UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
Commission file Number 0-17795
CIRRUS LOGIC, INC.
(Exact name of registrant as specified in its charter.)
CALIFORNIA 77-0024818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 West Warren Avenue, Fremont, CA 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(510) 623-8300
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of shares of the registrant's common stock, no par value, was
63,140,364 as of September 30, 1995.
<PAGE>
<TABLE>
Part 1. Financial Information
Item 1. Financial Statements
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Quarter Ended Two Quarters Ended
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $317,820 $202,211 $618,089 $387,208
Costs and expenses:
Cost of sales 176,494 113,715 354,183 210,342
Research and development 54,540 37,212 108,490 75,242
Selling, general and administrative 38,365 29,222 76,429 58,136
Non-recurring costs - 3,856 - 3,856
Merger costs - 2,418 - 2,418
--------- --------- --------- ---------
Total costs and expenses 269,399 186,423 539,102 349,994
Income from operations 48,421 15,788 78,987 37,214
Interest and other income (expense), net (193) 2,257 2,433 3,681
--------- --------- --------- ---------
Income before provision for income taxes 48,228 18,045 81,420 40,895
Provision for income taxes 15,191 5,607 25,646 12,882
--------- --------- --------- ---------
Net income $33,037 $12,438 $55,774 $28,013
========= ========= ========= =========
Net income per common and common equivalent share $0.47 $0.20 $0.80 $0.44
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding 70,997 63,206 69,386 63,473
========= ========= ========= =========
<FN>
See Notes to the Unaudited Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<CAPTION>
Sept. 30, April 1,
1995 1995
(Unaudited)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $118,092 $106,882
Short-term investments 44,654 80,144
Accounts receivable, net 207,091 161,333
Inventories 151,142 103,642
Other current assets 83,671 27,931
--------- ---------
Total current assets 604,650 479,932
Property and equipment, net 145,871 100,244
Joint venture manufacturing agreement, net 48,569 49,935
Investment in joint venture 13,800 13,800
Deposits and other assets 35,603 29,623
--------- ---------
$848,493 $673,534
========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities $235,375 $162,002
Accrued salaries and benefits 28,714 32,508
Obligations under equipment loans and
capital leases, current portion 14,967 11,481
Income taxes payable 17,507 22,322
--------- ---------
Total current liabilities 296,563 228,313
Obligations under equipment loans and
capital leases, non-current 40,671 26,205
Commitments and contingencies
Shareholders' equity:
Capital stock 320,210 283,741
Retained earnings 191,049 135,275
--------- ---------
Total shareholders' equity 511,259 419,016
--------- ---------
$848,493 $673,534
========= =========
<FN>
See Notes to the Unaudited Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CIRRUS LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Two Quarters Ended
Sept. 30, Oct. 1,
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operations:
Net income $55,774 $28,013
Adjustments to reconcile net income to net
cash flows from operations:
Depreciation and amortization 27,627 16,894
Net change in operating assets and liabilities (69,542) (18,063)
--------- ---------
Net cash flows provided by operations 13,859 26,844
--------- ---------
Cash flows from investing activities:
Purchase of short-term investments (112,568) (186,853)
Proceeds from sale of short-term investments 148,058 105,832
Additions to property and equipment (64,521) (18,739)
Increase in deposits and other assets (12,924) (12,173)
--------- ---------
Net cash flows used by investing activities (41,955) (111,933)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 21,948 5,603
Short-term borrowing 41,000 -
Borrowings on equipment loans 23,615 3,510
Principal payments on capital leases and loans (6,257) (5,579)
Repayment of short-term borrowing (41,000) -
--------- ---------
Net cash flows provided by financing activities 39,306 3,534
--------- ---------
Increase (decrease) in cash and cash equivalents 11,210 (81,555)
Cash and cash equivalents - beginning of period 106,882 193,825
--------- ---------
Cash and cash equivalents - end of period $118,092 $112,270
========= =========
Supplemental disclosure of cash flow information:
Interest paid $1,586 $1,151
Income taxes paid $15,769 $8,646
Tax benefit of stock option exercises $14,692 $ -
Equipment purchased under capitalized leases $594 $6,849
<FN>
See Notes to the Unaudited Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
CIRRUS LOGIC, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The Consolidated Condensed Financial Statements have been prepared
by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations. In the opinion of the Company, the financial
statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the
financial position, operating results and cash flows for those
periods presented. These consolidated condensed financial
statements should be read in conjunction with the consolidated
financial statements, and notes thereto for the year ended
April 1, 1995, included in the Company's 1995 Annual Report on
Form 10-K. The results of operations for the interim periods
presented are not necessarily indicative of the results that may
be expected for the entire year.
2. Cash Equivalents and Investments
At September 30, 1995, the Company's cash equivalents and short-term
investments consisted primarily of U.S. Government Treasury and
agency securities, commercial paper, auction preferred stock,
municipal bonds and certificates of deposit. Cash equivalents
and short-term investments held at September 30, 1995 approximate fair
market value.
3. Inventories
Inventories are comprised of the following:
Sept. 30, April 2,
1995 1995
--------- ---------
(In thousands)
Work-in-process $ 119,030 $ 84,920
Finished goods 32,112 18,722
--------- ---------
Total $ 151,142 $ 103,642
========= =========
4. Income Taxes
The Company provides for income taxes during interim reporting
periods based upon an estimate of the annual effective tax rate.
Such estimate reflects an effective tax rate lower than the
federal statutory rate primarily because of certain foreign
operations taxed at lower rates.
5. Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is based on the
weighted average common shares outstanding and dilutive common
equivalent shares (using the treasury stock or modified treasury
stock method, whichever applies). Common equivalent shares
include stock options and warrants. Dual presentation of primary
and fully diluted earnings per share is not shown on the face of
the income statement because the differences are insignificant.
6. Contingencies
During September 1995, Crystal Semiconductor Corporation, a wholly
owned subsidiary of the Company, settled a suit alleging
infringement of a patent. The settlement did not have a material
adverse effect on the Company's consolidated financial position,
results of operations, or cash flows.
On May 7, 1993, the Company was served with two shareholder class
action lawsuits filed in the United States District Court for the
Northern District of California. The lawsuits, which name the
Company and several of its officers and directors as defendants,
allege violations of the federal securities laws in connection
with the announcement by Cirrus Logic of its financial results for
the quarter ended March 31, 1993. The complaints do not specify
the amounts of damages sought. The Company believes that the
allegations of the complaints are without merit, and the Company
intends to vigorously defend itself. The Company believes that
the ultimate resolution of this matter will not have a material
adverse effect on its financial position, results of operations,
or cash flows.
On November 7 and 8, 1995 three shareholder class action lawsuits
were filed in the United States District Court for the Northern
District of California against the Company and several of its
officers and directors. The lawsuits allege violations of the
federal securities laws in connection with the announcement by
Cirrus Logic on November 7, 1995 that a major customer
discontinued orders for the Company's 32-bit products. The
complaints do not specify the amounts of damages sought. The
Company believes that the allegations of the complaints are
without merit, and the Company intends to vigorously defend
itself. The Company believes that the ultimate resolution of this
matter will not have a material adverse effect on its financial
position, results of operations, or cash flows.
7. Proposed Public Offerings
On October 23, 1995, the Company announced that it intended to
conduct a registered public offering of Common Stock and
convertible notes. In light of market conditions, the Company is
reconsidering its financing alternatives and may decide to revise
or cancel its plans for the offering announced on October 23,
1995.
8. Joint Venture Agreements and Manufacturing Contract
During September 1994, the Company and IBM completed a series of
agreements pertaining to joint manufacturing. In January 1995,
under the terms of the agreements, a new joint venture (MiCRUS)
began manufacturing semiconductor wafers for each parent company.
In January 1995, MiCRUS leased approximately $145 million of
wafer fabrication and infrastructure equipment pursuant to a lease
guaranteed jointly and severally by the Company and IBM. As part
of the initial agreement, Cirrus Logic committed to pay $36
million as a cash contribution. In addition, Cirrus Logic and IBM
each committed to provide MiCRUS with approximately $100 million
of additional capital equipment, primarily through lease
financing, of which the final $30 million will be provided by the
Company in the fourth quarter of fiscal 1996.
In March 1995, IBM and the Company agreed to a $120 million
expansion of MiCRUS, of which Cirrus Logic committed to provide
$60 million in financing. The Company expects to use equipment
leases to fulfill its financing commitment. This expansion is
expected to be in full production in fiscal 1997.
In addition, in October 1995, the Company committed to provide a
further $198 million to fund a second expansion of MiCRUS and to
support the migration to 0.35 micron process technology. Of this
amount the Company expects to spend $33 million in cash for
facilities and to provide equipment lease guarantees for the
balance. IBM may elect to provide up to half of the $198 million
of the Company's commitment in order to obtain up to half of the
additional wafer capacity from the MiCRUS expansion.
In October 1995, the Company also concluded agreements with AT&T
to form a joint venture to build additional wafer production
capacity in an existing facility in Orlando, Florida owned by
AT&T. The agreements with AT&T obligate the Company to provide
$420 million in financing. The Company expects to finance $280
million of this amount through leasing equipment and subleasing it
to the joint venture, or by guaranteeing leases entered into by
the joint venture. Of the $140 million balance, the Company will
contribute $35 million in installments over a three-year period
and pay $105 million in installments over a four-year period. The
payment of $105 million will be charged to the Company's cost of
sales over the life of the venture based upon the ratio of current
units of production to current and anticipated future units of
production.
The Company expects to enter into a volume purchase agreement with
TSMC under which the Company expects to make advance payments to
TSMC of approximately $118 million, one-half in calendar 1997 and
one-half in calendar 1998.
The Company also has concluded an agreement with UMC which
requires the Company to make a total $90 million equity investment
during fiscal 1996 and 1997.
The Company estimates that its total financial obligations for the
IBM, AT&T, UMC and TSMC transactions (excluding future wafer
purchases) may total $225 million in the remainder of fiscal 1996,
$600 million in fiscal 1997 and $200 million in the following
three years. The Company intends to obtain the necessary capital
through a combination of equity and/or debt financing, equipment
lease financing, lease guarantees and cash generated from
operations. In addition, the Company estimates that capital
expenditures for its own facilities, testing and other equipment
may total $500 to $600 million through fiscal 2000. The Company
expects to finance seventy to eighty percent of these capital
expenditures through lease financing. There can be no assurance
that financing will be available or, if available, will be on
satisfactory terms.
<PAGE>
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This information should be read along with the unaudited
consolidated condensed financial statements and the notes thereto
included in Item 1 of this Quarterly Report and the audited
consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and
Results of Operations for the fiscal year ended April 1, 1995,
contained in the Annual Report to Shareholders. On June 1, 1995,
the Board of Directors approved a two-for-one split of the
Company's Common Stock. Shareholders of record as of June 19,
1995 received certificates reflecting the additional shares.
These certificates were distributed on July 17, 1995. All
references to the number of shares of Common Stock, warrants and
options to purchase shares of Common Stock, weighted average
common and common equivalent shares outstanding, and share prices
have been restated to reflect the two-for-one split.
Overview
Historically, the majority of the wafers used by the Company have
been merchant wafers manufactured by outside suppliers. The
Company believes that it is currently the world's largest
purchaser of merchant wafers. In recent periods, the merchant
wafer market has been unable to meet market demand. This has
increased the cost of merchant wafers, negatively affecting the
Company's gross margins and, at times, preventing the Company from
purchasing enough wafers to meet the demand for its products.
In response to these conditions and its rapid growth, the Company
has embarked upon a strategy to increase its sources of wafer
supplies by taking additional ownership interests in wafer
manufacturing operations. The Company has formed joint ventures,
one with IBM and one with AT&T, to own and operate wafer fabs.
The Company is also entering into agreements to increase its
committed supply of merchant wafers from foundries located in
Asia, and the Company intends to continue to seek additional
committed wafer supplies through similar or other arrangements.
The Company's continued investment in manufacturing capacity will
require the Company to make substantial expenditures over the next
several years. In connection with the Company's agreements to
increase its committed wafer supplies through the MiCRUS joint
venture, the joint venture with AT&T, an investment in a new
company being formed by United Microelectronics Corporation (UMC),
an expected volume purchase agreement with Taiwan Semiconductor
Manufacturing Co., Ltd. (TSMC), and its internal capital expansion
program, the Company expects that it must make capital
contributions or cash investments totalling up to $570 million,
and must obtain or guarantee up to $1,055 million in capital
equipment lease financing through fiscal 2000. In addition,
significant additional expenditures and financing guarantees by
the Company will be required if it makes arrangements with other
companies to increase its wafer supply.
Results of Operations
The following table discloses the percentages that income
statement items are to net sales and the percentage change in the
dollar amounts for the same items compared to the similar period
in the prior fiscal year.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage of Net Sales
Quarter Ended Two Quarters Ended
------------------- -------------------
Sept. 30, Oct. 1, Percent Sept. 30, Oct. 1, Percent
1995 1994 change 1995 1994 change
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100% 100% 57% 100% 100% 60%
Gross margin 44% 44% 60% 43% 46% 49%
Research and development 17% 18% 47% 18% 19% 44%
Selling, general and administrative 12% 14% 31% 12% 15% 31%
Non-recurring costs - 2% -100% - 1% -100%
Merger costs - 1% -100% - 1% -100%
Income from operations 15% 8% 207% 13% 10% 112%
Income before income taxes 15% 9% 167% 13% 11% 99%
Income taxes 5% 3% 171% 4% 3% 99%
Net income 10% 6% 166% 9% 7% 99%
</TABLE>
Net Sales
Net sales for the second quarter of fiscal 1996 were $317.8
million, an increase of 57% from the $202.2 million reported for
the second quarter of fiscal 1995. Net sales for the first two
quarters of fiscal 1996 were $618.1 million, an increase of 60%
over the $387.2 million reported for the same period of fiscal
1995. This increase was largely due to an increase in sales of
graphics, audio, mass storage and wireless communications
products. Graphics and mass storage product revenue grew because
of an increase in unit sales to the desktop personal computer
market segment. Audio product sales grew because of an increase
in sales of 16-bit audio codec products. Wireless communications
product sales grew because of an increase in sales of and wireless
communications chips and Cellular Digital Packet Data (CDPD) base
stations.
For the second and first two quarters of fiscal 1996, export sales
(including sales to U.S.-based customers with manufacturing plants
overseas) were 58% and 59%, respectively, of total sales compared
to 54%, for the corresponding periods in fiscal 1995.
The Company's sales are currently denominated primarily in U.S.
dollars. The Company may purchase hedging instruments to reduce
short-term foreign currency related to trade receivables
denominated in foreign currencies.
No customer accounted for 10% or more of sales during either the
second or first two quarters of fiscal 1996 or fiscal 1995.
Gross Margin
The gross margin was 44% in the second quarter of fiscal 1996,
compared to 44% for the second quarter of fiscal 1995. The gross
margin was 43% in the first two quarters of fiscal 1996, compared
to 46% for the same period of fiscal 1995. Although the gross
margin percentage was comparable in the second quarter of fiscal
1996 and 1995, the factors influencing the percentage were
diverse. In fiscal 1996, the gross margin percentage increased as
a result of lower manufacturing costs for wafers produced by
MiCRUS. In fiscal 1995, the gross margin declined because of
start-up expenses related to the production ramp of CDPD base
station equipment, and charges to fully reserve audio component
inventories for a certain multimedia customer. The decline in the
gross margin percentage for the first two quarters of fiscal 1996
compared to fiscal 1995 was mostly the result of higher wafer
costs caused by an increase in wafer prices for merchant wafers,
an insufficient supply of 0.6 micron wafers which made necessary
the use of less cost effective 0.8 micron wafers to meet expanded
unit shipments, expediting expenses related to premiums paid to
suppliers to increase production of the Company's products, lower
yields on new products ramping into production, and lower selling
prices on certain graphics and audio parts. The decline in gross
margin for the period was partially offset by lower manufacturing
costs for wafers produced by MiCRUS in the second quarter.
Research and Development
Research and development expenditures increased $17.3 million over
the second quarter of fiscal 1995 to $54.5 million in the second
quarter of fiscal 1996. The expenditures in the second quarter
and the first two quarters of fiscal 1996 were approximately 17%
and 18%, respectively, of net sales compared to 18% and 19%,
respectively, in the comparable periods of fiscal 1995. Expenses
increased in absolute amounts as the Company continues to invest
in new product development. The Company intends to continue
making substantial investments in research and development and
expects these expenditures will continue to increase in absolute
amounts.
Selling, General and Administrative Expenses
Selling, general and administrative expenses represented
approximately 12% of net sales in the second quarter and the first
two quarters of fiscal 1996, compared to 14% and 15%,
respectively, in the corresponding periods in fiscal 1995. The
absolute spending increase in fiscal 1996 reflects increased
direct expenses for the expanding sales force, increased marketing
expenses for promotions and advertising, and increased
administrative and legal expenses. The Company expects these
expenses to increase in absolute terms during the remainder of
fiscal 1996.
Income Taxes
The Company's effective tax rate was 31.5% for the second quarter
and first two quarters of fiscal 1996, as against 31.1% and 31.5%
for the comparable periods in fiscal 1995. The 31.5% annual
effective tax rate is less than the U.S. federal statutory rate
primarily because certain foreign earnings are taxed at lower
rates.
Liquidity and Capital Resources
During the first two quarters of fiscal 1996, the Company
generated approximately $13.9 million of cash and cash equivalents
in its operating activities, compared to approximately $26.8
million during the first two quarters of fiscal 1995. The
decrease was primarily caused by the net change in operating
assets and liabilities, offset somewhat by increased income from
operations and an increase in the non-cash effect of depreciation
and amortization.
During the first two quarters of fiscal 1996, $42.0 million in
cash was used in investing activities compared to $111.9 million
used in investing activities during the same period last fiscal
year. Short-term investments were the principal investing
activities generating or using cash along with additions to
property and equipment.
During the first two quarters of fiscal 1996, $39.3 million in
cash was provided by financing activities compared to $3.5 million
during the same period last fiscal year. Borrowings on equipment
loans and proceeds from the issuance of Common Stock were the
principal financing activities generating cash. The Company has a
bank line of credit for up to a maximum of $65 million available
through December 1995, at the bank's prime rate. As of September
30, 1995, there were no outstanding extensions of credit under
this facility other than a stand-by letter of credit in the amount
of $10 million.
Cash, cash equivalents and short-term investments decreased $24.3
million from $187 million at April 1, 1995, to $162.7 million at
September 30, 1995. During the same period accounts receivable
and inventories increased $45.8 million and $47.5 million,
respectively, and accounts payable, accrued salaries and benefits,
income taxes payable and other accrued liabilities increased $64.8
million. The Company believes accounts receivable and inventories
will increase. The increases in accounts receivable, inventory,
accounts payable and accrued liabilities are associated with the
growth in the Company's operations.
During September 1994, the Company and IBM completed a series of
agreements pertaining to joint manufacturing. In January 1995,
under the terms of the agreements, a new joint venture (MiCRUS)
began manufacturing semiconductor wafers for each parent company.
In January 1995, MiCRUS leased approximately $145 million of wafer
fabrication and infrastructure equipment pursuant to a lease
guaranteed jointly and severally by the Company and IBM. As part
of the initial agreement, Cirrus Logic committed to pay $36
million as a cash contribution. In addition, Cirrus Logic and IBM
each committed to provide MiCRUS with approximately $100 million
of additional capital equipment, primarily through lease
financing, of which the final $30 million will be provided by the
Company in the fourth quarter of fiscal 1996.
In March 1995, IBM and the Company agreed to a $120 million
expansion of MiCRUS, of which Cirrus Logic committed to provide
$60 million in financing. The Company expects to use equipment
leases to fulfill its financing commitment. This expansion is
expected to be in full production in fiscal 1997.
In addition, in October 1995, the Company committed to provide a
further $198 million to fund a second expansion of MiCRUS and to
support the migration to 0.35 micron process technology. Of this
amount the Company expects to spend $33 million in cash for
facilities and to provide equipment lease guarantees for the
balance. IBM may elect to provide up to half of the $198 million
of the Company's commitment in order to obtain up to half of the
additional wafer capacity from the MiCRUS expansion.
In October 1995, the Company also concluded agreements with AT&T
to form a joint venture to build additional wafer production
capacity in an existing facility in Orlando, Florida owned by
AT&T. The agreements with AT&T obligate the Company to provide
$420 million in financing. The Company expects to finance $280
million of this amount through leasing equipment and subleasing it
to the joint venture, or by guaranteeing leases entered into by
the joint venture. Of the $140 million balance, the Company will
contribute $35 million in installments over a three-year period
and pay $105 million in installments over a four-year period. The
payment of $105 million will be charged to the Company's cost of
sales over the life of the venture based upon the ratio of current
units of production to current and anticipated future units of
production.
The Company also has concluded an agreement with UMC which
requires the Company to make a total $90 million equity investment
during fiscal 1996 and 1997.
The Company expects to enter into a volume purchase agreement with
TSMC under which the Company expects to make advance payments to
TSMC of approximately $118 million, one-half in 1997 and one-half
in 1998.
The Company estimates that its total financial obligations for the
IBM, AT&T, UMC and TSMC transactions (excluding future wafer
purchases) may total $225 million in the remainder of fiscal 1996,
$600 million in fiscal 1997 and $200 million in the following
three years. The Company intends to obtain the necessary capital
through a combination of equity and/or debt financing, equipment
lease financing, lease guarantees and cash generated from
operations. In addition, the Company estimates that capital
expenditures for its own facilities, testing and other equipment
may total $500 to $600 million through fiscal 2000. The Company
expects to finance seventy to eighty percent of these capital
expenditures through lease financing. There can be no assurance
that financing will be available or, if available, will be on
satisfactory terms.
On October 23, 1995, the Company announced that it intended to
conduct a registered public offering of Common Stock and
convertible notes. In light of market conditions, the Company is
reconsidering its financing alternatives and may decide to revise
or cancel its plans for the offering announced on October 23,
1995.
The Company's future capital requirements include financing the
growth of working capital items such as accounts receivable and
inventory and the purchase of manufacturing and test equipment. In
addition, the Company is continuing to pursue other potential
transactions to satisfy its future production requirements,
including equity investments in, loans to or joint ventures with
wafer manufacturing companies and acquisition or construction of
wafer fabrication facilities. The Company has acquired technology
companies in the past and may do so in the future. Such potential
transactions may require substantial capital resources, which may
require the Company to seek additional debt or equity financing.
Future Operating Results
Quarterly Fluctuations
On November 7, 1995, the Company announced that a major customer
of the Company reduced its orders for certain graphics and audio
chips, as a result of the customer's forecasted demand and the
current inventories of Cirrus Logic products held by that customer
and its subcontractors. The Company expects this will reduce the
rate of revenue growth for the current quarter ending December 30,
1995, and that the operating profits for the quarter ending
December 30, 1995 are likely to decrease by 10 to 15 percent as
compared with the prior quarter ended September 30, 1995.
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially
from quarter to quarter in the future. The Company's quarterly
operating results are affected by a wide variety of factors, many
of which are outside of the Company's control, including but not
limited to, the Company's ability to introduce new products and
technologies on a timely basis, changes in product mix or
fluctuations in manufacturing costs which affect the Company's
gross margins, market acceptance of the Company's and customers'
products, sales timing, the level of orders which are received and
can be shipped in a quarter, the cyclical nature of both the
semiconductor industry and the markets addressed by the Company's
products, product obsolescence, price erosion, and competitive
factors. The Company's future operating results also will depend
in part on economic conditions in the United States and the
worldwide markets that the Company serves. Any unfavorable
changes in the above or other factors could adversely affect the
Company's operating results.
The Company must order wafers and build inventory well in advance
of product shipments. Because the Company's markets are volatile
and subject to rapid technology and price changes, there is a risk
that the Company will forecast incorrectly and produce excess or
insufficient inventories of particular products. This inventory
risk is heightened because many of the Company's customers place
orders with short lead times and because sales to these customers
have increased as a percentage of total sales. To the extent the
Company produces excess or insufficient inventories of particular
products, the Company's revenues and earnings could be adversely
affected. Customer lead times for certain display graphics and
audio products, which had lengthened in the fourth quarter of
fiscal 1995 and the first quarter of fiscal 1996 have now
shortened to levels previously experienced by the Company.
Accordingly, in the third quarter of fiscal 1996, a significant
portion of the Company's revenues from desktop graphics is
dependent on sales to customers who place orders with short lead
times for delivery in this quarter.
The Company's products are in various stages of their product life
cycles. The Company's success is highly dependent upon its
ability to develop complex new products, to introduce them to the
marketplace ahead of the competition, and to have them selected
for design into products of leading systems manufacturers. These
factors have become increasingly important to the Company's
results of operations because the rate of change in the markets
served by the Company continues to accelerate. Since product life
cycles are continually becoming shorter, revenues may be affected
quickly if new product introductions are delayed or if the
Company's products are not designed into the Company's customers'
successive generation of products. Of particular importance is
the timely completion and introduction of key graphics and audio
products currently in various stages of development. Any delay in
the introduction of such products could have a material adverse
effect on the Company's results of operations during the second
half of fiscal 1996 and fiscal 1997. The Company's gross margins
also will depend on the Company's success at introducing new
products quickly and effectively because the gross margins of
semiconductor products decline as competitive products are
introduced. Also, the Company must deliver product to customers
according to customer schedules. If delays occur, then revenues
and gross margins for current and follow-on products may be
affected as customers may shift to competitors to meet their
requirements. There can be no assurance that the Company will
continue to compete successfully because of these factors.
As is common in the semiconductor industry, the Company frequently
ships more product in the third month of each quarter than in
either of the first two months of the quarter, and shipments in
the third month are higher at the end of that month. This pattern
is likely to continue. The concentration of sales in the last
month of the quarter may cause the Company's quarterly results of
operations to be more difficult to predict. Moreover, a
disruption in the Company's production or shipping near the end of
a quarter could materially reduce the Company's revenues for that
quarter.
Issues Relating to Manufacturing and Manufacturing Investment
Most of the Company's wafers are currently manufactured to the
Company's specifications by outside merchant wafer suppliers.
Although the Company has increased its future wafer supplies from
manufacturing joint ventures, the Company expects to continue to
purchase a majority of its wafers from, and to be reliant upon,
outside merchant wafer suppliers for at least the next two years.
The Company also uses other outside vendors to package the wafer
die into integrated circuits (ICs). The Company's reliance on
these outside suppliers involves several risks, including the
absence of adequate guaranteed capacity, the possible
unavailability of or delays in obtaining access to certain process
technologies, and reduced control over delivery schedules,
manufacturing yields and costs. The Company may be particularly
sensitive to these risks because its merchant wafer suppliers are
currently producing at or near their full scheduled capacity. In
addition, the Company's flexibility to move production of any
particular product from one wafer manufacturing facility to
another can be limited in that such a move can require significant
re-engineering, which can lead to a delay of several quarters in
accessing available capacity. This in turn can result in periods
of time in which production is constrained even though capacity is
available at one or more wafer manufacturing facilities. The
Company's results of operations could be adversely affected if new
suppliers are not qualified in time to meet production
requirements or if particular suppliers are unable to provide a
sufficient and timely supply of product, whether because of
capacity constraints, unexpected disruptions at the plants, or
other reasons, or if the Company is forced to purchase wafers from
higher cost suppliers or to pay expediting charges to obtain
additional supply, or if the Company's test facilities are
disrupted for an extended period of time. Certain of the
Company's products are manufactured using 0.6 micron CMOS process
technology. Industry demand for this process technology is
strong. The Company believes that there will continue to be a
shortage of manufacturing capacity to produce wafers using this
process, at least through the remainder of fiscal 1996. In
addition, the Company believes there is a shortage of assembly
capacity for packaging wafer die. Since the Company does not have
guaranteed manufacturing commitments from most vendors, there is a
risk that these vendors could suddenly decide not to supply wafers
or package die. Because of this supply shortage, there is an
increased risk that certain products will not be readily available
for sale according to customer schedules and a risk that the
Company's costs will increase. Net sales and gross margin could be
adversely affected by the supply shortage, which could be
exacerbated if vendors encounter delivery problems. Net sales and
gross margin also could be adversely affected if the Company
receives orders for large volumes of products to be shipped within
short periods and if the Company's product testing capacity is not
adequate to process such volumes. The Company's results of
operations also could be adversely affected if the Company's
suppliers are subject to injunctions arising from alleged
violations of third party intellectual property rights. The
enforcement of such an injunction could impede a supplier's
ability to provide wafers or packaging services to the Company.
The Company's sales have been constrained by its inability to
obtain sufficient sources of wafer supply to meet customer demand.
To expand its wafer supplies, the Company has entered into and
continues to consider various transactions, including joint
venture agreements to own and operate wafer fabrication
facilities, increased use of "take or pay" contracts that commit
the Company to purchase specified quantities of wafers over
extended periods, and equity investments in, loans to or other
credit supports for wafer manufacturing companies in exchange for
guaranteed production.
The Company has entered into manufacturing joint venture
agreements with IBM and AT&T and expects to enter into a new long-
term volume purchase agreement with TSMC. The Company is
increasing its committed wafer production through these and other
joint ventures and take or pay contracts in order to address the
expectation that its wafer needs will continue to grow. If, as is
possible, the forecasted demand does not materialize, then the
Company's committed wafer production could exceed its needs. In
such event, if the joint ventures and other suppliers are not able
to sell their wafer output to other customers, then the Company
will have to bear higher costs in the form of unutilized overhead
in the case of the joint ventures or monetary penalties in the
case of the take or pay contracts. The Company expects to
continue purchasing a substantial number of merchant wafers,
although the number of suppliers it uses may diminish. The
decrease in the number of suppliers used by the Company could
adversely affect the Company's ability to obtain wafers from third
party suppliers in the event the Company faces unanticipated
shortfalls in supply.
If the MiCRUS and AT&T joint ventures are able to produce wafers
at or below prices generally prevalent in the market, the Company
will benefit. If, however, either of these ventures, or any other
joint venture into which the Company enters, is not able to
produce wafers at competitive prices, the Company's results of
operations will be materially adversely affected. The process of
beginning production at and increasing volume with the joint
ventures inevitably involves risks, and there can be no assurance
that the manufacturing costs of such ventures will be competitive.
Additional risks include the timely development of products,
unexpected disruptions to the manufacturing process, the
difficulty of maintaining quality and consistency, particularly at
the smaller submicron levels, dependence on equipment suppliers
and technological obsolescence.
As a participant in manufacturing joint ventures and as an
investor in the company being formed by UMC, the Company also will
share in the risks encountered by wafer manufacturers generally,
including being subject to a variety of foreign, federal, state
and local governmental regulations related to the discharge and
disposal of toxic, volatile or otherwise hazardous materials used
in the manufacturing process. Any failure by the Company to
control the use of, or to restrict adequately the discharge of,
hazardous materials by the joint ventures under present or future
regulations could subject it to substantial liability or could
cause the manufacturing operations to be suspended. In addition,
the Company could be held financially responsible for remedial
measures if any of the joint venture manufacturing facilities were
found to be contaminated whether or not the Company or the joint
venture was responsible for such contamination.
The Company will not be in direct control of the joint ventures or
of the wafer manufacturing companies in which it invests. The
Company is dependent on its joint venture partners for the
operation of the new manufacturing facilities, including the
hiring of qualified management. In addition, the manufacturing
processes and policies undertaken by each manufacturing joint
venture may not be optimized to meet the Company's specific needs
and products. If the joint ventures are unable to manage the
operations effectively, their ability to implement state-of-the-
art manufacturing processes, to produce wafers at competitive
costs, and to produce sufficient output could be adversely
affected. Also, the Company's joint venture partners may enter
into contractual or licensing agreements with third parties, or
may be subject to injunctions arising from alleged violations of
third party intellectual property rights, which could restrict the
joint venture from producing certain of the Company's products or
from producing with certain processes. Consequently, the
Company's results of operations could be adversely affected.
The increase in the Company's wafer supply arrangements could
strain the Company's management and engineering resources. This
strain on resources could be exacerbated by the geographic
distances between the Company's and the various wafer production
facilities. There can be no assurance that the Company will be
able to hire additional management, engineering and other
personnel as needed, to manage its expansion programs effectively
and to implement new production capacity in a timely manner and
within budget.
The Company believes other manufacturers are also expanding or
planning to expand their fabrication capacity over the next
several years. There can be no assurance that the industry's
expansion of wafer production will not lead to overcapacity. If
this were to occur, the market price for wafers sold by third
party foundries could decline, and the wafers produced by the
Company's joint ventures could become more costly relative to
prevailing market prices.
In connection with the financing of its expansion, the Company may
borrow money. Such indebtedness could cause the Company's
principal and interest obligations to increase substantially.
Moreover, as a consequence of existing and planned wafer supply
related transactions, the Company's obligations under guarantees,
investment commitments and take or pay arrangements also will
increase substantially. The degree to which the Company will be
leveraged could adversely affect the Company's ability to obtain
additional financing for working capital, acquisitions or other
purposes and could make it more vulnerable to industry downturns
and competitive pressures. The Company's ability to meet its debt
service and other obligations will be dependent upon the Company's
future performance, which will be subject to financial, business
and other factors affecting the operations of the Company, many of
which are beyond its control.
The Company's results of operations are subject to increasing
manufacturing risks as the Company continues to upgrade wafer
production using complex, smaller geometry processes. As the
Company increases its source of wafer supply through joint
ventures, equity investments and other arrangements, it expects it
will decrease its flexibility to reduce the amount of wafers it is
committed to purchase and that its fixed manufacturing costs as a
percentage of overall costs of sales may increase. As a result,
the operating results of the Company will be more sensitive to
fluctuations in revenues and to the cyclical nature of the
semiconductor industry.
Dependence on PC Market
Sales of most of the Company's products depend largely on sales of
personal computers (PCs). The Company believes that a slowdown in
sales in the PC market would adversely affect the Company's sales
and earnings. The growth in the PC market and the growth in the
market share enjoyed by the Company's PC OEM customers was
exceptionally strong during fiscal 1995 and the first two quarters
of fiscal 1996. However, the PC market could decline or
experience slower growth either because of slackening consumer
demand, because PC manufacturers are constrained by shortages of
required parts, or otherwise, or the Company's PC OEM customers
could experience lower sales or slower growth. This could lead to
an inventory correction by the PC and peripheral device
manufacturers, which could result in a decline in the Company's
revenues or rate of revenue growth and a decline in net income.
As a component supplier to PC OEMs and to peripheral device
manufacturers, the Company is likely to experience a greater
magnitude of fluctuations in demand than the Company's customers
themselves experience. A downturn in the PC market could also
affect the financial health of a number of the Company's
customers, which could affect the Company's ability to collect
outstanding accounts receivable from these customers.
Sales of the Company's products may become increasingly dependent
on key customers, including Intel, who supply motherboards to PC
manufacturers, and on PC manufacturers associated with the
consumer marketplace. A number of PC OEMs buy products directly
from the Company and also buy motherboards from Intel or other
suppliers who in turn buy products from the Company. This
increases the risk that a significant portion of the Company's
sales may depend directly or indirectly on the sales to a
particular PC OEM. Since the Company cannot track sales by the
motherboard manufacturers, this also increases the likelihood that
the Company may not be fully informed of its indirect dependence
on any particular PC OEM.
Increasing dominance of the PC motherboard or PC market by any one
customer increases the risks that the Company could experience
intensified pressure on product pricing and unexpected changes in
customer orders. Moreover, the Company's production schedules are
based not only on customer orders, but also on forecasted demand.
These issues may contribute to increasing volatility in the
Company's PC-related products, and thus may increase the risk of
rapid changes in revenues, margins, and earnings. Furthermore,
the intense price competition in the PC industry is expected to
continue to put pressure on the price of all PC components. Other
IC makers, including Intel, have expressed their interest in
integrating some multimedia or communications functions into their
microprocessor products. Successful integration of these
functions could reduce the Company's opportunities for IC sales in
these areas.
Issues Relating to Graphics Products
Two-dimensional ("2D") graphics accelerators have replaced
graphics controllers as the mainstream PC graphics product. The
market is now changing to require accelerated CD-ROM video
playback along with accelerated graphics and, eventually, 3D
acceleration capability. The Company is striving to bring
products to market for these needs, but there is no assurance that
it will succeed in doing so in a timely manner. If the market for
these products does not develop or is delayed, or if these
products are not brought to the market in a timely manner or do
not address the market needs or cost or performance requirements,
then net sales would be adversely affected. Currently, the
Company continues to experience intense competition in the sale of
graphics products. If competitors are successful in supplanting
the Company's products, the Company's market share may not be
sustainable and net sales, gross margin, and earnings would be
adversely affected.
The Company has a large share of the market for desktop graphics
controllers and graphics accelerators. The Company believes that
it is unlikely to increase its market share further, and that
future growth in revenues from desktop graphics products is likely
only if the size of the market continues to increase or if
competitors fail or are delayed in introducing new products.
Several competitors have recently introduced products and adopted
pricing strategies that have increased competition in the desktop
graphics market and put additional pressure on prices and gross
margins. These factors may adversely affect revenues and gross
margins for graphics accelerator products.
