[ARTICLE] 5
[MULTIPLIER] 1
CONFIDENTIAL TREATMENT REQUESTED
[*] Denotes information for which confidential
treatment has been requested. Confidential portions
omitted have been filed separately with the Commission.
PARTNERSHIP AGREEMENT of MiCrus dated as of
September 30, 1994, between Cirel Inc., a California
corporation (the "CIRRUS Partner"), and MiCrus
Holdings Inc., a Delaware corporation (the "IBM
Partner").
The CIRRUS Partner and the IBM Partner desire to act as general
partners in a general partnership formed for the purposes specified in
Section 2.05. To that end, the Partners desire to enter into this Agreement to
set forth more fully the rights and obligations of the Partners in the
Partnership.
Accordingly, the CIRRUS Partner and the IBM Partner agree as
follows:
ARTICLE I
Definitions, Rules of Construction and
Documentary Conventions
SECTION 1.01. Certain Definitions. (a) Capitalized terms used but
not defined in this Agreement shall have the respective meanings assigned to
then in Appendix A.
(b) As used herein, the term "Agreement" means this Partnership
Agreement together with any Exhibits, Schedules, Appendices and Attachments
hereto.
SECTION 1.02. Additional Definitions. The following capitalized
terms used generally in this Agreement shall have the respective meanings
assigned in this Agreement:
Term Defined in
"Breaching Partner" Section 11.01
"Capital Account" Section 7.01(a)
"Change of Control Procedure" Section 10.08(a)
"CIRRUS Nominee" Section 5.02(a)(iii)
"Claim" Section 12.04(a)
"Code" Section 6.01(a)
"Deadlock" Section 10.07
"Defaulting Parent" Section 10.10
"Defaulting Partner" Section 10.10
"Defaulting Party" Section 10.10
"Designated Members" Section 5.01(b)
"Governing Board" Section 5.01(a)
"Indemnified Party" Section 12.04(a)
"Indemnifying Party" Section 12.04(a)
"IRS" Section 6.02(e)
"Limiting Agreement Procedure" Section 10.l1
"Losses" Section 12.01(a)
"Nondefaulting Partner" Section 10.10
"Remaining Partner" Section 11.01
"Residual Shortfall" Section 6.01(f)
"704(b) Regulations" Section 7.02(b)(i)
"Standard Commercial Terms and Conditions" Section 3.01
"Tax Matters Partner" Section 8.05(b)
SECTION 1.03. Rules of Construction and Documentary Conventions.
The rules of construction and documentary conventions set forth in Appendix A
hereto shall apply to this Agreement.
ARTICLE II
The Partnership
SECTION 2.01. Formation. MiCrus is formed pursuant to this
Agreement as a New York general partnership. Each of the CIRRUS Partner and
the IBM Partner are admitted as, and shall be, general partners of the
Partnership.
SECTION 2.02. Name; Qualification. (a) The name of the Partnership
is "MiCrus". The Partnership may also do business under other names agreed to
by the Partners.
(b) The Partnership shall, to the extent required by any applicable
Governmental Rule, (i) file partnership certificates assumed name
certificates, fictitious business name certificates or similar certificates
with the appropriate Governmental Authorities and (ii) qualify to do business
in all appropriate jurisdictions, in each case as expeditiously as possible.
(c) Each Partner shall, to the extent required by any applicable
Governmental Rule, (i) qualify to do business and maintain itself in good
standing in each jurisdiction where the Partnership conducts or proposes to
conduct business and (ii) file assumed name certificates, fictitious business
name certificates or similar certificates with the appropriate Governmental
Authorities in all appropriate jurisdictions, in each case as expeditiously as
possible.
SECTION 2.03. Principal Office. The principal office of the
Partnership shall be located at 1580 Route 52, Hopewell Junction, New York
12533, or such other place as may be designated by the Governing Board.
SECTION 2.04. Term; Extension. (a) The term of the Partnership
shall end on December 31, 2002, unless extended by mutual agreement of the
Partners or earlier terminated in accordance with Article XI. Prior to
December 31, 2000, the IBM Partner and the CIRRUS Partner will meet to
initiate discussions regarding a potential extension of the term of the
Partnership beyond December 31, 2002. Any such extension shall be effective
only upon the written agreement of each of the IBM Partner and the CIRRUS
Partner and shall be on such terms and for such period as set forth in such
agreement. Production by the Partnership will cease upon termination of the
Partnership for any reason.
(b) Prior to January 1, 1995, without the consent of each Partner,
the Partnership shall not conduct any activities or enter into any obligations
except as are specifically contemplated by the Operative Documents or as are
incidental to its formation and qualification, unless responsibility for any
monetary obligations arising with respect to the period prior to January 1,
1995, are adequately supported by a Partner or its Affiliates.
SECTION 2.05. Scope of Activity. The scope of activity of the
Partnership shall be to manufacture Semiconductor Wafers for each of the
Parents consistent with the Operative Documents.
SECTION 2.06. Powers. The Partnership shall have all the powers
now or hereafter conferred by applicable law on general partnerships formed
under the laws of the State of New York and may do any and all acts and things
necessary, incidental or convenient to the purpose specified in Section 2.05.
Notwithstanding anything to the contrary contained in this Agreement, the
Partnership shall not take any action whatsoever or incur any liability or
obligation whatsoever prior to the Closing without the express prior written
consent of both of the Partners.
SECTION 2.07. Property Ownership. Except as may otherwise be
provided in this Agreement or in any Operative Document to which the
Partnership is or becomes a party, (a) all assets, property and rights,
whether real, personal or mixed, tangible or intangible, owned, hold or
possessed by the Partnership shall be owned, held or possessed in the name of
the Partnership and not any Partner, (b) all such assets, property and rights
shall be deemed to be owned, held or possessed by the Partnership as an entity
and (c) the Partners individually shall not have any separate ownership in
such assets, property or rights. Each Partner's partnership interest in the
Partnership shall be personal property for all purposes.
SECTION 2.08. Waiver of Rights of Partition and Dissolution. Each
Partner waives all rights it may have at any time to maintain any action for
partition or sale of any Partnership assets as now or hereafter permitted
under applicable law. Each Partner waives its right to seek a court decree of
dissolution (other than a dissolution in accordance with Article XI) or to
seek the appointment of a court receiver for the Partnership as now or
hereafter permitted under applicable law. Each Partner acknowledges and
agrees that Article XI provides the exclusive means for the dissolution and
winding up of the Partnership by the Partners.
ARTICLE III
Business Operations
SECTION 3.01. Business Dealings with the Partnership. The
Partnership may enter into contracts or agreements with, and otherwise enter
into transactions or dealings with, either Parent (or any of its Affiliates),
and derive and retain profits therefrom. The validity of any such contract,
agreement, transaction or dealing or any payment or profit related thereto or
derived therefrom shall not be affected by any relationship between the
Partnership and either Partner or any of their respective Affiliates
(including such Parent's Affiliated Partner). The Partners acknowledge and
agree that IBM will be the supplier of information processing hardware,
software and services to the Partnership under IBM's then standard customer
agreements at those prices and upon those other terms and conditions that IBM
offers to its most favored unaffiliated customers purchasing comparable
quantities, except as may be otherwise provided in the Operative Documents.
The Partnership may, however, contract with third party suppliers if the
Governing Board determines that any products or services are necessary or
appropriate for the business of the Partnership and are not reasonably
available from IBM. Unless otherwise approved by the Partners or otherwise
expressly provided in the Operative Documents, all business dealings of the
Partnership with a Parent and its Subsidiaries shall be on Standard Commercial
Terms and Conditions which shall mean those commercial terms and conditions
that are not more favorable in any material respect to either party to the
commercial transaction to which such terms and conditions apply than would
customarily apply between two unaffiliated parties in a commercial transaction
involving comparable types and quantities of goods or services.
SECTION 3.02. Other Activities. Each Partner (for itself and on
behalf of the Partnership) acknowledges and agrees that:
(a) the other Partner's Parent and any of its Affiliates (other
than the other Partner) may engage in other business ventures and
dealings of every nature, independently or with others, including within
the scope of the activities of the Partnership and whether or not
competitive with the business of the Partnership (or any of its
Affiliates) or of such Partner's Parent (or any of its Affiliates) and
regardless of the effect on the Partnership, and none of the Partnership
(nor any of its Affiliates) nor such Partner's Parent (nor any of its
Affiliates) shall have any rights in such ventures or dealings or to the
income and profits derived therefrom;
(b) the other Partner's Parent and its Affiliates, any of their
respective employees, including any Seconded Employee or Liaison
Representative, and any member of the Governing Board appointed by the
other Partner shall not be obligated to refer to the Partnership any
business opportunity presented to or developed by any of them; and
(c) it will not conduct any business or other activity other than
being a general partner of the Partnership and performing its obligations
under the Operative Documents to which it is or becomes a party.
SECTION 3.03. Waiver of Conflict of Interest, etc. (a) Subject to
the terms of Section 3.03(b), each Partner (for itself and on behalf of the
Partnership) hereby:
(i) waives any claim or cause of action against each of the
other Partner, such other Partner's Affiliates, any member of the
Governing Board appointed by such other Partner and any employee of such
other Partner or any of its Affiliates (including any Seconded Employee
or Liaison Representative) that may from time to time arise in respect of
a breach of any duty to the Partnership or any of its Subsidiaries by any
such Person as a result of a conflict of interest between the Partnership
or any of its Subsidiaries and such other Partner or any of its
Affiliates other than the breach of a duty expressly imposed pursuant to
an Operative Document or other agreement to which the Partnership and the
other Partner's Parent or any of its Affiliates are parties;
(ii) acknowledges and agrees that, except as expressly required
by the Operative Documents, (i) in the event of any conflict of interest
between the Partnership or any of its Subsidiaries and the other Partner
or any of its Affiliates that may from time to time arise, each of such
other Partner, such other Partner's Affiliates, any member of the
Governing Board appointed by such other Partner and any employee of such
other Partner or any of its Affiliates (including any Seconded Employee
or Liaison Representative) may act in the best interests of such other
Partner or any of its Affiliates and (ii) each such Person shall not be
obligated (A) to reveal to the Partnership or any of its Subsidiaries
confidential information belonging to or relating to the business of such
other Partner or any of its Affiliates or (B) to recommend or take any
action in its capacity as such Partner, member of the Governing Board or
employee (including as a Seconded Employee or Liaison Representative), as
the case may be, that prefers the interests of the Partnership or any of
its Subsidiaries over the interests of such other Partner or any of its
Affiliates; provided, however, that all business dealings of the
Partnership with a Parent and its Subsidiaries shall be on Standard
Commercial Terms and Conditions, except as otherwise expressly provided
in an Operative Document; and
(iii) acknowledges and agrees that, to the fullest extent
permitted by applicable law, the other Partner and any member of the
Governing Board appointed by such other Partner and any employee of such
other Partner or employee of any of its Affiliates shall not, now or in
the future, be liable, responsible or accountable in damages or otherwise
to such Partner or the Partnership for any acts reasonably believed by
such other Partner, member of the Governing Board or employee to be
within the scope of the authority conferred on such Person by this
Agreement, or for such Person's failure or refusal to perform any act
except those expressly required by the terms of this Agreement, or for
such Person's performance of, or omission to perform, any acts on advice
of the Accountants or legal counsel for the Partnership, or for such
Person's performance of any acts required by or such Person's omission to
perform any acts prohibited by, any Governmental Rule.
(b) Each Partner agrees that the waivers, acknowledgments and
agreements set forth in Section 3.03(a) shall not apply to (i) any act of
fraud, gross negligence or willful misconduct by any member of the Governing
Board in the performance of his duties as a member of the Governing Board or
(ii) any alleged claim or cause of action against a Partner, any of such
Partner's Affiliates or any of their respective employees based upon the
breach or nonperformance by such Person of an express contractual undertaking
in an Operative Document.
SECTION 3.04. Business Plans and Related Matters. (a) Initial and
Subsequent Business Plans. (i) The Initial Business Plan of the Partnership
for the five year period commencing on January 1, 1995, shall be mutually
agreed upon by the Partners in writing and delivered by them at the Closing.
(ii) The Partners acknowledge that the Initial Business Plan
and each successive updated Business Plan will represent their then
current estimate of the proposed operations of the Partnership, and that
the failure to meet any of the projections, goals or milestones in such
Plan shall not, in and of itself, constitute a default by the Partnership
or either Partner.
(iii) An updated Business Plan covering the immediately
succeeding 12-month period complying with Section 3.04(b) shall be
prepared prior to the commencement of each fiscal quarter of the
Partnership under the direction of the Chief Executive Officer and
submitted to the Governing Board and the Partners for review and approval
not later than [*] prior to the commencement of each fiscal quarter or
[*] before the commencement of each fiscal year.
(iv) When the proposed Business Plan for a 12-month period is
approved by the Governing Board and the Partners, it shall constitute the
Business Plan and the Partnership and its officers and employees shall
implement such Business Plan, which shall be the basis of the
Partnership's operations for such 12-month period, except to the extent
such Business Plan is superseded by a subsequently adopted 12-month
Business Plan.
(v) The Partnership shall not adopt or be governed by any
overall business plan or budget other than a Business Plan approved by
the Governing Board and the Partners and meeting the requirements of
Section 3.04(b).
