, employees and agents (each such Person being called an
“Indemnitee”), against, and to hold each Indemnitee harmless from, all reasonable
out-of-pocket costs and any and all losses, claims, damages, liabilities and related expenses,
including reasonable counsel fees, charges, expenses and disbursements, incurred by or asserted
against any Indemnitee arising out of, in any way connected with, or as a result of this Agreement,
the Credit Agreement, any other Loan Document or any other document evidencing the Secured
Obligations (including, without limitation, any misrepresentation by any Pledgor in this Agreement,
the Credit Agreement, other Loan Document or any other document evidencing the Secured
Obligations); provided that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities or related expenses 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.
(c) The provisions of this Section 6.3 shall remain operative and in full force and
effect regardless of the expiration of the term of this Agreement, the repayment of any of the
Loans, the expiration of the Commitments, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation made by or on behalf
of the Agents or any Lender. All amounts due under this Section 6.3 shall be payable
promptly (but in any event no more than
16
ten (10) days following) upon written demand therefor
accompanied by reasonable documentation with respect to any reimbursement, indemnification or other
amount requested.
SECTION 5.06 Continuing Security Interest; Assignment. This Agreement shall create a continuing security interest in the Pledged Collateral and
shall (a) be binding upon the Pledgors, their respective successors and assigns and (b) inure,
together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the
Collateral Agent and the other Secured Parties and each of their permitted respective successors,
transferees and assigns. No other Persons (including, without limitation, any other creditor of any
Pledgor) shall have any interest herein or any right or benefit with respect hereto. Without
limiting the generality of the foregoing clause (b), any Secured Party may assign or otherwise
transfer any indebtedness held by it secured by this Agreement to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof granted to such
Secured Party, herein or otherwise, subject however, to the provisions of the Credit Agreement and
any Hedging Agreement.
SECTION 5.07 Termination; Release. The Pledged Collateral shall be released from the Lien of this Agreement in accordance with
the provisions of the Credit Agreement. Upon termination hereof or any release of Pledged
Collateral in accordance with the provisions of the Credit Agreement, the Collateral Agent shall,
upon the request and at the sole cost and expense of the Pledgors, assign, transfer and deliver to
Pledgor, against receipt and without recourse to or warranty by the Collateral Agent except as to
the fact that the Collateral Agent has not encumbered the released assets, such of the Pledged
Collateral to be released (in the case of a release) as may be in possession of the Collateral
Agent and as shall not have been sold or otherwise applied pursuant to the terms hereof, and, with
respect to any other Pledged Collateral, proper documents and instruments (including UCC-3
termination statements or releases) acknowledging the termination hereof or the release of such
Pledged Collateral, as the case may be.
SECTION 5.08 Modification in Writing. No amendment, modification, supplement, termination or waiver of or to any provision
hereof, nor consent to any departure by any Pledgor therefrom, shall be effective unless the same
shall be made in accordance with the terms of the Credit Agreement and unless in writing and signed
by the Collateral Agent. Any amendment, modification or supplement of or to any provision hereof,
any waiver of any provision hereof and any consent to any departure by any Pledgor from the terms
of any provision hereof shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required by this Agreement or
any other document evidencing the Secured Obligations, no notice to or demand on any Pledgor in any
case shall entitle any Pledgor to any other or further notice or demand in similar or other
circumstances.
SECTION 5.09 Notices. Unless otherwise provided herein or in the Credit Agreement, any notice or other
communication herein required or permitted to be given shall be given in the manner and become
effective as set forth in the Credit Agreement, as to any Pledgor, addressed to it at the address
designated with respect to the Loan Parties set forth in the Credit Agreement and as to the
Collateral Agent, addressed to it at the address set forth in the Credit Agreement, or in each case
at such other address as shall be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section 6.7.
SECTION 5.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 5.11 CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER OF JURY TRIAL. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PLEDGOR OR SECURED PARTY WITH RESPECT TO THIS
AGREEMENT MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY, THE
17
COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND APPELLATE
COURTS OF ANY THEREOF, AND BY EXECUTION AND DELIVERY HEREOF, EACH PLEDGOR ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT. EACH PLEDGOR AGREES THAT SERVICE OF PROCESS IN ANY PROCEEDING MAY BE EFFECTED
BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM
OF MAIL), POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH IN THE CREDIT AGREEMENT OR AT
SUCH OTHER ADDRESS OF WHICH THE COLLATERAL AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO. IF ANY
AGENT APPOINTED BY ANY PLEDGOR REFUSES TO ACCEPT SERVICE, SUCH PLEDGOR HEREBY AGREES THAT SERVICE
UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE COLLATERAL AGENT TO
BRING PROCEEDINGS AGAINST ANY PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION. THE PLEDGORS HEREBY
IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 5.12 Severability of Provisions. Any provision hereof which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 5.13 Execution in Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed
in any number of counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, but all such counterparts
together shall constitute one and the same agreement.
SECTION 5.14 Business Days. In the event any time period or any date provided in this Agreement ends or falls on a day
other than a Business Day, then such time period shall be deemed to end and such date shall be
deemed to fall on the next succeeding Business Day, and performance herein may be made on such
Business Day, with the same force and effect as if made on such other day.
SECTION 5.15 Waiver of Stay. Each Pledgor agrees that in the event that such Pledgor or any property or assets of such
Pledgor shall hereafter become the subject of a voluntary or involuntary proceeding under the
Bankruptcy Code or such Pledgor shall otherwise be a party to any Federal or state bankruptcy,
insolvency, moratorium or similar proceeding to which the provisions relating to the automatic stay
under Section 362 of the Bankruptcy Code or any similar provision in any such law is applicable,
then, in any such case, whether or not the Collateral Agent has commenced foreclosure proceedings
under this Agreement, the Collateral Agent shall be entitled to relief from any such automatic stay
as it relates to the exercise of any of the rights and remedies (including, without limitation, any
foreclosure proceedings) available to the Collateral Agent as provided in this Agreement, in any
other Collateral Document or any other document evidencing the Secured Obligations.
SECTION 5.16 No Credit for Payment of Taxes or Imposition. Such Pledgor shall not be entitled to any credit against the principal, premium, if any, or
interest payable under the Credit Agreement, and such Pledgor shall not be entitled to any credit
against any other sums which may become payable under the terms thereof or hereof, by reason
of the payment of any Tax on the Pledged Collateral or any part thereof.
18
SECTION 5.17 No Claims Against Collateral Agent. Nothing contained in this Agreement shall constitute any consent or request by the
Collateral Agent, express or implied, for the performance of any labor or services or the
furnishing of any materials or other property in respect of the Pledged Collateral or any part
thereof, nor as giving any Pledgor any right, power or authority to contract for or permit the
performance of any labor or services or the furnishing of any materials or other property in such
fashion as would permit the making of any claim against the Collateral Agent in respect thereof or
any claim that any Lien based on the performance of such labor or services or the furnishing of any
such materials or other property is prior to the Lien hereof.
SECTION 5.18 No Release. Nothing set forth in this Agreement shall relieve any Pledgor from the performance of any
term, covenant, condition or agreement on such Pledgor’s part to be performed or observed under or
in respect of any of the Pledged Collateral or from any liability to any Person under or in respect
of any of the Pledged Collateral or shall impose any obligation on the Collateral Agent or any
other Secured Party to perform or observe any such term, covenant, condition or agreement on such
Pledgor’s part to be so performed or observed or shall impose any liability on the Collateral Agent
or any other Secured Party for any act or omission on the part of such Pledgor relating thereto or
for any breach of any representation or warranty on the part of such Pledgor contained in this
Agreement, the Credit Agreement or the other Loan Documents, or under or in respect of the Pledged
Collateral or made in connection herewith or therewith. The obligations of each Pledgor contained
in this Section 6.16 shall survive the termination hereof and the discharge of such
Pledgor’s other obligations under this Agreement, the Credit Agreement and the other Loan
Documents.
SECTION 5.19 Obligations Absolute. All obligations of each Pledgor hereunder shall be absolute and unconditional irrespective
of:
(i) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition,
liquidation or the like of any Pledgor;
(ii) any lack of validity or enforceability of the Credit Agreement, any Hedging
Agreement or any other Loan Document, or any other agreement or instrument relating thereto;
(iii) any change in the time, manner or place of payment of, or in any other term of,
all or any of the Secured Obligations, or any other amendment or waiver of or any consent to
any departure from the Credit Agreement, any Hedging Agreement or any other Loan Document or
any other agreement or instrument relating thereto;
(iv) any pledge, 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 Secured Obligations;
(v) any exercise, non-exercise or waiver of any right, remedy, power or privilege under
or in respect hereof, the Credit Agreement, any Hedging Agreement or any other
Loan Document except as specifically set forth in a waiver granted pursuant to the
provisions of Section 6.6 hereof; or
(vi) any other circumstances which might otherwise constitute a defense available to,
or a discharge of, any Pledgor.
19
SECTION 5.20 [Intentionally Omitted].
SECTION 5.21 Joinder of Additional Guarantors. The Pledgors shall cause each Subsidiary of Holdings which is not organized under the laws
of the United States or any State or other political subdivision thereof, from time to time, after
the date hereof, to execute and deliver to the Collateral Agent a Joinder Agreement substantially
in the form of Exhibit A hereto within five (5) Business Days of the day on which it was acquired
or created and, upon such execution and delivery, such Subsidiary shall constitute a “Guarantor”
and a “Pledgor” for all purposes hereunder with the same force and effect as if originally named as
a Guarantor and Pledgor herein. The execution and delivery of such Joinder Agreement shall not
require the consent of any Pledgor hereunder. The rights and obligations of each Pledgor hereunder
shall remain in full force and effect notwithstanding the addition of any new Guarantor and Pledgor
as a party to this Agreement.
SECTION 5.22 Effect of Amendment and Restatement.
(a) 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:
(i) the Pre-Petition Security Agreement shall be deemed to be amended and restated in
its entirety in the form of this Agreement;
(ii) all existing obligations under the Pre-Petition Credit Agreement (the
“Existing Obligations”) shall, to the extent not paid on the Effective Date, be
deemed to be Obligations the payment and performance of which are secured by this Agreement;
(iii) the guaranties and Liens in favor of the Collateral Agent under the Pre-Petition
Security Agreement for the benefit of the Secured Parties under the Pre-Petition Security
Agreement to secure the payment and performance of the Existing Obligations shall remain in
full force and effect and shall be continuing guaranties and Liens securing the payment and
performance of the Secured Obligations hereunder;
(iv) all references in the other Loan Documents to the Pre-Petition Security Agreement
or the “Security Agreement” shall be deemed to be and include references to this Agreement,
as amended, restated, supplemented or otherwise modified from time to time; and
(v) this Agreement shall not be deemed to evidence or result in a novation or repayment
of the Existing Obligations, and the Liens of Pledgors securing payment and performance
thereof in full when due are and shall in all respects be continuing as security for the
payment and performance in full when due of the Secured Obligations.
(b) Each Pledgor hereby (i) ratifies and affirms the grant of security and Liens under the
Pre-Petition Security Agreement as security for the payment and performance in full when due of the
Secured Obligations and (ii) confirms and agrees that such security interests and Lien secure
all of the Secured Obligations under this Agreement and remain in full force and effect after
giving effect to this Agreement.
(c) The execution, delivery and effectiveness of this Agreement shall not operate as a waiver
of any right, power or remedy of the Collateral Agent under the Pre-Petition Security Agreement or
constitute a waiver of any provision of the Pre-Petition Security Agreement, except as specifically
set forth therein.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, the Pledgors and the Collateral Agent have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of the date first above written.
| MAGNACHIP SEMICONDUCTOR S.A., a | ||||||
| Luxembourg corporation, as Pledgor | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
[Signature Page to Amended and Restated Foreign Security Agreement]
| MAGNACHIP SEMICONDUCTOR, LTD., a United | ||||||
| Kingdom company, as Pledgor | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
[Signature Page to Amended and Restated Foreign Security Agreement]
| MAGNACHIP SEMICONDUCTOR INC., a Japanese | ||||||
| company, as Pledgor | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
[Signature Page to Amended and Restated Foreign Security Agreement]
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 Amended and Restated Foreign Security Agreement]
| MAGNACHIP SEMICONDUCTOR B.V., a Dutch | ||||||
| company, as Pledgor | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
[Signature Page to Amended and Restated Foreign Security Agreement]
| MAGNACHIP SEMICONDUCTOR HOLDING | ||||||
| COMPANY LTD., a British Virgin Islands | ||||||
| Company, as Pledgor | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
[Signature Page to Amended and Restated Foreign Security Agreement]
| WILMINGTON TRUST FSB, as Collateral Agent | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
[Signature Page to Amended and Restated Foreign Security Agreement]
SCHEDULE A
COMMERCIAL TORT CLAIMS
None.
None.
SCHEDULE B
CHIEF EXECUTIVE OFFICE; CHANGE OF NAME; JURISDICTION OF ORGANIZATION
| Type and | ||||
| Legal Name | Jurisdiction | Chief Executive Office | ||
MagnaChip Semiconductor S.A.
|
Luxembourg corporation | 74, rue de Merl B.P. 709 L-2017 Luxembourg Grand Duchy of Luxembourg |
||
MagnaChip Semiconductor B.V.
|
Netherlands company | 1043 BW Amsterdam Naritaweg 165 The Netherlands |
||
MagnaChip Semiconductor Limited
|
Hong Kong company | Suit 1024, 10th Floor, Ocean Centre, Harbour City, Tsimshatsui Kowloon, Hong Kong |
||
MagnaChip Semiconductor Limited
|
United Kingdom company | Knyvett House The Causeway Staines Middlesex TW18 3BA England |
||
MagnaChip Semiconductor Holding Company Limited |
British Virgin Islands company | Craigmuir Chambers P.O. Box 71 Road Town, Tortola British Virgin Islands |
||
MagnaChip Semiconductor Inc.
|
Japanese company | 3F Shin-Osaka MT Building, 3-5-36 Miyahara, Yodogawa-Ku Osaka, Japan |
||
MagnaChip Semiconductor (Shanghai) Company Limited |
China company | E Room, No.8 Building, No.1068, Wuzhong Road, Minxing District Shanghai, China |
EXHIBIT A
FORM OF JOINDER AGREEMENT
[Name of New Pledgor]
[Address of New Pledgor]
[Address of New Pledgor]
[Date]
Ladies and Gentlemen:
Reference is made to that certain security agreement (as amended, amended and restated,
supplemented or otherwise modified from time to time, the “Security Agreement;”
capitalized terms used but not otherwise defined herein shall have the meanings assigned to such
terms in the Security Agreement), dated as of November 6, 2009, made by MagnaChip Semiconductor
S.A., a Luxembourg corporation (“Borrower”), and the guarantors party thereto
(“Guarantors”) in favor of [Wilmington Trust FSB], as collateral agent (in such capacity
and together with any successors in such capacity, the “Collateral Agent”).
This letter supplements the Security Agreement and is delivered by the undersigned, [ ] (the
“New Pledgor”), pursuant to Section 6.19 of the Security Agreement. The New
Pledgor hereby agrees to be bound as a Guarantor and as a Pledgor by all of the terms, covenants
and conditions set forth in the Security Agreement to the same extent that it would have been
bound if it had been a signatory to the Security Agreement on the execution date of the Security
Agreement. The New Pledgor also hereby agrees to be bound as a party by all of the terms,
covenants and conditions set forth in the Credit Agreement to the same extent that it would have
been bound if it had been a signatory to the Credit Agreement on the execution date of the
Credit Agreement. Without limiting the generality of the foregoing, the New Pledgor hereby
grants and pledges to the Collateral Agent, as collateral security for the full, prompt and
complete payment and performance when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations, a Lien on and security interest in, all of its right,
title and interest in, to and under the Pledged Collateral and expressly assumes all obligations
and liabilities of a Guarantor and Pledgor thereunder. The New Pledgor hereby makes each of the
representations and warranties and agrees to each of the covenants applicable to the Pledgors
contained in the Security Agreement and Credit Agreement.
Annexed hereto are supplements to each of the schedules to the Security Agreement and the Credit
Agreement, as applicable, with respect to the New Pledgor. Such supplements shall be deemed to
be part of the Security Agreement or the Credit Agreement, as applicable.
This agreement and any amendments, waivers, consents or supplements hereto may be executed in
any number of counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, but all such
counterparts together shall constitute one and the same agreement.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF NEW YORK.
1
IN WITNESS WHEREOF, the New Pledgor has caused this letter agreement to be executed and
delivered by its duly authorized officer as of the date first above written.
| [NEW PLEDGOR] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
AGREED TO AND ACCEPTED:
[ ],
as Collateral Agent
as Collateral Agent
| By: | ||||
| Name: | ||||
| Title: | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Schedules to be attached]
EXHIBIT I
[Form of]
SOLVENCY CERTIFICATE
SOLVENCY CERTIFICATE
I, undersigned, [chief financial officer] of MagnaChip Semiconductor S.A., a Luxembourg
corporation (“Luxco”) and MagnaChip Semiconductor Finance Company, a Delaware corporation
(“Finco”; and together with Luxco, the “Borrowers”), DO HEREBY CERTIFY on behalf of Borrowers
that:
1. This Certificate is furnished pursuant to Section 4.01(h) of the Amended and Restated
Credit Agreement dated as of November 6, 2009 (as amended, amended and restated, supplemented or
otherwise modified from time to time, the “Credit Agreement”) among the Borrowers, MAGNACHIP
SEMICONDUCTOR LLC, a Delaware limited liability company (“Holdings”), the Subsidiary Guarantors
(such term and each other capitalized term used but not defined herein having the meaning given
it in Article I of the Credit Agreement), the Lenders, and 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.
2. Immediately following the consummation of the Transactions, (a) the fair value of the assets
of each Loan Party (individually and on a consolidated basis with its Subsidiaries) exceeds its
debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable
value of the property of each Loan Party is 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; and (c) each Loan
Party (individually and on a consolidated basis with its Subsidiaries) does not have
unreasonably small capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted following the Closing Date.
[Signature Page Follows]
I-1
IN WITNESS WHEREOF, I have hereunto set my hand this [ ]th day of [ ].
| MAGNACHIP SEMICONDUCTOR S.A. |
||||
| By: | ||||
| Name: | ||||
| Title: | [Chief Financial Officer] | |||
| MAGNACHIP SEMICONDUCTOR FINANCE COMPANY |
||||
| By: | ||||
| Name: | ||||
| Title: | [Chief Financial Officer] | |||
I-2
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. |
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| 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. |
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| (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 |
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| 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. |
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| 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. |
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| 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
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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.
