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Exhibit 10.20
 
JOINT VENTURE OPERATING AGREEMENT

OF

PHOTRONICS DNP MASK CORPORATION

between

PHOTRONICS, INC.

and

DAI NIPPON PRINTING CO., LTD.

Dated as of November 20, 2013
 

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TABLE OF CONTENTS

Page

ARTICLE 1. ORGANIZATIONAL MATTERS
1
 
1.1
Background
1
 
1.2
Name
1
 
1.3
Principal Place of Business
2
 
1.4
Business Purpose
2
 
1.5
Term
2
 
1.6
Accounting Consolidation
2
 
1.7
Transaction Documents
3
 
1.8
Ratification of Organizational Actions
3
 
1.9
Articles of Incorporation
3
 
1.10
Compliance
3
 
1.11
Pre-Closing Liabilities
3
ARTICLE 2. DEFINITIONS
3
ARTICLE 3. SHARES AND CAPITAL CONTRIBUTIONS
10
 
3.1
Authorized Shares
10
 
3.2
Initial Capital Contributions and Share Issuance
10
 
3.3
Return or Redemption of Capital Contribution
10
 
3.4
Liability of Shareholders
10
 
3.5
Revenue
10
ARTICLE 4. FINANCING OF THE COMPANY
11
 
4.1
Types of Financing
11
ARTICLE 5. MANAGEMENT
11
 
5.1
Board of Directors
11
 
5.2
Effect of Reduction in Photronics’ Percentage Interest on Photronics Directors
13
 
5.3
Effect of Reduction in DNP’s Percentage Interest on DNP Directors
13
 
5.4
Procedure.
13
 
5.5
Chairman and Vice-Chairman
14
 
5.6
Meetings of Shareholders and of the Board of Directors; Quorum
14
 
5.7
Supervisors
16
 
5.8
Actions Requiring a Supermajority Vote of Shareholders
16
 
5.9
Actions Requiring a Supermajority Vote of Directors
16
 
5.10
Compensation of Directors and Supervisors
16
 
5.11
Other Activities
16
 
5.12
Accounting; Records and Reports
17
 
5.13
Indemnification and Liability of the Directors
19
 
5.14
Officer
21
 
5.15
Management Advisory Committee
23
 
5.16
Non-Disclosure
23
 
5.17
Maintenance of Insurance
23
 
5.18
Related Party Agreements
24
ARTICLE 6. OPERATIONS
24
 
6.1
Headquarters
24
 
6.2
Operations Plan; Annual Budget
24
 
6.3
DPTT Employees
24
 
6.4
Company Employees; Seconded Employees
24

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6.5
Service Provider Documents
24
 
6.6
Compensation and Benefits
25
ARTICLE 7. DISPOSITION AND TRANSFERS OF INTERESTS
25
 
7.1
Holding of Shares
25
 
7.2
Transfer Moratorium
25
 
7.3
Purchase and Sale of Remaining Interest
26
 
7.4
Change in Control
26
 
7.5
Purchase and Sale Agreement
27
ARTICLE 8. [INTENTIOANLLY DELETED]
27
ARTICLE 9.
27
 
9.1
Term of this Agreement
27
 
9.2
Termination and Cross-termination
27
 
9.3
Right of Terminating Party
28
ARTICLE 10. DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY
28
 
10.1
Limitations
28
 
10.2
Exclusive Causes
28
 
10.3
Effect of Dissolution
28
 
10.4
Loss of the Company
28
 
10.5
Liquidation
29
 
10.6
Dissolution
29
ARTICLE 11. DISTRIBUTIONS
29
 
11.1
Use of Cash
29
 
11.2
Distributions Upon Liquidation
29
 
11.3
Withholding
29
 
11.4
Distributions in Kind
Error! Bookmark not defined.
 
11.5
Limitations on Distributions
29
ARTICLE 12. MISCELLANEOUS
30
 
12.1
Amendments
30
 
12.2
No Waiver
30
 
12.3
Entire Agreement
30
 
12.4
Further Assurances
30
 
12.5
Notices
30
 
12.6
Governing Law
31
 
12.7
Construction; Interpretation
31
 
12.8
Rights and Remedies Cumulative
31
 
12.9
No Assignment; Binding Effect
32
 
12.10
Severability
32
 
12.11
Counterparts
32
 
12.12
Dispute Resolution; Arbitration
32
 
12.13
Third-Party Beneficiaries
32
 
12.14
Specific Performance
33
 
12.15
Consequential Damages
33
 
12.16
Fees and Expenses
33

 

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SCHEDULES

Schedule A *

Schedule B *

Schedule C *

Schedule D *

Schedule E *

Schedule F *

Schedule G *

Schedule H *

Schedule I *

Schedule J *

 

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JOINT VENTURE OPERATING AGREEMENT
OF
PHOTRONICS DNP MASK CORPORATION

This JOINT VENTURE OPERATING AGREEMENT (together with the Schedules, as amended
or otherwise modified from time to time, this “Agreement”) is made and entered
into as of the 20th day of November, 2013, by and between Photronics, Inc., a
corporation organized under the laws of the state of Connecticut, U.S.A. with
its principal place of business at 15 Sector Road, Brookfield, Connecticut,
U.S.A. (“Photronics”) and Dai Nippon Printing Co., Ltd., a corporation organized
under the laws of Japan with its principal place of business at 1-1, Ichigaya
Kagacho 1-chome, Shinjuku-ku, Tokyo, Japan (“DNP”), with respect to Photronics
DNP Mask Corporation, whose name as of the date of this Agreement is Photronics
Semiconductor Mask Corporation (the “Company”), a company limited by shares
organized and formed under the Company Act of the Republic of China (the “Act”)
with its principal place of business at 1F, No. 2, Lising Road, Hsinchu City,
Hsinchu Science Park, Taiwan.

ARTICLE 1.
ORGANIZATIONAL MATTERS

1.1 Background

The Company was formed on October 6, 1997 under the Act and will become the
joint venture entity contemplated by the Merger Agreement (the "Merger
Agreement") to be executed between the Company and DNP Photomask Technology
Taiwan Co., Ltd., a corporation organized under the laws of the R.O.C., with its
principal place of business at No. 6, Lising 7th Rd., East District, Hsinchu
City, Hsinchu Science Park, Taiwan, R.O.C. Upon execution of the Merger
Agreement, Photronics will be the sole Shareholder of the Company directly or
indirectly, and upon the contributions contemplated under such Merger Agreement,
DNP will also become a Shareholder of the Company. The rights and liabilities of
the Shareholders shall be as provided in the Act, except as otherwise expressly
provided herein. In the event of any inconsistency between any terms and
conditions contained in this Agreement and any non‑mandatory provisions of the
Act, the terms and conditions contained in this Agreement shall govern. If any
provision of this Agreement is prohibited or ineffective under the Act, this
Agreement will be considered amended to the smallest degree possible in order to
make such provision effective under the Act. The Shareholders and the Board of
Directors shall also cause the Company to take corporate actions and make
filings and recordings that are necessary or advisable to effectuate the
aforesaid amendment.

1.2 Name

The name of the Company after the completion of the Merger contemplated under
the Merger Agreement shall be 台灣美日先進光罩股份有限公司 (Photronics DNP Mask Corporation).
The Board of Directors may change the name of the Company from time to time, in
accordance with this Agreement and Applicable Law.
 
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1.3 Principal Place of Business

The principal place of business of the Company will be located in 1F, No. 2,
Lising Road, Hsinchu City, Hsinchu Science Park, Taiwan.

1.4 Business Purpose

The purpose of the Company shall be *.

1.5 Term

The Company shall continue until the Company is terminated, dissolved or
liquidated in accordance with this Agreement and the Act. Notwithstanding the
dissolution of the Company, the existence of the Company shall continue until
termination pursuant to, and as provided in, Article 10 of this Agreement.

1.6 Accounting Consolidation

1.6.1  The Shareholders confirm and agree that, for as long as Photronics and/or
an Affiliate of Photronics holds more than fifty percent (50%) of Percentage
Interest in the Company in the aggregate, the Company is intended to, and shall
be treated as, a consolidated subsidiary of Photronics under United States and
Taiwan GAAP. In the event that any term of this Agreement or any relationship,
understanding or other agreement, including any Transaction Document, between or
among, the Company, Photronics and DNP shall be inconsistent with any existing
or future rule, principle or standard governing accounting consolidation of the
Company’s financial results by Photronics under GAAP, then this Agreement or
such relationship, understanding or other agreement shall be modified,
terminated or waived (as the case may be) (each an “Accounting Amendment”) to
the minimum extent necessary to grant, allow or permit accounting consolidation
of the Company’s financial results by Photronics in accordance with Section
1.6.2.

1.6.2  Where Photronics believes that an Accounting Amendment may be necessary
due to any existing or future rule, principle or standard under GAAP,

(a) Photronics shall promptly notify DNP of the reasons for, and content of, any
proposed Accounting Amendment in writing;

(b) after Photronics’ above notification, *

1.6.3  For the avoidance of doubt, for as long as Photronics and/or an Affiliate
of Photronics holds more than fifty percent (50%) of Percentage Interest in the
Company in aggregate, nothing contained herein is intended or shall allow DNP to
(a) control the operations or assets of the Company in its sole discretion and
(b) have the discretionary power to govern the financial, operating and
personnel policies of the Company unless such actions as set forth in (a) and
(b) immediately above are permitted under GAAP and agreed to between the parties
hereto.
 