The Company has preliminary design wins for certain graphics
products scheduled to begin shipping in the fourth quarter of
fiscal 1996. Although the Company has conducted extensive
simulation of the product designs, the Company and its customers
have not completed testing and evaluation of the products. If the
first units were to perform poorly in the evaluation, key
customers could decide not to use these products in their own
designs rather than to risk delaying their own product
introductions. In such event, revenues from the sale of graphics
products in the fourth quarter of fiscal 1996 and in the following
quarters could be materially adversely affected.
Issues Relating to Audio Products
Most of the Company's revenues in the multimedia audio market
derive from the sales of 16-bit audio codecs and integrated 16-bit
codec plus controller solutions for the consumer PC market. The
consumer PC market is more volatile than other segments of the PC
market. The Company currently maintains a substantial market
share in multimedia PCs. Further increases in revenues from these
products are likely to depend on growth of the PC market,
continuing adoption of multimedia audio in consumer and business
PCs and selection of the Company's multimedia products by add-in
card manufacturers and PC OEM's. If competitors succeeded in
supplanting the Company's multimedia audio products at any of
these customers, the Company's market share could decline suddenly
and materially.
Due to the heavy concentration of multimedia PCs in the consumer
market, to be successful, an audio product must be compatible with
the new and existing software games that dominate consumer
multimedia PC usage. These games typically require 16-bit audio,
a SoundBlaster compatible audio controller and FM synthesis
emulation. Due to the price sensitive nature of the consumer PC
market, the market is moving from multi-chip solutions to
solutions that provide the codec, controller and synthesis
integrated into a single IC. If the Company is unable to provide
or is late to market with these highly integrated solutions, or if
its solutions are not compatible with new and existing software,
the Company could lose market share.
Revenues from the sale of audio products in the second half of
fiscal 1996 and in fiscal 1997 are likely to be significantly
affected by the success of a recently announced fully-integrated,
single-chip audio IC. The product has not yet passed customer
qualification and acceptance. If the product is not qualified and
accepted by customers in time for volume shipments in the second
half of fiscal 1996, revenues and gross margins from the sale of
audio products could be significantly impaired.
Issues Relating to Mass Storage Market
The disk drive market has historically been characterized by a
relatively small number of disk drive manufacturers and by periods
of rapid growth followed by periods of oversupply and contraction.
As a result, suppliers to the disk drive industry experience large
and sudden fluctuations in product demand. Furthermore, the price
competitive nature of the disk drive industry continues to put
pressure on the price of all disk drive components.
The Company's mass storage revenues are derived primarily from
sales of disk drive controllers and more recently, from read
channel chips and CD-ROM drive controllers. Future mass storage
revenues will be heavily dependent on the acceptance and
qualification of new generations of controllers and read channel
chips by the Company's customers.
Recently the disk drive industry has become more consolidated.
Such consolidation, which is continuing, reduces the number of
customers for the Company's mass storage products and may increase
the desire of customers to source their components internally.
Revenues from the sale of mass storage products could be affected
in various ways if the proposed merger between Seagate and Conner
Peripherals is concluded. In the short term, a combined
Seagate/Conner entity could elect to eliminate overlapping disk
drive product offerings. Such a development could sharply reduce
or increase its demand for the Company's ICs depending on whether
the discontinued disk drive products do or do not use the
Company's ICs. Such a development also would increase the risk
that the Company builds excess inventory of ICs for the disk
drives that are suddenly discontinued or builds insufficient
inventory and is unable to meet demand for ICs for the disk drives
that are retained. In the long term, the greater size of the
combined entity may increase its ability to rely on internal
sourcing of components, which could reduce demand for the
Company's products.
Revenues from the sale of mass storage products also could be
affected by the recent introduction of Windows 95, which has
created some uncertainty in the market place regarding the timing
of demand for disk drive storage capacity by end users. If disk
drive manufacturers incorrectly forecast consumer demand, they may
make sudden and dramatic changes in disk drive product mix, which
increases the risk that the Company will produce excess or
insufficient inventories of various products.
Issues Relating to Wireless and other Communication Products
Sales of the Company's Cellular Digital Packet Data ("CDPD")
products commenced during the quarter ended October 1, 1994. Since
that time the Company's subsidiary, PCSI, has sold over 3,500 base
stations to customers building CDPD communications infrastructure
in anticipation of a developing market for CDPD wireless data
services. Future CDPD revenues will depend primarily on the sale
of subscriber units, modules and components. If the CDPD market
does not develop, or the Company's CDPD products are not
competitive with those being introduced by other suppliers, then
future revenues and earnings would be adversely affected.
Sales of digital cordless phone products, which were developed by
PCSI for the Japanese Personal Handyphone System ("PHS") market,
will depend upon the establishment of infrastructure and services
which are beyond PCSI's control. If PCSI is unsuccessful or
delayed in developing next generation chip sets for the PHS
market, future chip set sales could decline rapidly. All sales
are being conducted through the Company's Japanese marketing
partners which limits the Company's gross margins for its PHS
products.
The Company's development of new technology in the wireless
communications business faces major challenges and risks which
could adversely affect the Company's results of operations.
Continued investment in research and development in technology for
which a market does not emerge could adversely affect the
Company's net sales, gross margin and earnings. Moreover,
investment in technology which proves incompatible with market
standards could impede the Company's ability to participate in
such markets. In addition, the timing and direction of the future
market development in this area could depend heavily on the
decisions of government regulators, which are subject to
significant delays and are outside of the Company's control. The
Company's competitors in wireless markets include some of the
world's largest, most successful and most technologically advanced
companies and there is no assurance that the Company will be able
to compete successfully.
The Company currently derives significant revenues from the sale
of fax/data/modem ICs, predominantly for the v.32bis standard. The
fax/data/modem market is transitioning to the higher performance
v.34 standard. If the Company is not successful in its efforts to
develop a v.34 product for sampling before the end of the fourth
fiscal quarter of 1996, revenues and gross margins for the sale of
fax/data/modem ICs in subsequent quarters could be significantly
impaired.
Intellectual Property Matters
The greater integration of functions and complexity of operation
of the Company's products also increase the risk that latent
defects or subtle faults could be discovered by customers or end
users after volumes of product have been shipped. If such defects
were significant, the Company could incur material recall and
replacement costs for product warranty.
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. The
Company and certain of its customers from time to time have been
notified that they may be infringing certain patents and other
intellectual property rights of others. In addition, customers
have been named in suits alleging infringement of patents by
customer products. Certain components of these products have been
purchased from the Company and may be subject to indemnification
provisions made by the Company to the customers. The Company has
not been named in any such suits. Although licenses are generally
offered in situations where the Company or its customers are named
in suits alleging infringement of patents or other intellectual
property rights, there can be no assurance that litigation will
not be commenced in the future regarding patents, mask works,
copyrights, trademarks, trade secrets, or indemnification
liability, or that any licenses or other rights can be obtained on
acceptable terms. Because successive generations of the Company's
products tend to offer an increasing number of functions, there is
a likelihood that more of these claims will occur as the products
become more highly integrated. The Company cannot accurately
predict the eventual outcome of any suit or other alleged
infringement of intellectual property. An unfavorable outcome
occurring in any such suit, could have an adverse effect on the
Company's future operations and/or liquidity. Furthermore,
efforts of defending the Company against future lawsuits, if any,
could divert a significant portion of the Company's financial and
management resources.
Foreign Operations and Markets
Because many of the Company's subcontractors and several of the
Company's key customers, which customers collectively account for
a significant percentage of the Company's revenues, are located in
Japan and other Asian countries, the Company's business is subject
to risks associated with many factors beyond its control.
International operations and sales may be subject to political and
economic risks, including political instability, currency
controls, exchange rate fluctuations, and changes in import/export
regulations, tariff and freight rates. Although the Company buys
hedging instruments to reduce its exposure to currency exchange
rate fluctuations, the Company's competitive position can be
affected by the exchange rate of the U.S. dollar against other
currencies, particularly the Japanese yen. In addition, various
forms of protectionist trade legislation have been proposed in the
United States and certain other countries. Any resulting changes
in current tariff structures or other trade and monetary policies
could adversely affect the Company's international operations.
There can be no assurance that the political and economic risks to
which the Company is subject will not result in customers of the
Company defaulting on payments due to the Company or in the
reduction of potential purchases of the Company's products.
Competition
The Company's business is intensely competitive and is
characterized by price erosion and rapid technological change.
Competition typically occurs at the design stage, where the
customer evaluates alternative design approaches that require
integrated circuits. Because of shortened product life cycles and
even shorter design-in cycles, the Company's competitors have
increasingly frequent opportunities to achieve design wins in next
generation systems. In the event that competitors succeed in
supplanting the Company's products, the Company's market share may
not be sustainable and net sales, gross margin, and earnings would
be adversely affected. Competitors include major domestic and
international companies, many of which have substantially greater
financial and other resources than the Company with which to
pursue engineering, manufacturing, marketing and distribution of
their products. Emerging companies are also increasing their
participation in the market, as well as customers who develop
their own integrated circuit products. Competitors include
manufacturers of standard semiconductors, application specific
integrated circuits and fully customized integrated circuits,
including both chip and board-level products. The ability of the
Company to compete successfully in the rapidly evolving area of
high-performance integrated circuit technology depends
significantly on factors both within and outside of its control,
including but not limited to, success in designing, manufacturing
and marketing new products, wafer supply, protection of Company
products by effective utilization of intellectual property laws,
product quality, reliability, ease of use, price, diversity of
product line, efficiency of production, the pace at which
customers incorporate the Company's integrated circuits into their
products, success of the customers' products and general economic
conditions. Also the Company's future success depends, in part,
upon the continued service of its key engineering, marketing,
sales, manufacturing, support and executive personnel, and on its
ability to continue to attract, retain and motivate qualified
personnel. The competition for such employees is intense, and the
loss of the services of one or more of these key personnel could
adversely affect the Company. Because of this and other factors,
past results may not be a useful predictor of future results.
Part II. Other Information
Item 1. Legal Proceedings
During September 1995, Crystal settled a suit alleging
infringement of a patent. The settlement did not have a material
adverse effect on the Company's consolidated financial position,
results of operations, or cash flows.
On November 7 and 8, 1995 three shareholder class action lawsuits
were filed in the United States District Court for the Northern
District of California against the Company and several of its
officers and directors. The lawsuits allege violations of the
federal securities laws in connection with the announcement by
Cirrus Logic on November 7, 1995 that a major customer
discontinued orders for the Company's 32-bit products. The
complaints do not specify the amounts of damages sought. The
Company believes that the allegations of the complaints are
without merit, and the Company intends to vigorously defend
itself. The Company believes that the ultimate resolution of this
matter will not have a material adverse effect on its financial
position, results of operations, or cash flows.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 3.1 Articles of Incorporation of Registrant, as amended
* Exhibit 10.25 General Partnership Agreement dated as of October 23,
1995 between the Company and AT&T.
* Exhibit 10.26 Joint Venture Formation Agreement dated as of October
23, 1995 between the Company and AT&T.
* Exhibit 10.27 Foundry Venture Agreement dated as of September 29,
1995 between the Company and United
Microelectronics Corporation ("UMC").
* Exhibit 10.28 Written Assurances Re Foundry Venture Agreement dated
as of September 29, 1995 between the Company
and UMC.
* Exhibit 10.29 Foundry Capacity Agreement dated as of September 29,
1995 between the Company and UMC.
Exhibit 11 Statement re: Computation of Earnings per share
Exhibit 27 Financial Data Schedule
* Portions have been filed separately with the Commission in reliance on
Rule 24b-2 and the Registrant's request for confidential treatment.
b. Reports on Form 8-K
None.
<PAGE>
CIRRUS LOGIC, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
CIRRUS LOGIC, INC.
(Registrant)
November 13, 1995 /s/ Sam S. Srinivasan
Date Sam S. Srinivasan
Senior Vice President, Finance and
Administration, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and Accounting Officer)
November 13, 1995 /s/ Michael L. Hackworth
Date Michael L. Hackworth
President, Chief Executive Officer
and Director (Principal Executive Officer)
[ARTICLE] 5
[MULTIPLIER] 1
AMENDED AND
RESTATED ARTICLES OF INCORPORATION
OF CIRRUS LOGIC, INC.
Michael L. Hackworth and Sam S. Srinivasan certify that:
1. They are the President and Secretary, respectively, of
CIRRUS LOGIC, INC., a California corporation.
2. The Articles of Incorporation of this corporation, as
amended, shall be amended and restated to read in their entirety as
follows:
I
The name of this corporation is CIRRUS LOGIC, INC.
II
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the
trust company business or the practice of a profession permitted to
be incorporated by the California Corporations Code.
III
Section 1
Authorized Shares
This corporation is authorized to issue two classes of stock
designated "Common Stock" and "Preferred Stock," respectively. The
total number of shares which this corporation is authorized to issue
is 85,282,345. The number of shares of Common Stock which this
corporation is authorized to issue is 70,000,000 shares. The number
of shares of Preferred Stock which this corporation is authorized to
issue is 15,282,345 shares.
Upon the effectiveness of these Amended and Restated Articles of
Incorporation, every two and one-half shares of Common Stock
outstanding immediately prior thereto shall be combined and converted
into one share of Common Stock and every two and one-half shares of
Preferred Stock outstanding immediately prior thereto shall be
combined and converted into one share of Preferred Stock.
Section 2
Preferred Stock
The Preferred Stock may be issued from time to time in one or
more series. Subject to Section 3 of this Article III, the Board of
Directors of this corporation is authorized to determine or alter the
rights, preferences, privileges, and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, and within
the limitations or restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of
shares constituting any series, to increase or decrease (but not below
the number of shares of any such series then outstanding) the number
of shares of any such series subsequent to the issuance of shares of
that series, to determine the designation and par value of any series,
and to fix the number of shares of any series.
Section 3
Series A, Series B, Series C, Series D and Series E Preferred Stock
Five series of Preferred Stock designated Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, consisting of 606,145
shares, 4,145,267 shares, 2,151,723 shares, 1,179,210 shares and
2,200,000 shares, respectively, are hereby authorized, which shares
shall have the rights, privileges, and preferences set forth below.
(a) Dividends. The holders of shares of the Series A, Series B,
Series C, Series D and Series E Preferred Stock shall be entitled to
receive dividends, out of any funds legally available therefor, prior
and in preference to any declaration or payment of any dividend or
other distribution (payable other than in Common Stock of this
corporation) on the Common Stock of this corporation at the rate of
$0.03125 per annum on each outstanding share of Series A Preferred
Stock, $0.11875 per annum on each outstanding share of Series B
Preferred Stock, $0.163 per annum on each outstanding share of
Series C Preferred Stock, $0.2445 per annum on each outstanding share
of Series D Preferred Stock and $0.36675 per annum on each outstanding
share of Series E Preferred Stock, if and when declared by the Board
of Directors; provided, however, that no dividend shall be declared
and paid on any series of Preferred Stock unless a dividend is
declared and paid on all series of Preferred Stock. In addition, the
holders of shares of the Series A, Series B, Series C, Series D and
Series E Preferred Stock shall be entitled to receive the same cash
dividends per share as paid per share of Common Stock, if and as
declared by the Board of Directors, based upon the number of shares
into which the shares of Series A, Series B, Series C, Series D and
Series E Preferred Stock are convertible pursuant to Section 3(c)
below. Such preferential dividends shall be non-cumulative.
(b) Liquidation Preference
(1) Distribution to Holders of Preferred Stock. In the
event of any liquidation, dissolution, or winding up of the corpo-
ration, either voluntary or involuntary, the holders of Series A,
Series B, Series C, Series D and Series E Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of
any of the assets or surplus funds of the corporation to the holders
of the Common Stock by reason of their ownership thereof, an amount
equal to the sum of (i) all declared but unpaid dividends on each
share of the Series A, Series B, Series C, Series D and Series E
Preferred Stock, respectively and (ii) $0.625 with respect to each
share of Series A Preferred Stock, $1.821 with respect to each share
of Series B Preferred Stock, $2.50 with respect to each share of
Series C Preferred Stock, $3.75 with respect to each share of Series D
Preferred Stock, and $5.625 with respect to each share of Series E
Preferred Stock.
(2) Distribution of Limited Assets and Funds. If the
assets and funds thus distributed among the holders of the Series A,
Series B, Series C, Series D and Series E Preferred Stock are
insufficient to permit the payment to such holders of the full
preferential amount specified in Section 3(b)(1) of this Article III,
then all of such assets and funds of this corporation legally
available for distribution shall be distributed ratably among the
holders of the Series A, Series B, Series C, Series D and Series E
Preferred Stock in proportion to their liquidation preferences of
$0.625, $1.821, $2.50, $3.75 and $5.625, respectively, per share.
(3) Distribution to Holders of Common Stock. After the
holders of Series A, Series B, Series C, Series D and Series E
Preferred Stock have received the amounts specified in Section 3(b)(1)
of this Article III, the holders of Common Stock of the corporation
(including any Common Stock obtained upon conversion of Series A,
Series B, Series C, Series D and Series E Preferred Stock prior to the
distribution to holders of Series A, Series B, Series C, Series D and
Series E Preferred Stock pursuant to Section 3(b)(1) of this
Article III) shall be entitled to receive, on a pro rata basis (in
proportion to the number of shares of Common Stock then held by each
of such holders), all remaining assets of the corporation legally
available for distribution.
(4) Merger or Sale Included in Liquidation. A consoli-
dation or merger of this corporation with or into any other corpo-
ration or corporations, or a sale of all or substantially all of the
assets of this corporation, shall be deemed to be a liquidation,
dissolution, or winding up within the meaning of this Section 3(b).
(c) Conversion. The holders of Series A, Series B, Series C,
Series D and Series E Preferred Stock shall have the following
conversion rights ("Conversion Rights"):
(1) Conversion Rights
(i) Voluntary Conversion. Subject to
Section 3(c)(3) of this Article III, each share of Series A, Series B,
Series C, Series D and Series E Preferred Stock shall be convertible,
at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of this corporation or any
transfer agent for the Series A, Series B, Series C, Series D or
Series E Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing
$0.48475 by the Conversion Price (as last adjusted and then currently
in effect) for the Series A Preferred Stock, by dividing $1.821 by the
Conversion Price (as last adjusted and then currently in effect) for
the Series B Preferred Stock, by dividing $2.50 by the Conversion
Price (as last adjusted and then currently in effect) for the Series C
Preferred Stock, by dividing $3.75 by the Conversion Price (as last
adjusted and then currently in effect) for the Series D Preferred
Stock and by dividing $5.625 by the Conversion Price (as last adjusted
and then currently in effect) for the Series E Preferred Stock. As
of the date hereof, the Conversion Price per share at which shares of
Common Stock shall initially be issuable upon conversion of shares of
Series A Preferred Stock shall be $0.48475, upon conversion of the
Series B Preferred Stock shall be $1.821, upon conversion of the
Series C Preferred Stock shall be $2.50, upon conversion of the
Series D Preferred Stock shall be $3.75 and upon conversion of the
Series E Preferred Stock shall be $5.625; provided, however, that
after the date hereof such Conversion Prices shall be subject to
adjustment as set forth in Section 3(c)(3) and 3(c)(4) of this
Article III. By such conversion, the converting holder relinquishes
any and all rights or entitlements to any dividends that may have been
declared under Section 3(a) of this Article III but have not been
paid, and no such dividends shall thereafter be or become due or
payable.
(ii) Automatic Conversion. Each share of
Series A, Series B, Series C and Series D Preferred Stock shall be
automatically converted into Common Stock at the then-applicable
Conversion Price immediately prior to the closing of an underwritten
public offering of the Common Stock of the corporation at a per-share
offering price to the public of not less than $7.50 per share (appro-
priately adjusted for any subsequent stock splits or combinations) and
a total offering price to the public of not less than $5,000,000.
Each share of Series E Preferred Stock shall be automatically
converted into Common Stock at the then-applicable Conversion Price
(i) immediately prior to the closing of an underwritten public
offering of the Common Stock of the corporation at a per-share
offering price to the public of not less than $10.00 per share
(appropriately adjusted for any subsequent stock splits or
combinations) and a total offering price to the public of greater than
$7,500,000 or (ii) if at any time after 150 days after the initial
public offering of this corporation's Common Stock (or, if earlier,
after the termination of the lock-up agreements between Shareholders
of this corporation and the corporation's underwriters in such
offering) the market price of the Common Stock equals or exceeds
$10.00 for twenty (20) consecutive days. For this purpose, "market
price" shall be the mean of the bid and asked prices of the Common
Stock for such date, as reported in the Wall Street Journal (or, if
not so reported, as otherwise reported by the National Association of
Securities Dealers Automated Quotation (NASDAQ) System) or, if the
Common Stock is listed on a stock exchange (including the NASDAQ
National Market System), the closing price on such exchange on such
date, as reported in the Wall Street Journal.
(2) Mechanics of Conversion. Before any holder of
Series A, Series B, Series C, Series D or Series E Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this corporation or of any transfer agent
for the Series A, Series B, Series C, Series D or Series E Preferred
Stock, and shall give written notice by mail, postage prepaid, to this
corporation at its principal corporate office, of the election to
convert the same. Such election shall be effective upon receipt by
the corporation of such written notice and certificate. This
corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of the Series A, Series B,
Series C, Series D or Series E Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business
on the date of receipt of such notice and of the shares of Series A,
Series B, Series C, Series D or Series E Preferred Stock to be
converted, and the holder of shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of
such shares of Common Stock on such date. If the conversion is in
connection with an underwritten offer of securities in accordance with
the provisions of Section 3(c)(1)(ii) of this Article III, then the
corporation shall give written notice of such offering to each holder
of Series A, Series B, Series C, Series D and Series E Preferred
Stock, and all rights of such holder with respect to his ownership of
Series A, Series B, Series C, Series D and Series E Preferred Stock
shall cease upon the effectiveness of such conversion, except his
right to receive a certificate representing the shares of Common Stock
so issued upon such conversion upon surrender of such holder's cer-
tificate representing his Series A, Series B, Series C, Series D or
Series E Preferred Stock. In the event of such automatic conversion,
the holders of shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such shares
of Common Stock on the effective date of such conversion.
(3) Conversion Price Adjustments for all Preferred Stock.
The Conversion Price of the Series A, Series B, Series C, Series D and
Series E Preferred Stock shall be subject to adjustment from time to
time as follows:
(i) Stock Dividend or Split. If the number of
shares of Common Stock outstanding at any time after the filing date
of these Restated Articles is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares
of Common Stock, then, effective upon the record date fixed for the
determination of holders of Common Stock entitled to receive such
stock dividend, subdivision, or split-up, the Conversion Price for the
Series A, Series B, Series C, Series D and Series E Preferred Stock
shall be appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of Series A,
Series B, Series C, Series D and Series E Preferred Stock shall be
increased in proportion to such increase of outstanding shares of
Common Stock.
(ii) Reverse Stock Split. If the number of shares
of Common Stock outstanding at any time after the filing date of these
Restated Articles is decreased by a combination of the outstanding
shares of Common Stock, then, effective upon the record date of such
combination, the Conversion Price for the Series A, Series B,
Series C, Series D and Series E Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on
conversion of each share of Series A, Series B, Series C, Series D and
Series E Preferred Stock shall be decreased in proportion to such
decrease in outstanding shares of Common Stock.
(iii) Recapitalization or Reorganization. If any
capital reorganization or reclassification of the capital stock of the
corporation, or any consolidation or merger of the corporation with
another corporation, or any sale of all or substantially all the
assets of the corporation to another corporation is effected, then,
as a condition of such reorganization, reclassification, con-
solidation, merger, or sale, lawful and adequate provision shall be
made whereby the holders of Series A, Series B, Series C, Series D and
Series E Preferred Stock shall thereafter have the right to acquire
and receive, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock of the
corporation immediately theretofore receivable upon conversion of the
Series A, Series B, Series C, Series D and Series E Preferred Stock,
such shares of stock, securities, or assets as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore issuable upon conversion of the
Series A, Series B, Series C, Series D and Series E Preferred Stock
had such reorganization, reclassification, consolidation, merger, or
sale not taken place. In any such case, appropriate provision shall
be made with respect to the rights and interests of the holders of
Series A, Series B, Series C, Series D and Series E Preferred Stock
so that the provisions hereof (including without limitation provisions
for adjustment of the number of shares issuable upon conversion of the
Series A, Series B, Series C, Series D and Series E Preferred Stock)
shall thereafter be applicable, as nearly as may be practicable, in
relation to any shares of stock, securities, or assets thereafter
deliverable upon conversion of the Series A, Series B, Series C,
Series D or Series E Preferred Stock.
(4) Conversion Price Adjustments for Series B, Series C,
Series D and Series E Preferred Stock.
(i) Special Definitions. For purposes of this
Section 3(c)(4), the following definitions shall apply:
(A) "Additional Shares of Common" shall mean
all shares of Common Stock issued (or, pursuant to
Section 3(c)(4)(iii) of this Article III, deemed to be issued) by the
corporation after the Reference Date, other than:
(a) shares of Common Stock issued or
issuable upon conversion of shares of Series A, Series B, Series C,
Series D or Series E Preferred Stock;
(b) up to 1,434,444 shares of Common
Stock (net of repurchases) issued or issuable after April 23, 1987 to
directors, officers, employees, consultants, sales representatives and
distributors of the corporation pursuant to any agreement, option
plan, purchase plan, or any other incentive program for directors,
officers, employees, consultants, sales representatives or
distributors (collectively, the "Plans") approved by the corporation's
Board of Directors;
(c) shares of Common Stock issued or
issuable as a stock dividend, split, or reverse split under the
provisions of Section 3(c)(3) of this Article III;
(d) shares of Common Stock issued or
issuable as any dividend or distribution on Series A, Series B,
Series C, Series D or Series E Preferred Stock; and
(e) shares of Common Stock issued or
issuable by way of a dividend or other distribution on shares of
Common Stock excluded from the definition of Additional Shares of
Common by the foregoing clauses (a), (b), (c) and (d) or by this
clause (e) or on shares of Common Stock so excluded.
(B) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock and
Series A, Series B, Series C, Series D and Series E Preferred Stock)
or other securities convertible into or exchangeable for Common Stock.
(C) "Options" shall mean rights, options,
or warrants to subscribe for, purchase, or otherwise acquire either
Common Stock or Convertible Securities.
(D) "Reference Date" shall mean the date on
which these Restated Articles are filed."
(ii) No Adjustment of Conversion Price. No
adjustment in the Conversion Price of a particular share of Series B,
Series C, Series D or Series E Preferred Stock shall be made in
respect of the issuance of Additional Shares of Common unless the
consideration per share for an Additional Share of Common issued or
deemed to be issued by the corporation is less than the Conversion
Price in effect on the date of, and immediately prior to such
issuance, for such share of Series B, Series C, Series D or Series E
Preferred Stock.
(iii) Deemed Issuance of Additional Shares of
Common Stock.
(A) Options and Convertible Securities. If
the corporation at any time or from time to time after the Reference
Date issues any Options or Convertible Securities or fixes a record
date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then
the maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon
the exercise of such Options or, in the case of Convertible Securities
and Options therefor, upon the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of
Common issued as of the time of such issuance or, in case such a
record date has been fixed, as of the close of business on such record
date; provided, however, that Additional Shares of Common shall not
be deemed to have been issued unless the consideration per share
(determined pursuant to Section 3(c)(4)(v) of this Article III) for
such Additional Shares of Common would be less than the Conversion
Price of a particular share of Series B, Series C, Series D or
Series E Preferred Stock in effect on the date of and immediately
prior to such issuance or such record date, and provided further that
in any such case in which Additional Shares of Common are deemed to
be issued:
(a) no further adjustment in the
Conversion Price shall be made upon the subsequent issuance of
securities upon the exercise of such Options or conversion or exchange
of such Convertible Securities;
(b) if such Options or Convertible
Securities by their terms provide, with the passage of time or other-
wise, for any increase in the consideration payable to the corpo-
ration, or for any decrease in the number of shares of Common Stock
issuable, upon the exercise, conversion, or exchange thereof, then the
Conversion Price computed upon the original issuance thereof (or upon
the occurrence of a record date with respect thereto) and any
subsequent adjustments based thereon shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities; and
(c) no readjustment pursuant to
clause (b) above shall have the effect of increasing the Conversion
Price to an amount that exceeds the lower of (i) the Conversion Price
on the original adjustment date, or (ii) the Conversion Price that
would have resulted from any issuance of Additional Shares of Common
between the original adjustment date and such readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance
of Additional Shares of Common Stock. If the corporation issues
Additional Shares of Common (including Additional Shares of Common
deemed to be issued pursuant to Section 3(c)(4)(iii) of this
Article III) without consideration or for a consideration per share
less than the Conversion Price of a particular share of Series B,
Series C, Series D or Series E Preferred Stock in effect on the date
of and immediately prior to such issuance, then such Conversion Price
shall be reduced, concurrently with such issuance, to a price
(calculated to the nearest cent) determined by multiplying such
Conversion Price by a fraction, (i) the numerator of which is the
number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock that the aggregate
consideration received by the corporation for the total number of
Additional Shares of Common so issued would purchase at such
Conversion Price, and (ii) the denominator of which is the number of
shares of Common Stock outstanding immediately prior to such issuance
plus the number of such Additional Shares of Common so issued;
provided, however, that, for the purposes of this Section 3(c)(4)(iv),
all shares of Common Stock issuable upon conversion of outstanding
shares of Series B, Series C, Series D and Series E Preferred Stock
and outstanding Convertible Securities shall be deemed to be
outstanding, and immediately after any Additional Shares of Common are
deemed issued pursuant to Section 3(c)(4)(iii) of this Article III,
such Additional Shares of Common shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes
of this Section 3(c)(4), the consideration received by the corporation
for the issuance of any Additional Shares of Common shall be computed
as follows:
(A) Cash and Property: Such consideration
shall:
(a) insofar as it consists of cash, be
computed as the aggregate amount of cash received by the corporation
excluding amounts paid or payable for accrued interest or accrued
dividends;
(b) insofar as it consists of property
other than cash, be computed at the fair value thereof at the time of
such issuance, as determined in good faith by the corporation's Board
of Directors; and
(c) if Additional Shares of Common are
issued together with other shares or securities or other assets of the
corporation for consideration that covers both, be the proportion of
such consideration so received, computed as provided in clauses (a)
and (b) above, as determined in good faith by the corporation's Board
of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the corporation for Additional
Shares of Common deemed to have been issued pursuant to
Section 3(c)(4)(iii)(A), relating to Options and Convertible
Securities, shall be determined by dividing:
(a) the total amount, if any, received
or receivable by the corporation as consideration for the issuance of
such Options or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such consideration) payable to the
corporation upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible
Securities; by
(b) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options
or the conversion or exchange of such Convertible Securities.
(5) No Impairment. The corporation shall not, by amendment
of its Articles of Incorporation or through any reorganization,
transfer of assets, merger, dissolution, issuance or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by this corporation. The corporation shall, at
all times in good faith, assist in carrying out of all the provisions
of this Section 3(c) and in taking all such action as may be necessary
or appropriate to protect the Conversion Rights of the holders of
Series A, Series B, Series C, Series D and Series E Preferred Stock
against impairment.
(6) No Fractional Shares; Certificate of Adjustment.
(i) No Fractional Shares. No fractional shares
shall be issuable upon the conversion of shares of Series A, Series B,
Series C, Series D or Series E Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded to the nearest
whole share. If any fractional interest in a share of Common Stock
would, except for the provisions of this Section 3(c)(6)(i), be
deliverable upon conversion of any of the shares of Series A,
Series B, Series C, Series D or Series E Preferred Stock, then the
corporation shall pay to the holders of such converted stock an amount
in cash equal to the current market value of such fractional interest.
(ii) Certificate of Adjustment. Upon the
occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this Section 3(c), the corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to each applicable holder of
Series A, Series B, Series C, Series D and Series E Preferred Stock
a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment
is based. The corporation shall, upon written request at any time
from any holder of Series A, Series B, Series C, Series D or Series E
Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price in effect at the time, and (C) the number of
shares of Common Stock and the amount, if any, of other property that,
at the time, would be received upon the conversion of such Series A,
Series B, Series C, Series D or Series E Preferred Stock.
(7) Notices of Record Date. If the corporation takes a
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution or any
right to subscribe for, purchase, or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right, then the corporation shall mail to each holder of
Series A, Series B, Series C, Series D and Series E Preferred Stock,
at least ten (10) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, or right and the amount and
character of such dividend, distribution, or right.
(8) Reservation of Stock Issuable Upon Conversion. The
corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose
of effecting the conversion of the shares of the Series A, Series B,
Series C, Series D and Series E Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A,
Series B, Series C, Series D and Series E Preferred Stock. If at any
time the number of authorized but unissued shares of Common Stock is
not sufficient to effect the conversion of all then-outstanding shares
of Series A, Series B, Series C, Series D and Series E Preferred
Stock, then the corporation shall take such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as is
sufficient for such purpose.
(9) Notices. Any notice required by the provisions of this
Section 3(c) to be given to the holders of shares of Series A,
Series B, Series C, Series D or Series E Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the
books of the corporation.
(d) Voting Rights. The holder of each share of Series A,
Series B, Series C, Series D and Series E Preferred Stock shall have
the right to one vote for each share of Common Stock then issuable
upon conversion of the Series A, Series B, Series C, Series D and
Series E Preferred Stock into Common Stock as provided in Section 3(c)
of this Article III. With respect to such vote, such holder (i) shall
have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, (ii) shall be entitled to
notice of any shareholders' meeting in accordance with the Bylaws of
the corporation, and (iii) shall be entitled to vote, together with
holders of Common Stock, upon any question affecting the management
and affairs of the corporation. The Common Stock and Preferred Stock
shall vote together and not as separate classes, except as otherwise
provided by law and except as provided in Section 3(e) of this
Article III.
(e) Protective Provisions. For so long as at least 3,000,000
shares (subject to adjustment for stock splits) of Preferred Stock are
outstanding, the corporation shall not do any of the following without
first obtaining the designated shareholder approval (by vote or
written consent, as provided by law):
(1) alter or change the rights, preferences, or privileges
of the shares of Series A, Series B, Series C, Series D or Series E
Preferred Stock so as to materially adversely affect the shares of
Series A, Series B, Series C, Series D or Series E Preferred Stock
without the approval of a majority of the then-outstanding shares of
each series of the Series A, the Series B, the Series C and the
Series D Preferred Stock and without the approval of at least sixty
percent (60%) of the then-outstanding shares of Series E Preferred
Stock;
(2) increase the authorized number of shares of Series A,
Series B, Series C, Series D or Series E Preferred Stock without the
approval of a majority of the then-outstanding shares of each series
of the Series A, the Series B, the Series C and the Series D Preferred
Stock and without the approval of at least sixty percent (60%) of the
then-outstanding shares of Series E Preferred Stock;
(3) create any new class or series of stock having a
preference over or on parity with the Series A, Series B, Series C,
Series D or Series E Preferred Stock with respect to dividends or upon
liquidation without the approval of a majority of the then-outstanding
shares of Preferred Stock;
(4) do any act or thing that would result in taxation of
the holders of shares of Preferred Stock under Section 305 of the
Internal Revenue Code of 1986 (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended) without
the approval of a majority of the then-outstanding shares of Preferred
Stock; or
(5) consolidate, merge or sell all or substantially all of
the assets of the Company, where the shareholders of the corporation
own interests in the continuing or surviving entity representing 50
percent or less of the voting power in the continuing or surviving
entity, and where upon the occurrence of any such consolidation,
merger or sale, the holders of shares of Series E Preferred Stock
would receive greater than $3.75 per share but less than $5.625 per
share (approximately adjusted for any stock splits or combinations),
without first obtaining the approval of at least sixty percent (60%)
of the then-outstanding shares of Series E Preferred Stock.
(f) Status of Converted Shares. In the event any shares of
Preferred Stock shall be converted pursuant to the terms hereof, the
shares so converted shall not revert to the status of authorized but
unissued shares, but instead shall be cancelled and shall not be
re-issuable by the corporation.
IV
Section 1. Limitation of Directors' Liability. The liability
of the directors of the corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law.
Section 2. Indemnification of Directors and Officers. The
corporation is authorized to indemnify the directors and officers of
the corporation to the fullest extent permissible under California
law.
Section 3. Repeal or Modification. Any repeal or modification
of the foregoing provisions of this Article IV by the shareholders of
the corporation shall not adversely affect any right or protection of
a director or officer of the corporation existing at the time of such
repeal or modification.
3. The foregoing amendment and restatement of this corpora-
tion's Articles of Incorporation has been duly approved by the Board
of Directors of this corporation.
4. The foregoing amendment and restatement of this corpora-
tion's Articles of Incorporation has been duly approved by the
required vote of shareholders in accordance with Sections 902 and 903
of the Corporations Code. The total number of outstanding shares of
the corporation as of the record date for approval hereof was
5,102,544 shares of Common Stock, 1,515,312 shares of Series A
Preferred Stock, 10,363,116 shares of Series B Preferred Stock,
5,109,281 shares of Series C Preferred Stock, 2,948,000 shares of
Series D Preferred Stock and 4,888,887 shares of Series E Preferred
Stock. The number of shares voting in favor of the amendment equaled
or exceeded the vote required. The percentage vote required was more
than fifty percent (50%) of the shares of Common Stock, more than
fifty percent (50%) of the shares of each of the Series A, Series B,
Series C and Series D Preferred Stock, and at least sixty percent
(60%) of the shares of Series E Preferred Stock.
