UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
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
and investment in joint venture 62,369 63,735
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.
Between November 7 and November 21, 1995, five 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 defend itself vigorously. 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 has
taken steps to reduce its fiscal 1997 and 1998 cash requirements
for capital expenditures by over $600 million without compromising
its announced capacity expansions that will be phased in over
fiscal 1997, 1998, and 1999. As a result, the Company now expects
to cover its immediate financing requirements with certain bank
lending lines in negotiation. Management continues to evaluate
other possibilities for additional financing.
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 has
taken steps to reduce its fiscal 1997 and 1998 cash requirements
for capital expenditures by over $600 million without compromising
its announced capacity expansions that will be phased in over
fiscal 1997, 1998, and 1999. As a result, the Company now expects
to cover its immediate financing requirements with certain bank
lending lines in negotiation. Management continues to evaluate
other possibilities for additional financing.
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. On December 27, 1995, the Company
announced a further reduction in expected revenue and operating
profit for the current quarter ending December 30, 1995, stemming
primarily from much softer than expected business conditions in
Taiwan and a slower than anticipated rate of growth in the home PC
market. These developments will reduce the expected revenues
generated by the Company's graphics, audio and modem products
during the current quarter ending December 30, 1995. The Company
expects its revenues for the current quarter ending December 30,
1995 to be about $290 million to $300 million, and that its
earnings per share are expected to be approximately
$0.13 to $0.19. The lower earnings per share estimate is due
primarily to the expected revenue shortfall and the effect of
adjusting inventory to the lower of cost or market.
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.
Additionally, certain provisions of the MiCRUS and AT&T agreements
may cause the termination of the joint venture in the event of a
change of control of the Company. Such provisions could have the
effect of delaying, deferring or preventing a change of control
of the Company.
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.
Between November 7 and November 21, 1995, five 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 defend itself vigorously. 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)
December 27, 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)
December 27, 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
27, 1995 /s/ Michael L. Hackworth
(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
October 23, 1995, 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 23,1995 (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.
-1-
<PAGE>
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.
-2-
<PAGE>
"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.
-3-
<PAGE>
"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-
-4-
<PAGE>
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 5.03hereof.
"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.
-5-
<PAGE>
"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;
-6-
<PAGE>
(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 addi tional 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 autho-
-7-
<PAGE>
rized 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;
-8-
<PAGE>
(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;
-9-
<PAGE>
(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 business ventures of
every nature and description, independently or with others, and neither the
Partnership nor the Partners will have 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
-10-
<PAGE>
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
-11-
<PAGE>
(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 par ties 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;
-12-
<PAGE>
(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 objec tives. 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 unrea sonably 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.
-13-
<PAGE>
(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
-14-
<PAGE>
(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
-15-
<PAGE>
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.
-16-
<PAGE>
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 intheir 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;
-17-
<PAGE>
(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 imme diately
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 pay ments 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
-18-
<PAGE>
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
-19-
<PAGE>
(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 [*] 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 deter mined 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
-20-
<PAGE>
accordance with Section 1.704-2(i)(4) of the Regulations. Allocations pursuant
to the previous sen tence 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 allo cated 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
-21-
<PAGE>
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.
-22-
<PAGE>
(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 disposi tions
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.
-23-
<PAGE>
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.
-24-
<PAGE>
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.
-25-
<PAGE>
(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
-26-
<PAGE>
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.
-27-
<PAGE>
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 investi gative,
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 settle ment 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.
-28-
<PAGE>
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
-29-
<PAGE>
(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.
-30-
<PAGE>
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:
-31-
<PAGE>
SCHEDULE A
Schedule of Initial Capital Contributions
<TABLE>
<CAPTION>
INITIAL CAPITAL
PARTNER'S NAME CONTRIBUTION PERCENTAGE INTEREST
- -------------- ------------ -------------------
<S> <C> <C>
ATOR CORP.
CIROR, INC.
