Exhibit 10.31
================================================================================
NEW OPERATING AGREEMENT
Dated as of April 10, 2002
between
TOSHIBA CORPORATION
and
SANDISK CORPORATION
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CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
TABLE OF CONTENTS
Page
ARTICLE I Definitions, Rules of Construction and Documentary Conventions ................ 1
SECTION 1.01 Certain Definitions ................................................... 1
SECTION 1.02 Additional Definitions ................................................ 2
SECTION 1.03 Rules of Construction and Documentary Conventions ..................... 2
ARTICLE II General Provisions ............................................................ 3
SECTION 2.01 Sale of Units; Capital Increase; Distribution of Units ................ 3
SECTION 2.02 Name .................................................................. 4
SECTION 2.03 Principal Office ...................................................... 4
SECTION 2.04 Term; Extension ....................................................... 4
SECTION 2.05 (Intentionally Blank) ................................................. 4
SECTION 2.06 Scope of Activity ..................................................... 4
SECTION 2.07 Powers ................................................................ 4
SECTION 2.08 Articles of Incorporation ............................................. 4
SECTION 2.09 Company Actions ....................................................... 4
ARTICLE III Business Operations ........................................................... 4
SECTION 3.01 Business Dealings with the Company .................................... 4
SECTION 3.02 Other Activities ...................................................... 5
SECTION 3.03 Seconded Employees .................................................... 5
SECTION 3.04 Business Plans and Related Matters .................................... 5
SECTION 3.05 Standard of Care ...................................................... 7
SECTION 3.06 Use of Names .......................................................... 7
ARTICLE IV Actions by the Unitholders .................................................... 7
SECTION 4.01 Matters Requiring the Approval of the Unitholders ..................... 7
SECTION 4.02 General Meetings of Unitholders ....................................... 9
SECTION 4.03 Restrictions on Unitholders ........................................... 10
ARTICLE V Management and Operations of Company .......................................... 10
SECTION 5.01 Meetings of the Board of Directors .................................... 10
SECTION 5.02 Officers; Employees ................................................... 15
SECTION 5.03 Insurance ............................................................. 16
SECTION 5.04 Records ............................................................... 16
ARTICLE VI Capital Contributions; Distributions .......................................... 17
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TABLE OF CONTENTS
(continued)
Page
SECTION 6.01 Capital Contributions .......................................... 17
SECTION 6.02 Distributions .................................................. 17
SECTION 6.03 No Interest .................................................... 18
SECTION 6.04 Return of Capital Contributions ................................ 18
ARTICLE VII (Intentionally Blank) .................................................. 18
ARTICLE VIII Accounting and Taxation ................................................ 18
SECTION 8.01 Financial Accounting Conventions ............................... 18
SECTION 8.02 Maintenance of Books of Account ................................ 18
SECTION 8.03 Financial Statements ........................................... 18
SECTION 8.04 Other Reports and Inspection ................................... 20
SECTION 8.05 Characterization ............................................... 20
SECTION 8.06 Deposit of Funds ............................................... 20
ARTICLE IX Units of Contribution; Disposition of Units ............................ 21
SECTION 9.01 Restrictions on Transfer of Units .............................. 21
SECTION 9.02 Admission of New Unitholders ................................... 22
SECTION 9.03 Withdrawal Prohibited .......................................... 23
SECTION 9.04 Purchase of Additional Interest ................................ 23
ARTICLE X Certain Agreements of the Unitholders .................................. 23
SECTION 10.01 (Intentionally Blank) .......................................... 23
SECTION 10.02 Taxes and Charges; Governmental Rules .......................... 23
SECTION 10.03 Further Assurances ............................................. 23
SECTION 10.04 Dispute Resolution; Deadlock Respecting Business Plan .......... 23
SECTION 10.05 Remedies Upon Event of Default; Termination on Breach .......... 25
SECTION 10.06 (Intentionally Blank) .......................................... 25
SECTION 10.07 Mechanics of Sale .............................................. 25
ARTICLE XI Dissolution ............................................................ 26
SECTION 11.01 Events of Dissolution .......................................... 26
SECTION 11.02 Dissolution by Agreement ....................................... 26
SECTION 11.03 Dissolution Upon Event of Default .............................. 27
SECTION 11.04 Dissolution by Unilateral Option ............................... 27
SECTION 11.05 Dissolution upon Notice ........................................ 27
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TABLE OF CONTENTS
(continued)
Page
SECTION 11.06 Winding Up .................................................. 27
SECTION 11.07 Liquidation Proceeds ........................................ 28
SECTION 11.08 Additional Contribution ..................................... 28
ARTICLE XII Indemnification and Insurance ....................................... 28
SECTION 12.01 Indemnification ............................................. 28
SECTION 12.02 Insurance ................................................... 29
SECTION 12.03 Indemnification by the Unitholders .......................... 30
SECTION 12.04 Assertion of Claims ......................................... 30
ARTICLE XIII Miscellaneous ....................................................... 30
SECTION 13.01 Governing Law ............................................... 30
SECTION 13.02 Effectiveness ............................................... 31
SECTION 13.03 Conflict with Articles ...................................... 31
Exhibit A Articles of Incorporation of the Company
Schedule 6.01 Capital Contributions
Schedule 8.03 Monthly Reports
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NEW OPERATING AGREEMENT of FLASHVISION, LTD., a Japanese limited
liability company (yugenkaisha), dated as of April 10, 2002, between TOSHIBA
CORPORATION, a Japanese corporation ("Toshiba"), and SANDISK CORPORATION, a
Delaware corporation ("SanDisk").
WHEREAS, FLASHVISION, LTD. (the "Company") is a Japanese limited
liability company (yugenkaisha) whose units of contribution (shussi mochibun),
the par value of one unit (Shussi-hitokuchi-no-kingaku) being JPY5,000 (the
"Units"), are wholly owned by Toshiba;
WHEREAS, Toshiba, through its wholly-owned subsidiary, SEMICONDUCTOR
NORTH AMERICA, INC., and SanDisk entered into the Operating Agreement dated May
9, 2000, and pursuant to such Operating Agreement, formed FLASHVISION, L.L.C., a
Virginia limited liability company ("FVC"); and
WHEREAS, SanDisk and Toshiba intend to cause FVC to purchase all the
Units of the Company from Toshiba pursuant to the New Master Agreement, dated as
of the date hereof, by and between SanDisk and Toshiba (the "New Master
Agreement"); and
WHEREAS, SanDisk and Toshiba desire to enter into this New Operating
Agreement in accordance with the Japan Act and the Articles of Incorporation of
the Company (as amended from time to time, the "Articles") in order to provide
for (i) the business of the Company, (ii) the conduct of the Company's affairs
and (iii) the rights, powers, preferences, limitations and responsibilities of
the Company's Unitholders, employees and Directors.
Accordingly, Toshiba and SanDisk agree as follows:
ARTICLE I
Definitions, Rules of Construction
and Documentary Conventions
SECTION 1.01 Certain Definitions.
(a) Capitalized terms used but not defined in this Agreement
shall have the respective meanings assigned to them in the Definitions, Rules of
Construction and Documentary Conventions, attached as Appendix A (the "Rules
Document") to the New Master Agreement. Capitalized terms used but not defined
in this Agreement or the Rules Document shall have the respective meanings
assigned to them in the New Master Agreement.
(b) As used herein, the term "Agreement" means this New
Operating Agreement together with any Exhibits, Schedules, Appendices and
Attachments hereto and the Rules Document.
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SECTION 1.02 Additional Definitions. The following capitalized terms
used in this Agreement shall have the respective meanings assigned in the
sections indicated below:
Term Defined in
---- ----------
"Articles" Recitals
"Bankruptcy Event" Section 11.01(f)
"Claim" Section 12.04(a)
"Company" Recitals
"Deadlock" Section 10.04(c)
"Deadlock Dissolution Notice" Section 10.04(d)
"Defaulting Unitholder" Section 10.05
"Designated Individuals" Section 10.04(b)
"Director(s)" Section 3.05 (a)
"FVC Capital" Section 2.02(b)(i)
"General Meeting of Unitholders" Section 4.01(b)
"Indemnified Party" Section 12.04(a)
"Indemnifying Party" Section 12.04(a)
"Initiating Unitholder" Section 10.04(d)
"Losses" Section 12.01(a)
"New Master Agreement" Recitals
"Nondefaulting Unitholder" Section 10.05
"Notified Party" Section 11.05
"Notifying Party" Section 11.05
"Permissible Assignee" Section 9.01(c)
"Permissible Assignment Agreement" Section 9.01(c)
"Price Per Unit" Section 2.01(b)(i)
"Responding Unitholder" Section 10.04(d)
"Rules Document" Section 1.01(a)
"Termination Date" Section 11.04
"Transition Period" Section 2.01(c)
"Units" Recitals
"Units Distribution" Section 2.01(b)(v)
"Units Sale" Section 2.01(a)
"Unitholder" Section 2.01(c)
SECTION 1.03 Rules of Construction and Documentary Conventions. The
rules of construction and documentary conventions set forth in the Rules
Document shall apply to, and are hereby incorporated in, this Agreement.
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ARTICLE II
General Provisions
SECTION 2.01 Sale of Units; Capital Increase; Distribution of Units.
(a) As soon as practicable following the Closing, Toshiba shall
sell to FVC, and Toshiba and SanDisk shall cause FVC to purchase from Toshiba,
all of the Units for a cash payment, by wire transfer of immediately available
Japanese Yen, in the amount of JPY [***] (the "Units Sale").