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1.7 Transaction Documents

Contemporaneous with the execution of this Agreement, Photronics, DNP, their
respective subsidiaries and the Company have entered into the agreements listed
on Schedule A-1 hereto and will have agreed to the final form and substance of
the exhibits attached as Schedule A-2, as applicable (collectively, the
“Transaction Documents”). The timing and execution of the Transaction Documents
is governed by the Framework Agreement.

1.8 Ratification of Organizational Actions

When necessary, the Shareholders will, by a resolution adopted by the
Shareholders’ meeting of the Company, authorize the Company, and ratify all
action having been taken by or on behalf of the Company (including by its
Officers) prior to the date hereof, to execute and deliver the Transaction
Documents to which it is a party, including all certificates, agreements and
other documents required in connection therewith.

1.9 Articles of Incorporation

The Shareholders agree that as of the completion of the Merger contemplated
under the Merger Agreement, the Articles of Incorporation of the Company shall
substantially be in the form attached hereto as Schedule I.

1.10 Compliance

For as long as Photronics and/or an Affiliate of Photronics hold more than fifty
percent (50%) of Percentage Interest in the Company, the Company will comply
with Photronics health and safety and environmental and corporate compliance
policies, procedures, programs and standards. In the event the Company has any
concerns about any compliance matters including but not limited to antitrust
concerns the Company will consult with counsel for the Company.

1.11 Pre-Closing Liabilities

DNP agrees to be responsible for any and all DPTT Pre-Closing Liability, and
Photronics agrees to be responsible for any and all PSMC Pre-Closing Liability.

ARTICLE 2.
DEFINITIONS

Capitalized words and phrases used and not otherwise defined elsewhere in this
Agreement shall have the following meanings:

“Accounting Amendment” is defined in Section 1.6.1.

“Accounting Amendment Closing” is defined in Section 1.6.2(b).

“Accounting Amendment Closing Price” is defined in Section 1.6.2(b).

“Accounting Amendment Option” is defined in Section 1.6.2(b).
 
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“Accounting Amendment Option Notice” is defined in Section 1.6.2(b).

“Act” is defined in the preamble.

“Additional Contributions” is defined in Section 4.1.2(a).

“Affiliate” of a Person means any other Person which, directly or indirectly,
controls, is controlled by, or is under common control with, such Person. The
term “control” (including, with correlative meaning, the terms “controlled by”
and “under common control with”), as used with respect to any Person, means 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, by contract or otherwise. A Person shall be
deemed an Affiliate of another Person only so long as such control relationship
exists. The parties acknowledge and agree that neither DNP nor Photronics is
presently controlled by any other Person. Notwithstanding the foregoing, a
Company Entity shall not be deemed to be an Affiliate of either DNP or
Photronics, except where expressly provided in this Agreement.

“Agreement” is defined in the preamble.

“Annual Budget” is defined in Section 6.2.

“Applicable Law” means, with respect to a Person, any domestic or foreign,
national, federal, territorial, state or local constitution, statute, law
(including principles of common law), treaty, ordinance, rule, administrative
interpretation, regulation, order, writ, injunction, legally binding directive,
judgment, decree or other requirement or restriction of any arbitrator or
Governmental Authority applicable to such Person or its properties, assets,
officers, directors, employees, consultants or agents (in connection with such
officer’s, director’s, employee’s, consultant’s or agent’s activities on behalf
of such Person).

“Articles of Incorporation” means the Articles of Incorporation of the Company,
as amended from time to time.

“Board of Directors” means, at any time, the Board of Directors of the Company.

“Business” shall mean all activities related to or reasonably required in
connection with the design, development fabrication and sale of integrated
circuit photomasks.

“Business Day” means a full banking business day in the State of Connecticut,
Japan and Taiwan.

“Business Plan” is defined in Section 6.2.

“Capital Contributions” means, with respect to any Shareholder, the total amount
of cash and the initial agreed upon asset value of property (other than cash)
contributed to the capital of the Company by such Shareholder.
 
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“Cash” means cash and cash equivalents determined by the Board of Directors in
good faith consistent with GAAP.

“Chairman of the Board” is defined in Section 5.5.

“Change in Control” shall be deemed to have occurred, with respect to Photronics
or DNP, when: *
 

For the purpose of this definition, a “group” means two or more Persons who,
acting for a common purpose, which act based on their mutual consent in the form
of a contract, an agreement or others; and a “beneficial owner” means any Person
who owns the shares or other assets under his/her/its own name or under the name
of a third party (i.e. a nominee) where: (i) such Person (a) provides said
shares or assets or (b) provides the funds to acquire such shares or assets to
the nominee directly or indirectly; or (ii) the principal has the right to
manage, utilize or dispose of the shares or assets held by the nominee; or (iii)
entire or partial profits or losses of the shares or assets held under the name
of the nominee are assumed by the principal.

“Change in Control Closing” is defined in Section 7.4.2.

“Change in Control Closing Price” is defined in Section 7.4.3.

“Change in Control Notice” is defined in Section 7.4.1.

“Company” is defined in the preamble.

“Company Accountant” shall mean initially Deloitte Touche LLP or such other
independent accounting firm as appointed from time to time by the Board of
Directors.
 
5

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“Company Assets” means all direct and indirect rights and interests in real and
personal property owned by the Company and its subsidiaries from time to time,
and shall include both tangible and intangible property (including Cash). For
the sake of clarity, “Company Assets” shall not be deemed to include any right
or interest owned by Photronics or DNP or their respective Affiliates,
including, without limitation, any rights licensed from third parties to
Photronics or DNP unless authorized by such third parties.

“Company Entity” means the Company, or any of its directly or indirectly
majority owned subsidiaries (whether organized as corporations, limited
liability companies or other legal entities).

“Company Liabilities” means all direct and indirect liabilities and obligations
of the Company and its subsidiaries from time to time including the aggregate
undistributed amounts due to Shareholders to pay Taiwanese taxes on any income
allocated to them. In determining the amount of such liabilities, any contingent
liabilities, guarantees or other amounts that are not recorded on the Company’s
consolidated balance sheet shall be included and reserved against at the fair
probable value thereof as reasonably determined by the Board of Directors in
accordance with GAAP.

“Directors” is defined in Section 5.1.3.

“DNP” is defined in the preamble.

“DNP Director” means any of the Directors designated by DNP to serve on the
Board of Directors in accordance with Section 5.1.3.

“DPTT” means DNP Photomask Technology Taiwan Co., Ltd., a company limited by
shares incorporated under the Act.

"DPTT Pre-Closing Liability" means any and all liabilities and claims arising
against DPTT (whether or not made against DPTT or against the Company after the
completion of the Merger as contemplated in the Merger Agreement) by any third
party which are attributable to events occurred prior to the completion of the
Merger as contemplated in the Merger Agreement and are not: (i) reflected in the
latest financial statements of DPTT which were made available to Photronics
prior to the execution of this Agreement; (ii) taken into consideration and
reflected by the relevant adjustment(s) made under Exhibit 5-3 (NWC Proposal) of
the Framework Agreement (excluding those that are not required to be taken into
consideration thereunder); and (iii) otherwise indemnified by DNP pursuant to
Section 12 of the Framework Agreement or recovered from third parties.

“Economic Interest” means a Person’s right to share in allocations of Net
Profits, Net Losses and other items of income, gains, losses, deductions and
credits hereunder and to receive distributions from the Company as set forth in
this Agreement, but does not include any other rights of a Shareholder
including, without limitation, the right to vote or to participate in the
management of the Company, or, except as specifically provided in this Agreement
or required under the Act, any right to information concerning the business and
affairs of the Company.
 
6

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“Effective Date” means the date of the Closing (as defined in the Merger
Agreement).

“Exchange Act” means the Securities Exchange Act of 1934 of the United States,
as amended.

“Fiscal Months” is defined in Section 5.12.1.

“Fiscal Quarters” is defined in Section 5.12.1.

“Fiscal Year” is defined in Section 5.12.1.

“Force Majeure” means any cause or causes beyond the reasonable control of the
Company, including, but not limited to, acts of God, industrial disturbances,
wars, terrorism, epidemics, blockages, embargoes, insurrections, riots,
explosions, fires, earthquake, floods, perils of the sea.

“Framework Agreement” means the Joint Venture Framework Agreement of even date
herewith executed by and between Photronics and DNP.

“GAAP” means generally accepted accounting principles in Taiwan and/or United
States, as applicable, as in effect from time to time.

“GAAS” means generally accepted auditing standards in Taiwan and/or United
States, as applicable, as in effect from time to time.

“General Manager” is defined in Section 5.14.1.

“Governmental Authority” means any foreign, domestic, national, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government, stock exchange 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.

“Increasing Shareholder” is defined in Section 5.4

“Indemnified Loss” is defined in Section 5.13.1.

“Indemnitee” is defined in Section 5.13.1.