</TABLE>
<PAGE>
SCHEDULE B
Initial Governors
<PAGE>
[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.
-1-
<PAGE>
"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.
-2-
<PAGE>
"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.
-3-
<PAGE>
"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.
-4-
<PAGE>
"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.
-5-
<PAGE>
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 July 1, 1996 and ending on June 30,
2006. 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 [*] 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.
-6-
<PAGE>
(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 three (3) 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 eight inch silicon wafer fabrication
facility ("OR2") with capacity of approximately [*] 0.5u 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
-7-
<PAGE>
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 $280,000,000 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.
Cirrus and its Affiliates acknowledge and agree that the acquisition of the
Cirrus Assets will be financed through operating leases, in each such case
guaranteed by Cirrus and the Cirrus Partner without recourse to AT&T or the AT&T
Partner and with such assurances or covenants as to financial security as are
reasonably acceptable to AT&T. AT&T and its Affiliates acknowledge and agree
that the acquisition of the AT&T Assets may be financed through operating leases
in AT&T's sole discretion, in each such case guaranteed by AT&T and the AT&T
Partner without recourse to Cirrus or the Cirrus Partner and with such
assurances or covenants as to financial security as are reasonably acceptable to
Cirrus. 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.
-8-
<PAGE>
(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 capa city,
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
-9-
<PAGE>
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 ten 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
-10-
<PAGE>
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
-11-
<PAGE>
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
-12-
<PAGE>
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 notwith standing 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
repro-
-13-
<PAGE>
ductions 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 investi gative 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.
-14-
<PAGE>
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.
-15-
<PAGE>
(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 regu latory 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;
-16-
<PAGE>
(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
-17-
<PAGE>
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 trans actions 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.
-18-
<PAGE>
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 deli very 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.
-19-
<PAGE>
(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
-20-
<PAGE>
(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 December 31, 1996. 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 NonDefaulting 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 indepen dent qualified appraiser appointed by the
Defaulting Partner and the Non-Defaulting Partner.
-21-
<PAGE>
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:
-22-
<PAGE>
(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 fifty percent (50%) 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
NonDefaulting 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
-23-
<PAGE>
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
speci fied 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:
-24-
<PAGE>
(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 con tinue
for a one (1) year 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 one (1) year following the consummation of a
sale pursuant to Section 10.03.
-25-
<PAGE>
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 representa tion 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 liabilitie
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:
-26-
<PAGE>
(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
-27-
<PAGE>
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 calend
designated at a general meeting of the members of the Partnership.
-28-
<PAGE>
ARTICLE XIII
NOTICE OF DEADLOCK OR DISPUTE; DISPUTE RESOLUTION;
ARBITRATION
13.01. Notice. (a) If the parties hereto or the Board of Governors are
unable to agree on any matter relating to the management or operation of the
Partnership or the Business requiring the approval of the parties hereto or the
members of the Board of Governors pursuant to this Agreement or the Material
Agreements, then any of the parties hereto may declare that a "Deadlock" exists
and so notify the other parties hereto, in which event the parties hereto will
resolve the dispute pursuant to the procedures set forth in Sections 13.02 and
3.02(a) hereof. If the parties hereto or the Board of Governors are unable to
agree on any matter (other than any matter relating to the management or
operation of the Partnership or the Business requiring the approval of the
parties hereto or the mem bers of the Board of Governors pursuant to this
Agreement or the Material Agreements) relating to a dispute or claim arising out
of or related to this Agreement or the Material Agreements, or the
interpretation, making, performance, breach or termination hereof or thereof,
then any of the parties hereto may declare that a "Dispute" exists and so notify
the other parties hereto, in which event the parties hereto will resolve the
Dispute pursuant to the procedures set forth in Sections 13.02 and 13.03 hereof.
(b) Pending final resolution of the Deadlock or Dispute in
accordance herewith, the Partnership will (i) continue its operations under, or
revert to, the most recently approved Annual Plan, and (ii) not undertake any
action which is the subject of the Deadlock or Dispute.