The undersigned further declare under penalty of perjury that the
matters set forth in this certificate are true of their own knowledge.
Executed in Milpitas, California on May 26, 1989.
/s/ Michael L. Hackworth
Michael L. Hackworth, President
/s/ Sam S. Srinivasan
Sam S. Srinivasan, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
CIRRUS LOGIC, INC.
MICHAEL L. HACKWORTH and SAM S. SRINIVASAN, certify that:
1. They are the President and Chief Executive Officer, and the
Senior Vice President, Finance and Administration, Chief Financial
Officer, Treasurer and Secretary, respectively, of CIRRUS LOGIC, INC.,
a California corporation.
2. Article III of the Amended and Restated Articles of
Incorporation of this corporation is amended to read in its entirety
as follows:
"III
Section 1
Authorized Shares
This corporation is authorized to issue two classes of
stock designated "Common Stock" and "Preferred Stock,"
respectively. The total number of shares which this
corporation is authorized to issue is 145,000,000.
The number of shares of Common Stock which this
corporation is authorized to issue is 140,000,000
shares. The number of shares of Preferred Stock which
this corporation is authorized to issue is 5,000,000
shares. Upon the amendment of this Article III as set
forth herein, each one (1) outstanding share of Common
Stock shall be split up and divided into two
(2) shares of Common Stock.
Section 2
Preferred Stock
The Preferred Stock may be issued from time to time in
one or more series. The Board of Directors of this
corporation is authorized to determine or alter the
rights, preferences, privileges, and restrictions
granted to or imposed upon any wholly unissued series
of Preferred Stock, and within the limitations or
restrictions stated in any resolution or resolutions
of the Board of Directors originally fixing the number
of shares constituting any series, to increase or
decrease (but not below the number of shares of any
such series then outstanding) the number of shares of
any such series subsequent to the issuance of shares
of that series, to determine the designation and par
value of any series, and to fix the number of shares
of any series."
3. The foregoing amendment of the Amended and Restated Articles
of Incorporation was duly approved by the Board of Directors at its
meeting held on June 1, 1995, at which a quorum was present and acting
throughout.
4. Article III, Section 3(f) of the Corporation's Amended and
Restated Articles of Incorporation filed May 30, 1989 provides that
in the event any shares of Preferred Stock are converted pursuant to
the terms of said Articles, such shares shall not revert to the status
of authorized but unissued shares and instead shall be cancelled and
shall not be re-issuable by the Corporation. Because all authorized
shares of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred Stock were outstanding and
were converted pursuant to the Articles, and because 5,000,000 shares
of authorized but unissued and undesignated shares of Preferred Stock
remain authorized under the Articles, and because the only other
changes which have been made hereby to the Amended and Restated
Articles of Incorporation: (i) effect a two-for-one stock split of the
Common shares, (ii) increase the authorized number of Common Shares,
(iii) reduce the authorized number of Preferred Shares and (iv)
eliminate the statement of the rights, preferences, privileges, and
restrictions of each designated series of Preferred Stock acquired by
the Corporation, shareholder approval of this amendment is not
required pursuant to Sections 510(b) and 902(c) of the California
Corporations Code.
5. Pursuant to Section 110(c) of the California Corporations
Code, the foregoing amendment of the Amended and Restated Articles of
Incorporation of this corporation shall become effective at the close
of business on June 19, 1995.
6. Each of the undersigned declares under penalty of perjury
under the laws of the State of California that the matters set forth
in the foregoing certificate are true of his own knowledge.
Executed at Fremont, California on June 5, 1995.
/s/ Michael L. Hackworth
Michael L. Hackworth, President
and Chief Executive Officer
/s/ Sam S. Srinivasan
Sam S. Srinivasan, Senior Vice
President, Finance and Administration,
Chief Financial
Officer, Treasurer and Secretary
[ARTICLE] 5
[MULTIPLIER] 1
CONFIDENTIAL TREATMENT REQUESTED
[*] Denotes information for which confidential
treatment has been requested. Confidential portions
omitted have been filed separately with the Commission.
GENERAL PARTNERSHIP AGREEMENT (this "Agreement"), dated
as of _____ __, 1996, between ATOR Corp., a New York corporation
(the "AT&T Partner"), and Ciror, Inc., a California corporation
(the "Cirrus Partner"). The AT&T Partner and the Cirrus Partner
are sometimes referred to herein as the "Partners" or individually
as a "Partner."
WHEREAS, the parties hereto desire to enter into a
cooperative arrangement with respect to the expansion and operation
of certain wafer fabrication facilities for the purpose of
processing silicon wafers; and
WHEREAS, the parties hereto consider it mutually
beneficial to establish a partnership (the "Partnership") and the
parties hereto are parties to a Joint Venture Formation Agreement,
dated as of October __,1995 (the "Joint Venture Agreement").
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants, representations, warranties and agreements
hereinafter set forth, and intending to be legally bound hereby,
the parties hereto agree, subject to the conditions contained
herein, as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. For the purpose hereof, the
following terms will have the following meanings:
"Additional Capital Contributions" will have the meaning
set forth in Section 3.05 hereof.
"Adjusted Capital Account Deficit" means, with respect to
any Partner, the deficit balance, if any, in the Capital Account
(as hereinafter defined) of such Partner as of the end of the
relevant Fiscal Year (as hereinafter defined), after giving effect
to the following adjustments:
(a) credit to such Capital Account any amounts
which such Partner is obligated to restore pursuant to
any provision of this Agreement or is deemed to be
obligated to restore pursuant to the penultimate
sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of
the Regulations (as hereinafter defined); and
(b) debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of the
Regulations.
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d)
of the Regulations and will be interpreted consistently therewith.
"Affiliate" means any Person, directly or indirectly
controlled by, controlling or under common control with (as
hereinafter defined) another Person (as hereinafter defined);
"controlled by, controlling or under common control with" means the
power to direct the management and policies of a Person, whether
through the ownership of voting securities, by agreement or
otherwise.
"Board of Governors" will have the meaning set forth in
Section 6.01 hereof.
"Capital Account" means, with respect to each Partner,
the account maintained for each Partner on the books of account for
the Partnership in accordance with the provisions of Section 3.02
hereof (which Capital Account will be adjusted as otherwise
required by Section 1.704-1(b) of the Regulations).
"Chairman of the Board of Governors" has the meaning set
forth in Section 7.01 hereof.
"Code" means the United States Internal Revenue Code of
1986, codified at Title 26 of the United States Code, as amended
from time to time (or any corresponding provisions of succeeding
law).
"Depreciation" means for each Fiscal Year (as hereinafter
defined) of the Partnership, an amount equal to the depreciation,
amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross
Asset Value (as hereinafter defined) of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of
such Fiscal Year, Depreciation will be an amount which bears the
same ratio to such beginning Gross Asset Value as the federal
income tax depreciation, amortization, or other cost recovery
deduction for such Fiscal Year bears to such beginning adjusted tax
basis; provided, however, that if the adjusted basis for federal
income tax purposes of an asset at the beginning of such Fiscal
Year is zero, Depreciation will be determined with reference to
such beginning Gross Asset Value using any reasonable method
selected by the Partners.
"Extended Term" will have the meaning set forth in
Article XI hereof.
"Fiscal Year" means (i) the period commencing on the
effective date of this Agreement and ending on December 31, (ii)
any subsequent twelve (12) month period commencing on January 1,
and (iii) any portion of the period described in the immediately
preceding clause (ii) for which the Partnership is required to
allocate Profits (as hereinafter defined), Losses (as hereinafter
defined) and other items of Partnership income, gain, loss,
deduction or credit pursuant to Article VIII hereof.
"GPL" will have the meaning set forth in Section 2.01
hereof.
"Governor" or "Governors" will have the meaning set forth
in Section 6.02 hereof.
"Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as
follows:
(a) The initial Gross Asset Value of any asset
contributed by a Partner to the Partnership will be the
gross fair market value of such asset, as determined by
the Partners;
(b) The Gross Asset Values of all Partnership
assets will be adjusted to equal their respective gross
fair market values, as determined by the Partners, as of
the following times: (i) the acquisition of an additional
Partnership interest by any new or existing Partner in
exchange for more than a de minimis Capital Contribution;
(ii) the distribution by the Partnership to a Partner of
more than a de minimis amount of Partnership property as
consideration for a Partnership interest; and (iii) the
liquidation of the Partnership within the meaning of
Section 1.704-1(b)(2)(ii)(g) of the Regulations;
provided, however, that, except as otherwise provided
herein, adjustments pursuant to the immediately preceding
clauses (i) and (ii) will be made only if the Partners
reasonably determine that such adjustments are necessary
or appropriate to reflect the relative economic interests
of the Partners in the Partnership;
(c) The Gross Asset Value of any Partnership asset
distributed to any Partner will be adjusted to equal the
gross fair market value of such asset on the date of
distribution as determined by the Partners;
(d) The Gross Asset Values of Partnership assets
will be increased (or decreased) to reflect any
adjustments to the adjusted basis of such assets pursuant
to Section 734(b) or Section 743(b) of the Code, but only
to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to
Section 1.704-1(b)(2)(iv)(m) of the Regulations and
Section 7.04 hereof; provided, however, that Gross Asset
Values will not be adjusted pursuant to this paragraph
(d) to the extent the Partners determine that an
adjustment pursuant to paragraph (b) hereof is necessary
or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this
paragraph (d); and
(e) If the Gross Asset Value of an asset has been
determined or adjusted pursuant to the immediately
preceding subparagraph (a), (b) or (d), such Gross Asset
Value will thereafter be adjusted by the Depreciation
taken into account with respect to such asset for
purposes of computing Profits and Losses (as hereinafter
defined).
"Hedge/Swap Transaction" means any transaction which is a
rate hedge/swap transaction, basis swap, forward rate transaction,
commodity swap, commodity option, interest rate option, forward
foreign exchange transaction, cap transaction, floor transaction,
collar transaction, currency swap transaction, cross- currency rate
swap transaction, currency option or any other similar transaction
(including any option with respect to any of any of the foregoing)
or any combination of the foregoing.
"IRS" means the United States Internal Revenue Service.
"Initial Capital" will have the meaning set forth in
Section 3.01 hereof.
"Land" will have the meaning set forth in the Lease.
"Nonrecourse Deductions" has the meaning set forth in
Section 1.704-2(b)(1) of the Regulations. The amount of
Nonrecourse Deductions for a Fiscal Year of the Partnership will be
determined according to the provisions of Section 1.704-2(c) of the
Regulations.
"Nonrecourse Liability" has the meaning set forth in
Section 1.704-2(b)(3) of the Regulations.
"Partner Nonrecourse Debt" has the meaning set forth in
Section 1.704-2(b)(4) of the Regulations.
"Partner Nonrecourse Debt Minimum Gain" means an amount,
with respect to each Partner Nonrecourse Debt, equal to the
Partnership Minimum Gain that would result if such Partner
Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
"Partner Nonrecourse Deductions" has the meaning set
forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the
Regulations.
"Partnership Minimum Gain" has the meaning set forth in
Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
"Percentage Interests" means the respective interests of
the Partners as shown on Schedule A attached hereto.
"Premises" will have the meaning set forth in the Lease.
"Profits and Losses" means, for each Fiscal Year, an
amount equal to the Partnership's taxable income or loss for such
Fiscal Year, determined in accordance with Section 703(a) of the
Code (for this purpose, all items of income, gain, loss, or
deduction required to be stated separately pursuant to Section
703(a)(1) of the Code will be included in taxable income or loss),
with the following adjustments:
(a) Any income of the Partnership that is exempt
from federal income tax and not otherwise taken into
account in computing Profits or Losses pursuant to this
definition will be added to such taxable income or loss;
(b) Any expenditures of the Partnership described
in Section 705(a)(2)(B) of the Code or treated as Code
Section 705(a)(2)(B) expenditures pursuant to Section
1.704-1(b)(iv)(i) of the Regulations, and not otherwise
taken into account in computing Profits and Losses
pursuant to this definition, will be subtracted from such
taxable income or loss;
(c) In the event the Gross Asset Value of any
Partnership asset is adjusted pursuant to paragraph (b)
or (c) of the definition of "Gross Asset Value", the
amount of such adjustment will be taken into account as
gain or loss from the disposition of such asset for
purposes of computing Profits or Losses;
(d) Gain or loss resulting from any disposition of
property with respect to which gain or loss is recognized
for federal income tax purposes will be computed by
reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis
of such property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization, and
other cost recovery deductions taken into account in
computing such taxable income or loss, there will be
taken into account Depreciation for such Fiscal Year or
other period;
(f) To the extent an adjustment to the adjusted tax
basis of any Partnership asset pursuant to Section 734(b)
or Section 743(b) of the Code is required pursuant to
Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations to be
taken into account in determining Capital Accounts as a
result of a distribution other than in liquidation of a
Partner's interest in the Partnership, the amount of such
adjustment will be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if
the adjustment decreases the basis of the asset) from the
disposition of the asset and will be taken into account
for purposes of computing Profits or Losses; and
(g) Notwithstanding any other provision of this
definition, any items which are specially allocated
pursuant to Section 8.02 hereof will not be taken into
account in computing Profits and Losses.
The amounts of the items of Partnership income, gain, loss, or
deduction available to be specially allocated pursuant to Section
8.02 hereof will be determined by applying rules analogous to those
set forth in the immediately preceding subparagraphs (a) through
(f).
"Purchasing Partner or Partners" will have the meaning
set forth in Section 5.03 hereof.
"Regulations" means Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such
regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Regulatory Allocation" will have the meaning set forth
in Section 8.02 hereof.
"Schedule of Authorizations" will have the meaning set
forth in Section 7.07 hereof.
"Selling Partner" will have the meaning set forth in
Section 5.03 hereof.
"Tax Matters Partner" will have the meaning set forth in
Section 10.03 hereof.
1.02. Capitalized Terms. Capitalized terms used but not
defined herein will have the respective meanings assigned to them
in the Joint Venture Agreement.
ARTICLE II
FORMATION
2.01. Formation. The Partners hereby form the
Partnership pursuant to the provisions of the General Partnership
Law of the State of New York (the "GPL") and upon the terms and
subject to the conditions of this Agreement. The rights and
liabilities of the Partners will be, except as herein otherwise
expressly provided, as provided in the GPL. Neither Partner will
have the power or authority to bind the other Partner except as
specifically provided in this Agreement. Neither the Partnership
(in the case of either Partner) nor any Partner (in the case of any
other Partner) will be responsible or liable for any activity,
liability, indebtedness or obligation of any Partner incurred prior
to the execution of this Agreement or following the termination of
this Agreement, except as to the joint responsibilities,
liabilities, indebtedness and obligations incurred after the date
hereof, and only pursuant to, and as limited by, the terms of the
Joint Venture Agreement or the Material Agreements.
2.02. Name. The name of the Partnership will be
"[AT&T/Cirrus]".
ARTICLE III
CAPITAL
3.01. Initial Capital.
(a) The initial capital (the
"Initial Capital") of the Partnership will be the sums of cash or
the agreed fair market value of the property (or combination of
cash and property) contributed to the Partnership by the Partners
in such amounts or value as are set out opposite the name of each
of the Partners on Schedule A attached hereto and incorporated
herein by this reference.
3.02. Capital Accounts. A Capital Account will be
established for each Partner.
(a) To each Partner's Capital Account there will be
credited such Partner's capital contributions, such Partner's
distributive share of Profits and any items in the nature of income
or gain which are specially allocated pursuant to Section 8.02
hereof, and the amount of any Partnership liabilities assumed by
such Partner or which are secured by any Property distributed to
such Partner;
(b) To each Partner's Capital Account there will be
debited the amounts of cash and the Gross Asset Value of any
Property distributed to such Partner pursuant to any provision of
this Agreement, such Partner's distributive share of Losses and any
items in the nature of expenses or losses which are specially
allocated pursuant to Section 8.02 hereof and the amount of any
liabilities of such Partner assumed by the Partnership or which are
secured by any Property contributed by such Partner to the
Partnership;
(c) In the event any Partnership interest is
transferred in accordance with the terms of this Agreement, the
transferee will succeed to the Capital Account of the transferor to
the extent it relates to the transferred Partnership interest;
(d) In determining the amount of any liability for
purposes of paragraphs (a) and (b) hereof, there will be taken into
account Section 752(c) of the Code and any other applicable
provisions of the Code and Regulations; and
(e) The foregoing provisions and the other
provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Section 1.704-1(b) of the
Regulations, and will be interpreted and applied in a manner
consistent with such Regulations. In the event the Partners will
determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including,
without limitation, debits or credits relating to liabilities that
are secured by contributed or distributed Property or which are
assumed by the Partnership or one or more of the Partners), are
computed in order to comply with such Regulations, the Partners may
make such modification, provided that it is not likely to have a
material effect on the amounts distributable to any Partner
pursuant to Section 9.02 of the Agreement upon the dissolution of
the Partnership. The Partners also will (i) make any adjustments
that are necessary or appropriate to maintain equality between the
Capital Accounts of the Partners and the amount of Partnership
capital reflected on the Partnership's balance sheet, as computed
for book purposes in accordance with Section 1.704-1(b)(2)(iv)(g)
of the Regulations, and (ii) make any appropriate modifications in
the event unanticipated events might otherwise cause this Agreement
not to comply with Section 1.704-1(b) of the Regulations.
3.03. Admissions of New Partners. New Partners may be
admitted to the Partnership as partners in the Partnership with the
unanimous written consent of the existing Partners. A new Partner
must agree to be bound by the terms and provisions of this
Agreement, as amended. Upon admission, a new Partner will have all
rights and duties of a Partner of the Partnership.
3.04. Interest. No interest will be paid or credited to
the Partners on their Capital Accounts or upon any undistributed
profits left on deposit with the Partnership.
3.05. Additional Capital Contributions.
(a) Except as
otherwise provided in this Section 3.05, no Partner will be
required to make additional capital contributions ("Additional
Capital Contributions") to the Partnership. However, the Partners
authorize the Partnership to receive additional capital
contributions from the Partners and the Partnership may solicit
Additional Capital Contributions from the Partners, in an amount
and in such proportions from the Partners as is authorized by the
unanimous vote of the Partners. The Partners acknowledge and agree
that they will vote in favor of such solicitation and receipt of
Additional Capital Contributions to the extent of the capital
requirements specified in the Annual Plan.
(b) Notwithstanding the provisions of paragraph (a)
of this Section 3.05, upon receipt of at least five (5) business
days written notice from the Board of Governors, [*] will make
Additional Capital Contributions from time to time [ * ]
, up to an aggregate amount equal
to the lesser of: (i)[*]; or (ii)[*].
ARTICLE IV
PARTNERS
4.01. Matters Requiring the Consent of the Partners;
Restrictions on Actions by the Partners.
(a) Matters Requiring
the Consent of the Partners. No action may be taken by or on
behalf of the Partnership in connection with any of the following
matters without the prior written consent of each Partner:
(i) approval of the initial Annual Plan;
(ii) any amendments, waivers or other changes
to this Agreement;
(iii) changes to the composition of the Board
of Governors (i.e., the number of Governors to be nominated by each
Partner);
(iv) a change in fiscal year of the
Partnership;
(v) the incurrence of any indebtedness that
increases the total indebtedness of the Partnership above the level
existing at the end of the prior fiscal year, excluding
indebtedness for short-term trade financing, unless included in the
Annual Plan;
(vi) the winding up, dissolution or liquidation
of the Partnership in a manner other than as contemplated by the
terms of this Agreement;
(vii) the extension of the term of the
Partnership's existence beyond its initial or any extended term;
(viii) the merger, reorganization,
consolidation of the Partnership or other form of business
combination with respect to the Partnership;
(ix) any change in the objects or purposes of
the Partnership or the scope of its activities;
(x) the approval of any transactions between
the Partnership and any Partners not specifically provided for in
the Annual Plan;
(xi) with respect to the Partnership, (a) the
acquisition of or investment in any corporation, partnership, or
joint venture with any person, (b) the creation of any direct or
indirect subsidiary of the Partnership, or (c) the acquisition or
sale of assets in a single transaction or series of transactions
(other than as set forth in the Preliminary Implementation Plan,
the Implementation Plan or the Annual Plan);
(xii) with respect to the Partnership, (a) the
voluntary commencement of any proceeding or the voluntary filing of
any petition seeking relief under Title 11 of the United States
Code, as amended from time to time, or any other Federal, state or
foreign bankruptcy, insolvency, receivership or similar law, (b)
the consent to the institution of, or the failure to contest in a
timely and appropriate manner, any involuntary proceeding or any
involuntary filing of any petition of the type described in the
immediately preceding clause (a), (c) the application for or
consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for it or for a
substantial portion of its property or assets, (d) the filing of an
answer admitting the material allegations of a petition filed
against it in any such proceeding, (f) the making of a general
assignment for the benefit of creditors, (g) the admission in
writing of its inability to, or the failure generally, to pay its
debts as they become due, or (h) the taking of any action for the
purpose of effecting any of the foregoing;
(xiii) the admission of another partner to the
Partnership; and
(xiv) any other matters with respect to which
applicable law requires the approval of more than a majority vote
of the Partners.
(b) Restrictions on Actions by the Partners.
Neither Partner may without the prior written consent of the other
Partner:
(i) confess a judgment against the
Partnership;
(ii) except as otherwise provided by this
Agreement, the Joint Venture Agreement or the Material Agreements,
make any agreement on behalf of or otherwise purport to bind the
other Partner or the Partnership;
(iii) do any act, or fail to take any act, in
contravention of this Agreement, the Joint Venture Agreement or the
Material Agreements;
(iv) except as contemplated by this Agreement,
the Joint Venture Agreement, or the Material Agreements, dispose of
the Business;
(v) assign the property of the Partnership in
trust for creditors or on the assignee's promise to pay any
indebtedness of the Partnership;
(vi) submit a Partnership claim or liability to
arbitration or reference, except as contemplated by this Agreement,
the Joint Venture Agreement, or the Material Agreements;
(vii) settle, waive, release or initiate any
claim, demand, action, suit, or other proceeding by or against the
Partnership; or
(viii) incur any indebtedness in connection
with, or otherwise engage in, any Hedge/Swap Transaction; provided,
however, if the AT&T Partner consents to incurring any indebtedness
in connection with, or otherwise engaging in, a Hedge/Swap
Transaction, the Partnership must also receive the written consent
of the Treasurer of AT&T Corp., an Assistant Treasurer of AT&T
Corp., or a Treasury Manager of AT&T Corp. designated by the
Treasurer of AT&T Corp., prior to incurring any such indebtedness
or engaging in any such Hedge/Swap Transaction; and further
provided that if the Cirrus Partner consents to incurring any
indebtedness in connection with, or otherwise engaging in, a
Hedge/Swap Transaction, the Partnership must also receive such
consents, if any, as may be required by applicable Cirrus financing
policies then in existence, prior to incurring any such
indebtedness or engaging in any such Hedge/Swap Transaction.
4.02. Actions by the Partners; Meetings; Quorum;
Majority. Each Partner will designate one person who will be
authorized to act on behalf of such Partner in connection with the
consents or approvals required pursuant to Section 4.01, provided
that all such acts on behalf of a Partner will be in writing. Each
Partner will notify the other Partner or Partners of the identity
of such person, or any replacement thereof, pursuant to the terms
of Section 14.01 of the Joint Venture Agreement. Each Partner
agrees to provide any consent or approval required under Section
4.01 hereof, or to indicate that such consent or approval will not
be provided, within twenty (20) days of written request of the
other Partner of the Partnership.
4.03. Other Ventures. The parties hereto acknowledge
and agree that the Partners, or any of them, may engage in other
flows.
======
any rights in and to any independent venture or activity or the
income or profits derived therefrom.
ARTICLE V
TRANSFER OF PARTNERS' INTERESTS
5.01. Personal Property; Transferee's Interest. Subject
to the provisions of the Joint Venture Agreement with respect to
disposal of a Partner's interest in the Partnership, the interest
of each Partner is personal property and may be transferred only in
accordance with the terms of Section 5.02 hereof. If all the
Partners other than the Partner proposing to dispose of its
interest agree to a proposed transfer by unanimous written consent,
but do not agree by unanimous written consent to admit the
transferee as a Partner such transferee will have no right to
participate in the management of the business and affairs of the
Partnership or to become a Partner and will only be entitled to
receive the share of profits or other compensation by way of income
and the return of contributions, to which the transferor Partner
would otherwise be entitled. If the transfer is approved by the
other Partners by unanimous written consent and the admission of
the transferee as a Partner is also approved by unanimous written
consent, such transferee will have all the rights and powers and be
subject to all the restrictions and liabilities of its assignor,
will have the right to participate in the management of the
business and affairs of the Partnership and will become a
substituted Partner.
5.02. Restrictions on Transfer. Unless the non-transferring
Partner agrees, or the Partners agree by unanimous written consent,
to the contrary, no Partner may transfer, assign,pledge or otherwise
dispose of its interest in the Partnership, except to such other Partner
or Partners.
5.03. Buy/Sell.
(a) In the event a Partner wishes to
dispose of its interest pursuant to Section 5.02 hereof or upon
termination of this Agreement, the Partner wishing to dispose of
its interest in the Partnership will notify the non-transferring
Partner or Partners who will be under no obligation to acquire the
interest, nor to permit the sale to a third party who is not then a
Partner. In the event a Partner wishes or Partners wish to
purchase the interest of another Partner it or they will notify
such other Partner who will be under no obligation to sell such
interest. If a Partner wishes to dispose of its interest and the
other Partner or Partners wishes to purchase the interest (the
"Purchasing Partner or Partners"), the Purchasing Partner or
Partners will acquire the interest from the transferring Partner
(the "Selling Partner") at an agreed upon price, or if no price can
be agreed upon, the fair market value of such interest as
determined by an independent qualified appraiser appointed by the
Purchasing Partner or Partners and the Selling Partner. If they
cannot agree on an appraiser, the Purchasing Partner or Partners,
on the one hand, and the Selling Partner, on the other hand, will
each choose an appraiser and the two appraisers will choose one
additional appraiser. The fair market value of the interest of the
Selling Partner will be determined by the three appraisers or, if
they cannot agree, will be the average of the three appraisers'
valuation. At the consummation of the sale of the interest in the
Partnership of the Selling Partner, the fair market value of the
Selling Partner's interest will be paid in cash or in the form of a
promissory note with such terms, interest rates, payment amounts
and other terms as will be mutually agreed upon by the Selling
Partner and the Purchasing Partner or Partners.
(b) The Partners hereby agree that in the event of
a sale pursuant to this Section 5.03:
(i) for purposes of this Section 5.03 only,
the interest in the Partnership of the AT&T Partner will be deemed
to include the AT&T Assets, the other assets of AT&T Corp. and the
AT&T Partner comprising OR2, OR1, and the Premises and the Land;
(ii) for purposes of this Section 5.03 only,
the interest in the Partnership of the Cirrus Partner will be
deemed to include the Cirrus Assets and the other assets of Cirrus
and the Cirrus Partner comprising OR2; and
(iii) such sale will be consummated as soon as
reasonably practicable.
In the event of any such sale, the Selling Partner will use its
reasonable best efforts to cause all leases and other agreements
covering the AT&T Assets, if the AT&T Partner is the Selling
Partner, or the Cirrus Assets, if the Cirrus Partner is the Selling
Partner, to be assigned to the Purchasing Partner or the third-party
purchaser, as the case may be, and the Purchasing Partner or
the third-party purchaser, as the case may be, will assume all
obligations under any such leases and other agreements. The
parties hereto acknowledge and agree that AT&T and its Affiliates
may, in its or their sole discretion, enter into transactions,
agreements, understandings or arrangements with respect to the
Premises and/or the Land , including but not limited to those which
may give rise to sales, over-leases, mortgages, security interests,
liens or encumbrances; provided, however, that in the event of any
such transactions, agreements, understandings or arrangements, the
Lease will not be terminated other than in accordance with the
terms thereof.
ARTICLE VI
GOVERNORS
6.01. The Board of Governors.
(a) Upon the terms and
subject to the conditions of this Agreement and the provisions of
the GPL, the Partners acknowledge and agree that complete and
exclusive power to direct and control the Partnership is delegated
hereby to the governing committee of five persons appointed as
provided in this Article VI (the "Board of Governors"). The
Partnership will be operated on a day to day basis by its officers
and employees, governed by the Board of Governors.
(b) The Governors may exercise all powers of the
Partnership and do all such lawful acts and things as are not by
the GPL or this Agreement directed or required to be exercised or
done by the Partners. Following proper notice therefor, a vote of
the Board of Governors will be required with respect to the
following matters and will be conducted in accordance with the
terms of this Agreement:
(i) amendments to the Annual Plan, including
periodic updates and amendments thereto (as set forth in Section
3.02 of the Joint Venture Agreement) and approval of the annual
operating and capital budgets of the Partnership;
(ii) expenditures which, in the aggregate, for
any transaction or series of related transactions, are in excess of
[ * ] if such expenditures were not approved in the Annual
Plan;
(iii) execution of any agreement involving
payments in excess of [ * ] over its term or having a term
longer than one (1) year if such agreement was not approved in the
Annual Plan;
(iv) approval of limits of authority for
officers of the Partnership if such limits were not set forth in
the Annual Plan;
(v) borrowing (including the provision of any
guarantee) in excess of borrowings authorized pursuant to the
Annual Plan and any encumbering of assets of the Partnership not
provided for in the Annual Plan;
(vi) the amendment or modification of the Bonus
Plan; and
(vii) any other matters which by the terms
hereof are reserved to the Board of Governors.
(c) Each Governor will be obliged to devote only as
much of his or her time to the Partnership's business as will be
reasonably required in light of the Partnership's business and
objectives. A Governor will perform his or her duties as a
Governor in good faith, in a manner he or she reasonably believes
to be in the best interests of the Partnership, and with such care
as an ordinarily prudent person in a like position would use under
similar circumstances.
(d) Subject to the provisions of this Agreement,
the Board of Governors is authorized and directed, as soon as
practicable, to delegate to the President and Chief Executive
Officer responsibility for the day to day operation of the
Business.
6.02. Members of the Board of Governors; Voting; etc.
(a) The AT&T Partner will nominate three persons to serve on the
Board of Governors, which nominees will be reasonably acceptable to
Cirrus. The Cirrus Partner will nominate two persons to serve on
the Board of Governors, which nominees will be reasonably
acceptable to AT&T. Neither Partner will unreasonably withhold its
consent to the election of the nominees of the other Partner or
Partners. All such persons elected by the Partners to serve on the
Board of Governors are referred to in this Agreement collectively
as the "Governors" and individually as a "Governor." Each Governor
will, at all times, be an employee or officer of his or her
nominating Partner or of its Affiliates. The Partners hereby elect
those persons identified on Schedule B attached hereto to be the
initial Governors.
(b) Each Partner will be entitled to name an
alternate person (who will be reasonably satisfactory to the other
Partner) to serve in the place of any Governor appointed by such
Partner should any such Governor not be able to attend a meeting or
meetings.
(c) Each Governor or alternate person will serve at
the pleasure of the appointing Partner and may be removed as such,
with or without cause, and his or her successor appointed, by the
appointing Partner.
(d) Each Partner will bear any cost incurred by any
Governor designated by it to serve on the Board of Governors, and
no member of the Board of Governors will be entitled to
compensation from the Partnership for serving in such capacity.
(e) Each Partner will notify the other Partner or
Partners and the Partnership of the name, business address and
business telephone and facsimile numbers of each Governor and each
alternate person and such Partner will promptly notify the other
Partner or Partners and the Partnership of any change in such
Partner's appointments or of any change in any such address or
numbers.
(f) For purposes of any approval or action taken by
the Board of Governors, each member of the Board of Governors will
have one vote. A majority of the votes eligible to be cast at any
meeting will be required for purposes of approving any action to be
taken by the Board of Governors at such meeting; provided, however,
that a majority of the votes eligible to be cast at a meeting
required for purposes of approving the matters described in
Sections 6.01(b)(i) through 6.01(b)(vi) hereof must include the
vote of at least one (1) Governor appointed by the AT&T Partner and
one (1) Governor appointed by the Cirrus Partner are present.
(g) At any meeting of the Board of Governors, a
Governor, in the absence of another Governor appointed by the same
Partner or an alternate person serving in the place of such absent
Governor, may cast the vote such absent Governor would otherwise be
entitled to cast.
(h) The quorum necessary for any meeting of the
Board of Governors will be those members entitled to cast a
majority of the votes held by the members of the Board of
Governors; provided, however, that a quorum necessary for approval
by the Board of Governors of the matters described in Sections
6.01(b)(i) through 6.01(b)(vi) hereof must include at least one (1)
Governor appointed by the AT&T Partner and one (1) Governor
appointed by the Cirrus Partner are present. A quorum will be
deemed not to be present at any meeting for which notice was not
properly given under Section 6.01(c) hereof, unless the member or
members as to whom such notice was not properly given attend such
meeting without protesting the lack of notice or duly execute and
deliver a written waiver of notice or a written consent to the
holding of such meeting.
(i) Any action by a Governor of the Board of
Governors in such Governor's capacity as such will, so far as the
Partners are concerned, be deemed to have been duly authorized by
the Partner that appointed such Governor; provided, however, that
any such action will not be deemed to be an approval, consent or
agreement of such Partner for any purposes of this Agreement
(including under Section 4.01 hereof), for which approval, consent
or agreement must be separately obtained in writing.
(j) Each appointment by a Partner to the Board of
Governors will remain in effect until the Partner making such
appointment notifies the other Partner of a change in such
appointment. A Governor may resign from his or her position as a
Governor at any time by notice to the Partners. Such resignation
will be effective as set forth in such notice. The resignation or
removal of a member of the Board of Governors will not invalidate
any act of such member taken before the giving of such written
notice of the removal or resignation of such member.
6.03. Meetings, Notice, etc.
(a) Meetings of the
Board of Governors will be held at the principal offices of the
Partnership or at such other place as may be determined by the
Board of Governors.
(b) Regular meetings of the Board of Governors will
be held at least quarterly on such dates and at such times as will
be determined by the Board of Governors.
(c) Notice of any regular meeting or special
meeting pursuant to paragraph (d) of this Section 6.03 will be
given to each member and alternate member of the Board of Governors
by the Partnership or any Partner at least ten business days prior
to such meeting in the case of a meeting in person or at least five
days prior to such meeting in the case of a meeting by conference
telephone or similar communications equipment pursuant to paragraph
(f) of this Section 6.03.
(d) Special meetings of the Board of Governors may
be called by any Governor by notice given in accordance with the
notice requirements set forth in paragraph (c) of this Section
6.03, which notice will state the purpose or purposes for which
such meeting is being called. No action may be taken and no
business may be transacted at such special meeting which is not
identified in such notice unless (a) such action or business is
incidental to the action or business for which the special meeting
is called or (b) such action or business does not materially
adversely affect either Partner or the Partnership.
(e) The actions taken by the Board of Governors at
any meeting, however called and noticed, will be as valid as though
taken at a meeting duly held after regular call and notice if (but
not until), either before, at or after the meeting, any Governor as
to whom it was improperly held duly executes and delivers a written
waiver of notice or a written consent to the holding of such
meeting; provided, however, that any Governor that is present at a
meeting will be deemed to have received adequate notice thereof. A
vote of the Board of Governors may be taken either in a meeting of
the Board of Governors or by written consent of the Governors
eligible to cast a majority of the votes on the Board of Governors
without a meeting, which majority for a written consent will be
required to include, at a minimum, one (1) member of the Board of
Governors appointed by each Partner.
(f) A meeting of the Board of Governors may be held
by conference telephone or similar communications equipment by
means of which all members participating in the meeting can be
heard by all other participants. Any member of the Board of
Governors may elect to participate in a meeting by conference
telephone or similar communications equipment upon sufficient
advance notice to permit arrangements therefor to be made.
(g) The Board of Governors will, from time to time,
elect one of the Governors to preside at its meetings. Such
elected Governor is referred to herein as the "Chairman of the
Board of Governors." The Board of Governors may establish
reasonable rules and regulations to (a) require officers and
employees to call meetings and perform other administrative duties,
(b) limit the number and participation of observers, if any, and
require such persons to observe confidentiality obligations and (c)
otherwise provide for the keeping and distribution of minutes and
internal Board of Governors governance matters not inconsistent
with the terms of this Agreement.
6.04. Partners May Act. Notwithstanding anything to the
contrary set forth in this Article VI, the Partners will retain all
powers which may not be so delegated pursuant to the GPL and the
powers specified in this Agreement, and further provided, that
nothing in this Article VI will derogate from the power of the
Partners, which is absolute, to agree in writing to cause the
Partnership to act or refrain from acting as to any specific item
or matter.
