e10vk

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q6sThGD4RhWvv1WJpRTMWefPwpHoUvdXOSd63HNsjqXhJUi4ngKqVM7hiaHEgAUA o9AdbuFMp79JwFH9Rrf6iA== 0000950134-08-003856.txt : 20080229 0000950134-08-003856.hdr.sgml : 20080229 20080229165827 ACCESSION NUMBER: 0000950134-08-003856 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080229 DATE AS OF CHANGE: 20080229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATMEL CORP CENTRAL INDEX KEY: 0000872448 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770051991 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19032 FILM NUMBER: 08656658 BUSINESS ADDRESS: STREET 1: 2325 ORCHARD PKWY CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084410311 MAIL ADDRESS: STREET 1: 2325 ORCHARD PKWY CITY: SAN JOSE STATE: CA ZIP: 95131 10-K 1 f38449e10vk.htm FORM 10-K e10vk

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2007
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-19032

ATMEL CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		77-0051991
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2325 Orchard Parkway, San Jose, California 95131
(Address of principal executive offices)

Registrant’s telephone number, including area code:

(408) 441-0311

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Exchange on Which Registered

Common Stock, par value $0.001 per share		The NASDAQ Stock Market LLC (NASDAQ Global Select Market)

Securities registered pursuant to Section 12(g) of the Act:

Preferred Share Right (currently attached to and trading with the Common Stock)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes o No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”). Yes o No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of June 30, 2007, the last business day of the Registrant’s most recently completed second fiscal quarter, there were 478,650,055 shares of the Registrant’s Common Stock outstanding, and the aggregate market value of such shares held by non-affiliates of the Registrant (based on the closing sale price of such shares on the NASDAQ Global Select Market on June 29, 2007) was approximately $2,661,294,305. Shares of Common Stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of January 31, 2008, Registrant had 443,918,113 outstanding shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement for the Registrant’s 2008 Annual Meeting of Stockholders to be held on May 14, 2008 are incorporated by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. The Proxy Statement will be filed within 120 days of the registrant’s fiscal year ended December 31, 2007.

TABLE OF CONTENTS


PART I
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	11
ITEM 1B.	UNRESOLVED STAFF COMMENTS	27
ITEM 2.	PROPERTIES	27
ITEM 3.	LEGAL PROCEEDINGS	28
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	30

PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	31
ITEM 6.	SELECTED FINANCIAL DATA	32
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	60
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	63
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	118
ITEM 9A.	CONTROLS AND PROCEDURES	118
ITEM 9B.	OTHER INFORMATION	119

PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	119
ITEM 11.	EXECUTIVE COMPENSATION	119
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	119
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	120
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	120

PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	121
SIGNATURES		123
EXHIBIT INDEX
EXHIBIT 10.14
EXHIBIT 10.15
EXHIBIT 10.16
EXHIBIT 10.17
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I


ITEM 1.	*BUSINESS*

FORWARD LOOKING STATEMENTS

You should read the following discussion in conjunction with our Consolidated Financial Statements and the related “Notes to Consolidated Financial Statements”, and “Financial Statements and Supplementary Data” included in this Annual Report on Form 10-K. This discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, particularly statements regarding our outlook for 2008, our expectations regarding the effects of exchange rates, our strategic plans, restructuring and other initiatives, and statements regarding our future prospects. Our actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, risks and uncertainties, including the risk factors set forth in this discussion and in Item 1A — Risk Factors, and elsewhere in this Form 10-K. Generally, the words “may,” “will,” “could,” “would,” “anticipate,” “expect,” “intend,” “believe,” “seek,” “estimate,” “plan,” “view,” “continue,” the plural of such terms, the negatives of such terms, or other comparable terminology and similar expressions identify forward-looking statements. The information included in this Form 10-K is provided as of the filing date with the Securities and Exchange Commission and future events or circumstances could differ significantly from the forward-looking statements included herein. Accordingly, we caution readers not to place undue reliance on such statements. Atmel undertakes no obligation to update any forward-looking statements in this Form 10-K.

BUSINESS

General

We design, develop, manufacture and sell a wide range of semiconductor integrated circuit (“IC”) products, including microcontrollers, advanced logic, mixed-signal, nonvolatile memory and radio frequency (“RF”) components. Leveraging a broad intellectual property (“IP”) portfolio, Atmel supplies its customers complete system solutions, with particular emphasis on solutions incorporating microcontrollers. These complex system-on-a-chip solutions are manufactured using our leading-edge process technologies, including complementary metal oxide semiconductor (“CMOS”), double-diffused metal oxide semiconductor (“DMOS”), logic, CMOS logic, bipolar, bipolar CMOS (“BiCMOS”), silicon germanium (“SiGe”), SiGe BiCMOS, analog, bipolar double diffused CMOS and radiation tolerant process technologies. We develop these process technologies ourselves to ensure they provide the maximum possible performance. In 2007, we fabricated approximately 93% of our products in our own wafer fabrication facilities, or “fabs.” We believe our ICs enable our customers to rapidly introduce leading edge electronic products that are differentiated by higher performance, advanced security features, lower cost, smaller size, longer battery life and more memory. Our products are used primarily in the following markets: communications, computing, consumer electronics, storage, security, industrial, automotive, military and aerospace.

We were originally incorporated in California in December 1984. In October 1999, we were reincorporated in Delaware. Our principal offices are located at 2325 Orchard Parkway, San Jose, California 95131, and our telephone number is (408) 441-0311. Our website is located at: www.atmel.com; however, the information in, or that can be accessed through, our website is not part of this report. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports are available, free of charge, through the “Investors” section of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Additionally, these filings may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330, by sending an electronic message to the SEC at publicinfo@sec.gov or by sending a fax to the SEC at 1-202-777-1027. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically.

Products

Our products consist primarily of microcontrollers, advanced logic, mixed-signal, nonvolatile memory, radio frequency and system-level integration semiconductor solutions.

Our business is organized into four operating segments (see Note 13 of Notes to Consolidated Financial Statements for further discussion). Each of our business units offers products that compete in one or more of the end markets described below under the caption “Principal Markets and Customers.”


	•	Application specific integrated circuit (“ASIC”) segment includes customer and application specific integrated circuits designed to meet specialized single-customer requirements for their high performance devices in a broad variety of specific applications. This segment also encompasses a range of products which provide security for digital data transactions, including smart cards for mobile phones, set top boxes, banking and national identity cards. We also develop customer specific products for high reliability space applications, and secure memory products.

	•	Microcontrollers segment includes a variety of proprietary and standard microcontrollers, the majority of which contain embedded nonvolatile memory and integrated analog peripherals.

	•	Nonvolatile Memories segment consists predominantly of serial interface electrically erasable programmable read-only memory (“SEEPROM”) and serial interface Flash memory products. This segment also includes parallel interface Flash memories as well as mature parallel interface electrically erasable programmable read-only memory (“EEPROM”) and erasable programmable read-only memory (“EPROM”) devices.

	•	Radio Frequency (“RF”) and Automotive segment includes products primarily designed for the automotive industry. This segment produces and sells wireless and wired devices for industrial, consumer and automotive applications and it also provides foundry services which produce radio frequency products for the mobile telecommunications market.

Within each operating segment, we offer our customers products with a range of speed, density, power usage, specialty packaging, security and other features.

ASIC

Custom ASICs. We design, manufacture and market ASICs to meet customer requirements for high-performance logic devices in a broad variety of customer-specific applications. Atmel’s SiliconCITY design platform utilizes our extensive libraries of qualified analog and digital IP blocks. This approach integrates system functionality into a single chip based on this unique architecture platform combined with one of the richest libraries of qualified IP blocks in the industry. By combining a variety of logic functions on a single chip, costs are reduced, design risk is minimized, time-to-market is accelerated, and performance can be optimized.

We design and manufacture ASICs in a range of products that includes standard digital and analog functions, as well as nonvolatile memory elements and large pre-designed macro functions all integrated on a single chip. We work closely with customers to develop and manufacture custom ASIC products so that we can provide them with IC solutions on a sole-source basis. Our ASIC products are targeted primarily at high-volume customers whose applications require high-speed, high-density or low and mixed-voltage devices such as in the medical, consumer and security markets.

CAP^tm. Atmel’s CAP customizable microcontroller combines, on a single IC, an ARM-based microcontroller system-on-chip with a high-density Metal Programmable Block that enables customers to add application-specific logic. This hybrid device significantly reduces design time and cost compared to an equivalent ASIC, but commands a comparable unit price. CAP is aimed at medium-to high-volume customers, many of whom are replacing a field programmable gate array (“FPGA”)-plus-microcontroller combination.

Secure Microcontrollers. Our advanced design capability expertise in non-volatile memory technology and experience in security products positions Atmel as one of the world’s pre-eminent suppliers of secure

microcontroller-based ICs. Our Smart Card ICs primarily serve the cellular phone, banking, health card, national ID card and set-top box markets.

We also produce a broad portfolio of secure ICs, including CryptoMemory^® and CryptoRF^tm and smart card reader chips. Our secure microcontrollers feature dual contact/contactless products that comply with the ISO-14443, Universal Serial Bus (“USB”) Full-Speed interface and Serial Peripheral Interface (“SPI”) Protocols.

We combine dense nonvolatile memory technology and high performance AVR^® and ARM^® microcontroller cores to offer cost-effective solutions for demanding applications such as global system for mobile computing (“GSM”) subscriber identity module (“SIM”) cards and multi-application smart cards running on open platforms like Java^tm.

We have also introduced solutions with multimedia and wireless communications devices targeting home entertainment, security, and automotive applications where information security is a primary objective.

FPGAs. Our FPGAs (field programmable gate arrays), with FreeRAM and Cache Logic^®, provide efficient memory management and a reconfigurable solution for adaptive digital signal processing and other computationally intensive applications. We also offer a family of radiation hardened FPGAs for space applications. Our family of reconfigurable FPGA Serial Configuration EEPROMs can replace one-time-programmable devices for FPGAs from other vendors. In addition we offer FPGA-to-gate array conversions for both military and commercial applications.

Smart Cards accounted for 11%, 12% and 14% of total revenue for the years ended December 31, 2007, 2006, and 2005, respectively.

Microcontrollers

Our Microcontroller segment offers customers a full range of products to serve the consumer, automotive, industrial, telecom and PC peripheral end markets for embedded controls. Our product portfolio has four major microcontroller architectures targeted at the high volume embedded control market: our proprietary 8-bit and 32-bit AVR platforms, our embedded ARM-based product family, and older 8051 8-bit based industry standard microcontroller products.

Embedded control systems typically incorporate a microcontroller as the principal active component. A microcontroller is a self-contained computer-on-a-chip consisting of a CPU, non-volatile program memory (Flash and EEPROM), random access memory (“RAM”) for data storage and various input/output peripheral capabilities. In addition to the microcontroller, a complete embedded control system incorporates application-specific software and may include specialized peripheral device controllers and internal or external non-volatile memory components, such as Flash and EEPROMs, to store additional program software, and various analog and interface products.

AVR. Our largest microcontroller product offering is based on the 8-bit AVR architecture. The tinyAVR^®, megaAVR^®, AVR Wireless products, AVR USB products, AVR Smart Battery products and the AVR Touch User Interface products are all product families using the AVR 8-bit RISC CPU which allow customers to minimize power consumption while obtaining maximum performance and ease of programming. AVR products accounted for 20%, 16% and 10% of total revenue for the years ended December 31, 2007, 2006, and 2005, respectively. Our AVR picoPower^® microcontroller family consumes the least power in the industry, enabling longer operating times in hand-held and battery powered applications. AVR32 is our proprietary microcontroller architecture which provides customers with higher, 32-bit performance when 8-bit power is no longer sufficient. The AVR32 product offering is targeted at the industrial, automotive and ultra low power segments of the 32-bit market. AVR microcontroller products include embedded non-volatile memory and are available with a complete selection of analog and digital interfaces. We offer over 100 different products in the AVR family.

ARM. Our ARM microcontrollers are based on the standard 32-bit ARM7 and ARM9 architectures, where we offer a range of products with and without embedded nonvolatile memories. Our SAM7 and SAM9 (Smart Arm Micro) products offer high performance 32-bit microcontrollers with a variety of complex analog and digital peripherals integrated on the same chip. For customers demanding the highest performance products, we offer an

ARM9 product family. Our ARM customers save significant development time by using standard ARM software and the other development tools widely available.

8051. Our 8051 8-bit microcontroller product offering is based on the standard 8051 CPU and ranges from products containing 2 Kbytes of embedded Flash memory to the largest products offering 128 Kbytes of embedded Flash memory. The 8051 products address a significant portion of the 8-bit microcontroller market in which the customer already has an installed software and application base using the standard 8051 architecture.

Increased demand for reliable, flexible and low cost controls in the electronics industry is being met by microcontrollers which replace mechanical and other passive controls in a wide range of applications such as lighting, automobile control functions, home automation, wireless communications, white goods and user interfaces in all products requiring human interaction.

Nonvolatile Memories

Serial Interface Products (“Serials”). Our serial interface products evolved from our EEPROM technology expertise which was developed to meet the market demand for delivery of nonvolatile memory content through specialized interfaces and low pin count packages. We currently support the 2-wire, 3-wire and SPI protocols which have industry wide acceptance. Due to our technology, package and broad density offerings we have maintained market leadership for the last several years. For economic reasons, beyond a certain density, it is more advantageous to employ FLASH nonvolatile memory technology, which we have incorporated in our 512 Kbytes and higher densities. The similarity of the feature sets between EEPROM and Flash technologies allows our customers to easily upgrade from the lower density to the higher density Serials. Serial EEPROM products accounted for 15%, 13% and 14% of total revenue for the years ended December 31, 2007, 2006 and 2005, respectively.

DataFlash^®. The SPI compatible DataFlash^® family of serial Flash memories delivers reliable solutions to store embedded program code and data using low pin-count packages. DataFlash is designed to enable advanced features and functionality in a variety of high volume products and applications. By using Dataflash memories customers can minimize pin counts, simplify circuit boards, and reduce power consumption, all of which contribute to higher performance and a lower cost system. Dataflash products are generally used in digital answering machines, fax machines, personal computers, set-top boxes and DVD players.

Small size is important to our customers and we are continuously developing smaller packages for our serial Flash memories using, for example, a cost-effective ball grid array and a variety of dual footprint non-leaded packages to help our customers produce smaller products. We also offer the full range of industry standard SOIC, PDIP and TSSOP packages.

Flash Memory Products. Flash represents a prevailing technology used in nonvolatile memory devices that can be reprogrammed within a system. We currently manufacture Flash products utilizing 0.18 and 0.13-micron process technologies.

The flexibility and ease of use of our Flash memories make them attractive solutions in systems where program information stored in memory must be rewritten after the system leaves its manufacturing environment. The reprogrammability of Flash memories also serves to support later system upgrades, field diagnostic routines and in-system reconfiguration, as well as capturing voice and data messages for later review. These products are generally used in handsets, personal computers, cable modems, set-top boxes and DVD players.

Parallel-Interface EEPROMs. We are a leading supplier of high performance in-system programmable parallel-interface EEPROMs. We believe that our parallel-interface EEPROM products represent the most complete parallel-interface EEPROM product family in the industry. We are the sole-source supplier for several customers for certain parallel-interface EEPROM devices. In the design of this product family, we have emphasized device reliability, achieved through the incorporation of on-chip error detection and correction features. Parallel EEPROMs are highly flexible, offering faster data transfer rates and higher memory densities when compared to serial interface architectures, as well as high endurance programming reliability. These products are generally used to store frequently updated data in communications infrastructure equipment and avionics navigation systems.

EPROMs. The worldwide one time programmable EPROM market is intensely competitive and characterized by commodity pricing. Our strategy is to target the high-performance end of this market by offering faster speed, higher density and lower power usage devices. These products are generally used to store the operating programs of embedded microcontroller or DSP-based systems, such as hard disk drives, CD-ROM drives and modems.

RF and Automotive

Automotive RF. With our automotive RF products we are one of the leading suppliers for automobile access solutions. Our products include complete solutions for wireless key fobs, as well as the corresponding receivers and transceivers for the access control unit built into cars. Our innovative immobilizer ICs, which incorporate the widely accepted advanced encryption standard (“AES”), offer car theft protection. In addition we offer a wide portfolio of products targeted at keyless automobile starting systems including the industry’s first devices needed to determine if the key holder is properly seated before starting the car.

High Voltage. Our high voltage products ICs are manufactured utilizing mixed signal high voltage technology, providing analog-bipolar, high voltage DMOS power and CMOS logic function on a single chip. These ICs withstand and operate at high voltages and can be connected directly to the battery of a car, with a focus on intelligent load drivers and local interconnect network (“LIN”) in-vehicle networking products. The applications for the load drivers are primarily motor and actuator drivers and smart valve controls. Our popular and rugged LIN in-vehicle networking product line helps car makers to simplify the wire harness by using the LIN bus which is rapidly gaining popularity. Many body electronic applications can be connected and controlled via the LIN network bus, including switches, actuators and sensors. Atmel’s LIN devices currently are the benchmark for robustness in the automotive industry, which we attribute to innovative design techniques as well as to our proprietary silicon on-insulator (“SOI”) process technology.

RF. The RF product line includes our low frequency RF identification tag ICs which are targeted towards the access control market and the livestock and pet tagging markets. These ICs are used in combination with a reader IC to make possible contactless identification for a wide variety of applications. Our radio frequency products also target the industrial, scientific, medical (ISM) RF market, including wireless remote control applications such as home alarm systems, garage door openers, remote controlled toys, wireless game consoles and many others.

DVD. Our laser diode drivers power the laser diodes used in CD and DVD drives for computer and consumer applications. We offer drivers for read only and read-write optical drives, including the new high density Blu-Ray standards. Our proprietary process technology has enabled us to develop photo diodes that are sensitive to blue as well as to red laser light. Our patent pending “open QFN” packaging technology enables cost efficient production of the photo detector ICs.

Mixed Signal. Our broadcast radio products cater primarily for the automotive market. They include high performance receivers for AM/FM and HD car radio, an industry leading portfolio of highly integrated antenna drivers, which enable small form factor car antennas, and a complete chipset for the developing digital audio broadcasting /digital multimedia broadcasting radio market. In addition, our infrared (“IR”) receivers are among the leaders in the highly competitive market for IR remote control systems.

Technology

From inception, we have focused our efforts on developing advanced CMOS processes that can be used to manufacture reliable nonvolatile elements for memory and logic integrated circuits. We believe that our experience in single and multiple-layer metal CMOS processing gives us a competitive advantage in developing and delivering high-density, high-speed and low-power logic and memory and logic products.

We meet customers’ demands for constantly increasing functionality on ever-smaller ICs by increasing the number of layers we use to build the circuits on a wafer and by reducing the size of the transistors and other components in the circuit. To accomplish this we develop and introduce new wafer processing techniques as necessary. We also provide our fabrication facilities with state-of-the-art manufacturing equipment and development resources that allow us to produce ICs with increasingly sophisticated features. Our current ICs incorporate

effective feature sizes as small as 0.13-micron. We are developing processes that will support effective feature sizes smaller than 0.13-micron, which we expect to produce at outside wafer foundries in the future.

Principal Markets and Customers

Communications. Communications, including wireless and wireline telecommunications and data networking, is currently one of our larger end user markets. For the wireless market, we provide nonvolatile memory, standard and secure microcontrollers, and baseband and RF ASICs that are used for GSM and code-division multiple access (“CDMA”) mobile phones and their base stations, as well as two-way pagers, mobile radios, and cordless phones and their base stations. We also have a range of products based on the IEEE 802.11 wireless LAN standard, and on Bluetooth, a short-range wireless protocol that enables instant connectivity between electronic devices. Our principal customers in the wireless market include Ericsson, Motorola, Nokia, Philips, Qualcomm, Samsung and Siemens.

We also serve the data networking and wireline telecommunications markets, which continue to evolve due to the rapid adoption of new technologies. For these markets, we provide ASIC, nonvolatile memory and programmable logic products that are used in the switches, routers, cable modem termination systems and digital subscriber line (“DSL”) access multiplexers, which are currently being used to build internet infrastructure. Our principal data networking and wireline telecommunications customers include Alcatel, Cisco and Siemens.

Consumer Electronics. Our products are also used in a broad variety of consumer electronics products. We provide microcontrollers for batteries and battery chargers that minimize the power usage by being “turned on” only when necessary. Microcontrollers are also offered for fluorescent light ballasts. We provide multimode audio processors and MPEG2-based decoders with programmable transport for complex digital audio streams used in digital TVs, set top boxes and DVD players. We provide ASIC demodulators and decoders for cable modems. We also offer media access controllers for wireless local area networks (“WLANs”) and baseband controllers. In addition, we provide secure, encryption enabled, tamper resistant circuits for smart cards and embedded personal computer security applications. Our principal consumer electronics customers include Hosiden Corporation, Invensys, LG Electronics, Matsushita, Microsoft, Philips, Samsung, Sony and Toshiba.

Computing, Storage and Printing. The computing and computing-peripherals markets are also growing as a result of increasing Internet use, network connectivity, and digital imaging requirements. For computing applications, we provide Flash memory, serial memory, USB hubs and ASICs for personal computers, servers and USB drives. We offer Trusted Platform Module (“TPM”) products that perform platform authentication and security for computing systems. Our biometric security IC verifies a user’s identity by scanning a finger. In today’s security conscious environment we believe TPM and biometry are finding applications where access to information, equipment and similar resources needs to be controlled or monitored. We provide ASICs, nonvolatile memory and microcontrollers for laser printers, inkjet printers, copy machines and scanners. Our principal customers in these markets include Dell, Hewlett-Packard, IBM, Intel, M-Systems, Seagate and Western Digital.

Security. Security for electronic applications is a key concern for the development of computing and communications equipment. Our Smart Card and Smart Card reader IC’s are targeted towards established European markets and rapidly emerging applications requiring security in the United States of America and throughout Asia. Smart Card technology is used for mobile communications, credit cards, drivers’ licenses, identity cards, health cards, TV set top boxes, internet commerce and related applications where data security is essential. Our principal customers in these markets include Gemalto (formerly GemPlus and Axalto), NDS, Oberthur, Sagem and SCM.

Automotive. The automotive electronics market has grown modestly, driven by demand for more sophisticated electronic systems, yet it remains stable during times when other sectors fluctuate. For automotive applications, we provide body electronics for passenger comfort and convenience; safety related subsystems such as air-bag drivers, anti-lock brake control, tire pressure monitors; keyless entry transmitters and receivers; and in-vehicle entertainment components. With our introduction of high-voltage and high-temperature capable ICs we are broadening the automotive reach to systems and controls in the engine compartment. Virtually all of these are application-specific mixed signal ICs. Our principal customers in these markets include Continental-Temic, Daimler-Chrysler, Delphi, Hella, Marelli, Robert Bosch, Siemens-VDO and TRW.

Military and Aerospace. The military and aerospace industries require products that will operate under extreme conditions and are tested to higher standards than commercial products. Our circuits are available in radiation-hardened versions that meet stringent requirements (cumulative dose, latch-up and transient phenomena) of space, avionic and industrial applications. For these applications, we provide radiation hardened ASICs, FPGAs, non-volatile memories and microcontrollers. Our principal customers in these markets include BAE Systems, Honeywell, Litton, Lockheed-Martin, Northrop, Raytheon and Roche.

Manufacturing

Once we have fabricated the wafers, we probe and test the individual circuits on them to identify those that do not function. This saves us the cost of putting mechanical packages around circuits whose failure can be determined in advance. After probe, we send all of our wafers to one of our independent assembly contractors, located in China, Indonesia, Japan, Malaysia, the Philippines, South Korea, Taiwan, or Thailand where they are cut into individual chips and assembled into packages. Many of the finished products are given a final test at the assembly contractors although some are shipped back to our test facilities in the United States where we perform electrical testing and visual inspection before shipment to customers.

The raw materials and equipment we use to produce our integrated circuits are available from several suppliers and we are not dependent upon, any single source of supply. However, some materials have been in short supply in the past and lead times on occasion have lengthened, especially during semiconductor expansion cycles.

During 2006, management reached a conclusion that the manufacturing capacity available at our existing facilities, combined with an increased emphasis on outsourcing certain products to foundry partners, exceeded our forecasted demand, and we began a restructuring program to sell or close facilities in order to optimize utilization of the remaining facilities. If market demand for our products increases during 2008, we believe that we will be able to substantially meet our production needs from our remaining wafer fabrication facilities through at least the end of 2008; however, capacity requirements may vary depending on, among other things, our rate of growth and our ability to increase production levels.

During 2007 we manufactured approximately 93% of our products at our wafer fabrication facilities located in Colorado Springs, Colorado; Rousset, France; Heilbronn, Germany; and North Tyneside, United Kingdom. In December, 2006, we announced restructuring initiatives that included seeking to sell the North Tyneside and Heilbronn facilities to optimize our manufacturing operations. We also announced, at that time, our intention to move to a fab-lite manufacturing model with increased utilization of third-party foundry capacity. On October 8, 2007, we announced that we entered into separate agreements with Taiwan Semiconductor Manufacturing Company, Ltd. (“TSMC”) and Highbridge Business Park Limited (“Highbridge”) for the sale of the wafer fabrication equipment and related property located in North Tyneside, United Kingdom. We ceased manufacturing operations at our North Tyneside, UK wafer fabrication facility in February 2008 and have increased production at our Colorado Springs and Rousset wafer fabs to provide the necessary output to meet demand.

Much of the $70 million of manufacturing equipment paid for during 2007 was related to process technology advancements. It is anticipated that capital equipment purchases for 2008, estimated at $80 to $90 million, will be focused on maintaining existing equipment, providing additional testing capacity and, to a limited extent, on developing advanced process technologies.

Irving, Texas, Facility

On May 1, 2007, we announced the sale of our Irving, Texas, wafer fabrication facility for approximately $37 million in cash. The sale of the facility includes approximately 39 acres of land, the fabrication facility building, and related offices, and remaining equipment. We retained an additional 17 acres of undeveloped land and is currently offered for sale.

North Tyneside, United Kingdom, and Heilbronn, Germany, Facilities

Following the announcement of our intention to sell the North Tyneside, UK fabrication facility in the fourth quarter of 2006, we assessed the fair market value of the facility compared to the carrying value recorded. The fair value was determined using a market-based valuation technique and estimated future cash flows. We recorded a net impairment charge of $72 million in the quarter ended December 31, 2006 related to the write-down of long lived assets to their estimated fair values, less costs to dispose of the assets.

We acquired the North Tyneside, United Kingdom, facility in September 2000, including an interest in 100 acres of land and the fabrication facility of approximately 750,000 square feet, for $100 million. We sold 40 acres in 2002 for $14 million. We recorded an asset impairment charge of $318 million in the second quarter of 2002 to write down the carrying value of equipment in the fabrication facilities in North Tyneside, United Kingdom, to its estimated fair value. The estimate of fair value was made based on management’s best estimates.

On October 8, 2007, we entered into definitive agreements to sell certain wafer fabrication equipment and land and buildings at North Tyneside to TSMC and Highbridge for a total of approximately $124 million. The disposal group previously classified as held for sale included all assets (excluding cash and inventory) and liabilities of the North Tyneside legal entity. Upon entering into the agreements noted above, we determined that certain equipment and all of the related liabilities were no longer included in the disposal group as they were not being acquired or assumed by the buyer. As a result, we reassessed whether the assets to be sold in this transaction continued to meet the criteria for classification as held for sale as of September 30, 2007. We concluded that the assets to be sold under the above agreements were no longer available for immediate sale in their present condition as the terms of the these agreements require us to perform significant additional steps, including the dismantling, decommissioning and testing of the wafer fabrication equipment before TSMC will accept transfer of title of the purchased equipment, as well as the delivery of a vacated building to Highbridge. We had previously expected to sell the assets in the form of the transfer of the legal entity and then enter into a further supply agreement for product wafers with the buyer. However, the agreements noted above require termination of production efforts in order to deliver assets in the condition specified by the buyers. We have determined that we need to continue to operate the facility in order to build sufficient inventory as a result of the closure of the North Tyneside facility, and therefore cannot deliver the assets to be sold in the conditions specified in the sales agreements until production activity is concluded, which occurred in February 2008. In accordance with SFAS No. 144, we determined in the third quarter of 2007 that the assets to be sold to TSMC and Highbridge did not meet the criteria for assets held for sale and were reclassified as held and used, and measured at the lower of their adjusted carrying amounts or fair values less cost to sell as of December 31, 2007. We received proceeds of $43 million from Highbridge for the closing of the real property portion of the transaction in November 2007 and a gain on the sale of the real property will be recognized upon us vacating the facility during the second quarter of 2008. The gain on the sale of fabrication equipment will be recognized when such equipment is transferred to and accepted by TSMC during the first two quarters of 2008.

The Heilbronn, Germany, facility did not meet the criteria for classification as held for sale as of December 31, 2007 and 2006, due to uncertainties relating to the likelihood of completing the sale within the next twelve months. Long-lived assets of this facility at December 31, 2007 and 2006, respectively, were classified as held and used. After an assessment of expected future cash flows generated by the Heilbronn, Germany facility, we concluded that no impairment existed in the years ended December 31, 2007 and 2006

Environmental Compliance

Increasing public attention has been focused on the environmental impact of semiconductor operations. Although we have not experienced any material adverse effect on our operations from environmental regulations, any changes in such regulations or in their enforcement may impose the need for additional capital equipment or

other requirements. If for any reason we fail to control the use of, or to restrict adequately the discharge of, hazardous substances under present or future regulations, we could be subject to substantial liability or our manufacturing operations could be suspended.

Marketing and Sales

We generate our revenue by selling our products directly to original equipment manufacturers (“OEMs”) and indirectly to OEMs through distributors. We market our products worldwide to a diverse base of OEMs serving primarily commercial markets. In the United States and Canada, we sell our products to large OEM accounts primarily by using manufacturers’ representatives or through national and regional distributors. Our agreements with our representatives and distributors are generally terminable by either party on short notice, subject to local laws. Direct sales to OEMs as a percentage of net revenues for 2007 totaled 53% while sales to distributors totaled 44% of net revenues.

Sales to U.S. OEMs, as a percentage of net revenues totaled 10%, 17% and 17% for 2007, 2006 and 2005, respectively. Sales to U.S. distributors, as a percentage of net revenues, totaled 6%, 7% and 6% for 2007, 2006 and 2005, respectively. We support this sales network from our headquarters in San Jose, California and through U.S. regional offices in California, Colorado, Florida, Illinois, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Oregon, Texas and Washington.

We sell to customers outside of the U.S. primarily by using international sales representatives and through distributors, who are managed from our foreign sales offices. We maintain sales offices in China, Denmark, Finland, France, Germany, Hong Kong, India, Italy, Japan, Korea, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan and the United Kingdom. Our sales outside the U.S. represented 87%, 86% and 87% of net revenues in 2007, 2006 and 2005, respectively. We expect revenues from our international sales will continue to represent a significant portion of our net revenues. International sales are subject to a variety of risks, including those arising from currency fluctuations, tariffs, trade barriers, taxes, export license requirements and foreign government regulations.

We allow certain distributors, primarily based in the United States, rights of return and credits for price protection. Given the uncertainties associated with the levels of returns and other credits to these distributors based on contractual terms we defer recognition of revenue from sales to these distributors until they have resold our products. Sales to certain other primarily non-U.S. based distributors carry either no or very limited rights of return. We have historically been able to estimate returns and other credits from these distributors and accordingly have historically recognized revenue from sales to these distributors upon shipment, with a related allowance for potential returns established at the time of our sale.

Research and Development

We believe significant investment in research and development is vital to our success, growth and profitability, and we will continue to devote substantial resources, including management time, to this activity. Our primary objectives are to increase performance of our existing products, to develop new wafer processing and design technologies, and to draw upon these technologies and our experience in embedded applications to create new products.

During 2007, 2006 and 2005, we spent $272 million, $289 million and $268 million, respectively, on research and development. Research and development expenses are charged to operations as incurred. We expect these expenditures will increase in the future as we continue to invest in new products and new processing technology.

Competition

We operate in markets that are intensely competitive and characterized by rapid technological change, product obsolescence and price decline. Throughout our product line, we compete with a number of large semiconductor manufacturers, such as AMD, Cypress, Freescale, Fujitsu, Hitachi, IBM, Infineon, Intel, LSI Logic, Microchip, Philips, Renesas, Samsung, Sharp, Spansion, STMicroelectronics, Texas Instruments and Toshiba. Some of these competitors have substantially greater financial, technical, marketing and management resources than we do. As we

have introduced new products, we are increasingly competing directly with these companies, and we may not be able to compete effectively. We also compete with emerging companies that are attempting to sell products in specialized markets that our products address. We compete principally on the basis of the technical innovation and performance of our products, including their speed, density, power usage, reliability and specialty packaging alternatives, as well as on price and product availability. During the last three years, we have experienced significant price competition in several business segments, especially in our Nonvolatile Memory segment for EPROM, Serial EEPROM, and Flash memory products, in our ASIC segment for smart cards, and in our Microcontroller segment for commodity microcontrollers. We expect continuing competitive pressures in our markets from existing competitors and new entrants, new technology and cyclical demand, which, among other factors, will likely maintain the recent trend of declining average selling prices for our products.

