FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Report
on Form 6-K dated August 3, 2007
STMicroelectronics N.V.
(Name of Registrant)
39, Chemin du Champ-des-Filles
1228 Plan-les-Ouates, Geneva, Switzerland
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form
20-F or Form 40-F:
Form 20-F þ Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by
Regulation S-T Rule 101(b)(7):
Yes o No þ
Indicate by check mark whether the registrant by furnishing the information contained in this
form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934:
Yes o No þ
If Yes is marked, indicate below the file number assigned to the registrant in connection
with Rule 12g3-2(b): 82-
Enclosure: STMicroelectronics N.V.s Second Quarter and First Half 2007:
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Operating and Financial Review and Prospects; |
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Unaudited Interim Consolidated Statements of Income, Balance Sheets, Statements of
Cash Flow, and Statements of Changes in Shareholders Equity and related Notes for the
three months and six months ended June 30, 2007; |
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Certifications pursuant to Sections 302 (Exhibits 12.1 and 12.2) and 906 (Exhibit
13.1) of the Sarbanes-Oxley Act of 2002, submitted to the Commission on a voluntary
basis; |
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Master agreement by and between STMicroelectronics N.V., Intel Corporation, Redwood
Blocker S.A.R.L., and Francisco Partners II (Cayman) L.P., May 22, 2007 (Exhibit 99.1);
and |
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Form of ST Asset Contribution Agreement (Exhibit 99.2). |
TABLE OF CONTENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Overview
The following discussion should be read in conjunction with our Unaudited Interim Consolidated
Statements of Income, Balance Sheets, Statements of Cash Flow and Statements of Changes in
Shareholders Equity for the three months and six months ended June 30, 2007 and Notes thereto
included elsewhere in this Form 6-K and in our annual report on Form 20-F for the year ended
December 31, 2006 as filed with the U.S. Securities and Exchange Commission (the Commission or
the SEC) on March 14, 2007 (the Form 20-F). The following discussion contains statements of
future expectations and other forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, or Section 21E of the Securities Exchange Act of 1934, each as amended,
particularly in the sections Critical Accounting Policies Using Significant Estimates, Business
Outlook and Liquidity and Capital ResourcesFinancial Outlook. Our actual results may differ
significantly from those projected in the forward-looking statements. For a discussion of factors
that might cause future actual results to differ materially from our recent results or those
projected in the forward-looking statements in addition to the factors set forth below, see
Cautionary Note Regarding Forward-Looking Statements and Item 3. Key InformationRisk Factors
included in our annual report on Form 20-F for the year ended December 31, 2006 as filed with the
SEC on March 14, 2007, as they may be updated in our SEC submissions from time to time. We assume
no obligation to update the forward-looking statements or such risk factors.
Critical Accounting Policies Using Significant Estimates
The preparation of our Consolidated Financial Statements in accordance with accounting
principles generally accepted in the United States of America (U.S. GAAP), requires us to make
estimates and assumptions that have a significant impact on the results we report in our
Consolidated Financial Statements, which we discuss under the section Results of Operations. Some
of our accounting policies require us to make difficult and subjective judgments that can affect
the reported amounts of assets and liabilities at the date of the financial statements and the
reported amounts of net revenue and expenses during the reporting period. The primary areas that
require significant estimates and judgments by management include, but are not limited to, sales
returns and allowances; reserves for price protection to certain distributor customers; allowances
for doubtful accounts; inventory reserves and normal manufacturing loading thresholds to determine
costs to be capitalized in inventory; accruals for warranty costs, litigation and claims; valuation
of acquired intangibles, goodwill, investments and tangible assets as well as the impairment of
their related carrying values; restructuring charges; other non-recurring special charges and
stock-based compensation charges; assumptions used in calculating pension obligations and
share-based compensation; assessment of hedge effectiveness of derivative instruments; deferred
income tax assets, including required valuation allowances and liabilities; provisions for
specifically identified income tax exposures and income tax uncertainties; and evaluation of tax
provisions. We base our estimates and assumptions on historical experience and on various other
factors such as market trends, business plans and levels of materiality that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities. While we regularly evaluate our estimates and
assumptions, our actual results may differ materially and adversely from our estimates. To the
extent there are material differences between the actual results and these estimates, our future
results of operations could be significantly affected.
We believe the following critical accounting policies require us to make significant judgments
and estimates in the preparation of our Consolidated Financial Statements:
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Revenue recognition. Our policy is to recognize revenues from sales of products to our
customers when all of the following conditions have been met: (a) persuasive evidence of an
arrangement exists; (b) delivery has occurred; (c) the selling price is fixed or
determinable; and (d) collectibility is reasonably assured. This usually occurs at the time
of shipment. |
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Consistent with standard business practice in the semiconductor industry, price protection
is granted to distribution customers on their existing inventory of our products to
compensate them for declines in market prices. The ultimate decision to authorize a
distributor refund remains fully within our control. We accrue a provision for price
protection based on a rolling historical price trend computed on a monthly basis as a
percentage of gross distributor sales. This historical price trend represents |
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differences in recent months between the invoiced price and the final price to the
distributor, adjusted if required, to accommodate a significant move in the current market
price. The short outstanding inventory time period, visibility into the standard inventory
product pricing (as opposed to certain customized products) and long distributor pricing
history have enabled us to reliably estimate price protection provisions at period-end. We
record the accrued amounts as a deduction of revenue at the time of the sale. If market
conditions differ from our assumptions, this could have an impact on future periods; in
particular, if market conditions were to deteriorate, net revenues could be reduced due to
higher product returns and price reductions at the time these adjustments occur. |
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Our customers occasionally return our products from time to time for technical reasons. Our
standard terms and conditions of sale provide that if we determine that products are
non-conforming, we will repair or replace the non-conforming products, or issue a credit or
rebate of the purchase price. Quality returns are not related to any technological
obsolescence issues and are identified shortly after sale in customer quality control
testing. Quality returns are always associated with end-user customers, not with
distribution channels. We provide for such returns when they are considered as probable and
can be reasonably estimated. We record the accrued amounts as a reduction of revenue. |
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Our insurance policies relating to product liability only cover physical and other direct
damages caused by defective products. We do not carry insurance against immaterial,
non-consequential damages. We record a provision for warranty costs as a charge against cost
of sales based on historical trends of warranty costs incurred as a percentage of sales
which we have determined to be a reasonable estimate of the probable losses to be incurred
for warranty claims in a period. Any potential warranty claims are subject to our
determination that we are at fault and liable for damages, and such claims usually must be
submitted within a short period following the date of sale. This warranty is given in lieu
of all other warranties, conditions or terms expressed or implied by statute or common law.
Our contractual terms and conditions typically limit our liability to the sales value of the
products, which gave rise to the claims. |
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We maintain an allowance for doubtful accounts for potential estimated losses resulting from
our customers inability to make required payments. We base our estimates on historical
collection trends and record a provision accordingly. Furthermore, we are required to
evaluate our customers credit ratings from time to time and take an additional provision
for any specific account that we estimate as doubtful. In the first half of 2007, we did not
record any new specific provision related to bankrupt customers in addition to our standard
provision of 1% of total receivables based on the estimated historical collection trends. If
we receive information that the financial condition of our customers has deteriorated,
resulting in an impairment of their ability to make payments, additional allowances could be
required. |
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While the majority of our sales agreements contain standard terms and conditions, we may,
from time to time, enter into agreements that contain multiple elements or non-standard
terms and conditions, which require revenue recognition judgments. Where multiple elements
exist in an arrangement, the arrangement is allocated to the different elements based upon
verifiable objective evidence of the fair value of the elements, as governed under Emerging
Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF
00-21). |
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Goodwill and purchased intangible assets. The purchase method of accounting for acquisitions
requires extensive use of estimates and judgments to allocate the purchase price to the fair
value of the net tangible and intangible assets acquired, including in-process research and
development, which is expensed immediately. Goodwill and intangible assets deemed to have
indefinite lives are not amortized but are instead subject to annual impairment tests. The
amounts and useful lives assigned to other intangible assets impact future amortization. If
the assumptions and estimates used to allocate the purchase price are not correct or if
business conditions change, purchase price adjustments or future asset impairment charges
could be required. At June 30, 2007, the value of goodwill amounted to $225 million. |
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Impairment of goodwill. Goodwill recognized in business combinations is not amortized
and is instead subject to an impairment test to be performed on an annual basis, or more
frequently if indicators of impairment exist, in order to assess the recoverability of its
carrying value. Goodwill subject to potential impairment is tested at a reporting unit
level, which represents a component of an operating segment for which discrete financial
information is available and is subject to regular review |
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by segment management. This impairment test determines whether the fair value of each
reporting unit for which goodwill is allocated is lower than the total carrying amount of
relevant net assets allocated to such reporting unit, including its allocated goodwill. If
lower, the implied fair value of the reporting unit goodwill is then compared to the
carrying value of the goodwill and an impairment charge is recognized for any excess. In
determining the fair value of a reporting unit, we usually estimate the expected discounted
future cash flows associated with the reporting unit. Significant management judgments and
estimates are used in forecasting the future discounted cash flows including: the applicable
industrys sales volume forecast and selling price evolution; the reporting units market
penetration; the market acceptance of certain new technologies and relevant cost structure;
the discount rates applied using a weighted average cost of capital; and the perpetuity
rates used in calculating cash flow terminal values. Our evaluations are based on financial
plans updated with the latest available projections of the semiconductor market evolution,
our sales expectations and our costs evaluation and are consistent with the plans and
estimates that we use to manage our business. It is possible, however, that the plans and
estimates used may be incorrect, and future adverse changes in market conditions or
operating results of acquired businesses not in line with our estimates may require
impairment of certain goodwill. No impairment charges were recorded in the first half of
2007. |
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Intangible assets subject to amortization. Intangible assets subject to amortization
include the cost of technologies and licenses purchased from third parties, internally
developed software that is capitalized and purchased software. Intangible assets subject to
amortization are reflected net of any impairment losses. These are amortized over a period
ranging from three to seven years. The carrying value of intangible assets subject to
amortization is evaluated whenever changes in circumstances indicate that the carrying
amount may not be recoverable. In determining recoverability, we initially assess whether
the carrying value exceeds the undiscounted cash flows associated with the intangible
assets. If exceeded, we then evaluate whether an impairment charge is required by
determining if the assets carrying value also exceeds its fair value. An impairment loss
is recognized for the excess of the carrying amount over the fair value. We normally
estimate the fair value based on the projected discounted future cash flows associated with
the intangible assets. Significant management judgments and estimates are required and used
in the forecasts of future operating results that are used in the discounted cash flow
method of valuation, including: the applicable industrys sales volume forecast and selling
price evolution; our market penetration; the market acceptance of certain new technologies;
and costs evaluation. Our evaluations are based on financial plans updated with the latest
available projections of the semiconductor market evolution and our sales expectations and
are consistent with the plans and estimates that we use to manage our business. It is
possible, however, that the plans and estimates used may be incorrect and that future
adverse changes in market conditions or operating results of businesses acquired may not be
in line with our estimates and may therefore require impairment of certain intangible
assets. No impairment charges were recorded in the first half of 2007. At June 30, 2007,
the value of intangible assets in our consolidated financial statements subject to
amortization amounted to $157 million. |
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Property, plant and equipment. Our business requires substantial investments in
technologically advanced manufacturing facilities, which may become significantly
underutilized or obsolete as a result of rapid changes in demand and ongoing technological
evolution. We estimate the useful life for the majority of our manufacturing equipment,
which is the largest component of our long-lived assets, to be six years. This estimate is
based on our experience with using equipment over time. Depreciation expense is a major
element of our manufacturing cost structure. We begin to depreciate new equipment when it
is put into use. |
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We evaluate each period when there is reason to suspect that the carrying value of tangible
assets or groups of assets might not be recoverable. Factors we consider important which
could trigger an impairment review include: significant negative industry trends,
significant underutilization of the assets or available evidence of obsolescence of an
asset, strategic management decisions impacting production or an indication that its
economic performance is, or will be, worse than expected and a more likely than not
expectation that assets will be sold or disposed of prior to their estimated useful life. In
determining the recoverability of assets to be held and used, we initially assess whether
the carrying value exceeds the undiscounted cash flows associated with the tangible assets
or group of assets. If exceeded, we then evaluate whether an impairment charge is required
by determining if the assets carrying value also exceeds its fair value. We normally
estimate this fair value based on independent market appraisals or the sum of discounted
future cash flows, using market assumptions such as the utilization of our fabrication
facilities and the ability to upgrade such facilities, change in |
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the selling price and the adoption of new technologies. We also evaluate the continued
validity of an assets useful life when impairment indicators are identified. Assets
classified as held for sale are reflected at the lower of their carrying amount or fair
value less selling costs and are not depreciated during the selling period. Selling costs
include incremental direct costs to transact the sale that we would not have incurred except
for the decision to sell. |
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Our evaluations are based on financial plans updated with the latest projections of the
semiconductor market evolution and of our sales expectations, from which we derive the
future production needs and loading of our manufacturing facilities, and which are
consistent with the plans and estimates that we use to manage our business. These plans are
highly variable due to the high volatility of the semiconductor business and therefore are
subject to continuous modifications. If the future evolution differs from the basis of our
plans, both in terms of market evolution and production allocation to our manufacturing
plants, this could require a further review of the carrying amount of our tangible assets
resulting in a potential impairment loss. |
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Inventory. Inventory is stated at the lower of cost or net realizable value. Cost is
based on the weighted average cost by adjusting standard cost to approximate actual
manufacturing costs on a quarterly basis; the cost is therefore dependent on our
manufacturing performance. In the case of underutilization of our manufacturing facilities,
we estimate the costs associated with the excess capacity; these costs are not included in
the valuation of inventories but are charged directly to cost of sales. Net realizable
value is the estimated selling price in the ordinary course of business less applicable
variable selling expenses. |
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The valuation of inventory requires us to estimate obsolete or excess inventory as well as
inventory that is not of saleable quality. Provisions for obsolescence are estimated for
excess uncommitted inventories based on the previous quarter sales, order backlog and
production plans. To the extent that future negative market conditions generate order
backlog cancellations and declining sales, or if future conditions are less favorable than
the projected revenue assumptions, we could be required to record additional inventory
provisions, which would have a negative impact on our gross margin. |
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Asset disposal. On May 22, 2007, we entered into a definitive agreement with Intel
Corporation and Francisco Partners L.P. to create a new independent semiconductor
company from the key assets of businesses which for our Company had been included in our
Flash Memory Group. Upon signature of this agreement, the conditions were met for assets
held for sale treatment in our consolidated financial statements for the assets to be
contributed to the new company. Upon movement of the assets to be
contributed, which consisted primarily of fixed and intangible assets to assets
held for sale, the relevant depreciation and amortization
charges were stopped under
Statement of Financial Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (FAS 144). Furthermore, FAS 144 requires an impairment analysis when
assets are moved to assets held for sale based on the difference between the Net Book
Value and the Fair Value, less costs to sale, of the group of assets (and liabilities) to
be sold. As a result of this review, we have registered a loss in the second quarter of
2007 of $857 million. Fair value less costs to sell was based
on the net consideration of the agreement and significant estimates.
The final amount could be materially different subject to adjustments
due to business evolution before closing of the transaction. |
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Restructuring charges. We have undertaken, and we may continue to undertake, significant
restructuring initiatives, which have required us, or may require us in the future, to
develop formalized plans for exiting any of our existing activities. We recognize the fair
value of a liability for costs associated with exiting an activity when a probable
liability exists and it can be reasonably estimated. We record estimated charges for
non-voluntary termination benefit arrangements such as severance and outplacement costs
meeting the criteria for a liability as described above. Given the significance of and the
timing of the execution of such activities, the process is complex and involves periodic
reviews of estimates made at the time the original decisions were taken. As we operate in a
highly cyclical industry, we monitor and evaluate business conditions on a regular basis.
If broader or new initiatives, which could include production curtailment or closure of
other manufacturing facilities were to be taken, we may be required to incur additional
charges as well as to change estimates of amounts previously recorded. The potential impact
of these changes could be material and could have a material adverse effect on our results
of operations or financial condition. In the first half of 2007, the net amount of
restructuring charges and other related closure costs amounted to $61 million before taxes.
In the second quarter of 2007, we incurred $40 million of the total expected approximate
$270 million to $300 million in pre-tax charges associated with the new 2007 restructuring
plan of our |
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manufacturing activities. The plan was defined on July 10, 2007 and is expected to take two
to three years to complete. See Note 7 to our Unaudited Interim Consolidated Financial
Statements. |
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Share-based compensation. We are required to expense our employees share-based
compensation awards for financial reporting purposes. We measure our share-based
compensation cost based on the fair value on the grant date of each award. This cost is
recognized over the period during which an employee is required to provide service in
exchange for the award or the requisite service period, usually the vesting period, and is
adjusted for actual forfeitures that occur before vesting. Our share-based compensation
plans may award shares contingent on the achievement of certain financial objectives,
including market performance and financial results. In order to assess the fair value of
this share-based compensation, we are required to estimate certain items, including the
probability of meeting the market performance and financial results targets, the
forfeitures and the service period of our employees. As a result, we recorded in the first
half of 2007 a total pre-tax charge of $32 million out of which $4 million are related to
the 2005 Unvested Stock Award Plan, $25 million to the 2006 Unvested Stock Award Plan and
$3 million to the 2007 Unvested Stock Award Plan. |
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Income taxes. We are required to make estimates and judgments in determining income tax
expense for financial statement purposes. These estimates and judgments also occur in the
calculation of certain tax assets and liabilities and provisions. |
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We are required to assess the likelihood of recovery of our deferred tax assets. If recovery
is not likely, we are required to record a valuation allowance against the deferred tax
assets that we estimate will not ultimately be recoverable, which would increase our
provision for income taxes. As of June 30, 2007, we believed that all of the deferred tax
assets, net of valuation allowances, as recorded on our balance sheet, would ultimately be
recovered. However, should there be a change in our ability to recover our deferred tax
assets, in our estimates of the valuation allowance, or a change in the tax rates applicable
in the various jurisdictions, this could have an impact on our future tax provision in the
periods in which these changes could occur. |
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Patent and other intellectual property litigation or claims. As is the case with many
companies in the semiconductor industry, we have from time to time received, and may in the
future receive, communications alleging possible infringement of patents and other
intellectual property rights of others. Furthermore, we may become involved in costly
litigation brought against us regarding patents, mask works, copyrights, trademarks or
trade secrets. In the event that the outcome of any litigation would be unfavorable to us,
we may be required to take a license to the underlying intellectual property right upon
economically unfavorable terms and conditions, and possibly pay damages for prior use,
and/or face an injunction, all of which singly or in the aggregate could have a material
adverse effect on our results of operations and ability to compete. See Item 3. Key
InformationRisk FactorsRisks Related to Our OperationsWe depend on patents to protect
our rights to our technology included in our Form 20-F, as may be updated from time to
time in our public findings. |
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We record a provision when we believe that it is probable that a liability has been incurred
and when the amount of the loss can be reasonably estimated. We regularly evaluate losses
and claims with the support of our outside attorneys to determine whether they need to be
adjusted based on the current information available to us. Legal costs associated with
claims are expensed as incurred. We are in discussion with several parties with respect to
claims against us relating to possible infringements of patents and similar intellectual
property rights of others. |
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As of the end of the first half of 2007, based on our assessment, we did not record any
provisions in our financial statements relating to legal proceedings, because we had not
identified any risk of probable loss that is likely to arise out of the proceedings. There
can be no assurance, however, that we will be successful in resolving these proceedings. If
we are unsuccessful, or if the outcome of any other litigation or claim were to be
unfavorable to us, we may incur monetary damages, or an injunction or exclusion order. |
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Pension and Post Retirement Benefits. Our results of operations and our balance sheet
include the impact of pension and post retirement benefits that are measured using
actuarial valuations. At June 30, 2007, our pension obligations amount to $362 million
based on the assumption that our employees will work with us until they reach the age of
retirement. These valuations are based on key assumptions, including discount rates,
expected long-term rates of return on funds and salary increase rates. These |
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assumptions are updated on an annual basis at the beginning of each fiscal year or more
frequently upon the occurrence of significant events. Any changes in the pension schemes or
in the above assumptions can have an impact on our valuations. |
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Other claims. We are subject to the possibility of loss contingencies arising in the
ordinary course of business. These include, but are not limited to: warranty costs on our
products not covered by insurance, breach of contract claims, tax claims and provisions for
specifically identified income tax exposures as well as claims for environmental damages.
In determining loss contingencies, we consider the likelihood of a loss of an asset or the
incurrence of a liability, as well as our ability to reasonably estimate the amount of such
loss or liability. An estimated loss is recorded when we believe that it is probable that a
liability has been incurred and the amount of the loss can be reasonably estimated. We
regularly reevaluate any losses and claims and determine whether our provisions need to be
adjusted based on the current information available to us. In the event of litigation that
is adversely determined with respect to our interests, or in the event that we need to
change our evaluation of a potential third-party claim based on new evidence or
communications, this could have a material adverse effect on our results of operations or
financial condition at the time it were to materialize. |
Fiscal Year
Under Article 35 of our Articles of Association, our financial year extends from January 1 to
December 31, which is the period end of each fiscal year. The first quarter of 2007 ended on March
31, 2007 and the second quarter of 2007 ended on June 30, 2007. The third quarter of 2007 will end
on September 29, 2007 and the fourth quarter of 2007 will end on December 31, 2007. Based on our
fiscal calendar, the distribution of our revenues and expenses by quarter may be unbalanced due to
a different number of days in the various quarters of the fiscal year.
Business Overview
The total available market is defined as the TAM, while the serviceable available market,
the SAM, is defined as the market for products produced by us (which consists of the TAM and
excludes PC motherboard major devices such as microprocessors (MPU), dynamic random access
memories (DRAMs), and optoelectronics devices).
Effective January 1, 2007, to meet the evolving requirements of the market together with the
pursuit of a strategic repositioning in Flash memory, we have reorganized our product segment
groups into the Application Specific Product Groups, the Flash Memories Group and the Industrial
and Multisegment Sector. Since such date we report our sales and operating income in three
segments:
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the Application Specific Groups (ASG) is comprised of the newly created Mobile,
Multimedia & Communications Group (MMC) and the Home Entertainment & Displays Group
(HED) as well as the existing Automotive Product Group (APG) and Computer
Peripherals Group (CPG); |
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the Flash Memories Group (FMG), incorporates all the Flash memory operations (both
NOR and NAND), including Technology R&D, all product related activities, front-end and
back-end manufacturing, marketing and sales worldwide; and |
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the Industrial and Multisegment sector (IMS) is comprised of the former Micro,
Power, Analog (MPA) segment, which includes discrete and standard products plus
standard microcontroller and industrial devices (including the programmable systems
memories (PSM) division); non-Flash memory products; and Micro-Electro-Mechanical
Systems (MEMS) activity. |
Based
upon most recently published estimates, in the first half of 2007, semiconductor industry
revenue increased year-over-year by approximately 2.1% for the TAM
and by approximately 0.3% for
the SAM. For the second quarter of 2007, the TAM and the SAM both registered an increase of
approximately 0.9% and by approximately 0.6%, respectively on a year-over-year basis; on a
sequential basis, the TAM decreased by approximately 2.0% and the SAM increased by approximately
2.5%.
Our net revenues for the first half of 2007 were $4,693 million, decreasing 3.4% compared to
$4,858 million in the first half of 2006, reflecting a significant drop in the Telecom and Computer
market segments.
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Flash memory revenues declined 20% while non-memory products sales were equivalent. Our sales
performance was below the TAM and the SAM.
Our second quarter 2007 net revenues decreased by 3.1% to $2,418 million, from $2,495 million
in the second quarter of 2006. This year-over-year decline was driven by the Computer and Telecom
market segments. Flash memory revenues declined by approximately 19%. Our revenue performance in
the second quarter of 2007 was also below the TAM and the SAM on a
year-over-year basis.
On a sequential basis, net revenues for the second quarter 2007 increased by 6.2% to $2,418
million from $2,276 million in the first quarter of 2007. This sequential improvement was driven by
double-digit growth in the Consumer and Telecom segments. Our second quarter of 2007 results were
slightly below the mid range of the guidance released to the market anticipating a sequential
increase of net revenues between 4% and 10%. Our sequential revenue performance was above the TAM
and the SAM.
In the first half of 2007, our effective exchange rate was $1.31 for 1.00,
which reflects
actual exchange rate levels and the impact of certain hedging contracts, compared to an effective
exchange rate of $1.22 for 1.00 in the first half of 2006. In the second quarter of 2007, our
effective exchange rate was $1.33 for 1.00, while in the second quarter of 2006 our effective
exchange rate was $1.23 for 1.00 and in the first quarter of 2007 our effective exchange rate was
$1.29 for 1.00. For a more detailed discussion of our hedging arrangements and the impact of
fluctuations in exchange rates, see Impact of Changes in Exchange Rates below.
Our gross margin for the first half of 2007 decreased to 34.6%, compared to 35.4% in the first
half of 2006. The lower gross margin mainly resulted from the combined negative impact of the
decline in selling prices and the weakening of the U.S. dollar exchange rate against the other
major international currencies that exceeded the benefits of the improved manufacturing
efficiencies and a higher sales volume. On a year-over-year basis, our second quarter 2007 gross
margin experienced a similar trend decreasing to 34.7% from 35.4%.
On a sequential basis, our gross margin increased from 34.5% in the first quarter of 2007.
This was the result of the combined favorable effect of higher sales volume, improved product mix
and manufacturing efficiencies, which exceeded the continued negative impact of pricing pressures
and the weakening of the U.S. dollar exchange rate. Our second quarter performance was within the
guidance that indicated a gross margin of approximately 35% plus or minus 1 percentage point.
Our first half 2007 combined selling, general and administrative expenses and research and
development expenses increased to $1,412 million compared to $1,339 million in the first half of
2006, mostly due to the weakening of the U.S. dollar exchange rate. In the first half of 2007, our
operating expenses included $27 million in share-based compensation expenses compared to $7 million
in the first half of 2006. Due to the decline in revenues, our operating expenses to sales ratio
was 30.1%, exceeding the 27.6% comparable ratio registered for the first half of 2006. In the
second quarter of 2007, our operating expenses, as a percentage of sales, decreased sequentially to
29.6% from 30.6%.
Other income and expenses, net resulted in a net expense of $3 million in the first half of
2007 compared to a net expense of $24 million in the first half of 2006, mainly due to spending for
start-up costs and patent costs. In the second quarter of 2007, we registered a net income of $12
million, compared to a net expense of $5 million in the second quarter of 2006 and a net expense of
$15 million in the first quarter of 2007.
We registered a charge of $918 million in the first half of 2007 for impairment, restructuring
charges and other related closure costs, of which a $857 million
impairment loss was related to the pending disposal
of our FMG assets, $40 million were restructuring charges related to our new 2007 manufacturing
restructuring plan and $21 million related to our former 150-mm restructuring and headcount
reduction plans. In the first half of 2006, impairment, restructuring charges and other related
closure costs amounted to $47 million relating to our 150-mm restructuring and headcount reduction
plans.
Due to the significant impairment and restructuring charges, our operating result in the first
half of 2007 was an operating loss of $710 million compared to an operating income of $309 million
in the first half of 2006. Excluding impairment and restructuring charges, our operating income
also decreased compared to the previous year due to lower sales volume and the negative impact of
the U.S. dollar exchange rate. Also on a quarterly basis, our second quarter operating result was
largely negatively impacted by the amount of
8
impairment and restructuring charges; excluding these extraordinary charges, our operating
income improved on a sequential basis but still declined on a year-over-year basis.
We recorded a net interest income of $36 million in the first half of 2007 originated by our
efficient and diversified investment management of available liquidity between money market and
marketable securities; however, it decreased compared to the $51 million of net interest income in
the first half of 2006 mainly as a result of the reduction of available liquidity due to the
redemption in August 2006 of $1.4 billion of our 2013 Convertible Bonds (with 0.5% of positive
yield). In the first half of 2007, we recorded a $9 million income recognition related to our joint
venture with Hynix Semiconductor Inc. in China as a benefit of production build-up, which was
registered as Earnings on equity investments.
We registered an income tax expense of $15 million in the first half of 2007 compared to an
income tax expense of $57 million in the first half of 2006.
In summary, our profitability during the first half of 2007 was negatively impacted by the
following factors:
|
|
|
impairment and restructuring charges; |
|
|
|
|
euro exchange rate strengthening; |
|
|
|
|
decline in revenues mainly due to negative pricing trends; and |
|
|
|
|
higher operating expenses to sales ratio. |
The factors above were partially offset by the following favorable factors:
|
|
|
continuous improvement of our manufacturing performances; |
|
|
|
|
favorable balance of other income and expenses, net; |
|
|
|
|
earnings on equity investments; and |
|
|
|
|
lower income taxes. |
From the operational point of view, our sequential revenue results, led by recovery in
wireless and digital consumer, concretely demonstrate our ability to increase sales and, we
believe, to gain market share in the second quarter of 2007
sequentially. Strategically, the recent resolution of important initiatives allows
us to focus efforts and resources on leadership in multimedia convergence applications and power
solutions, advance a lighter asset business model, drive towards a higher return on net assets and
enhance cash generation from operations.
Announced in mid-May, the creation of a new independent Flash memory company
and the sale of our Flash memory assets to this entity are moving ahead
according to the anticipated timeline.
Additionally, advancing our commitment to a lighter asset structure, following a careful
evolution of further opportunities to optimize our asset utilization, we reached the
recently-announced decision for a further rationalization of our manufacturing operations,
including the closures of two fabs and one back-end site.
IMS and, within ASG, Automotive posted record net revenue levels in the second quarter of
2007. ASG operating profit recovery reflected both sales leverage and product-mix improvement.
While not yet at the year-ago level, these improvements indicate that the plan we articulated is
delivering the expected results.
These are forward-looking statements that are subject to known and unknown risks and
uncertainties that could cause actual results to differ materially; in particular, refer to those
known risks and uncertainties described in Cautionary Note Regarding Forward-Looking Statements
herein and Item 3. Key Information Risk Factors in our Form 20-F as may be updated from time
to time in our SEC filings.
9
Business Outlook
Based on current order visibility for the third quarter of 2007, we see sequential sales
growth continuing for us in the range between 2% and 7%. Despite the further deterioration of the
U.S. dollar exchange rate, we expect the gross margin for the quarter to expand to about 35.5% plus
or minus 1 percentage point.
These objectives are based on an assumed effective currency exchange rate of approximately
$1.37 to for 1.00 for the third quarter of 2007, which reflects current exchange rates levels
combined with the expected impact of existing hedging contracts.
These are forward-looking statements that are subject to known and unknown risks and
uncertainties that could cause actual results to differ materially; in particular, refer to those
known risks and uncertainties described in Cautionary Note Regarding Forward-Looking Statements
herein and Item 3. Key InformationRisk Factors in our Form 20-F as may be updated from time to
time in our SEC filings.
Other Developments in the First Half of 2007
As of January 1, 2007, we reorganized our product segment groups as follows: the Application
Specific Groups, the Industrial and Multisegment Sector and the Flash Memories Group. The
Application Specific Groups include the existing Automotive Products Group and Computer Peripherals
Group and the newly created Mobile, Multimedia & Communications Group and Home Entertainment &
Displays Group. The Industrial and Multisegment Sector contain the Microcontrollers, Memories &
Smartcards Group and the Analog, Power & MEMS Group. The Flash Memories Group incorporates all
Flash memory operations, including research and development and product-related activities, front-
and back-end manufacturing, marketing and sales. In conjunction with this realignment, we announced
a number of new executive and corporate vice presidents. These include Mr. Mario Licciardello as
the Corporate Vice President and General Manager of the stand-alone Flash Memories Group; Mr.
Carmelo Papa was promoted to Executive Vice President leading the Industrial and Multisegment
Sector; Mr. Claude Dardanne as the new Corporate Vice President leading the Microcontrollers,
Memories & Smartcards Group; Mr. Tommi Uhari was promoted to Executive Vice President over Mobile,
Multimedia & Communications Group; and Mr. Christos Lagomichos promoted to Corporate Vice President
for the Home Entertainment & Displays Group.
On January 16, 2007, we confirmed that the technology development at Crolles will continue
beyond 2007 despite the announcement that NXP Semiconductors B.V. (NXP Semiconductors) will
withdraw from the Crolles2 alliance at the end of 2007 and the joint technology cooperation
agreements with NXP Semiconductors and Freescale Semiconductor, Inc. (Freescale Semiconductor)
will expire on December 31, 2007. The Crolles2 alliance, in which we have partnered with NXP
Semiconductors and Freescale Semiconductor, will work together to complete the program on 45-nm
CMOS and manage the transition throughout 2007.
On January 22, 2007, a new option agreement was enacted with an independent foundation,
Stichting Continuïteit ST (the Stichting), which has
an independent board. The new option
agreement provides for the issuance of up to a maximum of 540,000,000 preference shares. The
Stichting has the option, which it shall exercise in its sole discretion, to take up the
preference shares. The preference shares would be issuable if the board of the Stichting determines
that hostile actions, such as a creeping acquisition or an unsolicited offer for our common shares,
would be contrary to our interests, the interests of our shareholders, or of other stakeholders. If
the Stichting exercises its call option and acquires preference shares, it must pay at least 25% of
the par value of such preference shares. The new option agreement with the Stichting reflects
changes in Dutch legal requirements, not a response to any hostile takeover attempt.
On February 14, 2007, we announced the expansion of our partnership with Premier Indian
Institutes, BITS Pilani and IIT Delhi, to set up research and innovation labs. The main objective
of these partnerships is to facilitate proliferation of Very Large Scale Integration (VLSI) design
and the labs are expected to be operational by the second quarter of 2007.
In 2006, our shareholders at our annual shareholders meeting approved the grant of up to 5
million Unvested Stock Awards to our senior executives and certain of our key employees, as well as
the grant of up to 100,000 Unvested Stock Awards to our President and CEO. Pursuant to such
approval, the Compensation Committee approved in April 2006 the conditions which shall apply to the
vesting of such awards. These conditions related to three criteria related to our financial
performance as well as the continued presence at the
10
defined vesting dates in 2007, 2008 and 2009. About 5 million shares have been awarded under
this plan as of March 31, 2007 and on February 28, 2007, the Compensation Committee noted that the
three conditions fixed in April 2006 have been fulfilled triggering the vesting of the first
tranche of the 2006 awards on April 27, 2007.
At our general meeting of shareholders held on April 26, 2007, our shareholders approved the
following proposals of our Managing Board upon the recommendation of our Supervisory Board:
|
|
|
a cash dividend of $0.30 per share, an approximately 150% increase to last years
cash dividend distribution. The cash dividend distribution took place in May 2007. On
May 21, 2007, our common shares traded ex-dividend on the three stock exchanges on
which they are listed; |
|
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|
|
the appointment of Mr. Ray Bingham and Mr. Alessandro Ovi for three-year terms until
the 2010 annual general meeting of shareholders as new Supervisory Board members in
replacement of Mr. Robert White whose mandate was up at this years annual
shareholders meeting and Mr. Antonio Turicchi who resigned from his position effective
as of this years annual shareholders meeting; |
|
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|
|
the approval of the main principles of the 2007 share-based compensation plan for
our employees and CEO. As part of such plan and specifically as approved by the general
meeting of shareholders, our President and CEO will be entitled to receive a maximum of
100,000 ordinary shares; |
|
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|
|
the adoption of the share-based compensation plan, for members of our Supervisory
Board; |
|
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|
|
the designation of our Supervisory Board as the corporate body authorized to resolve
upon (i) issuance of any number of shares as comprised in the authorized share capital
of our Company as this shall read from time to time, (ii) upon the terms and conditions
of an issuance of shares, (iii) upon limitation and/or exclusion of pre-emptive rights
of existing shareholders upon issuance of shares, and (iv) upon the granting of rights
to subscribe for shares, all for a five-year period as of the date of our 2007 annual
shareholders meeting; |
|
|
|
|
the authorization of our Managing Board to acquire for a consideration on a stock
exchange or otherwise up to such a number of fully paid-up ordinary shares and/or
preference shares in our share capital as is permitted by law and our Articles of
Association as per the moment of such acquisition other than acquisition of shares
pursuant to article 5, paragraph 2 of our Articles of Association for a price (i)
per ordinary share which at such moment is within a range between the par value of an
ordinary share and 110% of the share price per ordinary share on Eurolist by
EuronextTM Paris, the New York Stock Exchange or Borsa Italiana, whichever
at such moment is the highest, and (ii) per preference share which is calculated in
accordance with article 5, paragraph 5 of our Articles of Association, taking into
account the amendment to our Articles of Association, for a period of eighteen months
as of the date of our 2007 annual shareholders meeting; and |
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|
amendments to our Articles of Association. |
In addition, at our annual general meeting of shareholders held in Amsterdam on April 26,
2007, our shareholders approved our accounts which were reported in accordance with International
Financial Reporting Standards (IFRS).
On May 22, 2007, we announced that we had entered into a definitive agreement with Intel
Corporation and Francisco Partners L.P. to create a new independent semiconductor company from the
key assets of businesses which last year generated approximately $3.6 billion in combined annual
revenue. The new companys strategic focus will be on supplying Flash memory solutions for a
variety of consumer and industrial devices, including cellular phones, MP3 players, digital
cameras, computers and other high-tech equipment. Under the terms of the agreement, we will sell
our Flash memory assets, including our NAND joint venture interest and other NOR resources, to the
new company while Intel will sell its NOR assets and resources. In exchange, Intel will receive a
45.1% equity ownership stake and a $432 million cash payment at close and we will receive a 48.6%
equity ownership stake and a $468 million cash payment at close. Francisco Partners L.P., a Menlo
Park, California-based private equity firm, will invest $150 million in cash for convertible
preferred stock representing a 6.3% ownership interest, subject to adjustment in certain
circumstances. Concurrently, the parties have arranged for the new company to receive firm
commitments for a $1.3 billion term loan and $250 million
revolver. The term loan has been
underwritten by a consortium of banks. Proceeds from the term loan will be used for working capital
and payment to us and Intel for the purchase price. The transaction is subject to
11
regulatory approvals and customary closing conditions and is expected to occur in the second
half of 2007. On July 19, 2007, we announced that the pending new company will be named
NumonyxTM.
On June 18, 2007, we committed to a new program to optimize our cost structure which involves
the closing of three manufacturing operations. Over the next two to three years we will wind down
operations of our 200-mm wafer fab in Phoenix (Arizona), our 150-mm fab in Carrollton (Texas) and
our back-end packaging and test facility in Ain Sebaa (Morocco). The plan was announced on July 10,
2007. We expect these measures to generate savings of approximately $150 million per year in the
cost of goods sold once the plan has been completed. The total impairment and restructuring charges for this program are expected to
be in the range of $270 million and $300 million, of which approximately $250 million are estimated
to be cash charges.
On July 24, 2007, we announced that we have signed an agreement with IBM to collaborate on the
development of next-generation process technology that is used in semiconductor development and
manufacturing. The agreement includes 32-nm and 22-nm complementary metaloxidesemiconductor
(CMOS) process-technology development, design enablement and advanced research adapted to the
manufacturing of 300-mm silicon wafers. In addition, it includes both the core bulk CMOS technology
and value-added derivative System-on-Chip (SoC) technologies and positions both companies at the
leading edge of technology development. The new agreement between IBM and us will also include
collaboration on IP development and platforms to speed the design of SoC devices in these
technologies.
Results of Operations
Segment Information
We operate in two business areas: Semiconductors and Subsystems.
In the semiconductors business area, we design, develop, manufacture and market a broad range
of products, including discrete, memories and standard commodity components, application-specific
integrated circuits (ASICs), full-custom devices and semi-custom devices and application-specific
standard products (ASSPs) for analog, digital and mixed-signal applications. In addition, we
further participate in the manufacturing value chain of Smart card products through our divisions,
which include the production and sale of both silicon chips and Smart cards.
Pursuing the strategic repositioning in Flash Memory and in order to better meet the
requirements of the market, we realigned our product groups effective January 1, 2007. Since such
date, we report our semiconductor sales and operating income in the following three product
segments:
|
|
|
Application Specific Groups (ASG) segment, comprised of three product lines: Home
Entertainment & Displays Group (HED), Mobile, Multimedia & Communications Group
(MMC) and Automotive Products (APG); |
|
|
|
|
Flash Memories Group (FMG) segment; and |
|
|
|
|
Industrial and Multisegment Sector (IMS), comprised of the former Micro, Power,
Analog (MPA) segment, non-Flash memory products and Micro-Electro-Mechanical Systems
(MEMS). |
We have restated our results in prior periods for illustrative comparisons of our performance
by product segment and by period. The segment information of 2006 has been restated using the same
principles applied to 2007. The preparation of segment information according to the new segment
structure requires management to make significant estimates, assumptions and judgments in
determining the operating income of the segments for the prior reporting periods. However, we
believe the presentation of the segment information for 2006 is comparable to 2007 and we are using
these comparatives for business management.
Our principal investment and resource allocation decisions in the semiconductor business area
are for expenditures on research and development and capital investments in front-end and back-end
manufacturing facilities. These decisions are not made by product segments, but on the basis of the
semiconductor business area. All these product segments share common research and development for
process technology and manufacturing capacity for most of their products.
In the subsystems business area, we design, develop, manufacture and market subsystems and
modules for the telecommunications, automotive and industrial markets including mobile phone
accessories, battery
12
chargers, ISDN power supplies and in-vehicle equipment for electronic toll payment. Based on
its immateriality to our business as a whole, the Subsystems segment does not meet the requirements
for a reportable segment as defined in Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (FAS 131).
The following tables present our consolidated net revenues and consolidated operating income
by semiconductor product group segment. For the computation of the segments internal financial
measurements, we use certain internal rules of allocation for the costs not directly chargeable to
the segments, including cost of sales, selling, general and administrative expenses and a
significant part of research and development expenses. Additionally, in compliance with our
internal policies, certain cost items are not charged to the segments, including impairment,
restructuring charges and other related closure costs, start-up costs of new manufacturing
facilities, some strategic and special research and development programs or other
corporate-sponsored initiatives, including certain corporate level operating expenses and certain
other miscellaneous charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
(in $ millions) |
|
Net revenues by product segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Application Specific Groups (ASG) |
|
$ |
1,303 |
|
|
$ |
1,367 |
|
|
$ |
2,524 |
|
|
$ |
2,684 |
|
Flash Memories Group (FMG) |
|
|
331 |
|
|
|
407 |
|
|
|
654 |
|
|
|
818 |
|
Industrial and Multisegment Sector (IMS) |
|
|
767 |
|
|
|
707 |
|
|
|
1,488 |
|
|
|
1,328 |
|
Others(1) |
|
|
17 |
|
|
|
14 |
|
|
|
27 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated net revenues |
|
$ |
2,418 |
|
|
$ |
2,495 |
|
|
$ |
4,693 |
|
|
$ |
4,858 |
|
|
|
|
(1) |
|
Includes revenues from sales of subsystems and other products not allocated to product
segments. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
|
|
|
|
(in $ millions) |
|
|
|
|
|
Operating income (loss) by product segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Application Specific Groups (ASG) |
|
$ |
53 |
|
|
$ |
108 |
|
|
$ |
52 |
|
|
$ |
202 |
|
Flash Memories Group (FMG) |
|
|
(25 |
) |
|
|
3 |
|
|
|
(42 |
) |
|
|
(12 |
) |
Industrial and Multisegment Sector (IMS) |
|
|
103 |
|
|
|
105 |
|
|
|
210 |
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income of product segments |
|
|
131 |
|
|
|
216 |
|
|
|
220 |
|
|
|
372 |
|
Others(1) |
|
|
(903 |
) |
|
|
(47 |
) |
|
|
(930 |
) |
|
|
(637 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating income |
|
$ |
(772 |
) |
|
$ |
169 |
|
|
$ |
(710 |
) |
|
$ |
309 |
|
|
|
|
(1) |
|
Operating income (loss) of Others includes items such as impairment, restructuring charges
and other related closure costs, start-up costs, and other unallocated expenses such as:
strategic or special research and development programs, certain corporate level operating
expenses, certain patent claims and litigations, and other costs that are not allocated to the
product segments, as well as operating earnings or losses of the Subsystems and Other Products
Group. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
June 30, 2007 |
|
July 1, 2006 |
|
|
(as percentages of net revenues) |
Operating income (loss) by product segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Application Specific Groups (ASG) (1)
|
|
|
4.1 |
% |
|
|
7.9 |
% |
|
|
2.1 |
% |
|
|
7.5 |
% |
Flash Memories Group (FMG) (1)
|
|
|
(7.6 |
) |
|
|
0.7 |
|
|
|
(6.4 |
) |
|
|
(1.5 |
) |
Industrial and Multisegment Sector (IMS) (1)
|
|
|
13.4 |
|
|
|
14.9 |
|
|
|
14.1 |
|
|
|
13.7 |
|
Others(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating income(3)
|
|
|
(31.9 |
)% |
|
|
6.8 |
% |
|
|
(15.1 |
)% |
|
|
6.4 |
% |
|
|
|
(1) |
|
As a percentage of net revenues per product group. |
|
(2) |
|
As a percentage of total net revenues. Includes operating income (loss) from sales of
subsystems and other income (costs) not allocated to product segments. |
|
(3) |
|
As a percentage of total net revenues. |
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
(in $ millions) |
|
Reconciliation to consolidated operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income of product segments |
|
$ |
131 |
|
|
$ |
216 |
|
|
$ |
220 |
|
|
$ |
372 |
|
Strategic and other research and development programs |
|
|
(4 |
) |
|
|
(2 |
) |
|
|
(8 |
) |
|
|
(5 |
) |
Start-up costs |
|
|
(5 |
) |
|
|
(14 |
) |
|
|
(15 |
) |
|
|
(25 |
) |
Impairment, restructuring charges and other related
closure costs |
|
|
(906 |
) |
|
|
(34 |
) |
|
|
(918 |
) |
|
|
(47 |
) |
Other non-allocated provisions(1) |
|
|
12 |
|
|
|
3 |
|
|
|
11 |
|
|
|
14 |
|
Total operating loss Others(2) |
|
|
(903 |
) |
|
|
(47 |
) |
|
|
(930 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating income |
|
$ |
(772 |
) |
|
$ |
169 |
|
|
$ |
(710 |
) |
|
$ |
309 |
|
|
|
|
(1) |
|
Includes unallocated income and expenses such as certain corporate level operating expenses
and other costs that are not allocated to the product segments. |
|
(2) |
|
Operating income (loss) of Others includes items such as impairment, restructuring charges
and other related closure costs, start-up costs, and other unallocated expenses such as:
strategic or special research and development programs, certain corporate level operating
expenses, certain patent claims and litigations, and other costs that are not allocated to the
product segments, as well as operating earnings or losses of the Subsystems and Other Products
Group. |
Net revenues by location of order shipment and by market segment
The table below sets forth information on our net revenues by location of order shipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
Net Revenues by Location of Order Shipment(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
$ |
812 |
|
|
$ |
779 |
|
|
$ |
1,583 |
|
|
$ |
1,499 |
|
North America(2) |
|
|
284 |
|
|
|
308 |
|
|
|
567 |
|
|
|
636 |
|
Asia Pacific |
|
|
414 |
|
|
|
537 |
|
|
|
842 |
|
|
|
1,050 |
|
Greater China |
|
|
646 |
|
|
|
657 |
|
|
|
1,203 |
|
|
|
1,253 |
|
Japan |
|
|
131 |
|
|
|
95 |
|
|
|
242 |
|
|
|
177 |
|
Emerging Markets(2)(3) |
|
|
131 |
|
|
|
119 |
|
|
|
256 |
|
|
|
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,418 |
|
|
$ |
2,495 |
|
|
$ |
4,693 |
|
|
$ |
4,858 |
|
|
|
|
(1) |
|
Net revenues by location of order shipment are classified by location of customer invoiced.
For example, products ordered by U.S.-based companies to be invoiced to Asia Pacific
affiliates are classified as Asia Pacific revenues. |
|
(2) |
|
As of July 2, 2006, the region North America includes Mexico, which was part of Emerging
Markets in prior periods. Amounts have been reclassified to reflect this change. |
|
(3) |
|
Emerging Markets include markets such as India, Latin America, the Middle East and Africa,
Europe (non-EU and non-EFTA) and Russia. |
14
The table below shows our net revenues by location of order shipment and market segment
application in percentages of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
(as percentages of net revenues) |
|
Net Revenues by Location of Order Shipment(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
33.6 |
% |
|
|
31.2 |
% |
|
|
33.7 |
% |
|
|
30.9 |
% |
North America(2) |
|
|
11.7 |
|
|
|
12.4 |
|
|
|
12.1 |
|
|
|
13.1 |
|
Asia Pacific |
|
|
17.1 |
|
|
|
21.5 |
|
|
|
17.9 |
|
|
|
21.6 |
|
Greater China |
|
|
26.8 |
|
|
|
26.3 |
|
|
|
25.6 |
|
|
|
25.8 |
|
Japan |
|
|
5.4 |
|
|
|
3.8 |
|
|
|
5.2 |
|
|
|
3.6 |
|
Emerging Markets(2)(3) |
|
|
5.4 |
|
|
|
4.8 |
|
|
|
5.5 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Net Revenues by Market Segment Application(4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive |
|
|
15.9 |
% |
|
|
15.2 |
% |
|
|
16.1 |
% |
|
|
15.3 |
% |
Consumer |
|
|
17.4 |
|
|
|
15.7 |
|
|
|
17.1 |
|
|
|
16.0 |
|
Computer |
|
|
15.1 |
|
|
|
16.5 |
|
|
|
15.9 |
|
|
|
16.6 |
|
Telecom |
|
|
35.9 |
|
|
|
38.4 |
|
|
|
35.2 |
|
|
|
38.2 |
|
Industrial and Other |
|
|
15.7 |
|
|
|
14.2 |
|
|
|
15.7 |
|
|
|
13.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
(1) |
|
Net revenues by location of order shipment are classified by location of customer invoiced.
For example, products ordered by U.S.-based companies to be invoiced to Asia Pacific
affiliates are classified as Asia Pacific revenues. |
|
(2) |
|
As of July 2, 2006, the region North America includes Mexico, which was part of Emerging
Markets in prior periods. Amounts have been reclassified to reflect this change. |
|
(3) |
|
Emerging Markets include markets such as India, Latin America, the Middle East and Africa,
Europe (non-EU and non-EFTA) and Russia. |
|
(4) |
|
The above table estimates, within a variance of 5% to 10% in the absolute dollar amount, the
relative weighting of each of our target segments. |
The following table sets forth certain financial data from our Consolidated Statements of
Income, expressed in each case as a percentage of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
June 30, 2007 |
|
July 1, 2006 |
|
|
(as percentage of net revenues) |
Net sales |
|
|
99.6 |
% |
|
|
99.9 |
% |
|
|
99.7 |
% |
|
|
99.9 |
% |
Other revenues |
|
|
0.4 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.1 |
|
Net revenues |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Cost of sales |
|
|
(65.3 |
) |
|
|
(64.6 |
) |
|
|
(65.4 |
) |
|
|
(64.6 |
) |
Gross profit |
|
|
34.7 |
|
|
|
35.4 |
|
|
|
34.6 |
|
|
|
35.4 |
|
Selling, general and administrative |
|
|
(11.2 |
) |
|
|
(10.7 |
) |
|
|
(11.3 |
) |
|
|
(10.8 |
) |
Research and development |
|
|
(18.4 |
) |
|
|
(16.4 |
) |
|
|
(18.8 |
) |
|
|
(16.8 |
) |
Other income and expenses, net |
|
|
0.5 |
|
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.5 |
) |
Impairment, restructuring charges and other
related closure costs |
|
|
(37.5 |
) |
|
|
(1.3 |
) |
|
|
(19.5 |
) |
|
|
(0.9 |
) |
Operating income |
|
|
(31.9 |
) |
|
|
6.8 |
|
|
|
(15.1 |
) |
|
|
6.4 |
|
Interest income, net |
|
|
0.7 |
|
|
|
1.2 |
|
|
|
0.7 |
|
|
|
1.0 |
|
Earnings (loss) on equity investments |
|
|
0.1 |
|
|
|
|
|
|
|
0.2 |
|
|
|
(0.1 |
) |
Income before income taxes and minority interests |
|
|
(31.1 |
) |
|
|
7.9 |
|
|
|
(14.2 |
) |
|
|
7.3 |
|
Income tax expense |
|
|
(0.1 |
) |
|
|
(1.1 |
) |
|
|
(0.4 |
) |
|
|
(1.1 |
) |
Income before minority interests |
|
|
(31.2 |
) |
|
|
6.8 |
|
|
|
(14.6 |
) |
|
|
6.2 |
|
Minority interests |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.0 |
) |
|
|
|
|
Net income |
|
|
(31.4 |
)% |
|
|
6.7 |
% |
|
|
(14.6 |
)% |
|
|
6.2 |
% |
15
Second Quarter of 2007 vs. Second Quarter of 2006 and First Quarter of 2007
Based
upon most recently published estimates, in the second quarter of 2007, semiconductor industry
revenue on a year-over-year basis increased by approximately 0.9% for the TAM and by approximately
0.6% for the SAM. On a sequential basis, revenues in the second quarter of 2007 decreased by
approximately 2.0% for the TAM and increased by approximately 2.5% for the SAM.
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
% Variation |
|
|
|
June 30, 2007 |
|
|
March 31, 2007 |
|
|
July 1, 2006 |
|
|
Sequential |
|
|
Year-over-year |
|
|
|
(unaudited, in $ millions) |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
2,409 |
|
|
$ |
2,269 |
|
|
$ |
2,492 |
|
|
|
6.2 |
% |
|
|
(3.3 |
)% |
Other revenues |
|
|
9 |
|
|
|
7 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
2,418 |
|
|
$ |
2,276 |
|
|
$ |
2,495 |
|
|
|
6.2 |
% |
|
|
(3.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-over-year comparison
Our second quarter 2007 net revenues decreased 3.1% compared to the second quarter of 2006,
mainly as a result of the decline in our average selling prices of about 9% due to ongoing pricing
pressure in the semiconductor market. Furthermore, our sales units were higher. In the quarter, we
benefited from a higher amount in other revenues which was related to the selling of materials
that did not meet our quality standards to end users in other industries.
With reference to our product group segments, IMS improved its revenue performance, while
ASG and, in particular, FMG net revenues registered a negative variation. ASG net revenues
decreased 4.7% due to a significant decline in selling prices, in particular, in the Telecom
sector, while the group benefited from higher units sold and a more favorable product mix; the main
decreases were registered in Imaging, Computer Peripherals and Communication Infrastructure while
the groups revenues performed better in Automotive, Consumer and Cellular Communication. Revenue
performance for IMS was significant with an 8.5% growth rate driven by higher sales volumes in most
of its main product families and a more favorable product mix, which resulted in improving the
groups overall average selling prices. FMG net revenues decreased by 18.5% as a result of a drop
in selling prices and fewer units sold; wireless Flash decreased by approximately 31% while NAND
increased by approximately 73%.
By
market segment application, Computer and Telecom were the main contributors to the negative
year-over-year variation; while an upside was registered in Consumer, Industrial and Automotive.
By location of order shipment, the most significant decrease was experienced in the Asia
Pacific region which declined by approximately 23%; North America and Greater China regions
experienced a decrease by approximately 8% and 2%, respectively, while net revenues increased by
approximately 38% in Japan, 4% in Europe and 10% in Emerging Markets.
We had several large customers, with the largest one, the Nokia group of companies, accounting
for approximately 20% of our second quarter of 2007 net revenues, which was lower than the
approximate 22% it accounted for during the second quarter of 2006. Our top ten OEM (original
equipment manufacturers) customers accounted for approximately 48% of our net revenues compared to
approximately 52% in the second quarter of 2006. Sales to distributors accounted for approximately
17% in the second quarter of 2007, compared to 19% in the second quarter of 2006.
Sequential comparison
Our second quarter 2007 net revenues grew by 6.2% compared to the first quarter 2007 net
revenues due to higher overall units sold, while average selling
prices remained basically flat as a result of an improvement in product
mix and despite a pure price decline.
All product group segments registered an increase in net revenues. ASG increased 6.8% as a
result of higher sales volume and improved product mix; the more favorable variations were in
Consumer, Wireless
Communication, Connectivity and Automotive while a decline was experienced in Data Storage and
Imaging.
16
IMS increased 6.2% led by higher sales volume and improved product mix and most of the
product families experienced an increase in sales volume. FMG sales were up 2.7% driven by sales
volume; Wireless products decreased by approximately 2% while NAND products increased 26%.
Almost all of our market segment applications experienced an increase in revenues except
Computer, with main contribution for the increase coming from Telecom, Consumer and Industrial.
By location of order shipment, net revenues in Japan increased by approximately 18%, Greater
China approximately 16%, Europe and Emerging Markets approximately 5% each, while Asia Pacific
decreased by approximately 3% and North America was flat.
In the second quarter of 2007, we had several large customers, with the largest one, the Nokia
group of companies, accounting for approximately 20% of our net
revenues, increasing from the 19%
it accounted for during the first quarter of 2007. Our top ten OEM customers accounted for
approximately 48% of our net revenues in the second quarter of 2007 compared to 50% in the first
quarter of 2007. Sales to distributors were approximately 17% in the second quarter of 2007
compared to 19% in the first quarter of 2007.
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
% Variation |
|
|
June 30, 2007 |
|
March 31, 2007 |
|
July 1, 2006 |
|
Sequential |
|
Year-over-year |
|
|
(unaudited, in $ millions) |
|
|
|
|
|
|
|
|
Cost of sales |
|
$ |
(1,580 |
) |
|
$ |
(1,491 |
) |
|
$ |
(1,613 |
) |
|
|
(6.0 |
)% |
|
|
2.0 |
% |
Gross profit |
|
$ |
838 |
|
|
$ |
785 |
|
|
$ |
882 |
|
|
|
6.7 |
% |
|
|
(5.1 |
)% |
Gross margin (as a
percentage of net
revenues) |
|
|
34.7 |
% |
|
|
34.5 |
% |
|
|
35.4 |
% |
|
|
|
|
|
|
|
|
On a year-over-year basis, our gross profit decreased by 5.1%. In the same period, our
gross margin decreased from 35.4% to 34.7%, mainly caused by the combined negative effect of the
selling price decline and the unfavorable trend of the U.S. dollar exchange rate, which were
partially balanced by gains in manufacturing efficiencies and a more favorable product mix.
On a sequential basis, our gross profit increased 6.7%, mainly driven by higher sales volume,
improved product mix and manufacturing efficiencies, partially compensated by negative impacts of
selling prices and the weakening U.S. dollar exchange rate. Due to these factors, our gross margin
recovered 20 basis points reaching the level of 34.7%.
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
% Variation |
|
|
June 30, 2007 |
|
March 31, 2007 |
|
July 1, 2006 |
|
Sequential |
|
Year-over-year |
|
|
(unaudited, in $ millions) |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
$ |
(270 |
) |
|
$ |
(261 |
) |
|
$ |
(266 |
) |
|
|
(3.4 |
)% |
|
|
(1.5 |
)% |
As percentage of net revenues |
|
|
(11.2 |
)% |
|
|
(11.5 |
)% |
|
|
(10.7 |
)% |
|
|
|
|
|
|
|
|
The amount of our selling, general and administrative (SG&A) expenses slightly
increased on year-over-year basis; mainly due to the U.S. dollar rate weakening and higher
share-based compensation charges. Our share-based compensation charges were $9 million in the
second quarter of 2007 and $3 million in the second quarter of 2006. Combined with our net revenues
decline, our second quarter 2007 ratio of SG&A to sales was 11.2% compared to 10.7% for the second
quarter of 2006.
Selling, general and administrative increased 3.4% compared to the first quarter of 2007,
which included $10 million of share-based compensation. Due to the higher sales, SG&A to sales
ratio slightly improved sequentially.
17
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
% Variation |
|
|
June 30, 2007 |
|
March 31, 2007 |
|
July 1, 2006 |
|
Sequential |
|
Year-over-year |
|
|
(unaudited, in $ millions) |
|
|
|
|
|
|
|
|
Research and development expenses |
|
$ |
(446 |
) |
|
$ |
(435 |
) |
|
$ |
(408 |
) |
|
|
(2.3 |
)% |
|
|
(9.0 |
)% |
As percentage of net revenues |
|
|
(18.4 |
)% |
|
|
(19.1 |
)% |
|
|
(16.4 |
)% |
|
|
|
|
|
|
|
|
On a year-over-year basis and sequentially, our research and development expenses
increased mainly due to the negative impact of the effective U.S.
dollar exchange rate. The second
quarter of 2006 was favorably impacted by a $5 million benefit associated with the change of the
pension scheme in one subsidiary and a $2 million benefit related to the recognition of regional
grants associated with the relief of social charges for past hirings
in Italy. Our share-based compensation charges were $1 million
in the second quarter of 2006.
On
a sequential basis, research and development expenses increased as a result of the negative
impact of the U.S. dollar exchange rate. Our share-based compensation
charges to R&D expenses were $3 million in
the second quarter of 2007 compared to $5 million in the first quarter of 2007.
Other income and expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
June 30, 2007 |
|
March 31, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Research and development funding |
|
$ |
15 |
|
|
$ |
11 |
|
|
$ |
9 |
|
Start-up costs |
|
|
(5 |
) |
|
|
(10 |
) |
|
|
(14 |
) |
Exchange gain (loss), net |
|
|
1 |
|
|
|
(4 |
) |
|
|
(4 |
) |
Patent litigation costs |
|
|
(5 |
) |
|
|
(7 |
) |
|
|
(4 |
) |
Patent pre-litigation costs |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
Gain on sale of Accent subsidiary |
|
|
|
|
|
|
|
|
|
|
6 |
|
Gain (loss)
on sale of other non-current assets, net |
|
|
(1 |
) |
|
|
1 |
|
|
|
1 |
|
Other, net |
|
|
10 |
|
|
|
(4 |
) |
|
|
(2 |
) |
Other income and expenses, net |
|
|
12 |
|
|
|
(15 |
) |
|
|
(5 |
) |
As a percentage of net revenues |
|
|
0.5 |
% |
|
|
(0.7 |
)% |
|
|
(0.2 |
)% |
Other income and expenses, net results mainly include, as income, items such as research
and development funding, gains on sale of non-current assets, and as expenses, start-up costs, net
exchange rate results and patent claim costs. In the second quarter of 2007, research and
development funding income was associated with our research and development projects, which qualify
as funding on the basis of contracts with local government agencies in locations where we pursue
our activities. In second quarter of 2007, other, net included
$10 million in income that we received in our on-going pursuit
to recover damage related to the case disclosed in our November 2006
press release. In the second quarter of 2007, all of these factors resulted in a net income of $12
million.
Impairment, restructuring charges and other related closure costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
June 30, 2007 |
|
March 31, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Impairment, restructuring charges and other related closure costs |
|
$ |
(906 |
) |
|
$ |
(12 |
) |
|
$ |
(34 |
) |
In the second quarter of 2007, we recorded impairment, restructuring charges and other
related closure costs of $906 million. This expense was related to:
|
|
|
an impairment loss estimated at $857 million booked upon
signing the agreement for the pending disposal
of our FMG assets; |
18
|
|
|
a charge of $40 million related to the severance costs booked in relation to the new
2007 restructuring plan of our manufacturing activities; |
|
|
|
|
a charge of $6 million generated by our 150-mm restructuring plan; and |
|
|
|
|
a charge of $3 million for employee benefits relating to our headcount restructuring plan. |
In the second quarter of 2006, impairment, restructuring charges and other related closure
costs amounted to $34 million and were mainly related to the same restructuring plans ($28 million
for the headcount restructuring plan and $6 million for 150-mm restructuring plan).
In the first quarter of 2007, we booked $12 million in impairment, restructuring charges and
other related closures costs, composed of $3 million for the headcount restructuring plan and $9
million for the 150-mm restructuring plan.
See Note 7 to our Unaudited Interim Consolidated Financial Statements.
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
June 30, 2007 |
|
March 31, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Operating income (loss) |
|
$ |
(772 |
) |
|
$ |
62 |
|
|
$ |
169 |
|
As a percentage of net revenues |
|
|
(31.9 |
)% |
|
|
2.7 |
% |
|
|
6.8 |
% |
Year-over-year basis
Due to the high amount of impairment and restructuring charges in the second quarter of 2007,
our operating results for the quarter registered a loss, while in the previous comparable periods
we registered an operating income. However, even excluding the impairment and restructuring
charges, our operating income decreased both in dollar value and percentage to sales ratio due to
the negative impact of declining selling prices and the weakening U.S. dollar, only partially
balanced by continuous improvements in our manufacturing efficiencies.
In the second quarter of 2007, with reference to our product group segments, we registered an
operating income in IMS and ASG, and a loss in FMG. ASG operating income was $53 million,
decreasing from an operating income of $108 million, primarily due to the drop in its revenues that
were impacted by the decline in selling prices. In spite of the revenue increase, IMS operating
income remained basically flat at the level of $103 million, since the benefit of higher sales was
offset by the negative impact of a decline in selling prices. FMG operating result moved from an
operating income of $3 million to a loss of $25 million in the second quarter of 2007 mainly due to
the drop in its revenues.
Sequentially
On a sequential basis and excluding impairment and restructuring charges, our operating result
significantly improved driven by revenues and manufacturing efficiencies which exceeded the
negative impact of the persisting pricing pressure and the weakening of the U.S. dollar.
ASG operating income improved from breakeven to a solid profit level supported by the recovery
of a higher sales volume. IMS operating income slightly decreased on a sequential basis due to the
increased level of operating expenses and manufacturing inefficiencies. FMG further deteriorated
its operating loss as the group was also impacted by charges associated with lower manufacturing
capacity utilization.
Interest income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
June 30, 2007 |
|
March 31, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Interest income, net |
|
$ |
18 |
|
|
$ |
17 |
|
|
$ |
30 |
|
19
Net interest income was $18 million in the second quarter of 2007, basically equivalent
to the amount in the previous quarter. In comparison to the second quarter of 2006, interest
income, net was lower primarily as a result of the reduction of available liquidity due to the
early redemption in August 2006 of $1.4 billion of our 2013 Convertible Bonds (with 0.5% of
positive yield).
Earnings (loss) on equity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
June 30, 2007 |
|
March 31, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Earnings (loss) on equity investments |
|
$ |
3 |
|
|
$ |
7 |
|
|
$ |
(1 |
) |
The earnings in the second quarter of 2007 are mainly related to our investment as
minority shareholder in our joint venture with Hynix Semiconductor Inc. in China, decreasing
sequentially from the first quarter of 2007 which included a one-time income recognition.
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
June 30, 2007 |
|
March 31, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Income tax expense |
|
$ |
(4 |
) |
|
$ |
(11 |
) |
|
$ |
(29 |
) |
During the second quarter of 2007, we registered an income tax expense of $4 million
that reflected an estimated annual effective tax rate for recurring
operations of approximately 12%, as well as some one-time income tax
benefits, including those from the cost-structure initiative
announced on July 10, 2007. Furthermore, we did not accrue in the quarter any
tax impact which could be associated to the FMG impairment loss pending the appraisals of the fair value
of the assets and the recognition of these fair values in the tax jurisdictions involved in the FMG
transaction. During the second quarter of 2006, we had an income tax expense of $29 million. During
the first quarter of 2007, we recorded an income tax expense of $11 million.
Our tax rate is variable and depends on changes in the level of operating income within
various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions,
as well as changes in estimated tax provisions due to new events. We currently enjoy certain tax
benefits in some countries; as such benefits may not be available in the future due to changes in
the local jurisdictions, our effective tax rate could be different in future quarters and may
increase in the coming years.
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
June 30, 2007 |
|
March 31, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Net income (loss) |
|
$ |
(758 |
) |
|
$ |
74 |
|
|
$ |
168 |
|
As percentage of net revenues |
|
|
(31.4 |
)% |
|
|
3.3 |
% |
|
|
6.7 |
% |
For the second quarter of 2007, we reported a net loss of $758 million, compared to net
income of $168 million in the second quarter of 2006 and net income of $74 million in the first
quarter of 2007. This loss was originated by the impairment and restructuring charges associated
with the FMG pending disposal. Loss per share for the second quarter
of 2007 was
$(0.84); the $(0.84) loss per share included $(0.99) loss per share due to the second quarter 2007
impairment and restructuring charges. The second quarter 2007 loss per share declined from basic
and diluted earnings of $0.19 and $0.18, respectively, for the second
quarter of 2006 and declined
compared to basic and diluted earnings per share of $0.08 each for the first quarter of 2007.
20
First Half of 2007 vs. First Half of 2006
Based
upon most recently published estimates, in the first half of 2007, semiconductor industry
revenue increased year-over-year by approximately 2.1% for the TAM
and by approximately 0.3% for
the SAM.
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
% Variation |
|
|
(unaudited, in $ millions) |
|
|
|
|
Net sales |
|
$ |
4,678 |
|
|
$ |
4,854 |
|
|
|
(3.6 |
)% |
Other revenues |
|
|
15 |
|
|
|
4 |
|
|
|
|
|
Net revenues |
|
$ |
4,693 |
|
|
$ |
4,858 |
|
|
|
(3.4 |
)% |
Our first half 2007 net revenues decreased 3.4% compared to the first half of 2006. This
was mainly due to the significant negative impact of declining prices which largely exceeded a
higher sales volume and improved product mix. During the first half of 2007, the ongoing pricing
pressure in the semiconductor market generated an average selling price decrease of approximately
8%, as a pure pricing effect, just marginally compensated by a favorable product mix effect.
With respect to our product group segments, ASG net revenues decreased by 6% due to the
negative price trend. IMS revenue increased by 12% and was supported by an improved product mix.
FMG net revenues decreased 20% due both to price pressure and declining units sold.
By market segment application, Telecom and Computer decreased by approximately 11% and 8%,
respectively, while Industrial was the major gainer with revenue increases of approximately 9%;
also Consumer and Automotive revenues registered a slight increase.
By location of order shipment, the revenue performances were mixed among the regions, with a
decline in Asia Pacific of approximately 20%, North America 11% and Greater China 4%, while the
growth rate in the other three regions, Japan, Europe and Emerging Markets, was approximately 37%,
6% and 5%, respectively.
In the first half of 2007, we had several large customers, with the largest one, the Nokia
Group of companies, accounting for approximately 20% of our net revenues, slightly decreasing from
22% it accounted for during the first half of 2006. Our top ten OEM customers accounted for
approximately 49% of our net revenues in the first half of 2007 compared to approximately 52% in
the equivalent previous year period. Sales to distributors were approximately 18% in the first half
of 2007 compared to 19% in the first half of 2006.
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
% Variation |
|
|
(unaudited, in $ millions) |
|
|
|
|
Cost of sales |
|
$ |
(3,070 |
) |
|
$ |
(3,139 |
) |
|
|
2.2 |
% |
Gross profit |
|
$ |
1,623 |
|
|
$ |
1,719 |
|
|
|
(5.6 |
)% |
Gross margin (as a percentage of net revenues) |
|
|
34.6 |
% |
|
|
35.4 |
% |
|
|
|
|
Our gross profit decreased 5.6% and our gross margin deteriorated to 34.6% compared to
35.4% in the year-ago period, due to the negative impact of the significant selling price drop
which was compensated by improved manufacturing efficiencies.
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
% Variation |
|
|
(unaudited, in $ millions) |
|
|
|
|
Selling, general and administrative expenses |
|
$ |
(531 |
) |
|
$ |
(522 |
) |
|
|
(1.7 |
)% |
As a percentage of net revenues |
|
|
(11.3 |
)% |
|
|
(10.8 |
)% |
|
|
|
|
21
Our
selling, general and administrative expenses slightly increased by
1.7% due to
an unfavorable trend in the U.S. dollar exchange rate. Expenses in the first half of 2007 included
$19 million in charges related to share-based compensation compared to $5 million in first half of
2006. Due to the revenue decline, the ratio of sales to selling, general and administrative
expenses increased to 11.3% from 10.8% a year ago.
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
% Variation |
|
|
(unaudited, in $ millions) |
|
|
|
|
Research and development expenses |
|
$ |
(881 |
) |
|
$ |
(817 |
) |
|
|
(7.8 |
)% |
As a percentage of net revenues |
|
|
(18.8 |
)% |
|
|
(16.8 |
)% |
|
|
|
|
Research and development expenses slightly increased mainly due to the unfavorable impact
of the U.S. dollar exchange rate since a large part of our activities are located in areas
denominated in other currencies. The first half of 2006 includes a $5 million benefit due to the
change in the pension scheme in one of our subsidiaries and a $2 million benefit recognized for
receivable regional grants related to the relief of social charges associated with past hirings of
employees in Italy. Expenses in the first half of 2007 included $8 million in charges related to
share-based compensation compared to $3 million in the first half of 2006. As a percentage of net
revenues, research and development expenses increased from 16.8% to 18.8% in the first half of
2007.