ARTICLE VII
OFFICERS
7.01. Number; Titles; Election; Term; Qualification.
The officers of the Partnership will be a President and Chief
Executive Officer (one person), one or more Vice Presidents (and,
in the case of each Vice President with such descriptive title, if
any, as the Governors will determine), a secretary, and a Treasurer
and Chief Financial Officer (one person). The Partnership may also
have a Chairman of the Board of Governors, one or more Assistant
Treasurers, one or more Assistant Secretaries, and such other
officers and such agents as the Governors may from time to time
elect or appoint. The AT&T Partner will recommend a President and
Chief Executive Officer and a Treasurer and Chief Financial
Officer. The Partners will then elect a President and Chief
Executive Officer and a Treasurer and Chief Financial Officer at
the first meeting at which a quorum will be present or whenever a
vacancy exists; provided that any such election will require the
unanimous vote of the Partners. The President then, or from time
to time thereafter, will recommend one or more other officers, and
the Board of Governors will appoint such officers as they will deem
advisable; provided that any such election will require the
unanimous vote of the Governors. Each officer will hold office for
the term for which he or she is elected or appointed and until his
or her successor has been elected or appointed and qualified. Any
person may hold any number of offices. No officer or agent need be
a Governor.
7.02. Removal. Any officer or agent elected or
appointed by the Governors may be removed by the unanimous vote of
the Partners or the unanimous vote of the Governors whenever in
their judgment the best interest of the Partnership will be served
thereby. Election or appointment of any officer or agent will not
of itself create contract rights. [*].
7.03. Vacancies. Any vacancy occurring in any office of
the Partnership may be filled by the unanimous vote of the
Governors.
7.04. Authority. Officers will have such authority and
perform such duties in the management of the Partnership as are
provided in this Agreement or as may be determined by resolution of
the Governors not inconsistent with the Regulations.
7.05. Compensation. The compensation, if any, of
officers and agents will be fixed from time to time by the
Governors; provided, that the Governors may by resolution delegate
to any one or more officers of the Partnership the authority to fix
such compensation.
7.06. Chairman. The Chairman of the Board of Governors
will have such powers and duties as may be prescribed by the
Governors.
7.07. President and Chief Executive Officer. Unless and
to the extent that such powers and duties are expressly delegated
to the Chairman of the Board of Governors by the Governors, the
President will be the Chief Executive Officer of the Partnership
and, subject to the supervision of the Governors and the Partners,
will have general management and control of the business and
property of the Partnership in the ordinary course of its business
with all such powers with respect to such general management and
control as may be reasonably incident to such responsibilities,
including, but not limited to, the power to employ, discharge, or
suspend employees and agents of the Partnership, and to suspend,
with or without cause, any officer of the Partnership pending final
action by the Governors with respect to continued suspensions,
removal, or reinstatement of such officer. The President may,
without limitation, agree upon and execute all division and
transfer orders, bonds, contracts and other obligations in the name
of the Partnership. The President will have, in addition to the
powers and authorities normally incident to the office of president
and the powers and duties set forth in this Agreement, the
following authorities and accountabilities:
(a) accountability to the Board of Governors to
cause the Partnership to achieve its milestones, requirements and
objectives as set forth in the Annual Plan or otherwise;
(b) day to day administration of the operation of
the Partnership and coordination of the subcontractors;
(c) representing the Partnership in dealings with
the Partners, their Affiliates and third parties;
(d) proposing to the Board of Governors updates and
amendments to the Annual Plan;
(e) delegating authority pursuant to the Schedule
of Authorizations (as hereinafter defined); and
(f) managing the personnel resources of the
Partnership within the parameters of the Annual Plan including
appointment and removal of officers and personnel other than the
officers appointed by the Board of Governors. The Board of
Governors will adopt unanimously at or immediately following the
execution and delivery of this Agreement, and may amend from time
to time unanimously, the Schedule of Authorizations. As used
herein, "Schedule of Authorizations" will mean a schedule of
authorizations pursuant to which the President of the Partnership
may act or delegate to other officers and employees of the
Partnership authority to conduct the business of, and enter into
transactions in the name of, the Partnership, consistent with this
Agreement.
7.08. Vice Presidents. Each Vice President will have
such powers and duties as may be prescribed by the Governors or as
may be delegated from time to time by the President and (in the
order as designated by the Governors, or in the absence of such
designation, as determined by the length of time each has held the
office of Vice President continuously) will exercise the powers of
the President during the President's absence or inability to act.
As between the Partnership and third parties, any action taken by a
Vice President in the performance of the duties of the President
will be conclusive evidence of the absence or inability to act of
the President at the time such action was taken.
7.09. Treasurer and Chief Financial Officer. The
Treasurer will have custody of the Partnership's funds and
securities, will keep full and accurate accounts of receipts and
disbursements, and will deposit all moneys and valuable effects in
the name and to the credit of the Partnership in such depository or
depositories as may be designated by the Governors. The Treasurer
will be the chief financial officer of the Partnership. The
Treasurer will audit all payrolls and vouchers of the Partnership,
receive, audit, and consolidate all operating and financial
statements of the Partnership and its various departments, will
supervise the accounting and auditing practices of the Partnership,
and will have charge of matters relating to taxation.
Additionally, the Treasurer will have the power to endorse for
deposit, collection, or otherwise all checks, drafts, notes, bills
of exchange, and other commercial paper payable to the Partnership
and to give proper receipts and discharges for all payments to the
Partnership. The Treasurer will perform such other duties as may
be prescribed by the Governors or as may be delegated from time to
time by the president.
7.10. Assistant Treasurers. Each Assistant Treasurer
will have such powers and duties as may be prescribed by the Board
of Governors or as may be delegated from time to time by the
President. The Assistant Treasurers (in the order as designated by
the Governors or, in the absence of such designation, as determined
by the length of time each has held the office of Assistant
Treasurer continuously) will exercise the powers of the treasurer
during that officer's absence or inability to act. As between the
Partnership and third parties, any action taken by an Assistant
Treasurer will be conclusive evidence of the absence or inability
to act of the Treasurer at the time such action was taken.
7.11. Secretary. The Secretary will maintain minutes of
all meetings of the Governors, of any committee, and of the
Partners, or consent in lieu of such minutes in the Partnership's
minute books, and will cause notice of such meetings to be given
when requested by any person authorized to call such meetings. The
Secretary may sign with the president, in the name of the
Partnership, all contracts of the Partnership and affix the seal of
the Partnership thereto. The Secretary will have charge of the
certificate books, transfer records, ledgers, and such other books
and papers as the Governors may direct, all of which will at all
reasonable times be open to inspection by any Governor at the
office of the Partnership during business hours. The Secretary
will perform such other duties as may be prescribed by the
Governors or as may be delegated from time to time by the
president.
7.12. Assistant Secretaries. Each Assistant Secretary
will have such powers and duties as may be prescribed by the
Governors or as may be delegated from time to time by the
President. The Assistant Secretaries (in the order designated by
the Governors or, in the absence of such designation, as determined
by the length of time each has held the office of Assistant
Secretary continuously) will exercise the powers of the secretary
during that officer's absence or inability to act. As between the
Partnership and third parties, any action taken by an Assistant
Secretary in the performance of the duties of the Secretary will be
conclusive evidence of the absence or inability to act of the
Secretary at the time such action was taken.
ARTICLE VIII
ALLOCATION OF PROFITS AND LOSSES
8.01. Allocation of Profits and Losses. Subject to the
provisions of Sections 8.02, 8.03 and 8.04 hereof, the Profits and
Losses of the Partnership for each Fiscal Year will be allocated
among the Partners in the following manner.
(a) Profits will be allocated among the Partners in
the following manner:
(i) First, the Profits derived from, or
attributable to, the operation of OR1 will be allocated to the AT&T
Partner; and
(ii) Second, the Profits derived from, or
attributable to, the operation of OR2 will be allocated among the
Partners pro rata in proportion to their Percentage Interests.
(b) Losses will be allocated among the Partners in
the following manner:
(i) First, any Losses derived from, or
attributable to, OR1 will be allocated to the AT&T Partner; and
(ii) Second, in the event that [*] makes
Additional Capital Contributions pursuant to Section 3.05(b)
hereof, Losses derived from, or attributable to, OR2 will be
allocated to the [*] in an amount equal to such additional Capital
Contributions; and
(iii) Third, any remaining Losses derived from,
or attributable to, OR2 will be allocated to the Partners pro rata
in proportion to their Percentage Interests.
8.02. Special Allocations.
(a) Minimum Gain Chargeback.
Except as otherwise provided in Section 1.704-2(f) of the
Regulations, notwithstanding any other provision of this Section
8.02, if there is a net decrease in Partnership Minimum Gain during
any Fiscal Year of the Partnership, each Partner will be specially
allocated items of Partnership income and gain for such Fiscal Year
of the Partnership (and, if necessary, subsequent Fiscal Year of
the Partnerships) in an amount equal to that Partner's share of the
net decrease in Partnership Minimum Gain. These allocations will
be determined in accordance with Section 1.704-2(f) of the
Regulations. The items to be so allocated will be determined in
accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the
Regulations. This Section 8.02(a) is intended to comply with the
minimum gain charge back requirement in Section 1.704-2 of the
Regulations and will be interpreted consistently therewith. Where
such a minimum gain chargeback would cause a distortion in the
economic arrangement of the Partners and it is not expected that
the Partnership will have sufficient other income to correct that
distortion, the Partnership will apply for a waiver of the minimum
gain charge back requirement in accordance with Section 1.704-2(f)
of the Regulations.
(b) Partner Minimum Gain Chargeback. Except as
otherwise provided in Section 1.704-2(i)(4) of the Regulations,
notwithstanding any other provision of this Section 8.02, if there
is a net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to a Partner Nonrecourse Debt during any Fiscal Year
of the Partnership, each Partner that has a share of the Partner
Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5)
of the Regulations, will be specially allocated items of
Partnership income and gain for such Fiscal Year of the Partnership
(and, if necessary, subsequent Fiscal Year of the Partnerships) in
an amount equal to the portion of such Partner's share of the net
decrease in Partner Nonrecourse Debt Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(4) of the Regulations. Allocations pursuant to
the previous sentence will be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto.
The items to be so allocated will be determined in accordance with
Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This
Section 8.02(b) is intended to comply with the minimum gain charge
back requirement of Section 1.704-2(i)(4) of the Regulations and
will be interpreted consistently therewith. In addition, rules
consistent with the provisions of Section 1.704-2(f)(2), (3), (4)
and (5) of the Regulations (including rules regarding a waiver of
the type discussed in Section 8.02(a) hereof), will apply to the
special allocation required by this Section 8.02(b).
(c) Gross Income Allocation. In the event any
Partner has an Adjusted Capital Account Deficit at the end of any
Fiscal Year of the Partnership, such Partner will be specially
allocated items of Partnership income and gain in the amount and in
the manner necessary to eliminate the deficit as quickly as
possible, provided that an allocation pursuant to this Section
8.02(c) will be made only and to the extent that such Partner would
have an Adjusted Capital Account Deficit after all other
allocations provided for in this Article VIII have been made as if
Section 8.02(g) hereof and this Section 8.02(c) were not in this
Agreement. The allocations contained in this Section 8.02(c) are
intended to satisfy the "qualified income offset" provisions of
Section 1.704-1(b)(2)(ii)(d) of the Regulations and will be
interpreted consistently therewith.
(d) Section 754 Adjustment. To the extent an
adjustment to the adjusted tax basis of any Partnership asset
pursuant to Section 734(b) or 743(b) of the Code is required,
pursuant to Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv)
(m)(4) of the Regulations, to be taken into account in
determining Capital Accounts as a result of a distribution to a
Partner in complete liquidation of his interest in the Partnership,
the amount of such adjustment to the Capital Accounts will be
treated as an item of gain (if the adjustment increases the basis
in the asset) or loss (if the adjustment decreases such basis) and
such gain or loss will be specially allocated to the Partners in
proportion to the Percentage Interest of each Partner in the event
Section 1.702-1(b)(2)(iv)(m)(2) of the Regulations applies, or to
the Partners to which such distribution was made in the event that
Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations applies.
(e) Nonrecourse Deductions. Nonrecourse Deductions
for any Fiscal Year of the Partnership or other period will be
specially allocated among the Partners in proportion to their
Percentage Interests.
(f) Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any Fiscal Year of the Partnership or
other period will be specially allocated to the Partner who bears
the economic risk of loss with respect to the Partner Nonrecourse
Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Section 1.704-2(i)(1) of the Regulations.
(g) Curative Allocations. The allocations set
forth in Sections 8.02(a) through (f) hereof (the "Regulatory
Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Partners that, to the
extent possible, all Regulatory Allocations will be offset either
with Regulatory Allocations or with special allocations of other
items of Partnership income, gain, loss or deduction pursuant to
this Section 8.02(g). Therefore, notwithstanding any other
provisions of this Article VIII (other than the Regulatory
Allocations), the Partners will make such offsetting special
allocations of Partnership income, gain, loss, or deduction in
whatever manner they determine appropriate so that, after such
offsetting allocations are made, each Partner's Capital Account
balance is, to the extent possible, equal to the Capital Account
balance such Partner would have had if the Regulatory Allocations
were not part of this Agreement and all Partnership items were
allocated pursuant to Section 8.01 hereof. In exercising their
discretion under this Section 8.02(g), the Partners will take into
account future Regulatory Allocations under Section 8.02(a) and (b)
hereof that, although not yet made, are likely to offset Regulatory
Allocations made under Sections 8.02(e) and (f) hereof.
8.03. Other Allocation Rules.
(a) The Partners are
aware of the income tax consequences of the allocations made by
this Article VIII and hereby agree to be bound by the provisions of
this Article VIII in reporting their shares of partnership income
and loss for income tax purposes.
(b) Income and loss for financial reporting
purposes will be allocated among the Partners in a manner
consistent with the allocations of the Profits and Losses for
federal income tax purposes and in accordance with the accounting
standards set forth in Section 10.01 hereof.
(c) For purposes of determining Profits, Losses, or
any other items allocable to any period, Profits, Losses, and any
such other items will be determined on a daily, monthly, or other
basis, as determined by the Partners using any permissible method
under Section 706 of the Code and the Regulations thereunder.
(d) Solely for purposes of determining a Partner's
proportionate share of the "excess nonrecourse liabilities" of the
Partnership within the meaning of Section 1.752-(3) of the
Regulations, the Partners' interests in Partnership profits will be
their respective Percentage Interests.
(e) To the extent permitted by Section 1.704-2(h)(3)
of the Regulations, the Partners will endeavor to treat
distributions as having been made from the proceeds of Nonrecourse
Liability or a Partner Nonrecourse Debt only to the extent that
such distributions would cause or increase an Adjusted Capital
Account Deficit for any Partner.
8.04. Code Section 704(c).
(a) In accordance with
Section 704(c) of the Code and the Regulations thereunder, items of
income, gain, loss, and deduction with respect to any property
(other than money) contributed to the capital of the Partnership
will, solely for tax purposes, be allocated among the Partners so
as to take account of any variation between the adjusted basis of
such property to the Partnership for federal income tax purposes
and its initial Gross Asset Value.
(b) In the event the Gross Asset Value of any
Partnership asset is adjusted pursuant to the definition thereof,
subsequent allocations of income, gain, loss, and deduction with
respect to such asset will take account of any variation between
the adjusted basis of such asset for federal income tax purposes
and its Gross Asset Value in the same manner as under Section
704(c) of the Code and the Regulations thereunder.
(c) Any elections or other decisions relating to
such allocations will be made by the Partners in any manner that
reasonably reflects the purpose and intention of this Agreement and
are otherwise allowable under Section 1.704-3 of the Regulations.
8.05. Federal Income Tax. The parties hereto intend
that the Partnership will be governed by the applicable provisions
of Subchapter K, of Chapter 1, of the Code.
8.06. Allocation of Income and Loss in Respect of
Transferred Interests.
(a) If any interest in the Partnership is
transferred, or upon the admission or withdrawal of a Partner, in
accordance with the provisions of this Agreement during any
calendar year, the income or loss attributable to such interest for
such calendar year will be divided and allocated between the
Partners based upon an interim closing of the Partnership's books
or on a daily basis, as determined in the sole discretion of the
Governors. For the purpose of accounting convenience and
simplicity, the Partnership will treat a transfer of, or any
increase or decrease in, an interest in the Partnership which
occurs at any time during a semi-monthly period (commencing with
the semi-monthly period including the date hereof) as having been
consummated on the first day of such semi-monthly period,
regardless of when during such semi-monthly period such transfer,
increase, or decrease actually occurs (e.g., sales and dispositions
made during the first 15 days of any month will be deemed to have
been made on the first day of the month and sales and dispositions
thereafter will be deemed to have been made on the 16th day of the
month). Notwithstanding any provision above to the contrary, gain
or loss of the Partnership realized in connection with a sale or
other disposition of any of the assets of the Partnership will be
allocated solely to the Partners owning interests in the
Partnership as of the date such sale or other disposition occurs.
8.07. Reallocations Between the Partnership and a
Partner. Any redistribution, reapportionment or reallocation of
income, deductions, credits or allowances between the Partnership
and a Partner (or Affiliate of such Partner) effected pursuant to
Section 482 of the Code or any similar provision of state law
(along with any penalties, charges, interest or additions relating
thereto) with respect to any transaction between the Partnership
and such Partner (or Affiliate of such Partner) will be allocated
in full to such Partner. The Partner to which reallocations under
this Section 8.07 are made (as well as such Partner's Affiliates)
will indemnify and hold harmless the other Partner (as well as
Affiliates of such Partner) from any effects (including any taxes,
interest, penalties, charges or other additions) arising from any
such redistributions, reapportionment or reallocation. If, as a
result of any such redistribution, reapportionment or reallocation,
the Capital Accounts of the Partners are not in the same proportion
to each other as immediately prior to such redistribution,
reapportionment or reallocation, the Capital Accounts will be
adjusted to achieve such relative proportions using the mechanism
specified in Section 9.05 hereof.
ARTICLE IX
DISTRIBUTIONS
9.01. Operating Distributions. The Partnership's cash
available for distribution will, at such times as the Board of
Governors deem advisable, be distributed among the Partners in such
amounts as the Governors will unanimously determine. Except as
otherwise expressly provided in this Agreement, such operating
distributions will be allocated among the Partners as follows: (a)
all operating distributions derived from the operation of OR1 will
be paid to the AT&T Partner, and (b) all operating distributions
derived from the operation of OR2 will be allocated among the
Partners pro rata in proportion to their Percentage Interests.
9.02. Distribution on Dissolution and Liquidation. In
the event of the dissolution and liquidation of the Partnership for
any reason other than pursuant to Article V hereof or pursuant to
the terms of the Joint Venture Agreement with respect to the
transfer of the interest of a Partner in the Partnership to another
Partner, after the payment of or provision for creditors pursuant
to applicable law, the Partnership's assets will be distributed
among the Partners in the following manner:
(a) First, all assets related to OR1 shall be
distributed to the AT&T Partner; and
(b) Second, all remaining assets will be distributed to
the Partners pro rata in accordance with their positive
Capital Account balances in accordance with Regulation
Section 1.704-1(b)(2)(ii)(b)(2) (after taking into
account the distribution to the AT&T Partner of the
assets related to OR1).
To the extent consistent with the foregoing provisions of this
Section 9.02, the Partnership's non-monetary assets will be
distributed to the Partner which contributed such asset to the
Partnership (or to the successor of such contributing Partner). In
the event of the dissolution and liquidation of the Partnership
pursuant to Article V hereof or pursuant to the terms of the Joint
Venture Agreement with respect to the transfer of the interest of a
Partner in the Partnership to another Partner, after the payment of
or provision for creditors pursuant to applicable law, the
Partnership's assets will be distributed to the Partner or the
third party purchasing the interest of the Selling Partner.
9.03. Deemed Sale of Assets. For all purposes of this
Agreement, any property (other than cash) that is distributed or to
be distributed in kind to one or more Partners for a Fiscal Year,
including without limitation all non-cash assets which will be
deemed distributed immediately prior to the dissolution and winding
up of the Partnership so as to permit the unrealized gain or loss
inherent in such assets to be allocated to the Partners, or that is
constructively distributed on termination of the Partnership
pursuant to Section 708(b)(1)(B) of the Code and Section 9.04
hereof, will be deemed to have been sold for cash equal to its fair
market value, and the unrealized gain or loss inherent in such
assets will be treated as recognized gain or loss for purposes of
determining the Profits and Loss of the Partnership to be allocated
pursuant to Section 8.01 hereof for such Fiscal Year.
9.04. Deemed Termination. Any constructive termination
of the Partnership pursuant to Section 708(b)(1)(B) of the Code
will be deemed to be a winding up and termination of the
Partnership pursuant to which: (a) all assets of the Partnership
are deemed to have been sold as provided in Section 9.03 hereof,
with the unrealized gain or loss inherent in such assets being
allocated pursuant to Section 8.01 hereof, (b) the proceeds of the
deemed sales being deemed distributed pursuant to Section 9.02
hereof, and (c) such assets being then deemed to have been
recontributed to a new Partnership, and the Capital Accounts of the
Partners will be adjusted appropriately to reflect such deemed
termination, sale, distribution, and reconstitution. This Section
9.04 applies solely for purposes of adjusting Capital Accounts.
9.05. Distribution In the Event of a Reallocation. In
the event of a reallocation of income from a Partner (or an
Affiliate of a Partner) to the Partnership which is specially
allocated to the affected Partner under Section 8.07 of this
Agreement, the Partnership will (at the expense of the affected
Partner) seek approval from the IRS to establish an appropriate
account receivable from the affected Partner (or the Affiliate)
under the principles of Rev. Proc. 65-17. Any payment of an
account receivable established under the principles of Rev. Proc.
65-17 will, when received by the Partnership, be distributed to the
affected Partner. In the event that no such account receivable is
established, the Partnership will be deemed to have distributed an
amount to the affected Partner equal to the income which was
specially allocated to that Partner under Section 8.07 hereof.
ARTICLE X
ACCOUNTING AND RECORDS
10.01. Records and Accounting. The books and records of
the Partnership will be kept on the accrual basis, will reflect all
Partnership transactions and will be appropriate and adequate for
the Partnership's business. The books and records of the
Partnership will include separate accounts for the operations of,
and activities associated with, OR1 and OR2. To the extent
appropriate, all items of Profits and Losses will be allocated to
either OR1 or OR2. All items of Profits and Losses which are
shared or are not directly related to either OR1 or OR2 will be
allocated between OR1 and OR2 in a reasonable and consistent
manner. The fiscal year of the Partnership for financial reporting
and for Federal income tax purposes will be the Fiscal Year.
10.02. Access to Accounting Records. All books and
records of the Partnership will be maintained at any office of the
Partnership or at the Partnership's principal place of business,
and each Partner, and its duly authorized representatives, will
have access to them at such office of the Partnership and the right
to inspect and copy them at reasonable times.
10.03. Taxation.
(a) Characterization. The Partners
intend that the Partnership will be treated as a partnership for
Federal, state, local and foreign income and franchise tax purposes
and will take all reasonable action, including the amendment of
this Agreement and the execution of other documents, as may be
reasonably required to qualify for and receive treatment as a
partnership for Federal income tax purposes.
(b) Tax Matters Partner. The AT&T Partner will be
the Tax Matters Partner of the Partnership within the meaning of
Section 6231(a)(7) of the Code and will act in any similar capacity
under applicable state, local or foreign law (in such capacity, the
"Tax Matters Partner"). All reasonable expenses incurred by the
AT&T Partner while acting in such capacity will be paid or
reimbursed by the Partnership upon approval of the chief financial
officer of the Partnership; provided, however, that with respect to
any matter described in Section 8.07 hereof, the Partner to which
is reallocated any item described in Section 8.07 hereof (whether
or not such reallocation is adjusted, canceled or revoked by the
IRS) will (i) pay or reimburse all expenses incurred by the AT&T
Partner while acting in its capacity as the Tax Matters Partner in
connection with such matter and (ii) pay or reimburse all out of
pocket costs incurred by the Partnership in connection with such
matter.
(c) Tax Returns. (1) The Tax Matters Partner will
prepare or cause the Accountants to prepare and file on a timely
basis the Federal tax returns of the Partnership. The Tax Matters
Partner will cause state, local and any other tax returns required
to be filed by the Partnership to be prepared and filed on a timely
basis. The Tax Matters Partner will consult with the Cirrus
Partner regarding all non-ministerial decisions described in
Section 9.05(c)(2)(iii) hereof. Any disagreement with respect to
such consultation will be resolved in the manner described in
Section 9.05(c)(3) hereof. No Partner will file any tax return
that is inconsistent with the tax returns filed by the Partnership
except as provided in Section 9.05(c)(3) hereof.
(2) The Tax Matters Partner will take such action
as may be reasonably necessary to constitute the Cirrus Partner as
a "notice partner" within the meaning of Section 6231(a)(8) of the
Code. The Tax Matters Partner will furnish to each Partner within
five days (or within such shorter period as may be required by the
appropriate statutory or regulatory provisions) (i) copies of all
notices or other written communications received by the Tax Matters
Partner form the IRS, (ii) written notice of all material
communications the IRS has had with the tax Matters Partner and
(iii) written notice of all non-ministerial decisions to be made
regarding tax elections, tax returns, tax audits, tax litigation,
tax settlements and other tax matters that may come to the
attention of the Tax Matters Partner in its capacity as Tax Matters
Partner.
(3) The Tax Matters Partner will deliver to each
other Partner a copy of all written materials (including tax
returns) proposed to be filed with or submitted to the IRS or any
other taxing authority at least thirty (30) days prior to the date
such filing or submission is required to be made. If the Cirrus
Partner does not notify the Tax Matters Partner of its objection to
such filing or submission in writing before the fifteenth (15th)
day before the date for such filing or submission, the Cirrus
Partner will be considered to have approved such filing or
submission. If the Cirrus Partner provides such timely notice of
objection, the Cirrus Partner and the Tax Matters Partner will
negotiate in good faith to reach agreement with respect to such
filing or submission. If the Cirrus Partner and the Tax Matters
Partner are unable to reach such an agreement within 30 days, the
Cirrus Partner and the Tax Matters Partner will appoint a "Big Six"
accounting firm (except any "Big Six" accounting firm that is an
accountant of any of the AT&T Partner, the Cirrus Partner or the
Partnership or any of their respective Affiliates) to determine the
position that should be taken by the Partnership. Each Partner
will retain the right to take a position inconsistent with such
determination to the extent allowed under Section 6222 of the Code
or comparable provisions of state or local law.
(d) Tax Elections. The Governors will make the
following elections on behalf of the Partnership:
(i) to elect the calendar year as the Fiscal
Year of the Partnership if permitted by applicable law;
(ii) to elect a specified method of accounting;
(iii) if requested by a Partner, to elect, in
accordance with Sections 734, 743 and 754 of the Code and
applicable regulations and comparable state law provisions, to
adjust basis in the event any Partner's interest is transferred in
accordance with this Agreement or any of the Partnership's property
is distributed to any Partner;
(iv) to elect to treat all organization and
start-up costs of the Partnership as deferred expenses amortizable
over 60 months under Sections 195 and 709 of the Code; and
(v) To elect with respect to such other
Federal, state and local tax matters as the Governors will agree
upon from time to time.
(e) Annual Tax Information. The Governors will
cause the Partnership to deliver to each Partner all information
necessary for the preparation of such Partner's Federal and state
income tax returns.
ARTICLE XI
TERM; TERMINATION
11.01. Term; Termination. The term of the Partnership
will begin on the date of this Agreement and will continue until
the day immediately prior that same date ten years following the
date of this Agreement (the "Initial Term"), unless terminated
prior thereto: (a) in accordance with the provisions hereof; (b) by
unanimous agreement of the Partners; (c) by the material breach of
the Joint Venture Agreement or any of the Material Agreements which
breach remains uncured in accordance with the terms of the Joint
Venture Agreement or the Material Agreements, as the case may be;
or (d) pursuant to the GPL. Notwithstanding the foregoing, the
Partners may elect on or before two (2) years prior to the
expiration of the Initial Term or any Extended Term (as hereinafter
defined) to extend such term for an additional two (2) year period
(each such two (2) year period being referred to herein as an
"Extended Term"). If the Partners do not elect to extend the
Initial Term as set forth in this Article XI, the provisions of
Section 5.03 hereof will apply.
ARTICLE XII
DISSOLUTION OF THE PARTNERSHIP AND
TERMINATION OF A PARTNER'S INTEREST
12.01. Dissolution. The Partnership will be dissolved
upon the occurrence of any event which would cause or result in a
dissolution of the Partnership under the GPL or otherwise, unless
the Business is continued in accordance with the terms of the Joint
Venture Agreement.
ARTICLE XIII
INDEMNIFICATION
13.01. Indemnity. Subject to the provisions of Section
13.04 hereof, the Partnership will indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or
in the right of the Partnership, by reason of the fact that he or
she or it is or was a Partner, Governor, director, officer,
employee or agent of the Partnership, or is or was serving at the
request of the Partnership as a Partner, Governor, director,
officer, employee or agent of another limited liability company,
corporation, partnership, joint venture, trust or other enterprise
against expenses, including amounts paid in settlement and
attorneys' fees actually and reasonably incurred by him or it in
connection with the defense or settlement of the action, suit or
proceeding if he or she or it acted in good faith and in a manner
which he or she or it reasonably believed to be in or not opposed
to the best interests of the Partnership, and, with respect to a
criminal action or proceeding, had no reasonable cause to believe
his or her or its conduct was unlawful.
13.02. Indemnity for Actions By or In the Right of the
Partnership. Subject to the provisions of Section 13.04 hereof,
the Partnership will indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the rights of the
Partnership to procure a judgment in his or her or its favor by
reason of the fact that he or she or it is or was a Partner,
Governor, director, officer, employee or agent of the Partnership,
or is or was serving at the request of the Partnership as a
Partner, Governor, director, officer, employee or agent of another
limited-liability Partnership, corporation, partnership, joint
venture, trust or other enterprise against expenses, including
amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him or it in connection with the defense or
settlement of the action, suit or proceeding if he or she or it
acted in good faith and in a manner which he or she or it
reasonably believed to be in or not opposed to the best interests
of the Partnership. Indemnification may not be made for any claim,
issue or matter as to which such person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable to the Partnership or for amounts paid in
settlement to the Partnership, unless and only to the extent that
the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of
all the circumstances of the case, the person is fairly and
reasonably entitled to indemnify for such expenses as the court
deems proper.
13.03. Indemnity If Successful. The Partnership will
indemnify a Partner, Governor, director, officer, employee or agent
of the Partnership against expenses, including attorneys' fees,
actually and reasonably incurred by him or it in connection with
the defense of any action, suit or proceeding referred to in
Sections 13.01 and 13.02 or in defense of any claim, issue or
matter therein, to the extent that such person or entity has been
successful on the merits.
13.04. Expenses.
(a) Any indemnification under
Sections 13.01 and 13.02, as well as the advance payment of
expenses permitted under Section 13.05 unless ordered by a court or
advanced pursuant to Section 13.05 below, must be made by the
Partnership only as authorized in the specific case upon a
determination that indemnification of the Partner, Governor,
director, officer, employee or agent is proper in the
circumstances. The determination must be made:
(b) by the Partners by a majority of a quorum
consisting of Partners who were not parties to the act, suit or
proceeding;
(c) if a majority of those Partners who were not
parties to the act, suit or proceeding so order, by independent
legal counsel in a written opinion; or
(d) if a quorum consisting of Partners who were not
parties to the act, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
13.05. Advance Payment of Expenses. The expenses of
Partners, Governors, officers, employees and agents incurred in
defending a civil or criminal action, suit or proceeding may be
paid by the Partnership as they are incurred and in advance of the
final disposition of the action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the Partner, Governor,
director, officer, employee or agent to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he
or she or it is not entitled to be indemnified by the Partnership.
The provisions of this subsection do not affect any rights to
advancement of expenses to which personnel other than Partners,
Governors, officers, employees or agents may be entitled under any
contract or otherwise by law.
13.06. Other Arrangements Not Excluded. The
indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this Article XIII:
(a) does not exclude any other rights to which a
person seeking indemnification or advancement of expenses may be
entitled under the Certificate of Formation or any agreement, vote
of the Partners or otherwise, for either an action in his or her or
its official capacity or an action in another capacity while
holding his or her or its office, except that indemnification,
unless ordered by a court pursuant to Section 13.05 hereof, may not
be made to or on behalf of any Partner or Governor if a final
adjudication established that his or her or its acts or omissions
involved intentional misconduct, fraud or a knowing violation of
the law and was material to the cause of action; and
(b) continues for a person who has ceased to be a
Partner, Governor, director, officer, employee or agent and inures
to the benefit of the heirs, executors and administrators of such a
person, notwithstanding any amendment or subsequent modification of
this Article XIII.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.01. Complete Agreement. This Agreement, the Joint
Venture Agreement and the Material Agreements constitute the
complete and exclusive statement of the agreement among the
Partners with respect to the subject matter contained herein and
therein. This Agreement, the Joint Venture Agreement and the
Material Agreements replace and supersede all prior agreements by
and among the Partners with respect to the subject matter contained
herein and therein.
14.02. Amendments. This Agreement may be amended only
in writing by the Partners at a meeting or by written consent.
14.03. Applicable Law. The Certificate of Formation and
this Agreement, and its application, will be governed exclusively
by its terms and will be construed in accordance with the laws of
the State of New York, without regard to its conflicts of laws
principles.
14.04. Headings. The headings in this Agreement are
inserted for convenience only and are in no way intended to
describe, interpret, define, or limit the scope, extent or intent
of this Agreement or any provisions contained herein.
14.05. Severability. If any provision of this Agreement
or the application thereof to any person or circumstance will be
deemed invalid, illegal or unenforceable to any extent, the
remainder of this Agreement and the application thereof will not be
affected and will be enforceable to the fullest extent permitted by
law.
14.06. Successors and Assigns. Each and all of the
covenants, terms, provisions and agreements contained in this
Agreement will be binding upon and inure to the benefit of the
existing Partners, all new and substituted Partners, and their
respective assignees, legal representatives, successors and
assigns.
14.07. Assignment. Except to the extent permitted under
Article V hereof, the rights and obligations under this Agreement
may not be assigned by any party to any person; provided, however,
the AT&T Partner may assign this Agreement and its rights and
obligations hereunder in connection with any transaction effecting
the Restructuring and any such assignment will release the AT&T
Partner of its obligations and liabilities under this Agreement.
Any other attempted assignment in contravention of this provision
will be void.
IN WITNESS WHEREOF, this Agreement has been duly executed
by or on behalf of each of the parties hereto as of the date first
above written.
ATOR CORP.
By:
Name:
Title:
CIROR, INC.
By:
Name:
Title:
SCHEDULE A
Schedule of Initial Capital Contributions
PARTNER'S NAME
INITIAL CAPITAL
CONTRIBUTION
PERCENTAGE INTEREST
[*]
[*]
SCHEDULE B
Initial Governors
[ARTICLE] 5
[MULTIPLIER] 1
CONFIDENTIAL TREATMENT REQUESTED
[*] Denotes information for which confidential
treatment has been requested. Confidential portions
omitted have been filed separately with the Commission.
JOINT VENTURE FORMATION AGREEMENT (this "Agreement"),
dated as of October 23, 1995, by and among AT&T Corp., a New York
Corporation ("AT&T"), ATOR Corp., a New York corporation (the "AT&T
Partner"), Cirrus Logic, Inc., a California corporation ("Cirrus"),
and Ciror, Inc., a California corporation (the "Cirrus Partner").
WHEREAS, the parties hereto desire to enter into a
cooperative arrangement with respect to the expansion and operation
of certain wafer fabrication facilities for the purpose of
processing silicon wafers; and
WHEREAS, the parties hereto consider it mutually
beneficial to establish a general partnership (the "Partnership")
and the AT&T Partner and the Cirrus Partner are entering into the
GP Agreement (as defined in Section 1.01 hereof) concurrently
herewith.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants, representations, warranties and agreements
hereinafter set forth, and intending to be legally bound hereby,
the parties hereto agree, subject to the conditions contained
herein, as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. For the purpose hereof, the
following terms will have the following meanings:
"AAA" will have the meaning set forth in Section 13.02
hereof.
"Affiliate" means any Person, directly or indirectly
controlled by, controlling or under common control with (as
hereinafter defined) another Person (as hereinafter defined);
"controlled by, controlling or under common control with" means the
power to direct the management and policies of a Person, whether
through the ownership of voting securities, by agreement or
otherwise.
"Annual Plan" means the initial annual plan of the
Partnership substantially in the form attached hereto as Appendix
I, and as amended in accordance with Article VI of the GP Agreement
(as hereinafter defined).
"AT&T" will have the meaning set forth in the preamble
hereto.
"AT&T Assets" means the capital equipment and other
assets which the AT&T Partner will cause to be leased, transferred,
sold or otherwise delivered to the Partnership.
"AT&T Employee Services and Staffing Agreement" means the
AT&T Employee Services and Staffing Agreement between the AT&T
Partner and the Partnership substantially in the form attached
hereto as Exhibit A.
"AT&T Financial Statements" will have the meaning set
forth in Section 8.04 hereof.
"AT&T Group" will have the meaning set forth in
Section 11.01 hereof.
"AT&T Partner" will have the meaning set forth in the
preamble hereto.
"AT&T Employee" means the Loaned Employees (as defined in
the AT&T Employee Services and Staffing Agreement) and the
Production Employees (as defined in the AT&T Employee Services and
Staffing Agreement).
"Authorized Representative" will have the meaning set
forth in Section 4.01 hereof.
