EXHIBIT 10.2
================================================================================
OPERATING AGREEMENT OF FLASH PARTNERS LTD.
Dated as of September 10, 2004
between
TOSHIBA CORPORATION
and
SANDISK INTERNATIONAL LIMITED
================================================================================
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
1. DEFINITIONS, RULES OF CONSTRUCTION AND DOCUMENTARY CONVENTIONS......... 1
1.1 Certain Definitions........................................... 1
1.2 Additional Definitions........................................ 1
1.3 Rules of Construction and Documentary Conventions............. 2
2. GENERAL PROVISIONS..................................................... 2
2.1 Ownership of Units; Capital Increase.......................... 2
2.2 Name.......................................................... 3
2.3 Principal Office.............................................. 3
2.4 Term; Extension............................................... 3
2.5 Scope of Activity............................................. 3
2.6 Powers........................................................ 3
2.7 Articles of Incorporation..................................... 3
2.8 Company Actions............................................... 3
3. BUSINESS OPERATIONS.................................................... 3
3.1 Business Dealings with the Company............................ 3
3.2 Other Activities.............................................. 4
3.3 Personnel..................................................... 4
3.4 Business Plans and Related Matters............................ 6
3.5 Standard of Care.............................................. 7
3.6 Use of Names.................................................. 7
4. ACTIONS BY THE UNITHOLDERS............................................. 7
4.1 Matters Requiring the Approval of the Unitholders............. 8
4.2 General Meetings of Unitholders............................... 10
4.3 Restrictions on Unitholders................................... 10
5. MANAGEMENT AND OPERATIONS OF COMPANY................................... 11
5.1 Meetings of the Board of Directors............................ 11
5.2 Officers; Employees........................................... 16
5.3 Y3 Representatives; Y3 Operating Committee.................... 16
5.4 Insurance..................................................... 17
5.5 Records....................................................... 17
6. CAPITAL CONTRIBUTIONS; DISTRIBUTIONS................................... 18
6.1 Capital Contributions......................................... 18
6.2 Distributions................................................. 18
-i-
TABLE OF CONTENTS
(continued)
PAGE
6.3 No Interest................................................... 19
6.4 Return of Capital Contributions............................... 19
7. ADDITIONAL CONTRIBUTIONS............................................... 19
8. ACCOUNTING AND TAXATION................................................ 19
8.1 Financial Accounting Conventions.............................. 19
8.2 Maintenance of Books of Account............................... 20
8.3 Financial Statements.......................................... 20
8.4 Other Reports and Inspection.................................. 22
8.5 Characterization.............................................. 22
8.6 Deposit of Funds.............................................. 22
9. UNITS OF CONTRIBUTION; DISPOSITION OF UNITS............................ 22
9.1 Restrictions on Transfer of Units............................. 22
9.2 Admission of New Unitholders.................................. 24
9.3 Withdrawal Prohibited......................................... 24
9.4 Purchase of Additional Interest............................... 24
10. CERTAIN AGREEMENTS OF THE UNITHOLDERS.................................. 25
10.1 Taxes and Charges; Governmental Rules......................... 25
10.2 Further Assurances............................................ 25
10.3 Dispute Resolution; Deadlock.................................. 25
10.4 Remedies Upon Event of Default; Termination on Breach......... 27
10.5 Mechanics of Sale............................................. 27
11. DISSOLUTION............................................................ 28
11.1 Events of Dissolution......................................... 28
11.2 Dissolution by Agreement...................................... 28
11.3 Dissolution Upon Event of Default............................. 28
11.4 Dissolution by Unilateral Option.............................. 29
11.5 Dissolution upon Notice....................................... 29
11.6 Financing Defaults............................................ 29
11.7 Winding Up.................................................... 30
11.8 Liquidation Proceeds.......................................... 30
12. INDEMNIFICATION AND INSURANCE.......................................... 30
12.1 Indemnification............................................... 30
12.2 Insurance..................................................... 31
-ii-
TABLE OF CONTENTS
(continued)
PAGE
12.3 Indemnification by the Unitholders............................ 31
12.4 Assertion of Claims........................................... 32
13. MISCELLANEOUS.......................................................... 32
13.1 Governing Law................................................. 32
13.2 Effectiveness................................................. 32
EXHIBITS
Exhibit A - Articles of Incorporation of the Company
SCHEDULES
Schedule 2.1(b) - Committed Additional Capital Contributions
Schedule 5.3 - Management and Operating Reports
Schedule 6.1 - Capital Contributions
Schedule 8.3 - Monthly Reports
-iii-
OPERATING AGREEMENT of FLASH PARTNERS LTD., a Japanese limited
liability company (yugen kaisha), dated as of September 10, 2004, between
TOSHIBA CORPORATION, a Japanese corporation ("Toshiba"), and SANDISK
INTERNATIONAL LIMITED, a company organized under the laws of the Cayman Islands
( "SanDisk").