(c) Notwithstanding the provisions of Sections 13.02 and 13.03
hereof, with respect to Disputes, the parties hereto may apply to any court of
competent jurisdiction for a tem porary restraining order, preliminary
injunction, or other interim or conservatory relief, as may be necessary,
without breach of this Article XIII, without any abridgment of the powers of the
arbi trators as described in Section 13.03 hereof and without breach of the
parties' obligations to consult, mediate and arbitrate the Dispute pursuant to
the terms of this Article XIII.
13.02. Deadlock and Dispute Resolution.
(a) Consultation. (i) Within ten (10) days of the notice
pursuant to Section 13.01 hereof (or such other period to which the parties
hereto may otherwise agree), the parties hereto will first submit the Deadlock
or Dispute to [*], as AT&T's and the AT&T Partner's first executive
representative, and to Cirrus' [*], as Cirrus's and the Cirrus Partner's first
executive representative (such first executive representatives are together
referred to herein as the "First Representatives"), to attempt to resolve the
Deadlock or Dispute. The parties hereto agree to use their reasonable best
-29-
<PAGE>
efforts to cause the First Representatives to meet (by telephone, conference or
otherwise) at mutually convenient times and locations, and the First
Representatives will have [*] days following the submis sion of the Deadlock or
Dispute to the First Representatives (or such other period to which the parties
hereto may otherwise agree) to resolve the Deadlock or Dispute. AT&T and Cirrus
will promptly notify each other with respect to any change in the identity of
the First Representatives.
(ii) In the event that the First Representatives are
unable to resolve the Deadlock or Dispute within [*] days following the
submission of the Deadlock or Dispute to the First Representatives (or such
other period to which the parties hereto may otherwise agree), then the Deadlock
or Dispute will be referred to [*], as AT&T's and the AT&T Partner's second
executive representative, and to Cirrus' [*], as Cirrus's and the Cirrus
Partner's second executive representative (such second execute representatives
are together referred to herein as the "Second Representatives"), to attempt to
resolve the Deadlock or Dispute. The parties hereto agree to use their
reasonable best efforts to cause the Second Representatives to meet (by
telephone, conference or otherwise) at mutually convenient times and locations,
and the Second Representatives will have [*] days following the submission of
the Deadlock or Dispute to the Second Representatives (or such other period to
which the parties hereto may otherwise agree) to resolve the Deadlock or
Dispute. AT&T and Cirrus will promptly notify each other with respect to any
change in the identity of the Second Representatives.
(b) Mediation. In the event that the Second Representatives
are unable to resolve the Deadlock or Dispute within [*] days following the
submission of the Deadlock or Dispute to the Second Representatives (or such
other period to which the parties hereto may otherwise agree), then the parties
hereto will, within [*] days following the submission of the Deadlock or Dispute
to the Second Representatives (or such other period to which the parties hereto
may otherwise agree), either: (a) agree upon a mediator to attempt to aid
resolution of the Deadlock or Dispute; or (b) notify the American Arbitration
Association (the "AAA") of the Deadlock or Dispute, and request that the AAA
appoint a mediator within [*] days of such notice to the AAA to conduct a
mediation under the Commercial Mediation Rules of the AAA to attempt to aid
resolution of the Deadlock or Dispute. Any mediation pursuant to this Section
13.02(b) will occur within [*] days after selection of the mediator.
13.03. Arbitration. (a) Any Dispute which has not been finally resolved
by the consultation or mediation procedures described in Section 13.02 hereof
will be finally settled by binding arbitration in Atlanta under the Commercial
Arbitration Rules and Supplementary Procedures for Large, Complex Disputes of
the AAA (the "LCCP Rules") by three arbitrators. Judgment on the award rendered
by the arbitrators may be entered in any court having jurisdiction thereof.