(b) Form and Scope. Each Business Plan (other than the Initial
Business Plan) shall contain (i) an annual operating budget for the
Partnership for the relevant 12-month period, containing projections of
consolidated income and loss, cash flow and ending balance sheets for such
12-month period, (ii) a business plan (including a narrative description) for
the Partnership relating to the relevant 12-month period setting forth in
reasonable detail the financial plan, executive compensation and benefits, if
any, capital expenditures, expense budgets and manufacturing objectives, and
(iii) projections for the same items described in clauses (i) and (ii) for the
immediately succeeding 12-month period. Each Business Plan also shall contain
a statement of long-range (5-year) strategy and medium-range (2-year) tactics
detailing quantitative and qualitative goals for the Partnership and relating
attainment of those goals to the Partnership's manufacturing objectives. No
Business Plan shall be deemed to be an amendment of this Agreement.
(c) Approval. Each Partner shall and shall request the members of
the Governing Board appointed by it to cooperate in good faith to finalize and
approve any Business Plan proposed pursuant to Section 3.04(a) by the
fifteenth day before the beginning of the 12-month period to which such
proposed Business Plan relates. Pending approval by the Governing Board and
the Partners of any proposed Business Plan, the current Business Plan shall
continue in effect.
SECTION 3.05. Intellectual Property. (a) The Partners shall cause
the Partnership to take all reasonable steps necessary to avoid designing or
developing any item that infringes or otherwise makes unauthorized use of any
of the Intellectual Property rights of any Person (other than the Partnership
and its Subsidiaries).
(b) All Intellectual Property developed by or for the Partnership
shall be the property of IBM, subject to certain ownership and license rights
in favor of CIRRUS set forth in the Confidentiality and Inventions Agreements.
Each Partner shall have the right to secure all statutory protection for such
Intellectual Property (if any), that such Partner shall own in accordance with
the Confidentiality and Inventions Agreements, including appropriate
copyright, patent and trademark registrations.
(c) Except as may be expressly provided in the Operative Documents,
nothing in this Agreement shall be construed as conferring on the Partnership
or either Partner the right to use in advertising, publicity or other
promotional activities any name, trade name, trademark or other designation of
either Parent (or any of such Parent's Affiliates), including any contraction,
abbreviation or simulation of any of the foregoing.
ARTICLE IV
Actions by the Partners
SECTION 4.01. Matters Requiring the Consent of the Partners. (a)
Subject to Section 4.01(d), no action may be taken by or on behalf of the
Partnership in connection with any of the following matters without the prior
written consent of each Partner:
(1) any amendment to or renewal of this Agreement or any
Operative Document between the Partnership and a Parent or other
Affiliate of either Partner;
(2) with respect to the Partnership or any of its
Subsidiaries, (A) the voluntary commencement of any proceeding or the
voluntary filing of any petition seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended, or any other
Federal, state or foreign bankruptcy, insolvency, receivership or similar
law, (B) the consent to the institution of, or causing it to fail to
contest in a timely and appropriate manner, any involuntary proceeding or
any involuntary filing of any petition of the type described in
clause (A) above, (C) the application for or consent to the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar
official for it, or for a substantial part of its property or assets,
(D) the filing of an answer admitting the material allegations of a
petition filed against it in any such proceeding, (E) the consent to any
order for relief issued with respect to any such proceeding, (F) the
making of a general assignment for the benefit of creditors,
(G) admitting in writing its inability or causing it to fail generally to
pay its debts as they become due or (H) taking any action for the purpose
of effecting any of the foregoing;
(3) the merger or consolidation of the Partnership or any of
its Subsidiaries with any Person;
(4) the winding up, dissolution or liquidation of the
Partnership or any of its Subsidiaries (other than the dissolution of the
Partnership pursuant to and as contemplated by Article XI);
(5) the admission of another Partner (except for a transfer of
an interest in the Partnership to a Subsidiary of either Parent);
(6) with respect to the Partnership or any of its
Subsidiaries, (i) the acquisition of or investment in any corporation,
partnership or joint venture with any Person, (ii) the creation of any
direct or indirect Subsidiary of the Partnership or (iii) the acquisition
or sale of assets in any single transaction or in a series of related
transactions (other than as set forth in the Initial Business Plan or a
subsequently approved Business Plan) in an amount in excess of [*].
(7) the approval of any transaction between the Partnership
and either Parent or its Affiliates (other than transactions described in
an Operative Document, the Initial Business Plan or a subsequently
approved Business Plan) if such transaction in either not (i) on Standard
Commercial Terms and Conditions (except as expressly provided in an
Operative Document) or (ii) in the ordinary course of the Partnership's
business and such transaction and all related transactions with such
Parent or its Affiliates have an aggregate value exceeding [*].
(8) the approval of or any amendment to the then current
Business Plan of the Partnership (including any revisions or updates
thereto pursuant to Section 3.04); and
(9) any reduction in force of the employees of the Partnership
by [*] or more in a single lay-off or employee termination or a series of
related lay-offs or employee terminations; provided, however, the
Governing Board may take any such action without the consent of each
Partner when such action is necessitated by the financial condition of
the Partnership.
(b) Each Partner shall designate one individual who shall be
authorized to act on behalf of such Partner in connection with consents or
approvals necessary or appropriate under Section 4.01(a), provided that all
such acts on behalf of a Partner shall be in writing. Initially such
designated individuals shall be the persons designated to receive notices for
each Partner pursuant to Section 2.14 of Appendix A, and any such person may
be replaced by the designating Partner on notice to the other Partner in
accordance with said Section 2.14. Each Partner agrees to give any consent or
approval required under this Section 4.01, or to indicate that such consent or
approval will not be given, within [*] days of written request by the other
Partner or the Partnership.
(c) Notwithstanding the requirements of Section 4.01(a) relating to
agreements between the Partnership and either Parent or its Affiliates, any
question regarding a material default or alleged material default (including
any question regarding a breach of representation or alleged breach of
representation) under any Operative Document or other agreement between the
Partnership and either Partner or its Affiliates shall be subject to the
dispute resolution process in Section 2.15 of Appendix A. If such question is
not thereby resolved and the material default or alleged material default (or
misrepresentation or alleged misrepresentation) remains uncured, the other
Partner shall have the right to enforce the subject agreement or breach of
representation for the benefit of the Partnership.
(d) If there has occurred and is continuing an Event of Default
with respect to a Partner or its Parent, any action specified in
Section 4.01(a), other than an amendment to this Agreement or any other
Operative Document to which the Defaulting Partner or Parent may be a party
(not including the Initial Business Plan or any subsequent Business Plan or
any schedules or exhibits to any of the Operative Documents (other than any
such exhibit that may require the agreement of such Defaulting Partner or
Parent by its terms)), may be taken by or on behalf of the Partnership by the
Nondefaulting Partner without the consent of the Defaulting Partner if the
Nondefaulting Partner has exercised its right to reduce the number of members
of the Governing Board appointed by the Defaulting Partner pursuant to
Section 5.01(b)(xii).
SECTION 4.02. Matters Requiring the Consent of a Partner. (a) No
action may be taken by or on behalf of the Partnership in connection with the
following matters without the prior written consent of the relevant Partner:
(1) the issuance of any public release, announcement or
document by the Partnership or any of its Subsidiaries that refers to
CIRRUS or IBM or any of their respective Subsidiaries (other than a
general reference to CIRRUS's or IBM's affiliation with the Partnership),
except as may be required by any Governmental Rule, in which case the
Partnership shall allow such Partner reasonable time to comment on such
release, announcement or document in advance of such issuance, and shall
use reasonable efforts in good faith to accept the reasonable and good
faith comments of such Partner; and
(2) the incurrence of Indebtedness by the Partnership or any
of its Subsidiaries which in not expressly without recourse to the
Partners, whether by law or contract (unless such Indebtedness is
recourse only to the Partner that has consented in writing to the
incurrence of such Indebtedness).
(b) Each Partner shall designate one individual who shall be
authorized to approve the issuance of any public release, announcement or
document referred to in Section 4.02(a)(1). Initially such designated
individuals shall be the persons designated to receive notices for each
Partner pursuant to Section 2.14 of Appendix A, and any such person may be
replaced by the designating Partner on notice to the other Partner in
accordance with said Section 2.14. Each Partner agrees to give any approval
required under this Section 4.02, or to indicate that such approval will not
be given, within 30 days of written request by the other Partner or the
Partnership.
SECTION 4.03. Restrictions on Partners. Neither Partner may,
without the prior written consent of the other Partner:
(a) confess a Judgment against the Partnership;
(b) except as contemplated by Section 8.05(b) or (c), make any
agreement on behalf of or otherwise purport to bind the other Partner or
the Partnership;
(c) do any act in contravention of this Agreement;
(d) except as contemplated by Article XI, dispose of the good will
or the business of the Partnership;
(e) assign the property of the Partnership in trust for creditors
or on the assignee's promise to pay any Indebtedness of the Partnership;
(f) submit a Partnership claim or liability to arbitration or
reference; or
(g) release the other Partner from its obligations under this
Agreement.
ARTICLE V
Management and Operations of Partnership
SECTION 5.01. The Governing Board. (a) General. (i) Except as
otherwise provided herein, complete and exclusive power to direct and control
the Partnership is delegated to a governing committee of six individuals
appointed an provided in this Article V (the "Governing Board"). The
Partnership shall be operated on a day-to-day basis by its officers and
employees, governed by the Governing Board.
(ii) Subject to Article IV, the Governing Board is authorized
and directed, as soon as practicable, to delegate to the Chief Executive
Officer responsibility for the day-to-day operation of the Partnership's
business. Schedule 5.01 sets forth those responsibilities that shall
initially be delegated to the Chief Executive Officer (subject to
revision from time to time by the Governing Board in response to the
Partnership's operating requirements). Any power not delegated pursuant
to a policy of delegation adopted by the Governing Board shall remain
with the Governing Board. Approval by or action taken by the Governing
Board in accordance with this Agreement shall constitute approval or
action by the Partnership.
(b) Members of the Governing Board; Voting; etc. (i) Subject
to Section 5.01(b)(xii) and Section 10.11(d), the IBM Partner shall
appoint three members, and the CIRRUS Partner shall appoint two members,
of the Governing Board. All such members appointed by either Partner are
referred to herein an the "Designated Members".
(ii) Each Partner shall be entitled to name an alternate member
(who shall be reasonably satisfactory to the other Partner) to serve in
the place of any Designated Member appointed by such Partner should any
such Designated Member not be able to attend a meeting or meetings.
(iii) Each Designated Member or alternate member shall
serve at the pleasure of the designating Partner and may be removed as
such, with or without cause, and his successor designated, by the
designating Partner.
(iv) Each Partner shall bear any cost incurred by any
Designated Member designated by it to serve on the Governing Board, and
no member of the Governing Board shall be entitled to compensation from
the Partnership for serving in such capacity.
(v) Each Partner shall notify the other Partner and the
Partnership of the name, business address and business telephone and
facsimile numbers of each Designated Member and each alternate member
that such Partner has appointed to the Governing Board. Each Partner
shall promptly notify the other Partner and the Partnership of any
change-in such Partner's appointments or of any change in any such
address or number.
(vi) The sixth member of the Governing Board will be, ex
officio, the Chief Executive Officer of the Partnership from time to
time, who will not be entitled to vote at meetings of the Governing
Board. Upon ceasing to be Chief Executive Officer for any reason, such
person shall automatically cease to be a member of the Governing Board.
The Partnership shall bear any cost incurred by the Chief Executive
Officer to serve on the Governing Board. The Chief Executive Officer
shall not be entitled to any additional compensation from the Partnership
for serving as a member of the Governing Board.
(vii) For purposes of any approval or action taken by the
Governing Board, each member of the Governing Board (with the exception
of the Chief Executive Officer) shall have one vote. Subject to
Section 5.01(c)(v), a majority of the votes eligible to be cast at any
meeting shall be required for purposes of approving any action to be
taken by the Governing Board at such meeting.
(viii) At any meeting of the Governing Board, a Designated
Member, in the absence of another Designated Member appointed by the same
Partner or an alternate member, may cast the vote such absent Designated
Member would otherwise be entitled to cast.
(ix) The quorum necessary for any meeting of the Governing
Board shall be those members entitled to cast a majority of the votes
hold by the members of the Governing Board. A quorum shall be deemed not
to be present at any meeting for which notice was not properly given
under Section 5.01(c), unless the member or members as to whom such
notice was not properly given attend such meeting without protesting the
lack of notice or duly execute and deliver a written waiver of notice or
a written consent to the holding of such meeting.
(x) Any action taken by a Designated Member of the Governing
Board in such Designated Member's capacity as such shall, so far as the
Partners are concerned, be deemed to have been duly authorized by the
Partner that appointed such Designated Member; provided, however, that
any such action shall not be deemed to be an approval, consent or
agreement of such Partner for any purposes of this Agreement (including
under Section 4.01), which approval, consent or agreement must be
separately obtained in writing.
(xi) Each appointment by a Partner to the Governing Board shall
remain in effect until the Partner making such appointment notifies the
other Partner of a change in such appointment. The resignation or
removal of a member of the Governing Board shall not invalidate any act
of such member taken before the giving of such written notice of the
removal or resignation of such member.