Other income and expenses, net
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Research and development funding |
|
$ |
26 |
|
|
$ |
13 |
|
Start-up costs |
|
|
(15 |
) |
|
|
(25 |
) |
Exchange gain (loss) net |
|
|
(3 |
) |
|
|
(9 |
) |
Patent litigation costs |
|
|
(12 |
) |
|
|
(8 |
) |
Patent pre-litigation costs |
|
|
(5 |
) |
|
|
(3 |
) |
Gain on sale of Accent subsidiary |
|
|
|
|
|
|
6 |
|
Gain on sale of other non-current assets |
|
|
|
|
|
|
1 |
|
Other, net |
|
|
6 |
|
|
|
1 |
|
Other income and expenses, net |
|
$ |
(3 |
) |
|
$ |
(24 |
) |
As a percentage of net revenues |
|
|
(0.1 |
)% |
|
|
(0.5 |
)% |
Other income and expenses, net resulted in a net expense of $3 million in the first
half of 2007, compared to a net expense of $24 million in the first half of 2006. The first half of
2007 includes a cash recovery of $10 million associated with the
case described in our November 2006 press release. The legal and
consultancy fees related to such case amount to $2 million, recorded
in the first quarter of 2007. Research and development funding includes income of some of our
research and development projects, which qualify as funding on the basis of contracts with local
government agencies in locations where we pursue our activities. The major amounts of research and
development funding were received in Italy and France. Start-up costs in the first half of 2007
were related to our 150-mm fab expansion in Singapore and the conversion to 200-mm fab in Agrate
(Italy) and build-up of our 300-mm fab in Catania (Italy). Patent claim costs included costs
associated with several ongoing litigations and claims.
Impairment, restructuring charges and other related closure costs
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Impairment, restructuring charges
and other related closure costs |
|
$ |
(918 |
) |
|
$ |
(47 |
) |
Impairment, restructuring charges and other related closure costs increased significantly
compared to the previous year in view of new items which have been recorded during the second
quarter of 2007. This first half expense was mainly composed of:
22
|
|
|
an impairment loss estimated at $857 million booked upon
signing the agreement for the pending disposal
of our FMG assets; |
|
|
|
|
a charge of $40 million related to the severance costs booked in relation to the new
2007 restructuring plan of our manufacturing activities; |
|
|
|
|
a charge of $15 million generated by our 150-mm restructuring plan; and |
|
|
|
|
a charge of approximately $6 million for employee benefits relating to our headcount
restructuring plan. |
In the first half of 2006, we incurred $47 million of impairment, restructuring charges and
other related closure costs, including $36 million relating to our headcount restructuring plan and
$11 million relating to our 150-mm restructuring plan.
See Note 7 to our Unaudited Interim Consolidated Financial Statements.
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Operating income (loss) |
|
$ |
(710 |
) |
|
$ |
309 |
|
As a percentage of net revenues |
|
|
(15.1 |
)% |
|
|
6.4 |
% |
Our operating result translated from an operating income of $309 million in the first
half of 2006 to an operating loss of $710 million in the first half of 2007, due to the provisions
associated with the new impairment and restructuring charges more fully described above. See
Business Overview.
ASG registered an operating income of $52 million, significantly decreasing from an operating
income of $202 million mainly due to lower sales and the negative selling price trend. IMS
registered an operating income of $210 million compared to $182 million mainly due to sales growth;
as a percentage of revenue, operating income was 14.1% in the first half of 2007 compared to 13.7%
in the first half of 2006. FMG operating loss increased to $42 million compared to $12 million in
the first half of 2006 mainly due to a decline in sales.
Interest income, net
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Interest income, net |
|
$ |
36 |
|
|
$ |
51 |
|
In the first half of 2007, interest income, net contributed $36 million compared to
interest income, net of $51 million in the same period of 2006. This decrease is mainly as a result
of the reduction of available liquidity due to the redemption in August 2006 of $1.4 billion of our
2013 Convertible Bonds (with 0.5% of positive yield).
Earnings (loss) on equity investments
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Earnings (loss) on equity investments |
|
$ |
9 |
|
|
$ |
(4 |
) |
The improvement in earnings on equity investments in the first half of 2007 compared to
the prior year is associated with the full production ramp-up of our joint venture with Hynix
Semiconductor Inc. in China during 2007.
23
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Income tax expense
|
|
$ |
(15 |
) |
|
$ |
(57 |
) |
During
the first half of 2007, we registered an income tax expense of
$15 million that reflected an estimated annual effective tax
rate for recurring operations of approximately 12%, as well as some
one-time income tax benefits, including those from the cost-structure
initiative announced on July 10, 2007, while it did not include any income tax
impact that could be realized in connection with the Flash memory
pending disposal. In the first half of
2006, we incurred a tax expense of $57 million.
Our tax rate is variable and depends on changes in the level of operating income within
various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions,
as well as changes in estimated tax provisions due to new events. We currently enjoy certain tax
benefits in some countries; as such benefits may not be available in the future due to changes in
the local jurisdictions, our effective tax rate could be different in future quarters and may
increase in the coming years.
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
|
(unaudited, in $ millions) |
Net income (loss) |
|
$ |
(684 |
) |
|
$ |
299 |
|
As a percentage of net revenues |
|
|
(14.6 |
)% |
|
|
6.2 |
% |
For the first half of 2007, we reported a net loss of $684 million, compared to a net
income of $299 million in the first half of 2006 due to the booking of a significant amount of
impairment and restructuring charges. Loss per share for the first half of
2007 was $(0.76), the impairment and restructuring charges accounted for $(1.01)
loss per diluted share in the first half of 2007, while they
accounted for $(0.04) loss per
share in the same period in the prior year.
Legal Proceedings
We are currently a party to legal proceedings with SanDisk Corporation.
On October 15, 2004, SanDisk filed a complaint against us with the United States International
Trade Commission (the ITC) with respect to certain NAND memory products, alleging patent
infringement and seeking an order excluding our NAND products from importation into the United
States. On November 15, 2004, the ITC instituted an investigation against us in response to the
complaint. On October 19, 2005, Administrative Law Judge Paul J. Luckern, in his Initial
Determination, ruled that our NAND products do not infringe the asserted SanDisk patent, and that
there was no violation of Section 337 of the U.S. Tariff Act of 1930. On December 5, 2005, the ITC
confirmed its initial decision. On March 6, 2007 the United States Court of Appeals for the Federal
Circuit in Washington D.C. affirmed the ITC decision without opinion.
On October 15, 2004, SanDisk filed a complaint for patent infringement, and declaratory
judgment of non-infringement and patent invalidity against us with the United States District Court
for the Northern District of California. The complaint alleged that our products infringe a SanDisk
U.S. patent and seeks a declaratory judgment that SanDisk does not infringe several of our U.S.
patents. By order dated January 4, 2005, the court stayed SanDisks patent infringement claim
pending a final determination in the ITC action discussed above. On July 23, 2007, the stay of the
district court action was lifted.
On February 4, 2005, we filed two complaints for patent infringement against SanDisk with the
United States District Court for the Eastern District of Texas. On April 22, 2005, SanDisk filed a
counterclaim against us alleging that our products infringe two SanDisk patents. Our two complaints
and the SanDisk counterclaim were dismissed in June 2007 by a mutual agreement between SanDisk and
ourselves.
On October 14, 2005, we filed a complaint against SanDisk and its current CEO Dr. Eli Harari
before the Superior Court of California, County of Alameda. The complaint seeks, among other
relief, assignment of
24
certain SanDisk patents that resulted from inventive activity on the part of Dr. Harari that
took place while he was an employee, officer and/or director of Waferscale Integration, Inc. and
actual, incidental, consequential, exemplary and punitive damages in an amount to be proven at
trial. We are the successor to Waferscale Integration, Inc. by merger. SanDisk removed the matter
to the United States District Court for the Northern District of California which remanded the
matter to the Superior Court of California, County of Alameda in July 2006. SanDisk moved to
transfer the case to the Superior Court of California, County of Santa Clara and to stay the
action, both of which motions were denied by the trial court. SanDisk appealed these rulings and on
January 12, 2007, the California Court of Appeals ordered that the case be transferred to the
Superior Court of California County of Santa Clara. Proceedings are
currently stayed pending the outcome of an appeal by SanDisk
following the denial of SanDisks motion to strike our claim pursuant
to the Anti-SLAPP (the Strategic Lawsuits Against Public
Participation) legislation of the State of California.
On January 10, 2006, SanDisk filed a complaint against us with the ITC with respect to certain
NAND and NOR memory products, alleging patent infringement of three SanDisk patents and seeking an
order excluding our NAND and NOR products from importation into the United States. In May 2006,
SanDisk voluntarily dismissed one of the three patents asserted in the ITC action. The ITC trial
was held in Washington D.C. from December 4 to December 14, 2006. Post-trial briefing was completed
in January 2007. On June 1, 2007, Administrative Law Judge Charles E. Bullock ruled in his Initial
Determination that there was no domestic industry in the United States that practices the 338
patent, that the 517 patent was invalid, and that therefore, there was no violation of section 337
of the U.S. Tariff Act of 1930. SanDisk decided not to petition for a review of Judge Bullocks
Initial Determination and this became the final decision on July 20, 2007.
With respect to the lawsuits with SanDisk as described above, we have not identified any risk
of probable loss that is likely to arise out of the outstanding proceedings.
We are also a party to legal proceedings with Tessera, Inc.
On January 31, 2006, Tessera filed suit against us, adding our Company as a co-defendant, with
several other semiconductor and packaging companies to a lawsuit filed by Tessera on October 7,
2005, against Advanced Micro Devices Inc. and Spansion in the United States District Court for the
Northern District of California. Tessera is claiming that certain of our BGA packages infringe
certain patents owned by Tessera, and that ST is liable for royalties. Tessera is also claiming
that various ST entities breached a 1997 License Agreement and that ST is liable for royalties as a
result. The actions before the United States District Court in the Northern District of California
have now been stayed pending the outcome of the ITC complaint described below. In February and
March 2007, our codefendants Siliconware Precision Industries Co., Ltd. and Siliconware USA, Inc.,
filed six reexamination requests with the U.S. Patent and Trademark Office covering all of the
claims asserted by Tessera in the lawsuit. On April 20, 2007, the U.S. Patent and Trademark Office
initiated reexaminations in response to three of the reexamination requests and on May 4, 2007, the
U.S. Patent and Trademark Office initiated reexaminations in response to two more of the
reexamination requests. A decision regarding the remaining reexamination request is expected
shortly.
On April 17, 2007, Tessera filed a complaint against us Spansion, ATI Technologies, Inc.,
Qualcomm, Motorola and Freescale with the ITC with respect to certain small format ball grid array
packages and products containing same, alleging patent infringement of two of the Tessera patents
previously asserted in the District Court action described above and seeking an order excluding
importation of the accused products into the United States. The ITC issued an injunction on May 21,
2007.
Related-Party Transactions
One
of the members of our Supervisory Board is the Chief Operating Officer of Areva, one is
the Chairman and CEO of France Telecom, one is a member of the Board of Directors of Thomson,
one is the non-executive Chairman of the Board of Directors of ARM Holdings plc and a
non-executive director of Soitec, one is member of the Supervisory
Board of BESI, and one is a member of the Board of Directors of
Oracle Corporation and KLA-Tencor Corporation. We engage in
certain research and development collaborations with the Laboratoire dElectronique de Technologie
dInstrumentation (LETI). LETI is a research laboratory of the Commissariat de lEnergie Atomique
(CEA), which is an affiliate of Areva. France Telecom and its subsidiaries supply certain
services to our Company, Thomson is one of our strategic customers, and we license technologies
from ARM Holdings plc. We also procure certain software from Oracle
Corporation and tools from KLA-Tencor Corporation. We believe that all of these transactions are made on an arms-length basis
in line with market practices and conditions.
25
Impact of Changes in Exchange Rates
Our results of operations and financial condition can be significantly affected by material
changes in exchange rates between the U.S. dollar and other currencies where we maintain our
operations, particularly the euro, the Singapore dollar and the Japanese yen.
As a market rule, the reference currency for the semiconductor industry is the U.S. dollar and
product prices are mainly denominated in U.S. dollars. However, revenues for certain of our
products (primarily dedicated products sold in Europe and Japan) are quoted in currencies other
than the U.S. dollar and as such are directly affected by fluctuations in the value of the U.S.
dollar. As a result of currency variations, the appreciation of the euro compared to the U.S.
dollar could increase, in the short term, our level of revenues when reported in U.S. dollars;
revenues for all other products, which are either quoted in U.S. dollars and billed in U.S. dollars
or in local currencies for payment, tend not to be affected significantly by fluctuations in
exchange rates, except to the extent that there is a lag between changes in currency rates and
adjustments in the local currency equivalent price paid for such products. Furthermore, certain
significant costs incurred by us, such as manufacturing, labor costs and depreciation charges,
selling, general and administrative expenses, and research and development expenses, are largely
incurred in the currency of the jurisdictions in which our operations are located. Given that most
of our operations are located in the euro zone or other non-U.S. dollar currency areas, our costs
tend to increase when translated into U.S. dollars in case of dollar weakening or to decrease when
the U.S. dollar is strengthening.
In summary, as our reporting currency is the U.S. dollar, currency exchange rate fluctuations
affect our results of operations: if the U.S. dollar weakens, we receive a limited part of our
revenues, and more importantly, we increase a significant part of our costs, in currencies other
than the U.S. dollar. As described below, our effective average U.S. dollar exchange rate weakened
during the first half of 2007, particularly against the euro, causing us to report higher expenses
and negatively impacting both our gross margin and operating income. Our Consolidated Statement of
Income for the first half of 2007 includes income and expense items translated at the average U.S.
dollar exchange rate for the period.
Our principal strategy to reduce the risks associated with exchange rate fluctuations has been
to balance as much as possible the proportion of sales to our customers denominated in U.S. dollars
with the amount of raw materials, purchases and services from our suppliers denominated in U.S.
dollars, thereby reducing the potential exchange rate impact of certain variable costs relative to
revenues. Moreover, in order to further reduce the exposure to U.S. dollar exchange fluctuations,
we have hedged certain line items on our income statement, in particular with respect to a portion
of cost of goods sold, most of the research and development expenses and certain selling and
general and administrative expenses, located in the euro zone. Our effective average exchange rate
of the euro to the U.S. dollar was $1.31 for 1.00 for the first half of 2007 compared to $1.22
for 1.00 in the first half of 2006. Our effective average rate of the euro to the U.S. dollar
was $1.33 for 1.00 for the second quarter of 2007 and it was $1.29 for 1.00 for the first
quarter of 2007 while it was $1.23 for 1.00 in the second quarter of 2006. These effective
exchange rates reflect the actual exchange rates combined with the impact of hedging contracts
matured in the period.
As of June 30, 2007, the outstanding hedged amounts to cover manufacturing costs were 200
million and to cover operating expenses were 230 million, at an average rate of $1.3624 for
1.00 and $1.3590 (including the premium paid to purchase foreign exchange options) for
1.00, respectively, maturing over the period from July 2007 to November 2007. As of June 30,
2007, these outstanding hedging contracts and certain expired contracts covering manufacturing
expenses capitalized in inventory represented a deferred loss of $1 million after tax, recorded in
other comprehensive income in shareholders equity, compared to a deferred gain of $6 million after
tax as of March 31, 2007. Our hedging policy is not intended to cover the full exposure. In
addition, in order to mitigate potential exchange rate risks on our commercial transactions, we
purchased and entered into forward foreign currency exchange contracts and currency options to
cover foreign currency exposure in payables or receivables at our affiliates. We may in the future
purchase or sell similar types of instruments. See Item 11. Quantitative and Qualitative
Disclosures About Market Risk included in our Form 20-F, as may be updated from time to time in
our public filings for full details of outstanding contracts and their fair values. Furthermore, we
may not predict in a timely fashion the amount of future transactions in the volatile industry
environment. Consequently, our results of operations have been and may continue to be impacted by
fluctuations in exchange rates.
Our treasury strategies to reduce exchange rate risks are intended to mitigate the impact of
exchange rate fluctuations. No assurance may be given that our hedging activities will sufficiently
protect us against
26
declines in the value of the U.S. dollar, therefore if the value of the U.S. dollar increases,
we may record losses in connection with the loss in value of the remaining hedging instruments at
the time. In the first half of 2007, as the result of cash flow hedging, we recorded a net profit
of $18 million, consisting of a profit of $9 million to cost of sales, a profit of $7 million to
research and development expenses, and a profit of $2 million to selling, general and
administrative expenses, while in the first half of 2006, we recorded a net profit of $6 million.
In the second quarter of 2007, we generated a net profit of $9 million, while in the second quarter
of 2006 we registered a net profit of $13 million, and in the first quarter of 2007 we registered a
net profit of $10 million.
The net effect of the consolidated foreign exchange exposure resulted in a net loss of $3
million in Other Income and Expenses, net in the first half of 2007 with a slightly positive
result in the second quarter of 2007.
Assets and liabilities of subsidiaries are, for consolidation purposes, translated into U.S.
dollars at the period-end exchange rate. Income and expenses are translated at the average exchange
rate for the period. The balance sheet impact of such translation adjustments has been, and may be
expected to be, significant from period to period since a large part of our assets and liabilities
are accounted for in euros as their functional currency. Adjustments resulting from the translation
are recorded directly in shareholders equity, and are shown as accumulated other comprehensive
income (loss) in the consolidated statements of changes in shareholders equity. At June 30, 2007,
our outstanding indebtedness was denominated mainly in U.S. dollars, in euros and, to a limited
extent, in Singapore dollars.
For a more detailed discussion, see Item 3. Key Information Risk Factors Risks Related to
Our Operations Our financial results can be adversely affected by fluctuations in exchange rates,
principally in the value of the U.S. dollar as set forth in our Form 20-F as may be updated from
time to time in our public filings.
Impact of Changes in Interest Rates
Our results of operations and financial condition can be affected by material changes in
interest rates, which can impact the total interest income received on our cash and cash
equivalents and on our interest expense on our financial debt.
Our interest income, net is the balance between interest income received mainly from our cash
and interest expense paid on our long-term debt. Our interest income is almost entirely dependent
on the fluctuations in the interest rates, mainly in the U.S. dollar and the euro. Any increase or
decrease in the short-term market interest rates would mean an increase or decrease in our interest
income. Our net interest income decreased from $30 million in the second quarter of 2006 to $18
million in the second quarter of 2007, mainly due to the redemption in August 2006 of $1.4 billion
of our 2013 Convertible Bonds.
In response to the possible risk of interest rate mismatch, in the second quarter of 2006, we
entered into cancelable swaps to hedge a portion of the fixed rate obligations on our outstanding
long-term debt with floating rate derivative instruments.
Of the $974 million in 2016 Convertible Bonds issued in the first quarter of 2006, we entered
into cancelable swaps for $200 million of the principal amount of the bonds, swapping the 1.5%
yield equivalent on the bonds for 6 Month USD LIBOR minus 3.375%. Our hedging policy is not
intended to cover the full exposure and all risks associated with these instruments.
As of June 30, 2007, the 9-year U.S. swap interest rate was 5.64%, which was the same as the
10-year rate at the inception of the transaction, on June 14, 2006. The fair value of the swaps as
of June 30, 2007 was $1 million since they were executed at slightly higher market rates. In
compliance with FAS 133 provisions on fair value hedges, the net impact of the hedging transaction
on our income statement was the ineffective part of the hedge, which resulted in a net profit of
less than $1 million for the second quarter of 2007 and was recorded in Other income and expenses,
net. These cancelable swaps were designed and are expected to effectively replicate the bonds
behavior through a wide range of changes in financial market conditions and decisions made by both
the holders of the bonds and us, thus being classified as highly effective hedges; however no
assurance can be given that our hedging activities will sufficiently protect us against future
significant movements in interest rates.
27
We may in the future enter into further cancelable swap transactions related to the 2016
Convertible Bonds or other fixed rate instruments. For full details of quantitative and qualitative
information, see Item 11. Quantitative and Qualitative Disclosures About Market Risk as set forth
in our Form 20-F as may be updated from time to time in our public filings.
Liquidity and Capital Resources
Treasury activities are regulated by our policies, which define procedures, objectives and
controls. The policies focus on the management of our financial risk in terms of exposure to
currency rates and interest rates. Most treasury activities are centralized, with any local
treasury activities subject to oversight from our head treasury office. The majority of our cash
and cash equivalents are held in U.S. dollars and euros and are placed with financial institutions
rated A or better. Part of our liquidity is also held in euros to naturally hedge intercompany
payables in the same currency and is placed with financial institutions rated at least a single A
long-term rating, meaning at least A3 from Moodys Investor Service and A- from Standard & Poors
and Fitch Ratings. Marginal amounts are held in other currencies. See Item 11. Quantitative and
Qualitative Disclosures About Market Risk included in our Form 20-F, as may be updated from time
to time in our public filings. At June 30, 2007, there had been no material change in foreign
currency operations and hedging transactions exposures from those disclosed in our Form 20-F, as
may be updated from time to time in our public filings.
At June 30, 2007, cash and cash equivalents totaled $1,849 million, compared to $2,040 million
at March 31, 2007 and to $1,963 at December 31, 2006. Our available cash decreased in the second
quarter of 2007 mainly due to the payment of dividends and to the increased amount of marketable
securities. At June 30, 2007 and at March 31, 2007, we had no investments in short-term deposits,
compared to $250 million at December 31, 2006. As of June 30, 2007, we had $931 million in
marketable securities, with primary financial institutions with a minimum rating of A1/A+ (with 79%
of the portfolio rated Aa3 or better). Marketable securities amounted to $740 million as of March
31, 2007 and to $460 million as of December 31, 2006. Changes in the instruments adopted to invest
our liquidity in future periods may occur and may significantly affect our interest income
(expense), net.
Liquidity
We maintain a significant cash position, which provides us with adequate financial
flexibility. As in the past, our cash management policy is to finance our investment needs mainly
with net cash generated from operating activities.
Net cash from operating activities. Our net cash from operating activities remained at a high
level and amounted to $940 million in the first half of 2007, but significantly decreasing from the
$1,377 million in the first half of 2006. This was associated with lower profitability and less
favorable changes in current assets and liabilities.
In the first half of 2007, changes in our current assets and liabilities resulted in net cash
used of $67 million compared to net cash generated of $179 million in the first half of 2006, as a
result of the following changes:
|
|
|
trade receivables generated net cash of $46 million, compared to net cash used of
$74 million in the first half of 2006 due to lower sales; |
|
|
|
|
inventory used net cash of $53 million, compared to $94 million in the first half of
2006; and |
|
|
|
|
trade payables balance was basically nil, while they generated a favorable change of
$261 million in the first half of 2006. |
Net cash used in investing activities. Net cash used in investing activities was $796 million
in the first half of 2007, compared to $1,952 million in the first half of 2006. In line with our
objective to selectively control the level of capital investments, payments for purchases of
tangible assets amounted to $507 million for the first half of 2007, decreasing about 27% compared
to the $696 million in the first half of 2006. Purchases of marketable securities in the first half
of 2007 amounted to $511 million and proceeds from matured short-term deposits amounted to $250
million. In the first half of 2006, purchases of marketable securities amounted to $100 million and
$903 million as investments in short-term deposits.
28
Net operating cash flow. We define net operating cash flow as net cash from operating
activities minus net cash used in investing activities, excluding payment for purchases of and
proceeds from the sale of marketable securities, short-term deposits and restricted cash. We
believe net operating cash flow provides useful information for investors and management because it
measures our capacity to generate cash from our operating and investing activities to sustain our
operating activities. Net operating cash flow is not a U.S. GAAP measure and does not represent
total cash flow since it does not include the cash flows generated by or used in financing
activities. In addition, our definition of net operating cash flow may differ from definitions used
by other companies. A reconciliation from net cash from operating activities, the most directly
comparable U.S. GAAP measure included in our Unaudited Interim Consolidated Statements of Cash Flow
as at June 30, 2007, to net operating cash flow for each of the respective periods indicated is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
(unaudited, in $ millions) |
|
Net cash from operating activities |
|
$ |
940 |
|
|
$ |
1,377 |
|
Net cash used in investing activities |
|
|
(796 |
) |
|
|
(1,952 |
) |
Payment for purchase (proceeds from sale
of) marketable securities, short-term
deposits and restricted cash, net |
|
|
253 |
|
|
|
1,003 |
|
|
|
|
|
|
|
|
Net operating cash flow |
|
$ |
397 |
|
|
$ |
428 |
|
|
|
|
|
|
|
|
We generated favorable net operating cash flow of $397 million in the first half of 2007,
compared to net operating cash flow of $428 million in the first half of 2006. We continued to
generate a solid cash flow since the cash flow from our operating activities well exceeds the cash
used in purchasing of tangible and intangible assets.
Net cash used in financing activities. Net cash used in financing activities was $262 million
in the first half of 2007, including the payment of dividends in the amount of $269 million. The
net cash generated in the first half of 2006 was $1,389 million in the first half of 2006, mainly
due to the proceeds from the issuance of our 2013 Senior Bonds and 2016 Convertible Bonds, which
amounted to $1,564 million.
Capital
Resources
Net financial position
To evaluate our capital resources, we refer to our net financial position, among other things.
Net financial position is not a U.S. GAAP measure. We believe our net financial position provides
useful information for investors because it gives evidence of our overall financial position by
measuring our capital resources based on cash and cash equivalents, marketable securities,
short-term deposits and restricted cash against the total level of financial indebtedness
indicated. A reconciliation from cash and cash equivalents, the most directly comparable U.S. GAAP
measure included in our Unaudited Interim Consolidated Balance Sheets as at June 30, 2007, to net
financial position for each of the respective periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
|
June 30, 2007 |
|
|
March 31, 2007 |
|
|
July 1, 2006 |
|
|
|
(unaudited, in $ millions) |
|
Cash and cash equivalents, net of bank overdrafts |
|
$ |
1,808 |
|
|
$ |
2,040 |
|
|
$ |
2,892 |
|
Marketable securities |
|
|
931 |
|
|
|
740 |
|
|
|
100 |
|
Short-term deposits |
|
|
|
|
|
|
|
|
|
|
903 |
|
Restricted cash for equity investments |
|
|
250 |
|
|
|
250 |
|
|
|
|
|
Total |
|
|
2,989 |
|
|
|
3,030 |
|
|
|
3,895 |
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
|
(127 |
) |
|
|
(103 |
) |
|
|
(1,503 |
) |
Long-term debt |
|
|
(1,992 |
) |
|
|
(2,010 |
) |
|
|
(1,853 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(2,119 |
) |
|
|
(2,113 |
) |
|
|
(3,356 |
) |
|
|
|
|
|
|
|
|
|
|
Net financial position |
|
$ |
870 |
|
|
$ |
917 |
|
|
$ |
539 |
|
|
|
|
|
|
|
|
|
|
|
Our net financial position was a positive amount of $870 million as of June 30, 2007,
representing an improvement of $331 million as compared to our net financial position of $539
million as of July 1, 2006, and a
29
decrease of $47 million as compared to our net financial position of $917 million as of March
31, 2007, such decrease is due to the dividends paid in the second quarter of 2007 largely balanced
by the cash flow generated for the period.
At June 30, 2007, the aggregate amount of our long-term debt was $1,992 million, including
$993 million of our zero coupon convertible bonds due 2016 and $675 million of our floating rate
senior bonds due 2013 (corresponding to 500 million issuance). Additionally, we had uncommitted
short-term credit facilities with several financial institutions exceeding $1.1 billion. We also
had a $331 million (245 million) long-term credit facility with the European Investment Bank as
part of a funding program loan, of which $140 million was used as of June 30, 2007. We also
maintain uncommitted foreign exchange facilities, which amounted to over $900 million at June 30,
2007. Our long-term capital market instruments contain standard covenants, but do not impose
minimum financial ratios or similar obligations on us. Upon a change of control, the holders of our
2016 Convertible Bonds and 2013 Senior Bonds may require us to repurchase all or a portion of such
holders bonds. See Note 15 to our Unaudited Interim Consolidated Financial Statements.
As of June 30, 2007, we have the following credit ratings on our 2013 and 2016 Bonds:
|
|
|
|
|
|
|
|
|
|
|
Moodys Investors Service |
|
Standard & Poors |
Zero Coupon Senior Convertible Bonds due 2013 |
|
WR(1) |
|
|
A- |
|
Zero Coupon Senior Convertible Bonds due 2016 |
|
|
A3 |
|
|
|
A- |
|
Floating Rate Senior Bonds due 2013 |
|
|
A3 |
|
|
|
A- |
|
|
|
|
(1) |
|
Rating withdrawn since the redemption in August 2006 of $1.4 billion of our 2013 Convertible
Bonds, which left only $2 million of our 2013 Convertible Bonds outstanding. |
On January 9, 2007, Standard & Poors confirmed the A- ratings and issued a stable
outlook. On May 25, 2007, Moodys issued a credit report confirming the A3 ratings and changing the
outlook to stable from under review for possible downgrade.
In the event of a downgrade of these ratings, we believe we would continue to have access to
sufficient capital resources.
Contractual Obligations, Commercial Commitments and Contingencies
Our contractual obligations and commercial commitments as of June 30, 2007, and for each of
the five years to come and thereafter, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited, in $ millions) |
|
|
|
|
|
|
Total |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Thereafter |
Operating leases(1) |
|
$ |
303 |
|
|
$ |
34 |
|
|
$ |
41 |
|
|
$ |
36 |
|
|
$ |
26 |
|
|
$ |
23 |
|
|
$ |
17 |
|
|
$ |
126 |
|
Purchase obligations(1) |
|
|
766 |
|
|
|
642 |
|
|
|
89 |
|
|
|
34 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchase |
|
|
351 |
|
|
|
348 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foundry purchase |
|
|
212 |
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software, technology licenses and design |
|
|
203 |
|
|
|
82 |
|
|
|
86 |
|
|
|
34 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other obligations(1) |
|
|
111 |
|
|
|
40 |
|
|
|
15 |
|
|
|
12 |
|
|
|
7 |
|
|
|
4 |
|
|
|
2 |
|
|
|
31 |
|
Long-term debt obligations (including
current portion)(2)(3) (4) |
|
|
2,119 |
|
|
|
127 |
|
|
|
59 |
|
|
|
46 |
|
|
|
1,082 |
|
|
|
29 |
|
|
|
705 |
|
|
|
71 |
|
of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases(2) |
|
|
23 |
|
|
|
3 |
|
|
|
5 |
|
|
|
6 |
|
|
|
6 |
|
|
|
2 |
|
|
|
|
|
|
|
1 |
|
Pension obligations(2) |
|
|
362 |
|
|
|
13 |
|
|
|
24 |
|
|
|
28 |
|
|
|
25 |
|
|
|
23 |
|
|
|
23 |
|
|
|
226 |
|
Other non-current liabilities(2) |
|
|
105 |
|
|
|
3 |
|
|
|
70 |
|
|
|
5 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
22 |
|
Total |
|
$ |
3,766 |
|
|
$ |
859 |
|
|
$ |
298 |
|
|
$ |
161 |
|
|
$ |
1,143 |
|
|
$ |
81 |
|
|
$ |
748 |
|
|
$ |
476 |
|
|
|
|
(1) |
|
Items not reflected on the Unaudited Interim Consolidated Balance Sheet at June 30, 2007. |
|
(2) |
|
Items reflected on the Unaudited Interim Consolidated Balance Sheet at June 30, 2007. |
|
(3) |
|
See Note 15 to the Unaudited Interim Consolidated Financial Statements at June 30, 2007 for
additional information related to long-term debt and redeemable convertible securities. |
|
(4) |
|
Year of payment is based on maturity before taking into account any potential acceleration
that could result from a triggering of the change of control provisions of the 2016
Convertible Bonds and the 2013 Senior Bonds. |
30
Operating leases are mainly related to building leases. The amount disclosed is composed
of minimum payments for future leases from 2007 to 2012 and thereafter. We lease land, buildings,
plants and equipment under operating leases that expire at various dates under non-cancelable lease
agreements.
Purchase obligations are primarily comprised of purchase commitments for equipment, for
outsourced foundry wafers and for software licenses.
Long-term debt obligations mainly consist of bank loans, convertible and non-convertible debt
issued by us that is totally or partially redeemable for cash at the option of the holder. They
include maximum future amounts that may be redeemable for cash at the option of the holder, at
fixed prices. At the holders option, any outstanding 2013 Convertible Bonds were redeemable on
August 4, 2006 at a conversion ratio of $985.09.
On August 7, 2006, as a result of almost all of the holders of our 2013 Convertible Bonds
exercising the August 4, 2006 put option, we repurchased $1,397 million aggregate principal amount
of the outstanding convertible bonds. The outstanding 2013 Convertible Bonds, corresponding to
approximately $2 million and approximately 2,505 bonds, may be redeemed, at the holders option,
for cash on August 5, 2008 at a conversion ratio of $975.28, or on August 5, 2010 at a conversion
ratio of $965.56, subject to adjustments in certain circumstances.
In February 2006, we issued $974 million principal amount at maturity of Zero Coupon Senior
Convertible Bonds due in February 2016. The bonds were convertible by the holder at any time prior
to maturity at a conversion rate of 43.118317 shares per one thousand dollars face value of the
bonds corresponding to 41,997,240 equivalent shares. The holders can also redeem the convertible
bonds, subject to adjustments upon the occurrence of certain events, on February 23, 2011 at a
price of $1,077.58, on February 23, 2012 at a price of $1,093.81 and on February 24, 2014 at a
price of $1,126.99 per one thousand dollars face value of the bonds. We can call the bonds at any
time after March 10, 2011 subject to our share price exceeding 130% of the accreted value divided
by the conversion rate for 20 out of 30 consecutive trading days.
At our general meeting of shareholders held on April 26, 2007, our shareholders approved a
cash dividend distribution of $0.30 per share. Pursuant to the terms of our 2016 Convertible Bonds,
the payment of this dividend gave rise to a slight change in the conversion rate thereof. The new
conversion rate is 43.363087 corresponding to 42,235,646 equivalent shares.
In March 2006, STMicroelectronics Finance B.V. (ST BV), one of our wholly-owned
subsidiaries, issued Floating Rate Senior Bonds with a principal
amount of 500 million at an
issue price of 99.873%. The notes, which mature on March 17, 2013, pay a coupon rate of the
three-month Euribor plus 0.40% on the 17th of June, September, December and March of each year
through maturity. The notes have a put for early repayment in case of a change of control.
Pension obligations and termination indemnities amounting to $362 million consist of our best
estimates of the amounts that will be payable by us for the retirement plans based on the
assumption that our employees will work for us until they reach the age of retirement. The final
actual amount to be paid and related timings of such payments may vary significantly due to early
retirements or terminations. See Note 17 to our Unaudited Interim Consolidated Financial
Statements.
Other non-current liabilities include uncertain tax positions, future obligations related to
our restructuring plans and miscellaneous contractual obligations.
Other obligations primarily relate to contractual firm commitments with respect to cooperation
agreements.
Off-Balance Sheet Arrangements
At June 30, 2007, we had convertible debt instruments outstanding. Our convertible debt
instruments contain certain conversion and redemption options that are not required to be accounted
for separately in our financial statements. See Note 15 to our Unaudited Interim Consolidated
Financial Statements for more information about our convertible debt instruments and related
conversion and redemption options.
We have no other material off-balance sheet arrangements at June 30, 2007.
31
Financial Outlook
We currently expect that capital spending for 2007 will be approximately $1.2 billion, a
decrease compared to the $1.5 billion spent in 2006. This is in line with our lighter asset model
by decreasing our capital intensity towards a capital expense to sales ratio of approximately 12%.
The major part of our capital spending will be dedicated to the leading edge technology fabs by
aligning the capacity with the expected demand mix. We have the flexibility to modulate our
investments up or down in response to changes in market conditions. At June 30, 2007, we had $348
million in outstanding commitments for equipment purchases for 2007 and $3 million for 2008.
Our
agreement with NXP Semiconductors and Freescale Semiconductor related
to the technology and manufacturing cooperation in Crolles2 provides
us with the option right to purchase NXP Semiconductors and Freescale
Semiconductor assets currently operating in Crolles2 at the
termination of the alliance at pre-agreed price conditions. Both NXP
Semiconductors and Freescale Semiconductor have communicated that
the Crolles2 alliance will expire at its term on December 31, 2007.
The most significant of our 2007 capital expenditure projects are expected to be: for the
front-end facilities, (i) in Agrate (Italy), related to the upgrading of our 200-mm pilot line, the
ramp-up of the 200-mm line for MEMS and the expansion of capacity to our 200-mm fab and the
development of the new technology node for Memories; (ii) the upgrading to finer geometry
technologies for our 200-mm plant in Rousset (France); (iii) the upgrading of our 200-mm plant in
Singapore; (iv) for the back-end facilities, the capital expenditures will be mainly dedicated to
the capacity expansion in our plants in Shenzhen (China) and Muar (Malaysia) and capacity upgrade
in other assembly sites. We will continue to monitor our level of capital spending by
taking into consideration factors such as trends in the semiconductor industry, capacity
utilization and announced additions. We expect to have significant capital requirements in the
coming years and in addition we intend to continue to devote a substantial portion of our net
revenues to research and development. We plan to fund our capital requirements from cash provided
by operating activities, available funds and available support from third parties (including state
support), and may have recourse to borrowings under available credit lines and, to the extent
necessary or attractive based on market conditions prevailing at the time, the issuing of debt,
convertible bonds or additional equity securities. A substantial deterioration of our economic
results and consequently of our profitability could generate a deterioration of the cash generated
by our operating activities. Therefore, there can be no assurance that, in future periods, we will
generate the same level of cash as in the previous years to fund our capital expenditures for
expansion plans, our working capital requirements, research and development and industrialization
costs.
As part of our refinancing strategy, we issued Zero Coupon Senior Convertible Bonds due 2016
representing total proceeds of $974 million in the first quarter of 2006. Furthermore, in the first
quarter of 2006, we issued 500 million Floating Rate Senior Bonds due 2013. We used the
proceeds of these offerings primarily for the repurchase of our 2013 Convertible Bonds on August 7,
2006 and for general corporate purposes.
Impact of Recently Issued U.S. Accounting Standards
In February 2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments an amendment of
FASB Statements No. 133 and 140 (FAS 155). The statement amended Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS
133) and Statement of Financial Accounting Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (FAS 140). The primary purposes
of this statement were (1) to allow companies to select between bifurcation of hybrid financial
instruments or fair valuing the hybrid as a single instrument, (2) to clarify certain exclusions of
FAS 133 related to interest and principal-only strips, (3) to define the difference between
freestanding and hybrid securitized financial assets, and (4) to eliminate the FAS 140 prohibition
of Special Purpose Entities holding certain types of derivatives. The statement is effective for
annual periods beginning after September 15, 2006, with early adoption permitted prior to a company
issuing first quarter financial statements. We adopted FAS 155 in the first quarter of 2007 and FAS
155 did not have any material effect on our financial position and results of operations.
In March 2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 156, Accounting for Servicing of Financial Assets an amendment of FASB
Statement No. 140 (FAS 156). This statement requires initial fair value recognition of all
servicing assets and liabilities for servicing contracts entered in the first fiscal year beginning
after September 15, 2006. After initial recognition, the servicing assets and liabilities are
either amortized over the period of expected servicing income or loss or fair value is reassessed
each period with changes recorded in earnings for the period. We adopted FAS 156 in the first
quarter of 2007 and FAS 156 did not have any material effect on our financial position and results
of operations.
32
In June 2006, the Financial Accounting Standards Board issued Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement No. 109 (FIN 48). The interpretation seeks to clarify the accounting for tax positions
taken, or expected to be taken, in a companys tax return and the uncertainty as to the amount and
timing of recognition in the companys financial statements in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109). The interpretation
sets a two step process for the evaluation of uncertain tax positions. The recognition threshold in
step one permits the benefit from an uncertain position to be recognized only if it is more likely
than not, or 50 percent assured that the tax position will be sustained upon examination by the
taxing authorities. The measurement methodology in step two is based on cumulative probability,
resulting in the recognition of the largest amount that is greater than 50 percent likely of being
realized upon settlement with the taxing authority. The interpretation also addresses derecognizing
previously recognized tax positions, classification of related tax assets and liabilities, accrual
of interest and penalties, interim period accounting, and disclosure and transition provisions. The
interpretation is effective for fiscal years beginning after December 15, 2006. We adopted FIN 48
as at January 1, 2007. Before adoption, we applied Statement of Financial Accounting Standards No.
5, Accounting for Contingencies (FAS 5) in accounting for income tax uncertainties and tax
exposures. In compliance with FAS 5 provisions, liabilities and accruals for income tax
uncertainties and specific tax exposures were recorded or reversed when it was probable that
additional taxes would be due or refund. As such, a level of sustainability that met the probable
threshold was necessary to recognize any benefit from a tax-advantaged transaction. Upon FIN 48
adoption, we assessed all material open income tax positions in all tax jurisdictions to determine
the appropriate amount of tax benefits that are recognizable under FIN 48. We recorded as of the
adoption date an incremental tax liability of $8 million for the difference between the amounts
recognized under our previous accounting policies and the income tax benefits determined under the
new guidance. The cumulative effect of the change in the accounting principle that we applied to
uncertain income tax positions was recorded in the first quarter of 2007 as an adjustment to
retained earnings. Additionally we elected to classify accrued interest and penalties related to
uncertain tax positions as components of income tax expense in our consolidated statement of
income. Uncertain tax positions, unrecognized tax benefits and related accrued interest and
penalties are further described in Note 20.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (FAS 157). This statement defines fair
value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. In addition, the
statement defines a fair value hierarchy which should be used when determining fair values, except
as specifically excluded (i.e., stock awards, measurements requiring vendor specific objective
evidence, and inventory pricing). The hierarchy places the greatest relevance on Level 1 inputs
which include quoted prices in active markets for identical assets or liabilities. Level 2 inputs,
which are observable either directly or indirectly, and include quoted prices for similar assets or
liabilities, quoted prices in non-active markets, and inputs that could vary based on either the
condition of the assets or liabilities or volumes sold. The lowest level of the hierarchy, Level 3,
is unobservable inputs and should only be used when observable inputs are not available. This would
include company level assumptions and should be based on the best available information under the
circumstances. FAS 157 is effective for fiscal years beginning after November 15, 2007 with early
adoption permitted for fiscal year 2007 if first quarter statements have not been issued. We chose
not to early adopt FAS 157 during our first quarter of 2007 and will adopt FAS 157 when effective.
However, we do not expect FAS 157 will have a material effect on our financial position and results
of operations upon final adoption.
In February 2007, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement No. 115 (FAS 159). This statement permits
companies to choose to measure eligible items at fair value at specified election dates and report
unrealized gains and losses in earnings at each subsequent reporting date on items for which the
fair value option has been elected. The objective of this statement is to improve financial
reporting by providing companies with the opportunity to mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently without having to apply complex
hedge accounting provisions. A company may decide whether to elect the fair value option for each
eligible item on its election date, subject to certain requirements described in the statement. FAS
159 is effective for fiscal years beginning after November 15, 2007 with early adoption permitted
for fiscal year 2007 if first quarter statements have not been issued. We chose not to early adopt
FAS 159 during the first quarter of 2007 and will adopt FAS 159 when effective. We are currently
evaluating the effect that adoption of this statement will have on our financial position and
results of operations.
33
In June 2007, the Emerging Issues Task Force reached final consensus on Issue No. 06-11,
Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (EITF 06-11). The
issue applies to equity-classified nonvested shares on which dividends are paid prior to vesting,
equity-classified nonvested share units on which dividends equivalents are paid, and
equity-classified share options on which payments equal to the dividends paid on the underlying
shares are made to the option-holder while the option is outstanding. The issue is applicable to
the dividends or dividend equivalents that are (1) charged to retained earnings under the guidance
in Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment (FAS
123R) and (2) result in an income tax deduction for the employer. EITF 06-11 states that a
realized tax benefit from dividends or dividend equivalents that are charged to retained earnings
and paid to employees for equity-classified nonvested shares, nonvested equity share units, and
outstanding share options should be recognized as an increase to additional paid-in-capital. Those
tax benefits are considered excess tax benefits (windfall) under FAS 123R. EITF 06-11 must be
applied prospectively to dividends declared in fiscal years beginning after December 15, 2007 and
interim periods within those fiscal years, with early adoption permitted for the income tax
benefits of dividends on equity-based awards that are declared in periods for which financial
statements have not yet been issued. We will adopt EITF 06-11 when effective. However, we do not
expect EITF 06-11 will have a material effect on our financial position and results of operations.
In June 2007, the Emerging Issues Task Force reached final consensus on Issue No. 07-3,
Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development
Activities (EITF 07-3). The issue addresses whether non-refundable advance payments for goods or
services that will be used or rendered for research and development activities should be expensed
when the advance payments are made or when the research and development activities have been
performed. EITF 07-3 applies only to non-refundable advance payments for goods and services to be
used and rendered in future research and development activities pursuant to an executory
contractual arrangement. EITF 07-3 states that non-refundable advance payments for future research
and development activities should be capitalized until the goods have been delivered or the related
services have been performed. If an entity does not expect the goods to be delivered or services to
be rendered, the capitalized advance payment should be charged to expense. EITF 07-3 is effective
for fiscal years beginning after December 15, 2007 and interim periods within those fiscal years.
Earlier application is not permitted and entities should recognize the effect of applying the
guidance in this Issue prospectively for new contracts entered into after EITF 07-3 effective date.
We will adopt EITF 07-3 when effective and are currently evaluating the effect its application will
have on our financial position and results of operations.
Backlog and Customers
We entered the third quarter of 2007 with a backlog approximately 3% higher than we had
entering the second quarter of 2007. In the second quarter of 2007, we had several large customers,
with the Nokia Group of companies being the largest and accounting for approximately 20% of our
revenues. Total OEMs accounted for approximately 83% of our net revenues, of which the top ten OEM
customers accounted for approximately 48%. Distributors accounted for approximately 17% of our net
revenues. We have no assurance that the Nokia Group of companies, or any other customer, will
continue to generate revenues for us at the same levels. If we were to lose one or more of our key
customers, or if they were to significantly reduce their bookings, or fail to meet their payment
obligations, our operating results and financial condition could be adversely affected.
Changes to Our Share Capital, Stock Option Grants and Other Matters
The following table sets forth changes to our share capital as of June 30, 2007:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominal value |
|
|
Amount of |
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|
Cumulative |
|
|
|
|
|
|
|
Number |
|
|
Nominal |
|
|
Cumulative |
|
|
Cumulative |
|
|
of increase/ |
|
|
issue |
|
|
issue |
|
|
|
|
|
|
|
of |
|
|
value |
|
|
amount of |
|
|
number of |
|
|
reduction in |
|
|
premium |
|
|
premium |
|
Year |
|
Transaction |
|
|
shares |
|
|
(euro) |
|
|
capital (euro) |
|
|
shares |
|
|
capital |
|
|
(euro) |
|
|
(euro) |
|
December 31, 2006 |
|
Exercise of options |
|
|
2,333,654 |
|
|
|
1.04 |
|
|
|
946,564,250 |
|
|
|
910,157,933 |
|
|
|
2,427,000 |
|
|
|
19,819,100 |
|
|
|
1,754,532,654 |
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|
|
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|
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|
|
|
|
|
|
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|
June 30, 2007 |
|
Exercise of options |
|
|
131,167 |
|
|
|
1.04 |
|
|
|
946,700,664 |
|
|
|
910,289,100 |
|
|
|
136,414 |
|
|
|
1,667,784 |
|
|
|
1,756,200,438 |
|
As of June 30, 2007, we had 910,289,100 shares of which 10,979,721 shares owned as
treasury stock. We also had outstanding stock options exercisable into the equivalent of 54,971,536
common shares and
34
11,041,240 Unvested Stock Awards to be vested on treasury stock. Upon fulfillment of the
respective predetermined criteria, the first tranche of stock awards granted under our 2006
stock-based compensation plan and the second tranche of stock awards granted under our 2005
stock-based compensation plan vested on April 27, 2007. For full details of quantitative and
qualitative information, see Item 6. Directors, Senior Management and Employees as set forth in
our Form 20-F, as may be updated from time to time in our public filings, and see Note 16 to our
Unaudited Interim Consolidated Financial Statements.
In the first half of 2007, our share-based compensation plans generated a total charge in our
income statement of $32 million pre-tax ($3 million for the 2007 Unvested Stock Award Plan, $25
million for the 2006 Unvested Stock Award Plan and $4 million for the 2005 Unvested Stock Award
Plan).
Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the
end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that, as of the evaluation date, our disclosure controls and
procedures were effective to ensure that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commissions rules and forms and is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer
as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during
the period covered by this report that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Other Reviews
We have sent this report to our Audit Committee, which had an opportunity to raise questions
with our management and independent auditors before we submitted it to the Securities and Exchange
Commission.
Cautionary Note Regarding Forward-Looking Statements
Some of the statements contained in OverviewBusiness Outlook and in Liquidity and Capital
ResourcesFinancial Outlook and elsewhere in this Form 6-K that are not historical facts are
statements of future expectations and other forward-looking statements (within the meaning of
Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934,
each as amended) based on managements current views and assumptions and involve known and unknown
risks and uncertainties that could cause actual results, performance or events to differ materially
from those in such statements due to, among other factors:
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future developments of the world semiconductor market, in particular the future
demand for semiconductor products in the key application markets and from key customers
served by our products; |
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|
pricing pressures, losses or curtailments of purchases from key customers all of
which are highly variable and difficult to predict; |
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|
the financial impact of obsolete or excess inventories if actual demand differs from
our anticipations; |
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|
the impact of intellectual property claims by our competitors or third parties, and
our ability to obtain required licenses on reasonable terms and conditions; |
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|
changes in the exchange rates between the U.S. dollar and the Euro, compared to an
assumed effective exchange rate of U.S. $1.37 = 1.00 and between the U.S. dollar
and the currencies of the other major countries in which we have our operating
infrastructure; |
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|
our ability to manage in an intensely competitive and cyclical industry where a high
percentage of our costs are fixed and difficult to reduce in the short term, including
our ability to adequately utilize and operate our manufacturing facilities at
sufficient levels to cover fixed operating costs; |
35
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|
our ability to close as currently planned and scheduled our agreement with Intel
Corporation and Francisco Partners L.P. concerning the creation of a
new pending independent
Flash memory company to be named NumonyxTM (i) if the financial, business or
other conditions to closing as contractually provided are not met due to issues not
currently anticipated and/or (ii) if the estimated loss of $857 million relating to our
Flash memory business materially changes at Closing as a result of significant
developments in the Flash memory business; |
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our ability in an intensive competitive environment, to secure customer acceptance
and to achieve our pricing expectations for high-volume supplies of new products in
whose development we have or are currently investing; |
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|
the anticipated benefits of research and development alliances and cooperative
activities, as well as the uncertainties concerning the modalities, conditions and
financial impact beyond 2007 of the R&D cooperative alliance in Crolles2; |
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|
the ability of our suppliers to meet our demands for supplies and materials and to
offer competitive pricing; |
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|
our gross margin could vary significantly from expectations based on changes in
revenue levels, product mix and pricing, capacity utilization, variations in inventory
valuation, excess or obsolete inventory, manufacturing yields, changes in unit costs,
impairments of long-lived assets, including manufacturing, assembly/test and intangible
assets, and the timing and execution of the manufacturing ramp and associated costs,
including start-up costs; |
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|
changes in the economic, social or political environment, including military
conflict and/or terrorist activities, as well as natural events such as severe weather,
health risks, epidemics or earthquakes in the countries in which we, our key customers
and our suppliers operate; |
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|
changes in our overall tax position as a result of changes in tax laws or the
outcome of tax audits, and our ability to accurately estimate tax credits, benefits,
deductions and provisions and to realize deferred tax assets; |
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the outcome of litigation; and |
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the results of actions by our competitors, including new product offerings and our
ability to react thereto. |
Such forward-looking statements are subject to various risks and uncertainties, which may
cause actual results and performance of our business to differ materially and adversely from the
forward-looking statements. Certain forward-looking statements can be identified by the use of
forward-looking terminology, such as believes, expects, may, are expected to, will, will
continue, should, would be, seeks or anticipates or similar expressions or the negative
thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans
or intentions. Some of these risk factors are set forth and are discussed in more detail in Item
3. Key InformationRisk Factors in our Form 20-F. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect, actual results may
vary materially from those described in this Form 6-K as anticipated, believed or expected. We do
not intend, and do not assume any obligation, to update any industry information or forward-looking
statements set forth in this Form 6-K to reflect subsequent events or circumstances.
Unfavorable changes in the above or other factors listed under Risk Factors from time to
time in our SEC filings, could have a material adverse effect on our business and/or financial
condition.
36
STMICROELECTRONICS N.V.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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Pages |
Consolidated Statements of Income for the Three Months and Six Months
Ended June 30, 2007 and July 1, 2006 (unaudited)
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F-1 |
Consolidated Balance Sheets as of June 30, 2007 (unaudited) and
December 31, 2006 (audited)
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F-3 |
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2007 and July 1, 2006 (unaudited)
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F-4 |
Consolidated Statements of Changes in Shareholders Equity (unaudited)
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F-5 |
Notes to Interim Consolidated Financial Statements (unaudited)
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F-6 |
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, STMicroelectronics N.V.
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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STMicroelectronics N.V. |
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Date: August 3, 2007
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By:
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/s/ Carlo Bozotti
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Name:
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Carlo Bozotti |
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Title:
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President and Chief Executive |
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Officer and Sole Member of |
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our Managing Board |
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Enclosure: STMicroelectronics N.V.s Second Quarter and First Half 2007:
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Operating and Financial Review and Prospects; |
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Unaudited Interim Consolidated Statements of Income, Balance Sheets,
Statements of Cash Flow and Statements of Changes in Shareholders
Equity and related Notes; |
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Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley
Act of 2002, submitted to the Commission on a voluntary basis; |
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Master agreement by and between STMicroelectronics N.V., Intel
Corporation, Redwood Blocker S.A.R.L., and Francisco Partners II
(Cayman) L.P., May 22, 2007 (Exhibit 99.1); and |
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Form of ST Asset Contribution Agreement (Exhibit 99.2). |
38
STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF INCOME
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Three months ended |
|
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(unaudited) |
|
|
June 30, |
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July 1, |
In million of U.S. dollars except per share amounts |
|
2007 |
|
2006 |
|
Net sales |
|
|
2,409 |
|
|
|
2,492 |
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Other revenues |
|
|
9 |
|
|
|
3 |
|
|
|
|
Net revenues |
|
|
2,418 |
|
|
|
2,495 |
|
Cost of sales |
|
|
(1,580 |
) |
|
|
(1,613 |
) |
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|
|
Gross profit |
|
|
838 |
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|
|
882 |
|
Selling, general and administrative |
|
|
(270 |
) |
|
|
(266 |
) |
Research and development |
|
|
(446 |
) |
|
|
(408 |
) |
Other income and
expenses, net |
|
|
12 |
|
|
|
(5 |
) |
Impairment, restructuring charges and other related
closure costs |
|
|
(906 |
) |
|
|
(34 |
) |
|
|
|
Operating income (loss) |
|
|
(772 |
) |
|
|
169 |
|
Interest income, net |
|
|
18 |
|
|
|
30 |
|
Earnings (loss) on equity investments |
|
|
3 |
|
|
|
(1 |
) |
|
|
|
Income (loss) before income taxes and minority interests |
|
|
(751 |
) |
|
|
198 |
|
Income tax expense |
|
|
(4 |
) |
|
|
(29 |
) |
|
|
|
Income (loss) before minority interests |
|
|
(755 |
) |
|
|
169 |
|
Minority interests |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
|
Net income (loss) |
|
|
(758 |
) |
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share (Basic) |
|
|
(0.84 |
) |
|
|
0.19 |
|
|
|
|
Earnings (loss) per share
(Diluted) |
|
|
(0.84 |
) |
|
|
0.18 |
|
|
|
|
The accompanying notes are an integral part of these unaudited interim consolidated
financial statements
F-1
STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
(unaudited) |
|
|
June 30, |
|
July 1, |
In million of U.S. dollars except per share amounts |
|
2007 |
|
2006 |
|
Net sales |
|
|
4,678 |
|
|
|
4,854 |
|
Other revenues |
|
|
15 |
|
|
|
4 |
|
|
|
|
Net revenues |
|
|
4,693 |
|
|
|
4,858 |
|
Cost of sales |
|
|
(3,070 |
) |
|
|
(3,139 |
) |
|
|
|
Gross profit |
|
|
1,623 |
|
|
|
1,719 |
|
Selling, general and administrative |
|
|
(531 |
) |
|
|
(522 |
) |
Research and development |
|
|
(881 |
) |
|
|
(817 |
) |
Other income and
expenses, net |
|
|
(3 |
) |
|
|
(24 |
) |
Impairment, restructuring charges and other
related closure costs |
|
|
(918 |
) |
|
|
(47 |
) |
|
|
|
Operating income (loss) |
|
|
(710 |
) |
|
|
309 |
|
Interest income, net |
|
|
36 |
|
|
|
51 |
|
Earnings (loss) on equity investments |
|
|
9 |
|
|
|
(4 |
) |
|
|
|
Income (loss) before income taxes and minority interests |
|
|
(665 |
) |
|
|
356 |
|
Income tax expense |
|
|
(15 |
) |
|
|
(57 |
) |
|
|
|
Income (loss) before minority interests |
|
|
(680 |
) |
|
|
299 |
|
Minority interests |
|
|
(4 |
) |
|
|
0 |
|
|
|
|
Net income (loss) |
|
|
(684 |
) |
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
(Basic) |
|
|
(0.76 |
) |
|
|
0.33 |
|
|
|
|
Earnings (loss) per share
(Diluted) |
|
|
(0.76 |
) |
|
|
0.32 |
|
|
|
|
The accompanying notes are an integral part of these unaudited interim consolidated
financial statements
F-2
STMicroelectronics N.V.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
In million of U.S. dollars |
|
2007 |
|
2006 |
|
|
(unaudited) |
|
(audited) |
|
Assets |
|
|
|
|
|
|
|
|
Current assets : |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
1,849 |
|
|
|
1,963 |
|
Marketable securities |
|
|
931 |
|
|
|
460 |
|
Short-term deposits |
|
|
0 |
|
|
|
250 |
|
Trade accounts receivable, net |
|
|
1,543 |
|
|
|
1,589 |
|
Inventories, net |
|
|
1,337 |
|
|
|
1,639 |
|
Deferred tax assets |
|
|
205 |
|
|
|
187 |
|
Assets held for sale |
|
|
1,204 |
|
|
|
0 |
|
Other receivables and assets |
|
|
596 |
|
|
|
498 |
|
|
|
|
Total current assets |
|
|
7,665 |
|
|
|
6,586 |
|
|
|
|
Goodwill |
|
|
225 |
|
|
|
223 |
|
Other intangible assets, net |
|
|
157 |
|
|
|
211 |
|
Property, plant and equipment, net |
|
|
4,843 |
|
|
|
6,426 |
|
Long-term deferred tax assets |
|
|
134 |
|
|
|
124 |
|
Equity investments |
|
|
0 |
|
|
|
261 |
|
Restricted cash for equity investments |
|
|
250 |
|
|
|
218 |
|
Other investments and other non-current
assets |
|
|
158 |
|
|
|
149 |
|
|
|
|
|
|
|
5,767 |
|
|
|
7,612 |
|
|
|
|
Total assets |
|
|
13,432 |
|
|
|
14,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Bank overdrafts |
|
|
41 |
|
|
|
0 |
|
Current portion of long-term debt |
|
|
127 |
|
|
|
136 |
|
Trade accounts payable |
|
|
1,003 |
|
|
|
1,044 |
|
Other payables and accrued liabilities |
|
|
714 |
|
|
|
664 |
|
Deferred tax liabilities |
|
|
10 |
|
|
|
7 |
|
Accrued income tax |
|
|
41 |
|
|
|
112 |
|
|
|
|
Total current liabilities |
|
|
1,936 |
|
|
|
1,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
1,992 |
|
|
|
1,994 |
|
Reserve for pension and termination
indemnities |
|
|
362 |
|
|
|
342 |
|
Long-term deferred tax liabilities |
|
|
66 |
|
|
|
57 |
|
Other non-current liabilities |
|
|
105 |
|
|
|
43 |
|
|
|
|
|
|
|
2,525 |
|
|
|
2,436 |
|
|
|
|
Total liabilities |
|
|
4,461 |
|
|
|
4,399 |
|
|
|
|
Commitment and contingencies |
|
|
|
|
|
|
|
|
|
|
|
Minority interests |
|
|
56 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock (preferred stock: 540,000,000
shares authorized, not issued; common
stock: Euro 1.04 nominal value,
1,200,000,000
shares authorized, 910,289,100 shares
issued, 899,309,379 shares outstanding) |
|
|
1,156 |
|
|
|
1,156 |
|
Capital surplus |
|
|
2,055 |
|
|
|
2,021 |
|
Accumulated result |
|
|
5,087 |
|
|
|
6,086 |
|
Accumulated other comprehensive income |
|
|
903 |
|
|
|
816 |
|
Treasury stock |
|
|
(286 |
) |
|
|
(332 |
) |
|
|
|
Shareholders equity |
|
|
8,915 |
|
|
|
9,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
|
13,432 |
|
|
|
14,198 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
|
|
|
F-3
STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
(unaudited) |
|
|
June 30, |
|
July 1, |
In million of U.S. dollars |
|
2007 |
|
2006 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(684 |
) |
|
|
299 |
|
Items to reconcile net income (loss) and cash flows from operating
activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
770 |
|
|
|
897 |
|
Amortization of discount on convertible debt |
|
|
9 |
|
|
|
8 |
|
Other non-cash items |
|
|
39 |
|
|
|
5 |
|
Minority interests |
|
|
4 |
|
|
|
|
|
Deferred income tax |
|
|
(7 |
) |
|
|
(15 |
) |
Earnings (loss) on equity investments |
|
|
(9 |
) |
|
|
4 |
|
Impairment, restructuring charges and other related closure costs, net of cash payments |
|
|
885 |
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Trade receivables, net |
|
|
46 |
|
|
|
(74 |
) |
Inventories, net |
|
|
(53 |
) |
|
|
(94 |
) |
Trade payables |
|
|
(2 |
) |
|
|
261 |
|
Other assets and liabilities, net |
|
|
(58 |
) |
|
|
86 |
|
|
|
|
Net cash from operating activities |
|
|
940 |
|
|
|
1,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Payment for purchase of tangible assets |
|
|
(507 |
) |
|
|
(696 |
) |
Payment for purchase of marketable securities |
|
|
(511 |
) |
|
|
(100 |
) |
Investment in short-term deposits |
|
|
|
|
|
|
(903 |
) |
|
|
|
|
|
|
|
|
|
Proceeds from sale of marketable securities |
|
|
40 |
|
|
|
|
|
Proceeds from matured short-term deposits |
|
|
250 |
|
|
|
|
|
Restricted cash for equity investments |
|
|
(32 |
) |
|
|
|
|
Investment in intangible and financial assets |
|
|
(36 |
) |
|
|
(48 |
) |
Proceeds from the sale of Accent subsidiary |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
Capital contributions to equity investments |
|
|
|
|
|
|
(212 |
) |
|
|
|
Net cash used in investing activities |
|
|
(796 |
) |
|
|
(1,952 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
17 |
|
|
|
1,561 |
|
Repayment of long-term debt |
|
|
(52 |
) |
|
|
(69 |
) |
Increase (decrease) in short-term facilities |
|
|
40 |
|
|
|
(12 |
) |
Capital increase |
|
|
2 |
|
|
|
16 |
|
Dividends paid |
|
|
(269 |
) |
|
|
(107 |
) |
|
|
|
Net cash from (used in) financing activities |
|
|
(262 |
) |
|
|
1,389 |
|
|
|
|
Effect of changes in exchange rates |
|
|
4 |
|
|
|
51 |
|
|
|
|
Net cash increase (decrease) |
|
|
(114 |
) |
|
|
865 |
|
|
|
|
Cash and cash equivalents at beginning of the period |
|
|
1,963 |
|
|
|
2,027 |
|
|
|
|
Cash and cash equivalents at end of the period |
|
|
1,849 |
|
|
|
2,892 |
|
|
|
|
The accompanying notes are an integral part of these unaudited interim consolidated
financial statements
F-4
STMicroelectronics N.V.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In million of U.S. dollars, except per share amounts |
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
Common |
|
Capital |
|
Treasury |
|
Accumulated |
|
Comprehensive |
|
Shareholders |
|
|
Stock |
|
Surplus |
|
Stock |
|
Result |
|
income |
|
Equity |
|
|
|
Balance as of December 31, 2005 (Audited) |
|
|
1,153 |
|
|
|
1,967 |
|
|
|
(348 |
) |
|
|
5,427 |
|
|
|
281 |
|
|
|
8,480 |
|
|
|
|
Capital increase |
|
|
3 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
Stock-based compensation expense |
|
|
|
|
|
|
29 |
|
|
|
16 |
|
|
|
(16 |
) |
|
|
|
|
|
|
29 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
782 |
|
|
|
|
|
|
|
782 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
535 |
|
|
|
535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,317 |
|
Dividends, $0.12 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107 |
) |
|
|
|
|
|
|
(107 |
) |
|
|
|
Balance as of December 31, 2006 (audited) |
|
|
1,156 |
|
|
|
2,021 |
|
|
|
(332 |
) |
|
|
6,086 |
|
|
|
816 |
|
|
|
9,747 |
|
|
|
|
Capital increase |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Stock-based compensation expense |
|
|
|
|
|
|
32 |
|
|
|
46 |
|
|
|
(46 |
) |
|
|
|
|
|
|
32 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(684 |
) |
|
|
|
|
|
|
(684 |
) |
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(597 |
) |
Dividends, $0.30 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(269 |
) |
|
|
|
|
|
|
(269 |
) |
|
|
|
Balance as of June 30, 2007 (Unaudited) |
|
|
1,156 |
|
|
|
2,055 |
|
|
|
(286 |
) |
|
|
5,087 |
|
|
|
903 |
|
|
|
8,915 |
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim consolidated financial statements
|
|
|
|
|
|
|
|
|
|
F-5
STMicroelectronics N.V.
Notes to Interim Consolidated Financial Statements (unaudited)
1. The Company
STMicroelectronics N.V. (the Company) is registered in The Netherlands with its statutory
domicile in Amsterdam and its corporate headquarters located in Geneva, Switzerland.
The Company is a global independent semiconductor company that designs, develops, manufactures and
markets a broad range of semiconductor integrated circuits (ICs) and discrete devices. The
Company offers a diversified product portfolio and develops products for a wide range of market
applications, including automotive products, computer peripherals, telecommunications systems,
consumer products, industrial automation and control systems. Within its diversified portfolio,
the Company has focused on developing products that leverage its technological strengths in
creating customized, system-level solutions with high-growth digital and mixed-signal content.
2. Fiscal year
The Companys fiscal year ends on December 31. Interim periods are established for accounting
purposes on a thirteen-week basis. In 2007, the Companys first quarter ended on March 31, its
second ended on June 30, its third quarter will end on September 29 and its fourth quarter will end
on December 31.
3. Basis of Presentation
The accompanying Unaudited Interim Consolidated Financial Statements of the Company have been
prepared in conformity with accounting principles generally accepted in the United States of
America (U.S. GAAP), consistent in all material respects with those applied for the year ended
December 31, 2006. The interim financial information is unaudited but reflects all normal
adjustments which are, in the opinion of management, necessary to provide a fair statement of
results for the periods presented. The results of operations for the interim period are not
necessarily indicative of the results to be expected for the entire year.
All balances and values in the current and prior periods are in millions of dollars, except share
and per-share amounts.
The accompanying Unaudited Interim Consolidated Financial Statements do not include certain
footnotes and financial presentation normally required on an annual basis under U.S. GAAP.
Therefore, these interim financial statements should be read in conjunction with the Consolidated
Financial Statements in the Companys Annual Report on Form 20-F for the year ended December 31,
2006.
4. Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of net revenue and expenses during the reporting
period. The primary areas that require significant estimates and judgments by management include,
but are not limited to, sales returns and allowances, allowances for doubtful accounts, inventory
reserves and normal manufacturing capacity thresholds to determine costs capitalized in inventory,
accruals for warranty costs, litigation and claims, valuation of acquired intangibles, goodwill,
investments and tangible assets as well as the impairment of their related carrying values,
restructuring charges, assumptions used in calculating pension obligations and share-based
compensation, assessment of hedge effectiveness of derivative instruments, deferred income tax
assets including required valuation allowances and liabilities as well as provisions for
specifically identified income tax exposures and income tax uncertainties. The Company bases the
estimates and assumptions on historical experience and on various other factors such as market
trends and business plans that it
F-6
believes to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities. The
actual results experienced by the Company could differ materially and adversely from managements
estimates. To the extent there are material differences between the estimates and the actual
results, future results of operations, cash flows and financial position could be significantly
affected.
5. Recent Accounting Pronouncements
In February 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 155, Accounting for Certain Hybrid Financial Instruments an amendment of FASB
Statements No. 133 and 140 (FAS 155). The statement amended Statement of Financial Accounting
Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (FAS 133) and Statement of Financial Accounting
Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities (FAS 140). The primary purposes of this statement were (1) to allow companies to
select between bifurcation of hybrid financial instruments or fair valuing the hybrid as a single
instrument, (2) to clarify certain exclusions of FAS 133 related to interest and principal-only
strips, (3) to define the difference between freestanding and hybrid securitized financial assets,
and (4) to eliminate the FAS 140 prohibition of Special Purpose Entities holding certain types of
derivatives. The statement is effective for annual periods beginning after September 15, 2006, with
early adoption permitted prior to a company issuing first quarter financial statements. The Company
adopted FAS 155 in the first quarter 2007 and FAS 155 did not have any material effect on its
financial position and results of operations.
In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 156, Accounting for Servicing of Financial Assets an amendment of FASB Statement
No. 140 (FAS 156). This statement requires initial fair value recognition of all servicing assets
and liabilities for servicing contracts entered in the first fiscal year beginning after September
15, 2006. After initial recognition, the servicing assets and liabilities are either amortized over
the period of expected servicing income or loss or fair value is reassessed each period with
changes recorded in earnings for the period. The Company adopted FAS 156 in the first quarter 2007
and FAS 156 did not have any material effect on its financial position and results of operations.
In June 2006, the Financial Accounting Standards Board issued Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement No. 109 (FIN 48). The interpretation seeks to clarify the accounting for tax positions
taken, or expected to be taken, in a companys tax return and the uncertainty as to the amount and
timing of recognition in the companys financial statements in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109). The interpretation
sets a two step process for the evaluation of uncertain tax positions. The recognition threshold in
step one permits the benefit from an uncertain position to be recognized only if it is more likely
than not, or 50 percent assured that the tax position will be sustained upon examination by the
taxing authorities. The measurement methodology in step two is based on cumulative probability,
resulting in the recognition of the largest amount that is greater than 50 percent likely of being
realized upon settlement with the taxing authority. The interpretation also addresses derecognising
previously recognized tax positions, classification of related tax assets and liabilities, accrual
of interest and penalties, interim period accounting, and disclosure and transition provisions. The
interpretation is effective for fiscal years beginning after December 15, 2006. The Company adopted
FIN 48 as at January 1, 2007. Before adoption, the Company applied Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies (FAS 5) in accounting for income tax
uncertainties and tax exposures. In compliance with FAS 5 provisions, liabilities and accruals for
income tax uncertainties and specific tax exposures were recorded or reversed when it was probable
that additional taxes would be due or refund. As such, a level of sustainability that met the
probable threshold was necessary to recognize any benefit from a tax-advantaged transaction. Upon
FIN 48 adoption, the Company assessed all material open income tax positions in all tax
jurisdictions to determine the appropriate amount of tax benefits that are recognizable under FIN
48. The Company recorded as of the adoption date an incremental tax liability of $8 million for the
difference between the amounts recognized under its previous accounting policies and the income tax
benefits determined under the new guidance. The cumulative effect of the change in the accounting
principle that the Company applied to uncertain income tax positions was recorded in the first
quarter of 2007 as an adjustment to retained earnings. Additionally the Company elected to classify
accrued interest and penalties related to uncertain tax positions as components of income tax
expense in its consolidated statement of income. Uncertain tax positions, unrecognized tax benefits
and related accrued interest and penalties are further described in Note 20.
F-7
In September 2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (FAS 157). This statement defines fair
value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. In addition, the
statement defines a fair value hierarchy which should be used when determining fair values, except
as specifically excluded (i.e. stock awards, measurements requiring vendor specific objective
evidence, and inventory pricing). The hierarchy places the greatest relevance on Level 1 inputs
which include quoted prices in active markets for identical assets or liabilities. Level 2 inputs,
which are observable either directly or indirectly, and include quoted prices for similar assets or
liabilities, quoted prices in non-active markets, and inputs that could vary based on either the
condition of the assets or liabilities or volumes sold. The lowest level of the hierarchy, Level 3,
is unobservable inputs and should only be used when observable inputs are not available. This
would include company level assumptions and should be based on the best available information under
the circumstances. FAS 157 is effective for fiscal years beginning after November 15, 2007 with
early adoption permitted for fiscal year 2007 if first quarter statements have not been issued. The
Company chose not to early adopt FAS 157 during its first quarter of 2007 and will adopt FAS 157
when effective. However, management does not expect FAS 157 will have a material effect on its
financial position and results of operations upon final adoption.
