immediately preceding any solicitation or hire. Subject to certain exceptions outlined in the Business Transfer Agreement, from the closing date until the earlier of (i) three (3) years after MSK ceases to provide certain foundry servicesto the Buyerunder a foundry service agreementto be entered into as of the closing date and (ii) six (6) years after the closing date, LuxCo cannot (and will cause the Company and its direct and indirect subsidiaries not to) operate, own, manage, engage in or acquire any interest in any business that provides certain foundry services (as described in the Business Transfer Agreement).
The consummation of the Transaction is subject to certain conditions to each party’s obligations, including, among other things, (i) completion of required regulatory filings, (ii) no orders issued by a governmental authority that enjoins or otherwise prohibits consummation of the Transaction, (iii) the accuracy of the representations and warranties of the other party (generally subject to a customary material adverse effect standard (as described in the Business Transfer Agreement)) and (iv) material compliance with the covenants and obligations to be performed by the other party. The Buyer has certain additional conditions to its obligations to consummate the Transaction, including, (i) no occurrence of a material adverse effect in relation to the Business, (ii) payment of an M&A bonus to each transferred employee and entry into the labor agreement which is an ancillary document to the collective bargaining agreement between MSK and its labor union, and (iii) the affirmation by an independent, third-party information technology consultant that the separation of certain material information technology assets of the Business is complete (this condition will be deemed satisfied on the six (6)-month anniversary of the signing of the Business Transfer Agreement, regardless of whether such affirmation has actually been delivered or not).
The Business Transfer Agreement also contains certain termination rights, including the right of either party to terminate the Business Transfer Agreement if the consummation of the Transaction has not occurred on or before October 31, 2020 (the “Termination Date”), as well as the right to terminate for certain breaches of the Business Transfer Agreement which result in the failure of certain conditions to be satisfied (subject to certain limits), or if all of the conditions to closing have been satisfied or waived and a party fails to close within 10 business days of being notified. If the Business Transfer Agreement is terminated for (i) a party’s failure to close the Transaction when required to do so or (ii) reaching the Termination Date if the non-breaching party would have been able to terminate because of the breaching party’s failure to close the Transaction when required to do so, but for such earlier termination, the breaching party will be required to pay thenon-breaching party a termination fee of $34,470,000. As security for the Buyer’s obligation to pay its termination fee, it has deposited into escrow an amount equal to such termination fee. As security for LuxCo’s obligation to pay its termination fee, MSK has granted to the Buyer a first priority factory (kun) mortgage (which secures a maximum amount of $34,470,000) on certain real property assets owned by MSK (LuxCo may elect to replace the kun mortgage at any time with a deposit of cash into escrow equal to $34,470,000).
Concurrently with the Business Transfer Agreement, MSK and the Buyer entered into an escrow agreement (with respect to the Buyer’s security deposit for its termination fee) and a factory (kun) mortgage agreement (with respect to LuxCo’s security for its termination fee). The parties have agreed to enter into related agreements ancillary to the Business Transfer Agreement that will become effective upon the consummation of the Transaction, including a patent cross-license agreement, transitional trademark license agreement, transition services agreements, foundry services agreements, lease agreement for the building known as “R Building” and epitaxy wafer service agreement.
The foregoing description of the Business Transfer Agreement is qualified in its entirety by the full text of the Business Transfer Agreement, which is attached hereto as Exhibit 10.1 and is incorporated by reference herein. The Business Transfer Agreement has been included to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, Luxco, MSK, the Buyer, or their respective subsidiaries or affiliates. The representations, warranties, and covenants contained in the Business Transfer Agreement were made only for purposes of the Business Transfer Agreement and as of specific dates, were solely for the benefit of the parties to the Business Transfer Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Business Transfer Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Business Transfer Agreement and should not rely on the representations, warranties, and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Business Transfer Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
| Item 7.01. | Regulation FD Disclosure. |
On March 30, 2020, the Company issued a press release announcing the transactions described above. A copy of this press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.
The information furnished pursuant to this Item 7.01, including the attached press release, shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section, nor shall such information or exhibits be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing by the Company with the SEC.