“Interest” means the entire ownership interest of a Shareholder in the Company
at any particular time, including without limitation, the Shareholder’s Shares
and Economic Interest, any and all rights to vote and otherwise participate in
the Company’s affairs, and the rights to any and all benefits to which a
Shareholder may be entitled as provided in this Agreement, together with the
obligations of such Shareholder to comply with all of the terms and provisions
of this Agreement. An Interest may be expressed as a number of Shares.

“Liquidating Event” is defined in Section 10.2.
 
7

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“Liquidators” is defined in Section 10.5.1.

“Majority Shareholder” is defined in Section 7.3.1.

“Management Advisory Committee” is defined in Section 5.15.

“Minority Closing” is defined in Section 7.3.2.

“Minority Closing Price” is defined in Section 7.3.3.

“Minority Shareholder” is defined in Section 7.3.1.

“Net Book Value” means,*.

“Net Profits” or “Net Losses” means, for each Fiscal Year or other period, an
amount equal to the Company’s taxable income or loss for such year or period.

“Officer” is defined in Section 5.14.3.

“Overseas Customers” shall mean *.

“Percentage Interest” means, with respect to a Shareholder holding one or more
Shares, its Interest in the Company as determined by dividing the number of
Shares owned by such Shareholder by the total number of Shares of the Company
then outstanding. For the purposes of this Agreement, the aggregate Percentage
Interest of all entities directly or indirectly wholly owned by Photronics or
DNP, as the case may be, shall be the basis for calculating the Percentage
Interest of Photronics and DNP.

“Person” means any person or entity, whether an individual, trustee,
corporation, partnership, limited partnership, limited liability company, trust,
unincorporated organization, business association, firm, joint venture, other
legal entity or Governmental Authority.

“Photronics” is defined in the preamble.

“Photronics Director” means any of the Directors designated by Photronics to
serve on the Board of Directors in accordance with Section 5.1.3.

“PSMC” means Photronics Semiconductor Mask Corporation, a company limited by
shares incorporated under the Act.

"PSMC Pre-Closing Liability" means any and all liabilities and claims arising
against the Company by any third party which are attributable to events occurred
prior to the completion of the Merger as contemplated in the Merger Agreement
and are not: (i) reflected in the latest financial statements of the Company
which were made available to DNP prior to the execution of this Agreement; (ii)
taken into consideration and reflected by the relevant adjustment(s) made under
Exhibit 5-3 (NWC Proposal) of the Framework Agreement (excluding those that are
not required to be taken into consideration thereunder); and (iii) otherwise
indemnified by Photronics pursuant to Section 12 of the Framework Agreement or
recovered from third parties.
 
8

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“Reducing Shareholder” is defined in Section 5.4.

“Related Party Agreement” is defined in Section 5.18.

“Representative” is defined in Section 5.13.6(d).

“Required Funding Date” is defined in Section 4.1.2(a).

“Seconded Employees” is defined in Section 6.4.

“Service Provider Documents” is defined in Section 6.5.1

“Share” means equity interest of the Company issued pursuant to Article 3 of
this Agreement. Shares may be issued in whole numbers of a fractional interest.
As of the completion of the Merger contemplated under the Merger Agreement, the
Shares are to be held by the Shareholders in accordance with Schedule C.

“Shareholder” means a Person owning Shares.

“Shortfall” means the dollar difference between a requested Additional
Contribution and the actual amount a Shareholder pays of such Additional
Contribution.

“Tax” or “Taxes” means all taxes, levies, imposts and fees imposed by any
Governmental Authority (domestic or foreign) of any nature including but not
limited to federal, state, local or foreign net income tax, alternative or
add-on minimum tax, profits or excess profits tax, franchise tax, gross income,
adjusted gross income or gross receipts tax, employment related tax (including
employee withholding or employer payroll tax), real or personal property tax or
ad valorem tax, sales or use tax, excise tax, stamp tax or duty, any withholding
or back up withholding tax, value added tax, severance tax, prohibited
transaction tax, premiums tax, occupation tax, together with any interest or any
penalty, addition to tax or additional amount imposed by any Governmental
Authority (domestic or foreign) responsible for the imposition of any such tax.

“Territory” means * .

“Transaction Documents” is defined in Section 1.7.

“Transfer” (including, with correlative meaning, the term “Transferred”) means,
with respect to any Share or Economic Interest or portion thereof, a sale,
conveyance, exchange, assignment, pledge, encumbrance, gift, bequest,
hypothecation or other transfer or disposition by any other means, whether for
value or no value and whether voluntary or involuntary (including, without
limitation, by operation of law), or an agreement to do any of the foregoing.

“Supermajority Vote of Directors”*.
 
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“Supermajority Vote of Shareholders”*

“Vice General Manager” is defined in Section 5.14.1.

“Voting Stock” is defined in the definition of “Change in Control.”

ARTICLE 3.
SHARES AND CAPITAL CONTRIBUTIONS

3.1 Authorized Shares

The Company is authorized to issue equity interests (which should be common
shares with the par value at * per share) in the Company designated as “Shares”.
The total number of authorized Shares and issued Shares of the Company as of the
completion of the Merger contemplated under the Merger Agreement shall be set
forth in the Merger Agreement.

3.2 Initial Capital Contributions and Share Issuance

The Shareholders acknowledge and agree that the names and address of each
Shareholder, Percentage Interests of, and number of Shares owned by, the
Shareholders as of the completion of the Merger contemplated under the Merger
Agreement are as set forth on Schedule C.

3.3 Return or Redemption of Capital Contribution

Except as otherwise provided in this Agreement or approved by a Supermajority
Vote of Shareholders: (a) no Shareholder shall demand or be entitled to receive
a return of or interest on any portion of its Capital Contributions; and (b) no
Shareholder shall withdraw any portion of its Capital Contributions or receive
any distributions from the Company as a return of capital on account of such
Capital Contributions. Except as otherwise provided in this Agreement or
approved by a Supermajority Vote of Board, the Company shall not redeem or
repurchase the Shares of any Shareholder. Provided in all three cases that any
such return, distribution or redemption that is permitted hereunder shall be pro
rata based upon the Shareholders’ respective Percentage Interests and in
compliance with Applicable Law.

3.4 Liability of Shareholders

Except as otherwise required by any non-waivable provision of the Act or other
Applicable Law and except as provided in this Agreement or other agreements
between the Company and one or more Shareholders or their Affiliates, no
Shareholder shall be liable in any manner whatsoever for any debt, liability or
other obligation of the Company, whether such debt, liability or other
obligation arises in contract, tort, or otherwise solely by reason of being a
Shareholder.

3.5 Revenue

The Shareholders hereby agree* .
 
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ARTICLE 4.
FINANCING OF THE COMPANY

4.1 Types of Financing

4.1.1  General. The Shareholders expect the Company to be self funding. The
Shareholders shall not be obliged to make any kind of additional investment
(including the Additional Contributions, loan to the Company and guaranteeing a
loan of the Company) into the Company upon or after the completion of the Merger
contemplated under the Merger Agreement. Nevertheless, the Board of Directors
shall be responsible for determining the type of financing required to fund the
operations of the Company and will evaluate Capital Contributions from the
Shareholders or incurring debt from the Shareholders or from public, private or
bank markets, in each case as permitted under this Agreement; the Board of
Directors will then decide on the type of funding that is in the best interests
of the Company at the time of the decision.

4.1.2  Shareholder Contributions.

(a)  If the Board of Directors determines that the Company requires additional
funding via a Capital Contribution from the Shareholders to the Company, the
Shareholders shall have the right to make such Capital Contributions to the
Company pro-rata based on such Shareholder’s Percentage Interest (the
“Additional Contributions”) of up to * in aggregate during the four year period
following the date of the completion of the Merger contemplated under the Merger
Agreement, and up to * in any one year period during such four year period.
Request for Additional Contributions shall be made by written notice by the
Board of Directors, provided that if any of the Shareholders intends to cause
the Board of Directors to approve an Additional Contributions, it shall notify
the other Shareholder in writing and any such written notice shall include the
amount of required Capital Contribution and the required funding date
(“Required Funding Date”) to be approved by the Board of Directors and shall be
sent to the other Shareholder at least ninety (90) calendar days prior to the
relevant meeting of the Board of Directors. Such Required Funding Date shall
correspond to the end of a Fiscal Month. All Additional Contributions shall be
made in New Taiwan Dollars or equivalent in US Dollars. Where the Applicable Law
grants employees of the Company any subscription rights and no exception in the
Applicable Law is available to the Company, the Shareholders agree to use their
best efforts to cause the employees of the Company to waive any rights they may
have under the Applicable Law to subscribe to any additional Shares to be issued
in connection with any Additional Contributions.