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| 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 |
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| 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]
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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 | /s/ [ILLEGIBLE] | |||||
| Name: | ||||||
| Title: | ||||||
| MAGNACHIP SEMICONDUCTOR, LTD. | ||||||
| By | /s/ [ILLEGIBLE] | |||||
| 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 |
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| 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. |
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| “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. |
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| “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. |
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| (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. |
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| 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. |
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| (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 |
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| 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
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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 |
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| 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. |
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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 |
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| 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. |
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| 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.
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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. |
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| (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 |
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| 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 |
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| 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 |
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| 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.
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| 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: |
/s/ [ILLEGIBLE] | |||
Name:
|
||||
Title: |
||||
MagnaChip
Semiconductor, Ltd. |
||||
By: |
/s/ [ILLEGIBLE] | |||
Name:
|
||||
Title: |
||||
24
Exhibit A
CHEONG-JU COMPLEX
(STAMP)
Exhibit B
DESCRIPTION OF THE SITE,
ACCESS AREAS AND EASEMENT AREAS
ACCESS AREAS AND EASEMENT AREAS
(STAMP)
Exhibit C
CONSENTS
None
(STAMP)
Exhibit D
DESCRIPTION OF PORTIONS TO BE SUB-
LEASED TO VEOLIA
LEASED TO VEOLIA
(STAMP)
Exhibit E
SIGNAGE
(STAMP)
| Cheong-ju Plant Diagram |
SCHEDULE 5.1(d)
VEOLIA LEASE RIGHTS
Portions of the Lands on which Veolia Water Industrial Development Co., Ltd.’s lease rights are
registered:
| Description of the part of parcel | Address | Area | ||
Site
corresponding to
the areas occupied
by DI facility in C1 Building
|
1 Hyangjung-dong Heungduk-gu Cheongju |
131 m2 | ||
| 105-27 Oibuk-dong, Heungduk-gu, Cheongju |
262 m2 | |||
Site
corresponding to
the areas occupied
by storage tank in
C1 Building
|
105-27 Oibuk-dong, Heungduk-gu, Cheongju |
50 m2 | ||
Site
corresponding to the areas occupied
by DI facility in
C2 Building
|
105-27 Oibuk-dong, Heungduk-gu, Cheongju |
813 m2 | ||
Site
corresponding to
the areas occupied
by storage tank in
C2 Building
|
105-27 Oibuk-dong, Heungduk-gu, Cheongju |
149.40 m2 |
(STAMP)
SCHEDULE 5.1(e)
VEOLIA CONSENTS
Consents from the creditors of Veolia Water Industrial Development Co., Ltd.
(STAMP)
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: |
/s/ Youm Huh | |||
Name:
|
||||
Title:
|
President & Chief Executive Officer | |||
| Hynix Semiconductor, Inc. | ||||
By: |
/s/ [ILLEGIBLE] | |||
Name:
|
||||
Title: |
||||
3
Exhibit 10.5
Execution Copy
GENERAL SERVICE SUPPLY AGREEMENT
between
Hynix Semiconductor Inc.
and
MagnaChip Semiconductor, Ltd.
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. 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. |
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| 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 |
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| 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 | ||
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| 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 |
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| 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). |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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 |
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| 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. |
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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. |
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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. |
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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
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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: |
/s/ [ILLEGIBLE] | |||
Name:
|
||||
Title: |
||||
| MagnaChip Semiconductor, Ltd. | ||||
By: |
/s/ [ILLEGIBLE] | |||
Name:
|
||||
Title: |
||||
Exhibit A
SHORT TERM SERVICES
| Service | Notice Period for Termination | |
| waste management or disposal service | 15 days | |
| CAO Operation Support Services | 30 days |
(STAMP)
Exhibit B
ENVIRONMENTAL SAFETY & FACILITY MONITORING SERVICES FEES
[***** Note: This exhibit has been redacted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.]
Exhibit C.1
HYNIX UTILITIES AND INFRASTRUCTURE SUPPORT SERVICE FEES
[***** Note: This exhibit has been redacted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.]
Exhibit C.2
NEWCO UTILITIES AND INFRASTRUCTURE SUPPORT SERVICES FEES
[***** Note: This exhibit has been redacted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.]
Exhibit D
VIVIENDI SERVICES FEES & CERTAIN VIVENDI ASSETS
[***** Note: This exhibit has been redacted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.]
Exhibit E.1
WELFARE FACILITY SERVICES FEES FOR CHEONGJU
[***** Note: This exhibit has been redacted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.]
Exhibit E.2
WELFARE FACILITY SERVICES FEES FOR ICHON
[***** Note: This exhibit has been redacted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.]
Exhibit E.3
WELFARE FACILITY SERVICES FEES FOR SEOUL
[***** Note: This exhibit has been redacted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.]
Exhibit F
CHEMICAL PROCUREMENT SERVICES FEES
[***** Note: This exhibit has been redacted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.]
Exhibit G
PARKING LOT, SPORTS FIELD AND TENNIS COURT NEAR THE WOMEN’S
DORMITORIES
DORMITORIES
The parking lot, sports field and tennis court near the women’s dormitories shall be diagramed on a separate page
(STAMP)
Exhibit G
| Exhibit G Cheong-ju Plant Diagram |
APPENDIX I
SAMPLE CALCULATION OF FEES
[***** Note: This exhibit has been redacted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.]
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.” |
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| 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: |
/s/ Youm Huh | |||
Name:
|
||||
Title:
|
President & Chief Executive Officer | |||
| Hynix Semiconductor, Inc. | ||||
By: |
/s/ [ILLEGIBLE] | |||
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 10.18
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. |
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| 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 |
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| 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. |
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| 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.
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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. |
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| 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. |
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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: /s/ [ILLEGIBLE]
HYUNDAI: /s/ [ILLEGIBLE]
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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.
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(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
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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).
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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.
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(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
Appendix A
Applicable Definitions from Second Amended and Restated Securityholders’
Agreement dated October 6, 2004
Agreement dated October 6, 2004
| 1. | Removal for “Cause” shall mean removal of a director because of such director’s (a) willful and continued failure substantially to perform his or her statutory or fiduciary duties to the Company in his or her established position, (b) participation in a fraud, act of dishonesty or other misconduct that is injurious, monetarily or otherwise, to the Company or any of its Subsidiaries, (c) being charged with or pleading guilty to a felony or a crime involving fraud or dishonesty, (d) violation of any state or federal law that has an adverse effect on the Company or (e) abuse of illegal drugs or other controlled substances or habitual intoxication. | |
| 2. | “Change of Control” means such time as: | |
| (i) | any “person” (as such term is used in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other than |
| (A) | the Institutional Securityholders and/or their respective Permitted Transferees, or | ||
| (B) | any “group” (within the meaning of such Section 13(d)(3)) of which either of the Institutional Securityholders constitutes a majority (on the basis of ownership interest), acquires, directly or indirectly, by virtue of the consummation of any purchase, merger or other combination, securities of the Company representing more than 51% of the combined voting power of the Company’s then outstanding voting securities with respect to matters submitted to a vote of the stockholders generally; or |
| (ii) | a sale or transfer by the Company or any of its Subsidiaries of substantially all of the consolidated assets of the Company and its Subsidiaries to a Person that is not an Affiliate of the Company prior to such sale or transfer. | |
| 3. | “First Public Offering” means the first Public Offering of Common Units (or securities into which the Common Units have been converted or changed) after the date hereof. |
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)
/s/ Sang Park
“B” Address:
Citizen registration No.:
Name: (sign)
/s/ Tae Young Hwang
Exhibit 10.50
ACCREDITED INVESTOR CERTIFICATION
The information contained herein is being furnished to the Official Committee of Unsecured
Creditors (the “Committee”) of MagnaChip Semiconductor Finance Company in order to enable
MagnaChip Semiconductor LLC (“MagnaChip”) to determine my suitability as an investor in
connection with the proposed offer and sale of common units of MagnaChip in the Rights Offering
(the “Rights Offering New Units”).
I
hereby certify that I own (check one)
o Floating Rate Second Priority Senior Secured Notes
due 2011 and/or
o 6⅞% Second Priority Senior Secured Notes due 2011 and I am an “accredited
investor” as the term is defined in Rule 501(a) of Regulation D promulgated under the Securities
Act of 1933, as amended (the “Securities Act”), because I satisfy one or more of the
criteria listed below.
Please
INITIAL or CHECK whichever of the following statements, (a) - (o), is or are applicable to
you:
| ___(a) The undersigned certifies that the undersigned has an individual net worth,1 or the undersigned’s spouse and the undersigned have a joint net worth, in excess of $1,000,000. |
| ___(b) The undersigned certifies that the undersigned had an individual income2 in excess of $200,000 in each of calendar years 2007 and 2008, and the undersigned reasonably expects to have an individual income in excess of $200,000 in calendar year 2009. |
| ___(c) The undersigned certifies that the undersigned had joint income3 with the undersigned’s spouse in excess of $300,000 in each of the calendar years |
| 1 | For purposes of this form, “net worth” (except as otherwise specifically defined) means the excess of total assets at fair market value, including home and personal property, over total liabilities, including mortgage and income taxes on unrealized appreciation of assets. | |
| 2 | For purposes of this form, “individual income” means “adjusted gross income” as reported for Federal income tax purposes, less any income attributable to a spouse or to property owned by a spouse, increased by the following amount (but not including any amounts attributable to a spouse or to property owned by a spouse): (i) the amount of any interest income received which is tax-exempt under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), (ii) any deduction claimed for depletion under Section 611 et seq. of the Code, and (iii) any amount by which capital gains has been reduced in arriving at adjusted gross income pursuant to the provisions of Section 1202 of the Code. | |
| 3 | For purposes of this form, “joint income” means “adjusted gross income” for a person and his or her spouse as reported for Federal income tax purposes, increased by the following amount: (i) the amount of any interest income received which is tax-exempt under Section 103 of the Code, and (ii) any deduction claimed for depletion under Section 611 et seq. of the Code and (iii) any amount by which capital gains has been reduced in arriving at adjusted gross income pursuant to the provisions of Section 1202 of the Code. |
1
| 2007 and 2008, and the undersigned reasonably expects to have joint income with the undersigned’s spouse in excess of $300,000 in calendar year 2009. |
| ___(d) The undersigned certifies that the undersigned is a manager, director or executive officer of MagnaChip. |
| ___(e) The undersigned certifies that the undersigned is a bank as defined in Section 3(a)(2) of the Securities Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) thereof, whether acting in an individual or fiduciary capacity. |
| ___(f) The undersigned certifies that undersigned is a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended. |
| ___(g) The undersigned certifies that the undersigned is an insurance company as defined in Section 2(13) of the Securities Act. |
| ___(h) The undersigned certifies that the undersigned is an investment company registered under the Investment Company Act of 1940, as amended, or a business development company as defined in Section 2(a)(48) thereof. |
| ___(i) The undersigned certifies that the undersigned is a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958, as amended. |
| ___(j) The undersigned certifies that the undersigned is a plan established and maintained by a state, its political subdivisions or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if the plan has total assets in excess of $5,000,000; |
| ___(k) The undersigned certifies that the undersigned is an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) thereof, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self directed plan, with investment decisions made solely by persons that are accredited investors. |
-2-
| ___(l) The undersigned certifies that the undersigned is a private business development company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940, as amended. |
| ___(m) The undersigned certifies that the undersigned is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000. |
| ___(n) The undersigned certifies that the undersigned is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D. |
| ___(o) The undersigned certifies that the undersigned is an entity in which all of the equity owners are accredited investors. |
I hereby certify that the information provided above is true and correct as of the date
hereof. I further certify that should any of the information provided above change prior to the
date on which my Subscription Form is accepted by the Company in connection with the
above-referenced Offering of Rights Offering New Units, I will notify the Committee immediately.
| Very truly yours, |
| (Signature of Investor) |
| (Name of Investor) |
| (Signature of Co-Subscriber) |
| (Signature of Co-Subscriber) |
DATED:__________________
Contact information:
| Address:_____________________________ |
| ____________________________________ | ||
| Phone: ______________________________ |
| Fax: ________________________________ |
| Email:_______________________________ |
-3-
Exhibit 10.51
SUBSCRIPTION AGREEMENT
OF
MAGNACHIP SEMICONDUCTOR LLC
The undersigned, (the “Subscriber”), hereby subscribes to and for
common units (the “Units”) of MagnaChip Semiconductor LLC, a Delaware limited
liability company (the “Company”). Payment for the Units is being tendered herewith in the
form of a cash contribution to the capital of the Company in the sum of ZERO U.S. DOLLARS AND
FOURTEEN CENTS ($0.14) per Unit, for total consideration of U.S. DOLLARS
($ ).
This is to inform you that in connection with Subscriber’s purchase of the Units, Subscriber
is aware that the Units are not being registered under the Securities Act of 1933 (the “1933
Act”), or applicable state securities laws. Subscriber understands that the Units are being
offered and sold in reliance on the exemption from registration provided by Section 4(2) of the
1933 Act. Subscriber represents and warrants that (i) the Units are being acquired solely for
Subscriber’s own account, for investment purposes only, and are not for distribution, subdivision
or fractionalization thereof, and (ii) Subscriber has no agreement or other arrangement, formal or
informal, with any person to sell, transfer or pledge any part of the Units or which would
guarantee to Subscriber any profit, or protect Subscriber against any loss, with respect to this
investment and Subscriber has no plans to enter into any such agreement or arrangement.
The Subscriber has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of an investment in the Company. The Subscriber has
sufficient financial resources to bear the loss of its entire investment in the Company. The Units
were not offered to the Subscriber by means of general solicitation, publicly disseminated
advertisement or sales literature. The Subscriber is an “accredited investor” as defined in
Regulation D under the Securities Act of 1933, as amended. If the Subscriber is not a citizen of
the United States of America, such Subscriber hereby represents that such Subscriber is satisfied
as to the full observance of the laws of such Subscriber’s jurisdiction in connection with the
acquisition of the Units. Such Subscriber’s acquisition of and continued ownership of, the Units
will not violate any applicable securities or other laws of such Subscriber’s jurisdiction.
Subscriber has consulted its own attorney, accountant and investment advisor with respect to
the subscription for the Units and acknowledges that the Company has made no representation, nor
provided any advice, with respect to the legal or tax consequences of the purchase and sale of the
Units.
Subscriber further understands that Subscriber must bear the economic risk of this investment
for an indefinite period of time because the Units cannot be resold or otherwise transferred unless
they are subsequently registered under the 1933 Act and applicable state securities laws are
complied with (which registration the Company is not obligated, and does not plan, to effect) or
exemptions therefrom are available.
Subscriber agrees to be a member of the Company, to be bound by the Fourth Amended and
Restated Limited Liability Company Operating Agreement of the Company and to perform the
Subscriber’s obligations thereunder in accordance with the terms thereof.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement effective this
___day of , 2009.
[Name of Subscriber]
MagnaChip Semiconductor LLC, a Delaware limited liability company, being authorized to issue
( )
Units to the Subscriber, hereby acknowledges receipt of a
cash contribution in the amount of ZERO U.S. DOLLARS AND FOURTEEN CENTS ($0.14) per Unit, for total
consideration paid of U.S. DOLLARS ($ ), accepts Subscriber’s
subscription, and agrees to issue to Subscriber (___) Units.
Accepted this ___day of , 2009.
| MAGNACHIP SEMICONDUCTOR LLC | ||||
| By: |
Exhibit 10.52
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re:
|
) | Chapter 11 | ||||
| ) | ||||||
MAGNACHIP SEMICONDUCTOR FINANCE
|
) | Case No. 09-12008 (PJW) | ||||
COMPANY, et al.,1
|
) | (Jointly Administered) | ||||
| ) | ||||||
Debtors.
|
) |
INSTRUCTIONS TO SUBSCRIPTION FORM FOR SUBSCRIPTION RIGHTS
OFFERING IN CONNECTION WITH CHAPTER 11 PLAN OF REORGANIZATION
PROPOSED BY THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS
OFFERING IN CONNECTION WITH CHAPTER 11 PLAN OF REORGANIZATION
PROPOSED BY THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS
The Subscription Expiration Date is 5:00 p.m.
(prevailing Eastern Time) on October 19, 2009.
(prevailing Eastern Time) on October 19, 2009.
To Eligible Holders:2
On August 25, 2009, the Official Committee of Unsecured Creditors (the
“Committee”) of MagnaChip Semiconductor Finance Company and its affiliated debtors, as
debtors and debtors in possession (collectively, the “Debtors”), filed the Committee’s Plan
of Reorganization under Chapter 11 of the Bankruptcy Code (as amended on September 24, 2009 and as
it may be further amended from time to time, the “Committee’s Plan”) and the related
Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code for Committee’s Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code (as it may be amended from time to time, the
“Disclosure Statement”). Pursuant to the Committee’s Plan, certain holders of Second Lien
Noteholder Claims in Classes 4(A-F) that are “accredited investors” as defined in Rule 501(a) of
Regulation D under the Securities Act of 1933, as amended (collectively, the “Eligible
Holders” and each individually an “Eligible Holder”), have the right to subscribe for
up to 252,000,000 units of New Common Units based on each such holder’s Offering Pro Rata Share of
Subscription Rights (as determined in accordance with Items 1 and 2a below). See Section VI.D. of
the Committee’s Plan and Section VI.D. of the Disclosure Statement for a complete description of
the Offering.
| 1 | The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, if applicable, and their respective addresses, are: MagnaChip Semiconductor Finance Company (4144), 787 N. Mary Avenue, Sunnyvale, CA 94085; MagnaChip Semiconductor LLC (5772), 787 N. Mar Avenue, Sunnyvale, CA 94085; MagnaChip Semiconductor SA Holdings LLC, 787 N. Mary Avenue, Sunnyvale, CA 94085; MagnaChip Semiconductor, Inc. (8632), 787 N. Mary Avenue, Sunnyvale, CA 94085; MagnaChip Semiconductor SA (9734), 74 Rue de Merl, B.P. 709, L-2017 Luxembourg; and MagnaChip Semiconductor B.V. (9827), 1043 BW Amsterdam, Naritaweg 165, the Netherlands. | |
| 2 | Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to such terms in the Committee’s Plan (as defined herein). |
If you are an Eligible Holder, as of the Offering Record Date established by the Bankruptcy
Court (September 25, 2009), and you would like to participate in the Offering, please follow the
instructions provided below to complete and return the attached Subscription Form and Subscription
Agreement to the Subscription Agent, Omni Management Group, LLC, on or before the Subscription
Expiration Date set forth above.