(b) Toshiba and SanDisk agree to take the following actions, in
the order listed, as soon as practicable following the Units Sale:
(i) cause the Company to authorize the increase of the
capital in the Company by 1,000 Units, and cause FVC to subscribe to
purchase all of such increase by means of a cash payment, by wire transfer
of immediately available Japanese Yen, in an amount equal to fifty percent
(50%) of the result of (A) the amount of paid in capital of FVC
($300,000,000) minus (B) the amount paid by FVC to Toshiba to acquire all
of the outstanding Units pursuant to Section 2.01(a) above ([***]) (the
amount resulting from subtracting subsection (B) from subsection (A)
hereinafter referred to as the "FVC Capital"); then
(ii) cause FVC to sell to the Company the FVC Owned
Equipment for a cash payment, by wire transfer of immediately available
Japanese Yen, in an amount equal to the [***] thereof as of April 30, 2002;
then
(iii) cause the Company to authorize the increase of the
capital in the Company by 1,000 Units, and cause FVC to subscribe to
purchase all of such increase by means of a cash payment, by wire transfer
of immediately available Japanese Yen, in an amount equal to fifty percent
(50%) of the FVC Capital; then
(iv) cause FVC to be dissolved and liquidated by filing or
causing to be filed, in accordance with the Virginia Act, the Certificate
of Cancellation attached as Exhibit B to the New Master Agreement; then
(v) cause the Units held by FVC to be distributed to the
Toshiba and SanDisk on a pro rata basis based upon the respective
Percentages of the Unitholders as of the date of such distribution (the
"Units Distribution").
(c) The holders of the Units shall be hereinafter called the
"Unitholders." For purposes of this Agreement, during the period beginning upon
consummation of the Units Sale and ending immediately prior to the Units
Distribution (the "Transition Period"), Toshiba and SanDisk, as members of FVC
(which shall hold all of the Units during the Transition Period), shall be
deemed to be the Unitholders (Toshiba being deemed the Unitholder of 50.1% of
the outstanding Units, and SanDisk being deemed the Unitholder of 49.9% of the
outstanding Units).
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[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
(d) The rights and obligations of the Unitholders
shall be as set forth in the Japan Act, except as provided herein.
SECTION 2.02 Name. The name of the Company is "FLASHVISION YUGEN
KAISHA", which translates to "FLASHVISION, LTD." in English, and all Company
business shall be conducted in that name or such other name as the Unitholders
shall mutually agree.
SECTION 2.03 Principal Office. The principal office of the Company
shall be located in Yokkaichi, Mie, or such other place as the Unitholders may
designate by mutual agreement from time to time in accordance with the Articles
and the Japan Act.
SECTION 2.04 Term; Extension. The Company shall be terminated on
December 31, 2016, unless extended by mutual written agreement of all of the
Unitholders or earlier terminated in accordance with Article XI (Dissolution).
Any such extension shall be effective only upon the written agreement of all of
the Unitholders and shall be on such terms and for such period as set forth in
such agreement. The Unitholders agree to meet, no later than December 31, 2015,
to discuss the possible extension of the term of the Company.
SECTION 2.05 (Intentionally Blank)
SECTION 2.06 Scope of Activity. The scope of activity of the Company
shall be to manufacture or to cause to be manufactured Products and the sale of
NAND Flash Memory Products to the Unitholders and their Affiliates, with the
objective of meeting the demand of each Unitholder for NAND Flash Memory
Products.
SECTION 2.07 Powers. The Company shall have all the powers now or
hereafter conferred by applicable law on limited liability companies formed
under the Japan Act and may do any and all acts and things necessary, incidental
or convenient to the purpose specified in Section 2.06 (Scope of Activity).
SECTION 2.08 Articles of Incorporation. The Articles of the Company in
effect as of the date hereof are as attached hereto as Exhibit A. In the event
of any conflict between this Agreement and the Articles, the terms of this
Agreement shall prevail.
SECTION 2.09 Company Actions. The Unitholders hereby authorize the
Company, and ratify (including for purposes of Section 4.01 (Matters Requiring
the Approval of the Unitholders)) all action having been taken by or on behalf
of the Company prior to the date hereof, 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.
ARTICLE III
Business Operations
SECTION 3.01 Business Dealings with the Company. Subject to the
provisions set forth in Sections 4.01(a) (Matters Requiring the Approval of the
Unitholders) and
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5.01(d) (Matters Requiring the Approval of the Board of Directors), the Company
may enter into contracts or agreements, or otherwise enter into transactions or
dealings, with any Unitholder or any of their respective 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 Company and any
Unitholder or any of their respective Affiliates, subject to the Japan Act. The
Unitholders agree that where practicable and contractually allowable (based on
competitive price, availability and other material terms), the Board of
Directors will consider whether to utilize any Unitholder or any of their
respective Affiliates as the preferred providers of products and services that
may be required in the manufacturing operations of the Company, subject to the
ability of such Unitholder or Affiliate to meet the Company's manufacturing
requirements on competitive terms. Unless otherwise approved by the Unitholders
or otherwise expressly provided in the Operative Documents, all business
dealings of the Company with any Unitholder or any of their respective
Affiliates shall be on the most beneficial standard commercial terms and
conditions, including volume, price and credit terms, currently offered or made
available to unaffiliated customers by such Unitholder or Affiliate, as the case
may be, with respect to the products and services to be offered and provided to
the Company.
SECTION 3.02 Other Activities. During the term of this Agreement and
except as set forth in Section 6.03(d) of the New Master Agreement, no
Unitholder nor any of their respective Affiliates shall: (i) fabricate NAND
Flash Memory Integrated Circuits at any location other than the Yokkaichi
Facility or any other fabrication facility agreed upon by the Unitholders; (ii)
have any third party fabricate NAND Flash Memory Integrated Circuits; or (iii)
have any right to fabricate NAND Flash Memory Integrated Circuits beyond the
capacity as limited pursuant to Article VI of the New Master Agreement, as such
capacity limitations may be amended from time to time in accordance with Article
VI of the New Master Agreement. For the avoidance of doubt, nothing contained in
the foregoing shall restrict the Unitholders from engaging in any other
activities, including, without limitation, (i) designing any NAND Flash Memory
Product; (ii) selling any NAND Flash Memory Product to any customer; (iii)
entering into any equipment purchase or material supply agreements; or (iv)
entering into any patent licensing arrangement, and nothing in the foregoing
shall restrict Toshiba from installing any manufacturing line in the Yokkaichi
Facility (subject to the capacity limitations set forth in Article VI of the New
Master Agreement, as such capacity limitations may be amended from time to time
in accordance with Article VI of the New Master Agreement). For purposes of this
Section 3.02, NAND Flash Memory Integrated Circuits shall mean ICs included in
the definition of NAND Flash Memory Products pursuant to Section 2.01 of the New
Master Agreement.
SECTION 3.03 Seconded Employees. The Unitholders agree that all
Seconded Employees, during their period of assignment to the Company, are
expected to devote their best efforts to promote the interests and success of
the Company and to perform their work for the Company in good faith under the
direction of the Company's management. Each Unitholder agrees to encourage
Seconded Employees assigned to the Company by such Unitholder to be dedicated to
the best interests and success of the Company.
SECTION 3.04 Business Plans and Related Matters.
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(a) Initial and Subsequent Business Plans. The Business Plan of
the Company, setting forth the Company's products, pricing, operating budget,
capital expenditures, expense budgets, financing plans and other business
activities of the Company through the [***], will be agreed upon and certified
by the Board of Directors as soon as practicable after the Closing.
(i) The Unitholders acknowledge that the initial Business
Plan and each successive Business Plan will, at the time such Business Plan
is in effect, represent the Company's then-current forecast of the proposed
operations of the Company.
(ii) An updated Business Plan complying with Section
3.04(b) (Form and Scope) in respect of each successive Fiscal Year after
the Fiscal Year ending [***] shall be prepared under the direction of the
Chief Executive Officer of the Company and submitted to the Board of
Directors for review and approval not later than [***] preceding the
commencement of such Fiscal Year.
(iii) When the proposed Business Plan in respect of a Fiscal
Year is approved by the Board of Directors, it shall constitute the
Business Plan of the Company for such Fiscal Year and the Company and its
officers and employees shall implement such Business Plan, which shall be
the basis of the Company's operations for such Fiscal Year. Upon approval,
the approved Business Plan shall constitute the approved operational,
financing and capital expenditure budget. The Board of Directors shall have
the authority pursuant to Section 5.01(d) (Matters Requiring the Approval
of the Board of Directors) to amend the most recently approved Business
Plan, including the operating budget contained therein, and any Unitholder
may request that the Board of Directors review the Company's operating
results and prospects, as well as market conditions, and consider a
proposal for amendment or review of the most recently approved Business
Plan at any regularly scheduled or special meeting of the Board of
Directors and upon such request, the Board of Directors shall in good faith
make such review and/or consider such proposal.
(b) Form and Scope. Each Business Plan shall contain a statement
of long-range strategy and short-range tactics detailing quantitative and
qualitative goals for the Company and relating the attainment of those goals to
the Company's manufacturing objectives, and shall include such items as planned
capital expenditures, planned product development, planned product output and
projected product cost, sales forecasts, total headcount, total spending and
revenue and profit projections, financing plans and tax planning. No Business
Plan shall be deemed to be an amendment of this Agreement.