WHEREAS, Flash Partners Ltd. (the "Company") is a Japanese limited
company (yugen kaisha);
WHEREAS, pursuant to that certain Unit Purchase Agreement, dated as of
the date hereof, by and between SanDisk and Toshiba, concurrently with the
execution hereof, SanDisk has acquired from Toshiba 998 units par value Y5,000
per unit of contribution (shussi mochibun) in the Company ("Units"),
representing 49.9% of all issued and outstanding Units;
WHEREAS, Toshiba holds the remaining 1,002 Units, representing 50.1%
of all issued and outstanding Units; and
WHEREAS, SanDisk and Toshiba (each a "Unitholder") desire to enter
into this Operating Agreement in order to provide, subject to the Japan Act and
the Articles of Incorporation of the Company (as amended from time to time, the
"Articles") 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:
1. DEFINITIONS, RULES OF CONSTRUCTION AND DOCUMENTARY CONVENTIONS
1.1 Certain Definitions.
(a) Capitalized terms used but not defined in the main body of this Agreement
shall have the respective meanings assigned to them in that certain Flash
Partners Master Agreement, dated as of the date hereof, among SanDisk
International Limited, SanDisk Corporation and Toshiba (the "Master
Agreement") or in Appendix A to the Master Agreement.
(b) As used herein, the term "Agreement" means this Operating Agreement
together with any Exhibits, Schedules, Appendices and Attachments hereto.
1.2 Additional Definitions. The following capitalized terms used in this
Agreement shall have the respective meanings assigned in the sections
indicated below:
1
Term Defined in
---- ----------
"Appendix A" Recitals
"Articles" Recitals
"Bankruptcy Event" Section 11.1(f)
"Claim" Section 12.4(a)
"Company" Recitals
"Deadlock" Section 10.3(c)
"Deadlock Dissolution Notice" Section 10.3(e)
"Defaulting Unitholder" Section 10.4
"Designated Individuals" Section 10.3(b)
"Director(s)" Section 3.5(a)
"Executive Vice President" Section 5.2(a)
"General Meeting of Unitholders" Section 4.1(b)
"Indemnified Party" Section 12.4(a)
"Indemnifying Party" Section 12.4(a)
"Initiating Unitholder" Section 10.3(e)
"Losses" Section 12.1(a)
"Master Agreement" Section 1.1(a)
"Nondefaulting Unitholder" Section 10.4
"Notified Party" Section 11.5
"Notifying Party" Section 11.5
"Permissible Assignee" Section 9.1(c)
"Permissible Assignment Agreement" Section 9.1(c)
"President" Section 5.2(a)
"Responding Unitholder" Section 10.3(e)
"SanDisk Representative" Section 5.3(a)
"Termination Date" Section 11.4
"Toshiba Representative" Section 5.3(a)
"Units" Recitals
"Unitholder" Recitals
"Y3 Operating Committee" Section 5.3(a)
1.3 Rules of Construction and Documentary Conventions. The rules of
construction, documentary conventions and general terms and conditions set
forth in Appendix A shall apply to, and are hereby incorporated in, this
Agreement.
2
2. GENERAL PROVISIONS
2.1 Ownership of Units; Capital Increase.
(a) The rights and obligations of the Unitholders shall be as set forth
herein, subject to the Articles and mandatory provisions of the Japan Act.
(b) The Unitholders shall effect the capital increases in the amounts and at
the times stipulated in Schedule 2.1(b).