In February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities- Including
an amendment of FASB Statement No. 115 (FAS 159). This statement permits companies to choose
to measure eligible items at fair value at specified election dates and report unrealized gains and
losses in earnings at each subsequent reporting date on items for which the fair value option has
been elected. The objective of this statement is to improve financial reporting by providing
companies with the opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge accounting
provisions. A company may decide whether to elect the fair value option for each eligible item on
its election date, subject to certain requirements described in the statement. FAS 159 is
effective for fiscal years beginning after November 15, 2007 with early adoption permitted for
fiscal year 2007 if first quarter statements have not been issued. The Company chose not to early
adopt FAS 159 during its first quarter of 2007 and will adopt FAS 159 when effective. The Company
is currently evaluating the effect that adoption of this statement will have on its financial
position and results of operations.
In June 2007, the Emerging Issues Task Force reached final consensus on Issue No. 06-11, Accounting
for Income Tax Benefits of Dividends on Share-Based Payment Awards (EITF 06-11). The issue
applies to equity-classified nonvested shares on which dividends are paid prior to vesting,
equity-classified nonvested share units on which dividends equivalents are paid, and
equity-classified share options on which payments equal to the dividends paid on the underlying
shares are made to the option-holder while the option is outstanding. The issue is applicable to
the dividends or dividend equivalents that are (1) charged to retained earnings under the guidance
in Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment (FAS
123R) and (2) result in an income tax deduction for the employer. EITF 06-11 states that a
realized tax benefit from dividends or dividend equivalents that are charged to retained earnings
and paid to employees for equity-classified nonvested shares, nonvested equity share units, and
outstanding share options should be recognized as an increase to additional paid-in-capital. Those
tax benefits are considered excess tax benefits (windfall) under FAS 123R. EITF 06-11 must be
applied prospectively to dividends declared in fiscal years beginning after December 15, 2007 and
interim periods within those fiscal years, with early adoption permitted for the income tax
benefits of dividends on equity-based awards that are declared in periods for which financial
statements have not yet been issued. The Company will adopt EITF 06-11 when effective. However,
management does not expect EITF 06-11 will have a material effect on the Companys financial
position and results of operations.
In June 2007, the Emerging Issues Task Force reached final consensus on Issue No. 07-3, Accounting
for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities
(EITF 07-3). The issue addresses whether non-refundable advance payments for goods or services
that will be used or rendered for research and development activities should be expensed when the
advance payments are made or when the research and development activities have been performed. EITF
07-3 applies only to non-refundable advance payments for goods and services to be used and rendered
in future research and development activities pursuant to an executory contractual arrangement.
EITF 07-3 states that non-refundable advance payments for future research and development
activities should be capitalized until the goods have been delivered or the related services have
been performed. If an entity does not expect the goods to be delivered or services to be rendered,
the capitalized advance
F-8
payment should be charged to expense. EITF 07-3 is effective for fiscal
years beginning after December 15, 2007 and interim periods within those fiscal years. Earlier
application is not permitted and entities should recognize the effect of applying the guidance in
this Issue prospectively for new contracts entered into after EITF 07-3 effective date. The Company
will adopt EITF 07-3 when effective and is currently evaluating the effect its application will
have on its financial position and results of operations.
6. Other Income and Expenses, Net
Other income and expenses, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
In million of U.S dollars |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Research and development funding |
|
|
15 |
|
|
|
9 |
|
|
|
26 |
|
|
|
13 |
|
Start-up costs |
|
|
(5 |
) |
|
|
(14 |
) |
|
|
(15 |
) |
|
|
(25 |
) |
Exchange gain (loss), net |
|
|
1 |
|
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(9 |
) |
Patent litigation costs |
|
|
(5 |
) |
|
|
(4 |
) |
|
|
(12 |
) |
|
|
(8 |
) |
Patent pre-litigation costs |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(5 |
) |
|
|
(3 |
) |
Gain on sale of investment in Accent |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
Gain (loss) on sale of other non-current assets, net |
|
|
(1 |
) |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Other, net |
|
|
10 |
|
|
|
2 |
|
|
|
6 |
|
|
|
1 |
|
|
Total Other income and expenses, net |
|
|
12 |
|
|
|
(5 |
) |
|
|
(3 |
) |
|
|
(24 |
) |
|
Patent litigation costs include legal and attorney fees and payment of claims, and patent
pre-litigation costs are composed of consultancy fees and legal fees. Patent litigation costs are
costs incurred in respect of pending litigation. Patent pre-litigation costs are costs incurred to
prepare for licensing discussions with third parties with a view to concluding an agreement.
In the
second quarter of 2007, other, net included $10 million in
income that the Company received in its ongoing pursuit to recover
damages related to the case previously disclosed.
On June 29, 2006, the Company sold to Sofinnova Capital V its participation in Accent Srl, a
subsidiary based in Italy. Accent Srl, in which the Company held a 51% interest, was jointly formed
in 1999 with Cadence Design Systems Inc. and is specialized in hardware and software design and
consulting services for integrated circuit design and fabrication. The total consideration
amounting to $7 million was received in cash on June 29, 2006. Net of consolidated carrying amount
and transactions related expenses, the divestiture resulted in a net pre tax gain of $6 million
which was recorded in Other income and expenses, net in the consolidated statement of income. In
addition the Company simultaneously entered into a license agreement with Accent by which the
Company granted to Accent, for a total agreed lump sum amount of $3 million, the right to use as
is and with no right to future development certain specific intellectual property of the Company
that are currently used in Accents business activities. The total consideration was recognized
immediately in the second quarter 2006 and recorded as Other revenues in the consolidated
statement of income. The Company was also granted warrants for 6,675 new shares of Accent. The
exercise of such warrants is limited to 15 years but can only be exercised in the event of a change
of control or an Initial Public Offering of Accent above a predetermined value.
F-9
7. Impairment, Restructuring Charges and Other Related Closure Costs
In the second quarter of 2007, the Company has incurred impairment and restructuring charges
related to the following items: (i) the valuation of assets to be disposed of within Flash memory
business deconsolidation under the held-for-sale model of FAS 144, Accounting for the impairment or
disposal of long-term assets (FAS 144); (ii) the new manufacturing plan committed to by the
Company in the second quarter of 2007 (the 2007 restructuring plan); (iii) the 150mm
restructuring plan started in 2003; and (iv) the headcount reduction plan announced in the second
quarter of 2005.
During the third quarter of 2003, the Company commenced a plan to restructure its 150mm fab
operations and part of its back-end operations in order to improve cost competitiveness. The 150mm
restructuring plan focuses on cost reduction by migrating a large part of European and U.S. 150mm
production to Singapore and by upgrading production to finer geometry 200mm wafer fabs. The plan
includes the discontinuation of the 150mm production of Rennes (France), the closure as soon as
operationally feasible of the 150mm wafer pilot line in Castelletto (Italy) and the downsizing by
approximately one-half of the 150mm wafer fab in Carrollton, Texas. Furthermore, the 150mm wafer
fab productions in Agrate (Italy) and Rousset (France) will be gradually phased-out in favor of
200mm wafer ramp-ups at existing facilities in these locations, which will be expanded or upgraded
to accommodate additional finer geometry wafer capacity. This manufacturing restructuring plan was
nearly fully completed in the second quarter of 2007, later than originally anticipated because of
unforeseen customer qualification requirements.
In May 2005, the Company announced additional restructuring efforts to improve profitability.
These initiatives aimed to reduce the Companys workforce by 3,000 outside Asia, of which 2,300
were planned for Europe. The Company planned to reorganize its European activities by optimizing on
a global scale its EWS activities (wafer testing); harmonizing its support functions; streamlining
its activities outside its manufacturing areas and by disengaging from certain activities.
The Company announced on July 10, 2007 that management committed to a new restructuring plan in the
second quarter of 2007 (the 2007 restructuring plan). Such plan aimed at redefining the Companys
manufacturing strategy in order to contribute to be more competitive in the semiconductor market.
In addition to the prior restructuring measures undertaken in the past years, which include the
150mm restructuring plan and the headcount reduction plan, this new manufacturing plan will pursue:
the transfer of 150mm production from Carrollton, Texas to Asia, the transfer of 200mm production
from Phoenix, Arizona, to Europe and Asia and the restructuring of the manufacturing operations in
Morocco with a progressive phase out of the activities in Ain Sebaa site synchronized with a
significant growth in Bouskoura site.
In the second quarter of 2007, the Company announced it had entered into a definitive agreement
with Intel to create a new independent semiconductor company from the key assets of the Companys
and Intels Flash memory business (FMG deconsolidation). The new company will combine key
research and development, manufacturing and sales and marketing assets of both companies into a
streamlined worldwide structure with the scale to produce cost-effective and innovative
non-volatile memory solutions. Under the terms of the agreement, the Company will sell its flash
memory assets, including its NAND joint venture interest and other NOR resources, to the new
company while Intel will sell its NOR assets and resources. In exchange, the Company will receive a
48.6% equity ownership stake and $468 million in cash at closing. Intel will receive a 45.1% equity
ownership stake and $432 million in cash at closing. Francisco Partners L.P., a Menlo Park,
California-based private equity firm, will invest $150 million in cash for convertible preferred
stock representing 6.3% ownership interests, subject to adjustments in certain circumstances.
F-10
Impairment, restructuring charges and other related closure costs incurred in the second quarter of
2007 and in the first half of 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Total impairment, |
|
|
|
|
|
|
|
|
|
|
related |
|
restructuring charges |
Three months ended |
|
|
|
|
|
Restructuring |
|
closure |
|
and other related |
June 30, 2007 |
|
Impairment |
|
charges |
|
costs |
|
closure costs |
150mm fab plan |
|
|
|
|
|
|
2 |
|
|
|
(8 |
) |
|
|
(6 |
) |
Headcount reduction plan |
|
|
|
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
2007 restructuring plan |
|
|
|
|
|
|
(40 |
) |
|
|
|
|
|
|
(40 |
) |
FMG deconsolidation |
|
|
(857 |
) |
|
|
|
|
|
|
|
|
|
|
(857 |
) |
Total |
|
|
(857 |
) |
|
|
(40 |
) |
|
|
(9 |
) |
|
|
(906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Total impairment, |
|
|
|
|
|
|
|
|
|
|
related |
|
restructuring charges |
Six months ended |
|
|
|
|
|
Restructuring |
|
closure |
|
and other related |
June 30, 2007 |
|
Impairment |
|
charges |
|
costs |
|
closure costs |
150mm fab plan |
|
|
|
|
|
|
2 |
|
|
|
(17 |
) |
|
|
(15 |
) |
Headcount reduction plan |
|
|
|
|
|
|
(4 |
) |
|
|
(2 |
) |
|
|
(6 |
) |
2007 restructuring plan |
|
|
|
|
|
|
(40 |
) |
|
|
|
|
|
|
(40 |
) |
FMG deconsolidation |
|
|
(857 |
) |
|
|
|
|
|
|
|
|
|
|
(857 |
) |
Total |
|
|
(857 |
) |
|
|
(42 |
) |
|
|
(19 |
) |
|
|
(918 |
) |
Impairment, restructuring charges and other related closure costs incurred in the second quarter of
2006 and in the first half of 2006 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
charges and other |
Three months ended |
|
|
|
|
|
Restructuring |
|
Other related |
|
related closure |
July 1, 2006 |
|
Impairment |
|
charges |
|
closure costs |
|
costs |
150mm fab operations |
|
|
|
|
|
|
(1 |
) |
|
|
(5 |
) |
|
|
(6 |
) |
Headcount reduction plan |
|
|
(1 |
) |
|
|
(25 |
) |
|
|
(2 |
) |
|
|
(28 |
) |
Total |
|
|
(1 |
) |
|
|
(26 |
) |
|
|
(7 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
charges and other |
Six months ended |
|
|
|
|
|
Restructuring |
|
Other related |
|
related closure |
July 1, 2006 |
|
Impairment |
|
charges |
|
closure costs |
|
costs |
150mm fab operations |
|
|
|
|
|
|
(1 |
) |
|
|
(10 |
) |
|
|
(11 |
) |
Headcount reduction plan |
|
|
(1 |
) |
|
|
(32 |
) |
|
|
(3 |
) |
|
|
(36 |
) |
Total |
|
|
(1 |
) |
|
|
(33 |
) |
|
|
(13 |
) |
|
|
(47 |
) |
Impairment charges
At June 30, 2007, following the announcement to dispose in the near future its Flash memory
business, the Company was required to evaluate the accounting and reporting of the
to-be-disposed-of FMG assets under the FAS 144 held-for-sale model. Since FAS 144 sale criteria
were met, the Company reported FMG assets as part of current assets on the face of the consolidated
balance sheet as at June 30, 2007. These assets were recorded at fair value less costs to
F-11
sell, which generated an impairment loss of $857 million in the first half of 2007. Fair value
less costs to sell was based on the net consideration of the
agreement and significant estimates. The final amount could be
materially different subject to
adjustments due to business evolution before closing of the transaction.
Additionally, the commitment of the Company to the closure of two front-end sites and one back-end
site as part of the 2007 restructuring plan has triggered an impairment review of assets to be
disposed of at closure of the manufacturing sites, which is expected to occur within two years.
Consequently, the Company reviewed as at June 30, 2007 the recoverability of the assets to be
disposed of under FAS 144 held-for-use model and the outcome of such impairment test determined
that no impairment was required at June 30, 2007.
Finally, in January 2007, NXP Semiconductors B.V. announced that it will withdraw from the alliance
the Company operates jointly with Freescale Semiconductor, Inc. for certain research and
development activities and the operation of a 300mm wafer pilot line fab in Crolles (France)
(Crolles2 alliance). Therefore, the Crolles2 alliance will expire on December 31, 2007. Freescale
Semiconductor, Inc. has also notified the Company that the Crolles2 alliance will terminate as of
such date.
Restructuring charges and other related closure costs
Provisions for restructuring charges and other related closure costs as at June 30, 2007 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2007 |
|
|
|
|
|
Total restructuring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring |
|
restructuring |
|
|
|
|
|
& other related |
|
|
150mm fab plan |
|
|
|
|
|
|
|
|
|
initiatives |
|
plan |
|
Other |
|
closure costs |
|
|
|
|
|
|
Other related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
closure costs |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision as at December 31, 2006 |
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges incurred in 2007 |
|
|
|
|
|
|
17 |
|
|
|
17 |
|
|
|
6 |
|
|
|
40 |
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of provision |
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts paid |
|
|
(3 |
) |
|
|
(17 |
) |
|
|
(20 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation effect |
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision as at June 30, 2007 |
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
10 |
|
|
|
40 |
|
|
|
|
|
|
|
58 |
|
|
150mm fab plan:
Restructuring charges incurred in the first half of 2007 primarily related to transfer, maintenance
and decontamination associated with the closure and transfer of production for the sites of Rousset
(France) and Agrate (Italy). In the second quarter of 2007, the Company reversed a $2 million
provision recorded in 2003 to cover the Companys legal obligation to pay penalties to the French
governmental institutions related to the closure of Rennes production site. In the second quarter
of 2007 the French authorities decided to waive the payment of such penalties.
Restructuring charges incurred in the first half of 2006 primarily related to $1 million
termination benefits and $10 million of transfer and other costs in Agrate (Italy) and Rousset
(France) sites.
2005 restructuring initiatives:
In the first half of 2007, the Company recorded a total restructuring charge amounting to $6
million, of which $4 million corresponded to workforce reduction initiatives in Europe and $2
million was related to reorganization actions aiming at optimizing the Companys EWS activities.
In the first half of 2006, the Company recorded $35 million associated with its 2005 restructuring
plan. These restructuring charges included $32 million voluntary termination benefits, mainly in
France and Italy, and $3 million restructuring charges related to EWS activities.
F-12
2007 restructuring plan:
Pursuant to its commitment to a new restructuring plan aimed at redefining the Companys
manufacturing strategy in order to improve its competitiveness, the Company recorded in the second
quarter of 2007 a total restructuring charge amounting to $40 million, mainly related to on-going
termination benefits for involuntary leaves. This total charge includes the provision for
contractual, legal and past practice termination benefits to be paid for an estimated number of
employees in the United States and Morocco.
Total impairment, restructuring charges and other related closure costs
In the first half of 2007, total amounts paid for restructuring and related closure costs amounted
to $33 million.
The 2003 restructuring plan and related manufacturing initiatives are nearly fully completely
as at June 30, 2007. Of the total $330 million expected pre-tax charges to be incurred under the
plan, $331 million have been incurred as of June 30, 2007 ($15 million in 2007, $22 million in
2006, $13 million in 2005, $76 million in 2004, and $205 million in 2003).
The 2005 headcount reduction plan, which was nearly fully completed as at June 30, 2007, was
originally expected to result in pre-tax charges between of $100 million, out of which $92 million
have been incurred as of June 30, 2007 ($6 million in 2007, $45 million in 2006 and $41 million in
2005).
The
2007 restructuring plan is expected to result in pre-tax charges in
the range of $270 million to $300 million, of which $40 million have been incurred as of June 30, 2007. This plan is expected to be
completed in the second half of 2009.
The total actual costs that the Company will incur may differ from these estimates based on the
timing required to fully complete the restructuring plans.
8. Interest income, net
Interest income, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
In million of U.S dollars |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Income |
|
|
36 |
|
|
|
44 |
|
|
|
71 |
|
|
|
73 |
|
Expense |
|
|
(18 |
) |
|
|
(14 |
) |
|
|
(35 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18 |
|
|
|
30 |
|
|
|
36 |
|
|
|
51 |
|
|
Interest expense also included charges related to the amortization of issuance costs incurred by
the Company for the outstanding bonds.
F-13
9. Available-for-sale financial assets
As at June 30, 2007, the Company had marketable securities amounting to $931 million, of which $511
million were purchased and $40 million were sold in the first half of 2007. These financial assets
consisted of floating rate notes issued by various primary financial institutions. These marketable
securities were reported as current assets as at June 30, 2007 since they represent investments of
funds available for current operations. These financial assets are classified as available-for-sale
and are recorded at fair value, with changes in fair value recognized as a separate component of
accumulated other comprehensive income in the consolidated statement of changes in shareholders
equity. The Company had $100 million marketable securities purchased in the second quarter of 2006
and classified as available-for-sale as at July 1, 2006.
10. Short term deposits
In the first half of 2007, the Company did not roll over $250 million of short term deposits, which
had a maturity between three months and one year. As at June 30, 2007 no amount of existing cash
was held in short term deposits while as at July 1, 2006 the total amount of existing cash held in
short term deposits was $903 million purchased in the second quarter of 2006.
11. Inventories, net
Inventories are stated at the lower of cost or net realizable value. Cost is based on the weighted
average cost by adjusting standard cost to approximate actual manufacturing costs on a quarterly
basis; the cost is therefore dependent on the Companys manufacturing performance. In the case of
underutilization of manufacturing facilities, the costs associated with the excess capacity are not
included in the valuation of inventories but charged directly to cost of sales.
Provisions for obsolescence are estimated for excess uncommitted inventories based on the previous
quarter sales, orders backlog and production plans.
Inventories, net of reserve consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(audited) |
In million of U.S. dollars |
|
As at June 30, 2007 |
|
As at December 31, 2006 |
|
Raw materials |
|
|
79 |
|
|
|
80 |
|
Work-in-process |
|
|
820 |
|
|
|
1,032 |
|
Finished products |
|
|
438 |
|
|
|
527 |
|
|
Total |
|
|
1,337 |
|
|
|
1,639 |
|
|
As at June 30, 2007 inventories amounting to $371 million were reported as a component of the line
assets held for sale on the consolidated balance sheet as part of the assets to be transferred to
the newly created flash memory company within FMG deconsolidation.
12. Assets held for sale
As a result on the signing of a definitive agreement for the FMG deconsolidation and upon meeting
FAS 144 criteria for assets held for sale, the Company reclassified the assets to be transferred to
the newly created company from their original balance sheet classification to the line assets held
for sale. These assets were reported at fair value less costs to sell as at June 30, 2007,
including an impairment loss of $857 million, reported on the line impairment, restructuring
charges and other related closure costs of the consolidated income statement for the three months
ended as at June 30, 2007. Fair value less costs to sell was based on the net
consideration of the agreement and significant estimates. The final
amount could be materially different subject to adjustments due to business evolution before closing of
the transaction.
F-14
Assets held for sale consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(audited) |
In million of U.S. dollars |
|
As at June 30, 2007 |
|
As at December 31, 2006 |
|
Inventories, net |
|
|
371 |
|
|
|
|
|
Other intangible assets, net |
|
|
19 |
|
|
|
|
|
Property, plant and equipment,
net |
|
|
551 |
|
|
|
|
|
Equity investment |
|
|
263 |
|
|
|
|
|
|
Total |
|
|
1,204 |
|
|
|
|
|
|
13. Hynix ST joint venture equity investment
The Company signed in 2004 a joint-venture agreement with Hynix Semiconductor Inc. to build a
front-end memory-manufacturing facility in Wuxi City, Jiangsu Province, China. Under the agreement,
Hynix Semiconductor Inc. contributed $500 million for a 67% equity interest and the Company
contributed $250 million for a 33% equity interest. In addition, the Company originally committed
to grant $250 million in long-term financing to the new joint venture guaranteed by the
subordinated collateral of the joint-ventures assets. The Company made the total $250 million
capital contributions as previously planned in the joint venture agreement in 2006. The Company
accounts for its share in the Hynix ST joint venture under the equity method based on the actual
results of the joint venture. As such, the Company recorded earnings totaling $9 million in the
first half of 2007 and a loss of $4 million in the first half of 2006, reported as earnings (loss)
on equity investments in the consolidated statements of income.
Due to regulatory and withholding issues the Company could not directly provide the joint venture
with the $250 million long-term financing as originally planned. As a consequence, in the fourth
quarter of 2006, the Company entered into a ten-year term debt guarantee agreement with an external
financial institution through which the Company guaranteed the repayment of the loan by the joint
venture to the bank. The guarantee agreement includes the Company placing up to $250 million in
cash on a deposit account. The guarantee deposit will be used by the bank in case of repayment
failure from the joint venture, with $250 million as the maximum potential amount of future
payments the Company, as the guarantor, could be required to make. In the event of default and
failure to repay the loan from the joint venture, the bank will exercise the Companys rights,
subordinated to the repayment to senior lenders, to recover the amounts paid under the guarantee
through the sale of the joint-ventures assets. In the first half of 2007, the Company placed the
remaining $32 million of cash on the guarantee deposit account, which totaled $250 million as at
June 30, 2007 and was reported as restricted cash for equity investments on the consolidated
balance sheet. In the first half of 2006 the Company had not entered yet into any debt guarantee
agreement and no amount was placed as restricted cash on the guarantee deposit account as at July
1, 2006.
The debt guarantee was evaluated under FIN 45. It resulted in the recognition of a $17 million
liability, corresponding to the fair value of the guarantee at inception of the transaction. The
liability was reported on the line Other non-current liabilities in the consolidated balance
sheet as at June 30, 2007 and was recorded against the value of the equity investment, which
totaled $280 million. Following the Companys definitive agreement with Intel to sell its flash
memory key assets, including its equity interest in Hynix ST joint venture, as part of FMG
deconsolidation, the equity investment was reported as a component of the line assets held for
sale on the consolidated balance sheet as at June 30, 2007 for an amount of $263 million. The
Company reported the debt guarantee on the line other investments and other non-current assets
since the terms of the FMG sale agreement do not include the transfer of the debt guarantee.
The Company has identified the joint venture as a Variable Interest Entity (VIE) at June 30, 2007,
but has determined that it is not the primary beneficiary of the VIE. The Companys current maximum
exposure to loss as a result of its involvement with the joint venture is limited to its equity
investments and debt guarantee commitments.
F-15
14. Other investments and other non-current assets
Investments and other non-current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(audited) |
In million of U.S. dollars |
|
As at June 30, 2007 |
|
As at December 31, 2006 |
|
Cost Investments |
|
|
41 |
|
|
|
39 |
|
Long-term receivables related to funding |
|
|
35 |
|
|
|
36 |
|
Long-term receivables related to tax refund |
|
|
30 |
|
|
|
33 |
|
Debt issuance costs, net |
|
|
11 |
|
|
|
12 |
|
Cancellable swaps designated as fair value hedge |
|
|
|
|
|
|
4 |
|
Deposits and other non-current assets |
|
|
41 |
|
|
|
25 |
|
|
Total |
|
|
158 |
|
|
|
149 |
|
|
The Company entered into a joint venture agreement in 2002 with Dai Nippon Printing Co, Ltd for the
development and production of Photomask in which the Company holds a 19% equity interest. The
joint venture, DNP Photomask Europe S.p.A, was initially capitalized with the Companys
contribution of 2 million of cash. Dai Nippon Printing Co, Ltd contributed 8 million of
cash for an 81% equity interest. In the event of the liquidation of the joint-venture, the Company
is required to repurchase the land at cost, and the facility at 10% of its net book value, if no
suitable buyer is identified. No provision for this obligation has been recorded to date. At June
30, 2007, the Companys total contribution to the joint venture is $10 million. The Company
continues to maintain its 19% ownership of the joint venture, and therefore continues to account
for this investment under the cost method. The Company has identified the joint venture as a
Variable Interest Entity (VIE), but has determined that it is not the primary beneficiary of the
VIE. The Companys current maximum exposure to loss as a result of its involvement with the joint
venture is limited to its equity investment.
Long-term receivables related to funding are mainly public grants to be received from governmental
agencies in Italy as part of long-term research and development, industrialization and capital
investment projects.
Long-term receivables related to tax refund correspond to tax benefits claimed by the Company in
certain of its local tax jurisdictions, for which collection is expected beyond one year.
In 2006, the Company entered into cancellable swaps with a combined notional value of $200 million
to hedge the fair value of a portion of the convertible bonds due 2016 carrying a fixed interest
rate. The cancellable swaps convert the fixed rate interest expense recorded on the convertible
bonds due 2016 to a variable interest rate based upon adjusted LIBOR. The cancellable swaps meet
the criteria for designation as a fair value hedge, as further detailed in Note 22 and are
reflected at their fair value, which was negative as at June 30, 2007 for approximately $1 million.
As such, the fair value of the cancellable swaps was reported on the line other non-current
liabilities in the consolidated balance sheet as at June 30, 2007.
F-16
15. Long-term Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
In million of U.S dollars |
|
As at June 30, 2007 |
|
As at December 31, 2006 |
|
Bank loans: |
|
|
|
|
|
|
|
|
2.57% (weighted average), due 2007, fixed interest rate |
|
|
33 |
|
|
|
65 |
|
5.72% (weighted average), due 2007, variable interest rate |
|
|
27 |
|
|
|
30 |
|
5.79% due 2008, floating interest rate at Libor + 0.40% |
|
|
43 |
|
|
|
49 |
|
5.75% due 2009, floating interest rate at Libor + 0.40% |
|
|
50 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
Funding program loans: |
|
|
|
|
|
|
|
|
1.43% (weighted average), due 2009, fixed interest rate |
|
|
16 |
|
|
|
18 |
|
0.90% (weighted average), due 2010, fixed interest rate |
|
|
40 |
|
|
|
45 |
|
2.79% (weighted average), due 2012, fixed interest rate |
|
|
13 |
|
|
|
12 |
|
0.49% (weighted average), due 2014, fixed interest rate |
|
|
9 |
|
|
|
8 |
|
3.33% (weighted average), due 2017, fixed interest rate |
|
|
55 |
|
|
|
53 |
|
5.34% due 2014, floating interest rate at Libor + 0.017% |
|
|
140 |
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
Capital leases: |
|
|
|
|
|
|
|
|
4.97%, due 2017, fixed interest rate |
|
|
23 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
Senior Bonds |
|
|
|
|
|
|
|
|
4.55%, due 2013, floating interest rate at EURIBOR + 0.40% |
|
|
675 |
|
|
|
659 |
|
|
|
|
|
|
|
|
|
|
Convertible debt: |
|
|
|
|
|
|
|
|
-0.50% convertible bonds due 2013 |
|
|
2 |
|
|
|
2 |
|
1.5% convertible bonds due 2016 |
|
|
993 |
|
|
|
991 |
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
2,119 |
|
|
|
2,130 |
|
|
Less current portion |
|
|
(127 |
) |
|
|
(136 |
) |
|
|
|
|
|
|
|
|
|
Total long-term debt, less current portion |
|
|
1,992 |
|
|
|
1,994 |
|
|
In August 2003, the Company issued $1,332 million principal amount at maturity of zero coupon
unsubordinated convertible bonds due 2013. The bonds were issued with a negative yield of 0.5% that
resulted in a higher principal amount at issuance of $1,400 million and net proceeds of $1,386
million. The negative yield through the first redemption right of the holder totals $21 million and
was recorded in capital surplus. The bonds are convertible at any time by the holders at the rate
of 29.9144 shares of the Companys common stock for each one thousand dollar face value of the
bonds. The holders may redeem their convertible bonds on August 5, 2006 at a price of $985.09, on
August 5, 2008 at $975.28 and on August 5, 2010 at $965.56 per one thousand dollar face value of
the bonds. Pursuant to the terms of the convertible bonds due 2013, the Company was required to
purchase, at the option of the
F-17
holders, 1,397,493 convertible bonds, at a price of $985.09 each between August 7 and August 9,
2006. This resulted in a cash payment of $1,377 million. The outstanding long-term debt
corresponding to the 2013 convertible debt amounted to approximately $2 million as at June 30,2007
corresponding to the remaining 2,505 bonds valued at August 5, 2008 redemption price. At any time
from August 20, 2006 the Company may redeem for cash at their negative accreted value all or a
portion of the convertible bonds subject to the level of the Companys share price.
In February 2006, the Company issued $974 million principal amount at maturity of zero coupon
senior convertible bonds due in February 2016. The bonds were issued at 100% of principal with a
yield to maturity of 1.5% and resulted in net proceeds to the Company of $974 million less
transaction fees. The bonds are convertible by the holder at any time prior to maturity at a
conversion rate of 43.363087 shares per one thousand dollar face value of the bonds corresponding
to 42,235,646 equivalent shares. This conversion rate has been adjusted from 43.118317 shares per
one thousand dollar face value of the bonds at issuance, as the result of the extraordinary cash
dividend approved by the Annual General Meeting of Shareholders held on April 26, 2007. This new
conversion has been effective since May, 21, 2007. The holders can also redeem the convertible
bonds on February 23, 2011 at a price of $1,077.58, on February 23, 2012 at a price of $1,093.81
and on February 24, 2014 at a price of $1,126.99 per one thousand dollar face value of the bonds.
The Company can call the bonds at any time after March 10, 2011 subject to the Companys share
price exceeding 130% of the accreted value divided by the conversion rate for 20 out of 30
consecutive trading days. The Company may redeem for cash at the principal amount at issuance plus
accumulated gross yield all, but not a portion, of the convertible bonds at any time if 10% or less
of the aggregate principal amount at issuance of the convertible bonds remain outstanding in
certain circumstances or in the event of changes to the tax laws of the Netherlands or any
successor jurisdiction. In the second quarter 2006, the Company entered into cancellable swaps with
a combined notional value of $200 million to hedge the fair value of a portion of these convertible
bonds. As a result of the cancellable swap hedging transactions, as described in further detail in
Note 22, the effective yield on the $200 million principal amount of the hedged convertible bonds
has increased from 1.5% to 2.0% as of June 30, 2007.
In March 2006, STMicroelectronics Finance B.V. (ST BV), a wholly owned subsidiary of the Company,
issued floating rate senior bonds with a principal amount of Euro 500 million at an issue price of
99.873%. The notes, which mature on March 17, 2013, pay a coupon rate of the three-month Euribor
plus 0.40% on the 17th of June, September, December and March of each year through
maturity. In the event of changes to the tax laws of the Netherlands or any successor
jurisdiction, ST BV or the Company, may redeem the full amount of senior bonds for cash. In the
event of certain change in control triggering events, the holders can cause ST BV or the Company to
repurchase all or a portion of the bonds outstanding.
16. Earnings per Share
Basic net earnings per share (EPS) is computed based on net income available to common
shareholders using the weighted-average number of common shares outstanding during the reported
period; the number of outstanding shares does not include treasury shares. Diluted EPS is computed
using the weighted-average number of common shares and dilutive potential common shares outstanding
during the period, such as stock issuable pursuant to the exercise of stock options outstanding,
nonvested shares granted and the conversion of convertible debt.
(In millions of U.S. dollars, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
June 30, 2007 |
|
July 1, 2006 |
|
Basic Earnings (Loss) per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(758 |
) |
|
|
168 |
|
|
|
(684 |
) |
|
|
299 |
|
Weighted average shares outstanding |
|
|
898,762,654 |
|
|
|
895,401,689 |
|
|
|
898,086,120 |
|
|
|
894,962,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per Share (basic) |
|
|
(0.84 |
) |
|
|
0.19 |
|
|
|
(0.76 |
) |
|
|
0.33 |
|
|
F-18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
|
June 30, 2007 |
|
July 1, 2006 |
|
Diluted Earnings (Loss) per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(758 |
) |
|
|
168 |
|
|
|
(684 |
) |
|
|
299 |
|
Interest expense on convertible debt,
net of tax |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
8 |
|
Net income (loss), adjusted |
|
|
(758 |
) |
|
|
173 |
|
|
|
(684 |
) |
|
|
307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
898,762,654 |
|
|
|
895,401,689 |
|
|
|
898,086,120 |
|
|
|
894,962,236 |
|
Dilutive effect of stock options |
|
|
|
|
|
|
135,951 |
|
|
|
|
|
|
|
419,504 |
|
Dilutive effect of nonvested shares |
|
|
|
|
|
|
951,324 |
|
|
|
|
|
|
|
1,455,186 |
|
Dilutive effect of convertible debt |
|
|
|
|
|
|
83,877,341 |
|
|
|
|
|
|
|
71,416,621 |
|
Number of shares used in calculating
Earnings (Loss) per Share |
|
|
898,762,654 |
|
|
|
980,366,305 |
|
|
|
898,086,120 |
|
|
|
968,253,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per Share (diluted) |
|
|
(0.84 |
) |
|
|
0.18 |
|
|
|
(0.76 |
) |
|
|
0.32 |
|
|
As of June 30, 2007, common shares issued were 910,289,100 shares of which 10,979,721 shares were
owned by the Company as treasury stock.
As of June 30, 2007, there were outstanding stock options exercisable into the equivalent of
54,971,536 common shares. There was also the equivalent of 42,310,583 common shares outstanding for
convertible debt, out of which 74,936 for the 2013 bonds and 42,235,647 for the 2016 bonds. None of
these bonds have been converted to shares during the first half of 2007.
17. Long-term employee benefits and Retirement plans
The Company and its subsidiaries have a number of defined benefit pension plans covering employees
in various countries. The plans provide for pension benefits, the amounts of which are calculated
based on factors such as years of service and employee compensation levels. Eligibility is
generally determined in accordance with local statutory requirements.
For Italian termination indemnity plan (TFR), the Company continues to measure the vested
benefits to which Italian employees are entitled as if they retired immediately as of June 30,
2007, in compliance with the Emerging Issues Task Force Issue No. 88-1, Determination of Vested
Benefit Obligation for a Defined Benefit Pension Plan (EITF 88-1). Nevertheless, since December
31, 2006, the TFR has been reported according to FAS 132(R), as any other defined benefit plan. The
information presented below for the second quarter and first half of 2006 has been modified
accordingly.
The components of the net periodic benefit cost include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Three Months ended |
|
Six Months ended |
In millions of U.S dollards |
|
June 30, 2007 |
|
July 1, 2006 |
|
June 30, 2007 |
|
July 1, 2006 |
|
Service cost |
|
|
10 |
|
|
|
10 |
|
|
|
20 |
|
|
|
20 |
|
Interest cost |
|
|
7 |
|
|
|
6 |
|
|
|
14 |
|
|
|
11 |
|
Expected return on plan assets |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(7 |
) |
|
|
(6 |
) |
Recognition of prior service cost |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
Amortization of net (gain) and loss |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
15 |
|
|
|
9 |
|
|
|
28 |
|
|
|
22 |
|
|
Employer contributions paid and expected to be paid in 2007 are consistent with the amounts
disclosed in the consolidated financial statements for the year ended December 31, 2006.
F-19
18. Dividends
At the Annual General Meeting of Shareholders on April 26, 2007 shareholders approved the
distribution of $0.30 per share in cash dividends. The dividend amount of approximately $269
million was paid in the second quarter of 2007.
At the Annual General Meeting of Shareholders on April 27, 2006 shareholders approved the
distribution of $0.12 per share in cash dividends. The dividend amount of approximately $107
million was paid in the second quarter of 2006.
19. Treasury Stock
In 2002 and 2001, the Company repurchased 13,400,000 of its own shares, for a total amount of $348
million, which were reflected at cost as a reduction of the shareholders equity. No treasury
shares were acquired in 2007 and 2006.
The treasury shares have been designated for allocation under the Companys share based
remuneration programs on non-vested shares including such plans as approved by the 2005, 2006 and
2007 Annual General Meeting of Shareholders. In the second quarter of 2007, 1,782,326 of these
treasury shares have been transferred to employees under the Companys share based remuneration
programs, following the vesting as of April 27, 2007 of the first and second tranches of the stock
award plans granted in 2006 and 2005 and the acceleration of the vesting of a limited number of
stock awards. As of July 1, 2006 637,109 of these treasury shares were transferred to employees
under the Companys share based remuneration programs, following the vesting as at April 27, 2006
of the first tranche of the stock award plan granted in 2005.
20. Contingencies and Uncertainties in Income Tax Positions
The Company is subject to the possibility of loss contingencies arising in the ordinary course of
business. These include but are not limited to: warranty cost on the products of the Company,
breach of contract claims, claims for unauthorized use of third party intellectual property as well
as claims for environmental damages. In determining loss contingencies, the Company considers the
likelihood of a loss of an asset or the incurrence of a liability as well as the ability to
reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is
probable that a liability has been incurred and when the amount of the loss can be reasonably
estimated. The Company regularly reevaluates claims to determine whether provisions need to be
readjusted based on the most current information available to the Company. Changes in these
evaluations could result in adverse material impact on the Companys results of operations, cash
flows or its financial position for the period in which they occur.
With the adoption of FIN 48 in the first quarter of 2007, the Company applies a two-step process
for the evaluation of uncertain income tax positions based on a more likely than not threshold to
determine if a tax position will be sustained upon examination by the taxing authorities, as
described in details in Note 5. The tax years that remain open for review in the Companys major
tax jurisdictions are from 1996 to 2006. Total unrecognized tax benefits as of the date of adoption
amounts to $82 million, of which $74 million correspond to tax exposure provisions recorded under
accounting principles applicable prior to FIN 48 adoption. The total amount of these unrecognized
tax benefits would affect the effective tax rate, if recognized. Interest and penalties recognized
in the consolidated balance sheets as at the adoption date and as at June 30, 2007 and in the
consolidated statement of income for the six months ended June 30, 2007 are not material.
Additionally, there is no reasonable evidence that the total amount of unrecognized tax benefits
will significantly increase or decrease within the next twelve months. Nevertheless, this assertion
is based on events and circumstances as known today. Events may occur in the near future that would
cause a material change in the estimate of the unrecognized tax benefit.
21. Claims and Legal proceedings
The Company has received and may in the future receive communications alleging possible
infringements, in particular in case of patents and similar intellectual property rights of others.
Furthermore, the Company may become involved in costly litigation brought against the Company
regarding patents, mask works, copy-rights, trade-marks or trade secrets. In the event that the
outcome of any litigation would be unfavorable to the Company, the Company may be required to
license the underlying intellectual property right at economically unfavorable terms and
F-20
conditions, and possibly pay damages for prior use and/or face an injunction, all of which
individually or in the aggregate could have a material adverse effect on the Companys results of
operations, cash flows or financial position and ability to compete.
The Company is involved in various lawsuits, claims, investigations and proceedings incidental to
the normal conduct of its operations, other than external patent utilization. These matters mainly
include the risks associated with claims from customers or other parties. The Company has accrued
for these loss contingencies when the loss is probable and can be estimated. The Company regularly
evaluates claims and legal proceedings together with their related probable losses to determine
whether they need to be adjusted based on the current information available to the Company. Legal
costs associated with claims are expensed as incurred. In the event of litigation which is
adversely determined with respect to the Companys interests, or in the event the Company needs to
change its evaluation of a potential third-party claim, based on new evidence or communications, a
material adverse effect could impact its operations or financial condition at the time it were to
materialize.
The Company is currently a party to legal proceedings with SanDisk Corporation (SanDisk) and
Tessera Technologies, Inc (Tessera). Based on managements current assumptions made with support
of the Companys outside attorneys, the Company is not currently in a position to evaluate any
probable loss, which may arise out of such litigation.
22. Derivative instruments
Foreign Currency Forward Contracts Not Designated as a Hedge
The Company conducts its business on a global basis in various major international currencies. As
a result, the Company is exposed to adverse movements in foreign currency exchange rates. The
Company enters into foreign currency forward contracts to reduce its exposure to changes in
exchange rates and the associated risk arising from the denomination of certain assets and
liabilities in foreign currencies at the Companys subsidiaries. These instruments do not qualify
as hedging instruments under Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (FAS 133) and are marked-to-market at each
period-end with the associated changes in fair value recognized in other income and expenses, net
in the consolidated statements of income.
Cash Flow Hedges
To further reduce its exposure to U.S. dollar exchange rate fluctuations, the Company also hedges
with foreign currency forward contracts and currency options certain euro-denominated forecasted
transactions that cover at year-end a large part of its research and development, selling general
and administrative expenses as well as a portion of its front-end manufacturing production costs of
semi-finished goods.
The foreign currency forward contracts and currency options used to hedge exposures are reflected
at their fair value in the consolidated balance sheet and meet the criteria for designation as cash
flow hedges. The criteria for designating a derivative as a hedge include the instruments
effectiveness in risk reduction and, in most cases, a one-to-one matching of the derivative
instrument to its underlying transaction. Foreign currency forward contracts and currency options
used as hedges are effective at reducing the euro/U.S. dollar currency fluctuation risk and are
designated as a hedge at the inception of the contract and on an on-going basis over the duration
of the hedge relationship. Effectiveness on transactions hedged through purchased currency options
is measured on the full fair value of the option, including the time value of the option. For these
derivatives, ineffectiveness appears if the hedge relationship is not perfectly effective or if the
cumulative gain or loss on the derivative hedging instrument exceeds the cumulative change on the
expected cash flows on the hedged transactions. The ineffective portion of the hedge is
F-21
immediately reported in other income and expenses, net in the consolidated statements of income.
The gain or loss from the effective portion of the hedge is reported as a component of accumulated
other comprehensive income in the consolidated statements of changes in shareholders equity and
is reclassified into earnings in the same period in which the hedged transaction affects earnings,
and within the same income statement line item as the impact of the hedged transaction. The gain or
loss is recognized immediately in other income and expenses, net in the consolidated statements
of income when a designated hedging instrument is either terminated early or an improbable or
ineffective portion of the hedge is identified.
Fair Value Hedges
In the second quarter 2006, the Company entered into cancellable swaps with a combined notional
value of $200 million to hedge the fair value of a portion of the convertible bonds due 2016
carrying a fixed interest rate. These financial instruments correspond to interest rate swaps with
a cancellation feature depending on the Companys convertible bonds convertibility. They convert
the fixed rate interest expense recorded on the convertible bond due 2016 to a variable interest
rate based upon adjusted LIBOR. The interest rate swaps meet the criteria for designation as a fair
value hedge and, as such, both the interest rate swaps and the hedged portion of the bonds are
reflected at the fair values in the consolidated balance sheet. The criteria for designating a
derivative as a hedge include evaluating whether the instrument is highly effective at offsetting
changes in the fair value of the hedged item attributable to the hedged risk. Hedged effectiveness
is assessed on both a prospective and retrospective basis at each reporting period. The interest
rate swaps are highly effective for hedging the change in fair value of the hedged bonds
attributable to changes in interest rates and were designated as a fair value hedge at their
inception. Any ineffectiveness of the hedge relationship is recorded as a gain or loss on
derivatives as a component of other income and expenses, net. If the hedge becomes no longer
highly effective, the hedged portion of the bonds will discontinue being marked to fair value while
the changes in the fair value of the interest rate swaps will continue to be recorded in the
consolidated income statement.
The net gain recognized in other income and expenses, net for the six months ended June 30, 2007
as a result of the ineffective portion of this fair value hedge was not material.
23. Segment Reporting
The Company operates in two business areas: Semiconductors and Subsystems.
In the Semiconductors business area, the Company designs, develops, manufactures and markets a
broad range of products, including discrete, memories and standard commodity components,
application-specific integrated circuits (ASICs), full custom devices and semi-custom devices and
application-specific standard products (ASSPs) for analog, digital, and mixed-signal
applications. In addition, the Company further participates in the manufacturing value chain of
Smartcard products through its Incard division, which includes the production and sale of both
silicon chips and Smartcards.
Beginning with the first quarter of 2005, the Company reported until December 31, 2006 its
semiconductor sales and operating income in three segments:
|
|
Application Specific Product Groups (ASG) segment, comprised of
three product lines Home, Personal and Communication (HPC),
Computer Peripherals (CPG) and new Automotive Product (APG); |
|
|
|
Memory Products Group (MPG) segment; and |
|
|
|
Micro, Power, Analog (MPA) segment. |
In an effort to better align the Company to meet the requirements of the market, together with the
pursuit of strategic repositioning in Flash Memory, the Company announced in December 2006 a
reorganization of its product segments into three main segments:
|
|
Application Specific Product Groups (ASG) segment; |
|
|
|
Industrial and Multisegment Sector (IMS) segment; and |
|
|
|
Flash Memory Group (FMG) segment. |
F-22
ASG segment includes the existing APG and CPG product lines and the newly created Mobile,
Multimedia and Communications Group and Home, Entertainment and Display Group. IMS segment contains
the Microcontrollers, Memories and Smartcards Group and the Analog, Power and MEMS Group. FMG
segment incorporates all Flash Memory operations, including research and development and
product-related activities, front- and back-end manufacturing, marketing and sales.
The new product segments became effective on January 1, 2007. The Company has restated its results
in prior periods for illustrative comparisons of its performance by product segment. The
preparation of segment information according to the new segment structure requires management to
make significant estimates, assumptions and judgments in determining the operating income of the
segments for the prior reporting periods. However management believes the 2006 quarters
presentation is representative of 2007 and is using these comparatives when managing the Company.
The Companys principal investment and resource allocation decisions in the Semiconductor business
area are for expenditures on research and development and capital investments in front-end and
back-end manufacturing facilities. These decisions are not made by product segments, but on the
basis of the Semiconductor Business area. All these product segments share common research and
development for process technology and manufacturing capacity for most of their products.
In the Subsystems business area, the Company designs, develops, manufactures and markets subsystems
and modules for the telecommunications, automotive and industrial markets including mobile phone
accessories, battery chargers, ISDN power supplies and in-vehicle equipment for electronic toll
payment. Based on its immateriality to its business as a whole, the Subsystems segment does not
meet the requirements for a reportable segment as defined in Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (FAS 131).
The following tables present the Companys consolidated net revenues and consolidated operating
income by semiconductor product segment. For the computation of the Groups internal financial
measurements, the Company uses certain internal rules of allocation for the costs not directly
chargeable to the Groups, including cost of sales, selling, general and administrative expenses and
a significant part of research and development expenses. Additionally, in compliance with the
Companys internal policies, certain cost items are not charged to the Groups, including
impairment, restructuring charges and other related closure costs, start-up costs of new
manufacturing facilities, some strategic and special research and development programs or other
corporate-sponsored initiatives, including certain corporate level operating expenses and certain
other miscellaneous charges.
Net revenues by product segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
In million of U.S dollars |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Net revenues by product segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Application Specific Product
Groups segment |
|
|
1,303 |
|
|
|
1,367 |
|
|
|
2,524 |
|
|
|
2,684 |
|
Industrial and Multisegment
Sector segment |
|
|
767 |
|
|
|
707 |
|
|
|
1,488 |
|
|
|
1,328 |
|
Flash Memory Group segment |
|
|
331 |
|
|
|
407 |
|
|
|
654 |
|
|
|
818 |
|
Others(1) |
|
|
17 |
|
|
|
14 |
|
|
|
27 |
|
|
|
28 |
|
Total consolidated net revenues |
|
|
2,418 |
|
|
|
2,495 |
|
|
|
4,693 |
|
|
|
4,858 |
|
|
|
|
(1) |
|
Includes revenues from sales of subsystems and other products not allocated to product
segments. |
F-23
Operating income (loss) by product segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
In million of U.S dollars |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Operating income (loss) by product segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Application Specific Product Groups segment |
|
|
53 |
|
|
|
108 |
|
|
|
52 |
|
|
|
202 |
|
Industrial and Multisegment Sector segment |
|
|
103 |
|
|
|
105 |
|
|
|
210 |
|
|
|
182 |
|
Flash Memory Group segment |
|
|
(25 |
) |
|
|
3 |
|
|
|
(42 |
) |
|
|
(12 |
) |
Total operating income of product segments |
|
|
131 |
|
|
|
216 |
|
|
|
220 |
|
|
|
372 |
|
Others(1) |
|
|
(903 |
) |
|
|
(47 |
) |
|
|
(930 |
) |
|
|
(63 |
) |
Total consolidated operating income (loss) |
|
|
(772 |
) |
|
|
169 |
|
|
|
(710 |
) |
|
|
309 |
|
|
|
|
(1) |
|
Operating income (loss) of Others includes items such as impairment, restructuring charges
and other related closure costs, start-up costs, and other unallocated expenses, such as:
strategic or special research and development programs, certain corporate-level operating
expenses, certain patent claims and litigations, and other costs that are not allocated to the
product segments, as well as operating earnings or losses of the Subsystems and Other Products
Group. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
July 1, |
|
June 30, |
|
July 1, |
In million of U.S dollars |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Reconciliation to consolidated operating
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income of product segments |
|
|
131 |
|
|
|
216 |
|
|
|
220 |
|
|
|
372 |
|
Strategic and other research and
development programs |
|
|
(4 |
) |
|
|
(2 |
) |
|
|
(8 |
) |
|
|
(5 |
) |
Start-up costs |
|
|
(5 |
) |
|
|
(14 |
) |
|
|
(15 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment, restructuring charges and other
related closure costs |
|
|
(906 |
) |
|
|
(34 |
) |
|
|
(918 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-allocated provisions(1) |
|
|
12 |
|
|
|
3 |
|
|
|
11 |
|
|
|
14 |
|
Total operating loss Others (2) |
|
|
(903 |
) |
|
|
(47 |
) |
|
|
(930 |
) |
|
|
(63 |
) |
Total consolidated operating income (loss) |
|
|
(772 |
) |
|
|
169 |
|
|
|
(710 |
) |
|
|
309 |
|
|
|
|
|
|
|
(1) |
|
Includes unallocated income and expenses such as certain corporate level operating expenses
and other costs. |
|
(2) |
|
Operating income (loss) of Others includes items such as impairment, restructuring charges
and other related closure costs, start-up costs, and other unallocated expenses, such as:
strategic or special research and development programs, certain corporate-level operating
expenses, certain patent claims and litigations, and other costs that are not allocated to the
product segments, as well as operating earnings or losses of the Subsystems and Other Products
Group. |
F-24
EX-12.1
Exhibit 12.1
VOLUNTARY CERTIFICATION
I, Carlo Bozotti, certify that:
1. I have reviewed this report on Form 6-K of STMicroelectronics N.V.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the Unaudited Interim Consolidated Statements of Income, Balance
Sheets, Statements of Cash Flow and Statements of Changes in Shareholders Equity and related
Notes, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the company as of, and
for, the periods presented in this report;
4. The companys other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d) 15(f) for the company and have:
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which
this report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the companys disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
d) |
|
Disclosed in this report any change in the companys internal control over
financial reporting that occurred during the period covered by the report that has
materially affected, or is reasonably likely to materially affect, the companys
internal control over financial reporting; and |
5. The companys other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the companys auditors and the audit
committee of the companys board of directors (or persons performing the equivalent functions):
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the companys ability to record, process, summarize and report financial
information; and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the companys internal control over financial reporting. |
|
|
|
|
|
|
|
Date: August 3, 2007
|
|
By:
|
|
/s/ Carlo Bozotti
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
Carlo Bozotti |
|
|
|
|
Title:
|
|
President and Chief Executive |
|
|
|
|
|
|
Officer and Sole Member of our |
|
|
|
|
|
|
Managing Board |
|
|
EX-12.2
Exhibit 12.2
VOLUNTARY CERTIFICATION
I, Carlo Ferro, certify that:
1. I have reviewed this report on Form 6-K of STMicroelectronics N.V.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the Unaudited Interim Consolidated Statements of Income, Balance
Sheets, Statements of Cash Flow and Statements of Changes in Shareholders Equity and related
Notes, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the company as of, and
for, the periods presented in this report;
4. The companys other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d) 15(f) for the company and have:
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a) |
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Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the company, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which
this report is being prepared; |
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b) |
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Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
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c) |
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Evaluated the effectiveness of the companys disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
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d) |
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Disclosed in this report any change in the companys internal control over
financial reporting that occurred during the period covered by the report that has
materially affected, or is reasonably likely to materially affect, the companys
internal control over financial reporting; and |
5. The companys other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the companys auditors and the audit
committee of the companys board of directors (or persons performing the equivalent functions):
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All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the companys ability to record, process, summarize and report financial
information; and |
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b) |
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Any fraud, whether or not material, that involves management or other employees
who have a significant role in the companys internal control over financial reporting. |
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Date: August 3, 2007
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By:
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/s/ Carlo Ferro
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Name:
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Carlo Ferro |
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Title:
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Executive Vice President and |
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Chief Financial Officer |
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EX-13.1
Exhibit 13.1
VOLUNTARY CERTIFICATION OF CARLO BOZOTTI, PRESIDENT AND CHIEF EXECUTIVE OFFICER AND SOLE MEMBER OF
OUR MANAGING BOARD OF STMICROELECTRONICS N.V. AND CARLO FERRO, EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER OF STMICROELECTRONICS N.V., PURSUANT TO SECTION 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report on Form 6-K of STMicroelectronics N.V. (the Company) for the
period ending June 30, 2007, as submitted to the Securities and Exchange Commission on the date
hereof (the Report), the undersigned hereby certify that to the best of our knowledge:
1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
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Date: August 3, 2007
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By:
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/s/ Carlo Bozotti
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Name:
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Carlo Bozotti |
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Title:
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President and Chief Executive
Officer and Sole Member of our
Managing Board |
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Date:
August 3, 2007
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By:
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/s/ Carlo Ferro |
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Name:
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Carlo Ferro |
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Title:
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Executive Vice President and |
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Chief Financial Officer |
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EX-99.1
Exhibit 99.1
EXECUTION VERSION
MASTER AGREEMENT
BY AND BETWEEN
STMICROELECTRONICS N.V.,
INTEL CORPORATION,
REDWOOD BLOCKER S.A.R.L.,
AND
FRANCISCO PARTNERS II (CAYMAN) L.P.
MAY 22, 2007
EXECUTION VERSION
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS |
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2 |
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1.1 Definitions |
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2 |
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1.2 Defined Terms Generally |
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ARTICLE II AGREEMENTS |
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2 |
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2.1 Intel Asset Transfer |
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2.2 ST Asset Contribution |
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2 |
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2.3 FP Share Purchase |
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3 |
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2.4 Other Agreements among the Parties and Newco |
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3 |
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2.5 Closing |
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ARTICLE III REPRESENTATIONS AND WARRANTIES |
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3 |
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3.1 Intel Representations |
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3 |
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3.2 ST Representations |
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3.3 FP and FP Holdco Representations |
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ARTICLE IV COVENANTS |
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4.1 Access to Information |
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4.2 Exclusive Dealing |
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4.3 Reasonable Efforts |
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12 |
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4.4 Certain Consents and Filings; Further Assurances |
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12 |
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4.5 Press Releases |
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4.6 Certain Deliveries and Notices |
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4.7 Non-Solicitation of Employees |
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4.8 Tax Matters |
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14 |
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4.9 Operation of the Intel Business Prior to the Closing |
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4.10 Operation of the ST Business Prior to the Closing |
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4.11 Employee Matters |
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4.12 Additions to and Modifications of Schedules |
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4.13 Third Party Appraisal and Allocation; Dutch Auditors |
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4.14 Notices of Certain Intel Events |
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4.15 Notices of Certain ST Events |
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4.16 Newco Formation and Preparation |
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4.17 Newco Tax Election |
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28 |
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4.18 Newco Closing Reorganization |
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4.19 Cooperation with Financing |
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4.20 Environmental Consultants |
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4.21 Hynix JV Matters |
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4.22 Facility Transfer Term Sheets |
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4.23 Governmental Consents |
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29 |
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4.24 Release of Liens |
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29 |
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4.25 ST Litigation |
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4.26 Intel Litigation |
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30 |
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4.27 Confidentiality Agreement |
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4.28 Further Assurances |
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ARTICLE V CONDITIONS TO CLOSING |
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5.1 Conditions to Obligations of Intel |
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5.2 Conditions to Obligations of ST |
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32 |
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5.3 Conditions to Obligations of FP and FP Holdco |
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ARTICLE VI TERMINATION |
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36 |
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6.1 Grounds for Termination |
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6.2 Effect of Termination |
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38 |
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6.3 Termination of Representations and Warranties and Covenants Upon the
Closing |
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6.4 Exclusive Remedy |
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ARTICLE VII MISCELLANEOUS |
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7.1 Notices |
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7.2 Amendments; Waivers |
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42 |
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7.3 Expenses |
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43 |
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7.4 Successors and Assigns |
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7.5 Governing Law |
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43 |
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7.6 Counterparts; Effectiveness |
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43 |
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7.7 Entire Agreement |
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43 |
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7.8 Captions |
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43 |
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7.9 Severability |
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43 |
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7.10 Dispute Resolution |
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44 |
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7.11 Waiver of Jury Trial |
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46 |
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7.12 Third Party Beneficiaries |
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46 |
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7.13 Specific Performance |
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47 |
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7.14 No Presumption Against Drafting Party |
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47 |
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iii
EXECUTION VERSION
MASTER AGREEMENT
THIS MASTER AGREEMENT, dated as of May 22, 2007 (the Master Agreement and, as
referred to herein, this Agreement), is entered into by and among Intel Corporation, a
Delaware corporation (Intel), STMicroelectronics N.V., a limited liability company
organized under the laws of The Netherlands, with its corporate seat in Amsterdam, The Netherlands
(ST), Redwood Blocker S.a.r.l., a limited liability company organized under the laws of
The Grand-Duchy of Luxembourg (FP), and Francisco Partners II (Cayman) L.P., an exempted
limited partnership organized under the laws of the Cayman Islands (FP Holdco). Intel,
ST, FP and FP Holdco are sometimes referred to herein as the Parties and each individually as a
Party.
A. Intel currently designs, manufactures and produces the Intel Products for use in various
consumer electronics and other end applications.
B. ST currently designs, manufactures and produces the ST Products for use in various consumer
electronics and other end applications.
C. The parties desire to form a company under the laws of The Netherlands (Newco),
on the terms and conditions set forth in this Agreement.
D. Intel desires to transfer, and to cause certain of its Affiliates to transfer to Newco and
its Affiliates, the Intel Transferred Assets in consideration for the issuance by Newco of the
Intel Newco Shares, the payment by Newco of the Intel Cash Consideration, and the assumption by
Newco or its Affiliates of the Intel Transferred Liabilities, all on the terms and conditions set
forth in the Intel Asset Transfer Agreement, the Intel Ancillary Agreements and this Agreement.
E. ST desires to transfer, and to cause certain of its Affiliates to transfer to Newco and its
Affiliates, the ST Transferred Assets in consideration for the issuance by Newco of the ST Newco
Shares, the payment by Newco of the ST Cash Consideration, and the assumption by Newco or its
Affiliates of the ST Transferred Liabilities, all on the terms and conditions set forth in the ST
Asset Contribution Agreement, the ST Ancillary Agreements and this Agreement.
F. FP desires to invest in Newco by purchasing and accepting from Newco the FP Newco Shares,
on the terms and conditions set forth in the Share Purchase Agreement.
G. The Parties desire to enter into various agreements with one another and with Newco, to set
forth the ongoing governance and operating relationships among the Parties and Newco relating to
the business of Newco, all as contemplated by this Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements contained herein,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms used in this Agreement shall have the respective meanings ascribed to
such terms in Appendix A to this Agreement.
1.2 Defined Terms Generally. The definitions set forth in Appendix A or
otherwise referred to in this Agreement shall apply equally to both the singular and plural forms
of the terms defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words include, includes and
including shall be deemed to be followed by the phrase without limitation. All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed to be references to Articles
and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Unless the context shall otherwise require, any reference to any contract, instrument,
statute, rule or regulation is a reference to it as amended and supplemented from time to time
(and, in the case of a statute, rule or regulation, to any successor provision). Any reference in
this Agreement to a day or a number of days (without the explicit qualification of Business)
shall be interpreted as a reference to a calendar day or number of calendar days.
ARTICLE II
AGREEMENTS
2.1 Intel Asset Transfer. On the Closing Date, at the Closing, subject to (a) the
fulfillment, or waiver by Intel, of each condition to the obligation of Intel to consummate the
transactions contemplated by this Agreement, (b) the fulfillment, or waiver by ST, of each
condition to the obligation of ST to consummate the transactions contemplated by this Agreement and
(c) the fulfillment, or waiver by FP and FP Holdco, of each condition to the obligation of FP and
FP Holdco to consummate the transactions contemplated by this Agreement, Intel shall, and the
Parties shall cause Newco to, execute and deliver the Intel Asset Transfer Agreement, substantially
in the form attached to Schedule 2.1 of the Intel Master Agreement Disclosure Letter and
the Intel Ancillary Agreements contemplated thereby to which each, respectively, is a party, and
Intel shall, and the Parties shall cause Newco to, consummate and cause their Affiliates to
consummate, as applicable, each of the transactions contemplated by the Intel Asset Transfer
Agreement and the Intel Ancillary Agreements to be consummated at the Closing.
2.2 ST Asset Contribution. On the Closing Date, at the Closing, subject to (a) the
fulfillment, or waiver by ST, of each condition to the obligation of ST to consummate the
transactions contemplated by this Agreement, (b) the fulfillment, or waiver by Intel, of each
condition to the obligation of Intel to consummate the transactions contemplated by this Agreement
and (c) the fulfillment, or waiver by FP and FP Holdco, of each condition to the obligation of FP
and FP Holdco to consummate the transactions contemplated by this Agreement, ST shall, and the
Parties shall cause Newco to, execute and deliver the ST Asset Contribution Agreement,
substantially in the form attached to Schedule 2.2 of the ST Master Agreement Disclosure
Letter and the ST Ancillary Agreements contemplated thereby to which each, respectively, is a
party, and ST shall, and the Parties shall
cause Newco to, consummate and cause their Affiliates to consummate, as applicable, each of
the transactions contemplated by
2
the ST Asset Contribution Agreement and the ST Ancillary
Agreements to be consummated at the Closing.
2.3 FP Share Purchase. On the Closing Date, at the Closing, subject to (a) the
fulfillment, or waiver by FP and FP Holdco, of each condition to the obligations of FP and FP
Holdco to consummate the transactions contemplated by this Agreement, (b) the fulfillment, or
waiver by Intel, of each condition to the obligation of Intel to consummate the transactions
contemplated by this Agreement and (c) the fulfillment, or waiver by ST, of each condition to the
obligation of ST to consummate the transactions contemplated by this Agreement, FP shall, and the
Parties shall cause Newco to, execute and deliver the Share Purchase Agreement, substantially in
the form attached to Schedule 2.3 of each of the Master Agreement Disclosure Letters and
consummate each of the transactions contemplated by the Share Purchase Agreement to be consummated
at the Closing.
2.4 Other Agreements among the Parties and Newco. Except as otherwise set forth
herein, on the Closing Date, at the Closing, the Parties shall, and shall cause (a) each of their
respective Affiliates and (b) Newco to, as the case may be, execute and deliver the agreements
identified on Schedule 2.4 to each of the Master Agreement Disclosure Letters to which
each, respectively, is a party, substantially in the form attached thereto, to the extent such
Party, Affiliate or Newco is a party to such respective agreements.
2.5 Closing. The closing of the transactions contemplated by this Agreement (the
Closing) shall take place at the offices of Gibson, Dunn & Crutcher LLP, Palo Alto,
California, as soon as possible, but in no event later than five Business Days, after fulfillment
of the conditions set forth in Article V hereof to each Partys obligation to close the
transactions contemplated by this Agreement or the waiver thereof by such Party, or at such other
time or place as the Parties may agree.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Intel Representations. Except as set forth in the Intel Master Agreement
Disclosure Letter, Intel represents and warrants to ST, FP and FP Holdco, as of the date of this
Agreement, as follows:
(a) Existence and Good Standing. Intel is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of incorporation
and has all corporate power and authority required to carry on its business as now conducted
and to own and operate its business as now owned and operated by it. Intel is qualified to
conduct business and is in good standing in each jurisdiction in which it conducts
business other than such jurisdictions where the failure to be so qualified would not
reasonably be expected to have an Intel Material Adverse Effect.
(b) Authorization; Enforceability. Intel has all requisite corporate power and
authority to execute and deliver this Agreement and each of the Transaction Documents to
which it is or will be a party, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
3
delivery by
Intel of this Agreement and each of the Transaction Documents to which Intel is a party, and
the performance by Intel of its obligations contemplated hereby and thereby, have been duly
and validly authorized by all necessary corporate action. This Agreement has been and, when
executed at the Closing, the other Transaction Documents will have been, duly and validly
executed and delivered by Intel and, assuming the due execution and delivery of this
Agreement and the other Transaction Documents to which it is a party by the other parties
thereto, this Agreement constitutes, and as of the Closing, each of the Transaction
Documents to which Intel is a party will constitute, the legal, valid and binding agreement
of Intel, enforceable against Intel in accordance with their respective terms, except to the
extent (i) that their enforceability may be subject to any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors rights generally or to general principles of equity or (ii) indemnification
provisions contained in the Shareholders Agreement may be limited by applicable securities
laws.
(c) Governmental Authorization. Other than the Intel Approvals, the execution,
delivery and performance by Intel of this Agreement and the other Transaction Documents to
which it is a party, and the consummation by it of the transactions contemplated hereby and
thereby, require no Governmental Approval.
(d) Non-Contravention; Consents.
(i) The execution, delivery and performance by Intel of this Agreement and the
other Transaction Documents to which Intel is a party, and the consummation of the
transactions contemplated hereby and thereby, do not and will not: (A) contravene
or conflict with the certificate of incorporation, bylaws or other organizational
documents of Intel; (B) assuming receipt of the Intel Approvals, the Newco Approvals
and the Intel Contractual Consents, contravene or conflict with or constitute a
material violation of any provision of any Applicable Law binding upon or applicable
to Intel, the Intel Transferred Assets; or (C) assuming receipt of the Intel
Approvals and of the Intel Contractual Consents, (1) constitute a default under,
give rise to any right of termination, cancellation, modification, acceleration of,
or a loss of any benefit under any Intel Contract, including the Intel Transferred
Contracts, (2) result in the creation or imposition of any Lien (other than
Permitted Liens) on any Intel Transferred Asset or the assets of any Intel
Transferred Entity, or (3) constitute a breach, default or violation of any
settlement agreement, judgment, injunction or decree, except in the case of clause
(B) or (C), for matters that would not reasonably be expected to have an Intel
Material Adverse Effect (provided that in determining whether an Intel Material
Adverse Effect would result, any adverse effect
otherwise excluded by clause (C) of the definition of Intel Material Adverse
Effect shall be taken into account).
(ii) The execution, delivery and performance by Intel of this Agreement and the
other Transaction Documents to which Intel is a party, and the consummation of the
transactions contemplated hereby and thereby, do not and will not, as of the Closing
Date, constitute a default under, give rise to any right of
4
termination,
cancellation, modification, acceleration of, or a loss of any material benefit
under, any Contract identified on Schedule 3.1(d)(ii) of the Intel Master
Agreement Disclosure Letter; provided, however, that for the avoidance of doubt, the
Parties acknowledge and agree that the representations and warranties set forth in
this Section 3.1(d)(ii) shall not be deemed to be untrue or inaccurate in
any respect as a result of (A) any action or omission by Newco that constitutes or
results in a default by Intel or any Intel Affiliate or gives rise to any right of
termination, cancellation, modification, acceleration of, or a loss of any material
benefit under any such Contact; and (B) any withdrawal or voiding after the Closing
of any consent granted prior to the Closing by a party to such Contract, which
withdrawal or voiding purports to have retroactive effect to the Closing.
(e) Litigation. As of the date hereof, there is no Proceeding or, to the
Knowledge of Intel, investigation pending or, to the Knowledge of Intel, threatened in
writing, by or against Intel or any of Intels Subsidiaries seeking to prevent, enjoin,
alter or delay the transactions contemplated by this Agreement or any of the other
Transaction Documents or encumber the Intel Transferred Interests.
(f) Incorporation by Reference of Additional Representations and Warranties.
As of the date hereof (except that with respect to any representation and warranty that
specifies another date, such representation and warranty shall be made as of such specified
date), subject to the exceptions set forth in the Intel ATA Disclosure Letter, Intel hereby
represents and warrants that each of the representations and warranties set forth in
Sections 3.1-3.24 of the Intel Asset Transfer Agreement attached to
Schedule 2.1 of the Intel Master Agreement Disclosure Letter are true and correct.
Upon the consummation of the Closing, the provisions of this Section 3.1(f) shall
terminate and cease to be of any further force or effect, as if never made, and no action
may be brought based on the same, whether for indemnification, breach of contract, tort or
under any other legal theory.
(g) Reliance. Intel has conducted such investigation and inspection of the ST
Transferred Assets, the ST Transferred Liabilities, the ST Business and the ST Products that
Intel has deemed necessary or appropriate for the purpose of entering into this Agreement
and the other Transaction Documents and consummating the transactions contemplated hereby
and thereby. In executing this Agreement and the other Transaction Documents to which it is
a party, Intel is relying on its own investigation and on the provisions set forth herein
and therein and not on any other statements, presentations, representations, warranties or
assurances of any kind made by ST, FP, any of their representatives or any other Person.
Intel acknowledges that (i) the representations and warranties of (A) ST contained in
Section 3.2 hereof and (B) FP and FP Holdco
contained in Section 3.3 hereof, constitute the sole and exclusive
representations and warranties of each such Party to Intel in connection with this Agreement
and the transactions contemplated hereby, and (ii) all other representations and warranties
are specifically disclaimed and may not be relied upon or serve as a basis for a claim
against ST or FP. INTEL ACKNOWLEDGES THAT ST DISCLAIMS ALL WARRANTIES OTHER THAN THOSE
EXPRESSLY CONTAINED IN SECTION 3.2 AS TO THE ST TRANSFERRED ASSETS, WHETHER EXPRESS
OR IMPLIED, ORAL OR
5
WRITTEN, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR WARRANTY FOR
FITNESS FOR A PARTICULAR PURPOSE. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED
EXPRESSLY IN SECTION 3.2 , NEWCO WILL ACQUIRE THE ST TRANSFERRED ASSETS ON AN AS
IS, WHERE IS BASIS. FROM AND AFTER THE CLOSING, INTEL SHALL HAVE NO RIGHTS OR REMEDIES FOR
OR WITH RESPECT TO ANY BREACH BY ST OF ITS REPRESENTATIONS AND WARRANTIES SET FORTH IN
SECTION 3.2(f) OF THIS AGREEMENT, AND INTEL SHALL HAVE NO RIGHTS OR REMEDIES FOR OR
WITH RESPECT TO ANY BREACH OF ANY PROVISION OF THE SHARE PURCHASE AGREEMENT OR THE ST ASSET
CONTRIBUTION AGREEMENT (INCLUDING THE REPRESENTATIONS, WARRANTIES AND INDEMNITIES SET FORTH
IN SUCH AGREEMENTS); PROVIDED, HOWEVER, THAT NOTHING HEREIN SHALL AFFECT NEWCOS RIGHTS AND
REMEDIES FOR OR WITH RESPECT TO ANY BREACH OF SUCH AGREEMENTS.
3.2 ST Representations. Except as set forth in the ST Master Agreement Disclosure
Letter, ST represents and warrants to Intel, FP and FP Holdco, as of the date of this Agreement, as
follows:
(a) Existence and Good Standing. ST is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of incorporation and has
all corporate power and authority required to carry on its business as now conducted and to
own and operate its business as now owned and operated by it. ST is qualified to conduct
business and is in good standing in each jurisdiction in which it conducts business other
than such jurisdictions where the failure to be so qualified would not reasonably be
expected to have an ST Material Adverse Effect.
(b) Authorization; Enforceability. ST has all requisite corporate power and
authority to execute and deliver this Agreement and each of the Transaction Documents to
which it is or will be a party, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and delivery by
ST of this Agreement and each of the Transaction Documents to which ST is a party, and the
performance by ST of its obligations contemplated hereby and thereby, have been duly and
validly authorized by all necessary corporate action. This Agreement has been and, when
executed at the Closing, the other Transaction Documents will have been, duly and validly
executed and delivered by ST and, assuming the due execution and delivery of this Agreement
and the other Transaction Documents to which it is a party by the other parties thereto,
this Agreement constitutes, and as of the Closing, each of the Transaction Documents to
which ST is a party will constitute, the legal, valid and binding
agreement of ST, enforceable against ST in accordance with their respective terms,
except to the extent (i) that their enforceability may be subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors rights generally or to general principles of equity or (ii)
indemnification provisions contained in the Shareholders Agreement may be limited by
applicable securities laws.