(b)  In the event that any Shareholder determines to*

ARTICLE 5.
MANAGEMENT

5.1 Board of Directors

5.1.1  Powers. Except as otherwise required by any non-waivable provision of the
Act or other Applicable Law or expressly provided in this Agreement, all
management powers over the business, property and affairs of the Company are
exclusively vested in a board of directors (the “Board of Directors”), and no
Shareholder shall have any right to participate in or exercise control or
management power over the business and affairs of the Company or otherwise to
bind, act or purport to act on behalf of the Company in any manner. Subject to
any non-waivable provision of Applicable Law and the limitations set forth in
this Agreement, the Board of Directors shall have all the rights and powers that
may be possessed by the Board of Directors under the Act, which shall include,
without limitation, the power to incur indebtedness, the power to enter into
agreements and commitments of all kinds, the power to manage, acquire and
dispose of Company Assets, and all ancillary powers necessary or convenient to
the foregoing. Without limiting the general authority granted by the immediately
preceding sentence, the majority of the Board of Directors shall have the
authority set forth on Schedule D hereto. The Board of Directors may also
designate one or more persons to open bank accounts and conduct other banking
business on behalf of the Company. The Directors shall devote such time to the
business and affairs of the Company as is reasonably necessary for the
performance of their duties, but shall not be required to devote full time to
the performance of such duties.
 
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5.1.2  Evaluation of General Manager. The Board of Directors will be responsible
for supervision and evaluation of the Company’s General Manager on an ongoing
basis, including at least an annual review of his or her performance to ensure
he or she is acting in accordance with prudent business practices.

5.1.3  Number of Directors; Appointment of Directors. Both parties shall cause
the Company to hold an extraordinary general shareholders’ meeting not later
than on the *calendar day (or a later day agreed by both parties) after the
completion of the Merger contemplated under the Merger Agreement to elect some
or all Directors and supervisors of the Company and such members shall have the
same term of office as provided below. The Board of Directors shall consist of
seven (7) individuals (each such individual, a “Director”) and the term of their
office shall be three (3) years. Subject to Sections 5.2 and 5.3 below, in the
aforesaid extraordinary general shareholders’ meeting and subsequent general
shareholders’ meetings of the Company in which the Directors are to be
re-elected, four (4) of the representatives appointed by Photronics and three
(3) of the representatives appointed by DNP shall be elected as the Directors.
If a Director resigns (including by death or retirement) or is removed either by
the Shareholder who appointed such Director as provided for under the Act or in
accordance with Section 5.2 or 5.3, each newly appointed Director shall hold
office for the remaining term of the replaced Director. Each Shareholder having
the right to nominate a Director pursuant to this Section 5.1.3 shall have the
right, in its sole discretion, to remove such Director at any time, by delivery
of written notice to the Company with a copy to each of the other Shareholder
and the Director(s) to be removed. In the case of a vacancy in the office of a
Director for any reason (including by reason of death, resignation, retirement,
expiration of such Director’s term or removal pursuant to the preceding
sentence), the vacancy shall be filled by the Shareholder that nominated the
Director in question; provided, however, that in the case of a vacancy created
due to a change in a Shareholder’s Percentage Interest as described in Section
5.2 or 5.3, such vacancy shall be filled in accordance with Section 5.2 or 5.3.
Each Shareholder shall notify the other Shareholder and the Company of the name,
business address and business telephone, e-mail address and facsimile numbers of
each Director that such Shareholder has nominated. Each Shareholder shall
promptly notify the other Shareholder and the Company of any change in such
Shareholder’s nominated Director or of any change in their Director’s address or
other contact information.
 
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5.2 Effect of Reduction in Photronics’ Percentage Interest on Photronics
Directors

Subject to Section 5.4 below, the number of Directors that Photronics can
appoint to or maintain on the Board of Directors shall depend on Photronics
Percentage Interest as follows:

Photronics’s Percentage Interest
Number of Photronics Directors
> 80%
*
> 50% and ≦ 80%
*
≧ 20% and ≦ 50%
*
> 0% and < 20%
*

5.3 Effect of Reduction in DNP’s Percentage Interest on DNP Directors

Subject to Section 5.4 below, the number of Directors that DNP can appoint to or
maintain on the Board of Directors shall depend on DNP Percentage Interest as
follows:

DNP’s Percentage Interest
Number of DNP Directors
> 80%
*
> 50% and ≦ 80%
*
≧ 20% and ≦ 50%
*
> 0% and < 20%
*

5.4 Procedure.

If either Shareholder’s Percentage Interest should be below any of the threshold
levels set forth in Sections 5.2 or 5.3 above more than three (3) months and if
such Shareholder (the “Reducing Shareholder”) then has more designees serving on
the Board of Directors than the number to which it is entitled, such Reducing
Shareholder shall immediately identify by written notice to the Company with a
copy to the other Shareholder (the “Increasing Shareholder”) the designee or
designees on the Board of Directors that will cease serving on the Board of
Directors, and each such designee shall thereupon cease to be a Director or
member of the Board of Directors. If such Reducing Shareholder fails to make
such designation within five (5) Business Days after written demand by the
Increasing Shareholder, the Increasing Shareholder may for and on behalf of the
Reducing Shareholder and its designee(s) (and the Reducing Shareholder hereby,
and shall cause its designee(s) to, irrevocably authorize the Increasing
Shareholder to) designate by written notice to the Company with a copy to the
Reducing Shareholder one or more (as appropriate) of the Reducing Shareholder’s
designees on the Board of Directors that will cease serving on the Board of
Directors and each such designee shall thereupon cease to be a Director or
member of the Board of Directors. Upon the written notice described in either of
the immediately preceding two sentences, the Shareholders agree to collaborate
to cause the Board of Directors to convene a meeting of the Shareholders as soon
as practicable to fill the vacancies created by such removals in accordance with
the provisions of Sections 5.2 and 5.3. Similarly, if a Shareholder whose
Percentage Interest fell below any threshold level set forth in Section 5.2 or
5.3 subsequently increases its Percentage Interest above any such level, the
process shall be reversed.
 
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5.5 Chairman and Vice-Chairman

A Chairman of the Board of Directors (the “Chairman of the Board”) shall preside
at all meetings of the Board of Directors. The Chairman of the Board shall be
selected from and among the Directors appointed by Photronics; provided,
however, *

5.6 Meetings of Shareholders and of the Board of Directors; Quorum

5.6.1  Shareholder Meetings. At any time, and from time to time, the Board of
Directors may call meetings of the Shareholders. Special meetings of the
Shareholders for any proper purpose or purposes may be called at any time by the
Board of Directors. Written notice of any such meeting shall be given to all
Shareholders. No less than twenty (20) calendar days’ written notice shall be
given for an annual meeting of the Shareholders and no less than ten (10)
calendar days’ written notice shall be given for any special meetings of the
Shareholders. Each meeting of the Shareholders shall be conducted by the
Chairman of the Board of Directors. Where the Chairman of the Board is on leave
or cannot exercise his power and authority for any cause, the meeting of the
Shareholders shall be conducted by the Vice-Chairman of the Board, or any
designee appointed in accordance with the Act. Each Shareholder may authorize
any Person by written proxy to act for it or on its behalf on all matters in
which the Shareholder is entitled to participate. Each proxy must be signed by a
duly authorized officer of the Shareholder. All other provisions governing or
otherwise relating to the convening of meetings of the Shareholders shall from
time to time be established in the sole discretion of the Board of Directors
(acting reasonably). Each of the Shareholders shall have the obligation to
attend the meeting of the Shareholders, whether in person or by proxy, for the
purpose of the quorum, provided that nothing in the foregoing shall be construed
to restrict any Shareholder on how to exercise its voting rights (including
abstaining from voting). In the event that any of the Shareholders fails to
attend a meeting of the Shareholders due to reasons other than those that are
unattributable to such Shareholder or its representative(s) (including, without
limitation, Force Majeure, accident and illness) and taking into account that
such Shareholder should use its best efforts to issue a proxy for such meeting,
resulting in a failure of reaching a quorum, it shall be deemed as a material
breach of this Agreement and bad faith of such Shareholder in performing its
obligations hereunder.
 
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5.6.2  Board Meetings. The Board of Directors shall hold meetings at least once
every Fiscal Quarter. Unless a higher quorum is required by Applicable Law, the
presence of four (4) Directors, in each case, in person or by video conference,
shall be necessary and sufficient to constitute a quorum for the purpose of
taking action by the Board of Directors at any meeting of the Board of
Directors. Each Director may authorize any other Director by written proxy to
act for or on behalf of such Director on all matters in which such Director is
entitled to participate. Each Shareholder shall be responsible for the expenses
of the Director(s) appointed by such Shareholder in connection with all meetings
of the Board of Directors. The Chairman of the Board shall preside at all
meetings of the Board of Directors and shall have such other duties and
responsibilities as may be assigned to him or her by the Board of Directors. The
Chairman of the Board must include any item submitted by a Shareholder or
General Manager for consideration at a meeting of the Board of Directors, may
not cut off debate on any matter being considered by the Board of Directors and
shall call for a vote on any matter at the request of any Director or General
Manager. Each of the Directors shall have the obligation to attend each of the
meetings of the Board of Directors, whether in person or by proxy, for the
purpose of the quorum, provided that nothing in the foregoing shall be construed
to restrict any Director on how to exercise his/her voting rights (including
abstaining from voting). In the event that any of the Directors fails to attend
two meetings of the Board of Directors consecutively due to reasons other than
those that are unattributable to such Director or its proxy (including, without
limitation, Force Majeure, accident and illness) and taking into account that
such Director should use his/her best efforts to issue a proxy for such meeting,
resulting in failure of reaching a quorum, it shall be deemed as a material
breach and bad faith of the Shareholder who nominates such Director in
performing such Shareholder’s obligations hereunder.