The payments made in accordance with the Offering will be deposited and held by the
Subscription Agent in a trust account or similarly segregated account or accounts which will be
separate and apart from the Subscription Agent’s general operating funds and any other funds
subject to any Lien or any cash collateral arrangements and which segregated account or accounts
will be maintained for the purpose of holding the money for administration of the Offering until
the Effective Date, or such other later date, at the option of the Committee, but not later than
twenty (20) days after the Effective Date (the “Rights Offering Trust Account”). No
interest will be paid to Eligible Holders exercising Subscription Rights on account of amounts paid
in connection with such exercise. Since the Backstop Purchaser is entitled to a Minimum Allocation
of 67% of the Subscription Rights, if more than 33% of the Subscription Rights are subscribed for
by Eligible Holders other than the Backstop Purchaser, then the Subscription Rights to be purchased
by each such Eligible Holder will be reduced on a pro rata basis so that the amount to be purchased
by all such Eligible Holders equals 33% of the aggregate number of Subscription Rights. Each such
Eligible Holder will be notified of the reduced subscription amount, if any, and the difference in
payment, if any, will be refunded to such Eligible Holder without interest. IF THE COMMITTEE’S
PLAN IS NOT CONSUMMATED, ALL PAYMENTS IN RESPECT OF THE RIGHTS OFFERING WILL BE REFUNDED, WITHOUT
INTEREST.
The Committee will use commercially reasonable efforts to give notice to any holder of
Subscription Rights regarding any defect or irregularity in connection with any purported exercise
of Subscription Rights by such holder and may permit such defect or irregularity to be cured within
such time as they may determine in good faith to be appropriate; provided, however,
that neither the Committee nor the Subscription Agent will incur any liability for failure to give
such notification.
Questions. If you have any questions about this Subscription Form or the subscription
procedures described herein, please contact the Subscription Agent, Omni Management Group, LLC, by
phone at (818) 906-8300 ext. 103 or by mail: Attention: Nova George, 16161 Ventura Blvd., Suite
C, PMB 448, Encino, California 91436.
If your Subscription Form is not received by the Subscription Agent by the Subscription Expiration
Date, you will not be able to participate in the Rights Offering.
The Subscription Rights are not Transferable. Any such Transfer or attempted Transfer will be null
and void and the Debtors will not treat any purported transferee as the holder of any Subscription
Rights. Once an Eligible Holder has properly exercised its Subscription Rights, such exercise
cannot be revoked.
EACH DOLLAR OF SECOND LIEN NOTES SHALL BE ENTITLED TO
0.504 OF A SUBSCRIPTION RIGHT.
0.504 OF A SUBSCRIPTION RIGHT.
To subscribe for New Common Units pursuant to the Offering:
| 1. | Complete Item 1 and then complete the Calculation of the Maximum Number of New Common Units as provided below in Item 2a. |
| 2. | Complete Item 2b indicating the whole number of New Common Units (not greater than your Maximum Number of New Common Units) for which you wish to subscribe and the Subscription Purchase Price. |
| 3. | Make Payment of your aggregate Subscription Purchase Price in accordance with the terms of Item 3 of the Subscription Form. |
| 4. | Read and Complete the certification in Item 4 of the Subscription Form. |
| 5. | Your Nominee must complete the Nominee Certification in Item 5 of the Subscription Form. |
| 6. | Return the Subscription Form and Subscription Agreement in the pre-addressed envelope so that it is received by the Subscription Agent on or before the Subscription Expiration Date. Do not fax the Subscription Form or Subscription Agreement. |
Eligible Holders who have returned duly completed Subscription Forms by the Subscription Expiration
Date must tender the Subscription Purchase Price to the Subscription Agent in the Rights Offering
Trust Account by wire transfer of immediately available funds so it is actually received by the
Subscription Expiration Date. Wire transfer instructions for payment of the Subscription Purchase
Price are provided below. Holders that exercise Subscription Rights and submit the Subscription
Purchase Price may contact the Subscription Agent at (818) 906-8300 ext. 103 to confirm receipt of
payment.
[SUBSCRIPTION FORM FOLLOWS]
SUBSCRIPTION FORM FOR RIGHTS OFFERING
IN CONNECTION WITH THE COMMITTEE’S PLAN OF
REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
IN CONNECTION WITH THE COMMITTEE’S PLAN OF
REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
SUBSCRIPTION EXPIRATION DATE
The Subscription Expiration Date is 5:00 p.m. (prevailing Eastern
Time) on October 19, 2009, unless extended by the Committee.
The Subscription Expiration Date is 5:00 p.m. (prevailing Eastern
Time) on October 19, 2009, unless extended by the Committee.
Please consult the Committee’s Plan and
accompanying Disclosure Statement for additional
information with respect to this Subscription Form.
accompanying Disclosure Statement for additional
information with respect to this Subscription Form.
Item 1. Principal Amount of Second Lien Noteholder Claims. I certify that, as of the Offering
Record Date of September 25, 2009, I held Second Lien Notes in the following principal amount
(insert amount below) or that I am the authorized signatory of that beneficial owner. This amount
must match the amount in Item 5 that has been certified by your Nominee as the amount held by your
account as of the Offering Record Date (the “Certified Principal Amount”). For purposes of
this Subscription Form, do not adjust the principal amount for any accrued or unmatured interest or
any accretion factor.
$
Certified Principal Amount
Item 2. Calculation of Aggregate Subscription Price.
2a. Calculation of Maximum Number of New Common Units. To calculate the Maximum Number of
New Common Units for which you may subscribe, complete the following:
$
|
x | 0.504 | = |
| 3 | The Committee’s Plan provides that no fractional units of New Common Units shall be issued and that, accordingly, fractional shares shall be rounded down to the nearest whole number. |
2b. Subscription Amount. By filling in the following blanks, you are agreeing to
purchase the number of New Common Units specified below (specify a whole number of New Common Units
not greater than the figure in Item 2a), at a price of $0.14 per New Common Unit, on the terms of
and subject to the conditions set forth in the Committee’s Plan.
| x | $0.14 (Price Per Unit) |
= | $
|
Item 3. Payment for Subscription. In order to exercise the Subscription Rights, each Eligible
Holder must return this duly completed Subscription Form, along with the Subscription Agreement, to
the Subscription Agent so that such form is actually received by the Subscription Agent on or
before 5:00 p.m. (prevailing Eastern Time) on the Subscription Expiration Date. Such Eligible
Holder must pay or arrange for payment to the Subscription Agent to the Rights Offering Trust
Account on or before the Subscription Expiration Date in accordance with the wire instructions set
forth below.
For credit to: The Private Bank of California, Los Angeles Branch
Bank Address: 10100 Santa Monica Blvd., Suite 2500, Los Angeles, CA
ABA Routing Transit Number: 122244139
Beneficiary Account Number: 012006508
Beneficiary Account Name: MagnaChip Semiconductor Rights Offering Trust Account
Eligible Holder Name:
Bank Address: 10100 Santa Monica Blvd., Suite 2500, Los Angeles, CA
ABA Routing Transit Number: 122244139
Beneficiary Account Number: 012006508
Beneficiary Account Name: MagnaChip Semiconductor Rights Offering Trust Account
Eligible Holder Name:
If, on or prior to the Subscription Expiration Date, the Subscription Agent for any reason has not
received your duly completed Subscription Form, you will be deemed to have relinquished and waived
your right to participate in the Offering. The payments made in accordance with the Offering will
be deposited and held by the Subscription Agent in the Rights Offering Trust Account. Since the
Backstop Purchaser is entitled to a Minimum Allocation of 67% of the Subscription Rights, if more
than 33% of the Subscription Rights are subscribed for by Eligible Holders other than the Backstop
Purchaser, then the Subscription Rights to be purchased by each such Eligible Holder will be
reduced on a pro rata basis so that the amount to be purchased by all such Eligible Holders equals
33% of the aggregate number of Subscription Rights. Each such Eligible Holder will be notified of
the reduced subscription amount, if any, and the difference in payment, if any, will be refunded to
such Eligible Holder without interest. IF THE COMMITTEE’S PLAN IS NOT CONSUMMATED, ALL PAYMENTS IN
RESPECT OF THE RIGHTS OFFERING WILL BE REFUNDED, WITHOUT INTEREST.
Item 4. Subscription Certifications. I certify that (i) I am the holder, or the authorized
signatory of the holder, of a Second Lien Noteholder Claim in Class 4, (ii) I am, or such holder
is, entitled to participate in the Offering to the extent of my, or such holder’s, Offering Pro
Rata Share of Subscription Rights indicated under Item 2 above, and (iii) I am, or such holder is,
an Eligible Holder.
Date:
|
Name of Holder: | |||
| Social Security or Federal Tax I.D. No.: | ||||
| Signature: | ||||
| Name of Person Signing: | ||||
| Title (if corporation, partnership or LLC): | ||||
| Street Address: | ||||
| City, State, Zip Code: | ||||
| Telephone Number: | ||||
| Email Address: | ||||
Item 5. Nominee Certification. Your ownership of Second Lien Notes must be confirmed by your
Nominee. The Nominee holding your Second Lien Notes as of the Offering Record Date, September
25, 2009, must complete the box below on your behalf.
For Use Only by the Nominee
DTC Participant Name:
|
Nominee’s Medallion Guarantee: | ||
DTC Participant Number: |
|||
Principal Amount of Second Lien Notes held
by Nominee for this account as of the Offering Record Date, September 25, 2009: |
|||
$ principal amount (the
“Certified Principal Amount”) |
|||
( )
|
PLEASE NOTE: NO SUBSCRIPTION OF SUBSCRIPTION RIGHTS WILL BE VALID UNLESS A PROPERLY COMPLETED AND
SIGNED SUBSCRIPTION FORM IS RECEIVED BY THE SUBSCRIPTION AGENT ON OR BEFORE 5:00 P.M. (PREVAILING
EASTERN TIME) ON OCTOBER 19, 2009.
Exhibit 10.54
MagnaChip Semiconductor Profit Sharing Plan
as adopted on December 31, 2009 and as amended on February 15, 2010
as adopted on December 31, 2009 and as amended on February 15, 2010
WHEREAS, the Board wishes to motivate the executives and employees of the Company and its
subsidiaries to continue to grow the Company and bring greater value to the Company’s stakeholders.
1. RESOLVED, that the Board hereby establishes a MagnaChip Semiconductor Profit Sharing Plan under
which the Board sets an annual consolidated EBITDA target (the “Base Target”) for the Company and
pays to its executives and employees a percentage of consolidated EBITDA once the Base Target is
met or exceeded (the “Profit Share”).
2. RESOLVED FURTHER, for the Company’s fiscal year 2010, the Base Target is hereby set at
[*****] and the Profit Share for that Base Target is hereby set at [*****],
payable as a percentage of annual base salary as follows:
| % Annual Base Salary | 2010 Amount | |||||||
Executives |
25.1 | % | [*****] | |||||
CEO |
40.0 | % | ||||||
President |
33.3 | % | ||||||
GM |
26.7 | % | ||||||
SVP |
23.3 | % | ||||||
VP |
20.0 | % | ||||||
Employee |
7.0 | % | [*****] | |||||
3. RESOLVED FURTHER, that for the year 2010 only, the Board has agreed to pay a portion of
the Profit Share based on reaching a consolidated EBITDA (after deducting profit share expenses) of
[*****] for the Company’s first fiscal quarter of 2010, and a consolidated EBITDA (after
deducting profit share expenses) of [*****] for the Company’s second fiscal quarter of
2010 (the “Interim Targets”). A profit share distribution of [*****] will be paid for
each Interim Target that the Company reaches. The interim profit share distributions will be paid
during the Company’s normal pay period in April for the first Interim Target and in July for the
second Interim Target.
4. RESOLVED FURTHER, that in the event the Company exceeds the Base Target, the Company shall pay
to its executives and employees an additional Profit Share constituting twenty-five percent (25%)
of the annual consolidated EBITDA in excess of the Base Target, with the payment percentages set
forth above proportionately increasing.
5. RESOLVED FURTHER, that for the year 2010 only, no additional Profit Share will be paid in the
event that the Company exceeds the Base Target or either Interim Target. The maximum payable
profit share in 2010 is therefore [*****] for meeting or exceeding the Q1 Interim Target,
[*****] for meeting or exceeding the Q2 Interim Target, and [*****] in aggregate
for meeting or exceeding the Base Target, provided that the [*****] Profit Share will be
offset by any profit share paid in 2010 for reaching either or both of the Interim Targets.
6. RESOLVED FURTHER, that the Company shall 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,
subject to normal tax and withholding requirements in each jurisdiction in which Company executives
and employees are located, and that the Profit Share is only payable to those executives and
employees who have been employed by the Company or a subsidiary of the Company during the entire
fiscal year for
[*****] = 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.
which the Profit Share is calculated and who are employed by the Company and its subsidiaries on
the actual Profit Share payment date; provided, however, that the Profit Share is payable pro rata
to executives and employees who begin their employment during the fiscal year for which the Profit
Share is calculated.
7. RESOLVED FURTHER, that the Board retains the sole discretion to (i) pay the Profit Share in
December of the relevant Company fiscal year when the Board believes the Base Target will be
achieved, (ii) pay Profit Shares when the Company achieves slightly less than the Base Target,
(iii) make interim Profit Share payments during the fiscal year, (iv) set consolidated EBITDA
targets and Profit Share percentages for Company fiscal years beyond 2010, and (v) pay
discretionary cash incentives to selected executives and employees outside the Profit Share plan.
8. RESOLVED FURTHER, that the proper officers of the Company, and each of them, are hereby
authorized and directed in the name of and on behalf of the Company to make all such arrangements,
to do and perform all such acts, to execute and deliver all such certificates and other instruments
and documents, and to do everything that he or they may deem to be reasonable and necessary or
appropriate in order to fully implement the foregoing resolutions, and that any and all actions
heretofore taken by any officer or director of the Company in the name and on behalf of the Company
in furtherance of the purpose and intent of the foregoing resolutions be, and hereby are, ratified,
confirmed, and approved in all respects.
[*****] = 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.
Exhibit 23.1
CONSENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Amendment No. 1 to Registration Statement on
Form S-1
(as amended, the “Registration Statement”) 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
April 19, 2010
|
DLA Piper LLP (US) 2000 University Avenue East Palo Alto, California 94303-2214 www.dlapiper.com |
|
April 20, 2010
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OUR FILE NO. 366415-10 |
| VIA EDGAR AND OVERNIGHT DELIVERY |
MAGNACHIP SEMICONDUCTOR LLC HAS CLAIMED CONFIDENTIAL TREATMENT OF PORTIONS OF THIS LETTER IN ACCORDANCE WITH 17 C.F.R. § 200.83 |
Tim Buchmiller
Senior Attorney
United States Securities and Exchange Commission
100 F Street, N.E.
Senior Attorney
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549-6010
| Re: | MagnaChip Semiconductor LLC Registration Statement on Form S-1 Filed March 15, 2010 File No. 333-165467 |
Dear Mr. Buchmiller:
This letter is submitted on behalf of MagnaChip Semiconductor LLC (the “Company”) in
response to the comments that you provided on behalf of the staff of the Division of Corporation
Finance (the “Staff”) of the Securities and Exchange Commission (the “SEC”) with
respect to the Company’s Registration Statement on Form S-1 (filed March 15, 2010, Registration No.
333-165467) (the “Registration Statement”), as set forth in your letter to Mr. John
McFarland dated April 9, 2010. We are filing via EDGAR Amendment No. 1 to the Registration
Statement (“Amendment No. 1”) in response to the Staff’s comments. For reference purposes,
the text of your letter dated April 9, 2010 has been reproduced herein (in bold), with the
Company’s response below each numbered comment. As appropriate, the Company’s responses include a
reference to the section and page numbers of Amendment No. 1 that have been revised in response to
the comment.