6
(c) Governmental Authorization. Other than the ST Approvals, the execution,
delivery and performance by ST of this Agreement and the other Transaction Documents to
which it is a party, and the consummation by it of the transactions contemplated hereby and
thereby, require no Governmental Approval.
(d) Non-Contravention; Consents.
(i) The execution, delivery and performance by ST of this Agreement and the
other Transaction Documents to which ST is a party, and the consummation of the
transactions contemplated hereby and thereby, do not and will not: (A) contravene
or conflict with the articles of association, governance rules or other
organizational documents of ST; (B) assuming receipt of the ST Approvals the Newco
Approvals and the ST Contractual Consents, contravene or conflict with or constitute
a material violation of any provision of any Applicable Law binding upon or
applicable to ST, the ST Transferred Assets or the ST Transferred Entities; or (C)
assuming receipt of the ST Approvals and of the ST Contractual Consents, (1)
constitute a default under, give rise to any right of termination, cancellation,
modification, acceleration of, or a loss of any benefit under any ST Contract,
including the ST Transferred Contracts, (2) result in the creation or imposition of
any Lien (other than Permitted Liens) on any ST Transferred Asset, or (3) constitute
a breach, default or violation of any settlement agreement, judgment, injunction or
decree, except in the case of clause (B) or (C), for matters that would not
reasonably be expected to have an ST Material Adverse Effect (provided that in
determining whether an ST Material Adverse Effect would result, any adverse effect
otherwise excluded by clause (C) of the definition of ST Material Adverse Effect
shall be taken into account).
(ii) The execution, delivery and performance by ST of this Agreement and the
other Transaction Documents to which ST is a party, and the consummation of the
transactions contemplated hereby and thereby, to the Knowledge of ST, do not and
will not, as of the Closing Date: (A) contravene or conflict with the articles of
association, joint venture agreement or other organizational or governing documents
of the Hynix JV; or (B) constitute a default under, give rise to any right of
termination, cancellation, modification, acceleration of, or a loss of any material
benefit under, the Hynix JV Junior Credit Agreement or any other contract or
agreement between ST or any Subsidiary of ST and the Hynix JV.
(e) Litigation. As of the date hereof, there is no Proceeding or to the
Knowledge of ST, investigation pending or, to the Knowledge of ST, threatened in
writing, by or against ST or any of STs Subsidiaries seeking to prevent, enjoin, alter
or delay the transactions contemplated by this Agreement or any of the other Transaction
Documents or encumber the ST Transferred Interests.
(f) Incorporation by Reference of Additional Representations and Warranties.
As of the date hereof (except that with respect to any representation and warranty that
specifies another date, such representation and warranty shall be made as of such
7
specified
date), subject to the exceptions set forth in the ST ATA Disclosure Letter, ST hereby
represents and warrants that each of the representations and warranties set forth in
Sections 3.1-3.24 of the ST Asset Contribution Agreement attached to Schedule
2.2 of the ST Master Agreement Disclosure Letter are true and correct. Upon the
consummation of the Closing, the provisions of this Section 3.2(f) shall terminate
and cease to be of any further force or effect, as if never made, and no action may be
brought based on the same, whether for indemnification, breach of contract, tort or under
any other legal theory.
(g) Reliance. ST has conducted such investigation and inspection of the Intel
Transferred Assets, the Intel Transferred Liabilities, the Intel Business and the Intel
Products that ST has deemed necessary or appropriate for the purpose of entering into this
Agreement and the other Transaction Documents and consummating the transactions contemplated
hereby and thereby. In executing this Agreement and the other Transaction Documents to
which it is a party, ST is relying on its own investigation and on the provisions set forth
herein and therein and not on any other statements, presentations, representations,
warranties or assurances of any kind made by Intel, FP, any of their representatives or any
other Person. Intel acknowledges that (i) the representations and warranties of (A) Intel
contained in Section 3.1 hereof and (B) FP and FP Holdco contained in Section
3.3 hereof constitute the sole and exclusive representations and warranties of each such
Party to ST in connection with this Agreement and the transactions contemplated hereby, and
(ii) all other representations and warranties are specifically disclaimed and may not be
relied upon or serve as a basis for a claim against Intel or FP. ST ACKNOWLEDGES THAT INTEL
DISCLAIMS ALL WARRANTIES OTHER THAN THOSE EXPRESSLY CONTAINED IN SECTION 3.1 AS TO
THE INTEL TRANSFERRED ASSETS, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR WARRANTY FOR FITNESS FOR A PARTICULAR PURPOSE. EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES CONTAINED EXPRESSLY IN SECTION 3.1, NEWCO WILL
ACQUIRE THE INTEL TRANSFERRED ASSETS ON AN AS IS, WHERE IS BASIS. FROM AND AFTER THE
CLOSING, ST SHALL HAVE NO RIGHTS OR REMEDIES FOR OR WITH RESPECT TO ANY BREACH BY INTEL OF
ITS REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 3.1(f) OF THIS AGREEMENT,
AND ST SHALL HAVE NO RIGHTS OR REMEDIES FOR OR WITH RESPECT TO ANY BREACH OF ANY PROVISION
OF THE SHARE PURCHASE AGREEMENT OR THE INTEL ASSET TRANSFER AGREEMENT (INCLUDING THE
REPRESENTATIONS, WARRANTIES AND INDEMNITIES SET FORTH IN SUCH AGREEMENTS); PROVIDED,
HOWEVER, THAT NOTHING HEREIN SHALL AFFECT NEWCOS RIGHTS AND REMEDIES FOR OR WITH RESPECT TO
ANY BREACH OF SUCH AGREEMENTS.
3.3 FP and FP Holdco Representations. Each of FP and FP Holdco represents and
warrants to Intel and ST, as of the date of this Agreement, as follows:
(a) Existence and Good Standing. FP is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization and FP
Holdco is a limited partnership duly organized, validly existing and in good standing
8
under
the laws of its jurisdiction of organization and each has all power and authority required
to carry on its business as now conducted and to own and operate its business as now owned
and operated by it. Each of FP and FP Holdco is qualified to conduct business and is in
good standing in each jurisdiction in which such qualification is required other than such
jurisdictions where the failure to be so qualified would not reasonably be expected to have
an FP Material Adverse Effect.
(b) Authorization; Enforceability. Each of FP and FP Holdco has all requisite
power and authority to execute and deliver this Agreement and each of the Transaction
Documents to which it is or will be a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by each of FP and FP Holdco of this Agreement and each of the
Transaction Documents to which FP or FP Holdco is a party, and the performance by each of FP
and FP Holdco of its obligations contemplated hereby and thereby, have been duly and validly
authorized by all necessary action. This Agreement has been and, when executed at the
Closing, the other Transaction Documents will have been, duly and validly executed and
delivered by each of FP and FP Holdco and, assuming the due execution and delivery of this
Agreement and the other Transaction Documents to which it is a party by the other Parties
thereto, this Agreement constitutes, and as of the Closing, each of the Transaction
Documents to which each of FP and FP Holdco is a party will constitute, the legal, valid and
binding agreement of each of FP and FP Holdco, enforceable against FP and FP Holdco in
accordance with their respective terms, except to the extent that (i) their enforceability
may be subject to any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors rights generally or to
general principles of equity or (ii) indemnification provisions contained in the
Shareholders Agreement may be limited by applicable securities laws.
(c) Governmental Authorization. Other than the Intel Approvals, the ST
Approvals and compliance with any applicable Competition Laws, the execution, delivery and
performance by each of FP and FP Holdco of this Agreement and the other Transaction
Documents to which it is a party, and the consummation by it of the transactions
contemplated hereby and thereby, require no Governmental Approval.
(d) Non-Contravention; Consents. The execution, delivery and performance by
each of FP and FP Holdco of this Agreement and the other Transaction Documents to which each
of FP and FP Holdco is a party, and the consummation of the transactions contemplated hereby
and thereby, do not and will not: (i) contravene or conflict with the certificate of
incorporation or bylaws of FP or the partnership agreement and other
organizational documents of FP Holdco, (ii) assuming receipt of the Intel Approvals,
the ST Approvals, the Newco Approvals and compliance with applicable Competition Laws,
contravene or conflict with or constitute a material violation of any provision of any
Applicable Law binding upon or applicable to FP or FP Holdco, or (iii) assuming receipt of
the Intel Approvals, the ST Approvals, the Newco Approvals and compliance with applicable
Competition Laws, contravene or constitute a default under any material agreement to which
FP or FP Holdco is a party, except in the case of clause (ii) or (iii), for matters that
would not reasonably be expected to have an FP Material Adverse Effect.
9
(e) Litigation. As of the date hereof, there is no Proceeding or to the
Knowledge of FP or FP Holdco, investigation, pending or, to the Knowledge of FP or FP
Holdco, threatened in writing, by or against FP or FP Holdco seeking to prevent, enjoin,
alter or delay the transactions contemplated by this Agreement or any of the other
Transaction Documents.
(f) Reliance. Each of FP and FP Holdco has conducted such investigation and
inspection of the Intel Transferred Assets, the Intel Transferred Liabilities, the Intel
Business, the Intel Products, the ST Transferred Assets, the ST Transferred Liabilities, the
ST Business and the ST Products that FP and FP Holdco, respectively, has deemed necessary or
appropriate for the purpose of entering into this Agreement and the other Transaction
Documents and consummating the transactions contemplated hereby and thereby. In executing
this Agreement and the other Transaction Documents to which it is a party, each of FP and FP
Holdco is relying on its own investigation and on the provisions set forth herein and
therein and not on any other statements, presentations, representations, warranties or
assurances of any kind made by Intel, ST, their representatives or any other Person. Each
of FP and FP Holdco acknowledges that (i) the representations and warranties of (A) Intel
contained in Section 3.1 hereof and (B) ST contained in Section 3.2 hereof
constitute the sole and exclusive representations and warranties of each such Party to FP
and FP Holdco in connection with this Agreement and the transactions contemplated hereby,
and (ii) all other representations and warranties are specifically disclaimed and may not be
relied upon or serve as a basis for a claim against Intel or ST. EACH OF FP AND FP HOLDCO
ACKNOWLEDGES THAT INTEL AND ST DISCLAIM ALL WARRANTIES OTHER THAN THOSE EXPRESSLY CONTAINED
IN SECTION 3.1 AND SECTION 3.2, RESPECTIVELY, THE INTEL ASSET TRANSFER
AGREEMENT AND THE ST ASSET CONTRIBUTION AGREEMENT AS TO THE INTEL TRANSFERRED ASSETS AND ST
TRANSFERRED ASSETS, RESPECTIVELY, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR WARRANTY FOR FITNESS FOR A PARTICULAR PURPOSE. EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES CONTAINED EXPRESSLY IN SECTION 3.1 AND
SECTION 3.2, RESPECTIVELY, NEWCO WILL ACQUIRE THE INTEL TRANSFERRED ASSETS AND ST
TRANSFERRED ASSETS, RESPECTIVELY, ON AN AS IS, WHERE IS BASIS. FROM AND AFTER THE
CLOSING, NEITHER FP NOR FP HOLDCO SHALL HAVE ANY RIGHTS OR REMEDIES FOR OR WITH RESPECT TO
ANY BREACH BY (I) INTEL OF ITS REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION
3.1(f) OF THIS AGREEMENT AND (II) ST OF ITS REPRESENTATIONS
AND WARRANTIES SET FORTH IN SECTION 3.2(f) OF THIS AGREEMENT. NEITHER FP NOR
FP HOLDCO SHALL HAVE ANY RIGHTS OR REMEDIES FOR OR WITH RESPECT TO ANY BREACH OF ANY
PROVISION OF THE INTEL ASSET TRANSFER AGREEMENT OR THE ST ASSET CONTRIBUTION AGREEMENT
(INCLUDING THE REPRESENTATIONS, WARRANTIES AND INDEMNITIES SET FORTH IN SUCH AGREEMENTS);
PROVIDED, HOWEVER, THAT NOTHING HEREIN SHALL AFFECT NEWCOS RIGHTS AND REMEDIES FOR OR WITH
RESPECT TO ANY BREACH OF SUCH AGREEMENTS.
10
ARTICLE IV
COVENANTS
4.1 Access to Information.
(a) Between the date hereof and the Closing, Intel agrees to provide FP and ST and
their authorized representatives (including each of their attorneys and accountants and
auditors) reasonable access to the offices and properties, employees and auditors of the
Intel Business and the Intel Books and Records, upon reasonable prior notice, during normal
business hours, under Intels supervision and at ST or FPs expense, as applicable, in order
to conduct a review of the Intel Transferred Assets and the Intel Business.
(b) Between the date hereof and the Closing, ST agrees to provide FP and Intel and
their authorized representatives (including each of their attorneys and accountants and
auditors) reasonable access to the offices and properties, employees and auditors of the ST
Business and the ST Books and Records, upon reasonable prior notice, during normal business
hours, under STs supervision and at Intel or FPs expense, as applicable, in order to
conduct a review of the ST Transferred Assets and the ST Business.
(c) Each of the Parties will hold, and will cause its representatives to hold, in
confidence all documents and information furnished to it by or on behalf of another Party in
connection with the transactions contemplated by this Agreement and the other Transaction
Documents pursuant to the terms of the Confidentiality Agreement; provided, however, for the
sake of clarification, that Intel and ST shall be permitted to respond to direct inquiries
relating to the transaction from, and disclose the transaction immediately after the
execution hereof to Intel Business Employees and ST Business Employees, respectively, and
provided further that nothing herein shall prohibit any public announcement in accordance
with Section 4.5 (Press Releases) hereof.
4.2 Exclusive Dealing. Prior to the earlier of the Closing or the termination of this
Agreement, none of Intel, ST, or FP will, nor will any of them permit any of their respective
Affiliates, officers, directors, agents or advisors to, directly or indirectly: (a) solicit,
encourage, initiate or participate in any negotiations or discussions with respect to any possible
debt or equity investment in the ST Business or the Intel Business or any possible sale, spin-off
or other transfer of all or any material portion of the ST Business or the Intel Business (other
than inventory sold in the
ordinary course of business), whether by sale or transfer of assets, sale of stock,
reorganization, merger or otherwise, other than in connection with the transactions contemplated by
this Agreement and the other Transaction Documents including the Contemplated Financing (each such
transaction described in this clause (a), a Prohibited Transaction); (b) provide or
otherwise make available the corporate, legal or financial documents or information relating to the
Intel Business, the ST Business or Newco or any analysis or summary thereof of Newco, Intel or ST
or any of their respective Affiliates, to any Person who has expressed an interest in making a
proposal to enter into any Prohibited Transaction or who could reasonably be expected to consider
doing so; (c) assist or cooperate with any Person in making any proposal with respect to any
Prohibited Transaction; or (d) enter into any Contract with any Person providing for any Prohibited
Transaction. In the event that Intel, ST or FP or any of their respective Affiliates, officers,
directors, agents or advisors shall
11
receive after the date hereof any offer or proposal with
respect to any Prohibited Transaction, directly or indirectly, or any request for disclosure or
access to any documents or information described in clause (b) above, such Party shall or shall
cause its Affiliate, officer, director, agent or advisor to immediately inform the other Parties of
such offer or proposal, the identity of the Person making such offer or proposal and the material
terms thereof.
4.3 Reasonable Efforts. Each of Intel, ST, FP and FP Holdco will cooperate and use
commercially reasonable efforts to take, or cause to be taken, all appropriate actions (and to
make, or cause to be made, all filings and notifications necessary, proper or advisable under
Applicable Law) to consummate and make effective the transactions contemplated by this Agreement
and the Transaction Documents, including commercially reasonable efforts to satisfy all closing
conditions and to obtain, as promptly as practicable, all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Authorities and parties to contracts, as
are necessary for the consummation of the transactions contemplated by this Agreement and the
Transaction Documents to which it is a party.
4.4 Certain Consents and Filings; Further Assurances. Each Party agrees to execute
and deliver, or cause to be executed and delivered, such other documents, certificates, agreements
and other writings and to take, or cause to be taken, such other commercially reasonable actions as
may be necessary or desirable in order to (a) consummate or implement expeditiously the
transactions contemplated by this Agreement and the other Transaction Documents and (b) obtain from
any Governmental Authorities and other Persons all consents, approvals, authorizations,
qualifications and orders as are necessary for the consummation of the transactions contemplated by
this Agreement and the Transaction Documents and to promptly make all necessary filings and
notifications, and to supply as promptly as practicable any additional information or documentary
material that may be reasonably requested to comply with the HSR Act or any applicable Competition
Law. Subject to Applicable Laws, and as necessary to address reasonable privilege or
confidentiality concerns, prior to the making or submission of any analysis, appearance,
presentation, memorandum, brief, argument, opinion or proposal by or on behalf of any Party in
connection with Proceedings under or relating to the HSR Act or any other applicable Competition
Law, each of Intel, ST, FP and FP Holdco will consult and cooperate with one another, and consider
in good faith the views of
one another, in connection with any such analyses, appearances, presentations, letters, white
papers, memoranda, briefs, arguments, opinions or proposals. In this regard but without
limitation, each Party hereto shall promptly inform the other of any material communication between
such Party and the Federal Trade Commission, the Antitrust Division of the United States Department
of Justice, or any other federal, foreign or state antitrust or competition Governmental Authority
regarding the transactions contemplated by this Agreement or the Transaction Documents. Nothing in
this Agreement or any of the other Transaction Documents, however, shall require or be construed to
require any Party hereto, in order to obtain the consent or successful termination of any review of
any such Governmental Authority regarding the transactions contemplated by this Agreement, to (x)
sell or hold separate, or agree to sell or hold separate, before or after the Closing Date, any
assets or businesses or any interests in any assets or businesses of such Party or any of its
Affiliates (or to consent to any sale, or agreement to sell, any assets or businesses, or any
interests in any assets or businesses), or to agree to any change in or restriction on the
operation by such Party of any assets or businesses or (y) enter into any agreement or be bound by
any obligation concerning the benefits to such Party of the transactions contemplated by this
12
Agreement. Each party shall have responsibility for its respective filing fees associated with the
filings under the HSR Act and any other filings required under the Competition Laws of any other
jurisdictions in connection with the transactions contemplated by this Agreement or any of the
other Transaction Documents.
4.5 Press Releases. None of the Parties nor any of their respective Affiliates,
officers, directors or securityholders shall issue any press release or otherwise make any public
statement with respect to this Agreement, any of the Transaction Documents or any of the
transactions contemplated hereby or thereby without the prior written consent of each of the other
Parties, except as may be required by Applicable Law, or by the rules and regulations of, or
pursuant to any agreement with, the Nasdaq National Market, the New York Stock Exchange or any
other U.S. or non-U.S. securities exchange on which any securities of such Party are then listed or
quoted. If any Party determines, with the advice of counsel, that it is required by Applicable Law
to publicly disclose this Agreement, any of the Transaction Documents or any of the transactions
contemplated by this Agreement or any of the other Transaction Documents, it shall, a reasonable
time before making any public disclosure, consult with the other Parties regarding such disclosure
and seek confidential treatment for such information to be so disclosed, as may be reasonably
requested by any other Party. If any Party determines to make any public statements with respect
to this Agreement, any of the Transaction Documents or any of the transactions contemplated hereby
or thereby in accordance with the terms of this Agreement, then each other Party shall be entitled
to make a public statement following such public statement; provided it coordinates the timing
thereof with each other Party and obtains such other Partys prior written approval of the contents
thereof, not to be unreasonably withheld or delayed. The Parties agree to announce the execution
of this Agreement to the employees, customers, vendors and strategic partners of the Intel Business
and the ST Business at such time and in such form as is mutually agreed upon by all of the Parties.
Any disclosure of the existence or terms of this Agreement, any of the Transaction Documents or
any of the transactions contemplated hereby or thereby to any person from whom consent shall be
required, to whom notice shall be provided or from whom waiver shall be sought in order to comply
with the requirements of this Agreement or any of the other
Transaction Documents shall be made at such time and in such form and with such content as is
mutually agreed upon by all of the Parties.
4.6 Certain Deliveries and Notices. From the date of this Agreement through the
Closing Date, each Party shall promptly inform in writing the other Parties of (a) any event or
occurrence that would reasonably be expected to have a material adverse effect on its ability to
perform its or their obligations under any of the Transaction Documents, and (b) any breach that
cannot or will not be cured by the time of the Closing or failure to satisfy any condition or
covenant contained in this Agreement or in any other Transaction Document by such Party, if such
failure cannot or will not be cured by the time of the Closing.
4.7 Non-Solicitation of Employees.
(a) Prior to the Closing and until the earlier of the date that is two years following
the Closing Date or two years following termination of this Agreement, without the prior
written consent of Intel, ST shall not, nor shall it permit any of its
13
Subsidiaries to,
directly or indirectly, recruit or solicit any employee of Intel or any of its Subsidiaries
identified on Schedule 4.7(a) to the Intel Master Agreement Disclosure Letter
(collectively, for purposes of this Agreement, the Intel Restricted Employees) to
leave his or her employment with Intel or such Subsidiary.
(b) Prior to the Closing and until the earlier of the date that is two years following
the Closing Date or the date that is two years following termination of this Agreement,
without the prior written consent of ST, Intel shall not, nor shall it permit any of its
Subsidiaries to, directly or indirectly, recruit or solicit any employee of ST or any of its
Subsidiaries identified on Schedule 4.7(b) to the ST Master Agreement Disclosure
Letter (collectively, for purposes of this Agreement, the ST Restricted Employees)
to leave his or her employment with ST or any such Subsidiary.
(c) Neither the placement of employment advertisements or other general solicitation
for employees not specifically targeted to any Restricted Employee by any means, including
through the use of hiring agencies or through employees of each Party who are unaware of the
prohibitions against the solicitation of the Restricted Employees shall be a recruitment or
solicitation prohibited by this Section 4.7; provided that any such hiring agencies
and employees are not instructed by persons who knew about the prohibition on the
solicitation of the Restricted Employees to solicit for hire Restricted Employees. If a
Party (or any Subsidiary thereof) inadvertently violates the prohibition against the
solicitation of Restricted Employees, such Party shall (or it shall cause its applicable
Subsidiary to), as soon as it is aware it has committed a violation of this section, notify
the other Party who formerly employed such Restricted Employee and either withdraw any offer
to the solicited individual or ensure that such person, if hired, is restricted from working
on, consulting on, or having any knowledge with respect to matters which are designated by
the Party who formerly employed such employee in its reasonable discretion as competitively
sensitive matters, in which event such inadvertent
action shall not be deemed to be a breach of this Section 4.7 so long as there
is no repetitive pattern of such actions.
4.8 Tax Matters.
(a) Each Party hereto shall cooperate as reasonably requested by any other Party and at
the requesting Partys sole cost, liability and expense, to maximize the tax efficiency of
the transactions contemplated by this Agreement and the other Transaction Documents and the
structure of each of Intels (and/or its Affiliates), STs (and/or its Affiliates) and FPs
(or FP Holdcos) investment in Newco, subject to the terms of the Shareholders Agreement.
Requests made pursuant to this Section 4.8(a) shall not be deemed to be reasonable
if they result in costs, liabilities and expense to any non-requesting Party (other than in
insignificant amounts) that are not determinable with accuracy at the time of the request or
that involve costs (other than in insignificant amounts) that will be incurred by any
non-requesting Party in years following the year the first of such actions (or the first in
a series of related actions) is requested.
(b) Upon the occurrence of a Consolidation, the successor to an entity that merges out
of existence or liquidates in connection with such Consolidation shall succeed to all of
such entitys rights and obligations under the Transaction Documents, and shall
14
execute such
joinders and other documents reasonably requested by the other Shareholders to evidence the
same.
4.9 Operation of the Intel Business Prior to the Closing. Between the date of this
Agreement and the Closing Date, except as contemplated by this Agreement or any other Transaction
Document or as set forth in Schedule 4.9 of the Intel Master Agreement Disclosure Letter,
or unless ST and FP shall otherwise agree in writing (which consent shall not be unreasonably
withheld or delayed), Intel shall, and shall cause its Subsidiaries to, (x) operate the Intel
Business in the ordinary course of business in all material respects and (y) continue to make
capital expenditures which are, in the aggregate, consistent in all material respects with the
Intel Business Capital Expenditures Plan. Between the date of this Agreement and the Closing Date,
except as otherwise agreed in this Agreement or any other Transaction Document or as set forth in
Schedule 4.9 of the Intel Master Agreement Disclosure Letter, unless ST and FP shall
otherwise consent in writing (which consent shall not be unreasonably withheld or delayed), Intel
shall, and shall cause its Subsidiaries to:
(a) pay the material debts and Taxes of the Intel Business and the Intel Transferred
Entities in the ordinary course of business;
(b) use commercially reasonable efforts to (i) maintain the tangible fixed assets
included in the Intel Transferred Assets as a whole in all material respects in at least as
good condition as they are being maintained on the date hereof, subject to normal wear and
tear, (ii) maintain in effect all material Permits and Governmental Approvals of the Intel
Business, (iii) not terminate, other than for cause, nor materially decrease the
compensation of, the key executives of the Intel Business, and (iv) maintain satisfactory
relationships with the customers, partners, suppliers and others having material
business relationships with the Intel Business;
(c) not sell, assign, or transfer any of the Intel Transferred Assets, or license any
of the Intel Transferred Intellectual Property, except, in each case, in the ordinary course
of business and except for the transfer of Intel Transferred Assets to Intel Transferred
Entities as contemplated or permitted hereby, and not permit any of the Intel Transferred
Assets to be subjected (whether by action or omission) to any Lien, other than the Permitted
Liens;
(d) not sell, assign, or transfer any of the Intel Transferred Interests and not permit
any of the Intel Transferred Interests to be subjected to any Share Encumbrances;
(e) not fail to pay or discharge when due any Liability of which the failure to pay or
discharge would cause any material damage or loss to the Intel Transferred Assets and the
Intel Transferred Entities, taken as a whole;
(f) not waive or amend any material term of or terminate any material Intel Transferred
Contract or relinquish any material rights thereunder, other than in the ordinary course of
business;
(g) not make any material change in its accounting principles, methods or practices
relating to the Intel Business, and maintain the Intel Books and Records in the
15
usual,
regular and ordinary manner on a basis consistent with prior years, except, in either case,
for any change required by a change in GAAP, a change in the accounting practices of Intel
generally, or a change resulting from the preparation of the Intel Business Audited
Financial Statements;
(h) not grant to any Intel Business Employee any increase in compensation or in
severance or termination pay, grant any severance or termination pay (or amend in any
material respect any existing arrangement for the foregoing), or enter into any employment
deferred compensation or similar agreement with any such employee, except as may be required
under Applicable Law, any termination policy of Intel (whether existing as of the date
hereof or adopted hereafter) or any employment or termination agreement in effect on the
date hereof or in the ordinary course of business, or establish, adopt or amend (except as
required by Applicable Law) any collective bargaining, bonus, profit-sharing, thrift,
pension, retirement, deferred compensation, compensation, stock option, restricted stock or
other benefit plan or arrangement covering any director, officer or employee of the Intel
Business, that is material in the aggregate to the Intel Business;
(i) not enter into or renew (other than automatic renewal) any Intel Transferred
Contracts that exclusively relate to the Intel Business that provide for payment obligations
(whether by Intel or any of its Subsidiaries or the counterparty thereto) that are material,
in the aggregate, to the Intel Business, except for those described the Intel Business
Capital Expenditures Plan;
(j) not make any acquisition, directly or indirectly, of all or substantially all of
the assets of any business or equity interests in any Person or any business, whether by
merger, consolidation or otherwise, that relates to the Intel Business;
(k) not incur any additional Intel Transferred Liabilities for capital expenditures
that are material, in the aggregate, to the Intel Business, except for those described in
the Intel Business Capital Expenditures Plan;
(l) not make any loans or advances to or capital contributions or investments in, any
other Person with respect to the Intel Business that are material in the aggregate to the
Intel Business, other than in the ordinary course of business or as contemplated by the
Transaction Documents;
(m) not agree to any exclusivity, non-competition or similar provision or covenant
restricting the Intel Business from competing in any line of business or with any Person or
in any location or engaging in any activity or business (including with respect to the
development, manufacture, marketing or distribution of their respective products or
services), or pursuant to which any benefit or right is required to be given or lost as a
result of so competing or engaging, the effect of which would be binding on Newco or any of
its Affiliates after the Closing Date;
(n) not settle, or make a binding offer to settle, any material Claim or Proceeding
relating to the Intel Business unless such settlement would not encumber any assets of
Newco, impose any obligation or other Liability on Newco, impose any
16
restriction that would
apply to Newco or the conduct of the Newco Business or include any acknowledgment of
validity, enforceability, infringement or Claim interpretation with regard to any of the
Intellectual Property relating to such Claim or Proceeding;
(o) not engage in (i) any trade loading practices or any other promotional sales or
discount activity with any customers or distributors with any intent of accelerating to
prior fiscal quarters (including the current fiscal quarter) sales to the trade or otherwise
than would otherwise reasonably be expected to occur in subsequent fiscal quarters, or (ii)
any other promotional sales or discount activity, in each case, in a manner outside the
ordinary course of business, and not significantly inconsistent with past practices;
(p) maintain sales incentive plans and programs and sales quotas or incentives for
Intel Products, in each case, in the ordinary course of business, and not significantly
inconsistent with past practices;
(q) use commercially reasonable efforts to prevent any representation or warranty of
Intel hereunder or under the Intel Asset Transfer Agreement from being inaccurate in any
material respect at the Closing; provided, however, that this covenant shall not be
satisfied solely by virtue of any amendment of any schedule to the Intel ATA Disclosure
Letter; and
(r) not enter into any agreement to take any action that would violate in any material
respect any of the foregoing.
For purposes of Sections 4.9(a)-(f), and (i), all references therein to Intel
Transferred Assets, Intel Transferred Entities, Intel Transferred Interests, Intel
Transferred Intellectual Property, and Intel Transferred Contracts, shall be deemed to mean all
applicable assets or properties owned by Intel or any of its Subsidiaries prior to the Closing
which would be included in the applicable section of the Intel ATA Disclosure Letter on the
Determination Date if such asset or property was owned by Intel or any of its Subsidiaries on the
Determination Date.
4.10 Operation of the ST Business Prior to the Closing. Between the date of this
Agreement and the Closing Date, except as contemplated by this Agreement or any other Transaction
Document or as set forth in Schedule 4.10 of the ST Master Agreement Disclosure Letter, or
unless Intel and FP shall otherwise agree in writing (which consent shall not be unreasonably
withheld or delayed), ST shall, and shall cause its Subsidiaries to, (x) operate the ST Business in
the ordinary course of business in all material respects (y) continue to make capital expenditures
which are, in the aggregate, consistent in all material respects with the ST Business Capital
Expenditures Plan. Between the date of this Agreement and the Closing Date, except as otherwise
agreed in this Agreement or any other Transaction Document or as set forth in Schedule 4.10
of the ST Master Agreement Disclosure Letter, unless Intel and FP shall otherwise consent in
writing (which consent shall not be unreasonably withheld or delayed), ST shall, and shall cause
its Subsidiaries to:
(a) pay the material debts and Taxes of the ST Business and the ST Transferred Entities
in the ordinary course of business;
17
(b) use commercially reasonable efforts to (i) maintain the tangible fixed assets
included in the ST Transferred Assets as a whole in all material respects in at least as
good condition as they are being maintained on the date hereof, subject to normal wear and
tear, (ii) maintain in effect all material Permits and Governmental Approvals of the ST
Business, (iii) not terminate, other than for cause, nor materially decrease the
compensation of, the key executives of the ST Business, and (iv) maintain satisfactory
relationships with the customers, partners, suppliers and others having material business
relationships with the ST Business;
(c) not sell, assign, or transfer any of the ST Transferred Assets, or license any of
the ST Transferred Intellectual Property, except, in each case, in the ordinary course of
business and except for the transfer of ST Transferred Assets to ST Transferred Entities as
contemplated or permitted hereby, and not permit any of the ST Transferred Assets to be
subjected (whether by action or omission) to any Lien, other than the Permitted Liens;
(d) not sell, assign, or transfer any of the ST Transferred Interests and not permit
any of the ST Transferred Interests to be subjected to any Share Encumbrances;
(e) not fail to pay or discharge when due any Liability of which the failure to pay or
discharge would cause any material damage or loss to the ST Transferred Assets and the ST
Transferred Entities, taken as a whole;
(f) not waive or amend any material term of or terminate any material ST Transferred
Contract or relinquish any material rights thereunder, other than in the ordinary course of
business;
(g) not make any material change in its accounting principles, methods or practices
relating to the ST Business, and maintain the ST Books and Records in the usual, regular and
ordinary manner on a basis consistent with prior years, except, in either case, for any
change required by a change in GAAP, a change in the accounting practices of ST generally,
or a change resulting from the preparation of the ST Business Audited Financial Statements;
(h) not grant to any ST Business Employee any increase in compensation or in severance
or termination pay, grant any severance or termination pay (or amend in any material respect
any existing arrangement for the foregoing), or enter into any employment deferred
compensation or similar agreement with any such employee, except as may be required under
Applicable Law, any termination policy of ST (whether existing as of the date hereof or
adopted hereafter) or any employment or termination agreement in effect on the date hereof
or in the ordinary course of business, or establish, adopt or amend (except as required by
Applicable Law) any collective bargaining, bonus, profit-sharing, thrift, pension,
retirement, deferred compensation, compensation, stock option, restricted stock or other
benefit plan or arrangement covering any director, officer or employee of the ST Business,
that is material in the aggregate to the ST Business;
(i) not enter into or renew (other than automatic renewal) any ST Transferred Contracts
that exclusively relate to the ST Business that provides for payment obligations
18
(whether by
ST or any of its Subsidiaries or the counterparty thereto) that are material, in the
aggregate, to the ST Business, except for those described the ST Business Capital
Expenditures Plan;
(j) not make any acquisition, directly or indirectly, of all or substantially all of
the assets of any business or equity interests in any Person or business, whether by merger,
consolidation or otherwise, that relates to the ST Business;
(k) not incur any additional ST Transferred Liabilities for capital expenditures that
are material, in the aggregate, to the ST Business, except for those described in the ST
Business Capital Expenditures Plan;
(l) not make any loans or advances to or capital contributions or investments in, any
other Person with respect to the ST Business that are material in the aggregate to the ST
Business, other than in the ordinary course of business or as contemplated by the
Transaction Documents;
(m) not agree to any exclusivity, non-competition or similar provision or covenant
restricting the ST Business from competing in any line of business or with any Person or in
any location or engaging in any activity or business (including with respect to the
development, manufacture, marketing or distribution of their respective products or
services), or pursuant to which any benefit or right is required to be given or lost as a
result of so competing or engaging, the effect of which would be binding on Newco or
any of its Affiliates after the Closing Date;
(n) not settle, or make any binding offer to settle, any material Claim or Proceeding
relating to the ST Business unless such settlement would not encumber any assets of Newco,
impose any obligation or other Liability on Newco, impose any restriction that would apply
to Newco or the conduct of the Newco Business or include any acknowledgment of validity,
enforceability, infringement, or Claim interpretation with regard to any of the Intellectual
Property relating to such Claim or Proceeding;
(o) not engage in (i) any trade loading practices or any other promotional sales or
discount activity with any customers or distributors with any intent of accelerating to
prior fiscal quarters (including the current fiscal quarter) sales to the trade or otherwise
than would otherwise reasonably be expected to occur in subsequent fiscal quarters, (ii) any
other promotional sales or discount activity, (iii) any practice which would have the effect
of accelerating to the period prior to the Closing collections of receivables of any ST
Transferred Entity that would otherwise be reasonably expected (based on past practice) to
be made after the Closing, or (iv) any practice which would have the effect of postponing to
the period after the Closing payments by any ST Transferred Entity that would otherwise be
reasonably expected (based on past practice) to be made in the period prior to the Closing,
in each case, in a manner outside the ordinary course of business, and not significantly
inconsistent with past practices;
19
(p) maintain sales incentive plans and programs and sales quotas or incentives for ST
Products, in each case, in the ordinary course of business, and not significantly
inconsistent with past practices;
(q) use commercially reasonable efforts to prevent any representation or warranty of ST
hereunder or under the ST Asset Contribution Agreement from being inaccurate in any material
respect at the Closing; provided, however, that this covenant shall not be satisfied solely
by virtue of any amendment of any schedule to the ST ACA Disclosure Letter; and
(r) not enter into any agreement to take any action that would violate in any material
respect any of the foregoing.
For purposes of Sections 4.10(a)-(f), and (i), all references therein to ST
Transferred Assets, ST Transferred Entities, ST Transferred Interests, ST Transferred
Intellectual Property, and ST Transferred Contracts, shall be deemed to mean all applicable
assets or properties owned by ST or any of its Subsidiaries prior to the Closing which would be
included in the applicable section of the ST ATA Disclosure Letter on the Determination Date if
such asset or property was owned by ST or any of its Subsidiaries on the Determination Date.
4.11 Employee Matters.
(a) Employment Offers. Subject to Applicable Law, within 10 days following
Newcos formation pursuant to Section 4.16 (Newco Formation and Preparation), or
such other period of time after the date hereof as may be reasonably agreed by Newco, Intel,
ST and FP, Newco may make offers of employment to Intel Business Employees (other than any
Intel Excluded Employees) and ST Business Employees (other than any ST Excluded Employees),
to be effective as of the Closing or on such later date specified in the offer as may
reasonably be agreed by Newco, Intel, ST and FP, provided that to the extent permitted by
Applicable Law, the offers to any inactive Intel Business Employee or ST Business Employee
shall be effective on the date such Business Employee returns to active employment.
Notwithstanding the foregoing, ST Designated Employees (to the extent employed by ST
immediately prior to the Closing) shall automatically transfer to Newco on the Closing (or
if such ST Designated Employee is inactive, at such time as specified by Applicable Law).
Schedule 4.11(a) of the ST Master Agreement Disclosure Letter sets forth the ST
Designated Employees. Notwithstanding anything in this Agreement to the contrary, in no
event shall the acceptance of employment by any Intel Business Employee or ST Business
Employee be a condition to the Closing. The offers of employment for each such Intel
Business Employee (other than Intel Excluded Employees) and ST Business Employee (other than
ST Excluded Employees) will (i) be subject to requirements of Applicable Law for the
jurisdiction in which the Intel Business Employee or ST Business Employee is located and
include employment terms reasonably determined by Newco, and (ii) supersede, to the extent
permitted by Applicable Law any prior agreements regarding the terms and conditions of
employment with such Intel Business Employee or ST Business Employee as in effect prior to
the Closing Date; provided, however, that in no event shall any prior agreement with respect
to Intellectual Property be superseded, except that unless otherwise agreed by Intel and
Newco or ST
20
and Newco, as the case may be, all Intel Transferred Employees and ST
Transferred Employees shall be permitted to disclose to Newco all information in their
possession or otherwise known by them which is directly related to the Intel Business or ST
Business, as applicable, and not related to Patents or Confidential Information of Intel or
ST, respectively, in each case, to the extent not an Intel Transferred Asset or ST
Transferred Asset. As of the Closing Date, the Intel Transferred Entities shall employ only
Intel Transferred Employees, and the ST Transferred Entities shall employ only ST
Transferred Employees.
(b) Excluded Employees; Allocated Positions. Prior to the Closing, the Parties
shall cooperate in good faith, and in accordance with the provisions set forth in
Schedule 4.11(b) of each of the Intel Master Agreement Disclosure Schedule and the
ST Master Agreement Disclosure Schedule, to (i) identify those Intel Business Employees to
whom an employment offer shall not be made pursuant to Section 4.11(a)
(collectively, the Intel Excluded Employees) and those ST Business Employees to
whom an employment offer shall not be made pursuant to Section 4.11(a)
(collectively, the ST Excluded Employees), (ii) identify such other employees of
Intel and ST who shall be offered Newco Allocated Positions and (iii) avoid any transfer of
employees to Newco or any of its Subsidiaries in excess of the number of employees
reasonably necessary to operate the Newco Business at the Closing.
(c) Executive Agreements. Intel, ST, FP, and FP Holdco agree to recommend to
Newco that, within 10 days following the formation of Newco, Newco should (i) negotiate in
good faith offers of employment with the individuals identified in Schedule 4.11(c)
of each of the Intel Master Agreement Disclosure Letter and ST Master Agreement Disclosure
Letter for the positions identified on such Schedule; and (ii) adopt and execute employment
and severance agreements with such individuals in substantially the forms attached to
Schedule 4.11(c) to each of the Master Agreement Disclosure Letters, to be effective
on the Closing Date as of the Effective Time.
(d) Employee Information and Access. Each of Intel and ST agrees to provide to
each other and to FP and Newco certain general information concerning their respective
compensation and benefit programs and specific information relating to individual Business
Employees, subject to Applicable Law and, to the extent required, any such employees proper
consent, solely for the purpose of Newco formulating offers of employment to such employees;
provided, however, that neither Intel nor ST will make personnel records available for
inspection or copying except with respect to Intel Transferred Employees who are employed by
an Intel Transferred Entity as of the Closing Date and ST Transferred Employees who are
employed by an ST Transferred Entity as of the Closing Date.
(e) Equity Plan. The Parties shall cause Newco to implement the Equity Plan at
or prior to the Closing.
21
4.12 Additions to and Modifications of Schedules.
(a) If on any date on or prior to the date two Business Days prior to the Closing Date
(the Determination Date), any of the information provided by Intel in any of the
Specified Intel Schedules or by ST in any of the Specified ST Schedules or by Newco in any
of the Specified Newco Schedules, as the case may be, is not true, accurate and complete in
all material respects on and as of such date, the Party that provided such schedule shall be
entitled to amend such schedule to make additions to or modifications of such schedule
necessary to make the information set forth therein true, accurate and complete in all
material respects and shall promptly deliver such amended schedule to the other Party, and
such schedule shall be deemed amended to reflect such additions and modifications for all
purposes. If any of the Specified Intel Representations made by Intel, the Specified ST
Representations made by ST, or the Specified Newco Representations made by Newco, as the
case may be, would not be true, accurate and complete in all material respects on and as of
the Closing Date unless additional information with respect thereto were set forth in a new
schedule not previously included in the applicable Disclosure Letter, such Party shall be
entitled to amend such Disclosure Letter to add such new schedule, and shall promptly
deliver such new schedule to the other Party, which schedule shall thereupon be deemed to be
a part of such Disclosure Letter for all purposes.
(b) On the Determination Date, each of Intel and ST may, but shall not be obligated to,
(i) amend and deliver to Newco any schedule to the Intel ATA Disclosure Letter or ST ACA
Disclosure Letter, as applicable, upon which any Intel Transferred Assets or ST Transferred
Assets described in Section 2.1 (and to the extent of such amendments, any
Liabilities associated with such Intel Transferred Assets or ST Transferred Assets that
would be Intel Transferred Liabilities or ST Transferred Liabilities under Section
2.3 of the Intel Asset Transition Agreement or ST Asset Contribution Agreement, as the
case may be, including Liabilities under any Intel Transferred Contract or ST Transferred
Contract included in such amendment, shall be Intel Transferred Liabilities or ST
Transferred Liabilities, as applicable) of each of the Intel Asset Transfer Agreement and
the ST Asset Contribution Agreement are listed or identified, and (ii) deliver any such new
schedule to the Intel ATA Disclosure Letter or ST ACA Disclosure Letter, as applicable, upon
which any Intel Transferred Assets or ST Transferred Assets described in Section 2.1
(and to the extent of such amendments, any Liabilities associated with such Intel
Transferred Assets or ST Transferred Assets that would be Intel Transferred Liabilities or
ST Transferred Liabilities under Section 2.3 of the Intel Asset Transition Agreement
or ST Asset Contribution Agreement, as the case may be, including Liabilities under any
Intel Transferred Contract or ST Transferred Contract included in such amendment, shall be
Intel Transferred Liabilities or ST Transferred Liabilities, as applicable) of each of the
Intel Asset Transfer Agreement and the ST Asset Contribution Agreement are listed or
identified, if Intel or ST, as the case may be, in its sole discretion, determines that such
amendments will provide greater assurances that the representations made by Intel in
Section 3.17 (Intel Transferred Assets) of the Intel Asset Transfer Agreement and by
ST in Section 3.17 (ST Transferred Assets) of the ST Asset Contribution Agreement,
respectively, are accurate on the Closing Date, or in order that each such schedule shall
more accurately reflect the
22
removal of any assets or Liabilities on any such schedule which
have, in the ordinary course of the Intel Business or the ST Business, as the case may be,
ceased to exist or which have been disposed of or extinguished by the Intel Business or the
ST Business in accordance with Section 4.9 and Section 4.10, respectively,
as applicable, in the ordinary course of business between the date hereof (or, if such
schedule was prepared as of an earlier date, such earlier date) and the Determination Date.
(c) On or within 30 days after the Closing Date, each of Intel and ST may (i) further
amend and deliver to Newco any schedule to the Intel ATA Disclosure Letter or ST ACA
Disclosure Letter, as applicable, upon which any Intel Transferred Assets or ST Transferred
Assets described in Section 2.1 (and to the extent of such amendments, any
Liabilities associated with such Intel Transferred Assets or ST Transferred Assets that
would be Intel Transferred Liabilities or ST Transferred Liabilities under Section
2.3 of the Intel Asset Transition Agreement or ST Asset Contribution Agreement, as the
case may be, including Liabilities under any Intel Transferred Contract or ST Transferred
Contract included in such amendment, shall be Intel Transferred Liabilities or ST
Transferred Liabilities, as applicable) of each of the Intel Asset Transfer Agreement and
the ST Asset Contribution Agreement are listed or identified, and (ii) deliver any such new
schedule to the Intel ATA Disclosure Letter or ST ACA Disclosure Letter, as applicable, upon
which any Intel Transferred Assets or ST Transferred Assets described in Section
2.1 (and to the extent of such amendments, any Liabilities associated with such
Intel Transferred Assets or ST Transferred Assets that would be Intel Transferred
Liabilities or ST Transferred Liabilities under Section 2.3 of the Intel Asset
Transition Agreement or ST Asset Contribution Agreement, as the case may be, including
Liabilities under any Intel Transferred Contract or ST Transferred Contract included in such
amendment, shall be Intel Transferred Liabilities or ST Transferred Liabilities, as
applicable) of each of the Intel Asset Transfer Agreement and the ST Asset Contribution
Agreement are listed or identified, if Intel or ST, as the case may be, in its sole
discretion, determines that such amendments will provide greater assurances that the
representations made by Intel in Section 3.17 (Intel Transferred Assets) of the
Intel Asset Transfer Agreement and by ST in Section 3.17 (ST Transferred Assets) of
the ST Asset Contribution Agreement, respectively, are accurate as of the Closing Date, or
in order that, each such schedule shall more accurately reflect the removal of any assets or
Liabilities on any such schedule which have, in the ordinary course of the Intel Business or
the ST Business, as the case may be, ceased to exist or which have been disposed of or
extinguished by the Intel Business or the ST Business, as applicable, in the ordinary course
of business between the Determination Date (or, if such schedule was prepared as of an
earlier date, such earlier date) and the Closing Date in accordance with Section 4.9
and Section 4.10, respectively.
(d) For any additions or modifications made by a Party (i) to correct inaccuracies of
the Specified Intel Representations or Specified ST Representations, as the case may be
(including those representations and warranties which are expressed with respect to a date
prior to the date hereof) for facts, events or circumstances occurring prior to or existing
on and as of the date hereof, and, in the case of a representation or warranty made to the
Knowledge of a Party, of which such Party had Knowledge on and as of the date hereof, (ii)
to reflect any facts, events or circumstances which resulted from
23
a breach of Section
4.9 or Section 4.10 hereof, as applicable, or (iii) to update, correct or
otherwise modify any of the representations set forth in Section 3.2 (Authorization
and Enforceability), Section 3.4 (Non-contravention), Section 3.7
(Litigation), Section 3.9 (Compliance with Applicable Laws), Section 3.10
(Tax Matters), Section 3.11 (Intellectual Property), Section 3.13 (Financial
Information), Section 3.14 (Absence of Certain Changes), Section 3.17 (Intel
Transferred Assets or ST Transferred Assets, as applicable), Section 3.20
(Inventories), Section 3.21 (Advisory Fees), Section 3.22 (Transferred
Entities and Transferred Interests) and Section 3.23 (Investment Representations) of
the Intel Asset Transfer Agreement or ST Asset Contribution Agreement, then in each such
case, Newco shall be entitled to indemnification therefor pursuant to, and subject to the
limitations set forth in, Article VI of the Intel Asset Transfer Agreement or ST
Asset Contribution Agreement, as applicable, to the same extent as if such additions and
modifications had not been made.
(e) Notwithstanding anything in this Agreement to the contrary, any addition or
modification to the Specified Intel Schedules and/or the Specified ST Schedules shall be
disregarded for purposes of determining whether (i) the conditions set forth in Section
5.1(a) (Performance by ST) shall have been satisfied in respect of the representations
and warranties set forth in Section 3.14(i) (Absence of Certain Changes) of the ST
Asset Contribution Agreement, (ii) the conditions set forth in Section 5.2(a)
(Performance by Intel) shall have been satisfied in respect of the representations and
warranties set forth in
Section 3.14(i) (Absence of Certain Changes) of the Intel Asset Transfer
Agreement, and (iii) the conditions set forth in Section 5.3(a) (Performance by
Intel) and Section 5.3(b) (Performance by ST) shall have been satisfied in respect
of the representations and warranties set forth in Section 3.14(i) of the ST Asset
Contribution Agreement or Section 3.14(i) of the Intel Asset Transfer Agreement.
(f) Other than as set forth in Section 4.12(a), (b), (c), and
(d) without the consent of the other Party or Parties, as applicable, no Party may
make any changes, supplements, amendments or modifications to any Disclosure Letter with
respect to any fact, event or circumstance occurring after the date hereof.
4.13 Third Party Appraisal and Allocation; Dutch Auditors.
(a) As soon as practicable but no later than 20 days following the date hereof, ST
shall identify to Intel three internationally-recognized firms, at least two of which are
Big 4 firms reasonably believed not to have a conflict of interest; and (b) as soon as
reasonably practicable, but no later than 10 days after the receipt of the names, Intel, in
its sole discretion, shall select one of the firms (the Third Party Appraisal
Firm) for each of Intel and ST to retain to perform the Third Party Appraisals.
(b) Intel and ST shall each select an office of the Third Party Appraisal Firm that
will jointly: (i) value Newcos net assets; and (ii) allocate the value of Newcos net
assets to Newcos individual assets and liabilities, in accordance with GAAP, which
allocation shall become Newcos opening balance sheet.
24
(c) Each Party agrees to pursue and timely obtain, or to cause Newco or its Affiliates
to pursue and timely obtain, such auditors certificates pursuant to article 2.204b and
2.204c (as applicable) of the Dutch Civil Code as are required to give effect to the
transactions contemplated in this Agreement and the other Transaction Documents.
4.14 Notices of Certain Intel Events. Intel shall promptly notify ST and FP of:
(a) any notice or other communication from any Person alleging the consent of such
Person is or may be required in connection with the transactions contemplated by this
Agreement or the Intel Asset Transfer Agreement to the extent such consent would have been
required to have been disclosed on Schedule 3.8(b) of the Intel ATA Disclosure
Letter;
(b) any notice or other communication from any Governmental Authority regarding any
material Governmental Approval in connection with the transactions contemplated by this
Agreement;
(c) any Claims, investigations or Proceedings commenced or, to its Knowledge,
threatened against, relating to or involving or otherwise affecting Intel or the Intel
Business that, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 3.7 (Litigation) of the Intel Asset Transfer
Agreement or that challenge or in any manner seek to prohibit the transactions contemplated
hereby or the consummation of the Closing; and
(d) any damage, destruction or other casualty loss that is material to the Intel
Transferred Assets, taken as a whole;
provided, however, that the delivery of any notice pursuant to this Section 4.14 shall
not limit or otherwise affect the remedies available to Newco under the Intel Asset Transfer
Agreement.
4.15 Notices of Certain ST Events. ST shall promptly notify Intel and FP of:
(a) any notice or other communication from any Person alleging the consent of such
Person is or may be required in connection with the transactions contemplated by this
Agreement or the ST Asset Contribution Agreement to the extent such consent would have been
required to have been disclosed on Schedule 3.8(b) of the ST ACA Disclosure Letter;
(b) any notice or other communication from any Governmental Authority regarding any
material Governmental Approval in connection with the transactions contemplated by this
Agreement;
(c) any Claims, investigations or Proceedings commenced or, to its Knowledge,
threatened against, relating to or involving or otherwise affecting ST or the ST Business
that, if pending on the date of this Agreement, would have been required to have been
disclosed pursuant to Section 3.7 (Litigation) of the ST Asset Contribution
Agreement or that challenge the consummation of the transactions contemplated hereby or
thereby;
25
(d) any damage, destruction or other casualty loss that is material to the ST
Transferred Assets, taken as a whole;
provided, however, that the delivery of any notice pursuant to this Section 4.15 shall
not limit or otherwise affect the remedies available to Newco under the ST Asset Contribution
Agreement.
4.16 Newco Formation and Preparation. As soon as reasonably practicable following the
expiration or termination of the waiting period (and any extension thereof) applicable to the
consummation of the transactions contemplated hereby under the HSR Act and any other applicable
similar merger notification laws or regulations of foreign Governmental Authorities, the Parties
hereto shall take any and all actions necessary in order to incorporate Newco as a private company
with limited liability organized under the laws of The Netherlands and prepare Newco to commence
its operations immediately following the Closing, including without limitation, to:
(a) cause a civil law notary (i) to execute a Deed of Incorporation in a form
reasonably agreed by the Parties in which the Parties each shall be named as joint
incorporators of Newco, (ii) to register Newco with the Dutch Trade Register and (iii) to
execute a deed of issuance of shares in Newcos capital, which shall reflect the
shareholdings of the Parties in Newco in the following manner: ST 48.58%, Intel 45.10% and
FP Holdco 6.32%, and take all other actions reasonably necessary in connection therewith;
(b) provide the initial capitalization to Newco as provided in the Deed of
Incorporation, which capitalization shall be at least equal to the minimum capitalization
provided by the laws of The Netherlands, in the respective percentages as provided in
subsection (a) above;
(c) cause Newco to purchase and maintain directors and officers insurance as required
by Section 6.9 of the Shareholders Agreement;
(d) establish upon incorporation of Newco the Management Board of Newco which shall,
prior to the Closing, have a sole Managing Director, who shall be FP; provided that FP shall
not, in its capacity as the Managing Director, cause Newco to take any action or execute any
agreement or document that is not contemplated by this Agreement unless each of Intel and ST
shall consent thereto in writing, and in no event shall Newco conduct operations or engage
in the conduct of any business prior to the Closing; provided, further, that each of Intel
and ST shall advance 50% of all costs or expenses incurred by or on behalf of FP on behalf
of or for the benefit of Newco in the performance of the activities set forth in this
Section 4.16, and immediately after the Closing, Newco shall reimburse Intel and ST
for all amounts so advanced; provided, further that prior to the Closing, to the maximum
extent permitted by Applicable Law, the Managing Director of Newco shall not be personally
liable for any obligations of Newco and ST and Intel shall each indemnify FP and its
directors, officers, employees and agents, solely in respect of actions in its capacity as
sole Managing Director (the Indemnified Persons) against 50% of all Losses
resulting from or arising out of, and
26
shall hold the Indemnified Persons harmless from, any
action taken or any failure to take any action at or prior to the Closing; provided,
however, that no indemnification shall be provided to any Indemnified Person for a Loss if
such Loss resulted primarily from any action not permitted by this Agreement or approved by
Intel and ST or resulted primarily from an act of fraud, dishonesty or other willful
misconduct by FP; provided, further, that to the extent permitted by Applicable Law, 50% of
all expenses (including legal fees) actually and reasonably incurred by an Indemnified
Person in defending any claim, demand, action, suit or proceeding shall, from time to time,
be advanced by each of ST and Intel prior to the final disposition of such claim upon
receipt by ST and Intel of an undertaking by or on behalf of an Indemnified Person to repay
such amount if it shall be determined that the Indemnified Person is not entitled to be
indemnified therefor pursuant to this Section 4.16(d);
(e) FP shall, in its capacity as Managing Director, cause Newco to take all actions
required by this Agreement to be taken by Newco prior to the Closing and any
other such actions as are reasonably necessary to consummate the transactions
contemplated by this Agreement and the other Transaction Documents;
(f) vote at a general meeting of shareholders of Newco the shares of which such Party
is the registered holder or for which such Party shall otherwise have the ability to control
or direct the voting thereof at any such general meeting of shareholders, or execute a
written resolution with respect to such shares, in favor of any resolution required by or
necessary pursuant to the Transaction Documents to effect the Closing; provided, that the
foregoing shall not require any Party to waive any right that such Party has under any
Transaction Document, or to consent (or withhold its consent) to any waiver requested by any
party under any Transaction Document;
(g) FP shall, in its capacity as Managing Director, adopt any resolution required or
necessary to be adopted by Newco to effect the Closing, to the extent required by Applicable
Law;
(h) cause Newco to organize such Subsidiaries as reasonably requested by the Parties;
(i) cause Newco to open bank accounts as reasonably requested by any Party in order to
facilitate the actions set forth herein and to carry out the transactions contemplated by
the Transaction Documents;
(j) cause Newco to execute and deliver the Intel Option Agreement to Intel or an
Affiliate of Intel at least five days prior to the Closing Date;
(k) cause Newco to execute each Transaction Document to which it is to become a party
as well as any other instruments, certificates, authorizations and other documents or papers
required to be executed and delivered by Newco on or before the Closing;
(l) cause Newco to execute any waivers or consents, including in connection with the
waiver of closing conditions as set forth in the Transaction Documents, (i) with
27
respect to
any obligation or duty of ST, if Intel and FP each consents in writing to Newco granting
such waiver or consent, (ii) with respect to any obligation or duty of Intel, if ST and FP
each consents in writing to Newco granting such waiver or consent, and (iii) with respect to
any obligation or duty of FP, if Intel and ST each consents in writing to Newco granting
such waiver or consent; provided, further, that Newco shall refrain from executing or
otherwise granting any waiver or consent without the prior written consent of the Parties as
set forth in the preceding clause; and
(m) cause Newco to take all actions set forth in Section 2.10 (Deliveries by
Newco) of the Intel Asset Transfer Agreement and Section 2.10 (Deliveries by Newco)
of the ST Asset Contribution Agreement;
provided that, in addition to the provisions set forth above in this Section 4.16, the
Parties shall use reasonable efforts to prevent Newco from taking any actions not set forth above
without the prior consent of each of the Parties, which consent shall not be unreasonably withheld or
delayed.
4.17 Newco Tax Election. The Parties agree that, unless Intel otherwise directs, (a)
the organizational documents of Newco shall authorize Newco to elect, and Newco will elect,
effective upon its formation, to be treated as a partnership for U.S. income tax purposes, and (b)
Newcos principal operating subsidiary will elect, effective upon its formation, to be treated as a
disregarded entity for U.S. income tax purposes, and the Parties shall cooperate as reasonably
requested by Intel (including by executing any such election) in order to effectuate such
elections. The Parties acknowledge that any such election shall be filed on Internal Revenue
Service Form 8832 (or any successor form) no later than 75 days after the formation under Dutch law
of Newco or such principal operating subsidiary, as the case may be. The Parties further agree
that they will notify Intel prior to the direct or indirect acquisition or formation by Newco or
its Subsidiaries of any entity that will become a Subsidiary of Newco, and shall cooperate as Intel
may request to cause any such entity to be an eligible entity as defined in U.S. Treasury
Regulation Section 301.7701-3(a) and to elect such tax status with respect to such entity (either
as a disregarded entity, partnership or corporation) for U.S. federal income tax purposes as Intel
may request, effective as of the date of formation of such entity unless otherwise requested by
Intel.
4.18 Newco Closing Reorganization. On or immediately prior to the Closing Date, the
Parties shall cause Newco to take the actions contemplated by Schedule 4.18 to each Master
Agreement Disclosure Letter.
4.19 Cooperation with Financing. Each Party shall, and shall cause its Subsidiaries,
and cause Newco and its Subsidiaries, and their respective appropriate representatives to, provide,
reasonable cooperation in connection with the arrangement of the Contemplated Financing as may be
reasonably requested by any other Party, including, using reasonable efforts to: (a) provide due
diligence materials to the parties to the Commitment Letter or other potential financing sources;
(b) assist Newco and its financing sources in the preparation, if applicable, of an offering
document for such Contemplated Financing and materials for rating agency presentations; (c)
cooperate with the marketing efforts of Newco and its financing sources for such Contemplated
Financing; (d) provide such other documents as may be reasonably requested
28
by Newco; and (e)
facilitate the pledge of collateral owned by Newco or its Subsidiaries to secure the Contemplated
Financing at and after the Effective Time.
4.20 Environmental Consultants. As promptly as practicable (but in no event later
than 40 days) after the date hereof, (a) Intel shall select and engage the Environmental Consultant
to conduct the ST Environmental Reports and (b) ST shall select and engage the Environmental
Consultant to conduct the Intel Environmental Reports.
4.21 Hynix JV Matters. As soon as practicable following the date hereof, ST shall agree to maintain such minimum
ownership interest in Newco for such minimum period of time (not to exceed two years) as Hynix may
reasonably require in order for Newco to be a Designated Third Party for purposes of the
agreements set forth in both (a) that certain letter agreement between Hynix and ST dated March 23,
2007 amending the Joint Venture Agreement, dated as of November 16, 2004 (as supplemented and
amended by letter agreements dated April 8, 2005, April 19, 2005, April 27, 2005 and June 10, 2005)
of the Hynix JV and (b) the Agreement on the Amendment of the Articles of Association of the Hynix
JV between Hynix and ST dated March 23, 2007.
4.22 Facility Transfer Term Sheets.
(a) Intel shall, and shall cause its Subsidiaries to effect the transfer of the Intel
Real Property at the Closing in accordance with the terms of the Facility Transfer Term
Sheets attached to Schedule 4.22(a) of the Intel Master Agreement Disclosure Letter,
subject to the terms and conditions thereof.
(b) ST shall, and shall cause its Subsidiaries to effect the transfer of the ST
Transferred Facilities at the Closing in accordance with the terms of the Facility Transfer
Term Sheets attached to Schedule 4.22(b) of the ST Master Agreement Disclosure
Letter, subject to the terms and conditions thereof.
4.23 Governmental Consents. From the date hereof until the earlier of the Closing
Date or the date upon which this Agreement is terminated in accordance with Section 6.1(c),
Intel shall, and shall cause its Subsidiaries to, use commercially reasonable efforts to take or
cause to be taken all actions, and do or cause to be done all things necessary on their part to
obtain the Governmental Consents on the terms and conditions that satisfy the requirements set
forth in Schedule 5.1(f) of the Intel Master Agreement Disclosure Letter and Schedule
5.2(f) of the ST Master Agreement Disclosure Letter as soon as reasonably practicable,
including preparing and filing as soon as reasonably practicable all documentation to effect all
necessary notices, reports and other filings.
4.24 Release of Liens. On the Closing Date, the Intel Transferors and ST Transferors
shall deliver the Intel Transferred Assets and ST Transferred Assets, respectively, to Newco and
its Subsidiaries free and clear of Liens, other than Permitted Liens, except as otherwise provided
in the Intel Asset Transfer Agreement and the ST Asset Contribution Agreement.
4.25 ST Litigation. ST shall be financially responsible for any and all costs and
liabilities, including but not limited to license fees, royalties, and damages awarded by a court
or administrative agency, that accrue in or as a result of Proceedings with respect to ST Products
29
imported, used or sold prior to Closing. Newco shall be financially responsible for any and all
costs and liabilities, including but not limited to license fees, royalties, and damages awarded by
a court or administrative
agency, that accrue in or as a result of Proceedings with respect to ST Products imported,
used or sold by Newco or any of its Subsidiaries on or subsequent to Closing. Notwithstanding the
above, each Party shall be responsible for their respective legal fees and associated costs related
to such Proceedings regardless of when incurred.
4.26 Intel Litigation. Intel shall be financially responsible for any and all costs
and liabilities, including but not limited to license fees, royalties, and damages awarded by a
court or administrative agency, that accrue in or as a result of Proceedings with respect to Intel
Products imported, used or sold prior to Closing. Newco shall be financially responsible for any
and all costs and liabilities, including but not limited to license fees, royalties, and damages
awarded by a court or administrative agency, that accrue in or as a result of Proceedings with
respect to Intel Products imported, used or sold by Newco or any of its Subsidiaries on or
subsequent to Closing. Notwithstanding the above, each Party shall be responsible for their
respective legal fees and associated costs related to such Proceedings regardless of when incurred.
4.27 Confidentiality Agreement. Immediately following the formation of Newco pursuant
to Section 4.16, the Parties shall cause Newco to become a party to the Confidentiality
Agreement.
4.28 Further Assurances. Each Party agrees to execute and deliver, or cause to be
executed and delivered, such other documents, certificates, agreements and other writings and to
take, or cause to be taken, such other commercially reasonable actions as may be necessary or
desirable in order to consummate or implement expeditiously the transactions contemplated by this
Agreement.
ARTICLE V
CONDITIONS TO CLOSING
5.1 Conditions to Obligations of Intel. The obligations of Intel to consummate the
Closing are subject to the satisfaction or waiver of each of the following conditions:
(a) Performance by ST. (i) ST shall have performed and satisfied in all
material respects its obligations and covenants hereunder to the extent such obligations and
covenants are required to be performed and satisfied by it on or prior to the Closing Date,
(ii) the representations and warranties of ST contained in Section 3.2 shall be true
and correct at and as of the Closing as if made at and as of the Closing Date (rather than
at and as of the date hereof), provided, however, that those representations and warranties
set forth in Sections 3.1 3.24 of the ST Asset Contribution Agreement
(incorporated herein by reference) and which within such sections address matters only as of
a certain date specific shall be true and correct as of such certain date), except, in any
case, for failures of such representations and warranties (disregarding any materiality or
ST Material Adverse Effect qualifications contained in any such representation or warranty)
to be true and correct that have not had and would not reasonably be expected to have
an ST Material Adverse Effect, and (iii) Newco shall have received a certificate signed by a
duly authorized executive officer of ST to the foregoing effect.
30
(b) Performance by FP and FP Holdco. (i) Each of FP and FP Holdco
shall have performed and satisfied in all material respects its obligations and
covenants hereunder to the extent such obligations and covenants are required to be
performed and satisfied by it on or prior to the Closing Date, (ii) the representations and
warranties of FP and FP Holdco contained in Section 3.3 shall be true and correct at
and as of the Closing as if made at and as of such date (other than those representations
and warranties which address matters only as of a certain date which shall be true and
correct as of such certain date), except, in any case, for failures of such representations
and warranties (disregarding any materiality or FP Material Adverse Effect qualifications
contained in any such representation or warranty) to be true and correct that have not had
and would not reasonably be expected to have an FP Material Adverse Effect, and (iii) Newco
shall have received a certificate signed by a duly authorized executive officer of each of
FP and FP Holdco to the foregoing effect.
(c) No Violation. No Governmental Authority shall have enacted, issued,
promulgated or entered any Applicable Law which is in effect on the Closing Date which has
or would have the effect of prohibiting, restraining or enjoining the consummation of the
transactions contemplated by this Agreement. No temporary restraining order, preliminary or
permanent injunction, cease and desist order or other order issued by any court or other
Governmental Authority that has the effect of making the transactions contemplated hereby
illegal or otherwise prohibiting consummation of the transfers contemplated hereby or the
consummation of the Closing, or imposing upon Intel material fines or penalties in respect
thereof, shall be in effect as of the Closing Date, and there shall be no pending or
threatened actions or proceedings by any Governmental Authority (or determinations by any
Governmental Authority) challenging or in any manner seeking to prohibit the transfer
contemplated hereby or the consummation of the Closing.
(d) Transaction Documents. Each of ST, FP, FP Holdco and Newco (and each of
their respective Affiliates) shall have executed and delivered to Intel each Transaction
Document, substantially in the form attached hereto, or attached to the form of Intel Asset
Transfer Agreement or ST Asset Contribution Agreement, to which each of them, respectively,
is a party.
(e) Governmental Approvals. The waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated hereby under the HSR Act
shall have expired or been terminated, and any waiting period (and any extension thereof)
under any other applicable similar merger notification laws or regulations of foreign
Governmental Authorities shall have expired or been terminated. Any Governmental Approvals
required under any such laws or regulations in connection with the consummation of the
transactions contemplated hereby shall have been obtained.
(f) Consents. Intel shall have received the Consents identified on
Schedule 5.1(f) of the Intel Master Agreement Disclosure Letter on terms and
conditions that satisfy the requirements set forth in Schedule 5.1(f) of the Intel
Master Agreement Disclosure Letter.
31
(g) No ST Material Adverse Effect. There shall not have occurred since the
date hereof any ST Material Adverse Effect that is continuing, and Newco shall have received
a certificate signed by a duly authorized executive officer of ST to the foregoing effect.
(h) Audited Financial Statements. ST shall have delivered to Intel audited
statements of revenue and direct expenses for the ST Business for the years ended December
31, 2005 and December 31, 2006, and the following balance sheet captions: accounts
receivable, inventories, fixed assets, intangible assets and equity investments, as of
December 31, 2005 and December 31, 2006 and related notes to these statements. The financial
statements shall be prepared to report the ST Business as it has been reported in STs
consolidated financial statements applying GAAP and following the presentation basis adopted
by ST in its consolidated financial statements, consistently applied (collectively, ST
Business Audited Financial Statements).
(i) Contemplated Financing. The Contemplated Financing shall have been
provided to Newco; provided that the Contemplated Financing does not result in Newco and its
Subsidiaries having more than $1,300,000,000 of aggregate Indebtedness outstanding as of the
Closing.
(j) Dutch Auditors Certificates. Each Party (and its Affiliates), as
applicable, shall have obtained such auditors certificate(s) pursuant to article 2:204b or
2:204c (as applicable) of the Dutch Civil Code as are required to give effect to the
transactions contemplated in this Agreement and the other Transaction Documents.
(k) Minimum Cash. On the Closing Date, following payment by Newco of any fees
and expenses incurred by Newco in connection with the Closing of the Transactions
contemplated hereby, but in any event not including the costs set forth in Section
4.16(d), Newco shall have on hand at least $500,000,000 in Cash and Cash Equivalents.
5.2 Conditions to Obligations of ST. The obligations of ST to consummate the Closing
are subject to the satisfaction or waiver of each of the following conditions:
(a) Performance by Intel. (i) Intel shall have performed and satisfied in all
material respects its obligations and covenants hereunder to the extent such obligations and
covenants are required to be performed and satisfied by it on or prior to the Closing Date,
(ii) the representations and warranties of Intel contained in Section 3.1 shall be
true and correct at and as of the Closing as if made at and as of the Closing Date (rather
than at and as of the date hereof); provided, however, that those representations and
warranties set forth in Sections 3.1 3.24 of the Intel Asset Transfer
Agreement (incorporated herein by reference) and which within such sections address matters
only as of a certain date
specific shall be true and correct as of such certain date), except, in any case, for
failures of such representations and warranties (disregarding any materiality or Intel
Material Adverse Effect qualifications contained in any such representation or warranty) to
be true and correct that have not had and would not reasonably be expected to have an Intel
Material Adverse Effect, and (iii) Newco shall have received a certificate signed by a duly
authorized executive officer of Intel to the foregoing effect.
32
(b) Performance by FP and FP Holdco. (i) Each of FP and FP Holdco shall have
performed and satisfied in all material respects its obligations and covenants hereunder to
the extent such obligations and covenants are required to be performed and satisfied by it
on or prior to the Closing Date, (ii) the representations and warranties of FP and FP Holdco
contained in Section 3.3 shall be true and correct at and as of the Closing as if
made at and as of such date (other than those representations and warranties which address
matters only as of a certain date which shall be true and correct as of such certain date),
except, in any case, for failures of such representations and warranties (disregarding any
materiality or FP Material Adverse Effect qualifications contained in any such
representation or warranty) to be true and correct that have not had and would not
reasonably be expected to have an FP Material Adverse Effect, and (iii) Newco shall have
received a certificate signed by a duly authorized executive officer of each of FP and FP
Holdco to the foregoing effect.
(c) No Violation. No Governmental Authority shall have enacted, issued,
promulgated or entered any Applicable Law which is in effect on the Closing Date which has
or would have the effect of prohibiting, restraining or enjoining the consummation of the
transactions contemplated by this Agreement. No temporary restraining order, preliminary or
permanent injunction, cease and desist order or other order issued by any court or other
Governmental Authority that has the effect of making the transactions contemplated hereby
illegal or otherwise prohibiting consummation of the transfers contemplated hereby or the
consummation of the Closing, or imposing upon ST material fines or penalties in respect
thereof, shall be in effect as of the Closing Date, and there shall be no pending or
threatened actions or proceedings by any Governmental Authority (or determinations by any
Governmental Authority) challenging or in any manner seeking to prohibit the transfer
contemplated hereby or the consummation of the Closing.