5.6.3  Notice; Waiver. Except in the case of emergency as provided under the
Act, the regular quarterly meetings of the Board of Directors described in
Section 5.6.2 shall in principle be held upon not less than seven (7)
Business Days’ written notice. Additional meetings of the Board of Directors may
be held upon the request of any Director to the Chairman of the Board, upon not
less than seven (7) Business Days’ written notice (which may be given, to the
extent permitted by Applicable Law, via confirmed facsimile, confirmed e-mail or
other manner provided for in Section 12.5). No action taken by the Directors at
any meeting shall be valid unless the requisite quorum is present.

5.6.4  Voting of Directors. Except as otherwise expressly provided in this
Agreement and/or Applicable Law, all actions, determinations or resolutions of
the Board of Directors shall require the affirmative vote or consent of a
majority of the Board of Directors present at any meeting at which a quorum is
present. Each Director shall be entitled to one (1) vote, and Directors shall be
entitled to cast their vote through proxies.

5.6.5  Meetings. All meetings of the Board of Directors or the Shareholders
shall be conducted in English. Directors and their proxies shall have the right
to participate in all meetings of the Board of Directors by means of a video
conference or similar communications equipment by means of which all persons
participating in the meeting can see and hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
 
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5.6.6  Reliance by Third Parties. For convenience and subject to Applicable
Laws, each party agrees that any Person dealing with the Company, Photronics
Director, DNP Director, or any Officer may rely upon a certificate signed by any
one Photronics Director and one DNP Director as to: (a) the identity of any
Director or Officer; (b) the existence or non-existence of any fact or facts
which constitute a condition precedent to acts by the Directors or Officers or
in any other manner germane to the affairs of the Company; (c) the Persons who
are authorized to execute and deliver any instrument or document for or on
behalf of the Company; or (d) any act or failure to act by the Company or as to
any other matter whatsoever involving the Company, Photronics, DNP, any Director
or any Officer.

5.7 Supervisors

The Company shall have two (2) supervisors. Each of Photronics and DNP shall be
entitled to designate one (1) representative to be elected as the supervisor.

5.8 Actions Requiring a Supermajority Vote of Shareholders

Notwithstanding the provisions of Section 5.6.4 or any other provisions of this
Agreement, the Company may not, and no Shareholder or Director may cause the
Company to, take any of the actions specified in Schedule F (or any other action
specified in this Agreement as requiring a Supermajority Vote of Shareholders)
without obtaining the Supermajority Vote of Shareholders.

5.9 Actions Requiring a Supermajority Vote of Directors

Notwithstanding the provisions of Section 5.6.4 or any other provisions of this
Agreement, the Company may not, and no Shareholder or Director may cause the
Company to, take any of the actions specified in Schedule G (or any other action
specified in this Agreement as requiring a Supermajority Vote of Directors)
without obtaining the Supermajority Vote of Directors.

5.10 Compensation of Directors and Supervisors

The Directors and supervisors shall not be entitled to any compensation in their
capacities as Directors and supervisors unless otherwise agreed upon in writing
by all of the Shareholders.

5.11 Other Activities

Subject to Applicable Law and the provisions of the Transaction Documents*
 
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5.12 Accounting; Records and Reports

5.12.1  Accounting and Fiscal Year. The books, records and accounts of the
Company, including for all applicable tax purposes, will be maintained in
accordance with such methods of accounting as shall be reasonably determined by
the Board of Directors. The fiscal year of the Company (“Fiscal Year”),
including each of the fiscal quarters (the “Fiscal Quarters”) and each of the
fiscal months (“Fiscal Months”) thereof, shall correspond to that of Photronics
for as long as Photronics and/or an Affiliate of Photronics hold more than fifty
percent (50%) of Percentage Interest in the Company in the aggregate.

5.12.2  Books and Records. The Board of Directors shall cause to be kept, at
such location as the Board of Directors shall reasonably deem appropriate, full
and proper ledgers, other books of account, and records of all receipts and
disbursements and other financial activities of the Company in accordance with
Photronics’ record retention policies for as long as Photronics and/or an
Affiliate of Photronics hold more than fifty percent (50%) of Percentage
Interest in the Company in the aggregate. The Board of Directors shall also
cause to be kept at such location copies of each of the following:

(a)  a current list of the full name and last known address of each Shareholder,
and the capital account, number of Shares and Percentage Interest held by each
Shareholder;

(b)  a current list of the full name and last known address of each Director;

(c)  the Articles of Incorporation of the Company, including any amendments to
the Articles of Incorporation;

(d)  the Company’s federal, state and local income tax returns and reports, if
any, for the seven (7) most recent Fiscal Years;

(e)  this Agreement and any amendments to this Agreement;

(f)  financial statements of the Company for the five (5) most recent Fiscal
Years; and

(g)  minutes of all meetings of the Board of Directors and the Shareholders.

5.12.3  Reports. The Board of Directors shall also cause to be sent to each
Shareholder of the Company, the following:

(a)  within forty-five (45) days after the Effective Date, the Company shall
provide each Shareholder with an unaudited balance sheet of the Company as of
the Effective Date;
 
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(b)  within one hundred eighty (180) days following the end of each Fiscal Year,
such information as may be reasonably required by the Shareholders for
preparation of their respective federal, state and local income or franchise tax
returns;

(c)  a copy of the Company’s federal, state and local income tax or information
returns for each Fiscal Year, concurrent with the filing of such returns;

(d)  within seventy five (75) days after the end of each Fiscal Year, the
Company shall provide each Shareholder with an audited balance sheet, income
statement and statement of cash flows for and as of the last day of the Fiscal
Year then ended, prepared in accordance with GAAP and audited in accordance with
GAAS as well as such other financial information as any Shareholder may
reasonably request to enable such Shareholder and its Affiliates to prepare
their consolidated quarterly and annual financial statements;

(e)  within forty five (45) days after the end of each Fiscal Quarter or Fiscal
Year, the Company shall provide each Shareholder with an unaudited balance
sheet, income statement and statement of cash flows for and as of the last day
of the year or quarter (as appropriate) then ended, prepared in accordance with
GAAP, as well as such other financial information as any Shareholder may
reasonably request to enable such Shareholder and its Affiliates to prepare
their consolidated quarterly and annual financial statements; and

(f)  within a reasonable period of time, notice of any material litigation filed
against the Company or any written claim by a Governmental Authority of any
material violation of any state, federal or foreign law, statute, rule or
regulation.

If Japanese generally accepted accounting principles have been amended, both
parties agree that; (a) the time limit set forth in this Section 5.12.3 shall be
amended accordingly, and to the extent DNP deems reasonably necessary, by the
notice from DNP to the Company, and (b) both parties shall cause the Company to
use all reasonable efforts to send all necessary financial information as DNP
may reasonably request to enable DNP and its Affiliates to prepare their
consolidated quarterly and annual financial statements.

5.12.4  Access to Company Books and Records.

(a)  To the extent not in violation of Applicable Law, the terms of the
Transaction Documents and the Company’s confidential obligations (statutory or
contractual) to third parties, Shareholders (personally or through an authorized
representative) may, for purposes reasonably related to their interests in the
Company, during reasonable business hours (i) examine and copy (at their own
cost and expense) the books and records of the Company, including the records
listed in Section 5.12.2, and (ii) have access to the Company’s management,
internal and external accountants and attorneys, plans, properties and other
assets to conduct investigations regarding the Business and assets of the
Company at such Shareholder’s sole expense, and the Company shall reasonably
cooperate with such Shareholder in such investigations. Any information obtained
as a result of this Section 5.12.4 shall be used by a Shareholder solely for
purposes reasonably related to such Shareholder’s participation in the Company
and shall be subject to Section 5.16 of this Agreement.
 
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(b)  Any Shareholder’s request for documents or request to inspect or copy
documents or have access to the Company’s management, plans, properties and
other assets under this Section 5.12.4 (i) may be made by that Shareholder or
that Shareholder’s authorized representative and (ii) shall be made in writing
to the General Manager and shall state the purpose of such demand. If a
Shareholder is not satisfied with the response of the General Manager, the
Shareholder may make such request to the Management Advisory Committee and/or
the Board of Directors.

5.13 Indemnification and Liability of the Directors

5.13.1  Indemnification. The Company shall indemnify and hold harmless each
Director, the General Manager and all other Officers (individually, an
“Indemnitee”) to the fullest extent permitted by Applicable Law from and against
any and all losses, claims, demands, costs, damages, liabilities, whether joint
or several, expenses of any nature (including reasonable attorneys’ fees and
disbursements), judgments, fines, settlements and other amounts (each an
“Indemnified Loss”) arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, in which the
Indemnitee may be involved as a defendant, or threatened to be involved as a
defendant (other than all claims, demands, actions, suits or proceedings brought
by the Shareholder who nominated such Director, if applicable), relating to the
performance or nonperformance of any act concerning the activities of the
Company or by reason of the Indemnitee’s status as a Director, General Manager
or Officer, as applicable, regardless of whether the Indemnitee retains such
status at the time any such Indemnified Loss is paid or incurred, if (a) the
Indemnitee acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to, the best interests of the Company and, in the case of
a criminal proceeding, had no reasonable cause to believe that his or her
conduct was unlawful, and (b) the Indemnitee’s conduct did not constitute an act
or omission which involved intentional misconduct or a knowing violation of the
law or gross negligence. The termination of an action, suit or proceeding by
judgment, order, or settlement shall not, in and of itself, create a presumption
or otherwise constitute evidence that the Indemnitee acted in a manner contrary
to that specified in clauses (a) or (b) above.