2.2 Name. The name of the Company is "Flash Partners Yugen Kaisha," which
translates to "Flash Partners Ltd." in English, and all Company business
shall be conducted in that name or such other name as the Unitholders
shall mutually agree.
2.3 Principal Office. The principal office of the Company shall be located in
Yokkaichi, Mie, or such other place as the Unitholders shall mutually
agree.
2.4 Term; Extension. The Company shall be terminated on December 31, 2019,
unless extended by mutual written agreement of all of the Unitholders or
earlier terminated in accordance with Section 11 (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,
2018, to discuss the possible extension of the term of the Company.
2.5 Scope of Activity. The scope of activity of the Company shall be as set
forth in Section 3.1 (Purpose) and 6.5 (Capacity Sharing Arrangement) of
the Master Agreement.
2.6 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 2.5 (Scope of Activity).
2.7 Articles of Incorporation. On the date hereof and immediately following
the execution of this Agreement, the Unitholders shall hold a general
meeting of the Unitholders and, among other matters agreed between them,
vote their Units to amend the Articles so that they will be in the form of
Exhibit A. In the event of any conflict between this Agreement and the
Articles, the Unitholders confirm their intent that the terms of this
Agreement shall prevail, and on the request of either Unitholder, the
Unitholders shall amend the Articles to conform with this Agreement to the
extent legally possible; provided that the inability to implement such
amendment shall not relieve any Unitholder from liability for any breach
of its obligations hereunder.
2.8 Company Actions. The Unitholders hereby authorize the Company, and ratify
(including for purposes of Section 4.1 (Matters Requiring the Approval of
the Unitholders)) all action having been taken by or on behalf of the
Company (including by its Unitholders and Directors) prior to the date
hereof, to execute and deliver the FP Operative Documents to which it is a
party, including all certificates, agreements and other documents required
in connection therewith.
3
3. BUSINESS OPERATIONS
3.1 Business Dealings with the Company. Subject to Sections 4.1(a) (Matters
Requiring the Approval of the Unitholders) and 5.1(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 FP 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.
3.2 Other Activities. The provisions of Section 6.11 (Other Activities) of the
Master Agreement are hereby incorporated herein by reference.
3.3 Personnel. The provisions of Section 6.8 (FP Secondees) of the Master
Agreement are hereby incorporated herein by reference.
3.4 Business Plans and Related Matters.
(a) Initial and Subsequent Business Plans. The initial 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 [***], will be agreed upon and certified
by the Board of Directors as soon as practicable after the Closing.
(i) 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 3.4(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 the [***] preceding
the commencement of such Fiscal Year.
[***] 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.
4
(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
directors 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
5.1(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. Any capital commitments made in any Business Plan for a period
after the Fiscal Year to which the Business Plan applies shall be
considered non-binding for purposes of any FP Operative Document.
(c) Approval. Other than the initial Business Plan (which shall be approved in
accordance with Section 3.4(a)), the Board of Directors shall vote upon
the proposed Business Plan, with such modifications as it may deem
necessary, before [***] preceding the commencement of each Fiscal Year.
Subject to Sections 10.3(c), (e) and (f) (Dispute Resolution; Deadlock),
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
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.
3.5 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:
[***] 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.
5
(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.
3.6 Use of Names. Except as may be expressly provided in the FP 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.
4. ACTIONS BY THE UNITHOLDERS
4.1 Matters Requiring the Approval of the Unitholders.
(a) Notwithstanding any provision of the Articles to the contrary, no action
shall 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 FP 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;
(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 Y5,000,000 in one
transaction or a series of related transactions, other than as
expressly provided for in the FP Operative Documents or 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 FP Operative Document or
6
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 Y5,000,000 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 Y1,000,000 or an
increase in aggregate Indebtedness in excess of Y1,000,000 in any
calendar quarter, other than as authorized by Section 5.1(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 9.1(a) and Appendix A, 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 Section 11 (Dissolution));
(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 xxxx, any copyright or any software
or other method or process);
7
(xiv) any increase or decrease 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 4.1(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 FP 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 Sections 10.3(a) and (b)
(Dispute Resolution; Deadlock).