Registration Statement cover page
| 1. | It appears from the disclosure in your document, such as the disclosure on pages 34 and II-2, that “MagnaChip Semiconductor LLC” is not the issuer of any of the offered securities. Therefore, it is unclear why that entity is listed here as the registrant or how the signatures that appear on page II-8 correspond to the requirements of Form S-l. Please revise or advise. | |
| Response: The Company advises the Staff that as described in the prospectus, prior to the consummation of the offering, MagnaChip Semiconductor LLC, a Delaware limited liability company (“MagnaChip LLC”), will be statutorily converted into MagnaChip Semiconductor Corporation, a Delaware corporation (“MagnaChip Corporation”), pursuant to Title 8, Section 265 of the Delaware General Corporation Law (the “DGCL”) and Title 6, Section 18-216 of the Delaware Limited Liability Company Act (the “DE LLC Act”). Section 265(f) of the DGCL provides that “[w]hen an other entity has been converted to a corporation of this State pursuant to this section, the corporation of this State shall, for all purposes of the laws of the State of Delaware, be deemed to be the same entity as the converting other entity.” Section 18-216(c) of the DE LLC Act provides that “[w]hen a limited liability company has converted to another entity or business form pursuant to this section, for all purposes of the laws of the State of Delaware, the other entity or business form shall be deemed to be the same entity as the converting limited liability company and the conversion shall constitute a continuation of the existence of the limited liability company in the form of such other entity or business form.” In addition, the officers and directors of MagnaChip LLC will not change as a result of the corporate conversion and MagnaChip |
April 20, 2010
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| Corporation will have the same officers and directors as MagnaChip LLC. Because (i) MagnaChip LLC and MagnaChip Corporation are the same entity under Delaware law, (ii) there will be no change in the officers and directors as a result of the corporate conversion and (iii) MagnaChip Corporation, the issuer in this offering as a Delaware corporation, will not exist until the completion of the corporate conversion, the Company believes MagnaChip LLC is the appropriate entity to file the Registration Statement and its officers and directors are the appropriate signatories to the Registration Statement. After the consummation of the corporate conversion, all filings on behalf of MagnaChip Corporation, including any amendments to the Registration Statement originally filed under MagnaChip LLC will be made by MagnaChip Corporation. | ||
| We note the following initial public offering filings on Form S-1 with a similar LLC to corporation conversion structure were filed on the same basis: |
| • | Team Health Holdings, L.L.C. (333-162347) | ||
| • | Polymer Holdings LLC (333-162248) | ||
| • | Solera Holdings, LLC (333-140626) | ||
| • | Stewart & Stevenson LLC (333-138952) | ||
| • | Boise Cascade Holdings, L.L.C. (333-122770) |
Fee Table
| 2. | We note from your fee table that you appear to be registering the offering of depositary shares. From your disclosure under “Description of Capital Stock” beginning on page 125, it does not appear, however, that you are or will be authorized to issue “depositary shares” under your certificate of incorporation. Further, from your disclosure under “Description of Depositary Shares” beginning on page 131, it appears that the depositary will be the issuer of the depositary shares. Please provide us with your analysis as to why the depositary should not be identified as the issuer/registrant of the depositary shares in your current registration statement, or in another appropriate registration statement which registers the offering of the depositary shares. In addition, we note from your disclosure under “Legal Matters” on page 144 that you currently intend MagnaChip’s counsel to opine as to the validity of the depositary shares. In this regard, please provide us with your analysis as to how your counsel will be able to opine as to the validity of securities you are not authorized to issue. | |
| Response: The Company advises the Staff that the Company intends to register shares of its common stock and its depositary shares which represent an interest in such shares of common stock. The depositary shares will be issued pursuant to a depositary agreement between the Company and American Stock Transfer & Trust Company, as depositary (the “Depositary”). Pursuant to the deposit agreement, all of the common stock of the Company to be sold in the initial public offering will be deposited with the Depositary by the Company and the selling stockholders (the “Deposited Securities”). The Company believes that the Depositary will not be the issuer of the depositary shares, but that the Company will be the issuer of such depositary |
April 20, 2010
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| shares and the underlying common stock, as the term “issuer” is defined in Section 2(a)(4) of the Securities Act of 1933, as amended (the “Securities Act”). | ||
| The definition of the term “issuer” in Section 2(4) of the Securities Act contains the following exception: |
| “except that with respect to certificates of deposit ... the term “issuer” means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the ... agreement ... under which such securities are issued.” |
| The Company believes that the Company is the person performing the acts and assuming the duties of depositor and manager pursuant to the provisions of the deposit agreement with the Depositary and is therefore the “issuer” of the depositary shares. This conclusion is supported by the fact that (i) the depositary share facility was initiated by the Company and is directed by the Company pursuant to the terms of the deposit agreement, (ii) the Depositary may be removed and replaced by the Company, (iii) the Depositary may only accept deposits that are approved by the Company, as evidenced by inclusion of such Deposited Securities as shares to be sold by a selling stockholder under the Registration Statement, (iv) the depositary facility is transitory and will only be active for 45 days after closing of the initial public offering and (v) the Company has the right to terminate the depositary agreement at anytime with five business days notice. Conversely, the Company believes that the Depositary will not be the person performing the acts and assuming the duties of depositor and manager pursuant to the provisions of the deposit agreement and therefore the depositary is not the “issuer” of the depositary shares. This conclusion is supported by the fact that (i) the Depositary will be appointed by the Company under the deposit agreement and will act pursuant to deposit agreement with respect to the Company’s common stock deposited by the Company and selling stockholders, (ii) the Depositary is not the depositor of the Deposited Securities, (iii) the duties of the Depositary under the deposit agreement are limited and include administrative functions to facilitate the issuance of the depositary shares and depositary receipts evidencing depositary shares, the transfer and maintenance of depositary shares, the delivery of Deposited Securities upon withdrawal or termination of the deposit agreement and the maintenance of a depositary share registry. Similar reasoning was used in The Newhall Land and Farming Company (SEC No-Action Letter), Publicly Available January 17, 1983 and Dillingham Corporation (SEC No-Action Letter), Publicly Available July 24, 1981. | ||
| The Company believes that this interpretation meets the public policy goal of the Securities Act of ensuring adequate investor protection because the Company, as the issuer of the depositary shares, would be the registrant and would be fully subject to liability under Section 11 of the Securities Act for misstatements or omissions in the Registration Statement. By comparison, as the Commission has acknowledged, limited registration by depositary banks of American Depositary Receipts does not necessarily provide similar protections. See SEC Release No. 33-6894 at Section III.A.2. In addition, counsel for the Company would deliver appropriate legal opinions with respect to both the depositary shares and the underlying shares of common stock. |
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| The Company respectfully submits that the depositary securities to be issued are not capital stock of the Company required to be authorized under the Company’s certificate of incorporation but are securities of the Company issued pursuant to the deposit agreement evidencing rights to the Deposited Securities, similar to a warrant or debt security issued by a corporation, which is not authorized by its certificate of incorporation, but may nevertheless be validly issued by a corporation. The Company expects that DLA Piper LLP (US) as counsel to the Company will opine as to the validity of the depositary shares and that the depositary receipts evidencing the depositary shares or the depositary shares will constitute valid evidence of interest in the Deposited Securities and will entitle the holders thereof to the rights specified in the depositary shares and the deposit agreement. | ||
| 3. | We understand from your disclosure on page 131 that at some future date the depositary shares will be cancelled and that the depositary will then “credit” the former holders of the depositary shares with an equal number of shares of MagnaChip’s common stock. Please provide us with your analysis as to how that transaction will be registered or exempt from registration. In this regard, we note that the issuer of the depositary shares appears to be the depositary and the shares of common stock will be issued by MagnaChip. As such, it does not appear that the transaction would qualify for exemption under Section 3(a)(9) of the Securities Act given the diversity of issuers. | |
| Response: The cancellation of the depositary shares and the crediting to the holders of depositary shares with the Deposited Securities (the “Share Release”) will be exempt from registration for the following reasons: | ||
| The Company submits that the Share Release involves a change in the form of ownership, but not any change in the underlying rights of the holders. There is no actual transaction in the sense that there is no investment decision made by the holders of depositary shares at the effective time of the Share Release. Under the terms of the deposit agreement, the Share Release will occur automatically 45 days after the closing of the initial public offering. The investment decision to buy the depositary shares, have the depositary shares terminate and receive common stock in its place 45 days after the closing of the initial public offering is made at the time of the initial purchase of the depositary shares. No investment decision will, or can, be made by any holder in connection with the Share Release and therefore no sale will take place in connection with the Share Release. |
Prospectus cover page
| 4. | Please confirm that any preliminary prospectus you circulate will include all non-Rule 430A information. This includes the price range and related information based on a bona fide estimate of the public offering price within that range, and other information that was left blank throughout the document. |
| Response: The Company notes the Staff’s comment. All non-Rule 430A information including price range and related information based on a bona fide estimate of the public offering price within that range and all other non-Rule 430A information left blank throughout the Registration Statement |
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| will be supplied at the time the initial price range is determined and will be included in any preliminary prospectus that the Company circulates. | ||
| 5. | The paragraph following the table refers to an option to purchase depositary shares. Note 1 to your fee table refers to an option to purchase common shares. Please reconcile. | |
| Response: The Company notes the Staff’s comment and has revised its disclosure in the paragraph following the table in response to the Staff’s comment. | ||
| 6. | If you intend to delist your depositary shares in connection with the cancellation of those securities, please state so directly here and on page 131. | |
| Response: The Company advises the Staff that it does not intend to delist the depositary shares. The Company has confirmed with the New York Stock Exchange and CUSIP Global Services that the depositary shares and the Company’s common stock will share the same ticker symbol “MX” and CUSIP identifier. The depositary facility is transitory and will automatically terminate 45 days after closing of the Company’s initial public offering (the “Cancellation Date”) resulting with the cancellation of each depositary share and the crediting of a number of shares of common stock equal to the number of depositary shares held by a holder of depositary shares to such holder on such date. Prior to the Cancellation Date, the Company’s common stock will not be quoted on the New York Stock Exchange and only the depositary shares will be quoted on the New York Stock Exchange under the ticker symbol “MX.” On the Cancellation Date, the depositary shares will be terminated and the Company’s common stock will be quoted on the New York Stock Exchange under the ticker symbol “MX” and will use the same CUSIP identifier as the depositary shares. |
Table of Contents
| 7. | We note the first sentence in the paragraph that follows your table of contents indicates that no person is authorized to give any information or to represent anything not contained in your prospectus. Please consider whether this statement, in its current form, is consistent with your ability to use free writing prospectuses. | |
| Response: The Company notes the Staff’s comment and the ability to use free writing prospectuses. However, the Company expects that any free writing prospectuses to be used in connection with the offering will be authorized by the Company and not any other person. |
Prospectus Summary
Overview, page 1
| 8. | Please provide us independent, objective support for your statements regarding the breadth and depth of your technology platform, your extensive engineering and manufacturing expertise, and long history of collaborating with leading innovators. Also reconcile your disclosure regarding the high demand by your customers with the diminished demand mentioned on page 17. |
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| Response: The Company notes the following with respect to each of the matters: | ||
| “. . . breadth and depth of your technology platform,” “your extensive engineering and manufacturing expertise” | ||
| The Company advises the Staff that it believes that this statement is supported by the following: (i) the sale of over 2,300 distinct products to over 185 customers during 2009; (ii) the 30 year history of the Company and its predecessors; (iii) the nearly 400 person research and development team (including 207 with advanced degrees) and (iv) the Company’s 2,550 novel patents and 1,050 novel patent applications. | ||
| “long history of collaborating with leading innovators”: | ||
| The Company notes that LG Display, Sharp and Samsung are each widely recognized as leading innovators in consumer electronics. Each has been a customer of the Company for the entire history of the stand-alone company. Copies of articles supporting this position will be provided to the Staff supplementally. | ||
| “reconcile your disclosure regarding the high demand by your customers with the diminished demand mentioned on page 17”: | ||
| The Company notes the Staff’s comment and has revised its disclosure in the section entitled “Risk Factors” on page 18 to clarify that the economic downturn was “recent” as opposed to “current.” Additionally, the Company notes that the disclosure under the section entitled “Risk Factors” on page 18 describes a cyclical risk that has affected and will affect the Company, but the disclosure under the section entitled “Prospectus Summary – Overview” on page 1 is an accurate reflection of the increase in demand from customers after the Company emerged from Chapter 11 reorganization and as the Company’s customers have benefited from improved economic conditions. | ||
| 9. | Please balance your disclosure regarding your net sales, income from operations and Adjusted EBIDTA and Adjusted Net Income with equally prominent disclosure of the history of net losses and recent emergence from bankruptcy. | |
| Response: The Company notes the Staff’s comment. The Company has revised the relevant disclosure in the section of the prospectus entitled “Prospectus Summary – Overview” on page 2 to add disclosure regarding the Company’s emergence from bankruptcy and its history of net losses. | ||
| 10. | Please discuss your declining net sales described on page 9 in light of the rapid industry growth you mention on page 2. | |
| Response: The Company notes that the rapid industry growth described on page 2 is a prospective estimate by Gartner, Inc., a third party, of industry growth over the next several years, while the declining net sales reported by the Company reflect the Company’s historical |
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| performance. The Company has disclosed in the section entitled “Overview – Recent Changes to Our Business” recent actions taken by the Company to reverse its declining net sales. | ||
| 11. | We note that you have identified customers. Please tell us the objective criteria you used to identify those customers. Also tell us whether you have identified all customers that satisfy those criteria. | |
| Response: The Company highlighted LG Display, Sharp and Samsung because each of the three (i) has been a long-term customer of the Company, (ii) is a household name and (iii) has a reputation for innovation. None of the Company’s other customers fits all of these criteria. In addition, the Company believes that, because these three customers, and the businesses that they engage in, are readily recognizable by the public, identifying them in the prospectus gives the reader insight into the types of products and services that the Company provides. | ||
| 12. | We note your disclosure that you have a portfolio of approximately 3600 “novel registered and pending patents.” Please revise to distinguish between how many patents you hold and how many patent applications you have pending. Also clarify whether some of your patents and pending patent applications derive from a common parent patent application or are foreign counterpart patent applications that relate to similar or identical technological claims. | |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the sections of the prospectus entitled “Prospectus Summary – Overview,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview,” and “Business – Our Business” to state that the Company holds approximately 2,550 registered patents and 1,050 pending patents. Per past correspondence with the Staff related to patent disclosures, the Company uses the term “novel” to describe those patents that are not foreign counterparts or have no common parent. The Company’s has revised its disclosure in the section entitled “Business – Intellectual Property” to state that the Company holds in aggregate approximately 3,300 registered patents and 1,300 pending patents, of which 2,550 registered patents and 1,050 pending patents are not foreign counterparts and do not derive from a common parent patent. | ||
| 13. | Please expand your overview discussion to indicate the percentage of net sales that you have historically derived from each of your segments. | |
| Response: The Company notes the Staff’s comment and has revised the section entitled “Overview – Our Products and Services” starting on page 2 to add the percentage of net sales that the Company has historically derived from each segment. |
Our Strategy, page 3
| 14. | We note your disclosure that one of your objectives is to strengthen your position as “a leading provider of analog and mixed-signal semiconductor products and services....” Based on the market data you present on page 80, it appears from your historical sales that your market share of the display driver market is approximately 4% and your market |
April 20, 2010
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| share of the power management is less than 1%. As such, please clarify the bases on which you believe you are a leading provider. | ||
| Response: In response to the Staff’s comment, the Company has modified the disclosure to state that it is the Company’s strategy to “establish our position as a leading provider” under the heading “Our Strategy” on pages 3 and 87. |
Recent Changes to Our Business, page 4
| 15. | Refer to the second bullet. Clarify how your debt was reduced. It also appears that you retired approximately $149 million of Series B convertible redeemable preferred units in connection with your reorganization. Please disclose that change as well. | |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Prospectus Summary – Recent Changes To Our Business” on page 4 to clarify that debt was reduced through the Company’s reorganization proceedings and to indicate that the Company retired $149 million in convertible redeemable preferred units. |
Corporate
Information, page 5
| 16. | It appears from your disclosure on pages 94 through 96 that while your board of directors changed following the reorganization, your management has remained the same. If so, please revise to disclose that fact. | |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Prospectus Summary – Corporate Information” beginning on page 5 to indicate that the management of the Company has remained in place following the reorganization. | ||
| 17. | We see that prior to the closing of this offering, MagnaChip Semiconductor LLC will convert from a Delaware limited liability company to a Delaware corporation. We also see that in connection with the corporate conversion, each common unit of MagnaChip Semiconductor LLC will be converted into an undisclosed number of shares of common stock of MagnaChip Semiconductor Corporation. In light of the referenced pending conversion, please tell us how the guidance at SAB Topic 4 (C) impacts you. Also, tell us if you plan to present pro forma information as of the latest balance sheet date that reflects the referenced changes in your capitalization at the effectiveness or the close of your IPO. | |
| Response: The Company notes the Staff’s comment. The conversion ratio will be determined at the time that the estimated IPO price range is established and will enable the Company to calculate pro forma capitalization information. In accordance with SAB Topic 4 (C), which states that changes in capital structure must be given retroactive effect in the balance sheet, the Company intends to present such pro forma information as of the latest balance sheet data for all periods presented at the time it includes the estimated price range in the prospectus. |
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| 18. | Please briefly describe the nature of Avenue and its affiliated funds. |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Prospectus Summary – Corporate Information” on page 6 to explain that Avenue is a global investment management firm specializing in distressed and undervalued securities. |
Risk Factors, page 16
| 19. | Given your disclosure on pages 29 and 120, please tell us whether you will be a controlled company under applicable exchange rules after this offering, and if so, how you evaluated whether that status creates any material risks. |
| Response: The Company advises the Staff that the Company anticipates that it will not be a controlled company under applicable New York Stock Exchange rules following the offering. |
We depend on successful . . ., page 24
| 20. | Please clarify whether the silicon supply constraints you mention continue to exist. |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Risk Factors” on page 25 to clarify that while the silicon supply constraints have lessened and supply has improved, the Company cannot assure that such supply increases will match demand. |
The enactment of legislation . . ., page 25
| 21. | Please clarify the nature of the proposed legislation and why those proposals could have “material adverse consequences” on you. |
| Response: The Company advises the Staff that the risk factor was originally inserted in light of then pending legislative discussions. Given the scope of the current legislative proposals, which, among other matters, do not include proposals aimed at immediate worldwide taxation of foreign earnings and profits or termination of the “check the box” rules which may have applied to the Company, the Company has determined to delete the risk factor. |