(c) Approval. Other than the initial Business Plan (which shall
be approved in accordance with Section 3.04(a) above), the Board of Directors
shall vote upon the proposed Business Plan, with such modifications as it may
deem necessary, before February 15 preceding the commencement of each Fiscal
Year. Subject to Sections 10.04(c), (d) and (e) (Dispute Resolution; Deadlock
Respecting Business Plan), pending approval by the Board of Directors of any
proposed Business Plan, the most recently approved Business Plan shall continue
in effect; provided, however, the Board of Directors may, by unanimous vote,
adopt an
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[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
amended interim business plan for the Company's operations until it is able to
reach agreement on the proposed Business Plan for the forthcoming year.
SECTION 3.05 Standard of Care.
(a) Each Unitholder, and each director of the Company, as
defined in the Japan Act (each, a "Director"), shall be entitled to rely (unless
such Person has knowledge or information concerning the matter in question that
makes reliance unwarranted) on information, opinions, reports or statements,
including financial statements and other financial data, if prepared or
presented by:
(i) one or more managers or employees of the Company who
such Unitholder or Director believes in good faith to be reliable and
competent in the matters presented; or
(ii) legal counsel, public accountants or other Persons as
to matters that such Unitholder or Director believes to be within such
Person's professional or expert competence.
(b) Each Unitholder shall also be entitled to rely upon
information, opinions, reports or statements, including financial statements and
other financial data, prepared or presented by the Board of Directors pursuant
to the responsibilities delegated to the Board of Directors pursuant to this
Agreement.
SECTION 3.06 Use of Names. Except as may be expressly provided in the
Operative Documents, nothing in this Agreement shall be construed as conferring
on the Company or any Unitholder the right to use in advertising, publicity or
other promotional activities any name, trade name, trademark or other
designation of any other Unitholder or any of its Affiliates, including any
contraction, abbreviation or simulation of any of the foregoing.
ARTICLE IV
Actions by the Unitholders
SECTION 4.01 Matters Requiring the Approval of the Unitholders.
(a) Notwithstanding any provision of the Articles to the
contrary, no action may be taken by or on behalf of the Company in connection
with any of the following matters without the prior unanimous written approval
of the Unitholders:
(i) any amendment, restatement or revocation of the
Articles;
(ii) any amendment to or renewal of any Operative Document
between the Company and any Unitholder or any of their respective
Affiliates;
(iii) any change in the scope of activity or strategic
direction of the Company's business;
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(iv) any merger, consolidation or other business
combination to which the Company or any of its Subsidiaries is a party, or
any other transaction to which the Company is a party resulting in a Change
of Control of the Company;
(v) any sale, lease, pledge, assignment or other
disposition of assets of the Company in an amount (in terms of
consideration to be received by the Company) in excess of JPY 5,000,000 in
one transaction or a series of related transactions, other than as set
forth in the most recently approved Business Plan;
(vi) the approval of any transaction or agreement between
the Company and any Unitholder or any of their respective Affiliates (other
than transactions or agreements expressly provided for or authorized by an
Operative Document or the most recently approved Business Plan) or any
amendment thereto (including the waiver of any material term thereof),
other than any such transaction, agreement or amendment that contains
generally available, arm's length commercial terms and is in an amount (in
terms of payments to be made or the value of services or products to be
provided or delivered) less than JPY 5,000,000 for any single transaction
or agreement or for substantially identical transactions within a 24 month
period (or a waiver that does not materially adversely affect the rights
and benefits of the Company), other than as set forth in the most recently
approved Business Plan;
(vii) incurring Indebtedness in an amount in excess of
JPY 1,000,000 or an increase in aggregate Indebtedness in excess of JPY
1,000,000 in any calendar quarter, other than as authorized by Section
5.01(d) (Matters Requiring the Approval of the Board of Directors);
(viii) with respect to the Company or any of its
Subsidiaries, (A) the voluntary commencement of any proceeding or the
voluntary filing of any petition seeking relief under Japanese or foreign
bankruptcy, insolvency, receivership or similar law, (B) the consent to the
institution of, or the failure 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 the Company, 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 the Company
in any such proceeding described above, (E) the consent to any order for
relief issued with respect to any such proceeding described above, (F) the
making of a general assignment for the benefit of creditors, (G) the
admission in writing of the Company's inability, or the failure of the
Company generally, to pay its debts as they become due or (H) the taking of
any action for the purpose of effecting any of the foregoing;
(ix) subject to Section 9.01(a) and the Rules Document,
the granting of consent to the transfer of any Units;
(x) the winding up, dissolution or liquidation of the
Company or any of its Subsidiaries (other than the dissolution of the
Company pursuant to and as contemplated by Article XI (Dissolution));
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(xi) the acquisition of any business, entry into any joint
venture or partnership, or creation of any direct or indirect Subsidiary of
the Company;
(xii) the commitment of the Company to any development
project;
(xiii) the sale, license, assignment or other Transfer of
any of the Company's intellectual property owned or in its possession
(including any technology or know-how, whether or not patented, any
trademark, trade name or service mark, any copyright or any software or
other method or process);
(xiv) any increase in the capital amount of the Company,
whether by increasing the number of the Units or increasing the par value
per Unit or otherwise; and
(xv) any other matter material to the operation, staffing,
business or financial condition of the Company.
(b) Each Unitholder may exercise its vote by proxy; provided,
that such proxy shall submit to the Company, prior to the relevant General
Meeting of Unitholders, as defined in the Japan Act (the "General Meeting of
Unitholders"), a power of attorney duly signed by the Unitholder and/or other
document establishing its power of representation; and provided, further, that
the conferment of the power of proxy for one General Meeting of Unitholders
shall not be deemed to be a conferment of the power of proxy for any subsequent
General Meeting of Unitholders.
(c) Notwithstanding the requirements of Section 4.01(a) (Matters
Requiring the Approval of the Unitholders) relating to agreements between the
Company and any Unitholder or any of their respective 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 between the Company and any Unitholder or any of their
respective Affiliates shall be subject to the dispute resolution process set
forth in Section 10.04(a) and (b) (Dispute Resolution; Deadlock Respecting
Business Plan).
SECTION 4.02 General Meetings of Unitholders.
(a) An annual General Meeting of Unitholders shall be held
within three (3) months from the date immediately following the last day of each
Fiscal Year of the Company. A special General Meeting of Unitholders may be held
at any time and may be called by a resolution of the Board of Directors or in
any other manner permitted by the Japan Act or the Articles. All General
Meetings of Unitholders shall be called and held in accordance with the Articles
and the Japan Act. The General Meetings of Unitholders may be held at the
Company's principal office or at any other location, or, if all the Unitholders
so agree, by conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, provided
that such communications equipment continues to be operational throughout the
meeting.
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(b) Except as otherwise provided in this Agreement, each
Unitholder shall be entitled to one vote for each Unit owned by such Unitholder.
(c) The minutes of every General Meeting of Unitholders shall be
kept with the Company's records referred to in Section 5.04 (Records).
(d) The quorum necessary for any General Meeting of Unitholders
shall be those Persons entitled to cast all of the votes held by the
Unitholders. A quorum shall be deemed not to be present at any meeting for which
notice was not properly given under the Articles or the Japan Act, unless the
Unitholder as to whom such notice was not properly given attends such meeting
without protesting the lack of notice or duly executes and delivers a written
waiver of notice or a written consent to the holding of such meeting.
SECTION 4.03 Restrictions on Unitholders. As between the Unitholders,
no Unitholder may, without the prior written consent of the other Unitholder:
(a) confess any judgment against the Company;
(b) enter into any agreement on behalf of or otherwise purport
to bind the other Unitholder or the Company;
(c) do any act in contravention of this Agreement;
(d) except as contemplated by Article XI (Dissolution), dispose
of the goodwill or the business of the Company; or
(e) assign the property of the Company in trust for creditors or
on the assignee's promise to pay any Indebtedness of the Company.
ARTICLE V
Management and Operations of Company
SECTION 5.01 Meetings of the Board of Directors.
(a) General. Except as otherwise provided herein (including but
not limited to Section 4.01 (Matters Requiring the Approval of the Unitholders)
and Section 5.02 (Officers; Employees)), the Board of Directors is vested with
complete and exclusive power to direct and control the Company and to manage the
Company as provided by the Articles and this Agreement, as it may be amended
from time to time.
(b) Members of the Board of Directors; Voting; etc.
(i) The Board of Directors of the Company shall consist of
six (6) Directors, three (3) of which shall be designated by Toshiba, and
the other three (3) of which shall be designated by SanDisk; provided that
the total number of Directors of the Company may be changed by mutual
agreement of the Unitholders.
10
(ii) Directors shall be elected for a one (1) year term, and
shall be shall be eligible for re-election.
(iii) Subject to the fiduciary duty of Directors under the
Japan Act, each Director shall serve at the pleasure of the designating
Unitholder and may be removed as such, with or without cause, and his
successor designated, by the designating Unitholder. Each Unitholder shall
have the right to designate a replacement Director in the event of any
vacancy among such Unitholder's appointees.
(iv) Each Unitholder shall bear any cost incurred by any
Director designated by it to serve on the Board of Directors, and no
Director shall be entitled to compensation from the Company for serving in
such capacity.
(v) Each Unitholder shall notify the other Unitholder and the
Company of the name, business address and business telephone and facsimile
numbers of each Director that such Member has appointed to the Board of
Directors. Each Unitholder shall promptly notify the other Unitholder and
the Company of any change in such Unitholder's appointments or of any change
in any such address or number.