(xii) If there has occurred and is continuing an Event of
Default with respect to a Partner or its Parent, the number of members to
be appointed to the Governing Board by such Partner (and the aggregate
number of votes they are entitled to cast) may be reduced at the election
of the Nondefaulting Partner by two if such Partner is the IBM Partner
and by one if such Partner is the CIRRUS Partner, and the total number of
members of the Governing Board will be correspondingly reduced so long as
such Event of Default is continuing. Such Partner shall immediately
designate which of its appointees shall be removed, failing which the
other Partner may make such designation.
(c) Meetings, Notice, etc. (i) Meetings of the Governing
Board shall be held at the principal offices of the Partnership or at
such other place as may be determined by the Governing Board.
(ii) Regular meetings of the Governing Board shall be held at
least quarterly on such dates and at such times as shall be determined by
the Governing Board.
(iii) Notice of any regular meeting or special meeting
pursuant to Section 5.01(c)(iv) shall be given to each member and
alternate member of the Governing Board by the Partnership or any Partner
at least ten Business Days prior to such meeting in the case of a meeting
in person or at least five days prior to such meeting in the case of a
meeting by conference telephone or similar communications equipment
pursuant to Section 5.01(c)(vi).
(iv) Special meetings of the Governing Board may be called by
any Designated Member by notice given in accordance with the notice
requirements set forth in Section 5.01(c)(iii), which notice shall state
the purpose or purposes for which such meeting is being called. No
action may be taken and no business may be transacted at such special
meeting which is not identified in such notice unless (a) such action or
business is incidental to the action or business for which the special
meeting is called or (b) such action or business does not materially
adversely affect either Partner or the Partnership.
(v) The actions taken by the Governing Board at any meeting,
however called and noticed, shall be as valid as though taken at a
meeting duly held after regular call and notice if (but not until),
either before, at or after the meeting, any member as to whom it was
improperly hold duly executes and delivers a written waiver of notice or
a written consent to the holding of such meeting; provided, however, any
member that is present at a meeting shall be deemed to have received
adequate notice thereof. A vote of the Governing Board may be taken
either in a meeting of the members thereof or by written consent of the
Designated Members eligible to cast a majority of the votes on the
Governing Board without a meeting, which majority for a written consent
shall be required to include, at a minimum, one member of the Governing
Board appointed by each Partner.
(vi) A meeting of the Governing Board may be held by conference
telephone or similar communications equipment by means of which all
members participating in the meeting can be heard by all other
participants. Any member of the Governing Board may elect to participate
in a meeting by conference telephone or similar communications equipment
upon sufficient advance notice to permit arrangements therefor to be
made.
(vii) The Governing Board shall, from time to time, elect
one of its members to preside at its meetings. The Governing Board may
establish reasonable rules and regulations to (A) require officers to
call meetings and perform other administrative duties, (B) limit the
number and participation of observers, if any, and require them to
observe confidentiality obligations and (C) otherwise provide for the
keeping and distribution of minutes and other internal Governing Board
governance matters not inconsistent with the terms of this Agreement.
(d) Partners May Act. Nothing in this Section 5.01 shall derogate
from the power of the Partners, which is absolute, to agree in writing to
cause the Partnership to act or refrain from acting as to any specific item or
matter.
SECTION 5.02. Officers; Employees. (a) General. (i) The
officers of the Partnership shall be the Chief Executive Officer and such
other officers as may be determined by the Governing Board from time to
time to be necessary or advisable in the conduct of the business and
affairs of the Partnership. The Partnership shall at all times have a
Technical Coordinator to be selected in accordance with Section 5.02(b).
Any individual may hold more than one office. The initial officers of
the Partnership are listed in Schedule 5.02.
(ii) The Chief Executive Officer shall be appointed and shall
be subject to removal with or without cause by the Governing Board and
shall be reasonably acceptable to the IBM Partner and the CIRRUS Partner.
The Chief Executive Officer will also be subject to removal as provided
in Section 5.02(c).
(iii) The CIRRUS Partner shall have the right to nominate
for appointment by the Governing Board one of the senior members of the
staff reporting to the Chief Executive Officer (the "CIRRUS Nominee"),
which person shall be reasonably acceptable to the IBM Partner. The
CIRRUS Partner shall have the right to appoint the CIRRUS Nominee to the
position of chief technical officer or chief operating officer, as
determined by the CIRRUS Partner upon the nomination of the initial
Cirrus Nominee, and if such CIRRUS Nominee resigns or is removed from
office, the CIRRUS Partner shall have the right to nominate a replacement
CIRRUS Nominee to the same position, it being understood that, at all
times, the CIRRUS Partner shall be entitled to have one CIRRUS Nominee
serving on the senior staff reporting to the Chief Executive Officer but
shall not have the right to have more than one CIRRUS Nominee serving on
such senior staff without the agreement of the IBM Partner. Annually, if
such senior member of the staff nominated by the CIRRUS Partner is no
longer acceptable to the CIRRUS Partner, the CIRRUS Partner shall have
the right to nominate a replacement, who shall also be reasonably
acceptable to the IBM Partner.
(iv) Partnership officers and employees will be solely employed
by the Partnership. An officer or an employee of the Partnership or any
of its Subsidiaries may not serve as an officer, employee or agent of, or
be on the payroll of, or receive any other compensation from, a Partner,
Parent or any of its Subsidiaries other than previously granted
compensation which may vest with the passage of time or otherwise.
(v) Employees of the Parents (or any of their Subsidiaries)
may provide services to the Partnership as Seconded Employees. Any such
Seconded Employees will be solely employed by the relevant Parent (or
Subsidiary), which will retain all liabilities relating to such Seconded
Employees. Any Seconded Employee shall be subject to removal from all
activities related to the Partnership with or without cause by the
Partner that employs or whose Subsidiaries employ such Seconded Employee.
(vi) All officers of the Partnership shall (A) report to the
Chief Executive Officer or other officer designated by the Chief
Executive Officer (except that the Chief Executive Officer shall report
to the Governing Board), (B) have the powers, duties and responsibilities
set forth in this Section 5.02 or as otherwise prescribed by the
Governing Board, (C) serve for the term designated by the Governing
Board, subject to removal with or without cause by the Governing Board
and as provided in Section 5.02(a)(v) and Section 5.02(c), and (D) attend
meetings of the Governing Board as requested.
(vii) The Partnership will have agreements and policies
with each of its officers, employees and consultants with respect to
(A) protection of confidential information, (B) patent and copyright
assignment and (C) invention disclosure.
(b) Chief Executive Officer. The Chief Executive Officer shall
(i) be the chief executive officer of the Partnership who shall have the usual
powers, duties and responsibilities incident thereto, subject to additions,
modifications and deletions thereof from time to time by the Governing Board
and those powers, duties and responsibilities specifically reserved hereunder
to the Partners and the Governing Board, (ii) subject to Section 5.02(a)(iii),
be responsible for the hiring and firing of all other officers of the
Partnership or any of its Subsidiaries, (iii) oversee the conduct of the
business and affairs of the Partnership and manage the day-to-day operations
of the Partnership, subject to the control of the Partners and the Governing
Board, and (iv) see that all orders and resolutions of the Partners and the
Governing Board are carried into effect.
(c) Performance Goals. The Chief Executive Officer will be subject
to a performance plan tied to attaining the production cost set forth in the
Partnership's then current Business Plan. [*]
SECTION 5.03. Insurance. The Partnership shall maintain insurance
against such liabilities and other risks associated with the conduct by the
Partnership of its business and in such amounts and against such risks as
agreed by the Partners, and in any event as is generally maintained by
companies engaged in a business similar to that of the Partnership.
ARTICLE VI
Capital Contributions and Distributions
SECTION 6.01. Capital Contributions. (a) Pursuant to the
Participation Agreement, on the Initial Funding Date, each Partner shall cause
the Assets (including cash) to be transferred by it to the Partnership on the
Initial Funding Date so to be transferred, and each Partner shall be assigned
its Percentage interest in the Partnership. The Partners agree that the
aggregate fair market value of the Assets, at the time of their contribution
to the Partnership (net of all liabilities secured by such Assets that the
Partnership is considered to assume or take subject to under Section 752 of
the Internal Revenue Code of 1986, as amended (including the regulations
promulgated thereunder, the "Code")), is and will be $21,424,000 (after giving
effect to any distribution to be made pursuant to Section 6.02(b)) in the case
of the IBM Partner (or 52% of total capitalization) and $19,776,000 in the
case of the CIRRUS Partner (or 48% of total capitalization).
(b) The Partners shall each make equal additional capital
contributions in cash in respect of estimated requirements of the Partnership
following the Initial Funding Date as set forth in the Initial Business Plan.
Such additional contributions shall be made on the dates and in the respective
amounts reflected an Schedule 6.01(b).
(c) Upon receipt of at least five Business Days written notice from
the Governing Board, the IBM Partner shall make additional contributions from
time to time during the period ending on December 31, 1995, up to an aggregate
amount equal to the lesser of (i) the excess, if any, of (A) the Partnership's
Cost incurred in connection with the manufacture of Semiconductor Wafers to be
purchased by IBM and by CIRRUS pursuant to the IBM Sales Agreement and the
CIRRUS Sales Agreement during the period ending on December 31, 1995, over
(B) the sum of the amounts payable by CIRRUS pursuant to Section 8.2 of the
CIRRUS Sales Agreement (without any reduction or modification pursuant to
Section 8.9 of the CIRRUS Sales Agreement) and by IBM pursuant to Section 8.2
of the IBM Sales Agreement and (ii) [*].
(d) In the event that, in accordance with Section 8.9 of the CIRRUS
Sales Agreement, CIRRUS becomes entitled to purchase Semiconductor Wafers for
[*] plus amounts payable pursuant to Sections 5.1, 8.4 and l3 of the CIRRUS
Sales Agreement, the IBM Partner, upon receipt of at least five Business Days
written notice from the Governing Board, shall make additional capital
contributions as required in an aggregate amount equal to the difference
between the aggregate amount payable by CIRRUS for such Semiconductor Wafers
purchased pursuant to Section 8.9 of the CIRRUS Sales Agreement and the
aggregate amount that would have been payable by CIRRUS for such Semiconductor
Wafers if said Section 8.9 had not been applicable.
(e) In the event that, in accordance with Section 8.07 of this
Agreement, any costs incurred by the Partnership with respect to Indebtedness
specifically attributable to the IBM Partner's partnership interest (or any
costs incurred or revenues or gains recognized by the Partnership with respect
to assets acquired with such Indebtedness) are treated as attributable solely
to product to be purchased by IBM pursuant to Section 8.3 of the IBM Sales
Agreement, the IBM Partner, upon receipt of at least five Business Days
written notice from the Governing Board, shall make additional capital
contributions as required in an aggregate amount equal to the difference
between the price received by the Partnership for such product under the IBM
Sales Agreement and the total cost of such product, including the total costs
(net of total revenues or gains) allocated under Section 8.07 of this
Agreement to the cost of such product.
(f) Upon receipt of at least 10 Business Days written notice from
the Governing Board given at any time after the Initial Funding Date, each
Partner shall make additional capital contributions in cash from time to time
in an amount equal to 50 percent of the Residual Shortfall of the Partnership;
provided, however, in the event that the Cirrus Sales Agreement has been
terminated for any of the reasons specified in Section 12 thereof arising from
a default or breach by CIRRUS or the CIRRUS Partner and the Partnership has
not been dissolved, the CIRRUS Partner shall be responsible for that portion
of the Residual Shortfall equal to the sum of (i) the amount CIRRUS would have
been required to pay pursuant to Section 7.14 of the CIRRUS Sales Agreement
and (ii) 50 percent of any remaining Residual Shortfall; and provided,
further, however, in the event that the IBM Sales Agreement has been
terminated for any of the reasons specified in Section 12 thereof arising from
a default or breach by IBM or the IBM Partner and the Partnership has not been
dissolved, the IBM Partner shall be responsible for that portion of the
Residual Shortfall equal to the sum of (i) the amount IBM would have been
required to pay pursuant to Section 7.5 of the IBM Sales Agreement and
(ii) 50% of any remaining Residual Shortfall. As used herein, the term
"Residual Shortfall" means the excess, if any, of (i) the total expenses of
the Partnership incurred in connection with its operations as contemplated by
the Operative Documents including the Initial Business Plan and subsequent
Business Plans over (ii) the sum of (A) the amounts payable therefor by CIRRUS
and IBM pursuant to the CIRRUS Sales Agreement and the IBM Sales Agreement
(after taking into account all adjustments and credits to payments provided
for in the CIRRUS Sales Agreement and the IBM Sales Agreement) plus
(B) amounts required to be contributed by the Partners pursuant to
Sections 6.01(c), (d) and (e); provided, however, "Residual Shortfall" shall
exclude obligations for extraordinary third-party liabilities arising from
matters such an torts or environmental claims in an amount per occurrence in
excess of [*] and provided, further, however, that the foregoing exclusion
from "Residual Shortfall" shall not apply to claims against the Partnership by
IBM for indemnification pursuant to Section 30 of the IBM Real Estate Lease.
Residual Shortfall shall include the amount (if any) by which the balance
referred to in Section 6.01(c)(i) exceeds [*].
(g) No further capital contributions shall be required, unless
otherwise agreed upon by the Partners in writing, in which case such
additional contributions shall be made in equal amounts.