"Board of Governors" means the Board of Governors of the
Partnership as set forth in the GP Agreement.
"Bonus Plan" will have the meaning set forth in
Section 4.06 hereof.
"Business" means the business of the Partnership in the
operation of certain wafer fabrication facilities in accordance
with the terms of the Annual Plan, for the purpose of processing
silicon wafers and such other activities as may be desirable and
proper in the furtherance thereof.
"Buy-Out Options" will have the meaning set forth in
Section 10.03 hereof.
"Cirrus" will have the meaning set forth in the preamble
hereto.
"Cirrus Assets" means the capital equipment and other
assets which the Cirrus Partner will cause to be leased, delivered,
sold or otherwise transferred to the Partnership.
"Cirrus Employee Services and Staffing Agreement" means
the Cirrus Employee Services and Staffing Agreement which may be
entered into between the Cirrus Partner and the Partnership upon
substantially similar terms and conditions as the AT&T Employee
Services and Staffing Agreement.
"Cirrus Financial Statements" will have the meaning set
forth in Section 9.04 hereof.
"Cirrus Group" will have the meaning set forth in
Section 11.01 hereof.
"Cirrus Partner" will have the meaning set forth in the
preamble hereto.
"Cirrus Employee" means an employee of Cirrus or an
Affiliate of Cirrus loaned to the Partnership pursuant to the
Cirrus Employee Services and Staffing Agreement.
"Claim" or "Claims" will have the meaning set forth in
Section 11.01 hereof.
"Closing" means the closing of the transactions
contemplated hereby and referred to in Section 7.01 hereof.
"Closing Date" will have the meaning set forth in
Section 7.01 hereof.
"Committee" will have the meaning set forth in
Section 4.01 hereof.
"Confidential Information" will have the meaning set
forth in Section 6.01 hereof.
"Deadlock" will have the meaning set forth in
Section 13.01 hereof.
"Dispute" will have the meaning set forth in
Section 13.01 hereof.
"Environmental Consultants" will have the meaning set
forth in Section 4.09 hereof.
"Environmental Report" will have the meaning set forth in
Section 4.09 hereof.
"Environmental Policy" will have the meaning set forth in
the Lease.
"First Representatives" will have the meaning set forth
in Section 13.02.
"GAAP" means generally accepted accounting principles
consistently applied.
"GP Agreement" means the General Partnership Agreement
between the AT&T Partner and the Cirrus Partner substantially in
the form attached hereto as Exhibit B.
"Hazardous Materials" will have the meaning set forth in
the Lease (as hereinafter defined).
"Hazardous Materials Laws" will have the meaning set
forth in the Lease.
"Implementation Plan" will have the meaning set forth in
Section 4.01 hereof.
"Independent Accountant" means the firm of independent
certified public accountants retained by AT&T from time to time
which will act as auditor for the Partnership as provided in
Section 12.01.
"Intellectual Property" will have the meaning set forth
in Section 4.03 hereof.
"LCCP Rules" will have the meaning set forth in
Section 13.03.
"Land" will have the meaning set forth in the Lease.
"Landlord" will have the meaning set forth in the Lease.
"Lease" means the Lease between AT&T and the Partnership
substantially in the form attached hereto as Exhibit C.
"Employees" means the AT&T Employees and the Cirrus
Employees.
"Material Agreements" means the following related
agreements:
(i) the GP Agreement;
(ii) the AT&T Employee Services and Staffing
Agreement;
(iii) if entered into, the Cirrus Employee
Services and Staffing Agreement;
(iv) the Lease;
(v) the Patent License Agreement (as
hereinafter defined);
(vi) the Technical Transfer Agreement (as
hereinafter defined); and
(vii) the Wafer Supply Agreement (as hereinafter
defined).
"OR1" will have the meaning set forth in Section 4.01
hereof.
"OR2" will have the meaning set forth in Section 4.01
hereof.
"Owner" will have the meaning set forth in Section 6.01
hereof.
"Partnership" will have the meaning set forth in the
preamble hereto.
"Patent License Agreement" means the Patent License
Agreement between the AT&T Partner and the Partnership which will
be consistent with the terms of the Term Sheet set forth at Exhibit
D hereto.
"Person" means any individual, partnership, association,
joint stock company, joint venture, corporation, trust,
unincorporated organization or government, or agency or political
subdivision thereof.
"Pre-Existing Contamination" will mean all past or
present actions, activities, circumstances, conditions, events or
incidents in, at, on or under the Land or the Premises, including,
without limitation, the release, emission, discharge or disposal of
any Hazardous Materials, in each such case as specifically
identified in the Environmental Report.
"Preliminary Implementation Plan" will have the meaning
set forth in Section 2.01 hereof.
"Premises" will have the meaning set forth in the Lease.
"Recipient" will have the meaning set forth in
Section 6.01 hereof.
"Restructuring" will mean the strategic restructuring of
AT&T announced September 20, 1995.
"Second Representatives" will have the meaning set forth
in Section 13.02.
"Structural Components" will have the meaning set forth
in the Lease.
"[*]" will have the meaning set forth in Section 10.03
hereof.
"Technical Transfer Agreement" means the Technical
Transfer Agreement between the AT&T Partner and the Partnership
substantially in the form attached hereto as Exhibit E.
"Wafer Supply Agreement" means the Wafer Supply Agreement
by and among the AT&T Partner, the Cirrus Partner and the
Partnership substantially in the form attached hereto as Exhibit F.
ARTICLE II
FORMATION OF THE JOINT VENTURE
2.01. Formation of the Partnership. Following the
execution and delivery of this Agreement and in no event less than
sixty (60) days prior to the Closing Date, the AT&T Partner and the
Cirrus Partner will cause the formation of the Partnership as a
general partnership under the laws of the State of New York in
accordance with the terms of the written plan set forth as Appendix
II hereto (the "Preliminary Implementation Plan") for the orderly
start-up of the Partnership's business and pursuant to this
Agreement and the GP Agreement.
2.02. Expenses. Each of the parties hereto will bear
the fees and expenses of its respective counsel, accountants and
experts and all other costs and expenses incurred by it incident to
the negotiation, preparation, execution and delivery of this
Agreement and the Material Agreements; provided, however, expenses
relating to the formation of the Partnership, including but not
limited to taxes, fees, registration charges, notarial expenses,
fees and expenses relating to required governmental or regulatory
approvals for the formation of the Partnership will be paid by the
Partnership.
ARTICLE III
SCOPE AND OBJECTIVES; ANNUAL PLAN
3.01. Purpose.
(a) The purpose of the Partnership will
be to operate the Business.
(b) The parties hereto expressly acknowledge that
the Partnership is being formed solely for the limited purpose set
forth in Section 3.01(a) above and agree that none of the parties
hereto has any obligation to the others or to the Partnership to
bring business opportunities to the Partnership or to any of the
other parties hereto and are each free to take advantage of such
opportunities on their own or with third parties; provided,
however, that none of the parties hereto will take any action or
fail to take any action which would reasonably cause a material
adverse effect to the Business or the Partnership. The parties
hereto further recognize that each of them is incurring a portion
of the risk of, and expects to realize a portion of the return
from, the Partnership through this Agreement and one or more of the
Material Agreements, and the parties hereto expressly acknowledge
and agree that this Agreement and the Material Agreements are fair
and reasonable to the Partnership and to each of the parties hereto
in light of the totality of the facts and circumstances.
3.02. Annual Plan.
(a) The Annual Plan sets forth the
objectives of the Partnership for the period beginning on [*] and
ending on [*]. The Board of Governors will review and update the
Annual Plan [*]. On or before [ * ] of each fiscal year of
the Partnership commencing [ * ], the Board of Governors
will, in accordance with the terms of Article VI of the GP
Agreement, ratify or amend the information set forth in the Annual
Plan for the [*] and include in the amended Annual Plan information
and objectives for the fiscal year next succeeding the last year
then covered by the Annual Plan. In the event that the Board of
Governors are unable to agree on such amendment in accordance with
the terms of Article VI of the GP Agreement, the information and
objectives for the fiscal year next succeeding the last year then
covered by the Annual Plan will be those of the last year then
covered by the Annual Plan.
(b) Each of the AT&T Partner and the Cirrus Partner
acknowledges that the Annual Plan will represent as of the Closing
Date their collective best views as to the matters described
therein. Each of the AT&T Partner and the Cirrus Partner agrees,
and agrees to cause its Affiliates, to cooperate with any of the
other parties hereto (and their Affiliates) and with the
Partnership and to use its reasonable best efforts to promote the
success of the Partnership in attaining the objectives set forth in
the Annual Plan. The parties hereto covenant and agree not to take
any action or fail to take any action which would reasonably cause
a material adverse effect to the Business or the Partnership.
3.03. Concurrence. Each of the parties hereto agrees
that it will vote and otherwise act and in all respects use its
best efforts and take all such steps as may be within its power so
as to comply, to cause its Affiliates to comply, and to cause the
Partnership to comply with and act in a manner in order to fully
effect the transactions contemplated hereby.
ARTICLE IV
OPERATION OF THE BUSINESS
4.01. Implementation Committee. As of the date hereof,
each of AT&T and Cirrus have designated [*] individuals to
represent them as members of an Implementation Committee (the
"Committee"), the purpose of which will be to finalize a mutually
acceptable written plan (the "Implementation Plan") for the orderly
start-up of the Partnership's business, which will be based
substantially upon the Preliminary Implementation Plan. Each of
the AT&T Partner and the Cirrus Partner will designate a
representative (an "Authorized Representative"), who will (i) be
acceptable to the other parties hereto, (ii) not be a member of the
Committee, (iii) be responsible for causing the transactions
contemplated by the Implementation Plan to be effected on behalf of
AT&T or Cirrus, as the case may be, and (iv) have been delegated
authority to enter into binding commitments on its behalf with
respect to matters covered by the Implementation Plan. Each party
hereto agrees to cooperate and to cause its Affiliates to cooperate
with the Committee in support of its effort to develop the
Implementation Plan in a manner which is consistent with
positioning the Partnership to attain the objectives of the Annual
Plan. The Implementation Plan will be based substantially on the
Preliminary Implementation Plan and will include: (a) a timetable
for AT&T's construction of the infrastructure and clean room
required to house and support an [*] silicon wafer fabrication
facility ("OR2") with capacity of approximately [*] wafer starts
per month at an approximate cost of $[*], specifying the respective
rights of the AT&T Partner and the Cirrus Partner to inspect,
modify (or cause to be modified) and approve such construction; (b)
details of the capital equipment and other assets located at AT&T's
current facility at Orlando ("OR1") which the AT&T Partner will
cause to be provided to the Partnership; (c) (i) a detailed summary
of the financing plan for the AT&T Assets, (ii) a detailed summary
of the financing plan for the Cirrus Assets and (iii) details of
the provision to the Partnership of approximately $[*] of AT&T
Assets and approximately $[*] of Cirrus Assets; and (d) details of
the technology, technology development and other intellectual
property which the AT&T Partner will cause to be transferred or
licensed, as the case may be, to the Partnership pursuant to the
Technical Transfer Agreement and the Patent License Agreement. The
Preliminary Implementation Plan will be effective from the date
hereof to and including the date of execution and delivery of the
Implementation Plan. The Implementation Plan will be effective
from the date of the execution and delivery thereof to and
including the Closing Date. Not later than [*] days after the
execution and delivery of this Agreement, the AT&T Partner and the
Cirrus Partner will execute the Implementation Plan. No member of
the Implementation Committee will have the authority or power to
bind any party hereto unless separately agreed to in writing by the
Authorized Representative of such party. The members of the
Implementation Committee (as provided in the immediately preceding
sentence) and the Authorized Representatives will have authority to
act on behalf of AT&T or Cirrus, as the case may be, until the
later of (a) formation of the Partnership and election of the Board
of Governors or (b) the Closing Date.
4.02. Financing of Capital Equipment; Delivery of
Capital Equipment. [ * ]
Each of the AT&T Partner and the Cirrus Partner covenant and agree
(a) to cause the AT&T Assets and the Cirrus Assets, respectively,
to be leased, delivered, sold or otherwise transferred to the
Partnership in accordance with the terms of the Implementation Plan
and (b) to cooperate with each other and their respective
Affiliates, and to cause their respective advisors to cooperate
with each other, in structuring such lease, delivery, sale or other
transfer to minimize any adverse accounting and tax implications on
any of AT&T, Cirrus, and their respective Affiliates which might
arise as a result of such lease, delivery, sale or other transfer.
4.03. Intellectual Property. The AT&T Partner will
cause AT&T to license or transfer, as the case may be, certain
technology, technology development and other intellectual property
(the "Intellectual Property") to the Partnership pursuant to, and
for the consideration specified in, the Technical Transfer
Agreement and the Patent License Agreement. [*].
4.04. Operation of Plant and Business. On and after the
Closing Date, the Partnership will conduct the Business in
accordance with this Section 4.04.
(a) Location. The Partnership will be located in
Orlando, Florida. On the Closing Date, the AT&T Partner will cause
AT&T to, and the Partnership will, execute and deliver the Lease.
(b) Operation.
(i) The Partnership will operate
OR1 solely for the benefit and for the account of the AT&T Partner.
The AT&T Partner will purchase the output of OR1 upon the terms and
subject to the conditions of the Wafer Supply Agreement. The
parties hereto acknowledge and agree that in no event will the
operation of OR1 be conducted in such a manner as to directly
result in a material adverse effect to the capacity, cost structure
or performance of OR2.
(ii) The Partnership will operate OR2 for the
mutual benefit of the AT&T Partner and the Cirrus Partner. The
AT&T Partner and the Cirrus Partner will purchase the output of OR2
upon the terms and subject to the conditions of the Wafer Supply
Agreement.
(iii) Operation of the Partnership will be in
accordance with the terms of the Annual Plan. The Partnership will
cause OR1 and OR2 to process wafers at the direction of the AT&T
Partner and the Cirrus Partner with respect to their respective
share of OR1 and OR2 capacity, consistent with the Annual Plan and
pursuant to the terms of the Wafer Supply Agreement, as long as
such operations do not adversely affect the capacity, cost
structure or performance of the manufacturing capabilities of OR2.
(c) Costs.
(i) OR1. [*] costs, charges, capital equipment and
working capital directly and indirectly associated with OR1 will be
paid by [*] pursuant to the cost allocations appearing in the
Annual Plan. Unless otherwise agreed to by the parties hereto,[*]
costs, charges, capital equipment and working capital directly
associated with a periodic wind-down or one-time shutdown of OR1
will be paid by [*].
(ii) (a) OR2 - Working Capital. The working
capital required with respect to OR2 will be provided [*] by [*].
(b) OR2 - Technology. [*] costs with respect
to the development of technology in accordance with the "technology
roadmap" specified in the Annual Plan will be paid by [*];
provided, however, that the cost of any variant to such technology
will be paid by [*]. All such wafers required for the development
or variation of technology will be provided from the portion of OR2
output to which [*] is entitled under the Wafer Supply Agreement.
(d) Profits. All profits and excess cash flow
attributable to OR1 will be distributed to the AT&T Partner in
accordance with the terms of the GP Agreement. All profits and
excess cash flow attributable to OR2 will be distributed to the
AT&T Partner and the Cirrus Partner in accordance with the terms of
the GP Agreement.
(e) Borrowings. The Partnership may enter into
such credit facilities as are specified in the Annual Plan.
4.05. Procurement of Administrative and Support
Services. The AT&T Partner and the Cirrus Partner acknowledge and
agree that either of the AT&T Partner or the Cirrus Partner may
provide such administrative or support services as the Partnership
may reasonably request, in which event such services will be
provided at such costs as the AT&T Partner and the Cirrus Partner
may mutually agree.
4.06. Personnel.
(a) The initial organization chart of
the Partnership and the headcount forecast, by category of employee
and position title, are set forth in the Annual Plan. AT&T will
make available to the Partnership, upon the terms and subject to
the conditions set forth in the AT&T Employee Services and Staffing
Agreement, the AT&T Employees. Cirrus may make available to the
Partnership, upon the terms and subject to the conditions set forth
in the Cirrus Employee Services and Staffing Agreement, the Cirrus
Employees. The parties hereto covenant and agree that the
Employees will be qualified to perform services in all of the
positions shown in the headcount forecast of the Partnership and
any other positions which the Board of Governors will, from time to
time, designate to be held by Employees.
(b) AT&T will review with Cirrus, and obtain
Cirrus' prior consent (such consent not to be unreasonably
withheld) to, personnel changes, reassignments or relocation of the
persons occupying the [*] positions which will be identified by
Cirrus at or prior to the Closing in accordance with the principles
set forth at Appendix III hereto. Other than with respect to the
persons referenced in the immediately preceding sentence, AT&T
agrees to limit reassignment or relocation of the AT&T Employees in
accordance with the principles set forth at Appendix III hereto.
(c) The Employees will be compensated as provided
in the AT&T Employee Services and Staffing Agreement and the Cirrus
Employee Services and Staffing Agreement, as the case may be.
(d) The Partnership will adopt and implement a
bonus plan (the "Bonus Plan"), the material terms of which are set
forth at Appendix IV hereto. The Bonus Plan may be amended or
modified in accordance with the terms of Article VI of the GP
Agreement. The Bonus Plan has the goal of encouraging Employees to
cause the manufacture of products by the Partnership at a cost and
defect rate and in a time frame in each case better than that
specified in the Annual Plan. The Bonus Plan will specify that
bonuses are to be calculated based upon the complete fiscal year
operation of the Partnership. [*] As more specifically set forth
in the Bonus Plan, in order to be entitled to such bonuses,
Employees (i) must have been assigned by AT&T or Cirrus, as the
case may be, to the Partnership, for the minimum time period set
forth in the Bonus Plan and (ii) must be engaged by the Partnership
on the date such bonuses are paid.
(e) Neither party hereto will, during the
employment of a Employee and during the [*] period following
termination of any such Employee, directly or indirectly, hire or
attempt to recruit or hire, as an employee, consultant, agent or
representative, such Employee if such Employee was a Employee of
the other party hereto. Notwithstanding the foregoing, an attempt
to recruit or hire by either party hereto will not include
advertisements, general employment searches and internal job
posting systems which are not specifically directed to the
Employees of the other party hereto.
4.07. Culture. The parties hereto agree to use their
reasonable best efforts to cause the creation of an
"entrepreneurial culture" within the Partnership.
4.08. Financing. From the date hereof to the Closing
Date, each of AT&T and Cirrus will use its reasonable best efforts
to secure such funds or financing as may be necessary to effect the
transactions contemplated hereby. Each of AT&T or the AT&T
Partner, on the one hand, and Cirrus or the Cirrus Partner, on the
other hand, will pay such interest carrying costs as may accrue
with respect to the AT&T Assets or the Cirrus Assets, respectively.
No later than [ * ] prior to the Closing, each of AT&T
and Cirrus will have delivered evidence to each other of the
availability of funds or financing as may be necessary to effect
the transactions contemplated by the Implementation Plan to occur
at or prior to the Closing Date.
4.09. Environmental Matters. As soon as reasonably
practicable following the execution and delivery of this Agreement,
AT&T and Cirrus will select a mutually acceptable nationally
recognized environmental consulting firm (the "Environmental
Consultants") to conduct a "Phase II" survey of the Land and the
Premises and to draft and deliver a report with respect thereto
(the "Environmental Report"). The Environmental Report will be
delivered no later than January 1, 1996 or as soon as practicable
thereafter to allow for the results of any required research or
laboratory testing. AT&T covenants and agrees to remediate or
otherwise correct, in accordance with the recommendations of the
Environmental Consultants, and in compliance with Hazardous
Materials Laws, all Pre-Existing Contamination that constitutes a
violation of Hazardous Materials Laws. Notwithstanding the
foregoing, AT&T covenants and agrees to comply with all
recommendations of the Environmental Consultants to the extent that
such recommendations comply with Hazardous Materials Laws.
4.10. Employee Matters.
(a)
(i) If the presence of
Hazardous Materials in, on, under or about the Premises is (x)
willfully caused by a natural person employed or retained by AT&T
or any Affiliate of AT&T (other than the Partnership and other than
the Landlord; provided, however, that this exclusion will not
release AT&T from any liability under this Section 4.10(a) (I) as
an entity acting other than as the Landlord) or any Agent of AT&T
and such natural person is not acting on the instruction of any
natural person employed or retained by Cirrus or (y) is caused by
the instruction of any natural person employed or retained by AT&T
or any Affiliate of AT&T (other than the Partnership and other than
the Landlord; provided, however, that this exclusion will not
release AT&T from any liability under this Section 4.10(a) (I) as
an entity acting other than as the Landlord) or any Agent of AT&T,
regardless of whether such instruction is followed by any natural
person employed or retained by AT&T or any natural person employed
or retained by Cirrus, and such presence of Hazardous Materials
results in contamination or deterioration of air, water or soil
resulting in a level of contamination or deterioration greater than
the levels established as acceptable by any governmental agency
having jurisdiction over such contamination or deterioration, then
AT&T will promptly take any and all action necessary to investigate
and remediate such contamination or deterioration if required by
Hazardous Materials Laws or as a condition to the issuance or
continuing effectiveness of any governmental approval which relates
to the use of the Premises or any part thereof.
(ii) If the presence of Hazardous Materials in,
on, under or about the Premises is (x) willfully caused by a
natural person employed or retained by Cirrus or any Affiliate of
Cirrus (other than the Partnership) or any Agent of Cirrus and such
natural person is not acting on the instruction of any natural
person employed or retained by AT&T or (y) is caused by the
instruction of any natural person employed or retained by Cirrus or
any Affiliate of Cirrus (other than the Partnership) or any Agent
of Cirrus, regardless of whether such instruction is followed by
any natural person employed or retained by AT&T or any natural
person employed or retained by Cirrus, and such presence of
Hazardous Materials results in contamination or deterioration of
air, water or soil resulting in a level of contamination or
deterioration greater than the levels established as acceptable by
any governmental agency having jurisdiction over such contamination
or deterioration, then Cirrus will promptly take any and all action
necessary to investigate and remediate such contamination or
deterioration if required by Hazardous Materials Laws or as a
condition to the issuance or continuing effectiveness of any
governmental approval which relates to the use of the Premises or
any part thereof.
(b)
(i) AT&T will make or cause to be made all
repairs to the Structural Components, and all repairs with respect
to any other damage or destruction to the Premises, to the extent
that any such repairs result from (i) the willful act or omission
of any natural person employed or retained by AT&T without having
been instructed to so act or omit to act by any natural person
employed or retained by Cirrus or (ii) the issuance of any
instruction by any natural person employed or retained by AT&T,
regardless of whether such instruction is followed by any natural
person employed or retained by AT&T or any natural person employed
or retained by Cirrus.
(ii) Cirrus will make or cause to be made all
repairs to the Structural Components, and all repairs with respect
to any other damage or destruction to the Premises, to the extent
that any such repairs result from (i) the willful act or omission
of any natural person employed or retained by Cirrus without having
been instructed to so act or omit to act by any natural person
employed or retained by AT&T or (ii) the issuance of any
instruction by any natural person employed or retained by Cirrus,
regardless of whether such instruction is followed by any natural
person employed or retained by AT&T or any natural person employed
or retained by Cirrus.
(iii) Notwithstanding anything to the contrary
contained in Article XI hereof, in the event of an insurable loss,
neither of AT&T or Cirrus, as the case may be, will be liable for
repairs in an amount greater than the Landlord's deductible under
applicable insurance policies.
ARTICLE V
MANAGEMENT; RIGHTS AND OBLIGATIONS OF THE PARTIES
5.01. Management; Rights and Obligations of the Parties.
The Partnership will be managed, and the AT&T Partner and the
Cirrus Partner will have the rights and obligations, as set forth
in the GP Agreement. The members of the Board of Governors will be
elected in accordance with the terms of the GP Agreement. The
officers of the Partnership will be appointed in accordance with
the terms of the GP Agreement.
ARTICLE VI
CONFIDENTIALITY
6.01. Confidential Information Defined. "Confidential
Information" means all marketing, technical or business information
created by the Partnership or disclosed by a party hereto (the
"Owner") to another party hereto(the "Recipient") which is
confidential, proprietary and/or not generally available to the
public. Information provided in tangible form will be clearly
marked "Confidential Information". Any technical information,
including but not limited to circuit layout, design, or software,
embedded in any device will be deemed to be Confidential
Information notwithstanding the absence of any marking on such
device. Information provided orally will be considered
Confidential Information if it is identified by the Owner as
Confidential Information at the time of oral disclosure and the
Owner summarizes such Confidential Information in a writing
provided to the Recipient within 20 (twenty) days following such
oral disclosure.
6.02. Treatment of Confidential Information. Unless
otherwise contemplated by this Agreement or the Material
Agreements, (a) Confidential Information provided by the Owner will
remain the property of the Owner and (b) no rights by license or
otherwise in any information will be granted solely by the
disclosure of Confidential Information. During the term hereof,
and for a period of three (3) years following the termination
hereof, the Recipient will, and will cause its Affiliates to, keep
confidential and will not disclose, and will cause its Affiliates
not to disclose, to third parties the Confidential Information
received from or made available by the Owner. The Recipient will
not use and will cause its Affiliates not to use such Confidential
Information for any purpose other than the performance of its
obligations under this Agreement or any of the Material Agreements
to which it is a party. At the conclusion of such three (3) year
period, written Confidential Information will be returned to the
Owner or destroyed as the Owner may elect, and no copies, extracts
or other reproductions will be retained by the Recipient. All
documents, memoranda, notes and other writings whatsoever prepared
by the Recipient which contain Confidential Information will be
returned to the Owner or destroyed at the Owner's request.
6.03. Excluded Information. Notwithstanding the
foregoing provisions of this Article VI, "Confidential Information"
will not include, and the Recipient will have no obligation with
respect to, any such information which:
(a) is already known to the Recipient as of the
date hereof;
(b) is or becomes publicly known, through
publication, inspection of a product, or otherwise, and through no
negligence or other wrongful act of the Recipient;
(c) is received by the Recipient from a third party
without similar restriction and without breach hereof;
(d) is independently developed by the Recipient; or
(e) is furnished to a third party by the Owner
without a similar restriction on the third party's rights.
6.04. Notice Prior to Disclosure. If the Recipient (or
its Affiliate) is requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena,
civil investigative demand or similar process) to disclose any
Confidential Information, the Recipient will promptly notify the
Owner of such request or requirement so that the Owner may seek an
appropriate protective order or waive compliance with the
provisions of this Section 6.04. If, in the absence of a
protective order or the receipt of a waiver hereunder, the
Recipient (or any of its Affiliates) is, in the written opinion of
the Recipient's counsel, compelled to disclose the Confidential
Information or else stand liable for contempt or suffer other
censure or significant penalty, the Recipient (or its Affiliate)
may disclose only so much of the Confidential Information to the
party compelling disclosure as is required by law. The Recipient
will exercise (and will cause its Affiliate to exercise) reasonable
efforts to obtain a protective order or other reliable assurance
that confidential treatment will be accorded to Confidential
Information.
6.05. Agreements Confidential. Except as disclosure may
be required by law, the material terms and conditions of this
Agreement and the Material Agreements, and all Exhibits, Schedules,
Appendices, attachments and amendments hereto and thereto will be
deemed to be "Confidential Information" and treated in accordance
with the provisions of this Article VI. To the extent that such
disclosure is required by law, the parties hereto will not disclose
the terms and conditions of this Agreement and the Material
Agreements, and all Exhibits, Schedules, Appendices, attachments
and amendments hereto and thereto which the parties hereto deem to
be proprietary; provided, however, in no event will such disclosure
fail to satisfy the requirements of law which mandate such
disclosure.
ARTICLE VII
CLOSING
7.01. Closing Date. The Closing will be held on or
before [ * ] (the "Closing Date") at 10:00 a.m. local time
at the offices of AT&T, 131 Morristown Road, Basking Ridge, NJ, or
at such other date, time and place as the parties hereto will
mutually agree. Notwithstanding the foregoing, the transactions
contemplated hereby will be deemed to be effective as of 12:01 a.m.
on the Closing Date.
7.02. Conditions to the Obligations of Cirrus. The
obligation of Cirrus and the Cirrus Partner to consummate the
transactions contemplated hereby is subject to and conditioned upon
the satisfaction of each of the following conditions, any or all of
which may be waived in writing in whole or in part by Cirrus and
the Cirrus Partner:
(a) The representations and warranties of AT&T and
AT&T Partner contained in Article VIII and will be true and correct
at and as of the Closing Date as though such representations and
warranties were made at and as of such Closing Date.
(b) AT&T and the AT&T Partner will have performed
and complied in all material respects with all agreements,
covenants and conditions on its part required by this Agreement to
be performed or complied with at or prior to the Closing Date.
(c) On and prior to the Closing Date, no party to
the transactions contemplated hereby nor any of its Affiliates will
have received any notice of any threatened litigation or regulatory
proceeding being instituted or contemplated, and no such litigation
or proceedings will be pending, which challenge the legality hereof
or the transactions contemplated hereby or would have, individually
or in the aggregate, a material adverse effect on the transactions
contemplated hereby.
(d) All approvals of applications to public
authorities, federal, foreign, state or local, the granting of
which is necessary for the consummation of the transactions
contemplated hereby, will have been obtained and be satisfactory to
counsel to Cirrus.
(e) Cirrus will have received an opinion of counsel
to AT&T, who may be an employee of AT&T, dated the Closing Date, in
a form reasonably acceptable to counsel to Cirrus.
(f) All milestones to be achieved by AT&T set forth
in the Implementation Plan will have been completed.
(g) All material obligations of AT&T set forth in
the Implementation Plan will have been discharged.
7.03. Conditions to Closing of AT&T. The obligation of
AT&T and the AT&T Partner to consummate the transactions
contemplated hereby is subject to and conditioned upon the
fulfillment of each of the following conditions, any of which may
be waived in writing in whole or in part by AT&T and the AT&T
Partner:
(a) The representations and warranties of Cirrus
and the Cirrus Partner contained in Article IX will be true and
correct at and as of the Closing Date as though such
representations and warranties were made at and as of such Date.
(b) Cirrus and the Cirrus Partner will have
performed and complied in all material respects with all
agreements, covenants and conditions on its part required by this
Agreement to be performed or complied with prior to or at the
Closing Date.
(c) On or prior to the Closing Date, no party to
the transactions contemplated hereby nor any of their Affiliates
will have received any notice of any threatened litigation or
regulatory proceeding being instituted or contemplated, and no such
litigation or proceedings will be pending, which challenge the
validity or legality hereof or the transactions contemplated hereby
or could have, individually or in the aggregate, a material adverse
effect on the transactions contemplated hereby.
(d) All approvals of applications to public
authorities, federal, foreign, state or local, the granting of
which is necessary for the consummation of the transaction
contemplated hereby, will have been obtained and be satisfactory to
counsel to AT&T.
(e) AT&T will have received an opinion of counsel
for Cirrus dated the Closing Date, in a form reasonably acceptable
to counsel to AT&T.
(f) All milestones to be achieved by Cirrus set
forth in the Implementation Plan will have been completed.
(g) All material obligations of Cirrus set forth in
the Implementation Plan will have been discharged.
7.04. Actions and Deliveries at Closing. At or prior to
the Closing:
(a) The AT&T Partner and the Cirrus Partner will
take all of the actions required by them as partners in the
Partnership in order for the Partnership to perform the actions
required on its part by this Article VII and will cause their
nominees to the Board of Governors to vote for the approval of such
actions of the Partnership;
(b) the AT&T Partner and the Cirrus Partner will
make the initial capital contributions to the Partnership as set
forth in the GP Agreement;
(c) AT&T and the AT&T Partner will deliver to
Cirrus and the Cirrus Partner the certificates and documents
contemplated by Section 7.02 and 7.05 hereof;
(d) Cirrus and the Cirrus Partner will deliver to
AT&T and the AT&T Partner the certificates and documents
contemplated by Section 7.03 and 7.05 hereof;
(e) the Partnership, AT&T, Cirrus, the AT&T
Partner, the Cirrus Partner and the other parties to the Material
Agreements will execute and deliver original counterparts of the
Material Agreements; and
(f) the parties hereto will execute and deliver
such other documents, instruments, certificates or other items as a
party will reasonably request to be delivered at the Closing in
connection with the transactions contemplated herein.
7.05. Certificates. Each of the parties hereto will
furnish to the other party such certificates of such party's
officers or others and such other documents to evidence fulfillment
of the conditions set forth in this Article VII as the other party
may reasonably request.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF AT&T AND THE AT&T PARTNER
AT&T and the AT&T Partner jointly and severally represent
and warrant to Cirrus and the Cirrus Partner as follows:
8.01. Organization and Authority. Each of AT&T and the
AT&T Partner is a corporation duly organized and validly existing
under the laws of the State of New York, and has requisite power
and authority (corporate and other) to own its properties and to
carry on its business as now being conducted. Each of AT&T and the
AT&T Partner has full power to execute and deliver this Agreement
and the Material Agreements and to consummate the transactions
contemplated hereby and thereby.
8.02. Authorization.
(a) The execution and delivery of
this Agreement and the Material Agreements by AT&T and the AT&T
Partner, and the documents and agreements provided for herein and
therein, and the consummation by AT&T and the AT&T Partner of all
transactions contemplated hereby or thereby, have been duly
authorized by all requisite corporate action. This Agreement and
the Material Agreements and all such other agreements and written
obligations entered into and undertaken in connection with the
transactions contemplated hereby or thereby to which each of AT&T
and the AT&T Partner is a party, constitute or will constitute
following the execution and delivery thereof valid and legally
binding obligations of AT&T and the AT&T Partner, enforceable
against them in accordance with their respective terms, subject as
to enforcement of remedies to applicable bankruptcy, insolvency,
reorganization and other laws affecting generally the enforcement
of the rights of creditors and subject to a court's discretionary
authority with respect to the granting of a decree ordering
specific performance or other equitable remedies;
(b) The execution, delivery and performance by AT&T
and the AT&T Partner of this Agreement and the Material Agreements,
as the case may be, and the documents and agreements provided for
herein and therein, and the consummation by AT&T and the AT&T
Partner of the transactions contemplated hereby and thereby, will
not, with or without the giving of notice or the passage of time or
both: (i) violate the provisions of any applicable law;
(ii) violate the provisions of the Certificate of Incorporation or
by-laws (each as amended from time to time) of AT&T or the AT&T
Partner or any resolution of its directors or shareholders; and
(iii) violate any judgment, decree, order or award of any court,
governmental agency or arbitrator; or (iv) conflict with or result
in the breach or termination of any material term or provision of,
or constitute a default under, or cause any acceleration under, any
license, permit, concession, franchise, indenture, mortgage, lease,
equipment lease, contract, permit, deed of trust or other
instrument or agreement by which AT&T or the AT&T Partner is or may
be bound; and
(c) Each of AT&T and the AT&T Partner is not
precluded by the terms of any contract, agreement or other
instrument by which either of them is bound from entering into this
Agreement and the Material Agreements, and the documents and
agreements provided for herein or therein or the consummation by
AT&T and the AT&T Partner of the transactions contemplated hereby
and thereby.
8.03. Litigation. There are no actions, suits,
investigations or other proceedings pending or, to the knowledge of
AT&T or the AT&T Partner, threatened, there is no order, judgment
or decree of any court or governmental agency, and to the knowledge
of AT&T or the AT&T Partner no facts or circumstances exist, which
could reasonably be expected to give rise to a claim, action, suit
or proceeding which could materially and adversely affect the
Partnership or the transactions contemplated hereby and by the
Material Agreements.
8.04. Financial Information. AT&T has previously
delivered or will deliver prior to the Closing Date to Cirrus the
financial statements set forth in the Reports on Form 10-K for the
years ended December 31, 1994 and December 31, 1995, and the
Reports on Form 10-Q for the quarters ended September 30, 1995 and
March 31, 1996 (collectively referred to herein as the "AT&T
Financial Statements"). The AT&T Financial Statements present
fairly in all material respects the financial position and results
of operations of AT&T as of the dates and for the periods indicated
thereon and are in conformity with GAAP, consistently applied,
except that the financial statements set forth in the Reports on
Form 10-Q for the quarters ended September 30, 1995 and March 31,
1996 are subject to normal year-end adjustments and any other
adjustments described therein, and do not contain all of the
footnote disclosures required by GAAP.
8.05. Other Representations and Warranties. Certain
representations and warranties of AT&T and the AT&T Partner are
made and set forth in the Material Agreements. Such
representations and warranties are incorporated herein by reference
and made a part hereof.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF Cirrus AND THE CIRRUS PARTNER
Cirrus and the Cirrus Partner jointly and severally
represent and warrant to AT&T and the AT&T Partner as follows:
9.01. Organization and Authority. Each of Cirrus and
the Cirrus Partner is a corporation duly organized and validly
existing under the laws of the State of California, and has
requisite power and authority (corporate and other) to own its
properties and to carry on its business as now being conducted.
Each of Cirrus and the Cirrus Partner has full power to execute and
deliver this Agreement and the Material Agreements and to
consummate the transactions contemplated hereby and thereby.