4.2 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 agree, and to the extent then permitted by the
Japan Act, by telecommunications conferences by means of which all persons
participating in the meeting can hear and be heard by each other, provided
that such communications equipment continues to be operational throughout
the meeting. To the extent then permitted by the Japan Act, the
Unitholders may by unanimous written consent effect any resolution that
could otherwise be resolved at a meeting of the Unitholders.
(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 5.5 (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
8
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.
4.3 Restrictions on 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 Section 11 (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.
5. MANAGEMENT AND OPERATIONS OF COMPANY
5.1 Meetings of the Board of Directors.
(a) General. Except as otherwise provided herein, 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. The Board of Directors shall have
the power to delegate such responsibilities as it may deem appropriate
from time-to-time (including certain day-to-day responsibilities set forth
in Section 5.2 (Officers; Employees) and Section 5.3 (Y3 Operating
Committee)).
(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 nominated by Toshiba, and the
other three (3) of which shall be nominated by SanDisk; provided
that the total number of Directors of the Company may be changed by
mutual agreement of the Unitholders. Each Unitholder shall vote its
Units to elect as Directors those persons nominated by the other
Unitholder.
(ii) Directors shall be elected to serve until complete adjournment of
the annual meeting of Unitholders for the fiscal year last to end
within one (1) year after his or her assumption of the directorship,
and 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,
9
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. Each Unitholder shall vote its Units
in favor of any such removal and in favor of any such replacement
Director.
(iv) Each Unitholder shall bear any cost incurred by any Director
nominated 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, e-mail address
and facsimile numbers of each Director that such Member has
nominated to the Board of Directors. Each Unitholder shall promptly
notify the other Unitholder and the Company of any change in such
Unitholder's nominated 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. Unless otherwise
required under Japanese law, unanimous agreement is required for
valid action to be taken by the Board of Directors.
(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 5.1(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.
(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.
10
(ii) Notice of any regular meeting or special meeting pursuant to Section
5.1(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 5.1(c)(vii), 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 5.1(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) Each Unitholder may invite a reasonable number of observers to all
meetings of the Board of Directors.
(v) The minutes of each meeting of the Board of Directors shall be
delivered to all Directors within twenty (20) calendar days after
such meeting. Material to be presented at a Board of Directors
meeting shall be delivered 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.
(vi) 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
unanimous written consent of the Directors.
(vii) 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
11
meeting by conference telephone or similar communications equipment
upon sufficient advance notice to permit arrangements therefor to be
made.
(viii) At each meeting, the Board of Directors shall consider (A) any of
the items set forth in Section 5.1(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 (5) 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.
(ix) 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.
(x) Subject to the Japan Act, 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 5.1(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 Y1,000,000 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 FP 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 Y1,000,000 for any single transaction or agreement or for
substantially identical transactions
12
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;
(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 Y1,000,000 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
5.2(a) (Officers; Employees) who are not FP Secondees, 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 5.2 (Public
Announcements) of the 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;
13
(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 5.1(c)(x), 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;
(xxii) any dispute referred to the Board of Directors by the Y3 Operating
Committee pursuant to Section 5.3(b); and
(xxiii) such other matters as the Board of Directors decides, in its sole
discretion, to review.
5.2 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 ("President") and the
Representative Director/Executive Vice President ("Executive Vice
President"). The President and Executive Vice President shall be elected
by the Board of Directors and serve three successive one-year terms, with
the first such set of terms ending at complete adjournment of the annual
meeting of Unitholders for the fiscal year last to end within one (1) year
after his or her assumption of the officership. Toshiba shall have the
right to nominate the first President and SanDisk shall have the right to
nominate the first Executive Vice President, and then the Unitholders will
then alternate such nominating rights for each three year term for such
positions. Each nominee for the President and for the Executive Vice
President shall be subject to the consent of the non-nominating
Unitholder, which consent shall not unreasonably be withheld. In addition
to the President and Executive Vice President, 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.
14
(b) The President shall have the authority to retain other senior management
of the Company, subject to the prior approval of the Board of Directors.
(c) The Company shall have agreements with and policies applicable to each of
its officers, employees and consultants who are not FP Secondees, in forms
acceptable to each Unitholder, and shall also have appropriate
arrangements with its FP Secondees, 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 FP Secondees, non-competition.