SECTION 6.02. Distributions. (a) General. Subject to
Sections 6.02(b), 6.02(c), 6.02(d), 6.02(e) and 11.04, all distributions of
Partnership cash or other property to the Partners shall be made at the times
and in the amounts determined by the Governing Board. Except as provided in
this Section 6.02 and Section 11.04, each distribution to the Partners shall
be made pro rata in accordance with their respective Percentages.
(b) Special Distribution on Initial Funding Date. On the Initial
Funding Date, the Partnership shall make a distribution in cash to the IBM
Partner in an amount equal to the excess, if any, of the aggregate fair market
value of the Assets to be contributed by the IBM Partner over [*]. The
Partnership shall comply with Treasury Regulation Sections 1.707-3
through 1.707-8 with respect to such compensatory distribution.
(c) Special Distributions to Adjust Certain Post-Closing Capital
Contributions. In the event that either Partner makes any capital
contribution in an amount set forth in a written notice issued by the
Governing Board pursuant to Section 6.01(c), (d), (e) or (f) and the amount
set forth in such written notice is subsequently determined to have been
greater than the amount required as correctly calculated under
Section 6.01(c), (d), (e) or (f), a distribution shall be made to such Partner
in the amount of such excess capital contribution.
(d) Mandatory Distributions for Taxes. To the extent of available
cash and cash equivalents, the Partnership shall make distributions in respect
of each Fiscal Year to the Partners pro rata in accordance with the allocation
of Net Profits and Net Losses as set out in Section 7.02(a) to the extent
necessary to most the Partners' aggregate Federal, state and local income tax
liabilities with respect to such Fiscal Year (including estimated payments),
calculated as if the highest marginal statutory Federal and New York State and
local corporate rates were applicable to each Partner for all periods, in
respect of Net Profits for such Fiscal Year. Any distributions required
pursuant to this Section 6.02(d) shall be made within a reasonable time prior
to the due date of any such tax payment.
(e) Reallocation of Gross Income. To the extent of a reallocation
of gross income from a Partner (or an Affiliate of a Partner) to the
Partnership which is specially allocated under Section 7.02(c) of this
Agreement, the Partnership shall seek approval from the Internal Revenue
Service ("IRS") to establish an appropriate account receivable from the
Partner (or an Affiliate of the Partner) under the principles of Rev.
Proc. 65-17. Furthermore, any payment of an account receivable established
under the principles of Rev. Proc. 65-17 shall, when received by the
Partnership, be distributed to the Partner to which the income was specially
allocated under Section 7.02(c) of this Agreement. In the event that no such
account receivable is established, the Partnership shall be deemed to have
distributed an amount to such Partner equal to the income which was specially
allocated to that Partner under Section 7.02(c) of this Agreement.
SECTION 6.03. No Interest. No interest shall be payable to the
Partners on their capital contributions or otherwise in respect of the capital
of the Partnership.
SECTION 6.04. Withdrawal of Capital. No Partner shall be entitled
to withdraw capital or receive distributions except as specifically provided
herein.
ARTICLE VII
Capital Accounts and Allocations of
Profit and Loss
SECTION 7.01. Capital Accounts. (a) The Partnership shall
establish and maintain for each Partner on the books of the Partnership a
capital account ("Capital Account") in accordance with Treasury Regulation
Section 1.704-1(b)(2)(iv)(b). A Partner's initial Capital Account shall be
increased (without duplication) by (i) the amount of any cash contributions
made by or on behalf of such Partner to the Partnership, (ii) the fair market
value of any property contributed by or on behalf of such Partner to the
Partnership (net of any liabilities secured by such property that the
Partnership in considered to assume or take subject to under Code
Section 752), and (iii) the amount of all Net Profits (or items thereof)
allocated to such Partner pursuant to Sections 7.02 and 7.04; and a Partner's
Capital Account shall be decreased by (x) the amount of any Net Losses (or
items thereof) allocated to such Partner pursuant to Section 7.02 and (y) all
amounts distributed by the Partnership to such Partner (including the fair
market value of any property distributed in kind, net of all liabilities
secured by such property that such Partner is considered to assume or take
subject to under Code Section 752). Immediately following the Initial Funding
Date and after giving effect to the special distribution to the IBM Partner
pursuant to Section 6.02(b), the Capital Account of the IBM Partner shall have
a credit balance of [*], or 52% of the total capitalization of the
Partnership, and the Capital Account of the CIRRUS Partner shall have a credit
balance of [*], or 48% of the total capitalization of the Partnership.
(b) Upon the occurrence of any event specified in Treasury
Regulation Section 1.704-1(b)(2)(iv)(f), the Capital Accounts of the Partners
may (subject to both Partners' consent, which consent shall not be
unreasonably delayed or withheld) be adjusted to reflect the fair market value
of the Partnership's property at such time and in such manner as provided in
such Regulation.
(c) In the event that any interest in the Partnership in accordance
with the provisions hereof is transferred, the transferee of such interest
shall succeed to the portion of the transferor's Capital Account attributable
to such interest.
SECTION 7.02. Allocation of Net Profits and Net Losses. (a)
General. Subject to Sections 7.02(b) and 7.02(c), the Net Profits and Net
Losses of the Partnership for each Fiscal Year shall be allocated to the
Partners pro rata in accordance with their respective Percentages.
(b) Special Allocations. Special allocations of specific items of
income, gain, loss or deduction may be required for any Fiscal Year as
follows:
(i) items of income and gain shall be allocated between the
Partners at such time and in such amounts as necessary to satisfy the
"minimum gain chargeback" requirements of the Treasury Regulations
promulgated under Code Section 704(b) (the "704(b) Regulations");
(ii) nonrecourse deductions attributable to a "partner
nonrecourse liability" of the Partnership (as defined in the 704(b)
Regulations) shall be allocated among the Partners that bear the economic
risk of loss for such partner nonrecourse liability in accordance with
the ratios in which such Partners share such economic risk of loss and in
a manner consistent with the requirements of the 704(b) Regulations;
(iii) items of income, gain, loss and deduction shall be
allocated to the extent required to satisfy the "qualified income offset"
provisions of the 704(b) Regulations;
(iv) in the event that the IBM Partner is required to make
capital contributions to the Partnership pursuant to Section 6.01(c), (d)
or (e), an aggregate amount of losses equal to the aggregate amount of
said contributions shall be allocated solely to the IBM Partner;
(v) in the event that the Partners are required to make
capital contributions to the Partnership in respect of Residual
Shortfalls pursuant to Section 6.01(f), an aggregate amount of losses
equal to the aggregate amount of said contributions shall be allocated in
the same proportion to the IBM Partner and the Cirrus Partner; and
(vi) in the event that the Partnership is required to make
distributions to either Partner pursuant to Section 6.02(c), an aggregate
amount of income equal to the aggregate amount of said distributions
shall be allocated solely to such Partner.
(c) Reallocations Between the Partnership and a Partner. Any
redistribution reapportionment or reallocation of gross income, deductions,
credits or allowances between the Partnership and a Partner (or Affiliate of
such Partner) effected pursuant to Code Section 482 (along with any penalties,
charges, interest or additions relating thereto) with respect to any
transaction between the Partnership and such Partner (or Affiliate of such
Partner) shall be allocated in full to such Partner. The Partner to which
reallocations under this Section 7.02(c) are made (as well as such Partner's
Parent and Affiliates) shall indemnify and hold harmless the other Partner (as
well as such Partner's Parent and Affiliates) and the Partnership for the
effects of such reallocations (including any taxes, interest, penalties,
charges or other additions), as well as any effects (including any taxes,
interest, penalties, charges or other additions) arising from any adjustments,
cancellations or revocations by the IRS of reallocations made under this
Section 7.02(c). If, as a result of any indemnification made pursuant to this
Section 7.02(c) (including the indemnification described in this sentence),
the capital accounts of the Partners no longer reflect the Percentages of the
Partners (i) such capital accounts will be adjusted to reflect such respective
Percentages, (ii) any such capital account adjustment shall be treated as a
guaranteed payment under Code Section 707(c) and the item of expense arising
from such guaranteed payment shall be the means by which the capital account
of the Partner with the disproportionately large capital account is reduced
and (iii) the Partner to which reallocations under this Section 7.02(c) are
made (as well as such Partner's Parent and Affiliates) shall indemnify and
hold harmless the other Partner (as well as such Partner's Parent and
Affiliates) and the Partnership for the effects of such capital account
adjustments (including any taxes, interest, penalties, charges or other
additions) arising from any adjustments, cancellations or revocations by the
IRS of capital account adjustments made under this Section 702(c).
(d) Authority to Modify Allocations. In the event that the Tax
Matters Partner determines that the allocations otherwise required pursuant to
this Section 7.02 do not properly reflect the economic arrangement of the
Partners or do not comply with the requirements of Code Section 704(b), the
Tax Matters Partner shall be authorized to modify such allocations as
appropriate to more properly reflect the economic arrangement of the Partners
or to comply with Code Section 704(b).
SECTION 7.03. Distribution in Kind. If any asset of the
Partnership is to be distributed in kind, including pursuant to
Section 11.04(a), such asset shall be valued to determine the amount of Net
Profits or Net Losses that would result if such asset were to be sold at its
fair market value, and such Net Profits or Net Losses shall be allocated to
the Capital Accounts of the Partners in accordance with Section 7.02.
SECTION 7.04. Depreciation Recapture. Any Net Profits arising from
a Capital Transaction that is characterized as ordinary income pursuant to
Code Section 1245 or 1250 or any other applicable Code provision shall, to the
extent possible, be allocated to the Partner who was allocated the
depreciation deductions giving rise to such ordinary income; provided,
however, that if the ordinary income that would otherwise be allocated to a
Partner pursuant to this sentence would exceed the Net Profits otherwise
allocable to such Partner pursuant to Section 7.02, such excess shall instead
be allocated to the other Partner.
SECTION 7.05. Allocation Between Assignor and Assignee Partners.
If any interest in the Partnership is assigned or transferred during any
Fiscal Year, then the assignor and assignee shall each be entitled to receive
distributions pursuant to Article VI and allocations of Net Profit and Net
Loss pursuant to this Article VII, as follows:
(a) unless the assignor or assignee shall agree otherwise and so
provide in the instruments of assignment, distributions shall be made to
the Person owning such interest on the date of the distribution; and
(b) subject to applicable Treasury Regulations, Net Profit and Net
Loss shall be allocated based upon the number of days each Person holds
such interest during such Fiscal Year.
SECTION 7.06. Federal Income Tax Allocations. Sections 7.02
through 7.05 provide for the allocation of items of income, gain, losses and
deductions for Capital Account maintenance purposes. The Partnership's
ordinary income and losses and capital gains and losses as determined for
Federal income tax purposes (and each item of income, gain, loss or deduction
entering into the computation thereof) shall be allocated to the Partners in
the same proportions as the corresponding "capital account" items are
allocated pursuant to this Article VII. Notwithstanding the foregoing
sentence, Federal income tax items relating to Section 704(c) Property shall
be allocated to the Partners in accordance with Code Section 704(c) to take
into account the difference between the fair market value and the tax basis of
such Section 704(c) Property as of the date of its contribution to the
Partnership or revaluation pursuant to Section 7.01(b).
SECTION 7.07. Fiscal Year. Unless the Governing Board otherwise
determines or unless otherwise required by the Code or applicable Treasury
Regulations, the Fiscal Year of the Partnership shall end on the last day of
December of each year.
SECTION 7.08. Elections. In the event of a transfer of all or part
of a Partner's interest in the Partnership, the Tax Matters Partner shall at
the request of the transferee cause the Partnership to elect (if such election
is not already in effect) pursuant to Code Section 754 to adjust the basis of
the Partnership's property in the manner provided in Code Section 743,
provided that any such basis adjustment shall be allocated solely to such
transferee.
ARTICLE VIII
Accounting and Taxation
SECTION 8.01. Accrual Basis; Financial Accounting Conventions. (a)
The books and records of the Partnership shall be kept on an accrual basis.
(b) For financial accounting purposes, income and loss of the
Partnership calculated in accordance with GAAP shall be allocated to the
Partners in accordance with Section 7.02.
SECTION 8.02. Maintenance of Books of Account. (a) General. The
Partnership shall keep or cause to be kept at its principal office or where
the Governing Board shall designate full and complete books of account. The
books of account shall be maintained in a manner that provides sufficient
assurance that transactions of the Partnership are recorded so as to comply
with all applicable laws and to permit (a) the preparation of the
Partnership's consolidated financial statements in accordance with GAAP
consistently applied and (b) the Partners to account for their interest in the
Partnership in accordance with GAAP.
(b) Certain Pricing Documentation. In the case of any transaction
between the Partnership and a non-U.S. Affiliate of a Partner, the Partner of
such Affiliate shall, in accordance with Code Sections 482 and 6662 and the
Treasury regulations thereunder, (i) determine the appropriate pricing method
for such transfer and (ii) create and maintain for the Partnership any
contemporaneous documentation required to support such pricing method;
provided, however, that the Partner making such determination shall have no
obligation to reveal to the Partnership or the other Partner any data or other
information used in supporting such method which it regards as confidential.