In addition to the factors described above, our ability to compete successfully depends on a number of other factors, including the following:


	•	our success in designing and manufacturing new products that implement new technologies and processes

	•	our ability to offer integrated solutions using our advanced nonvolatile memory process with other technologies

	•	the rate at which customers incorporate our products into their systems

	•	product introductions by our competitors

	•	the number and nature of our competitors in a given market

	•	the incumbency of our competitors’ products, and

	•	general market and economic conditions.

Many of these factors are outside of our control, and we may not be able to compete successfully in the future.

Patents and Licenses

We maintain a portfolio of United States patents and we have numerous patent applications on file with the U.S. Patent and Trademark Office. We also operate an internal program to identify patentable developments and we file patent applications wherever necessary to protect our proprietary technologies. However, because technology changes very rapidly in the semiconductor industry, we believe our continued success depends primarily on the technological and innovative skills of our employees and their abilities to rapidly commercialize discoveries.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which have on occasion resulted in significant and often protracted and expensive litigation. We have from time to time received, and may in the future receive, communications from third parties asserting patent or other intellectual property rights covering our products or processes. In the past, we have received specific allegations from major companies alleging that certain of our products infringe patents owned by such companies. In order to avoid the significant costs associated with our defense in litigation involving such claims, we may license the use of the technologies that are the subject of these claims from such companies and be required to make corresponding royalty payments, which may harm our operating results.

We have in the past been involved in intellectual property infringement lawsuits which harmed our operating results. Although we intend to vigorously defend against any such lawsuits, we may not prevail given the complex technical issues and inherent uncertainties in patent and intellectual property litigation. Moreover, the cost of defending against such litigation, in terms of management time and attention, legal fees and product delays, could be substantial, regardless of the outcome. If any patent or other intellectual property claims against us are successful, we may be prohibited from using the technologies subject to these claims, and if we are unable to obtain a license on acceptable terms, license a substitute technology, or design new technology to avoid infringement, our business and operating results may be significantly harmed.

We have several cross-license agreements with other companies. In the future, it may be necessary or advantageous for us to obtain additional patent licenses from existing or other parties, but these license agreements may not be available to us on acceptable terms, if at all.

Employees

At December 31, 2007, we employed approximately 7,400 employees compared to approximately 8,000 employees at December 31, 2006. Our future success depends in large part on the continued service of our key technical and management personnel and on our ability to continue to attract and retain qualified employees, particularly highly skilled design, process and test engineers necessary for the manufacture of existing products and the development of new products and processes. The competition for such personnel is intense, and the loss of key employees, most of whom are not subject to an employment agreement for a specified term or a post-employment non-competition agreement, could harm our business.

Backlog

We accept purchase orders for deliveries covering periods from one day up to approximately one year. However, purchase orders can generally be revised or cancelled by the customer without penalty. In addition, significant portions of our sales are ordered with relatively short lead times, often referred to as “turns business.” Considering these industry practices and our experience, we do not believe the total of customer purchase orders outstanding (backlog) provides meaningful information that can be relied on to predict actual sales for future periods.

Geographic Areas

In 2007, 13% of our net revenues were derived from customers in the United States, 50% from customers in Asia, 35% from customers in Europe, and 2% from customers in other regions. This disclosure is determined based on the destination of our products when they are shipped.

As of December 31, 2007, we owned long-lived assets in the United States amounting to $137 million, in France amounting to $268 million, in Germany amounting to $34 million and in the United Kingdom amounting to $107 million. See Note 13 of Notes to Consolidated Financial Statements for further discussion.

Seasonality

The semiconductor industry is increasingly characterized by annual seasonality and wide fluctuations of supply and demand. A significant portion of our revenue comes from sales to customers supplying consumer markets and international sales. As a result, our business may be subject to seasonally lower revenues in particular quarters of our fiscal year. The industry has also been impacted by significant shifts in consumer demand due to economic downturns or other factors, which may result in diminished product demand and production over-capacity. We have experienced substantial quarter-to-quarter fluctuations in revenues and operating results and expect, in the future, to continue to experience short term period-to-period fluctuations in operating results due to general industry or economic conditions.


ITEM 1A.	*RISK FACTORS*

In addition to the other information contained in this Form 10-K, we have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, or results of operation. Investors should carefully consider the risks described below before making an investment decision. The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of their investment. In addition, these risks and uncertainties may impact the “forward-looking” statements described elsewhere in this Form 10-K and in the documents incorporated herein by reference. They could affect our actual results of operations, causing them to differ materially from those expressed in “forward-looking” statements.

OUR REVENUES AND OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO A VARIETY OF FACTORS, WHICH MAY RESULT IN VOLATILITY OR A DECLINE IN OUR STOCK PRICE.

Our future operating results will be subject to quarterly variations based upon a wide variety of factors, many of which are not within our control. These factors include:


	•	the nature of both the semiconductor industry and the markets addressed by our products;

	•	our transition to a fab-lite strategy;

	•	our increased dependence on outside foundries and their ability to meet our volume, quality, and delivery objectives, particularly during times of increasing demand along with inventory excesses or shortages due to reliance on third party manufacturers;

	•	our compliance with U.S. trade and export laws and regulations;

	•	fluctuations in currency exchange rates and revenues and costs denominated in foreign currencies;

	•	ability of independent assembly contractors to meet our volume, quality, and delivery objectives;

	•	success with disposal or restructuring activities, including disposition of our North Tyneside and Heilbronn facilities;

	•	fluctuations in manufacturing yields;

	•	third party intellectual property infringement claims;

	•	the highly competitive nature of our markets;

	•	the pace of technological change;

	•	political and economic risks;

	•	natural disasters or terrorist acts;

	•	assessment of internal controls over financial reporting;

	•	ability to meet our debt obligations;

	•	availability of additional financing;

	•	potential impairment and liquidity of auction rate securities;

	•	our ability to maintain good relationships with our customers;

	•	long-term contracts with our customers;

	•	integration of new businesses or products;

	•	our compliance with international, federal and state export, environmental, privacy and other regulations;

	•	personnel changes;

	•	business interruptions;

	•	system integration disruptions;

	•	anti-takeover effects in our certificate of incorporation, bylaws, and preferred shares rights agreement;

	•	changes in accounting rules, such as recording expenses for employee stock option grants;

	•	foreign pension plans are unfunded and any requirement to fund these plans could negatively impact or cash position;

	•	acquisition strategy may result in unanticipated accounting charges or otherwise adversely affect or results of operations


	•	we may not be able to effectively utilize all of our manufacturing capacity;

	•	disruptions to the availability of raw materials can disrupt our ability to supply products to our customers;

	•	product liability claims may arise resulting in significant costs and damage to reputation;

	•	revenues are dependent on selling through distributors;

	•	audits of our income tax returns, both in the U.S. and in foreign jurisdictions; and

	•	compliance with economic incentive terms in certain government grants.

Any unfavorable changes in any of these factors could harm our operating results.

We believe that our future sales will depend substantially on the success of our new products. Our new products are generally incorporated into our customers’ products or systems at their design stage. However, design wins can precede volume sales by a year or more. We may not be successful in achieving design wins or design wins may not result in future revenues, which depend in large part on the success of the customer’s end product or system. The average selling price of each of our products usually declines as individual products mature and competitors enter the market. To offset average selling price decreases, we rely primarily on reducing costs to manufacture those products, increasing unit sales to absorb fixed costs and introducing new, higher priced products which incorporate advanced features or integrated technologies to address new or emerging markets. Our operating results could be harmed if such cost reductions and new product introductions do not occur in a timely manner. From time to time, our quarterly revenues and operating results can become more dependent upon orders booked and shipped within a given quarter and, accordingly, our quarterly results can become less predictable and subject to greater variability.

In addition, our future success will depend in large part on the continued economic growth generally and of growth in various electronics industries that use semiconductors, including manufacturers of computers, telecommunications equipment, automotive electronics, industrial controls, consumer electronics, data networking equipment and military equipment. The semiconductor industry has the ability to supply more products than demand requires. Our ability to be profitable will depend heavily upon a better supply and demand balance within the semiconductor industry.

THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY CREATES FLUCTUATIONS IN OUR OPERATING RESULTS.

The semiconductor industry has historically been cyclical, characterized by wide fluctuations in product supply and demand. The industry has also experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles and declines in general economic conditions. The semiconductor industry faced severe business conditions with global semiconductor revenues for the industry declining 32% to $139 billion in 2001, compared to revenues in 2000. The semiconductor industry began to turn around in 2002 with global semiconductor sales increasing modestly by 1% to $141 billion. Global semiconductor sales increased 18% to $166 billion in 2003, 27% to $211 billion in 2004, 8% to $228 billion in 2005, 9% to $248 billion in 2006, 3% to $256 billion in 2007, and are estimated by the Semiconductor Industry Association to increase 8% to $277 billion in 2008.

Atmel’s operating results have been harmed by industry-wide fluctuations in the demand for semiconductors, which resulted in under-utilization of our manufacturing capacity and declining gross margins. In the past we have recorded significant charges to recognize impairment in the value of our manufacturing equipment, the cost to reduce workforce, and other restructuring costs. Our business may be harmed in the future not only by cyclical conditions in the semiconductor industry as a whole but also by slower growth in any of the markets served by our products.

capacity. We have experienced substantial quarter-to-quarter fluctuations in revenues and operating results and expect, in the future, to continue to experience short term period-to-period fluctuations in operating results due to general industry or economic conditions.

WE COULD EXPERIENCE DISRUPTION OF OUR BUSINESS AS WE TRANSITION TO A FAB-LITE STRATEGY, AND INCREASE DEPENDENCE ON OUTSIDE FOUNDRIES, WHERE SUCH FOUNDRIES MAY NOT HAVE ADEQUATE CAPACITY TO FULFILL OUR NEEDS AND MAY NOT MEET OUR QUALITY AND DELIVERY OBJECTIVES OR MAY ABANDON FABRICATION PROCESSES THAT WE REQUIRE.

As part of our fab-lite strategy, we have reduced and plan to further reduce the number of manufacturing facilities we own. In December 2005, we sold our Nantes, France fabrication facility and the related foundry activities, to XybyBus SAS. In July 2006, we sold our Grenoble, France subsidiary (including the fabrication facility in Grenoble) to e2v technologies plc. In December 2006, we announced the planned sale of our North Tyneside, United Kingdom and Heilbronn, Germany wafer fabrication facilities. On May 1, 2007, we announced the sale of our Irving, Texas, wafer fabrication facility. On October 8, 2007, we announced that we had entered into agreements for the sale of certain wafer equipment and real property in North Tyneside, United Kingdom. As a result of the sale (or planned sale) of such fabrication facilities, we will be increasingly relying on the utilization of third-party foundry manufacturing and assembly and test capacity. As part of this transition we must expand our foundry relationships by entering into new agreements with third-party foundries. If these agreements are not completed on a timely basis, or the transfer of production is delayed for other reasons, the supply of certain of our products could be disrupted, which would harm our business. In addition, difficulties in production yields can often occur when transitioning to a new third-party manufacturer. If such foundries fail to deliver quality products and components on a timely basis, our business could be harmed.

Implementation of our new fab-lite strategy will expose us to the following risks:


	•	reduced control over delivery schedules and product costs;

	•	manufacturing costs that are higher than anticipated;

	•	inability of our manufacturing subcontractors to develop manufacturing methods appropriate for our products and their unwillingness to devote adequate capacity to produce our products;

	•	possible abandonment of fabrication processes by our manufacturing subcontractors for products that are strategically important to us;

	•	decline in product quality and reliability;

	•	inability to maintain continuing relationships with our suppliers;

	•	restricted ability to meet customer demand when faced with product shortages; and

	•	increased opportunities for potential misappropriation of our intellectual property.

If any of the above risks are realized, we could experience an interruption in our supply chain or an increase in costs, which could delay or decrease our revenue or harm our business.

We expect to increase our utilization of outside foundries to expand our capacity in the future, especially for high volume commodity type products and certain aggressive technology ASIC products. Reliance on outside foundries to fabricate wafers involves significant risks, including reduced control over quality and delivery schedules, a potential lack of capacity, and a risk the subcontractor may abandon the fabrication processes we need from a strategic standpoint, even if the process is not economically viable. We hope to mitigate these risks with a strategy of qualifying multiple subcontractors. However, there can be no guarantee that any strategy will eliminate these risks. Additionally, since most of such outside foundries are located in foreign countries, we are subject to certain risks generally associated with contracting with foreign manufacturers, including currency exchange fluctuations, political and economic instability, trade restrictions and changes in tariff and freight rates. Accordingly, we may experience problems in timelines and the adequacy or quality of product deliveries, any of which could have a material adverse effect on our results of operations.

The terms on which we will be able to obtain wafer production for our products, and the timing and volume of such production will be substantially dependent on agreements to be negotiated with semiconductor foundries. We cannot be certain that the agreements we reach with such foundries will be on terms reasonable to us. Therefore, any agreements reached with semiconductor foundries may be short-term and possibly non-renewable, and hence provide less certainty regarding the supply and pricing of wafers for our products.

During economic upturns in the semiconductor industry we will not be able to guarantee that our third party foundries will be able to increase manufacturing capacity to a level that meets demand for our products, which would prevent us from meeting increased customer demand and harm our business. Also during times of increased demand for our products, if such foundries are able to meet such demand, it may be at higher wafer prices, which would reduce our gross margins on such products or require us to offset the increased price by increasing prices for our customers, either of which would harm our business and operating results.

WE BUILD SEMICONDUCTORS BASED ON FORECASTED DEMAND, AND AS A RESULT, CHANGES TO FORECASTS FROM ACTUAL DEMAND MAY RESULT IN EXCESS INVENTORY OR OUR INABILITY TO FILL CUSTOMER ORDERS ON A TIMELY BASIS WHICH MAY HARM OUR BUSINESS.

We schedule production and build semiconductor devices based primarily on our internal forecasts, as well as non-binding forecasts from customers for orders which may be cancelled or rescheduled with short notice. Our customers frequently place orders requesting product delivery in a much shorter period than our lead time to fully fabricate and test devices. Because the markets we serve are volatile and subject to rapid technological, price, and end user demand changes, our forecasts of unit quantities to build may be significantly incorrect. Changes to forecasted demand from actual demand may result in us producing unit quantities in excess of orders from customers, which could result in the need to record additional expense for the write-down of inventory, negatively affecting gross margin and results from operations.

As we transition to increased dependence on outside foundries, we will have less control over modifying production schedules to match changes in forecasted demand. If we commit to obtaining foundry wafers and cannot cancel or reschedule commitments without material costs or cancellation penalties, we may be forced to purchase inventory in excess of demand, which could result in a write-down of inventories negatively affecting gross margin and results of operations.

Conversely, failure to produce or obtain sufficient wafers for increased demand could cause us to miss revenue opportunities, and, if significant, could impact our customers ability to sell products, which could adversely affect our customer relationships, and thereby materially adversely affect our business, financial condition, and results of operations.

OUR INTERNATIONAL SALES AND OPERATIONS ARE SUBJECT TO APPLICABLE LAWS RELATING TO TRADE AND EXPORT CONTROLS, THE VIOLATION OF WHICH COULD ADVERSELY AFFECT OUR OPERATIONS.

For products and technology exported from the U.S. or otherwise subject to U.S. jurisdiction, we are subject to U.S. laws and regulations governing international trade and exports, including, but not limited to the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”) and trade sanctions against embargoed countries and destinations administered by the Office of Foreign Assets Control (“OFAC”), U.S. Department of the Treasury. We have discovered shortcomings in our export compliance procedures. We are currently analyzing product shipments and technology transfers, working with U.S. government officials to ensure compliance with applicable U.S. export laws and regulations, and developing an enhanced export compliance system. A determination by the U.S. government that we have failed to comply with one or more of these export controls or trade sanctions could result in civil or criminal penalties, including the imposition of significant fines, denial of export privileges, and debarment from U.S. participation in government contracts. Any one or more of these sanctions could have a material adverse effect on our business, financial condition and results of operations.

WE ARE EXPOSED TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES THAT COULD NEGATIVELY IMPACT OUR FINANCIAL RESULTS AND CASH FLOWS, AND REVENUES AND COSTS DENOMINATED IN FOREIGN CURRENCIES COULD ADVERSELY IMPACT OUR OPERATING RESULTS WITH CHANGES IN THESE FOREIGN CURRENCIES AGAINST THE DOLLAR.

Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results and cash flows. Our primary exposure relates to operating expenses in Europe, where a significant amount of our manufacturing is located.

When we take an order denominated in a foreign currency we may receive fewer dollars than initially anticipated if that local currency weakens against the dollar before we collect our funds. Conversely, when we incur a cost denominated in a foreign currency we may pay more dollars than initially anticipated if that local currency strengthens against the dollar before we pay the costs. In addition to reducing revenues or increasing our costs, this risk can negatively affect our operating results. In Europe, where our significant operations have costs denominated in European currencies, a negative impact on expenses can be partially offset by a positive impact on revenues. Sales denominated in European currencies as a percentage of net revenues were 21%, 18% and 16% in the years ended December 31, 2007, 2006 and 2005, respectively. Sales denominated in yen as a percentage of net revenues were 1% in the years ended December 31, 2007, 2006 and 2005. Operating expenses denominated in foreign currencies as a percentage of total operating expenses, primarily the euro, were 51%, 52% and 55% in the years ended December 31, 2007, 2006 and 2005, respectively.

We also face the risk that our accounts receivables denominated in foreign currencies will be devalued if such foreign currencies weaken quickly and significantly against the dollar. Conversely, we face the risk that our accounts payable denominated in foreign currencies could increase in value if such foreign currencies strengthen against the dollar. Approximately 23% and 26% of our accounts receivable are denominated in foreign currency as of December 31, 2007 and 2006, respectively.

We also face the risk that our accounts payable and debt obligations denominated in foreign currencies will increase if such foreign currencies strengthen quickly and significantly against the dollar. Approximately 54% and 48% of our accounts payable were denominated in foreign currency as of December 31, 2007 and 2006, respectively. Approximately 18% and 60% of our debt obligations were denominated in foreign currency as of December 31, 2007 and 2006, respectively.

WE DEPEND ON INDEPENDENT ASSEMBLY CONTRACTORS WHICH MAY NOT HAVE ADEQUATE CAPACITY TO FULFILL OUR NEEDS AND WHICH MAY NOT MEET OUR QUALITY AND DELIVERY OBJECTIVES.

We currently manufacture a majority of the wafers for our products at our fabrication facilities, and the wafers are then sorted and tested at our facilities. After wafer testing, we ship the wafers to one of our independent assembly contractors located in China, Indonesia, Japan, Malaysia, the Philippines, South Korea, Taiwan or Thailand where the wafers are separated into die, packaged and, in some cases, tested. Our reliance on independent contractors to assemble, package and test our products involves significant risks, including reduced control over quality and delivery schedules, the potential lack of adequate capacity and discontinuance or phase-out of the contractors’ assembly processes. These independent contractors may not continue to assemble, package and test our products for a variety of reasons. Moreover, because our assembly contractors are located in foreign countries, we are subject to certain risks generally associated with contracting with foreign suppliers, including currency exchange fluctuations, political and economic instability, trade restrictions, including export controls, and changes in tariff and freight rates. Accordingly, we may experience problems in timelines and the adequacy or quality of product deliveries, any of which could have a material adverse effect on our results of operations.

WE FACE RISKS ASSOCIATED WITH DISPOSAL OR RESTRUCTURING ACTIVITIES.

As part of our fab-lite strategy, in December 2006, we announced plans to sell our Heilbronn, Germany, and North Tyneside, United Kingdom, manufacturing facilities. On October 8, 2007, we announced that we had entered

into agreements for the sale of certain wafer fabrication equipment and real property in North Tyneside, United Kingdom. However, reducing our wafer fabrication capacity involves significant potential costs and delays, particularly in Europe, where the extensive statutory protection of employees imposes substantial restrictions on their employers when the market requires downsizing. Such costs and delays include compensation to employees and local government agencies, requirements and approvals of governmental and judicial bodies, and the potential requirement to repay governmental subsidies. We may experience labor union or workers council objections, or other difficulties, while implementing a reduction of the number of employees. Significant difficulties that we experience could harm our business and operating results, either by deterring needed headcount reduction or by the additional employee severance costs of resulting from employee reduction actions in Europe relative to America or Asia.

We continue to evaluate the existing restructuring and asset impairment reserves related to previously implemented restructuring plans. As a result, there may be additional restructuring charges or reversals or recoveries of previous charges. However, we may incur additional restructuring and asset impairment charges in connection with additional restructuring plans adopted in the future. Any such restructuring or asset impairment charges recorded in the future could significantly harm our business and operating results.

IF WE ARE UNABLE TO IMPLEMENT NEW MANUFACTURING TECHNOLOGIES OR FAIL TO ACHIEVE ACCEPTABLE MANUFACTURING YIELDS, OUR BUSINESS WOULD BE HARMED.

Whether demand for semiconductors is rising or falling, we are constantly required by competitive pressures in the industry to successfully implement new manufacturing technologies in order to reduce the geometries of our semiconductors and produce more integrated circuits per wafer. We are developing processes that support effective feature sizes as small as 0.13-microns, and we are studying how to implement advanced manufacturing processes with even smaller feature sizes such as 0.065-microns.

Fabrication of our integrated circuits is a highly complex and precise process, requiring production in a tightly controlled, clean environment. Minute impurities, difficulties in the fabrication process, defects in the masks used to print circuits on a wafer or other factors can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. Whether through the use of our foundries or third party manufacturers, we may experience problems in achieving acceptable yields in the manufacture of wafers, particularly during a transition in the manufacturing process technology for our products.

We have previously experienced production delays and yield difficulties in connection with earlier expansions of our wafer fabrication capacity or transitions in manufacturing process technology. Production delays or difficulties in achieving acceptable yields at any of our fabrication facilities or at the fabrication facilities of our third party manufacturers could materially and adversely affect our operating results. We may not be able to obtain the additional cash from operations or external financing necessary to fund the implementation of new manufacturing technologies.

WE MAY FACE THIRD PARTY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT COULD BE COSTLY TO DEFEND AND RESULT IN LOSS OF SIGNIFICANT RIGHTS.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which on occasion have resulted in significant and often protracted and expensive litigation. We have from time to time received, and may in the future receive, communications from third parties asserting patent or other intellectual property rights covering our products or processes. In the past, we have received specific allegations from major companies alleging that certain of our products infringe patents owned by such companies. In order to avoid the significant costs associated with our defense in litigation involving such claims, we may license the use of the technologies that are the subject of these claims from such companies and be required to make corresponding royalty payments, which may harm our operating results.

We have in the past been involved in intellectual property infringement lawsuits, which harmed our operating results and are currently involved in intellectual property infringement lawsuits, which may harm our future operating results. We are currently involved in several intellectual property infringement lawsuits. Although we intend to vigorously defend against any such lawsuits, we may not prevail given the complex technical issues and

inherent uncertainties in patent and intellectual property litigation. Moreover, the cost of defending against such litigation, in terms of management time and attention, legal fees and product delays, could be substantial, whatever the outcome. If any patent or other intellectual property claims against us are successful, we may be prohibited from using the technologies subject to these claims, and if we are unable to obtain a license on acceptable terms, license a substitute technology, or design new technology to avoid infringement, our business and operating results may be significantly harmed.

OUR MARKETS ARE HIGHLY COMPETITIVE, AND IF WE DO NOT COMPETE EFFECTIVELY, WE MAY SUFFER PRICE REDUCTIONS, REDUCED REVENUES, REDUCED GROSS MARGINS, AND LOSS OF MARKET SHARE.

We compete in markets that are intensely competitive and characterized by rapid technological change, product obsolescence and price decline. Throughout our product line, we compete with a number of large semiconductor manufacturers, such as AMD, Cypress, Freescale, Fujitsu, Hitachi, IBM, Infineon, Intel, LSI Logic, Microchip, Philips, Renesas, Samsung, Sharp, Spansion, STMicroelectronics, Texas Instruments and Toshiba. Some of these competitors have substantially greater financial, technical, marketing and management resources than we do. As we have introduced new products we are increasingly competing directly with these companies, and we may not be able to compete effectively. We also compete with emerging companies that are attempting to sell products in specialized markets that our products address. We compete principally on the basis of the technical innovation and performance of our products, including their speed, density, power usage, reliability and specialty packaging alternatives, as well as on price and product availability. During the last several years, we have experienced significant price competition in several business segments, especially in our nonvolatile memory segment for EPROM, Serial EEPROM, and Flash memory products, as well as in our commodity microcontrollers and smart cards. We expect continuing competitive pressures in our markets from existing competitors and new entrants, new technology and cyclical demand, which, among other factors, will likely maintain the recent trend of declining average selling prices for our products.

In addition to the factors described above, our ability to compete successfully depends on a number of factors, including the following:


	•	our success in designing and manufacturing new products that implement new technologies and processes;

	•	our ability to offer integrated solutions using our advanced nonvolatile memory process with other technologies;

	•	the rate at which customers incorporate our products into their systems;

	•	product introductions by our competitors;

	•	the number and nature of our competitors in a given market;

	•	the incumbency of our competitors at potential new customers;

	•	our ability to minimize production costs by outsourcing our manufacturing, assembly and testing functions; and

	•	general market and economic conditions.

Many of these factors are outside of our control, and we may not be able to compete successfully in the future.

WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE TO REMAIN COMPETITIVE.

The average selling prices of our products historically have decreased over the products’ lives and are expected to continue to do so. As a result, our future success depends on our ability to develop and introduce new products which compete effectively on the basis of price and performance and which address customer requirements. We are

continually designing and commercializing new and improved products to maintain our competitive position. These new products typically are more technologically complex than their predecessors, and thus have increased potential for delays in their introduction.

The success of new product introductions is dependent upon several factors, including timely completion and introduction of new product designs, achievement of acceptable fabrication yields and market acceptance. Our development of new products and our customers’ decision to design them into their systems can take as long as three years, depending upon the complexity of the device and the application. Accordingly, new product development requires a long-term forecast of market trends and customer needs, and the successful introduction of our products may be adversely affected by competing products or by technologies serving the markets addressed by our products. Our qualification process involves multiple cycles of testing and improving a product’s functionality to ensure that our products operate in accordance with design specifications. If we experience delays in the introduction of new products, our future operating results could be harmed.

In addition, new product introductions frequently depend on our development and implementation of new process technologies, and our future growth will depend in part upon the successful development and market acceptance of these process technologies. Our integrated solution products require more technically sophisticated sales and marketing personnel to market these products successfully to customers. We are developing new products with smaller feature sizes, the fabrication of which will be substantially more complex than fabrication of our current products. If we are unable to design, develop, manufacture, market and sell new products successfully, our operating results will be harmed. Our new product development, process development, or marketing and sales efforts may not be successful, our new products may not achieve market acceptance, and price expectations for our new products may not be achieved, any of which could harm our business.

OUR OPERATING RESULTS ARE HIGHLY DEPENDENT ON OUR INTERNATIONAL SALES AND OPERATIONS, WHICH EXPOSES US TO VARIOUS POLITICAL AND ECONOMIC RISKS.

Sales to customers outside the U.S. accounted for 87%, 86% and 87% of net revenues in the years ended December 31, 2007, 2006 and 2005, respectively. We expect that revenues derived from international sales will continue to represent a significant portion of net revenues. International sales and operations are subject to a variety of risks, including:


	•	greater difficulty in protecting intellectual property;

	•	reduced flexibility and increased cost of staffing adjustments, particularly in France and Germany;

	•	longer collection cycles;

	•	potential unexpected changes in regulatory practices, including export license requirements, trade barriers, tariffs and tax laws, environmental and privacy regulations; and

	•	general economic and political conditions in these foreign markets.

Further, we purchase a significant portion of our raw materials and equipment from foreign suppliers, and we incur labor and other operating costs in foreign currencies, particularly at our French, German and U.K. manufacturing facilities. As a result, our costs will fluctuate along with the currencies and general economic conditions in the countries in which we do business, which could harm our operating results.

Approximately 22%, 19% and 17% of our net revenues in the years ended December 31, 2007, 2006 and 2005 were denominated in foreign currencies. Operating costs denominated in foreign currencies, primarily the euro, were approximately 51%, 52% and 55% of total operating costs in the years ended December 31, 2007, 2006 and 2005, respectively.

OUR OPERATIONS AND FINANCIAL RESULTS COULD BE HARMED BY NATURAL DISASTERS OR TERRORIST ACTS.

Since the terrorist attacks on the World Trade Center and the Pentagon in 2001, certain insurance coverage has either been reduced or made subject to additional conditions by our insurance carriers, and we have not been able to

maintain all necessary insurance coverage at reasonable cost. Instead, we have relied to a greater degree on self-insurance. For example, we now self-insure property losses up to $10 million per event. Our headquarters, some of our manufacturing facilities, the manufacturing facilities of third party foundries and some of our major vendors’ and customers’ facilities are located near major earthquake faults and in potential terrorist target areas. If a major earthquake or other disaster or a terrorist act impacts us and insurance coverage is unavailable for any reason, we may need to spend significant amounts to repair or replace our facilities and equipment, we may suffer a temporary halt in our ability to manufacture and transport product and we could suffer damages of an amount sufficient to harm our business, financial condition and results of operations.

A LACK OF EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING COULD RESULT IN AN INABILITY TO ACCURATELY REPORT OUR FINANCIAL RESULTS, WHICH COULD LEAD TO A LOSS OF INVESTOR CONFIDENCE IN OUR FINANCIAL REPORTS AND HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE.

Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed. We have in the past discovered, and may in the future discover, deficiencies in our internal controls. Evaluations of the effectiveness of our internal controls in the future may lead our management to determine that internal control over financial reporting is no longer effective. Such conclusions may result from our failure to implement controls for changes in our business, or deterioration in the degree of compliance with our policies or procedures.

A failure to maintain effective internal control over financial reporting, including a failure to implement effective new controls to address changes in our business could result in a material misstatement of our consolidated financial statements or otherwise cause us to fail to meet our financial reporting obligations. This, in turn, could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

OUR DEBT LEVELS COULD HARM OUR ABILITY TO OBTAIN ADDITIONAL FINANCING, AND OUR ABILITY TO MEET OUR DEBT OBLIGATIONS WILL BE DEPENDENT UPON OUR FUTURE PERFORMANCE.

As of December 31, 2007, our total debt was $163 million, compared to $169 million at December 31, 2006. Our long-term debt less current portion to equity ratio was 0.02 and 0.06 at December 31, 2007 and 2006, respectively. Increases in our debt-to-equity ratio could adversely affect our ability to obtain additional financing for working capital, acquisitions or other purposes and make us more vulnerable to industry downturns and competitive pressures.

Certain of our debt facilities contain terms that subject us to financial and other covenants. We were in compliance with all of these covenants as of December 31, 2007.

We were previously not in compliance with covenants requiring timely filing of U.S. GAAP financial statements as of December 31, 2006, and, as a result, requested waivers from our lenders to avoid default under these facilities. Waivers were not received from all lenders, and as a result, we had previously classified $23 million of non-current liabilities to current liabilities on our consolidated balance sheet as of December 31, 2006. As a result of our return to compliance with the related financial and filing requirement covenants in June 2007, these liabilities are classified as non-current liabilities as of December 31, 2007.

From time to time our ability to meet our debt obligations will depend upon our ability to raise additional financing and on our future performance and ability to generate substantial cash flow from operations, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. If we are unable to meet debt obligations or otherwise are obliged to repay any debt prior to its due date, our available cash would be depleted, perhaps seriously, and our ability to fund operations harmed. In addition, our ability to service long-term debt in the U.S. or to obtain cash for other needs from our foreign subsidiaries may be structurally impeded, as a substantial portion of our operations are conducted through our foreign subsidiaries. Our cash flow and ability to service debt are partially dependent upon the liquidity and earnings of our subsidiaries as well as the distribution of those earnings, or repayment of loans or other payments of funds by those subsidiaries, to the

U.S. parent corporation. These foreign subsidiaries are separate and distinct legal entities and may have limited or no obligation, contingent or otherwise, to pay any amount to us, whether by dividends, distributions, loans or any other form.

WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE.

We intend to continue to make capital investments to support new products and manufacturing processes that achieve manufacturing cost reductions and improved yields. We may seek additional equity or debt financing to fund operations, strategic transactions, or other projects. The timing and amount of such capital requirements cannot be precisely determined at this time and will depend on a number of factors, including demand for products, product mix, changes in semiconductor industry conditions and competitive factors. Additional debt or equity financing may not be available when needed or, if available, may not be available on satisfactory terms.