(d) Transaction Documents. Each of Intel, FP, FP Holdco and Newco (and each of
their respective Affiliates) shall have executed and delivered to ST each Transaction
Document substantially in the form attached hereto, or attached to the form of Intel Asset
Transfer Agreement or ST Asset Contribution Agreement, to which each of them, respectively,
is a party.
(e) Governmental Approvals. The waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated hereby under the HSR Act
shall have expired or been terminated, and any waiting period (and any extension thereof)
under any other applicable similar merger notification laws or regulations of foreign
Governmental Authorities shall have expired or been terminated. Any Governmental Approvals
required under any such laws or regulations in connection with the consummation of the
transactions contemplated hereby shall have been obtained.
(f) Consents. Intel shall have received the Consents identified on
Schedule 5.2(f) of the ST Master Agreement Disclosure Letter on terms and conditions
that satisfy the requirements set forth in Schedule 5.2(f) of the ST Master
Agreement Disclosure Letter.
33
(g) No Intel Material Adverse Effect. There shall not have occurred since the
date hereof any Intel Material Adverse Effect that is continuing, and Newco shall have
received a certificate signed by a duly authorized executive officer of Intel to the
foregoing effect.
(h) Audited Financial Statements. Intel shall have delivered to ST audited
statements of revenues and direct expenses for the Intel Business for the years ended
December 31, 2005 and December 30, 2006, and the following balance sheet captions: accounts
receivable, inventories, fixed assets and, if applicable, other assets as of December 31,
2005 and December 30, 2006, and related notes to these statements. The financial statements
shall be prepared to report the Intel Business as it has been reported in Intels
consolidated financial statements applying GAAP and following the presentation basis adopted
by Intel in its consolidated financial statements, consistently applied (collectively,
Intel Business Audited Financial Statements).
(i) Contemplated Financing. The Contemplated Financing shall have been
provided to Newco; provided that the Contemplated Financing does not result in Newco and its
Subsidiaries having more than $1,300,000,000 of aggregate Indebtedness outstanding as of the
Closing.
(j) Dutch Auditors Certificates. Each Party (and its Affiliates), as
applicable, shall have obtained such auditors certificate(s) pursuant to article 2:204b or
2:204c (as applicable) of the Dutch Civil Code as are required to give effect to the
transactions contemplated in this Agreement and the other Transaction Documents.
(k) Minimum Cash. On the Closing Date, following payment by Newco of any fees
and expenses incurred by Newco in connection with the Closing of the Transactions
contemplated hereby, but in any event not including the costs set forth in Section
4.16(d), Newco shall have on hand at least $500,000,000 in Cash and Cash Equivalents.
5.3 Conditions to Obligations of FP and FP Holdco. The obligations of FP and FP
Holdco to consummate the Closing are subject to the satisfaction or waiver of each of the following
conditions:
(a) Performance by Intel. (i) Intel shall have performed and satisfied in all
material respects its obligations and covenants hereunder to the extent such obligations and
covenants are required to be performed and satisfied by it on or prior to the Closing Date,
(ii) the representations and warranties of Intel contained in Section 3.1 shall be
true and correct at and as of the Closing as if made at and as of the Closing Date (rather
than at and as of the date hereof), provided, however, that those representations and
warranties set forth in Sections 3.1 3.24 of the Intel Asset Transfer
Agreement (incorporated herein by reference) and which within such sections address matters
only as of a certain date
specific shall be true and correct as of such certain date), except, in any case, for
failures of such representations and warranties (disregarding any materiality or Intel
Material Adverse Effect qualifications contained in any such representation or warranty) to
be true and correct that have not had and would not reasonably be expected to have an Intel
34
Material Adverse Effect, and (iii) Newco shall have received a certificate signed by a duly
authorized executive officer of Intel to the foregoing effect.
(b) Performance by ST. (i) ST shall have performed and satisfied in all
material respects its obligations and covenants hereunder to the extent such obligations and
covenants are required to be performed and satisfied by it on or prior to the Closing Date,
(ii) the representations and warranties of ST contained in Section 3.2 shall be true
and correct at and as of the Closing as if made at and as of the Closing Date (rather than
at and as of the date hereof); provided, however, that those representations and warranties
set forth in Sections 3.1 3.24 of the ST Asset Contribution Agreement
(incorporated herein by reference) and which within such sections address matters only as of
a certain date specific shall be true and correct as of such certain date), except, in any
case, for failures of such representations and warranties (disregarding any materiality or
ST Material Adverse Effect qualifications contained in any such representation or warranty)
to be true and correct that have not had and would not reasonably be expected to have an ST
Material Adverse Effect, and (iii) Newco shall have received a certificate signed by a duly
authorized executive officer of ST to the foregoing effect.
(c) No Violation. No Governmental Authority shall have enacted, issued,
promulgated or entered any Applicable Law which is in effect on the Closing Date which has
or would have the effect of prohibiting, restraining or enjoining the consummation of the
transactions contemplated by this Agreement. No temporary restraining order, preliminary or
permanent injunction, cease and desist order or other order issued by any court or other
Governmental Authority that has the effect of making the transactions contemplated hereby
illegal or otherwise prohibiting consummation of the transfers contemplated hereby or the
consummation of the Closing, or imposing upon FP or FP Holdco material fines or penalties in
respect thereof, shall be in effect as of the Closing Date, and there shall be no pending or
threatened actions or proceedings by any Governmental Authority (or determinations by any
Governmental Authority) challenging or in any manner seeking to prohibit the transfer
contemplated hereby or the consummation of the Closing.
(d) Transaction Documents. Each of Intel, ST and Newco (and each of their
respective Affiliates) shall have executed and delivered to FP and FP Holdco each
Transaction Document, substantially in the form attached hereto, or attached to the form of
Intel Asset Transfer Agreement or ST Asset Contribution Agreement, to which each of them,
respectively, is a party.
(e) Governmental Approvals. The waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated hereby under the HSR Act
shall have expired or been terminated, and any waiting period (and any extension thereof)
under any other applicable similar merger notification laws or regulations of foreign
Governmental Authorities shall have expired or been terminated. Any
Governmental Approvals required under any such laws or regulations in connection with
the consummation of the transactions contemplated hereby shall have been obtained.
35
(f) No Intel Material Adverse Effect. There shall not have occurred since the
date hereof any Intel Material Adverse Effect that is continuing, and Newco shall have
received a certificate signed by a duly authorized executive officer of Intel to the
foregoing effect.
(g) No ST Material Adverse Effect. There shall not have occurred since the
date hereof any ST Material Adverse Effect that is continuing, and Newco shall have received
a certificate signed by a duly authorized executive officer of ST to the foregoing effect.
(h) Audited Financial Statements. Intel shall have delivered to FP the Intel
Business Audited Financial Statements and ST shall have delivered to FP the ST Business
Audited Financial Statements.
(i) Contemplated Financing. The Contemplated Financing shall have been
provided to Newco; provided that the Contemplated Financing does not result in Newco or its
Subsidiaries having more than $1,300,000,000 of aggregate Indebtedness outstanding as of the
Closing.
(j) Dutch Auditors Certificates. Each Party (and its Affiliates), as
applicable, shall have obtained such auditors certificate(s) pursuant to article 2:204b or
2:204c (as applicable) of the Dutch Civil Code as are required to give effect to the
transactions contemplated in this Agreement and the other Transaction Documents.
(k) Minimum Cash. On the Closing Date, following payment by Newco of any fees
and expenses incurred by Newco in connection with the Closing of the Transactions
contemplated hereby, but in any event not including the costs set forth in Section
4.16(d), Newco shall have on hand at least $500,000,000 in Cash and Cash Equivalents.
ARTICLE VI
TERMINATION
6.1 Grounds for Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual written agreement of the Parties;
(b) by written notice from any Party to the other Parties if:
(i) the Closing has not been effected on or prior to the close of business on
the Termination Date; provided, however, that the right to terminate this Agreement
pursuant to this Section 6.1(b)(i) shall not be available to any Party whose
failure to fulfill any of its obligations contained in this Agreement has been the
cause of, or resulted in, the failure of the Closing to have occurred on
or prior to the aforesaid date; provided, further, that if the sole conditions
to Closing in Article V that remain unsatisfied (or unwaived) as of the
aforesaid date are set forth in any of Sections 5.1(e) (Governmental
Approvals), 5.1(f) (Governmental Consents), 5.1(i) (Contemplated
Financing), 5.1(k) (Minimum
36
Cash), 5.2(e) (Governmental Approvals),
5.2(f) (Governmental Consents), 5.2(i) (Contemplated Financing,
5.2(k) (Minimum Cash), 5.3(e) (Governmental Approvals),
5.3(i) (Contemplated Financing), or 5.3(k) (Minimum Cash), provided
that a binding commitment in respect of the Contemplated Financing obtained by one
or more Parties shall be in full force and effect with a term ending no earlier than
February 29, 2008, then any Party may, in its sole discretion and upon written
notice to the other Parties, extend the aforesaid date to a date no later than
February 29, 2008 (and in such event, all references herein to the Termination Date
shall be to such date as so extended); provided, further, that after such
Termination Date (as so extended) any further extension of the term of this
Agreement shall require the consent of each Party;
(ii) any Applicable Law shall be enacted or become applicable that makes the
transactions contemplated hereby or the consummation of any of the Closing illegal
or otherwise prohibited;
(iii) any judgment, injunction, order or decree enjoining any Party hereto from
consummating the transactions contemplated hereby or the Closing is entered, and
such judgment, injunction, order or decree shall become final and nonappealable;
(iv) any other Party is in material breach or material default of any covenant
contained herein or there are any inaccuracies or misrepresentations in another
Partys representations or warranties herein (disregarding any materiality or
Material Adverse Effect qualifications contained in any such representation or
warranty) which have had, or if not cured prior to the Closing Date would have, in
the case of Intel, an Intel Material Adverse Effect, in the case of ST, an ST
Material Adverse Effect, or in the case of FP, an FP Material Adverse Effect , as
the case may be, and such breach or default, shall not be cured or waived within 20
Business Days after written notice is delivered by any of the non-breaching Parties
specifying, in reasonable detail, such claimed material breach or default and
demanding its cure or satisfaction; provided that if it is not reasonably
practicable to cure such breach or default within 20 Business Days but such
breaching Party is using its commercially reasonable efforts to promptly cure, then
such Party shall have an additional 10 Business Days to cure the breach;
(c) by written notice from ST to the other Parties as follows:
(i) if the conditions to the obligations of Intel to close set forth in
Sections 5.1(a) (Performance by ST), 5.1(c) (No Violation),
5.1(e) (Governmental Approvals), 5.1(g) (No ST Material Adverse
Effect) and 5.1(h) (Audited Financial Statements) hereof have been satisfied
as of December 15, 2007, but the condition to the obligation of ST to close set
forth in Section 5.2(f)
(Governmental Consents) has not been satisfied as of such date; then ST may
provide written notice of termination to the other Parties on December 15, 2007
provided that any such written notice from ST (i) shall not be effective until
December 31, 2007 and (ii) shall only become effective on December 31, 2007 if
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(A)
the condition to the obligation of ST to close set forth in Section 5.2(f)
(Governmental Consents) has not been satisfied as of such date and (B) if the
conditions to the obligations of Intel to close set forth in Sections 5.1(a)
(Performance by ST), 5.1(c) (No Violation), 5.1(e) (Governmental
Approvals), 5.1(g) (No ST Material Adverse Effect) and 5.1(h)
(Audited Financial Statements) hereof have been satisfied on December 31, 2007;
(ii) if the Termination Date shall have been extended by any Party to February
29, 2008 in accordance with Section 6.1(b)(i), then ST and Intel shall meet
prior to January 15, 2008 to discuss the next steps to be pursued by Intel, and
unless ST shall have agreed in writing no later than January 15, 2008 to extend the
Governmental Consents Termination Date to February 29, 2008, then ST may provide
written notice of termination to the other Parties on January 15, 2008, provided
that any such written notice from ST (A) shall not be effective until January 31,
2008 and (B) shall only become effective on January 31, 2008 if (1) the condition to
the obligation of ST to close set forth in Section 5.2(f) (Governmental
Consents) has not been satisfied as of such date and (2) if the conditions to the
obligations of Intel to close set forth in Sections 5.1(a) (Performance by
ST), 5.1(c) (No Violation), 5.1(e) (Governmental Approvals),
5.1(g) (No ST Material Adverse Effect) and 5.1(h) (Audited Financial
Statements) hereof have been satisfied on January 31, 2008; or
(iii) if the Termination Date shall have been extended by any Party to February
29, 2008 in accordance with Section 6.1(b)(i) and the conditions to the
obligations of Intel to close set forth in Sections 5.1(a) (Performance by
ST), 5.1(c) (No Violation), 5.1(e) (Governmental Approvals),
5.1(g) (No ST Material Adverse Effect) and 5.1(h) (Audited Financial
Statements) hereof have been satisfied as of February 29, 2008, but the condition to
the obligation of ST to close set forth in Section 5.2(f) (Governmental
Consents) has not been satisfied as of such date, then ST may provide written notice
of termination to the other Parties.
6.2 Effect of Termination.
(a) If this Agreement is terminated pursuant to Section 6.1(a), (b), or
(c), all obligations of the Parties hereunder (except for this Section 6.2,
Section 4.7 (Non-Solicitation of Employees) and Article VII (Miscellaneous))
shall terminate without Liability of any Party to any other Party and the representations
and warranties made herein shall not survive beyond a termination of this Agreement.
Nothing contained in this Section 6.2 shall relieve any Party of Liability for any
breach of any representation, warranty or covenant contained in this Agreement that occurred prior to the date of
termination of this Agreement.
(b) If (i) ST terminates this Agreement pursuant to Section 6.1(c)(i),
(ii) or (iii) or (ii) if (A) the conditions to the obligations of
Intel to close set forth in Sections 5.1(a) (Performance by ST), 5.1(c) (No
Violation), 5.1(e) (Governmental Approvals), 5.1(g) (No ST Material Adverse
Effect) and 5.1(h) (Audited Financial Statements) hereof have
38
been satisfied on
December 31, 2007, (B) the condition to the obligation of ST to close set forth in
Section 5.2(f) has not been satisfied as of December 31, 2007, (C) the Termination
Date has not been extended under Section 6.1(b)(i), and (D) any Party terminates
this Agreement pursuant to Section 6.1(b)(i), then Intel shall pay to ST a fee of
$75,000,000 (the Termination Fee) in immediately available funds no later than
five Business Days after such termination and Intel shall reimburse FP for (1) up to
$2,500,000 of its reasonable costs and expenses actually incurred or accrued by FP in
connection with the transactions contemplated hereby, plus (2) up to $5,000,000 of costs and
expenses actually incurred or accrued by FP or its Affiliates on behalf of Newco, plus (3)
any additional amounts incurred by FP or its Affiliates on behalf of Newco as may be agreed
between Intel, ST and FP, in the cases of clauses (2) and (3), for the services described on
Schedule 7.3 to each of the Master Agreement Disclosure Letters (the amounts set
forth in (1), (2) and (3), collectively, the FP Costs). In the event that ST
terminates this Agreement pursuant to Section 6.1(c)(i), (ii) or (iii), the
Termination Fee and the FP Costs shall be payable by Intel regardless of whether or not any
other Party shall have terminated this Agreement on the same date pursuant to Section
6.1(b)(i).
(c) If any termination of this Agreement prior to Closing is attributable to a willful
breach (i) by Intel of any representation or warranty of Intel contained in this Agreement,
in no event shall the Liability of Intel for such breach to ST exceed $75,000,000 million or
of Intel to FP and FP Holdco, collectively, exceed $7,500,000 million plus any additional
expenses incurred by FP and its Affiliates on behalf of Newco as agreed by Intel, ST and
Newco after the date hereof for services described on Schedule 7.3 to each of the
Master Agreement Disclosure Letters, or (ii) by ST of any representation or warranty of ST
contained in this Agreement, in no event shall the Liability of ST for such breach to Intel
exceed $75,000,000 or of ST to FP and FP Holdco, collectively, exceed $7,500,000 plus any
additional expenses incurred by FP and its Affiliates on behalf of Newco as agreed by Intel,
ST and Newco after the date hereof for services described on Schedule 7.3 to each of
the Master Agreement Disclosure Letters.
(d) Each of the Parties acknowledges that the agreements contained in this Section
6.2 are an integral part of the transactions contemplated by this Agreement and the
other Transaction Documents. In the event that Intel or ST shall fail to pay the
Termination Fee when due, Intel or ST, as the case may be, shall reimburse the other for all
reasonable costs and expenses actually incurred or accrued by the other (including
reasonable fees and expenses of counsel) in connection with the collection under and
enforcement of this Section 6.2.
6.3 Termination of Representations and Warranties and Covenants Upon the Closing. Except as otherwise provided pursuant to the Intel Asset Transfer Agreement and the ST
Asset Contribution Agreement including without limitation Section 5.18 (Master Agreement
Covenants) thereof, the representations and warranties of the Parties contained in Article
III of this Agreement, and the covenants contained in Section 4.9 and Section
4.10 of this Agreement, shall terminate and be of no further force or effect immediately upon
the consummation of the Closing; provided, however that the representations and warranties set
forth in Sections 3.1(a), 3.2(a), and 3.3(a) (Existence and Good Standing),
Sections 3.1(b), 3.2(b) and 3.3(b),
39
(Authorization; Enforceability) and
Sections 3.1(g), 3.2(g), and 3.3(f) (Reliance) shall survive until the
expiration of the applicable statute of limitations.
6.4 Exclusive Remedy. The Parties hereby acknowledge and agree that following the
Closing, no Person other than Newco shall have any rights with respect to any breach of any of the
representations or warranties contained in Article III hereof or the covenants specified in
Section 5.18 (Master Agreement Covenants) of each of the Intel Asset Transfer Agreement and
the ST Asset Contribution Agreement. Newcos sole remedy for any such breach (a) by Intel, shall
be pursuant to Article VI of the Intel Asset Transfer Agreement and (b) by ST, shall be
pursuant to Article VI of the ST Asset Contribution Agreement.
ARTICLE VII
MISCELLANEOUS
7.1 Notices. All notices and other communications pursuant to this Agreement shall be
in writing and shall be deemed given if delivered personally, telecopied, sent by
nationally-recognized overnight courier or mailed by U.S. registered or certified mail (return
receipt requested), postage prepaid, to the Parties at the addresses set forth below or to such
other address as the Party to whom notice is to be given may have furnished to the other Party in
writing in accordance herewith. Any such notice or communication shall be deemed to have been
delivered and received (a) in the case of personal delivery, on the date of such delivery, (b) in
the case of telecopier delivery, on the date sent if confirmation of receipt is received and such
notice is also promptly mailed by registered or certified mail (return receipt requested), (c) in
the case of a nationally-recognized overnight courier in circumstances under which such courier
guarantees next Business Day delivery, on the next Business Day after the date when sent and (d) in
the case of mailing, on the fifth Business Day following that on which the piece of mail containing
such communication is posted to the address provided herein or to such other address as the Person
to whom notice is given may have previously furnished to the others in writing in the manner set
forth above. Any Party hereto may give any notice, request, demand, claim or other communication
hereunder using any other means (including ordinary mail or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly given unless and
until it actually is received by the individual for whom it is intended. Notices to Parties
pursuant to this Agreement shall be given:
(a) to Intel Corporation:
Intel Corporation
2200 Mission College Boulevard
Santa Clara, CA 95054
Attention: Treasurer
Telephone: (408) 765-8080
Facsimile: (408) 765-6038
40
with a copy to:
Intel Corporation
2200 Mission College Boulevard
Santa Clara, CA 95054
Attention: General Counsel
Telephone: (408) 765-8080
Facsimile: (408) 653-8050
and a copy to (which shall not constitute notice to Intel):
Gibson, Dunn & Crutcher LLP
1881 Page Mill Rd.
Palo Alto, CA 94304
Attention: Russell C. Hansen
Telephone: (650) 849-5300
Facsimile: (650) 849-5333
(b) if to STMicroelectronics N.V.:
STMicroelectronics N.V.
Chemin du Champ-des-Filles, 39
1228 Plan-les-Ouates
Geneva, Switzerland
Attention: Pierre Ollivier, Group Vice President and General Counsel
Telephone: 41 22 929 58 76
Facsimile: 41 22 929 59 06
with a copy to (which shall not constitute notice to ST):
STMicroelectronics N.V.
1310 Electronics Drive
Mail Station 2346
Carollton, TX 75006
Attention: Steven K. Rose, Vice President, Secretary and General Counsel
Telephone: (972) 466-6412
Facsimile: (972) 466-7044
and a copy to (which shall not constitute notice to ST):
Shearman & Sterling LLP
525 Market Street
San Francisco, CA 94105
Attention: John D. Wilson
Telephone: (415) 616-1100
Facsimile: (415) 616-1199
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(c) if to FP or FP Holdco:
Francisco Partners
2882 Sand Hill Road
Suite 289
Menlo Park, CA 94025
Attention: David ibnAle
Telephone: (650) 233-2900
Facsimile: (650) 233-2999
with a copy to:
Francisco Partners
40 Berkeley Square
London W1J 5AL
United Kingdom
Attention: Phokion Potamianos
Telephone: 44 0 207 907 8600
Facsimile: 44 0 207 907 8650
and a copy to (which shall not constitute notice to FP and FP Holdco):
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, CA 94025
Attention: William M. Kelly
Martin A. Wellington
Telephone: (650) 752-2000
Facsimile: (650) 752-2112
7.2 Amendments; Waivers.
(a) Any provision of this Agreement or any other Transaction Document may be amended or
waived if, and only if, such amendment or waiver is in writing and signed in the case of an
amendment, by all Parties, or in the case of a waiver, by the Party against whom the waiver
is to be effective.
(b) No waiver by a Party of any default, misrepresentation or breach of a warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation or breach of a warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent occurrence. No
failure or delay by a Party hereto in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided under Applicable Law.
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7.3 Expenses. Except as set forth in (a) Section 5.8(c) of the Intel Asset
Transfer Agreement, (b) Section 5.8(c) of the ST Asset Contribution Agreement and (c)
Schedule 7.3 of each of the Intel Master Agreement Disclosure Letter and the ST Master
Agreement Disclosure Letter, all costs and expenses incurred in connection with this Agreement and
the other Transaction Documents and in closing and carrying out the transactions contemplated
hereby and thereby shall be paid by the Party incurring such cost or expense.
7.4 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors, heirs, personal representatives and
permitted assigns. No Party hereto may transfer or assign either this Agreement or any of its
rights, interests or obligations hereunder, whether directly or indirectly, by operation of law,
merger or otherwise, without the prior written approval of each other Party; provided that each of
FP and FP Holdco may transfer or assign its rights and obligations under this Agreement, in whole
or from time to time in part, to one or more if its Affiliates at any time prior to the Closing;
provided, further, that in the event of any such assignment, any of the terms FP or FP Holdco,
in any Transaction Document, shall apply to any such assignee, mutatis mutandis. No such transfer
or assignment shall relieve
the transferring or assigning Party of its obligations hereunder if such transferee or
assignee does not perform such obligations.
7.5 Governing Law. This Agreement shall be construed in accordance with and this
Agreement and any disputes or controversies related hereto shall be governed by the internal laws
of the State of New York without giving effect to the conflicts of laws principles thereof that
would apply the laws of any other jurisdiction.
7.6 Counterparts; Effectiveness. This Agreement may be signed in any number of
counterparts and the signatures delivered by telecopy, each of which shall be an original, with the
same effect as if the signatures were upon the same instrument and delivered in person. This
Agreement shall become effective when each Party hereto shall have received a counterpart hereof
signed by the other Parties.
7.7 Entire Agreement. This Agreement (including the Schedules and Exhibits referred
to herein, which are hereby incorporated by reference), the other Transaction Documents and the
Confidentiality Agreements constitute the entire agreement between the Parties with respect to the
subject matter hereof and thereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between and among the Parties with respect to the subject
matter of this Agreement. Neither this Agreement nor any provision hereof is intended to confer
upon any Person other than the Parties any rights or remedies hereunder. No representation,
warranty, promise, inducement or statement of intention has been made by either Party that is not
embodied in this Agreement or such other documents, and neither party shall be bound by, or be
liable for, any alleged representation, warranty, promise, inducement or statement of intention not
embodied herein or therein.
7.8 Captions. The captions herein are included for convenience of reference only and
shall be ignored in the construction or interpretation hereof.
7.9 Severability. If any provision of this Agreement, or the application thereof to
any Person, place or circumstance, shall be held by a court of competent jurisdiction to be
invalid,
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unenforceable or void, the remainder of this Agreement and such provisions as applied to
other Persons, places and circumstances shall remain in full force and effect only if, after
excluding the portion deemed to be unenforceable, the remaining terms shall provide for the
consummation of the transactions contemplated hereby in substantially the same manner as originally
set forth at the later of the date this Agreement was executed or last amended.
7.10 Dispute Resolution.
(a) With the exception of disputes involving intellectual property ownership and
infringement issues, any dispute arising under this Agreement shall be finally resolved by
arbitration. The Parties waive their right to any form of appeal to a court on any questions
of law arising out of the arbitration award. Any dispute or claim between the Parties which
is beyond the scope of this Section shall be submitted to the exclusive jurisdiction of the
courts of the State of New York and the Federal courts of the United States of America
located in the State of New York. The Parties hereby consent to and grant any such court
jurisdiction over such Parties and over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action or proceeding in the
manner provided in Section 7.1 or in such other manner as may be permitted by
Applicable Law, shall be valid and sufficient service thereof.
(b) Mediation. Prior to arbitration, however, the Party making the original
claim shall provide the other Party with a written description of the dispute or claim and
the senior executives of the Parties shall meet in an attempt to resolve such dispute or
claim. If the disagreements cannot be resolved by the senior management after 90 days from
the date any Party made a written demand for resolution, a binding arbitration shall be
held.
(c) Arbitration Rules. The rules of the arbitration shall be agreed upon by
the Parties prior to the arbitration and shall be based upon the nature of the disagreement.
To the extent that the Parties cannot agree on the rules of the arbitration after 30 days
from the date any party makes a written demand for resolution, then, subject to Section
7.10(d), the Rules of Arbitration of the ICC in effect as of the Closing Date shall
apply.
(d) Mandatory Rules. As a minimum set of rules in the arbitration the Parties
agree as follows:
(i) The arbitration shall be held by one arbitrator appointed by mutual
agreement of the Parties. If the Parties cannot agree on a single arbitrator within
15 days from the date written demand for arbitration has been received by the other
Party, each Party shall identify one independent individual. The individuals
appointed by the Parties shall then meet to appoint a single arbitrator. If an
arbitrator still cannot be agreed upon within an additional 15 day period, he or she
shall be appointed by the ICC.
(ii) The place of arbitration shall be New York, New York. Hearings and
meetings shall be held in New York or at such other place as the Parties may agree.
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(iii) The English language shall be used in the proceedings. Documents and
written testimonies may be submitted in any language provided that the Party
submitting such documents and testimonies shall provide, at its own expense, a
translation of the same in the English language.
(iv) The arbitrator shall specify the basis for the award, the basis for the
damages award and a breakdown of the damages awarded, and the basis of any other
remedy authorized under this section. The award shall be considered as a final and
binding resolution of the dispute or claim.
(v) The Parties agree to maintain the confidentiality of the arbitral
proceedings, the existence of the same and the status of the hearings. In addition,
the Parties undertake to maintain the confidentiality of any document exchanged in,
produced in, or created by the Parties for the arbitration proceedings as well as
the confidentiality of the award. Notwithstanding the foregoing, if the disclosure
of the arbitral proceedings, or of any of the documents exchanged in, produced in or
created for the arbitration proceedings or if the disclosure of the award is
required by applicable law, rule or regulation or is compelled by a court or
governmental agency, authority or body: (A) the Parties shall use the legitimate and
legal means available to minimize the scope of their disclosure to third parties;
and (B) the Party compelled to make the disclosure shall inform the other Party and
the arbitrator at least 20 Business Days in advance of the disclosure (or if 20
Business Days notice is not practicable because the Party is required to make the
disclosure less than 20 Business Days after becoming aware of the event or
occurrence giving rise to such disclosure requirement, then notice to the other
Party and the arbitrator shall be provided as soon as practicable after such event
or occurrence).
(vi) The duty of the Parties to arbitrate any dispute or claim within the scope
of this Section shall survive the expiration or termination of this Agreement for
any reason. The Parties specifically agree that any action must be brought, if at
all, within two years from discovery of the cause of action.
(vii) The discretion of the arbitrator to fashion remedies shall be no broader
than the legal and equitable remedies available to a court (unless the parties
expressly agree otherwise prior to the start of arbitration). In no event, however,
shall the arbitrator award a remedy which enjoins a Party or its customers to stop
manufacturing, using, marketing, selling, offering for sale, or importing such
Partys products. In addition, notwithstanding anything herein to the contrary, in
no event, shall the arbitrator award a remedy which enjoins a Party to license to
the other Party any of its intellectual property rights of whatever nature. The
arbitrator will have no authority to award damages in excess of compensatory damages
and each Party expressly waives and foregoes any right to punitive, exemplary or
similar damages, except as such damages may be required by statute. In no event
shall the amount of damages awarded to the prevailing Party exceed or otherwise be
inconsistent with any of the applicable
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limitations on damages set forth in this
Agreement, including Sections 6.2 and 6.4.
(viii) The arbitrator may not order any conservatory or interim relief measures
of any kind. In any event, however, either Party may apply for conservatory or
interim relief measures to the courts of the State of New York or
the Federal courts of the United States of America located in the State of New
York which shall have exclusive jurisdiction to grant such injunctive relief.
(ix) The Parties shall agree upon what, if any, disclosure to the other parties
to the arbitration shall be permitted. If the Parties can not agree on the form of
disclosure within 30 days after the appointment of the arbitrator, then the Parties
agree that in addition to the Rules of Arbitration of the ICC, the arbitrators shall
apply the IBA Rules of Evidence. In case of conflict between Rules of Arbitration of
the ICC and the IBA Rules of evidence, the Rules of Arbitration of the ICC shall
prevail. Notwithstanding anything herein to the contrary, in no event shall anything
verbally or in writing used strictly for settlement purposes between the Parties be
permitted by the arbitration to be used as evidence for either Partys case.
(x) The Parties shall equally bear the costs of the arbitration. Each Party
shall bear the fees and expenses of its appointed experts and shall bear its own
legal expenses. For the purpose of this clause, the term costs of arbitration
includes only: (A) the fees and expenses of the arbitrator; (B) in the case of an
arbitration governed by the ICC Rules, the ICC administrative expenses fixed by the
Court of Arbitration of the ICC; (C) the fees and expenses of any experts appointed
by the arbitrator.
7.11 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (a) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVER, (b) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (c) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (d) EACH SUCH
PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND
CERTIFICATIONS IN THIS SECTION 7.11.
7.12 Third Party Beneficiaries. Effective on the Closing Date, Newco shall be deemed
a third party beneficiary of the covenants set forth in the Sections referenced in Section
5.18 (Master Agreement Covenants) of each of the Intel Asset Transfer Agreement and ST Asset
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Contribution Agreement. No provision of this Agreement shall create any third party beneficiary
rights in any other Person, including
any employee or former employee of Intel or ST or any of their respective Affiliates
(including any beneficiary or dependent thereof).
7.13 Specific Performance. The Parties hereby acknowledge and agree that the failure
of any Party to perform its agreements and covenants hereunder, including its failure to take all
actions as are necessary on its part to the consummation of the transactions contemplated herein,
may cause irreparable injury to the other Party, for which damages, even if available, may not be
an adequate remedy. Accordingly, each Party hereby consents to the issuance of injunctive relief
by any court of competent jurisdiction to compel performance of such Partys obligations and to the
granting by any court of the remedy of specific performance of its obligations hereunder.
7.14 No Presumption Against Drafting Party. Intel, ST, FP and FP Holdco acknowledge
that each of the Parties hereto has been represented by counsel in connection with the negotiation
and execution of this Agreement and the other Transaction Documents. Accordingly, any rule of law
or any legal decision that would require interpretation of any claimed ambiguities in this
Agreement against the drafting party has no application and is expressly waived.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date first above
written.
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INTEL CORPORATION
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STMICROELECTRONICS N.V.
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[Signature page to Master Agreement]
FRANCISCO PARTNERS II (CAYMAN) L.P.
By: FRANCISCO PARTNERS GP II (CAYMAN) L.P., its
General Partner
By: FRANCISCO PARTNERS GP II MANAGEMENT (CAYMAN)
Limited, its General Partner
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REDWOOD BLOCKER S.A.R.L.
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[Signature page to Master Agreement]
APPENDIX A
TO MASTER AGREEMENT
Affiliate, with respect to any Person, means any other Person directly or indirectly
controlling, controlled by or under common control with, such Person. For purposes of this
definition, control (including, with correlative meanings, the terms controlling, controlled
by or under common control with), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or by contract or
otherwise.
Agreement has the meaning set forth in the introduction to this Agreement.
Applicable Law means, with respect to any Person, any federal, state, local or
foreign statute, law, ordinance, rule, administrative interpretation, regulation, order, writ,
injunction, directive, judgment, decree or other requirement of any Governmental Authority
applicable to such Person or any of its Affiliates or any of their respective properties, assets,
officers, directors, employees, consultants or agents.
Articles of Association means the Articles of Association of Newco, in substantially
the form attached to Schedule 2.4 of both of the Master Agreement Disclosure Letters, as
amended from time to time.
Bank Guarantee shall have the meaning set forth in Section 5.11(g) of the ST
Asset Contribution Agreement.
Business means the Intel Business or the ST Business, as applicable.
Business Day means each day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York or Geneva, Switzerland are authorized or required by law to
close.
Cash and Cash Equivalents means all cash on hand and cash equivalents of a Person
(whether or not related to the applicable Business), including currency and coins, negotiable
checks, bank accounts, marketable securities, commercial paper, certificates of deposit, treasury
bills, surety bonds and money market funds.
Claims means all rights to causes of action, claims, demands, rights and privileges
against third parties, whether liquidated or unliquidated, fixed or contingent, choate or inchoate.
Closing shall have the meaning set forth in Section 2.5 of this Agreement.
Closing Date means the date of the Closing, as further described in Section
2.5 of this Agreement.
Commitment Letter means that certain Senior Secured Credit Facilities Commitment
Letter dated May 22, 2007 by and between Goldman Sachs Credit Partners L.P., JP Morgan
Chase Bank, N.A., J.P. Morgan Securities Inc., Merrill Lynch Capital Corporation, Francisco
Partners (Cayman) II, L.P., Intel Corporation and STMicroelectronics NV.
Competition Law means the Sherman Antitrust Act of 1890, the Clayton Act of 1914,
the HSR Act, the Federal Trade Commission Act, and all other domestic or foreign Applicable Laws
passed by a domestic or foreign Governmental Authority that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or restraint of trade
or lessening of competition through merger or acquisition.
Confidential Information means any (i) information in tangible form that bears a
confidential, proprietary, secret or similar legend, including the Intel Transferred Trade
Secrets set forth on Schedule 2.1(h) of the Intel ATA Disclosure Letter, the Intel Retained
Trade Secrets, the ST Transferred Trade Secrets set forth on Schedule 2.1(h) to the ST ACA
Disclosure Letter, the ST Retained Trade Secrets, any books and records of any Party, and any other
confidential information disclosed by any Party to any other Party(ies) in connection with the
negotiation, evaluation and implementation of the Transaction Documents, including any information
disclosed on the ST ACA Disclosure Letter or the Intel ATA Disclosure Letter and any information
provided pursuant to Section 4.1 of this Agreement; (ii) information that a Party observes
or perceives by inspection of tangible objects (including without limitation documents, prototypes,
or samples) or otherwise while present at another Partys facilities or any other location
at which tangible objects embodying another Partys Confidential Information is accessible; and
(iii) any information to which a Party receives access as a result of the relationship of the
Parties or such Partys performance under a Transaction Document. Each Party will make a
reasonable good faith effort to identify as confidential or the like the information in tangible
form that it wishes to be treated as Confidential Information pursuant to this Agreement, but a
Partys failure to so mark any such information shall not relieve a Receiving Party of its
obligations under this Agreement. Notwithstanding the foregoing, Confidential
Information does not include: (x) any information that is or has become generally available to
the public other than as a result of a disclosure by the Receiving Party or any Affiliate thereof
in breach of any of the provisions of the Confidentiality Agreement or any other similar contract
to which the Receiving Party, or any Affiliate thereof is bound; (y) any information that has been
independently developed by the Receiving Party (or any Affiliate thereof) without violating any of
the provisions of the Confidentiality Agreement or any other similar contract to which the
Receiving Party, or any Affiliate thereof is bound; or (z) any information made available to the
Receiving Party (or any Affiliate thereof) on a non-confidential basis by any third party who is
not prohibited from disclosing such information to the Receiving Party by a legal, contractual or
fiduciary obligation.
Confidentiality Agreement means that certain Confidentiality Agreement among Intel,
ST and FP dated as of May 22, 2007.
Consolidation means either the FP Consolidation or a transaction undertaken by an
Intel Affiliate or ST Affiliate pursuant to the last sentence of Section 6.9 of the
Shareholders Agreement.
Contemplated Financing means either of: (i) the debt financing pursuant to the
Commitment Letter; or (ii) substitute debt financing on substantially equivalent economic terms
4
that is adequate to provide working capital requirements and funds for other general corporate
purposes of Newco and its Subsidiaries following the Closing.
Contract means each contract, agreement, option, lease, license, cross-license, sale
and purchase order, commitment and other instrument of any kind, whether written or oral.
Control has the meaning such that a Person (or group of related Persons) exercises
Control over a Party when such Person or group owns or controls (either directly or indirectly) any
of the following: (a) if the Party issues voting stock or other voting securities, more than 50% of
the outstanding stock or securities entitled to vote for the election of directors or similar
managing authority; or (b) if such Party does not issue voting stock or other voting securities,
more than 50% of the ownership interest that represents the right to make decisions for such Party;
or (c) any other ability to elect more than half of the board of directors or similar managing
authority of the subject Party, whether by contract or otherwise.
Copyrights means copyrights and mask work rights (whether or not registered) and
registrations and applications therefor, worldwide.
Determination Date shall have the meaning set forth in Section 4.12(a) of
this Agreement.
Disclosure Letters means the Intel ATA Disclosure Letter, the ST ACA Disclosure
Letter, the Intel Master Agreement Disclosure Letter and the ST Master Agreement Disclosure Letter.
Effective Time means, unless otherwise agreed by the Parties, 12:01 a.m. GMT on the
Closing Date.
Embedded PCM Product means an Integrated Circuit that is comprised of a PCM Product
and a microcontroller, processor or other non-memory device.
Environmental Consultants means one or more third-party environmental consultants
with expertise in the relevant jurisdictions.
Environmental Laws means any Applicable Laws of any Governmental Authority in effect
as of the Closing Date, unless otherwise noted, relating to pollution, protection or remediation of
the environment, the use, storage, treatment, generation, manufacture, distribution,
transportation, processing, handling, Release, disposal of or exposure to Hazardous Substances or,
as such relate to Hazardous Substances, public and occupational health and safety.
Environmental Liability means any Liability or Loss, including the cost of any
Remedial Action, arising in connection with (i) the use, generation, storage, treatment,
manufacture, distribution, transportation, processing, handling, disposal or Release of any
Hazardous Substances, (ii) the violation of or liability under any Environmental Laws or any
Governmental Approval relating to any Hazardous Substances or (iii) any third party claim,
litigation or proceeding relating to any Hazardous Substance or Environmental Laws.
5
Environmental Permits means all permits, licenses or other authorizations of any
Governmental Authority required pursuant to applicable Environmental Law.
Equity Plan means an equity compensation plan for Newco, with terms reasonably
satisfactory to Newco, Intel, ST, and FP, pursuant to which no more than 6% of the outstanding
share capital of Newco at the Closing Date shall be reserved for issuance.
Exchange Act means the United States Securities Exchange Act of 1934.
Fab 18 means the facilities described in the Facility Transfer Term Sheet for the
Lachish Facility, Israel that are contemplated to be transferred by Intel or any Subsidiary of
Intel to Newco at the Closing and any Intel Transferred Assets located on such premises.
Flash Memory Integrated Circuit means a non-volatile memory integrated circuit that
contains memory cells that are electrically programmable and electrically erasable whereby the
memory cells consist of one or more transistors that have a floating gate, charge-trapping regions
or any other functionally equivalent structure utilizing one or more different charge levels
(including binary or multi-level cell structures) with or without any on-chip control, I/O and
other support circuitry.
FP has the meaning set forth in the introduction to this Agreement.
FP Consolidation shall have the meaning set forth in Section 6.9 of the
Shareholders Agreement.
FP Costs shall have the meaning set forth in Section 6.2(b) of this
Agreement.
FP Holdco has the meaning set forth in the introduction to this Agreement.
FP Material Adverse Effect means any event, change or circumstance that,
individually or in the aggregate with all other such events, changes or circumstances, that is
materially adverse to the ability of FP or FP Holdco to perform its obligations under any
Transaction Document to which it is or will be a party or to consummate the transactions
contemplated thereby.
FP Newco Shares shall have the meaning set forth in Section 2.1 of the Share
Purchase Agreement.
GAAP means generally accepted accounting principles in the United States of America,
applied on a consistent basis, as in effect as of the date hereof.
Governmental Approval means an authorization, consent, approval, permit or license
issued by, or a registration or filing with, or notice to, or waiver from, any Governmental
Authority.
Governmental Authority means any United States or non-United States federal,
territorial, state or local governmental authority, quasi-governmental authority, instrumentality,
court, government or self-regulatory organization, commission, tribunal or organization or any
6
regulatory, administrative or other agency, or any political or other subdivision, department
or branch of any of the foregoing.
Governmental Consents Termination Date means December 31, 2007 subject to extension
as provided in Article VI of this Agreement.
Hazardous Substance shall mean any hazardous substance within the meaning of Section
101(14) of the United States Comprehensive Environmental Response, Compensation and Liability Act
of 1980, 42 U.S.C. § 9601(14), and any chemical, substance, material, agent or waste defined or
regulated as toxic, hazardous, extremely hazardous or radioactive, or as a pollutant or
contaminant, under any applicable Environmental Law, including petroleum, petroleum derivatives,
petroleum by-products or other hydrocarbons, asbestos or asbestos-containing material and
polychlorinated biphenyls.
HSR Act means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder.
Hynix JV means Hynix-ST Semiconductor Ltd., a wholly foreign-owned entity
established under the laws of the Peoples Republic of China.
Hynix JV Junior Credit Agreement means the US$250,000,000 Facility Agreement, dated
August 24, 2006, among the Hynix JV, as borrower, and DBS Bank Ltd. as arranger and original
lender, agent and security agent.
IBA Rules of Evidence means the IBA Rules on the Taking of Evidence in International
Commercial Arbitration.
ICC means the International Chamber of Commerce.
Indebtedness means any (i) indebtedness for borrowed money, (ii) indebtedness
evidenced by any bond, debenture, note, mortgage, indenture or other debt instrument or debt
security, or (iii) guarantees with respect to any indebtedness or obligation of a type described in
clauses (i) through (ii) above of any other Person.
Indemnified Persons has the meaning set forth in Section 4.16(d) of this
Agreement.
Indemnitee shall (i) for purposes of the Intel Asset Transfer Agreement, have the
meaning set forth in Section 6.2(c) of the Intel Asset Transfer Agreement, and (ii) for
purposes of the ST Asset Contribution Agreement, have the meaning set forth in Section
6.2(c) of the ST Asset Contribution Agreement.
Indemnitor shall (i) for purposes of the Intel Asset Transfer Agreement, have the
meaning set forth in Section 6.2(c) of the Intel Asset Transfer Agreement, and (ii) for
purposes of the ST Asset Contribution Agreement, have the meaning set forth in Section
6.2(c) of the ST Asset Contribution Agreement.
Integrated Circuit means an integrated unit comprising one or more active and/or
passive circuit elements associated on one or more substrates, such unit forming, or contributing
7
to the formation of, a circuit for performing electrical functions (including, if provided
therewith, housing and/or supporting means).
Intel has the meaning set forth in the introduction to this Agreement.
Intel Ancillary Agreements means the Intel Assignment and Assumption Agreements,
Intel Bills of Sale, Intel Intellectual Property Agreement, Intel Transition Services Agreements,
Intel Facility Transfer Agreements, Intel Joint Development Agreement, Intel Supply Agreements,
Intel Assumption of Excluded Liabilities, Intel Copyright Assignment, Intel Patent Assignment and
Intel Trademark Assignment.
Intel Approvals means the required consents, waivers and approvals of Intel set
forth on Schedule 3.3 of the Intel ATA Disclosure Letter and Schedule 3.1(c) of the
Intel Master Agreement Disclosure Letter.
Intel Architecture Emulators means software, firmware, or hardware that, through
emulation, simulation or any other process, allows a computer that does not contain an Intel
Compatible Processor (or a Processor that is not an Intel Compatible Processor) to execute binary
code that is capable of being executed on an Intel Compatible Processor.
Intel Asset Transfer Agreement means that certain Asset Transfer Agreement to be
entered into by Intel and Newco as of the Closing Date, in substantially the form attached to
Schedule 2.1 to the Intel Master Agreement Disclosure Letter.
Intel Assignment and Assumption Agreement means, collectively, the Assignment and
Assumption Agreements to be entered into by Newco or its Affiliates, on one hand, and Intel or its
Affiliates, on the other hand, as of the Closing Date, in substantially the form attached as
Exhibit A to the Intel Asset Transfer Agreement.
Intel Assumption of Excluded Liabilities shall have the meaning set forth in
Section 2.4 of the Intel Asset Transfer Agreement.
Intel ATA Disclosure Letter means the disclosure letter, as agreed to between the
Parties as of the date of the Master Agreement (with such amendments or new schedules as may be
subsequently made pursuant to Section 4.12 of this Agreement), containing the Schedules
required by the provisions of such agreement.
Intel Bill of Sale means any bill of sale or other similar document reasonably
requested by any Party and reasonably necessary to transfer any Intel Transferred Asset in
accordance with applicable law to be executed by one or more Intel Transferors in favor of Newco or
a Subsidiary of Newco as of the Closing Date, each in substantially the form attached as
Exhibit B to the Intel Asset Transfer Agreement.
Intel Books and Records means all of the books of account, general and financial
records, invoices, shipping records, customer records, supplier lists, correspondence and other
documents, records and files of Intel and its Subsidiaries whether in hard copy or computer format
which relate exclusively to the Intel Business and are necessary for the conduct of such Intel
Business after the Closing (excluding all personnel records or any employee information for
8
Intel Business Employees who are not Intel Transferred Employees employed by an Intel
Transferred Entity as of the Closing Date).
Intel Bus means a proprietary bus or other proprietary data path first introduced by
Intel or any Intel Licensed Subsidiary that (i) is capable of transmitting and/or receiving
information within an Integrated Circuit or between two or more Integrated Circuits, together with
the set of protocols defining the electrical, physical, timing and functional characteristics,
sequences and control procedures of such bus or data path; and (ii) to which neither Intel nor any
Intel Licensed Subsidiary (during any time such Intel Licensed Subsidiary has met the requirements
of being a Licensed Subsidiary) has granted a license or committed to grant a license through its
participation in a government sponsored, industry sponsored, or contractually formed group or any
similar organization that is dedicated to creating publicly available standards or specifications;
and (iii) which neither Intel nor any Intel Licensed Subsidiary (during any time such Intel
Licensed Subsidiary has met the requirements of being a Licensed Subsidiary) has publicly disclosed
without an obligation of confidentiality.
Intel Business means the sale, manufacture, design and or development of NOR Flash
Memory Products, Phase Change Memory technology (subject to Schedule 2.2(o) to the Intel
ATA Disclosure Letter), and Stacked Memory Products.
Intel Business Audited Financial Statements shall have the meaning set forth in
Section 5.2(h) of this Agreement.
Intel Business Capital Expenditures Plan means the plan set forth on Schedule
3.14(e) of the Intel ATA Disclosure Letter setting forth (i) the actual capital expenditures of
Intel with respect to the Intel Business for its first fiscal quarter of 2007; and (ii) the
budgeted capital expenditures of Intel with respect to the Intel Business for the second, third and
fourth fiscal quarters of 2007.
Intel Business Employees means the employees who are identified on Schedule
3.12(c) of the Intel ATA Disclosure Letter.
Intel Compatible Chipsets means one or more Integrated Circuits that alone or
together are capable of electrically interfacing directly (with or without buffering or pin
reassignment) with an Intel Compatible Processor to form the connection between the Intel
Compatible Processor and any other device (or group of devices) including Processors, input/output
devices, and networks; provided that an Integrated Circuit that functions primarily as a memory
storage device shall not be deemed to be an Intel Compatible Chipset.
Intel Compatible Compilers means a compiler that generates object code that can,
without any additional processing other than linkage processing, be executed on any Intel
Processor.
Intel Compatible Processors means any Processor that (i) can perform substantially
the same functions as an Intel Processor by compatibly executing or otherwise processing (A) 50% or
more of the instruction set of an Intel Processor or (B) binary code versions of applications or
other software targeted to run on or with an Intel Processor, in order to achieve substantially the
same result as an Intel Processor; or (ii) is substantially compatible with an Intel Processor Bus.
9
Intel Contract means any Contract of Intel or its Subsidiaries.
Intel Contractual Consents shall have the meaning set forth in Section
3.8(b) of the Intel Asset Transfer Agreement.
Intel Copyright Assignment means any agreement for the assignment of Intel
Transferred Copyrights by an Intel Transferor to Newco or a Subsidiary of Newco, dated as of the
Closing Date, in the form agreed among Intel, ST and FP.
Intel Environmental Reports means reports or audits prepared by the Environmental
Consultants summarizing the results of Phase I, Phase II and environmental compliance audits
regarding the Owned Intel Real Property, the Leased Intel Real Property and any property that is
the subject of an Intel Lease, which shall be reasonably satisfactory to FP and ST in form and
substance, and paid for by ST. At the request of Newco, Intel shall review the Intel Environmental
Reports and confirm that all Environmental Liabilities identified in such reports are sufficiently
identified as to scope as that term is used in clause (iii) of the definition of Intel Pre-Closing
Environmental Liability. If Intel believes the issues are not sufficiently identified, Intel must
pay for the additional investigation to further characterize the Environmental Liability sufficient
to meet the criteria in clause (iii) of the definition of Intel Pre-Closing Environmental
Liability.
Intel Excluded Employees shall have the meaning set forth in Section 4.11(b)
of this Agreement.
Intel Facility Transfer Agreements means the Intel Facility Transfer Agreements to
be entered into by and between Intel and Newco on the Closing Date, based on the terms and
conditions set forth in the Intel Facility Transfer Term Sheets.
Intel Facility Transfer Term Sheets means the term sheets attached to Schedule
4.22(a) to the Intel Master Agreement Disclosure Letter reflecting the terms and conditions
upon which the agreements and other related documents effecting the transfer by Intel and its
Subsidiaries of the Intel Transferred Facilities to Newco and its Subsidiaries shall be
substantially based.
Intel Intellectual Property Agreement means the Intellectual Property Agreement to
be entered into by and between Intel and Newco on the Closing Date, in substantially the form
attached to Schedule 2.1 of the Intel Master Agreement Disclosure Letter.
Intel Joint Development Agreement means the Joint Development Agreement by and
between Intel and Newco to be entered into on the Closing Date, in substantially the form attached
to the Schedule 2.1 of the Intel Master Agreement Disclosure Letter.
Intel Leases means all leases or other occupancy agreements pursuant to which Intel
or its Subsidiaries lease or occupy the Leased Intel Real Property.
Intel Master Agreement Disclosure Letter means the disclosure letter, as delivered
by Intel to ST and FP as of the date of the Master Agreement (with such amendments as may be
subsequently made pursuant to the terms of such agreement), containing the Schedules required by
the provisions of such agreement.
10
Intel Material Adverse Effect means any event, change or circumstance that,
individually or in the aggregate with all other such events, changes or circumstances, (i) results
in a material adverse effect on, or material adverse change in, the Intel Transferred Assets, taken
as a whole, or (ii) any event, change or circumstance that is materially adverse to the ability of
Intel to perform its obligations under any Transaction Document to which it is or will be a party
or to consummate the transactions contemplated thereby, other than, in the case of clause (i)
above, such changes, effects or circumstances reasonably attributable to: (A) economic, capital
market or political conditions generally in the United States or foreign economies in any locations
where the Intel Business has material operations or sales, provided the changes, effects or
circumstances do not have a materially disproportionate effect (relative to other industry
participants) on the Intel Business, (B) conditions generally affecting the industry in which the
Intel Business operates, provided that the changes, effects or circumstances do not have a
materially disproportionate effect (relative to other industry participants) on the Intel Business;
(C) the announcement or pendency of the transactions contemplated by the Transaction Documents; (D)
outbreak of hostilities or war, acts of terrorism or acts of God; or (E) compliance with Intels
obligations or the satisfaction of the conditions to the closing of the transactions contemplated
by the Transaction Documents.
Intel Newco Shares shall have the meaning set forth in Section 2.6(a) of the
Intel Asset Transfer Agreement.
Intel Option means that certain Option to Purchase Ordinary Shares to be entered
into between Newco and Intel or one or more of Intels Affiliate(s), in substantially the form
attached to Schedule 4.16(d) of the Intel Master Agreement Disclosure Letter.
Intel Patent Assignment means any agreement for the assignment of Intel Transferred
Patents by an Intel Transferor to Newco or a Subsidiary of Newco, dated as of the Closing Date, in
the form agreed among Intel, ST and FP.
Intel Post-Closing Environmental Liability shall mean any Environmental Liability,
including a worsening of existing conditions, to the extent arising out of or relating to (i)
Newcos acts occurring after the Closing Date, (ii) Newcos inaction occurring one year or later
after the Closing Date, or (iii) Newcos inaction occurring within one year after the Closing Date
if Newco knew about the existing condition and its inaction worsened the existing condition; and in
connection with a Newco Business or the Intel Business, the Owned Intel Real Property, the Leased
Intel Real Property, the Intel Transferred Assets or the Intel Transferred Entities or the
ownership or operation of a Newco Business or the Intel Business, the Owned Intel Real Property,
the Leased Intel Real Property or the Intel Transferred Assets, the Intel Transferred Entities by,
or the disposal or treatment of Hazardous Substances generated by, Newco or an Affiliate of Newco
(including an Intel Transferred Entity) after the Closing Date.
Intel Pre-Closing Environmental Liability shall mean any Environmental Liability
which (i) relates to the ownership or operation of the Intel Business (as now or previously
conducted), the Owned Intel Real Property, the Leased Intel Real Property, the Intel Transferred
Assets, the Intel Transferred Entities, the Intel Shared Facilities or any other real property or
facility owned, leased, operated or used in connection with the Intel Business (as now or
previously conducted) or for the disposal or treatment of Hazardous Substances generated in
11
connection with the Intel Business, the Owned Intel Real Property, the Leased Intel Real
Property, the Intel Transferred Assets, or the Intel Transferred Entities, (ii) arises out of or
relates to acts occurring or conditions existing on or prior to the Closing Date, but only to the
extent that the Environmental Liability arising out of or relating to acts occurring or conditions
existing on or prior to the Closing Date can be identified from (A) the Intel Environmental Reports
so long as such reports are issued not later than one year subsequent to the Closing or (B)
documents or data generated prior to the Closing and in the possession of Intel prior to the
Closing, and (iii) is identified in the foregoing documents and/or data with sufficient specificity
so as to clearly identify the scope of the Environmental Liability that is attributable to the
Intel Business, the Owned Intel Real Property, the Leased Intel Real Property, the Intel
Transferred Assets, or the Intel Transferred Entities. Notwithstanding the foregoing, Intel
Pre-Closing Environmental Liability shall not include any Intel Post-Closing Environmental
Liability.
Intel Processor means a Processor first developed by, for or with substantial
participation by Intel or any Intel Licensed Subsidiary, or the design of which has been purchased
or otherwise acquired by Intel or any Intel Licensed Subsidiary, including the Intel®
8086, 80186, 80286, 80386, 80486, Celeron®, Core, Pentium®,
Xeon, StrongARM, XScale®, Itanium®, MXP, IXP, 80860 and 80960
microprocessor families, and the 8087, 80287, and 80387 math coprocessor families.
Intel Processor Bus means an Intel Bus that is capable of connecting one or more
Intel Processors to each other or to an Intel Compatible Chipset.
Intel Products means all NOR Flash Memory Products and all Stacked Memory Products,
manufactured, sold, or under development by Intel as of the Effective Date, including those listed
on Schedule 1.1(c) of the Intel ATA Disclosure Letter.
Intel Proprietary Product means Intel Compatible Processors, Intel Architecture
Emulators, Intel Compatible Compilers, any product that implements an Intel Processor Bus, and
Intel Compatible Chipsets.
Intel Real Property means all real property, leaseholds and other interests in real
property owned or leased by Intel or its Subsidiaries and used or held for use exclusively in the
Intel Business, including all real property identified in Schedule 3.6 of the Intel ATA
Disclosure Letter, together in each case with Intels or its Subsidiarys right, title and interest
in and to all structures, facilities or improvements currently or as of the Closing Date located
thereon and all easements, licenses, rights and appurtenances relating to the foregoing.
Intel Restricted Employees shall have the meaning set forth in Section
4.7(a) of this Agreement.
Intel Retained Trade Secrets means trade secrets, know-how and other proprietary
information owned by Intel or any Licensed Subsidiary thereof as of the Closing Date and not
included in the Intel Transferred Trade Secrets that are or have been used by Intel in connection
with the Intel Business.
12
Intel Supply Agreement means the Supply Agreement identified on Schedule 2.1
of both of the Master Agreement Disclosure Letters to be entered into by and between Intel and
Newco on the Closing Date, in substantially the form attached to such schedule.
Intel Trademark Assignment means any agreement for the assignment of Intel
Transferred Trademarks by an ST Transferor to Newco or a Subsidiary of Newco, dated as of the
Closing Date, in the form agreed among Intel, ST and FP.
Intel Transferors shall have the meaning set forth in the Recitals of the Intel
Asset Transfer Agreement.
Intel Transferred Assets shall have the meaning set forth in Section 2.1 of
the Intel Asset Transfer Agreement.
Intel Transferred Contracts means all unexpired contracts set forth on Schedule
2.1(e) of the Intel ATA Disclosure Letter, together with the Intel Transferred Purchase Orders,
the Intel Transferred Sales Orders and the Intel Leases.
Intel Transferred Copyrights means the Copyrights identified on Schedule
2.1(i) of the Intel ATA Disclosure Letter.
Intel Transferred Employees means the Intel Business Employees who accept an offer
of employment from Newco and who begin their employment with Newco at the Closing (or, to the
extent permitted by Applicable Law with respect to inactive employees on short-term, medical or
other leave of absence, at the time such employee returns to active status) or such other date as
the parties may reasonably agree.
Intel Transferred Entity Books and Records means the minute books, stock records,
Tax Returns and other records related to Taxes, if any, in each case of each of the Intel
Transferred Entities
Intel Transferred Intellectual Property means, collectively, the Intel Transferred
Copyrights, Intel Transferred Patents, Intel Transferred Trademarks and Intel Transferred Trade
Secrets.
Intel Transferred Interests means 100% of the outstanding equity, voting and profit
interests in the Intel Transferred Entities.
Intel Transferred Liabilities shall have the meaning set forth in Section
2.3 of the Intel Asset Transfer Agreement.
Intel Transferred Patents means those Patents identified on Schedule 2.1(h)
of the Intel ATA Disclosure Letter.
Intel Transferred Permits means those Permits identified on Schedule 2.1(l)
of the Intel ATA Disclosure Letter.
13
Intel Transferred Sales Orders means all pending and unfulfilled sales orders or
portions thereof for Intel Products.
Intel Transferred Trade Secrets means any Trade Secrets owned by Intel or any of its
Subsidiaries as of the Closing Date (including any such Trade Secrets that consist of technical
documentation of the nature of the files and other documentation identified on Schedule
2.1(h) to the Intel ATA Disclosure Letter) that are used exclusively in the Intel Business and
not materially embodied or used in or with any other current product or service of Intel or any of
its Subsidiaries.
Intel Transferred Trademarks means those Trademarks identified on Schedule
2.1(k) of the Intel ATA Disclosure Letter.
Intel Transition Services Agreement means the Intel Transition Services Agreement
identified on Schedule 2.1 of both of the Master Agreement Disclosure Letters to be entered
into by and between Intel and Newco on the Closing Date, in substantially the form attached to such
schedule.
Intellectual Property means intellectual property rights arising from or in respect
of the following, whether protected, created or arising under the laws of the United States or any
other jurisdiction: Copyrights, Trade Secrets, Patents and Trademarks.
Italian Newco means the entity that will be formed in Italy prior to the Closing
Date in connection with the demerger of assets and liabilities of the ST Business from
STMicroelectronics S.r.l. and which will operate certain Italian assets of the ST Business
following the Closing.
Knowledge means, with respect to any Person, the actual knowledge of such Person.
Notwithstanding the foregoing, with respect to any Person that is a corporation, limited liability
company, partnership or other business entity, actual knowledge shall be deemed to mean the actual
knowledge of all directors and officers of any such Person; provided, however, that (i) with
respect to Intel, Knowledge shall be deemed to be solely the actual knowledge of the individuals
identified in Section A of Schedule 1.1(b) of the Intel ATA Disclosure Letter, after
obtaining from the individuals identified in Section B of Schedule 1.1(b) of the Intel
ATA Disclosure Letter a certification as to their actual knowledge of each matter with
respect to which Intel makes any representation or warranty as to its Knowledge under any
Transaction Document, (ii) with respect to ST, Knowledge shall be deemed to be solely the actual
knowledge of the individuals identified on Schedule 1.1(b) of the ST ACA Disclosure Letter,
after obtaining from the individuals identified on Schedule 1.1(b) of the ST ACA Disclosure
Letter a certification as to their actual knowledge of each matter with respect to which ST makes
any representation or warranty as to its Knowledge under any Transaction Document, and (iii) with
respect to FP, Knowledge shall be deemed to be solely the actual knowledge of David ibnAle,
Phokion Potamianos, and Keith Toh.
Leased Intel Real Property means the Intel Real Property listed in Schedule
3.6(b) of the Intel ATA Disclosure Letter.
14
Leased ST Real Property means the ST Real Property listed in Schedule 3.6(b)
of the ST ACA Disclosure Letter.
Letters of Approval means the Letters of Approval dated December 7, 2005 and the
Letter of Approval dated September 17, 1996, in each case, issued to Intel Electronics Ltd. by the
Investment Center pursuant to the Israel Law for the Encouragement of Capital Investments, 1959.
Liability means, with respect to any Person, any liability or obligation of such
Person of any kind, character or description, whether known or unknown, absolute or contingent,
asserted or unasserted, accrued or unaccrued, liquidated or unliquidated, secured or unsecured,
joint or several, due or to become due, vested or unvested, absolute, contingent, executory,
determined, determinable or otherwise and whether or not the same is required to be accrued on the
financial statements of such Person.
Licensed Subsidiary means any corporation, partnership, joint venture, limited
liability company or other entity recognized in any jurisdiction in the world, now or hereafter, in
which Intel, ST or Newco, as the case may be, owns or controls (either directly or indirectly) any
of the following:
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(i) |
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if such entity has voting shares or stock or other voting securities, more than
50% of the outstanding shares or stock or securities entitled to vote for the election
of directors or similar managing authority; or |
|
|
(ii) |
|
if such entity does not have voting shares or stock or other voting securities,
more than 50% of the ownership interest that represents the right to make decisions for
such entity; or |
|
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(iii) |
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any other ability to elect more than half of the board of directors or similar
managing authority of the subject entity, whether by contract or otherwise. |
An entity shall be deemed to be a Licensed Subsidiary under this Agreement only so long as the
Party (Newco, Intel or ST, as the case may be) owning or controlling the shares, stock, securities
or other ownership interest required above has not contractually or otherwise surrendered, limited
or in any other way constrained its authority to elect the managing authority or make decisions for
the entity, and only so long as all the requisite conditions of being a Licensed Subsidiary are
met. For clarity, any event causing a Person that was once a Licensed Subsidiary to no longer meet
the requisite conditions of being a Licensed Subsidiary as set forth in this Section, shall render
such Person to be no longer a Licensed Subsidiary.
Lien means, with respect to any asset, any lien, mortgage, pledge, hypothecation,
right of others, claim, security interest, encumbrance, lease, sublease, license, interest, option,
charge or other restriction or limitation of any nature whatsoever in respect of such asset,
including any Share Encumbrance; provided, however, that any license of Intellectual Property shall
not be considered a Lien on such Intellectual Property.
Losses means any and all deficiencies, judgments, settlements, demands, claims,
suits, actions or causes of action, assessments, liabilities, losses, damages (excluding indirect,
incidental or consequential damages), interest, fines, penalties, costs and expenses (including
15
reasonable legal, accounting and other costs and expenses) incurred in connection with
investigating, defending, settling or satisfying any and all demands, claims, actions, causes of
action, suits, proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor.
Management Board means the Managing Board as referenced in the Articles of
Association.
Managing Director means any member of Newcos Management Board.
Master Agreement has the meaning set forth in the introduction to this Agreement..
Master Agreement Disclosure Letter means each of the Intel Master Agreement
Disclosure Letter and the ST Master Agreement Disclosure Letter.
Memory Device shall mean an Integrated Circuit alone and not in combination with any
other product containing one or more memory cells, together with the circuit elements connected to
the memory cells that are functionally necessary for carrying out memory hierarchy functions in
association with the memory cells, including, by way of example, decoding circuits, control
circuits for memory sequencing, sensing circuits, input protection circuits, high speed interface
circuits, signal I/O amplification circuits, redundancy circuits, delay elements, test mode control
circuits, reliability stress algorithms, address transition detection circuits, user selectable
operating mode detection circuits, reference generators or voltage generator modules. Memory
Device does not include Processors or Intel Proprietary Products.
NAND Flash Memory Integrated Circuit means a Flash Memory Integrated Circuit wherein
the memory cells included in the Flash Memory Integrated Circuit are arranged in groups of serially
connected memory cells (each such group of serially connected memory cells called a string) in
which the drain of each memory cell of a string (other than the first memory cell in the string) is
connected in series to the source of another memory cell in such string, the gate of each memory
cell in such string is directly accessible, and the drain of the uppermost bit of such string is
coupled to the bitline of the memory array.
NAND Flash Memory Product means a NAND Flash Memory Integrated Circuit, in die,
wafer, or packaged form, that utilizes (i) electrically programmable and electrically erasable
utilizing floating gate to substrate Fowler-Nordheim charge transfer mechanism for both programming
and erase operations; (ii) electrically programmable and electrically erasable utilizing floating
gate to substrate Fowler-Nordheim charge transfer mechanism for programming and hot-hole injection
for erase operations; or (iii) memory cells arranged in groups of serially connect memory cells
(each such group of serially connect memory cells called a string) in which the drain of each
memory cell of a string (other than the first memory cell in the string) is connected in series to
the source of another memory cell in such string, the gate of each memory cell in such string is
directly accessible, and the drain of the uppermost bit of such string is coupled to the bitline of
the memory array.
Newco means [NEWCO], a Besloten Vennootschap organized under the laws of the
Netherlands, to be named by mutual agreement of Intel, ST and FP.
16
Newco Allocated Positions means those positions with Newco for which a Intel
Business Employee or a ST Business Employee is not allocated on Schedule 3.12(c) to the
Intel ATA Disclosure Letter or Schedule 3.12(c) to the ST ACA Disclosure Letter.
Newco Approvals means any Governmental Approval which Intel, ST and FP reasonably
agree Newco must obtain in order to consummate the transactions contemplated by the Transaction
Documents.
Newco Business means the sale, manufacture, design and/or development of advanced
memory solutions, including Flash Memory Integrated Circuits, Phase Change Memory Products, Stacked
Memory Products and platform memory products which include data management memory components for
applications including without limitation cellular phones, memory cards, digital audio players,
data processing platform memory and embedded form factors.
NOR Flash Memory Integrated Circuit means a Flash Memory Integrated Circuit wherein
the memory cells included in the Flash Memory Integrated Circuit are arranged in groups of
connected memory cells in which the gate, source and drain of each memory cell is directly
accessible.
NOR Flash Memory Product means a NOR Flash Memory Integrated Circuit, in die, wafer
or packaged form, utilizing a hot carrier injection programming mechanism and one floating gate
charge storage region per transistor whereby the memory array is arranged so that the drain of one
memory cell is connected directly to a source line through at most one memory transistor.
Ordinary Shares means ordinary shares of Newco, par value [ ] eurocent per share.
Owned Intel Real Property means the Intel Real Property listed in Schedule
3.6(a) of the Intel ATA Disclosure Letter.
Owned ST Real Property means the Intel Real Property listed in Schedule
3.6(a) of the ST ACA Disclosure Letter.
Party has the meaning set forth in the introduction to this Agreement.
Patents means patents and applications worldwide, including continuation,
divisional, continuation in part, reexamination, or reissue patent applications and patents issuing
thereon.
Permits means all permits, licenses, franchises, approvals, certificates, consents,
waivers, concessions, exemptions, orders, registrations, notices or other authorizations of any
Governmental Authority necessary for a Party or its Subsidiaries to own, lease and operate such
Partys Transferred Assets and to carry on such Partys Business as currently conducted.
Permitted Liens means (i) Liens for Taxes or governmental assessments, charges or
claims the payment of which is not yet due or which are both (A) being contested in good faith, and
(B) described in reasonable detail on a Schedule to the applicable Transaction Document, (ii)
statutory Liens of landlords and statutory Liens of carriers, warehousemen, mechanics or
17
materialmen incurred in the ordinary course of business which are either for sums not yet due
or are immaterial in amount, (iii) zoning, entitlement, and other land use laws, and (iv) easements
and other imperfections of title or encumbrances, in each case, that do not materially detract from
the value of the relevant Transferred Asset or materially interfere with any present or intended
use of such Transferred Asset.
Permitted Transferee means with respect to a Shareholder, any direct or indirect
wholly owned subsidiary of such Shareholder, any parent company that directly or indirectly wholly
owns such Shareholder, or any direct or indirect wholly owned subsidiary of such parent company.
Person means an individual, corporation, partnership, association, limited liability
company, trust, estate or other similar business entity or organization, including a Governmental
Authority and any syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Exchange Act.
Phase Change Memory or PCM means a Memory Device in die, wafer or packaged
form, adjusting the phase of material, such as a chalcogenide, as a means to store one or more
different data states (including binary or multi-level cell structures) with or without any on-chip
control, I/O and other support circuitry.
Phase Change Memory Products or PCM Products mean non-volatile memory
Integrated Circuits that contain memory cells that are electrically programmable and electrically
erasable whereby the memory cells consist of one or more structures that contain a chalcogenide or
any other functionally equivalent phase change material utilizing one or more different material
phases (including binary or multi-level cell structures), with or without any on-chip control, I/O
and other support circuitry.
Preferred Shares means convertible preferred shares of Newco, par value [ ]
eurocent per share.
Proceeding means any action, suit, claim, charge, hearing, arbitration, audit, or
proceeding (public or private).
Processor means any Integrated Circuit or combination of Integrated Circuits capable
of processing digital data, such as a microprocessor or coprocessor (including a math coprocessor,
graphics coprocessor, or digital signal processor).
Prohibited Transaction shall have the meaning set forth in Section 4.2 of
this Agreement.
Receiving Party shall (i) for purposes of the Intel Asset Transfer Agreement, have
the meaning set forth in Section 5.1(b) of the Intel Asset Transfer Agreement, (ii) for
purposes of the ST Asset Contribution Agreement, have the meaning set forth in Section
5.1(b) of the ST Asset Contribution Agreement and (iii) for purposes of the Intel Intellectual
Property Agreement and the ST Intellectual Property Agreement, with respect to Confidential
Information of a Party, mean another Party that is not a Licensing Affiliate of such Party and that
receives (or receives
18
access to) such Confidential Information pursuant to or in connection with the Intel
Intellectual Property Agreement or the ST Intellectual Agreement.
Release means (i) any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, disposing, or other release of any Hazardous
Substance at, in, on, into, or onto the environment; (ii) the abandonment or discard of barrels,
containers, tanks, or other receptacles containing or previously containing any Hazardous
Substance; or (iii) any release, emission, or discharge, as those terms are defined in any
applicable Environmental Laws.
Remedial Action means investigation, evaluation, risk assessment, monitoring,
response, removal, clean-up, remediation, corrective action or other terms of similar import and
any related closure, post-closure, operations and maintenance or engineering control activities.
Share Encumbrances means Liens, claims, options, rights of other parties, voting
trusts, proxies, shareholder or similar agreements, encumbrances or other restrictions (other than
restrictions imposed by applicable securities laws).
Share Purchase Agreement means the Share Purchase Agreement to be entered into by FP
and Newco as of the Closing Date, in substantially the form attached to Schedule 2.3 to the
Intel Master Agreement Disclosure Letter and to Schedule 2.3 to the ST Master Agreement
Disclosure Schedule.