If the Partnership or either Partner is compelled by the IRS or other
Governmental Authority to provide such data or other information, the Partner
in possession of such data or information shall provide it to the IRS or such
other Governmental Authority.
SECTION 8.03. Financial Statements. (a) Annual Statements. As
soon as practicable following the end of each Fiscal Year (and in any event
not later than 60 days after the end of such Fiscal Year), the Partnership
shall prepare and deliver to each Partner and the Governing Board consolidated
and consolidating balance sheets of the Partnership as of the end of such
Fiscal Year and the related consolidated and consolidating statements of
operations, Partners' capital accounts and cash flows of the Partnership for
such Fiscal Year (or similar statements if such statements change as the
result of changes in GAAP), together with appropriate notes to such
consolidated financial statements, and in each case setting forth in
comparative form the corresponding figures for the preceding Fiscal Year and
for the budget for the Fiscal Year just completed. Such consolidated
financial statements shall be accompanied by the report of the Accountants to
the effect that such consolidated financial statements (except for the
comparison to the budget) have been prepared in conformity with GAAP applied
on a basis consistent with prior years (except as otherwise specified in such
report) and that the audit of such consolidated financial statements has been
performed in accordance with GAAS. The Partnership shall conduct its business
so that such report of the Accountants shall not contain any qualifications as
to the scope of the audit or with respect to the Partnership's compliance with
GAAP consistently applied, except for changes in methods of accounting in
which such Accountants concur and except that the foregoing shall not be
deemed to obligate either Partner to contribute any capital to the Partnership
other than as provided in Section 6.01. At the same time, the Partnership
shall deliver at the Partnership's sole expense to each Partner a report
indicating such Partner's share of all items of income, gain, loss, deduction
and credit of the Partnership for such Fiscal Year on a GAAP basis for
financial reporting purposes and for Federal income tax purposes and any other
financial information related to the Partnership which is reasonably requested
by a Partner for Federal, state, local or foreign income or franchise or other
tax purposes.
(b) Quarterly Statements. As soon as practicable following the end
of each Fiscal Quarter (and in any event not later than 30 days after the end
of such Fiscal Quarter), the Partnership shall prepare and deliver to each
Partner and the Governing Board consolidated and consolidating balance sheets
of the Partnership as of the end of such Fiscal Quarter and the related
consolidated and consolidating statements of operations, Partner's capital
accounts and cash flows of the Partnership for such Fiscal Quarter and for the
Fiscal Year to date (or similar statements if such statements change as the
result of changes in GAAP), in each case setting forth in comparative form the
corresponding figures for the preceding Fiscal Quarter, for the Fiscal Quarter
of the prior Fiscal Year corresponding to the Fiscal Quarter just completed
and for the budget for such Fiscal Quarter and for the Fiscal Year to date.
At such time, the Partnership shall deliver at the Partnership's sole expense
to each Partner an estimate of such Partner's share of all items of income,
gain, loss, deduction and credit of the Partnership for such Fiscal Quarter
and for the Fiscal Year to date for Federal income tax purposes. Such
consolidated financial statements shall be accompanied by a certificate of the
principal accounting or financial officer of the Partnership to the effect
that such consolidated financial statements have been prepared under such
officer's supervision and that, although such financial statements do not
contain the footnotes and other disclosures required to be presented in
interim financial statements by GAAP, such financial statements, in such
officer's judgment, fairly present the financial condition and results of
operations of the Partnership as of the date and for the periods indicated,
subject to normal recurring year-end audit adjustments.
SECTION 8.04. Other Reports and Inspection. The Partnership shall
furnish promptly to the Liaison Representative of each Partner such other
documents, reports, financial data and information relating to the Partnership
as such Partner may reasonably request. The Partnership shall, upon
reasonable prior notice and during normal business hours, make available to
the Liaison Representative of each Partner all properties, assets, books of
account, corporate records and contracts of the Partnership, and any other
material requested by such Partner, for inspection and, in the case of books
of account, corporate records and contracts, copying, and shall use reasonable
efforts to make available to the Liaison Representative of such Partner the
Accountants, the Chief Executive Officer and the key employees of the
Partnership for interviews to verify any information furnished or to enable
such Partner otherwise to review the Partnership and its operations. The
Partnership may condition such availability upon the entry into reasonable and
appropriate confidentiality agreements. Each Partner, at its own expense,
shall also be entitled to audit the Partnership's books and records on an
annual basis during normal working hours. The Liaison Representatives may
make recommendations in written form to the Chief Executive Officer and the
Partners concerning the operation of the Partnership, including with respect
to the proposed annual Business Plan.
SECTION 8.05. Taxation. (a) Characterization. The Partners intend
that the Partnership shall be treated as a partnership for Federal, state,
local and foreign income and franchise tax purposes and shall take all
reasonable action, including the amendment of this Agreement and the execution
of other documents, as may be reasonably required to qualify for and receive
treatment as a partnership for Federal income tax purposes.
(b) Tax Matters Partner. The IBM Partner shall be the Tax Matters
Partner of the Partnership within the meaning of Code Section 6231(a)(7) and
shall act in any similar capacity under applicable state, local or foreign law
(in such capacity, the "Tax Matters Partner"). All reasonable expenses
incurred by the IBM Partner while acting in such capacity shall be paid or
reimbursed by the Partnership upon approval of the chief financial officer of
the Partnership; provided, however, that with respect to any matter described
in Section 7.02(c), the Partner to which is reallocated any item described in
Section 7.02(c) (whether or not such reallocation is adjusted, cancelled or
revoked by the IRS) shall (i) pay or reimburse all expenses incurred by the
IBM Partner while acting in its capacity as the Tax Matters Partner in
connection with such matter and (ii) pay or reimburse all out of pocket costs
incurred by the Partnership in connection with such matter.
(c) Tax Returns.
(1) The Tax Matters Partner shall prepare or cause the
Accountants to prepare and file on a timely basis the Federal tax returns of
the Partnership. The Tax Matters Partner shall cause state, local and any
other tax returns required to be filed by the Partnership to be prepared and
filed on a timely basis. The Tax Matters Partner shall consult with the
CIRRUS Partner regarding all nonministerial decisions described below in
Section 8.05(c)(2)(iii). Any disagreement with respect to such consultation
will be resolved in the manner described in Section 8.05(c)(3). No Partner
shall file any tax return that is inconsistent with the tax returns filed by
the Partnership except an provided in Section 8.05(c)(3).
(2) The Tax Matters Partner shall take such action as may be
reasonably necessary to constitute the CIRRUS Partner as a "notice partner"
within the meaning of Code Section 6231(a)(8). The Tax Matters Partner shall
furnish to each Partner within five days (or within such shorter period as may
be required by the appropriate statutory or regulatory provisions) (i) copies
of all notices or other written communications received by the Tax Matters
Partner from the IRS, (ii) written notice of all material communications the
IRS has had with the Tax Matters Partner and (iii) written notice of all non-
ministerial decisions to be made regarding tax elections, tax returns, tax
audits, tax litigation, tax settlements and other tax matters that may come to
the attention of the Tax Matters Partner in its capacity as Tax Matters
Partner.
(3) The Tax Matters Partner shall deliver to each other
Partner a copy of all written materials (including tax returns) proposed to be
filed with or submitted to the IRS or any other taxing authority at least
30 days prior to the date such filing or submission is required to be made.
If the CIRRUS Partner does not notify the Tax Matters Partner of its objection
to such filing or submission in writing before the fifteenth day before the
date for such filing or submission, the CIRRUS Partner will be considered to
have approved such filing or submission. If the CIRRUS Partner provides such
timely notice of objection, the CIRRUS Partner and the Tax Matters Partner
will negotiate in good faith to reach agreement with respect to such filing or
submission. If the CIRRUS Partner and the Tax Matters Partner are unable to
reach such an agreement within 30 days, the CIRRUS Partner and the Tax Matters
Partner shall appoint a "Big Six" accounting firm (except any "Big Six"
accounting firm that is one of the Accountants) to determine the position that
should be taken by the Partnership. Each Partner shall retain the right to
take a position inconsistent with such determination to the extent allowed
under Section 6222 of the Code or comparable provisions of state or local law.
SECTION 8.06. Deposit Of Funds. All funds of the Partnership and
its Subsidiaries not otherwise employed shall be deposited from time to time
to its credit in such banks or trust companies or other depositories or
invested in such other short-term investments held as cash equivalents as the
Governing Board shall authorize. The funds of the Partnership and its
Subsidiaries shall not be commingled with the funds of either Partner or any
Affiliate of either Partner.
SECTION 8.07. Partnership Borrowings. The incurrence by the
Partnership or any of its Subsidiaries of any Indebtedness for money borrowed
in a transaction approved by a majority of the members of the Governing Board
appointed by the IBM Partner but not approved by any member of the Governing
Board appointed by the CIRRUS Partner (other than an set forth in the Initial
Business Plan or a subsequently approved Business Plan) will be treated as
indebtedness specifically attributable to the IBM Partner's partnership
interest. Unless such Indebtedness has been approved by both Partners,
(i) any costs (including interest and repayment of principal) incurred by the
Partnership with respect to such Indebtedness will be treated as a cost
attributable solely to product to be purchased by IBM pursuant to Sections 8.3
and 8.5 of the IBM Sales Agreement, (ii) any costs (including depreciation)
incurred by the Partnership with respect to assets purchased with such
Indebtedness will be treated as a cost attributable solely to product to be
purchased by IBM pursuant to Sections 8.3 and 8.5 of the IBM Sales Agreement
and (iii) any revenues or gains recognized by the Partnership with respect to
assets purchased with such Indebtedness will be treated as a reduction in cost
attributable solely to product to be purchased by IBM pursuant to Sections 8.3
and 8.5 of the IBM Sales Agreement.
ARTICLE IX
Initial Actions
SECTION 9.01. Partnership Actions. The Partners hereby authorize
the Partnership to, and ratify (including for purposes of Section 4.01) all
action having been taken to, execute and deliver the Operative Documents to
which it is or is specified to be a party, including all certificates,
agreements and other documents required in connection therewith on the Closing
Date.
SECTION 9.02. Initial Members of the Governing Board. (a) The
initial representatives of the IBM Partner on the Governing Board shall be
those individuals specified by the IBM Partner in writing at the Closing.
(b) The initial representatives of the CIRRUS Partner on the
Governing Board shall be those individuals specified by the CIRRUS Partner in
writing at the Closing.
ARTICLE X
Certain Agreements of the Partners
SECTION 10.01. Transfer of or Liens on Partners' Interests. Each
Partner agrees that it shall not Transfer, or grant or permit to exist any
Lien (except Permitted Liens) on, all or any part of its right, title or
interest in, to or under the Partnership or this Agreement without the prior
written consent of the other Partner (which may be withheld in its sole
discretion), and any such purported Transfer or Lien made without such consent
shall be void; provided, however, that a Partner may assign any part or all of
its interest in the Partnership to a United States Subsidiary of such
Partner's Parent if (i) the assignee agrees in writing to become a party
hereto and assumes all the obligations of the assigning Partner hereunder and
under each other Operative Document to which the assigning Partner is a party
and (ii) immediately after giving effect to such assignment, an Event of
Default or an event or condition that with the giving of notice or lapse of
time or both would constitute an Event of Default shall not exist. Following
the effectiveness of any such assignment, the assigning Partner shall no
longer have the assigned right, title or interest in the Partnership or under
this Agreement and the assignee shall be substituted as a Partner for all
purposes of this Agreement to the extent of the assigned interest. The
assigning Partner shall not, however, be released or discharged from any
existing liability or obligation to any Person. Except as provided above in
this Section 10.01 or as otherwise agreed by the Partners, no Person shall be
admitted as an additional or substituted general partner of the Partnership.
Except to the extent required by law, the Partnership shall have no obligation
to recognize or to furnish information or make distributions to any assignee
of a Partner who does not become a substituted Partner in accordance with this
Section 10.01. This Section 10.01 shall not apply to any assignment or
transfer pursuant to Section 10.08, Section 10.10 or Section 10.11.
SECTION 10.02. Code Section 708 Limitation. Notwithstanding any
provision of this Agreement to the contrary, no Partner may Transfer all or
any part of its interest in the Partnership, other than pursuant to
Section 10.08, Section 10.10, Section 10.11 or Article XI, without the prior
written consent of the other Partner (which consent may be withheld in its
sole discretion), if such Transfer would cause a termination of the
Partnership within the meaning of Code Section 708(b)(1)(B).
SECTION 10.03. Special Purpose Covenant. Neither Partner shall
(a) conduct any business other than being a general partner of the Partnership
and performing its obligations under the Operative Documents to which it is or
becomes a party, (b) issue or become liable in respect of any Indebtedness or
other obligations or become a party to or bound by any contract or other
document other than (i) any necessary or appropriate incidents of corporate
existence and qualification, (ii) pursuant to the Operative Documents to which
it is or becomes a party or other documents delivered at the Closing, (iii) as
a result of its status as a general partner of the Partnership or (iv) as a
result of its status as a consolidated subsidiary of its Parent for income tax
purposes, (c) offer, sell or issue any of its securities, except to its Parent
or any of such Parent's Subsidiaries, or (d) own or hold any assets other than
(x) $10,000 or less in capital and surplus, (y) its right, title and interest
in and to the Partnership and under this Agreement and (z) distributions
received from the Partnership, which, when received, immediately shall be
(1) distributed or dividended to the owners of its equity securities,
(2) applied to reduce or discharge an obligation or liability, (3) contributed
to the Partnership or (4) otherwise disposed of so that such Partner will then
be in compliance with this Section 10.03(d).