(vi) For purposes of any approval or action taken by the Board
of Directors, each Director shall have one vote.
(vii) At any meeting of the Board of Directors, each Director
may exercise his vote by proxy; provided, that such proxy shall submit to
the Company, prior to the relevant meeting, a power of attorney duly signed
by the Director and/or other document establishing its power of
representation; and provided, further, that the conferment of the power of
proxy for one meeting of the Board of Directors shall not be deemed to be a
conferment of the power of proxy for any subsequent meeting of the Board of
Directors.
(viii) The quorum necessary for any meeting of the Board of
Directors shall be those Directors entitled to cast all of the votes held by
the members of the Board of Directors. A quorum shall be deemed not to be
present at any meeting for which notice was not properly given under Section
5.01(c) (Meetings, Notices, etc.), unless the Director or Directors 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.
(ix) Any resolution of the Board of Directors may be adopted
by obtaining the written consent of each Director.
(c) Meetings, Notice, etc. Meetings of the Board of Directors shall
be held at such location or locations as may be selected by the Board of
Directors from time to time.
(i) Regular meetings of the Board of Directors shall be held
on such dates and at such times as shall be determined by the Board of
Directors and shall be held at least on a quarterly basis, unless otherwise
agreed by the Directors.
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(ii) Notice of any regular meeting or special meeting pursuant
to Section 5.01(c)(iii) shall be given to each Director at least ten (10)
Business Days prior to such meeting in the case of a meeting in person or at
least five (5) Business 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), which notice shall state the purpose or purposes for
which such meeting is being called and include any supporting documentation
relating to any action to be taken at such meeting.
(iii) Special meetings of the Board of Directors may be called
by any Director by notice given in accordance with the notice requirements
set forth in Section 5.01(c)(ii); provided that the Directors appointed by
the Unitholder that is not represented by the Director calling such special
meeting shall be entitled to select a convenient location for the meeting
and to suggest an alternative time or times if the designated time is not
convenient for them. 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 any Unitholder or the Company.
(iv) The minutes of each meeting of the Board of Directors
shall be sent by facsimile to all Directors within twenty (20) calendar
days after such meeting. Material to be presented at a Board of Directors
meeting shall be sent by facsimile or delivered in hard copy to all
Directors ten (10) Business Days prior to such meeting if feasible in light
of the circumstances giving rise to the need for such meeting, or in any
event a minimum of five (5) Business Days prior to such meeting.
(v) The actions taken by the Board of Directors 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, each Director as to whom such meeting was
improperly held duly executes and delivers a written waiver of notice or a
written consent to the holding of such meeting; provided, however, any
Director who is present at a meeting and does not protest the failure of
notice shall be deemed to have received adequate notice thereof. A vote of
the Board of Directors may be taken only (A) at a meeting of the members
thereof duly called and held or (B) without a meeting by the execution by
the Directors eligible to cast all the votes on the Board of Directors of a
consent setting forth the action so taken, and identified as a consent of
the Directors pursuant to this Section 5.01(c)(v).
(vi) Upon the consent of all Directors, a meeting of the Board
of Directors may be held by conference telephone or similar communications
equipment by means of which all Directors participating in the meeting can
be heard by all other participants, provided that such communications
equipment continues to be operational throughout the meeting. Any Director
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.
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(vii) At each meeting, the Board of Directors shall consider
(A) any of the items set forth in Section 5.01(d) (Matters Requiring the
Approval of the Board of Directors) that may require the Board of Directors'
attention, (B) any items added to the Board of Directors' agenda for
discussion by any Unitholder and (C) such other matters as the Board of
Directors decides to review; provided, however, that the Directors shall not
be required to vote or take other action (other than carrying on
discussions) on matters that were not placed on the meeting agenda at least
five Business Days in advance of the time set for the meeting unless such
action or business is incidental to the action or business which was
otherwise properly on the agenda and considered at such meeting.
(viii) The Board of Directors shall, from time to time, elect
one of its members to preside at its meetings. The Board of Directors 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 Board of Directors governance
matters not inconsistent with the terms of this Agreement.
(ix) The Board of Directors shall have the authority to
establish subcommittees and to delegate to any such subcommittee any of the
Board of Directors' responsibilities; provided, however, the power of the
Board of Directors to approve the matters set forth in Section 5.01(d)
(Matters Requiring the Approval of the Board of Directors) may not be
delegated to a subcommittee.
(d) Matters Requiring the Approval of the Board of Directors.
Notwithstanding any provision of the Articles to the contrary, no action may be
taken by or on behalf of the Company in connection with any of the following
matters without the unanimous written approval of the Board of Directors:
(i) any sale, lease, pledge, assignment or other disposition of
assets of the Company in an amount (in terms of consideration to be
received by the Company) in excess of JPY 1,000,000 in one transaction or a
series of related transactions, other than as set forth in the most
recently approved Business Plan;
(ii) the approval of any transaction or agreement between the
Company and any Unitholder or any of their respective Affiliates (other than
transactions or agreements expressly provided for or authorized by an
Operative Document or the most recently approved Business Plan) or any
amendment thereto (including the waiver of any material term thereof), other
than any such transaction, agreement or amendment that contains generally
available, arm's length commercial terms and is in an amount (in terms of
payments to be made or the value of services or products to be provided or
delivered) less than JPY 1,000,000 for any single transaction or agreement
or for substantially identical transactions within a 24 month period (or a
waiver that does not materially adversely affect the rights and benefits of
the Company), other than as set forth in the most recently approved
Business Plan;
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(iii) the purchase, lease, license or other acquisition of (A)
personal property or services or (B) any list of capital equipment approved
by the Unitholders, in each case in an amount (in terms of payments to be
made or the value of services of products to be provided or delivered)
exceeding JPY1,000,000 in any one transaction or a series of related
transactions, other than as provided for in the most recently approved
Business Plan;
(iv) the selection of attorneys, accountants, auditors and
financial advisors;
(v) the adoption of accounting and tax policies, procedures
and principles;
(vi) incurring any Indebtedness;
(vii) the hiring or termination of any employees referenced in
Section 5.02(a) (Officers; Employees) who are not Seconded Employees, if
any;
(viii) the adoption of or changes to the forms of
confidentiality, assignment or disclosure of intellectual property or
employment agreements to be entered into between the Company and its
employees;
(ix) the adoption of or changes to any employee benefit plan,
including any incentive compensation plan;
(x) the amount and timing of any distributions;
(xi) the commencement or settlement of litigation by or
against the Company;
(xii) the purchase, sale or lease (as lessor or lessee) of any
real property;
(xiii) any acquisition of securities or any other ownership
interest in any entity;
(xiv) the making of any public announcements by or on behalf of
the Company; provided, that in any case any such public announcements must
otherwise comply with the requirements of Section 6.03 (Public
Announcements) of the New Master Agreement, if applicable;
(xv) the entry into or amendment of any collective bargaining
arrangements or the waiver of any material provision or requirement thereof;
(xvi) the approval of a proposed Business Plan, or the
amendment to the most recently approved Business Plan, in each case
including the operating budget contained therein;
14
(xvii) the incurrence of capital expenditures in excess of
those provided for in the most recently approved Business Plan or the
commitment of the Company to any development projects other than as
provided for in the most recently approved Business Plan;
(xviii) subject to Section 5.01(c)(ix), the establishment of any
subcommittees or delegation of authority of the Board of Directors;
(xix) the authorization and approval of any filing with,
public comments to, or negotiation/discussion with, any Governmental
Authority (excluding regular operating filings and other routine
administrative matters);
(xx) the approval of Unique Activities to be performed by the
Company at the request of any Unitholder, in connection with which the Board
of Directors shall be satisfied that such Unitholder has reached agreement
with the Company as to the payment by such Unitholder of all costs incurred
in connection with such Unique Activities and that adequate provision has
been made by such Unitholder for the funding of any additional required
capital expenditures required in conjunction with such Unique Activities;
(xxi) the decision of the Company to negotiate external
sources of additional wafer fabrication capacity for NAND Flash Memory
Products; and
(xxii) such other matters as the Board of Directors decides, in
its sole discretion, to review.
SECTION 5.02 Officers; Employees.
(a) Unless otherwise mutually agreed by the Unitholders, the
Directors of the Company with specific titles shall be designated as: the
Representative Director/President/Chief Executive Officer and the Representative
Director/Executive Vice President, each of whom shall be elected by the Board of
Directors from among the Directors designated alternately by Toshiba and SanDisk
to serve successive three-year terms, subject to the consent of the
non-appointing Unitholder, which consent shall not unreasonably be withheld.
Notwithstanding the foregoing, the first term of the Representative
Director/President/Chief Executive Officer held by Toshiba shall expire on June
30, 2003. In addition, the Board of Directors may appoint such other officers
from time to time as it deems necessary or advisable in the conduct of the
business and affairs of the Company. Any individual may hold more than one
office. Toshiba shall appoint the Company's first Representative
Director/President/Chief Executive Officer and SanDisk shall appoint the
Company's first Representative Director/Executive Vice President.
(b) The President/Chief Executive Officer shall have the authority
to retain other senior management of the Company, subject to the approval of the
Board of Directors.