5.3 Y3 Representatives; Y3 Operating Committee.
(a) The Company shall have an Operating Committee for Y3 Facility operations
(the "Y3 Operating Committee") consisting of the general manager of Y3
Facility, who Toshiba shall cause to be the deputy general manager of the
Yokkaichi Facility (the "Toshiba Representative"), and a SanDisk
representative, who shall represent SanDisk on a day-to-day basis at the
Y3 Facility (the "SanDisk Representative"). SanDisk and Toshiba shall each
have the sole right to appoint the SanDisk Representative and the Toshiba
Representative, respectively; provided that each Unitholder shall notify
the other Unitholder in advance of any replacement of its representative.
If a Unitholder requests in good faith that the other Unitholder's
representative be replaced with another person from the other Unitholder's
organization, the other Unitholder shall consider and discuss in good
faith with the requesting Unitholder such request, provided that such
replacement, if any, shall be determined solely by such other Unitholder.
SanDisk shall pay for all expenses of the SanDisk Representative related
to his or her activities at the Y3 Facility, including salaries and
traveling expenses. The Company shall pay for all expenses of the Toshiba
Representative related to his or her activities in connection with the Y3
Operating Committee or otherwise at the Y3 Facility, subject to anything
to the contrary in the accounting standards and methodologies in the
Master Agreement.
(b) The Y3 Operating Committee shall work together and endeavor to make the Y3
Facility the most advanced and competitive memory fabrication facility in
the world. The Y3 Operating Committee shall have the authority to
determine all matters concerning the day-to-day operations of the Company
and the Y3 Facility, subject to those matters reserved herein to the Board
of Directors or the Unitholders as well as to the requirements of this
Agreement, the Articles and the Japan Act. The Y3 Operating Committee
shall communicate on a day-to-day basis with respect to the status of Y3
Facility operations and any other issues that may arise, and shall meet in
person no less than two (2) times per week, or such other times and
frequency as may be agreed upon by all members of such committee. If the
members of the Y3 Operating Committee are unable to agree on any issue
after thirty (30) days, they shall submit such matter together with their
respective recommendations to the Board of Directors, which shall endeavor
to immediately resolve the issue. If the Board of Directors is unable to
agree on any such issue after ten (10) days, such issue shall be submitted
to the Management Committee for final resolution.
15
(c) The Y3 Operating Committee shall hold a monthly review meeting in English
at the Yokkaichi Facility on [***] of each calendar month, unless
otherwise agreed by the Unitholders or the Y3 Operating Committee. The Y3
Operating Committee shall prepare and distribute to each Unitholder (at
least three Business Days in advance of the monthly review meetings)
monthly reports in English with respect to the engineering activities,
operations and financial affairs of the Company and the Y3 Facility.
(d) Upon the request of either Unitholder, the Y3 Operating Committee shall
provide the Unitholders with (i) any management or operation reports of
the Company related to the Y3 Facility (which neither Unitholder shall
have an obligation to translate) and (ii) simultaneously in Japanese and
English, those management and operating reports identified on Schedule 5.3
as mutually agreed upon from time to time by the Parties. Upon reasonable
request from SanDisk, Toshiba employees shall explain such reports to
SanDisk's employees and respond to questions from SanDisk's employees;
provided, however that SanDisk acknowledges and agrees that Toshiba shall
not be responsible for SanDisk's failure to understand any such reports.
5.4 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.
5.5 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 Y5,000,000 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;
(g) a list of all contributions made to the Company by the Unitholders; and
[***] 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.
16
(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.
6. CAPITAL CONTRIBUTIONS; DISTRIBUTIONS
6.1 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 6.1.
(b) Except as provided in Section 2.1(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.
6.2 Distributions.
(a) General. Notwithstanding any provision of the Articles to the contrary,
and subject to Section 11.8 (Liquidation Proceeds), unless otherwise
agreed by the Unitholders, no distributions of cash (or in the case of
Section 11.8, 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 11.8, other property) by the Company to the Unitholders shall be
made in Japanese Yen at the times and in the amounts determined by the
Board of Directors. Except as provided in Section 11.8, 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 Section 6.2(a), subject to the
Japan Act and other applicable law, 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 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 per Unit distribution made to SanDisk pursuant to this
Section 6.2(b). Any such prior distributions shall be taken into account
upon any purchase and sale of Units under Section 10 (Certain
17
Agreements of the Unitholders) or dissolution of the Company under Section
11 (Dissolution) hereof. If necessary, the Board of Directors shall
consider capital reductions to the extent that any such capital reduction
will not adversely affect the Y3 Facility's operations.