A SUBSTANTIAL PORTION OF OUR SHORT-TERM INVESTMENT PORTFOLIO IS INVESTED IN HIGHLY-RATED AUCTION RATE SECURITIES. FAILURES IN THESE AUCTIONS MAY AFFECT OUR LIQUIDITY, WHILE RATING DOWNGRADES OF THE SECURITY ISSUER AND/OR THE THIRD-PARTIES INSURING SUCH INVESTMENTS MAY REQUIRE US TO ADJUST THE CARRYING VALUE OF THESE INVESTMENTS THROUGH AN IMPAIRMENT CHARGE.

Approximately $29 million of our investment portfolio at December 31, 2007 is invested in highly-rated auction rate securities. Auction rate securities are securities that are structured with short-term interest rate reset dates of generally less than ninety days but with contractual maturities that can be well in excess of ten years. At the end of each reset period, investors can sell or continue to hold the securities at par. These securities are subject to fluctuations in fair value depending on the supply and demand at each auction. If the auctions for the securities we own fail, the investments may not be readily convertible to cash until a future auction of these investments is successful. If the credit rating of either the security issuer or the third-party insurer underlying the investments deteriorates, we may be required to adjust the carrying value of the investment through an impairment charge. Through the time of filing of this Form 10-K, we have had four failed auctions relating to such securities aggregating approximately $3.4 million.

PROBLEMS THAT WE EXPERIENCE WITH KEY CUSTOMERS OR DISTRIBUTORS MAY HARM OUR BUSINESS.

Our ability to maintain close, satisfactory relationships with large customers is important to our business. A reduction, delay, or cancellation of orders from our large customers would harm our business. The loss of one or more of our key customers, or reduced orders by any of our key customers, could harm our business and results of operations. Moreover, our customers may vary order levels significantly from period to period, and customers may not continue to place orders with us in the future at the same levels as in prior periods.

We sell many of our products through distributors. Our distributors could experience financial difficulties or otherwise reduce or discontinue sales of our products. Our distributors could commence or increase sales of our competitors’ products. In any of these cases, our business could be harmed. Our sales terms for European distributors generally include very limited rights of return and stock rotation privileges. However, as we evaluate how to refine our distribution strategy, we may need to modify our sales terms or make changes to our distributor base, which may impact our future revenues in this region. It may take time for us to convert systems and processes to support modified sales terms. In addition, revenues in Asia may be impacted in the future as we refine our distribution strategy and optimize our distributor base in this region. It may take time for us to identify financially viable distributors and help them develop high quality support services. There can be no assurances that we will be able to manage these changes in an efficient and timely manner, or that our net revenues, result of operations and financial position will not be negatively impacted as a result.

WE ARE NOT PROTECTED BY LONG-TERM CONTRACTS WITH OUR CUSTOMERS.

We do not typically enter into long-term contracts with our customers, and we cannot be certain as to future order levels from our customers. When we do enter into a long-term contract, the contract is generally terminable at

the convenience of the customer. In the event of an early termination by one of our major customers, it is unlikely that we will be able to rapidly replace that revenue source, which would harm our financial results.

OUR FAILURE TO SUCCESSFULLY INTEGRATE BUSINESSES OR PRODUCTS WE HAVE ACQUIRED COULD DISRUPT OR HARM OUR ONGOING BUSINESS.

We have from time to time acquired, and may in the future acquire additional, complementary businesses, facilities, products and technologies. Achieving the anticipated benefits of an acquisition depends, in part, upon whether the integration of the acquired business, products or technology is accomplished in an efficient and effective manner. Moreover, successful acquisitions in the semiconductor industry may be more difficult to accomplish than in other industries because such acquisitions require, among other things, integration of product offerings, manufacturing operations and coordination of sales and marketing and research and development efforts. The difficulties of such integration may be increased by the need to coordinate geographically separated organizations, the complexity of the technologies being integrated, and the necessity of integrating personnel with disparate business backgrounds and combining two different corporate cultures.

The integration of operations following an acquisition requires the dedication of management resources that may distract attention from the day-to-day business, and may disrupt key research and development, marketing or sales efforts. The inability of management to successfully integrate any future acquisition could harm our business. Furthermore, products acquired in connection with acquisitions may not gain acceptance in our markets, and we may not achieve the anticipated or desired benefits of such transactions.

On February 6, 2008, we announced that we had entered into a definitive agreement for the purchase of Quantum Research Group Ltd. (“Quantum”), a developer of capacitive sensing IP and solutions for user interfaces. Under the terms of the agreement, we will pay approximately $88 million in cash at closing and upon the satisfaction of certain contingencies over the next three years, certain Quantum shareholders may also receive up to an additional $42 million in cash and our common stock, the ratio of which will be determined at closing. The acquisition of Quantum is expected to close in the first quarter of 2008, subject to customary closing conditions and regulatory approvals.

WE ARE SUBJECT TO ENVIRONMENTAL REGULATIONS, WHICH COULD IMPOSE UNANTICIPATED REQUIREMENTS ON OUR BUSINESS IN THE FUTURE. ANY FAILURE TO COMPLY WITH CURRENT OR FUTURE ENVIRONMENTAL REGULATIONS MAY SUBJECT US TO LIABILITY OR SUSPENSION OF OUR MANUFACTURING OPERATIONS.

We are subject to a variety of international, federal, state and local governmental regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing processes. Increasing public attention has been focused on the environmental impact of semiconductor operations. Although we have not experienced any material adverse effect on our operations from environmental regulations, any changes in such regulations or in their enforcement may impose the need for additional capital equipment or other requirements. If for any reason we fail to control the use of, or to restrict adequately the discharge of, hazardous substances under present or future regulations, we could be subject to substantial liability or our manufacturing operations could be suspended.

We also could face significant costs and liabilities in connection with product take-back legislation. We record a liability for environmental remediation and other environmental costs when we consider the costs to be probable and the amount of the costs can be reasonably estimated. The EU has enacted the Waste Electrical and Electronic Equipment Directive, which makes producers of electrical goods, including computers and printers, financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. The deadline for the individual member states of the EU to enact the directive in their respective countries was August 13, 2004 (such legislation, together with the directive, the “WEEE Legislation”). Producers participating in the market became financially responsible for implementing these responsibilities beginning in August 2005. Our potential liability resulting from the WEEE Legislation may be substantial. Similar legislation has been or may be enacted in other jurisdictions, including in the United States, Canada, Mexico, China and Japan, the cumulative impact of which could be significant.

WE DEPEND ON CERTAIN KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL MAY SERIOUSLY HARM OUR BUSINESS.

Our future success depends in large part on the continued service of our key technical and management personnel, and on our ability to continue to attract and retain qualified employees, particularly those highly skilled design, process and test engineers involved in the manufacture of existing products and in the development of new products and processes. The competition for such personnel is intense, and the loss of key employees, none of whom is subject to an employment agreement for a specified term or a post-employment non-competition agreement, could harm our business.

BUSINESS INTERRUPTIONS COULD HARM OUR BUSINESS.

Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan. In addition, business interruption insurance may not be enough to compensate us for losses that may occur and any losses or damages incurred by us as a result of business interruptions could significantly harm our business.

SYSTEM INTEGRATION DISRUPTIONS COULD HARM OUR BUSINESS.

We periodically make enhancements to our integrated financial and supply chain management systems. This process is complex, time-consuming and expensive. Operational disruptions during the course of this process or delays in the implementation of these enhancements could impact our operations. Our ability to forecast sales demand, ship products, manage our product inventory and record and report financial and management information on a timely and accurate basis could be impaired while we are making these enhancements.

PROVISIONS IN OUR RESTATED CERTIFICATE OF INCORPORATION, BYLAWS AND PREFERRED SHARES RIGHTS AGREEMENT MAY HAVE ANTI-TAKEOVER EFFECTS.

Certain provisions of our Restated Certificate of Incorporation, Bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, voting rights, preferences and privileges and restrictions of those shares without the approval of our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control, by making it more difficult for a third party to acquire a majority of our stock. In addition, the issuance of preferred stock could have a dilutive effect on our stockholders. We have no present plans to issue shares of preferred stock.

We also have a preferred shares rights agreement with Equiserve Trust Company, N.A., as rights agent, dated as of September 4, 1996, amended and restated on October 18, 1999 and amended as of November 7, 2001, which gives our stockholders certain rights that would likely delay, defer or prevent a change of control of Atmel in a transaction not approved by our board of directors.

CHANGES IN STOCK OPTION ACCOUNTING RULES MAY ADVERSELY IMPACT OUR REPORTED OPERATING RESULTS, OUR STOCK PRICE, AND OUR ABILITY TO OFFER COMPETITIVE COMPENSATION ARRANGEMENTS WITH OUR EMPLOYEES.

In December 2004, the FASB issued SFAS No. 123R, which is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”), and supersedes our previous accounting under APB No. 25.

We adopted SFAS No. 123R effective January 1, 2006, using the modified prospective transition method and our consolidated financial statements as of and for the years ended December 31, 2007 and 2006 are based on this method. In accordance with the modified prospective transition method, our consolidated financial statements for prior periods have not been restated to reflect the impact of SFAS No. 123R.

We have elected to adopt FSP No. FAS 123(R)-3 to calculate our pool of windfall tax benefits.

SFAS No. 123R requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest will be recognized as expense over the requisite service periods in our consolidated statements of operations. Prior to January 1, 2006, we accounted for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25 as allowed under SFAS No. 123 (and further amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123”). Under the intrinsic value method, stock-based compensation expense was recognized in our consolidated statements of operations for stock based awards granted to employees when the exercise price of these awards was less than the fair market value of the underlying stock at the date of grant.

Income from continuing operations in 2007 was reduced by stock-based compensation expenses of $17 million and loss from continuing operations in, 2006 was increased by stock-based compensation expenses of $9 million. These charges were calculated in accordance with SFAS No. 123R.

The implementation of SFAS No. 123R has resulted in lower report operating results, net income, and earnings per share, which could negatively impact our future stock price. In addition, this could impact our ability to utilize employee stock plans to reward employees, and could result in a competitive disadvantage to us in attracting or retaining employees in the future.

OUR FOREIGN PENSION PLANS ARE UNFUNDED, AND ANY REQUIREMENT TO FUND THESE PLANS IN THE FUTURE COULD NEGATIVELY IMPACT OUR CASH POSITION AND OPERATING CAPITAL.

We sponsor defined benefit pension plans that cover substantially all our French and German employees. Plan benefits are managed in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. Pension benefits payable totaled $53 million at both December 31, 2007 and 2006. The plans are non-funded, in compliance with local statutory regulations, and we have no immediate intention of funding these plans. Benefits are paid when amounts become due, commencing when participants retire. Cash funding for benefits paid in 2007 was approximately $1 million, and we expect to pay $2 million in 2008. Should legislative regulations require complete or partial funding of these plans in the future, it could negatively impact our cash position and operating capital.

OUR ACQUISITION STRATEGY MAY RESULT IN UNANTICIPATED ACCOUNTING CHARGES OR OTHERWISE ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, AND RESULT IN DIFFICULTIES IN ASSIMILATING AND INTEGRATING THE OPERATIONS, PERSONNEL, TECHNOLOGIES, PRODUCTS AND INFORMATION SYSTEMS OF ACQUIRED COMPANIES OR BUSINESSES, OR BE DILUTIVE TO EXISTING SHAREHOLDERS.

A key element of our business strategy includes expansion through the acquisitions of businesses, assets, products or technologies that allow us to complement our existing product offerings, expand our market coverage, increase our skilled engineering workforce or enhance our technological capabilities. Between January 1, 1999 and December 31, 2007, we acquired two companies and certain assets of three other businesses. We continually evaluate and explore strategic opportunities as they arise, including business combination transactions, strategic partnerships, and the purchase or sale of assets, including tangible and intangible assets such as intellectual property. On February 6, 2008, we announced that we had entered into a definitive agreement for the purchase of Quantum Research Group Ltd. (“Quantum”), a developer of capacitive sensing IP and solutions for user interfaces. Under the terms of the agreement, we will pay approximately $88 million in cash at closing and upon the satisfaction of certain contingencies over the next three years, certain Quantum shareholders may also receive up to an additional $42 million in cash and our common stock, the ratio of which will be determined at closing. The acquisition of Quantum is expected to close in the first quarter of 2008, subject to customary closing conditions and regulatory approvals.

Acquisitions may require significant capital infusions, typically entail many risks, and could result in difficulties in assimilating and integrating the operations, personnel, technologies, products and information systems of acquired companies or businesses. We have in the past and may in the future experience delays in the

timing and successful integration of an acquired company’s technologies and product development through volume production, unanticipated costs and expenditures, changing relationships with customers, suppliers and strategic partners, or contractual, intellectual property or employment issues. In addition, key personnel of an acquired company may decide not to work for us. The acquisition of another company or its products and technologies may also require us to enter into a geographic or business market in which we have little or no prior experience. These challenges could disrupt our ongoing business, distract our management and employees, harm our reputation and increase our expenses. These challenges are magnified as the size of the acquisition increases. Furthermore, these challenges would be even greater if we acquired a business or entered into a business combination transaction with a company that was larger and more difficult to integrate than the companies we have historically acquired.

Acquisitions may require large one-time charges and can result in increased debt or contingent liabilities, adverse tax consequences, additional stock-based compensation expense, and the recording and later amortization of amounts related to certain purchased intangible assets, any of which items could negatively impact our results of operations. In addition, we may record goodwill in connection with an acquisition and incur goodwill impairment charges in the future. Any of these charges could cause the price of our common stock to decline. Beginning January 1, 2009, the accounting for future business combinations will change. We expect that the new requirements will have an impact on our consolidated financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions we consummate after the effective date.

Acquisitions or asset purchases made entirely or partially for cash may reduce our cash reserves. We may seek to obtain additional cash to fund an acquisition by selling equity or debt securities. Any issuance of equity or convertible debt securities may be dilutive to our existing shareholders.

We cannot assure you that we will be able to consummate any pending or future acquisitions or that we will realize any anticipated benefits from these acquisitions. We may not be able to find suitable acquisition opportunities that are available at attractive valuations, if at all. Even if we do find suitable acquisition opportunities, we may not be able to consummate the acquisitions on commercially acceptable terms, and any decline in the price of our common stock may make it significantly more difficult and expensive to initiate or consummate additional acquisitions.

WE MAY NOT BE ABLE TO EFFECTIVELY UTILIZE ALL OF OUR MANUFACTURING CAPACITY, WHICH MAY NEGATIVELY IMPACT OUR BUSINESS.

The manufacture and assembly of semiconductor devices requires significant fixed investment in manufacturing facilities, specialized equipment, and a skilled workforce. If we are unable to fully utilize our own fabrication facilities due to decreased demand, significant shift in product mix, obsolescence of the manufacturing equipment installed, lower than anticipated manufacturing yields, or other reasons, our operating results will suffer. Our inability to produce at anticipated output levels could include delays in the recognition of revenue, loss of revenue or future orders, customer-imposed penalties for failure to meet contractual shipment deadlines.

Our operating results are also adversely affected when we operate at production levels below optimal capacity. Lower capacity utilization results in certain costs being charged directly to expense and lower gross margins. During 2007, we lowered production levels significantly at our North Tyneside, United Kingdom manufacturing facility to avoid building more inventory than we were forecasting orders for. As a result, operating costs for these periods were higher than in prior periods negatively impacting gross margins. While we expect to close this facility in the first quarter of 2008, there can be no assurance that other Atmel manufacturing facilities will not experience similar conditions requiring production levels to be reduced below optimal capacity levels. If we are unable to operate our manufacturing facilities at optimal production levels, our operating costs will increase and gross margin and results from operations will be negatively impacted.

DISRUPTIONS TO THE AVAILABILITY OF RAW MATERIALS CAN DISRUPT OUR ABILITY TO SUPPLY PRODUCTS TO OUR CUSTOMERS, WHICH COULD SERIOUSLY HARM OUR BUSINESS.

The manufacture of semiconductor devices requires specialized raw materials, primarily certain types of silicon wafers. We generally utilize more than one source to acquire these wafers, but there are only a limited number of qualified suppliers capable of producing these wafers in the market. The raw materials and equipment necessary for our business could become more difficult to obtain as worldwide use of semiconductors in product applications increases. We have experienced supply shortages from time to time in the past, and on occasion our suppliers have told us they need more time than expected to fill our orders. Any significant interruption of the supply of raw materials could harm our business.

WE COULD FACE PRODUCT LIABILITY CLAIMS THAT RESULT IN SIGNIFICANT COSTS AND DAMAGE TO REPUTATION WITH CUSTOMERS, WHICH WOULD NEGATIVELY IMPACT OUR OPERATING RESULTS.

All of our products are sold with a limited warranty. However, we could incur costs not covered by our warranties, including additional labor costs, costs for replacing defective parts, reimbursement to customers for damages incurred in correcting their defective products, costs for product recalls, or other damages. These costs could be disproportionately higher than the revenue and profits we receive from the sales of these devices.

Our products have previously experienced, and may in the future experience, manufacturing defects, software or firmware bugs, or other similar defects. If any of our products contains defects or bugs, or has reliability, quality or compatibility problems, our reputation may be damaged and customers may be reluctant to buy our products, which could materially and adversely affect our ability to retain existing customers and attract new customers. In addition, these defects or bugs could interrupt or delay sales or shipment of our products to our customers.

We have implemented significant quality control measures to mitigate this risk; however, it is possible that products shipped to our customers will contain defects or bugs. In addition, these problems may divert our technical and other resources from other development efforts. If any of these problems are not found until after we have commenced commercial production of a new product, we may be required to incur additional costs or delay shipments for revenue which would negatively affect our business, financial condition, and results of operations.

OUR REVENUES ARE DEPENDENT ON SELLING THROUGH DISTRIBUTORS.

Sales through distributors accounted for 44%, 41% and 40% of our net revenues in 2007, 2006 and 2005. We market and sell our products through third-party distributors pursuant to agreements that can generally be terminated for convenience by either party upon relatively short notice to the other party. These agreements are non-exclusive and also permit our distributors to offer our competitors’ products. We are dependent on our distributors to supplement our direct marketing and sales efforts. If any significant distributor or a substantial number of our distributors terminated their relationship with us or decided to market our competitors’ products over our products, our ability to bring our products to market would be negatively impacted, we may have difficulty in collecting outstanding receivable balances, and incur other charges or adjustments resulting in material adverse impact to our revenues and operating results.

Additionally, distributors typically maintain an inventory of our products. For certain distributors, we have signed agreements which protect the value of their inventory of our products against price reductions, as well as provide for rights of return under specific conditions. In addition, certain agreements with our distributors also contain standard stock rotation provisions permitting limited levels of product returns. We defer the gross margins on our sales to these distributors, until the applicable products are re-sold by the distributors. However, in the event of an unexpected significant decline in the price of our products or significant return of unsold inventory, we may experience inventory write-downs, charges to reimburse costs incurred by distributors, or other charges or adjustments which could harm our revenues and operating results.

THE OUTCOME OF CURRENTLY ONGOING AND FUTURE AUDITS OF OUR INCOME TAX RETURNS, BOTH IN THE US AND IN FOREIGN JURISDICTIONS, COULD HAVE AN ADVERSE AFFECT ON OUR NET INCOME (LOSS) AND FINANCIAL CONDITION.

We are subject to continued examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. While we believe that the resolution of these audits will not have a material adverse impact on our results of operations, cash flows or financial position, the outcome is subject to uncertainties. Should we be unable to obtain agreements with the tax authority on the various proposed adjustments, there exists the possibility of an adverse material impact on our results of operations, cash flows and financial position.

IF WE ARE UNABLE TO COMPLY WITH ECONOMIC INCENTIVE TERMS IN CERTAIN GOVERNMENT GRANTS, WE MAY NOT BE ABLE TO RECEIVE OR RECOGNIZE GRANT BENEFITS OR WE MAY BE REQUIRED TO REPAY GRANT BENEFITS PREVIOUSLY PAID TO US AND RECOGNIZE RELATED CHARGES, WHICH WOULD ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL POSITION.

We receive economic incentive grants and allowances from European governments targeted at increasing employment at specific locations. The subsidy grant agreements typically contain economic incentive and other covenants that must be met to receive and retain grant benefits. Noncompliance with the conditions of the grants could result in the forfeiture of all or a portion of any future amounts to be received, as well as the repayment of all or a portion of amounts received to date. In addition, we may need to record charges to reverse grant benefits recorded in prior periods as a result of changes to our plans for headcount, project spending, or capital investment at any of these specific locations. If we are unable to comply with any of the covenants in the grant agreements, our results of operations and financial position could be materially adversely affected.


ITEM 1B.	*UNRESOLVED STAFF COMMENTS*

Not applicable.


ITEM 2.	*PROPERTIES*

At December 31, 2007, we owned the major facilities described below:


Number of
Buildings	Location	Total Square Feet		Use

1	San Jose, California		291,000	Headquarters offices, research and development, sales and marketing, product design, final product testing
6	Colorado Springs, Colorado		603,000	Wafer fabrication, research and development, marketing, product design, final product testing
5	Rousset, France		815,000	Wafer fabrication, research and development, marketing, product design, final product testing
4	Heilbronn, Germany		778,000	Wafer fabrication, research and development, marketing, product design, final product testing (74% of square footage is leased to other companies)
2	Calamba City, Philippines		338,000	Final product testing

In addition to the facilities we own, we lease numerous research and development facilities and sales offices in North America, Europe and Asia. We believe that existing facilities are adequate for our current requirements.

On October 8, 2007, we entered into an agreement to sell our facility at North Tyneside, United Kingdom, which consisted of nine buildings and total square feet of 753,000. We expect to vacate this facility in May 2008. See Note 15 of Notes to Consolidated Financial Statements for further discussion.

In May 2007, we sold our facility at Irving, Texas, a wafer fabrication facility consisting of 39 acres of land, the fabrication facility building, and related offices, and remaining equipment. We retained an additional 17 acres of undeveloped land offered for sale. See Note 15 of Notes to Consolidated Financial Statements for further discussion.

We do not identify facilities or other assets by operating segment. Each facility serves or supports multiple products and the product mix changes frequently.


ITEM 3.	*LEGAL PROCEEDINGS*

Atmel currently is party to various legal proceedings. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the results of operations, cash flows and financial position of Atmel. The estimate of the potential impact on the Company’s financial position or overall results of operations or cash flows for the legal proceedings described below could change in the future. The Company has accrued for all losses related to litigation that the Company considers probable and for which the loss can be reasonably estimated.

On August 7, 2006, George Perlegos, Atmel’s former President and Chief Executive Officer, and Gust Perlegos, Atmel’s former Executive Vice President, Office of the President, filed three actions in Delaware Chancery Court against Atmel and some of its officers and directors under Sections 211, 220 and 225 of the Delaware General Corporation Law. In the Section 211 action, plaintiffs alleged that on August 6, 2006, the Board of Directors wrongfully cancelled or rescinded a call for a special meeting of Atmel’s stockholders, and sought an order requiring the holding of the special meeting of stockholders. In the Section 225 action, plaintiffs alleged that their termination was the product of an invalidly noticed board meeting and improperly constituted committees acting with gross negligence and in bad faith. They further alleged that there was no basis in law or fact to remove them from their positions for cause, and sought an order declaring that they continue in their positions as President and Chief Executive Officer, and Executive Vice President, Office of the President, respectively. The Section 225 action concluded with the court finding that the plaintiffs had not demonstrated any right to hold any office of Atmel. For both actions, plaintiffs sought costs, reasonable attorneys’ fees and any other appropriate relief. The Section 220 action, which sought access to corporate records, was dismissed in 2006.

Regarding the Section 211 action, a trial was held in October 2006, the court held argument in December 2006, issued a Memorandum Opinion in February 2007, and granted a Final Order on March 15, 2007. The Court ruled in favor of the plaintiffs with regards to calling a Special Meeting of Stockholders. The Perlegoses subsequently made a motion in the Chancery Court for attorneys’ fees and expenses, based on their having prevailed in the Section 211 action. On October 8, 2007, that motion was withdrawn, thus ending such proceedings, and a final order on the matter was entered in November 2007.

In January 2007, the Company received a subpoena from the Department of Justice (“DOJ”) requesting information relating to its past stock option grants and related accounting matters. Also, in August 2006, the Company received a letter from the SEC making an informal inquiry and request for information on the same subject matters. In August 2006, the Company received Information Document Requests from the IRS regarding the Company’s investigation into misuse of corporate travel funds and investigation into backdating of stock options. In December 2007, Atmel received notice from the SEC that its investigation had been terminated and no enforcement action was recommended to the Commission. The DOJ and IRS inquiries may require the Company to expend significant management time and incur significant legal and other expenses, which may adversely affect our results of operations and cash flows. The Company cannot predict how long it will take or how much more time and resources it will have to expend to resolve these government inquiries, nor can the Company predict the outcome of these inquiries.

From July through September 2006, six stockholder derivative lawsuits were filed (three in the U.S. District Court for the Northern District of California and three in Santa Clara County Superior Court) by persons claiming to be Company stockholders and purporting to act on Atmel’s behalf, naming Atmel as a nominal defendant and some of its current and former officers and directors as defendants. The suits contain various causes of action relating to the timing of stock option grants awarded by Atmel. The federal cases were consolidated and an amended complaint was filed on November 3, 2006. Atmel and the individual defendants moved to dismiss the consolidated amended complaint on various grounds. On July 16, 2007, the Court issued an order dismissing the complaint but granting the plaintiffs leave to file an amended complaint. In August 2007, the plaintiffs filed an amended complaint. The state derivative cases have also been consolidated. In April 2007, a consolidated derivative complaint was filed in the state court action, and the Company moved to stay it. The court granted Atmel’s motion to stay on June 14, 2007. Atmel believes that the filing of these derivative actions was unwarranted and intends to vigorously contest them.

In October 2006, an action was filed in First Instance labour court, Nantes, France on behalf of 46 former employees of Atmel’s Nantes facility, claiming that the sale of the Nantes facility to MHS (XbyBus SAS) in December 2005 was not a valid sale, and that these employees should still be considered employees of Atmel, with the right to claim social benefits from Atmel. The action is for unspecified damages. A hearing took place in February 2008, which resulted in a decision to appoint a professional judge to decide the matter. Atmel believes that the filing of this action is without merit and intends to vigorously defend this action.

In January 2007, Quantum World Corporation filed a patent infringement suit in the United States District Court, Eastern District of Texas naming Atmel as a co-defendant, along with a number of other electronics manufacturing companies. The plaintiff claims that the asserted patents allegedly cover a true random number generator and that the patents are infringed by the manufacture, use importation and offer for sale of certain Atmel products. The suit seeks damages for infringement and recovery of attorneys’ fees and costs incurred. In March 2007, Atmel filed a counterclaim for declaratory relief that the patents are neither infringed nor valid. Atmel believes that the filing of this action is without merit and intends to vigorously defend against this action.

In March 2006, Atmel filed suit against AuthenTec in the United States District Court, Northern District of California, San Jose Division, alleging infringement of U.S. Patent No. 6,289,114, and on November 1, 2006, Atmel filed a First Amended Complaint adding claims for infringement of U.S. Patent No. 6,459,804 (the “’804 Patent”). In November 2006, AuthenTec answered denying liability and counterclaimed seeking a declaratory judgment of non-infringement and invalidity, its attorneys’ fees and other relief. In April 2007, AuthenTec filed an action against Atmel for declaratory relief in the United States District Court for the Middle District of Florida that the patents asserted against it by Atmel in the action pending in the Northern District of California are neither infringed nor valid, and amended that complaint in May 2007 to add claims for declaratory relief that the ’804 Patent is unenforceable, alleged interference with business relationships, and abuse of process. AuthenTec sought declaratory relief and unspecified damages. On June 25, 2007, the action pending in the Middle District of Florida was transferred to the Northern District of California, and has been related to the action Atmel filed. On July 3, 2007, Atmel filed an answer to the claims for declaratory relief that the patents were neither valid nor infringed, and also added counterclaims of infringement. Also on July 3, 2007, Atmel moved to dismiss the remaining claims for declaratory relief that the ’804 Patent is unenforceable, alleged interference with business relationships, and alleged abuse of process. On August 2, 2007, the parties agreed to the dismissal with prejudice of AuthenTec’s claims for alleged interference with business relationships and alleged abuse of process. The parties also agreed to grant AuthenTec leave to amend its counterclaim to add the claim for alleged unenforceability of the ’804 Patent. Atmel believes that AuthenTec’s claims are without merit and intends to vigorously pursue and defend these actions.

On September 28, 2007, Matheson Tri-Gas filed suit in Texas state court in Dallas County against the Company. Plaintiff alleges a claim for breach of contract for alleged failure to pay minimum payments under a purchase requirements contract. Matheson seeks unspecified damages, pre- and post-judgment interest, attorneys’ fees and costs. In late November 2007, Atmel filed its answer denying liability. The Company believes that Matheson’s claims are without merit and intends to vigorously defend this action.

From time to time, the Company may be notified of claims that it may be infringing patents issued to other parties and may subsequently engage in license negotiations regarding these claims.


ITEM 4.	*SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*

There were no matters submitted to a vote of security holders during the fourth quarter of 2007.

Executive Officers of the Registrant

The executive officers of Atmel, who are elected by and serve at the discretion of the Board of Directors, and their ages, are as follows (ages are as of January 31, 2008):


Name	Age		Position

Steven Laub		49	President and Chief Executive Officer and Director
Tsung-Ching Wu		57	Executive Vice President, Office of the President and Director
Walter Lifsey		49	Executive Vice President, Operations
Robert Avery		59	Vice President Finance and Chief Financial Officer
Robert McConnell		63	Vice President and General Manager, RF and Automotive Segment
Bernard Pruniaux		66	Vice President and General Manager, ASIC Segment
Rod Erin		59	Vice President, Non-Volatile Memory Segment

Steven Laub, Atmel’s President and Chief Executive Officer, has served as a director of Atmel since February 2006. Mr. Laub was from 2005 to August 2006 a technology partner at Golden Gate Capital Corporation, a private equity buyout firm, and the Executive Chairman of Teridian Semiconductor Corporation, a fabless semiconductor company. From November 2004 to January 2005, Mr. Laub was President and Chief Executive Officer of Silicon Image, Inc., a provider of semiconductor solutions. Prior to that time, Mr. Laub spent 13 years in executive positions (including President, Chief Operating Officer and member of the Board of Directors) at Lattice Semiconductor Corporation, a supplier of programmable logic devices and related software. Prior to joining Lattice Semiconductor, Mr. Laub was a vice president and partner at Bain and Company, a global strategic consulting firm. Mr. Laub holds a degree in economics from the University of California, Los Angeles, (BA) and a degree from Harvard Law School (JD).

Tsung-Ching Wu has served as a director of Atmel since 1985, as Vice President, Technology from January 1986 to January 1996, as Executive Vice President and General Manager from January 1996 to 2001 and as Executive Vice President, Office of the President since 2001. Mr. Wu holds degrees in electrical engineering from the National Taiwan University (B.S.), the State University of New York at Stony Brook (M.S.) and the University of Pennsylvania (Ph.D.).

Walter Lifsey has served as Executive Vice President, Operations since February 2008 and Senior Vice President, Operations of Atmel since December 2006. Prior to joining Atmel, Mr. Lifsey was Executive Vice President of Operations of International Rectifier Corporation, a semiconductor company, from April 2002 to December 2006. Prior to International Rectifier, Mr. Lifsey was Director of Global Marketing and Planning for AMP Inc., a semiconductor company, and held Operational and Financial Management positions at TRW Corporation. Mr. Lifsey holds a B.A. degree from the University of Nevada, Las Vegas.

Robert Avery has served as Atmel’s Vice President Finance and Chief Financial Officer since July 2005. Mr. Avery plans to retire during the first quarter of 2008, but he will remain actively involved in the management of Atmel until his successor is appointed. Prior to July 2005, Mr. Avery served in various management positions in Atmel’s finance department since joining Atmel in 1989 as Finance Manager in Atmel’s Colorado Springs Operations (including Vice President and Corporate Director of Finance, June 2003 — July 2005; Corporate Director of Finance, 1998 — 2003; and Finance Manager, 1989 — 1998). Prior to joining Atmel, Mr. Avery spent six years with Honeywell Inc. in various financial positions and six years providing audit services with Peat, Marwick, Mitchell & Co. Mr. Avery holds a B.S. degree in Accounting from Michigan State University.

Robert McConnell has served as Atmel’s Vice President and General Manager, RF and Automotive Segment since January 2003. Prior to joining Atmel, Mr. McConnell was President and Chief Executive Officer of Cypress

MicroSystems, a semiconductor company and subsidiary of Cypress Semiconductor Corporation, from September 1999 to December 2002. From January 1972 to September 1999, Mr. McConnell was Vice President and General Manager, Embedded Processor Division at Advanced Micro Devices, Inc. a semiconductor manufacturer. Mr. McConnell holds a B.S.E.E. degree from Northwestern University and an M.B.A. from Pepperdine University.