(c) Subject to the terms and conditions of Section 6.06 of the New
Master Agreement, each Unitholder may assign to the Company, as Seconded
Employees, employees whom such Unitholder believes are capable of performing the
assignment and likely to contribute to the success of the Company and to have a
positive impact on the Company's
15
business environment. Any liabilities in respect of the employment of Seconded
Employees assigned to work for the Company shall be retained by the relevant
Unitholder (or its Subsidiary) that assigned such Seconded Employee to the
Company; provided, however, financial responsibility for the salary,
employment-related Taxes, benefits and temporary expenses relating to Seconded
Employees shall be allocated as provided in Section 6.06 (Personnel) of the New
Master Agreement. Seconded Employees other than the Company's executive officers
referred to in Section 5.02(a) (Officers; Employees) may be removed for cause by
the Company's management and may be removed with or without cause by the Board
of Directors. The Board of Directors shall have the right to terminate the
services of the Company's executive officers referred to in Section 5.02(a)
(Officers; Employees) with or without cause, in any manner permissible under
Section 5.01 (Meetings of the Board of Directors).
(d) The Company will have agreements with and policies
applicable to each of its officers, employees and consultants who are not
Seconded Employees, in forms acceptable to each Unitholder, and shall also have
appropriate arrangements with its Seconded Employees, in each case with respect
to (i) protection of confidential information, (ii) patent and copyright
assignment, (iii) invention disclosure (including improvements and advances) and
assignments thereof and (iv) in respect of certain employees who are not
Seconded Employees, by agreement of the Board of Directors, non-competition.
SECTION 5.03 Insurance. The Company shall maintain insurance against
such liabilities and other risks associated with the conduct by the Company of
its business and in such amounts and against such risks as agreed by the
Unitholders, and in any event as is generally maintained by companies engaged in
a business similar to that of the Company.
SECTION 5.04 Records. The Company shall maintain the following records
at its principal office:
(a) a current list of the full name set forth in alphabetical
order and last known business address of each Unitholder and Director;
(b) a copy of the Articles, and all articles of amendment
thereto;
(c) a copy of this Agreement and all amendments hereto;
(d) a copy of all financial statements of the Company for the
three most recent Fiscal Years;
(e) a copy of the Company's income tax or information returns
and reports, if any, for the three most recent years;
(f) a copy of all indentures, loan agreements, lease agreements,
guarantees, security agreements, promissory notes, licensing or other
intellectual property agreements, agreements that relate to the payment or
receipt by the Company of amounts in excess of JPY 5,000,000 or that are not
terminable by the Company upon ninety (90) days notice, documents, if any,
evidencing employee compensation arrangements, employee pension or other benefit
arrangements, and similar documents and instruments executed and delivered by
the Company;
16
(g) a list of all contributions made to the Company by the
Unitholders; and
(h) a record of all distributions by the Company to each
Unitholder.
The Unitholders and/or the Directors and/or their respective
designees (which shall be limited to its employees or professional advisers
subject to appropriate confidentiality obligations) shall have reasonable access
to the records during normal business hours upon reasonable request. Copies of
records shall be made available and delivered to the Unitholders and/or the
Directors promptly after reasonable request for same, provided the requesting
party pays for copy and delivery charges.
ARTICLE VI
Capital Contributions; Distributions
SECTION 6.01 Capital Contributions.
(a) The Unitholders shall be deemed to have made Capital
Contributions to the Company in the amounts set forth opposite their respective
names on Schedule 6.01.
(b) No Unitholder shall be obligated to make any additional
Capital Contributions to the Company, unless otherwise mutually agreed upon by
the Unitholders in writing, in which case such additional Capital Contributions
shall be made in proportion to the Unitholders' respective Percentages as of the
date of such additional Capital Contribution.
SECTION 6.02 Distributions.
(a) General. Notwithstanding any provision of the Articles to
the contrary, and subject to Section 11.07 (Liquidation Proceeds), unless
otherwise agreed by the Unitholders, no distributions of cash (or in the case of
Section 11.07 (Liquidation Proceeds), other property) shall be made by the
Company to the Unitholders for a period of three (3) years from the date of this
Agreement, and thereafter all distributions of cash (or, in the case of Section
11.07 (Liquidation Proceeds), other property) by the Company to the Unitholders
shall be made in Japanese Yen at the times and in the amounts determined by the
Unitholders. Except as provided in Section 11.07 (Liquidation Proceeds), each
distribution to the Unitholders shall be made on a pro rata basis based upon the
respective Percentages of the Unitholders as of the date of such distribution.
(b) Distribution for Taxes. Notwithstanding the provisions of
Section 6.02(a), the Company shall make, in respect of each Fiscal Year in which
SanDisk must recognize taxable income of the Company in SanDisk's US federal,
state and local income and franchise tax returns, a distribution to SanDisk to
the extent necessary to meet SanDisk's aggregate US tax liability with respect
to such taxable income, with such liability calculated at the highest US, state
and local corporate tax rates as may be then applicable to SanDisk. SanDisk will
make a request upon the Company for such distribution as soon as is practicable
after the filing of SanDisk's applicable US tax returns. Following receipt of
such request, the
17
Company shall make the requested distribution on the next date on which the
Company is permitted to make distributions pursuant to the Japan Act.
Simultaneously therewith, the Company shall also make a distribution to Toshiba
in an amount equal to the amount of the distribution made to SanDisk pursuant to
this Section 6.02(b). Any such prior distributions shall be taken into account
upon any purchase and sale of Units under Article X herein or dissolution of the
Company under Article XI herein.
SECTION 6.03 No Interest. No interest shall be payable to the
Unitholders on their Capital Contributions or otherwise in respect of the
capital of the Company.
SECTION 6.04 Return of Capital Contributions. Except as expressly
provided herein, no Unitholder shall be entitled to the return of any part of
such Unitholder's Capital Contributions.
ARTICLE VII
(Intentionally Blank)
ARTICLE VIII
Accounting and Taxation
SECTION 8.01 Financial Accounting Conventions.
(a) The Company shall adopt and follow Japanese GAAP.
(b) Notwithstanding anything to the contrary in the Rules
Document, the first Fiscal Year shall begin on April 10, 2002 and end on March
31, 2003.
SECTION 8.02 Maintenance of Books of Account. The Company shall keep
or cause to be kept at its principal office, or such other location as the Board
of Directors 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 Company are recorded so as to comply with all applicable
laws and to permit (a) the preparation of the Company's consolidated financial
statements in accordance with Japanese GAAP and (b) the Unitholders to account
for their interest in the Company in accordance with Japanese GAAP.
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 sixty (60) days after the
end of such Fiscal Year), the Company shall prepare and deliver to each
Unitholder and each Director, audited consolidated and consolidating balance
sheets of the Company as of the end of such Fiscal Year and the related audited
consolidated and consolidating statements of operations, the Unitholders'
capital accounts and cash flows of the Company for such Fiscal Year (or similar
statements if such statements change as the result of changes in Japanese 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
18
Year just completed. Such financial statements shall be accompanied by (i) the
report of the Accountants to the effect that such financial statements (except
for the comparison to the budget) have been prepared in conformity with Japanese
GAAP (except as otherwise specified in such report) and that the audit of such
financial statements has been performed in accordance with Japanese GAAP and
(ii) a report as to all transactions (including the nature, type and amount)
between the Company and each Unitholder and their respective Affiliates. The
Company shall conduct its business such that the report of the Accountants shall
not contain any qualifications as to the scope of the audit or with respect to
the Company's compliance with Japanese GAAP, except for changes in methods of
accounting in which such Accountants concur and except that the foregoing shall
not be deemed to obligate any Unitholder to contribute any capital to the
Company. The Company shall deliver to SanDisk, at SanDisk's request and expense,
any other financial information related to the Company that is reasonably
requested by SanDisk for US Federal, state, and local income or franchise tax
purposes.
(b) Quarterly Statements. As soon as practicable following the
end of each Fiscal Quarter (and in any event not later than fifteen (15) days
after the end of such Fiscal Quarter), the Company shall prepare and deliver to
each Unitholder and each Director unaudited consolidated and consolidating
balance sheets of the Company as of the end of such Fiscal Quarter and the
related unaudited consolidated and consolidating statements of operations, the
Unitholders' capital accounts and cash flows of the Company for such Fiscal
Quarter and for the Fiscal Year to date (or similar statements if such
statements change as the result of changes in Japanese GAAP), in each case
setting forth in comparative form the corresponding figures for the preceding
Fiscal Quarter, for the corresponding Fiscal Quarter of the preceding Fiscal
Year and for the budget for the Fiscal Quarter just completed and for the Fiscal
Year to date. Such financial statements shall be accompanied by a certificate of
the principal accounting or financial officer of the Company to the effect that
such 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
Japanese GAAP, such financial statements, in such officer's judgment, fairly
present the financial condition and results of operations of the Company as of
the date and for the periods indicated, subject to normal recurring year-end
audit adjustments. The Company shall deliver to SanDisk, at SanDisk's request
and expense, any other financial information related to the Company that is
reasonably requested by SanDisk for US Federal, state, and local income or
franchise tax purposes.
(c) Monthly Reports. Each month, the Company shall prepare and
deliver to each Unitholder and each Director the reports and other information
set forth on Schedule 8.03. Such reports and other information will become
available at the respective times set forth on Schedule 8.03.
(d) Business Plan. Subject to Sections 10.04(c), (d) and (e),
and provided that the most recently approved Business Plan does not provide for
the next Fiscal Year, the Company shall, not later than February 15 prior to the
commencement of each Fiscal Year, deliver to each Unitholder a copy of the
Business Plan, including the Company's monthly budgets, for the upcoming Fiscal
Year, as approved by the Board of Directors.