6.3 No Interest. No interest shall be payable to the Unitholders on their
Capital Contributions or otherwise in respect of the capital of the
Company.
6.4 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.
7. ADDITIONAL CONTRIBUTIONS
No Unitholder shall be obligated under this Agreement or the Articles to
contribute any additional amounts to the Company or otherwise to be liable
for the debts and obligations of the Company.
8. ACCOUNTING AND TAXATION
8.1 Financial Accounting Conventions.
(a) The Company shall adopt and follow Japanese GAAP.
(b) Notwithstanding anything to the contrary in Appendix A, the first Fiscal
Year shall begin on April 1, 2004 and end on March 31, 2005.
(c) The Company shall in principle (but subject to applicable Law) utilize a
five-year straight line depreciation method for manufacturing equipment.
8.2 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.
8.3 Financial Statements.
(a) Annual Statements. As soon as practicable following the end of each Fiscal
Year (and in any event not later than fifty-two (52) 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
18
statements, and in each case setting forth in comparative form the
corresponding figures for the preceding Fiscal Year and for the budget for
the Fiscal Year just completed. Such 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 also provide SanDisk with an
English version of such report, which shall contain sufficient data to
enable SanDisk to prepare a reconciliation of the Company's financial
reports from Japanese GAAP to United States GAAP. 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.
(i) As soon as practicable following the end of each Fiscal Quarter (and
in any event not later than ten (10) 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.
(ii) The financial statements for such Fiscal Quarter 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 financial
reporting or Federal, state, and local income or franchise tax
purposes.
19
(c) The Company shall obtain a professional tax audit from a qualified
accountant complying with Japanese GAAP by May 22 of each year (including
an English translation thereof). As part of its engagement of its
auditors, the Company shall cause its auditors to provide such English
language financial statements, audit reports, US GAAP reconciliations and
consents as are required (or reasonably requested by SanDisk) in
connection with SanDisk's filings with the United States Securities and
Exchange Commission; provided that SanDisk shall pay for all the costs
relating to such auditors' work. SanDisk may also request that the Company
provide SanDisk with "comfort letters" in the manner customary for
Japanese auditors in connection with public offerings in the United
States, at SanDisk's own expense.
(d) 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 8.3. Such reports and other information will become available
at the respective times set forth on Schedule 8.3.
(e) Business Plan. Subject to Sections 10.3(c), (e) and (f), and provided that
the most recently approved Business Plan does not provide for the next
Fiscal Year, the Company shall, not later than [***] 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.
(f) 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.
8.4 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.
[***] 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.
20
8.5 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 partnership at all times, 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.
8.6 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.
9. UNITS OF CONTRIBUTION; DISPOSITION OF UNITS
9.1 Restrictions on Transfer of Units.
(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 one (1) 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 FP Operative
Document to which the transferring Unitholder is a party (except to the
extent the express terms of the Patent Indemnification Agreement condition
its transferability on the consent of the non-transferring Unitholder and
such Unitholder has not consented to Transfer thereof), 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 FP
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 9.1.
21
(b) If a Unitholder Transfers its entire interest in the Company pursuant to
Section 9.1(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 Section 6
or 11 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;
(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 9.1(a) 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.
9.2 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 all of a Unitholder's Units to an
Affiliate of such Unitholder in accordance with Section 9.1(a)
(Restrictions on Transfer of Units), such Person, the terms and conditions
of such Person's admission as a Unitholder and the
22
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 and a non-transferring Unitholder
may reasonably deem appropriate to affirm that the representations and
warranties contained in the 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 9.1 (Restrictions on Transfer of
Units) or this Section 9.2.
9.3 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 written consent of all other Unitholders (which consent
may be withheld in such other Unitholder's sole discretion).
9.4 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 Section 11
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.