9.02. Authorization.
(a) The execution and delivery of
this Agreement and the Material Agreements by Cirrus and the Cirrus
Partner, and the documents and agreements provided for herein and
therein, and the consummation by Cirrus and the Cirrus Partner of
all transactions contemplated hereby or thereby, have been duly
authorized by all requisite corporate action. This Agreement and
the Material Agreements and all such other agreements and written
obligations entered into and undertaken in connection with the
transactions contemplated hereby or thereby to which each of Cirrus
and the Cirrus Partner is a party, constitute or will constitute
following the execution and delivery thereof valid and legally
binding obligations of Cirrus and the Cirrus Partner, enforceable
against them in accordance with their respective terms, subject as
to enforcement of remedies to applicable bankruptcy, insolvency,
reorganization and other laws affecting generally the enforcement
of the rights of creditors and subject to a court's discretionary
authority with respect to the granting of a decree ordering
specific performance or other equitable remedies;
(b) The execution, delivery and performance by
Cirrus and the Cirrus Partner of this Agreement and the Material
Agreements, as the case may be, and the documents and agreements
provided for herein and therein, and the consummation by Cirrus and
the Cirrus Partner of the transactions contemplated hereby and
thereby, will not, with or without the giving of notice or the
passage of time or both: (i) violate the provisions of any
applicable law; (ii) violate the provisions of the Articles of
Incorporation or by-laws (each as amended from time to time) of
Cirrus or the Cirrus Partner or any resolution of its directors or
shareholders; (iii) violate any judgment, decree, order or award of
any court, governmental agency or arbitrator; or (iv) conflict with
or result in the breach or termination of any material term or
provision of, or constitute a default under, or cause any
acceleration under, any license, permit, concession, franchise,
indenture, mortgage, lease, equipment lease, contract, permit, deed
of trust or other instrument or agreement by which Cirrus or the
Cirrus Partner is or may be bound.
(c) Each of Cirrus and the Cirrus Partner is not
precluded by the terms of any contract, agreement of other
instrument by which either of them is bound from entering into this
Agreement and the Material Agreements, and the documents and
agreements provided for herein or therein or the consummation by
Cirrus and the Cirrus Partner of the transactions contemplated
hereby and thereby.
9.03. Litigation. There are no actions, suits,
investigations or other proceedings pending or, to the knowledge of
Cirrus and the Cirrus Partner, threatened, there is no order,
judgment or decree of any court or governmental agency, and to the
knowledge of Cirrus or the Cirrus Partner no facts or circumstances
exist, which could reasonably be expected to give rise to a claim,
action, suit or proceeding which could materially and adversely
affect the Partnership or the transactions contemplated hereby and
by the Material Agreements.
9.04. Financial Information. Cirrus has previously
delivered or will deliver prior to the Closing Date to AT&T the
financial statements set forth in the Report on Form 10-K for the
year ended April 1, 1995 and the Reports on Form 10-Q for the
quarters ended July 1, 1995, September 30, 1995 and December 30,
1995 (collectively referred to herein as the "Cirrus Financial
Statements"). The Cirrus Financial Statements present fairly in
all material respects the financial position and results of
operations of Cirrus as of the dates and for the periods indicated
thereon and are in conformity with GAAP, consistently applied,
except that the financial statements set forth in the Reports on
Form 10-Q for the quarters ended July 1, 1995, September 30, 1995
and December 30, 1995 are subject to normal year-end adjustments
and any other adjustments described therein, and do not contain all
of the footnote disclosures required by GAAP.
9.05. Other Representations and Warranties. Certain
representations and warranties of Cirrus and the Cirrus Partner are
made and set forth in the Material Agreements. Such
representations and warranties are incorporated herein by reference
and made a part hereof.
ARTICLE X
TERM AND TERMINATION
10.01. Term. Unless extended by agreement of the
parties hereto, this Agreement will terminate (a) in accordance
with the provisions of this Article X or (b) upon termination of
the GP Agreement in accordance with the terms thereof. Upon such
termination, the parties hereto agree to take all of the actions
required to liquidate and dissolve to the Partnership in an orderly
manner.
10.02. Termination Prior to the Closing Date. This
Agreement may be terminated and the transactions herein
contemplated may be abandoned as follows:
(a) By consent of the parties hereto at any time on
or prior to the Closing Date; or
(b) By AT&T or the AT&T Partner if any of the
conditions provided for in Section 7.03 hereof will not have been
met, or not have been waived in writing by AT&T and the AT&T
Partner, prior to or on the Closing Date; or
(c) By Cirrus or the Cirrus Partner if any of the
conditions provided for in Section 7.02 hereof will not have been
met, or not have been waived in writing by Cirrus and the Cirrus
Partner, prior to or on the Closing Date; provided, however, that
if the Closing has not occurred and this Agreement has not been
earlier terminated, or extended by agreement of the parties hereto,
this Agreement will terminate on [ * ]. If this
Agreement is terminated as provided herein, then no party hereto
will have any liability or further obligation to any other party
hereto, except as stated in Section 2.02 and Article VI hereof, and
except that nothing herein will relieve any party from liability
for any breach hereof prior to such termination. Notwithstanding
anything to the contrary contained in this Agreement, in the event
that any party hereto willfully fails to consummate the
transactions contemplated by this Agreement required to have been
consummated on or prior to the Closing Date, any other party hereto
may seek any and all available remedies in a court of competent
jurisdiction with respect to liability therefor.
10.03. Termination Following the Closing Date; Events of
Default; Remedies.
(a) For purposes of this Agreement, each of the
events in Section 10.03(b) hereof will constitute an "Event of
Default" hereunder. For purposes of this Agreement, the party
hereto giving rise to the Event of Default is referred to herein as
the "Defaulting Partner" and the party not giving rise to the Event
of Default is referred to herein as the "Non-Defaulting Partner".
If an Event of Default occurs, the remedies for such Event of
Default will be as set forth in Section 10.03(b) hereof with
respect to such Event of Default; provided, however, that no Event
of Default will give rise to the remedies set forth in
Section 10.03(b) hereof unless such Event of Default is continuing
without resolution following the procedures set forth in
Section 10.03(c) hereof. The remedies provided herein are
cumulative and will not preclude the assertion by any party hereto
of any other rights or seeking any other remedies otherwise
available against the other party hereto (including but not limited
to damages, specific performance and injunctive or other equitable
relief).
(b) Events of Default and the remedies therefor are
as follows:
(i) A party hereto becomes insolvent (however
such insolvency may be evidenced) or makes a general assignment for
the benefit of creditors; in such event, the Non-Defaulting Partner
may elect to terminate this Agreement upon written notice and in
the event of such election to terminate will also elect in such
notice one of the following options (such options collectively
being referred to herein as the "Buy-Out Options"):
a. The Non-Defaulting Partner will purchase
the interest in the Partnership of the Defaulting Partner.
Following such notice, the Defaulting Partner will sell its
interest in the Partnership to the Non-Defaulting Partner for
an agreed upon price, or if no price can be agreed upon, the
fair market value of such interest as determined by an
independent qualified appraiser appointed by the Defaulting
Partner and the Non-Defaulting Partner. If they cannot agree
on an appraiser, the Non-Defaulting Partner and the Defaulting
Partner will each choose an appraiser and the two appraisers
will choose one additional appraiser. The fair market value
of the interest of the Defaulting Partner will be determined
by the three appraisers or, if they cannot agree, will be the
average of the three appraisers' valuation. At the
consummation of the sale of the interest in the Partnership of
the Defaulting Partner, the fair market value of the
Defaulting Partner's interest will be paid in cash or in the
form of a promissory note with such terms, interest rates,
payment amounts and other terms as will be mutually agreed
upon by the Non-Defaulting Partner and the Defaulting Partner;
or
b. The Non-Defaulting Partner will sell its
interest in the Partnership to the Defaulting Partner or,
subject to the consent limitations set forth in subsections
(b)(v) and (vi) below, to a third party; or
c. The Non-Defaulting Partner and the
Defaulting Partner will take all actions required to dissolve
the Partnership.
(ii) A petition in bankruptcy, or for any
relief under any law relating to the relief of debtors,
readjustment of indebtedness, reorganization, composition or
extension will be filed, or any proceeding will be instituted under
any such law, by or against a party hereto; in such event, the Non-Defaulting
Partner may elect to terminate this Agreement upon
written notice and in the event of such election to terminate will
also elect one of the Buy-Out Options.
(iii) Any governmental authority or any court
at the instance thereof will take possession of all or
substantially all of the property of, or assume control over the
affairs or operations of, or a receiver will be appointed for all
or substantially all of the property of, or a writ or order of
attachment or garnishment will be issued or made against all or any
substantial part of the property of, a party hereto; in such event,
the Non-Defaulting Partner may elect to terminate this Agreement
upon written notice and in the event of such election to terminate
will also elect one of the Buy-Out Options.
(iv) Any party's failure to fund working
capital obligations of the Partnership following the Closing Date
or make any payments required under this Agreement or any of the
Material Agreements following the Closing Date; in such event, the
Non-Defaulting Partner will have the option to increase its share
of OR2's Wafer (as defined in the Wafer Supply Agreement) capacity
in an amount equal to [*]. Illustrating by way of example but not
of limitation, if the Non-Defaulting Partner was entitled to [*] of
the capacity of OR2 prior to invocation of the [*], the Non-Defaulting
Partner would be entitled to [*] of the capacity of OR2
following invocation of the [*]. The [*] will be subject to the
following limitations:
(a) the [*] will continue for so long as the
Event of Default remains uncured and for [ * ] thereafter;
(b) the Non-Defaulting Partner will purchase
Wafers subject to the [*] at [*] of the consideration payable
for such Wafers in the absence of the [*] and the Defaulting
Partner will pay to the Partnership [*] of the consideration
payable for such Wafers in the absence of the [*], in each
case pursuant to the terms of the Wafer Supply Agreement, for
so long as the [*] is in effect;
(c) the [*] may not be imposed with respect to
the continuation of an Event of Default during the period that
such Event of Default remains uncured;
(d) the [*] will be limited to a maximum of
[*] of the total capacity of OR2, and the [*] will at all
times be based on total capacity of OR2 (and not the capacity
of OR2 remaining after any application of any [*]).
(v) A change in the beneficial ownership or
voting control of more than [ * ] percent ([ * ]%) of the equity
securities of Cirrus, the Cirrus Partner or the Integrated Circuits
Group of AT&T Microelectronics such that after the change the same
are owned directly or indirectly by one Person (or any Affiliate
of such Person), the merger or consolidation of Cirrus, the Cirrus
Partner or the Integrated Circuits Group of AT&T Microelectronics
with or into any person or entity which is not an Affiliate of such
party, or the sale of all or substantially all of the assets of
Cirrus, the Cirrus Partner or the Integrated Circuit Division of
AT&T Microelectronics; in such event, the Non-Defaulting Partner
may, subject to the following, terminate this Agreement upon
written notice and in the event of such election to terminate will
also elect one of the Buy-Out Options:
(a) The foregoing will not apply to any change
of control pursuant to any transaction effecting the
Restructuring; and
(b) Demonstration by the Non-Defaulting
Partner, exercising its reasonable business judgment, that
such change of control is unacceptable.
(vi) The material breach by any party hereto of
any other provision of this Agreement or any of the Material
Agreements (other than the failure to make payments hereunder or
thereunder and other than a breach of the Lease); in such event,
the Non-Defaulting Partner may elect to terminate this Agreement
upon written notice and in the event of such election to terminate
will also elect one of the Buy-Out Options; provided, however, that
if the Non-Defaulting Partner elects option (a) of the Buy-Out
Options, the fair market value determined by the appraisers, and
therefore the amount paid by the Non-Defaulting Partner for the
interest in the Partnership of the Defaulting Partner, will be
[ * ]; and provided, further, that any sale
to a third party pursuant to option (b) of the Buy-Out Options will
be subject to the consent of the Defaulting Party, such consent not
to be unreasonably withheld.
[ * ]
(c) The parties hereto will follow the following
procedures in connection with the foregoing:
(i) Notice. If an event occurs which, if
uncured, would give rise to an Event of Default, the Non-Defaulting
Partner will give a notice to the Defaulting Partner specifying in
reasonable detail such event, and the Defaulting Partner will have
[ * ] after receipt of such notice to cure such event.
In the absence of such cure, an Event of Default will be deemed to
have occurred as of the first date of the occurrence of such event.
Notwithstanding anything to the contrary contained in this
Agreement, the procedures set forth in this Section 10.03 will
commence and continue during the [ * ] cure period.
(ii) Consultation/Mediation/Arbitration. The
parties will attempt to resolve the event through consultation and
mediation in accordance with the provisions of Section 13.02(b)
hereof (even during the [ * ] cure period described in
the immediately preceding subsection (i)), but any mediation
pursuant to Section 13.02(b) hereof will occur within [ * ]
after selection of the mediator, or such other period to which
the parties may otherwise agree. If the event giving rise to the
Event of Default specified in sections (b)(i) through (iv) of this
Section 10.03 remains uncured following the [ * ] cure
period, the Non-Defaulting Partner may invoke the applicable
remedies specified in section (b) of this Section 10.03. If the
event giving rise to the Event of Default specified in sections
(b)(v) or (vi) of this Section 10.03 remains uncured following the
[ * ] cure period, the parties hereto will pursue
resolution of the matter pursuant to the procedures for mediation
and arbitration set forth in Article XIII hereof. No failure by a
party to provide notice as set forth in this Section 10.03(c) with
respect to a breach hereof or a default by any other party will
constitute a waiver of the former party's right to enforce any
provision hereof or to take action with respect to such breach or
default or any subsequent breach or default.
(iii) Arbitration. If the event remains
unresolved following exhaustion of the procedures set forth in the
immediately preceding subsection (ii), the event will be subject to
the arbitration provisions set forth in Section 13.02(c) hereof.
(d) The parties hereto hereby agree that in the
event of a sale pursuant to this Section 10.03:
(i) for purposes of this Section 10.03 only,
the interest in the Partnership of AT&T will be deemed to include
the AT&T Assets, the other assets of AT&T and the AT&T Partner
comprising OR2, OR1, the Premises and the Land;
(ii) for purposes of this Section 10.03 only,
the interest in the Partnership of Cirrus will be deemed to include
the Cirrus Assets and the other assets of Cirrus and the Cirrus
Partner comprising OR2; and
(iii) such sale will be consummated as soon as
reasonably practicable following the occurrence of the Event of
Default and the election of option (a) or (b) of the Buy-Out
Options by the Non-Defaulting Partner.
In the event of any such sale in which the AT&T Partner is the
Partner selling its interest in the Partnership, AT&T will use its
reasonable best efforts to cause all leases and other agreements
covering the AT&T Assets to be assigned to the Partner or third-party
purchasing such interest, and the Partner or third-party
purchasing such interest will assume all obligations under any such
leases and other agreements. In the event of any such sale in
which the Cirrus Partner is the Partner selling its interest in the
Partnership, Cirrus will use its reasonable best efforts to cause
all leases and other agreements covering the Cirrus Assets to be
assigned to the Partner or third-party purchasing such interest,
and the Partner or third-party purchasing such interest will assume
all obligations under any such leases and other agreements. The
parties hereto acknowledge and agree that AT&T and its Affiliates
may, in its or their sole discretion, enter into transactions,
agreements, understandings or arrangements with respect to the
Premises and/or the Land, including but not limited to those which
may give rise to sales, over leases, mortgages, security interests,
liens or encumbrances; provided, however, that in the event of any
such transactions, agreements, understandings or arrangements, the
Lease will not be terminated other than in accordance with the
terms thereof.
(e) Notwithstanding anything to the contrary
contained in this Article X, the parties hereto agree that a
Deadlock will not result in an Event of Default or be subject to
arbitration hereunder and will be resolved in accordance with the
procedures contained in Sections 13.02 and 3.02(a) hereof.
10.04. Continuing Obligations of the Parties.
Notwithstanding the termination of this Agreement pursuant to
Section 10.03, (i) each of the Material Agreements will continue or
terminate in accordance with its terms, (ii) each party hereto
agrees, and agrees to cause its Affiliates, to continue for [ * ]
transition period, or if shorter as may be agreed to by
the parties hereto and thereto, as the case may be, for their
remaining terms, such agreements and arrangements between the
Partnership and such party or its Affiliate with respect to the
furnishing of products, premises or services as may then be in
existence and (iii) each party hereto agrees to provide for such
transition period the reasonable assistance, on terms and
conditions to be agreed upon, of such party and its Affiliates in
effecting an orderly transition of the Partnership's business.
Unless otherwise agreed to in writing by the parties hereto and
their Affiliates which are parties to the Material Agreements, the
transition period under clauses (ii) and (iii) of this
Section 10.04 will not extend for more than [ * ] following
the consummation of a sale pursuant to Section 10.03.
10.05. Survival. All representations and warranties
will survive the Closing Date and any investigation at any time
made by or on behalf of any party until the third anniversary of
the Closing Date. All covenants and agreements made by the parties
hereto or pursuant hereto or in any other agreement, instrument or
document delivered in connection herewith, including, but not
limited to, the Material Agreements, will survive the Closing Date.
ARTICLE XI
INDEMNIFICATION
11.01. Agreement to Indemnify.
(a) Upon the terms and
subject to the conditions of this Article XI, AT&T and the AT&T
Partner (the "AT&T Group") hereby agrees to indemnify:
(i) Cirrus and the Cirrus Partner (the "Cirrus
Group") from and against any liabilities or damages resulting to
the Cirrus Group by reason or resulting from any inaccuracy in, or
any breach of, any representation or warranty, covenant or
agreement of the AT&T Group contained in or made pursuant to this
Agreement or in or made pursuant to the Material Agreements, except
as otherwise specified therein; and
(ii) the Landlord from and against any
liabilities or damages resulting to the Landlord by reason or
resulting from any matter or the existence of any condition
described in Section 4.10(a)(i) and 4.10(b)(i) hereof.
(b) Upon the terms and subject to the conditions of
this Article XI, the Cirrus Group hereby agrees to indemnify:
(i) the AT&T Group from and against any
liabilities or damages resulting to the AT&T Group by reason or
resulting from any inaccuracy in, or any breach of, any
representation or warranty, covenant or agreement of the Cirrus
Group contained in or made pursuant to this Agreement or in or made
pursuant to the Material Agreements, except as otherwise specified
therein; and
(ii) the Landlord from and against any
liabilities or damages resulting to the Landlord by reason or
resulting from any matter or the existence of any condition
described in Section 4.10(a)(ii) and 4.10(b)(ii) hereof.
(c) Each matter for which the AT&T Group or the
Cirrus Group has agreed to provide indemnification pursuant to
Section 11.01(a) or 11.01(b) hereof is hereinafter referred to as a
"Claim" and collectively as "Claims".
11.02. Conditions of Indemnification. The obligations
and liabilities of the AT&T Group, on the one hand, and the Cirrus
Group, on the other hand, under Section 11.01 hereof with respect
to Claims will be subject to the following terms and conditions:
(a) The person seeking indemnification (the
"Indemnified Party") will give the person providing indemnification
(the "Indemnifying Party") prompt notice of any such Claim, which
notice will set forth the details of the Claim and the specific
provisions of this Agreement relating thereto, and the Indemnifying
Party will undertake the defense thereof by representatives chosen
by it. The notice will set forth the details of the Claim and the
specific provisions of this Agreement relating thereto.
(b) The Indemnified Party will make available to
the Indemnifying Party all records or other materials reasonably
requested by it for its use in contesting any Claim and will
cooperate fully with the Indemnifying Party in the defense of all
such Claims.
(c) If the Indemnifying Party, within a reasonable
time after notice of any such Claim, fails to defend the
Indemnified Party, the Indemnified Party (upon further notice to
the Indemnifying Party) will have the right to undertake the
defense, compromise or settlement of such Claim on behalf of and
for the account and risk of the Indemnifying Party, subject to the
right of the Indemnifying Party to assume the defense of such Claim
at any time prior to settlement, compromise or final determination
thereof.
(d) Anything in this Section 11.02 to the contrary
notwithstanding, (i) if there is a reasonable probability that a
Claim may materially and adversely affect the Indemnified Party
other than as a result of money damages or other money payments,
the Indemnified Party will have the right to defend, compromise or
settle such Claim; provided, however, that no settlement which
would require indemnification by the Indemnifying Party will be
entered into without the consent of the Indemnifying Party, which
consent will not be unreasonable withheld or delayed, and (ii) the
Indemnifying Party, will not settle or compromise any Claim or
consent to the entry of any judgment which does not include, as an
unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability
in respect of such Claim.
(e) The AT&T Group will have no obligation to
indemnify for liabilities or damages under Section 11.01(a)(i)
hereof and the Cirrus Group will have no obligation to indemnify
for liabilities or damages under Section 11.01(b)(i) hereof unless
and until the aggregate of their respective liabilities or damages
exceeds $[*], and in no event will the amount payable pursuant to
the AT&T Group's obligation to indemnify for liabilities or damages
under Section 11.01(a)(i) hereof or the amount payable pursuant to
the Cirrus Group's obligation to indemnify for liabilities or
damages under Section 11.02(b)(i) exceed $[*].
(f) No loss, damage or expense will be deemed to
have been sustained by an Indemnified Party under this Article XI
to the extent of (i) any tax savings realized by such Indemnified
Party with respect thereto or (ii) any proceeds received by such
Indemnified Party from any insurance policies with respect thereto;
provided, however, that the parties hereto acknowledge and agree
that no party will be required pursuant to this Article XI to
mitigate liabilities or damages by seeking tax savings or insurance
proceeds.
ARTICLE XII
AUDITORS; ACCOUNTING MATTERS
12.01. Independent Accountant. The Partnership will
retain Coopers & Lybrand as its initial Independent Accountant. In
the event that AT&T or its successors or assigns does not appoint
Coopers & Lybrand as its independent public accountant, the
Partnership will retain such other independent public accountant as
AT&T or its successors or assigns may appoint.
12.02. Financial Statements. The Partnership will
maintain at its principal office books, records and reports
pertaining to all operations and reflecting, in accordance with the
accounting standard prescribed in this Section 12.02, all receipts
and expenditures of the Partnership and as otherwise required by
applicable law. The financial statements and books and records of
the Partnership will be maintained in accordance with GAAP. The
year-end financial statements of the Partnership will be audited by
the Independent Accountant. The Independent Accountant will submit
to the Partnership its report(s) on the financial statements of the
Partnership and the schedules with respect thereto prepared in
accordance with GAAP and in such form and substance as to allow
consolidation of the Partnership's financial statements with the
financial statements of AT&T.
12.03. Reports. As soon as available and in any event
within forty-five (45) days after the end of each fiscal quarter of
the Partnership during the first fiscal year of the Partnership,
and within thirty (30) days after the end of each fiscal quarter of
the Partnership thereafter, the Partnership will provide to each
party hereto an unaudited consolidated balance sheet and profit and
loss statement of the Partnership and its subsidiaries, if any, and
a cash flow statement for such period prepared in accordance with
GAAP. As soon as available and in any event within ninety
(90) days after the close of the first fiscal year of the
Partnership, and within sixty (60) days after the close of each
fiscal year of the Partnership thereafter, the Partnership will
provide each party hereto with a consolidated balance sheet and
profit and loss statement of the Partnership and its subsidiaries,
if any, and a cash flow statement as at the end of and for the
fiscal year, reviewed (but not audited) by the Independent
Accountant, prepared in accordance with GAAP.
12.04. Fiscal Year. The Partnership's fiscal year will
be the calendar year unless otherwise designated at a general
meeting of the members of the Partnership.
ARTICLE XIII
NOTICE OF DEADLOCK OR DISPUTE; DISPUTE RESOLUTION;
ARBITRATION
[ * ]
ARTICLE XIV
MISCELLANEOUS
14.01. Notices. Any notice to be given under this
Agreement will be deemed to have been duly given upon receipt when
in writing and delivered in person, by facsimile transmission, by
telex or by courier, addressed as follows:
(a) If to AT&T or the AT&T Partner:
AT&T Corp.
555 Union Boulevard
Allentown, PA 18103
Attention: Paul Mostek
Facsimile: 610-712-5336
with a copy to:
AT&T Corp.
AT&T Microelectronics
Two Oak Way
Berkeley Heights, NJ 07922
Attention: Law Department
Facsimile: 908-771-4582
(b) If to Cirrus or the Cirrus Partner:
Cirrus Logic, Inc.
3100 West Warren Avenue
Fremont, CA 94538-6423
Attention: Ed Ross
Facsimile: 510-226-2230
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Arthur F. Schneiderman, Esq.
Facsimile: 415-493-6811
(c) If to the Partnership:
Addressed to the Partnership as
Named in the General Partnership
Agreement
9333 South John Young Parkway
Orlando, FL
with a copy to:
AT&T Corp.
555 Union Boulevard
Allentown, PA 18103
Attention: Paul Mostek
Facsimile: 610-712-5336
and with an additional copy to:
Cirrus Logic, Inc.
3100 West Warren Avenue
Fremont, CA 94538-6423
Attention: Ed Ross
Facsimile: 510-226-2230
Any party or the Partnership may change its address provided above
for the purpose hereof by giving written notice to the other party
hereto of such change in the manner hereinabove provided.
14.02. Governing Law. This Agreement and all questions
of its interpretation will be construed in accordance with the laws
of the State of New York without regard to its principles of
conflicts of laws.
14.03. Assignment. Except to the extent permitted under
Article X hereof, the rights and obligations under this Agreement
may not be assigned by any party to any person; provided, however,
AT&T may assign this Agreement and its rights and obligations
hereunder in connection with any transaction effecting the
Restructuring and any such assignment will release AT&T of its
obligations and liabilities hereunder. Any other attempted
assignment in contravention of this provision will be void.
14.04. Limitation of Liability. Notwithstanding
anything to the contrary contained herein, none of the parties
hereto or their respective Affiliates will be liable for the
incidental, indirect, special or consequential damages of the other
party hereto or its Affiliates. THEREFORE, THE PARTIES HERETO
(INCLUDING FOR THIS PURPOSE THEIR AFFILIATES) EXPRESSLY ACKNOWLEDGE
AND AGREE THAT THEY WILL NOT BE LIABLE FOR EACH OTHER'S INCIDENTAL,
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS
OR LOST REVENUES) UNDER THIS AGREEMENT OR THE MATERIAL AGREEMENTS,
REGARDLESS OF WHETHER SUCH LIABILITY ARISES IN TORT, CONTRACT,
BREACH OF WARRANTY, INDEMNIFICATION OR OTHERWISE.
14.05. Further Assurances. The parties hereto and the
Partnership will, from time to time and without further
consideration, execute and deliver such other documents and
instruments of transfer, conveyance and assignment and take such
further action as the other may reasonably require to effect the
transactions contemplated hereby.
14.06. Entire Agreement. This Agreement and the
Material Agreements, together with all Exhibits, Schedules,
Appendices and attachments hereto and thereto, represent the entire
agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersedes any prior agreement or
understanding, written or oral, that the parties hereto may have
had, except for that certain letter agreement between AT&T and
Cirrus dated May 5, 1995.
14.07. Amendments. Any modification, amendment, or
waiver of any provision hereof will be effective if, but only if,
in writing and signed in person or by an authorized representative
of each party against whom enforcement of such modification,
amendment or waiver is sought.
14.08. Captions. The title headings of the respective
articles and sections hereof are inserted for convenience and will
not be deemed to be a part hereof or considered in construing this
Agreement.
14.09. Severability. If any article, section or
paragraph, or part thereof, hereof, or any agreement or document
appended hereto or made a part hereof is invalid, ruled illegal by
any court of competent jurisdiction, or unenforceable under present
or future laws effective during the term hereof, then it is the
intention of the parties hereto that the remainder of the
Agreement, or any agreement or document appended hereto or made a
part hereof, will not be affected thereby unless the deletion of
such provision will cause this Agreement to become materially
adverse to any party in which case the parties hereto will
negotiate in good faith such changes to this Agreement as will best
preserve for the parties hereto the benefits and obligations of
such provision.
14.10. Counterparts. This Agreement may be executed in
two or more counterparts, and by each party on the same or
different counterparts, but all of such counterparts will together
constitute one and the same instrument.
14.11. Waivers. No failure by a party to take any
action with respect to a breach hereof or a default by any other
party will constitute a waiver of the former party's right to
enforce any provision hereof or to take action with respect to such
breach or default or any subsequent breach or default. Waiver by
any party of any breach or failure to comply with any provision
hereof by a party will not be construed as, or constitute, a
continuing waiver of such provision, or a waiver of any other
breach of or failure to comply with any other provision hereof.
14.12. Public Announcements. No party hereto will,
without the approval of both AT&T and Cirrus, make any press
release or other public announcement or response to an inquiry
initiated by the press concerning the terms of the transactions
contemplated by this Agreement or any of the Material Agreements,
except as and to the extent that any such party will be so
obligated by law, in which case both AT&T and Cirrus will be so
advised and the parties hereto will use their best efforts to cause
a mutually agreeable release or announcement to be made. If either
party hereto receives any inquiries with respect to this Agreement
or the transactions contemplated hereby, such party may address
such inquiry to the extent required by law; provided, however, in
no event will such party disclose Confidential Information in the
course of such disclosure, except as otherwise permitted in
accordance with Article VI hereof. The parties hereto will
cooperate in making public announcements concerning this Agreement
immediately following the date of its execution by all parties
hereto and immediately following the Closing Date. Nothing in this
Section 14.12 will be construed to restrict the Partnership from
conducting its marketing, advertising, public relations and related
activities.
14.13. No Agency. This Agreement will not constitute
either party hereto as the legal representative or agent of the
other, nor will either party hereto have the right or authority, to
assume, create or incur any liability or obligation, express or
implied, against, in the name of, or on behalf of the other party
hereto, or the Partnership.
14.14. No Third Party Beneficiaries. Nothing expressed
or mentioned in this Agreement is intended or will be construed to
give any person other than the parties hereto, the Partnership and
their respective successors and permitted assigns any legal or
equitable right, remedy or claim under or in respect hereof or any
provision herein contained.
IN WITNESS WHEREOF, this Agreement has been duly executed
by or on behalf of each of the parties hereto as of the date first
above written.
AT&T CORP.
By:
Name:
Title:
ATOR CORP.
By:
Name:
Title:
CIRRUS LOGIC, INC.
By:
Name:
Title:
CIROR, INC.
By:
Name:
Title:
Appendix
Relocation Positions; Relocation Principles
1. Ten Positions: AT&T will obtain prior consent from Cirrus,
such consent not to be unreasonably withheld, for relocation
of employees staffing jobs identified in the list to be
provided by Cirrus at or prior to the Closing. In the event
that such relocation is initiated by an employee rather than
by AT&T, Cirrus will provide its consent to such relocation,
which relocation will occur within ninety (90) days of notice
by AT&T. In the event of a proposed relocation, AT&T will
identify a replacement for such relocated employee prior to
seeking Cirrus' approval for such relocation.
2. Other AT&T Employees: Reassignment will be limited in
accordance with the terms of the Annual Plan.
[ARTICLE] 5
[MULTIPLIER] 1
FOUNDRY VENTURE AGREEMENT
This Foundry Venture Agreement ("Foundry Venture Agreement")
is entered into as of September 29, 1995, by and between Cirrus
Logic, Inc., a corporation with its headquarters in California
("Cirrus") and United Microelectronics Corporation, a corporation
organized under the laws of the Republic of China ("UMC").
Cirrus understands that UMC is in discussions with others who
are interested in participating in FabVen. Cirrus agrees that UMC
may commit to such others (collectively referred to in this
Foundry Venture Agreement as "OtherVen") in such amounts as UMC
deems appropriate, subject to the commitments made to Cirrus
hereunder, and provided further that each OtherVen must commit in
writing to comply with and be bound by this Foundry Venture
Agreement as if specifically named as a Venturer herein.
Notwithstanding such OtherVen, Cirrus will be fully bound by and
is committed to the terms of this Foundry Venture Agreement.
Cirrus, OtherVen and UMC (collectively "the Venturers")
agree:
1. PURPOSE AND FORMATION OF VENTURE
1.1 Subject to the Technology Transfer and License Agreement and
the Foundry Capacity Agreement referred to in paragraphs 3 and 5
below (collectively, the "Venture Agreements"), the Venturers each
commit to form and invest in a corporation to be formed under the
laws of the Republic of China ("R.O.C.") for purposes of engaging
in the business of providing integrated circuit foundry services,
making and selling integrated circuits in wafer, die and packaged
form as generally described in the FabVen Business Plan referred
to in paragraph 1.4 below.
1.2 UMC will arrange the formalities of submission to the
Administration of the Science Based Industrial Park for approval
of and then for incorporation of the corporation contemplated
under this Foundry Venture Agreement, using a name mutually
agreeable to the Venturers (for purposes of this Foundry Venture
Agreement, the corporation contemplated under this Foundry Venture
Agreement shall be referred to as "FabVen."). All reasonable
expenses, up to a maximum of USD [*] (exclusive of fees to be paid
to the government), incurred by UMC pursuant to this paragraph 1.2
with respect to such incorporation shall be subject to
reimbursement by FabVen if the FabVen shares contemplated under
Paragraph 4 are not issued to UMC as described below.
1.3 Subject to the terms of the Venture Agreements, FabVen shall
engage in the business of foundry services, and develop and
improve processing and manufacturing techniques in order to
improve its competitiveness in the foundry area.
1.4 UMC will submit to the Science Based Industrial Park a
written business plan (the "FabVen Business Plan") for the
operations and for the capital structure and expenditures of
FabVen; this FabVen Business Plan is subject to approval by the
Administration of the Science Based Industrial Park; and, subject
to the conditions of confidentiality in Paragraph 9.7 below, will
be made available to the Venturers. As part of the FabVen
Business Plan, the Venturers contemplate FabVen will apply for
"tax holiday" and/or other favorable tax treatment under R.O.C.
law.
2. INITIAL OPERATIONS
2.1 The Venturers generally contemplate the Building and
Construction Schedule for FabVen as shown in Attachment A and the
Production and Business Schedule for FabVen as shown in Attachment
B.
2.2 Under mutually agreeable written terms to be negotiated
between UMC and FabVen, FabVen shall lease from UMC the land
generally described in Attachment C, and commonly known as UMC's
Module C, located at No. 3 Li-Hsin Road Science Based Industrial
Park, Hsin Chu City, Taiwan, R.O.C.
(a) The Venturers contemplate that except as agreed by them
in writing, the terms of this lease will be at the market rate
which would be negotiated between a lessor and lessee dealing with
one another at arms length in the context of an independent lease
and not based on some other business relationship.
(b) Without limiting the foregoing, any and all services and
supplies (including without limitation power, water, gas and/or
materials) will not be part of such lease, and will be the subject
of such terms as may be negotiated by FabVen.
(c) The lease term for Module C will be for an initial
period of five years, and FabVen will have the right to extend the
lease for up to two additional five year periods under terms to be
stated in the lease agreement. FabVen will occupy the land for
this Module as its principal place of business, and will utilize
this land for its production facility.
2.3 The Venturers shall each cooperate to build out this land as
FabVen's production facility as quickly and efficiently as
commercially reasonable, provided however that this Paragraph 2.3
shall not impose any obligation to provide additional funding
beyond that expressly required under this Foundry Venture
Agreement.
3. TECHNOLOGY TRANSFER AND MANAGERIAL SUPPORT
Promptly after FabVen's formation, UMC and FabVen will enter
into a mutually agreeable Technology Transfer and License
Agreement pursuant to which UMC will transfer to FabVen for use in
FabVen facilities the Licensed Process (as defined in the
Technology Transfer and License Agreement) and related
manufacturing know-how. The execution of the Technology Transfer
and License Agreement is an essential aspect of the relationship
contemplated under this Foundry Venture Agreement.
4. INVESTMENT COMMITMENTS & STOCK PURCHASE AND SHAREHOLDER
AGREEMENTS & REPRESENTATION ON BOARD OF DIRECTORS
4.1 The Venturers will purchase shares in FabVen as follows:
(a) The total capital of FabVen shall be USD $1 Billion:
USD $600 million will be by investment in standard shares, and, as
may be approved by the FabVen board of directors, USD $400 million
(plus any other additional capital required) will be by way of
participation in UMC credit facilities and/or bank loans, and/or
will be by way of other debt and/or equity to the extent such
other debt and equity is approved in writing by each of the
Venturers. Notwithstanding anything to the contrary, (i) UMC
shall not be required to provide participation on behalf of FabVen
in UMC's credit facilities in any amount in excess of USD $400
million, and (ii) provided further that, to the extent demanded
by the lender and subject to the requirements of the law, UMC
shall guarantee such bank loans made directly to FabVen but only
so long as and to the extent that the total FabVen capital
financed by way of participation in credit facilities, bank loans,
debt and/or such other equity (excluding the investment stated in
the table of paragraph 4.1(b) below) is less than and/or equal to
USD $410 million.
(b) The Venturers will invest according to the following
table:
Standard share % $ investment represented by standard share (USD
millions)
Technical share %
Cirrus 15% $90M 0%
OtherVen TBD% $TBD 0%
UMC, UMC Affiliates* FabVen employees, UMC employees** & R.O.C.
financial institutions 40% $240M 15%
Total shareholding 85% $510M 15%
*For purposes of this Foundry Venture Agreement, "UMC Affiliates"
shall mean those entities: (i) nominated by UMC and approved by
the Venturers in writing, (ii) which UMC directly and/or
indirectly controls, and/or (iii) in which UMC directly or
indirectly owns a majority interest. **UMC employees who intend to
become (and who later become) regular employees of FabVen will be
among the FabVen shareholders pursuant to this table. The UMC
employees and the eligible FabVen employees shall be required to
pay the value shown in this table for their standard shares.