-30-
<PAGE>
(b) The arbitrators will apply New York law to the merits of
the Dispute, without reference to its conflicts of laws principles. The
arbitration proceedings will be governed by the United States Arbitration Act
and by the LCCP Rules, without reference to the arbitration law of the State of
New York, subject to all of the following:
(i) The AAA will provide the parties hereto with a
list of potential arbitrators from the National LCCP Panel. Within [*] days
thereafter, each of AT&T and Cirrus will select one arbitrator and, if possible,
AT&T and Cirrus will jointly agree on a third arbitrator who will be the chair
of the arbitral tribunal. If either of AT&T or Cirrus fails to appoint an
arbitrator, or if AT&T and Cirrus do not jointly agree on a third arbitrator
within such [*] day period, the AAA will, within [*] days following such failure
or disagreement, appoint such arbitrator(s) from the National LCCP Panel. The
arbitrators appointed by AT&T and Cirrus may be, but are not required to be,
from the National LCCP Panel. All arbitrators will be neutral and independent or
will be disqualified.
(ii) The parties hereto will have access to all
Partnership records and each other's records with respect to the Partnership,
and the arbitrators will require that such records, together with any other
documents allowed by the arbitrators, be made available and exchanged within [*]
days following the appointment of the third arbitrator.
(iii) The arbitrators will cause the arbitration
hearing to occur within [*] days of the appointment of the third arbitrator, and
the arbitrators will render their award within [*] days of the conclusion of the
arbitration proceedings.
(iv) Following consultation with the parties hereto,
the arbitrators will enter an appropriate protective order to maintain the
confidentiality of information produced or exchanged in the course of the
arbitration proceedings.
(v) The arbitrators will be directed by the terms of
this Agreement to conclusively resolve the Dispute; provided, however, that the
arbitrators may not limit, expand or otherwise modify the terms of this
Agreement.
(vi) The arbitrators will award to the prevailing
party hereto, if any, as determined by the arbitrators, all of its costs and
fees, including without limitation administrative fees, arbitrator fees, travel
expenses, out-of-pocket expenses, such as copying and telephone, facsimile,
witness fees and attorneys' fees.
-31-
<PAGE>
ARTICLE XIV
MISCELLANEOUS
14.01. Notices. Any notice to be given under this Agreement will be
duly given upon receipt when in writing and delivered in person, by facsimile tr
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
-32-
<PAGE>
(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
-33-
<PAGE>
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.
-34-
<PAGE>
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 accor dance 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.
-35-
<PAGE>
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:
-36-
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.
-1-
[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 1.25 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.
-1-
<PAGE>
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 0.35u 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
-2-
<PAGE>
(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
-3-
<PAGE>
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 0.35u 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.
-4-
<PAGE>
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.
-5-
<PAGE>
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
-6-
<PAGE>
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
-7-
<PAGE>
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.
-8-
<PAGE>
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,
John Hsuan, President
AGREED ON BEHALF OF
----------------------------------------
Name of Venturer
As of September ___, 1995
------------------------------
Authorized signature
RATIFIED BY FABVEN
-----------------------------------------
Authorized signature
-9-
[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 29, 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
Ageement 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"):
<PAGE>
<TABLE>
<S> <C>
Venturer Production Capacity Percentage
- --------------------------------------------------------------------------------
Cirrus 18.75%
- --------------------------------------------------------------------------------
OtherVen TBD%
================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
Month in the First month of Second month Third month of
forecast forecast of forecast forecast
- -------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C>
Minimum
percentage
commitment for [*]% [*]% [*]%
amounts
forecast for that
month
==================== =================== ================== ===================
</TABLE>
(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,
<PAGE>
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,
<PAGE>
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 onorous 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.
<PAGE>
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
<PAGE>
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:
<PAGE>
(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 nonbreaching 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 nonbreaching 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
<PAGE>
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.
----------------------------------------
UNITED MICROELECTRONICS CORPORATION
----------------------------------------
FABVEN
-----------------------------------------
<PAGE>
[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>