5.13.2  Expenses. Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 5.13 shall be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit, or proceeding.
 
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5.13.3  Company Expenses. Any indemnification provided hereunder shall be
satisfied solely out of the Company Assets, as an expense of the Company. No
Shareholder shall be subject to liability by reason of these indemnification
provisions.

5.13.4  No Other Rights. The provisions of this Section 5.13 are for the benefit
of the Indemnitees and shall not be deemed to create any rights for the benefit
of any other Person; provided, however, that the indemnification rights provided
in this Section 5.13 will inure to the benefit of the heirs, legal
representatives, successors, assigns and administrators of the Indemnitee.

5.13.5  No Liability. No Indemnitee shall be liable to the Company or to any
Shareholder for any losses sustained or liabilities incurred as a result of any
act or omission of any Indemnitee if (a) the Indemnitee acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the Company and, in the case of a criminal proceeding, had no
reasonable cause to believe that his or her conduct was unlawful, and (b) the
Indemnitee’s conduct did not constitute an act or omission which involved
intentional misconduct or a knowing violation of the law or gross negligence.

5.13.6  No Fiduciary Duties.

(a)  In connection with the determination of any and all matters presented for
action to the Shareholders, the Board of Directors or the Management Advisory
Committee, as applicable, the Shareholders acknowledge and agree that each
Shareholder will be acting on its own behalf and each Representative serving on
the Board of Directors or the Management Advisory Committee will be acting on
behalf of the Shareholder that appointed such Representative, to the fullest
extent permitted by Applicable Law.

(b)  Each Shareholder may act, and, to the fullest extent permitted by
Applicable Law, will be protected for acting, in its own interest (subject to
the express terms of any contract entered into by such Shareholder) without
regard to the interest of the other Shareholder, and, subject to Section
5.13.6(c), each Representative may act, and, to the fullest extent permitted by
Applicable Law, will be protected for acting, at the direction or control of, or
in a manner that such Representative believes is in the best interest of, the
Shareholder that appointed the Representative without regard to the interest of
the other Shareholder.

(c)  Each of the Shareholders hereby waives, and shall cause the Company to
waive, on its own behalf and on behalf of each of its subsidiaries, to the
fullest extent permitted by Applicable Law, any claim or cause of action against
any Shareholder or Director or member of the Management Advisory Committee
appointed by a Shareholder based on the determination of any and all matters
presented for action to the Shareholders, the Board of Directors or the
Management Advisory Committee, as applicable; provided, however, the foregoing
will not limit any Shareholder’s obligation under, or liability for, breach of
the express terms of this Agreement, other Transaction Documents or any other
agreement that they have entered into with the Company or any of its
subsidiaries or the other Shareholder. Each of the Shareholders acknowledges
that no Shareholder shall negotiate or enter into or request or otherwise cause
the Company to negotiate or enter into any agreement or transaction that would
result in such Shareholder or any of its Affiliates receiving any financial
consideration or other tangible property incentive, payment or other form of
financial consideration or other tangible property consideration from any
Governmental Authority or Person based upon the Company’s taking an action
(including hiring any employees, undertaking any construction or purchasing any
equipment) or entering into such agreement or transaction other than as a
Shareholder of the Company pursuant to this Agreement, and any Shareholder who
receives any such consideration or other tangible property incentive, payment or
other form of financial consideration or other tangible property consideration
from any Governmental Authority or Person in respect of the Company’s
activities, shall promptly convey such consideration or other tangible property
incentive, payment or other form of financial consideration or other tangible
property consideration from any Governmental Authority or Person to the Company
as a supplemental Capital Contribution without consideration including any
adjustment in the Shares or Economic Interest of, or balance of requested
Additional Contribution owed by, such Shareholder.
 
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(d)  The term “Representative” shall mean, with respect to a Shareholder, the
Directors and members of the Management Advisory Committee appointed by such
Shareholder.

5.14 Officer

5.14.1  General Manager and Vice General Manager. The Company will have a
general manager (the “General Manager”) to be selected by Photronics with input
from the Board of Directors and DNP; provided, however, that if the Percentage
Interest of Photronics falls below*.

5.14.2  Duties and Powers of the General Manager. The General Manager shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the day-to-day affairs of the Company and shall report
directly to the Board of Directors. Unless limited by the Board of Directors or
this Agreement, he or she shall have the general powers and duties of management
usually vested in the office of chief executive officer of corporations and
shall have such other powers and duties as may be prescribed by the Board of
Directors.

5.14.3  Other Officers; Employment; Removal. The Company may also have a chief
financial officer, a secretary and such other officers as determined by the
Board of Directors after input from the General Manager and the Vice General
Manager, each of whom will be accountable to the General Manager (the General
Manager, the Vice General Manager and any other officers elected in accordance
with this Section 5.14.3, each, an “Officer” and collectively, the “Officers”).
Subject to Section 5.14.1, the General Manager, the Vice General Manager and any
other Officer may be removed at any time upon an affirmative vote of the
majority of the Board of Directors and the consent of the Shareholder who
appoints such Officer in question.
 
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5.14.4  Duties and Powers of Chief Financial Officer. Any chief financial
officer of the Company shall keep and maintain, or cause to be kept and
maintained, books and records of accounts of the properties and business
transactions of the Company, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses and capital. He or she shall disburse the
funds of the Company as may be ordered by the Board of Directors and shall
render to the Board of Directors at their request an account of all his or her
transactions as chief financial officer and of the financial condition of the
Company. Authorizations with respect to the Company’s depositories, disbursement
of funds and related banking matters shall be as set forth in resolutions of the
Board of Directors.

5.14.5  Duties and Powers of Vice General Manager. The Vice General Manager
shall assist the General Manager and shall have such other powers and duties as
may be prescribed by the Board of Directors from time to time after consultation
with the General Manager and DNP or Photronics, who is entitled to appoint the
Vice General Manager at that time. For the avoidance of doubt, the Vice General
Manager, if selected by DNP in accordance with Section 5.14.1 above, shall be
counted as one of the Two DNP Appointed Seconded Employees (as defined in
Section 6.4 below).

5.14.6  Duties and Powers of Secretary.

(a)  Any secretary of the Company shall attend all meetings of the Board of
Directors and all meetings of the Shareholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose, and shall
perform like duties for any standing committees when requested by such
committee.

(b)  Any secretary of the Company shall keep, or cause to be kept, at the
principal executive office or at the office of the Company’s transfer agent or
registrar, as determined by resolution of the Board of Directors, a register, or
a duplicate register, showing the names of all Shareholders and their addresses,
Percentage Interests, the number and date of certificates issued for the same
(if any), and the number and date of cancellation of every certificate
surrendered for cancellation (if any).

5.14.7  General Provisions Regarding Officers.

(a)  The Board of Directors may, from time to time, designate Officers of the
Company and delegate to such Officers such authority and duties as the Board of
Directors may deem advisable and may assign titles (including, without
limitation, president, vice-president and/or treasurer) to any such Officer.
Unless the Board of Directors otherwise determines, if the title assigned to an
Officer of the Company is one commonly used for Officers of a business
corporation, then, subject to the terms of this Agreement, the assignment of
such title shall constitute the delegation to such Officer of the authority and
duties that are customarily associated with such office. Any number of titles
may be held by the same Officer.
 
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(b)  Any Officer to whom a delegation is made pursuant to the foregoing shall
serve in the capacity delegated unless and until such delegation is revoked by
the Board of Directors for any reason or no reason whatsoever, with or without
cause, or such Officer resigns.

5.15 Management Advisory Committee

The Shareholders will establish a management advisory committee (the “Management
Advisory Committee”) relating to the following matters:

(a)  *

(b)  advice to the Board of Directors on matters of strategic importance
relative to the Company and those matters requiring formal resolution at the
board level, including but not limited to * ; and

(c)  review and discussion on the relevant matters that require a Supermajority
Vote of Shareholders or Directors in accordance with Sections 5.8 and 5.9.

The composition of the Management Advisory Committee shall consist of six (6)
members, three (3) members appointed by Photronics and three (3) members
appointed by DNP, and such six (6) members may include the General Manager of
the Company at the discretion of the appointed Shareholder. The Management
Advisory Committee shall convene regular meetings consistent with the number of
meetings of the Board of Director provided however the Management Advisory
Committee shall generally meet one to three days in advance of the Board of
Directors meeting. The Management Advisory Committee shall discuss the matters
listed above. The Management Advisory Committee may at its own discretion put
forth resolutions and vote on specific matters to be discussed at the subsequent
meeting of the Board of Directors, and may also publish minutes of its meetings
and submit such minutes to the Board of Directors, provided however that the
Management Advisory Committee shall be an advisory capacity only and shall have
no power to vote on or make any decisions with respect to any matters reserved
to the Board of Directors; though not obligated to act on any input from the
Management Advisory Committee, the Board of Directors will in good faith take
inputs raised by the Management Advisory Committee into full consideration.