(c) The Venturers shall pay in cash for their standard
shares as follows:
(i) twenty-five percent (25%) to be paid in full on the
later of September 15, 1995, or when the appropriate
governmental approvals for the formation of FabVen have been
obtained; (ii) fifty percent (50%) to be paid in full on or
before the start of clean room construction; and (iii) the
remainder, twenty-five percent (25%), to be paid in full on or
before the start of fab production ramp-up.
(d) Subject to the requirements of law and pursuant to the
applicable statutory and regulatory rules, the standard shares of
the Venturers, of the UMC Affiliates, of the UMC employees, and of
the FabVen employees as shown in paragraph 4.1(b) above shall vest
upon payment for the shares involved; UMC's technical shares shall
vest upon completion of first silicon for any process licensed
from UMC having feature sizes of 0.35u or less; the shares of UMC
Affiliates (to the extent fully paid) shall be issued as UMC
requests; and the shares of UMC and UMC Affiliates shall be
transferrable amongst UMC and UMC Affiliates without the necessity
of FabVen's, Cirrus's, and/or OtherVen's prior written consent.
(e) The Venturers' shares shall be common stock, and, to the
fullest extent allowable under the law, will be registered in any
public offering by FabVen, provided that with respect to such
shares, each Venturer (and all UMC Affiliates holding such shares)
must follow and comply with all requirements of R.O.C. law and of
the Taiwan Securities and Exchange Commission and of the Taiwan
Securities Exchange, including, without limitation, with respect
to stand-still, lock-up, and/or other requirements.
(f) Until FabVen completes a successful offering of its
shares on a recognized securities exchange, the shares of the
Venturers (and of UMC Affiliates holding such shares) in FabVen
will not be transferable in any manner whatsoever except with the
written consent of the Venturers, provided however that any
Venturer may transfer its entire right, title and interest in
FabVen (including its proportionate right of first refusal for
foundry capacity, the "Foundry Rights") and other rights under the
Foundry Venture Agreement and/or Venture Agreements:
(i) once but only to the extent and only as part of a transfer of
all or substantially all of the assets, business and/or ownership
of that Venturer to a transferee subject, with respect to the
Foundry Rights, to the terms of paragraph 4.1(f)(iii) below;
and/or (ii) once to or between itself and any of its
subsidiaries in which, at the time of such transfer, the
transferring Venturer owns at least 50%. Notwithstanding
anything to the contrary:
(iii) the Foundry Rights when and if transferred pursuant to
Paragraph 4.1(f)(i) above shall only be exercisable with respect
to the manufacture of products which the transferring Venturer at
the time of such transfer was selling, was designing (as
reflected in contemporaneous documents) or was contemplating
designing and selling (as demonstrated in its then written
business plan(s)), and all future revisions and more highly
integrated versions of such products. (iv) if prior to the
completion of a public offering of FabVen securities on a
recognized securities exchange, any Venturer (or UMC Affiliate
holding such shares) wishes and/or attempts to transfer its
shares in FabVen (other than as allowed by Paragraph 4.1(f)(i)
and/or 4.1(f)(ii)) pursuant to any Court or other order or law,
or as a result of any nonconsensual action by any authority with
jurisdiction, the shares involved will be subject to a right of
first refusal as follows: (aa) the other Venturers
(the "eligible other Venturers") will have the right to
purchase the shares involved at their then fair market value as
determined by a mutually agreeable independent appraiser;
(bb) each such eligible other Venturer will have the
right to purchase such shares on a pro rata basis as
determined by the ratio of their respective shareholding
percentages (which, absent any previously permitted
transfers, would be as shown in the table in Paragraph
4.1(b) above); (cc) if any such eligible other
Venturer elects not to exercise any portion or all of such
right of first refusal within 30 days of the independent
appraisal, such portion of such right of first refusal will
be subject to exercise by the other eligible other Venturer, and
the shares involved will be subject to a right of such other
eligible other Venturer to purchase on the same terms as
outlined above; and (dd) if the other eligible other
Venturer does not commit to purchase such shares within 60
days of the independent appraisal, all rights under this Paragraph
4.1(f)(iv) will expire as to such unpurchased shares.
(g) Subject to the requirements of and to the extent
permissible under R.O.C. law, to the extent that FabVen wishes to
offer any equity beyond the USD $600 million referred to in
Paragraph 4.1(a) above, each Venturer shall have the right of
first refusal to participate in such offering in proportion to its
then current respective shareholding.
4.2 The parties shall in good faith after execution of this
Foundry Venture Agreement enter into negotiations regarding audit
and information rights to be provided to the Venturers, in order
to, among other things, make timely public disclosure of
information about FabVen's profits, losses, and/or other financial
information reasonably required, in the view of such Venturer's
counsel and accountants, to be disclosed separately, in
conjunction with, or consolidated into, such Venturer's public
quarterly, annual and/or other reports. Such rights shall at a
minimum be sufficient for such Venturers to timely comply with
their public reporting obligations, but shall not require FabVen
to pay for and/or incur the expenses of such matters. In the event
the parties do not reach agreement on such rights by December 15,
1995, the extent of such rights will be decided conclusively by
Price Waterhouse & Co. (Taipei office) and a nationally recognized
independent accounting firm nominated by Cirrus and OtherVen. If
the aforesaid accounting firms fail to decide such rights by
January 30, 1996, the matter shall be resolved by binding
arbitration on an expedited basis.
5. FOUNDRY CAPACITY & COMMITMENTS
Each Venturer's obligations under Paragraphs 1 to 5 of this
Foundry Venture Agreement shall be conditioned upon entry by the
Venturer into a Foundry Capacity Agreement with FabVen (the
"Foundry Capacity Agreement") and none of the obligations of the
Venturer or of FabVen under those sections shall be binding until
such time as it enters such a Foundry Capacity Agreement. The
terms of the Articles of Incorporation and Bylaws of FabVen shall
be consistent with the terms of this Foundry Venture Agreement,
and the Venture Agreements.
6. TERMINATION OF RIGHTS & PRIVILEGES
6.1 Subject to Paragraph 6.2 below, any one or more of the
Venturers and/or FabVen (collectively "the Parties") shall have
the right to terminate the rights of any other Party under this
Foundry Venture Agreement and/or the Venture Agreements by giving
written notice of termination to that other Party at any time upon
or after:
(a) the filing by the other Party of a petition in bankruptcy
or insolvency;
(b) any adjudication that the other Party is bankrupt or
insolvent;
(c) the filing by the other Party of any petition or answer
seeking reorganization, readjustment or arrangement of its
business under any law relating to bankruptcy or insolvency;
(d) the appointment of a receiver for all or substantially all
of the property of the other Party;
(e) the making by the other Party of any assignment for the
benefit of creditors; or,
(f) the institution of any proceeding for the liquidation or
winding up of the other Party's business or for the termination of
its corporate charter.
Notwithstanding anything to the contrary, no termination under
this Paragraph 6.1 as to such other Party shall affect the rights
of any other Venturer under this Foundry Venture Agreement and/or
the Venture Agreements.
6.2 (a) Termination pursuant to Paragraph 6.1 above shall be
effective immediately upon delivery of the written notice, or in
the case of airmail notice, four days after dispatch, pursuant to
Paragraph 8 below.
(b) Upon termination as to a Venturer under Paragraph 6.1
above, any shares held by that Venturer shall be subject to
purchase by the remaining Venturers pursuant to Paragraph
4.1(f)(iv) above.
(c) Except as permitted in paragraph 4.1(f), no Venturer may
transfer its interest or right in FabVen in any manner to any
competitor of UMC or to any entity in the business of fabricating
integrated circuits except under terms (i) in which such Venturer
first relinquishes and releases all rights to FabVen capacity
under this and any and all other agreements, and (ii) in which
such entity and/or competitor expressly consents in writing that
they have no such interest or right to such capacity.
6.3 FabVen will undertake its reasonable best efforts to implement
the Technology Road Map attached as Attachment B, and to achieve
the goals described in the FabVen Business Plan. In addition, and
subject to the terms of this Foundry Venture Agreement and the
Venture Agreements, FabVen will cooperate with each Venturer in a
commercially reasonable manner to qualify products of such
Venturer under the processes involved.
7. DISPUTE RESOLUTION
7.1 The Venturers and FabVen shall cooperate and attempt in
good faith to resolve any and all disputes arising out of and/or
relating to this Foundry Venture Agreement and/or any of the
Venture Agreements. Without limiting the foregoing, within thirty
days of a written demand to meet to resolve such a dispute, senior
management with the authority to negotiate and resolve the issues
shall meet in the State of Hawaii or in some other mutually
agreeable location to discuss the issues, from time to time during
the forty-five day period following such demand (or longer if
agreeable to the Venturers involved) as reasonably requested by
any party involved, and such senior management will attempt to
resolve the dispute.
7.2 Any such disputes relating to and/or arising out of this
Foundry Venture Agreement and/or any of the Venture Agreements
which cannot be so resolved will be decided exclusively by binding
arbitration under procedures which ensure efficient and speedy
resolution. Such an arbitration may be commenced by FabVen and/or
any Venturer involved in the dispute (i) after the expiration of
the forty-five day period following the written demand to meet to
resolve the dispute pursuant to Paragraph 7.1 above, and/or (ii)
at such earlier time as any Party involved repudiates and/or
refuses to continue with its obligations to negotiate in good
faith.
7.3 The arbitration hearing will be before a panel of three
neutral, independent arbitrators. The arbitration hearing will be
conducted in the State of Hawaii, and will be in the English
language (with translations and interpretations as reasonable for
the presentation of evidence and/or conduct of the arbitration).
Notwithstanding anything to the contrary, any party may apply to
any court of competent jurisdiction for interim injunctive relief
as may be allowed under applicable law with respect to irreparable
harm which cannot be avoided and/or compensated by such
arbitration proceedings, without breach of this Paragraph 7 and
without any abridgment of the powers of the arbitrators.
7.4 The arbitration will be conducted under the Rules of the Asia
Pacific Arbitration Center. Notwithstanding anything to the
contrary: (a) the arbitrators will have no power to order
discovery; and
(b) the arbitrators shall require pre-hearing exchange of
documentary evidence to be relied upon by each of the respective
parties in their respective cases in chief, and pre-hearing
exchange of briefs, witness lists and summaries of expected
testimony.
7.5 The arbitrators will make their decision in writing; and their
decision will be binding upon the Venturers and FabVen and it may
be entered by any court having jurisdiction.
8. NOTICES
All notices required or permitted to be given under this
Foundry Venture Agreement and/or any of the Venture Agreements
shall be in writing and be deemed as given when delivered, or in
the case of airmail, four days after dispatch, and shall be
addressed as follows and dispatched by personal delivery, by
airmail letter in any post office in the U.S. or in Taiwan, or by
facsimile:
If to Cirrus: Cirrus Logic, Inc. 3100 West Warren Ave. Fremont,
CA 94538 Attention: President fax (408) 249-4210; fon (408)
249-4594 If to UMC: United Microelectronics Corporation No. 13
Innovation Road I Science Based Industrial Park Hsin Chu City,
Taiwan, R.O.C. Attention: John Hsuan, President fax (035)
774-767; fon (035) 782-258 If to FabVen: FabVen No. 3
Li-Hsin Road Science Based Industrial Park Hsin Chu City,
Taiwan, R.O.C. Attention: President fax (035)
; fon (035)
Any Venturer and/or FabVen may at any time give written notice of
a change of its address to the others.
9. MISCELLANEOUS
9.1 No Party shall be liable to the others with respect to the
failure or delay in the performance of any obligation under this
Foundry Venture Agreement and/or any of the Venture Agreements for
the time of and to the extent that such failure is caused by or
the result of war, fire, flood, earthquake, acts of god or any
causes beyond the reasonable control of the Venturers and/or
FabVen.
9.2 No Party shall be liable to the others (i) for any special,
incidental, indirect or consequential damages; (ii) for increased
costs of obtaining substitute goods or services to the extent such
increased costs are in excess of those amounts which such Party
would have been entitled to receive for the goods and services
involved had it properly performed; (iii) for loss of use,
opportunity, market potential, and/or profit, on any theory
(whether contract, tort, from third party claims or otherwise).
9.3 Except as expressly stated above and in Paragraphs 9.5 and/or
9.13 below and/or in the Venture Agreements, no Party makes any
warranties or representations (express, implied or statutory), and
there are no other warranties, representations, or indemnities,
and THE PARTIES EXPRESSLY DISCLAIM ALL SUCH OTHER WARRANTIES,
INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE. Without
limiting the foregoing, except as expressly stated in this Foundry
Venture Agreement and/or in any of the Venture Agreements (these
"Agreements"), there are no other representations and/or
warranties concerning the subject matter of such Agreements,
and/or relating to FabVen of any sort or manner, and each Party
expressly agrees that it is not relying upon any such other
representations and/or warranties. Each Party has consulted with
counsel concerning such Agreements and FabVen, and enters into
these Agreements with full advice and understanding and accepting
the risks involved.
9.4 Notwithstanding anything to the contrary (whether in the
Venture Agreements or elsewhere), nothing contained in this
Foundry Venture Agreement, in the Venture Agreements, and/or in
the FabVen Business Plan shall be or be construed as:
(a) a warranty or representation as to the validity, utility,
suitability or economic viability of this opportunity or of any
intellectual property or technology except as expressly stated in
paragraph 9.5 below, in Paragraph 9 of the Technology Transfer and
License Agreement, and/or in Paragraphs 5 and/or 7 of the Foundry
Capacity Agreement;
(b) a warranty or representation that any manufacture, sales,
use or other disposition of products to be manufactured by FabVen
will be free from infringement of patents, utility models and/or
design patents other than those under which licenses have been
granted hereunder and/or except as expressly stated in paragraph
9.5 below, and/or in Paragraph 7 of the Foundry Capacity
Agreement;
(c) a warranty or representation that FabVen will be
successful, that FabVen will realize and/or fulfill any of its
Business Plans, that FabVen will go public or return profit to the
Parties, or that the Parties will recover their investments (for
purposes of this Paragraph 9.4(c), any covenant or obligation in
these Agreements shall not be eliminated and/or excluded by reason
of it also being part of the FabVen Business Plan, nor shall this
Paragraph 9.4(c) absolve FabVen from efforts required under these
Agreements to implement the FabVen Business Plan);
(d) conferring any right to the other Parties to use in
advertising, publicity, or otherwise, any trademark, trade name or
names of any Party, or any contraction, abbreviation or simulation
thereof; and/or
(e) conferring by implication, estoppel or otherwise, upon
any Party any license or other right under any class or type of
patent, utility model or design patent except the licenses and
rights expressly granted under the Venture Agreements.
9.5 (a) Each Venturer represents and warrants to the other
Venturers and to FabVen that all technology, processes, masks and
other information transferred by that Venturer pursuant to the
terms of this Foundry Venture Agreement and/or the Venture
Agreements, and/or its respective foundry relationship with FabVen
shall be free from any claims of infringement or violation of
valid and enforceable trade secret, trademark, copyright, and/or
mask work rights of others; and that Venturer shall defend,
indemnify and hold the other Venturers and FabVen harmless from
and against any claims to the contrary, provided however that such
indemnifying Venturer shall receive (i) prompt written
notification of any claim for which it is providing
indemnification under this Paragraph 9.5, (ii) the right to
assume, in a prompt fashion, sole control of the defense or
settlement of such claim (provided that the indemnifying Venturer
cannot commit any other Venturer and/or FabVen to the payment of
sums), and (iii) reasonable assistance from the indemnified party
or parties, at the indemnifying Venturer's request and expense and
provided further that if the indemnifying Venturer assumes sole
control of the defense of such claim, the indemnified party may,
at its expense, participate in such defense.
(b) FabVen represents and warrants to the Venturers that
all technology, processes, masks and other information transferred
by it (in products or otherwise) or used by it in any process
employed in the fabrication of products pursuant to the terms of
this Foundry Venture Agreement and/or the Venture Agreements,
and/or under its respective foundry relationships with the
Venturers shall be free from any claims of infringement or
violation of valid and enforceable trade secret, trademark,
copyright, and/or mask work rights of others; and FabVen shall
defend, indemnify and hold the Venturers harmless from and against
any claims to the contrary, provided however that FabVen shall
receive (i) prompt written notification of any claim for which it
is providing indemnification under this Paragraph 9.5, (ii) the
right to assume, in a prompt fashion, sole control of the defense
or settlement of such claim (provided that FabVen cannot commit
any Venturer to the payment of sums), and (iii) reasonable
assistance from the indemnified party or parties, at FabVen's
request and expense, and provided further that if FabVen assumes
sole control of the defense of such claim, the indemnified party
may, at its expense, participate in such defense.
9.6 The obligations of the Parties under Paragraphs 1 to 5 above
shall be subject to and conditioned upon funding of FabVen by the
Venturers and upon approval of the formation of FabVen and of its
operation at Module C by all required governmental authorities,
including without limitation, the Science Based Industrial Park
Administration, but the obligations under the other Paragraphs of
this Agreement shall not be so conditioned. UMC shall cooperate
with FabVen in securing such approvals within the time
contemplated under the schedule of Attachment A. The obligations
and responsibilities of the Venturers and FabVen under Paragraphs
6 to 9 shall survive the expiration and/or termination of this
Foundry Venture Agreement.
9.7 (a) For purposes of these Agreements, "Confidential
Information" shall mean:
(i) any information disclosed by one party to another
pursuant to or in connection with these Agreements which is in
written, graphic, machine readable or other tangible form and
is marked confidential, proprietary, or in some other manner to
indicate its confidential nature; and (ii) any
information orally disclosed by one party to another pursuant to
or in connection with these Agreements provided that such
information is designated as confidential at the time of
disclosure and reduced to a writing delivered to the receiving
party within thirty days of the oral disclosure and detailing
the confidential information involved. (b) Each party
shall treat as confidential all Confidential Information provided
by any other party, shall not use or disclose such Confidential
Information except as contemplated in these Agreements and then
only subject to written confidentiality agreements at least as
protective as those stated in this Foundry Venture Agreement.
Without limiting the above, each party shall use at least the same
procedures and degree of care which it uses to prevent the
disclosure of its confidential information of like importance and
shall in no event use less than reasonable procedures and a
reasonable degree of care. Notwithstanding the above, no party
shall have obligations with respect to Confidential Information of
any other party which:
(i) Such party shows was generally known and available to the
public at the time it was disclosed, or becomes generally known
and available to the public through no fault of the receiver prior
to the use and or disclosure of such information by the receiver;
(ii) Such party shows was known to the receiver without
obligation of confidentiality at the time of disclosure as shown
by written evidence in existence at the time of disclosure;
(iii) Is disclosed with the prior written consent of the
discloser;
(iv) Such party shows becomes known to the receiver without
obligations of confidentiality; or
(v) Is disclosed pursuant to the order or requirement of any
court, agency, or other governmental body having jurisdiction;
provided, however, that, prior to any such disclosure pursuant to
paragraphs 9.7(b)(v) above, the Party seeking disclosure shall
notify the others and take all reasonable actions in an effort to
minimize the nature and extent of such disclosure.
(c) Each party agrees that the terms of these Agreements and
the FabVen Business Plan shall be treated as Confidential
Information and not disclosed, provided however that any and all
parties may disclose the terms and conditions of these Agreements
and the FabVen Business Plan in confidence to its legal counsel,
accountants, banks, and financing sources and their advisers, or
pursuant to written confidentiality agreements having terms at
least as restrictive as those this Paragraph 9.7 in connection
with an actual or proposed merger or acquisition, and/or in
connection with the enforcement of its rights under this Foundry
Venture Agreement
(d) Notwithstanding anything to the contrary, and subject to
the exceptions of Paragraph 9.7(b): (i) any Confidential
Information disclosed to UMC by a Venturer which is marked "UMC
only" (or similarly) may be used and disclosed by UMC solely in
connection with preparing and submitting the FabVen Business Plan
and applications for governmental approvals relating to FabVen
but may not otherwise be disclosed by UMC to FabVen or to any
other Venturer; (ii) any Confidential Information disclosed to
UMC and/or to FabVen which is marked as "FabVen Internal Only"
may be disclosed by UMC to FabVen, but may not be disclosed by
FabVen to any other Venturer; and (iii) any Confidential
Information disclosed to a Venturer which is not marked "UMC
Only" and/or "FabVen Internal Only" (or similarly) may be
disclosed to FabVen and/or to any Venturer. (e) Without
limiting the foregoing, in order to facilitate exchanges of
Confidential Information amongst themselves, the Venturers
contemplate they may negotiate and execute one or more mutually
satisfactory non-disclosure agreements.
(f) The obligations of this Paragraph 9.7 shall survive the
expiration or termination of this Foundry Venture Agreement and
the Venture Agreements for a period of three (3) years after the
last of them to expire and/or terminate. In the event of any
breach of this covenant, the Venturers and FabVen shall promptly
discuss and cooperate in good faith with respect to measures to
mitigate any harmful effect of such breach and with respect to
possible compensation to the injured party.
9.8 This Foundry Venture Agreement and the Venture Agreements are
written only in the English language, which language shall be
controlling in all respects, and all versions in any other
language shall be for accommodation only and shall not be binding
upon the Venturers. All communications to be made or given
pursuant to such Agreements shall be in the English language,
except as may be required under applicable law.
9.9 This Foundry Venture Agreement and the Foundry Capacity
Agreement and matters connected with performance under any one or
more of them shall be interpreted and construed in all respects in
accordance with the laws of the State of California, provided
however that all matters connected with the purchase and
formalities of stock and ownership interests in FabVen and the
Technology Transfer and License Agreement shall be interpreted and
construed in all respects in accordance with the laws of Taiwan,
the Republic of China, all without regard to that body of law
which pertains to conflicts and/or choice of law and excluding the
UN Convention on Contracts for International Sales of Goods.
9.10 If any provision of this Foundry Venture Agreement and/or
the Venture Agreements is held wholly or partially unenforceable
for any reason, such unenforceability shall not affect the
enforceability of the remaining provisions of such Agreements, and
all provisions of such Agreements shall be construed so as to
preserve enforceability.
9.11 (a) The terms and conditions contained in the FabVen
Business Plan, this Foundry Venture Agreement and/or the Venture
Agreements and the documents attached thereto (the "Plan and
Agreements") shall supersede all previous communications,
understandings, representations and/or agreements, oral and/or
written, between the Venturers with respect to the subject matter
hereof;
(b) There are no other such agreements, understandings and/or
writings except as stated above;
(c) No agreement or understanding varying, modifying or
extending the terms and/or conditions of such Plan and Agreements,
nor any custom, practice, course of dealing or conduct of the
parties, shall be binding upon any Venturer unless in writing and
signed by a duly authorized officer or representative of each
Party to be bound; provided however that a Venturer and FabVen may
agree to ordering procedures which are established by them
pursuant to mutual agreement; and
(d) Except as expressly allowed under this Foundry Venture
Agreement, no party may transfer or assign its rights or delegate
its duties under this Agreement, except with the written consent
of all the Parties to the agreement involved.
9.12 No licenses, other than the licenses expressly granted
under these Agreements, are granted under these Agreements, by
implication, estoppel or otherwise. Nothing in these Agreements
shall be construed as conferring any license, right to use or
other right with respect to any trademark or trade name of any
party. Each party may make reasonable reference by name to any
other party provided that the written consent of that other has
been obtained in advance.
9.13 (a) The failure of any party to enforce, or the delay
by any party in enforcing any of its rights under these Agreements
shall not be deemed a waiver or a containing waiver of such rights
or a modification of these Agreements, and such party may, within
the time provided by applicable law, commence appropriate
proceedings to enforce any and/or all such rights.
(b) The section headings in these Agreements are for
convenience only and do not define or limit nor shall they be used
to construe the content of such sections.
(c) Each party expressly represents and warrants that it is
free to enter into these Agreements and that such party has not
made and will not make any creations or commitments in conflict
with the provisions of these Agreements, or which reasonably might
interfere with the full and complete performance of such party's
obligations under these Agreements. Each party further represents
and warrants that these Agreements, and the performance of its
respective obligations under these Agreements, and the
consummation of the transactions contemplated under these
Agreements have been duly authorized and approved by all necessary
action, and all necessary consents or permits have been obtained,
and neither the execution of these Agreements nor the performance
of the party's respective obligations under these agreements will
violate any term or provision of any valid contract or agreement
to which such party is subject and/or by which such party is
bound. No further actions or consents are necessary to make these
Agreements valid binding contracts, enforceable against the
respective parties in accordance with their terms.
9.14 Nothing in this Foundry Venture Agreement and/or in the
Venture Agreements shall be deemed to create a general or limited
partnership or an agency relationship between the Venturers and/or
FabVen, and the Venturers and FabVen are independent companies.
The Venturers intend to become shareholders of FabVen and
thereafter purchase products manufactured from FabVen in an arm's
length vendor-purchaser relationship, and, in the case of FabVen
and UMC, in an arm's length vendor-purchaser, lessor-lessee, and
licensor-licensee relationship. No party shall be entitled to act
on behalf of and/or to bind any one or more of the others.
9.15 The Venturers will cause FabVen to execute promptly after
its formation the Foundry Capacity Agreement, Technology Transfer
and License Agreement, and this Foundry Venture Agreement, to
confirm FabVen's agreement to abide by the terms in such
agreements which are binding upon FabVen.
IN WITNESS WHEREOF, the Venturers have caused this Foundry Venture
Agreement to be signed below by their respective duly authorized
officers.
Cirrus Logic, Inc.
_____/s/ Michael Hackworth__________ Michael Hackworth, President
UNITED MICROELECTRONICS CORPORATION
_____/s/ John Hsuan__________________ John Hsuan, President
ACCORDING TO SECTION 232.304 OF REGULATION S-T, THE FOLLOWING
NARRATIVE DESCRIPTIONS REPRESENT A GOOD-FAITH EFFORT TO FAIRLY AND
ACCURATELY DESCRIBE THE FOUR GRAPHICAL IMAGES ATTACHED TO THE
PAPER FORMAT OF THIS AGREEMENT:
"JV FAB BUILDING-UP SCHEDULE" This graphical image represents the
project schedule for building up the new fabrication facility and
for producing wafers from this facility. The time-line
represented in the graphical image begins at August 1995 and ends
at December 1997. The milestones represented on this graphical
image are the following: "Establish Company," "The New Fab
Building Construction, "Facility Installation," "Clean Room
Installation," "Equipment Ordering," "Equipment Installation,"
"Pilot Wafer Start," and "Production Ramp-up Start." The
time-lines for each milestone are confidential information for
which Confidential Treatment has been requested. Confidential
portions omitted have been filed with the Commission.
"PRODUCTION RAMP-UP SCHEDULE" This line graph represents the
projected wafer output versus time for the new venture. The
abscissa of the line graph represents time, beginning at July 1997
and ending at January 2000. The ordinate of the line graph
represents wafer output of the new venture. Therefore, the line
graph represents the projected wafer output of the new venture
versus time. The values on the ordinate are confidential
information for which Confidential Treatment has been requested.
The values of the line graph also are confidential information for
which Confidential Treatment has been requested. Confidential
portions omitted have been filed with the Commission.
"TECHNOLOGY ROAD MAP" This graphical image represents the project
schedule for decreasing the production line-widths of the new
fabrication facility. The time-line represented in the graphical
image begins at the first quarter of 1997 and ends at the fourth
quarter of 1998. The major milestones represented on this
graphical image are the following: "0.4 to 0.5 micrometers,"
"0.35 micrometers," and "0.25 to 0.3 micrometers." The minor
milestones under each major milestone represent different process
technologies projected for each line-width under the new venture;
and each is confidential information for which Confidential
Treatment has been requested. The time-lines for each milestone
are also confidential information for which Confidential Treatment
has been requested. Confidential portions omitted have been filed
with the Commission.
"FABRICATION FACILITY LAYOUT" This graphical image represents the
plat of the research park in which the new fabrication facility is
located. The plat is written in Chinese. In English, the plat
shows the location of Modules C and D with respect to two major
roads and with respect to each other.
[ARTICLE] 5
[MULTIPLIER] 1
[*] Denotes information for which confidential
treatment has been requested.
Confidential portions omitted have been filed
separately with the Commission.
UNITED MICROELECTRONICS CORPORATION
No. 13 Innovation Road I
Science Based Industrial Park
Hsin Chu City, Taiwan, R.O.C.
telephone (035) 782-258; facsimile (035) 774-767
September 13, 1995
WRITTEN ASSURANCES RE: FOUNDRY VENTURE AGREEMENT
At the suggestion of several venturers, UMC is pleased to
confirm in writing the following points concerning the Foundry
Venture Agreement and the Foundry Capacity Agreement. Where these
commitments require the consent of FabVen, UMC will exercise its
influence and commit best faith efforts to secure that consent.
1. ALL VENTURERS ARE OFFERED EQUAL TERMS As stated in the
Foundry Venture Agreement, the terms of investment and of wafer
purchases to each Venturer under the Foundry Venture Agreement and
under the Foundry Capacity Agreement are the same, except for the
percentages of ownership and capacity rights of each Venturer
[capacity rights for Venturers are equal to [*] times the
percentage of ownership]; provided however that Venturers who
commit to a minimum of [*]% will have the right to appoint a
representative to a seat on the board of directors for the initial
three year term.
2. ACCESS TO BOARD MEETINGS & BOARD MEMBERS Subject to the
obligations of Confidentiality imposed under the Foundry Venture
Agreement, the Foundry Capacity Agreement, and/or the Technology
Transfer and License Agreement ("Venture Agreements"), and to the
requirements of law, each Venturer will be given reasonable notice
of meetings of the board of directors of FabVen, and the
opportunity to have a representative attend such meetings and
communicate at such meetings with the board members in connection
with matters concerning FabVen.
3. MEMBERSHIP ON FABVEN BOARD--FIRST THREE YEARS AND BEYOND
The board of directors of FabVen will be comprised of seven
members. Of these seven members, four will be appointed by UMC
for an initial three year term, one will be appointed by the
R.O.C. financial institutions which invest in FabVen for an
initial three year term, and the other two board members will be
appointed for an initial three year term by the Venturers other
than UMC under procedures to be mutually agreed upon by such
Venturers, provided that any Venturer who holds at least [*]% of
the shares of FabVen will be entitled to appoint one of such other
two board members. After the initial three year term, the board
will be elected by the shareholders pursuant to R.O.C. law in the
manner provided in the bylaws.
4. STRATEGIC ACTIONS SUBJECT TO SPECIAL BOARD APPROVALS
Subject to the other requirements of the law, and for so long as
the Venturer involved remains in compliance with all payment
obligations under the Foundry Venture Agreement and such Venturer
retains at least [*] of the ownership percentage in FabVen as
listed in Paragraph 4.1 of the Foundry Venture Agreement, all
board actions directly deciding strategic technical issues
[including without limitation, the type of process technology
(such as that used in the manufacture of logic, SRAM, DRAM, EPROM,
EEPROM, and/or FLASH) to be developed, implemented and/or offered
by FabVen, the amendment of the Technical Transfer and License
Agreement, and/or the transfer or licensing of technology
developed by FabVen to others (except as contemplated under the
Technology Transfer and License Agreement)] shall not be
effective unless and until approved by at least one of the board
members designated by the Venturers other than UMC, and (ii) all
board actions authorizing liquidation of FabVen, merger of FabVen,
sale of all or substantially all of FabVen or of FabVen's assets,
and/or the offering of any equity (except pursuant to a public
offering of FabVen shares on a recognized securities exchange)
shall not be effective unless and until approved by both board
members designated by the non-UMC Venturers under the terms of the
Foundry Venture Agreement.
5. NO UNAUTHORIZED CHANGES TO TECHNOLOGY ROADMAP For so
long as the Venturer involved remains in compliance with all
payment obligations under the Foundry Venture Agreement and such
Venturer retains at least [*] of the ownership percentage as
listed in Paragraph 4.1 of the Foundry Venture Agreement, FabVen
shall not make any material changes to the Technology Road Map as
shown in Attachment A which affect such Venturer's existing and/or
planned production without the consent of that Venturer.
6. CONDITIONAL "PUT" RIGHT To the extent that FabVen fails
(i) to qualify silicon manufactured with [*] and [*] processes
each having a minimum of 0.35 feature sizes under a test vehicle
to be agreed upon by FabVen, UMC and a majority of the Venturers
other than UMC (including without limitation, a test vehicle from
a Venturer, provided that such qualification under a test vehicle
from a Venturer is commercially reasonable and within industry
standards) ("First Qualification") on or before the end of
December 31, 1998, and/or (ii) to achieve the ability to
manufacture a minimum of [*] wafer outs per month for such [*]
process and [*] wafer outs per month for such [*] process on or
before December 31, 1998 for reasons attributable to UMC, FabVen
and/or the Licensed Processes, the Venturers (one or more of them)
will have the option to sell their shares (and their corresponding
rights to capacity in FabVen) to UMC for the total amount they
paid for such shares by sending written demand to UMC as follows:
(a) No such demand shall be effective unless it is made on
or before April 1, 1999; and (b) Within ninety days of such
written demand from the Venturer involved, UMC will buy the shares
(and capacity rights) involved, and/or arrange another buyer
willing to purchase such shares (and capacity rights) under the
terms and conditions as stated in this heading.
7. RELEASE OF SHARE TRANSFER RESTRICTION IF NO PUBLIC OFFERING
To the extent that FabVen does not offer its shares in a
public offering on a recognized securities exchange on or before
December 31, 2006, and notwithstanding anything to the contrary,
each Venturer other than UMC will have the right to transfer its
entire right and interests in FabVen as follows:
(a) The Venturer wishing to transfer ("Transferring
Venturer") shall send the other Venturers (including UMC) written
notice of its intention to transfer, stating in such notice the
general terms and payment contemplated by such Transferring
Venturer;
(b) Within thirty days (the "Transfer Notice Period") of
such notice, any one or more such other Venturers may send a
written offer to purchase such Transferring Venturer's interest
under terms to be stated in the written offer [for purposes of
this Paragraph, each other Venturer making such an offer shall be
referred to as the "Offering Venturer''];
(c) If no other Venturer makes such an offer within the
Transfer Notice Period, then, subject to subpart (g) below, the
Transferring Venturer shall be allowed to transfer its entire
interest and ownership in FabVen to other purchasers.
(d) If any Offering Venturer makes such an offer within the
Transfer Notice Period, the Transferring Venturer and the Offering
Venturer will negotiate in good faith concerning each such offer
for not less than thirty days (the "Transfer Negotiation
Period").
(e) If by the end of the Transfer Negotiation Period and
despite such negotiations, the Transferring Venturer has not
reached agreement with the Offering Venturer(s) for sale of the
Transferring Venturer's interest, then, subject to this Paragraph
(and all of its subparts), the Transferring Venturer shall be
allowed to transfer its entire interest and ownership in FabVen to
other purchasers.
(f) Notwithstanding anything to the contrary, no
Transferring Venturer shall be allowed to accept from any third
party any offer with price and terms, taken together, which are
less favorable than last offered in writing by an Offering
Venturer during the Transfer Notice and/or Transfer Negotiation
Periods, unless such Transferring Venturer first offers the same
price terms to such Offering Venturer in writing, and allows such
Offering Venturer ten business days to accept or reject such price
and terms.
(g) Except as permitted in paragraph 4.1(f) of the Foundry
Venture Agreement and/or in Paragraph 15 of this Written
Assurance, no Venturer may transfer its interest or right in
FabVen under this paragraph or otherwise in any manner to any
competitor of UMC or to any entity in the business of fabricating
integrated circuits except under terms (i) in which such Venturer
first relinquishes and releases all rights to FabVen capacity and
to designate membership on the FabVen board of directors under
this and any and all other agreements, and (ii) in which such
entity and/or competitor expressly consents in writing that they
have no such interest or right to such capacity and/or
designation.
8. TECHNOLOGY TRANSFER AND LICENSE CONDITION TO FIRST PAYMENT
Notwithstanding anything to the contrary, the execution of the
Technology Transfer and License Agreement in the form presented to
the Venturers as of September 15, 1995 shall be a condition
precedent to any payment of investment amounts pursuant to the
Foundry Venture Agreement.
9. CLARIFICATION OF FAB RAMP-UP CONDITION TO THIRD INSTALLMENT
Notwithstanding anything to the contrary, the milestone for
the third investment payment milestone shall be on or before "fab
production ramp-up" as that phrase is generally understood and
interpreted in the industry.
10. USE OF INVESTMENT MONIES Unless otherwise agreed by each
Venturer, FabVen will use all funds invested by the Venturers
pursuant to paragraph 4.1 (b) of the Foundry Venture Agreement
solely as outlined in and consistent with the FabVen Business
Plan.
11. RIGHTS OF FIRST REFUSAL ON SUBSEQUENT OFFERINGS FabVen
will provide the Venturers with notice reasonable under the
circumstances in order to enable them to exercise their rights of
first refusal in connection with equity offerings pursuant to
paragraph 4.1(g) of the Foundry Venture Agreement.