19
(e) Legal Proceedings. The Company shall promptly inform each
Unitholder and each Director with regard to litigation, governmental
investigations, material government notices and threatened legal proceedings.
SECTION 8.04 Other Reports and Inspection. The Company shall furnish
promptly to each Unitholder such other reports, financial data and information
relating to the Company as such Unitholder may reasonably request and shall
require the Accountants to provide to each Unitholder copies of any document
related to the Company in the possession of the Accountants as such Unitholder
may reasonably request. The Company shall, upon reasonable prior notice and
during normal business hours, make available to each Unitholder and their
respective professional advisors, from time to time as requested by such
Unitholder, all properties, assets, books of account, corporate records,
contracts and documentation, if any, relating to employee benefits of the
Company, and any other material requested by such Unitholder for inspection and,
in the case of books of account, corporate records, contracts and documentation,
if any, relating to employee benefits, copying, and shall use reasonable efforts
to make available to such Unitholder the Accountants and the key employees of
the Company for interviews to verify any information furnished or to enable such
Unitholder otherwise to review the Company and its operations. The Company may
condition such availability upon the entering into of reasonable and appropriate
confidentiality agreements. Notwithstanding the foregoing, the Company will not
make available to any Unitholder information provided to the Company on a
confidential basis by any other Unitholder without the consent of such other
Unitholder.
SECTION 8.05 Characterization. For the purposes of US federal, state
and local income and franchise taxation, the Unitholders intend that the Company
shall be treated as a disregarded entity at all times during the Transition
Period and as a partnership at all times following the expiration of the
Transition Period, and shall take all actions, including the execution of other
documents required to be filed by the Code, as may be reasonably required to
qualify for and receive treatment as a disregarded entity and as a partnership,
as the case may be, for such US tax purposes. SanDisk shall bear all costs and
expenses incurred by the Company or any Unitholder in connection with any action
required to be taken pursuant to this Section. Notwithstanding the foregoing,
the Company shall have no obligation to take any action under this Section that
would have an adverse effect on it or any Unitholder under any Japanese
Governmental Rule.
SECTION 8.06 Deposit of Funds. All funds of the Company and its
Subsidiaries not otherwise employed shall be deposited from time to time to its
credit in such banks, trust companies or other depositories, or invested in such
other investments held as cash equivalents, as the Board of Directors shall
authorize. The funds of the Company and its Subsidiaries shall not be commingled
with the funds of any Unitholder or any of their respective Affiliates.
ARTICLE IX
Units of Contribution; Disposition of Units
SECTION 9.01 Restrictions on Transfer of Units.
20
(a) No Unitholder (nor any permitted transferees of any
Unitholder) may Transfer any interest in the Company, including any of such
Unitholder's Units, to any Person, except by a Change of Control; provided, that
any Unitholder may Transfer all of its interest in the Company, including all of
its Units, to any of their respective Affiliates, with the prior written consent
of every other Unitholder, which consent shall not be unreasonably withheld; and
provided, further, that (i) the transferee agrees in writing to become a party
hereto and assumes all the obligations of the transferring Unitholder hereunder
and under each other Operative Document to which the transferring Unitholder is
a party and (ii) immediately after giving effect to such Transfer, no 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 with respect to the transferee
Unitholder shall exist. Following the effectiveness of any such Transfer, the
transferring Unitholder shall no longer have the transferred right, title or
interest in the Company or any rights under this Agreement and the transferee
shall be substituted as a Unitholder for all purposes of this Agreement. The
transferring Unitholder shall, however, remain responsible for all obligations
under this Agreement and the other Operative Documents for any transferee which
is an Affiliate of the transferring Unitholder and shall not be released or
discharged from any existing liability or obligation to any Person. Any
subsequent Transfer of an ownership interest in such Affiliate by the
transferring Unitholder shall be deemed to constitute a Transfer of Units
requiring compliance with this Section 9.01.
(b) If a Unitholder Transfers its entire interest in the Company
pursuant to Section 9.01(a), the transferee shall succeed to all the rights and
obligations of such Unitholder under this Agreement.
(c) Any Unitholder may agree to pay amounts equal to
distributions received by such Unitholder from the Company to a third party in
its sole discretion pursuant to a Permissible Assignment Agreement. "Permissible
Assignment Agreement" means an agreement between a Unitholder and another Person
(the "Permissible Assignee") which:
(i) provides for the grant by such Unitholder to the
Permissible Assignee of the right to receive amounts equal to
distributions received by such Unitholder from the Company pursuant to
Article VI or XI of this Agreement, but does not give the Permissible
Assignee any Units or any other rights whatsoever with respect to the
Company;
(ii) provides that under no circumstances (including any
Bankruptcy Event in respect of such Unitholder) may any claim be made
by the Permissible Assignee against the Company or any such Unitholder
or any Affiliate of any such Unitholder or any of their respective
assets, under or in connection with such agreement, even if such
Unitholder defaults in performance thereunder;
(iii) provides that the rights of the Permissible Assignee
under such agreement may not be transferred without the prior written
consent of each Unitholder and that any such Transfer without such
consents shall be null and void;
21
(iv) may not be amended, nor any provision thereof waived,
in a manner that would cause it not to be a Permissible Assignment
Agreement, without the prior written consent of the non-assigning
Unitholder;
(v) provides that the assigning Unitholder is authorized to
Transfer its entire interest in the Company pursuant to Section 9.01(a) of
this Agreement free and clear of any interest of the Permissible Assignee
and without any liability on the part of the transferee thereunder to the
Permissible Assignee; and
(vi) contains an express acknowledgment by the Permissible
Assignee, for the benefit of the non-assigning Unitholder and the Company,
to the effect of clauses (i)-(v) above.
The assigning Unitholder shall ensure that any payment due to a
Permissible Assignee pursuant to or in connection with a Permissible Assignment
Agreement shall be made in full to such Permissible Assignee when due.
SECTION 9.02 Admission of New Unitholders. No Person shall have the
right to become a Unitholder unless and until all the following conditions are
satisfied:
(a) except in the case of a Transfer of a Unitholder's Units to
an Affiliate of such Unitholder in accordance with Section 9.01 (Restrictions on
Transfer of Units), such Person, the terms and conditions of such Person's
admission as a Unitholder and the rights appurtenant to the Units to be issued
or Transferred, as applicable, to such Person are approved by all existing
Unitholders and, if applicable, the creation of any new class or group of Units
in the Company having different rights, powers and duties is reflected in
amendments to the Articles and to this Agreement;
(b) such Person executes a counterpart of this Agreement and
such other instrument or instruments as the Company may reasonably deem
appropriate to affirm that the representations and warranties contained in the
New Master Agreement are true and correct with respect to such Person and that
such Person agrees to be bound as a Unitholder by this Agreement and all of the
covenants and agreements herein; and
(c) if requested by the Company, an opinion of counsel, a
purchaser representation letter or other appropriate documentation is furnished
to the Company establishing that the issuance or Transfer, as applicable, of
Units to the new Unitholder will comply with the Japan Act.
Except to the extent required by law, the Company shall have no
obligation to recognize or to furnish information or make distributions to any
new Unitholder or any transferee of a Unitholder who does not become a
Unitholder in accordance with Section 9.01 (Restrictions on Transfer of Units)
or this Section 9.02.
SECTION 9.03 Withdrawal Prohibited. Except as otherwise expressly
permitted by this Agreement, (i) no Unitholder may withdraw from the Company and
(ii) no Unitholder may effect or cause a termination or dissolution of the
Company without the prior
22
written consent of all other Unitholders (which consent may be withheld in such
other Unitholder's sole discretion).
SECTION 9.04 Purchase of Additional Interest. At any time during the
term of this Agreement and so long as SanDisk is a Unitholder, SanDisk shall
have the right to purchase from Toshiba that number of Units which is equal to
0.1% of the total number of Units then issued and outstanding in the event that
(i) Toshiba's patent umbrella does not adequately protect the Company or (ii)
dissolution of the Company is commenced pursuant to Article XI hereof. The
purchase price of such Units shall equal 0.1% of the Company's Net Book Value as
of the date of such transaction.
ARTICLE X
Certain Agreements of the Unitholders
SECTION 10.01 (Intentionally Blank)
SECTION 10.02 Taxes and Charges; Governmental Rules. Each Unitholder
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, in each case except to the extent that nonpayment or noncompliance will
not have a material adverse effect on the Company.
SECTION 10.03 Further Assurances. Following the Closing, each
Unitholder shall, and shall cause its Affiliates, FVC and the Company to take
all reasonable actions necessary or appropriate to, effectuate the transactions
contemplated by this Agreement, and to obtain (and cooperate with the other
Unitholder in obtaining) any Governmental Action or third party consent required
to be obtained or made by it in connection with the transactions contemplated by
this Agreement; provided, that no Burdensome Condition shall be made to exist
with respect to such Unitholder or any of its Affiliates in connection
therewith.
SECTION 10.04 Dispute Resolution; Deadlock Respecting Business Plan.
(a) The Unitholders shall endeavor to settle, through their
respective designees to the Board of Directors, any disputes which may arise
between them, including without limitation, failure by the Board of Directors to
reach agreement (or failure to take a vote) on any matter requiring Board of
Directors approval pursuant to Section 5.01(d) (Matters Requiring the Approval
of the Board of Directors). The Unitholders shall attempt to resolve the issue
or proposed action in question, to the extent practicable, in a manner
consistent with the Company's most recently approved Business Plan, unless the
issue in dispute is the adoption of a new Business Plan, in which case the
provisions of Sections 10.04(c), (d) and (e) shall apply.