Our ability to compete successfully . . ., page 25
| 22. | Since you appear to do a significant amount of business in China, disclose that China is one of those countries that historically has not protected a company’s intellectual property rights to the same extent as the United States. |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Risk Factors” on page 26 to add disclosure regarding the uncertainty of intellectual property rights in China, where the Company derives a significant portion of its net sales. |
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If our Korean subsidiary is designated . . ., page 26
| 23. | We note the risks you say are presented “if” your subsidiary is designated as a regulated business. Clarify why you do not know whether your subsidiary is or will be so designated and disclose whether you currently exceed the thresholds proposed by the Decree. |
| Response: The Company notes the Staff’s comment. The section of the prospectus entitled “Risk Factors” on page 27 has been revised in response to the Staff’s comment. The relevant Enforcement Decree was promulgated and became effective on April 14, 2010. The Company’s Korean subsidiary exceeds the thresholds proposed by the decree and the Company expects that it will be designated as a regulated business by the Korean government-appointed regulator by the end of June 2010. |
You may be unable to enforce judgments obtained in United States . . ., page 27
| 24. | Disclose whether an investor would find it difficult: |
| • | to enforce against you, your non-U.S. officers and directors, and your non-U.S. subsidiaries U.S. court judgments based upon the civil liabilities provisions of the U.S. federal securities laws in a U.S., South Korean or other foreign court; or | ||
| • | to bring an original action against you and the above persons to enforce liabilities under the U.S. federal securities laws in a South Korean or other foreign court. |
| See Item 101(g) of Regulation S-K. |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Risk Factors” on page 28 to clarify that an investor could find it difficult to (i) enforce U.S. court judgments against the Company, its subsidiaries or its officers, directors and experts living in jurisdictions other than the U.S. and (ii) enforce liability under the U.S. federal securities laws in Korea or any other jurisdiction outside of the U.S. |
Industry and Market Data, page 33
| 25. | Please tell us whether all industry data you cite in your document is publicly available. Also tell us whether: |
| • | you commissioned the preparation of such data; | ||
| • | the data was prepared for use in your registration statement; | ||
| • | you are affiliated with the sources of the data; | ||
| • | the sources of the data consented to your use of their data in this registration statement; and | ||
| • | how you confirmed that the data used in your registration statement reflects the most recent available information. In this regard, the penultimate sentence of this section implies that you will not update the data you cite even if you are aware the |
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| data is not the most recent and available. If that is not correct, please revise to eliminate that implication. |
| Response: The Company confirms the following in response to the Staff’s comment: The industry data that the Company cites is available to anyone who purchases the data from the providers. The Company did not commission the preparation of such data nor was the data prepared for use in the Company’s registration statement. The Company is not affiliated with the data sources. The data sources consented to the Company’s use of their data in the prospectus and the data reflects the most recent published information. The penultimate sentence of this section in the prospectus which states that the Company will not update the data is correct. However, the Company does intend to confirm that the information presented in the prospectus reflects any material changes from any more recent reports from the sources cited. |
Use of Proceeds, page 34
| 26. | Expand to disclose how you intend to use the proceeds you may receive from securities sold pursuant to the over-allotment option. |
| Response: The Company notes the Staff’s comment. The Company has revised the section of the prospectus entitled “Use of Proceeds” on page 36 to disclose that the Company intends to use any additional proceeds received pursuant to the over-allotment option to fund working capital and for general corporate purposes. |
| 27. | With a view toward clarified disclosure in this section, please tell us the amount of proceeds that you will use to make payments to affiliates, whether through the payments mentioned in the first bullet or the performance bonus mentioned on page 112 and in section 3.b.(ii) of Exhibit 10.27. Ensure that the disclosure in an appropriate section of your document fully discusses the transaction. Refer to Item 404 of Regulation S-K. |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Use of Proceeds” on page 36 in response to the Staff’s comment to confirm that none of such bonus is being paid to executive officers. |
Dilution, page 36
| 28. | Expand the paragraph following the first table to clarify how the calculation you mention would change, assuming the exercise of the over-allotment option. Also expand the first and last paragraphs on page 37 to explain how the numbers in the last three columns of the tables would change, assuming exercise of the over-allotment option. |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Dilution” beginning on page 38 in response to the Staff’s comment. The Company has added a paragraph following the first table to clarify how the calculations in the first table would change if the underwriters exercise their over-allotment option. The Company |
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| has also expanded the disclosure to indicate how the numbers in the last three columns of the tables would change if the underwriters exercise their over-allotment option. |
Selected Historical Consolidated Financial and Operating Data, page 38
| 29. | We see that you present Adjusted EBITDA as part of your Supplemental Data and we see your disclosure that you use Adjusted EBITDA to measure compliance with certain covenants in your debt agreements. Please clarify for us if Adjusted EBITDA, as calculated for purposes of your debt covenants is the same calculation as that provided on page 41. |
| Response: As discussed in the prospectus and elsewhere in this response letter, the Company has repaid the outstanding indebtedness under its prior debt agreements and as a result, compliance with such covenants is no longer applicable. Accordingly, the Company has revised its disclosure in the section of the prospectus entitled “Selected Historical Consolidated Financial and Operating Data” beginning on page 40 to delete the references to covenants related to indebtedness. |
| 30. | In this regard, please tell us why you excluded the net foreign currency gain/(loss) in your calculation of Adjusted EBITDA. Please explain how much of this adjustment relates to the cash impact of foreign currency transaction gains or losses. To the extent that this is not part of Adjusted EBITDA as calculated for purposes of your debt covenants, please tell us why you believe this exclusion is appropriate based upon the guidance in Item 10(e) of Regulation S-K and Question 102.09 of the Staff’s Non-GAAP Financial Measures Compliance and Disclosure Interpretations dated January 15, 2010. |
| Response: As discussed in the prospectus, the Company uses Adjusted EBITDA as a performance measure and not as a liquidity measure. In compliance with Item 10(e) of Regulation S-K and Question 102.03 of the Staff’s Non-GAAP Financial Measures Compliance and Disclosure Interpretations, the Company believes that it is useful to analysts and investors in analyzing and reviewing the Company’s core operating performance to exclude the impact of foreign currency gain (loss). This allows investors to more easily compare the core performance of the Company against other semiconductor companies while at the same time being able to analyze the Company’s unadjusted consolidated results as reported in accordance with GAAP. The Company also notes that as disclosed in its MD&A discussion under the heading “Foreign Currency Gain (Loss), net” on pages 70 and 75 of the prospectus, the substantial majority of the Company’s foreign currency related exposure relates to intercompany loans which are not likely to be settled in cash, at least in the near future and that the actual cash impact of foreign currency transaction gains or losses has not been material, representing only a small portion of the adjustment as presented. The Company respectfully submits that Question 102.09 of the Staff’s Non-GAAP Financial Measures Compliance and Disclosure Interpretations is not applicable because the Company does not use Adjusted EBITDA as a liquidity measure. |
| 31. | We see that you also excluded net foreign currency gain/(loss) as part of your calculation of Adjusted Net Income (Loss) and you indicate portions of this amount relate to the cash impact of foreign currency transaction gains or losses. As it appears that this is a |
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| performance measure where certain amounts may require cash settlement, please tell us how you determined that Adjusted Net Income (Loss), as reported, is compliant with Item 10(e) of Regulation S-K. |
| Response: As discussed in response to comment 30, in compliance with Item 10(e) of Regulation S-K and Question 102.03 of the Staff’s Non-GAAP Financial Measures Compliance and Disclosure Interpretations, the Company believes that it is useful to analysts and investors in analyzing and reviewing the Company’s core operating performance to exclude the impact of foreign currency gain (loss) from Adjusted Net Income (Loss). The Company also notes that as disclosed in its MD&A discussion under the heading “Foreign Currency Gain (Loss), net” on pages 70 and 75 of the prospectus, the substantial majority of the Company’s foreign currency related exposure relates to intercompany loans which are not likely to be settled in cash, at least in the near future. As a result, these exposures are different than the exposure of companies under typical commercial arrangements such as accounts payable and accounts receivable. Finally, the Company advises the Staff that the cash impact of foreign currency transaction gains or losses has not been material, representing only a small portion of the adjustment as presented. |
Management’s Discussion and Analysis . . ., page 52
| 32. | We refer to your disclosure in the third full paragraph on page 53. Please expand your disclosure to more clearly explain why you believe your business does not require “substantial investment in leading edge process equipment” when, consistent with Moore’s Law, the general industry trend in the sectors in which you compete is to constantly move towards smaller geometry processes, such as 90 and 65, and then 45 nanometer geometry process technologies, and towards system on chip technologies (which combine several of the functionalities that you offer of separate chips on the same chip), in order to provide more sophisticated products, with smaller footprints and reduced energy consumption. Since you offer manufacturing services and do not outsource your own manufacturing, please include appropriate risk factor disclosure regarding the costs that would be involved if you were required to upgrade your equipment in order to remain competitive and the risks to your business, operating results and financial condition if your manufacturing equipment becomes obsolete. |
| Response: The Company notes the Staff’s comment, but notes that the general industry trends do not apply in all sectors of the industry to the same degree. The products that the Company manufactures, analog and mixed-signal semiconductors, migrate more slowly to smaller geometries due to technological barriers and increased costs. For example, some of the Company’s products use high-voltage technology that requires larger geometries and that may not migrate to smaller geometries for several years, if at all. Additionally, the performance of many of the Company’s products is not necessarily dependent on geometry. According to iSuppli, most of the product categories that the Company manufactures are not expected to migrate to smaller geometries for several years. However, the Company has revised its disclosure in the section of the prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” on page 56 in response to the Staff’s comment. |
April 20, 2010
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| 33. | With reference to your captive manufacturing strategy, please disclose any known trends on the positive or negative effects of this strategy on the gross profit margins of your semiconductor products as compared to those of your competitors who are fabless. |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” on page 56 to disclose the positive and negative effects of the Company’s manufacturing strategy as compared to fabless semiconductor companies. |
Recent Changes to Our Business, page 54
| 34. | We note that in beginning in the second half of 2008 you began to take steps to focus your business strategy, enhance your operating efficiency and improve your cash flow and profitability. Please provide your potential investors with a more meaningful description of your business improvement plan and its purpose, what has been accomplished to date, what remains to be achieved, including any obstacles that you expect to encounter, the expected date by which the plan will be complete and the overall effect of the plan on your business, operating results and financial condition. Please see Interpretative Release No. 33-8350, available on our Web site at http://www.sec.gov/rules/interp/33-8350.htm. |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Recent Changes to Our Business” on page 57 to provide additional disclosure regarding the Company’s business improvement plans and goals. |
Gross Profit, page 57
| 35. | We note the disclosure regarding the impact of shifts in the utilization of your facilities. Briefly explain the portion of your capacity comprised of your product business and the portion comprised of your foundry business. Also highlight how costs and margins differ for each portion. |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Gross Profit” starting on page 61 in response to the Staff’s comment. The Company notes that specific information regarding the margins for the Company’s product segments as compared to its manufacturing services segment are discussed under the heading “Results of Operations.” |
Income Taxes, page 60
| 36. | With a view toward disclosure, please tell us how your statements regarding the continued expected low tax rate considers the taxes you will be required to pay after this offering and the “corporate conversion.” For example, we note your disclosure on page 50 regarding being subject to federal income taxes and disclosure on page F-23 regarding not previously being subject to those taxes. |
April 20, 2010
Page Fifteen
Page Fifteen
| Response: The Company advises the Staff that although the conversion of MagnaChip LLC to MagnaChip Corporation will cause MagnaChip Corporation to be subject to U.S. income tax, the entity is a holding company and is expected to have minimal operations and income. This will result in little or no tax expense in the U.S. Historically, MagnaChip LLC has recorded losses and has had no revenue or income items, other than a small amount of interest income, foreign based sales income and foreign personal holding company income (“Subpart F income”). The Subpart F income has been limited due to the negative earnings and profits in foreign jurisdictions prior to 2009. As a result, it has been extremely small in amount, except in 2009 when MagnaChip LLC recaptured the Subpart F income due to the cancellation of debt at its Luxembourg subsidiary. Even with the Subpart F income recapture in 2009, MagnaChip LLC still incurred a tax loss. Upon the consummation of the corporate conversion, we do not expect any differences between MagnaChip LLC and MagnaChip Corporation from an operational perspective. Accordingly, MagnaChip Corporation is also expected to have minimal net taxable income or loss going forward and therefore any tax consequences would be immaterial. |
| The most significant foreign operating entity of the Company resides in Korea. Given the significant generation of losses over the previous years, the Korean entity has a large amount of net operating losses to be carried forward that could offset taxable income in the near future. As a result, the low effective rate for foreign entities is expected to continue. |
| The Company has revised the prospectus in Note 5 of the section of the prospectus entitled “Unaudited Pro Forma Consolidated Financial Information” on page 53 to clarify the disclosure. |
Results of Operations — Comparison of Years ended December 31, 2009 and December 31,
2008, page 64; and Results of Operations — Comparison of Years ended December 31, 2008 and December
31, 2007, page 64
| 37. | Where you say in your MD&A that a change is attributable to multiple factors, please quantify the extent of the change attributable to the individual factors. As examples only: |
| • | Under “Net Sales” on page 62, please quantify the extent to which the decline in your sales for the periods presented were due to the depreciation of the Korean won against the U.S. dollar; and | ||
| • | Under “Gross Profit” on page 64, you refer to an increase in gross margin attributable to the impact of depreciation of the Korean won and the decrease in unit costs, which decrease was attributable to depreciation expenses, lower overhead costs and the decline in materials prices impacted your unit costs. Please quantify the various factors that affected your gross profits. |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the sections of the prospectus entitled “Net Sales” starting on page 66, “Gross Profit” starting on page 68 and ”Operating Expenses” starting on page 69 with respect to Results of Operations — Comparison of Years ended December 31, 2009 and December 31, 2008 and the sections of the prospectus entitled “Net Sales” starting on page 72, “Gross Profit” starting on page 74 and |
April 20, 2010
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Page Sixteen
| “Operating Expenses” on page 75 with respect to Results of Operations — Comparison of Years ended December 31, 2008 and December 31, 2007 in response to the comments from the Staff. |
Display Solutions, page 63
| 38. | Please describe in more detail the improvements in the consumer electronics industry noted here. Also discuss how conditions have improved in the semiconductor industry, as noted on page 22. |
| Response: The Company notes the Staff’s comment. The Company has revised its disclosure in the section of the prospectus entitled “Results of Operations — Comparison of Years ended December 31, 2009 and December 31, 2008 — Display Solutions” on page 67. The Company notes that, as described, the improvement reflects the increased spending on consumer electronics products that follows from the improved economic conditions. |
Gross Profit, page 64
| 39. | With a view toward clarified disclosure, please tell us the extent to which the cost of polysilicon impacts your costs of sales. Also, given the increased demand and supply constraints you note on page 24, please clarify how your materials cost declined. |
| Response: The Company notes the Staff’s comment. The Company supplementally advises the staff that polysilicon, or silicon, represents approximately [*****] of the Company’s manufacturing cost of sales. Until recently, the general trend was reflected by a growing demand for silicon surpassing the available supply. However, the imbalance in global supply and demand has shifted from shortage to improved availability by the entrance of new suppliers and additional capacity being added by existing suppliers. As a result, manufacturing material costs related to polysilicon have been declining. The Company has revised its disclosure in the section of the prospectus entitled “Risk Factors” on page 25 and also included additional information where changes in cost of materials has had a significant on its comparative results of operations under the discussion of Gross Profit starting on pages 68 and 74, in response to the Staff’s comment. |
Liquidity and Capital Resources, page 71
| 40. | We note your statements concerning the sufficiency of your liquidity and ability to obtain financing. Please revise to clarify the accessibility of and risks of accessing the sources of financing you mention. For example: |
| • | your disclosure on page 22 implies that your debt is currently rated. If so, please expand to disclose your current rating and how that rating impacts your ability to access, and your cost of, needed capital. If that is not correct, please revise to remove that implication; | ||
| • | with a view toward disclosure, please tell us what impact your recent bankruptcy and prior non-compliance with debt covenants have on your ability to obtain such financing and the costs of such capital; |
[*****] — CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND
FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION
April 20, 2010
Page Seventeen
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| • | please clarify how the excess cash flow payment obligations mentioned on page F-37 impact your conclusions regarding the sufficiency of liquidity. Also clarify how those payment obligations impact your ability to rely on your cash flows as a source of liquidity; and | ||
| • | please disclose here that under your current loan facility you are required to pay six-month LIBOR plus +12%. |
| Response: As noted in Amendment No. 1, the Company has recently completed a $250 million offering of senior notes. Net proceeds from the offering were in part used to repay the pre-existing debt disclosed in the Company’s original filing and which was the source of the issues identified in the third and forth bullets above. The prospectus has been revised throughout to reflect the repayment. The Company has also added specific disclosure regarding the rating of its senior notes and the implications of changes to raising additional debt under the heading “Liquidity and Capital Resources” on page 76 as well as an additional new risk factor beginning on page 29. Because of the repayment of the former senior credit facility, the excess cash flow obligations discussed on page F-37 and the interest rate on the former loan are no longer applicable. |
| 41. | We note from your disclosure under “Use of Proceeds” that you intend to use the proceeds from your offering for employee incentive payments, working capital and general corporate purposes, meaning that the excess of the proceeds of your offering over the costs of the employee incentive payments will have the effect of increasing shareholders’ equity. Given that you currently have debt which carries interest at 6 month LIBOR plus 12%, which percentage exceeds your historical trend of negative returns on shareholder equity, please discuss why you will be increasing your equity without reducing your debt; i.e., why you are not using a portion of the proceeds of your offering to pay off your high interest debt. Refer to Item 303(a)(2)(ii) of Regulation S-K. |
| Response: For the reasons discussed in response to comment 40, none of the proceeds will be used for repayment of the prior debt. The Company advises the staff that the Company’s recently issued senior notes bear interest at a lower rate than under the previous senior credit agreement. In addition, pursuant to the indenture for the Company’s senior notes, although pre-payment is permitted, the pre-payment premium required to be paid this soon after the original issuance of the notes would render a pre-payment impractical for the Company. |
| 42. | We refer to the first sentence of the second paragraph where you indicate that one of your principal sources of liquidity is from cash flows from operations. Please clarify that you were cash flow negative for the two month period ended December 31, 2009 and that your predecessor was cash flow negative for the 2007 and 2008 fiscal years. |
| Response: The prospectus has been revised on page 76 in response to the Staff’s comment to add disclosure that the Company was cash flow negative for the two month period ended December 31, 2009 and that its predecessor was cash flow negative for the 2007 and 2008 fiscal years. |