Shareholder means each Person (other than Newco) that shall be a party to the
Shareholders Agreement, whether in connection with the execution and delivery thereof as of the
Closing Date or otherwise, so long as such Person shall beneficially own, hold of record or be a
registered holder of any Shares.
Shareholders Agreement means the Shareholders Agreement by and among Intel (as
used in this definition, Intel has the meaning ascribed to such term in the Shareholders
Agreement), ST (as used in this definition, ST has the meaning ascribed to such term in the
Shareholders Agreement), FP (as used in this definition, FP has the meaning ascribed to such
term in the Shareholders Agreement), FP Holdco and Newco to be entered into on the Closing Date,
substantially in the form attached to Schedule 2.4 to both of the Master Agreement
Disclosure Letters.
Shares means the Ordinary Shares, the Preferred Shares and any other shares of the
share capital of Newco issued on or after the date of the Shareholders Agreement.
Specified Intel Representations means any representation or warranty made by Intel
in Sections 3.1 through 3.24 (other than Section 3.17) of the Intel Asset
Transfer Agreement or Sections 3.1(a) through 3.1(g) of this Agreement (other than
Section 3.17 of the Intel Asset Transfer Agreement).
Specified Intel Schedules means Schedule 3.1 through 3.24 (other
than Schedule 3.17) of the Intel ATA Disclosure Letter or Schedules 3.1(a) through
3.1(g) of the Intel Master Agreement Disclosure Letter.
19
Specified Newco Representations means any representation or warranty made by Newco
in Sections 4.1 through 4.8 of either of the Intel Asset Transfer Agreement or the
ST Asset Contribution Agreement.
Specified Newco Schedules means Schedules 4.1 through 4.9 of the
Newco ATA Disclosure Letter or Newco ACA Disclosure Letter.
Specified ST Representations means any representation or warranty made by ST in
Sections 3.1 through 3.24 (other than Section 3.17) of the ST Asset
Contribution Agreement or Sections 3.2(a) through 3.2(g) of this Agreement (other
than Section 3.17 of the ST Asset Contribution Agreement).
Specified ST Schedules means Schedule 3.1 through 3.24 (other than
Schedule 3.17) of the ST ACA Disclosure Letter or Schedules 3.2(a) through
3.2(g) of the ST Master Agreement Disclosure Letter.
ST has the meaning set forth in the introduction to this Agreement.
ST ACA Disclosure Letter means the disclosure letter, as agreed to between the
Parties as of the date of the Master Agreement (with such amendments as may be subsequently made
pursuant to the terms of such agreement), containing the Schedules required by the provisions of
such agreement.
ST Ancillary Agreements means the ST Assignment and Assumption Agreements, ST Bills
of Sale, ST Intellectual Property Agreement, ST Transition Services Agreements, ST Facility
Transfer Agreements, ST Joint Development Agreement, ST Back-End Supply Agreement, ST M5 Consortium
Agreement, ST R2 Consortium Agreement, TFR Indemnification Agreement, Bank Guarantee, ST Assumption
of Excluded Liabilities, ST Copyright Assignment, ST Patent Assignment, ST Trademark Assignment and
the Newco Transition Services Agreement.
ST Approvals means the required consents, waivers and approvals of ST set forth on
Schedule 3.3 of the ST ACA Disclosure Letter and Schedule 3.2(c) of the ST Master
Agreement Disclosure Letter.
ST Asset Contribution Agreement means that certain Asset Contribution Agreement to
be entered into by ST and Newco as of the Closing Date, in substantially the form attached to
Schedule 2.4 to the ST Master Agreement Disclosure Letter.
ST Assignment and Assumption Agreement means, collectively, the Assignment and
Assumption Agreements to be entered into by Newco or its Affiliates, on one hand, and ST or its
Affiliates, on the other hand, as of the Closing Date in substantially the form attached as
Exhibit A to the ST Asset Contribution Agreement.
ST Assumption of Excluded Liabilities shall have the meaning set forth in
Section 2.4 of the ST Asset Contribution Agreement.
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ST Back-End Supply Agreement means the ST Back-End Supply Agreement identified on
Schedule 2.4 of the ST Master Agreement Disclosure Letter to be entered into by and between
ST and Newco on the Closing Date, in substantially the form attached to such schedule.
ST Bill of Sale means any bill of sale or other similar document reasonably
requested by any Party and reasonably necessary to transfer any ST Transferred Asset in accordance
with applicable law to be executed by one or more ST Transferors in favor of Newco or a Subsidiary
of Newco as of the Closing Date, each in substantially the form attached as Exhibit B to
the ST Asset Contribution Agreement.
ST Books and Records means all of the books of account, general and financial
records, invoices, shipping records, customer records, supplier lists, correspondence and other
documents, records and files of ST and its Subsidiaries whether in hard copy or computer format
which relate exclusively to the ST Business and are necessary for the conduct of such ST Business
after the Closing (excluding all personnel records or any employee information for ST Business
Employees who are not ST Transferred Employees employed by an ST Transferred Entity as of the
Closing Date).
ST Business means the sale, manufacture, design and or development of NOR Flash
Memory Products, NAND Flash Memory Products, Phase Change Memory Products and Stacked Memory
Products.
ST Business Audited Financial Statements shall have the meaning set forth in
Section 5.1(h) of this Agreement.
ST Business Capital Expenditures Plan means the plan set forth on Schedule
3.14(e) of the ST ACA Disclosure Letter setting forth (i) the actual capital expenditures of ST
with respect to the ST Business for its first fiscal quarter of 2007; and (ii) the budgeted capital
expenditures of ST with respect to the ST Business for the second, third and fourth fiscal quarters
of 2007.
ST Business Employees means the employees who are identified on Schedule
3.12(c) of the ST ACA Disclosure Letter.
ST Contract means any Contract of ST or its Subsidiaries.
ST Contractual Consents shall have the meaning set forth in Section 3.8(b)
of the ST Asset Contribution Agreement.
ST Copyright Assignment means any agreement for the assignment of ST Transferred
Copyrights by an ST Transferor to Newco or a Subsidiary of Newco, dated as of the Closing Date, in
the form agreed among Intel, ST and FP.
ST Designated Employees means those ST Business Employees who are identified as ST
Designated Employees on Schedule 4.11(a) of the ST Master Disclosure Letter.
ST Environmental Reports means reports or audits prepared by the Environmental
Consultants summarizing the results of Phase I, Phase II and environmental compliance audits
regarding the Owned ST Real Property, the Leased ST Real Property and any property that is the
21
subject of an ST Lease, which shall be reasonably satisfactory to FP and Intel in form and
substance, and paid for by Intel. At the request of Newco, ST shall review the ST Environmental
Reports and confirm that all Environmental Liabilities identified in such reports are sufficiently
identified as to scope as that term is used in clause (iii) of the definition of ST Pre-Closing
Environmental Liability. If ST believes the issues are not sufficiently identified, ST must pay
for the additional investigation to further characterize the Environmental Liability sufficient to
meet the criteria in clause (iii) of the definition of ST Pre-Closing Environmental Liability.
ST Excluded Employees shall have the meaning set forth in Section 4.11(b) of
this Agreement.
ST Facility Transfer Agreements means the ST Facility Transfer Agreements to be
entered into by and between ST and Newco on the Closing Date, based on the terms and conditions set
forth in the ST Facility Transfer Term Sheets.
ST Facility Transfer Term Sheets means the term sheets attached to Schedule
4.22(a) to the ST Master Agreement Disclosure Letter reflecting the terms and conditions upon
which the agreements and other related documents effecting the transfer by ST and its Subsidiaries
of the ST Transferred Facilities to Newco and its Subsidiaries shall be substantially based.
ST Intellectual Property Agreement means the Intellectual Property Agreement to be
entered into by and between ST and Newco on the Closing Date, in substantially the form attached to
Schedule 2.4 of the ST Master Agreement Disclosure Letter.
ST Joint Development Agreement means the Joint Development Agreement by and between
ST and Newco entered into on the Closing Date, based substantially on the term sheet attached to
Schedule 2.4 of the ST Master Agreement Disclosure Letter, and reasonably acceptable to ST,
FP and ST.
ST Leases means all leases or other occupancy agreements pursuant to which ST or its
Subsidiaries lease or occupy the Leased ST Real Property.
ST M5 Consortium Agreement means the ST M5 Consortium Agreement to be entered into
by and between Italian Newco and STMicroelectronics S.r.l. on or prior to the Closing Date, in
substantially the form attached to Schedule 2.4 of the ST Master Agreement Disclosure
Letter.
ST Master Agreement Disclosure Letter means the disclosure letter, as delivered by
ST to ST and FP as of the date of the Master Agreement (with such amendments as may be subsequently
made pursuant to the terms of such agreement), containing the Schedules required by the provisions
of such agreement.
ST Material Adverse Effect means any event, change or circumstance that,
individually or in the aggregate with all other such events, changes or circumstances, (a) results
in a material adverse effect on, or material adverse change in, the ST Transferred Assets, taken as
a whole, or (b) any event, change or circumstance that is materially adverse to the ability of ST
to perform its obligations under any Transaction Document to which it is or will be a party or to
consummate the transactions contemplated thereby, other than, in the case of clause (a) above, such
changes,
22
effects or circumstances reasonably attributable to: (i) economic, capital market or political
conditions generally in the United States or foreign economies in any locations where the ST
Business has material operations or sales, provided the changes, effects or circumstances do not
have a materially disproportionate effect (relative to other industry participants) on the ST
Business, (ii) conditions generally affecting the industry in which the ST Business operates,
provided that the changes, effects or circumstances do not have a materially disproportionate
effect (relative to other industry participants) on the ST Business; (iii) the announcement or
pendency of the transactions contemplated by the Transaction Documents; (iv) outbreak of
hostilities or war, acts of terrorism or acts of God; or (v) compliance with STs obligations or
the satisfaction of the conditions to the closing of the transactions contemplated by the
Transaction Documents.
ST Newco Shares shall have the meaning set forth in Section 2.6(a) of the ST
Asset Contribution Agreement.
ST Patent Assignment means any agreement for the assignment of ST Transferred
Patents by an ST Transferor to Newco or a Subsidiary of Newco, dated as of the Closing Date, in the
form agreed among Intel, ST and FP.
ST Post-Closing Environmental Liability shall mean any Environmental Liability,
including a worsening of existing conditions, to the extent arising out of or relating to (i)
Newcos acts occurring after the Closing Date, (ii) Newcos inaction occurring one year or later
after the Closing Date, or (iii) Newcos inaction occurring within one year after the Closing Date
if Newco knew about the existing condition and its inaction worsened the existing condition; and in
connection with a Newco Business or the ST Business, the Owned ST Real Property, the Leased ST Real
Property, the ST Transferred Assets or the ST Transferred Entities or the ownership or operation of
a Newco Business or the ST Business, the Owned ST Real Property, the Leased ST Real Property or the
ST Transferred Assets, the ST Transferred Entities by, or the disposal or treatment of Hazardous
Substances generated by, Newco or an Affiliate of Newco (including an ST Transferred Entity) after
the Closing Date.
ST Pre-Closing Environmental Liability shall mean any Environmental Liability which
(i) relates to the ownership or operation of the ST Business (as now or previously conducted), the
Owned ST Real Property, the Leased ST Real Property, the ST Transferred Assets, the ST Transferred
Entities, the ST Shared Facilities or any other real property or facility owned, leased, operated
or used in connection with the ST Business (as now or previously conducted) or for the disposal or
treatment of Hazardous Substances generated in connection with the ST Business, the Owned ST Real
Property, the Leased ST Real Property, the ST Transferred Assets, or the ST Transferred Entities,
(ii) arises out of or relates to acts occurring or conditions existing on or prior to the Closing
Date, but only to the extent that the Environmental Liability arising out of or relating to acts
occurring or conditions existing on or prior to the Closing Date can be identified from (A) the ST
Environmental Reports so long as such reports are issued not later than one (1) year subsequent to
the Closing or (B) documents or data generated prior to the Closing and in the possession of ST
prior to the Closing, and (iii) is identified in the foregoing documents and/or data with
sufficient specificity so as to clearly identify the scope of the Environmental Liability that is
attributable to the ST Business, the Owned ST Real Property, the Leased ST Real Property, the ST
Transferred Assets, or the ST
23
Transferred Entities. Notwithstanding the foregoing, ST Pre-Closing Environmental Liability
shall not include any ST Post-Closing Environmental Liability.
ST Products means NOR Flash Memory Products, NAND Flash Memory Products, and Stacked
Memory Products, including those listed on Schedule 1.1(c) of the ST ACA Disclosure Letter.
ST R2 Consortium Agreement means the ST R2 Consortium Agreement to be entered into
by and between Italian Newco and STMicroelectronics S.r.l. on or prior to the Closing Date, in
substantially the form attached to Schedule 2.4 of the ST Master Agreement Disclosure
Letter.
ST Real Property means all real property, leaseholds and other interests in real
property owned or leased by ST or its Subsidiaries and used or held for use exclusively in the ST
Business, including all real property identified in Schedule 3.6 of the ST ACA Disclosure
Letter, together in each case with STs or its Subsidiarys right, title and interest in and to all
structures, facilities or improvements currently or as of the Closing Date located thereon and all
easements, licenses, rights and appurtenances relating to the foregoing.
ST Restricted Employees shall have the meaning set forth in Section 4.7(b)
of this Agreement.
ST Retained Trade Secrets means trade secrets, know-how and other proprietary
information owned by ST or any Licensed Subsidiary thereof as of the Effective Date and not
included in the ST Transferred Trade Secrets that are or have been used by ST in connection with
the ST Business.
ST Trademark Assignment means any agreement for the assignment of ST Transferred
Trademarks by an ST Transferor to Newco or a Subsidiary of Newco, dated as of the Closing Date, in
the form agreed among Intel, ST and FP.
ST Transferors shall have the meaning set forth in the Recitals of the ST Asset
Contribution Agreement.
ST Transferred Assets shall have the meaning set forth in Section 2.1 of the
ST Asset Contribution Agreement.
ST Transferred Contracts means all unexpired contracts set forth on Schedule
2.1(e) of the ST ACA Disclosure Letter, together with the ST Transferred Purchase Orders, the
ST Transferred Sales Orders and the ST Leases.
ST Transferred Employees means the ST Business Employees and ST Designated Employees
who accept an offer of employment from Newco and who begin their employment with Newco at the
Closing (or, to the extent permitted by Applicable Law with respect to inactive employees on
short-term, medical or other leave of absence, at the time such employee returns to active status)
or such other date as the parties may reasonably agree.
ST Transferred Entities means the entities set forth on Schedule 1.1(a) of
the ST ACA Disclosure Letter.
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ST Transferred Intellectual Property means, collectively, the ST Transferred
Copyrights, ST Transferred Patents, ST Transferred Trademarks and ST Transferred Trade Secrets.
ST Transferred Interests means 100% of the outstanding equity, voting and profit
interests in the ST Transferred Entities.
ST Transferred Liabilities shall have the meaning set forth in Section 2.3
of the ST Asset Contribution Agreement.
ST Transferred Purchase Orders means each purchase order or portion thereof issued
by ST or a Subsidiary of ST to the extent relating to the ST Business.
ST Transferred Sales Orders means all pending and unfulfilled sales orders or
portions thereof for ST Products.
ST Transferred Trademarks means those Trademarks identified on Schedule
2.1(k) of the ST ACA Disclosure Letter.
ST Transferred Trade Secrets means any Trade Secrets owned by ST or any of its
Subsidiaries as of the Closing Date (including any such Trade Secrets that consist of technical
documentation of the nature of the files and other documentation identified on Schedule
2.1(h) to the ST ACA Disclosure Letter) that are used exclusively in the ST Business and not
materially embodied or used in or with any other current product or service of ST or any of its
Subsidiaries.
ST Transition Services Agreement means the ST Transition Services Agreement
identified on Schedule 2.4 of the ST Master Agreement Disclosure Letter to be entered into
by and between ST and Newco on the Closing Date, in substantially the form attached to such
schedule.
Stacked Memory Products means the assembly of multiple Memory Devices packaged
together as a single product unit which fits within the footprint associated with a single Memory
Device socket. Notwithstanding the foregoing, nothing in this Agreement shall be deemed to include
within the Intel Transferred Assets or ST Transferred Assets any Intellectual Property for non-NOR
Flash Integrated Circuits that may be components of Stacked Memory Products.
Subsidiary means, with respect to any Person, (i) any corporation, limited liability
company or other similar entity as to which more than 50% of the outstanding capital stock or other
securities having voting rights or power is owned or controlled, directly or indirectly, by such
Person and/or by one or more of such Persons direct or indirect subsidiaries and (ii) any Person
with a partnership, joint venture or other similar relationship between such Persons and any other
Person, provided, however, that with respect to Intel, Silicon Philippines, Inc., a corporation
organized and existing under Philippines law (SPI), shall be deemed to be a Subsidiary of
Intel for purposes of the Transaction Documents and for convenience only, and such inclusion of SPI
within this definition shall not imply that such entity is a subsidiary or affiliate of Intel for
any purpose independent of the Transaction Documents.
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Taxes means (i) all foreign, federal, state, local and other net income, gross
income, gross receipts, sales, use, ad valorem, value added, intangible, unitary, capital gain,
transfer, franchise, profits, license, lease, service, service use, withholding, backup
withholding, payroll, employment, estimated, excise, severance, stamp, occupation, premium,
property, prohibited transactions, windfall or excess profits, value added tax, goods and services
tax, social service tax, import tax, export tax, or other taxes of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional amounts with respect thereto,
(ii) any Liability for payment of amounts described in clause (i) whether as a result of transferee
Liability, of being a member of an affiliated, consolidated, combined or unitary group for any
period, or otherwise through operation of law, and (iii) any Liability for the payment of amounts
described in clause (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation
agreement or any other express or implied agreement to indemnify any other Person for Taxes; and
the term Tax means any one of the foregoing Taxes.
Termination Date means December 31, 2007, subject to extension as provided in
Article VI of this Agreement.
Termination Fee shall have the meaning set forth in Section 6.2(b) of this
Agreement.
TFR Indemnification Agreement means the TFR Indemnification Agreement to be entered
into by Newco, the applicable Newco Subsidiaries and ST on the Closing Date, in a form reasonably
acceptable to Intel, FP and ST.
Third Party means, with respect to any Shareholder, any other Person other than any
Permitted Transferee of such Shareholder and, with respect to Newco, any other Person other than
its Subsidiaries.
Third Party Appraisal Firm shall have the meaning set forth in Section 4.13
of this Agreement.
Trade Secrets means confidential know how, inventions, discoveries, concepts, ideas,
methods, processes, designs, formulae, technical data, source code, drawings, specifications
(including logic specifications), data bases, data sheets, customer lists, Customer Data and other
confidential information that constitute trade secrets under applicable law, in each case excluding
any rights in respect of any of the foregoing that comprise Copyrights, mask work rights or
Patents.
Trademarks means trademarks and registrations and applications therefor.
Transaction Documents means the Master Agreement, the Intel Asset Transfer
Agreement, the ST Asset Contribution Agreement, the Share Purchase Agreement, the Intel Ancillary
Agreements, the ST Ancillary Agreements, the Shareholders Agreement, the Confidentiality
Agreement, and all of the documents contemplated by any such agreement or entered into by any of
the Parties thereto or their Subsidiaries in connections with the transactions contemplated by such
agreements.
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EX-99.2
Exhibit 99.2
FINAL ATTACHMENT
TO MASTER AGREEMENT
ST ASSET CONTRIBUTION AGREEMENT 1
THIS ST ASSET CONTRIBUTION AGREEMENT (the ST Asset Contribution Agreement and,
as referred to herein, this Agreement), dated as of , 200 , is by and between
STMICROELECTRONICS N.V., a company with limited liability organized under the laws of The
Netherlands, with its corporate seat in Amsterdam, The Netherlands (ST), and [NEWCO], a
company with limited liability organized under the laws of The Netherlands (Newco). ST
and Newco are sometimes referred to herein as the Parties and each individually as a
Party.
A. ST desires to transfer, and to cause certain of its Affiliates to transfer (ST and such
Affiliates, collectively, the ST Transferors) to Newco and its Affiliates, and Newco
desires to acquire, and to cause its Affiliates to acquire, from ST and such ST Affiliates, the ST
Transferred Assets in consideration for the issuance by Newco of the ST Newco Shares, the payment
by Newco of the ST Cash Consideration, and the assumption by Newco or its Affiliates of the ST
Transferred Liabilities, all on the terms and conditions set forth in this Agreement.
B. ST, Intel, FP and FP Holdco entered into that certain Master Agreement, dated May 22,
2007, that provides, among other things, for the simultaneous consummation of the transactions
contemplated by this Agreement, the Intel Asset Transfer Agreement and the Share Purchase
Agreement, subject to the terms and conditions set forth in such agreements and the Master
Agreement.
C. The Parties intend that, for United States federal income tax purposes, the transfer of the
ST Transferred Assets and issuance of the ST Consideration, as contemplated by this Agreement, be
treated as described on Schedule 2.6 to the ST ACA Disclosure Letter.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein,
the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms used in this Agreement shall have the respective
meanings ascribed to such terms in Appendix A to this Agreement.
1.2 Defined Terms Generally. The definitions set forth or referred to in Appendix
A shall apply equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine, feminine and neuter
forms. The words include, includes and including shall be deemed to be followed
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ST Transferors and Newco Affiliates to be added as Parties. |
FINAL ATTACHMENT
TO MASTER AGREEMENT
by the phrase without limitation. All references herein to Articles, Sections and Exhibits and
Schedules shall be deemed to be references to Articles and Sections of, and Exhibits and Schedules
to, this Agreement unless the context shall otherwise require. Unless the context shall otherwise
require, any reference to any contract, instrument, statute, rule or regulation is a reference to
it as amended and supplemented from time to time (and, in the case of a statute, rule or
regulation, to any successor provision). Any reference in this Agreement to a day or a number of
days (without the explicit qualification of Business) shall be interpreted as a reference to a
calendar day or number of calendar days.
ARTICLE II
TRANSFER OF ASSETS
2.1 ST Transferred Assets. Upon the terms and subject to the conditions of this
Agreement, at the Closing, Newco (or, to the extent indicated on Schedule 2.6 of the ST ACA
Disclosure Letter, an Affiliate of Newco) shall acquire from the ST Transferors, and ST shall
transfer, assign and convey to Newco (or, to the extent indicated on Schedule 2.6 of the ST
ACA Disclosure Letter, a Subsidiary of Newco), or cause to be transferred, assigned and conveyed by
the other ST Transferors to Newco (or an Affiliate of Newco, in each case, as set forth on
Schedule 2.6 of the ST ACA Disclosure Letter), free and clear of all Liens other than
Permitted Liens, all right, title and interest of the ST Transferors in, to and under the following
assets, as the same shall exist at the Effective Time, after giving effect to any changes therein
pursuant to Sections 4.10 and 4.12 of the Master Agreement (subject to the ultimate
paragraph hereof with respect to assets transferred, assigned and conveyed to a ST Transferred
Entity prior to the Closing) (collectively, the ST Transferred Assets):
(a) the ST Equipment;
(b) the ST Transferred Purchase Orders;
(c) the ST Transferred Sales Orders, including any rights that ST or any Subsidiary of
ST may have in any Post-Closing Accounts Receivable of Newco and its Subsidiaries or the ST
Business (including those of the ST Transferred Entities), and all Third Party A/R Owed to
ST Transferred Entities (as finally determined in accordance with Section 2.8(e));
(d) subject to Section 2.5, the Owned ST Real Property, the Leased ST Real
Property, and the ST Leases, in each case as and to the extent contemplated by the ST
Facility Transfer Term Sheets;
(e) subject to Section 2.5, the ST Transferred Contracts;
(f) the ST Prepayments;
(g) the ST Transferred Patents;
(h) the ST Transferred Trade Secrets;
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FINAL ATTACHMENT
TO MASTER AGREEMENT
(i) the ST Transferred Copyrights;
(j) the ST Transferred Trademarks;
(k) the ST Transferred Permits;
(l) the ST Books and Records;
(m) the ST Transferred Interests and the Hynix Interests;
(n) the ST Transferred Inventory;
(o) the ST Transferred Claims;
(p) the ST Transferred Entity Books and Records;
(q) the ST Transferred Systems;
(r) the licenses and other rights transferred by ST to Newco pursuant to the ST
Intellectual Property Agreement;
(s) the Cash and Cash Equivalents and bank accounts of the ST Transferred Entities; and
(t) any assets or properties listed in any new schedule to the ST ACA Disclosure Letter
delivered to Newco pursuant to Section 4.12 of the Master Agreement;
provided that in no event shall the ST Transferred Assets include any ST Excluded Asset.
The ST Transferred Intellectual Property shall be subject to any (i) licenses retained by ST
or its Affiliates or granted to ST or its Affiliates pursuant to any ST Ancillary Agreement, (ii)
licenses and Contracts with use restrictions existing on the date hereof granted to or by ST or its
Subsidiaries and (iii) licenses and Contracts with use restrictions entered into by ST or its
Subsidiaries in the ordinary course of business not in violation of this Agreement prior to the
Closing Date. The ST Transferred Intellectual Property may be further obligated (either prior to
the date of the Master Agreement or in the ordinary course of business between such date and the
Closing Date) to be non-exclusively licensed as a result of STs or its Affiliates participation
in various Special Interest Groups (SIGs), Standard Definition Organizations (SDOs), and similar
organizations which may impose obligations to non-exclusively license ST Transferred Intellectual
Property to third parties. To the extent that ST is required to ensure that successors with
respect to the ST Transferred Patents assume such obligations to license, Newco hereby assumes such
obligations.
Notwithstanding the foregoing, with respect to any ST Transferred Asset owned by a ST
Transferred Entity at the Effective Time, in lieu of transferring such ST Transferred Asset, ST
shall transfer, assign and convey, or cause another ST Transferor to transfer, assign and convey,
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FINAL ATTACHMENT
TO MASTER AGREEMENT
free and clear of all Liens other than Permitted Liens, all of the outstanding equity interests of
such ST Transferred Entity, which interests shall be included in the ST Transferred Interests.
2.2 ST Excluded Assets. Newco and ST expressly understand and agree that all assets
of ST and its Subsidiaries other than the ST Transferred Assets (collectively, the ST Excluded
Assets), shall be excluded from the ST Transferred Assets, including, but not limited to:
(a) all assets, tangible or intangible, real or personal, that are not specifically
identified under Section 2.1, including all of STs Intellectual Property other than
the ST Transferred Intellectual Property;
(b) all Contracts that are not ST Transferred Contracts;
(c) all Prepayments of ST associated with Contracts that are not ST Transferred
Contracts or other obligations not assumed by Newco;
(d) all Pre-Closing Accounts Receivable of ST and its Subsidiaries, other than Third
Party A/R Owed to ST Transferred Entities (as finally determined in accordance with
Section 2.8(e));
(e) all Cash and Cash Equivalents of ST and its Subsidiaries, other than that of the ST
Transferred Entities;
(f) all bank accounts of ST and its Subsidiaries, other than bank accounts of the ST
Transferred Entities;
(g) all ST Employee Plans;
(h) all ST Excluded Claims;
(i) all rights to or claims for refunds or credits of Taxes (including penalties) paid
by ST or any of its Subsidiaries, or any member of any consolidated, affiliated, combined or
unitary group of which ST is or has been a member, other than refunds of Taxes with respect
to a Post-Closing Tax Period paid by the ST Transferred Entities or Newco or any of its
Subsidiaries;
(j) all rights, properties, and assets which have been used in the ST Business and
which shall have been transferred (including transfers by way of sale), licensed or
otherwise disposed of in the ordinary course of business (other than to ST or any Subsidiary
of ST) prior to the Effective Time and not in violation of the terms of this Agreement or
Section 4.10 of the Master Agreement;
(k) except as expressly provided in Section 2.1(q), all enterprise software,
database management systems and networks of ST or its Subsidiaries, including all sales
management, engineering, materials, business planning, manufacturing, logistics, finance and
accounting systems utilized by the ST Business;
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FINAL ATTACHMENT
TO MASTER AGREEMENT
(l) the minute books, stock ledgers, accounting records, Tax Returns and others records
relating to Taxes, in each case of ST or any of its Subsidiaries (other than the ST
Transferred Entities), other than the ST Books and Records;
(m) internal reports relating to the business activities of ST and its Subsidiaries
that are not ST Transferred Assets;
(n) insurance policies and rights, claims or causes of action thereunder, including
Claims which ST or any of its Affiliates may have under any insurance contracts or policies
insuring the ST Transferred Assets;
(o) all of the assets specifically identified on Schedule 2.2(o) of the ST ACA
Disclosure Letter; and
(p) any asset of the ST Transferred Entities that is not a ST Transferred Asset.
On the Closing Date, immediately prior to the Closing, each ST Transferred Entity holding ST
Excluded Assets shall transfer, assign and convey all of its right, title and interest in and to
such ST Excluded Assets, including any and all intercompany Accounts Receivable of such ST
Transferred Entity, to ST or a Subsidiary of ST designated by ST, such that no ST Transferred
Entity shall hold any ST Excluded Asset as of the Closing Date.
2.3 ST Transferred Liabilities. Upon the terms and subject to the conditions of this
Agreement and the ST Ancillary Agreements, effective at the Effective Time, Newco (or, to the
extent indicated on Schedule 2.6 of the ST ACA Disclosure Letter, a Subsidiary of Newco)
shall assume, and shall fully pay, perform, fulfill and discharge when due, the following
Liabilities of ST or its Subsidiaries, it being understood that certain of the Liabilities set
forth below may be a Liability of a ST Transferred Entity, the interests in which are transferred
to Newco (or a Subsidiary of Newco as indicated on Schedule 2.6 to the ST ACA Disclosure
Letter) (collectively, the ST Transferred Liabilities):
(a) all Liabilities under or arising out of the ST Transferred Contracts that are
required to be paid or performed on and after the Effective Time;
(b) all Liabilities that are expressly assumed under this Agreement;
(c) all Liabilities to the extent accruing, arising out of, or relating to the
operation and ownership of the ST Business and the ST Transferred Assets by Newco and its
Subsidiaries on and after the Effective Time;
(d) all Liabilities (including any ST Employment Agreements) that are assumed by
operation of Applicable Law related to the ST Transferred Employees;
(e) any Taxes (x) of a ST Transferred Entity, or arising from the ST Transferred Assets
or ST Business, in either case allocable to a Post-Closing Tax Period, except to the extent
otherwise allocated to ST pursuant to Section 5.8 or as described in
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FINAL ATTACHMENT
TO MASTER AGREEMENT
clauses (i) and (ii) of Section 6.2(g) and (y) otherwise allocated to Newco, pursuant to Section
5.8;
(f) the ST Post-Closing Product Obligations;
(g) all ST Post-Closing Environmental Liabilities; and
(h) all Third Party A/P Payable by ST Transferred Entities (as finally determined in
accordance with Section 2.8(e))
provided that in no event shall the ST Transferred Liabilities include any ST Excluded
Liability.
Notwithstanding the foregoing, with respect to any ST Transferred Liability owed by a ST
Transferred Entity at the Effective Time, in lieu of the assumption by Newco of such ST Transferred
Liability from such ST Transferred Entity, such ST Transferred Liability shall be retained at the
Effective Time by such ST Transferred Entity, and Newco shall, or shall cause such ST Transferred
Entity, or successor thereto, to pay or otherwise satisfy and discharge such ST Transferred
Liability on a timely basis after the Effective Time.
2.4 ST Excluded Liabilities. Except for those Liabilities expressly assumed by Newco
pursuant to Section 2.3 and Section 5.8, Newco shall not assume and shall not be
liable for, and ST shall retain and remain, as between ST and Newco, solely liable for and
obligated to discharge, all of the debts, expenses, contracts, agreements, commitments, obligations
and other Liabilities of any nature of ST or any of its Subsidiaries (collectively, the ST
Excluded Liabilities), including the following:
(a) any Liability for breaches by ST or its Subsidiaries prior to the Effective Time of
any Contract or any Liability for payments or amounts due under any Contract prior to the
Effective Time;
(b) any Liability for Taxes attributable to or imposed upon ST or any of its
Subsidiaries, or attributable to or imposed upon the ST Business, the ST Transferred
Entities or the ST Transferred Assets for any Pre-Closing Tax Period other than any
Liability for Taxes allocated to Newco pursuant to Section 5.8 and any Liability for
Taxes otherwise allocated to ST pursuant to Section 5.8;
(c) all Pre-Closing Accounts Payable of ST and its Subsidiaries, other than Third Party
A/P Payable by ST Transferred Entities (as finally determined in accordance with Section
2.8(e));
(d) any and all Liabilities under ST Employee Plans and ST Employee Agreements,
including any Liabilities arising in connection with any change-in-control or similar
compensatory payment arrangement which is triggered in whole or in part by the transactions
contemplated by this Agreement and the other Transaction Documents, including any retention
bonus, stay bonus or similar payment (other than the ST
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FINAL ATTACHMENT
TO MASTER AGREEMENT
Transferred Employee Payment Liabilities, the ST Funded Employee Plan Amounts, or those Liabilities assumed by Newco
pursuant to Section 5.11(c));
(e) any Liabilities or obligations with respect to the ST Business Employees including
the ST Transferred Employees that arise prior to the Effective Time (or, with respect to
each ST Transferred Employee, such other date on which the ST Transferred Employee ceases to
be employed by ST, if later) (other than the ST Transferred Employee Payment Liabilities,
the ST Funded Employee Plan Amounts, or those Liabilities assumed by Newco pursuant to
Section 5.11(c));
(f) any Liabilities or obligations with respect to any ST Business Employees who do not
become ST Transferred Employees and any Liabilities of the ST Transferred Entities with
respect to any employee who does not become a ST Transferred Employee;
(g) any Liability for or in respect of any Indebtedness (including, without limitation,
any guarantee or other obligation of any kind that ST may have with respect to any
Indebtedness of the Hynix JV), other than the Contemplated Financing;
(h) any Liability to the extent arising out of the ST Excluded Assets;
(i) the ST Pre-Closing Product Obligations;
(j) any Liability of the ST Transferred Entities that is not a ST Transferred
Liability;
(k) any ST Pre-Closing Environmental Liabilities;
(l) any Liability of ST or any of its Subsidiaries that is the subject of any existing
Proceedings as of the Closing Date, including the Proceedings set forth in Schedule
3.7 and the claims against ST or its Subsidiaries set forth in Schedule 3.11 to
the ST ACA Disclosure Letter, in each case, to the extent arising or accruing prior to the
Effective Time, but in any event not including any Liability to the extent arising or
accruing after the Effective Time; and
(m) the TFR Liability.
On the Closing Date, immediately prior to the Closing, ST, or a Subsidiary of ST designated by
ST and reasonably acceptable to Newco shall assume, and shall thereafter pay, perform, fulfill and
discharge when due any ST Excluded Liability of each ST Transferred Entity, including any and all
Indebtedness of, and intercompany Accounts Payable to, ST and its Subsidiaries, pursuant to an
assumption of liability agreement in a form to be mutually agreed between ST and Newco (ST
Assumption of Excluded Liabilities).
2.5 Assignment of Contracts and Rights.
(a) Anything in this Agreement or any other Transaction Document to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
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FINAL ATTACHMENT
TO MASTER AGREEMENT
ST Transferred Contract, ST Transferred Permit, or other ST Transferred Asset, or any claim,
right or benefit arising thereunder or resulting therefrom if an attempted assignment
thereof, without the consent of a party thereto or the receipt of any Governmental Approvals
or the satisfaction of any other requirement applicable to such assignment, would constitute
a breach or other contravention thereof or in any way result in the loss of any material
benefit under, or any material modification to, the rights of Newco, ST or any of STs
Subsidiaries thereunder. ST and Newco will use commercially reasonable efforts (but without
any payment of money by ST) to obtain the consent of the other parties to any such ST
Transferred Contract, ST Transferred Permit or other ST Transferred Asset or any claim,
right or benefit arising thereunder for the assignment thereof to Newco as Newco may
reasonably request; provided, however, that except as provided in Section 2.5 of the
ST Intellectual Property Agreement with respect to the sublicensing of certain Third Party
Claims to Newco, ST shall have no obligation to transfer or assign any license of any
Intellectual Property other than the ST Transferred Intellectual Property or any licenses
granted by ST in connection with the sale, distribution and license of the ST Products in
the ordinary course of business that are not ST Transferred Contracts. Subject to the
obligations of ST set forth in Section 5.6, Section 4.3 of the Master
Agreement, Section 2.6 of the ST Intellectual Property Agreement, the ST Transition
Services Agreement and the ST Supply Agreements and ST Consortium Agreements, Newco agrees
that ST shall not have any liability to Newco arising out of or relating to the failure to
obtain any such consent or to satisfy any other such requirement that may be required in
connection with the transactions contemplated by this Agreement or the ST Ancillary
Agreements or because of any circumstances resulting from any such failure; provided,
however, that nothing in this Section 2.5(a) is intended to affect STs
representation in Section 3.8(b) regarding ST Contractual Consents.
(b) If any such consent is not obtained, or any such other requirement is not
satisfied, prior to the Closing and as a result thereof Newco shall be prevented by such
third party from receiving the rights and benefits with respect to such ST Transferred
Contract, ST Transferred Permit or other ST Transferred Asset intended to be transferred
hereunder, or if any attempted assignment would adversely affect the rights of ST or any of
its Subsidiaries thereunder so that Newco would not in fact receive all such rights or ST or
any of its Subsidiaries would forfeit or otherwise lose the benefit of rights that ST or any
such Subsidiary is entitled to retain, ST and Newco shall cooperate to discuss, determine
and implement in good faith a mutually agreeable reasonable arrangement to the extent
practicable, under which (i) Newco would obtain the economic claims, rights and benefits
under such asset and assume the economic burdens and obligations with respect thereto in
accordance with this Agreement, including potentially by subcontracting, sublicensing or
subleasing to Newco (but not more extensive than the existing rights of ST and its Subsidiaries with respect to the ST Business), or (ii) ST
would enforce for the benefit of Newco, with Newco assuming STs obligations, any and all
rights of ST and its Subsidiaries against a third party thereto; provided, that Newco shall
reimburse ST for all reasonable out-of-pocket expenses that are imposed on ST and any of its
Subsidiaries in bearing such economic burdens and obligations that otherwise
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FINAL ATTACHMENT
TO MASTER AGREEMENT
would have been borne by Newco if the applicable asset had been transferred to Newco at the Effective Time.
Newco agrees that neither ST nor any of its Subsidiaries shall have any liability to Newco
arising out of or relating to the failure to obtain any such consent, and no condition set
forth in the Master Agreement, other than the conditions set forth in Section 5.1(f)
and Section 5.2(f) shall be deemed not satisfied, as a result of (x) the failure to
obtain any such consent or any circumstances resulting therefrom or (y) any suit, action or
proceeding commenced or threatened by or on behalf of any Person arising out of or relating
to the failure to obtain any such consent or any circumstances resulting therefrom;
provided, however, that nothing in this Section 2.5(b) is intended to affect STs
representation in Section 3.8(b) regarding ST Contractual Consents.
(c) No other rights are granted hereunder, by implication, estoppel, statute or
otherwise, except as expressly provided in this Agreement or in any other Transaction
Document.
2.6 Consideration. The consideration payable at the Closing by Newco and its
Affiliates to ST and the other ST Transferors for the ST Transferred Assets shall consist of:
(a) [48.58% of the Shares] Ordinary Shares of Newco (the ST Newco Shares),;
(b) cash in the amount of $468,000,000; and
(c) the assumption by Newco and certain of its Subsidiaries of the ST Transferred
Liabilities being assumed by Newco (together with the ST Newco Shares, and the ST Cash
Consideration, the ST Consideration).
Such consideration shall be allocated among ST and the other ST Transferors as
described in Schedule 2.6 of the ST ACA Disclosure Letter (as such
allocation shall be determined pursuant to Section 4.13 of the Master
Agreement and attached hereto at the Closing), and shall be treated as having been
paid by Newco on behalf of certain of its Subsidiaries also as provided in
Schedule 2.6 of the ST ACA Disclosure Letter, which Schedule 2.6
shall be prepared in a manner consistent with the Third Party Appraisal. Each of
the Parties hereto agrees to report the transactions contemplated hereby for U.S.
federal, state and foreign Tax purposes in accordance with such allocation of the ST
Consideration and as set forth on such schedule. ST shall prepare Schedule
2.6 of the ST ACA Disclosure Letter subject to Newcos approval, which approval
shall not be unreasonably withheld. Such schedule shall be adjusted for any changes
to the ST Cash Consideration, in a manner consistent with the Third Party Appraisal and otherwise
as ST determines in its reasonable discretion.
2.7 Inventory Adjustment to Consideration. The ST Cash Consideration shall be subject
to adjustment after the Closing Date in accordance with the following procedure:
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FINAL ATTACHMENT
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(a) Promptly after the Closing Date, ST will prepare and present to Newco a statement
in reasonable detail of the ST Inventory Value and the ST Inventory Depreciation Amount in
each case as of the end of STs first fiscal quarter of 2007 and as of the Effective Time
(the Preliminary ST Inventory Statement). The Preliminary ST Inventory Statement
shall be delivered to Newco no later than 90 days after the Closing Date.
(b) Newco and its accountants shall have the right to review the work papers of ST and
its accountants utilized in preparing the Preliminary ST Inventory Statement and shall have
full access to the books, records, properties and personnel of ST for purposes of verifying
the accuracy and fairness of the presentation of the ST Inventory Value in the Preliminary
ST Inventory Statement. The Preliminary ST Inventory Statement shall be binding on Newco,
unless Newco presents to ST written notice of disagreement with the Preliminary ST Inventory
Statement (ST Notice of Disagreement) within 150 days after the Closing Date
specifying in reasonable detail the nature and extent of the disagreement.
(c) During the 30-day period following the delivery of an ST Notice of Disagreement, ST
and Newco shall seek in good faith to resolve in writing any differences which they may have
with respect to any amount specified in the ST Notice of Disagreement. If Newco and ST are
unable to resolve any such disagreement within 30 days after ST receives the Newco Notice of
Disagreement, the disagreement shall be referred for final determination to Deloitte &
Touche USA LLP or if Deloitte & Touche USA LLP is unable or unwilling to make such final
determination, to such other independent accounting firm as the parties shall mutually
designate. The accounting firm so designated to make the final determination is hereinafter
referred to as the Independent Accountants.
(d) The ST Inventory Depreciation Amount and the ST Inventory Value in each case as of
the end of STs first fiscal quarter of 2007 and as of the Effective Time shall be deemed to
have been finally determined upon the first to occur of (i) acceptance of the Preliminary ST
Inventory Statement, (ii) Newcos failure to object thereto within 150 days after the
Closing Date, (iii) resolution by mutual agreement of the parties after timely delivery of
the Newco Notice of Disagreement or (iv) notification by the Independent Accountants of
their final determination thereof.
(e) If the ST Inventory Value as of the Effective Time, as finally determined, plus the
ST Inventory Depreciation Amount as of the Effective Time, as finally determined, is less
than the Minimum Committed ST Inventory Value, the ST Cash Consideration shall be deemed reduced by an amount equal to such difference times a
fraction the numerator of which is the ST Inventory Value and the denominator of which is
the sum of the ST Inventory Value plus the ST Inventory Depreciation Amount in each case, as
of the Effective Time. ST shall cause the amount of any such reduction in the ST Cash
Consideration to be refunded to Newco by the ST Transferor responsible for such reduction,
as determined by ST, within 10 days after such final determination. If the ST Inventory
Value as of the Effective Time, as finally determined, plus the ST Inventory
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Depreciation Amount as of the Effective Time, as finally determined, is equal to or greater than the
Minimum Committed ST Inventory Value, there shall be no adjustment in the ST Cash
Consideration.
(f) The fees and disbursements of the accountants of Newco shall be paid by Newco. The
fees and disbursements of STs accountants shall be paid by ST. The fees and disbursements
of the Independent Accountants shall be paid based on a ratable allocation made as a part of
its determination, based on the proportion by which the amount in dispute was determined in
favor of Newco or ST.
2.8 ST Transferred Entities Purchase Price Adjustment. The ST Cash Consideration
shall be subject to adjustment after the Closing Date in accordance with the following procedure:
(a) Any Third Party A/R Owed to ST Transferred Entities remaining uncollected at the
close of business on the 100th day after the Closing Date shall be transferred by Newco to
ST or its designated Subsidiary and shall thereafter be deemed ST Excluded Assets. Any
Third Party A/P Payable by ST Transferred Entities remaining unpaid at the close of business
on the 100th day after the Closing Date shall be assumed by ST or its designated Subsidiary,
and shall thereafter be deemed ST Excluded Liabilities.
(b) Promptly after the Closing Date, ST shall prepare a statement (the ST
Preliminary Closing Statement) setting forth the Net Available Cash of the ST
Transferred Entities, the Third Party A/R Owed to ST Transferred Entities, the Third Party
A/P Payable by ST Transferred Entities and the ST Transferred Employee Payment Liabilities,
in each case as of the Effective Time (each, an ST Closing Amount and
collectively, the ST Closing Amounts), and containing reasonably detailed
supporting information, documents and calculations. ST shall use commercially reasonable
efforts to cause such preparation and review to be completed and the ST Preliminary Closing
Statement to be delivered to Newco within 120 days after the Closing Date. The ST
Preliminary Closing Statement shall be prepared by ST from the books and records of ST
consistent with past practice and the ST Financial Information and in accordance with GAAP.
(c) Newco and its accountants shall have the right to review the work papers of ST and
its accountants utilized in preparing the ST Preliminary Closing Statement and shall have
full access to the books, records, properties and personnel of ST and its Subsidiaries for
purposes of verifying the accuracy and fairness of the presentation of the information in the ST Preliminary Closing Statement. The ST Preliminary Closing
Statement shall be binding on Newco, unless Newco delivers to ST written notice of
disagreement with any ST Closing Amount set forth therein (Notice of Disagreement)
within 150 days after the Closing Date specifying in reasonable detail the nature and extent
of the disagreement, in which case the ST Preliminary Closing Statement shall be binding on
Newco only in respect of the ST Closing Amounts set forth therein which are not the subject
of a Notice of Disagreement.
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(d) During the 30-day period following the delivery of a Notice of Disagreement, ST and
Newco shall seek in good faith to resolve in writing any differences which they may have
with respect to any ST Closing Amount specified in the Notice of Disagreement. If Newco and
ST are unable to resolve any such disagreement within 30 days after ST receives a Notice of
Disagreement, the disagreement shall be referred for final determination to Deloitte &
Touche USA LLP or if Deloitte & Touche USA LLP is unable or unwilling to make such final
determination, to such other independent accounting firm as the parties shall mutually
designate. The accounting firm so designated to make the final determination is hereinafter
referred to in this Section 2.8 as the ST Cash Independent Accountants.
(e) Each of the ST Closing Amounts shall be deemed to have been finally determined upon
the first to occur of (i) Newcos failure to deliver to ST a Notice of Disagreement with
respect to such ST Closing Amount within 150 days after the Closing Date, (ii) resolution by
mutual agreement of the parties after timely delivery of a Notice of Disagreement or (iii)
notification by the ST Cash Independent Accountants of their final determination thereof.
Within ten days after the date on which all of the ST Closing Amounts (as they may be
revised pursuant to this Section 2.8) shall have become final and binding (the
Final Payment Date):
(i) if (x) the Third Party A/R Owed to ST Transferred Entities exceeds the
Third Party A/P Payable by ST Transferred Entities, Newco shall pay ST the amount of
such excess or (y) the Third Party A/P Payable by ST Transferred Entities exceeds
Third Party A/R Owed to ST Transferred Entities, ST shall pay to Newco the amount of
such excess;
(ii) if (x) Net Available Cash of the ST Transferred Entities is a positive
number, Newco shall pay ST such amount or (y) Net Available Cash of the ST
Transferred Entities is a negative number, ST shall pay Newco such amount; and
(iii) ST shall pay Newco an amount equal to the ST Transferred Employee Payment
Liabilities not otherwise included in Net Available Cash of the ST Transferred
Entities.
(f) For convenience purposes, the amounts required to be paid pursuant to Section
2.8(e) shall be netted against or added to each other, as the case may be, so that only
one payment shall be made by ST to Newco or by Newco to ST, as the case may be,
under Section 2.8(e). Any payment made by Newco to ST shall be made on behalf
of Newco and its Subsidiaries and shall be for the benefit of ST and its Subsidiaries (other
than the ST Transferred Entities). Any payment made by ST to Newco shall be made on behalf
of ST and its Subsidiaries (other than the ST Transferred Entities) and shall be for the
benefit of Newco and its Subsidiaries.
2.9 Capital Expenditures.
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(a) Within 90 days after the Closing Date, ST shall deliver to Newco a schedule setting
forth in reasonable detail the amount of all capital expenditures made by ST in accordance
with the ST Business Capital Expenditures Plan between April 1, 2007 and the Closing Date
(Actual ST Capital Expenditures). For purposes hereof, Planned ST Capital
Expenditures means (i) the planned amount of capital expenditures set forth in the ST
Business Capital Expenditures Plan for each fiscal quarter completed during the period from
April 1, 2007 through the end of the last full fiscal quarter ending prior to the Closing
Date plus (ii) a prorated amount equal to the planned amount of capital expenditures set
forth in the ST Business Capital Expenditures Plan for the fiscal quarter in which the
Closing Date occurs multiplied by a fraction the numerator of which is the number of days
elapsed in such fiscal quarter through the Closing Date and the denominator of which is the
total number of days in such fiscal quarter. In the event that the Closing shall not have
occurred on or before the expiration of the then current ST Business Capital Expenditures
Plan, the Parties will agree in good faith on the modification of such ST Business Capital
Expenditures Plan to add additional planned amounts of capital expenditures for the
following fiscal quarter or quarters. Newco shall have full access to the ST Books and
Records, for purposes of verifying the accuracy and fairness of the schedule of Actual ST
Capital Expenditures delivered by ST to Newco hereunder.
(b) The schedule of Actual ST Capital Expenditures shall be binding on Newco, unless
Newco presents to ST written notice of disagreement with the schedule of Actual ST Capital
Expenditures (ST Cap Ex Notice of Disagreement) within 150 days after the Closing
Date specifying in reasonable detail the nature and extent of the disagreement.
(c) During the 30-day period following the delivery of a ST Cap Ex Notice of
Disagreement, ST and Newco shall seek in good faith to resolve in writing any differences
which they may have with respect to any amount specified in the ST Cap Ex Notice of
Disagreement. If Newco and ST are unable to resolve any such disagreement within 30 days
after ST receives the ST Cap Ex Notice of Disagreement, the disagreement shall be referred
for final determination to Deloitte & Touche USA LLP or if Deloitte & Touche USA LLP is
unable or unwilling to make such final determination, to such other independent accounting
firm as the parties shall mutually designate. The accounting firm so designated to make the
final determination is hereinafter referred to as the Cap Ex Independent
Accountants.
(d) Actual ST Capital Expenditures as of the Effective Time shall be deemed to have
been finally determined upon the first to occur of (i) acceptance of the schedule of Actual
ST Capital Expenditures, (ii) Newcos failure to object thereto within 150 days after the
Closing Date, (iii) resolution by mutual agreement of the parties after timely delivery of
the ST Cap Ex Notice of Disagreement or (iv) notification by the Cap Ex Independent
Accountants of their final determination thereof.
(e) In the event the Actual ST Capital Expenditures are less than the Planned ST
Capital Expenditures for the period from April 1, 2007 through the Closing Date, ST
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shall pay to Newco within 10 days after the final determination the amount of the difference.
(f) The fees and disbursements of the accountants of Newco shall be paid by Newco. The
fees and disbursements of STs accountants shall be paid by ST. The fees and disbursements
of the Cap Ex Independent Accountants shall be paid based on a ratable allocation made as a
part of its determination, based on the proportion by which the amount in dispute was
determined in favor of Newco or ST.
2.10 Deliveries by Newco. Newco shall, on or before the Closing, execute and deliver
or cause to be delivered to the civil law notary (civil law notary), who shall execute and
deliver the notarial deed of issue in respect of the ST Newco Shares (with a copy to ST):
(a) a certificate issued by a registered accountant as referred to in Section 2:204b
Dutch Civil Code relating to the value of the ST Transferred Assets to be contributed to
Newco against the issuance of the ST Newco Shares; 2
(b) a true and complete copy of the resolutions duly and validly adopted by the
Managing Director and the shareholders of Newco evidencing their authorization of the
execution and delivery of this Agreement and the consummation of the transactions
contemplated hereby including the issuance of the ST Newco Shares;
(c) a duly executed power of attorney by Newco with respect to the execution of the
notarial deed of issue of shares in respect of the ST Newco Shares; and
(d) a certificate of the Managing Director certifying the names and signatures of the
Persons authorized to sign this Agreement and the other documents to be delivered hereunder.
2.11 Deliveries by ST. Prior to the Closing, ST shall deliver to the civil law notary
executing the deed of issue in respect of the ST Newco Shares, a duly executed power of attorney by
ST with respect to the execution of the notarial deed of issue in respect of the ST Newco Shares,
which power of attorney shall be legalized and affixed with an apostille and shall be accompanied
by a legal opinion certifying that the signatory or signatories of the power has or have the
authority to represent ST with respect to the matters to which the power pertains. 3
|
|
|
2 |
|
This provision assumes issuance of shares in
consideration of assets contributed only to ST, and not ST Affiliates. If any
Newco shares are issued to Affiliates, we will need similar certificates with
respect to assets contributed by each Affiliate. |
|
3 |
|
If Newco shares will be issued to any Affiliates of
ST, each such Affiliate will also need to deliver a POA. |
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2.12 Closing. At the Closing:
(a) The ST Transferors shall deliver to Newco and its Affiliates the ST Bills of Sale
and, ST, through its officers, agents and employees, will, except as set forth on
Schedule 2.12(a), put Newco and its Affiliates, as applicable, in possession of all
tangible ST Transferred Assets at the facilities where they are located as of the Effective
Time (other than such ST Transferred Assets that are already owned by ST Transferred
Entities);
(b) ST and Newco and their respective Affiliates, as applicable, each shall execute and
deliver each of the ST Ancillary Agreements to which it is a party and shall make any
deliveries required thereunder;
(c) on behalf of itself and its Affiliates, Newco shall pay to ST for STs account
and/or for the account of the applicable ST Transferors the ST Cash Consideration by wire
transfer of immediately available funds to a bank account designated in writing by ST prior
to the Closing;
(d) Newco shall instruct the civil law notary to execute the notarial deed of issue in
respect of the ST Newco Shares and, upon the execution of such deed (i) register or cause to
be registered the issue of the ST Newco Shares in the share register of Newco and (ii)
deliver a copy of the deed of issue in respect of the ST Newco Shares and the registration
of such issuance in the share register of Newco to ST or one of its Affiliates;
(e) Newco and ST shall execute and deliver a delivery protocol relating to the manner
for delivery of any intangible property that is a ST Transferred Asset;
(f) ST shall deliver, or cause to be delivered, all certificates or instruments
representing the ST Transferred Interests duly endorsed and accompanied by necessary
documentation for transfer;
(g) ST shall furnish Newco with the following documents regarding the ST Transferred
Entities:
(i) the charter documents of each ST Transferred Entity and all amendments
thereto, duly certified by the proper officials of the jurisdiction of organization
of each such ST Transferred Entity, as in effect as of the Closing Date;
(ii) the charter documents of the Hynix JV and all amendments thereto,
including the joint venture agreement of the Hynix JV, as in effect as of the
Closing Date;
(iii) resignations, effective on the Closing Date, of the officers and
directors of each ST Transferred Entity and the officers and directors of the Hynix
JV who are ST designees or who are ST employees, officers, directors or affiliates,
unless otherwise specified by Newco prior to the Closing Date; and
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(iv) the complete and correct corporate minute books and reports filed with
Governmental Authorities as required by Applicable Law (including registration of
stock transfers) of the ST Transferred Entities.
2.13 Post Closing Registrations. Within eight days after the Closing, Newco shall (a)
file with the Commercial Register the certificate issued by the registered accountant as referred
to in Section 2.10(a) above and (b) register with the Commercial Register the increase in
its capital.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ST
Subject to the exceptions that are disclosed in the ST ACA Disclosure Letter, ST hereby makes
the following representations and warranties to Newco. Such representations and warranties are
made to Newco as if made and effective (a) on May 22, 2007 (except that with respect to any
representation and warranty that specifies another date, such representation and warranty shall be
made as of such specified date) and (b) as of the date hereof (except that with respect to any
representation and warranty that specifies another date, such representation and warranty shall be
made as of such specified date), as follows:
3.1 Existence and Good Standing. Each of the ST Transferors is duly organized,
validly existing and in good standing under the laws of its jurisdiction of organization (to the
extent such concept is recognized in such jurisdiction) and has all requisite power and authority
required to carry on its business as now conducted and to own and operate the ST Business as now
owned and operated by it. Each of the ST Transferors is qualified to conduct business and is in
good standing in each jurisdiction in which it conducts the ST Business (to the extent such concept
is recognized in such jurisdiction) other than such jurisdictions where the failure to be so
qualified would not reasonably be expected to have a ST Material Adverse Effect.
3.2 Authorization and Enforceability. Each of the ST Transferors has all requisite
power and authority to execute and deliver each of the Transaction Documents to which it is or will
be a party, to perform its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by each ST Transferor of each of the
Transaction Documents to which it is a party, and the performance by each ST Transferor of its
obligations contemplated hereby and thereby, have been duly and validly authorized by all necessary
corporate action. The Transaction Documents have been duly and validly executed and delivered by
the ST Transferor which is a party thereto and, assuming the due execution and delivery of this
Agreement and the other Transaction Documents to which it is a party by Newco (or a Subsidiary of
Newco) and the other parties thereto, this Agreement constitutes, and each of the Transaction
Documents to which a ST Transferor is a party constitutes, the legal, valid and binding agreement
of such ST Transferor, enforceable against such ST Transferor in accordance with their respective
terms, except to the extent (a) that their enforceability may be subject to any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect
relating to creditors rights generally or to general principles of equity or (b) indemnification
provisions contained in the Shareholders Agreement may be limited by applicable securities laws.
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3.3 Governmental Authorization. Other than the ST Approvals and the Intel Approvals
the execution, delivery and performance by each ST Transferor of the Transaction Document(s) to
which it is a party, and the consummation by it of the transactions contemplated thereby, require
no Governmental Approval.
3.4 Non-Contravention.
(a) The execution, delivery and performance by the ST Transferors of the Transaction
Documents to which it is a party, and the consummation of the transactions contemplated
thereby, do not and will not: (i) contravene or conflict with the certificate of
incorporation, bylaws, articles of association or other corporate organizational or
governing documents of any ST Transferor or any ST Transferred Entity; (ii) assuming receipt
of the ST Approvals, contravene or conflict with or constitute a material violation of any
provision of any Applicable Law binding upon or applicable to any ST Transferor, the ST
Transferred Assets or the ST Transferred Entities; or (iii) assuming receipt of the ST
Approvals, the Newco Approvals and of the ST Contractual Consents, (A) constitute a default
under, give rise to any right of termination, cancellation, modification, acceleration of,
or a loss of any benefit under any ST Contract, including the ST Transferred Contracts or
(B) result in the creation or imposition of any Lien (other than Permitted Liens) on any ST
Transferred Asset, or (C) constitute a breach, default or violation of any settlement
agreement, judgment, injunction or decree, except in the case of clause (ii) or (iii), for
matters that would not reasonably be expected to have a ST Material Adverse Effect (provided
that in determining whether a ST Material Adverse Effect would result, any adverse effect
otherwise excluded by clause (c) of the definition of ST Material Adverse Effect shall be
taken into account).
(b) The execution, delivery and performance by ST of this Agreement and the other
Transaction Documents to which ST is a party, and the consummation of the transactions
contemplated hereby and thereby, to the Knowledge of ST, do not and will not, as of the
Closing Date: (a) contravene or conflict with the articles of association, joint venture
agreement or other organizational or governing documents of the Hynix JV; or (b) constitute
a default under, give rise to any right of termination, cancellation, modification,
acceleration of, or a loss of any material benefit under the Hynix JV Junior Credit
Agreement or any other contract or agreement between ST or any Subsidiary of ST and the
Hynix JV.
3.5 Personal Property. The ST Transferors and ST Transferred Entities together have
good and marketable title to, or a valid and subsisting leasehold interest in, all of the tangible
personal property that is a ST Transferred Asset free and clear of any Lien, except for (a)
Permitted Liens and (b) any restriction contemplated by this Agreement or any of the other
Transaction Documents.
3.6 Real Property.
(a) Schedule 3.6(a) of the ST ACA Disclosure Letter lists (i) the street
address of the Owned ST Real Property and (ii) the current owner of such Owned ST Real
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Property. ST or one of its Subsidiaries has good and marketable fee title to the Owned ST
Real Property, free and clear of all Liens, other than Permitted Liens.
(b) Schedule 3.6(b) of the ST ACA Disclosure Letter lists (i) the street
address of the Leased ST Real Property and (ii) the identity of the lessor, the lessee and
the current occupant (if different from the lessee) of each such parcel of Leased ST Real
Property. ST or one of its Subsidiaries has a valid leasehold estate in all Leased ST Real
Property, free and clear of all Liens, other than Permitted Liens. Each of the ST Leases
(i) is valid and binding on the ST Transferor or ST Transferred Entity which is party
thereto and, to the Knowledge of ST, on the counterparties thereto, and is in full force and
effect and (ii) upon consummation of the transactions contemplated by this Agreement and the
ST Ancillary Agreements, except to the extent that any ST Contractual Consents are not
obtained, shall continue in full force and effect without penalty or other adverse
consequence. No ST Transferor, nor any ST Transferred Entity, is in breach of, or default
under, any ST Lease to which it is a party, except for such breaches or defaults that would
not reasonably be expected to have a ST Material Adverse Effect. Except as would not
reasonably be expected to have a ST Material Adverse Effect, to the Knowledge of ST, no
other party to any ST Lease is in breach thereof or default thereunder and neither ST nor
any of its Subsidiaries has received any notice of termination, cancellation, breach or
default under any ST Lease.
3.7 Litigation. There is no Proceeding or to the Knowledge of ST, investigation
pending or, to the Knowledge of ST, threatened in writing, by or against ST or any of its
Subsidiaries relating to the ST Business or any ST Transferred Asset (a) seeking to prevent,
enjoin, alter or delay the transactions contemplated by this Agreement or any other Transaction
Document or to materially encumber any ST Transferred Asset, or (b) that would otherwise reasonably be expected to have a ST Material Adverse Effect. There is no
Proceeding pending or, to the Knowledge of ST, threatened by or against any ST Transferred Entity,
except as would not reasonably be expected to have a ST Material Adverse Effect.
3.8 ST Transferred Contracts and Consents.
(a) Except as would not reasonably be expected to have a ST Material Adverse Effect,
each ST Transferred Contract (i) is valid and binding on the ST Transferor or the ST
Transferred Entity which is party thereto and, to the Knowledge of ST, the counterparties
thereto, and is in full force and effect and (ii) upon consummation of the transactions
contemplated by this Agreement, except to the extent that any ST Contractual Consents are
not obtained, shall continue in full force and effect without penalty or other adverse
consequence. No ST Transferor, nor any ST Transferred Entity is in breach of, or default
under, any ST Transferred Contract to which it is a party, except for such breaches or
defaults that would not reasonably be expected to have a ST Material Adverse Effect. Except
as would not reasonably be expected to have a ST Material Adverse Effect, to the Knowledge
of ST, no other party to any ST Transferred Contract is in breach thereof or default
thereunder and neither ST, nor any of its Subsidiaries, has received any notice of
termination, cancellation, breach or default under any ST Transferred Contract.
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(b) Schedule 3.8(b) of the ST ACA Disclosure Letter lists each material ST
Transferred Contract that requires the consent of the other party or parties thereto to be
obtained by ST or one of its Subsidiaries in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby to avoid the loss
of any material benefit under, or any material modification to, such ST Transferred Contract
(the ST Contractual Consents).
3.9 Compliance with Applicable Laws.
(a) ST and its Subsidiaries have complied with any Applicable Laws relating to the ST
Business or the operation and use of the ST Transferred Assets (including, in the case of
the ST Transferred Entities, Applicable Laws relating to their business operations and
employees) and the ST Transferred Interests, except where the failure to comply would not
reasonably be expected to have a ST Material Adverse Effect. To the Knowledge of ST, no ST
Transferor is subject to any order, writ, injunction or decree of any Governmental Authority
directly relating to the ST Transferred Assets. To the Knowledge of ST, no ST Transferred
Entity is subject to any material order, writ, injunction or decree of any Governmental
Authority.
(b) ST and its Subsidiaries are in possession of all Permits, except where the failure
to have, or the suspension or cancellation of, any of the Permits would not reasonably be
expected to have a ST Material Adverse Effect. ST and its Subsidiaries are in compliance
with all Permits and no suspension or cancellation of any of the Permits is
pending or, to the Knowledge of ST, threatened in writing, except, in each case, where
the failure to so comply, or the suspension or cancellation of, any of the Permits would not
reasonably be expected to have a ST Material Adverse Effect. Except as would not reasonably
be expected to have a ST Material Adverse Effect, (i) none of the ST Transferred Permits
will, assuming the related ST Approvals and Newco Approvals have been obtained prior to the
Closing Date, be terminated or impaired or become terminable, in whole or in part, as a
result of the transactions contemplated hereby and by the ST Ancillary Agreements and (ii)
upon consummation of such transactions, Newco or its Subsidiaries will, assuming the related
ST Approvals and Newco Approvals have been obtained prior to the Closing Date, have all of
the right, title and interest in all of the ST Transferred Permits.
(c) Except as would not reasonably be expected to have a ST Material Adverse Effect,
the ST Transferred Permits constitute all material Governmental Approvals necessary for the
ownership, lease or use of the ST Transferred Assets and the operation of the ST Business
after the Closing Date.
3.10 Tax Matters.
(a) ST has paid or caused to be paid all material Taxes relating to the ST Transferred
Assets and ST Business allocable (as provided in Section 5.8(b)(iii)) to the
Pre-Closing Tax Period that could become a liability of Newco or its Subsidiaries by reason
of the transfer of the ST Transferred Assets to Newco or its Subsidiaries as
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described herein or that would reasonably be expected to result in a Lien on any ST Transferred
Assets, other than non-delinquent Taxes incurred in the ordinary course of business since
the ST Financial Information Date in amounts consistent with prior periods (as adjusted for
changes in Tax rates and ordinary course fluctuations in operating results). None of the ST
Transferors has an actual or contingent liability for Taxes that will become a liability of
Newco or its Subsidiaries by reason of the transactions described herein, other than such
non-delinquent Taxes described in the immediately preceding sentence for which Newco or its
Subsidiaries may become liable by reason of statutory successor liability (or similar
liability) under Applicable Law.
(b) No Governmental Authority has claimed that the ST Transferred Assets are subject to
Tax in a jurisdiction in which the required Tax Returns have not been filed by the ST
Transferors.
(c) No material issues have been raised in writing in any audits, examinations or
disputes pertaining to Taxes arising from the ST Transferred Assets that can reasonably be
expected to be raised in similar examinations of Newco or its Subsidiaries following the
Closing.
(d) With respect to each of the ST Transferred Entities:
(i) Each ST Transferred Entity has properly prepared and timely filed all Tax
Returns required by law and has timely paid all Taxes due and payable (whether or not shown on any Tax Return). All such Tax Returns are true,
correct and complete in all material respects. Each ST Transferred Entity has
complied in all material respects with all Applicable Laws relating to Taxes. None
of the ST Transferred Entities (A) is a party to or bound by any closing agreement,
offer in compromise, gain recognition agreement or any other agreement with any
Governmental Authority, except for those agreements identified on Schedule
3.10(e) of the ST ACA Disclosure Letter, or any Tax indemnity or Tax sharing
agreement with any Person, and (B) has actual or contingent liabilities for Taxes,
other than (x) Taxes accrued as a liability in the ST Financial Information, or (y)
non-delinquent Taxes incurred in the ordinary course of business since the ST
Financial Information Date in amounts consistent with prior periods (if applicable),
as adjusted for changes in Tax rates and ordinary course fluctuations in operating
results.
(ii) There are and have been no (A) proposed, threatened or actual assessments,
audits, examinations or disputes as to Taxes relating to the ST Transferred
Entities, (B) accounting method adjustments with respect to the ST Transferred
Entities, or (C) waivers or extensions of the statute of limitations with respect to
Taxes for which the ST Transferred Entities would reasonably be expected to be held
liable following the date hereof. No issues have been raised in any audits,
examinations or disputes pertaining to the ST Transferred Entities that can
reasonably be expected to be raised in similar examinations following the Closing.
To the Knowledge of ST, there is no basis for the assertion by a
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taxing authority of a material Tax deficiency against the ST Transferred Entities. None of the ST
Transferred Entities is liable for Taxes of any other Person.
(iii) Schedule 3.10(d)(iii) of the ST ACA Disclosure Letter sets forth,
on an entity-by-entity basis, all jurisdictions in which each of the ST Transferred
Entities is subject to Tax and the type(s) of Tax. No ST Transferred Entity has
engaged (or been treated as engaged) in the conduct of a trade or business or had a
permanent establishment (as defined in applicable tax treaty) in a jurisdiction with
respect to which the required Tax Returns have not been filed.
(iv) Each ST Transferred Entity has complied with all information reporting and
record keeping requirements under all Applicable Laws, including retention and
maintenance of required records with respect thereto.
(v) None of the ST Transferred Entities is a party to any joint venture,
partnership, other arrangement or which could be treated as a partnership for any
applicable income Tax purposes.
(vi) There is no taxable income or other measure of Tax of any of the ST
Transferred Entities that will be reportable in the Post-Closing Tax Period that is
attributable to a transaction or event that occurred in a Pre-Closing Tax Period.
(vii) No position has been taken on any Tax Return with respect to the ST
Business or the ST Transferred Assets that is contrary to any publicly announced
position of a Governmental Authority, or that is substantially similar to any
position that a Governmental Authority has successfully challenged in the course of
an examination of a Tax Return of the ST Transferred Entities.
(e) Schedule 3.10(e) of the ST ACA Disclosure Letter sets forth in reasonable
detail, as to each ST Transferred Entity, the ST Business and the ST Transferred Assets,
each applicable agreement, ruling or other arrangement with respect to Taxes entered into
with or received from any Governmental Authority, including the terms of any agreement
governing the pricing of products sold to Affiliates of ST (each, an ST Tax
Agreement). Each of ST, its Affiliates and the ST Transferred Entities is in
compliance with each ST Tax Agreement in all material respects, and no Governmental
Authority has claimed or is expected to claim that any material breach of a ST Tax Agreement
has occurred. None of ST, its Affiliates or the ST Transferred Entities currently has
outstanding any requests for Tax rulings pertaining to the ST Transferred Entities, the ST
Business or the ST Transferred Assets that would reasonably be expected to affect the
liability for Taxes of Newco or its Subsidiaries after the Closing Date.
(f) The representations and warranties contained in this Section 3.10 are the
only representations and warranties being made with respect to compliance with or liability
under Applicable Laws relating to the Tax matters contemplated by this Section 3.10.
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3.11 Intellectual Property.
(a) All material ST Transferred Intellectual Property is free and clear of any Liens
other than Permitted Liens. One of the ST Transferors owns or, to STs Knowledge, is
licensed to use, all works of authorship and all associated Copyrights that are embodied in
the ST Products. One of the ST Transferors has good and marketable sole title to the ST
Transferred Intellectual Property (other than with respect to any moral rights therein or
relating thereto). With respect to the ST Transferred Intellectual Property, Schedule
3.11(a) identifies all material exclusive licenses granted by ST or its Subsidiaries.
Except as provided in the ST Intellectual Property Agreement or other Transaction Documents,
upon the Closing hereof, neither ST nor any of its Affiliates shall retain any material
rights under the ST Transferred Intellectual Property.
(b) To the Knowledge of ST, neither (i) the current use of the ST Transferred
Intellectual Property by ST or any of its Subsidiaries in its current operation of the ST
Transferred Assets nor (ii) the current manufacture, marketing, distribution or sale of any
of the ST Products by ST or its Subsidiaries in their current operation of the ST
Transferred Assets infringes any Copyrights or Trade Secret rights of any third party. To
the Knowledge of ST, ST has not received any written claims currently pending from any
Person claiming that the ST Products infringe or misappropriate the Copyrights, Trade
Secrets or Patents of such Person.
(c) ST has taken commercially reasonable steps to protect its rights in Trade Secrets
of ST embodied in the ST Products including taking commercially reasonable steps to have all
of its current and former employees, consultants and contractors employed in the ST Business
execute and deliver to ST a proprietary information and invention assignment agreement. To
the Knowledge of ST, it has not received written notice of any violation of or
non-compliance with such agreements.
(d) To STs Knowledge, neither ST nor any of its Subsidiaries is subject to any
outstanding decree, order, or judgment that (i) restricts in any material manner the use,
transfer or licensing of the ST Transferred Copyrights, the ST Transferred Patents, the ST
Transferred Trade Secrets or the ST Products, or (ii) adjudges any of the ST Transferred
Intellectual Property to be unenforceable or invalid.