(b) If (i) the Unitholders are unable to agree on any matter
requiring the approval of the Unitholders pursuant to Section 4.01(a) (Matters
Requiring the Approval of the Unitholders ), (ii) the Board of Directors is
unable to agree on any matter requiring the approval of the Board of Directors
pursuant to Section 5.01(d) (Matters Requiring the Approval of the Board of
Directors) (other than the approval of any Business Plan, with respect to which
the failure to agree shall be governed by Sections 10.04(c), (d) and (e)) or
(iii) the Unitholders or
23
the Board of Directors are otherwise unable to resolve a dispute on any other
item (other than the approval of any Business Plan, with respect to which the
failure to agree shall be governed by Sections 10.04(c), (d) and (e)), then any
Unitholder may bring the matter to the attention of the Vice President,
Semiconductor Company of Toshiba, and the SanDisk General Manager, NAND Division
(the "Designated Individuals"), who will attempt to find a resolution. If the
matter has not been resolved within 30 days of referral to the Designated
Individuals, the matter will be referred to the Management Committee for a final
decision, which decision will be final and binding on the Company and the
Unitholders with respect to any matter specified in Sections 10.04(b)(i) and
(ii) above. If an agreement is reached by the Management Committee, the mutually
agreed resolution shall be implemented by the Company. Should no solution be
agreed upon within thirty (30) days after submission of the matter to the
Management Committee with respect to the matters specified in (iii) above, such
matter shall be submitted to arbitration in accordance with Section 10.03(b)
(Dispute Resolution) of the New Master Agreement. Should no solution be agreed
upon within sixty (60) days after submission of the matter to the Management
Committee with respect to the matters specified in Sections 10.04(b)(i) and (ii)
above, then the action for which approval was requested will not occur, unless
it is already included in the most recently approved Business Plan.
(c) If by February 15 of any calendar year during the term of
this Agreement, commencing February 15, 2004, the Board of Directors and the
Unitholders have not approved and agreed upon a Business Plan for the upcoming
Fiscal Year, then any Unitholder may refer the dispute to the Management
Committee for a decision, which decision shall be final and binding on the
Company and the Unitholders. If a decision is reached by mutual agreement of the
Management Committee, such decision shall be implemented by the Company. Should
no decision be reached within ninety (90) days after submission of the matter to
the Management Committee, and unless the Unitholders have agreed to continue
operations under the most recently approved Business Plan until a new Business
Plan is approved, then within ten (10) Business Days thereafter any Unitholder
may elect by written notice to all other Unitholders to declare a deadlock
("Deadlock").
(d) Within thirty (30) days after a Unitholder has notified the
other Unitholder of a Deadlock, either Unitholder (the "Initiating Unitholder")
may submit to the other Unitholder (the "Responding Unitholder") a written
irrevocable notice (the "Deadlock Dissolution Notice") to the effect that the
Initiating Unitholder offers to sell to the Responding Unitholder or its
designee the Initiating Unitholder's Units for a cash payment, by wire transfer
of immediately available Japanese Yen, in an amount [***] of the Company as of
the date of such transaction multiplied by the Initiating Unitholder's
Percentage as of such date.
(e) The Responding Unitholder may accept such offer by written
response to the Initiating Unitholder within forty-five (45) days of receipt of
the Deadlock Dissolution Notice indicating that the Responding Unitholder elects
to purchase the Units of the Initiating Unitholder. If the Responding Unitholder
declines to exercise its right to purchase the Units of the Initiating
Unitholder pursuant to this Section 10.04 or fails to respond to such Deadlock
Dissolution Notice (or if both Unitholders submit Deadlock Dissolution Notices),
the Company shall be dissolved pursuant to Section 11.01(d) (Events of
Dissolution), at the end of a one-year period for the wind-down of operations
commencing with the receipt of the Deadlock Dissolution Notice by the Responding
Unitholder. During such one-year period, the Company's business shall be
conducted in accordance
24
[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
with the most recently approved Business Plan except that additional capital
expenditures will not be made except as required for line maintenance.
SECTION 10.05 Remedies Upon Event of Default; Termination on Breach.
If there has occurred and is continuing an Event of Default with respect to a
Unitholder (upon such occurrence, such Unitholder is referred to herein as the
"Defaulting Unitholder"), in addition to all other remedies available to the
Company or the other Unitholder (the "Nondefaulting Unitholder"), whether under
any of the Operative Documents or other agreements or by law, the Nondefaulting
Unitholder shall have the option to take one or more of the following actions:
(a) give written notice to the Defaulting Unitholder of its
intention to acquire all of the Units of the Defaulting Unitholder for a cash
payment, by wire transfer of immediately available Japanese Yen, in an amount
equal to the Net Book Value of the Company as of the date of such transaction
multiplied by the Defaulting Unitholder's Percentage as of such date; and/or
(b) elect to dissolve the Company pursuant to Section 11.03
(Dissolution Upon Event of Default), in which case the affairs of the Company
shall be wound up and the Company shall be dissolved in accordance with Article
XI (Dissolution).
SECTION 10.06 (Intentionally Blank)
SECTION 10.07 Mechanics of Sale.
(a) The closing of any purchase and sale of Units pursuant to
Section 10.04(e) (Dispute Resolution; Deadlock Respecting Business Plan),
10.05(a) (Remedies Upon Event of Default; Termination on Breach), 11.04
(Dissolution by Unilateral Option) or 11.05 (Dissolution Upon Notice) shall take
place not later than the [***] Business Day after notice of the purchase is
given, as the case may be, except that such period shall be extended as
necessary in order to comply with any Governmental Rule. The purchasing
Unitholder shall pay for the Units being acquired by wire transfer of
immediately available funds in Japanese Yen to an account specified by the
selling Unitholder. The selling Unitholder shall execute all documents necessary
to effect the conveyance of its Units, free and clear of all Liens, to the
purchasing Unitholder. In addition, the Unitholders shall enter into an
indemnity and release agreement, in a form reasonably satisfactory to each
Unitholder, indemnifying and holding harmless the selling Unitholder and its
Affiliates for liabilities or claims made after the date of the purchase and
sale under any guarantees or other agreements supporting the obligations of the
Company which may have been extended by the selling Unitholder or any of its
Affiliates. The Unitholders shall also reach agreement on a reasonable
transition plan of up to six months in connection with services provided to the
Company by Seconded Employees assigned to the Company by the Selling Unitholder.
(b) If a Unitholder elects to acquire all of the Units of the
other Unitholder pursuant to Section 10.04(e) (Dispute Resolution; Deadlock
Respecting Business Plan), 10.05(a) (Remedies Upon Event of Default; Termination
on Breach), 11.04 (Dissolution by Unilateral Option) or 11.05 (Dissolution Upon
Notice), such Unitholder shall be obligated to take all actions required of it
to consummate the applicable purchase and sale on the date
25
[***] INDICATES THAT CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
determined pursuant to Section 10.07(a) (Mechanics of Sale). If any Unitholder
has the right to purchase the Units of any other Unitholder, such Unitholder
shall have the right to assign such right to purchase to any other Person.
ARTICLE XI
Dissolution
SECTION 11.01 Events of Dissolution. The Company shall be dissolved
and shall commence winding up its affairs upon the first to occur of the
following:
(a) the expiration of the term of the Company pursuant to
Section 2.04 (Term; Extension);
(b) the agreement of the Unitholders to dissolve the Company
pursuant to Section 11.02 (Dissolution by Agreement);
(c) the election of the Nondefaulting Unitholder pursuant to
Section 11.03 (Dissolution Upon Event of Default);
(d) the first anniversary of the receipt by either Unitholder of
a Deadlock Dissolution Notice submitted with respect to a failure of the
Unitholders to approve and agree upon a Business Plan pursuant to
Section10.04(d) (Dispute Resolution; Deadlock Respecting Business Plan) if
either (i) the Responding Unitholder declines to exercise its right to purchase
the Units of the Initiating Unitholder or fails to respond to such Deadlock
Dissolution Notice, or (ii) both Unitholders submit Deadlock Dissolution Notices
with respect to such failure to agree;
(e) the election by Toshiba to dissolve the Company pursuant to
Section 11.04 (Dissolution by Unilateral Option);
(f) the bankruptcy, death, dissolution, expulsion or incapacity
of a Unitholder or the occurrence of any other event which terminates the
membership of a Unitholder in the Company ("Bankruptcy Event"); or
(g) the election of the Notifying Party to dissolve the Company
pursuant to Section 11.05 (Dissolution Upon Notice) unless the Notified Party
elects to purchase the Units of the Notifying Party pursuant to Section 11.05
(Dissolution Upon Notice).
SECTION 11.02 Dissolution by Agreement. The Company may be dissolved
at any time by the unanimous written consent of the Unitholders.
SECTION 11.03 Dissolution Upon Event of Default. During the
occurrence and continuation of an Event of Default (other than a Bankruptcy
Event) with respect to a Unitholder, the Nondefaulting Unitholder may elect, by
written notice to the Defaulting Unitholder, to dissolve the Company, in which
event the Company shall be dissolved and the Unitholders shall take all actions
necessary to wind up the affairs of the Company in accordance with Section 11.06
(Winding Up). This Section 11.03 shall not be construed to limit the rights of
the
26
Nondefaulting Unitholder under Section 10.05 (Remedies Upon Event of Default) or
to seek damages from the Defaulting Unitholder or any other Person for the
breach of its obligations under any of the Operative Documents.