12. VESTING OF TECHNICAL SHARES UMC's technical shares will
not vest under paragraph 4.1(d) of the Foundry Venture Agreement
until FabVen produces wafers with the 0.35 process (as that
phrase is defined in general industry usage) with sufficient yield
to be recognized as "production ready" within general industry
usage.
13. AUDIT RIGHTS The specific wording of the provisions
contemplated under paragraph 4.2 of the Foundry Venture Agreement
with respect audit rights and financial information will be as
stated by Price Waterhouse, with their commitment to prepare the
reports as promptly as possible under the circumstances. The exact
language for the audit rights will be modeled on whatever Price
Waterhouse and the other accountants agree upon in connection with
the joint venture announced with UMC, Alliance and S3. Currently,
it is contemplated that the financials will be prepared in a
manner consistent with that imposed on U.S. public companies for
minority interests.
14. TERMS FOR RIGHTS OF FIRST REFUSAL UNDER PARAGRAPH 4.1(f)(iv)
The rights of first refusal under Paragraph 4.1 (f)(iv) of the
Foundry Venture Agreement are intended to extend to and benefit
all other eligible Venturers. To avoid any ambiguity, 4.1
(f)(iv)(cc) and 4.1 (f)(iv)(dd) are to be interpreted as follows:
(cc) if any such eligible other Venturer elects not to
exercise any portion or all of such right of first
refusal within 30 days of the independent appraisal, such portion
of such right of first refusal will be subject to
exercise by the other eligible other Venturers in
proportion to their then existing shareholdings in FabVen, and the
shares involved will be subject to a right of such other
eligible other Venturers to purchase on the same terms
as outlined above; and
(dd) if any such other eligible other Venturer does not
commit to purchase such shares within 60 days of the
independent appraisal, all rights under this Paragraph 4.1
(f)(iv) will expire as to such unpurchased shares.
15. TRANSFERS OF SHARES AFTER PUBLIC OFFERING Nothing in
Paragraph 6.2(c)(i) of the Foundry Venture Agreement or elsewhere
shall prohibit a Venturer from offering and/or selling its shares
in FabVen on the public market to a competitor of UMC, provided
however that such competitor must relinquish all rights to
representation and access to Board information under the Foundry
Venture Agreement and under this Written Assurance, and provided
that the restrictions of Paragraph 6.2(c)(ii) of the Foundry
Venture Agreement and of Paragraph 7 of this Written Assurance
shall still apply, and provided further that the other
restrictions concerning transfers of capacity and reductions in
capacity on a proportional basis with reductions in ownership will
also apply.
16. TRANSFERS OF CAPACITY AMONGST VENTURERS Notwithstanding
anything to the contrary, the Venturers in Module C may each
transfer their respective capacities (whether or not previously
forecast) as stated in Paragraph 2.1 of the Foundry Capacity
Agreement to and between one another by written notice to FabVen
and the other Venturers, provided that such written notice must
state the capacity amounts so transferred and the months in which
such transfer will apply and provided that FabVen's consent (which
must not be unreasonably withheld) shall be required for a
transfer of quantities previously committed under Paragraph 2.3(b)
of the Foundry Capacity Agreement. To the extent that FabVen
receives such written notices forty-five or more days prior to the
beginning of each month in which such capacity is to be
transferred, such capacity will be treated as if allocated to the
Venturer to whom it has been transferred for all purposes for the
period of the transfer involved, including, without limitation,
for purposes of forecasts, commitments, and the right of FabVen to
commit to others any capacity unexercised by the Venturers.
17. ONE YEAR WARRANTY The warranty period as stated in
Paragraph 5.1 of the Foundry Capacity Agreement, and the claim
period as stated in Paragraph 5.3 of the Foundry Capacity
Agreement shall each be one year.
18. CLARIFICATION OF PARAGRAPH 5.4 OF THE FOUNDRY CAPACITY
AGREEMENT The limitations of paragraph 5.4 of the Foundry
Capacity Agreement are intended to limit the remedies under the
Warranty provisions, Section 5 of the Foundry Capacity Agreement.
Thus, the Paragraph will be understood and interpreted as
follows:
THIS PARAGRAPH 5.4 STATES THE ONLY AND EXCLUSIVE REMEDY FOR ANY
AND ALL CLAIMS MADE AGAINST FABVEN UNDER THIS SECTION 5 OF THIS
FOUNDRY CAPACITY AGREEMENT.
19. CONFIRMATION OF"COVER" REMEDY To the extent an
intentional breach by FabVen of its obligations concerning wafer
start and/or delivery under the Foundry Capacity Agreement results
in a delay of more than 60 days in delivery of Wafers to a
Venturer, then, notwithstanding anything to the contrary, at the
election of the Venturer, FabVen will compensate such Venturer for
reasonable damages of such Venturer in securing substitute or
cover Wafers for those involved in the breach, subject to the
limitation stated below. In addition, to the extent that FabVen
breaches its warranties under Section 5 of the Foundry Capacity
Agreement, and fails, for reasons attributable to a breach by
FabVen or the Licensed Process to correct such breach after two
successive attempts to do so, then, at the election of the
Venturer, FabVen will compensate such Venturer for reasonable
damages of such Venturer in securing substitute or cover Wafers
for those involved in the breach, subject to the limitation stated
below. Notwithstanding anything to the contrary, for purposes of
this commitment in Paragraph 19 of this Written Assurance, the
recoverable substitute and/or cover damages shall be (i) the
reasonable and necessary costs to replace mask sets for the
products involved, together with (ii) the difference between (aa)
the price which the Venturer would have paid for the Wafers had
FabVen fully performed (the "contract price"), and (bb) all direct
and reasonable costs (up to a maximum of [*]% of the contract
price) incurred by the Venturer in securing substitutes and/or
cover.
20. LEASE TERM AND LEASEHOLD IMPROVEMENTS Notwithstanding
anything to the contrary under any local real estate or other law,
custom or practice, UMC will consider all investments,
improvements and fixtures purchased by FabVen to be the property
of FabVen, and UMC will not request higher rents under the lease
of Module C as a result of any such investment, improvement and/or
fixture. In addition, at the request of FabVen, UMC will
negotiate in good faith with FabVen over additional extensions of
the lease term beyond the fifteen year period contemplated under
the Foundry Venture Agreement, and, to the extent that UMC retains
the underlying right to do so, UMC will renew the lease to FabVen
for the land of Module C for subsequent five year terms continuing
until the term (or partial term) ending August 31, 2044. Without
limiting the terms of the Foundry Venture Agreement, the lease
rate for the land for Module C will be proportional to the amount
paid by UMC to the Park Administration for the respective square
footage involved, plus a reasonable amount to cover overhead
directly related to the lease (not to exceed [*]% of the rate for
the respective share).
21. CONTINUED ASSISTANCE BY UMC Notwithstanding anything to
the contrary, UMC will continue to provide technical assistance to
FabVen with respect to the Licensed Processes to the extent and
for the period reasonably necessary to permit each Venturer to
qualify its products on each Licensed Process which is suitable
for the production of such products. In addition, UMC will make
good faith efforts to improve and develop UMC technology so as to
enable UMC to provide that technology to be provided to FabVen by
UMC as shown in the Technology RoadMap.
22. CHOICE OF LAW--NO "HIDDEN" MEANINGS To the extent any
aspect of Taiwan law purports to alter the express meaning of any
term of the Technology Transfer and License Agreement, such term
will not be governed by Taiwan law, but instead will be governed
by California law so as to give effect to the express intention of
the parties as stated in that agreement.
23. CONFIRMATION OF SCOPE OF LICENSE All licenses granted
and/or to be granted under the Technology Transfer and License
Agreement are intended to include rights to import, to offer to
sell, and to otherwise dispose of Wafers, Die and product made
using the Wafers made, together with all other rights stated.
24. NO KNOWN INFRINGEMENTS--UMC UMC represents and warrants
to the Venturers and to FabVen that UMC has no actual knowledge
that the Licensed Process (as defined in the Technology Transfer
and License Agreement) infringes any Patent Claims (as defined
below).
25. NO KNOWN INFRINGEMENTS--FABVEN FabVen represents to each
of the Venturers that, to its or UMC's actual knowledge as of
August 29, 1995, the technology, processes, masks and other
information transferred or licensed to FabVen under the Technology
Transfer and License Agreement or otherwise used in the
manufacture of products pursuant to the terms of this Foundry
Venture Agreement and/or the Venture Agreements will not infringe
any valid patent rights enforceable under R.O.C. and/or U.S. law
("Patent Claims"), provided however that "Patent Claims" shall not
include claims arising out of and/or in connection with patents
licensed to UMC by third parties as of August 29, 1995. FabVen
shall indemnify and hold harmless each of the Venturers from and
against any such Patent Claims (i) to the extent arising out of a
breach of this representation, and/or (ii) to the extent and
proportional to any claim that such Venturer is liable as a direct
and/or indirect result (aa) of its execution of this Foundry
Venture Agreement or any of the Venture Agreements, and/or (bb) of
its investment in FabVen and/or any actions under such agreements
on any agency, express or implied partnership or joint venture,
respondent superior, piercing the corporate veil, conspiracy or
other legal theory whereby liability is asserted against such
Venturer for or on account of actions of FabVen. Under no
circumstances shall FabVen have any obligation under this
Paragraph with respect to any Venturer who conspires and/or
cooperates, other than pursuant to process of law, with the person
raising the Patent Claim for which indemnity is sought, with
respect to such Patent Claim. Notwithstanding anything to the
contrary, and except for breaches of the representation of FabVen
in the first sentence of this Paragraph, FabVen will not indemnify
or hold any Venturer harmless from or against any Patent Claim to
the extent arising out of the manufacture for such Venturer and/or
the purchase, use and/or sale of products by that Venturer,
provided however that with respect to such Patent Claims the
Venturer shall be entitled to the same replace or refund remedy as
is set forth in Paragraph 5.4 of the Foundry Capacity Agreement
with respect to defectively manufactured product, provided however
that unless otherwise agreed, replacement product shall not
satisfy FabVen's obligations under this Paragraph 25 unless that
replacement is non-infringing.
26. CLARIFICATION OF PURPOSE As is clear from the documents
involved, FabVen shall be in the business of fabricating
integrated circuits and developing related processes and know-how.
In doing so, FabVen will sell Wafers to the Venturers and others
as described in more detail in the Foundry Capacity Agreements.
27. CONFIRMATION OF COMMITMENTS BY FABVEN FabVen will
undertake its reasonable best efforts to implement the Technology
Road Map attached to the Foundry Venture Agreement as Attachment
A, to achieve the goals described in the FabCo Business Plan, and
to achieve the [*] wafer out minimums with respect to each of the
[*] and the [*] processes described in Paragraph 6 above. In
addition, and subject to the terms of this Foundry Venture
Agreement, the Foundry Capacity Agreement and the Technology
Transfer and License Agreement, FabVen will cooperate with each
Venturer in a commercially reasonable manner to qualify products
of such Venturer under the processes involved.
28. LIMITED DISCOVERY IN CONNECTION WITH ARBITRATION
Notwithstanding anything to the contrary in the Foundry Venture
Agreement, the arbitrators will have the power to require
discovery in connection with any dispute within their jurisdiction
pursuant to the Federal Rules of Civil Procedure to the extent
they find such discovery necessary to achieve a fair and equitable
result, and subject to reasonable orders from the arbitrators to
minimize the burdens involved and to focus the discovery on those
areas necessary. All reasonable costs of such discovery (including
attorneys' fees) incurred by a party which prevails in the
arbitration in connection with the issue involved in the discovery
will be recoverable by that party against the party which
requested the discovery.
29. CONFIRMATION OF OBLIGATIONS CONCERNING PROPRIETARY PROCESSES
Without limiting the obligations under the confidentiality
provisions of the Foundry Venture Agreement, and at the written
request of a Venturer, FabVen will treat as confidential all
processes provided by a Venturer which are designated by that
Venturer ;as "Confidential" under the Foundry Venture Agreement,
and, without the written consent of the Venturer which provided
the process, FabVen shall not use or otherwise disclose any such
process for any purpose other than the fabrication of Wafers for
such Venturer.
30. RATIFICATION BY FABVEN UMC shall exert best faith
efforts to have FabVen ratify in writing the commitments and
obligations under this Written Assurance which apply to FabVen.
31. APPROPRIATE PUBLIC OFFERING ROADMAP Promptly upon
incorporation of FabVen, the parties will use reasonable best
efforts to pursue discussions with mutually acceptable investment
bankers or other appropriate people to attempt to establish the
appropriate roadmap to an initial public offering.
32. APPROPRIATE RESOLUTION MECHANISM FOR DISPUTES Promptly
upon incorporation of FabVen, the parties will use reasonable best
efforts to discuss and evaluate dispute and conflict resolution
mechanisms and procedures in an attempt to anticipate and
hopefully resolve matters.
We request that each Venturer countersign this Written
Assurance below to signify their approval and assent to its terms,
and to confirm that we each will hold this Written Assurance as an
integral and material part of our Foundry Venture Agreements.
Yours sincerely,
/s/ John Hsuan
John Hsuan, President
AGREED ON BEHALF OF Cirrus Logic, Inc
Name of Venturer As of
September 29, 1995
/s/ Michael Hackworth
Authorized signature
RATIFIED BY FABVEN
Authorized signature
[ARTICLE] 5
[MULTIPLIER] 1
[*] Denotes information for which confidential
treatment has been requested.
Confidential portions omitted have been filed
separately with the Commission.
FABVEN FOUNDRY CAPACITY AGREEMENT
This Foundry Capacity Agreement ("Foundry Capacity
Agreement") is entered into as of September __, 1995 ("the
Effective Date") by and amongst FabVen, a Taiwan corporation
having its principal place of business at No. 3 Li-Hsin Road,
Science-Based Industrial Park, Hsin Chu City, Taiwan, R.O.C.
("FabVen"), United Microelectronics Corporation, a Taiwan
corporation having its principal place of business at No. 13,
Innovation Road 1, Science-Based Industrial Park, Hsin Chu City,
Taiwan, R.O.C. ("UMC"), and Cirrus Logic, Inc., a corporation with
its headquarters in California ("Cirrus").
1. DEFINITIONS
1.1 "Foundry Products" and/or "Products" shall mean those
integrated circuits designed and/or licensed by one or more of the
Venturers and/or any of the subsidiaries of the Venturers which
FabVen manufactures for sale by the specific Venturer involved
under this Foundry Capacity Agreement.
1.2 "FabVen Production Capacity" and/or "Production Capacity"
shall mean commercial production capacity in FabVen's facilities
in quantities designated as 8-inch equivalent wafer starts during
the month involved.
1.3 "Proprietary Information" shall for purposes of this Foundry
Capacity Agreement have the same meaning as defined for
Confidential Information under the Foundry Venture Agreement.
1.4 "Technology Transfer and License Agreement," "Foundry
Venture Agreement," and "Foundry Venture Memorandum of
Understanding" shall mean the agreements having those titles as
entered by and between UMC and the other Venturers in connection
with the business of FabVen.
1.5 "Venturers" shall mean Cirrus and UMC, and such others
(collectively "OtherVen") as may be arranged by UMC to participate
in the Foundry Venture Agreement and Foundry Capacity Agreement
pursuant to the terms of paragraph 4.1(b) of the Foundry Venture
Memorandum of Understanding, provided that each OtherVen must
confirm in writing that they will be bound by and comply with the
terms of this Foundry Capacity Agreement as if they were expressly
named as a Venturer. Cirrus expressly consents to the
participation of OtherVen, and such participation of OtherVen
shall not in any manner relieve Cirrus of any obligations
hereunder.
2. PRODUCTION OF FOUNDRY PRODUCTS
2.1 Subject to the terms of this Foundry Capacity Agreement, and
for so long as such Venturer holds a minimum of [*] of their
initial ownership percentage of FabVen, such Venturer will have
the right of first refusal for FabVen Production Capacity in an
amount up to the maximum respective percentages shown in the table
below (each a "Production Capacity Percentage"):
Venturer Production Capacity Percentage
Cirrus [ * ] %
OtherVen TBD%
Provided however that during any period when any Venturer's total
FabVen shareholding falls below [*] of their initial percentage of
the total outstanding FabVen shares under the terms of the Foundry
Venture Agreement, such Venturer's Production Capacity Percentage
shall instead be equal to the percentage of the then total
outstanding shares of FabVen then held by such Venturer.
2.2 During the first seven calendar days of each month during
the term of this Foundry Capacity Agreement, FabVen will provide
by facsimile to the Venturers written rolling forecasts of
FabVen's anticipated Production Capacity for the next six full
calendar months. These Production Capacity forecasts will not be
commitments or representations that FabVen will achieve the
quantities stated, but will be FabVen's best estimates of the
quantities involved.
2.3 Subject to Paragraph 2.1, within fourteen calendar days of
receipt of each Production Capacity forecast under Paragraph 2.2
above during the term of this Foundry Capacity Agreement, each
Venturer will provide to FabVen by facsimile a written rolling
forecast of its wafer capacity requirements from FabVen for the
next six full calendar months ("forecast" and/or "six months wafer
start requirements forecast").
(a) Each such forecast shall show the quantity of wafer
starts and shall include the specific technology for the wafers
listed. Each Venturer shall make good faith efforts to ensure
that all such forecasts are reasonable estimates of their
respective anticipated needs. Subject to this obligation, and
except as expressly stated in this Paragraph 2.3, all such
forecasts (and any responses to them) will be for planning
purposes only, and will not create any obligation to purchase
and/or sell Products.
(b) Each such six months wafer start requirements forecast
shall constitute a commitment by the Venturer to purchase a
minimum of the following percentages of the amounts indicated in
the forecast:
Month in the forecast First month of forecast Second month of
forecast Third month of forecast Fourth month of forecast Fifth
month of forecast Sixth month of forecast
Minimum percentage commitment for amounts forecast for that month
[*]%
[*]%
[*]%
[*]%
[*]%
[*]%
(c) FabVen shall provide a written response to each six
months wafer start requirements forecast within five (5) working
days of FabVen's receipt of such forecast. Subject to the other
terms of this Foundry Capacity Agreement, FabVen's response to
each such forecast shall accept the forecast for the quantities in
the first three months to the extent they are within the amounts
allowed for the Venturer involved pursuant to Paragraph 2.1.
FabVen's response may accept and/or reject in whole or in part any
additional forecast quantities for those months.
2.4 Subject to Paragraphs 2.7 and 9.5 of this Foundry
Capacity Agreement, to the extent that any forecast from any
Venturer pursuant to Paragraph 2.3 fails to forecast the full
"Production Capacity Percentage" of FabVen Production Capacity
allocated to that Venturer under Paragraph 2.1 above during any
one or more of the first [*] months of such forecast: (i) by
sending prompt written notice of the amount involved to the
Venturer affected, FabVen shall be entitled in its sole and
complete discretion to enter commitments with others for such
unexercised capacity for the applicable months and in the amounts
not so exercised, and (ii) such Venturer will not have the right
to require FabVen to provide that unexercised capacity to that
Venturer in the month(s) involved.
2.5 Notwithstanding anything to the contrary, FabVen will
have no obligation to offer additional capacity beyond that stated
in Paragraphs 2.1, 2.3 and 2.4 above and/or Paragraph 2.7 below to
any Venturer. Nevertheless, during the term of this Agreement,
each Venturer shall be entitled to negotiate with FabVen for such
capacity on the same basis as others are permitted to negotiate.
2.6 Each Venturer may exercise rights of first refusal for
foundry capacity under this Foundry Capacity Agreement solely for
Products, and not for the purpose of offering or providing foundry
capacity to others. Except as expressly provided below and/or in
the Foundry Venture Agreement, no Venturer may transfer and/or
assign its rights to capacity under this Foundry Capacity
Agreement.
2.7 The Venturers will discuss in good faith the capacity
needs of one another with respect to FabVen facilities and
Production Capacity.
2.8 Notwithstanding anything to the contrary, and in addition
to any other remedies or rights, in the event of any delays in
delivery, or any breach of any warranty provided by FabVen under
Section 5, any affected Venturer may adjust forecasted and/or
ordered Product amounts, and/or cancel orders for affected
Products, without breach of any minimum commitment obligations
hereunder to take into account the impact of such delay on the
Venturer's need for affected Products.
3. PRICING AND DELIVERY
3.1 All purchases of foundry services by the Venturers
pursuant to this Foundry Capacity Agreement will be subject to
FabVen's standard terms and conditions and its usual business
practices, subject to any contrary requirements expressly imposed
pursuant to the terms of this Foundry Capacity Agreement.
3.2 Except as expressly provided in this Foundry Capacity
Agreement, all purchases of foundry services by the Venturers
during the term of this Agreement will be at fair market value and
under fair market terms and conditions, as would be negotiated at
arm's length in an independent foundry relationship, without
regard to any preferences or privileges or other considerations
whatsoever; provided however that if all Venturers consent in
writing, FabVen may, prior to the completion of an offering of its
shares on a recognized securities exchange, offer foundry service
terms to the Venturers on such other terms as may be so expressly
agreed.
3.3 For so long as the Venturer involved has a right to
FabVen Production Capacity under Section 2.1 above, the prices and
other purchase terms to such Venturer for foundry services from
FabVen will be no less favorable than the prices and purchase
terms which FabVen offers to any other entity for comparable
processes and Products at comparable quantities; provided however
that UMC shall not be entitled to any volume discount.
3.4 FabVen shall make its best efforts to achieve on-time
delivery, and will make reasonable efforts to provide linear
shipments. To the extent that FabVen complies with its
commitments for wafer starts pursuant to the terms of this Foundry
Capacity Agreement, and thereafter makes such efforts, FabVen
shall not be liable to any Venturer for any delay in delivery.
4. RELIABILITY AND QUALITY
4.1 Subject to the terms of FabVen's standard Non-Disclosure
Agreement (the terms of which will be no more onerous than as
stated in the Foundry Venture Agreement), FabVen will provide,
upon written request of a Venturer, its available reliability and
quality data regarding Products for the purpose of maintaining
consistent quality and reliability standards for such Products
throughout the term of this Foundry Capacity Agreement.
4.2 FabVen shall give the Venturers advance written notice of
any proposed change(s) ("Proposed Change Notice") in materials
and/or to its existing manufacturing process, which, to the best
of FabVen's knowledge, might affect the form, fit, performance,
maintainability, operation, function, reliability, interface,
interconnectability, compatibility, design rules, models, or size
of the chips for Products. Such Proposed Change Notice shall
describe the nature of the proposed change(s), including reasons
for the change(s), the anticipated schedule for implementation of
the change(s), and other relevant technical and logistic
considerations, including without limitation quality and
reliability data to the extent available. The Venturers shall
approve or disapprove any such proposed change promptly, but in no
event may any such change be disapproved later than five (5)
business days after receipt of the Proposed Change Notice. If any
Venturer disapproves such proposed change within the five business
day period allowed, FabVen shall continue to manufacture and
deliver to such Venturer unchanged Products in accordance with
this Foundry Capacity Agreement for a minimum of six (6) months
from the date FabVen issues the Proposed Change Notice. Upon the
expiration of three months after the following Proposed Change
Notice, FabVen, in its discretion and by then giving a minimum of
three months prior written notice to the Venturer, may stop
manufacture and delivery of the Product involved without
liability.
4.3 Subject to the other terms of this Foundry Capacity
Agreement, the Venturers reserve the right to make any changes
they deem appropriate to the design of Products to be fabricated
for them by FabVen, provided however that each such change must be
documented by the Venturer through written change notices.
Notwithstanding anything to the contrary, after process
qualification runs for a particular Product have been made and
approved by those involved, any changes to design, process or
materials for such Products requested by the Venturer shall be
subject to FabVen's consent (which will not be unreasonably
withheld) and payment by the Venturer of applicable reasonable
costs, if any, related to such change.
4.4 During the term of this Foundry Capacity Agreement,
FabVen shall maintain fab and test lot traceability for Products
manufactured hereunder.
4.5 FabVen will promptly after discovery advise the Venturers
involved of defects and/or non-conformity in Products already
shipped to and/or in lots currently in manufacture for such
Venturer(s). During the term of this Foundry Capacity Agreement,
FabVen will provide each Venturer with written quarterly quality
assurance reports regarding Products manufactured on behalf of
that Venturer.
4.6 Wafer acceptance will be subject to process control
monitor acceptance criteria to be mutually agreed upon between
FabVen and the applicable Venturer on a process-by-process basis.
Minimum yield and low yield lot criteria will be negotiated
between FabVen and the applicable Venturer on a Product-by-Product
basis.
5. WARRANTY AND ACCEPTANCE
5.1 FabVen warrants that the Products delivered will be free
from defects in material and workmanship for a period of sixty
days following delivery by FabVen, and will be processed according
to FabVen standard processing specifications as well as in
accordance with any additional processing requirements for such
Products as may be agreed-upon in writing by FabVen and the
Venturer. FabVen warrants that the Venturer will acquire good
title to the Products fee and clear of all liens, claims and
encumbrances (other than liens, claims and encumbrances relating
to alleged intellectual property infringement).
5.2 Upon receipt of written Stop Request, FabVen will
immediately stop shipment of Products which are subject to a
suspected failure to meet the criteria specified in Paragraph 5.1.
If FabVen is responsible for such failure, or the Products in
question are not in conformity with Paragraph 5.1, and FabVen is
unable to correct it within forty-five (45) days of receipt of
such a written Stop Request, then the Venturer involved may reject
non-conforming Products which are subject to the failure, and,
without penalty (including loss of capacity) cancel any
then-committed but not yet shipped purchase order for such
Products by sending written notice of cancellation to FabVen
within seventy-five (75) days of the written Stop Request. Such a
notice of cancellation shall be effective on receipt by FabVen.
5.3 Products which are the subject of warranty claims shall
be returned in component form (removed from boards where
applicable) to FabVen pursuant to FabVen standard return material
authorization procedures. No warranty claim concerning Products,
under this Foundry Capacity Agreement or otherwise, may be made
more than four months after delivery by FabVen of the Products
which are subject to the claim.
5.4 To the extent that any Product delivered under this
Foundry Capacity Agreement fails to meet the warranties and/or
requirements provided herein, and FabVen shall either (a) replace
such Product not meeting the warranty with an equivalent number of
replacement Products without charge, or (b) refund the payments
made to FabVen for such Product, all within sixty (60) calendar
days of receipt by FabVen of written notice from the Venturer of
such non-conforming Products. The parties will discuss in good
faith which of these two remedies is the most appropriate;
provided however that if they cannot agree, FabVen shall have the
option to choose in its sole discretion between the two remedies,
and provided further that no refund and/or replacement shall be
required unless the Products for which refund and/or replacement
is sought are returned to FabVen pursuant to FabVen's return
material authorization procedures. THIS PARAGRAPH 5.4 STATES THE
ONLY AND EXCLUSIVE REMEDY FOR ANY AND ALL CLAIMS MADE AGAINST
FABVEN UNDER THIS FOUNDRY CAPACITY AGREEMENT.
5.5 FabVen shall not be responsible for defects to the extent
caused by assembly not performed by FabVen or by design or
application, or by combination of Products with other components.
5.6 The exclusions and warranties in this Section 5 will
survive the termination of this Foundry Capacity Agreement, and
the exclusions and limitations of liability and of remedies shall
apply notwithstanding any claim of a failure of any one or more
remedies to accomplish their purpose. THE PARTIES EXPRESSLY WAIVE
AND RELINQUISH ANY CONTRARY RIGHTS WITH RESPECT TO THE SUBJECT
MATTER OF THIS SECTION 5 UNDER ANY APPLICABLE LAW, DECISION,
AND/OR CUSTOM OR PRACTICE.
5.7 Upon written request from a Venturer and subject to
satisfactory arrangements for payment to FabVen for the reasonable
cost involved, FabVen will perform failure analysis of Products
returned to FabVen pursuant to its standard return material
authorization procedures. If such analysis shows the existence of
material defects in breach of FabVen's warranties under this
Foundry Capacity Agreement, FabVen will not be entitled to payment
for the cost of the failure analysis concerning such defects for
the specific Products which were subject to them.
5.8 If a Venturer requests FabVen to stop shipment of any
Products which the Venturer is obligated to purchase pursuant to
this Foundry Capacity Agreement, and the Products are subsequently
determined in good faith by FabVen to have been processed in
accordance with the requirements of this Foundry Capacity
Agreement, FabVen shall be entitled to full payment for completed
wafers and, in addition, for its reasonable direct costs for up to
one month worth of work in progress. Under this Section 5.8,
payment for completed wafers will be at the purchase order price,
and payment for work in progress shall allow FabVen to recover all
reasonable direct costs involved. All such payments will be paid
in full within forty-five days of the date of FabVen's invoice for
the amounts involved.
6. SHIPMENT AND TERMS OF PAYMENTS
6.1 Each Venturer guarantees the payment of any and all
obligations accrued pursuant to purchase orders from such Venturer
under this Foundry Capacity Agreement. Invoices for Products
shall be paid at net forty-five (45) days after the end of the
month of invoice date. Subject to contrary written agreement,
invoices for Products delivered shall show the number of wafers
and extended price in U.S. dollars.
6.2 FabVen shall deliver all Products to a freight forwarder
in the R.O.C. as designated by the Venturer involved. Such
delivery shall be F.O.B. (IncoTerms 1990) at FabVen's facility.
6.3 In the event that any payment under this Foundry Capacity
Agreement becomes restricted for any reason, the party whose
payment obligation is restricted agrees, at its own expense, to
immediately take whatever steps or actions may be necessary to
assure such payment.
7. REPRESENTATIONS AND WARRANTIES
The Venturers and FabVen each represent and warrant that
they have the right and power to enter into this Foundry Capacity
Agreement, and adequate resources to fulfill their respective
obligations hereunder.
8. TERM AND TERMINATION
8.1 This Foundry Capacity Agreement shall remain in effect
until July 1, 2005, unless sooner terminated as provided herein.
This Foundry Capacity Agreement may be terminated only as
described below and/or in Paragraphs 6.1 and 6.2 of the Foundry
Venture Agreement, the terms of which Paragraphs are incorporated
by reference.
8.2 Without limiting the foregoing:
(a) If any party fails to perform or violates any material
obligation under Paragraph 6.1 of this Foundry Capacity Agreement
or Paragraph 4.1(c) of the Foundry Venture Agreement, upon thirty
(30) days' written notice to the breaching party specifying such
default (the "Default Notice"), any non-breaching party affected
by such failure and/or violation may terminate this Foundry
Capacity Agreement as to its responsibilities and obligations as
between FabVen and that particular non-breaching party, without
liability (subject to paragraphs 8.3 and 8.4 below), unless:
(i) The breach specified in the Default Notice has been
cured within the thirty (30) day period, or if the breach is
disputed, the amount in dispute is placed in a reasonably secure
third party escrow account pending resolution of the dispute; or
(ii) The default reasonably requires more than (30)
days to correct (specifically excluding any failure to pay money),
and the defaulting party has begun substantial corrective action
to remedy the default within such thirty (30) day period and
diligently pursues such action, in which event, termination shall
not be effective unless sixty (60) days has expired from the date
of the defaulting party's receipt of the Default Notice without
such corrective action being completed and the default remedied.
(b) In the event of a breach of a material provision of this
Foundry Capacity Agreement, each of the non-breaching parties
shall promptly provide in writing a detailed description of the
breach to the extent it affects such party as well as any
available information reasonably useful and/or necessary to enable
a cure (the "Notice of Breach"). The breaching party shall meet
with each such non-breaching party within seven (7) working days
following receipt of this Notice of Breach, and shall submit a
plan to cure the breach within twenty (20) days of receipt of such
notice. The non-breaching party will accept or reject the plan in
writing (giving written reasons in the event of rejection) within
five days of receipt, provided however that no rejection of such a
plan will be determinative as to whether a cure has been
effectuated.
8.3 If a Venturer terminates this Foundry Capacity Agreement
for any reasons stated in Paragraphs 8.1 and/or 8.2, FabVen will:
(i) if so requested in writing by the Venturer involved cease all
Production required by such Venturer's purchase orders under this
Foundry Capacity Agreement; and (ii) if so requested by the
Venturer involved otherwise complete and deliver all Products
pursuant to such Venturer's purchase orders and invoice such
Venturer for the Products.
8.4 If FabVen terminates this Agreement as to any Venturer
pursuant to Section 8.1 and/or 8.2, FabVen shall be entitled to
payment in full upon delivery of all completed Products
manufactured to outstanding purchase orders issued by such
Venturer under this Foundry Capacity Agreement, as well as to
reimbursement for all reasonable direct costs incurred for up to
one month's work then in progress for such Venturer.
8.5 FabVen and each Venturer will cooperate in connection
with any issue raised by any one or more of them with respect to
intellectual property rights of third parties. Without limiting
the foregoing, upon written notice to the others, any Party hereto
may suspend (i) performance of its obligations, (ii) exercise of
its rights of first refusal with respect to capacity and/or (iii)
providing capacity to the extent that such Party has reasonable
concerns that its future performance in connection with such
matters will subject it to claims by others with respect to such
matters, provided however that no such suspension will affect any
obligation to pay for Product delivered and/or manufactured prior
to the date of written notice concerning such matters. In the
event that FabVen exercises any of its rights pursuant to this
Paragraph 8.5, FabVen will negotiate in good faith to minimize the
liability of the Venturer involved to others.
9. PROPRIETARY RIGHTS
All discoveries, improvements and inventions, conceived
or first reduced to practice, as those terms are used before the
U.S. Patent Office, in the performance of this Foundry Capacity
Agreement solely by one party and without reliance upon
Confidential Information or Proprietary Information of any other
party shall be the sole and exclusive property of such party and
such party shall retain any and all rights to file at its sole
discretion any patent applications thereon.
10. MISCELLANEOUS
10.1 All terms and conditions of Paragraphs 7 to 9 inclusive
of the Foundry Venture Agreement are incorporated by reference.
10.2 This Foundry Capacity Agreement shall become effective
only upon execution by all parties and approval, to the extent
necessary, by the Government of Taiwan. Each party agrees to make
its best faith efforts to cooperate and to obtain such approval as
soon as possible.
10.3 Nothing in this Foundry Capacity Agreement shall
prohibit any Venturer from purchasing Products and/or foundry
services from other suppliers nor, subject to Paragraph 2,
prohibit FabVen from offering wafers and/or foundry services to
others.
10.4 The provisions of Paragraph 3.4 and Paragraphs 5, 6, 7,
8, 9 and 10 shall survive the expiration and/or termination of
this Foundry Capacity Agreement.
ACCORDINGLY, each Party to this Foundry Capacity Agreement
represents and warrants that the representatives signing on their
respective behalf is authorized to enter into this Foundry
Capacity Agreement and to bind that Party to its terms.
CIRRUS LOGIC, INC.
_____/s/ Michael Hackworth______________
UNITED MICROELECTRONICS CORPORATION
_____/s/ John Hsuan___________________________________
FABVEN
_________________________________________
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
Part II. Other information, Item 6a.
Exhibit 11
CIRRUS LOGIC, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<CAPTION>
Quarter Ended Two Quarters Ended
Sept. 30, Oct. 1, Sept. 30, Oct. 1,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 62,697 59,540 61,978 59,405
Dilutive common stock equivalents:
Common stock options, using treasury stock
or modified treasury stock method 8,300 3,660 7,397 4,062
Common stock warrants, using treasury
stock or modified treasury stock method - 6 11 6
--------- --------- --------- ---------
Common and common equivalent shares used in
the calculation of net income per share 70,997 63,206 69,386 63,473
========= ========= ========= =========
Net income $33,037 $12,438 $55,774 $28,013
========= ========= ========= =========
Earnings per share $0.47 $0.20 $0.80 $0.44
========= ========= ========= =========
Fully diluted:
Weighted average shares outstanding 62,697 59,540 61,978 59,405
Dilutive common stock equivalents:
Common stock options, using treasury stock
or modified treasury stock method 8,848 3,660 8,159 4,062
Common stock warrants, using treasury
stock or modified treasury stock method - 6 13 6
--------- --------- --------- ---------
Common and common equivalent shares used in
the calculation of net income per share 71,545 63,206 70,150 63,473
========= ========= ========= =========
Net income $33,037 $12,438 $55,774 $28,013
========= ========= ========= =========
Earnings per share $0.46 $0.20 $0.80 $0.44
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Mar-30-1996
<PERIOD-START> Apr-02-1995
<PERIOD-END> Sep-30-1995
<PERIOD-TYPE> 6-MOS
<CASH> 118,092
<SECURITIES> 44,654
<RECEIVABLES> 207,091
<ALLOWANCES> 0
<INVENTORY> 151,142
<CURRENT-ASSETS> 604,650
<PP&E> 145,871
<DEPRECIATION> 0
<TOTAL-ASSETS> 848,493
<CURRENT-LIABILITIES> 296,563
<BONDS> 0
0
0
<COMMON> 320,210
<OTHER-SE> 191,049
<TOTAL-LIABILITY-AND-EQUITY> 848,493
<SALES> 618,089
<TOTAL-REVENUES> 618,089
<CGS> 354,183
<TOTAL-COSTS> 354,183
<OTHER-EXPENSES> 184,919
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 81,420
<INCOME-TAX> 25,646
<INCOME-CONTINUING> 55,774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,774
<EPS-PRIMARY> $0.80
<EPS-DILUTED> $0.80
</TABLE>