(e) All ST Transferred Patents are currently in material compliance with formal legal
requirements involving the payment of fees to Governmental Authorities (including the
payment of filing, examination and maintenance fees). To the Knowledge of ST, there are no
proceedings or actions pending before any court or tribunal (including the PTO or equivalent
authority anywhere in the world) that involve the validity, scope or priority of ST
Transferred Intellectual Property. None of the ST Transferred Copyrights are registered
Copyrights.
(f) To STs Knowledge, no software source code of material proprietary value to the ST
Business is subject to obligations of public disclosure or distribution, under any open
source license or otherwise.
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3.12 Employee Matters.
(a) Pension Plans. At no time has ST or any other Person or entity under
common control with ST within the meaning of Section 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986 and the regulations issued thereunder, contributed to or been obligated
to contribute to any Multiemployer Plan or any plan maintained pursuant to a collective
bargaining agreement or any plan subject to Title IV of ERISA.
(b) Labor. No work stoppage or labor strike against ST or any of its
Subsidiaries is pending or, to STs Knowledge, threatened in writing or reasonably
anticipated with respect to the ST Business Employees. ST has no Knowledge of any
activities or proceedings of any labor union to organize any ST Business Employees who are
not currently represented by a labor or trade union or employee representative body. There
are no actions, suits, claims, labor disputes or grievances pending, or, to the Knowledge of
ST, threatened in writing or reasonably anticipated relating to any labor, safety or
discrimination matters involving any ST Business Employee, including charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would reasonably be
expected to have a ST Material Adverse Effect. Neither ST nor any of its Subsidiaries is
presently, nor has it been in the past, a party to, or bound by, any collective bargaining
agreement, collective agreement or recognition arrangement with any labor or trade union,
works council, European works council or other employee
representative body or union contract with respect to ST Business Employees and no such
agreement is being negotiated by ST with respect to the ST Business Employees. The consent,
notice or opinion of any such employee representative body with respect to the ST Business
Employees is not required to consummate any of the transactions contemplated by this
Agreement or any of the other Transaction Documents.
(c) ST Business Employee List. Schedule 3.12(c) of the ST ACA
Disclosure Letter (i) sets forth the ST Business Employees as of the date hereof and
identifies the country (and state, for those in the United States) in which each such ST
Business Employee is based and primarily performs his or her duties and (ii) identifies
certain Newco Allocated Positions which shall be offered to certain employees of ST in
accordance with Section 4.11(b) of the Master Agreement. Schedule 3.12(c)
shall be updated solely to reflect the change in employment status of any ST Business
Employee, the amendments permitted by Section 4.11(b) of the Master Agreement and
such other changes as may reasonably be agreed upon by the Parties.
(d) Nature of Representations and Warranties. The representations and
warranties contained in this Section 3.12 are the only representations and
warranties being made with respect to compliance with or liability under Applicable Laws
relating to the employment matters contemplated by this Section 3.12.
3.13 Financial Information.
(a) ST has delivered to Newco copies of the estimated unaudited consolidated statement
of net revenue and direct expenses of the ST Business for the year ended
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December 31, 2006 (the ST Financial Information Date) and the related estimated net book value of
the fixed assets and inventories of the ST Business as of the ST Financial Information Date
(collectively, the ST Financial Information). The ST Financial Information has
been prepared internally by ST for management reporting purposes only and has not been
audited by any independent certified public accountants or auditors.
(b) The ST Financial Information has been derived from the books and records of ST and
have not been separately audited. The ST Financial Information does not contain all
adjustments necessary to comply with GAAP. The ST Financial Information does not reflect
the assets, liabilities, revenues and expenses that would have resulted if the ST Business
had operated as an unaffiliated independent company; provided, however, that the ST
Financial Information includes estimations for allocation of various revenues, costs and
expenses on a reasonable basis.
3.14 Absence of Certain Changes. Since the ST Financial Information Date, other than
with respect to the transactions contemplated by the Transaction Documents, the ST Business has
been conducted in the ordinary course of business, and there has not been:
(a) (i) any sale, assignment or transfer of any of the material ST Transferred Assets
or any license of any of the ST Transferred Intellectual Property, except, in each case, in the ordinary course of business and the transfer of ST Transferred Assets to
ST Transferred Entities as contemplated hereby, or (ii) any creation, assumption or
sufferance of (whether by action or omission) the existence of any Lien on any of the ST
Transferred Assets, other than Permitted Liens;
(b) any waiver, amendment, termination or cancellation of any material ST Transferred
Contract or any relinquishment of any material rights thereunder by ST or its Subsidiary
which is party thereto, or, to the Knowledge of ST, any other party, other than, in each
such case, actions taken with respect to any such ST Transferred Contract in the ordinary
course of business that are not material to the ST Business;
(c) any material change by ST or any Subsidiary of ST in its accounting principles,
methods or practices relating to the ST Business or in the manner it keeps its accounting
books and records relating to the ST Business, except (i) any such change required by a
change in GAAP or (ii) any change that results from the audit contemplated by Section
5.2(h) of the Master Agreement;
(d) any damage, destruction or other casualty loss that is material to the ST
Transferred Assets taken as a whole;
(e) (i) any failure to make an amount of capital expenditures described in the ST
Business Capital Expenditures Plan that is material, in the aggregate, to the ST Business or
(ii) any incurrence of any additional ST Transferred Liabilities for capital expenditures
that are material, in the aggregate, to the ST Business, except for those described in the
ST Business Capital Expenditures Plan;
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(f) any failure to maintain the ST Transferred Assets as a whole, in all material
respects in at least as good condition as they were being maintained on the ST Financial
Information Date, subject to normal wear and tear;
(g) any acquisition, directly or indirectly, of all or substantially all of the assets
of any business of or equity interests in any Person or business, whether by merger,
consolidation or otherwise, that relates to the ST Business;
(h) any creation, incurrence, assumption or guarantee, or modification of the terms, of
any Indebtedness with respect to the ST Business, other than the Contemplated Financing,
except in the ordinary course of business;
(i) any ST Material Adverse Effect; or
(j) any agreement for ST or any of its Subsidiaries to take any of the actions
specified in paragraphs (a) through (h) above.
3.15 Environmental Matters.
(a) Except as would not reasonably be expected to have a ST Material Adverse Effect:
(i) ST and each of its Subsidiaries, in each case with respect to the ST
Transferred Assets or the ST Business, and each ST Transferred Entity is in compliance
with all applicable Environmental Laws; (ii) ST and each of its Subsidiaries, in each case
with respect to the ST Transferred Assets or ST Business, and each ST Transferred Entity has
obtained, and is in material compliance with, all Environmental Permits; (iii) neither ST
nor any of its Subsidiaries, in each case with respect to the ST Transferred Assets or the
ST Business nor any ST Transferred Entity is conducting or funding, or is required to
conduct or fund, any Remedial Action pursuant to any Environmental Law; (iv) to STs
Knowledge, no property to which a ST Transferred Entity or, in connection with the ST
Business, ST has, directly or indirectly, transported or arranged for the transportation of
any Hazardous Substances is listed on any list of sites requiring investigation or cleanup
promulgated by any relevant Governmental Authority; (v) there are no claims relating to any
Environmental Law pending or, to the Knowledge of ST, threatened in writing against ST or
any of its Subsidiaries, in each case with respect to the ST Transferred Assets or the ST
Business, or any ST Transferred Entity; and (vi) to STs Knowledge, there has been no
environmental investigation, study, audit, test, review or other analysis conducted within
the past five years that documents conditions giving rise to any material Environmental
Liability, that relates to the ST Transferred Assets, the Leased ST Real Property, the ST
Business, any ST Transferred Entity or any other property or facility now or previously
owned or leased by ST in connection with the ST Business, and that has not been delivered to
Newco within at least five days of the date hereof.
(b) The representations and warranties contained in this Section 3.15 are the
only representations and warranties being made with respect to compliance with or liability
under Environmental Laws, including natural resources, related to the ST
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Business, the ST Transferred Assets or STs or its Subsidiaries ownership or operation thereof.
3.16 Product Warranties. A copy of STs product warranties currently in effect with
respect to the ST Products as set forth in the order acknowledgement forms for the ST Products (the
ST Standard Form Product Warranties) is set forth on Schedule 3.16 of the ST ACA
Disclosure Letter. Neither ST nor any of its Subsidiaries has given any written product warranty
with respect to the ST Products other than the ST Standard Form Product Warranties. The ST
Products, taken as a whole, comply in all material respects with all such product warranties and
all material specifications applicable to the ST Products. To the Knowledge of ST, there are no
outstanding material claims with respect to product warranties relating to the ST Products. As of
the Closing Date, the ST Products constitute all of the products produced or sold by ST or any of
its Subsidiaries exclusively related to the ST Business.
3.17 ST Transferred Assets. The ST Transferred Assets and the assets made available
to Newco or its Subsidiaries under, or to be used by ST and its Subsidiaries in the performance of,
the ST Ancillary Agreements will, as of the Closing, constitute all of the material assets (other
than any Intellectual Property) necessary for the conduct of the ST Business as it is conducted by
ST and its Subsidiaries as of the Closing Date.
3.18 Customers. Schedule 3.18 of the ST ACA Disclosure Letter lists the names
of the 10 largest customers to whom the ST Business has sold products during the year ended
December 30, 2006 (based on dollar amount of revenue recognized in connection with the sale of such
ST Products during such year). To STs Knowledge, neither ST nor any of its Subsidiaries has
received any written statement from any customer whose name appears on Schedule 3.18 of the
ST ACA Disclosure Letter that such customer will not continue as a customer of the ST Business
after the Closing.
3.19 Insurance. ST has delivered to Newco summaries of all material insurance
policies and fidelity bonds relating to the ST Transferred Assets and the ST Business. There are
no material Claims by ST or any of its Subsidiaries pending under any of such policies or bonds as
to which coverage has been questioned, denied or disputed by the underwriters of such policies or
bonds or in respect of which such underwriters have reserved their rights.
3.20 Inventories. The estimated, unaudited book value of the ST Transferred
Inventories set forth in the ST Financial Information were determined in a manner not materially
inconsistent with GAAP. As of the end of STs first fiscal quarter of 2007, the estimated
unaudited ST Inventory Value is as set forth on Schedule 3.20 to the ST ACA Disclosure
Letter. Such estimated, unaudited book value of the ST Transferred Inventories and the ST
Inventory Value were prepared internally by ST for management reporting purposes only, have not
been audited by any independent certified public accountants or auditors and are further qualified
by the limitations set forth in Section 3.13(b). Since the ST Financial Information Date,
the levels of ST Transferred Inventory have been maintained in the ordinary course of business.
The ST Transferred Inventories are owned free and clear of all Liens other than Permitted Liens.
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3.21 Advisory Fees. There is no investment banker, broker, finder or other
intermediary or advisor that has been retained by or is authorized to act on behalf of ST, who will
be entitled to any fee, commission or reimbursement of expenses from any Person other than ST upon
consummation of the transactions contemplated by this Agreement.
3.22 Representations Regarding ST Transferred Entities and ST Transferred Interests.
(a) Organization. Each ST Transferred Entity and, to the Knowledge of ST, the
Hynix JV is duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization (to the extent such concept is recognized in such jurisdiction)
and has all requisite power and authority required to carry on its business as now conducted
and to own and operate the ST Business as now owned and operated by it. Each ST Transferred
Entity and, to the Knowledge of ST, the Hynix JV is, or will be, as of the Closing Date,
qualified to conduct business and in good standing (to the extent such concept is recognized
in such jurisdiction) in each jurisdiction in which it conducts the ST Business other than
such jurisdictions where the failure to be so qualified would
not reasonably be expected to have a ST Material Adverse Effect. The ST Transferred
Entities and, to the Knowledge of ST, the Hynix JV and their respective jurisdictions of
organization are identified on Schedule 3.22(a).
(b) Capitalization.
(i) As of the Closing, the authorized share capital of the ST Transferred
Entities shall be as set forth in Schedule 3.22(b) of the ST ACA Disclosure
Letter, and of such authorized share capital, only the ST Transferred Interests
shall be issued and outstanding. As of the Closing, no other shares of the ST
Transferred Entities shall have been authorized or designated as a series or shall
be issued and outstanding. As of the Closing, all of the ST Transferred Interests
shall have been duly authorized, validly issued, fully paid and non-assessable,
shall have been issued in material compliance with all Applicable Laws and shall
have been issued in compliance with all applicable preemptive rights created by
statute, the charter or other governing instruments of the ST Transferred Entities
and any agreement to which such ST Transferred Entities are bound or by which their
properties or assets are bound.
(ii) As of the Closing, there shall not be outstanding (A) any options,
warrants or other rights to purchase from any ST Transferred Entity any capital
stock or other securities of such ST Transferred Entity, (B) any securities, notes
or other indebtedness convertible into or exchangeable for shares of such capital
stock or securities, (C) any other commitments or rights of any kind for any ST
Transferred Entity to issue additional shares of capital stock, options, warrants or
other securities or (D) any equity equivalent or other ownership interests in any ST
Transferred Entity or similar rights.
(iii) As of the Closing, ST and its Subsidiaries shall be the sole registered
and beneficial owners of the ST
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Transferred Interests and the ST Transferred Interests shall be free and clear of all Share Encumbrances. Upon delivery of
certificates evidencing certificated ST Transferred Interests to Newco or a
Subsidiary of Newco together with any executed share transfer deeds or instruments
for the ST Transferred Interests necessary to transfer the ST Transferred Interests
under Applicable Law, and payment by Newco of the amount due and payable to ST
pursuant to Section 2.6, Newco or a Subsidiary of Newco will acquire good
and marketable title to such ST Transferred Interests, free and clear of any Share
Encumbrance.
(iv) As of the Closing, Newco and its Subsidiaries shall be the sole registered
and beneficial owners of the Hynix Interests and the Hynix Interests shall be free
and clear of all Share Encumbrances other than the Share Encumbrances under the
charter documents of the Hynix JV and the agreements listed in 6(a) through 6(p) of
Schedule 2.1(e) of the ST ACA Disclosure Letter. Upon delivery of
certificates evidencing the Hynix Interests (to the extent Applicable Law permits
the Hynix Interests to be certificated) to Newco or a
Subsidiary of Newco together with any executed share transfer deeds or
instruments for the Hynix Interests necessary to transfer the Hynix Interests under
Applicable Law, and payment by Newco of the amount due and payable to ST pursuant to
Section 2.6, Newco or a Subsidiary of Newco will acquire good and marketable
title to such Hynix Interests, free and clear of any Share Encumbrances other than
the Share Encumbrances under the charter documents of the Hynix JV and the
agreements listed in 6(a) through 6(p) of Schedule 2.1(e) of the ST ACA
Disclosure Letter.
(c) Ownership. Schedule 3.22(c) of the ST ACA Disclosure Letter sets
forth the identity of each of the holders of equity interests in the ST Transferred Entities
and their respective ownership interests in the ST Transferred Entities. The ST Transferred
Entities do not have any Subsidiaries and do not, directly or indirectly, own any equity
investment or other ownership interest in any Person. No ST Transferred Entity is a
participant in any joint venture, partnership or similar arrangement.
(d) Indebtedness.
(i) No ST Transferred Entity has any outstanding Indebtedness.
(ii) There are no Contracts between or among ST or any of its Subsidiaries and
the Hynix JV or any third party relating to the Indebtedness of the Hynix JV other
than the Hynix JV Junior Credit Agreement. None of ST or its Subsidiaries nor, to
the Knowledge of ST, the Hynix JV is in default under any provision of the ST Loan
Documents in any material respect.
3.23 Investment Representations.
(a) Investigation; Economic Risk. ST acknowledges that it has had an
opportunity to discuss the business, affairs and current prospects of Newco with Newcos
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officers. ST further acknowledges having had access to information about Newco that it has
requested. ST acknowledges that it is able to fend for itself in the transactions
contemplated by this Agreement and has the ability to bear the economic risks of its
investment in Newco pursuant to this Agreement. ST is an accredited investor, as such
term is defined in Rule 501 of Regulation D promulgated under the Securities Act.
(b) Purchase for Own Account. The ST Newco Shares will be acquired for the
account of ST or an Affiliate of ST, not as a nominee or agent, and not with a view to or in
connection with the sale or distribution of any part thereof.
(c) Exempt from Registration; Restricted Securities. ST understands that the
ST Newco Shares will not be registered under the Securities Act, on the basis that the sale
provided for in this Agreement is exempt from registration under the Securities Act, and
that the reliance of Newco on such exemption is predicated in part on STs representations
set forth in this Agreement. ST understands that the ST Newco Shares
being issued hereunder are restricted securities within the meaning of Rule 144 under
the Securities Act; that the ST Newco Shares are not registered and must be held
indefinitely unless they are subsequently registered or an exemption from such registration
is available.
3.24 Disclaimer of Warranties. EXCEPT WITH RESPECT TO THE WARRANTIES AND
REPRESENTATIONS SPECIFICALLY SET FORTH IN THIS ARTICLE III (WHICH MAY BE RELIED UPON BY NEWCO), ALL
OF THE TRANSFERRED ASSETS ARE BEING SOLD AS IS, WHERE IS, AND NEITHER ST NOR ANY OF ITS
SUBSIDIARIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, ORAL OR WRITTEN, WHETHER OF
MERCHANTABILITY, SUITABILITY, NONINFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE, OR QUALITY AS TO
THE TRANSFERRED ASSETS OR ANY PART OR ITEM THEREOF, OR AS TO THE CONDITION, DESIGN, OBSOLESCENCE,
WORKING ORDER OR WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
OTHERWISE.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco hereby represents and warrants to ST, as of the date of this Agreement, as follows:
4.1 Existence and Good Standing. Newco has been duly organized and is validly
existing as a private company with limited liability (besloten vennootschap met beperkte
aansprakelijkheid) under Dutch law and has all requisite power and authority required to carry on
its business as now conducted and to own and operate its businesses as now owned and operated by
it. Newco has heretofore delivered to ST complete and correct copies of its articles of
association and governance rules as currently in effect. Each Subsidiary of Newco has been duly
organized, validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite power and authority required to carry on its business as now
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conducted and to own and operate its business as now owned and operated by it. Newco has
heretofore delivered to ST complete and correct copies of the articles of incorporation and bylaws
or other organizational documents of each Subsidiary of Newco.
4.2 Authorization and Enforceability. Newco has all requisite corporate power and
authority to execute and deliver this Agreement and each of the Transaction Documents to which it
is or will be a party and to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by Newco of this
Agreement and each of the Transaction Documents to which it is a party and the performance by Newco
of its obligations contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action. This Agreement has been, and when executed at the Closing the other
Transaction Documents to which Newco is a party will have been, duly and validly executed and
delivered by Newco, and assuming the due execution and delivery of this
Agreement and the other Transaction Documents to which it is a party by ST and each of the
other parties thereto, this Agreement constitutes, and as of the Closing each of the Transaction
Documents to which Newco is a party will constitute, the legal, valid and binding agreement of
Newco, enforceable against Newco in accordance with their respective terms, except to the extent
(a) that their enforceability may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors rights generally or to
general principles of equity or (b) indemnification provisions contained in the Shareholders
Agreement may be limited by applicable securities laws.
4.3 Non-Contravention. The execution, delivery and performance by each of Newco and
its Subsidiaries of the other Transaction Documents to which it is a party, and the consummation of
the transactions contemplated hereby and thereby, do not and will not contravene or conflict with
the articles of association or governance rules of Newco or the organizational documents of any of
its Subsidiaries.
4.4 Capitalization. Immediately following the Closing, the capitalization of Newco
will consist of the following:
(a) Ordinary Shares. A total of Ordinary Shares of Newco will be
authorized, of which shares will be issued and outstanding, of which
Ordinary Shares will be held by ST
and Ordinary Shares will be held
by Intel. Newco will have sufficient authorized share capital with respect to its Ordinary
Shares upon a conversion of the Preferred Shares in accordance with the terms and conditions
of the Shareholders Agreement and sufficient authorized share capital with respect to its
Ordinary Shares for issuance under the Equity Plan (of which no such shares shall be subject
to outstanding options, and all of which shares shall be available for future issuance).
The Outstanding Ordinary Shares will have been validly issued, will be fully paid upon
transfer of the ST Transferred Assets and the Intel Transferred Assets to Newco, and will
have been issued in accordance with the registration or qualification provisions of all
applicable securities laws, or pursuant to valid exemptions therefrom.
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(b) Preferred Shares. A total of Preferred Shares will be
authorized, of which Preferred Shares will be issued and outstanding all of
which will be held by FP. The Outstanding Preferred Shares will have been validly issued,
will be fully paid upon receipt of the Purchase Price by Newco, and will have been issued in
accordance with the registration or qualification provisions of all applicable securities
laws, or pursuant to valid exemptions therefrom.
(c) Options, Warrants, Reserved Shares. Except for (i) the conversion
privileges of the Preferred Shares; (ii) the rights to purchase new securities set forth in
the Shareholders Agreement and mandatory provisions of the laws of The Netherlands; and
(iii) the Intel Option, there are no options, warrants, conversion privileges or other
rights (or agreements for any such rights) outstanding to purchase or otherwise obtain from
Newco any of Newco s securities. There exists no Newco obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities or any
interest therein.
4.5 Valid Issuance of Shares.
(a) The ST Newco Shares, when issued, sold and delivered in accordance with the terms
of this Agreement, will be duly and validly issued and fully paid, and will be free of
restrictions on transfer other than restrictions on transfer under the Equity Transaction
Documents, the laws of The Netherlands and applicable securities laws.
(b) The outstanding shares of Newco are duly and validly issued and fully paid upon
receipt of the Purchase Price and the consummation of the ST Asset Contribution Agreement
and the Intel Asset Transfer Agreement, and such shares of such capital stock, and all
outstanding shares, options and other securities of Newco have been issued in full
compliance with exemptions from the registration requirements of the Securities Act, and are
exempt from registration or qualification under the registration, permit or qualification
requirements of all applicable state securities laws and all other provisions of applicable
federal and state securities laws and applicable laws of The Netherlands, including, without
limitation, anti-fraud provisions.
4.6 Exempt Offering. Based in part upon STs representations in Section 3.23,
the offer and sale of the ST Newco Shares pursuant to this Agreement are exempt from the
registration requirements of Section 5 of the Securities Act by virtue of Regulation D thereunder,
from the qualification requirements of the California Corporate Securities Law of 1968, by virtue
of Section 25102(f) thereof, and from the registration or qualification requirements of any other
applicable foreign or state securities laws.
4.7 Lack of Registration Rights and Voting Agreements. Except as set forth in the
Shareholders Agreement, Newco has not granted or agreed to grant any registration rights to any
Person. There is no agreement or restriction relating to the voting of any shares of Newco other
than as set forth in the Shareholders Agreement.
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4.8 Reliance. In executing this Agreement and the ST Ancillary Agreements to which it
is a party, Newco and its Subsidiaries are relying on the investigations by Intel and FP (or its
Affiliates), and on the provisions set forth herein and therein and not on any other statements,
presentations, representations, warranties or assurances of any kind made by ST, its
representatives or any other Person. Newco acknowledges that (a) the representations and
warranties of ST contained in Article III hereof constitute the sole and exclusive
representations and warranties of ST to Newco in connection with this Agreement and the
transactions contemplated hereby and (b) all other representations and warranties are specifically
disclaimed and may not be relied upon or serve as a basis for a claim against ST. NEWCO
ACKNOWLEDGES THAT ST DISCLAIMS ALL WARRANTIES OTHER THAN THOSE EXPRESSLY CONTAINED IN THIS
AGREEMENT AS TO THE ST TRANSFERRED ASSETS, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, INCLUDING
ANY WARRANTY OF MERCHANTABILITY OR WARRANTY FOR
FITNESS FOR A PARTICULAR PURPOSE. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED
EXPRESSLY IN THIS AGREEMENT, NEWCO IS ACQUIRING THE ST TRANSFERRED ASSETS ON AN AS IS, WHERE IS
BASIS.
ARTICLE V
COVENANTS
5.1 Access to Information.
(a) Newco shall permit ST to retain copies of ST Books and Records for its internal use
or for audit, tax or regulatory purposes or for any use required by Applicable Law and shall
maintain for six years after the Closing Date all of the ST Books and Records pertaining to
the ST Transferred Entities, ST Transferred Assets and the ST Transferred Liabilities
relating to periods prior to the Closing. Newco shall provide ST and its representatives,
during normal business hours and upon reasonable notice from ST, with reasonable access to
such ST Books and Records. If, at any time after the sixth anniversary of the Closing Date,
Newco proposes to dispose of any of such books and records, Newco shall first offer to
deliver the same to ST at the expense of ST.
(b) Each Party (the Possessing Party) will afford the other Party (the
Receiving Party), its counsel and its accountants, during normal business hours,
reasonable access to information in the Possessing Partys possession or control relating to
the ST Transferred Assets, the ST Transferred Liabilities, the ST Transferred Entities and
the ST Business, and, to the extent reasonably requested, at the Receiving Partys expense,
will provide copies and extracts therefrom, all to the extent that such access may be
reasonably required by the Receiving Party in connection with (i) the preparation of Tax
Returns, (ii) compliance with the requirements of any Governmental Authority or (iii) to
facilitate the resolution of claims made by a third party against or incurred by ST or Newco
pertaining to the ST Transferred Assets, the ST Transferred Liabilities, the ST Transferred
Entities or the ST Business; provided, however, that nothing in this Section 5.1(b)
shall be deemed to require any Party to disclose any information that it is prohibited from
disclosing under any non-disclosure agreement entered into prior to the
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date of the Master Agreement or in the ordinary course of business after the date of the Master Agreement.
5.2 Compliance with Terms of Governmental Approvals and Consents. From and after the
Closing Date, Newco shall comply at its own expense with all conditions and requirements imposed on
Newco as set forth in (a) Newco Approvals that are Governmental Approvals, to the extent necessary
such that all such Governmental Approvals will remain in full force and effect assuming, if
applicable, continued compliance with the terms thereof by ST and (b) all Newco Approvals of
Persons other than Governmental Authorities, to the extent necessary such that all such consents
and approvals will remain effective and enforceable against the Persons giving such consents and
approvals, assuming, if applicable, continued compliance with the terms thereof by ST.
5.3 Use of Marks. Notwithstanding any other provision, no interest in or right to use
the name STMICROELECTRONICS or any derivation thereof or any other Trademarks, service marks or
tradenames of ST, other than the ST Transferred Trademarks, (the ST Retained Marks) is
being transferred or otherwise licensed to Newco pursuant to the transactions contemplated by this
Agreement. Newco agrees not to use any materials bearing ST Retained Marks or sell, transfer or
ship any products bearing ST Retained Marks (a) unless requested to do so by ST, (b) except to the
extent displayed on the hardcopy (non-electronic) form of such materials delivered to Newco at the
Closing, (c) except as required under ST Transferred Contracts with customers or (d) except on ST
Transferred Inventory, product instructions, labeling, containers, data sheets, specifications and
any similar materials directly related to the ST Transferred Inventory in existence as of the
Closing Date until, in all cases, the earliest of (i) the sale or disposition of such Inventory or
other materials, (ii) such time as Newco shall have qualified the use of its logo, Trademark or
tradenames with each such customer and (iii) 180 days after the Closing Date or such other period
as is permitted under the ST Transition Services Agreement or the ST Intellectual Property
Agreement solely for the purposes set forth therein. Further, dies manufactured by or for Newco
using mask sets included in the ST Transferred Assets may bear ST Retained Marks only to the extent
that it is not commercially reasonable to manufacture dies using such mask sets that do not bear
such ST Retained Marks. The foregoing rights are subject to STs standard Trademark usage
guidelines, a copy of which has been provided to Newco, to any applicable provisions of the ST
Transition Services Agreement, and to any applicable provisions of the ST Intellectual Property
Agreement, and ST reserves the right to practice quality control with regard to its marks and any
products or services marketed or sold thereunder. Newco shall comply with any reasonable
instructions of which it is notified by ST relating to STs exercising of such quality control
rights. Upon the expiration of the foregoing license, all materials bearing any ST Retained Mark
in the possession or control of Newco or its agents shall be promptly destroyed. Prior to any
distribution of any materials bearing ST Retained Marks, Newco shall use commercially reasonable
efforts to redact or modify such materials in order to minimize or eliminate the use of the ST
Retained Marks.
5.4 Cooperation in Third Party Litigation. Each Party shall provide such assistance
and cooperation as the other Party or its counsel may reasonably request in connection with any
claims, Proceedings or investigations relating to the ST Business or the ST Transferred Assets, ST
Transferred Liabilities, ST Transferred Entities, provided that the Party making such request
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shall reimburse each such other Party for its reasonable and documented out-of-pocket costs and expenses
in providing such assistance; provided, that such assistance shall not unreasonably interfere with
the business and operations of any such other Party.
5.5 Assignments
(a) ST will reasonably cooperate with Newco in transferring applications and
registrations for the ST Transferred Copyrights, ST Transferred Trademarks and the ST
Transferred Patents to the extent that ST has applied for or obtained registrations
therefor; provided, however, that following the Closing, subject to Section 5.4, ST
shall not have or incur any further obligations or expenses in connection therewith, and it
shall be the sole responsibility of Newco to pursue, protect or perfect any such rights as it
may see fit in its sole discretion.
(b) Following the Closing, in the event that (i) ST identifies ST Excluded Assets that
have been erroneously identified for delivery or delivered to Newco, Newco shall use
commercially reasonable efforts to return such ST Excluded Assets to ST at STs expense or
(ii) Newco identifies ST Transferred Assets that any ST Transferor has failed to deliver to
Newco or a Subsidiary of Newco or a ST Transferred Entity, such ST Transferor shall use
commercially reasonable efforts to deliver such ST Transferred Assets to Newco or such
Subsidiary of Newco at STs expense.
5.6 Reasonable Efforts. Each of Newco and ST will cooperate and use its commercially
reasonable efforts to take, or cause to be taken, all appropriate actions (and to make, or cause to
be made, all filings and notifications necessary, proper or advisable under Applicable Law) to
consummate and make effective the transactions contemplated by this Agreement and the Transaction
Documents, including its commercially reasonable efforts to obtain, as promptly as practicable, all
licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental
Authorities and parties to contracts, as are necessary for the consummation of the transactions
contemplated by this Agreement and the Transaction Documents to which it is a party.
5.7 Allocation of Non-Tax Operating Expenses. All utility charges, gas charges,
electric charges, water charges, water rents and sewer rents, if any, shall be apportioned between
Newco and ST as of the Closing Date, computed on the basis of the most recent meter charges or, in
the case of annual charges, on the basis of the established fiscal year. All Prepayments
(including lease expenses but excluding Taxes and ST Prepayments) paid by ST prior to the Closing
Date and all other operating expenses paid by Newco with respect to the ST Business shall be
apportioned between Newco and ST as of the Closing Date computed on the basis of the applicable
time period to which expenses apply. Within 90 days after the Closing, each Party shall present a
statement to the other Party setting forth the amount of reimbursement to which each is entitled
under this Section 5.7, together with such supporting evidence as is reasonably necessary
to calculate the proration amount. Such amount shall be paid by the Party owing it to the other
within 10 days after delivery of such statement.
5.8 Tax Matters.
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(a) Tax Returns. ST shall prepare or cause to be prepared all Tax Returns with
respect to the ST Transferred Assets and the ST Business for the Pre-Closing Tax Period,
other than the Tax Returns of the ST Transferred Entities for taxable periods that end
following the Closing Date. Newco shall prepare or cause to be prepared all Tax Returns
with respect to the ST Transferred Assets and the ST Business for the Post-Closing Tax
Period and of the ST Transferred Entities for taxable periods ending after the Closing Date.
All Tax Returns with respect to the ST Transferred Entities, ST Transferred Assets or ST
Business prepared by Newco for taxable periods that include but do not end on the Closing
Date (each such period, a Straddle Period) shall be
prepared in a manner consistent with prior Tax Returns filed by the ST Transferred
Entities, except as otherwise required by Applicable Law. To the extent ST would be liable
for all or any portion of the Taxes shown on any Straddle Period Tax Return, such Tax Return
shall be provided to ST no later than 30 days prior to the filing thereof, and any disputes
concerning the manner in which such Tax Returns are prepared shall be resolved as provided
in Section 5.8(h). Newco shall not amend or permit to be amended any Tax Returns
with respect to a ST Transferred Entity to the extent such amendment could increase the
liability of ST hereunder.
(b) Responsibility for Payment of Taxes. Except as otherwise provided in this
Section 5.8:
(i) ST shall be liable for and shall indemnify, defend and hold Newco harmless
from and against (A) all Taxes arising from the ST Transferred Assets or the ST
Business with respect to the Pre-Closing Tax Period, including all Taxes of the ST
Transferred Entities attributable to the Pre-Closing Tax Period to the extent not
paid prior to the Closing, (B) all Taxes imposed on any ST Transferred Entity as a
result of being or having been a member of an affiliated, consolidated, combined,
unitary, fiscal unity or similar group of which ST or any of its Affiliates is or
was a member, other than Taxes arising from the income, assets or operations of
Newco and its Subsidiaries during the Post-Closing Tax Period, and (C) all Taxes
imposed on any ST Transferred Entity as a result of being or having been party to
any tax sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other Person for Taxes that was entered into
prior to the Closing, other than Taxes arising from the income, assets or operations
of Newco and its Subsidiaries during the Post-Closing Tax Period; provided, however,
that Taxes arising on the Closing Date by reason of actions taken by or at the
request of Newco out of the ordinary course of business following the Closing and
without the consent of ST shall be the responsibility of Newco.
(ii) Newco shall be liable for and shall indemnify, defend and hold ST harmless
from and against all Taxes arising from the ST Transferred Assets or the ST Business
with respect to the Post-Closing Tax Period, including all Taxes of the ST
Transferred Entities attributable to the Post-Closing Tax Period, except to the
extent that such Taxes are STs obligation under Section 5.8(b)(i) or are
subject to indemnification from ST pursuant to
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Section 6.2(a) (but subject to Section 6.2(g)) and except for any Taxes imposed on ST or its Affiliates
by virtue of their ownership of equity in Newco.
(iii) Taxes with respect to any of the ST Transferred Entities for a Straddle
Period shall be calculated by means of a closing of the books and records of such ST
Transferred Entity as of the close of the Closing Date, as if such Straddle Period
ended as of the close of the Closing Date; provided that exemptions, allowances or
deductions that are calculated on an annual basis (including depreciation and
amortization deductions computed as if the Closing
Date was the last day of the taxable period) shall be allocated between the
portion of the period ending on the Closing Date and the portion of the period
after such day in proportion to the number of days in each such period; and,
provided, further, that personal property, ad valorem and other similar Taxes that
are not based on income, revenue, expenses or any combination thereof (Property
Taxes) for a Straddle Period shall be allocated between the Pre-Closing Tax
Period and the Post-Closing Tax Period in proportion to the number of days in each
such period (except as provided in the immediately succeeding sentence). Property
Taxes with respect to the ST Transferred Assets other than those owned by the ST
Transferred Entities shall be allocated similarly. ST shall be liable for the
amount of such Taxes that is attributable to the Pre-Closing Tax Period (other than
to the extent of any increase in Property Taxes attributable to the transactions
described herein), and Newco shall be liable for the proportionate amount of such
Taxes that is attributable to the Post-Closing Tax Period (including any increase in
Property Taxes attributable to the transactions described herein).
(iv) Within a reasonable period after the Closing, and from time to time
thereafter upon the receipt by a Party of a bill, assessment or other notice of Tax
due, ST and Newco shall present a statement to the other setting forth the amount of
reimbursement to which each is entitled under this Section 5.8(b), together
with such supporting evidence as is reasonably necessary to calculate the amount
owed. The amount owed shall be paid by the Party owing it to the other within 10
days after delivery of such statement or, if later, 3 days prior to the time such
Taxes are required to be paid to the appropriate Governmental Authority. In the
event that either ST or Newco makes a payment for which it is entitled to
reimbursement under this Section 5.8(b), the other Party shall pay such
reimbursement promptly, but in no event later than 30 days after the presentation of
a statement setting forth the amount of reimbursement to which the presenting Party
is entitled along with such supporting evidence as is reasonably necessary to
calculate the amount of reimbursement. Any payment required under this Section
5.8(b) and not made when due shall bear interest at the rate of 10% per annum.
(c) Sales and Use Taxes. All Sales Taxes incurred by ST or its Affiliates in
connection with the transfer of ST Transferred Assets to a ST Transferred Entity (whether
such Sales Taxes arise upon such transfer or upon the transfer of the underlying ST
Transferred Interests to Newco or its Subsidiaries) shall be borne by ST or its Affiliates
(but not the ST Transferred Entities) to the extent such Sales Taxes exceed the
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Sales Taxes that would have been incurred if the underlying ST Transferred Assets were transferred
directly by the historical owner thereof to Newco or a Subsidiary of Newco (located in the
same jurisdiction as such ST Transferred Entity) without the intervening transfer to such ST
Transferred Entity. All other Sales Taxes incurred by the Parties or their Affiliates as a
consequence of the transfer of the ST Transferred Assets (including the ST Transferred
Interests) to Newco shall be determined as soon as practicable after the Closing based on
the allocation described in Section 5.9 and shall be borne 50% by Newco and 50% by
ST; provided, however, that in no event shall Newcos share of such
Sales Taxes exceed $5,000,000. Notwithstanding the foregoing, Newco or its
Subsidiaries shall pay 100% of all Sales Taxes to the extent the payment thereof by Newco or
such Subsidiaries gives rise to a right to claim a refund of or credit against Taxes
otherwise payable by Newco or its Subsidiaries under Applicable Law (and such amount shall
not count toward the $5,000,000 cap in the preceding sentence). To the extent permitted by
Applicable Law, Newco and ST shall cooperate and use commercially reasonable efforts to
minimize such Sales Taxes. To the extent a taxing authority provides notice to ST or Newco
of an audit of Sales Taxes for which the other Party has any responsibility hereunder, the
Party receiving the notice shall promptly notify the other Party. The Parties shall
cooperate as reasonably requested to defend any audit with respect to Sales Taxes described
herein, and the Party responsible therefor shall pay when due any additional Sales Taxes
ultimately assessed (together with any interest, penalties or additions to tax with respect
thereto) in the ratios described above. ST shall control all Sales Tax audits where ST or
its Affiliates bear 100% of the underlying Sales Tax, and ST and Newco shall jointly control
all other Sales Tax audits (and share equally all related professional fees, interest,
penalties and additions to tax) pertaining to the transfer of the ST Transferred Assets to
Newco. With respect to Sales Taxes for which the Parties bear joint responsibility
hereunder, neither Party shall settle any proposed adjustment to such Sales Taxes without
the other Partys prior written approval, not to be unreasonably withheld or delayed.
(d) Cooperation. As to the Taxes for which ST is liable hereunder or that
arise in a Straddle Period, the Parties hereto agree to furnish or cause to be furnished to
one another, upon request, as promptly as practicable, such information and assistance
relating to the ST Transferred Assets, the ST Business and the ST Transferred Entities as
is reasonably necessary for the filing of all Tax Returns, the preparation for any audit by
any taxing authority, and the prosecution or defense of any claim or Proceeding relating to
any Tax Return. The Parties hereto shall cooperate with each other in the conduct of any
audit or other Proceeding related to Taxes involving the ST Business.
(e) Allocation of ST Consideration among the ST Transferred Assets. The ST
Consideration (including the ST Transferred Liabilities to the extent treated as amount
realized for United States federal income tax purposes) shall be allocated among the ST
Transferred Assets and the ST Transferred Interests in accordance with Schedule
5.8(e) of the ST ACA Disclosure Letter (as such allocation shall be determined prior to
Closing and attached hereto immediately prior to the Closing). Such schedule shall be
prepared in a manner consistent with the Third Party Appraisal. Each of the Parties hereto
agrees
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to report the transactions contemplated hereby for state, federal and foreign Tax
purposes in accordance with such allocation of the ST Consideration. ST shall prepare
Schedule 5.8(e) of the ST ACA Disclosure Letter subject to Newcos approval, which
approval shall not be unreasonably withheld. Such schedule shall be adjusted for any
changes to the ST Cash Consideration, in a manner consistent with the Third Party Appraisal
and otherwise as ST determines in its reasonable discretion.
(f) Treatment of Indemnity Payments. The Parties shall treat all
indemnification payments made under this Agreement as an adjustment to the ST Cash
Consideration for applicable Tax purposes.
(g) Tax Dispute Resolution. If the Parties are unable to resolve any disputes
regarding the content of Tax Returns for which ST has a right of review pursuant to
Section 5.8(a), the issue or issues shall be referred for resolution to a partner at
a Big 4 accounting firm (or other nationally recognized accounting firm) reasonably
acceptable to the Parties, who shall be requested to resolve open issues, on the basis of
the position most likely to be sustained if challenged in a court having initial
jurisdiction over the matter (which for federal income tax issues shall be deemed to be the
United States Tax Court). The decision of such accounting firm shall be final and binding
on the Parties, and the costs of such accounting firm shall be Newco costs. If such Tax
Returns become due (taking into account extensions of time to file, which Newco shall seek
as necessary to avoid the delinquent filing of its Tax Returns) they shall be filed as
determined by Newco and shall be amended and re-filed as required by the outcome of the
referral to the accounting firm as provided herein.
(h) For so long as Italian Newco or any successor has unclaimed M6 Tax Credits, the use
of which has not expired under Applicable Law, Newco shall, at STs expense, use
commercially reasonable efforts to take such actions as are reasonably requested in writing
by ST from time to time in order to enable Italian Newco or any successor thereto that is a
Subsidiary of Newco to qualify for and receive the M6 Tax Credits; provided, however, that
Newco shall not be required to take actions that Newco determines would result in the
utilization of the M6 Tax Credits to the exclusion of other Tax credit or other attributes
of Newco or its Subsidiaries or would otherwise adversely affect Newco from a Tax or
financial standpoint. ST shall have the right to review any Tax Returns on which ST
requests that such M6 Tax Credits be claimed prior to filing. If and when Newco or its
Subsidiaries receives an actual benefit from the claiming of an M6 Tax Credit, either in the
form of a cash refund of Taxes previously paid with respect to a Post-Closing Tax Period, a
reduction or offset to other Taxes actually payable (determined on the basis of the actual
Taxes paid or refunded with the benefit of such M6 Tax Credit versus such amounts without
the benefit of such M6 Tax Credits (but taking into account other benefits available to
Newco and its Subsidiaries)) (an M6 Tax Credit Benefit), Newco shall promptly pay
to ST (or any ST Affiliates designated by ST) the amount of such M6 Tax Credit Benefit less
the amount of Taxes (including withholding Taxes or deductions, if any) and other costs,
expenses or liabilities incurred by Newco and its Subsidiaries as a result of the receipt or
right to receive such refund or credit or the payment or obligation to make payment under
this Section 5.8(h). If for any reason
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Newco or its Subsidiaries is required to refund or otherwise return to a Governmental Authority the amount of any M6 Tax Credit
Benefit previously paid to ST or its designees, or if the utilization of the M6 Tax Credits
subsequently results in the inability to utilize other Tax benefits of Newco and its
Subsidiaries, ST shall promptly repay such amounts to Newco, and such amounts shall again
become available for payment to ST if and when they are realized by Newco or its
Subsidiaries as provided in this section, subject again to this sentence. ST will indemnify, defend and hold Newco and its
Subsidiaries harmless for any Taxes and related out-of-pocket costs (including professional
fees) incurred as a result of any M6 Tax Credits claimed by Newco being disallowed for any
reason. The intent of this Section 5.8(h) is to provide ST with the benefit of the
M6 Tax Credits only to the extent they actually result in a cash benefit to Newco or its
Subsidiaries (taking into account the other Tax credits or other attributes of Newco and its
Subsidiaries), and for ST to refund such amount previously paid to ST pursuant to this
Section 5.8(h) if such cash benefit is reduced for any reason (including by reason
of the availability of other Tax attributes that would have provided the same cash benefit)
and otherwise place Newco and its Subsidiaries in a position that is no worse than if they
never claimed such M6 Tax Credits or paid such amounts to ST, and this Section
5.8(h) shall be interpreted accordingly.
5.9 Accounts Receivable. Following the Closing, (a) if ST or any of its Subsidiaries
receives any payment, refund or other amount that is a ST Transferred Asset or is otherwise
properly due and owing to Newco in accordance with the terms of this Agreement, ST promptly shall
remit, or shall cause to be remitted, such amount to Newco and (b) if Newco or any of its
Subsidiaries receives any payment, refund or other amount that is a ST Excluded Asset or is
otherwise properly due and owing to ST or any of its Subsidiaries in accordance with the terms of
this Agreement, Newco promptly shall remit, or shall cause to be remitted, such amount to ST.
Without limiting the foregoing, Newco shall forward to ST, immediately upon receipt thereof, any
payments of Pre-Closing Accounts Receivable of ST or any of its Subsidiaries (other than Third
Party A/R Owed to ST Transferred Entities), and ST shall forward to Newco, immediately upon receipt
thereof, any payments of Post-Closing Accounts Receivable of Newco or any of its Subsidiaries
unless otherwise set forth in the ST Transition Services Agreement. Following the Closing, the
Parties shall cooperate in promptly advising customers to direct to the appropriate Party any
future payments by such customers. In determining whether a payment received by either Party is a
payment of an Account Receivable of ST or Newco, the receiving Party may rely on any invoice or
contract number referred to on the payment or in correspondence accompanying such payment. To the
extent any payment, refund or other amount received by ST or Newco from a customer or other account
debtor does not specify which outstanding invoice or receivable it is in payment of, such payment
shall be applied to the earliest invoice outstanding with respect to indebtedness of such customer
or other account debtor, except for those invoices which are subject to a dispute to the extent of
such dispute. Following the Closing, Newco will provide such cooperation as ST shall reasonably
request in connection with STs collection of outstanding Pre-Closing Accounts Receivable of ST and
its Subsidiaries (other than Third Party A/R Owed to ST Transferred Entities).
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5.10 Accounts Payable. To the extent that Newco receives any invoices for Pre-Closing
Accounts Payable of ST or any of its Subsidiaries (other than Third Party A/P Payable by ST
Transferred Entities) or statements evidencing amounts owed by ST or any of its Subsidiaries to
another Person, Newco will promptly deliver such documents to ST. To the extent that ST or any of
its Subsidiaries receives any invoices for Accounts Payable of Newco or statements evidencing
amounts owed by Newco or any of its Subsidiaries to another Person, ST will promptly deliver such documents to Newco unless
otherwise set forth in the ST Transition Services Agreement.
5.11 Employees.
(a) To the greatest extent permitted by Applicable Law, Newco shall provide service
credit for all periods of service by the ST Transferred Employees under Newcos employee
policies and plans except to the extent such service credit would result in the duplication
of benefit accrual for the same period of service. Newco shall be responsible for all
Liabilities, salaries, benefits and similar employer obligations that arise after Closing
under Newcos compensation and benefit plans and policies for all ST Transferred Employees
or pursuant to Section 2.3(d). In particular, Newco shall be responsible for
liabilities with respect to the termination of any ST Transferred Employees by Newco after
the Closing, including health care continuation coverage with respect to plans established
or maintained by Newco after the Closing to the extent that the ST Transferred Employees
participate therein, and damages or settlements arising out of any claims of wrongful,
constructive or illegal termination or dismissal by Newco following the Closing, and for
complying with the requirements of all Applicable Laws with respect to any such termination
by Newco after the Closing. Subject to Section 2.3(d), ST shall be solely
responsible for any liabilities or obligations with respect to ST Transferred Employees
under the ST Employee Plans or the ST Employee Agreements that arise following the Closing.
(b) Non- U.S. ST Business Employees. With respect to ST Business Employees
located outside the United States, each of Newco and ST agrees to comply with all covenants,
agreements and obligations set forth in Schedule 5.11(b) of the ST ACA Disclosure
Letter.
(c) Funded Employee Plans. To the extent that Newco is required under
Applicable Law to assume Liabilities with respect to a ST Funded Employee Plan relating to
service of ST Transferred Employees prior to the Closing Date, and unless such obligations
are not otherwise satisfied at or prior to the Closing Date among ST, Newco and the relevant
ST Transferred Employees, ST shall, or shall cause the applicable ST Subsidiary to, pay to
Newco an amount in cash or cash equivalents equal to such Liabilities as of the Closing Date
as determined in accordance with this Section 5.11(c) (the ST Funded Employee
Plan Amount). ST shall, or shall cause the applicable ST Subsidiary to, cause the ST
Funded Employee Plan Amount to be transferred to Newco as soon as practicable following the
Closing Date, but in no event more than 15 days following the determination of the amount
due hereunder. The ST Funded Employee Plan Amount shall be determined in accordance with
Applicable Law
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and the relevant provisions of the ST Funded Employee Plan. To the extent
required by Applicable Law or by the ST Funded Employee Plan, ST shall, or shall cause the
applicable ST Subsidiary to, require the actuary of each ST Funded Employee Plan (each, an
ST Actuary) to determine, prior to the Closing Date, the ST Funded Employee Plan
Amount for the relevant ST Funded Employee Plan in accordance with FAS 158 on a projected
benefit obligation basis based on actuarial assumptions no less favorable than
those used in the most recent actuarial report prepared for the relevant ST Funded Employee Plan. The actuarial calculations and assumptions of the ST Actuary may be reviewed
for accuracy by an actuary designated by Newco (the Newco Actuary). If the ST
Actuary and the Newco Actuary cannot reach an agreement as to the proper determination for
the ST Funded Employee Plan Amount with respect to a ST Funded Employee Plan, ST and Newco
shall refer such matter to an independent third-party actuary (which actuary shall be
mutually agreeable to ST and Newco) (the Third Actuary) for resolution. Promptly,
but in no event later than 45 days after such referral, the Third Actuary shall review the
ST Actuarys calculation of the relevant ST Funded Employee Plan Amount and the Newco
Actuarys objection and calculations with respect thereto, and shall provide each of ST and
Newco a written statement of its decision as to the issues in dispute and the determination
of the ST Funded Employee Plan Amount. Such determination shall be final and binding for
all purposes. The fees and expenses of the ST Actuary and the Newco Actuary shall be borne
by ST. The fees and expenses of the Third Actuary shall be borne equally by ST and Newco.
(d) Consultation Obligations. ST and Newco shall where and to the extent
required by Applicable Law or by an applicable collective bargaining, collective agreement,
recognition arrangement or other similar agreement or arrangement inform and consult with
employees, trade unions, works councils or other employee representative bodies regarding
the transactions contemplated by this Agreement, including the offers of employment made
pursuant to the Master Agreement.
(e) Non-Solicitation of Employees.
(i) Subject to Applicable Law, for two years following the Closing, without the
prior written consent of Newco, ST shall not, nor shall it permit any of its
Subsidiaries to, directly or indirectly, recruit or solicit any employee of Newco or
any of its Subsidiaries (collectively, for purposes of this Agreement, the
Newco Restricted Employees) to leave his or her employment with Newco or
such Subsidiary.
(ii) Except as (A) may be otherwise provided herein, (B) otherwise agreed by ST
and Newco, or (C) prohibited by Applicable Law, for two years following the Closing
Date, Newco shall not, nor shall it permit any of its Subsidiaries to, directly or
indirectly, recruit or solicit (x) any employee of ST or any of its Subsidiaries
other than those ST Business Employees who become employed by Newco in accordance
with the terms of the Master Agreement or (y) any ST Business Employee who declines
an offer of employment from or objects
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to his or her transfer to Newco(collectively, for purposes of this Agreement,
the ST ACA Restricted Employees).
(iii) Neither the placement of employment advertisements or other general
solicitation for employees not specifically targeted to any Newco Restricted
Employee or ST ACA Restricted Employee, as the case may be, by any means, including
through the use of hiring agencies or through employees of each Party who are
unaware of the prohibitions against the solicitation of the Newco Restricted
Employees or ST ACA Restricted Employees, as the case may be, shall be a recruitment
or solicitation prohibited by this Section 5.11(e) provided that any such
hiring agencies and employees are not instructed by persons who knew about the
prohibition on the solicitation of such Restricted Employees to solicit for hire
such Restricted Employees. If a Party (or any Subsidiary thereof) inadvertently
violates the prohibition against the solicitation of Restricted Employees, such
Party shall (or it shall cause its applicable Subsidiary to), as soon as it is aware
it has committed a violation of this section, notify the other Party who formerly
employed such Restricted Employee and either withdraw any offer to the solicited
individual or ensure that such person, if hired, is restricted from working on,
consulting on, or having any knowledge with respect to matters which are designated
by written notice by the Party that formerly employed such employee in its
reasonable discretion as competitively sensitive matters, in which event such
inadvertent action shall not be deemed to be a breach of this Section
5.11(e) so long as there is no repetitive pattern of such actions.
(f) Newco Employee Recruitment. For a period of six months following the
Closing Date, Newco agrees to notify ST of any employment opportunities at Newco within a
reasonable period of time before the placement of employment advertisements or other general
solicitation, including the use of hiring agencies, with respect to such employment
opportunities.
(g) Reimbursement for TFR Liability. Pursuant to and in accordance with the TFR
Indemnification Agreement, ST shall indemnify and hold Newco and its Subsidiaries harmless from any
and all TFR Indemnity Obligations. The TFR Indemnification Agreement shall identify the Italian ST
Transferred Employees as well as the amount of the TFR Liability, as of the latest available date
on or prior to the Closing Date, that is or may become payable to or in respect of any Italian ST
Transferred Employees, it being understood that, notwithstanding the abovementioned reference to
the TFR Liability as of such latest available date, ST will remain liable for indemnifying Newco
and its Subsidiaries for the entire amount of the TFR Indemnity Obligations until such time as
specified in the TFR Indemnification Agreement. As a security for the fulfillment of the TFR
Indemnity Obligations, at Closing ST shall deliver to Newco and its Subsidiaries a first demand
bank guarantee issued by a primary financial institution acceptable to Newco (Bank
Guarantee). In the event that the Bank Guarantee should be issued for a duration which does
not cover the entire potential duration of the TFR Indemnity Obligations, ST agrees to deliver to
Newco and its Subsidiaries, from time to time, a renewed first demand bank guarantee, drafted
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substantially in the form of the Bank Guarantee then in force, at least
30 days prior to the expiration of the Bank Guarantee then in force, failing which Newco and
its Subsidiaries will be entitled, during such 30-day period, to draw on the Bank Guarantee
then in force for all of the outstanding amount (whether or not then due and payable) of the
TFR Indemnity Obligations. The TFR Indemnification Agreement and the Bank Guarantee shall
be drafted substantially in the forms attached to Schedule 5.11(g) of the ST ACA
Disclosure Schedule. Notwithstanding anything herein to the contrary, ST shall be required
to provide Newco and its Subsidiaries with a legal opinion certifying that this Section
5.11(g) as well as the TFR Indemnification Agreement comply with and can be enforced
pursuant to Italian Applicable Law. In the event that (i) such legal opinion is not
provided within 10 days prior to the Closing Date or (ii) Newco receives a contrary legal
opinion, ST shall be required to pay to Newco an amount in cash or cash equivalents equal to
the TFR Liability at the Closing and the indemnification provisions
in this Section 5.11(g) shall remain in full force and effect until the first
anniversary of the Closing Date.
5.12 Protection of Privacy. The Customer Data of ST has been collected by ST over the
Internet under the conditions set forth in the ST Privacy Policy attached to Schedule 5.12
of the ST ACA Disclosure Letter (the ST Privacy Policy) and is transferred to Newco
subject to the obligations set forth in the ST Privacy Policy. Newco covenants and agrees that it
will not use such Customer Data in any manner that conflicts with the terms of the ST Privacy
Policy.
5.13 Export Compliance. From and after the Closing Date, Newco shall comply at its
own expense with all conditions and requirements imposed on Newco required to comply with all
applicable U.S. Export Administration Regulations and such other similar regulations, including any
applicable export regulations of foreign jurisdictions, that are imposed on the ST Transferred
Assets. Newco agrees that it will not export, either directly or indirectly, any ST Product or
associated technology or systems incorporating such ST Product without first obtaining any required
license or other approval from the appropriate host Governmental Authority with appropriate
authority.
5.14 Satisfaction of ST Pre-Closing Product Obligations. After the Closing, Newco
agrees to satisfy any and all ST Pre-Closing Product Obligations. Unless otherwise agreed by the
Parties in the Transaction Documents, Newco shall, on a monthly basis, following the month in which
the transactions occur, or any other periodic basis as agreed by the Parties, deliver to
ST a written statement of costs reasonably incurred by Newco in satisfying any such ST Pre-Closing
Product Obligations, which statement shall set forth all such ST Pre-Closing Product Obligations
satisfied by Newco during such period. Promptly following receipt of such statement, ST shall
reimburse Newco for all such costs.
5.15 Additional ST Financial Statements. For 12 months following the Closing Date (or
if later, the date of completion of the audit of the ST annual financial statements for the year in
which the Closing Date occurs), ST shall, in good faith, use commercially reasonable efforts to
assist Newco with Newcos preparation of such financial statements, for such periods prior to the
Closing Date as may be required for Newco to undertake a registered public offering of debt
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securities or Ordinary Shares, as the case may be, it being understood that in connection with any
such registered offering Newco shall use commercially reasonable efforts to obtain waivers from
certain financial statement requirements, provided that any failure by Newco to obtain any such
waiver shall not relieve ST from its obligations under this Section 5.15. Notwithstanding
the foregoing, nothing herein shall obligate ST to provide any audited financial statement or
information to Newco or to submit to an audit by Newcos auditors of any financial statement or
information or books and records of ST.
5.16 Settlement of Claims. ST shall not settle, or make any binding offer to settle,
any material Claim or Proceeding relating to the ST Business unless such settlement would not
encumber any assets of Newco, impose any
obligation or other Liability on Newco, impose any restriction that would apply to Newco or
the conduct of Newcos business, or include any acknowledgment of validity, enforceability,
infringement, or Claim interpretation with regard to any of the Intellectual Property relating to
such Claim or Proceeding.
5.17 Back-end Equipment.
(a) From and after the Closing Date, ST shall, and shall cause its Subsidiaries to,
retain physical possession of the following Newco Equipment at the following ST facilities
until the earlier of (i) the date upon which such Newco Equipment is removed therefrom
pursuant to a Newco Removal Notice (as defined below) and (ii) the following Removal Dates:
(i) The Toa Payoh Equipment shall be removed from the ST facility located in
Toa Payoh, Singapore, 60 days after completion of assembly and test services using
the Toa Payoh Equipment under the ST Back-End Supply Agreement and the receipt by
Newco from ST of written notice of such completion;
(ii) The Shenzhen Equipment shall be removed from the ST facility located in
Shenzhen, China, 60 days after completion of assembly and test services using the
Shenzhen Equipment under the ST Back-End Supply Agreement and the receipt by Newco
from ST of written notice of such completion;
(iii) The ST1 Equipment shall be removed from the ST facility located in Muar,
Malaysia, 60 days after completion of assembly and test services using the ST1
Equipment under the ST Back-End Supply Agreement and the receipt by Newco from ST of
written notice of such completion; and
(iv) The Bouskoura Equipment shall be removed from the ST facility located in
Bouskoura, Morocco, 60 days after completion of assembly and test services using the
Bouskoura Equipment under the ST Back-End Supply Agreement and the receipt by Newco
from ST of written notice of such completion;
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provided, however, that in the event that any Governmental Approval is required for the
removal of any of such Newco Equipment, Newco and ST shall use their reasonable commercial
efforts to obtain such Governmental Approval as soon as practicable after the Closing Date,
and in the event that such Governmental Approvals are not obtained within 45 days prior to
the Removal Date set forth above, the Removal Date shall be extended to that date which is
45 days after all such Governmental Approvals have been obtained.
(b) Newco shall use commercially reasonable efforts to make all arrangements necessary
to ensure that the Newco Equipment is removed from the premises of ST and its Subsidiaries
as soon as reasonably practicable following the
completion of the applicable assembly and test services set forth in Section
5.17(a) and the receipt of notice thereof from ST and in any event prior to the Removal
Date applicable thereto.
(c) From and after the Closing Date until 15 days prior to each applicable Removal
Date, Newco may notify ST in writing of Newcos intention to remove the Toa Payoh Equipment,
the Shenzhen Equipment, the ST1 Equipment or the Bouskoura Equipment, as the case may be,
from the premises of ST or its Subsidiaries. Each such notice (a Newco Removal
Notice) shall describe in reasonable detail the arrangements for the removal and
transportation of the applicable Newco Equipment, including (i) the dates on which Newco
proposes to begin and complete the removal of such Newco Equipment, (ii) the identity of any
third party contractors that Newco proposes to engage in connection therewith and (iii) a
reasonable estimate of the third party costs expected to be incurred by Newco in connection
therewith.
(d) All reasonable and documented third party costs of removing Newco Equipment from
the premises of ST or its Subsidiaries and transporting Newco Equipment to the premises of
Newco or its Subsidiaries shall be borne by ST. Newco shall remove the applicable Newco
Equipment in its entirety from the premises of ST and its Subsidiaries prior to the Removal
Date applicable thereto. The removal of such Newco Equipment shall be effected during
regular business hours in a manner reasonably intended to minimize disruption and without
causing damage to the affected ST facility. ST shall have the right to approve in advance
(which approval shall not be unreasonably withheld or delayed) any third party contractors
that Newco proposes to engage to complete such removal or transportation. In the event that
any Newco Equipment is not removed from the premises of ST or its Subsidiaries prior to the
Removal Date applicable thereto, ST may treat such Newco Equipment as abandoned property and
may have such Newco Equipment removed from the applicable ST facility or may sell such Newco
Equipment and remit the proceeds of such sale (net of all direct and indirect costs of sale
and expenses incurred by ST and its Subsidiaries) to Newco.
5.18 Master Agreement Covenants. Newco agrees to be bound by and shall be a third
party beneficiary of the following Sections of the Master Agreement: Section 4.5 (Press
Releases), Section 4.8 (Tax Matters), Section 4.9 (Operations of the Intel
Business
Prior to the Closing), Section 4.10 (Operations of the ST Business Prior to the Closing),
Section 4.12 (Additions to and Modifications of the Schedules), Section 4.14
(Notices of Certain Intel
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Events), Section 4.15 (Notices of Certain ST Events), Section
4.17 (Newco Tax Election), Section 4.19 (Cooperation with Financing), Section
4.21 (Hynix JV Matters), Section 4.22 (Facility Transfer Term Sheets), Section
4.25 (ST Litigation), Section 4.26 (Intel Litigation) and Section 4.28 (Further
Assurances) of the Master Agreement as though it were a party thereto.
5.19 Further Assurances. Each Party agrees to execute and deliver, or cause to be
executed and delivered, such other documents, certificates, agreements and other writings and to
take, or cause to be taken, such other
commercially reasonable actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement.
5.20 Release of Liens. On the Closing Date, the ST Transferors shall deliver the ST
Transferred Assets to Newco and its Subsidiaries free and clear of Liens, other than Permitted
Liens, except as otherwise provided herein.
ARTICLE VI
INDEMNIFICATION
6.1 General Survival. The representations and warranties of the Parties contained in
this Agreement and the covenants set forth in Section 4.10 of the Master Agreement shall
survive the Closing for a period of 12 months after the Closing Date; provided, however that (a)
representations and warranties set forth in Section 3.10 (Tax Matters) shall survive until
the expiration of the statute of limitations for the collection of the Tax that is the subject of
such representation or warranty, (b) representations and warranties set forth in each of
Section 3.2 (Authorization and Enforceability), Section 3.12(a) (Pension Plans),
and Section 3.22(a) and (b) (Organization and Capitalization of the ST Transferred
Entities) shall survive until the expiration of the applicable statute of limitations, (c)
representations and warranties set forth in Section 3.15 (Environmental Matters) shall
survive until the date that is 10 years following the Closing Date, and (d) any claim arising out
of the fraudulent misrepresentation of ST contained in this Agreement or any other Transaction
Document shall survive until the expiration of the applicable statute of limitations. In addition,
any indemnity with respect to any ST Pre-Closing Environmental Liability described in Section
2.4(k) hereof shall survive until the date that is 10 years following the Closing Date and
shall thereupon expire. Upon such expiration, unless written notice of a claim for indemnification
based on such representation, warranty, covenant or indemnity specifying in reasonable detail the
facts on which the claim is based shall have been delivered to the Indemnitor prior to the
expiration of such representation, warranty, covenant, or indemnity, such representation, warranty,
covenant or indemnity shall be deemed to be of no further force or effect, as if never made, and no
action may be brought based on the same, whether for indemnification, breach of contract, tort or
under any other legal theory. All covenants and agreements of the Parties otherwise set forth in
this Agreement with respect to ST Excluded Liabilities or actions of the Parties following the
Closing shall survive indefinitely to the extent necessary to give effect to their terms.
6.2 Indemnification.
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(a) Indemnification Provisions for Newco. Subject to the provisions of
Section 6.1, from and after the Closing Date, the Newco Indemnitees shall be
indemnified and held harmless by ST from and against and in respect of any and all Losses
(as defined below) incurred by any Newco Indemnitee resulting from:
(i) any inaccuracy or breach of any of STs representations or warranties
contained in this Agreement or in the certificates furnished to Newco pursuant to
Sections 5.1(a) and 5.3(a) of the Master Agreement (disregarding the
qualifications as to ST Material Adverse Effect expressly set forth in such
certificates in accordance with Sections 5.1(a) and 5.3(a));
(ii) any breach of any covenant or agreement made or to be performed by ST
pursuant to this Agreement or any of the Sections of the Master Agreement set forth
in Section 5.18 of this Agreement;
(iii) any failure of ST to satisfy any ST Excluded Liabilities; and
(iv) any Taxes or expenses required to be paid by ST under this Agreement.
(b) Indemnification Provisions for ST. Subject to the provisions of
Section 6.1, from and after the Closing Date, the ST Indemnitees shall be
indemnified and held harmless by Newco from and against and in respect of any and all Losses
(as defined below) incurred by any ST Indemnitee, resulting from:
(i) any inaccuracy or breach of any of Newcos representations or warranties
contained in this Agreement other than any such inaccuracy or breach that results
from any action that (A) Newco is required to take hereunder or (B) ST has approved
under the Master Agreement;
(ii) any breach of any covenant or agreement made or to be performed by Newco
pursuant to this Agreement;
(iii) any failure of Newco to satisfy any ST Transferred Liabilities, other
than the ST Excluded Liabilities; and
(iv) any Taxes or expenses required to be paid by Newco under this Agreement.
(c) For purposes of this Agreement, the term Indemnitee shall mean either a
Newco Indemnitee or a ST Indemnitee, as the case may be, and the term Indemnitor
shall mean either Newco or ST, as the case may be.
(d) Notwithstanding the above, Losses shall not include expenses incurred in connection
with investigations unless a claim is made by a third party against the Indemnitee.
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(e) No Newco Indemnitee shall be entitled to indemnification for any Losses covered by
Section 6.2(a)(i) until the aggregate amount of all such Losses of the Newco
Indemnitees shall exceed $15,000,000 (the ST ACA Basket), at which time all such
Losses incurred in excess of the ST ACA Basket shall be subject to indemnification by the
relevant Indemnitor hereunder. The ST ACA Basket shall not apply to Losses covered by
Section 3.2 (Authorization and Enforceability), Section 3.10 (Tax Matters),
Section 3.12(a) (Pension Plans), Section 3.15 (Environmental Matters),
Section 3.22(a) and (b) (Organization and Capitalization of the Transferred
Entities) or Sections 6.2(a)(ii)-(iv). No ST Indemnitee shall be entitled to
indemnification for any Losses covered by Section 6.2(b)(i) until the aggregate
amount of all such losses of the ST Indemnitees shall exceed $15,000,000 (Newco ACA
Basket), at which time all such losses incurred in excess of the Newco ACA Basket shall
be subject to indemnification by the relevant Indemnitor hereunder. The Newco ACA Basket
shall not apply to Losses covered by Sections 6.2(b)(ii)-(iv).
(f) The amount of any Losses otherwise recoverable under this Section 6.2 shall
be reduced by (i) any amounts which the Indemnitees actually receive under insurance
policies, net of all reasonable and documented costs and expenses of recovery, the Parties
hereby acknowledging and agreeing that as soon as practicable after becoming aware of such
Losses and in any event prior to payment of any amount of Losses otherwise recoverable under
this Section 6.2, the Indemnitee must first seek reimbursement for any and all
Losses from any applicable insurance coverage (and that any compensation provided under this
Agreement is not to be deemed insurance for any purpose), and (ii) any reduction in Tax
otherwise actually payable by the Indemnitees (or their Subsidiaries) (net of related Tax
and out of pocket costs incurred in connection with such reduction) with respect to the
taxable year of such Persons in which the payment of such indemnity is due or a prior
taxable year, including refunds of Taxes (net of such Tax and other out-of-pocket costs)
previously paid by such Persons with respect to such taxable years to the extent the claim
for refund may be filed in such years.
(g) Notwithstanding anything to the contrary in Section 6.2(a), Losses for
which Newco may claim indemnification under this Agreement shall not include Taxes arising
in Post-Closing Tax Periods, determined in the manner provided in Section
5.8(b), except for (i) interest, penalties and additions to Tax accrued with
respect to Taxes arising in a Pre-Closing Tax Period, (ii) Losses arising from a breach of
the representation set forth in Section 3.10(d)(vi), and (iii) Losses for Taxes that
are allocated to ST pursuant to Section 5.8.
(h) For any additions or modifications to the schedules to the ST ACA Disclosure Letter
made by ST under Section 4.12(d) of the Master Agreement (i) to correct inaccuracies
of the Specified ST Representations (including those representations and warranties which
are expressed with respect to a date prior to the date of the Master Agreement) for facts,
events or circumstances occurring prior to or existing on and as of the date of the Master
Agreement, and, in the case of a representation or warranty made to the Knowledge of ST, of
which ST had Knowledge on such date), (ii) to reflect any facts, events or circumstances
which resulted from a breach of Section 4.10 of the Master
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Agreement, or (iii) to
update, correct or otherwise modify any of the representations and warranties set forth in
Section 3.2 (Authorization and Enforceability), Section 3.4
(Non-contravention), Section 3.7 (Litigation), Section 3.9 (Compliance with
Applicable Laws), Section 3.10 (Tax Matters), Section 3.11 (Intellectual
Property), Section 3.13 (Financial Information), Section 3.14 (Absence of
Certain Changes), Section 3.17 (ST Transferred Assets), Section 3.20
(Inventories), Section 3.21 (Advisory Fees), Section 3.22 (Transferred
Entities and Transferred Interests), and Section 3.23 (Investment Representations),
for any reason, then, in each case, Newco shall be entitled to
indemnification therefor pursuant to, and subject to the limitations set forth in this
Article VI, to the same extent as if such additions and modifications had not been
made.
6.3 Manner of Indemnification.
(a) Each indemnification claim shall be made only in accordance with this Article
VI.
(b) If an Indemnitee wishes to make a claim for Losses under Article VI of this
Agreement, Indemnitee shall deliver a Notice of Claim to the applicable Indemnitor promptly
after becoming aware of the facts giving rise to such claim. The Notice of Claim shall (i)
specify in reasonable detail the nature of the claim being made, and (ii) state the
aggregate dollar amount of such claim.
(c) Following receipt by an Indemnitor of a Notice of Claim, the Parties shall promptly
meet to agree on the rights of the respective Parties with respect to each of such claims.
If the Parties should so agree, a memorandum setting forth such agreement shall be prepared
and signed by both Parties and amounts agreed upon shall be promptly paid. Any unresolved
dispute between the Parties shall be resolved in accordance with Section 7.10 and
Section 7.11 and the other applicable provisions of this Agreement.
6.4 Third-Party Claims. If Newco becomes aware of a claim of a third party
(including for all purposes of this Section 6.4, any Governmental Authority) that Newco
believes, in good faith, may result in a claim by it or any other Newco Indemnitee against ST,
Newco shall notify ST of such claim as promptly as practicable; provided, that any failure to so
notify ST shall not relieve ST of its obligations hereunder, except to the extent such failure
shall have materially adversely prejudiced ST. ST shall have the right, but not the duty, to
assume and conduct the defense of such claim at its expense; provided, however, that ST may not
assume control of the defense of a suit or proceeding involving criminal liability. ST shall
conduct such defense in a commercially reasonable manner, and shall be authorized to settle any
such claim without the consent of Newco, provided, however, that: (a) ST shall not be authorized to
encumber any assets of Newco or agree to any restriction that would apply to Newco or the conduct
of Newcos business; (b) ST shall have paid or caused to be paid any amounts arising out of such
settlement; (c) a condition to any such settlement shall be a complete release of Newco and any
other Newco Indemnitee against whom such claim has been made with respect to such third party
claim; and (d) ST shall not be authorized to settle any claim that would reasonably be expected to
have a material effect on a Tax liability of Newco that is not subject to indemnification by ST
hereunder without Newcos consent, which consent shall not be
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unreasonably withheld or delayed.