Bernard Pruniaux has served as Atmel’s Vice President and General Manager, ASIC Segment since November 2001 and as Chief Executive Officer of Atmel Rousset from May 1995 to November 2001. Mr. Pruniaux holds a master’s degree in electrical engineering from Ecole Superieure d’Ingenieurs in Toulouse, France, and a PhD from the LETI in Grenoble, France.

Rod Erin has served as Atmel’s Vice President, Non-Volatile Memory Segment since August 2007 and as Vice President of Atmel’s Advanced Products Group since July 2005. Mr. Erin joined Atmel in 1989 and has held various management positions in Atmel’s planning, operational, and IT organizations. Prior to joining Atmel, Mr. Erin spent 16 years with other semiconductor manufacturing companies, including Texas Instruments, Inmos, and Honeywell in a variety of IT management positions. Mr. Erin holds B.S.E.E and M.B.A. degrees from the University of Illinois.

PART II


ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Atmel’s Common Stock is traded on the NASDAQ Stock Market’s Global Select Market (previously the Nasdaq National Market) under the symbol “ATML.” The last reported price for our stock on January 31, 2008 was $3.16 per share. The following table presents the high and low sales prices per share for our Common Stock as quoted on the NASDAQ Global Select Market for the periods indicated.


	High		Low

Year ended December 31, 2006:
First Quarter	$	5.10	$	3.06
Second Quarter	$	5.71	$	4.22
Third Quarter	$	6.43	$	3.71
Fourth Quarter	$	6.38	$	4.79
Year ended December 31, 2007:
First Quarter	$	6.30	$	4.96
Second Quarter	$	5.86	$	5.00
Third Quarter	$	5.99	$	4.55
Fourth Quarter	$	5.65	$	4.31

As of January 31, 2008, there were approximately 1,864 stockholders of record of Atmel’s Common Stock. Because many of our shares of Common Stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

No cash dividends have been paid on the Common Stock, and we currently have no plans to pay cash dividends in the future.

The following table provides information about the repurchase of our common stock during the three months ended December 31, 2007 pursuant to our Accelerated Share Repurchase Program.


						Total Number		Maximum
						of Shares		Number
						Purchased as		of Shares
						Part of		that May yet
	Total Number		Average Price			Publicly		Be Purchased
	of Shares		Paid per			Announced Plans		Under the Plans
Period	Purchased		Share			or Programs		or Programs(1)

Oct. 1 to Oct. 31		—		—			—		—
Nov. 1 to Nov. 30		5,555,891		(1	)		5,555,891		—
Dec. 1 to Dec. 31		—		—			—		—
Total		5,555,891		(1	)		5,555,891		—


(1)		On August 26, 2007, we entered into collared accelerated share repurchase program with each of Morgan Stanley & Co. Incorporated and Credit Suisse, New York Branch (the “dealers”) to repurchase up to an aggregate of $250 million of our common stock. Pursuant to the terms of the transactions, we prepaid $125 million to each dealer shortly after execution of the transactions, and we agreed to purchase up to $125 million of our common stock from each dealer. The aggregate number of shares actually purchased was determined based on the volume weighted average share price of our common stock during a specified period of time, subject to certain provisions that established a minimum and maximum number of shares that may be repurchased by us. In September 2007, the dealers delivered an aggregate of 43 million shares to us, which was the minimum number of shares to be repurchased by us. On November 5, 2007, we received approximately 3 million additional shares from Morgan Stanley & Co. Incorporated and on November 13, 2007, we received approximately 3 million additional shares from Credit Suisse, New York Branch. The total number of shares repurchased under the program was approximately 49 million, which were retired. No additional shares are expected to be repurchased pursuant to the collared accelerated share repurchase program. The effective price per share of all shares repurchased under the program was $5.11.


ITEM 6.	*SELECTED FINANCIAL DATA*

The following tables include selected summary financial data for each of our last five years and includes adjustments to reflect the classification of the results of our Grenoble, France, subsidiary as Discontinued Operations for the years ended December 31, 2006, 2005, 2004 and 2003. See Note 18 to Notes to Consolidated Financial Statements for further discussion. This data should be read in conjunction with Item 8, “Financial Statements and Supplementary Data,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.


	Years Ended December 31,
	2007		2006			2005			2004			2003
	(In thousands, except per share data)

Net revenues	$	1,639,237	$	1,670,887		$	1,561,107		$	1,552,440		$	1,236,295

Income (loss) from continuing operations before income taxes(1)(5)		55,709		(73,702	)		(62,690	)		18,842			(126,795	)

Income (loss) from continuing operations		47,885		(98,651	)		(49,627	)		(5,502	)		(128,008	)
Income from discontinued operations, net of provision for income taxes		—		12,969			16,276			11,874			7,425
Gain on sale of discontinued operations, net of provision for income taxes(2)		—		100,332			—			—			—

Net income (loss)	$	47,885	$	14,650		$	(33,351	)	$	6,372		$	(120,583	)


	Years Ended December 31,
	2007		2006			2005			2004			2003
	(In thousands, except per share data)

Basic net income (loss) per share:
Income (loss) from continuing operations	$	0.10	$	(0.20	)	$	(0.10	)	$	(0.01	)	$	(0.27	)
Income (loss) from discontinued operations, net of provision for income taxes		—		0.02			0.03			0.02			0.01
Gain on sale of discontinued operations, net of provision for income taxes		—		0.21			—			—			—

Net income (loss)	$	0.10	$	0.03		$	(0.07	)	$	0.01		$	(0.26	)

Weighted-average shares used in basic net income (loss) per share calculations		477,213		487,413			481,534			476,063			469,869

Diluted net income (loss) per share:
Income (loss) from continuing operations	$	0.10	$	(0.20	)	$	(0.10	)	$	(0.01	)	$	(0.27	)
Income from discontinued operations, net of provision for income taxes		—		0.02			0.03			0.02			0.01
Gain on sale of discontinued operations, net of provision for income taxes		—		0.21			—			—			—

Net income (loss)	$	0.10	$	0.03		$	(0.07	)	$	0.01		$	(0.26	)

Weighted-average shares used in diluted net income (loss) per share calculations		481,737		487,413			481,534			476,063			469,869


	As of December 31,
	2007		2006		2005		2004		2003

Cash and cash equivalents	$	374,130	$	410,480	$	300,323	$	346,350	$	385,887
Cash and cash equivalents and short-term investments		429,947		466,744		348,255		405,208		431,054
Fixed assets, net(3)		579,566		602,290		874,618		1,185,727		1,101,400
Total assets		1,702,753		1,818,539		1,933,936		2,331,236		2,158,817
Long-term debt less current portion(4)		20,408		60,333		133,479		323,950		357,796
Stockholders’ equity		823,479		953,894		937,371		1,107,568		1,003,764


(1)		We recorded asset impairment charges (recovery) of $(1) million, $83 million, $13 million and $27 million in 2007, 2006, 2005 and 2003, respectively, and restructuring charges of $13 million, $9 million, and $4 million in 2007, 2006 and 2005, respectively, related to employee termination costs, as well as industry changes and the related realignment of our businesses in response to those changes. We recorded $13 million related to loss on sale and other charges in 2005. We also recorded $1 million and $30 million in charges for grant repayments in 2007 and 2006, respectively.

(2)		On July 31, 2006, we sold our Grenoble, France, subsidiary to e2v technologies plc, a British corporation, for approximately $140 million. We recorded a gain on the sale of approximately $100 million, net of assets transferred, working capital adjustments and accrued income taxes.


(3)		Fixed assets, net was reduced (increased) for the respective periods as a result of the impairment charges (recovery) discussed in (1) above. Additionally, we reclassified $35 million in fixed assets to assets held for sale as of December 31, 2006, relating to our Irving, Texas, facilities.

(4)		On May 23, 2006, substantially all of the convertible notes outstanding at the time were redeemed for approximately $144 million. The remaining balance of approximately $1 million was called by Atmel in June 2006.

(5)		On January 1, 2006, we adopted SFAS No. 123R “Share-Based Payment.” It required us to measure all employee stock-based compensation awards using a fair value method and record such expense in our consolidated financial statements. As a result, we recorded pre-tax, stock-based compensation expense of $17 million and $9 million in 2007 and 2006, respectively, under SFAS No. 123R.


ITEM 7.	*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*

You should read the following discussion of our financial condition and results of operations in conjunction with our Consolidated Financial Statements and the related “Notes to Consolidated Financial Statements”, and “Financial Statement Schedules” and “Supplementary Financial Data” included in this Annual Report on Form 10-K. This discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, particularly statements regarding our outlook for 2008. Our actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, risks and uncertainties, including the risk factors set forth in this discussion, and under the caption “ITEM 1A RISK FACTORS,” and elsewhere in this Form 10-K. Generally, the words “may,” “will,” “could,” “would,” “anticipate,” “expect,” “intend,” “believe,” “seek,” “estimate,” “plan,” “view,” “continue,” the plural of such terms, the negatives of such terms, or other comparable terminology and similar expressions identify forward-looking statements. The information included in this Form 10-K is provided as of the filing date with the SEC and future events or circumstances could differ significantly from the forward-looking statements included herein. Accordingly, we caution readers not to place undue reliance on such statements. Atmel undertakes no obligation to update any forward-looking statements in this Form 10-K.

Overview of Fiscal 2007 Significant Transactions

On May 1, 2007, we sold our Irving, Texas, wafer fabrication facility for $37 million in cash ($35 million, net of selling costs). The sale of the facility included 39 acres of land, the fabrication facility building and related offices, and remaining equipment. An additional 17 acres was retained by us. No significant gain or loss was recorded upon the sale of the facility.

On August 26, 2007, we entered into collared accelerated share repurchase program with each of Morgan Stanley & Co. Incorporated and Credit Suisse, New York Branch (the “dealers”) to repurchase up to an aggregate of $250 million of our common stock. Pursuant to the terms of the transactions, we prepaid $125 million to each dealer shortly after execution of the transactions, and we agreed to purchase up to $125 million of our common stock from each dealer. The aggregate number of shares actually purchased was determined based on the volume weighted average share price of our common stock during a specified period of time, subject to certain provisions that established a minimum and maximum number of shares that may be repurchased by us. In September 2007, the dealers delivered an aggregate of 43 million shares to us, which was the minimum number of shares to be repurchased by us. On November 5, 2007, we received approximately 3 million additional shares from Morgan Stanley & Co. Incorporated and on November 13, 2007, we received approximately 3 million additional shares from Credit Suisse, New York Branch. The total number of shares repurchased under the program was approximately 49 million, which were retired. No additional shares are expected to be repurchased pursuant to the collared accelerated share repurchase program. The effective price per share of all shares repurchased under the program was $5.11.

On October 8, 2007, we entered into definitive agreements to sell certain wafer fabrication equipment and real property at North Tyneside, UK to Taiwan Semiconductor Manufacturing Company Limited (“TSMC”) and Highbridge Business Park Limited (“Highbridge”) for a total of approximately $124 million. We received proceeds

of $43 million for the real property in November 2007 and a gain on the sale of the real property will be recognized upon us vacating the facility, which we expect will happen by May 2008. The gain on the sale of fabrication equipment will be recognized as individual assets are accepted by TSMC and removed from our facility during the first two quarters of 2008.

Overview of 2007 Operating Results

We are a leading designer, developer and manufacturer of a wide range of semiconductor products. Our diversified product portfolio includes our proprietary AVR microcontrollers, security and smart card integrated circuits, and a diverse range of advanced logic, mixed-signal, nonvolatile memory and radio frequency devices. Leveraging our broad intellectual property portfolio, we are able to provide our customers with complete system solutions. Our solutions target a wide range of applications in the communications, computing, consumer electronics, storage, security, automotive, military and aerospace markets, and are used in products such as mobile handsets, automotive electronics, GPS systems and batteries.

We design, develop, manufacture and sell our products. We develop process technologies to ensure our products provide the maximum possible performance. During 2007, we manufactured approximately 93% of our products in our own wafer fabrication facilities.

Our operating segments comprise: (1) application specific integrated circuits (ASICs); (2) microcontroller products (Microcontroller); (3) nonvolatile memory products (Nonvolatile Memory); and (4) radio frequency and automotive products (RF and Automotive).

Net revenues decreased to $1,639 million in 2007 from $1,671 million in 2006, a decrease of $32 million or approximately 2%. During 2007, strong growth in our core business groups, including Microcontrollers, was offset by a decline in unit volumes for our BiCMOS foundry business (within the RF and Automotive segment). Net revenues for our ASIC and Nonvolatile Memory segments remained flat or declined slightly during the year ended December 31, 2007, compared to the year ended December 31, 2006. The decrease in net revenues and unit volumes for BiCMOS foundry products related to a decline in orders from a significant customer for communication chipsets for CDMA phones. The decrease in net revenues in the ASIC segment is primarily due to reduced shipments of lower margin commodity telecommunication-market products. Microcontroller segment revenues were $458 million for the year ended December 31, 2007, an increase of 12% from the $408 million reported for the year ended December 31, 2006. Our proprietary AVR microcontroller product revenues were $320 million during 2007, up 18% from $271 million recorded in 2006. The increase in revenues for Microcontrollers was driven by significant new designs in consumer, wireless handset, and industrial market applications.

Gross margin improved to 35.4% in the year ended December 31, 2007, compared to 33.6% in the year ended December 31, 2006. Improvements to gross margin primarily resulted from lower depreciation expense related to our decision to sell our North Tyneside, UK facility, as well as a more favorable mix of higher margin products sold, and improved manufacturing yields. However, our gross margins were negatively impacted during 2007 by a significant change in foreign currency exchange rates (primarily the US dollar weakening when compared to the euro) as well as lower factory utilization rates, primarily for our North Tyneside, UK facility, which we continued to operate while we sought to sell this facility.

We generated income from operations of $52 million in the year ended December 31, 2007, compared to a loss from operations of $62 million in the year ended December 31, 2006. The increase to income from operations in the year ended December 31, 2007 was primarily related to asset impairment charges of $83 million and grant repayment charges of $30 million recorded in the year ended December 31, 2006, which were not repeated in the year ended December 31, 2007. Research and development expense decreased during 2007, as we reduced spending on non-core product development programs. Selling, general, and administrative expense increased $29 million during 2007 primarily due to expenses associated with the restatement of our 2005 and prior financial statements, a special meeting of stockholders in May 2007, and various independent investigations, as well as on-going legal fees, stock-based compensation costs, resources added to increase investment in sales and administrative organizations and the impact of exchange rates resulting from the weaker dollar compared to the euro.

Provision for income taxes totaled $8 million in the year ended December 31, 2007, compared to $25 million in the year ended December 31, 2006. During 2007, we recognized a benefit of $20 million resulting from the cash receipt of French research and development tax credits related to prior tax years. Provision for income taxes results primarily from taxable income in our profitable foreign subsidiaries which are profitable on a local statutory income basis. This resulted in an effective tax rate of 14%, 34% and (21%) for the years ended December 31, 2007, 2006 and 2005, respectively, expressing tax provision (benefit) as a percentage of the applicable year’s income (loss) from continuing operations before income taxes.

We generated positive cash flows from operating activities of $196 million and $296 million in the years ended December 31, 2007 and 2006, respectively. At December 31, 2007, our cash, cash equivalents and short-term investments totaled $430 million, down from $467 million at December 31, 2006, primarily due to $250 million in cash paid to repurchase 49 million shares of our common stock in the third and fourth quarters of 2007, partially offset by $100 million we drew from a bank line of credit in December 2007. Our total debt decreased to $163 million at December 31, 2007 from $169 million at December 31, 2006 due to debt repayments of $109 million, offset by in part by $100 million we drew from a bank line of credit in December 2007. Our current liabilities increased to $621 million at December 31, 2007 from $567 million at December 31, 2006.

RESULTS OF CONTINUING OPERATIONS


	Years Ended
	December 31, 2007					December 31, 2006					December 31, 2005
	(In thousands, except percentage of net revenues)

Net revenues	$	1,639,237		100.0	%	$	1,670,887		100.0	%	$	1,561,107		100.0	%
Gross profit		580,231		35.4	%		562,118		33.6	%		395,769		25.4	%
Research and development expenses		272,041		16.6	%		289,108		17.3	%		268,164		17.2	%
Selling, general and administrative expenses		242,811		14.8	%		213,641		12.8	%		184,876		11.8	%
Charges for grant repayments		1,464		0.1	%		30,034		1.8	%		—		—
Asset impairment charges (recovery)		(1,057	)	(0.1	)%		82,582		4.9	%		12,757		0.8	%
Restructuring charges		13,239		0.8	%		8,729		0.5	%		4,483		0.3	%
Loss on sale and other charges		—		0.0	%		—		0.0	%		13,199		3.3	%

Income (loss) from operations	$	51,733		3.2	%	$	(61,976	)	(3.7	)%	$	(87,710	)	(5.6	)%

Net Revenues

Net revenues decreased to $1,639 million in the year ended December 31, 2007 from $1,671 million in the year ended December 31, 2006, a decrease of $32 million or approximately 2%, primarily as a result of declines in our RF and Automotive and ASIC segments, partially offset by growth in our Microcontroller segment. Net revenues for our ASIC and Nonvolatile Memory segments remained flat or declined slightly during the year ended December 31, 2007, compared to the year ended December 31, 2006. The decrease in net revenues and unit volumes for BiCMOS foundry products related to a decline in orders from a significant customer for communication chipsets for CDMA phones. The decrease in net revenues in the ASIC segment is primarily due to reduced shipments of lower margin commodity telecommunication-market products. Microcontroller segment revenues were $458 million for the year ended December 31, 2007, an increase of 12% from the $408 million reported for the year ended December 31, 2006. Our proprietary AVR microcontroller product revenues were $320 million during 2007, up 18% from $271 million recorded in 2006. The increase in revenues for Microcontrollers were driven by significant new designs in consumer, wireless handset, and industrial market applications.

Net revenues increased to $1,671 million in the year ended December 31, 2006 from $1,561 million in the year ended December 31, 2005, an increase of $110 million or approximately 7%, primarily as a result of growth in our Microcontroller and RF and Automotive segments, offset by declines in our ASIC and Nonvolatile Memory segments. The increase in revenues in our Microcontroller segment was primarily driven by growth of our AVR microcontroller products. The increase in revenues in the RF and Automotive segment is primarily related to growth

in communication chipsets for CDMA phones and strong demand for other communication products such as GPS, and other RFID products. The decline in our Nonvolatile Memory segment revenues was due to price declines driven by competitive pricing pressures, partially offset by an increase in unit shipments of Data Flash products in the year ended December 31, 2006 compared to the year ended December 31, 2005. In July 2006, we completed the sale of our Grenoble, France, subsidiary to e2v technologies plc, a British corporation. For the years ended December 31, 2006 and 2005, we reclassified net revenues from the Grenoble subsidiary to Results from Discontinued Operations for approximately $80 million and $115 million, respectively, which were previously reported in our ASIC operating segment.

Average exchange rates utilized to translate foreign currency net revenues in euro were approximately 1.36 and 1.25 euro to the dollar in the years ended December 31, 2007 and 2006, respectively. During the year ended December 31, 2007, changes in foreign exchange rates had a favorable impact on net revenues. Had average exchange rates remained the same during the year ended December 31, 2007 as the average exchange rates in effect for the year ended December 31, 2006, our reported net revenues for the year ended December 31, 2007 would have been $27 million lower.

Net Revenues — By Operating Segment

Our net revenues by operating segment are summarized as follows (in thousands, except percentages):


			% of Net			Change			% Change
Segment	2007		Revenues			from 2006			from 2006
	(In thousands, except percentage of net revenues)

ASIC	$	495,815		30	%	$	(5,883	)		(1)	%
Microcontroller		458,228		28	%		49,834			12	%
Nonvolatile Memory		376,675		23	%		1,356			0	%
RF and Automotive		308,519		19	%		(76,957	)		(20)	%

Net revenues	$	1,639,237		100	%	$	(31,650	)		(2)	%


			% of Net			Change			% Change
Segment	2006		Revenues			from 2005			from 2005

ASIC	$	501,698		30	%	$	(32,525	)		(6)	%
Microcontroller		408,394		24	%		131,623			48	%
Nonvolatile Memory		375,319		22	%		(17,736	)		(5)	%
RF and Automotive		385,476		23	%		28,418			8	%

Net revenues	$	1,670,887		100	%	$	109,780			7	%


			% of Net
Segment	2005		Revenues

ASIC	$	534,223		34	%
Microcontroller		276,771		18	%
Nonvolatile Memory		393,055		25	%
RF and Automotive		357,058		23	%

Net revenues	$	1,561,107		100	%

Certain product families have been reassigned between the ASIC and Microcontroller segments to improve organizational efficiency and reflect the way management evaluates segment performance. As a result, prior period net revenues and income from operating segments have been reclassified to conform to the current period presentation of operating segment information.

Net revenues for the years ended December 31, 2006 and 2005 have been adjusted to reflect the divestiture of our Grenoble, France, subsidiary. Net revenues from the Grenoble subsidiary of $80 million and $115 million for the years ended December 31, 2006 and 2005 are excluded from consolidated net revenues and are reclassified to

Results from Discontinued Operations. See Note 18 to Notes to Consolidated Financial Statements in Item 8 for further discussion.

ASIC

ASIC segment net revenues decreased 1% to $496 million in the year ended December 31, 2007 from $502 million in the year ended December 31, 2006. This decrease was primarily due to declines in smart card product revenues of 6% and imaging product revenues of 94%, partially offset by an increase in revenues for Crypto Memory products of 157%. The decline in Smart card products is primarily due to reduced shipments of lower margin commodity telecommunication products and lower shipments in the first half of 2007 related to industry consolidation. The decline in revenues from imaging products resulted from our decision to exit this business, which was completed in the third quarter of 2007. The increase in Crypto Memory products resulted from increased adoption by customers and significant new design wins in the personal computer market experienced during 2007.

ASIC segment net revenues decreased 6% to $502 million in the year ended December 31, 2006 from $534 million in the year ended December 31, 2005. During the years ended December 31, 2006 and 2005, our ASIC segment increased unit shipments due to increased demand for Smart Card and custom cell based integrated circuits related to demand for consumer, communications, and security-based products sold by end customers. The benefit from higher unit shipments was offset by lower average selling prices. Smart card products experienced 4% lower revenue in the year ended December 31, 2006 compared to the year ended December 31, 2005 due to competitive pricing pressures. Smart card products experienced growing unit demand from applications which require small memory with high security, such as GSM cell phone applications, bank cards, national identity cards and conditional access for set-top boxes.

In July 2006, we completed the sale of our Grenoble, France, subsidiary to e2v technologies plc, a British corporation. For the years ended December 31, 2006 and 2005, net revenues reclassified to Results from Discontinued Operations were $80 million and $115 million, respectively. These results were previously reported in our ASIC operating segment.

Microcontroller

Microcontroller segment net revenues increased 12% to $458 million in the year ended December 31, 2007 from $408 million in the year ended December 31, 2006. This increase was primarily due to new customer designs utilizing both our proprietary AVR microcontroller products as well as our ARM-based microcontroller products. AVR microcontroller revenue grew $49 million or 18% in the year ended December 31, 2007, compared to results for the year ended December 31, 2006. ARM-based microcontroller products revenue increased $12 million or 27% in the year ended December 31, 2007 from the year ended December 31, 2006. Net revenues for Microcontroller products have increased due to gains in the 8-bit microcontroller market and ARM-based microcontrollers, growth in the overall microcontroller market including recent high volume customer applications in the consumer and industrial markets, and improved delivery times resulting from higher inventory levels and increased test capacity added during the first half of 2006. Overall demand for microcontrollers is driven by increased use of embedded control systems in consumer, industrial and automotive products.

Microcontroller segment net revenues increased 48% to $408 million in the year ended December 31, 2006 from $277 million in the year ended December 31, 2005. This increase was primarily due to new customer designs utilizing our proprietary AVR microcontroller products. AVR microcontroller revenue grew 70% in the year ended December 31, 2006, while other non-proprietary microcontroller families increased revenue by 16%, compared to the year ended December 31, 2005. Increased test capacity allowed us to increase shipment rates in the first and second quarters of 2006 to satisfy backlog delinquencies from 2005 for AVR microcontrollers. In addition, market share gains in the 8-bit microcontroller market contributed to gains in 2006. Demand for microcontrollers is largely driven by increased use of embedded control systems in consumer, industrial and automotive products.

Nonvolatile Memory

Nonvolatile memory segment revenues increased less than 1% to $377 million in the year ended December 31, 2007 from $375 million in the year ended December 31, 2006. Within this segment, revenues increased $16 million

or 7% for Serial EEPROM-based product revenues and $5 million or 7% in Serial Flash product revenues, partially offset by reduced shipments of lower margin commodity flash memory products, which decreased revenues by $14 million or 34%. Markets for our nonvolatile memory products are more competitive than many other markets we sell in, and as a result, our memory products are subject to greater declines in average selling prices compared to product pricing in our other segments. Competitive pressures and rapid obsolescence of products are among several factors causing continued pricing declines in 2007. While pricing for Serial EEPROM-based products remained steady, unit shipments increased by 10%, compared to unit shipments for the year ended December 31, 2006. This product family benefits from significant market share resulting from competitive pricing and a broad range of offerings. Conditions in the nonvolatile memory segment are expected to remain challenging for the foreseeable future. In an attempt to mitigate the pricing fluctuations in this market, we have shifted our focus away from lower margin commodity parallel Flash products, which tend to experience greater than average sales price fluctuations, to other serial interface nonvolatile memory products.

Nonvolatile segment net revenues decreased 5% to $375 million in the year ended December 31, 2006 from $393 million in the year ended December 31, 2005. This decrease was due primarily to reduced unit selling prices. Competitive pressures and rapid obsolescence of products are among several factors causing continued pricing declines in the year ended December 31, 2006. During the year ended December 31, 2006, Serial EPROM-based product revenues grew by 5% compared to the year ended December 31, 2005 on higher volume shipments, partially offset by lower selling prices. This product family benefits from significant market share resulting from competitive pricing and a broad range of offerings. For the year ended December 31, 2006, revenues for flash-based products declined 17% compared to the year ended December 31, 2005, as higher unit shipments were more than offset by lower selling prices, mostly attributable to highly competitive customer markets.

RF and Automotive

RF and Automotive segment net revenues decreased 20% to $309 million in the year ended December 31, 2007 from $385 million in the year ended December 31, 2006. This decrease was primarily due to reduced shipment quantities for BiCMOS foundry products related to communication chipsets for CDMA phones and mixed signal products, partially offset by growth in other automotive products. Net revenues for BiCMOS foundry products decreased $92 million or 50% in the year ended December 31, 2007 from the year ended December 31, 2006, offset in part by a $29 million or 23% increase from other automotive products. BiCMOS foundry product revenues related to CDMA chipsets represented approximately 4% of revenues for the twelve months ended December 31, 2007 compared to 9% of net revenues for the twelve months ended December 31, 2006. During the fourth quarter of 2007, net revenues for this product represented approximately 2% of net revenues. During 2008, we expect demand for these products will end, and that demand for newer versions of this product will be sourced elsewhere.

RF and Automotive segment net revenues increased 8% to $385 million in the year ended December 31, 2006, compared to $357 million in the year ended December 31, 2005. This increase was primarily due to a 22% revenue growth in automotive and wireless products, partially offset by a 6% decrease in revenues for BiCMOS foundry products.

Net Revenues by Geographic Area

Our net revenues by geographic areas are summarized as follows (revenues are attributed to countries based on delivery locations: (see Note 13 of Notes to Consolidated Financial Statements for further discussion).


	Years Ended
	December 31,		December 31,		December 31,
	2007		2006		2005
	(In thousands)

United States	$	219,541	$	241,379	$	210,399
Europe		571,476		541,254		455,550
Asia		827,418		874,226		876,864
Rest of World*		20,802		14,028		18,294

	$	1,639,237	$	1,670,887	$	1,561,107


*		Primarily includes South Africa, and Central and South America

Net revenue amounts have been adjusted to reflect the divestiture of our Grenoble, France, subsidiary. Net revenues from the Grenoble subsidiary of $80 million and $115 million for the years ended December 31, 2006 and 2005 are excluded from consolidated net revenues, and are reclassified to Results from Discontinued Operations. See Note 18 of Notes to Consolidated Financial Statements for further discussion.

Sales outside the United States accounted for 87%, 86% and 87% of our net revenues in the years ended December 31, 2007, 2006 and 2005.

Our sales in the United States decreased $22 million, or 9%, in the year ended December 31, 2007, compared to the year ended December 31, 2006, primarily due to United States — based customers continuing to redirect deliveries from domestic operations to lower cost overseas operations, as well as reduced shipments to United States — based distributors. Our sales in the United States increased by $31 million, or 15% in the year ended December 31, 2006, compared to the year ended December 31, 2005, due to higher volume shipment, partially offset by lower average selling prices.

Our sales in Europe increased $30 million, or 6%, in the year ended December 31, 2007, compared to the year ended December 31, 2006, primarily due to both higher volume shipments of ARM-based microcontrollers and automotive products, partially offset by reductions in Smart Card shipments. In addition, revenues in 2007 increased as a result of the favorable impact from exchange rates, primarily from the increase in the value of the euro relative to the U.S. dollar. Had average exchange rates remained the same during the year ended December 31, 2007 as the average exchange rates in effect for the year ended December 31, 2006, our reported net revenues for the year ended December 31, 2007 would have been $27 million lower. Our sales in Europe increased by $86 million, or 19%, in the year ended December 31, 2006, compared to the year ended December 31, 2005, primarily due to higher AVR and ARM microcontroller shipments, partially offset by lower Smart Card shipments. Our sales terms for European distributors generally include very limited rights of return and stock rotation privileges. However, as we evaluate how to refine our distribution strategy, we may need to modify our sales terms or make changes to our distributor base, which may impact our future revenues in this region. It may take time for us to convert systems and processes to support modified sales terms. There can be no assurances that we will be able to manage this optimization process in an efficient and timely manner.

Our sales in Asia decreased $47 million, or 5%, in the year ended December 31, 2007, compared to the year ended December 31, 2006, primarily due to reduced shipment quantities for BiCMOS foundry products related to communication chipsets for CDMA phones delivered to Singapore. For the year ended December 31, 2007, net revenues decreased $92 million for BiCMOS foundry products, compared to the year ended December 31, 2006. The decline in revenues during 2007 was partially offset by increased shipments of AVR microcontrollers, as well as Serial Flash and Serial EEPROM products. Our sales in Asia were flat for the year ended December 31, 2006, compared to the year ended December 31, 2005. Higher AVR microcontroller demand in the year ended December 31, 2006 was offset by decreased shipments and lower pricing for nonvolatile memory products, due to competitive factors, along with constrained test capacity for certain memory products.

The trend over the last several years has been an increase in revenues in Asia (except for Singapore), while revenues from shipments to the United States has either declined or grown at a much slower rate. We believe that part of this shift reflects changes in customer manufacturing trends, with many customers increasing production in Asia due to lower labor costs. While revenues in Asia declined in 2007 compared to 2006 and 2005, we expect that Asia revenues will grow more rapidly than other regions in the future. Revenues in Asia may be impacted in the future as we refine our distribution strategy and optimize our distributor base in Asia. It may take time for us to identify financially viable distributors and help them develop high quality support services. There can be no assurances that we will be able to manage this optimization process in an efficient and timely manner.

Revenues and Costs — Impact from Changes to Foreign Exchange Rates

Changes in foreign exchange rates, primarily the euro, have had a significant impact on our net revenues and operating costs. Net revenues denominated in foreign currencies, primarily the euro, were approximately 22%, 19% and 17% in the years ended December 31, 2007, 2006 and 2005, respectively.

Net revenues in euros amounted to approximately 21%, 18% and 16% of net revenues in the years ended December 31, 2007, 2006 and 2005, respectively. Net revenues in Japanese yen amounted to approximately 1% for each of the years ended December 31, 2007, 2006 and 2005, respectively.

Average annual exchange rates utilized to translate foreign currency revenues and expenses in euro were approximately 1.36, 1.25 and 1.25 euro to the dollar in the years ended December 31, 2007, 2006 and 2005, respectively.

During the year ended December 31, 2007, changes in foreign exchange rates had a favorable impact on revenue but an unfavorable impact on operating costs with the result that income from operations declined since a greater portion of our operating expenses are denominated in foreign currencies than net revenues. Had average exchange rates remained the same during the year ended December 31, 2007 as the average exchange rates in effect for the year ended December 31, 2006, our reported revenues for the year ended December 31, 2007 would have been approximately $27 million lower. However, our foreign currency expenses exceed foreign currency revenues. For the year ended December 31, 2007, 51% of our operating expenses were denominated in foreign currencies, primarily the euro. Had average exchange rates for the year ended December 31, 2007 remained the same as the average exchange rates for year ended December 31, 2006, our operating expenses would have been approximately $65 million lower (cost of revenues of $41 million; research and development expenses of $17 million; and sales, general and administrative expenses of $7 million). The net effect resulted in a decrease to income from operations of approximately $38 million in the year ended December 31, 2007 as a result of unfavorable exchange rates when compared to the year ended December 31, 2006.