April 20, 2010
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Business
Our Business, page 79
| 43. | We note the references to “seasonal increases” on page 60. Please provide the disclosures required by Item 101(c)(1)(v) of Regulation S-K. |
| Response: The prospectus has been revised on page 78 in response to the Staff’s comment to add a discussion of the impact of seasonality on the Company’s results of operations. |
Drive Execution Excellence, page 83
| 44. | Please revise to provide additional quantitative disclosure regarding the improved manufacturing efficiency you note. For example, discuss and quantify how your yields and capacity utilization have improved over the “several years” you mention. |
| Response: The Company notes the Staff’s comment and the prospectus has been revised under the heading entitled “Our Strategy” on page 88 in response thereto to add additional information regarding manufacturing productivity. The Company also notes that to its knowledge no company in the semiconductor industry publicly discloses yields due to the highly confidential nature of such information. The Company further notes that capacity utilization is primarily driven by factors other than manufacturing efficiency. |
Large Display Solutions, page 85
| 45. | Please explain how you reduce the die size of your large display driver and other solution products without moving to smaller geometry processes. |
| Response: The prospectus has been revised under the heading “Large Display Solutions” on page 90 in response to the Staff’s comment to add additional information regarding the Company’s actions relating to reducing die size. |
Our Products and Services, page 84
| 46. | For each table under the subheadings “Display Solutions,” “Power Solutions” and “Semiconductor Manufacturing Services”, please clarify which products are “in development.” Also disclose the stage of development. |
| Response: The prospectus has been revised in the tables under the heading “Our Products and Services” beginning on page 91 in response to the Staff’s comment to identify those products listed which are currently in the customer qualification stage, which is the final stage of product development. |
Manufacturing and Facilities, page 90
| 47. | Refer to the last risk factor on page 23. Please quantify the portion of packaging and testing that you outsource. Also tell us, with a view toward disclosure, how margins, |
April 20, 2010
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| costs and yields for the products you sell differ for the portion you outsource as compared to the portion you package and test. |
| Response: The prospectus has been revised under the heading “Manufacturing and Facilities” on page 96 in response to the Staff’s comment to add additional information regarding the impact of the Company’s outsourcing activities. |
| 48. | Please provide such information as will reasonably inform investors as to the suitability, adequacy, productive capacity and extent of utilization of your manufacturing facilities. Refer to the Instruction to Item 102 of Regulation S-K. |
| Response: The prospectus has been revised under the heading “Manufacturing and Facilities” on page 96 in response to the Staff’s comment confirming that the Company believes that it has sufficient production capacity to service its business as currently contemplated without significant capital investment. |
| 49. | Please disclose when your general service supply agreement with Hynix terminates. Include any appropriate risk factor disclosure. |
| Response: The prospectus has been revised under the heading “Manufacturing and Facilities” on page 96 in response to the Staff’s comment to confirm that the agreement has an indefinite term. The Company also notes the risk factor on page 27 which also addresses this matter. |
Customers, page 92
| 50. | We note your disclosure regarding customers: |
| • | Clarify whether the information you present regarding significant customers is on a consolidated basis or for each segment. See Item 101(c)(1)(vii) of Regulation S-K. If the information presented is on a consolidated basis, expand to also provide the disclosures required by Item 101(c)(1)(vii) for each segment; |
| Response: The Company advises the Staff that, as required by Item 101(c)(1)(vii) of Regulation S-K, the Company has disclosed the identity of the sole customer, the sales to which by one or more segments in an aggregate have amounted to 10 percent or more of the Company’s consolidated net sales and the specific segments to which such sales are attributable. |
| • | Revise to clarify the specific percentage of net sales attributable to LG Display. Also disclose the percentage of sales attributable to Samsung and Sharp; |
| Response: The prospectus has been revised under the heading “Customers” on page 97 in response to the Staff’s comment to specify the percentage of sales to LG Display. Neither Samsung nor Sharp are discussed under this heading. Because neither are 10 percent customers, the Company does not believe that disclosure of the specific percentage of net sales that each represents is required by rule or is otherwise material to investors. |
April 20, 2010
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Page Twenty
| • | Tell us, with a view toward disclosure, whether your relationships with the ten largest customers mentioned here have been harmed as a result of the matters noted in the second risk factor on page 16; and |
| Response: The prospectus has been revised under the heading “Customers” on page 97 in response to the Staff’s comment to clarify that relationships with some of its largest customers were and may be adversely affected by the risk factors noted. |
| • | Please identify the “industry leading customers” to which you refer on page 83. |
| Response: The Company advises the Staff that as noted on page 88, the leading customers referred to are LG Display, Sharp and Samsung. For the reasons described above, neither Sharp or Samsung as disclosed in this section. |
Intellectual Property, page 92
| 51. | Clarify the meaning of “novel registered.” Also clarify the extent to which you are dependent on the licenses you identify. |
| Response: The prospectus has been revised under the heading “Intellectual Property” on page 97 in response to the Staff’s comment to clarify that novel patents are patents other than patents which are a counterpart of an existing patent or patent application. |
Directors and Executive Officers . . . , page 94
| 52. | Given your disclosures here and on page 120, it appears that three of your directors are currently associated with an entity that beneficially owns a significant portion of your outstanding securities. Therefore, please explain to us why you have excluded from these directors’ business backgrounds an identification of such entity as an affiliate of your company. Refer to Item 401(e)(1) of Regulation S-K. |
| Response: The prospectus has been revised on pages 100-101 in response to the Staff’s comment to confirm that Avenue is an affiliate of the Company. |
| 53. | Please clarify the business experiences of Mr. Norby from October 2008 through March 2010 and of Mr. Shroff from July 2009 through March 2010. |
| Response: The prospectus has been revised under the heading “Directors and Executive Officers and Corporate Governance” on page 101 to reflect that during the periods in question each of Mr. Norby and Mr. Shroff were retired. Each of Mr. Norby and Mr. Shroff continued to serve on private company boards, and in the case of Mr. Norby, the public company boards noted in the prospectus. |
| 54. | It appears from your current disclosure regarding the biographical information of your directors that the directors appointed by Avenue, your largest shareholder, primarily come |
April 20, 2010
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| from an investment background. Given your new board and controlling shareholder, please include appropriate risk factor disclosure, if true, that some of your directors and your controlling shareholder/ultimate beneficial owner have not historically focused on managing companies in general, and foreign-based technology companies in particular. |
| Response: The Company respectfully submits that the Avenue-appointed directors have gained significant knowledge with respect to the management of companies through their investment in, and ownership of, numerous companies in multiple industries and one of the Avenue-appointed directors has substantial long-term experience investing in multi-national semiconductor manufacturing companies. In addition, the Avenue-appointed directors have gained significant management and board oversight experience in connection with advising companies undergoing financial turnarounds. The Company also notes that three of its other directors have substantial operating experience in the semiconductor industry. Accordingly, the Company does not believe that any specific risk factor or additional disclosure with respect to the management experience of its board members is necessary or appropriate. |
| 55. | Please clarify what “management experience” Mr. Elkins has, including the related entities and dates. |
| Response: The prospectus has been revised under the heading “Directors and Executive Officers” on page 100 in response to the Staff’s comment to clarify Mr. Elkins’ management experience. The Company advises the staff that Mr. Elkins’ direct 15 years of management experience includes his six years with Avenue Capital and through his preceding work experience in a similar capacity at ABP Investments, UBK Asset Management, Oppenheimer Inc. and Smith Barney. His director services includes companies such as Vertis Communication (from 2008 and continuing to date) and Milacron LLC (from 2009 and continuing). |
Involvement in Certain Legal Proceedings, page 97
| 56. | Please clarify the nature of the bankruptcy proceeding for Novalux. For example, did it involve an involuntary petition? |
| Response: The prospectus has been revised under the heading “Involvement in Certain Legal Proceedings” on page 102 in response to the Staff’s comment to clarify that Novalux filed a voluntary petition. |
Board Composition, page 97
| 57. | Please disclose whether a majority of your board is independent. See Item 407(a) of Regulation S-K. |
| Response: The prospectus has been revised under the heading “Board Composition” on page 102 in response to the Staff’s comment to clarify that a majority of the Board is not currently independent. |
April 20, 2010
Page Twenty-two
Page Twenty-two
| 58. | Clarify the duration of the board designation arrangement with Avenue. Also tell us which exhibit governs that arrangement. |
| Response: The prospectus has been revised under the heading “Board Composition” on page 102 in response to the Staff’s comment to clarify that the Company’s LLC Operating Agreement governs board designation prior to the completion of the corporate conversion. The agreement is filed as Exhibit 3.3 to the Registration Statement. |
| 59. | Please identify which directors are in each of the classes mentioned on page 128. |
| Response: The prospects has been revised on page under the heading “Board Composition” on page 102 to identify the classes for each of the directors. |
| 60. | We note your disclosure that Messrs. Norby, Shroff and Tavakoli serve as independent directors. Please provide us with your analysis as to how those directors are independent if they are elected by your more than 50% stockholder. |
| Response: The Company’s Board of Directors has determined that Messrs. Norby, Shroff 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. The Company notes that none of Norby, Shroff or Tavakoli have any material relationships with Avenue that would impact their independence from Avenue. Under Section 5.2 of the Company’s Fifth Amended and Restated LLC Operating Agreement, which is filed as Exhibit 3.3 to the Registration Statement, independent directors are elected by one or more members comprising 50% or more of the outstanding common units of the Company. At the time of election of each of the independent directors, Avenue held greater than 50% of the Company’s outstanding common equity, but the Company respectfully submits that the fact that a company has a controlling shareholder does not preclude the determination of the independence of that company’s directors who otherwise meet SEC and NYSE standards. |
Audit Committee, page 97
| 61. | Please clarify how you will satisfy the listing exception you cite and disclose the consequences of failing to comply with that exception. Also, for each committee you mention, identify each member that is not independent. See Item 407(a) of Regulation S-K. |
| Response: The prospectus has been revised under the heading “Audit Committee” on page 102 in response to the Staff’s comment to clarify the exception that the Company is relying upon and the consequences of failing to comply. The company further refers to its response to comment 62 with regard to the other committees mentioned in the prospectus. |
Compensation Committee, page 97
| 62. | Clarify when your compensation and nominating and governance committee members will be determined and how the composition of those committees will satisfy the applicable exchange listing rules. |
April 20, 2010
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| Response: The prospectus has been revised under the headings “Compensation Committee” on page and “Nominating and Corporate Governance Committee” on page 103 in response to the Staff’s comment to specify the committee members that the Company expects will be on the committees and to address the independent members of each committee. |
Assessment of Risk, page 98
| 63. | Please advise of the process you undertook to reach the conclusions expressed in this paragraph. Ensure your response addresses your disclosure regarding your conclusions as to the “aggressive corporate growth” mentioned in the penultimate bullet on this page. |
| Response: The Company advises the Staff that management reviewed the Company’s risk profile against each component of the Company’s compensation programs, which are primarily composed of market based fixed compensation, short term cash incentives and long term equity incentives. On the basis of this review, management concluded that none of the Company’s compensation policies and practices are reasonably likely to have a material adverse effect on the Company. Without limiting the generality of the foregoing, with respect to the specific language identified by the Staff, the Company respectfully submits that, as described in the penultimate bullet on page 104, its philosophy of rewarding executives for aggressive corporate growth is balanced by its philosophy of not encouraging undue risk-taking. The Company equates “aggressive corporate growth” to growth above industry norms, the achievement of which does not require excessive risk taking. |
Compensation Discussion and Analysis
General Background, page 100
| 64. | Please revise to avoid vague terminology in describing the policies and objectives of your compensation program. For example: |
| • | It is unclear within which “ranges” you seek to establish a total cash compensation package and how far “above median levels” total cash compensation is targeted; | ||
| • | It is also unclear within which ‘“ranges” you generally seek to set equity awards. Also, your disclosure regarding “other companies” implies that the companies you use for comparative purposes are not the same as those you identify. If so, please revise to make that clear, to identify the other companies and the reason for using different companies for comparative purposes; | ||
| • | You refer to “guidelines” in the last paragraph but it is unclear what those “guidelines” are or how those “guidelines” relate to the “benchmarked data” and “ranges” you mention in this section. |
| Please revise. |
| Response: The prospectus has been revised under the heading “General Background” starting on page 106 in response to the Staff’s comment to provide more specific disclosure regarding the policies and objectives of the Company’s compensation program. |
April 20, 2010
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Page Twenty-four
Base Salary, page 101
| 65. | Reconcile your disclosure here regarding evaluation of performance in setting base salaries with your disclosure on page 100 that such salaries are benchmarked to median levels. If you benchmark base salaries at the median level and the salaries you pay are above median, please expand to explain the reasons for the difference. Also apply this comment to each other element of compensation you pay and is targeted at “ranges” or “guidelines” you determine. |
| Response: The prospectus has been revised under the heading “Base Salary” on page 107 in response to the Staff’s comment to address adjustments to base salary from median levels. The Company notes that as discussed in the prospectus, there have been no changes in base salaries for named executive officers in 2009 or 2010. |
| 66. | Please clarify whether your named executives received the “30% of monthly base salary” you mention. If they did, please tell us in which column of the table on page 105 those awards are reported. |
| Response: The prospectus has been revised under the heading “Base Salary” on page 107 in response to the Staff’s comment to confirm that the amounts were paid to all named executive officers. The Company advises the Staff that these payments are reported under bonus in the Summary Compensation Table inasmuch as they represented a discretionary bonus. |
Cash Incentives, page 102
| 67. | We note that you have not disclosed the specific targets to be achieved in order for your named executive officers to earn their respective cash incentive payments. Please revise to provide such disclosure. To the extent you believe that disclosure of such information, on a historical basis, would result in competitive harm such that the information could be excluded under Instruction 4 to Item 402(b) of Regulation S-K, please provide us with a detailed explanation supporting your conclusion. To the extent that it is appropriate to omit specific targets or performance objectives, you are required to provide appropriate disclosure pursuant to Instruction 4 to Item 402(b) of Regulation S-K. Refer also to Question 118.04 of the Regulation S-K Compliance and Disclosure Interpretations available on our website at http://www.sec.gov/divisions/corpfin/guidance/regs-kinterp.htm. In discussing how difficult or likely it will be to achieve the target levels or other factors, you should provide as much detail as necessary without disclosing information that poses a reasonable risk of competitive harm. In this regard, it is unclear from your disclosure what you consider a “competitive” range within which those targets are set. |
| Response: The Company notes the Staff’s comment. As described in the prospectus, given the Company’s financial position, the Company did not formalize an incentive plan for 2009 and as a result no targets were set. |
April 20, 2010
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| 68. | The penultimate paragraph of this section refers to “discretionary incentives” discussed above. The paragraph that precedes this section refers to “discretionary incentives” discussed below. There appears to be no disclosure of “discretionary incentives” between those paragraphs. Please revise. |
| Response: The prospectus has been revised under the heading “Cash Incentives” on page 108 in response to the Staff’s comment to eliminate the erroneous cross reference. |
| 69. | Refer to the last two sentences of this section. Please clarify whether you mean that because you will not pay a profit share in excess of the base target, your named executives are only entitled to receive a cash incentive equal to the disclosed percentage of their salary. |
| Response: The prospectus has been revised under the heading “Cash Incentives” on page 108 in response to the Staff’s comment to clarify that executives will only be entitled to receive the specified percentage of their base salary. |
Equity Compensation, page 103
| 70. | Please reconcile your disclosure here regarding subjective determinations for the award amounts with your disclosure on page 101 regarding setting equity awards within “ranges.” Ensure that your revised disclosure fully and completely discusses the basis for each of the equity awards mentioned in your disclosure here and the table on page 105, including the reasons for the different amounts of the awards how you determined the relative proportions of the restricted units as compared to options to award. |
| Response: The prospectus has been revised under the heading “Equity Compensation” on page 110 in response to the Staff’s comment to disclose that the granting of options was based upon the Company’s normal practice of setting compensation at median levels for its peer group. The grants of restricted stock units was a special grant as compensation for the executives’ role in guiding the Company through the bankruptcy proceedings. |
Perquisites and Other Benefits, page 104
| 71. | We note the disclosure that you determine the level and types of benefits based on market surveys. Please clarify how the “benefits” you award relate to those surveys. For example, are the “benefits” you pay at the median? Do you consider the surveys with respect to each “benefit” or the aggregate amount of “benefits?” |
| Response: The prospectus has been revised under the heading “Perquisites and Other Benefits” on page 110 in response to the Staff’s comment to clarify that perquisites are based upon what the Committee determines to be customary and are not based median cost for specific perquisites or the perquisites in aggregate. |
April 20, 2010
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Summary Compensation Table, page 105
| 72. | Please tell us where the amounts disclosed in the column captioned “Bonus” are discussed in your Compensation Discussion and Analysis. |
| Response: The prospectus has been revised under the heading “Cash Incentives” on page 108 in response to the Staff’s comment to clarify the matters described as bonus in the Summary Compensation Table. |
| 73. | Please clarify the meaning of clause (a) in notes 3, 4, 5, 15, 16, 17 and 23. |
| Response: The notes to the Summary Compensation Table starting on page 111 have been revised in response to the Staff’s comment to clarify the clause (a) descriptions. |
| 74. | Refer to notes 9, 11 and 13 and Exhibit 10.33. Please tell us why you reported those amounts in the “Bonus” column, given that it appears Mr. Rowe was entitled to receive those amounts under any circumstances provided that he continued to remain employed by you. |
| Response: The Company advises the Staff that the amount is reported under the “Bonus” column in that it is not part of Mr. Rowe’s base compensation. The Company believes that to report such amount under salary would be misleading as it would suggest it represents ongoing base compensation. Likewise, the Company believes that the amount is not reportable under non-equity incentive plan compensation given its fixed nature. |
Option Exercises and Stock Vested . . . , page 109
| 75. | Refer to note 3. You disclose that the value of the date of vesting of the units was $0.79; however, Exhibits 10.29, 10.32, 10.35, 10.38, 10.47 indicates that the value on the date of vesting was $0.74. Please reconcile. |
| Response: The Company advises the Staff that at the time of the initial grant of the Restricted Unit Bonuses (“RUBs”) which are the subject exhibits, the board had determined that the fair market value of the RUBs was $0.74 per unit and that information was included in the Notices of Grant that were issued. Subsequently, the board re-considered the valuation and determined that the actual value as of that date was $0.79 per unit. This price is the same price that was used for the purpose of note 2 to the table on page 113. Each of the grantees were subsequently notified of the change in the board’s determination of fair market value. However, because RUBs do not have an exercise price, the price information provided in the notice of grant is merely informational and not a substantive term of the grant (in contrast to an option where the price specified is the option exercise price). As the changed valuation has no substantive impact on the terms of the grant, the Notices of Grant were not formally amended. |
April 20,2010
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Change in Control, page 115
| 76. | Please describe the circumstances under which the “change in control” provisions in your plans and employment agreements with your affiliates will be triggered. See Item 402(j)(1) of Regulation S-K. Also tell us, with a view toward disclosure, whether those provisions will be triggered as a result of this transaction. | |