SECTION 10.04. Maintenance of Existence; Consolidation, Merger or
Sale. Each Partner shall maintain its existence and shall not dissolve or
merge with or into or consolidate with any Person.
SECTION 10.05. Taxes and Charges; Governmental Rules. Each Partner
shall (a) promptly pay all applicable Taxes and other governmental charges
except to the extent any such Taxes or other charges are being contested in
good faith by appropriate proceedings and (b) comply with all applicable
Governmental Rules, except to the extent that such noncompliance will not have
a material adverse effect on the Partnership.
SECTION 10.06. Further Assurances. Following the Closing, each
Partner shall, at its own cost, do, execute and perform all such other acts,
deeds and documents as the other Partner or the Partnership may from time to
time reasonably require in order to carry out fully the intents and purposes
of this Agreement or to comply with any applicable Governmental Rule, provided
that no Burdensome Condition shall exist with respect to such Partner or any
of its Affiliates in connection therewith.
SECTION 10.07. Escalation; Deadlock. If the Partners are unable to
agree on any matter requiring the approval of the Partners pursuant to
Section 4.01 or Section 4.02, then either Partner may, by written notice to
the other Partner, elect to invoke the escalation procedure set out in
Section 2.15(b) of Appendix A. The Partners shall attempt to resolve the
issue or proposed action in question, to the extent practicable, in a manner
that is consistent with the Partnership's then effective Business Plan. If
within 30 days after the initiation of such escalation procedure (or such
longer period as may be agreed in writing by the Senior Executives), the
Partners do not agree with respect to the subject matter of such disagreement,
then within 10 Business Days thereafter either Partner may elect by written
notice to the other Partner to declare a deadlock ("Deadlock"). So long as a
Deadlock continues to exist with regard to any action proposed to be taken by
the Partnership, the Partnership shall not undertake such action; provided,
however, in the event of a Deadlock subsequent to December 31, 1999, involving
an action described in Section 4.01(a)(6), but with a threshold amount
exceeding [*] in case of Section 4.01(a)(6)(iii), either Partner may elect by
written notice to the other Partner given within 30 days following the
declaration of the Deadlock to cause the dissolution of the Partnership
pursuant to Article XI.
SECTION 10.08. Change of Control of CIRRUS. Upon the notification
to the IBM Partner by the CIRRUS Partner of a Change of Control or a
proposed Change of Control pursuant to Section 10.08(d), subject to the
consummation of such Change of Control (or in the absence of such
notification, 30 days following the occurrence of such Change of Control), the
IBM Partner shall have the option to invoke the termination process set forth
in this Section 10.08 (referred to as the "Change of Control Procedure").
(a) If the IBM Partner elects to invoke the Change of Control
Procedure, the IBM Partner (or any of its Affiliates) may, but shall not be
required to, acquire the entire interest of the CIRRUS Partner in the
Partnership subject to the following:
(i) the CIRRUS Partner shall be paid cash in an amount equal
to the balance in its Capital Account; and
(ii) CIRRUS and IBM shall enter into an indemnity and release
agreement in a form reasonably satisfactory to each party indemnifying
CIRRUS and holding CIRRUS harmless for liabilities under the Joint and
Several Lease Guarantees for lease payment obligations arising for
periods after the date the CIRRUS Partner's interest is so acquired.
Following the purchase of the CIRRUS Partner's interest in the Partnership,
the CIRRUS Equipment Lease with respect to equipment then installed and leased
by the Partnership from CIRRUS shall continue in accordance with the terms
then in effect. During the 24-month period following the purchase of the
CIRRUS Partner's interest in the Partnership, the CIRRUS License Agreements
with the Partnership shall continue in accordance with their terms and then
terminate upon expiration of said 24-month period. In the event that the IBM
Partner (or any of its Affiliates) purchases the CIRRUS Partner's interest in
the Partnership pursuant to this Section 10.08, CIRRUS shall be entitled to
Proration of Payments and CIRRUS shall thereafter purchase the Semiconductor
Wafers from the Partnership (or its successor) during the 24-month wind-down
period at Partnership Cost as estimated in the then-current approved Business
Plan plus the per wafer payment specified in Sections 8.4.1 through 8.4.3 of
the CIRRUS Sales Agreement.
(b) If the IBM Partner elects to invoke the Change of Control
Procedure but does not elect to acquire the CIRRUS Partner's interest in the
Partnership pursuant to Section 10.08(a), then the CIRRUS Partner (or any of
its Affiliates) may, but shall not be required to, acquire the entire interest
of the IBM Partner in the Partnership subject to the following:
(i) the IBM Partner shall be paid cash in an amount equal to
the balance in its Capital Account; and
(ii) CIRRUS and IBM shall enter into an indemnity and release
agreement in a form reasonably satisfactory to each party indemnifying
IBM and holding IBM harmless for liabilities under the Joint and Several
Lease Guarantees for lease payment obligations arising for periods after
the date the IBM Partner's interest is so acquired.
Following the purchase of the IBM Partner's interest in the Partnership, the
IBM Real Estate Lease, the IBM Site Services Agreement and the IBM Equipment
Leases with respect to equipment then installed and leased by the Partnership
from IBM shall continue in accordance with the terms then in effect. During
the 24-month period following the purchase of the IBM Partner's interest in
the Partnership, the per-wafer payments payable to IBM pursuant to
Section 4.1.2 of the IBM Patent License shall be reduced to [*] per wafer
(which change shall apply only to those wafers not produced for IBM) and the
IBM Patent License and the IBM Know-How License shall continue for such
24-month period on the same terms, conditions and limitations that were in
effect immediately prior to the Change of Control of CIRRUS but only with
respect to Intellectual Property owned by IBM. The parties acknowledge and
agree that, subsequent to the purchase of the IBM Partner's interest, the
Partnership will not have the opportunity to qualify an a subsidiary of IBM
within the meaning of various third-party cross-licenses to which IBM is a
party and, accordingly, will not be entitled to patent licenses available
under such cross-licenses to such IBM subsidiaries. In the event that the
CIRRUS Partner (or any of its Affiliates) purchases the IBM Partner's interest
in the Partnership pursuant to this Section 10.08(b), IBM shall be entitled to
Proration of Payments and shall purchase the Semiconductor Wafers from the
Partnership (or its successor) during the 24-month wind-down period at the
Partnership Cost, as estimated in the then current approved Business Plan.
(c) In the event that the IBM Partner invokes the Change of Control
Procedure and neither the IBM Partner nor the CIRRUS Partner (or any of their
respective Affiliates) elects to purchase the Partnership interest of the
unaffiliated Partner pursuant to Section 10.08(a) or 10.08(b), then the
Partnership shall be dissolved in accordance with Section 11.02.
(d) The CIRRUS Partner shall notify the IBM Partner in writing not
later than 30 days following the occurrence of a Change of Control of CIRRUS
and, in such event, the CIRRUS Partner shall cause CIRRUS to provide IBM with
a binding offer of a volume wind-down plan for a 24-month transition period
for purchases of wafers from the Partnership by CIRRUS. Any such notice and
the information contained therein shall be deemed "Confidential Information"
for all purposes of the Confidentiality and Inventions Agreements. Within
60 days of IBM's receipt of such notice and wind-down plan (or within 120 days
following the last date on which such notice was due if not delivered), the
IBM Partner shall notify the CIRRUS Partner in writing as to whether it has
decided to continue the Partnership or invoke the Change of Control Procedure
and, if electing to invoke the Change of Control Procedure, whether or not it
(or any of its Affiliates) elects to acquire the Partnership interest of the
CIRRUS Partner. If the IBM Partner elects to invoke the Change of Control
Procedure but does not wish to acquire the Partnership interest of the CIRRUS
Partner, the IBM Partner shall also include in such written notification to
the CIRRUS Partner IBM's binding offer of a volume wind-down plan, for a
24-month transition period for IBM's purchase of wafers from the Partnership
in the event the CIRRUS Partner (or any of its Affiliates) should elect to
acquire the Partnership interest of the IBM Partner. In the latter case, the
CIRRUS Partner shall have a 60-day period following receipt of IBM's
notification and volume wind-down plan to notify the IBM Partner in writing as
to whether or not it (or any of its Affiliates) is electing to purchase the
Partnership interest of the IBM Partner pursuant to Section 10.08(b).
SECTION 10.09. Additional Arrangements. The CIRRUS Partner
acknowledges and agrees that for so long as IBM directly or indirectly owns
more than 50 percent the Partnership, the Partnership will, for various
purposes, be required to take actions as a Subsidiary of IBM, including
complying with contracts and obligations that apply to IBM Subsidiaries
generally, and that the obligations of the Partnership as a Subsidiary of IBM
may adversely affect its business, operations and affairs. Neither the
Partnership nor the CIRRUS Partner shall have any claim or rights against the
IBM Partner or IBM (or any of its Affiliates) as a result of such requirements
and obligations.
SECTION 10.10. Remedies upon Event of Default; Termination on
Breach. If there has occurred and is continuing an Event of Default with
respect to a Partner or its Parent (upon such occurrence with respect to
either a Partner or its Parent, each is referred to herein as the "Defaulting
Partner" and the "Defaulting Parent," respectively, and collectively as the
"Defaulting Party"), in addition to all other remedies available to the
Partnership or the other Partner (the "Nondefaulting Partner") or its Parent,
whether under any of the Operative Documents or other agreements or by law,
the Nondefaulting Partner (and, in the case of Section 10.10(e) or (f), its
Parent) shall have the option to take one or more of the following actions:
(a) acquire the Defaulting Partner's ownership interest in the
Partnership by payment in cash of an amount equal to 100% of the Defaulting
Partner's Capital Account balance, as adjusted to reflect the actions
specified below, if applicable;
(b) cause the Partnership to immediately cease shipment of
Semiconductor Wafers to the Defaulting Parent;
(c) cause the Partnership to selectively terminate up to half of
all the Partnership's leases (based upon total remaining monetary obligations
assuming that such leases had not been terminated or prepaid) within six
months of the Defaulting Partner's or Parent's agreement (or judicial
determination) that it has failed to timely cure the Event of Default, with
the Partnership and the Nondefaulting Partner and its Parent to be indemnified
by the Defaulting Partner and Parent for all amounts payable upon such
termination (provided that the CIRRUS Partner and CIRRUS, as the Defaulting
Party, will not be liable for the payment of termination fees under the IBM
Real Estate Lease) together with all claims arising from such termination up
to a total dollar amount equal to one-half of the then current total remaining
lease obligations of the Partnership under all such leases (including the
leases to be so terminated and including the IBM Real Estate Lease, all
facilities leases, clean rooms and equipment leases), it being understood
that: (i) the Joint and Several Lease Guarantees shall remain in effect for
the IBM Real Estate Lease and the IBM Equipment Leases (other than the IBM
Supplemental Equipment Lease and other than for payment of the termination fee
referred to above) and the Third Party Lease whether or not terminated and
(ii) the Defaulting Parent shall be entitled to an offset against amounts that
it may otherwise be required to pay as reimbursement under Section 9.02 of the
Participation Agreement equal to 50 percent of the amounts paid by the
Defaulting Partner or Parent in respect of leases of the Partnership
terminated pursuant to this Section 10.10(c);
(d) cause the termination and winding up of the Partnership
pursuant to Section 11.03;
(e) if IBM or the IBM Partner is the Defaulting Party, CIRRUS may
also:
(i) terminate all intellectual property licenses by CIRRUS to
the Partnership;
(ii) invoke Proration of Payments if the CIRRUS Partner
terminates the Partnership; and
(iii) have the right, upon acquiring the IBM Partner's
ownership interest in the Partnership, to continue the IBM License
Agreements for a 24-month period, but only with respect to Intellectual
Property owned by IBM, upon the same terms, conditions and limitations
that were in effect prior to the occurrence of such default except that
the per-wafer payments payable to IBM pursuant to Section 4.l.2 of the
IBM Patent License shall be reduced to [*] per wafer; and
(f) if CIRRUS or the CIRRUS Partner is the Defaulting Party, IBM
may also:
(i) terminate all intellectual property licenses by IBM and
IBM cross licenses from third parties to the Partnership;
(ii) invoke Proration of Payments if the IBM Partner terminates
the Partnership; and
(iii) have the right, upon acquiring the CIRRUS Partner's
ownership interest in the Partnership, to continue the CIRRUS License
Agreements for a 24-month period upon the same terms, conditions and
limitations that were in effect prior to the occurrence of such default.
In the event that the IBM Patent License, the IBM Know-How License
or the IBM Real Estate Lease shall be terminated in accordance with the terms
of such agreement as a result of a default or breach by a party thereto
(whether or not such default or breach constitutes an Event of Default), the
CIRRUS Partner and the IBM Partner agree that the Partnership shall be wound
up and dissolved within six months of the date of such termination.
SECTION 10.11. Limiting Agreements. Under the circumstances
contemplated by Section 5.10(c) or 5.10(d) of the Participation Agreement, the
CIRRUS Partner shall have the option to invoke the process set forth in this
Section 10.11 (the "Limiting Agreement Procedure").