10. CERTAIN AGREEMENTS OF THE UNITHOLDERS
10.1 Taxes and Charges; Governmental Rules. Each Unitholder shall (a) promptly
pay all applicable Taxes and other governmental charges imposed against
such Unitholder 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.
10.2 Further Assurances. Following the Closing, each Unitholder shall, and
shall cause its Affiliates and the Company to take all reasonable actions
necessary or appropriate to, effectuate the transactions contemplated by
this Agreement, and to obtain (and cooperate
23
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.
10.3 Dispute Resolution; Deadlock.
(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 5.1(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 10.3(c), (e)
and (f) shall apply.
(b) If (i) the Unitholders are unable to agree on any matter requiring the
approval of the Unitholders pursuant to Section 4.1(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 5.1(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 10.3(c), (e) and
(f)) or (iii) the Unitholders or 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 10.3(c), (e) and (f)), then any Unitholder may bring
the matter to the attention of the General Manager Memory Division,
Semiconductor Company of Toshiba, and the Chief Operating Officer of
SanDisk (the "Designated Individuals"), who will attempt to find a
resolution. If the matter has not been resolved within thirty (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 10.3(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 2.5 of
the Appendix A. 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 10.3(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) Except as provided below, if by [***] of any calendar year during the term
of this Agreement, commencing [***], 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
[***] 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.
24
decision shall be final and binding on the Company and the Unitholders. If
a decision is reached by 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"), except with respect to any issue where
the Master Agreement expressly prohibits declaration of a Deadlock.
(d) If demand for both Unitholder's NAND Flash Memory Products is
significantly below expectations, they shall address the matter as
contemplated in Section 6.5(b)(ii) of the Master Agreement.
(e) 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 equal to the
[***] as of the date of such transaction multiplied by the Initiating
Unitholder's Percentage as of such date.
(f) 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 10.3 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 11.1(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
with the most recently approved Business Plan except that additional
capital expenditures will not be made except as required for line
maintenance.
10.4 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 FP 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 [***] of the Company as of the date of
[***] 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.
25
such transaction multiplied by the Defaulting Unitholder's Percentage as
of such date; and/or
(b) elect to dissolve the Company pursuant to Section 11.3 (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 Section 11
(Dissolution).
10.5 Mechanics of Sale.
(a) The closing of any purchase and sale of Units pursuant to Section 10.3
(Dispute Resolution; Deadlock), 10.4 (Remedies Upon Event of Default;
Termination on Breach), 11.4 (Dissolution by Unilateral Option) or 11.5
(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 FP Secondees 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 10.3 (Dispute Resolution; Deadlock), 10.4 (Remedies
Upon Event of Default; Termination on Breach), 11.4 (Dissolution by
Unilateral Option) or 11.5 (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 determined pursuant to this
Section 10.5 (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.
11. DISSOLUTION
11.1 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 2.4 (Term;
Extension);
(b) the agreement of the Unitholders to dissolve the Company pursuant to
Section 11.2 (Dissolution by Agreement);
[***] 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.
26
(c) the election of the Nondefaulting Unitholder pursuant to Section 11.3
(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 Section 10.3
(Dispute Resolution; Deadlock) 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 11.4
(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 11.5 (Dissolution Upon Notice) unless the Notified Party elects to
purchase the Units of the Notifying Party pursuant to Section 11.5
(Dissolution Upon Notice).
11.2 Dissolution by Agreement. The Company may be dissolved at any time by the
unanimous written consent of the Unitholders.
11.3 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
11.7 (Winding Up). This Section 11.3 shall not be construed to limit the
rights of the Nondefaulting Unitholder under Section 10.4 (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 FP
Operative Documents.
11.4 Dissolution by Unilateral Option. At any time between April 1, 2007 and
March 31, 2008, 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 within
one (1) year following SanDisk's notice to withdraw for a cash payment, by
wire transfer of immediately available Japanese Yen, in an amount equal to
the [***] of the Company as of the FP Termination Date multiplied by
SanDisk's Percentage as of the Termination Date (the estimated [***] of
the Company as of the Termination Date to be agreed by the Unitholders in
good faith and any necessary true up payments promptly after the actual
[***] of the Company as of the Termination Date is determined), or (ii)
cooperate with SanDisk to dissolve the Company within one (1) year of the
notice of withdrawal and to wind-up its affairs in accordance with Section
11.7 (Winding Up) (the date as of which any Unitholder, itself
[***] 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.