5.16 Non-Disclosure

The parties acknowledge and agree that Section 9 of the Framework Agreement
shall be applied for the proprietary or nonpublic information disclosed by one
party to another party in connection with this Agreement.

5.17 Maintenance of Insurance

The Company shall at all times be covered by insurance of the types and in the
amounts set forth on Schedule E. Such insurance coverage may be provided through
the coverage under one or more insurance policies maintained by the Company or
by either Shareholder. A certificate of insurance will be provided by the
Company to the Shareholders annually evidencing coverage.
 
23

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5.18 Related Party Agreements *

ARTICLE 6.
OPERATIONS

6.1 Headquarters

The Company’s world headquarters shall be in Taiwan.

6.2 Operations Plan; Annual Budget

The initial business plan of the Company will be a combined business plan
including synergies and is attached hereto as Schedule H. From time to time, but
in no event less frequently than annually, the Board of Directors may amend or
update a business plan of the Company (collectively with the initial business
plan referred to as the “Business Plan”). The Board of Directors will also be
responsible for approving an annual budget (the “Annual Budget”) on at least an
annual basis at the beginning of each fiscal year.

6.3 DPTT Employees

Unless otherwise agreed by Photronics and DNP, on or before thirty (30) calendar
days before the completion of the Merger contemplated under the Merger
Agreement, * shall be provided with an offer to become employees of the Company
from and after the completion of the Merger contemplated under the Merger
Agreement, which contain terms consistent with the following: *

6.4 Company Employees; Seconded Employees

The Company shall employ its own personnel and shall be their exclusive
employer. In addition, certain other persons who are employed by a Shareholder
or its Affiliates may be assigned by such Shareholder, to work for the Company
(“Seconded Employees”). *

6.5 Service Provider Documents

6.5.1  The Company shall have policies applicable to, and ensure that all of its
officers, employees and third-party independent contractors, third-party
consultants, and other third-party service providers enter into appropriate
agreements with respect to, (1) protection of confidential information of the
Company, (2) compliance with Applicable Law, and (3) other matters related to
the delivery of services to, or employment of such Person by, the Company or its
Affiliates. The Company shall have policies applicable to, and ensure that all
of its officers and employees enter into appropriate agreements with respect to
intellectual property assignment, including invention disclosures, pursuant to
which ownership to any intellectual property created in the course of employment
with the Company or any of its Affiliates shall be assigned to the Company. The
Company shall have policies applicable to, and ensure that all of its
third-party independent contractors, third-party consultants, and other
third-party service providers that create intellectual property in the course of
performing services for the Company, enter into appropriate agreements with the
Company with respect to the Company’s ownership of or the Company's right to use
such intellectual property. The forms referred to in this Section 6.5.1 are
collectively referred to as the “Service Provider Documents.”
 
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6.5.2  Notwithstanding any preceding provisions in this Section 6.5 or
elsewhere, no Seconded Employee shall be required to sign any Service Provider
Documents, except with respect to acknowledgement of and agreement regarding
policies of the Company addressing conduct while performing services at the
premises of the Company, such as workplace safety, but excluding matters
relating to protection of confidential information of the Company and
intellectual property assignment, which issues have been addressed in special
Service Provider Documents. The Company shall be responsible for providing such
Service Provider Documents, prepared by the Company for each Seconded Employees
to the appropriate Seconded Employees, following up to make sure they are signed
and for properly storing such forms; and each Shareholder shall cooperate with
the Company to require their Seconded Employees to sign such special Service
Provider Document when requested to do so by the Company.

6.6 Compensation and Benefits

The Company shall have compensation and benefits programs (including incentive
compensation programs) for the employees of the Company *

ARTICLE 7.
DISPOSITION AND TRANSFERS OF INTERESTS

7.1 Holding of Shares

For so long as Photronics or DNP, directly or indirectly, owns Shares in the
Company, Photronics or DNP, as applicable, must own and hold such Shares either
(a) by itself or (b) through one or more wholly owned (including indirect wholly
owned) subsidiaries.

7.2 Transfer Moratorium

7.2.1  Other than as specifically provided in this Section 7.2, no Shareholder
may*.

7.2.2  Transfer Notice. If any Shareholder proposes to Transfer any of its
Shares, whether directly or indirectly (the “Selling Shareholder”), such Selling
Shareholder shall promptly provide written notice (the “Transfer Notice”) to the
other Shareholder (the “Non-Selling Shareholder”) describing*.
 
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7.2.3  Right of First Refusal. The Non-Selling Shareholder shall have*.

7.2.4  Co-Sale Right. In the event that the Non-Selling Shareholder does not*.

7.2.5  *.

7.2.6  *.

7.2.7  The restrictions set forth in this Section 7.2 shall not apply to any
Transfers by a Selling Shareholder to one or more of its wholly owned (including
indirectly wholly owned) subsidiaries as permitted under Section 7.1.

7.2.8  *.

7.3 Purchase and Sale of Remaining Interest

7.3.1  If the Percentage Interest of a Shareholder (the “Minority Shareholder”)
is*

7.3.2  The closing of the purchase and sale of the Minority Shareholder’s
remaining Interest (the “Minority Closing”) shall take place*

7.3.3  Upon the Minority Closing, the Majority Shareholder shall pay to the
Minority Shareholder a sum*.

7.4 Change in Control

7.4.1  The parties will provide at least sixty (60) days but no more than one
hundred eighty (180) days notice (the “Change in Control Notice*
 
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7.4.2  If Change in Control occurs to *

7.4.3  Upon the Change in Control Closing,*.

7.5 Purchase and Sale Agreement

In the event of any purchase and sale of Shares under Section 7.3 or 7.4, the
parties thereto shall enter into a commercially reasonable agreement to
implement such purchase and sale. The parties thereto shall also make the
necessary amendments to this Agreement.

ARTICLE 8.
[INTENTIOANLLY DELETED]

ARTICLE 9.
TERM AND TERMINATION OF THIS AGREEMENT

9.1 Term of this Agreement

9.1.1  This Agreement shall enter into force as of the Effective Date, and
remain in force throughout the duration of the Company if not terminated earlier
as provided for in Section 9.1.2 or 9.2.1.
 
9.1.2  In the event that one of the Parties ceases to be Shareholder of the
Company for any reason, this Agreement is automatically terminated.

9.2 Termination and Cross-termination

9.2.1  Notwithstanding Section 9.1, this Agreement may be terminated by either
party at any time, upon notice given to the other part*
 
9.2.2  The parties agree that:

(a)  the termination of this Agreement shall not (unless otherwise specified in
the Transaction Documents concerned) produce the automatic cross-termination of
any of the Transaction Documents;

(b)  the termination of any of the Transaction Documents shall not produce the
automatic cross-termination of this Agreement;

(c)  the party who terminates this Agreement in accordance with Section 9.2.1
above shall have the right to terminate any or all of the Transaction Documents,
to which it is a party without any liability;

(d)  the termination of this Agreement shall not affect the respective rights
and obligations of the parties having accrued prior thereto, under this
Agreement; and
 
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(e)  the termination rights, remedies and provisions arising from Applicable
Laws shall, to the extent not waived or excluded hereby, cumulate with those
specified under this Section 9.2.1.

9.3 Right of Terminating Party

The parties agree that the party who terminates this Agreement in accordance
with Section 9.2.1 (the “Terminating Party”) shall have the right:

(a)* 

ARTICLE 10.
DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY

10.1 Limitations

The Company may be dissolved, liquidated, and terminated only pursuant to the
provisions of this Article 10, and the parties hereto do hereby irrevocably
waive, to the extent permitted by Applicable Law, any and all other rights they
may have to cause a dissolution, liquidation or termination of the Company or a
sale or partition of any or all of the Company Assets in connection with such
dissolution or liquidation.

10.2 Exclusive Causes

Notwithstanding the Act, the following and only the following events shall cause
the Company to be dissolved, liquidated, and terminated (each a "Liquidating
Event"), unless otherwise set forth in this Agreement:

(a)* 

10.3 Effect of Dissolution

The dissolution of the Company shall be effective on the day on which the event
occurs giving rise to the dissolution (or, if a corporate action of the Company
is required by the Act, on the day such corporate action is duly taken), but the
Company shall not terminate until it has been wound up and its assets have been
distributed as provided in Section 10.5.1 or 11.1 of this Agreement.
Notwithstanding the dissolution of the Company, prior to the termination of the
Company, the business of the Company and the affairs of the Shareholders, as
such, shall continue to be governed by this Agreement.

10.4 Loss of the Company

In the event that the accumulated losses of the Company*.
 
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10.5 Liquidation

10.5.1  Upon dissolution of the Company, the Board of Directors (or other
Person(s) designated by a decree of court) shall act as the “Liquidators” of the
Company. The Liquidators shall liquidate the Company Assets, and shall apply and
distribute the proceeds thereof as follows unless otherwise provided by the
Applicable Law:

(a)  first*

 
10.6
Dissolution

*

ARTICLE 11.
DISTRIBUTIONS

11.1 Use of Cash

Subject to applicable legal and contractual restrictions and to Section 11.2 and
Article 10, Company cash will be treated as follows (in the following order of
priority):*

11.2 Distributions Upon Liquidation

Distributions made in conjunction with the final liquidation of the Company
shall be applied or distributed as provided in Article 10 hereof.