(a) If the CIRRUS Partner elects to invoke the Limiting Agreement
Procedure by reason of Section 5.10(c) of the Participation Agreement, the IBM
Partner (or any of its Affiliates) may, but shall not be required to, acquire
the entire interest of the CIRRUS Partner in the Partnership subject to the
following:
(i) the CIRRUS Partner shall be paid cash in an amount equal
to the balance in its Capital Account; and
(ii) CIRRUS and IBM shall enter into an indemnity and release
agreement in a form reasonably satisfactory to each party indemnifying
CIRRUS and holding CIRRUS harmless for liabilities under the Joint and
Several Lease Guarantees for lease payment obligations arising for
periods after the date the CIRRUS Partner's interest is so acquired.
Following the purchase of the CIRRUS Partner's interest in the Partnership,
the CIRRUS License Agreements with the Partnership and the CIRRUS Equipment
Lease with-respect to equipment then installed and leased by the Partnership
from CIRRUS shall continue in accordance with the terms then in effect. In
the event that the IBM Partner (or any of its Affiliates) purchases the CIRRUS
Partner's interest in the Partnership pursuant to this Section 10.11(a),
CIRRUS shall be entitled to Proration of Payments and shall, subject to the
terms of the Limiting Agreements, purchase the Semiconductor Wafers from the
Partnership (or its successor) during the 24-month wind-down period at the
Partnership Cost (provided that CIRRUS shall not be required to purchase
Semiconductor Wafers that CIRRUS is unable to purchase from the Partnership an
a result of the Limiting Agreements that caused the Limiting Agreement
Procedure to be invoked), as estimated in the then current approved Business
Plan plus the per wafer payment specified in Sections 8.4.1 through 8.4.3 of
the Cirrus Sales Agreement.
(b) If the CIRRUS Partner elects to invoke the Limiting Agreement
Procedure by reason of Section 5.10(c) of the Participation Agreement but the
IBM Partner does not elect to acquire the CIRRUS Partner's interest in the
Partnership pursuant to Section 10.11(a), then the CIRRUS Partner (or any of
its Affiliates) may, but shall not be required to, acquire the entire interest
of the IBM Partner in the Partnership subject to the following:
(i) the IBM Partner shall be paid cash in an amount equal to
the balance in its Capital Account; and
(ii) CIRRUS and IBM shall enter into an indemnity and release
agreement in a form reasonably satisfactory to each party indemnifying
IBM and holding IBM harmless for liabilities under the Joint and Several
Lease Guarantees for lease payment obligations arising for periods after
the date the IBM Partner's interest is so acquired.
Following the purchase of the IBM Partner's interest in the Partnership, the
IBM Real Estate Lease, the IBM Services Agreement and the IBM Equipment Leases
with respect to equipment then installed and leased by the Partnership from
IBM shall continue in accordance with the terms then in effect. The per-wafer
payments payable to IBM pursuant to Section 4.1.2 of the IBM Patent License
shall be reduced to [*] per wafer (which change shall apply only to those
wafers not produced for IBM) and the IBM Patent License and the IBM Know-How
License shall continue for the remainder of the term of the Partnership (i.e.,
December 31, 2002, unless the Partnership is terminated earlier in accordance
with the terms hereof) on the same terms, conditions and limitations that were
in effect immediately prior to the purchase of the IBM Partner's interest in
the Partnership but only with respect to Intellectual Property owned by IBM.
In the event that the CIRRUS Partner (or any of its Affiliates) purchases the
IBM Partner's interest in the Partnership pursuant to this Section 10.11(b),
IBM shall be entitled to Proration of Payments and IBM shall thereafter
purchase the Semiconductor Wafers from the Partnership (or its successor)
during the 24 month wind-down period at Partnership Cost as estimated in the
then-current approved Business Plan. The parties acknowledge and agree that,
subsequent to the purchase of the IBM Partner's interest, the Partnership will
not have the opportunity to qualify an a subsidiary of IBM within the meaning
of various third-party cross-licenses to which IBM is a party and,
accordingly, will not be entitled to patent licenses available under such
cross-licenses to such IBM subsidiaries.
(c) In the event that the CIRRUS Partner invokes the Limiting
Agreement Procedure and neither the IBM Partner nor the CIRRUS Partner (or any
of their respective Affiliates) elects to purchase the Partnership interest of
the unaffiliated Partner pursuant to Section 10.11(a) or 10.11(b), then the
Partnership shall be dissolved in Accordance with Section 11.02.
(d) If the CIRRUS Partner elects to invoke the Limiting Agreement
Procedure by reason of Section 5.10(d) of the Participation Agreement, the
CIRRUS Partner (or any of its Affiliates) shall acquire all or a portion of
the interest of the IBM Partner in the Partnership as specified by the IBM
Partner within 10 Business Days of the receipt of notice from CIRRUS invoking
the Limited Agreement Procedure (but in any event not less than [*] of the
total interests in the Partnership) subject to the following:
(i) the IBM Partner shall be paid cash in an amount equal to
the balance in its Capital Account multiplied by the portion of its
interest transferred, and this Agreement will be amended to adjust
Percentages to reflect the portion sold, to adjust future capital
contributions correspondingly and to make other conforming changes to
reflect the revised ownership structure including the appointment by the
CIRRUS Partner of a majority of the Governing Board; and
(ii) in the event of the sale of the entire interest of the IBM
Partner, CIRRUS and IBM shall enter into an indemnity and release
agreement in a form reasonably satisfactory to each party indemnifying
IBM and holding IBM harmless for liabilities under the Joint and Several
Lease Guarantees for lease payment obligations arising for periods after
the date the IBM Partner's interest is so acquired; and in the event of a
partial sale of the interest of the IBM Partner, Section 5.12 and
Article IX of the Participation Agreement will be appropriately amended
to reflect the revised ownership percentages.
Following the purchase of the IBM Partner's interest in the Partnership, the
IBM Real Estate Lease, the IBM Services Agreement and the IBM Equipment Leases
with respect to equipment then installed and leased by the Partnership from
IBM shall continue in accordance with the terms then in effect. The per-wafer
payments payable to IBM pursuant to Section 4.1.2 of the IBM Patent License
shall be reduced to [*] per wafer (which change shall apply only to those
wafers not produced for IBM) and the IBM Patent License and the IBM Know-How
License shall continue for the remainder of the term of the Partnership (i.e.,
December 31, 2002, unless the Partnership is terminated earlier in accordance
with the terms hereof) on the same terms, conditions and limitations that were
in effect immediately prior to the purchase of the IBM Partner's interest in
the Partnership but only with respect to Intellectual Property owned by IBM.
In the event that the CIRRUS Partner (or any of its Affiliates) purchases all
or a portion of the IBM Partner's interest in the Partnership pursuant to this
Section 10.11(d), IBM shall be entitled to Proration of Payments. In the
event of the sale of the entire interest of the IBM Partner, IBM shall
thereafter purchase the Semiconductor Wafers from the Partnership (or its
successor) during the 24-month wind-down period at Partnership Cost as
estimated in the then-current approved Business Plan. In the event of a
partial sale of the interest of the IBM Partner, the IBM Sales Contract and
the CIRRUS Sales Contract will be amended so as to revise the CIRRUS Capacity
Allocation and the IBM Capacity Allocation to reflect the new ownership
percentages and to make all other changes required to be consistent with the
revised allocations. The parties acknowledge and agree that, subsequent to
the purchase of all or a portion of the IBM Partner's interest, the
Partnership will not have the opportunity to qualify as a subsidiary of IBM
within the meaning of various third-party cross-licenses to which IBM is a
party and, accordingly, will not be entitled to patent licenses available
under such cross-licenses to such IBM subsidiaries.
ARTICLE XI
Dissolution
SECTION 11.01. Dissolution. Unless extended by mutual agreement of
the Partners or earlier dissolved, the term of the Partnership shall end as
provided in Section 2.04, and thereupon the Partnership shall be dissolved and
its affairs wound up. Prior to such dissolution, no Partner shall withdraw
from the Partnership and no Partner shall permit to exist any event of
dissolution under applicable law within its control (other than a technical
dissolution resulting from a permitted transfer of an interest in the
Partnership and the admission of the transferee and a corresponding withdrawal
of the transferor, and in the event of the dissolution of the Partnership
other than a dissolution caused by a permitted transfer or by agreement of the
Partners an provided in Section 11.02 or as a result of an Event of Default an
provided in Section 11.03, the Partners agree to use their good faith efforts
to cause the reformation of the Partnership in the form existing immediately
prior to such event of dissolution forthwith; provided, however, that if the
Partnership is dissolved by operation of applicable law (whether as the result
of a voluntary or involuntary event affecting a Partner or the Partnership
other than a dissolution caused by a permitted transfer or as provided in
Section 11.02 or Section 11.03), and the Partnership cannot be reformed with
the Partners existing prior to such dissolution due to failure or refusal so
to reform the Partnership by a Partner (the "Breaching Partner") within
15 Business Days following written notice from the other Partner (the
"Remaining Partner") (and an additional 30-day period if (i) the Partnership
is capable of being reformed and (ii) the Breaching Partner has been engaging
in good faith efforts to reform the Partnership) then the Remaining Partner
may, after complying with any requirement of law, continue the business of the
Partnership with the property of the Partnership and under the same name and
the Breaching Partner shall be deemed to have withdrawn from the Partnership
effective as of the date of such dissolution of the Partnership; and provided,
further, however, that the Remaining Partner shall pay to the Breaching
Partner an amount equal to the positive value, if any, of the Capital Account
of such Breaching Partner, and such Breaching Partner shall have no further
right, title and interest in, to or under this Agreement or the Partnership.
The Breaching Partner shall not, however, be released or discharged from any
existing liability or obligation to any Person. The Remaining Partner shall
have, in addition, full rights to seek damages from the Breaching Partner for
breach of its obligations hereunder.
SECTION 11.02. Dissolution by Agreement. (a) In the event that
either Partner gives the other Partner notice prior to December 31, 2000, that
it elects to terminate the Partnership for any reason permitting termination
without mutual agreement of the Partners other than an Event of Default, a
24-month transition period shall begin upon the effective date of such notice.
In addition, if the Partners have not agreed by December 31, 2000, to extend
the term of the Partnership beyond December 31, 2002, and unless notice for
termination has already been given, a 24-month transition period shall begin
upon December 31, 2000. During the transition period, the Partners and their
respective Parents may negotiate the terms of a mutually agreeable private
sale among themselves.
(b) At the end of the transition period provided for by
Section 11.02(a), at the expiration of the term of the Partnership under
Section 2.04, if the Partners decide to dissolve and wind up the Partnership
at any earlier time or if the Partnership is to be dissolved and wound up
pursuant to Section 10.07, 10.08 or 10.11 or this Article XI, the Partners
shall proceed as promptly as practicable to (i) terminate the business and
operations of the Partnership and cease all operations as a going concern,
(ii) wind up the affairs of the Partnership in accordance with
Section 11.02(d) and (iii) liquidate the Partnership's tangible personal
property through individual asset sales and not as a going concern. In
connection with any such sale under clause (iii) of the preceding sentence,
either Partner or any Affiliate of either Partner shall have a right of first
offer to acquire the Partnership's tangible personal property in the
liquidation process and may also acquire such property through participation
at auction. Each of the Partners shall be furnished with a statement setting
forth the assets and liabilities of the Partnership as of the date of the
complete liquidation of the Partnership. The Accountants shall review the
final accounting and shall render their opinion with respect thereto.
(c) If agreed by the Partners in writing at the time, upon the
dissolution and winding up of the Partnership, if the assets of the
Partnership are insufficient to pay and discharge all debts, liabilities and
obligations of the Partnership as to which the Partners have joint liability,
the Partners shall pay such liabilities in the proportion of their respective
Percentages. Such payments shall be deemed to be capital contributions to the
Partnership by the payor. A Partner paying more than its proportion shall
have a right of contribution from the other Partner, and payments in respect
of such contribution obligations shall be deemed to be capital contributions
to the Partnership by the payor and distributions by the Partnership to the
payee.
(d) The following principles shall apply to the liquidation and
winding up of the Partnership:
(i) IBM shall be responsible for, and shall indemnify CIRRUS
and its Affiliates against, all claims arising out of the Partnership's
obligations under the IBM Real Estate Lease and the IBM Equipment Losses
other than the IBM Supplemental Equipment Lease;
(ii) CIRRUS shall be responsible for, and shall indemnify IBM
and its Affiliates against, all claims arising out of the Partnership's
obligations under the Third Party Lease;
(iii) each Parent shall be equally responsible for, and
shall reimburse the other Parent and its Affiliates with respect to its
share of, all claims arising out of the Partnership's obligations under
the CIRRUS Equipment Lease and the IBM Supplemental Equipment Lease and
any additional, equally shared capital expenditures;
(iv) IBM shall be responsible for any Indebtedness of the
Partnership to be treated as a liability specifically attributable to the
IBM Partner pursuant to Section 8.07; and
(v) all Intellectual Property licenses to the Partnership
shall terminate.