With respect to any claim for which ST assumes the defense of Newco, Newco shall be entitled to
participate in (but not control) the defense of such third party claim, with its own counsel and at
its own expense, and Newco shall take such action as ST shall reasonably request to assist ST in
the defense of any such third party claim, provided that ST shall reimburse Newco for any
reasonable out-of-pocket expenses incurred in taking any such requested action. If ST does not
assume the defense of any third party claim in accordance with the provisions hereof, Newco may
defend such third party claim in a commercially reasonable manner and may settle such
third party claim after giving written notice of the terms thereof to ST, and such legal
expenses shall be indemnifiable Losses hereunder to the extent that Newco is determined to be
entitled to indemnification hereunder for such third party claim.
6.5 Exclusive Remedy and Waiver and Release of Certain Claims.
(a) Notwithstanding any other provision of this Agreement to the contrary, the
provisions of this Article VI shall be the sole and exclusive remedy for monetary
damages of the Indemnitees from and after the Closing Date for any Losses arising under this
Agreement or relating to the transactions contemplated by this Agreement, including claims
of breach of any representation or warranty in this Agreement or any covenant set forth in
Section 4.10 of the Master Agreement; provided, however, that the foregoing clause
of this sentence shall not be deemed a waiver by any Party of any right to specific
performance or injunctive relief but shall be deemed a waiver of any rights of rescission.
Notwithstanding any other provision of this Agreement, (i) the maximum aggregate liability
of ST to Newco Indemnitees pursuant to this Article VI or otherwise under this
Agreement, Applicable law or otherwise (other than Uncapped ST Losses) shall be limited to
$92,400,000 (the ST ACA Cap); and (ii) the maximum aggregate liability of Newco to
the ST Indemnitees for Losses pursuant to this Article VI or otherwise under this
Agreement (other than with respect to Losses pursuant to a breach of Section 4.2
(Authorization and Enforceability) and Section 4.6 (Capitalization) and Losses
pursuant to Section 6.2(b)(iii)), Applicable Law or otherwise shall be limited to
the ST ACA Cap. Nothing in this Agreement limits or otherwise affects in any way the rights
and remedies of either Party with respect to causes of action arising under the ST
Intellectual Property Agreement, the ST Facility Transfer Agreements and the ST Transition
Services Agreement, or any rights and remedies of ST or Newco vis-à-vis any Person other
than ST or Newco or their respective Affiliates with respect to any infringement or
misappropriation of any Intellectual Property of ST or Newco, as the case may be (including
any right of ST or Newco to seek equitable or injunctive relief in connection therewith),
all of which rights and remedies are expressly reserved. Notwithstanding the foregoing, the
existence of this Section 6.5 and the rights and restrictions set forth in this
Article VI do not limit any other potential remedies of the Indemnitees with respect
to fraud by any Party.
(b) Except with respect to the specific remedies identified in Section 6.5(a)
above, the Parties hereby waive and release any and all claims, causes of action, and rights
as against one another for the transactions contemplated by this Agreement, including the
assets and liabilities that are allocated herein, based upon statute or common law. This
waiver and release specifically includes, without in any way limiting the
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scope of the
foregoing waiver and release, any claims the Parties may have against one another based upon
the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section
9601 et seq. or any other Applicable Law under which the Parties or their Affiliates would
otherwise have any cause of action against one another.
6.6 Subrogation. If the Indemnitor makes any payment under this Article VI in
respect of any Losses, the Indemnitor shall be subrogated, to the extent of such payment, to the
rights of the Indemnitee against any insurer or third party with respect to such Losses; provided,
however, that the Indemnitor shall not have any rights of subrogation with respect to the other
Party hereto or any of its Affiliates or any of its or its Affiliates officers, directors, agents
or employees.
6.7 Damages. Notwithstanding anything to the contrary elsewhere in this Agreement or
any other Transaction Document, no Party (or its Affiliates) shall, in any event, be liable to the
other Party (or its Affiliates) for any consequential damages, including, but not limited to, loss
of revenue or income, cost of capital, or loss of business reputation or opportunity relating to
the breach or alleged breach of this Agreement. Each Party agrees that it will not seek punitive
damages as to any matter under, relating to or arising out of the transactions contemplated by this
Agreement or the other Transaction Documents.
6.8 Environmental Indemnification Procedures.
(a) ST and Newco agree that the Indemnitor shall have the sole right to disclose,
report, further investigate, negotiate, perform and settle any ST Facility Environmental
Liability or conduct any Remedial Action in connection therewith for which such Indemnitor
may have liability hereunder, and the Indemnitee will provide the Indemnitor access and any
other rights, as necessary, to the Owned ST Real Property, the Leased ST Real Property, or
any other real property under the Indemnitees control for purposes of investigating and
performing any such Remedial Action. Such terms of access shall provide for reasonable
protections to the Indemnitees operations to minimize disruption and protect its employees.
Nonetheless, if at any time following the Closing Date, the Indemnitor has not taken action
to disclose, report, further investigate, negotiate, perform and settle any ST Facility
Environmental Liability or conduct any Remedial Action in connection therewith for which
such Indemnitor may have liability hereunder, to the reasonable satisfaction of the
Indemnitee, then the Indemnitee will have the right, after first providing written notice to
the Indemnitor and a reasonable period for the Indemnitor to respond (at a minimum 30 days)
and subject to the rights of the Indemnitor set forth in Section 6.8(c) below, to
disclose, report, further investigate, negotiate, perform and settle any ST Facility
Environmental Liability or conduct any Remedial Action in connection therewith, provided
that the Indemnitors duty to indemnify under Section 6.1 of the Agreement for ST
Facility Environmental Liabilities shall not apply to the extent that the Indemnitees
actions fail to comply with paragraph (b), below. Without limiting the generality of the
foregoing, in connection with any action taken pursuant to the third sentence of this
Section 6.8(a) the Indemnitee will, subject to the rights of the Indemnitor pursuant
to the terms of Section 6.8(c) below, have
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the right to: report the results of any
testing to the appropriate Governmental Authorities if required by an applicable
Environmental Law; enter the property into a voluntary remediation or similar program; take
whatever steps are necessary to obtain a NFA Letter from the appropriate Governmental
Authorities or, in the event such Governmental
Authorities do not provide a NFA Letter in comparable situations or in the event they
refuse to do so, comply with any obligations of any Applicable Law, including any
Environmental Law, in effect at the time; and respond to any claim by any third party with
respect to any ST Facility Environmental Liability, provided that the Indemnitors duty to
indemnify under Section 6.1 of the Agreement for ST Facility Environmental
Liabilities shall not apply to the extent that the Indemnitees actions fail to comply with
paragraph (b), below.
(b) The Parties agree that any Remedial Action undertaken by ST or Newco to obtain any
NFA Letter (to the extent permitted by the Governmental Authority issuing such NFA Letter)
or comply with any Applicable Law, including any Environmental Law, in effect at the time:
shall employ a reasonably cost-effective method under the circumstances, based on the use of
the property for industrial (as opposed to residential or commercial) purposes, shall not
exceed the least stringent requirement imposed by any clearly applicable Environmental Laws
in effect at the time, including as applicable, within the context of obtaining a NFA Letter
or complying with Applicable Law, shall make reasonable use of institutional and engineering
controls reasonably acceptable to both Newco and ST, such as deed restrictions, signs,
fencing, buffers, and controls, to the extent permitted by Governmental Authorities,
provided that such institutional and engineering controls shall not (i) unreasonably
restrict or limit the industrial activities currently being performed and those which ST or
Newco expects to perform on any Owned ST Real Property or any Leased ST Real Property or
associated services shared in any fashion between ST and Newco, or (ii) fail to address a
material risk of off-site migration of any Hazardous Substances, and shall take advantage of
applicable risk assessment principles, where practicable, set forth in applicable
Environmental Laws in effect at the time.
(c) After the Closing, on any Remedial Action that either Party undertakes pursuant to
the third sentence of Section 6.8(a), the acting Party shall:
(i) cooperate with the other Party as much as possible, including, but not
limited to, keeping the other Party reasonably informed related to the progress of
such matters (including, providing the other Party with copies of material plans,
reports and external correspondence), permitting the other Party to be present at
the property during, and providing ST reasonable advance notice prior to, the
execution of any significant Remedial Actions (including testing), and ensuring that
the other Party is provided reasonable advance notice of any scheduled voice or
in-person conferences with regulators or other third parties;
(ii) ensure that such conferences are held on dates, and at places and times,
mutually convenient to the other Party, that the other Party is provided all
relevant information relating to such conferences, as and when generated or
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received
by the acting Party (but in all events reasonably far in advance of any conference
to permit the other Partys informed participation therein), and that ST and its
agents are afforded a reasonable opportunity to participate therein. The Parties
shall use reasonable efforts, including by making their respective agents
available on a mutually convenient basis, to work together on the strategy and
conduct of such conferences; and
(iii) ensure that the other Party is given the opportunity to obtain duplicate
soil, groundwater and other samples if such samples are taken in connection with any
Remedial Action (including testing).
ARTICLE VII
MISCELLANEOUS
7.1 Notices. All notices and other communications pursuant to this Agreement shall be
in writing and shall be deemed given if delivered personally, telecopied, sent by
nationally-recognized overnight courier or mailed by U.S. registered or certified mail (return
receipt requested), postage prepaid, to the Parties at the addresses set forth below or to such
other address as the Party to whom notice is to be given may have furnished to the other Party in
writing in accordance herewith. Any such notice or communication shall be deemed to have been
delivered and received (a) in the case of personal delivery, on the date of such delivery, (b) in
the case of telecopier, on the date sent if confirmation of receipt is received and such notice is
also promptly mailed by registered or certified mail (return receipt requested), (c) in the case of
a nationally-recognized overnight courier in circumstances under which such courier guarantees next
Business Day delivery, on the next Business Day after the date when sent and (d) in the case of
mailing, on the fifth Business Day following that on which the piece of mail containing such
communication is posted to the address provided herein or to such other address as the Person to
whom notice is given may have previously furnished to the others in writing in the manner set forth
above. Any Party hereto may give any notice, request, demand, claim or other communication
hereunder using any other means (including ordinary mail or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly given unless and
until it actually is received by the individual for whom it is intended. Notices to Parties
pursuant to this Agreement shall be given:
if to ST, to:
ST Microelectronics N.V.
Chemin du Champ-des-Filles, 39
1228 Plan-les-Ouates
Geneva, Switzerland
Attention: Pierre Ollivier, Group Vice President and General Counsel
Telephone: 41 22 929 58 76
Fax: 41 22 929 59 06
with a copy to (which shall not constitute notice to ST):
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ST Microelectronics N.V.
1310 Electronics Drive
Mail Station
Carollton, TX 75006
Attention: Steven K. Rose, Vice President, Secretary and General
Counsel
Telephone: (972) 466-6412
Fax: (972) 466-7044
with a copy to (which shall not constitute notice to ST)
Shearman & Sterling LLP
525 Market Street
San Francisco, CA 94105
Attention: John D. Wilson
Telephone: (415) 616-1100
Facsimile: (415) 616-1199
if to Newco, to:
[Newco]
____________________
____________________
____________________
Attention:
Telephone: (___) ___ ____
Fax: (___) ___ ____
with copies to (which shall not constitute notice to Newco):
Intel Corporation
2200 Mission College Boulevard
Santa Clara, CA 95054
Attention: Treasurer
Telephone: (408) 765-8080
Fax: (408) 765-6038
Intel Corporation
2200 Mission College Boulevard
Santa Clara, CA 95054
Attention: General Counsel
Telephone: (408) 765-8080
Fax: (408) 653-8050
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and a copy to (which shall not constitute notice to Intel or Newco):
Gibson, Dunn & Crutcher LLP
1881 Page Mill Rd.
Palo Alto, CA 94304
Attention: Russell C. Hansen
Telephone: (650) 849-5300
Fax: (650) 849-5333
with copies to (which shall not constitute notice to Newco)
Francisco Partners
2882 Sand Hill Road
Suite 289
Menlo Park, CA 94025
Attention: David ibnAle
Telephone: (650) 233-2900
Fax: (650) 233-2999
Francisco Partners
40 Berkeley Square
London W1J 5AL
United Kingdom
Attention: Phokion Potamianos
Telephone: 44 0 207 907 8600
Fax: 44 0 207 907 8650
with a copy to (which shall not constitute notice to Newco or FP)
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, CA 94025
Attention: William M. Kelly
Martin A. Wellington
Telephone: (650) 752-2000
Facsimile: (650) 752-2112
7.2 Amendments; Waivers.
(a) Any provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by all Parties,
or in the case of a waiver, by the Party against whom the waiver is to be effective.
(b) No waiver by a Party of any default, misrepresentation or breach of a warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to
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any prior or subsequent default, misrepresentation or breach of a warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or subsequent
occurrence. No failure or delay by a Party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided under Applicable Law.
7.3 Expenses. Except as set forth in Section 5.8(c) hereof and Section
7.3 of the Master Agreement, all costs and expenses incurred in connection with this Agreement
and the other Transaction Documents and in closing and carrying out the transactions contemplated
hereby and thereby shall be paid by the Party incurring such cost or expense.
7.4 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors, heirs, personal representatives and
permitted assigns. No Party hereto may transfer or assign either this Agreement or any of its
rights, interests or obligations hereunder, whether directly or indirectly, by operation of law,
merger or otherwise, without the prior written approval of each other Party; provided, however,
that Newco may assign, delegate or transfer in whole or in part its rights and interests under this
Agreement and the Transaction Documents to any of its lenders for collateral assignment purposes.
No such transfer or assignment shall relieve the transferring or assigning Party of its obligations
hereunder if such transferee or assignee does not perform such obligations.
7.5 Governing Law. This Agreement shall be construed in accordance with and this
Agreement and any disputes or controversies related hereto shall be governed by the internal laws
of the State of New York without giving effect to the conflicts of laws principles thereof that
would apply the laws of any other jurisdiction.
7.6 Counterparts; Effectiveness. This Agreement may be signed in any number of
counterparts and the signatures delivered by telecopy, each of which shall be an original, with the
same effect as if the signatures were upon the same instrument and delivered in person. This
Agreement shall become effective when each Party hereto shall have received a counterpart hereof
signed by the other Parties.
7.7 Entire Agreement. This Agreement (including the schedules and exhibits referred
to herein, which are hereby incorporated by reference), the other Transaction Documents and the
Confidentiality Agreement constitute the entire agreement between the Parties with respect to the
subject matter hereof and thereof and supersede all prior agreements, understandings and
negotiations, both written and oral, express or implied, between and among the Parties with respect
to the subject matter of this Agreement. No representation, warranty, promise, inducement or
statement of intention has been made by either Party that is not embodied in this Agreement or such
other documents, and neither Party shall be bound by, or be liable for, any alleged representation,
warranty, promise, inducement or statement of intention not embodied herein or therein.
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7.8 Captions. The captions herein are included for convenience of reference only and
shall be ignored in the construction or interpretation hereof.
7.9 Severability. If any provision of this Agreement, or the application thereof to
any Person, place or circumstance, shall be held by a court of competent jurisdiction to be
invalid, unenforceable or void, the remainder of this Agreement and such provisions as applied to
other Persons, places and circumstances shall remain in full force and effect only if, after
excluding the portion deemed to be unenforceable, the remaining terms shall provide for the
consummation of the transactions contemplated hereby in substantially the same manner as originally
set forth at the later of the date this Agreement was executed or last amended.
7.10 Dispute Resolution.
(a) With the exception of disputes involving intellectual property ownership and
infringement issues, and disputes governed by Section 2.7, Section 2.8,
Section 2.9 or Section 5.8(g) hereof, any dispute arising under this
Agreement shall be finally resolved by arbitration. The Parties waive their right to any
form of appeal to a court on any questions of law arising out of the arbitration award. Any
dispute or claim between the Parties which is beyond the scope of this Section shall be
submitted to the exclusive jurisdiction of the courts of the State of New York and the
Federal courts of the United States of America located in the State of New York. The Parties
hereby consent to and grant any such court jurisdiction over such Parties and over the
subject matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section 7.1
or in such other manner as may be permitted by Applicable Law, shall be valid and sufficient
service thereof.
(b) Mediation. Prior to arbitration, however, the Party making the original
claim shall provide the other Party with a written description of the dispute or claim and
the senior executives of the Parties shall meet in an attempt to resolve such dispute or
claim. If the disagreements cannot be resolved by the senior management after 90 days from
the date any Party made a written demand for resolution, a binding arbitration shall be
held.
(c) Arbitration Rules. The rules of the arbitration shall be agreed upon by
the Parties prior to the arbitration and shall be based upon the nature of the disagreement.
To the extent that the Parties cannot agree on the rules of the arbitration after 30 days
from the date any party makes a written demand for resolution, then, subject to Section
7.10(d), the Rules of Arbitration of the ICC in effect as of the Closing Date shall
apply.
(d) Mandatory Rules. As a minimum set of rules in the arbitration the Parties
agree as follows:
(i) The arbitration shall be held by one arbitrator appointed by mutual
agreement of the Parties. If the Parties cannot agree on a single arbitrator within
15 days from the date written demand for arbitration has been received by the
other Party, each Party shall identify one independent individual. The individuals
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appointed by the Parties shall then meet to appoint a single arbitrator. If an
arbitrator still cannot be agreed upon within an additional 15 day period, he or she
shall be appointed by the ICC.
(ii) The place of arbitration shall be New York, New York. Hearings and
meetings shall be held in New York or at such other place as the Parties may agree.
(iii) The English language shall be used in the proceedings. Documents and
written testimonies may be submitted in any language provided that the Party
submitting such documents and testimonies shall provide, at its own expense, a
translation of the same in the English language.
(iv) The arbitrator shall specify the basis for the award, the basis for the
damages award and a breakdown of the damages awarded, and the basis of any other
remedy authorized under this section. The award shall be considered as a final and
binding resolution of the dispute or claim.
(v) The Parties agree to maintain the confidentiality of the arbitral
proceedings, the existence of the same and the status of the hearings. In addition,
the Parties undertake to maintain the confidentiality of any document exchanged in,
produced in, or created by the Parties for the arbitration proceedings as well as
the confidentiality of the award. Notwithstanding the foregoing, if the disclosure
of the arbitral proceedings, or of any of the documents exchanged in, produced in or
created for the arbitration proceedings or if the disclosure of the award is
required by applicable law, rule or regulation or is compelled by a court or
governmental agency, authority or body: (A) the Parties shall use the legitimate and
legal means available to minimize the scope of their disclosure to third parties;
and (B) the Party compelled to make the disclosure shall inform the other Party and
the arbitrator at least 20 Business Days in advance of the disclosure (or if 20
Business Days notice is not practicable because the Party is required to make the
disclosure less than 20 Business Days after becoming aware of the event or
occurrence giving rise to such disclosure requirement, then notice to the other
Party and the arbitrator shall be provided as soon as practicable after such event
or occurrence).
(vi) The duty of the Parties to arbitrate any dispute or claim within the scope
of this Section shall survive the expiration or termination of this Agreement for
any reason. The Parties specifically agree that any action must be brought, if at
all, within two years from discovery of the cause of action.
(vii) The discretion of the arbitrator to fashion remedies shall be no broader
than the legal and equitable remedies available to a court (unless the parties
expressly agree otherwise prior to the start of arbitration). In no event,
however, shall the arbitrator award a remedy which enjoins a Party or its
customers to stop manufacturing, using, marketing, selling, offering for sale, or
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importing such Partys products. In addition, notwithstanding anything herein to the
contrary, in no event, shall the arbitrator award a remedy which enjoins a Party to
license to the other Party any of its intellectual property rights of whatever
nature. The arbitrator will have no authority to award damages in excess of
compensatory damages and each Party expressly waives and foregoes any right to
punitive, exemplary or similar damages, except as such damages may be required by
statute. In no event shall the amount of damages awarded to the prevailing Party
exceed or otherwise be inconsistent with any of the applicable limitations on
damages set forth in this Agreement, including Sections 6.2 and 6.5.
(viii) The arbitrator may not order any conservatory or interim relief measures
of any kind. In any event, however, either Party may apply for conservatory or
interim relief measures to the courts of the State of New York or the Federal courts
of the United States of America located in the State of New York which shall have
exclusive jurisdiction to grant such injunctive relief.
(ix) The Parties shall agree upon what, if any, disclosure to the other parties
to the arbitration shall be permitted. If the Parties can not agree on the form of
disclosure within 30 days after the appointment of the arbitrator, then the Parties
agree that in addition to the Rules of Arbitration of the ICC, the arbitrators shall
apply the IBA Rules of Evidence. In case of conflict between Rules of Arbitration of
the ICC and the IBA Rules of evidence, the Rules of Arbitration of the ICC shall
prevail. Notwithstanding anything herein to the contrary, in no event shall anything
verbally or in writing used strictly for settlement purposes between the Parties be
permitted by the arbitration to be used as evidence for either Partys case.
(x) The Parties shall equally bear the costs of the arbitration. Each Party
shall bear the fees and expenses of its appointed experts and shall bear its own
legal expenses. For the purpose of this clause, the term costs of arbitration
includes only: (A) the fees and expenses of the arbitrator; (B) in the case of an
arbitration governed by the ICC Rules, the ICC administrative expenses fixed by the
Court of Arbitration of the ICC; and (C) the fees and expenses of any experts
appointed by the arbitrator.
7.11 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (a) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
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LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (b) EACH SUCH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (c) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND
(d) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.11.
7.12 Third Party Beneficiaries. Notwithstanding any other provision in this Agreement
to the contrary, neither Intel nor FP shall be deemed to be a third party beneficiary under this
Agreement for any purpose. No provision of this Agreement shall create any third party beneficiary
rights in any other Person, including any employee or former employee of ST or Intel or any of
their respective Affiliates (including any beneficiary or dependent thereof).
7.13 Specific Performance. The Parties hereby acknowledge and agree that the failure
of any Party to perform its agreements and covenants hereunder, including its failure to take all
actions as are necessary on its part to the consummation of the transactions contemplated herein,
may cause irreparable injury to the other Party, for which damages, even if available, may not be
an adequate remedy. Accordingly, each Party hereby consents to the issuance of injunctive relief
by any court of competent jurisdiction to compel performance of such Partys obligations and to the
granting by any court of the remedy of specific performance of its obligations hereunder.
7.14 No Presumption Against Drafting Party. ST and Newco acknowledge that ST and each
of the other shareholders of Newco have been represented by counsel in connection with the
negotiation and execution of this Agreement and the other Transaction Documents. Accordingly, any
rule of law or any legal decision that would require interpretation of any claimed ambiguities in
this Agreement against the drafting party has no application and is expressly waived.
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Exhibit 99.2
FINAL ATTACHMENT
TO MASTER AGREEMENT
IN WITNESS WHEREOF, the Parties hereto have caused this ST Asset Contribution Agreement to be
duly executed and delivered as of the date set forth above.
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STMICROELECTRONICS N.V. |
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Signature Page to ST Asset Contribution Agreement
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APPENDIX A
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FINAL ATTACHMENT
TO MASTER AGREEMENT |
ST ASSET CONTRIBUTION AGREEMENT
DEFINITIONS
Accounts Payable means all accounts payable owing by a Person for raw materials or
supplies received by or services rendered to such Party or any of its Subsidiaries.
Accounts Receivable means all accounts receivable, notes receivable and other
current rights to payment of a Person, together with any unpaid interest or fees accrued thereon or
other amounts due with respect thereto, and any claim, remedy or other right related to any of the
foregoing.
Actual ST Capital Expenditures shall have the meaning set forth in Section
2.9 of the ST Asset Contribution Agreement.
Affiliate, with respect to any Person, means any other Person directly or indirectly
controlling, controlled by or under common control with, such Person. For purposes of this
definition, control (including, with correlative meanings, the terms controlling, controlled
by or under common control with), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or by contract or
otherwise.
Applicable Law means, with respect to any Person, any federal, state, local or
foreign statute, law, ordinance, rule, administrative interpretation, regulation, order, writ,
injunction, directive, judgment, decree or other requirement of any Governmental Authority
applicable to such Person or any of its Affiliates or any of their respective properties, assets,
officers, directors, employees, consultants or agents.
Articles of Association means the Articles of Association of Newco, in substantially
the form attached to Schedule 2.4 of both of the Master Agreement Disclosure Letters, as
amended from time to time.
Bank Guarantee shall have the meaning set forth in Section 5.11(g) of the ST
Asset Contribution Agreement.
Bouskoura Equipment means the machinery, laboratory and other equipment, tools and
other tangible personal property set forth under the heading Bouskoura in Schedule 2.1(a)
to the ST ACA Disclosure Letter.
Business Day means each day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York or Geneva, Switzerland are authorized or required by law to
close.
Cash and Cash Equivalents means all cash on hand and cash equivalents of a Person
(whether or not related to the applicable Business), including currency and coins, negotiable
APPENDIX A
FINAL ATTACHMENT
TO MASTER AGREEMENT
checks, bank accounts, marketable securities, commercial paper, certificates of deposit,
treasury bills, surety bonds and money market funds.
Claims means all rights to causes of action, claims, demands, rights and privileges
against third parties, whether liquidated or unliquidated, fixed or contingent, choate or inchoate.
Closing shall have the meaning set forth in Section 2.5 of the Master
Agreement.
Closing Date means the date of the Closing, as further described in Section
2.5 of the Master Agreement.
Confidentiality Agreement means that certain Confidentiality Agreement among Intel,
ST and FP dated as of May 22, 2007.
Contemplated Financing means either of: (i) the debt financing pursuant to the
Commitment Letter; or (ii) substitute debt financing on substantially equivalent economic terms
that is adequate to provide working capital requirements and funds for other general corporate
purposes of Newco and its Subsidiaries following the Closing.
Contract means each contract, agreement, option, lease, license, cross-license, sale
and purchase order, commitment and other instrument of any kind, whether written or oral.
Copyrights means copyrights and mask work rights (whether or not registered) and
registrations and applications therefor, worldwide.
Customer Data means the data related to customers of a Partys Business which is
included in such Partys Transferred Assets.
Effective Time means, unless otherwise agreed by the Parties, 12:01 a.m. GMT on the
Closing Date.
Environmental Laws means any Applicable Laws of any Governmental Authority in effect
as of the Closing Date, unless otherwise noted, relating to pollution, protection or remediation of
the environment, the use, storage, treatment, generation, manufacture, distribution,
transportation, processing, handling, Release, disposal of or exposure to Hazardous Substances or,
as such relate to Hazardous Substances, public and occupational health and safety.
Environmental Liability means any Liability or Loss, including the cost of any
Remedial Action, arising in connection with (i) the use, generation, storage, treatment,
manufacture, distribution, transportation, processing, handling, disposal or Release of any
Hazardous Substances, (ii) the violation of or liability under any Environmental Laws or any
Governmental Approval relating to any Hazardous Substances or (iii) any third party claim,
litigation or proceeding relating to any Hazardous Substance or Environmental Laws.
Environmental Permits means all permits, licenses or other authorizations of any
Governmental Authority required pursuant to applicable Environmental Law.
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Equity Plan means an equity compensation plan for Newco, with terms reasonably
satisfactory to Newco, Intel, ST, and FP, pursuant to which no more than 6% of the outstanding
share capital of Newco at the Closing Date shall be reserved for issuance.
Equity Transaction Documents means the Share Purchase Agreement, the Shareholders
Agreement, the Articles of Association and the Internal Rules.
Final Payment Date has the meaning set forth in Section 2.8 of the ST Asset
Contribution Agreement.
FP means Redwood Blocker S.a.r.l., a limited liability company organized under the
laws of The Grand-Duchy of Luxembourg.
GAAP means generally accepted accounting principles in the United States of America,
applied on a consistent basis, as in effect as of the date hereof.
Governmental Approval means an authorization, consent, approval, permit or license
issued by, or a registration or filing with, or notice to, or waiver from, any Governmental
Authority.
Governmental Authority means any United States or non-United States federal,
territorial, state or local governmental authority, quasi-governmental authority, instrumentality,
court, government or self-regulatory organization, commission, tribunal or organization or any
regulatory, administrative or other agency, or any political or other subdivision, department or
branch of any of the foregoing.
Hazardous Substance shall mean any hazardous substance within the meaning of Section
101(14) of the United States Comprehensive Environmental Response, Compensation and Liability Act
of 1980, 42 U.S.C. § 9601(14), and any chemical, substance, material, agent or waste defined or
regulated as toxic, hazardous, extremely hazardous or radioactive, or as a pollutant or
contaminant, under any applicable Environmental Law, including petroleum, petroleum derivatives,
petroleum by-products or other hydrocarbons, asbestos or asbestos-containing material and
polychlorinated biphenyls.
Hynix Interests means all of the outstanding equity, voting or profit interests in
the Hynix JV owned directly or indirectly by ST.
Hynix JV means Hynix-ST Semiconductor Ltd., a wholly foreign-owned entity
established under the laws of the Peoples Republic of China.
Hynix JV Junior Credit Agreement means the US$250,000,000 Facility Agreement, dated
August 24, 2006, among the Hynix JV, as borrower, and DBS Bank Ltd. as arranger and original
lender, agent and security agent.
IBA Rules of Evidence means the IBA Rules on the Taking of Evidence in International
Commercial Arbitration.
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Indebtedness means any (i) indebtedness for borrowed money, (ii) indebtedness
evidenced by any bond, debenture, note, mortgage, indenture or other debt instrument or debt
security, or (iii) guarantees with respect to any indebtedness or obligation of a type described in
clauses (i) through (ii) above of any other Person.
Indemnitee shall (i) for purposes of the Intel Asset Transfer Agreement, have the
meaning set forth in Section 6.2(c) of the Intel Asset Transfer Agreement, and (ii) for
purposes of the ST Asset Contribution Agreement, have the meaning set forth in Section
6.2(c) of the ST Asset Contribution Agreement.
Indemnitor shall (i) for purposes of the Intel Asset Transfer Agreement, have the
meaning set forth in Section 6.2(c) of the Intel Asset Transfer Agreement, and (ii) for
purposes of the ST Asset Contribution Agreement, have the meaning set forth in Section
6.2(c) of the ST Asset Contribution Agreement.
Independent Accountants shall have the meaning set forth in Section 2.7(c)
of the ST Asset Contribution Agreement.
Intel Approvals means the required consents, waivers and approvals of Intel set
forth on Schedule 3.3 of the Intel ATA Disclosure Letter and Schedule 3.1(c) of the
Intel Master Agreement Disclosure Letter.
Intel Asset Transfer Agreement means that certain Asset Transfer Agreement to be
entered into by Intel and Newco as of the Closing Date, in substantially the form attached to
Schedule 2.1 to the Intel Master Agreement Disclosure Letter.
Intel Option means that certain Option to Purchase Ordinary Shares to be entered
into between Newco and Intel or one or more of Intels Affiliate(s), in substantially the form
attached to Schedule 4.16(d) of the Intel Master Agreement Disclosure Letter.
Intel Transferred Assets shall have the meaning set forth in Section 2.1 of
the Intel Asset Transfer Agreement.
Intellectual Property means intellectual property rights arising from or in respect
of the following, whether protected, created or arising under the laws of the United States or any
other jurisdiction: Copyrights, Trade Secrets, Patents and Trademarks.
Internal Rules means the internal rules (reglement) of Newco, in substantially the
form attached to Schedule 2.4 to both of the Master Agreement Disclosure Letters, as
amended from time to time.
Italian Newco means the entity that will be formed in Italy prior to the Closing
Date in connection with the demerger of assets and liabilities of the ST Business from
STMicroelectronics S.r.l. and which will operate certain Italian assets of the ST Business
following the Closing.
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Knowledge means, with respect to any Person, the actual knowledge of such Person.
Notwithstanding the foregoing, with respect to any Person that is a corporation, limited liability
company, partnership or other business entity, actual knowledge shall be deemed to mean the actual
knowledge of all directors and officers of any such Person; provided, however, that (i) with
respect to Intel, Knowledge shall be deemed to be solely the actual knowledge of the individuals
identified in Section A of Schedule 1.1(b) of the Intel ATA Disclosure Letter, after
obtaining from the individuals identified in Section B of Schedule 1.1(b) of the Intel
ATA Disclosure Letter a certification as to their actual knowledge of each matter with
respect to which Intel makes any representation or warranty as to its Knowledge under any
Transaction Document, (ii) with respect to ST, Knowledge shall be deemed to be solely the actual
knowledge of the individuals identified on Schedule 1.1(b) of the ST ACA Disclosure Letter,
after obtaining from the individuals identified on Schedule 1.1(b) of the ST ACA Disclosure
Letter a certification as to their actual knowledge of each matter with respect to which ST makes
any representation or warranty as to its Knowledge under any Transaction Document, and (iii) with
respect to FP, Knowledge shall be deemed to be solely the actual knowledge of David ibnAle,
Phokion Potamianos, and Keith Toh.
Leased ST Real Property means the ST Real Property listed in Schedule 3.6(b)
of the ST ACA Disclosure Letter.
Liability means, with respect to any Person, any liability or obligation of such
Person of any kind, character or description, whether known or unknown, absolute or contingent,
asserted or unasserted, accrued or unaccrued, liquidated or unliquidated, secured or unsecured,
joint or several, due or to become due, vested or unvested, absolute, contingent, executory,
determined, determinable or otherwise and whether or not the same is required to be accrued on the
financial statements of such Person.
Lien means, with respect to any asset, any lien, mortgage, pledge, hypothecation,
right of others, claim, security interest, encumbrance, lease, sublease, license, interest, option,
charge or other restriction or limitation of any nature whatsoever in respect of such asset,
including any Share Encumbrance; provided, however, that any license of Intellectual Property shall
not be considered a Lien on such Intellectual Property.
Losses means any and all deficiencies, judgments, settlements, demands, claims,
suits, actions or causes of action, assessments, liabilities, losses, damages (excluding indirect,
incidental or consequential damages), interest, fines, penalties, costs and expenses (including
reasonable legal, accounting and other costs and expenses) incurred in connection with
investigating, defending, settling or satisfying any and all demands, claims, actions, causes of
action, suits, proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor.
M6 Tax Credit Benefit has the meaning set forth in Section 5.8(h) of the ST
Asset Contribution Agreement.
M6 Tax Credits shall mean the tax credits under Italian law directly attributable to
investments made with respect to the M6 facility prior to the Closing Date.
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TO MASTER AGREEMENT
Managing Director means any member of Newcos Management Board.
Master Agreement means that certain Master Agreement by and among Intel, ST, FP, and
FP Holdco dated May 22, 2007.
Minimum Committed ST Inventory Value means 91% of the ST Inventory Value as of the
end of STs first fiscal quarter of 2007.
Multiemployer Plan means any employee pension benefit plan within the meaning of
Section 3(2) of ERISA that is a multiemployer plan, as defined in Section 3(37) of ERISA.
Net Available Cash of the ST Transferred Entities means (a) the Cash and Cash
Equivalents (including checks received but not yet deposited or cleared, but only if they clear
promptly after deposit by Newco) of the ST Transferred Entities minus (b) (i) checks written by the
ST Transferred Entities but not yet cashed, (ii) the ST Transferred Employee Payment Liabilities of
the ST Transferred Entities and (iii) the regular payroll liability of the ST Transferred Entities
in the case of each clause above, as of the Effective Time. Net Available Cash of the ST
Transferred Entities may be a positive or negative number.
Newco ACA Basket shall have the meaning set forth in Section 6.2(e) of the
ST Asset Contribution Agreement.
Newco Actuary shall have the meaning set forth in Section 5.11(c) of the
Intel Asset Transfer Agreement.
Newco Allocated Positions means those positions with Newco for which a Intel
Business Employee or a ST Business Employee is not allocated on Schedule 3.12(c) to the
Intel ATA Disclosure Letter or Schedule 3.12(c) to the ST ACA Disclosure Letter.
Newco Approvals means any Governmental Approval which Intel, ST and FP reasonably
agree Newco must obtain in order to consummate the transactions contemplated by the Transaction
Documents.
Newco Equipment means the Toa Payoh Equipment, the Shenzhen Equipment, the ST1
Equipment and the Bouskoura Equipment.
Newco Indemnitees means Newco and its Affiliates, officers, directors, shareholders,
representatives and agents.
Newco Restricted Employees shall have the meaning set forth in Section
5.11(e)(i) of the ST Asset Contribution Agreement.
Newco Transition Services Agreement means the Newco Transition Services Agreement
identified on Schedule 2.4 of the ST Master Agreement Disclosure Letter to be entered into
by and between ST and Newco on the Closing Date, in substantially the form attached to such
schedule.
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NFA Letter shall mean a letter from an appropriate Governmental Authority stating
that no further action is required to address any Intel Facility Environmental Liability or ST
Facility Environmental Liability, as applicable.
Notice of Claim means a written notice by an Indemnitee to an Indemnitor of a claim
for Losses.
Ordinary Shares means ordinary shares of Newco, par value [ ] eurocent per share.
Outstanding means, as of any date of determination, all Shares that have been issued
on or prior to such date, other than Shares held, repurchased or otherwise reacquired by Newco on
or prior to such date.
Owned ST Real Property means the Intel Real Property listed in Schedule
3.6(a) of the ST ACA Disclosure Letter.
Patents means patents and applications worldwide, including continuation,
divisional, continuation in part, reexamination, or reissue patent applications and patents issuing
thereon.
Party means for purposes of each Transaction Document, each party identified in the
preamble of each such Transaction Document as a Party.
Permitted Liens means (i) Liens for Taxes or governmental assessments, charges or
claims the payment of which is not yet due or which are both (A) being contested in good faith, and
(B) described in reasonable detail on a Schedule to the applicable Transaction Document (ii)
statutory Liens of landlords and statutory Liens of carriers, warehousemen, mechanics or
materialmen incurred in the ordinary course of business which are either for sums not yet due or
are immaterial in amount, (iii) zoning, entitlement, and other land use laws, and (iv) easements
and other imperfections of title or encumbrances, in each case, that do not materially detract from
the value of the relevant Transferred Asset or materially interfere with any present or intended
use of such Transferred Asset.
Permits means all permits, licenses, franchises, approvals, certificates, consents,
waivers, concessions, exemptions, orders, registrations, notices or other authorizations of any
Governmental Authority necessary for a Party or its Subsidiaries to own, lease and operate such
Partys Transferred Assets and to carry on such Partys Business as currently conducted.
Person means an individual, corporation, partnership, association, limited liability
company, trust, estate or other similar business entity or organization, including a Governmental
Authority and any syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Exchange Act.
Planned ST Capital Expenditures shall have the meaning set forth in Section
2.9 of the ST Asset Contribution Agreement.
Post-Closing Accounts Receivable means all Accounts Receivable accruing including
pursuant to any Intel Transferred Sales Order or ST Transferred Sales Order, as the case may be,
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fulfilled (including pursuant to the Intel Transition Services Agreement or the ST Transition
Services Agreement) on or after the Closing Date by Newco or any of its Subsidiaries or arising on
and after the Closing Date.
Post-Closing Tax Period means any Tax period (or portion thereof) beginning after
the Closing Date.
Pre-Closing Accounts Payable means all Accounts Payable accruing or arising prior to
the Closing Date.
Pre-Closing Accounts Receivable means all Accounts Receivable accruing or arising
prior to the Closing Date.
Pre-Closing Tax Period means any Tax period (or portion thereof) ending on or before
the Closing Date.
Preferred Shares means convertible preferred shares of Newco, par value [ ]
eurocent per share.
Preliminary ST Closing Statement has the meaning set forth in Section 2.8 of
the ST Asset Contribution Agreement.
Preliminary ST Inventory Statement has the meaning provided in Section
2.7(a) of the ST Asset Contribution Agreement.
Prepayments means all prepaid items and deposits paid by a Party or any of its
Subsidiaries to the extent relating to such Partys Business, and any claim, remedy or other right
related to any of the foregoing.
Proceeding means any action, suit, claim, charge, hearing, arbitration, audit, or
proceeding (public or private).
Property Taxes shall have the meaning set forth in Section 5.8(b)(iii) of
the Intel Asset Transfer Agreement.
PTO means the United States Patent and Trademark Office.
Purchase Price shall have the meaning set forth in Section 2.2 of the Share
Purchase Agreement.
Receiving Party shall (i) for purposes of the Intel Asset Transfer Agreement, have
the meaning set forth in Section 5.1(b) of the Intel Asset Transfer Agreement, (ii) for
purposes of the ST Asset Contribution Agreement, have the meaning set forth in Section
5.1(b) of the ST Asset Contribution Agreement and (iii) for purposes of the Intel Intellectual
Property Agreement and the ST Intellectual Property Agreement, with respect to Confidential
Information of a Party, mean another Party that is not a Licensing Affiliate of such Party and that
receives (or receives
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access to) such Confidential Information pursuant to or in connection with the Intel
Intellectual Property Agreement or the ST Intellectual Agreement.
Remedial Action means investigation, evaluation, risk assessment, monitoring,
response, removal, clean-up, remediation, corrective action or other terms of similar import and
any related closure, post-closure, operations and maintenance or engineering control activities.
Restricted Employee means any ST Restricted Employee, any Newco Restricted Employee
or any Intel Restricted Employee.
Sales Taxes means any excise, value added, registration, stamp, recording,
documentary, conveyancing, transfer, sales, use and any other similar Taxes arising out of the
transfer of the applicable Transferred Assets.
Share Encumbrances means Liens, claims, options, rights of other parties, voting
trusts, proxies, shareholder or similar agreements, encumbrances or other restrictions (other than
restrictions imposed by applicable securities laws).
Share Purchase Agreement means the Share Purchase Agreement to be entered into by FP
and Newco as of the Closing Date, in substantially the form attached to Schedule 2.3 to the
Intel Master Agreement Disclosure Letter and to Schedule 2.3 to the ST Master Agreement
Disclosure Schedule.
Shareholders Agreement means the Shareholders Agreement by and among Intel (as
used in this definition, Intel has the meaning ascribed to such term in the Shareholders
Agreement), ST (as used in this definition, ST has the meaning ascribed to such term in the
Shareholders Agreement), FP (as used in this definition, FP has the meaning ascribed to such
term in the Shareholders Agreement), FP Holdco and Newco to be entered into on the Closing Date,
substantially in the form attached to Schedule 2.4 to both of the Master Agreement
Disclosure Letters.
Shenzhen Equipment means the machinery, laboratory and other equipment, tools and
other tangible personal property set forth under the heading Shenzhen in Schedule 2.1 to
the ST ACA Disclosure Letter.
ST means STMicroelectronics N.V., a limited liability company organized under the
laws of The Netherlands, with corporate seat in Amsterdam, The Netherlands.
ST ACA Basket shall have the meaning set forth in Section 6.2(e) of the ST
Asset Contribution Agreement.
ST ACA Disclosure Letter means the disclosure letter, as agreed to between the
Parties as of the date of the Master Agreement (with such amendments as may be subsequently made
pursuant to the terms of such agreement), containing the Schedules required by the provisions of
such agreement.
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ST ACA Restricted Employees shall have the meaning set forth in Section
5.11(e)(ii) of the ST Asset Contribution Agreement.
ST Actuary shall have the meaning set forth in Section 5.11(c) of the ST
Asset Contribution Agreement.
ST Ancillary Agreements means the ST Assignment and Assumption Agreement, ST Bills
of Sale, ST Intellectual Property Agreement, ST Transition Services Agreements, ST Facility
Transfer Agreements, ST Joint Development Agreement, ST Back-End Supply Agreement, ST M5 Consortium
Agreement, ST R2 Consortium Agreement, TFR Indemnification Agreement, Bank Guarantee, ST Assumption
of Excluded Liabilities, ST Copyright Assignment, ST Patent Assignment, ST Trademark Assignment and
the Newco Transition Services Agreement.
ST Approvals means the required consents, waivers and approvals of ST set forth on
Schedule 3.3 of the ST ACA Disclosure Letter and Schedule 3.2(c) of the ST Master
Agreement Disclosure Letter.
ST Assignment and Assumption Agreement means, collectively, the Assignment and
Assumption Agreements to be entered into by Newco or its Affiliates, on one hand, and ST or its
Affiliates, on the other hand, as of the Closing Date in substantially the form attached as
Exhibit A to the ST Asset Contribution Agreement.
ST Assumption of Excluded Liabilities shall have the meaning set forth in
Section 2.4 of the ST Asset Contribution Agreement.
ST Back-End Supply Agreement means the ST Back-End Supply Agreement identified on
Schedule 2.4 of the ST Master Agreement Disclosure Letter to be entered into by and between
ST and Newco on the Closing Date, in substantially the form attached to such schedule.
ST Bill of Sale means any bill of sale or other similar document reasonably
requested by any Party and reasonably necessary to transfer any ST Transferred Asset in accordance
with applicable law to be executed by one or more ST Transferors in favor of Newco or a Subsidiary
of Newco as of the Closing Date, each in substantially the form attached as Exhibit B to
the ST Asset Contribution Agreement.
ST Books and Records means all of the books of account, general and financial
records, invoices, shipping records, customer records, supplier lists, correspondence and other
documents, records and files of ST and its Subsidiaries whether in hard copy or computer format
which relate exclusively to the ST Business and are necessary for the conduct of such ST Business
after the Closing (excluding all personnel records or any employee information for ST Business
Employees who are not ST Transferred Employees employed by an ST Transferred Entity as of the
Closing Date).
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ST Business means the sale, manufacture, design and or development of NOR Flash
Memory Products, NAND Flash Memory Products, Phase Change Memory Products and Stacked Memory
Products.
ST Business Capital Expenditures Plan means the plan set forth on Schedule
3.14(e) of the ST ACA Disclosure Letter setting forth (i) the actual capital expenditures of ST
with respect to the ST Business for its first fiscal quarter of 2007; and (ii) the budgeted capital
expenditures of ST with respect to the ST Business for the second, third and fourth fiscal quarters
of 2007.
ST Business Employees means the employees who are identified on Schedule
3.12(c) of the ST ACA Disclosure Letter.
ST Cash Independent Accountants has the meaning set forth in Section 2.8 of
the ST Asset Contribution Agreement.
ST Consideration shall have the meaning set forth in Section 2.6(c) of the
ST Asset Contribution Agreement.
ST Contractual Consents shall have the meaning set forth in Section 3.8(b)
of the ST Asset Contribution Agreement.
ST Copyright Assignment means any agreement for the assignment of ST Transferred
Copyrights by an ST Transferor to Newco or a Subsidiary of Newco, dated as of the Closing Date, in
the form agreed among Intel, ST and FP.
ST Employee Agreement means each management, employment, severance, consulting,
relocation, repatriation, expatriation or other agreement or Contract between ST or any of its
Subsidiaries and any ST Business Employee directly relating to such ST Business Employees terms or
conditions of employment.
ST Employee Plan means any plan, program, policy, practice, agreement or other
arrangement providing for compensation, severance, termination pay, vacation pay, paid time off,
pension benefits, retirement benefits, deferred compensation, variable compensation, bonuses,
performance awards, stock or stock-related awards, fringe benefits (including health, dental,
vision, life, disability, sabbatical, accidental death and dismemberment benefits), or other
employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or
unfunded, including each employee benefit plan, within the meaning of Section 3(3) of ERISA,
excluding any ST Employee Agreement, which is or has been maintained or contributed to by ST or its
Affiliates for the benefit of any ST Business Employee.
ST Employee Agreement means each management, employment, severance, consulting,
relocation, repatriation, expatriation or other agreement or Contract between ST or any of its
Subsidiaries and any ST Business Employee directly relating to such ST Business Employees terms or
conditions of employment.
ST Equipment means the machinery, laboratory and other equipment, tools and other
tangible personal property set forth on Schedule 2.1(a) of the ST ACA Disclosure Letter.
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ST Excluded Assets shall have the meaning set forth in Section 2.2 of the ST
Asset Contribution Agreement.
ST Excluded Claims means all Claims to the extent that such claims relate to: (i)
any ST Excluded Assets; or (ii) events or breaches occurring on or prior to the Closing Date that
relate to the ST Transferred Assets, provided that Claims for infringements of any ST Transferred
Patents, ST Transferred Copyrights or ST Transferred Trade Secrets occurring on or prior to the
Closing Date shall not be ST Excluded Claims.
ST Excluded Liabilities shall have the meaning set forth in Section 2.4 of
the ST Asset Contribution Agreement.
ST Facility Environmental Liability shall mean all ST Pre-Closing Environmental
Liabilities relating to the condition of the soil, soil gas, surface water (including sediments) or
groundwater, with respect to the existence of any Hazardous Substances therein, at, on, or under
the Owned ST Real Property or the Leased ST Real Property.
ST Facility Transfer Term Sheets means the term sheets attached to Schedule
4.22(a) to the ST Master Agreement Disclosure Letter reflecting the terms and conditions upon
which the agreements and other related documents effecting the transfer by ST and its Subsidiaries
of the ST Transferred Facilities to Newco and its Subsidiaries shall be substantially based.
ST Financial Information shall have the meaning set forth in Section 3.13(a)
of the ST Asset Contribution Agreement.
ST Financial Information Date shall have the meaning set forth in Section
3.13(a) of the ST Asset Contribution Agreement.
ST Funded Employee Plan means any ST Employee Plan that is funded other than through
book reserves or insurance and that is not subject to the laws of the United States; provided,
however, ST Funded Employee Plan shall not include any TFR Liability.
ST Funded Employee Plan Amount shall have the meaning set forth in Section
5.11(c) of the ST Asset Contribution Agreement.
ST Indemnitees means ST and its Affiliates, officers, directors, stockholders,
representatives and agents.
ST Intellectual Property Agreement means the Intellectual Property Agreement to be
entered into by and between ST and Newco on the Closing Date, in substantially the form attached to
Schedule 2.4 of the ST Master Agreement Disclosure Letter.
ST Inventory Depreciation Amount shall mean, as of any date of determination, the
amount of depreciation that would have been reflected in the ST Inventory Value if the assets used
to create the inventory of the ST Business were not deemed to be held for sale under GAAP during
the period from the date of the Master Agreement through the Closing Date.
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ST Inventory Value means, as of any date of determination, the gross book value of
the ST Transferred Inventory as of such date (less reserves) as determined as of such date (1) from
the books and records of ST maintained in the ordinary course of business and (2) in accordance
with GAAP, applied in a manner consistent with the ST Financial Information (as it may be adjusted
by ST in its sole discretion to reflect any changes consistent with the audited financial
statements of the ST Business to be delivered under this Agreement at and for the year ended
December 31, 2006). ST Inventory Value shall be determined without giving effect to the
transactions contemplated by this Agreement. For purposes of this definition, the amount of
reserves deducted under clause (x) above shall be determined as of such date (1) from the books and
records of ST maintained in the ordinary course of business and (2) in accordance with GAAP,
applied in a manner consistent with the ST Financial Information (as adjusted above). The ST
Inventory Value at the end of the first fiscal quarter of ST and the ST Inventory Value at the
Closing Date shall be determined on a consistent basis in all respects. Notwithstanding the
foregoing, no amount shall be included in the ST Inventory Value with respect to:
|
(i) |
|
inventories of any ST Product which, as of such date, is obsolete; or |
|
|
(ii) |
|
any units in inventory of any ST Product which as of such date (A) are not
first quality, (B) are not free from defects or (C) do not meet all applicable customer
specifications. |
ST Joint Development Agreement means the Joint Development Agreement by and between
ST and Newco entered into on the Closing Date, based substantially on the term sheet attached to
Schedule 2.4 of the ST Master Agreement Disclosure Letter, and reasonably acceptable to ST,
FP and ST.
ST Leases means all leases or other occupancy agreements pursuant to which ST or its
Subsidiaries lease or occupy the Leased ST Real Property.
ST Loan Documents means the Hynix JV Junior Credit Agreement, the 12-inch Asset
Security Agreement dated October 9, 2006 among Hynix-ST Semiconductor Ltd., as Mortgager,
Industrial and Commercial Bank of China Limited, Wuxi Branch, as Senior Security Agent, and DBS
Bank Ltd., as Junior Security Agent, and the Asset Mortgage Agreement between Hynix-ST
Semiconductor Ltd. and DBS Bank Ltd. dated October 9, 2006 (which together give effect to and
supersede the Subordinated Secured Promissory Note and Loan Agreement, dated June 13, 2005, among
Hynix-ST Semiconductor Ltd. and ST and the Security Agreement, dated June 13, 2005, among Hynix-ST
Semiconductor Ltd. and ST).
ST Material Adverse Effect means any event, change or circumstance that,
individually or in the aggregate with all other such events, changes or circumstances, (a) results
in a material adverse effect on, or material adverse change in, the ST Transferred Assets, taken as
a whole, or (b) any event, change or circumstance that is materially adverse to the ability of ST
to perform its obligations under any Transaction Document to which it is or will be a party or to
consummate the transactions contemplated thereby, other than, in the case of clause (a) above, such
changes, effects or circumstances reasonably attributable to: (i) economic, capital market or
political conditions generally in the United States or foreign economies in any locations where the
ST
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Business has material operations or sales, provided the changes, effects or circumstances do
not have a materially disproportionate effect (relative to other industry participants) on the ST
Business, (ii) conditions generally affecting the industry in which the ST Business operates,
provided that the changes, effects or circumstances do not have a materially disproportionate
effect (relative to other industry participants) on the ST Business; (iii) the announcement or
pendency of the transactions contemplated by the Transaction Documents; (iv) outbreak of
hostilities or war, acts of terrorism or acts of God; or (v) compliance with STs obligations or
the satisfaction of the conditions to the closing of the transactions contemplated by the
Transaction Documents.
ST M5 Consortium Agreement means the ST M5 Consortium Agreement to be entered into
by and between Italian Newco and STMicroelectronics S.r.l. on or prior to the Closing Date, in
substantially the form attached to Schedule 2.4 of the ST Master Agreement Disclosure
Letter.
ST Newco Shares shall have the meaning set forth in Section 2.6(a) of the ST
Asset Contribution Agreement.
ST Notice of Disagreement has the meaning set forth in Section 2.7(b) of the
ST Asset Contribution Agreement.
ST Patent Assignment means any agreement for the assignment of ST Transferred
Patents by an ST Transferor to Newco or a Subsidiary of Newco, dated as of the Closing Date, in the
form agreed among Intel, ST and FP.
ST Preliminary Closing Statement has the meaning set forth in Section 2.8 of
the ST Asset Contribution Agreement.
ST Post-Closing Environmental Liability shall mean any Environmental Liability,
including a worsening of existing conditions, to the extent arising out of or relating to (i)
Newcos acts occurring after the Closing Date, (ii) Newcos inaction occurring one year or later
after the Closing Date, or (iii) Newcos inaction occurring within one year after the Closing Date
if Newco knew about the existing condition and its inaction worsened the existing condition; and in
connection with a Newco Business or the ST Business, the Owned ST Real Property, the Leased ST Real
Property, the ST Transferred Assets or the ST Transferred Entities or the ownership or operation of
a Newco Business or the ST Business, the Owned ST Real Property, the Leased ST Real Property or the
ST Transferred Assets, the ST Transferred Entities by, or the disposal or treatment of Hazardous
Substances generated by, Newco or an Affiliate of Newco (including an ST Transferred Entity) after
the Closing Date.
ST Post-Closing Product Obligations means (i) all obligations arising in respect of
product support or maintenance obligations related to ST Products sold or licensed on or after the
ST ACA Closing and required to be performed after the ST ACA Closing, which obligations arise under
any ST Transferred Contract, and any Liabilities which may arise in connection with the performance
of, or failure to perform, those obligations and (ii) Liabilities relating to any product
liability, warranty, refund or similar claims or returns, adjustments, allowances, repairs
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made with respect to ST Products sold after the Closing Date, including those sold by ST on
behalf of Newco after the ST ACA Closing pursuant to the ST Transition Services Agreements.
ST Pre-Closing Environmental Liability shall mean any Environmental Liability which
(i) relates to the ownership or operation of the ST Business (as now or previously conducted), the
Owned ST Real Property, the Leased ST Real Property, the ST Transferred Assets, the ST Transferred
Entities, the ST Shared Facilities or any other real property or facility owned, leased, operated
or used in connection with the ST Business (as now or previously conducted) or for the disposal or
treatment of Hazardous Substances generated in connection with the ST Business, the Owned ST Real
Property, the Leased ST Real Property, the ST Transferred Assets, or the ST Transferred Entities,
(ii) arises out of or relates to acts occurring or conditions existing on or prior to the Closing
Date, but only to the extent that the Environmental Liability arising out of or relating to acts
occurring or conditions existing on or prior to the Closing Date can be identified from (A) the ST
Environmental Reports so long as such reports are issued not later than one (1) year subsequent to
the Closing or (B) documents or data generated prior to the Closing and in the possession of ST
prior to the Closing, and (iii) is identified in the foregoing documents and/or data with
sufficient specificity so as to clearly identify the scope of the Environmental Liability that is
attributable to the ST Business, the Owned ST Real Property, the Leased ST Real Property, the ST
Transferred Assets, or the ST Transferred Entities. Notwithstanding the foregoing, ST Pre-Closing
Environmental Liability shall not include any ST Post-Closing Environmental Liability.
ST Pre-Closing Product Obligations means (i) all obligations arising in respect of
product support or maintenance obligations related to ST Products sold or licensed prior to the
Closing and required to be performed after Closing, which obligations arise under any ST
Transferred Contract, and any Liabilities which may arise in connection with the performance of, or
failure to perform, those obligations and (ii) Liabilities relating to any product liability,
warranty, refund or similar claims or returns, adjustments, allowances, repairs, or commercial
accommodations or arrangements in respect of Epidemic Failures made with respect to ST Products
sold on or before the Closing Date.
ST Prepayments means all Prepayments of ST or any of its Subsidiaries (i) associated
with the ST Transferred Contracts and (ii) set forth on Schedule 2.1(f) to the ST ACA
Disclosure Letter.
ST Privacy Policy shall have the meaning set forth in Section 5.12 of the ST
Asset Contribution Agreement.
ST Products means NOR Flash Memory Products, NAND Flash Memory Products, and Stacked
Memory Products, including those listed on Schedule 1.1(c) of the ST ACA Disclosure Letter.
ST Retained Marks shall have the meaning set forth in Section 5.3 of the ST
Asset Contribution Agreement.
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ST R2 Consortium Agreement means the ST R2 Consortium Agreement to be entered into
by and between Italian Newco and STMicroelectronics S.r.l. on or prior to the Closing Date, in
substantially the form attached to Schedule 2.4 of the ST Master Agreement Disclosure
Letter.
ST Standard Form Product Warranties shall have the meaning set forth in Section
3.16 of the ST Asset Contribution Agreement.
ST Supply Agreement means the Supply Agreement identified on Schedule 2.1 of
both of the Master Agreement Disclosure Letters to be entered into by and between ST and Newco on
the Closing Date, in substantially the forms attached to such schedule.
ST Tax Agreement shall have the meaning set forth in Section 3.10(e) of the
ST Asset Contribution Agreement.
ST Trademark Assignment means any agreement for the assignment of ST Transferred
Trademarks by an ST Transferor to Newco or a Subsidiary of Newco, dated as of the Closing Date, in
the form agreed among Intel, ST and FP.
ST Transferors shall have the meaning set forth in the Recitals of the ST Asset
Contribution Agreement.
ST Transferred Assets shall have the meaning set forth in Section 2.1 of the
ST Asset Contribution Agreement.
ST Transferred Claims means all Claims to the extent such Claims relate to the ST
Transferred Assets or the ST Transferred Liabilities, other than the ST Excluded Claims. For
avoidance of doubt, ST Transferred Claims shall include claims for infringement of any ST
Transferred Patent, ST Transferred Copyright or ST Transferred Trade Secret occurring on or prior
to the Closing Date.
ST Transferred Contracts means all unexpired contracts set forth on Schedule
2.1(e) of the ST ACA Disclosure Letter, together with the ST Transferred Purchase Orders, the
ST Transferred Sales Orders and the ST Leases.
ST Transferred Copyrights means the Copyrights identified on Schedule 2.1(i)
of the ST ACA Disclosure Letter.
ST Transferred Employee Payment Liabilities means any and all payment obligations of
ST and its Affiliates (i) relating to the service of ST Transferred Employees prior to the
Effective Time, (ii) that are assumed by Newco by operation of Applicable Law at the Effective
Time, (iii) that are unfunded or for which accruals are made on the employing companys balance
sheet, and (iv) that are not otherwise paid out or satisfied to the ST Transferred Employees prior
to or at the Effective Time, including retirement benefits, termination indemnities, unemployment,
accrued vacation and paid-time off benefits, Christmas bonuses, thirteenth-month bonuses, vacation
premium bonuses and any other non-incentive cash bonuses (other than salary), jubilee and
long-service payments; provided, however, that ST Transferred Employee Payment Liabilities shall
not include (w) any contingent Liabilities on the part of
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Newco that arise solely as a result of providing service recognition under Section
5.11(a) of the ST Asset Contribution Agreement, (x) any TFR Liability, (y) any unearned
incentive bonuses or variable pay and (z) the regular payroll of the ST Transferred Entities as of
the close of business on the day prior to the Closing Date.
ST Transferred Employees means the ST Business Employees and ST Designated Employees
who accept an offer of employment from Newco and who begin their employment with Newco at the
Closing (or, to the extent permitted by Applicable Law with respect to inactive employees on
short-term, medical or other leave of absence, at the time such employee returns to active status)
or such other date as the parties may reasonably agree.
ST Transferred Entities means the entities set forth on Schedule 1.1(a) of
the ST ACA Disclosure Letter.
ST Transferred Entity Books and Records means the minute books, stock records, Tax
Returns and other records related to Taxes, if any, in each case of each of the ST Transferred
Entities.
ST Transferred Intellectual Property means, collectively, the ST Transferred
Copyrights, ST Transferred Patents, ST Transferred Trademarks and ST Transferred Trade Secrets.
ST Transferred Interests means 100% of the outstanding equity, voting and profit
interests in the ST Transferred Entities.
ST Transferred Inventory means all raw materials, work-in-process, finished goods,
supplies, packaging materials and other inventories owned by ST or its Subsidiaries relating
exclusively to the ST Business, whether in the possession of ST, a Subsidiary of ST or a third
party (including consigned inventory and inventory held by subcontractors).
ST Transferred Liabilities shall have the meaning set forth in Section 2.3
of the ST Asset Contribution Agreement.
ST Transferred Patents means those Patents identified on Schedule 2.1(h) of
the ST ACA Disclosure Letter.
ST Transferred Permits means those Permits identified on Schedule 2.1(l) of
the ST ACA Disclosure Letter.
ST Transferred Purchase Orders means each purchase order or portion thereof issued
by ST or a Subsidiary of ST to the extent relating to the ST Business.
ST Transferred Sales Orders means all pending and unfulfilled sales orders or
portions thereof for ST Products.
ST Transferred Systems means factory support systems (for example, shop floor
control applications governing work stream models, SPC charts, APC configuration), data,
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manufacturing station controllers linked to process equipment tools, and transferable elements
of systems and software, in each case exclusively related to the ST Business, provided under the ST
Transition Services Agreement which may be released to Newco in connection with the termination of
such agreements.
ST Transferred Trade Secrets means any Trade Secrets owned by ST or any of its
Subsidiaries as of the Closing Date (including any such Trade Secrets that consist of technical
documentation of the nature of the files and other documentation identified on Schedule
2.1(h) to the ST ACA Disclosure Letter) that are used exclusively in the ST Business and not
materially embodied or used in or with any other current product or service of ST or any of its
Subsidiaries.
ST Transferred Trademarks means those Trademarks identified on Schedule
2.1(k) of the ST ACA Disclosure Letter.
ST Transition Services Agreement means the ST Transition Services Agreement
identified on Schedule 2.4 of the ST Master Agreement Disclosure Letter to be entered into
by and between ST and Newco on the Closing Date, in substantially the form attached to such
schedule.
ST1 Equipment means the machinery, laboratory and other equipment, tools and other
tangible personal property set forth under the heading Muar Johor (ST1) in Schedule
2.1(a) to the ST ACA Disclosure Letter.
Straddle Period shall have the meaning set forth in Section 5.8(a) of the ST
Asset Contribution Agreement.
Subsidiary means, with respect to any Person, (i) any corporation, limited liability
company or other similar entity as to which more than 50% of the outstanding capital stock or other
securities having voting rights or power is owned or controlled, directly or indirectly, by such
Person and/or by one or more of such Persons direct or indirect subsidiaries and (ii) any Person
with a partnership, joint venture or other similar relationship between such Persons and any other
Person, provided, however, that with respect to Intel, Silicon Philippines, Inc., a corporation
organized and existing under Philippines law (SPI), shall be deemed to be a Subsidiary of Intel
for purposes of the Transaction Documents and for convenience only, and such inclusion of SPI
within this definition shall not imply that such entity is a subsidiary or affiliate of Intel for
any purpose independent of the Transaction Documents.
Tax Returns means all returns, declarations, reports, statements, information
statements, forms or other documents filed or required to be filed with respect to any Tax.
Taxes means (i) all foreign, federal, state, local and other net income, gross
income, gross receipts, sales, use, ad valorem, value added, intangible, unitary, capital gain,
transfer, franchise, profits, license, lease, service, service use, withholding, backup
withholding, payroll, employment, estimated, excise, severance, stamp, occupation, premium,
property, prohibited transactions, windfall or excess profits, value added tax, goods and services
tax, social service tax, import tax, export tax, or other taxes of any kind whatsoever, together
with any interest and
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any penalties, additions to tax or additional amounts with respect thereto, (ii) any Liability
for payment of amounts described in clause (i) whether as a result of transferee Liability, of
being a member of an affiliated, consolidated, combined or unitary group for any period, or
otherwise through operation of law, and (iii) any Liability for the payment of amounts described in
clause (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other Person for Taxes; and the term Tax
means any one of the foregoing Taxes.
TFR Indemnification Agreement means the TFR Indemnification Agreement to be entered
into by Newco, the applicable Newco Subsidiaries and ST on the Closing Date, in a form reasonably
acceptable to Intel, FP and ST.
TFR Indemnity Obligations means TFR Liability and any and all Losses arising from
any dispute with any party related to any TFR Liability.
TFR Liability means Trattamento di Fine Rapporto obligations that are or may
become payable to or in respect of any of the ST Transferred Employees with respect to their
service with ST prior to their transfer to Newco or its Subsidiaries pursuant to the ST Asset
Contribution Agreement.
Third Actuary shall have the meaning set forth in Section 5.11(c) of the
Intel Asset Transfer Agreement and the ST Asset Contribution.
Third Party A/P Payable by ST Transferred Entities means all accounts payable and
other amounts owed by the ST Transferred Entities to any Person other than ST and its Subsidiaries
as applicable for raw materials or supplies received by or services rendered to the ST Transferred
Entities, recorded or required to be recorded as such on the financial statements of ST and its
Subsidiaries as of the Effective Time prepared on a basis consistent with past practice and in
accordance with GAAP, but for purposes of Section 2.8(b)-(e) of the ST Asset Contribution
Agreement, accounts payable assumed by ST or its designated Subsidiaries under Section 2.8(a) of
the ST Asset Contribution Agreement shall not be included in Third Party A/P Payable by ST
Transferred Entities.
Third Party A/R Owed to ST Transferred Entities means all accounts receivable and
other current rights to payment of the ST Transferred Entities from any Person other than ST and
its Subsidiaries, together with any unpaid interest or fees accrued thereon or other amounts due
with respect thereto, recorded or required to be recorded as such on the financial statements of ST
and its Subsidiaries as of the Effective Time prepared on a basis consistent with past practice and
in accordance with GAAP, but for purposes of the Section 2.8(b)-(e) of the ST Asset
Contribution Agreement, accounts receivable transferred to ST or its designated Subsidiaries under
Section 2.8(a) of the ST Asset Contribution Agreement shall not be included in Third Party
A/R Owed to ST Transferred Entities.
Third Party Appraisal Firm shall have the meaning set forth in Section 4.13
of the Master Agreement.
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Toa Payoh Equipment means the machinery, laboratory and other equipment, tools and
other tangible personal property set forth under the heading Toa Payoh in Schedule 2.1 to
the ST ACA Disclosure Letter.
Trademarks means trademarks and registrations and applications therefor.
Trade Secrets means confidential know how, inventions, discoveries, concepts, ideas,
methods, processes, designs, formulae, technical data, source code, drawings, specifications
(including logic specifications), data bases, data sheets, customer lists, Customer Data and other
confidential information that constitute trade secrets under applicable law, in each case excluding
any rights in respect of any of the foregoing that comprise Copyrights, mask work rights or
Patents.
Transaction Documents means the Master Agreement, the Intel Asset Transfer
Agreement, the ST Asset Contribution Agreement, the Share Purchase Agreement, the Intel Ancillary
Agreements, the ST Ancillary Agreements, the Shareholders Agreement, the Confidentiality
Agreement, and all of the documents contemplated by any such agreement or entered into by any of
the Parties thereto or their Subsidiaries in connections with the transactions contemplated by such
agreements.
Uncapped ST Losses means Losses (i) pursuant to a breach of any of Sections 3.2
(Authorization and Enforceability), 3.10 (Tax Matters), 3.12(a) (Pension Plans),
3.15 (Environmental Matters), and 3.22(a) (Organization) and 3.22 (b)
(Capitalization), (ii) pursuant to Section 6.2(a)(iii), (iii) resulting from a breach of
any covenant other than those set forth in Section 4.10 of the Master Agreement and (iv)
resulting from a willful breach of any covenant set forth in Section 4.10 of the Master
Agreement).
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ASSET CONTRIBUTION AGREEMENT
By and Between
[NEWCO],
and
STMICROELECTRONICS N.V.
Dated as of ___, 200___
FINAL ATTACHMENT
TO MASTER AGREEMENT
TABLE OF CONTENTS
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ST ASSET CONTRIBUTION AGREEMENT |
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1 |
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ARTICLE I DEFINITIONS |
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1.1 Definitions |
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1.2 Defined Terms Generally |
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ARTICLE II Transfer Of Assets |
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2.1 ST Transferred Assets |
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2.2 ST Excluded Assets |
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2.3 ST Transferred Liabilities |
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2.4 ST Excluded Liabilities |
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2.5 Assignment of Contracts and Rights |
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2.6 Consideration |
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2.7 Inventory Adjustment to Consideration |
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2.8 ST Transferred Entities Purchase Price Adjustment |
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11 |
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2.9 Capital Expenditures |
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2.10 Pre Closing Deliveries by Newco |
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2.11 Pre Closing Deliveries by ST |
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2.12 Closing |
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2.13 Post Closing Registrations |
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF ST |
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3.1 Existence and Good Standing |
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3.2 Authorization and Enforceability |
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3.3 Governmental Authorization |
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3.4 Non-Contravention |
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3.5 Personal Property |
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3.6 Real Property |
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3.7 Litigation |
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3.8 ST Transferred Contracts and Consents |
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3.9 Compliance with Applicable Laws |
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3.10 Tax Matters |
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3.11 Intellectual Property |
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3.12 Employee Matters |
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3.13 Financial Information |
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3.14 Absence of Certain Changes |
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3.15 Environmental Matters |
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3.16 Product Warranties |
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3.17 Transferred Assets |
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3.18 Customers |
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3.19 Insurance |
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3.20 Inventories |
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3.21 Advisory Fees |
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3.22 Representations Regarding ST Transferred Entities and ST Transferred Interests |
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3.23 Investment Representations |
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3.24 Disclaimer of Warranties |
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NEWCO |
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4.1 Existence and Good Standing |
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4.2 Authorization and Enforceability |
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4.3 Non-Contravention |
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4.4 Capitalization |
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4.5 Valid Issuance of Shares |
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4.6 Exempt Offering |
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4.7 Lack of Registration Rights and Voting Agreements |
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4.8 Reliance |
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ARTICLE V COVENANTS |
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5.1 Access to Information |
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5.2 Compliance with Terms of Governmental Approvals and Consents |
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5.3 Use of Marks |
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5.4 Cooperation in Third Party Litigation |
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5.5 Assignments |
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5.6 Reasonable Efforts |
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5.7 Allocation of Non-Tax Operating Expenses |
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5.8 Tax Matters |
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5.9 Accounts Receivable |
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5.10 Accounts Payable |
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5.11 Employees |
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5.12 Protection of Privacy |
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5.13 Export Compliance |
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5.14 Satisfaction of ST Pre-Closing Product Obligations |
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5.15 Additional ST Financial Statements |
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5.16 Settlement of Claims |
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5.17 Back-end Equipment |
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5.18 Master Agreement Covenants |
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5.19 Further Assurances |
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5.20 Release of Liens |
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ARTICLE VI INDEMNIFICATION |
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6.1 General Survival |
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6.2 Indemnification |
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6.3 Manner of Indemnification |
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6.4 Third-Party Claims |
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6.5 Exclusive Remedy and Waiver and Release of Certain Claims |
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6.6 Subrogation |
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6.7 Damages |
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6.8 Environmental Indemnification Procedures |
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ARTICLE VII MISCELLANEOUS |
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7.1 Notices |
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7.2 Amendments; Waivers |
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7.3 Expenses |
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7.4 Successors and Assigns |
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7.5 Governing Law |
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7.6 Counterparts; Effectiveness |
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7.7 Entire Agreement |
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7.8 Captions |
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7.9 Severability |
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7.10 Dispute Resolution |
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7.11 Submission to Jurisdiction; Waiver of Jury Trial |
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7.12 Third Party Beneficiaries |
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7.13 Specific Performance |
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7.14 No Presumption Against Drafting Party |
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