| Response: The prospectus has been revised under the heading “Potential Payments upon Termination or Change in Control” beginning on page 120 in response to the Staff’s comment to describe such benefits and to confirm that such benefits will not be triggered by the offering. |
Pension Benefits . . . , page 117
| 77. | Please provide the disclosure required by Instruction 2 to Item 402(h)(2). Also, given your disclosure on page 94 regarding Mr. Hwang’s employment, please provide the disclosure required by Instruction 4 to Item 402(h)(2). | |
| Response: The Company advises the Staff that this obligation is a statutory based obligation. The calculation of the present value of the accumulated benefit does not require the application of any valuation method or any assumptions as the obligation is an amount which accrues each month on a rolling basis based upon the compensation of the employee for the prior three-month period. Specifically, it does not require any assumptions regarding the number of future years of service or future compensation. The prospectus has been revised under the heading “Pension Benefits for the Fiscal Year Ended December 31, 2009” on page 122 to add further clarification regarding the operation of the plan and Mr. Hwang’s benefits. |
Principal Stockholders
Selling Stockholders, page 119
| 78. | Please note we may have further comment after you complete the blanks in this table. | |
| Response: The Staff’s comment is noted. |
| 79. | Refer to the last paragraph. Clarify whether the selling stockholders were your creditors prior to your bankruptcy and whether the units you issued were to satisfy their claims. If so, disclose the amount of each claim held by the selling stockholder and the number of units they received and consideration, if any, they paid for those units and any other material relationships between the selling stockholders and the registrant. Refer to Item 507 of Regulation S-K. | |
| Response: The prospectus has been revised under the heading “Principal and Selling Stockholders — Selling Stockholders” starting on page 125 to disclose the manner in which the selling stockholders received and the consideration paid for their common units. |
April 20,2010
Page Twenty-eight
| 80. | With a view toward disclosure, please tell us whether and how this transaction relates to Section 1.2 of Exhibit 4.1. | |
| Response: The Company advises the Staff that the offering was initiated by the Company’s management and Board of Directors and not as the result of the exercise of any rights set forth in the Registration Rights Agreement filed as Exhibit 4.1 to the Registration Statement. |
Certain Relationships and Related Transactions, page 124
| 81. | Please tell us why you did not disclose the information required by Item 404 of Regulation S-K with respect to: |
| • | the “Senior Advisor Agreement” mentioned on page 99; | ||
| • | the transactions that resulted in the entities mentioned on page 120 beneficially owning more than 5% of your securities. Refer to Question 130.03 of our Regulation S-K Compliance and Disclosure Interpretations, available on our website at http://www.sec.gov/divisions/corpfin/guidance/regs-kinterp.htm; and | ||
| • | the “backstop” commitment and ”loans to employees” mentioned on page F-55. |
| Response: The prospectus has been revised under the heading “Certain Relationships and Related Transactions” on page 131 in response to the Staff’s comments to add disclosure regarding the Senior Advisor Agreement, the issuance of common units and the backstop commitment. The Company also notes that with respect to the employee loans, none of such loans were provided to officers or directors of the Company. | ||
| 82. | Given your disclosure on page 131 regarding the purpose of this offering, please disclose the information required by Item 404 with respect to the transactions you are attempting to register in this registration statement. Include in such disclosure a more detailed description of the “preferred income tax treatment” and the extent, if any, to which your tax obligations will be impacted as a result of the current structure of this offering. Add any appropriate risk factors. Disclose whether there are any indemnification provisions that extend to your shareholders if the desired tax treatment is not realized. | |
| Response: The Staff’s comment is noted. The Company respectfully submits that the use of the limited period depositary shares is not a transaction required to be disclosed under Item 404 but rather is a structure that allows all of the Company’s existing equity holders to benefit from the corporate conversion not being treated as a taxable transaction. The Company is under no contractual obligation with respect to the tax consequences of the depositary share structure. This treatment has no impact on the Company following the offering and as a result, the Company believes that no additional disclosure is required or appropriate. |
Code of Business Conduct and Ethics, page 124
| 83. | Please clarify how the review and approval in the first sentence differs from the review and approval in the second sentence. Must the first review you mention occur prior to the second review? Does the second review occur only if the first review results in approval? |
April 20,2010
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| Response: The prospectus has been revised under the heading “Code of Business Conduct and Ethics” on page 130 in response to the Staff’s comment. The Company confirms that original first sentence referred to related party transactions for employees generally. If determined to be material by the Company’s Chief Financial Officer, then such transactions must be reviewed and approved in writing by the Company’s Audit Committee. The second sentence related to related party transactions involving directors and executive officers. All such transactions must be reviewed and approved by the Company’s full Board of Directors. As the purpose of the section is to address related party transactions with affiliates, the first sentence has been deleted to avoid any confusion. | ||
| 84. | Please clarify the standards to be applied in determining whether to approve a related-party transaction. Refer to Item 404(b) of Regulation S-K. | |
| Response: The prospectus has been revised under the heading “Code of Business Conduct and Ethics” on page 130 to specify the standard to be applied. |
Registration Rights Agreement, page 124
| 85. | Please identify the affiliate counterparties to this agreement. | |
| Response: The Company advises the Staff that the only affiliate that is party to the Registration Rights Agreement is Avenue. That Avenue is a party to the agreement is disclosed in the prospectus on page 131. |
Description of Depositary Shares
General, page 131
| 86. | You say that the rights of your depositary shareholders are “subject to” the deposit agreement, which implies that your depositary shareholders may not have the rights you disclose because of that agreement. If that is not correct, please revise to eliminate that implication. | |
| Response: The prospectus has been revised under the heading “General” on page 138 in response to the Staff’s comment to delete the reference to “subject to.” | ||
| 87. | Given your disclosure under “Description of Capital Stock” it is unclear what the redemption and liquidation rights are that you refer to in the last sentence of the first paragraph. Please clarify. | |
| Response: The Company notes the Staff’s comment and has revised the disclosure under the heading “Description of Depositary Shares” on page 138 accordingly. | ||
| 88. | Please tell us when you intend to amend the deposit agreement to include the registrant as a party to it. We note that the entity you list here is “MagnaChip Semiconductor LLC.” |
April 20,2010
Page Thirty
| Response: The Company notes the Staff’s comment and has revised the disclosure under the heading “Description of Depositary Shares” on page 138 to confirm the entity that will sign the deposit agreement. |
Cancellation of Depositary Shares, page 131
| 89. | We note your disclosure that the exchange of the depositary shares for shares of your common stock “should not be a taxable event.” This appears to be a legal conclusion. As such, please file an opinion of tax counsel which supports this disclosure. Please revise the disclosure to clearly explain why counsel is unable to opine that the exchange will not be a taxable event and include appropriate risk factor disclosure. | |
| Response: The reference to noted by the staff has been deleted on page 138. The prospectus has been revised under the heading “Material U.S. Federal Income Tax Consequences” beginning on page 146 to address the U.S. federal income tax consequences of owning the depositary shares, as noted in the Company’s response to comment 93 below. |
Withdrawal, page 132
| 90. | We refer to the first sentence of the second paragraph. Please disclose which U.S. securities laws you are referring to. | |
| Response: The Company advises the Staff that the reference under the heading “Withdrawal” on page 139 is not to any specific law, but only to note that withdrawal would be subject to any applicable laws. |
Sales of Restricted Shares . . . , page 135
| 91. | Refer to the third paragraph and disclosure on page 136 regarding warrants. With a view toward disclosure, please tell us how you determined that the shares of common stock and warrants mentioned in those paragraphs were deemed to be issued in a public offering and may be resold freely, given the first unregistered transaction described on page II-2. Further, please tell us how the corporation conversion would qualify under Section 3(a)(9) of the Securities Act given the diversity of issuers. | |
| Response: The Company advises the Staff that the Company believes that 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) as the common stock and warrants will be exchanged by the Company with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange. With respect to the diversity of issuers, the Company advises the Staff that it believes MagnaChip LLC and MagnaChip Corporation are the same entity as described in Response 1 above and therefore there is no diversity. We note the following registration statements with registrants that relied on |
April 20,2010
Page Thirty-one
| Section 3(a)(9) of the Securities Act as an exemption from registration for the issuance of securities pursuant to a LLC corporate conversion transaction: |
| • | Team Health Holdings, L.L.C. (333-162347) | ||
| • | Boise Cascade Holdings, L.L.C. (333-122770) | ||
| • | Alon Brands, Inc. (333-155296) |
| The Company’s determination that the warrants and the common stock issuable upon exercise of such warrants issued in the corporate conversion would be deemed to be issued in a public offering and may be resold freely under Section 4(1) of the Securities Act was based on the determination by the Company that the corporate conversion transaction constituted a Section 3(a)(9) exchange and that the warrants received in the exchange assumed the character of the exchanged securities. See Question 125.08 of the Staff’s Compliance and Disclosure Interpretations. The MagnaChip LLC warrants and any common units issuable upon exercise of such warrants exchanged in the conversion were originally issued under Section 1145(a)(2) of the U.S. Bankruptcy Code pursuant to the Company’s reorganization proceedings. Section 1145(c) of the U.S. Bankruptcy Code generally provides that securities issued pursuant to Section 1145(a)(1) of the U.S. Bankruptcy Code are deemed to be a public offering. SEC no-action letters have clarified that this treatment is also applicable to warrant securities issued under Section 1145(a)(2) of the U.S. Bankruptcy Code and securities issued upon exercise of such warrants. See Mooney Aerospace Group, Ltd. (SEC No-Action Letter), Publicly Available December 20, 2002 and Westmark Systems (SEC No-Action Letter), Publicly Available December 13, 1991. The Company believes that similar treatment should be applied to its warrants and believes that such warrants were issued in a public offering. Therefore, because the MagnaChip LLC warrants are securities issued in a public offering, MagnaChip Corporation warrants issued upon the Section 3(a)(9) corporate conversion (including the underlying common stock issuable upon exercise of such warrants) will retain the character of 1145 securities issued in a public offering and therefore will be freely tradable 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 of the Securities Act. |
Rule 144, page 136
| 92. | Please clarify how your disclosure here accounts for the “exchange” mentioned on page 131. | |
| Response: The Company advises the Staff that the discussion of Rule 144 under the heading “Shares Eligible for Future Sale” is not intended to address the shares issued in connection with the offering (except to the extent purchased by affiliates). Instead, the discussion is to provide disclosure to investors regarding the number of shares which may be available for trading in the public markets beyond the shares sold in the offering and which accordingly may impact the trading price of the Company’s common stock. The Company also notes that the Company has modified the disclosure under the heading “Description of Depositary Shares - Cancellation of Depositary Shares” on page 138 to eliminate the erroneous reference to “exchange.” As |
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| described elsewhere in the prospectus, the depositary shares will be cancelled and the underlying shares delivered to the owners thereof. There is no exchange nor is there any investment decision made by any holder in connection therewith. |
Material U.S. Federal Income Tax Consequences . . . , page 137
| 93. | Please add a section to your prospectus which addresses the material U.S. Federal income tax consequences to U.S. holders. In that section, please address the following: |
| • | Given your disclosure on page 131 and the securities in your fee table, please expand your tax discussion to address the tax consequences to the holders of depositary shares and your common stock; and | ||
| • | discuss the tax consequences resulting from sales, exchanges, redemptions or other dispositions of your common stock. Address in such disclosure whether the prior ownership of depositary shares counts toward the applicable holding period for purposes of determining whether a holder will recognize long-term capital gain or loss? |
| Response: The prospectus has been revised under the heading “Material U.S. Federal Income Tax Consequences” beginning on page 146 in response to the Staff’s comment to provide the additional disclosure requested. |
Underwriting, page 140
| 94. | It appears from registration statement file number 333-147388 that an affiliate of an underwriter was one of your shareholders prior to bankruptcy. If that is correct, please revise to disclose the nature of that relationship and what amount, if any, that entity received in connection with completion of your plan of reorganization. | |
| Response: The prospectus has been revised under the heading “Underwriting” on page 153 in response to the Staff’s comment to add disclosure regarding the nature of relationships between affiliates of the proposed underwriters and the Company. |
Financial Statements
Note 2.
Voluntary Reorganization under Chapter 11, page F-10
| 95. | We note here and throughout the filing that you elected to adopt a convenience date of October 25, 2009 rather than the Plan of Reorganization effective date of November 9, 2009 for application of fresh-start reporting related to your emergence from Chapter 11 Bankruptcy. Please tell us and revise your filing to explain in detail the U.S. GAAP that you believe supports the use of a convenience date rather than the actual effective date of the Plan of Reorganization. Confirm that events between the “convenience” date and the actual Plan of Reorganization effective date did not result in material changes in the amounts recognized in your financial statements. |
April 20, 2010
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| Response: The Company emerged from bankruptcy on November 9, 2009. In accordance with ASC 852 Reorganizations, the Company adopted fresh-start accounting as of that date by adjusting the historical carrying value of its assets and liabilities to their respective fair values. The Company believes that it is permitted to select an accounting convenience date proximate to the emergence date for purposes of making the aforementioned adjustments to historical carrying values (the “Convenience Date”), provided that an analysis of the activity between the date of emergence and the Convenience Date does not result in material differences in the balance sheet or statement of operations. The fair value of assets and liabilities were derived by applying the best available information at the Emergence Date to account balances at October 25, 2009 which was the Company’s October accounting period end. The Company evaluated transaction activity between the Convenience Date and the Emergence Date and concluded there were no material differences in the balance sheet or statement of operations as a result of applying the Convenience Date. As a result, the fresh-start accounting adjustments have been reflected in the balance sheet at October 25, 2009 and in the statement of operations for the ten-month period ended October 25, 2009. The Company has revised Note 2 to the Consolidated Financial Statements on page F-10 to make the related disclosure clearer regarding its basis of applying the Convenience Date. |
Note 3.
Fresh Start Reporting, page F-11
| 96. | We noted that you used a discounted cash flow analysis that measured the projected multi-year free cash flows of the company to arrive at an enterprise value. Further, we note your discussion that any changes in estimates and assumptions may have a significant effect on the determination of the company’s fair value. In light of the significance of the estimates and assumptions used in your analysis please revise to also disclose those significant estimates and assumptions. We refer you to FASB ASC 852-10-45 (formerly paragraph 39 of SOP 90-7). | |
| Response: The Company notes the Staff’s comment and has revised its disclosure in Note 3 to the Consolidated Financial Statements on page F-11 to provide additional information regarding the significant estimates and assumptions used by the Company. | ||
| 97. | We see that you obtained an independent third party valuation specialist to determine the fair value of advance payments and property, plant and equipment, net, as estimated by the Predecessor Company. Please tell us the nature and extent of the third party appraiser’s involvement and management’s reliance on the work of the independent appraisers. Please refer to Question 141.02 of the Compliance and Disclosure Interpretations on Securities Act Sections, which can be found at http://www.sec.gov/divisions/corpfin/guidance/sasinterp.htm. | |
| Response: The Company notes the Staff’s comment. The Company advises the Staff that the Company obtained the services of an independent third party valuation specialist, mainly to assist in its compilation of benchmarking data and performing valuation calculations. However, the underlying assumptions, projections and valuation methods used in the preparation of the financial statements were determined by the Company and should be considered as the sole |
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| responsibility of the Company. As such, the Company does not believe a disclosure of the third party valuation specialist by name or the scope of work performed on behalf of the Company necessary. | ||
| To clarify this matter, the Company has revised its disclosure in the prospectus in Note 3 Fresh-Start Reporting, to the Consolidated Financial Statements footnotes (o) & (p) to the condensed consolidated balance sheet on page F-16. The Company has also revised its disclosure footnote (2) to the table in Grants of Plan-Based Awards on page 113 in the prospectus. |
Note 4. Summary of Significant Accounting Policies, page F-16
Accounts Receivable Reserves, page F-18
| 98. | We noted disclosures herein that you include 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. Tell us more about the nature of and reason for the “the low yield compensative reserve”. Also, provide us with references to the authoritative accounting literature that you believe supports your accounting for and presentation of “the low yield compensative reserve.” Finally, give us an example of the accounting entries that are made to record the referenced reserve. | |
| Response: The Company does not provide its customers with a general right of return upon delivery. However, the Company grants its customers a right to return defective products that do not meet yield criteria. The yield criteria represent the number of qualified dies per wafer sold to a customer. Accordingly, this specific right of return is applicable only when the Company delivers product in the form of wafers rather than dies or chips. When product sales are made on a wafer level, the Company is unable to determine if the individual dies within the respective wafers are defective at the time of delivery. Defects can only be determined when the customer slices the wafers and confirms the wafer yield. If it is then determined that the number of unqualified dies does not meet the yield criteria, the customer has right to return the wafer. The Company records a reserve, which it calls a low yield compensative reserve, for potential returns related to such unqualified dies based upon historical experience. | ||
| The Company recognizes its revenue to the extent that all of the conditions outlined in FASB ASC 605-15-25-1 are met at the time of sale and records a reserve as a sales adjustment, which is a contra-revenue account, by the amount the Company can reasonably estimate at the time. The Company determines the low yield compensative reserve amount on a monthly basis based on actual historical average rate of returns. | ||
| The following summarizes the accounting entries made to record the reserve: | ||
| At the time of sale: |
Dr) Accounts receivable
Cr) Sales
Cr) Sales
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Page Thirty-five
Dr) CoGS
Cr) Inventory
Cr) Inventory
| At the time of estimating the reserve on a monthly basis: |
Dr) Sales-adjustment (contra-revenue)
Cr) Allowance for accounts receivable
Cr) Allowance for accounts receivable
| At the time of exchange for the same product: |
Dr) Allowance for accounts receivable
Cr) Sales
Dr) Cost of sales
Cr) Inventory
Cr) Sales
Dr) Cost of sales
Cr) Inventory
Revenue Recognition, page F-21
| 99. | We noted your discussion that your 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. Please revise to disclose your revenue recognition policy regarding these services. | |
| Response: The Company notes the Staff’s comment and has revised its disclosure in the prospectus under the heading “Revenue Recognition” on page F-21 and Critical Accounting Policies and Estimates regarding Revenue Recognition and Accounts Receivable Valuation on page 80. As the Staff noted, the Company’s Semiconductor Manufacturing Services (“SMS”) segment provides specialty analog and mixed-signal foundry services for fabless semiconductor companies that serve the consumer, computing and wireless end markets. As discussed in the prospectus under the heading Business Segments starting on page 59, the Company manufactures wafers based on its customers’ product designs. SMS business activities are, in substance, identical to the Company’s Display Solutions and Power Solutions segments. The only difference is, for SMS, the design of the chips originate from customers. Customers provide the Company with their designs, and the Company manufactures products based on such designs and delivers the physical products to the customers. Accordingly, the Company believes revenues generated from SMS do not differ from those of its other business segments and as a result believes it should be recognized under the same revenue recognition policy, consistently applied. | ||
| 100. | We see from your disclosure that revenue is recognized either upon shipment, upon delivery of the product or upon customer acceptance. Please revise your disclosure to specifically discuss any customer acceptance terms you enter into with your customers and how they impact your revenue recognition. | |
| Response: The Company notes the Staff’s comment and has revised the prospectus under the heading “Revenue Recognition” on page F-21 and Critical Accounting Policies and Estimates |