Average exchange rates utilized to translate revenues and expenses were approximately 1.25 euro to the dollar in both the years ended December 31, 2006 and 2005, and there was minimal impact on our operating results to the years ended December 31, 2006 from 2005. However within 2006, the impact from costs denominated in foreign currency increased significantly and negatively impacted gross margins and profitability in the fourth quarter of 2006.

Cost of Revenues and Gross Margin

Our cost of revenues includes the costs of wafer fabrication, assembly and test operations, changes in inventory reserves and freight costs. Our gross margin as a percentage of net revenues fluctuates, depending on product mix, manufacturing yields, utilization of manufacturing capacity, and average selling prices, among other factors.

Gross margin improved to 35.4% in the year ended December 31, 2007, compared to 33.6% and 25.4% in the years ended December 31, 2006 and 2005 respectively. Improvements to gross margin primarily resulted from lower depreciation expense related to our decision to sell our North Tyneside, UK facility, as well as a more favorable mix of higher margin products sold, and improved manufacturing yields. However, our gross margins were negatively impacted during 2007 by a significant change in foreign currency exchange rates (primarily the US dollar weakening when compared to the euro) as well as lower factory utilization rates, primarily for our North Tyneside, UK facility, which we continued to operate while we sought to sell this facility.

From time to time, our average selling prices for certain semiconductor products may decline below our manufacturing costs, which will adversely affect our results of operations, cash flows and financial condition. Because inventory reserves are recorded in advance of when the related inventory is sold, subsequent gross margins in the period of sale may be higher than they would be absent the effect of the previous write-downs. The impact on gross margins from the sale of previously written down inventory was not material in the years ended December 31, 2007, 2006 and 2005, respectively. Our excess and obsolete inventory reserves recorded impact all of our product categories, while lower-of-cost or market inventory reserves primarily impact our non-volatile memory and smart card products.

We receive economic assistance grants in some locations as an incentive to achieve certain hiring and investment goals related to manufacturing operations, the benefit for which is recognized as an offset to related costs. We recognized a reduction to cost of revenues for such grants of $2 million, $10 million and $11 million in the years ended December 31, 2007, 2006 and 2005, respectively. The decrease in the offset to cost of revenues in the year ended December 31, 2007, compared to the year ended December 31, 2006 was primarily related to our

December 2006 decision to sell our North Tyneside, UK facility, which precludes us from recognizing any further benefits.

Research and Development

Research and development (“R&D”) expenses decreased by 6% to $272 million in the year ended December 31, 2007 from $289 million in the year ended December 31, 2006. Research and development expense decreased during 2007, as we reduced spending on non-core product development programs and related product wafers. This decrease was primarily related to a decrease in the number of development wafers used in technology development, which totaled a cost of $9 million, lower depreciation and amortization expense of $10 million, higher research grant and non-recurring engineering (“NRE”) funding benefits of $7 million, offset in part by an increase in stock-based compensation expense of $2 million. R&D expenses during the year ended December 31, 2007 were unfavorably impacted by approximately $17 million due to foreign exchange rate fluctuation. As a percentage of net revenues, R&D expenses totaled 17% for both the years ended December 31, 2007 and 2006, respectively.

R&D expenses increased 8% to $289 million in the year ended December 31, 2006, compared to $268 million in the year ended December 31, 2005. This increase was primarily due to reduced R&D grant benefit recognition of $11 million, higher design software costs of $10 million, increased salaries and other expenses of $15 million and stock-based compensation expense of $2 million, partially offset by lower depreciation expense of $8 million, and lower costs for development wafers of $8 million. As a percentage of net revenues, R&D expenses totaled 17% for both the years ended December 31, 2006 and 2005.

In July 2006, we completed the sale of our Grenoble, France, subsidiary to e2v technologies plc, a British corporation. In the years ended December 31, 2006 and 2005, R&D expenses were reclassified to Results from Discontinued Operations, totaling approximately $6 million and $7 million, respectively, which were previously reported in our ASIC segment.

We have continued to invest in a variety of product areas and process technologies. We have also continued to purchase or license technology when necessary in order to bring products to market in a timely fashion. In the future, we expect to increase R&D investment in our core products, focusing on fewer but more profitable development projects. In addition, we expect to increase both salary and stock-based compensation expense in order to recruit and retain highly skilled engineering resources. We believe that continued strategic investments in process technology and product development are essential for us to remain competitive in the markets we serve.

We receive R&D grants from various European research organizations, the benefit of which is recognized as an offset to related costs. We recognized $18 million, $15 million and $26 million in the years ended December 31, 2007, 2006 and 2005, respectively.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses increased 14% to $243 million in the year ended December 31, 2007 from $214 million in the year ended December 31, 2006. This increase was primarily due to increased professional fees of $17 million related to legal and accounting services incurred during the restatement process and subsequent special stockholder meeting in May 2007, as well as increased employee salaries and benefits of $4 million, and an increase in stock option compensation charges of $5 million, partially offset by a decrease in litigation settlement costs of $7 million incurred in 2006. SG&A expenses in the year ended December 31, 2007 were unfavorably impacted by approximately $7 million due to foreign exchange rate fluctuation. SG&A expenses totaled 15% and 13% for the years ended December 31, 2007 and 2006, respectively.

SG&A expenses increased by 16% to $214 million in the year ended December 31, 2006, compared to $185 million in the year ended December 31, 2005. This increase was primarily due to increases in stock-based compensation expense of $5 million, net legal expense of $6 million resulting from the Agere and other litigation settlements, higher sales and administrative compensation of $8 million, less than $0.1 million of reduction in allowance for bad debt (compared to an approximate $6 million reversal (benefit) of bad debt expense in the year ended December 31, 2005) and other expense of $3 million. Legal fees in the year ended December 31, 2006 were $1 million higher than in the year ended December 31, 2005. In the year ended December 31, 2005, we incurred

significant legal fees related to several litigation cases resolved in the first half of the year. In the year ended December 31, 2006, legal fees were generally lower until the second half of 2006, when SG&A expense included $13 million related to the independent investigation of historical stock option practices and related matters, and litigation costs related to the termination of former executive officers. As a percentage of net revenues, SG&A expenses totaled 13% and 12% for the years ended December 31, 2006 and 2005, respectively.

In July 2006, we completed the sale of our Grenoble, France, subsidiary to e2v technologies plc, a British corporation. For the years ended December 31, 2006 and 2005, we reclassified $4 million and $8 million of SG&A expense to Results from Discontinued Operations, respectively, which were previously reported in our ASIC segment.

Charges for Grant Repayments

In the fourth quarter of 2006, we announced our intention to close our design facility in Greece and our intention to sell our manufacturing facility in North Tyneside, United Kingdom. We recorded a charge of $30 million in the fourth quarter of 2006 associated with the expected repayment of subsidy grants previously received and recognized related to grant agreements with government agencies at these locations. The proceeds of the subsidy grants were originally recorded as either a reduction of cost of revenues or research and development expense when they were recognized during the period from 2001 to 2006. In the year ended December 31, 2007, we recorded additional interest expense of $1 million related to the expected grant repayments. All of these charges have been included in “Charges for Grant Repayments” on the consolidated statements of operations.

See Note 14 to Notes to Consolidated Financial Statements for further discussion.

Asset Impairment Charges (Recovery)

Under SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” we assess the recoverability of long-lived assets with finite useful lives whenever events or changes in circumstances indicate that we may not be able to recover the asset’s carrying amount. We measure the amount of impairment of such long-lived assets by the amount by which the carrying value of the asset exceeds the fair market value of the asset, which is generally determined based on projected discounted future cash flows or appraised values. We present impairment charges as a separate line item within operating expenses in our condensed consolidated statements of operations. We classify long-lived assets to be disposed of other than by sale as “held-and-used” until they are disposed, including assets not available for immediate sale in their present condition. We report long-lived assets to be disposed of by sale under the caption of “held-for-sale” and recognize those assets on the consolidated balance sheet at the lower of carrying amount or fair value less cost to sell. Assets classified as held for sale are not depreciated.

North Tyneside, United Kingdom, and Heilbronn, Germany, Facilities

We acquired the North Tyneside, United Kingdom, facility in September 2000, including an interest in 100 acres of land and the fabrication facility of approximately 750,000 square feet, for $100 million. We have the right to acquire title to the land in 2016 for a nominal amount. We sold 40 acres in 2002 for $14 million. We recorded an asset impairment charge of $318 million in the second quarter of 2002 to write-down the carrying value of equipment in the fabrication facilities in North Tyneside, United Kingdom, to its estimated fair value, based on management’s best estimates considering a number of factors.

In December 2006, we announced our decision to sell our wafer fabrication facilities in North Tyneside, United Kingdom, and Heilbronn, Germany, in an effort to increase manufacturing efficiencies by better utilizing remaining wafer fabrication facilities, while reducing future capital expenditure requirements. Following the announcement of our intention to sell the North Tyneside facility in the fourth quarter of 2006, we assessed the fair market value of the facility compared to the carrying value recorded. The fair value was determined using a market-based valuation technique and estimated future cash flows. We recorded a net impairment charge of $72 million in the quarter ended December 31, 2006 related to the write-down of long lived assets to their estimated fair values, less costs to dispose of the assets. We classified assets of the North Tyneside facility with a net book value of $89 million (excluding cash and inventory, which will not be included in any sale of the facility) as assets held-for-sale on the consolidated balance sheet as of December 31, 2006.

On October 8, 2007, we entered into definitive agreements to sell certain wafer fabrication equipment and land and buildings at North Tyneside to TSMC and Highbridge for a total of approximately $124 million. The disposal group previously classified as held for sale included all assets (excluding cash and inventory) and liabilities of the North Tyneside legal entity. Upon entering into the agreements noted above, we determined that certain equipment and all of the related liabilities were no longer included in the disposal group as they were not being acquired or assumed by the buyer. As a result, we reassessed whether the assets to be sold in this transaction continued to meet the criteria for classification as held for sale as of September 30, 2007. We concluded that the assets to be sold under the above agreements were no longer available for immediate sale in their present condition as the terms of the these agreements require us to perform significant additional steps, including the dismantling, decommissioning and testing of the wafer fabrication equipment before TSMC will accept transfer of title of the purchased equipment, as well as the delivery of a vacated building to Highbridge. We had previously expected to sell the assets in the form of the transfer of the legal entity and then enter into a further supply agreement for product wafers with the buyer. However, the agreements noted above require termination of production efforts in order to deliver assets in the condition specified by the buyers. We have determined that we need to continue to operate the facility in order to build sufficient inventory as a result of the closure of the North Tyneside facility, and therefore cannot deliver the assets to be sold in the conditions specified in the sales agreements until production activity is concluded, which occurred in February 2008. In accordance with SFAS No. 144, we determined that the assets to be sold to TSMC and Highbridge did not meet the criteria for assets held for sale and were reclassified as held and used, and were measured at the lower of their adjusted carrying amounts or fair values less cost to sell as of December 31, 2007. We received proceeds of $43 million from Highbridge for the closing of the real property portion of the transaction in November 2007 and a gain on the sale of the real property will be recognized upon us vacating the facility during the second quarter of 2008. The gain on the sale of fabrication equipment will be recognized when such equipment is transferred to and accepted by TSMC in the first two quarters of 2008.

Assets removed from the disposal group and expected to be retained were reclassified by us to assets held and used as of December 31, 2007. In accordance with SFAS No. 144, these assets are reported individually at the lower of their respective carrying amount before they were initially classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had these assets been continuously classified as held and used or the fair value at the date of the subsequent decision not to sell. As a result of this reclassification, we recorded a credit of $1 million related to the recovery of previous impairment charges recorded for these assets in 2006. This credit is included within Asset Impairment Charges (Recovery) in the consolidated statements of operations.

The Heilbronn, Germany, facility did not meet the criteria for classification as held for sale as of December 31, 2007 and December 31, 2006, due to uncertainties relating to the likelihood of completing the sale within the next twelve months. Long-lived assets of this facility at December 31, 2007 and at December 31, 2006, respectively, were classified as held and used. After an assessment of expected future cash flows generated by the Heilbronn, Germany facility, we concluded that no impairment existed in the years ended December 31, 2007 and 2006.

Irving, Texas, Facility

We acquired our Irving, Texas, wafer fabrication facility in January 2000 for $60 million plus $25 million in additional costs to retrofit the facility after the purchase. Following significant investment and effort to reach commercial production levels, we decided to close the facility in 2002 and it has been idle since then. Since 2002,

we recorded various impairment charges, including $4 million during the quarter ended December 31, 2005. In the quarter ended December 31, 2006, we performed an assessment of the market value for this facility based on our estimate, which considered a current offer from a willing third party to purchase the facility, among other factors, in determining fair market value. Based on this assessment, an additional impairment charge of $10 million was recorded.

We classified the assets of the Irving, Texas, facility as held for sale of $35 million during the quarter ended December 31, 2006. The Irving facility did not qualify as discontinued operations as it is an idle facility and does not constitute a component of an entity in accordance with SFAS No. 144.

On May 1, 2007, we sold our Irving, Texas, wafer fabrication facility for $37 million in cash ($35 million, net of selling costs). The sale of the facility included 39 acres of land, the fabrication facility building, and related offices, and remaining equipment. An additional 17 acres of undeveloped land was retained by us and is currently offered for sale. No significant gain or loss was recorded upon the sale of the facility.

Restructuring Charges

The following table summarizes the activity related to the accrual for restructuring charges detailed by event for the years ended December 31, 2007, 2006 and 2005.


	January 1,								Currency		December 31,
	2007		Charges/						Translation		2007
	Accrual		(Credits)			Payments			Adjustment		Accrual
	(In thousands)

Third quarter of 2002
Termination of contract with supplier	$	8,896	$	(3,071	)	$	(4,233	)	$	—	$	1,592
Fourth quarter of 2006
Employee termination costs		7,490		3,305			(9,959	)		488		1,324
Fourth quarter of 2007
Employee termination costs		—		12,441			—			318		12,759
Other exit related costs		—		564			(564	)		—		—

Total 2007 activity	$	16,386	$	13,239		$	(14,756	)	$	806	$	15,675


	January 1,							December 31,
	2006							2006
	Accrual		Charges		Payments			Accrual
	(In thousands)

Third quarter of 2002
Termination of contract with supplier	$	9,833	$	—	$	(937	)	$	8,896
Third quarter of 2005
Employee termination costs		1,246		—		(1,246	)		—
Fourth quarter of 2005
Employee termination costs		1,223		—		(1,223	)		—
First quarter of 2006
Employee termination costs		—		151		(151	)		—
Fourth quarter of 2006
Employee termination costs		—		8,578		(1,088	)		7,490

Total 2006 activity	$	12,302	$	8,729	$	(4,645	)	$	16,386


	January 1,							December 31,
	2005							2005
	Accrual		Charges		Payments			Accrual
	(In thousands)

Third quarter of 2002
Termination of contract with supplier	$	10,919	$	—	$	(1,086	)	$	9,833
Third quarter of 2005
Employee termination costs		—		2,452		(1,206	)		1,246
Fourth quarter of 2005
Employee termination costs		—		2,031		(808	)		1,223

Total 2005 activity	$	10,919	$	4,483	$	(3,100	)	$	12,302

2007 Restructuring Activities

During the year ended December 31, 2007, we continued to implement the restructuring initiatives announced from 2002 to 2006 and in 2007. We recorded a net restructuring charge of $13 million consisting of the following:

We incurred restructuring charges related to the signing of definitive agreements in October 2007 to sell certain wafer fabrication equipment and real property at North Tyneside to Taiwan Semiconductor Manufacturing Company Limited (“TSMC”) and Highbridge Business Park Limited (“Highbridge”) for a total of approximately $124 million. As a result of this action, this facility will be closed and all of the employees of the facility will be terminated. During the fourth quarter of 2007, we recorded the following restructuring charges:


	•	Charges of $11 million related to one-time severance costs for involuntary termination of employees. These employee severance costs were recorded in accordance with SFAS No. 146, “Accounting for Costs Associated with exit or Disposal Activities” (“SFAS No. 146”).

	•	Charges of $1 million related to on-going severance costs for involuntary termination of employees. These employee severance costs were recorded in accordance with SFAS No. 112, “Employers’ Accounting for Post Employment Benefits” (“SFAS No. 112”).

	•	Charges of $1 million related to other exit related costs. These costs were recorded in accordance with SFAS No. 146.

In addition, we incurred the following in 2007:


	•	Charges of $2 million related to severance costs for involuntary termination of employees. These employee severance costs were recorded in accordance with SFAS No. 146.

	•	Charges of $1 million related to one-time minimum statutory termination benefits, including changes in estimates, recorded in accordance with SFAS No. 112.

	•	A credit of $3 million related to the settlement of a long-term gas supply contract for which the accrual was $12 million, originally recorded in the third quarter of 2002. On May 1, 2007, in connection with the sale of the Irving, Texas facility, we paid $6 million to terminate this contract, of which $2 million was reimbursed by the buyer of the facility. The remaining balance of $2 million is expected to be paid upon the commencement of volume manufacturing activity by the buyer in 2008.

Further, in 2007, we paid $10 million related to employee termination costs recorded in 2007 and 2006.

With respect to the restructuring initiatives, we believe we are on track to achieve the previously stated costs savings of $80 million to $95 million annually beginning in 2008.

We are continuously reviewing our operations and considering alternatives to increase our gross margins and improve our long-term operating results. As a result, we may incur additional restructuring costs, such as employee termination costs, losses on the sale of assets, costs for relocating manufacturing activities, and other related costs. The total amount of expenses recorded, and timing of payments for any future restructuring charges will depend upon the nature and extent of these future actions.

2006 Restructuring Activities

In the first quarter of 2006, we incurred $0.2 million in restructuring charges primarily comprised of severance and one-time termination benefits.

In the fourth quarter of 2006, we announced a restructuring initiative to focus on high growth, high margin proprietary product lines and optimize manufacturing operations. This restructuring plan impacted approximately 300 employees across multiple business functions. The charges directly relating to this initiative consist of the following:


	•	$7 million in one-time minimum statutory termination benefits recorded in accordance with SFAS No. 112. These costs related to the termination of employees in Europe.

	•	$2 million in one-time severance costs related to the involuntary termination of employees, primarily in manufacturing, research and development and administration. These benefits costs were recorded in accordance with SFAS No. 146.

In 2006, we paid $1 million related to employee termination costs recorded in 2006.

2005 Restructuring Activities

Beginning in the third quarter of 2005, we began to implement cost reduction initiatives to further align our cost structure to industry conditions, targeting high labor costs and excess capacity. Pursuant to this, during 2005, we recorded a restructuring charge of $4 million of one-time involuntary termination severance benefits costs related to the termination of 193 employees primarily in manufacturing, research and development and administration.

In 2005, we paid $2 million related to employee termination costs. In 2006, we paid the remaining $2 million of the employee termination costs.

In 2006 and 2005, restructuring charges related to the Grenoble, France, subsidiary included in Results from Discontinued Operations totaled $0.2 million and $0.3 million, respectively. See Note 18 of Notes to Consolidated Financial Statements for further discussion.

Loss on Sale and Other Charges

Nantes Fabrication Facility Sale

On December 6, 2005, we sold our Nantes, France fabrication facility, and the related foundry activities, to XbyBus SAS. The facility, which we have owned since 1998, was comprised of five buildings totaling 131,000 square feet, capable of manufacturing BiCMOS, CMOS and non-volatile memory semiconductor wafer technologies. The facility employed a total of 603 persons, of which 284 employees were retained by us and the remaining 319 manufacturing employees were transferred to XbyBus SAS upon completion of the sale.

We recorded a loss on sale of assets and other charges totaling $13 million in the year ended December 31, 2005 related to the sale of our Nantes fabrication facility. These charges consisted of the following:


	•	$11 million associated with the loss on the sale of our Nantes fabrication facility, including the cost of transferring 319 employees to the buyer.

	•	$2 million of building and improvements were removed from operations and written down to zero following relocation of certain manufacturing activities to Asia.

incurred a loss of 9 million euros ($11 million) on the sale of the Nantes fabrication facility. Concurrent with the sale, we entered into a three-year supply agreement with a subsidiary of XbyBus SAS calling for us to purchase a minimum volume of wafers through fiscal year 2008. The supply agreement requires a minimum purchase of $59 million over three years of which $16 million is still required over the remaining term of the agreement as of December 31, 2007. As a result of the significant continuing cash flows relating to this supply agreement, we did not meet the criteria to classify the results of operations of Nantes as discontinued operations.

The Nantes facility sale occurred in connection with our continuing efforts to consolidate our manufacturing operations, improve gross margins, and reduce operating costs.

Legal Awards and Settlements

In 1996, we entered into a license agreement with LM Ericsson Telefon, AB covering our proprietary AVR microprocessor technology. In November 2003, we filed an arbitration complaint with the International Centre for Dispute Resolution against Ericsson and its subsidiary, Ericsson Mobile Platform (collectively, “Ericsson”) for breach of contract, fraud and misappropriation of trade secrets, among other claims, relating to such technology. In November 2005, the arbitration panel awarded us approximately $43 million in damages and granted an injunction against certain activities of Ericsson. Ericsson paid the monetary portion of the award on December 21, 2005.

Interest and Other Expenses, Net

Interest and other income (expenses), net, improved to $4 million of income in the year ended December 31, 2007 from $12 million of expenses in the year ended December 31, 2006. This improvement resulted primarily from reduction to long-term debt levels in 2007, as well as a gain from sale of excess land for $1 million recorded in the second quarter of 2007. Interest and other income (expenses), net also improved as a result of reduced losses related to foreign exchange translation. In 2008, we expect net interest and other income to decline due to reduced cash balances resulting from the $250 million repurchase of common shares as well as higher interest expense resulting from additional borrowings, including the $100 million bank line of credit proceeds received in December 2007.

Interest and other income (expenses), net, decreased to $12 million of expense in the year ended December 31, 2006 from $19 million of expense in the year ended December 31, 2005. This decrease was primarily related to lower interest expense resulting from significant debt repayment, including the redemption of the zero coupon convertible notes, due 2021. On May 23, 2006, substantially all of the convertible notes outstanding were redeemed for approximately $144 million. The remaining balance of approximately $1 million was called by Atmel in June 2006. Total debt decreased to $169 million at December 31, 2006 from $388 million at December 31, 2005.

Interest rates on our outstanding borrowings did not change significantly in the year ended December 31, 2007, compared to the year ended December 31, 2006.

Provision for Income Taxes

We recorded a tax provision (benefit) of $8 million, $25 million, and ($13) million for the years ended December 31, 2007, 2006 and 2005, respectively. This resulted in an effective tax rate of 14%, 34% and (21%) for 2007, 2006 and 2005, respectively, expressing tax provision (benefit) as a percentage of the applicable year’s income (loss) from continuing operations before income taxes.

Income tax expense for 2007 totaled $8 million. The change of $17 million when compared to the income tax expense of $25 million in 2006 resulted primarily from the refund of approximately $20 million of foreign R&D tax credits. Approximately $13 million of income tax expense in 2006 results from taxes incurred by our foreign subsidiaries which are profitable on a statutory basis for tax purposes and an increase in provision for tax settlements related to certain U.S. Federal, state and foreign tax liabilities.

The income tax benefit recorded for 2005 resulted primarily from the release of $25 million in tax reserves resulting from the conclusion of an audit in Germany for the 1999 through 2002 tax years and from the expiration of a statute of limitations, partially offset by tax provisions incurred by our profitable foreign subsidiaries.

At December 31, 2007, there was no provision for U.S. income tax for undistributed earnings of approximately $509 million as it is currently our intention to reinvest these earnings indefinitely in operations outside the U.S. If repatriated, these earnings could result in a tax expense of approximately $82 million at the current U.S. Federal statutory tax rate of 35% subject to available net operating losses and other factors. Subject to limitation, tax on undistributed earnings may also be reduced by foreign tax credits that may be generated in connection with the repatriation of earnings.

At December 31, 2007, we had net operating loss carry forwards in non-U.S. jurisdictions of approximately $318 million. These loss carry forwards expire in different periods starting in 2008. We also had U.S. Federal and state net operating loss carry forwards of approximately $514 million and $601 million, respectively, at December 31, 2007. These loss carry forwards expire in different periods from 2008 through 2028. We also have U.S. Federal and state tax credits of approximately $48 million at December 31, 2007 that will expire beginning in 2008.

On January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). Under FIN 48, the impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Upon review of our reserves, there were no changes to its reserves for uncertain tax positions upon adoption. At the adoption date of January 1, 2007 and at December 31, 2007, we had $176 million and $166 million, respectively, of unrecognized tax benefits, all of which would affect its income tax expense if recognized.

In 2005, the Internal Revenue Service (“IRS”) completed its audit of our U.S. income tax returns for the years 2000 and 2001 and has proposed various adjustments to these income tax returns, including carry back adjustments to 1996 and 1999. In January 2007, after subsequent discussions with us, the IRS revised their proposed adjustments for these years. We have protested these proposed adjustments and are currently working through the matter with the IRS Appeals Division. In May 2007, the IRS completed its audit of our U.S. income tax returns for the years 2002 and 2003 and has proposed various adjustments to these income tax returns. We have protested all of these proposed adjustments and we are currently working through the matters with the IRS Appeals Division.

The income tax returns for our subsidiary in Rousset, France for the 2005, 2004 and 2003 tax years are currently under examination by the French tax authorities. The examination has resulted in an income tax assessment and we are currently pursuing administrative appeal of the assessment.

In addition, we have a tax audit in progress in a U.S. state and foreign jurisdictions.

While we believe that the resolution of these matters will not have a material adverse impact on our results of operations, cash flows or financial position, the outcome is subject to uncertainties. We recognize tax liabilities based upon our estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations. Income taxes and related interest and penalties due for potential adjustments may result from the resolution of these examinations, and examinations of open U.S. federal, state and foreign tax years.

Stock-Based Compensation

Effective January 1, 2006, we adopted the provisions of SFAS No. 123R, “Share-Based Payment.” SFAS No. 123R establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award which is computed using a Black-Scholes option valuation model, and is recognized as expense over the employee’s requisite service period.

Stock-based compensation under SFAS 123R was $17 million in the year ended December 31, 2007, compared to $9 million in the year ended December 31, 2006. Stock-based compensation increased in 2007 due to stock option replenishment grants awarded to primarily management-level employees, retention awards for certain key executives, as well as stock options awarded to recently hired executives.

Discontinued Operations

Grenoble, France, Subsidiary Sale

In July 2006, we completed the sale of our Grenoble, France, subsidiary to e2v technologies plc, a British corporation (“e2v”). On August 1, 2006, we received $140 million in cash upon closing ($120 million, net of working capital adjustments and costs of disposition).

The Grenoble facility was originally acquired in May 2000 from Thomson-CSF, and performed the manufacturing of image sensors, as well as analog, digital and radio frequency ASICs.

Technology rights and certain assets related to biometry or “Finger Chip” technology were excluded from the sale. As of July 31, 2006, the facility employed a total of 519 employees, of which 14 employees primarily involved with the Finger Chip technology were retained, and the remaining 505 employees were transferred to e2v.

In connection with the sale, Atmel agreed to provide certain technical support, foundry, distribution and other services extending up to four years following the completion of the sale, and in turn e2v has agreed to provide certain design and other services to Atmel extending up to 5 years following the completion of the sale. The financial statement impact of these agreements is not expected to be material to us. The ongoing cash flows between us and e2v are not significant and as a result, we have no significant continuing involvement in the operations of the subsidiary. Therefore, we have met the criteria in SFAS No. 144, which were necessary to classify the Grenoble, France, subsidiary as discontinued operations.

Included in other currents assets on the consolidated balance sheets is an outstanding receivable balance due from e2v of $1 million and $25 million as of December 31, 2007 and 2006, respectively, related to payments advanced to e2v to be collected from customers of e2v by Atmel. The collection of trade and other receivables on behalf of e2v is expected to be completed in 2008.

The following table shows the components of the gain from the sale of Discontinued Operations, net of taxes, recognized upon the sale:


(In thousands)

Proceeds, net of working capital adjustments	$	122,610
Costs of disposition		(2,537	)

Net proceeds from the sale		120,073

Less:
Book value of net assets disposed of		(14,866	)
Cumulative translation adjustment effect		4,631

Gain on sale of discontinued operations, before income taxes		109,838
Provision for income taxes		(9,506	)

Gain on sale of discontinued operations, net of income taxes	$	100,332

The following table summarizes results from Discontinued Operations for the periods indicated included in the consolidated statement of operations:


	Years Ended
	December 31,			December 31,
	2006			2005
	(In thousands, except per share data)

Net revenues	$	79,871		$	114,608
Operating costs and expenses		57,509			91,838

Income from discontinued operations, before income taxes		22,362			22,770
Gain on sale of discontinued operations, before income taxes		109,838			—

Income from and gain on sale of discontinued operations		132,200			22,770
Less: provision for income taxes		(18,899	)		(6,494	)

Income from and gain on sale of discontinued operations, net of income taxes	$	113,301		$	16,276

Income from and gain on sale of discontinued operations, net of income taxes, per share:
Basic and diluted	$	0.23		$	0.03

Weighted-average shares used in basic and diluted income per share calculations		487,413			481,534

Liquidity and Capital Resources

At December 31, 2007, we had $430 million of cash and cash equivalents and short-term investments compared to $467 million at December 31, 2006. Our current ratio, calculated as total current assets divided by total current liabilities, was 1.75 at December 31, 2007, a decrease of 0.28 from 2.03 at December 31, 2006. During 2007, we generated positive cash flow from operating activities. We have reduced our debt obligations to $163 million at December 31, 2007 from $169 million at December 31, 2006, a decrease of $6 million. Working capital (calculated as total current assets less total current liabilities) decreased by $121 million to $464 million at December 31, 2007, compared to $585 million at December 31, 2006 primarily due to the repurchase of $250 million in common stock during the year ended December 31, 2007, partially offset by cash provided by operating activities.

Approximately $29 million of our investment portfolio at December 31, 2007 is invested in highly-rated auction rate securities. These securities are structured with short-term interest rate reset dates of either 7 or 28 days, but with contractual maturities that can be well in excess of ten years. At the end of each reset period, investors can sell or continue to hold the securities at par. These securities are subject to fluctuations in fair value depending on the supply and demand at each auction. We have evaluated our portfolio by continuing to monitor the credit rating and interest yields of these auction rate securities, all of which have had their interest rates successfully reset at each auction date during 2007 and through the time of the filing of this Form 10-K, except for four failed auctions relating to such securities aggregating approximately $3.4 million. As a result of the active liquid market for the trading of all of our auction rate securities portfolio in 2007, we have utilized market prices to ascertain the fair value of the securities at December 31, 2007. We believe that the fair value of our auction rate securities portfolio approximates its par value. We believe that we have the ability and intent to liquidate these securities in 2008 with no significant loss. No impairment charges were recorded in the year ended December 31, 2007.

Operating Activities: Net cash provided by operating activities totaled $196 million during the year ended December 31, 2007, resulting primarily from net income of $48 million, adjusted for depreciation and amortization expense of $129 million and changes in operating assets and liabilities and other net non-cash expenses of $19 million. Net cash provided by operating activities decreased in the year ended December 31, 2007 by approximately $100 million from $296 million in the year ended December 31, 2006. This decrease in cash flow from operations was primarily a result of higher operating costs (excluding the impact of depreciation and

amortization), cash payments for inventories, as well as a reduction of accrued operating liabilities in the year ended December 31, 2007, compared to an increase in the year ended December 31, 2006.

Accounts receivable decreased by 8% or $18 million to $209 million at December 31, 2007, from $227 million at December 31, 2006. The average days of accounts receivable outstanding (“DSO”) improved to 44 days at December 31, 2007, compared to 50 days at December 31, 2006. Our accounts receivable and DSO are primarily impacted by shipment linearity, payment terms offered, and collection performance. Should we need to offer longer payment terms in the future due to competitive pressures or longer customer payment patterns, our DSO and cash flows from operating activities would be negatively affected.

Increases in inventories utilized $15 million of operating cash flows in the year ended December 31, 2007, compared to $49 million in the year ended December 31, 2006. Inventory levels remained constant at 116 days at December 31, 2007, compared to December 31, 2006. Inventories consist of raw wafers, purchased specialty wafers, work-in-process and finished units. We are continuing to take measures to reduce manufacturing cycle times and improve production planning efficiency. However, the strategic need to offer competitive lead times may result in an increase in inventory levels in the future.

Decreases in current and other assets generated $33 million of operating cash flows in the year ended December 31, 2007, primarily due to payments received for trade receivables advanced to e2v technologies PLC related to the sale of our Grenoble, France, subsidiary, as well as a reduction in VAT receivables related to our European operations.