27
or together with its Affiliates, holds all Units of the Company or the
date the Company is dissolved in accordance with applicable Law, the
"Termination Date," but in no event shall the Termination Date occur later
than one (1) year following SanDisk's notice to withdraw).
11.5 Dissolution upon Notice. At any time between April 1, 2011 and March 31,
2012, 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 11.7 (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 [***] of the Company as of the
date of such transaction multiplied by the Notifying Party's Percentage as
of such date.
11.6 Financing Defaults.
(a) If pursuant to Section 6.3(c)(i) of the Master Agreement either Party, as
the Investing Party, exercises its election to terminate this Agreement,
the Unitholders shall cooperate in good faith to effect the purchase by
Toshiba (or its designated Affiliate) and sale by SanDisk of all of
SanDisk's Units, at a price equal to SanDisk's percentage share of the
issued and outstanding Units in the Company multiplied by the [***] of the
Company as of the date such transaction is closed (with estimated [***] as
agreed by the Unitholders in good faith paid on the closing of such
transaction and any true-up payment made by the appropriate Party promptly
after determination of the actual [***] of the Company as of the closing
of such purchase and sale transaction).
(b) [***]
(c) If pursuant to Section 6.10(d)(ii) of the Master Agreement either Party,
as the Non-Defaulting Party, exercises its election to terminate this
Agreement, the Non-Defaulting Party shall have the same rights as provided
in Section 11.6(a) and the Unitholders shall cooperate in good faith to
effect the purchase by the Non-Defaulting Party (or its designated
Affiliate) and sale by the Defaulting Party of all of the Defaulting
Party's Units.
11.7 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, (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 FP
Operative Document or to offer to enter into any other agreement with a
prospective
[***] 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.
28
purchaser of the Company for the purchase or sale of goods or services or
the use of facilities or any other business arrangement), and (iii)
distribute any net proceeds to the Unitholders in accordance with Section
11.8 hereof and applicable Law. 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 11.3 (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.
(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.
11.8 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 6.2 (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 11.8, 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 11.8 shall be made as soon
as practicable under and in accordance with applicable Japanese law.
12. INDEMNIFICATION AND INSURANCE
12.1 Indemnification.
29
(a) Subject to Section 12.1(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, 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 12.1 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 12.1 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 12.1 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 12.1, 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 FP Secondee 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 12.1(c) (Indemnification).
30
12.2 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 12.1.
12.3 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.
(b) The provisions of this Section 12.3 shall survive each of the termination
of this Agreement, the dissolution of the Company and the withdrawal of
any Unitholder.
12.4 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 Section 12, 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
Unitholders 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.
31
13. MISCELLANEOUS
13.1 Governing Law. Notwithstanding anything to the contrary in Appendix A,
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.
13.2 Effectiveness. This Agreement shall be effective as of the date first
written above and shall remain in effect until the Termination Date.
Sections 7, 11.7, 11.8 and 13 shall survive the Termination Date.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
32
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by each party as of the date first above written.
TOSHIBA CORPORATION
By: /s/ Masashi Muromachi
-------------------------------------
Name: Masashi Muromachi
Title: President and CEO
Semiconductor Company
Corporate Vice President
SANDISK INTERNATIONAL LIMITED
By: /s/ Xxx Xxxxxx
-------------------------------------
Name: Xxx Xxxxxx
Title: President
[Signature Page to Flash Partners Operating Agreement]
33
EXHIBIT A
ARTICLES OF INCORPORATION OF THE COMPANY
[***]
[***] 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.
34
Unofficial English Translation
ARTICLES OF INCORPORATION
OF
FLASH PARTNERS, LTD.
[***]
[***] 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.
35
Schedule 2.1(b)
Committed Additional Capital Contributions
[***]
[***] 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.
36
Schedule 5.3
Management and Operating Reports
[***]
[***] 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.
37
Schedule 6.1
Capital Contributions
[***]
[***] 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.
38
Schedule 8.3
Monthly Reports
This Schedule provides a list of Unitholder required reports, pursuant to
Section 8.3(d) (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
39