SECTION 11.03. Dissolution upon Event of Default. During the
occurrence and continuation of an Event of Default with respect to a Partner
or its Parent, the other Partner may elect by written notice to the Defaulting
Partner to dissolve the Partnership, in which event the Partnership shall be
dissolved and the Partners shall forthwith take all actions necessary to wind
up the affairs of the Partnership. This Section 11.03 shall not be construed
to limit the rights of the Nondefaulting Partner under Section 10.10 or to
seek damages from the Defaulting Partner or any other Person for the breach of
its obligations.
SECTION 11.04. Liquidation Proceeds.
(a) In the case of the dissolution and liquidation of the
Partnership, any cash or other property that would otherwise be distributed
pursuant to Section 6.02(a) shall instead be distributed to the Partners pro
rata in accordance with their respective positive Capital Accounts, an
adjusted pursuant to Section 7.01 to reflect all prior Partnership operations
(including any gains or losses arising from the sale of any assets of the
Partnership in connection with such dissolution and liquidation and any
hypothetical gains or losses as provided in Section 7.03 with respect to any
asset distributed in kind). In the event that the value of any cash or other
property to be distributed exceeds the sum of the Partners' aggregate positive
Capital Account balances as so adjusted, such excess shall be distributed to
the Partners pro rata in accordance with their respective allocations of Net
Profits and Net Losses as set out in Section 7.02.
(b) Unless otherwise agreed by the Partners and to the extent
permitted under any agreements with third parties, all assets to be
distributed to the Partners upon the dissolution and liquidation of the
Partnership shall be distributed as follows:
(i) first, cash and cash equivalents shall be distributed to
the Partners separately in the proportions provided pursuant to
Section 11.04(a); and
(ii) second, all remaining assets shall be distributed in kind
to the Partners as they shall agree, provided that absent agreement such
assets shall be distributed in kind to the Partners as provided pursuant
to Section 11.04(a) (with the allocation of specific items being made in
the good faith determination of the Governing Board).
For purposes of this Section 11.04(b), instruments of transfer and other
documents reasonably requested by the distributee shall be executed by the
Partnership or the other Partner, or both.
(c) Any distribution made pursuant to this Section 11.04 shall be
made no later than the later of (i) the end of the calendar year during which
the dissolution occurs and (ii) 90 days after the date of such dissolution.
ARTICLE XII
Indemnification and Insurance
SECTION 12.01. Indemnification. (a) The Partnership (but not any
Partner) shall indemnify each Person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of a Partner or the Partnership), by
reason of the fact that he is or was or has agreed to become a member of the
Governing Board or an officer of or Seconded Employee to the Partnership or is
or was serving or has agreed to serve at the request of the Partnership as a
director, officer, employee or agent of another partnership, corporation,
joint venture, trust or other enterprise, by reason of any action alleged to
have been taken in any such capacity, against any and all losses, damages,
liabilities, costs, charges, expenses (including interest, penalties and
reasonable attorneys' fees and expenses), judgments, fines and amounts paid in
settlement (collectively, "Losses") actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any
appeal therefrom if such Person acted in good faith and in a manner reasonably
believed by such Person to be in or not opposed to the best interests of the
Partnership, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the indemnified
Person did not meet the standard set forth in Section 12.01(a).
(c) The indemnification provided under this Section 12.01 shall
inure to the benefit of the successors, heirs and personal representatives of
any Person entitled to the benefit of such indemnification. Such
indemnification shall be a contract right and shall include the right to be
paid advances of reasonable expenses incurred by any such Person in connection
with such action, suit or proceeding.
SECTION 12.02. Insurance. The Partnership may, to the fullest
extent permitted by law, purchase and maintain insurance against any liability
that may be asserted against any Person entitled to indemnity pursuant to
Section 12.01.
SECTION 12.03. Indemnification by and of the Partners. (a) Each
Partner agrees to, and does hereby, indemnify and hold harmless the
Partnership and the other Partner from and against any and all Losses arising
out of, or based upon, the gross negligence or wilful misconduct of such
Partner or such Partner exceeding its authority under this Agreement.
(b) The Partnership agrees to, and does hereby, indemnify and hold
harmless each Partner, and, to the extent set forth in Section 12.03(c), each
Affiliate of such Partner, from and against any and all Losses (except items
indemnified under Section 7.02(c)) arising out of (i) its status as a general
partner, (ii) acts or omissions or alleged acts or omissions of either Partner
in its capacity as general partner or on behalf of the Partnership or
(iii) any liability or obligation of the Partnership. Without limiting the
generality of the foregoing, any of such Losses shall be deemed to arise out
of a Partnership liability or obligation if it arises out of or is based upon
the conduct of the business of the Partnership (or any of its Subsidiaries) or
the ownership of the property of the Partnership (or any of its Subsidiaries).
(c) The indemnification set forth in Section 12.03(b) shall be
available to any Affiliate of a Partner with respect to any of such Losses
arising out of a Partnership liability or obligation which is paid or incurred
by such Affiliate as a result of such Affiliate directly or indirectly owning
or controlling a Partner or as a result of the fact that an individual
employed or engaged by the Partnership (or any of its Subsidiaries), or a
Seconded Employee or member of the Governing Board, is also a director,
officer or employee of such Affiliate. The indemnification set forth in
Section 12.03(b) shall not inure to the benefit of either Partner (or any of
its Affiliates) in respect of any of such Losses to the extent that such
Losses (x) arise out of or are based upon the gross negligence or wilful
misconduct of such Partner (or an Affiliate of such Partner) or such Partner
exceeding its authority under this Agreement or defaulting in the performance
or observance of any of its covenants or agreements expressly set forth herein
or (y) constitute a tax, levy or similar governmental charge not imposed upon
the Partnership (or any of its Subsidiaries) or on their respective
properties. It in understood and agreed that, for the purposes of the
preceding sentence, Losses shall be deemed not to arise out of or be based
upon the gross negligence or wilful misconduct of a Partner (or any of its
Affiliates) solely because it arises out of or is based upon the gross
negligence or wilful misconduct of a director, officer or employee of such
Partner (or any of its Affiliates) if at the time of such gross negligence or
willful misconduct such director, officer or employee was also a Seconded
Employee or a member of the Governing Board of the Partnership acting in his
capacity an such.
(d) The provisions of this Section 12.03 shall survive each of the
termination of this Agreement, the dissolution of the Partnership and the
withdrawal of either Partner.
SECTION 12.04. Assertion of Claims. (a) In the event that a Person
(the "Indemnified Party") desires to assert its right to indemnification from
a Person (an "Indemnifying Party") required to indemnify such Indemnified
Party under this Article XII, the Indemnified Party will give the Indemnifying
Party prompt notice of the claim giving rise thereto (a "Claim"), and the
Indemnifying Party will undertake the defense thereof (unless the Claim is
asserted against or related to or results from any action or failure to take
action by such Indemnifying Party). The failure to promptly notify the
Indemnifying Party hereunder shall not relieve the Indemnifying Party of its
obligations hereunder, except to the extent that the Indemnifying Party is
actually prejudiced by the failure to so notify promptly.
(b) The Indemnified Party shall not settle or compromise any Claim
without the written consent of the Indemnifying Party unless the Indemnified
Party agrees in writing to forego any and all claims for indemnification from
the Indemnifying Party with respect to such Claim. However, if the
Indemnifying Party, within a reasonable time after notice of any such Claim,
fails to defend such Claim, the Indemnified Party will have the right to
undertake the defense, compromise or settlement of such Claim on behalf of and
for the account and risk of the Indemnifying Party, subject to the right of
the Indemnifying Party to assume the defense of such Claim at any time prior
to settlement, compromise or final determination thereof.
(c) If the Indemnifying Party has undertaken the defense of a
Claim and (i) if there is a reasonable expectation that (x) a Claim may
materially and adversely affect the Indemnified Party other than as a result
of money damages or other money payments or (y) the Indemnified Party or
Parties may have legal defenses available to it or them that are different
from or additional to the defenses available to the Indemnifying Party, or
(ii) if the Indemnifying Party shall not have employed counsel reasonably
satisfactory to the Indemnified Party, the Indemnified Party shall
nevertheless have the right, at the Indemnified Party's cost and expense, to
defend such Claim.
ARTICLE XIII
Withdrawal Prohibited
SECTION 13.01. Withdrawal Prohibited. Except as otherwise
specifically permitted by this Agreement, neither Partner may withdraw from
the Partnership and neither Partner may effect or cause a termination or
dissolution of the Partnership without the prior written consent of the other
Partner (which consent may be withhold in its sole discretion).
ARTICLE XIV
Miscellaneous
SECTION 14.01. Amendments. This Agreement may be amended from time
to time as mutually agreed upon by the Partners. No amendment to this
Agreement shall be effective unless it shall be in writing and signed by each
Partner and state that it constitutes an amendment to the Sections of this
Agreement specified therein.
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by each party as of the date first above written.
CIREL INC.,
By:
Name:
Title:
MICRUS HOLDINGS INC.,
By:
Name:
Title:
PARTNERSHIP AGREEMENT
Dated as of September 30, 1994
between
CIREL INC.
and
MICRUS HOLDINGS INC.
TABLE OF CONTENTS
Page
ARTICLE I
Definitions; Rules of Construction
and Documentary Conventions
SECTION 1.01 Certain Definitions 1
SECTION 1.02 Additional Definitions 1
SECTION 1.03 Rules of Construction and Documentary
Conventions 2
ARTICLE II
The Partnership
SECTION 2.01 Formation 2
SECTION 2.02 Name; Qualification 2
SECTION 2.03 Principal Office 2
SECTION 2.04 Term; Extension 3
SECTION 2.05 Scope of Activity 3
SECTION 2.06 Powers 3
SECTION 2.07 Property Ownership 3
SECTION 2.08 Waiver of Rights of Partition and Dissolution
3
ARTICLE III
Business Operations
SECTION 3.01 Business Dealings with the Partnership 4
SECTION 3.02 Other Activities 4
SECTION 3.03 Waiver of Conflict of Interest, etc. 5
SECTION 3.04 Business Plans and Related Matters 6
SECTION 3.05 Intellectual Property 7
ARTICLE IV
Actions by the Partners
SECTION 4.01 Matters Requiring the Consent of the Partners
7
SECTION 4.02 Matters Requiring the Consent of a Partner 9
SECTION 4.03 Restrictions on Partners 10
ARTICLE V
Management and Operations of Partnership
SECTION 5.01 The Governing Board 10
SECTION 5.02 Officers; Employees 14
SECTION 5.03 Insurance 15
ARTICLE VI
Capital Contributions and Distributions
SECTION 6.01 Capital Contributions 15
SECTION 6.02 Distributions 17
SECTION 6.03 No Interest 18
SECTION 6.04 Withdrawal of Capital 18
ARTICLE VII
Capital Accounts and Allocations of Profit and Loss
SECTION 7.01 Capital Accounts 18
SECTION 7.02 Allocation of Net Profits and Net Losses 19
SECTION 7.03 Distribution in Kind 21
SECTION 7.04 Depreciation Recapture 21
SECTION 7.05 Allocation Between Assignor and Assignee
Partners 21
SECTION 7.06 Federal Income Tax Allocations 21
SECTION 7.07 Fiscal Year 22
SECTION 7.08 Elections 22
ARTICLE VIII
Accounting and Taxation
SECTION 8.01 Accrual Basis; Financial Accounting
Conventions 22
SECTION 8.02 Maintenance of Books of Account 22
SECTION 8.03 Financial Statements 22
SECTION 8.04 Other Reports and Inspection 24
SECTION 8.05 Taxation 24
SECTION 8.06 Deposit of Funds 25
SECTION 8.07 Partnership Borrowings 25
ARTICLE IX
Initial Actions
SECTION 9.01 Partnership Actions 26
SECTION 9.02 Initial Members of the Governing Board 26
ARTICLE X
Certain Agreements of the Partners
SECTION 10.01 Transfer of or Liens on Partners' Interests 26
SECTION 10.02 Code Section 708 Limitation 27
SECTION 10.03 Special Purpose Covenant 27
SECTION 10.04 Maintenance of Existence; Consolidation,
Merger or Sale 27
SECTION 10.05 Taxes and Charges; Governmental Rules 27
SECTION 10.06 Further Assurances 27
SECTION 10.07 Escalation; Deadlock 28
SECTION 10.08 Change of Control of CIRRUS 28
SECTION 10.09 Additional Arrangements 30
SECTION 10.10 Remedies Upon Event of Default;
Termination on Breach 30
SECTION 10.11 Limiting Agreements 32
ARTICLE XI
Dissolution
SECTION 11.01 Dissolution 35
SECTION 11.02 Dissolution by Agreement 35
SECTION 11.03 Dissolution Upon Event of Default 37
SECTION 11.04 Liquidation Proceeds 37
ARTICLE XII
Indemnification and Insurance
SECTION 12.01 Indemnification 38
SECTION 12.02 Insurance 38
SECTION 12.03 Indemnification by and of the Partners 38
SECTION 12.04 Assertion of Claims 39
ARTICLE XIII
Withdrawal Prohibited
SECTION 13.01 Withdrawal Prohibited 40
ARTICLE XIV
Miscellaneous
SECTION 14.01 Amendments 40
APPENDIX
Appendix A Definitions, Rules of Construction and
Documentary Conventions
SCHEDULE
Schedule 5.01 Initial Delegation to Chief Executive
Officer
Schedule 5.02 Initial Officers of the Partnership
Schedule 6.01(b) Additional Capital Contributions