Increases in accounts payable generated $16 million of operating cash flows in the year ended December 31, 2007, primarily related to a decrease in capital expenditures and timing of payments. The accounts payable balance included approximately $40 million related to a grant repayment to the UK government related to the sale and expected closure of our North Tyneside, UK manufacturing facility. We have repaid this amount in the first quarter of 2008.

Decreases in accrued and other liabilities utilized $47 million of operating cash flows in the year ended December 31, 2007 compared to $83 million of cash generated from an increase in accrued and other liabilities in the year ended December 31, 2006. The decrease in accrued liabilities resulted from cash paid for litigation settlements, income and other tax payments, annual management incentive payments and payments on long-term supplier obligations. We do not expect to further significantly reduce accrued and other liabilities in 2008.

Investing Activities: Net cash used in investing activities was $31 million in the year ended December 31, 2007, compared to $36 million provided by investing activities in the year ended December 31, 2006. During the year ended December 31, 2007, we made additional investments in wafer fabrication equipment to advance our process technologies and in test equipment to process higher unit volumes. For the year ended December 31, 2007 and 2006, we paid $70 million and $83 million, respectively, for capital equipment purchases. It is anticipated that capital equipment purchases for 2008, estimated at $80 million to $90 million, will be focused on maintaining existing equipment, providing additional testing capacity and, to a limited extent, on developing advanced process technologies.

On May 1, 2007, we sold our Irving, TX wafer fabrication facility for proceeds of approximately $37 million ($35 million, net of selling costs).

Financing Activities: Net cash used in financing activities was $207 million in the year ended December 31, 2007, compared to $231 million in the year ended December 31, 2006. In August 2007, we entered into an Accelerated Share Repurchase program (“ASR”) with third-party investment banks and used $250 million to repurchase our common stock. In the year ended December 31, 2007, we received and retired approximately 49 million shares under the ASR arrangement, which reduced our shares outstanding as of December 31, 2007. The entire $250 million was recorded as a reduction of additional paid-in capital in our consolidated balance sheet.

We borrowed $100 million against a bank line of credit in the year ended December 31, 2007. However, we continued to pay down other debt, with repayments of principal balances on capital leases and other debt totaling $109 million in the year ended December 31, 2007, compared to $122 million in the year ended December 31, 2006. In November 2007, we received $43 million for the sale of our North Tyneside, UK facility. The proceeds are

classified as a financing obligation until we vacate the facility in the second quarter of 2008. Proceeds from equipment financing and other debt totaled $25 million for the year ended December 31, 2006. We received $9 million in cash from the issuance of common stock in the year ended December 31, 2007, compared to $11 million in the year ended December 31, 2006. In 2006, substantially all of the convertible notes outstanding were redeemed for approximately $146 million.

We believe that our existing balances of cash, cash equivalents and short-term investments, together with anticipated cash flow from operations, equipment lease financing, and other short-term and medium-term bank borrowings, will be sufficient to meet our liquidity and capital requirements over the next twelve months.

The increase in cash and cash equivalents in the year ended December 31, 2007 and 2006 due to the effect of exchange rate changes on cash balances was $6 million and $9 million, respectively. These cash balances were primarily held in certain subsidiaries in euro denominated accounts and increased in value due to the strengthening of the euro exchange rate compared to the U.S. dollar during these periods.

During the next twelve months, we expect our operations to generate positive cash flow; however, a significant portion of cash will be used to repay debt and make capital investments. We expect that we will have sufficient cash from operations and financing sources to meet all debt obligations and other operating needs for at least the next 12 months. We made $70 million in cash payments for capital equipment in the year ended December 31, 2007. Debt obligations outstanding at December 31, 2007, which are classified as short-term, totaled $142 million. In 2008 and future years, our capacity to make necessary capital investments will depend on our ability to continue to generate sufficient cash flow from operations and on our ability to obtain adequate financing if necessary.

On January 1, 2007, we adopted FIN 48. Under FIN 48, the total liabilities associated with uncertain tax positions was $94 million on January 1, 2007, of which $2 million was included in “Accrued and other liabilities”, as it was expected to be paid within the next twelve months. The remainder of our liabilities associated with uncertain tax positions of $92 million was included in “Other long-term liabilities”. Due to the complexity associated with our tax uncertainties, we cannot make a reasonably reliable estimate of the period in which cash settlement will be made for our liabilities associated with uncertain tax positions in “Other Long-term liabilities.” There were no material changes in liabilities associated with uncertain tax positions in the year ended December 31, 2007.

On June 30, 2006, we entered into a 3-year term loan agreement for $25 million with a European bank to finance equipment purchases. The interest rate on this loan was based on the London Interbank Offered Rate (“LIBOR”) plus 2.5%. Principal repayments were to be made in equal quarterly installments beginning September 30, 2006. The loan was collateralized by the financed assets and was subject to certain cross-default provisions. We repaid this term loan in the fourth quarter of 2007 in connection with the sale of assets at our North Tyneside facility.

On March 15, 2006, we entered into a five-year asset-backed credit facility for up to $165 million with certain European lenders. This facility is secured by our non-U.S. trade receivables. At December 31, 2007, the amount available under this facility was up to approximately $111 million, based on eligible non-U.S. trade receivables, of which $100 million was outstanding. Borrowings under the facility bear interest at LIBOR plus 2% per annum (approximately 6.6% at December 31 2007), while the undrawn portion is subject to a commitment fee of 0.375% per annum. The outstanding balance is subject to repayment in full on the last day of its interest period (every two months). The terms of the facility subject us to certain financial and other covenants and cross-default provisions. Commitment fees and amortization of up-front fees paid related to the facility for the years ended December 31, 2007 and 2006 both totaled approximately $1 million, and are included in interest and other income (expenses), net, in the consolidated statements of operations.

Contractual Obligations

The following table describes our commitments to settle contractual obligations in cash as of December 31, 2007. See Note 10 of Notes to Consolidated Financial Statements for further discussion.


	Payments Due by Period
Contractual Obligations:	Up to 1 Year		2-3 Years		4-5 Years		After 5 Years		Total
	(In thousands)

Notes payable	$	3,749	$	—	$	—	$	2,472	$	6,221
Capital leases		13,722		11,967		5,969		—		31,658
Line of credit		125,000		—		—		—		125,000

Total debt obligations		142,471		11,967		5,969		2,472		162,879

Capital purchase commitments		3,868		—		—		—		3,868
Long-term supply agreement obligation(a)		15,746		—		—		—		15,746
Long-term gas supply agreement(b)		1,752		3,696		3,946		9,021		18,415
Pension plan		1,664		2,943		3,586		44,386		52,579
Grants to be repaid		50,312		—		—		—		50,312
Operating leases		23,256		19,849		12,695		1,805		57,605
Other long-term obligations(c)		22,575		25,511		26,908		25,585		100,579

Total other commitments		119,173		51,999		47,135		80,797		299,104

Add: interest		4,192		3,864		1,311		169		9,536

Total	$	265,836	$	67,830	$	54,415	$	83,438	$	471,519


(a)		On December 6, 2005, we sold our Nantes, France fabrication facility, and the related foundry activities, to XbyBus SAS. The facility was owned by us since 1998 and was comprised of five buildings totaling 131,000 square feet, manufacturing BiCMOS, CMOS and non-volatile technologies. The facility employed a total of 603 persons, of which 284 employees were retained by us and the remaining 319 manufacturing employees were transferred to XbyBus SAS. Concurrent with the sale, we entered into a three-year supply agreement with a subsidiary of XbyBus SAS, whereby we are required to purchase a minimum volume of wafers through 2008. The supply agreement requires a minimum purchase of approximately $59 million, of which approximately $16 million is still required over the term of the agreement (see Note 17 of Notes to Consolidated Financial Statements for further discussion).

(b)		This amount relates to the contractual obligation on a supply agreement related to our North Tyneside, UK facility. We plan to terminate this arrangement in 2008 due to the announced sale of our North Tyneside facility. Our estimated liability upon early termination of this arrangement is $11 million.

(c)		Other long-term obligations consist principally of future repayments of approximately $65 million of advances from customers, $16 million of technology license payments (at present value), and $9 million of cash awards due under executive retention agreements, and $10 million of other long-term commitments. Long-term advances from customers includes approximately $10 million that is due within 1 year, and has been classified within current liabilities (see Note 2 of Notes to Consolidated Financial Statements for further discussion). The balance is due in annual installments of $10 million per year, until repaid in full. We have agreements with certain employees providing for cash bonuses. As of December 31, 2007, we have a commitment for future payments of $9 million in bonus and related payroll taxes under these agreements.

(d)		The contractual obligation table excludes our FIN 48 liabilities of $98 million because we cannot make a reliable estimate of the timing of cash payments. See Note 11 of the Notes to the Consolidated Financial Statements for further discussion.

Approximately $129 million of our total debt requires us to meet certain financial ratios and to comply with other covenants on a periodic basis, and they all have cross default provisions. The financial ratio covenants include, but are not limited to, the maintenance of minimum cash balances and net worth, and debt to capitalization ratios. There is no requirement to maintain a restricted cash balance. We were in compliance with our covenants as of December 31, 2007.

We were not in compliance with covenants requiring timely filing of U.S. GAAP financial statements as of December 31, 2006, and, as a result, we requested waivers from its lenders to avoid default under these facilities. Waivers were not received from all lenders, and as a result, we had previously classified $23 million of non-current liabilities as current liabilities on the consolidated balance sheet as of December 31, 2006. As a result of our return to compliance to the related financial and filing requirement covenants in June 2007, these liabilities are classified as non-current liabilities as of December 31, 2007.

If we need to renegotiate any of these covenants in the future, and the lenders refuse and we are unable to comply with the covenants, then we may immediately be required to repay the loans concerned. In the event we are required to repay these loans ahead of their due dates, we believe that we have the resources to make such repayments, but such payments could adversely impact our liquidity.

Our ability to service long-term debt in the U.S. or to obtain cash for other needs from our foreign subsidiaries may be structurally impeded. Since a substantial portion of our operations are conducted through our foreign subsidiaries, our cash flow and ability to service debt are partially dependent upon the liquidity and earnings of our subsidiaries as well as the distribution of those earnings, or repayment of loans or other payments of funds by those subsidiaries, to the U.S. parent corporation. These foreign subsidiaries are separate and distinct legal entities and may have limited or no obligation, contingent or otherwise, to pay any amount to us, whether by dividends, distributions, loans or other payments. However, the U.S. parent corporation owes much of our consolidated long-term debt.

Defined Benefit Pension Plans

We sponsor defined benefit pension plans that cover substantially all French and German employees. Plan benefits are provided in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. The plans are non-funded. Pension liabilities and charges to expense are based upon various assumptions, updated quarterly, including discount rates, future salary increases, employee turnover, and mortality rates. Retirement Plans consist of two types of plans. The first plan type provides for termination benefits paid to employees only at retirement, and consists of approximately one to five months of salary. This structure covers our French employees. The second plan type provides for defined benefit payouts for the remaining employee’s post-retirement life, and covers our German employees. Pension benefits payable totaled $53 million at both December 31, 2007 and 2006. Cash funding for benefits to be paid for 2008 is expected to be approximately $2 million.

Off-Balance Sheet Arrangements (Including Guarantees)

In the ordinary course of business, we have investments in privately held companies, which we review to determine if they should be considered variable interest entities. We have evaluated our investments in these other privately held companies and have determined that there was no material impact on our operating results or financial condition upon our adoption of FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51” (“FIN 46R”). Under FIN 46R certain events can require a reassessment of our investments in privately held companies to determine if they are variable interest entities

and which of the stakeholders will be the primary beneficiary. As a result of such events, we may be required to make additional disclosures or consolidate these entities. We may be unable to influence these events.

During the ordinary course of business, we provide standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either our subsidiaries or us. As of December 31, 2007, the maximum potential amount of future payments that we could be required to make under these guarantee agreements is approximately $13 million. We have not recorded any liability in connection with these guarantee arrangements. Based on historical experience and information currently available, we believe we will not be required to make any payments under these guarantee arrangements.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement establishes a framework for measuring fair value when required by generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The provisions of SFAS No. 157 should be applied prospectively as of the beginning of the fiscal year in which SFAS No. 157 is initially applied, except in limited circumstances. SFAS No. 157 is effective for us beginning January 1, 2008. The adoption of SFAS No. 157 is not expected to have a material impact our consolidated results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157. SFAS No. 159 is effective for us beginning January 1, 2008. The adoption of SFAS No. 159 is not expected to have a material impact on our consolidated results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008. We are currently evaluating the potential impact, if any, of the adoption of SFAS No. 141R on our consolidated results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective as of the beginning of an entity’s fiscal year that begins after December 31, 2008. We are currently evaluating the potential impact, if any, of the adoption of SFAS No. 160 on our consolidated results of operations and financial condition.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 1 of Notes to Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. We consider the accounting policies described below to be our critical accounting policies. These critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements and actual results could differ materially from the amounts reported based on these policies.

Revenue Recognition

We generate our revenue by selling our products to OEMs and distributors. Our policy is to recognize revenue upon shipment of products to customers, where shipment represents the point when the rights and risks of ownership have passed to the customer, when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed or determinable and collection of the resulting receivable is reasonably assured.

Contracts and customer purchase orders are used to determine the existence of an arrangement. Shipping documents are used to verify delivery. We assess whether the price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history. Sales terms do not include post shipment obligations except for product warranty, as described in Note 1 of Notes to Consolidated Financial Statements.

We allow certain distributors, primarily based in the United States, rights of return and credits for price protection. Given the uncertainties associated with the levels of returns and other credits to these distributors, we defer recognition of revenue from sales to these distributors until they have resold our products. Net deferred income for distributor sales was approximately $20 million and $19 million as of December 31, 2007 and 2006, respectively. Sales to certain other primarily non-U.S. based distributors carry either no or very limited rights of return. We have historically been able to estimate returns and other credits from these distributors and accordingly have historically recognized revenue from sales to these distributors on shipment, with a related allowance for potential returns established at the time of our sale.

Our revenue reporting is highly dependent on receiving pertinent, accurate and timely data from our distributors. Distributors provide us periodic data regarding the product, price, quantity, and end customer when products are resold as well as the quantities of our products they still have in stock. Because the data set is large and complex and because there may be errors in the reported data, we must use estimates and apply judgments to reconcile distributors’ reported inventories to their activities. Actual results could vary from those estimates.

Allowance for Doubtful Accounts and Sales Returns

We must make estimates of potential future product returns and revenue adjustments related to current period product revenue. Management analyzes historical returns, current economic trends in the semiconductor industry, changes in customer demand and acceptance of our products when evaluating the adequacy of our allowance for sales returns. If management made different judgments or utilized different estimates, material differences in the amount of our reported revenue may result. We provide for sales returns based on our customer experience, and our expectations for revenue adjustments based on economic conditions within the semiconductor industry.

During 2005 through 2007, we focused on improving our credit and collection procedures and experienced fewer bad debt write-offs. As a result, the allowance required for doubtful accounts has decreased even though sales levels and related receivable balances have increased. The amount credited to SG&A expense for the year ended December 31, 2007 and 2006, was not material and we credited approximately $6 million to SG&A expense for the year ended December 31, 2005.

We maintain an allowance for doubtful accounts for losses that we estimate will arise from our customers’ inability to make required payments. We make our estimates of the uncollectibility of our accounts receivable by analyzing specific customer creditworthiness, historical bad debts, and current economic trends. At December 31, 2007 and 2006, the allowance for doubtful accounts was approximately $3 million and $4 million, respectively.

Accounting for Income Taxes

In calculating our income tax expense, it is necessary to make certain estimates and judgments for financial statement purposes that affect the recognition of tax assets and liabilities.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event that we determine that we would be able to realize

deferred tax assets in the future in excess of the net recorded amount, an adjustment to the net deferred tax asset would decrease income tax expense in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the net deferred tax asset would increase income tax expense in the period such determination is made.

Our income tax calculations are based on application of the respective U.S. federal, state or foreign tax law. Atmel’s tax filings, however, are subject to audit by the respective tax authorities. Accordingly, we recognize tax liabilities based upon our estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations.

Valuation of Inventory

Our inventories are stated at the lower of cost (determined on a first-in, first-out basis for raw materials and purchased parts; and an average cost basis for work in progress and finished goods) or market. Cost includes labor, including stock-based compensation costs, materials, depreciation and other overhead costs, as well as factors for estimated production yields and scrap. Determining market value of inventories involves numerous judgments, including average selling prices and sales volumes for future periods. We primarily utilize selling prices in our period ending backlog for measuring any potential declines in market value below cost. Any adjustment for market value provision is charged to cost of revenues at the point of market value decline.

We evaluate our ending inventories for excess quantities and obsolescence on a quarterly basis. This evaluation includes analysis of historical and forecasted sales levels by product. Inventories on hand in excess of forecasted demand are provided for. In addition, we write off inventories that are considered obsolete. Obsolescence is determined from several factors, including competitiveness of product offerings, market conditions and product life cycles when determining obsolescence. Increases to the allowance for excess and obsolete inventory are charged to cost of revenues. At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. If this lower-costed inventory is subsequently sold, the related allowance is matched to the movement of related product inventory, resulting in lower costs and higher gross margins for those products.

Our inventories include high-technology parts that may be subject to rapid technological obsolescence and which are sold in a highly competitive industry. If actual product demand or selling prices are less favorable than we estimate, we may be required to take additional inventory write-downs.

Fixed Assets

We review the carrying value of fixed assets for impairment when events and circumstances indicate that the carrying value of an asset or group of assets may not be recoverable from the estimated future cash flows expected to result from its use and/or disposition. Factors which could trigger an impairment review include the following: (i) significant negative industry or economic trends, (ii) exiting an activity in conjunction with a restructuring of operations, (iii) current, historical or projected losses that demonstrated continuing losses associated with an asset, (iv) significant decline in our market capitalization for an extended period of time relative to net book value, (v) recent changes in our manufacturing model, and (vi) management’s assessment of future manufacturing capacity requirements. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to the amount by which the carrying value exceeds the estimated fair value of the assets. The estimation of future cash flows involves numerous assumptions, which require our judgment, including, but not limited to, future use of the assets for our operations versus sale or disposal of the assets, future-selling prices for our products and future production and sales volumes. In addition, we must use our judgment in determining the groups of assets for which impairment tests are separately performed.

Our business requires heavy investment in manufacturing facilities that are technologically advanced but can quickly become significantly underutilized or rendered obsolete by rapid changes in demand for semiconductors produced in those facilities.

We estimate the useful life of our manufacturing equipment, which is the largest component of our fixed assets, to be five years. We base our estimate on our experience with acquiring, using and disposing of equipment over time. Depreciation expense is a major element of our manufacturing cost structure. We begin depreciation on new equipment when it is put into use for production. The aggregate amount of fixed assets under construction for which depreciation was not being recorded was approximately $3 million and $11 million as of December 31, 2007 and 2006, respectively. In addition, assets held for sale for which depreciation was not being recorded totaled approximately $35 million at December 31, 2006.

Stock-Based Compensation

On January 1, 2006, we adopted SFAS No. 123R, “Share-Based Payments” using the modified prospective transition method. Our consolidated financial statements as of and for the year ended December 31, 2007 and 2006 reflect the impact of SFAS No. 123R. However, in accordance with the modified prospective transition method, our consolidated financial statements for prior periods do not include the impact of SFAS No. 123R. Accordingly, prior periods do not include equity compensation amounts comparable to those included in the consolidated financial statements for the years ended December 31, 2007 and 2006.

We have elected to adopt FSP No. FAS 123R-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards” to calculate our pool of windfall tax benefits.

SFAS No. 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Operations. Prior to January 1, 2006, we accounted for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25 as permitted under SFAS No. 123 (and further amended by SFAS No. 148).

Upon adoption of SFAS No. 123R, we reassessed our equity compensation valuation method and related assumptions. Our determination of the fair value of stock-based payment awards on the date of grant utilizes an option-pricing model, and is impacted by our common stock price as well as a change in assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to: expected common stock price volatility over the term of the option awards, as well as the projected employee option exercise behaviors (expected period between stock option vesting date and stock option exercise date). Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because employee stock options have certain characteristics that are significantly different from traded options, and changes in the subjective assumptions can materially affect the estimated fair value, in our opinion, the existing Black-Scholes option-pricing model may not provide an accurate measure of the fair value of employee stock options. Although the fair value of employee stock options is determined in accordance with SFAS No. 123R using an option-pricing model that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

Stock-based compensation expense recognized in our consolidated statements of operations for the years ended December 31, 2007 and 2006 included a combination of payment awards granted prior to January 1, 2006 and payment awards granted subsequent to January 1, 2006. For stock-based payment awards granted prior to January 1, 2006, we attribute the value of stock-based compensation, determined under SFAS No. 123R, to expense using the accelerated multiple-option approach. Compensation expense for all stock-based payment awards granted subsequent to January 1, 2006 is recognized using the straight-line single-option method. Stock-based compensation expense included in the years ended December 31, 2007 and 2006 includes the impact of estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the periods prior to 2006, we accounted for forfeitures as they occurred. The adoption of SFAS No. 123R requires us to reflect the net cumulative impact of estimating forfeitures in the determination of period expense by reversing the previously recognized cumulative compensation expense related to those forfeitures, rather than recording forfeitures when they occur as previously permitted. We did not record this cumulative impact upon adoption, as the amount was insignificant. Stock options granted in periods prior to 2006 were measured based on SFAS No. 123 requirements, whereas stock options granted subsequent to January 1, 2006 were measured based on SFAS No. 123R requirements.

Restructuring Charges

We have recorded accruals for restructuring costs related to the restructuring of operations. The restructuring accruals include primarily payments to employees for severance, termination fees associated with leases, other contracts and other costs related to the closure of facilities. Accruals are recorded when management has approved a plan to restructure operations and a liability has been incurred. The restructuring accruals are based upon management estimates at the time they are recorded. These estimates can change depending upon changes in facts and circumstances subsequent to the date the original liability was recorded.

Litigation

The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. We are currently involved in such intellectual property litigation (see Note 10 of Notes to Consolidated Financial Statements for further discussion). We accrue for losses related to litigation if a loss is probable and the loss can be reasonably estimated. We regularly evaluate current information available to determine whether accruals for litigation should be made. If we were to determine that such a liability was probable and could be reasonably estimated, the adjustment would be charged to income in the period such determination was made.

Valuation of Marketable Securities

Our marketable securities include corporate debt securities, U.S. Government and municipal agency debt securities, commercial paper, guaranteed variable annuities and auction rate securities. We monitor our investments for impairment periodically and recognize an impairment charge when the decline in the fair value of these investments is judged to be other-than-temporary. Significant judgment is used to identify events or circumstances that would likely have a significant adverse effect on the future use of the investment. We consider various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment, forecasted recovery, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Our investments also include certain highly-rated auction rate securities, which are structured with short-term interest rate reset dates of either 7 or 28 days, and contractual maturities that can be in excess of ten years. We evaluate our portfolio by continuing to monitor the credit rating, interest yields of these auction rate securities and successful reset at each auction date. Through the time of filing of this Form 10-K, we have had four failed auctions relating to such securities aggregating approximately $3.4 million. As a result of the active liquid market for the trading of all of our auction rate securities portfolio in 2007, we have utilized market prices to ascertain the fair value of the securities at December 31, 2007.


ITEM 7A.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

Interest Rate Risk

We maintain investment portfolio holdings of various issuers, types and maturities whose values are dependent upon short-term interest rates. We generally classify these securities as available for sale, and consequently record them on the balance sheet at fair value with unrealized gains and losses being recorded as a separate part of stockholders’ equity. We do not currently hedge these interest rate exposures. Given our current profile of interest rate exposures and the maturities of our investment holdings, we believe that an unfavorable change in interest rates would not have a significant negative impact on the fair value of our investment portfolio or our results of operations through December 31, 2007. In addition, some of our borrowings are at floating rates, so this would act as a natural hedge.

We have short-term debt, long-term debt, capital leases and bank lines of credit totaling $163 million at December 31, 2007. Approximately $9 million of these borrowings have fixed interest rates. We have approximately $154 million of floating interest rate debt, of which approximately $25 million is euro-denominated. We do not hedge against the risk of interest rate changes for our floating rate debt and could be negatively affected should these rates increase significantly. While there can be no assurance that these rates will remain at current levels, we believe that any rate increase will not cause a significant adverse impact to our results of operations, cash flows or to our financial position.

The following table summarizes the face value of our variable-rate debt exposed to interest rate risk as of December 31, 2007:


													Total
													Variable-rate
													Debt
													Outstanding at
	Payments by Due Year												December 31,
	2008		2009		2010		2011		2012		Thereafter		2007
	(In thousands)

60 day USD LIBOR weighted-average interest rate basis(1) — Revolving line of credit	$	100,000	$	—	$	—	$	—	$	—	$	—	$	100,000

Total of 60 day USD LIBOR rate debt	$	100,000	$	—	$	—	$	—	$	—	$	—	$	100,000
90 day USD LIBOR weighted-average interest rate basis(1) — Revolving line of credit due 2008	$	25,000	$	—	$	—	$	—	$	—	$	—	$	25,000

Total of 90 day USD LIBOR rate debt	$	25,000	$	—	$	—	$	—	$	—	$	—	$	25,000
90 day EURIBOR weighted-average interest rate basis(1) — Capital leases	$	9,957	$	4,707	$	4,707	$	4,707	$	1,178	$	—	$	25,256

Total of 90 day USD LIBOR rate debt	$	9,957	$	4,707	$	$4,707	$	4,707	$	1,178	$	—	$	25,256
360 day USD LIBOR weighted-average interest rate basis(1) — Senior secured term loan due 2008	$	3,749	$	—	$	—	$	—	$	—	$	—	$	3,749

Total of 360 day USD LIBOR rate debt	$	3,749	$	—	$	—	$	—	$	—	$	—	$	3,749

Total variable-rate debt	$	138,706	$	4,707	$	4,707	$	4,707	$	1,178	$	—	$	154,005


(1)		Actual interest rates include a spread over the basis amount.

The following table presents the hypothetical changes in interest expense, for the twelve-month period ended December 31, 2007 related to our outstanding borrowings that are sensitive to changes in interest rates. The modeling technique used measures the change in interest expense arising from hypothetical parallel shifts in yield, of plus or minus 50 Basis Points (“BPS”), 100 BPS and 150 BPS (in thousands).

For the year ended December 31, 2007:


							Interest Expense
	Interest Expense Given an Interest						with No Change in		Interest Expense Given an Interest
	Rate Decrease by X Basis Points						Interest Rate		Rate Increase by X Basis Points
	150 BPS		100 BPS		50 BPS				50 BPS		100 BPS		150 BPS
	(In thousands)

Interest expense	$	11,138	$	11,542	$	11,946	$	12,351	$	12,754	$	13,158	$	13,562

Foreign Currency Risk

When we take an order denominated in a foreign currency we will receive fewer dollars than we initially anticipated if that local currency weakens against the dollar before we ship our product, which will reduce revenue. Conversely, revenues will be positively impacted if the local currency strengthens against the dollar. In Europe,

where our significant operations have costs denominated in European currencies, costs will decrease if the local currency weakens. Conversely, costs will increase if the local currency strengthens against the dollar.

Average exchange rates utilized to translate foreign currency revenues and expenses in euro were approximately 1.36 and 1.25 euro to the dollar in the years ended December 31, 2007 and 2006, respectively. During the year ended December 31, 2007, changes in foreign exchange rates had a favorable impact on revenue and an unfavorable impact on operating costs and income from operations since a greater portion of our operating expenses are denominated in foreign currencies than net revenues. Had average exchange rates remained the same during the year ended December 31, 2007 as the average exchange rates in effect for the year ended December 31, 2006, our reported revenues for the year ended December 31, 2007 would have been $27 million lower. However, our foreign currency expenses exceed foreign currency revenues. For the year ended December 31, 2007, 51% of our operating expenses were denominated in foreign currencies, primarily the euro. Had average exchange rates for the year ended December 31, 2007 remained the same as the average exchange rates for year ended December 31, 2006, our operating expenses would have been $65 million lower (cost of revenues of $41 million; research and development expenses of $17 million; and sales, general and administrative expenses of $7 million). The net effect resulted in a decrease to income from operations of $38 million in the year ended December 31, 2007 as a result of unfavorable exchange rates when compared to the year ended December 31, 2006.

Sales denominated in foreign currencies were approximately 22%, 19% and 17% in the years ended December 31, 2007, 2006 and 2005, respectively. Sales denominated in euros were approximately 21%, 18% and 16% in the years ended December 31, 2007, 2006 and 2005, respectively. Sales denominated in yen were approximately 1%, 1% and 1% in the years ended December 31, 2007, 2006 and 2005, respectively. Costs denominated in foreign currencies, primarily the euro, were approximately 51%, 52% and 55% in the years ended December 31, 2007, 2006 and 2005, respectively.

We also face the risk that our accounts receivables denominated in foreign currencies will be devalued if such foreign currencies weaken quickly and significantly against the dollar. Approximately 23% and 26% of our accounts receivable were denominated in foreign currency as of December 31, 2007 and 2006, respectively.

Liquidity and Valuation Risk


ITEM 8.	*CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	Page

Consolidated Financial Statements of Atmel Corporation
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005		64
Consolidated Balance Sheets as of December 31, 2007 and 2006		65
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005		66
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the Years Ended December 31, 2007, 2006 and 2005		67
Notes to Consolidated Financial Statements		68
Report of Independent Registered Public Accounting Firm		114
Financial Statement Schedules
The following Financial Statement Schedules for the years ended December 31, 2007, 2006 and 2005 should be read in conjunction with the Consolidated Financial Statements, and related notes thereto
Schedule II Valuation and Qualifying Accounts		115
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto.
Supplementary Financial Data
Selected Quarterly Financial Data (unaudited) for the Years Ended December 31, 2007 and 2006		116

Atmel Corporation

Consolidated Statements of Operations


	Years Ended
	December 31,			December 31,			December 31,
	2007			2006			2005
	(in thousands, except per share data)

Net revenues	$	1,639,237		$	1,670,887		$	1,561,107
Operating expenses
Cost of revenues		1,059,006			1,108,769			1,165,338
Research and development		272,041			289,108			268,164
Selling, general and administrative		242,811			213,641			184,876
Charges for grant repayments		1,464			30,034			—
Asset impairment charges (recovery)		(1,057	)		82,582			12,757
Restructuring charges		13,239			8,729			4,483
Loss on sale and other charges		—			—			13,199

Total operating expenses		1,587,504			1,732,863			1,648,817

Income (loss) from operations		51,733			(61,976	)		(87,710	)
Legal awards and settlements		—			—			44,369
Interest and other income (expenses), net		3,976			(11,726	)		(19,349	)

Income (loss) from continuing operations before income taxes		55,709			(73,702	)		(62,690	)
Benefit from (provision for) income taxes		(7,824	)		(24,949	)		13,063

Income (loss) from continuing operations		47,885			(98,651	)		(49,627	)
Income from discontinued operations, net of provision for income taxes of $9,393 in 2006 and $6,494 in 2005		—			12,969			16,276
Gain on sale of discontinued operations, net of provision for income taxes of $9,506		—			100,332			—

Net income (loss)	$	47,885		$	14,650		$	(33,351	)

Basic net income (loss) per share:
Income (loss) from continuing operations	$	0.10		$	(0.20	)	$	(0.10	)
Income from discontinued operations, net of provision for income taxes		—			0.02			0.03
Gain on sale of discontinued operations, net of provision for income taxes		—			0.21			—

Net income (loss)	$	0.10		$	0.03		$	(0.07	)

Weighted-average shares used in basic net income (loss) per share calculations		477,213			487,413			481,534

Diluted net income (loss) per share:
Income (loss) from continuing operations	$	0.10		$	(0.20	)	$	(0.10	)
Income from discontinued operations, net of provision for income taxes		—			0.02			0.03
Gain on sale of discontinued operations, net of provision for income taxes		—			0.21			—

Net income (loss)	$	0.10		$	0.03		$	(0.07	)

Weighted-average shares used in diluted net income (loss) per share calculations		481,737			487,413			481,534

The accompanying notes are an integral part of these Consolidated Financial Statements.

Atmel Corporation

Consolidated Balance Sheets


	December 31,			December 31,
	2007			2006
	(In thousands, except par value)

ASSETS
Current assets
Cash and cash equivalents	$	374,130		$	410,480
Short-term investments		55,817			56,264
Accounts receivable, net of allowance for doubtful accounts of $3,111 and $3,605, respectively		209,189			227,031
Inventories		357,301			339,799
Prepaid and other current assets		88,781			118,965

Total current assets		1,085,218			1,152,539
Fixed assets, net		579,566			602,290
Non-current assets held for sale		—			35,040
Intangible and other assets, net		37,969			28,670

Total assets	$	1,702,753		$	1,818,539


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt	$	142,471		$	108,651
Trade accounts payable		191,856			162,408
Accrued and other liabilities		266,987			277,461
Deferred income on shipments to distributors		19,708			18,856

Total current liabilities		621,022			567,376
Long-term debt less current portion		20,408			60,333
Other long-term liabilities		237,844			236,936

Total liabilities		879,274			864,645

Commitments and contingencies (Note 10)
Stockholders’ equity
Common stock; par value $0.001; Authorized: 1,600,000 shares;
Shares issued and outstanding: 443,837 at December 31, 2007 and 488,844 at December 31, 2006		444			489
Additional paid-in capital		1,193,846			1,418,004
Accumulated other comprehensive income		153,140			107,237
Accumulated deficit		(523,951	)		(571,836	)

Total stockholders’ equity		823,479			953,894

Total liabilities and stockholders’ equity	$	1,702,753		$	1,818,539

The accompanying notes are an integral part of these Consolidated Financial Statements.