SECTION 11.04 Dissolution by Unilateral Option. At any time between
April 1, 2003 and March 31, 2004, SanDisk may, by giving written notice to
Toshiba, elect to withdraw from the Company, in which case Toshiba must,
directly or through any of its Affiliates, either (i) purchase from SanDisk all
of SanDisk's Units one (1) year following SanDisk's notice to withdraw (the
"Termination Date") for a cash payment, by wire transfer of immediately
available Japanese Yen, in an amount equal to the Net Book Value of the Company
as of the Termination Date multiplied by SanDisk's Percentage as of the
Termination Date, and increased or decreased, as the case may be, for any cash
contributions by or distributions to the Unitholders after the date of the
notice, or (ii) dissolve the Company and wind-up its affairs in accordance with
Section 11.06 (Winding Up) within one (1) year of the notice of withdrawal and
make such payment to SanDisk on the Termination Date.
SECTION 11.05 Dissolution upon Notice. At any time during the one (1)
year period following the eighth anniversary of May 16, 2000 (which was the date
of formation of FVC), any Unitholder (the "Notifying Party") may elect, by
giving notice to all other Unitholders (the "Notified Party"), to dissolve the
Company, in which event the Company will be dissolved and, within the one (1)
year period following the giving of such notice, the Unitholders shall mutually
agree upon a plan for winding up the affairs of the Company in accordance with
Section 11.06 (Winding Up), unless the Notified Party, directly or through any
of its Affiliates, elects in writing within three (3) months of receiving such
notice, to purchase from the Notifying Party all of its Units for a cash
payment, by wire transfer of immediately available Japanese Yen, in an amount
equal to the Net Book Value of the Company as of the date of such transaction
multiplied by the Notifying Party's Percentage as of such date.
SECTION 11.06 Winding Up.
(a) Upon the dissolution of the Company, the Unitholders shall
proceed as promptly as practicable to (i) wind-up the affairs of the Company and
satisfy the Company's liabilities and (ii) dispose of the Company's assets as
quickly as possible consistent with obtaining the full fair market value of the
Company, preferably, to the extent it is commercially practicable to do so, by
selling the Company as a going concern; provided, however, no Unitholder shall
be under any obligation to extend the terms of any Operative Document or to
offer to enter into any other agreement with a prospective purchaser of the
Company for the purchase or sale of goods or services or the use of facilities
or any other business arrangement. In connection with a sale of the Company's
assets under clause (ii), each Unitholder or any of their respective Affiliates
shall have a right of first offer to acquire the Company's tangible personal
property in the liquidation process and may also acquire such property through
participation at auction except in the event of a dissolution pursuant to
Section 11.03 (Dissolution Upon Event of Default), in which event the Defaulting
Unitholder and its Affiliates shall not have such right of first offer to
acquire the Company's tangible personal property. Each of the Unitholders shall
be furnished with a statement setting forth the assets and liabilities of the
Company as of the date of the complete liquidation of the Company. The
Accountants shall review the final accounting and shall render their opinion
with respect thereto.
27
(b) During the period of winding-up, the Company shall continue
to operate and all the provisions of this Agreement shall remain in effect,
except as otherwise expressly provided herein. The Company shall notify all
known creditors and claimants of the dissolution of the Company in accordance
with applicable law.
SECTION 11.07 Liquidation Proceeds.
(a) In the case of the dissolution and liquidation of the
Company, the Company may make a distribution in kind. Any cash and all
distributions in kind that are to be distributed shall be distributed to the
Unitholders, on a pro rata basis based upon the respective Percentages of the
Unitholders as of the date of such distribution.
(b) Unless otherwise agreed by the Unitholders, and to the
extent permitted under any agreements with third parties, all assets to be
distributed upon the dissolution and liquidation of the Company shall be
distributed as follows:
(i) first, to creditors, including Unitholders who are
creditors, to the extent permitted by law, in satisfaction of liabilities
of the Company, other than for distributions to Unitholders pursuant to
Section 6.02 (Distributions); and
(ii) second, to the Unitholders on a pro rata basis based
upon the respective Percentages of the Unitholders as of the date of such
distribution.
For purposes of this Section 11.07, instruments of transfer and other documents
reasonably requested by the distributee shall be executed by the Company or the
other Unitholder, or both.
(c) Any distribution made pursuant to this Section 11.07 shall
be made as soon as practicable under and in accordance with applicable Japanese
law.
SECTION 11.08 Additional Contribution. No Unitholder shall be
obligated to contribute any additional amounts to the Company or otherwise be
liable for the debts and obligations of the Company.
ARTICLE XII
Indemnification and Insurance
SECTION 12.01 Indemnification.
(a) Subject to Section 12.01(c), the Company 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 Unitholder or the Company), by reason of the fact that such Person is
or was a Unitholder or is or was or has agreed to become a Director or is or was
serving or has agreed to serve at the request of the Company as a director,
officer, employee or agent of the Company or of another partnership,
corporation, joint venture, trust or other enterprise, arising from any action
alleged to have been taken in any such capacity or by reason of any liability or
obligation of the Company, against any and all losses, damages, liabilities,
28
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. Without limiting the generality of the foregoing, any of such Losses
shall be deemed to arise out of a Company liability or obligation if it arises
out of or is based upon the conduct of the business of the Company (or any of
its Subsidiaries) or the ownership of the property of the Company (or any of its
Subsidiaries).
(b) 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.
(c) The indemnification provided under this Section 12.01 shall
not inure to the benefit of any Person in respect of Losses to the extent that
such Losses (i) arise out of or are based upon the gross negligence or willful
misconduct of such Person or (ii) constitute a tax, levy or similar governmental
charge not imposed upon the Company (or any of its Subsidiaries) or on their
respective properties. The indemnification provided under this Section 12.01
shall also not be available to any Person in respect of any Losses if a judgment
or other final adjudication adverse to such Person establishes (x) that such
Person's acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated or
(y) that such Person gained in fact a financial profit or other advantage to
which such Person was not legally entitled. It is understood and agreed that,
for the purposes of this Section 12.01, Losses shall be deemed not to arise out
of or be based upon the gross negligence or willful misconduct of a Person
solely because it arises out of or is based upon the gross negligence, willful
misconduct, bad faith or active and deliberate dishonesty of a director, officer
or employee of such Person if at the time of such gross negligence, willful
misconduct, bad faith or active and deliberate dishonesty, such director,
officer or employee was also a Seconded Employee or a Director acting in his
capacity as such.
(d) 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(c)
(Indemnification).
SECTION 12.02 Insurance. The Company 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 the Unitholders.
(a) Each Unitholder agrees to, and does hereby, indemnify and
hold harmless the Company and the other Unitholder from and against any and all
Losses arising out of, or based upon, the gross negligence or willful misconduct
of such Unitholder under this Agreement or such Unitholder exceeding its
authority under this Agreement.
29
(b) The provisions of this Section 12.03 shall survive each of
the termination of this Agreement, the dissolution of the Company and the
withdrawal of any Unitholder.
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 shall 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 shall 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 Indemnifying Party's cost and expense, to defend such Claim.
ARTICLE XIII
Miscellaneous
SECTION 13.01 Governing Law. Notwithstanding anything to the contrary
in the Rules Document, this Agreement shall in all respects be governed by and
construed in accordance with the laws of Japan, without regard to the conflict
of laws principles.
SECTION 13.02 Effectiveness. Notwithstanding anything to the contrary
in the Rules Document, this Agreement shall be effective as of April 10, 2002.
SECTION 13.03 Conflict with Articles. In the event of any conflict
between this Agreement and the Articles, the provisions of this Agreement shall
control, and the
30
conflicting provisions of the Articles shall be deemed to have been waived by
the Parties, to the extent permissible under applicable law.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
31
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
each party as of the date first above written.
TOSHIBA CORPORATION
By: /s/ Takeshi Nakagawa
--------------------------------------
Name: Takeshi Nakagawa
Title: Corporate Senior Vice President
President & CEO
Semiconductor Company
SANDISK CORPORATION
By: /s/ Eli Harari
--------------------------------------
Name: Eli Harari
Title: President and Chief Executive
Officer
[SIGNATURE PAGE TO NEW OPERATING AGREEMENT]
EXHIBIT A
ARTICLES OF INCORPORATION OF THE COMPANY
SCHEDULE 6.01
CAPITAL CONTRIBUTIONS
The Unitholders shall be deemed to have made Capital Contributions to the
Company in the amounts set forth opposite their respective names below:
Unitholder Capital Contribution
- ---------- --------------------
Toshiba Corporation ............ JPY 7,515,000
SanDisk Corporation ............ JPY 7,485,000
---------------
Total ................. JPY 15,000,000
SCHEDULE 8.03
MONTHLY REPORTS
This Schedule provides a list of Unitholder required reports, pursuant to
Section 8.03(c) (Monthly Reports), that are required to be transmitted to the
Unitholders by the dates listed. Any Unitholder may modify this list
periodically as requirements for data change. When a Unitholder requests a
report, a sample format for the report will be provided to the Company by the
requesting Unitholder.
REPORTS TO UNITHOLDERS
REPORT TITLE DATE DUE
A. Monthly Flash Report 3 days after month close
B. Monthly Measurement Report 7 days after month close
C. Monthly Cash Flow Report 7 days after month close
D Monthly Balance sheets 7 days after month close
E. Monthly Profit & Loss 7 days after month close
F. Monthly Operational Spending Summary 7 days after month close