11.3 Withholding

11.1, no right is given to any Shareholder to demand or receive any distribution
of property other than cash as provided in this Agreement. *

11.5 Limitations on Distributions

Notwithstanding any provision to the contrary contained in this Agreement,
neither the Company nor the Board of Directors, on behalf of the Company, shall
be required to or shall knowingly make a distribution to any Shareholder or the
holder of any Economic Interest on account of its Shares in the Company (as
applicable) in violation of the Act or other Applicable Law.
 
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ARTICLE 12.
MISCELLANEOUS

12.1 Amendments

Any provision of this Agreement may be amended if, and only if, such amendment
is in writing and is duly executed by each Shareholder, provided however this
Agreement will be amended to allow Photronics to implement an Accounting
Amendment in accordance with Section 1.6,. Upon the making of any amendment to
this Agreement in accordance with the previous sentence, the Board of Directors
shall prepare and file such documents and certificates as may be required under
the Act and under any other Applicable Law.

12.2 No Waiver

Any provision of this Agreement may be waived if, and only if, such waiver is in
writing and is duly executed by the party against whom the waiver is to be
enforced. No failure or delay by any party in exercising any right, power or
privilege under this Agreement shall operate as a waiver thereof nor shall any
single or partial waiver or exercise thereof preclude the enforcement of any
other right, power or privilege nor deemed to extend to any prior or subsequent
default, breach or occurrence or affect, in any way, any rights arising by such
prior or subsequent default, breach or occurrence.

12.3 Entire Agreement

This Agreement, together with the Schedules and other documents referred to
herein and therein, constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and supersede any and all prior oral
and written, and all contemporaneous oral, agreements or understandings
pertaining thereto including the Memorandum of Understanding dated April 2, 2013
between Photronics and DNP. There are no agreements, understandings,
restrictions, warranties or representations relating to such subject matter
among the parties other than those set forth herein and in the Schedules and
other documents referred to herein and therein.

12.4 Further Assurances

Each of the parties hereto does hereby covenant and agree on behalf of itself,
its successors and its assigns, without further consideration, to prepare,
execute, acknowledge, file, record, publish, and deliver such other instruments,
documents and statements, and to take such other action as may be required by
law or reasonably necessary or advisable to effectively carry out the purposes
of this Agreement.

12.5 Notices

Unless otherwise provided herein, all notices, requests, instructions or
consents required or permitted under this Agreement shall be in writing and will
be deemed given: (a) when delivered personally; (b) when sent by confirmed
facsimile and followed up by delivery by overnight carrier under Clause (d)
below; (c) ten (10) Business Days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) three (3)
Business Days after deposit with an internationally recognized commercial
overnight carrier specifying next‑day delivery, with written verification of
receipt. All communications will be sent to the addresses, email account or
facsimile number listed on Schedule C (or to such other address, email account
or facsimile number as may be designated by a party giving written notice to the
other parties pursuant to this Section 12.5).
 
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12.6 Governing Law

All questions concerning the construction, interpretation and validity of this
Agreement and all claims or causes of action (whether in contract or tort) that
may be based upon, arise out of or relate to this Agreement or the negotiation,
execution or performance of this Agreement will be governed by and construed in
accordance with the laws of Taiwan (without reference to any choice or conflicts
of laws rules or principles that would require the application of the laws of
any other jurisdiction).

12.7 Construction; Interpretation

12.7.1  Certain Terms. The words “hereof,” “herein,” “hereto,” “hereunder” and
similar words refer to this Agreement as a whole and not to any particular
provision of this Agreement. The term “including” or “includes” is not limited
and means “including, or includes, without limitation.”

12.7.2  Section References; Titles and Subtitles. Unless otherwise noted, all
references to Sections and Schedules herein are to Sections and Schedules of
this Agreement. The titles, captions and headings of this Agreement are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.

12.7.3  Reference to Persons, Agreements, Statutes. Unless otherwise expressly
provided herein, (i) references to a Person include its successors and permitted
assigns, (ii) references to agreements (including this Agreement) and other
contractual instruments shall be deemed to include all subsequent amendments,
restatements and other modifications thereto or supplements thereof and (iii)
references to any statute or regulation are to be construed as including all
statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting such statute or regulation.

12.7.4  Presumptions. No party, nor its counsel, shall be deemed the drafter of
this Agreement for purposes of construing the provisions of this Agreement, and
all provisions of this Agreement shall be construed in accordance with their
fair meaning, and not strictly for or against any party.

12.8 Rights and Remedies Cumulative

The rights and remedies provided by this Agreement are cumulative and the use of
any one right or remedy by any party shall not preclude or waive its right to
use any or all other remedies. Said rights and remedies are given in addition to
any other rights the parties may have by law, statute, ordinance or otherwise.
 
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12.9 No Assignment; Binding Effect

Except as otherwise expressly provided herein, no party may assign, delegate or
otherwise transfer any of its rights or obligations hereunder to any third
party, whether by assignment, transfer, Change in Control or other means,
without the prior written consent of each other party. Any attempted assignment
in violation of the foregoing shall be null and void. Subject to the foregoing,
this Agreement shall be binding on and inure to the benefit of the Shareholders,
their heirs, executors, administrators, successors and all other Persons
hereafter holding, having or receiving an interest in the Company.

12.10 Severability

If any provision in this Agreement will be found or be held to be invalid or
unenforceable, then the meaning of said provision will be construed, to the
extent feasible, so as to render the provision enforceable, and if no feasible
interpretation would save such provision, it will be severed from the remainder
of this Agreement which will remain in full force and effect unless the severed
provision is essential and material to the rights or benefits received by any
party. In such event, the parties will use their respective best efforts to
negotiate, in good faith, a substitute, valid and enforceable provision or
agreement which most nearly reflects the parties’ intent in entering into this
Agreement.

12.11 Counterparts

This Agreement may be executed in counterparts, each of which so executed will
be deemed to be an original and such counterparts together will constitute one
and the same agreement. Execution and delivery of this Agreement by exchange of
facsimile copies or PDF file bearing the facsimile signature of a party shall
constitute a valid and binding execution and delivery of this Agreement by such
party.

12.12 Dispute Resolution; Arbitration

The parties hereby agree that any and all claims, disputes or controversies of
whatever nature, arising out of, in connection with, or in relation to the
interpretation, performance, enforcement, breach, termination or validity of
this Agreement, shall be first * .

12.13 Third-Party Beneficiaries

None of the provisions of this Agreement shall be for the benefit of or be
enforceable by any creditor of the Company or by any third-party creditor of any
Shareholder. This Agreement is not intended to confer any rights or remedies
hereunder upon, and shall not be enforceable by, any Person other than the
parties hereto, their respective successors and permitted assigns and, solely
with respect to the provision of Section 5.13, each Indemnitee and each other
indemnified Person addressed therein.
 
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12.14 Specific Performance

The parties agree that irreparable damage will result if this Agreement is not
performed in accordance with its terms, and the parties agree that any damages
available at law for a breach of this Agreement would not be an adequate remedy.
Therefore, the provisions hereof and the obligations of the parties hereunder
shall be enforceable in a court or other tribunal with jurisdiction, by a decree
of specific performance, and appropriate injunctive relief may be applied for an
granted in connection therewith. Such remedies and all other remedies provided
for in this Agreement shall, however, be cumulative and not exclusive and shall
be in addition to any other remedies that a party may have under this Agreement
in accordance with Applicable Laws.

12.15 Consequential Damages

No party shall be liable to any other party under any legal theory for indirect,
special, incidental, consequential or punitive damages, or any damages for loss
of profits, revenue or business or damage to reputation or goodwill, even if
such party has been advised of the possibility of such damages (it being
understood that consequential damages arising from the breach of the
confidentiality restrictions set forth in Section 5.16 shall not be considered
to fall within any such category of damages).

12.16 Fees and Expenses

Except as otherwise expressly provided in this Agreement and to the extent that
the Company pay fees and expenses of the Shareholders, each party hereto shall
bear its own fees and expenses incurred in connection with this Agreement, the
Transaction Documents and the transactions contemplated hereby and thereby,
including the legal, accounting and due diligence fees, costs and expenses
incurred by such party.

(Signature Page Follows)
 
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.

 
SHAREHOLDERS
       
PHOTRONICS, INC.
       
By:
   
Name:
   
Title:
               
DAI NIPPON PRINTING CO., LTD.
       
By:
   
Name:
   
Title:
 

JV Operating Agreement Signature Page
 

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SCHEDULES A-1 and A-2

*

 

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SCHEDULE B

*

 

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SCHEDULE C

*

 

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SCHEDULE D

*

 

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SCHEDULE E

*

 

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SCHEDULE F

*

 

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SCHEDULE G

*

 

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SCHEDULE H

*

 

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SCHEDULE I

*

 

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SCHEDULE J

*

*

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