Atmel Corporation

Consolidated Statements of Cash Flows


	Years Ended
	December 31,			December 31,			December 31,
	2007			2006			2005
	(In thousands)

Cash flows from operating activities
Net income (loss)	$	47,885		$	14,650		$	(33,351	)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization		128,773			225,006			290,748
Gain on sale of discontinued operations		—			(109,838	)		—
Loss (gain) on sale or disposal of fixed assets and other charges		(1,102	)		(2,624	)		1,663
Asset impairment charges (recovery)		(1,057	)		82,582			12,757
Deferred taxes		6,392			6,121			2,691
Other non-cash losses (gains)		404			8,726			(4,120	)
Provision for (recovery of) doubtful accounts receivable		(212	)		106			(5,575	)
Accretion of interest on long-term debt		912			4,699			12,308
Stock-based compensation expense		16,652			9,118			1,850
Changes in operating assets and liabilities
Accounts receivable		17,719			8,054			1,737
Inventories		(14,682	)		(48,848	)		25,984
Current and other assets		32,641			(27,608	)		(15,922	)
Trade accounts payable		15,689			26,440			(61,538	)
Accrued and other liabilities		(46,728	)		82,855			(2,249	)
Income taxes payable		(8,261	)		16,526			(24,131	)
Deferred income on shipments to distributors		852			520			(2,779	)

Net cash provided by operating activities		195,877			296,485			200,073

Cash flows from investing activities
Acquisitions of fixed assets		(69,730	)		(83,330	)		(169,126	)
Proceeds from the sale of fixed assets and other assets		3,000			4,466			2,238
Proceeds from sale of discontinued operations, net		—			120,073			—
Proceeds from the sale of manufacturing facilities and related assets, net of selling costs		34,714			—			—
Proceeds from the sale of interest in privately held companies and other		—			1,799			6,746
Acquisitions of intangible assets		(900	)		(549	)		(7,821	)
Purchases of short-term investments		(12,865	)		(22,290	)		(16,110	)
Sales or maturities of short-term investments		14,420			15,535			26,790

Net cash provided by (used in) investing activities		(31,361	)		35,704			(157,283	)

Cash flows from financing activities
Principal payments on capital leases and other debt		(108,840	)		(122,032	)		(139,308	)
Proceeds from capital leases and other debt		100,000			25,000			146,242
Repurchase of convertible notes		—			(145,515	)		(80,846	)
Repurchase of common stock		(250,151	)		—			—
Proceeds from issuance of common stock		9,160			11,206			11,901
Proceeds from financing related to sale of manufacturing facilities		42,951			—			—

Net cash used in financing activities		(206,880	)		(231,341	)		(62,011	)

Effect of exchange rate changes on cash and cash equivalents		6,014			9,309			(26,806	)

Net increase (decrease) in cash and cash equivalents		(36,350	)		110,157			(46,027	)

Cash and cash equivalents at beginning of the year		410,480			300,323			346,350

Cash and cash equivalents at end of year	$	374,130		$	410,480		$	300,323

Supplemental cash flow disclosures:
Interest paid	$	8,176		$	14,080		$	15,434
Income taxes paid, net		15,219			15,077			11,851
Supplemental non-cash investing and financing activities disclosures:
Increases (decreases) in accounts payable related to fixed asset purchases		(9,544	)		5,616			(75,748	)
Increases in liabilities related to intangible assets purchases		17,778			—			—
Fixed assets acquired under capital leases		—			3,925			112,815

The accompanying notes are an integral part of these Consolidated Financial Statements.

Atmel Corporation

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)


													Accumulated
	Common Stock						Additional			Unearned			Other
				Par			Paid-In			Stock-Based			Comprehensive			Accumulated
	Shares			Value			Capital			Compensation			Income			Deficit			Total
(In thousands)

Balances, December 31, 2004		477,926		$	478		$	1,388,651		$	(5,078	)	$	276,652		$	(553,135	)	$	1,107,568
Comprehensive loss:
Net loss		—			—			—			—			—			(33,351	)		(33,351	)
Actuarial loss related to defined benefit pension plans		—			—			—			—			(2,647	)		—			(2,647	)
Realization of gains on derivative instruments, net of tax		—			—			—			—			(3,918	)		—			(3,918	)
Unrealized gains on investments, net of tax		—			—			—			—			335			—			335
Foreign currency translation adjustments		—			—			—			—			(144,367	)		—			(144,367	)

Total comprehensive loss																				(183,948	)
Amortization of unearned stock-based compensation		—			—			—			1,779			—			—			1,779
Non-employee stock-based compensation		—			—			543			—			—			—			543
Credit to stock compensation due to variable accounting		—			—			(472	)		—			—			—			(472	)
Reversal of unearned stock-based compensation expense due to employee termination		—			—			(357	)		357			—			—			—
Exercise of stock options		1,758			3			3,507			—			—			—			3,510
Issuance of common stock under employee stock purchase plan		3,682			2			8,389			—			—			—			8,391

Balances, December 31, 2005		483,366			483			1,400,261			(2,942	)		126,055			(586,486	)		937,371
Comprehensive loss:
Net income		—			—			—			—			—			14,650			14,650
Actuarial gain related to defined benefit pension plans		—			—			—			—			561			—			561
Unrealized gains on investments, net of tax		—			—			—			—			1,315			—			1,315
Foreign currency translation adjustments		—			—			—			—			80,631			—			80,631
Foreign currency translation gains credited to asset impairment charges (See Note 15)		—			—			—			—			(97,725	)		—			(97,725	)

Total comprehensive loss		—			—			—			—			—			—			(568	)
Cumulative effect adjustment on adoption of SFAS No. 158, net of income taxes		—			—			—			—			(3,600	)		—			(3,600	)
Stock-based compensation expense		—			—			9,485			—			—			—			9,485
Exercise of stock options		3,406			4			7,382			—			—			—			7,386
Issuance of common stock under employee stock purchase plan		2,072			2			3,818			—			—			—			3,820
Elimination of unearned stock-based compensation upon adoption of SFAS No. 123R		—			—			(2,942	)		2,942			—			—			—

Balances, December 31, 2006		488,844			489			1,418,004			—			107,237			(571,836	)		953,894
Comprehensive income:
Net income		—			—			—			—			—			47,885			47,885
Actuarial gain related to defined benefit pension plans		—			—			—			—			6,861			—			6,861
Unrealized gains on investments, net of tax		—			—			—			—			681			—			681
Foreign currency translation adjustments		—			—			—			—			38,361			—			38,361

Total comprehensive income											—			—			—			93,788
Stock-based compensation expense		—			—			16,788			—			—			—			16,788
Exercise of stock options		3,604			4			9,156			—			—			—			9,160
Vested restricted stock units		312			—			—			—			—			—			—
Repurchase of common stock		(48,923	)		(49	)		(250,102	)		—			—			—			(250,151	)

Balances, December 31, 2007		443,837		$	444		$	1,193,846		$	—		$	153,140		$	(523,951	)	$	823,479

The accompanying notes are an integral part of these Consolidated Financial Statement

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data, employee data, and where otherwise indicated)


Note 1	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Atmel Corporation (“Atmel” or “the Company”) designs, develops, manufactures and markets a broad range of high-performance logic, radio frequency and nonvolatile memory integrated circuits using complementary metal-oxide semiconductor (“CMOS”) and other technologies. Atmel’s products are used in a broad range of applications in the telecommunications, computing, networking, consumer and automotive electronics and other markets. Atmel’s customers comprise a diverse group of United States of America (“U.S.”) and non-U.S. original equipment manufacturers (“OEMs”) and distributors.

In the third quarter of 2006, the Company completed the divestiture of its Grenoble, France, subsidiary. Results from the Grenoble subsidiary are excluded from the amounts from continuing operations disclosed herein, and have been reclassified as Results from Discontinued Operations. See Note 18 for further discussion.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Atmel and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Reclassifications

Certain prior-year amounts in the consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the current presentation. The Company reclassified “non-current assets held for sale” totaling $88,757 on the consolidated balance sheet as of December 31, 2006 to “fixed assets, net” for $87,941 and “intangible and other assets, net” for $816. In addition, as of December 31, 2006, the Company reclassified “liabilities related to assets held for sale” totaling $63,553 to “trade accounts payable” in the amount of $17,329 and “accrued and other liabilities” in the amount of $46,224 on the consolidated balance sheet. The Company reclassified debt and capital lease obligations totaling $70,340 from “liabilities related to assets held for sale” to “current portion of long-term debt” and $313 from “non-current liabilities related to assets held for sale” to “long-term debt less current portion” on the consolidated balance sheet as of December 31, 2006. These reclassifications in the consolidated balance sheet were made due to a change in the assumptions related to the disposal of North Tyneside facility in 2007. See Note 15 for further discussion. The Company also reclassified an expense previously included in “restructuring charges” totaling $30,034 to “charges for grant repayments” in the consolidated statement of operations for the year ended December 31, 2006, and reclassified an expense previously included in “restructuring charges” totaling $13,199, which relates to “loss on sale and other charges” in the consolidated statements of operations for the year ended December 31, 2005. These reclassifications did not affect the prior periods’ total current assets, total assets, total current liabilities, total long-term liabilities, stockholders’ equity, net income (loss) or cash provided by operating activities.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include reserves for inventory, the sales return reserve, restructuring charges, stock-based compensation expense, allowances for doubtful accounts receivable, warranty reserves, estimates for useful lives associated with long-lived assets, charges for grant repayments, asset impairments charges (recovery), restructuring charges, certain accrued liabilities and income taxes and tax valuation allowances. Actual results could differ from those estimates.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Value of Financial Instruments

For certain of Atmel’s financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable and other current assets and current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these items. Investments in debt securities are carried at fair value based on quoted market prices. The fair value of the Company’s debt approximates book value as of December 31, 2007 and 2006 due to their short term nature as well as the variable interest rates on these debt obligations. The estimated fair value has been determined by the Company using available market information. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that Atmel could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair value amounts.

Cash and Cash Equivalents

Investments with an original or remaining maturity of 90 days or less, as of the date of purchase, are considered cash equivalents, and consist of highly liquid money market instruments.

Atmel maintains its cash balances at a variety of financial institutions and has not experienced any material losses relating to such instruments. Atmel invests its excess cash in accordance with its investment policy that has been reviewed and approved by the Board of Directors.

Short-Term Investments

All of the Company’s investments in debt and equity securities in publicly-traded companies are classified as available-for-sale. Available-for-sale securities with maturities greater than twelve months are classified as short-term when they represent investments of cash that are intended for use in current operations. Investments in available-for-sale securities are reported at fair value with unrealized gains (losses), net of related tax, included as a component of accumulated other comprehensive income.

The Company’s marketable securities include corporate debt securities, U.S. Government and municipal agency debt securities, commercial paper, guaranteed variable annuities and auction rate securities. The Company monitors its investments for impairment periodically and recognizes an impairment charge when the decline in the fair value of these investments is judged to be other-than temporary. Significant judgment is used to identify events or circumstances that would likely have a significant adverse effect on the future use of the investment. The Company considers various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment, forecasted recovery, and its ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. The Company’s investments include certain highly-rated auction rate securities, totaling $29,075 at December 31, 2007, which are structured with short-term interest rate reset dates of either 7 or 28 days, and contractual maturities that can be in excess of ten years. The Company evaluates its portfolio by continuing to monitor the credit rating, interest yields of these auction rate securities and successful reset at each auction date. Through the time of filing of this Form 10-K, the Company had four failed auctions relating to such securities aggregating approximately $3,425. As a result of the active liquid market for the trading of all of our auction rate securities portfolio in 2007, the Company utilized market prices to ascertain the fair value of the securities at December 31, 2007. The Company believes that the fair value of its auction rate securities portfolio approximates its par value. The Company believes it has the ability and intent to liquidate these securities in 2008 with no significant loss.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accounts Receivable

An allowance for doubtful accounts is calculated based on the aging of Atmel’s accounts receivable, historical experience, and management judgment. Atmel writes off accounts receivable against the allowance when Atmel determines a balance is uncollectible and no longer actively pursues collection of the receivable.

Inventories

Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis for raw materials and purchased parts; and an average-cost basis for work in progress and finished goods) or market. Market is based on estimated net realizable value. The Company establishes lower of cost or market reserves and excess and obsolescence reserves. The determination of obsolete or excess inventory requires an estimation of the future demand for the Company’s products and these reserves are recorded when the inventory on hand exceeds management’s estimate of future demand for each product. Once the inventory is written down, a new cost basis is established; however, for tracking purposes, the write-down is recorded as a reserve on the balance sheets. These inventory reserves are not relieved until the related inventory has been sold or scrapped.

Fixed Assets

Fixed assets are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the following estimated useful lives:


Building and improvements		10 to 20 years
Machinery, equipment and software		2 to 5 years
Furniture and fixtures		5 years

Maintenance, repairs and minor upgrades are expensed as incurred.

Investments in Privately-Held Companies

Investments in privately-held companies are accounted for at historical cost or, if Atmel has significant influence over the investee, using the equity method of accounting. Atmel’s proportionate share of income or losses from investments accounted for under the equity method, and any gain or loss on disposal, are recorded in interest and other income (expenses), net. Investments in privately held companies are included in intangible and other assets, net on the Company’s consolidated balance sheets.

For investments in privately-held companies, the Company monitors for impairment periodically and reduces their carrying values to fair value when the declines are determined to be other-than-temporary.

Revenue Recognition

The Company sells its products to OEMs and distributors and recognizes revenue when the rights and risks of ownership have passed to the customer, when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Reserves for sales returns and allowances are estimated and re-evaluated each reporting period.

For sales to certain distributors (primarily based in the U.S.) with agreements allowing for price protection and product returns, the Company recognizes revenue at the time the distributor sells the product to its end customer. Revenue is not recognized upon shipment since, due to price protection rights, the sales price is not substantially fixed or determinable at that time. Additionally, these distributors have contractual rights to return products, up to a specified amount for a given period of time. Revenue is recognized when the distributor sells the product to an end-user, at which time the sales price becomes fixed. At the time of shipment to these distributors, the Company records a trade receivable for the selling price as there is a legally enforceable right to payment, relieves inventory for the carrying value of goods shipped since legal title has passed to the distributor, and records the gross margin in

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

deferred income on shipments to distributors on the consolidated balance sheets. This balance represents the gross margin on the sale to the distributor; however, the amount of gross margin recognized by the Company in future periods could be less than the deferred margin as a result of price protection concessions related to market pricing conditions. The Company does not reduce deferred margin by estimated price protection; instead, such price concessions are recorded when incurred, which is generally at the time the distributor sells the product to an end-user. Sales to certain other primarily non-U.S. based distributors carry either no or very limited rights of return. The Company has historically been able to estimate returns and other credits from these distributors and accordingly has historically recognized revenue from sales to these distributors upon shipment, with a related allowance for potential returns established at the time of sale.

Royalty Expense Recognition

The Company has entered into a number of technology license agreements with unrelated third parties. Generally, the agreements require a one-time or annual license fee. In addition, Atmel may be required to pay a royalty on sales of certain products that are derived under these licensing arrangements. The royalty expense is accrued in the period in which the revenues incorporating the technology are recognized, and is included in accrued and other liabilities on the consolidated balance sheet.

Grant Recognition

Subsidy grants from government organizations are amortized as a reduction of expenses over the period the related obligations are fulfilled. Recognition of future subsidy benefits will depend on Atmel’s achievement of certain capital investment, research and development spending and employment goals. The Company recognized the following amount of subsidy grant benefits as a reduction of either cost of revenues or research and development expenses, depending on the nature of the grant:


	Years Ended
	December 31,		December 31,		December 31,
	2007		2006		2005
	(In thousands)

Cost of revenues	$	1,685	$	9,654	$	11,109
Research and development expenses		18,038		14,573		25,538

Total	$	19,723	$	24,227	$	36,647

The Company receives economic incentive grants and allowances from European governments targeted at increasing employment at specific locations. The subsidy grant agreements typically contain economic incentive and other covenants that must be met to receive and retain grant benefits. Noncompliance with the conditions of the grants could result in the forfeiture of all or a portion of any future amounts to be received, as well as the repayment of all or a portion of amounts received to date. In addition, the Company may need to record charges to reverse grant benefits recorded in prior periods as a result of changes to its plans for headcount, project spending, or capital investment at any of these specific locations. If the Company is unable to comply with any of the covenants in the grant agreements, its results of operations and financial position could be materially adversely affected. Refer to Note 14 for further discussion.

Advertising Costs

Atmel expenses all advertising costs as incurred. Advertising costs were not significant in the years ended December 31, 2007, 2006, or 2005.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Foreign Currency Translation

Most of Atmel’s major international subsidiaries use their local currencies as their respective functional currencies. Financial statements of these foreign subsidiaries are translated into U.S. dollars at current rates, except that revenues, costs and expenses are translated at average current rates during each reporting period. The effect of translating the accounts of these foreign subsidiaries into U.S. dollars has been included in the consolidated statements of stockholders’ equity and comprehensive income (loss) as a cumulative foreign currency translation adjustment. Gains and losses from remeasurement of assets and liabilities denominated in currencies other than the respective functional currencies are included in the consolidated statements of operations. Losses due to foreign currency remeasurement included in interest and other income (expenses), net for the years ended December 31, 2007, 2006 and 2005 were $389, $9,364 and $1,306, respectively.

Stock-Based Compensation

Prior to January 1, 2006, Atmel accounted for stock-based compensation, including stock options granted and shares issued under the Employee Stock Purchase Plan, using the intrinsic value method prescribed in Accounting Principles Bulletin (“APB”) No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”) and related interpretations. Compensation expense for stock options was recognized ratably over the vesting period. Stock options are granted under the 1986 Incentive Stock Option Plan (“1986 Stock Plan”) and the 2005 Stock Plan (an amendment and restatement of the 1996 Stock Plan) (the “2005 Stock Plan”). Atmel’s policy is to grant options with an exercise price equal to the closing quoted market price of its common stock on the grant date.

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”) using the modified prospective transition method. The Company’s consolidated financial statements as of and for the year ended December 31, 2007 and 2006 reflect the impact of SFAS No. 123R. However, in accordance with the modified prospective transition method, the Company’s consolidated financial statements for prior periods do not include the impact of SFAS No. 123R. Accordingly, prior periods do not include equity compensation amounts comparable to those included in the consolidated financial statements for the years ended December 31, 2007 and 2006.

The Company has elected to adopt FSP No. FAS 123(R)-3 to calculate the Company’s pool of windfall tax benefits.

SFAS No. 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations. Prior to January 1, 2006, the Company accounted for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25 as permitted under SFAS No. 123 (and further amended by SFAS No. 148).

Upon adoption of SFAS No. 123R, the Company reassessed its equity compensation valuation method and related assumptions. The Company’s determination of the fair value of share-based payment awards on the date of grant utilizes an option-pricing model, and is impacted by its common stock price as well as a change in assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to: expected common stock price volatility over the term of the option awards, as well as the projected employee option exercise behaviors (expected period between stock option vesting date and stock option exercise date).

Stock-based compensation expense recognized in the Company’s consolidated statements of operations for the years ended December 31, 2007 and 2006 included a combination of payment awards granted prior to January 1, 2006 and payment awards granted subsequent to January 1, 2006. For stock-based payment awards granted prior to January 1, 2006, the Company attributes the value of stock-based compensation, determined under SFAS No. 123R, to expense using the accelerated multiple-option approach. Compensation expense for all stock-based payment awards granted subsequent to January 1, 2006 is recognized using the straight-line single-option method. Stock-

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

based compensation expense included in the years ended December 31, 2007 and 2006 includes the impact of estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the periods prior to 2006, the Company accounted for forfeitures as they occurred. The adoption of SFAS No. 123R requires the Company to reflect the net cumulative impact of estimating forfeitures in the determination of period expense by reversing the previously recognized cumulative compensation expense related to those forfeitures, rather than recording forfeitures when they occur as previously permitted. The Company did not record this cumulative impact upon adoption, as the amount was insignificant. Stock options granted in periods prior to 2006 were measured based on SFAS No. 123 requirements, whereas stock options granted subsequent to January 1, 2006 were measured based on SFAS No. 123R requirements. See Note 7 for further discussion of the Company’s stock-based compensation arrangements.

Certain Risks and Concentrations

Atmel sells its products primarily to OEMs and distributors in North America, Europe and Asia, generally without requiring any collateral. Atmel performs ongoing credit evaluations and maintains adequate allowances for potential credit losses. No single customer represented more than ten percent of accounts receivable as of December 31, 2007 and 2006, or net revenues for the years ended December 31, 2007, 2006 and 2005.

The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. The Company’s financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditions specific to the semiconductor industry, the timely implementation of new manufacturing process technologies and the ability to safeguard patents and intellectual property in a rapidly evolving market. In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns at various times. As a result, Atmel may experience significant period-to-period fluctuations in future operating results due to the factors mentioned above or other factors. Atmel believes that its existing cash, cash equivalents and investments together with cash flow from operations, equipment lease financing and other short and medium term borrowing, will be sufficient to support its liquidity and capital investment activities for the next twelve months.

Additionally, the Company relies on a limited number of contract manufacturers to provide assembly services for its products. The inability of a contract manufacturer or supplier to fulfill supply requirements of the Company could materially impact future operating results.

Income Taxes

Atmel’s provision for income tax comprises its current tax liability and change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Valuation allowances are provided to reduce deferred tax assets to an amount that in management’s judgment is more likely than not to be recoverable against future taxable income. No U.S. taxes are provided on earnings of non-U.S. subsidiaries, to the extent such earnings are deemed to be permanently invested.

Atmel’s income tax calculations are based on application of the respective U.S. federal, state or foreign tax law. The Company’s tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Long-Lived Assets

Atmel periodically evaluates the recoverability of its long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). Factors which could trigger an impairment review include the following: (i) significant negative industry or economic trends, (ii) exiting an activity in conjunction with a restructuring of operations, (iii) current, historical or projected losses that demonstrated continuing losses associated with an asset, (iv) significant decline in the Company’s market capitalization for an extended period of time relative to net book value, (v) recent changes in the Company’s manufacturing model, and (vi) management’s assessment of future manufacturing capacity requirements. When the Company determines that there is an indicator that the carrying value of long-lived assets may not be recoverable, the assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected future undiscounted pre-tax cash flows of the related operations. These estimates include assumptions about future conditions such as future revenues, gross margins, operating expenses, and the fair values of certain assets based on appraisals and industry trends. If these cash flows are less than the carrying value of such assets, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets. The evaluation is performed at the lowest levels for which there are identifiable, independent cash flows. See Note 15 for further discussion of Atmel’s long-lived assets.

Costs that the Company incurs to acquire completed product and process technology are capitalized and amortized on a straight-line basis over two to five years. Capitalized product and process technology costs are amortized over the shorter of the estimated useful life of the technology or the term of the technology agreement

Derivative Instruments

During 2005, Atmel used forward exchange contracts to hedge existing and anticipated foreign currency-denominated transactions expected to occur within twelve months. The purpose of Atmel’s foreign currency hedging program was to reduce the risk from exchange rate fluctuations on certain forecasted transactions and foreign currency assets and liabilities. Financial Accounting Standards Board SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), as amended, and interpreted by other related accounting literature, establishes accounting and reporting standards for derivative instruments.

Atmel did not enter into any forward exchange contracts in 2007 and 2006 and has no plans to enter into forward exchange contracts in the foreseeable future.

The Company would recognize derivative instruments as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.

For a derivative instrument designated as a cash flow hedge, the effective portion of the derivative’s gain or loss would be initially reported as a component of accumulated other comprehensive income and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss, if any, would be reported in earnings immediately. To obtain SFAS No. 133 hedge accounting treatment on anticipated transactions, specific cash flow hedge criteria must be met, which would require the Company to formally document, designate, and assess the effectiveness of transactions.

For a derivative instrument designated as a fair value hedge, the gain or loss was recognized in interest and other expenses, net in the period of change together with the offsetting loss or gain on the hedged item attributed to the risk being hedged.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Balance Sheet Hedges

Gains and losses on contracts intended to offset foreign exchange gains or losses from the revaluation of current assets and liabilities, including intercompany balances, denominated in currencies other than the functional currency are included in interest and other income (expenses), net, in the consolidated statements of operations. The Company’s balance sheet hedge contracts related to current assets and liabilities generally ranged from one to three months in original maturity. During the year ended December 31, 2005, the Company settled all of its outstanding balance sheet hedge contracts and incurred a realized loss of $29,533. This loss was offset primarily by unrealized gains associated with the revaluation of current assets and current liabilities denominated in foreign currencies other than the Company’s functional currency, resulting in net foreign exchange transaction losses of $1,306 during 2005. As of December 31, 2006, there were no outstanding balance sheet hedge contracts. The Company did not enter into any balance sheet hedge contracts in the year ended December 31, 2007.

Cash Flow Hedges

The Company has periodically used forward exchange contracts to hedge forecasted transactions related to certain foreign currency operating expenses anticipated to occur within twelve months, primarily for European manufacturing subsidiaries, with forward contracts. These transactions are designated as cash flow hedges under SFAS No. 133. As of December 31, 2006 and 2005, all cash flow hedges had been settled. The Company did not enter into any cash flow hedge contracts in the year ended December 31, 2007.

Net Income (Loss) Per Share

Atmel accounts for net income (loss) per share in accordance with SFAS No. 128, “Earnings per Share” (“SFAS No. 128”). Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is computed using the weighted-average number of common and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of incremental common shares issuable upon exercise of stock options or restricted stock units, assumed issuance of shares under employee stock purchase plan and convertible securities for all periods. No dilutive potential common shares were included in the computation of any diluted per share amount when a loss from continuing operations was reported by the Company. Income or loss from continuing operations is the “control number” in determining whether potential common shares are dilutive or anti-dilutive.

Product Warranties

The Company warrants finished goods against defects in material and workmanship under normal use and service typically for periods of 90 days to two years. A liability for estimated future costs under product warranties is recorded when products are shipped.

Research and Development and Software Development Costs

Costs incurred in the research and development of Atmel’s products are expensed as incurred. Research and development expenses were $272,041, $289,108 and $268,164 in the years ended December 31, 2007, 2006 and 2005, respectively. Costs associated with the development of computer software are expensed prior to establishment of technological feasibility and capitalized in certain cases thereafter until the product is available for general release to customers. No software development costs were capitalized during the years ended December 31, 2007, 2006 and 2005 since costs incurred subsequent to establishment of technological feasibility were not material.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement establishes a framework for measuring fair value when required by generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The provisions of SFAS No. 157 should be applied prospectively as of the beginning of the fiscal year in which SFAS No. 157 is initially applied, except in limited circumstances. SFAS No. 157 is effective for the Company beginning January 1, 2008. The adoption of SFAS No. 157 is not expected to have a material impact on the Company’s consolidated results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157. SFAS No. 159 is effective for the Company beginning January 1, 2008. The adoption of SFAS No. 159 is not expected to have a material impact on the Company’s consolidated results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 141R on its consolidated results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective as of the beginning of an entity’s fiscal year that begins after December 31, 2008. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 160 on its consolidated results of operations and financial condition.


Note 2	BALANCE SHEET DETAIL

Inventories are comprised of the following:


	December 31,		December 31,
	2007		2006
	(In thousands)

Raw materials and purchased parts	$	22,996	$	13,434
Work-in-progress		249,863		245,760
Finished goods		84,442		80,605

	$	357,301	$	339,799

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Prepaid and other current assets consist of the following:


	December 31,		December 31,
	2007		2006
	(In thousands)

Value-added tax receivable	$	35,667	$	50,235
Deferred income tax assets		5,726		5,271
Grants receivable		5,463		6,540
Income tax receivable		3,593		2,187
Prepaid income taxes		7,274		7,739
Others		31,058		46,993

	$	88,781	$	118,965

Intangible and other assets consist of the following:


	December 31,		December 31,
	2007		2006
	(In thousands)

Intangible assets, net	$	19,552	$	6,024
Investment in privately-held companies		7,978		6,122
Deferred income tax assets, net of current portion		5,006		7,965
Others		5,433		8,559

	$	37,969	$	28,670

Accrued and other liabilities consist of the following:


	December 31,		December 31,
	2007		2006
	(In thousands)

Advance payments from customers	$	10,120	$	10,000
Income taxes payable		10,788		24,447
Deferred income tax liability, current portion		2,783		569
Value-added tax payable		1,973		10,738
Accrued salaries and benefits		91,972		74,079
Deferred grants		12,968		6,461
Grants to be repaid(1)		10,793		47,647
Warranty accruals and accrued returns, royalties and licenses		21,573		19,223
Accrued restructuring		15,675		8,511
Financing liability related to sale of manufacturing facilities(2)		44,137		—
Others		44,205		75,786

	$	266,987	$	277,461


(1)		Excludes $39,519 of grants to be repaid in accounts payable at December 31, 2007, which have been reclassified to accounts payable.

(2)		See Note 15 for further discussion.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other long-term liabilities consist of the following:


	December 31,		December 31,
	2007		2006
	(In thousands)

Advance payments from customers	$	54,668	$	64,668
Income taxes payable		98,269		92,009
Accrued pension liability		50,915		51,970
Long-term technology license payable		16,107		3,808
Accrued restructuring		—		7,875
Deferred income tax liability, non-current portion		4,891		3,682
Others		12,994		12,924

	$	237,844	$	236,936

During the years ended December 31, 2006 and 2005, the Company sold its interest in two privately held companies and realized cash proceeds on these sales of $1,799 and $6,746, respectively.

The customer advances relate to supply agreements into which Atmel entered with a specific customer in 2000. The supply agreements call for the Company to make available to the customer a minimum quantity of products. Minimum repayments are required each year on these agreements, with additional payments to be made if the customer exceeds certain purchasing levels. As of December 31, 2007, Atmel had remaining $64,668 in customer advances received, of which $10,000 is recorded in accrued and other liabilities and $54,668 in other long-term liabilities. Minimum payments required to be made annually are the greater of 15% of the value of product shipped to the customer or $10,000, until such time that the advances have been fully repaid. The Company repaid $10,000 in each of the three years ended December 31, 2007, under these agreements.

Also included in other long-term liabilities is a note payable to a company in which Atmel has an equity investment. The total outstanding amount due was $9,342, of which $7,086 is included in other long-term liabilities, and $2,256 is included in accounts payable at December 31, 2007 and $8,683 of which $6,449 is included in other long-term liabilities and $2,234 is included in accounts payable at December 31, 2006. In addition, the Company paid $24,816 $23,094 and $23,763 to this company in the years ended December 31, 2007, 2006 and 2005, respectively, relating to a cost sharing arrangement for facility services at the Heilbronn, Germany facility.


Note 3	SHORT-TERM INVESTMENTS

Short-term investments at December 31, 2007 and 2006 primarily comprise U.S. and foreign corporate debt securities, U.S. Government and municipal agency debt securities, commercial paper, and guaranteed variable annuities.

All marketable securities are deemed by management to be available-for-sale and are reported at fair value. Net unrealized gains or losses that are not deemed to be “other than temporary” are reported within stockholders’ equity on the Company’s consolidated balance sheets and as a component of other comprehensive income (loss). Gross realized gains or losses are recorded based on the specific identification method. During 2007, 2006 and

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2005, the Company’s gross realized gains or losses on short-term investments were not material. The carrying amount of the Company’s investments is shown in the table below:


	December 31,					December 31,
	2007					2006
	Book Value			Market Value		Book Value			Market Value
	(In thousands)

U.S. Government debt securities	$	—		$	—	$	1,400		$	1,396
State and municipal debt securities		3,450			3,450		3,450			3,450
Corporate equity securities		87			1,542		87			892
Corporate debt securities and other obligations		49,442			50,825		49,170			50,526

	$	52,979		$	55,817	$	54,107		$	56,264
Unrealized gains		2,900			—		2,176			—
Unrealized losses		(62	)		—		(19	)		—

Net unrealized gains		2,838			—		2,157			—

Total	$	55,817		$	55,817	$	56,264		$	56,264

The Company considers the unrealized losses in the table above to not be “other than temporary” due primarily to their nature, quality and short-term holding.