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| regarding Revenue Recognition and Accounts Receivable Valuation on page 80 to discuss customer acceptance terms. | ||
| 101. | In this regard, please expand your disclosure to describe your revenue recognition policy in greater detail. To the extent that the policy differs among customer categories (i.e. display solutions, power solutions, etc.) make your disclosure product line specific. Details should be provided to the extent that policy differs among the various marketing venues used by the Company, i.e. distributors and reseller. Also, if the policies vary in different parts of the world those differences should be discussed. Provide details of any other discounts, return policies, post shipment obligations, warranties, credits, rebates, and price protection or similar privileges and how these impact revenue recognition. | |
| Response: The Company advises the Staff that its revenue recognition policy is consistent across its product lines, marketing venues, and all geographic areas. | ||
| Except for the policies as disclosed in Revenue Recognition on page F-21 of the prospectus, the Company does not have any other discounts or return policies provided to its customers. Other than warranty obligations as disclosed in Product Warranties on page F-22 of the prospectus and customer acceptance provisions, sales contracts do not include any post-shipment obligations that could have an impact on revenue recognition. With respect to customer acceptance provisions, the Company refers the Staff to its response to comment 100. In addition, the Company also advises the Staff that it does not currently provide any credits, rebates or price protection or similar privileges that could have an impact on revenue recognition. | ||
| The Company notes the Staff’s comment and has revised the prospectus, under the heading Revenue Recognition on page F-21 and Critical Accounting Policies and Estimates regarding Revenue Recognition and Accounts Receivable Valuation on page 80. |
Licensed Patents and Technologies, page F-23
| 102. | We see that you have entered into a number of royalty agreements to license patents and technology used in the design and manufacture of your products. It appears from your disclosure that you have continuing royalty obligations. Please revise to disclose the significant terms of your royalty obligations, including the percentages you are required to pay and the term of any payments, if material. Please also clarify where you include these charges in your income statement. | |
| Response: The Company notes the Staff’s comment and in accordance with the following detailed explanation, has revised the related disclosure. | ||
| As noted in the revised prospectus under the heading “Licensed Patents and Technologies” on page F-23, the Company is obligated to pay royalties on licensed patents and technology used in the design of its products. The Company is subject to two types of royalty obligations, lump sum or running basis, with several companies. |
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| Lump sum royalty obligations are characterized as research and development (“R&D”) activities as the underlying technology which is licensed is used in the design of products. In the normal course of business, from time to time, the Company licenses certain technologies and patents to complete its designs of semiconductor products in order to avoid the time and expense required for R&D department to achieve equivalent technologies. Lump-sum royalties are charged to R&D expense over the contract period using the straight-line method. Lump-sum royalty arrangements require the Company to make royalty payments regardless of whether revenue is generated from related products since such royalties are deemed to be consideration for the usage of licensed patents in the Company’s R&D activities. Historically the Company has incurred insignificant amounts of lump-sum royalty expenses of $[*****], $[*****], $[*****] and $[*****] in 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, respectively. For its lump-sum royalty arrangements, as these are in consideration for license patents used during the Company’s R&D activities, the Company believes it has appropriately classified the related expenses as R&D expense. | ||
| Running royalties are paid based on the revenue of related products sold by the Company. The Company entered into an agreement with a fabless semiconductor design company and the Company paid running royalty to such semiconductor design company as consideration for its efforts and technologies contributed for the certain products design which is jointly performed with the Company. Running royalty payment to such design company represented approximately 88.4%, 94.4%, 92.4% and 88.2% of total running royalty expenses of the Company in 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, respectively. Pursuant to the agreement with such semiconductor design company, royalty rates range from 2.5% to 6% of the related product revenue and payment is made monthly. The Company has incurred running royalty expenses totaling $[*****], $[*****], $[*****] and $[*****] in 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, respectively. As these royalty expenses are triggered only by sales of relevant products and no R&D activities are performed for the relevant product when running royalty expenses are incurred, the Company has classified related expenses as selling expenses, included within selling, general and administrative expense (“SG&A”) in its statements of operations. | ||
| To clarify and disclose more information on the nature of royalty obligations, the Company has revised the prospectus in Note 4 to Consolidated Financial Statements “Significant Accounting Policies” under the heading “Licensed Patents and Technologies” on page F-23. |
Income Taxes, page F-23
| 103. | We see you indicate herein that 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. We also see that prior to the closing of this offering, MagnaChip Semiconductor LLC will convert from a Delaware limited liability company to a Delaware corporation. Accordingly, please revise the filing to disclose a pro forma tax expense based on statutory rates in effect for each period presented or tell us why you believe no such disclosures are necessary. |
| [*****] — | CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FURNISHED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION |
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| Response: The Company acknowledges the requirements to present pro forma income tax information when a non-taxable entity converts to a taxable entity. However, the Company respectfully submits that it believes the corporate conversion of the entity from MagnaChip LLC to MagnaChip Corporation will not have a significant impact on income tax expense on a pro forma basis, since the corporate conversion does not change MagnaChip LLC’s operational structure, which is a holding company without its own revenue or income generating activities. The characteristics of MagnaChip Corporation continue to be same with MagnaChip LLC and, accordingly, MagnaChip Corporation is expected to have little or no tax expense for U.S. federal income tax purposes. | ||
| As noted in response to comment 36, the Company clarified its minimal 2009 and future taxable income despite the corporate conversion, based on the history of losses in the Company’s foreign subsidiaries and the nature of corporate conversion. | ||
| Consequently, the Company does not believe that it needs to disclose a pro forma tax expense based on statutory rates in effect for each period presented due to the immaterial tax effect expected upon the conversion to MagnaChip Corporation. | ||
| The Company has revised the prospectus in Note 5 to Unaudited Pro Forma Consolidated Financial Information on page 53 to clarify the disclosure. |
Note 8. Inventories, page F-31
| 104. | We see that you reversed approximately $8.1 million of your reserve in the ten month period ended October 25, 2009 and $1.1 million during the year ended December 31, 2007. Please explain why you reversed amounts previously written down and cite the accounting literature upon which you based your accounting. | |
| Response: The Company understands that an inventory reserve recorded at the close of a fiscal period creates a new cost basis that subsequently cannot be marked up or reversed based on changes in underlying facts and circumstances pursuant to FASB ASC 330-10-S99 (formerly, SAB Topic 5-BB). | ||
| In respect to the “change” in the reserve balance (which was disclosed in the Company’s original filing as “Reversal of (addition to) reserve,”) of $8.1 million in the ten-month period ended October 25, 2009 and $1.1 million during the year ended December 31, 2007, the Company respectfully informs the Staff that these changes in reserve represent the movement in the notional reserve due to new losses recognized and inventory sold during the period. These changes in inventory reserve do not include any reversal of inventory reserve recorded at the close of prior fiscal period ends due to changes in facts and circumstances. | ||
| To clarify, the Company has revised the Prospectus in Note 8 to Consolidated Financial Statements under the heading “Inventories” on page F-31. |
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Note 10. Intangible Assets, page F-32
| 105. | We see that when you applied fresh-start reporting you recognized $9.7 million as the fair value of in-process research and development and see that you explain how you determined the value of the technology. However, we do not see where you have explained the nature of the research and development. Please revise your discussion to address specific research and development projects or groups of related projects, including the following: |
| • | To the extent possible, disclose the costs incurred to date, the current status, and the estimated completion dates, completion costs and capital requirements. | ||
| • | If estimated completion dates and costs are not reasonably certain, discuss those uncertainties. | ||
| • | Disclose the risks and uncertainties associated with completing development projects on schedule and the consequences if they are not completed timely. |
| Response: The Company notes the Staff’s comment and has revised its disclosure in the Prospectus in Note 10 to Consolidated Financial Statements under the heading “Intangible Assets” on page F-32 to provide additional information regarding the status of in-process research and development. |
Note 20, Discontinued Operations, page F-46
| 106. | We see that you announced the closure of your Imaging Solutions segment in October 2008 and also note your disclosure that you renewed the CAD software license use agreement with Synopsys in your quarter ended September 27, 2009, which led to the reversal of $1.1 million of accrued restructuring charges. Please respond to the following: |
| • | Please tell us the nature of this software license and clarify which line of business you used the license. For example, tell us if it was used only in your Imaging Solutions business. | ||
| • | Please clarify why the license was renewed after you announced the closure of the Imaging Solutions business segment. | ||
| • | Tell us specifically how this impacted your reserve and why you reversed certain accrued restructuring charges. | ||
| • | Finally, tell us about the closure of the Imaging Solutions segment and whether you have any continuing involvement in that related business after renewing this license use agreement with Synopsys, Also tell us how the referenced license renewal affects your conclusions regarding the required accounting and presentation of the Imaging Solutions business segment as discontinued operations. |
| Response: The Company advises the staff as follows: |
| “The nature of the software license.” |
April 20, 2010
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| The license is a CAD software suite that was used by all of the Company’s operating segments, including the Company’s former Imaging Solutions business and is currently used by all of its business divisions other than the discontinued Imaging Solutions segment. | ||
| “Why the license was renewed.” | ||
| As noted above, the Synopsys CAD software is a tool used by all the Company’s segments and the license was renewed in response to the Company’s request for renewal prior to the maturity of the license to reflect the discontinuance of the Company’s Imaging Solutions segment. | ||
| “How it impacted your reserve and why you reversed certain accrued restructuring charges.” | ||
| Under the license, the Company was scheduled to make payments through the end of the agreement term. However on October 6, 2008, the Company discontinued its Imaging Solutions business and recorded related restructuring charges for the fourth quarter ending on December 31, 2008. The restructuring charges included a portion of the preceding agreement’s future scheduled payments attributable to the Company’s Imaging Solutions business. The scheduled future payments were non-refundable in nature per the agreement. However, in the third quarter of 2009, the Company renegotiated the total agreement fee, which in turn lowered the Company’s remaining future scheduled payments. The Company therefore adjusted the previously recorded restructuring charges attributable to the Imaging Solutions business segment to the extent that the renewed payment terms reduced the remaining future scheduled payments. This resulted in the reversal of accrued restructured charges. | ||
| “Whether you have any continuing involvement in the related business after renewing this license.” | ||
| The revised agreement excised all rights to use the license for the Company’s Imaging Solutions business and retained only the components utilized by its other divisions. As such, the Company believes that the current accounting and presentation of the Imaging Solutions business as a “discontinued operation” is appropriate. | ||
| 107. | In this regard, please tell us if your balance sheets include any material assets or liabilities related to the discontinued Imaging Solutions segment, and if so, please tell us where the amounts are presented in your balance sheets. | |
| Response: The Company advises the Staff that of the assets related to the discontinued Imaging Solutions business segment, the only assets that could be material are the Company’s fabrication facilities, which are shared by all lines of the Company’s business. Those fabrication facilities are currently used by all segments of the Company. Of the liabilities related to the discontinued Imaging Solutions business segment, the Company has accrued $718 thousand of contingent liabilities on its balance sheet due to the claim made by Samsung Fiber Optics as of December 31, 2009, which has been separately disclosed in the prospectus in Note 24 to the Consolidated Financial Statements “Commitments and Contingencies” — Loss Contingency on page F-55. |
April 20, 2010
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Note 22. Income Taxes, page F-48
| 108. | We note that you determined that it was more likely than not that you would realize the benefits related to your deferred tax assets in the amount of $8.5 million as of December 31, 2009. Please explain to us in greater detail how you reached this conclusion. Refer to FASB ASC 740-10-30. | |
| Response: The Company believes an analysis for the recognition of deferred tax assets (“DTA”) pursuant to the more likely than not criteria prescribed in FASB ASC 740-10-30 should be performed on a jurisdiction by jurisdiction basis. | ||
| As of December 31, 2009, the DTA of $8.5 million is solely related to the Company’s Japanese subsidiary (“MSJ”) which is subject to a statutory tax rate of 41% and has been profitable in the past. The $8.5 million DTA represents tax benefits arising from timing differences for accounting and tax purposes primarily for royalty income. In 2005, a lump-sum royalty amounting to $32 million was received by MSJ and treated as taxable income upon receipt of the consideration. However, for accounting purposes, the royalty income was deferred and is being recognized as revenue over 10 years (the term of the underlying royalty agreement), along with any consideration for currency translation impacts for each period. | ||
| In assessing whether the DTA is realizable, the Company has considered the current and future income of its Japanese subsidiary. Based on the assessment, the Company believes that MSJ can continue to generate sufficient taxable income in the future period to utilize the recorded DTA. MSJ has historically reported pre-tax income totaling $4.1 million, $6.4 million, and $5.5 million for the combined twelve-month period ended December 31, 2009 and the years ended December 31, 2008 and 2007, respectively, and is expected to continue reporting pre-tax income based on the operating plan of MSJ and the Company’s transfer price policy. | ||
| The Company’s main Korea-based operating subsidiary (“MSK”) engages in manufacturing, R&D and marketing of the Company’s products. On the other hand, MSJ primarily operates as an R&D center for MSK. Pursuant to the Company’s transfer price policy, MSJ is entitled to receive a certain cost mark up for the R&D activities it conducts. Considering the pre-tax income expected to be generated from royalty income and R&D, the Company concluded that MSJ’s DTA can be realized in the future periods under the more likely than not criteria under FASB ASC 740. |
Note 24. Commitments and Contingencies, page F-54
| 109. | We see from your disclosure regarding a claim filed by Samsung Fiber Optics that you have accrued $718 thousand of estimated liabilities. Please tell us and revise your filing to further disclose the nature of the contingency and related accrual, whether a loss is probable, and provide us with the methodology used to reasonably estimate the amount of the loss accrued in your financial statements. We refer you to FASB ASC 450-20. | |
| Response: The Company notes the Staff’s comment and has revised the disclosure in the prospectus in Note 24 “Commitments and Contingencies,” to the Consolidated Financial |
April 20,2010
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| Statements on page F-55 to clarify the nature of the Company’s accrual relating to Samsung Fiber Optics. |
Part II of Registration Statement
Item 15. Recent Sales of Unregistered Securities, page II-2
| 110. | Reconcile your disclosure here and on page F-6 regarding the number of securities you issued in 2008 upon exercise of options. | |
| Response: The Company respectfully submits that the number of unit options exercised in 2008 disclosed on page F-6 (161,460 shares) is reconciled with the numbers disclosed on page II-3 as follows: |
| Exercise Date: | Number of Options Exercised | |||
February 19, 2008 |
11,375 | |||
March 12, 2008 |
2,437.50 | |||
April 14, 2008 |
143,272.50 | |||
July 4, 2008 |
4,375 | |||
2008 TOTAL: |
161,460 | |||
Item 16. Exhibits, page II-4
| 111. | Please final, executed and complete agreements as exhibits. We note, for example, that: |
| • | Exhibit 3.3 omits Exhibit A and Schedule I and is unsigned; | ||
| • | Exhibit 4.1 omits Schedule I and is unsigned; | ||
| • | Exhibit 10.1 is unsigned and includes none of the exhibits and annexes mentioned in that document; | ||
| • | Exhibits 10.2, 10.4, 10.6, 10.18 and 10.30 are unsigned; | ||
| • | Exhibit 10.3 is unsigned and omits multiple exhibits and schedules; and | ||
| • | Exhibit 10.5 omits multiple exhibits, appendix I and is unsigned. |
| Response: The Company notes the Staff’s comment and has revised and re-filed the exhibits. To the extent a signatory was illegible, the Company noted such in the exhibit. | ||
| With respect to Exhibit 3.3, the Fifth Amended and Restated Limited Liability Company Operating Agreement of MagnaChip LLC, the Company has omitted Exhibit A, which is a list of each record |
April 20,2010
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| unitholder of MagnaChip LLC and the number of common units held by each record unitholder. The Company believes the omitted exhibit is not material to an investor’s understanding of Exhibit 3.3, especially in light of the fact that the beneficial ownership of the Company’s directors, executive officers and principal unitholders is disclosed in the prospectus and Exhibit 3.3 will be terminated prior to the consummation of the offering in connection with the corporate conversion. A copy of omitted Exhibit A to Exhibit 3.3 will be furnished supplementally to the Staff upon request. |
| With respect to Exhibit 4.1, the Company’s Registration Rights Agreement, dated as of November 9, 2009, the Company has omitted Schedule I to Exhibit 4.1 containing a list of the Company’s unitholders (including contact information for each) who are parties to such agreement. As disclosed in the prospectus on page 131 under the heading “Registration Rights Agreement” the Registration Rights Agreement was entered into with each holder of MagnaChip LLC common units issued in the Company’s reorganization proceedings, including Avenue. The Company believes the omitted exhibit is not material to an investor’s understanding of Exhibit 4.1, especially in light of the fact that all unitholders who received common units in the Company’s reorganization proceedings received registration rights, rather than certain affiliates or other select unitholders of the Company. Finally, omitted Exhibit I contains sensitive, confidential contact information of our unitholders, that the Company believes should not be disclosed to the public. A copy of omitted Exhibit I to Exhibit 4.1 will be furnished supplementally to the Staff upon request. | ||
| With respect to Exhibit 10.1, the Company’s Amended and Restated Credit Agreement, dated as of November 6, 2009, the Company has omitted Schedule 3.05(b), which is a disclosure schedule relating to the Company’s real estate holdings (owned or leased) and applicable contract analysis. The information disclosed in the schedule is confidential and proprietary information of the Company that the Company believes should not be disclosed to the public. The Company believes the omitted schedule is not material to an investor’s understanding of Exhibit 10.1, especially in light of the fact that Exhibit 10.1 was terminated in April 2010. A copy of omitted Schedule 3.05(b) to Exhibit 10.1 will be furnished supplementally to the Staff upon request. |
| 112. | We note that you have requested confidential treatment for portions of exhibits to your registration statement. We will review and provide any comments on your request separately. Please resolve all comments regarding your request prior to requesting effectiveness of this registration statement. |
| Response: The Staff’s comment is noted. | ||
| 113. | Please file as exhibits: |
| • | the plan of reorganization pursuant to Chapter 11 mentioned in your document; | ||
| • | the Profit Sharing Plan mentioned on page 102; and | ||
| • | the agreements related to the “rights offering” described on page II-2. |
April 20,2010
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| Response: The Company notes the Staff’s comment and has filed as exhibits the requested documents. With respect to the agreements that relate to the “rights offering,” the Company has filed the form of Accredited Investor Certificate, the form of Subscription Agreement, the form of Subscription Form used in the rights offering, and the Backstop Commitment Agreement, which is annexed as Exhibit A to the plan of reorganization. | ||
| 114. | We note that your chief executive’s employment agreements refers to “that certain Second Amended and Restated Securityholders’ Agreement dated as of October 6, 2004” for the definition of terms. With a view toward disclosure and filing that agreement as an exhibit, please tell us whether that agreement is currently in effect and whether it will remain in effect after this offering. | |
| Response: The Company notes the Staff’s comment and advises the Staff that the Second Amended and Restated Securityholders’ Agreement was terminated on November 9, 2009. The Company has refiled Exhibit 10.7 to include an appendix containing the relevant portions of the Company’s terminated Second Amended and Restated Securityholders’ Agreement referenced in Exhibit 10.7. |
* * * * *
Very truly yours,
| DLA Piper LLP (US) |
|||||
| /s/ Peter Astiz | |||||
| Peter Astiz Partner |
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| cc: | Julie Sherman, SEC Jay Webb, SEC Geoffrey Kruczek, SEC John McFarland, MagnaChip Semiconductor, Ltd. Micheal Reagan, Esq., DLA Piper LLP (US) Khoa D. Do, Esq., DLA Piper LLP (US) Kirk A. Davenport, III, Latham & Watkins LLP Keith Benson, Latham & Watkins LLP |