Contractual maturities (at book value) of available-for-sale debt securities as of December 31, 2007, were as follows:


	(In thousands)
Due within one year	$	11,606
Due in 1-5 years		4,211
Due in 5-10 years		—
Due after 10 years		37,075

Total	$	52,892

Atmel has classified all investments with maturity dates of 90 days or more as short-term since it has the ability to redeem them within the year.


Note 4	FIXED ASSETS


	December 31,			December 31,
	2007			2006
	(In thousands)

Land	$	38,568		$	58,539
Buildings and improvements		681,581			687,505
Machinery and equipment		1,799,765			1,642,177
Furniture and fixtures		164,005			158,034
Construction-in-progress		2,767			10,658

	$	2,686,686		$	2,556,913
Less: Accumulated depreciation and amortization		(2,107,120	)		(1,954,623	)

	$	579,566		$	602,290

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Depreciation expense on fixed assets for the years ended December 31 2007, 2006 and 2005, was $124,064, $215,487 and $272,319, respectively. Fixed assets include building and improvements, and machinery and equipment acquired under capital leases of $147,543 and $214,734 at December 31, 2007 and 2006, respectively, with accumulated depreciation of $84,737 and $136,485, respectively. The Company has classified $35,040 in fixed assets of the Irving, Texas, facilities as assets held for sale in the consolidated balance sheet as of December 31, 2006.

The Company assesses the recoverability of long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the Company may not be able to recover the asset’s carrying amount. The Company measures the amount of impairment of such long-lived assets by the amount by which the carrying value of the asset exceeds the fair market value of the asset, which is generally determined based on projected discounted future cash flows or appraised values. In the fourth quarter of 2006, management performed an assessment of market values for the North Tyneside, United Kingdom, and Irving, Texas, fabrication facilities compared to current carrying values, and, as a result, recorded impairment charges of $72,277 and $10,305, respectively. See Note 15 for further discussion.

In the years ended December 31, 2006 and 2005, depreciation and amortization expense classified as discontinued operations totaled $3,060 and $5,879, respectively.


Note 5	INTANGIBLE ASSETS

Intangible assets as of December 31, 2007 and 2006 consisted of the following:


	December 31			December 31,
	2007			2006
	(In thousands)

Core/licensed technology	$	102,906		$	89,581
Accumulated amortization		(83,354	)		(83,557	)

Total	$	19,552		$	6,024

Total amortization expense related to intangible assets is set forth in the table below:


	Years Ended
	December 31,		December 31,		December 31,
	2007		2006		2005
	(In thousands)

Core/licensed technology	$	4,709	$	6,050	$	11,818
Non-compete agreement		—		—		142
Patents		—		409		459

Total amortization expense on intangible assets	$	4,709	$	6,459	$	12,419

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents the estimated future amortization of the intangible assets:


Years Ending December 31:
	(In thousands)

2008	$	4,289
2009		4,171
2010		3,845
2011		3,221
2012		3,221
Thereafter		805

Total future amortization	$	19,552


Note 6	BORROWING ARRANGEMENTS

Information with respect to the Company’s debt and capital lease obligations is shown in the following table:


	December 31,			December 31,
	2007			2006
	(In thousands)

Various interest-bearing notes and term loans	$	6,221		$	80,550
Bank lines of credit		125,000			25,000
Capital lease obligations		31,658			63,434

Total	$	162,879		$	168,984
Less: current portion of long-term debt and capital lease obligation		(142,471	)		(108,651	)

Long-term debt and capital lease obligations due after one year	$	20,408		$	60,333

Maturities of long-term debt and capital lease obligations are as follows:


Years Ending December 31:
	(In thousands)

2008	$	146,470
2009		7,197
2010		6,001
2011		4,998
2012		1,191
Thereafter		2,472

		168,329
Less: amount representing interest		(5,450	)

Total	$	162,879

Certain of the Company’s debt facilities contain terms that subject the Company to financial and other covenants. The Company was in compliance with its covenants as of December 31, 2007. The Company was not in compliance with covenants requiring timely filing of U.S. GAAP financial statements as of December 31, 2006, and, as a result, the Company requested waivers from its lenders to avoid default under these facilities. Waivers were not received from all lenders, and as a result, the Company had previously classified $22,544 of non-current liabilities as current liabilities on the consolidated balance sheet as of December 31, 2006. As a result of the Company’s return to compliance with the related financial and filing requirement covenants in June 2007, these liabilities are classified as non-current liabilities as of December 31, 2007.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On June 30, 2006, the Company entered into a 3-year term loan agreement for $25,000 with a European bank to finance equipment purchases. The interest rate on this loan was based on the London Interbank Offered Rate (“LIBOR”) plus 2.5%. Principal repayments were to be made in equal quarterly installments beginning September 30, 2006. The loan was collateralized by the financed assets and was subject to certain cross-default provisions. The Company repaid this term loan in the fourth quarter of 2007 in connection with the sale of assets at the Company’s North Tyneside facility. This term loan was classified as an interest-bearing note in the summary table above as of December 31, 2006.

On March 15, 2006, the Company entered into a five-year asset-backed credit facility for up to $165,000 with certain European lenders. This facility is secured by the Company’s non-U.S. trade receivables. At December 31, 2007, the amount available under this facility was approximately $110,545, based on eligible non-U.S. trade receivables, of which $100,000 was outstanding. Borrowings under the facility bear interest at LIBOR plus 2% per annum (approximately 6.6% at December 31, 2007), while the undrawn portion is subject to a commitment fee of 0.375% per annum. The outstanding balance is subject to repayment in full on the last day of its interest period (every two months). The terms of the facility subject the Company to certain financial and other covenants and cross-default provisions. The outstanding balance under this facility is classified as a bank line of credit in the summary debt table above. Commitment fees and amortization of up-front fees paid related to the facility for the years ended December 31, 2007 and 2006 totaled approximately $1,392 and $1,073, respectively, and are included in interest and other income (expenses), net, in the consolidated statements of operations.

In September 2005, the Company obtained a $15,000 term loan with a domestic bank. This term loan matures in September 2008. The interest rate on this term loan is LIBOR plus 2.25%. In December 2004, the Company had obtained a term loan with the same domestic bank in the amount of $20,000. Concurrent with this, the Company established a $25,000 revolving line of credit with this domestic bank, which has been extended until September 2008. The term loan of $20,000 matured in December 2007. The interest rate on the revolving line of credit is determined by the Company and must be either the domestic bank’s prime rate or LIBOR plus 2%. The interest rate on the term loan is 90-day euro Interbank Offered Rate (“EURIBOR”) plus 2.0%. All U.S. domestic account receivable balances secure amounts borrowed. The revolving line of credit and both term loans require the Company to meet certain financial ratios and to comply with other covenants on a periodic basis. As of December 31, 2007, the full $25,000 of the revolving line of credit and $3,749 of the term loans were outstanding and are classified as bank lines of credit and interest bearing note in the summary debt table above, respectively.

In June 2005, the Company entered into a euro 43,156 ($52,237) term loan agreement with a domestic bank. The interest rate was fixed at 4.10%. The Company had pledged certain manufacturing equipment as collateral. The loan was required to be repaid in equal installments of euro 3,841 ($4,649) per calendar quarter commencing on September 30, 2005, with the final payment due on June 28, 2008. The Company repaid this term loan in the fourth quarter of 2007 in connection with the sale of assets at the Company’s North Tyneside facility. This term loan was classified as an interest-bearing note in the summary table above as of December 31, 2006.

In February 2005, the Company entered into an equipment financing arrangement in the amount of euro 40,685 ($54,005) which is repayable in quarterly installments over three years. The stated interest rate is EURIBOR plus 2.25%. This equipment financing is collateralized by the financed assets. As of December 31, 2007, the balance outstanding under the arrangement was $5,250 was classified as a capital lease in the summary debt table above.

In September 2004, the Company entered into a euro 32,421 ($40,274) loan agreement with a European bank. The loan was to be repaid in equal principal installments of euro 970 ($1,205) per month plus interest on the unpaid balance, with the final payment due on October 1, 2007. The interest rate was fixed at 4.85%. The Company had pledged certain manufacturing equipment as collateral. This note required Atmel to meet certain financial ratios and to comply with other covenants on a periodic basis. The Company repaid this loan in the fourth quarter of 2007 in connection with the sale of assets at the Company’s North Tyneside facility. This loan was classified as an interest-bearing note in the summary table above as of December 31, 2006.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s remaining $28,880 in outstanding debt obligations as of December 31, 2007 is comprised of $26,408 in capital leases and $2,472 in an interest bearing note.

Included within the outstanding debt obligations are $154,005 of variable-rate debt obligations where the interest rates are based on either LIBOR plus a spread ranging from 2.0% to 2.25% or short-term EURIBOR plus a spread ranging from 0.9% to 2.25%. Approximately $128,749 of the Company’s total debt obligations has cross default provisions.


Note 7	STOCK-BASED COMPENSATION

Option and Employee Stock Purchase Plans

Atmel has two stock option plans — the 1986 Stock Plan and the 2005 Stock Plan (an amendment and restatement of the 1996 Stock Plan). The 1986 Stock Plan expired in April 1996. The 2005 Stock Plan was approved by stockholders on May 11, 2005. As of December 31, 2007, of the 56,000 shares authorized for issuance under the 2005 Stock Plan, 6,104 shares of common stock remain available for grant. Under Atmel’s 2005 Stock Plan, Atmel may issue common stock directly or grant options to purchase common stock to employees, consultants and directors of Atmel. Options, which generally vest over four years, are granted at fair market value on the date of the grant and generally expire ten years from that date.

Activity under Atmel’s 1986 Stock Plan and 2005 Stock Plan is set forth below:


							Outstanding
							Options		Weighted-
							Exercise		Average
	Available			Number of			Price		Exercise Price
	for Grant			Options			per Share		per Share
	(In thousands, except per share data)

Balances, December 31, 2004		21,506			29,457		$	1.00-$24.44	$	5.68
Options granted		(5,172	)		5,172			2.06-3.29		3.03
Options cancelled/expired/forfeited		1,531			(2,645	)		1.68-21.47		5.68
Options exercised		—			(1,758	)		1.68-2.62		2.00

Balances, December 31, 2005		17,865			30,226		$	1.00-$24.44	$	5.44
Options granted		(9,559	)		9,559		$	3.68-$6.28		5.65
Options cancelled/expired/forfeited		4,994			(5,059	)	$	1.00-$24.44		5.87
Options exercised		—			(3,406	)	$	1.68-$5.13		2.17

Balances, December 31, 2006		13,300			31,320		$	1.68-$24.44	$	5.79
Restricted stock units granted		(4,130	)		—			—		—
Options granted		(7,195	)		7,195		$	4.35-$6.05		4.99
Options cancelled/expired/forfeited		4,129			(4,129	)	$	1.68-$24.44		7.24
Options exercised		—			(3,604	)	$	1.68-$5.75		2.54

Balances, December 31, 2007		6,104			30,782		$	1.68-$24.44	$	5.81

Stock options exercised in the years ended December 31, 2007, 2006 and 2005 had an aggregate exercise price of $9,160, $7,386 and $3,510, respectively.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


			Weighted Average
	Number of		Grant Date Fair
	Shares		Value Per Share
	(In thousands, except per share data)

Restricted stock units		4,130	$	5.29

Of the 4,130 restricted stock units issued during 2007, 312 units were vested during 2007. The 312 units vested had a weighted average fair value of $4.72 on the vesting dates. The Company has also committed to issue 2,403 of restricted stock units to certain employees in 2008 (see Note 10 for further discussion). As of December 31, 2007, total unearned stock-based compensation related to nonvested restricted stock units was approximately $31,035, excluding forfeitures, and is expected to be recognized over a weighted-average period of 4.0 years.

The number of options exercisable under Atmel’s stock option plans at December 31, 2007, 2006 and 2005 were 15,568, 16,238 and 18,762, respectively. During the years ended December 31, 2007, 2006 and 2005, the number of stock options that were forfeited, but were not available for future stock option grants due to the expiration of these shares under the 1986 Stock Plan totaled 0, 65 and 1,114, respectively.

The following table summarizes the stock options outstanding at December 31, 2007:


Options Outstanding									Options Exercisable
			Weighted-
			Average								Weighted-
			Remaining		Weighted-						Average		Weighted-
Range of			Contractual		Average		Aggregate				Remaining		Average		Aggregate
Exercise	Number		Term		Exercise		Intrinsic		Number		Contractual		Exercise		Intrinsic
Price	Outstanding		(years)		Price		Value		Exercisable		Term (years)		Price		Value
	(In thousands, except for price and life data)

1.68 – 2.11		3,246		4.23	$	2.07	$	7,304		3,109		4.13	$	2.08	$	6,965
2.13 – 3.67		3,349		6.55		3.11		4,052		1,772		5.96		3.11		2,144
3.68 – 4.70		879		7.45		4.23		27		366		6.03		4.16		28
4.74 – 4.74		3,354		9.59		4.74		—		247		9.62		4.74		—
4.77 – 4.92		3,406		9.12		4.90		—		610		8.64		4.89		—
4.95 – 5.73		4,372		8.63		5.47		—		1,061		7.83		5.41		—
5.75 – 6.05		3,153		5.75		5.81		—		2,180		5.74		5.79		—
6.12 – 6.27		112		6.69		6.22		—		90		6.14		6.25		—
6.28 – 6.28		3,498		8.90		6.28		—		757		8.96		6.28		—
6.47 – 24.44		5,413		3.25		11.20		—		5,376		3.26		11.22		—

		30,782		6.85	$	5.81	$	11,383		15,568		7.38	$	6.53	$	9,137

During the years ended December 31, 2007, 2006 and 2005, the number of stock options that were exercised were 3,604, 3,406 and 1,758, respectively, which had an intrinsic value of $10,488, $8,818 and $1,723, respectively.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Prior Period Pro Forma Presentation

The pro forma table below reflects net loss and basic and diluted net loss per share for the year ended December 31, 2005, if the Company had applied the fair value recognition provisions for its employee stock options and employee stock purchases under SFAS No. 123:


	Year Ended
	December 31,
	2005
	(In thousands, except
	per share data)

Net loss — as reported	$	(33,351	)
Add: Employee stock-based compensation expense
included in net loss as reported, net of tax		1,307
Deduct: Employee stock-based compensation expense
based on fair value, net of tax		(16,614	)

Net loss — pro forma	$	(48,658	)

Net loss per share — basic and diluted
As reported	$	(0.07	)

Pro forma	$	(0.10	)

Weighted-average shares used in basic and diluted per share calculations		481,534

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:


	Years Ended
	December 31,			December 31,			December 31,
	2007			2006			2005

Risk-free interest rate		4.26	%		4.70	%		3.86	%
Expected life (years)		5.68			5.57			5.16
Expected volatility		59	%		68	%		92	%
Expected dividend yield		—			—			—

The Company’s weighted average assumptions for the year ended December 31, 2005 were determined in accordance with SFAS No. 123. The Company’s weighted average assumptions during the years ended December 31, 2007 and 2006 were determined in accordance with SFAS No. 123R and are further discussed below.

The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding and was derived based on an evaluation of the Company’s historical settlement trends, including an evaluation of historical exercise and expected post-vesting employment-termination behavior. The expected life of employee stock options impacts all underlying assumptions used in the Company’s Black-Scholes option-pricing model, including the period applicable for risk-free interest and expected volatility.

The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the Company’s employee stock options.

The Company calculates the historic volatility using a number of years equal to the expected life of the employee stock options and believes this to be representative of the Company’s expectations about its future volatility over the expected life of the option.

The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The weighted average estimated fair values of options granted in the years ended December 31, 2007, 2006 and 2005 were $2.86, $3.53 and $2.11, respectively.

Employee Stock Purchase Plan

Under the 1991 Employee Stock Purchase Plan (“ESPP”), qualified employees are entitled to purchase shares of Atmel’s common stock at the lower of 85 percent of the fair market value of the common stock at the date of commencement of the six-month offering period or at the last day of the offering period. Purchases are limited to 10 percent of an employee’s eligible compensation. There were no purchases under the ESPP in the year ended December 31, 2007. There were no ESPP offering periods that began in the year ended December 31, 2006. Purchases of common stock under the ESPP were 2,072 shares and 3,682 shares in 2006 and 2005, respectively, at an average price of $1.84 and $2.28, respectively. Of the 42,000 shares authorized for issuance under this plan, 9,320 shares were available for issuance at December 31, 2007.

The adoption of SFAS No. 123R did not impact the Company’s methodology to estimate the fair value of share-based payment awards under the Company’s ESPP. The fair value of each purchase under the ESPP is estimated on the date of the beginning of the offering period using the Black-Scholes option pricing model. There were no ESPP offering periods that began in the year ended December 31, 2006. The following assumptions were utilized to determine the fair value of the Company’s ESPP shares:


	Years Ended
	December 31,			December 31,
	2007			2005

Risk-free interest rate		4.09	%		3.54	%
Expected life (years)		0.50			0.50
Expected volatility		34	%		66	%
Expected dividend yield		—			—

The weighted-average fair value of the rights to purchase shares under the ESPP for offering periods started in the years ended December 31, 2007 and 2005 was $0.95 and $0.88, respectively. Cash proceeds for the issuance of shares under ESPP were $0, $3,820, and $8,391 in the years ended December 31, 2007, 2006 and 2005, respectively.

The components of the Company’s stock-based compensation expense, net of amounts capitalized in inventory, for the years ended December 31, 2007 and 2006 are summarized below:


	Years Ended
	December 31,			December 31,
	2007			2006
	(In thousands)

Employee stock options	$	12,844		$	9,063
Employee stock purchase plan		613			302
Non-employee stock option modifications		—			120
Restricted stock units		3,331			—
Amounts capitalized in inventory		(136	)		(367	)

	$	16,652		$	9,118

SFAS No. 123R requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow. The future realizability of tax benefits related to stock compensation is dependent upon the timing of employee exercises and future taxable income, among other factors. The Company did not realize any tax benefit from the stock-based compensation expense incurred during the years ended December 31, 2007 and 2006 as the Company believes it is more likely than not that it will not realize the benefit from tax deductions related to equity compensation.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the distribution of stock-based compensation expense related to employee stock options, restricted stock and employee stock purchases under SFAS No. 123R for the years ended December 31, 2007 and 2006 and under APB 25 for the year ended December 31, 2005, which was recorded as follows:


	Years Ended
	December 31,		December 31,		December 31,
	2007		2006		2005
	(In thousands)

Cost of revenues	$	1,966	$	2,084		272
Research and development		4,601		2,102		373
Selling, general and administrative		10,085		4,932		1,205

Total stock-based compensation expense, before income taxes		16,652		9,118		1,850
Tax benefit		—		—		—

Total stock-based compensation expense, net of income taxes	$	16,652	$	9,118		1,850

Non-employee stock-based compensation expense (based on fair value) included in net income (loss) for the years ended December 31, 2007, 2006, and 2005 was $0, $120 and $543, respectively.

As of December 31, 2007, total unearned compensation expense related to nonvested stock options was approximately $41,208, excluding forfeitures, and is expected to be recognized over a weighted-average period of 1.8 years.

The impact of adopting SFAS No. 123R in the year ended December 31, 2006 was a reduction in net income of $8,195 and a reduction in basic and diluted net income per share of $0.02.

Effective January 1, 2006, the unamortized unearned stock-based compensation of $2,942 was eliminated against additional paid-in capital in connection with the adoption of SFAS No. 123R.

Tender Offer

In December 2007, the Company completed a tender offer to amend certain stock options that had original exercise prices per share that were less than the fair market value per share of the Company’s common stock underlying the stock option on the stock option’s grant date, as determined by the Company for financial accounting purposes. Pursuant to the terms of the tender offer, the Company has accepted for amendment stock options to purchase an aggregate of 942 shares of the Company’s common stock, of which options to purchase 426 shares of the Company’s common stock were amended by delaying the ability of the option holder to exercise the stock option, and stock options to purchase 516 shares of the Company’s common stock were amended by increasing the exercise price per share to the fair market value of a share of the Company’s common stock on the stock option’s measurement date. The tender offer represents modifications to the affected stock options, as defined in SFAS No. 123R, but resulted in no incremental charges for the year ended December 31, 2007.

In addition, the Company entered into separate agreements with three executives in 2006 to amend their unexercised stock options covering 209 shares of the Company’s common stock in order to cure the potential tax issue, under Internal Revenue Code 409A, associated with stock options.


Note 8	STOCKHOLDER RIGHTS PLAN

In September 1998, the Board of Directors approved a stockholder rights plan, and in October 1999, the Board of Directors approved an amended and restated rights plan, under which stockholders of record on September 16, 1998 received rights (“Rights”) to purchase one-thousandth of a share of Atmel’s Series A preferred stock for each

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

outstanding share of Atmel’s common stock. The Rights are exercisable at an exercise price of $50, subject to adjustment. The Rights will separate from the common stock and Rights certificates will be issued and the Rights will become exercisable upon the earlier of: (1) fifteen (15) days (or such later date as may be determined by a majority of the Board of Directors) following a public announcement that a person or group of affiliated associated persons has acquired, or obtained the right to acquire, beneficial ownership of 20 percent or more of Atmel’s outstanding common stock, or (2) fifteen (15) business days following the commencement of, or announcement of an intention to make, a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 20 percent or more of the outstanding common stock of Atmel. The Rights expire on the earlier of (1) October 15, 2009, (2) redemption or exchange of the Rights, or (3) consummation of a merger, consolidation or assets sale resulting in expiration of the Rights.


Note 9	ACCUMULATED OTHER COMPREHENSIVE INCOME

Comprehensive income (loss) is defined as a change in equity of a company during a period, from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. The primary difference between net income (loss) and comprehensive income for Atmel arises from foreign currency translation adjustments, pension liability adjustments and unrealized gains (losses) on investments.

The components of accumulated other comprehensive income at December 31, 2007 and 2006, net of tax, are as follows:


	December 31,		December 31,
	2007		2006
	(In thousands)

Foreign currency translation adjustments	$	149,127	$	110,766
Actuarial gains (losses) related to defined benefit pension plans		1,175		(5,686	)
Net unrealized gains on investments		2,838		2,157

Total accumulated other comprehensive income	$	153,140	$	107,237

Comprehensive income (loss) is shown in the consolidated statements of stockholders’ equity and comprehensive income (loss).


Note 10	COMMITMENTS AND CONTINGENCIES

Commitments

Leases

The Company leases its domestic and foreign sales offices under non-cancelable operating leases. These leases contain various expiration dates and renewal options. The Company also leases certain manufacturing equipment and software licenses under operating leases. Total rental expense, excluding amounts recorded in Discontinued Operations, for 2007, 2006 and 2005 was $28,966, $26,084 and $16,858, respectively. Rent expense included in Discontinued Operations for 2007, 2006 and 2005 was $0, $121 and $235, respectively.

The Company also enters into capital leases to finance machinery and equipment. The capital leases are collateralized by the financed assets. At December 31, 2007, no unutilized equipment lease lines were available to borrow under these arrangements.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Aggregate non-cancelable future minimum rental payments under operating and capital leases are as follows:


	Operating		Capital
Years Ending December 31:	Leases, Net		Leases
	(In thousands)

2008	$	23,256	$	14,909
2009		10,707		7,197
2010		9,142		6,001
2011		7,033		4,998
2012		5,662		1,191
Thereafter		1,805		—

	$	57,605		34,296

Less: amount representing interest				(2,638	)

Total capital lease and other long term obligations				31,658
Less: current portion				(13,722	)

Capital lease and other long term obligations due after one year			$	17,936

Employment Agreements

The Company entered into an employment agreement with an executive, effective August 7, 2006. The agreement provides for certain payments and benefits to be provided in the event that the executive is terminated without “cause” or that he resigns for “good reason,” including a “change of control.” The agreement initially called for the Company to issue restricted stock or restricted stock units to the executive on January 2, 2007. However, due to the Company’s non-timely status regarding reporting obligations under the Securities Exchange Act of 1934 (“Exchange Act”), the Company was unable to issue these shares on January 2, 2007. On March 13, 2007, the executive’s agreement was amended to provide for issuing these shares after the Company became current with its reporting obligations under the Exchange Act, or for an amount in cash if the executive’s employment terminates prior to issuance, equal to the portion that would have vested had these shares been issued on January 2, 2007, as originally intended. On July 11, 2007, the Company granted 1,000 restricted stock units (“RSUs”) to the executive pursuant to the employment agreement of August 7, 2006 mentioned above.

The Company has agreements with certain employees providing for both cash bonuses and issuance of restricted stock units. As of December 31, 2007, the Company has a commitment for future payments of $8,911 in bonus and related payroll taxes and to issue 2,403 RSUs under these agreements.

Indemnifications

As is customary in the Company’s industry, as provided for in local law in the United States and other jurisdictions, the Company’s standard contracts provide remedies to its customers, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of the Company’s products. From time to time, the Company will indemnify customers against combinations of loss, expense, or liability arising from various trigger events related to the sale and the use of the Company’s products and services, usually up to a specified maximum amount. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws permit the indemnification of the Company’s agents. In the Company’s experience, claims made under such indemnifications are rare and the associated estimated fair value of the liability is not material.

Subject to certain limitations, the Company is obligated to indemnify its current and former directors, officers and employees in connection with the investigation of the Company’s historical stock option practices and related

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

government inquiries and litigation. These obligations arise under the terms of the Company’s certificate of incorporation, its bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify generally means that the Company is required to pay or reimburse the individuals’ reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters. The Company is currently paying or reimbursing legal expenses being incurred in connection with these matters by a number of its current and former directors, officers and employees.

Purchase Commitments

At December 31, 2007, the Company had certain commitments which were not included in the consolidated balance sheet at that date. These include outstanding capital purchase commitments of $3,868, total future operating lease commitments of $57,605, and a remaining supply agreement obligation with a subsidiary of XbyBus SAS, a French Corporation of $15,746 for wafer purchases through 2008. In addition, the Company has a long-term supply agreement for gases used in semiconductor manufacturing totaling $18,414 with future minimum payments as follows:


Years Ending December 31:	(In thousands)

2008	$	1,752
2009		1,813
2010		1,882
2011		1,943
2012		2,003
Thereafter		9,021

	$	18,414

The Company plans to terminate this arrangement in 2008 due to the announced sale of its North Tyneside facility. The estimated liability upon early termination of this arrangement is approximately $10,552.

Contingencies

Litigation

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

action concluded with the court finding that the plaintiffs had not demonstrated any right to hold any office of Atmel. For both actions, plaintiffs sought costs, reasonable attorneys’ fees and any other appropriate relief. The Section 220 action, which sought access to corporate records, was dismissed in 2006.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

filed a First Amended Complaint adding claims for infringement of U.S. Patent No. 6,459,804 (the “’804 Patent”). In November 2006, AuthenTec answered denying liability and counterclaimed seeking a declaratory judgment of non-infringement and invalidity, its attorneys’ fees and other relief. In April 2007, AuthenTec filed an action against Atmel for declaratory relief in the United States District Court for the Middle District of Florida that the patents asserted against it by Atmel in the action pending in the Northern District of California are neither infringed nor valid, and amended that complaint in May 2007 to add claims for declaratory relief that the ’804 Patent is unenforceable, alleged interference with business relationships, and abuse of process. AuthenTec sought declaratory relief and unspecified damages. On June 25, 2007, the action pending in the Middle District of Florida was transferred to the Northern District of California, and has been related to the action Atmel filed. On July 3, 2007, Atmel filed an answer to the claims for declaratory relief that the patents were neither valid nor infringed, and also added counterclaims of infringement. Also on July 3, 2007, Atmel moved to dismiss the remaining claims for declaratory relief that the ’804 Patent is unenforceable, alleged interference with business relationships, and alleged abuse of process. On August 2, 2007, the parties agreed to the dismissal with prejudice of AuthenTec’s claims for alleged interference with business relationships and alleged abuse of process. The parties also agreed to grant AuthenTec leave to amend its counterclaim to add the claim for alleged unenforceability of the ’804 Patent. Atmel believes that AuthenTec’s claims are without merit and intends to vigorously pursue and defend these actions.

From time to time, the Company may be notified of claims that it may be infringing patents issued to other parties and may subsequently engage in license negotiations regarding these claims.

Other Contingencies

For products and technology exported from the U.S. or otherwise subject to U.S. jurisdiction, the Company is subject to U.S. laws and regulations governing international trade and exports, including, but not limited to the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”) and trade sanctions against embargoed countries and destinations administered by the Office of Foreign Assets Control (“OFAC”), U.S. Department of the Treasury. The Company has discovered shortcomings in its export compliance procedures. The Company is currently analyzing product shipments and technology transfers, working with U.S. government officials to ensure compliance with applicable U.S. export laws and regulations, and developing an enhanced export compliance system. A determination by the U.S. government that the Company has failed to comply with one or more of these export controls or trade sanctions could result in civil or criminal penalties, including the imposition of significant fines, denial of export privileges, loss of revenues from certain customers, and disqualification from participation in U.S. government contracts. Any one or more of these sanctions could have a material adverse effect on the Company’s business, financial condition and results of operations.

Income Tax Contingencies

In 2005, the Internal Revenue Service (“IRS”) completed its audit of the Company’s U.S. income tax returns for the years 2000 and 2001 and has proposed various adjustments to these income tax returns, including carry back adjustments to 1996 and 1999. In January 2007, after subsequent discussions with the Company, the IRS revised its proposed adjustments for these years. The Company has protested these proposed adjustments and is currently working through the matter with the IRS Appeals Division.

In May 2007, the IRS completed its audit of the Company’s U.S. income tax returns for the years 2002 and 2003 and has proposed various adjustments to these income tax returns. The Company has protested all of these proposed various adjustments and is currently working through the matters with the IRS Appeals Division.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The income tax returns for the Company’s subsidiary in Rousset, France for the 2005, 2004 and 2003 tax years are currently under examination by the French tax authorities. The examination has resulted in an income tax assessment and the Company is currently pursuing administrative appeal of the assessment. While the Company believes the resolution of this matter will not have a material adverse impact on its results of operations, cash flows or financial position, the outcome is subject to uncertainty.

In addition, the Company has a tax audit in progress in a U.S. state and various foreign jurisdictions.

While the Company believes that the resolution of these matters will not have a material adverse impact on the Company’s results of operations, cash flows or financial position, the outcome is subject to uncertainties. The Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations. Income taxes and related interest and penalties due for potential adjustments may result from the resolution of these examinations, and examinations of open U.S. federal, state and foreign tax years.

The Company’s income tax calculations are based on application of the respective U.S. Federal, state or foreign tax law. The Company’s tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due. To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense.

Product Warranties

The Company accrues for warranty costs based on historical trends of product failure rates and the expected material and labor costs to provide warranty services. The majority of products are generally covered by a warranty typically ranging from 90 days to two years.

The following table summarizes the activity related to the product warranty liability during the years ended December 31, 2007, 2006 and 2005:


	Years Ended
	December 31,			December 31,			December 31,
	2007			2006			2005
	(In thousands)

Balance at beginning of period	$	4,773		$	6,184		$	7,514
Accrual for warranties during the period, net of change in estimates		8,919			4,223			4,007
Actual costs incurred		(6,903	)		(5,634	)		(5,337	)

Balance at end of period	$	6,789		$	4,773		$	6,184

Guarantees

During the ordinary course of business, the Company provides standby letters of credit or other guarantee instruments to certain parties as required for certain transactions initiated by either its subsidiaries or by the Company. As of December 31, 2007, the maximum potential amount of future payments that the Company could be required to make under these guarantee agreements is $12,962. The Company has not recorded any liability in connection with these guarantee arrangements. Based on historical experience and information currently available, the Company believes it will not be required to make any payments under these guarantee arrangements.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 11	INCOME TAXES

The components of income (loss) from continuing operations before income taxes were as follows:


	Years Ended
	December 31,			December 31,			December 31,
	2007			2006			2005
	(In thousands)

U.S.	$	(149,491	)	$	(106,758	)	$	(138,183	)
Foreign		205,200			33,056			75,493

Income (loss) from continuing operations before income taxes	$	55,709		$	(73,702	)	$	(62,690	)

The provision for (benefit from) income taxes related to continuing operations consists of the following:


		Years Ended
		December 31,			December 31,		December 31,
		2007			2006		2005
		(In thousands)

Federal	Current	$	7,042		$	5,871	$	4,184
	Deferred		574			350		1,407
State	Current		29			28		—
	Deferred		—			—		—
Foreign	Current		(2,286	)		12,929		(19,938	)
	Deferred		2,465			5,771		1,284

Provision for (benefit from) income taxes		$	7,824		$	24,949	$	(13,063	)

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The tax effects of temporary differences that constitute significant portions of the deferred tax assets and deferred tax liabilities are presented below:


	December 31,			December 31,
	2007			2006
	(In thousands)

Deferred income tax assets:
Fixed assets	$	130,559		$	178,731
Intangible assets		8,136			4,362
Unrealized foreign exchange translation losses		26,589			22,307
Deferred income on shipments to distributors		21,184			9,831
Stock-based compensation		11,257			13,210
Accrued liabilities		32,624			42,860
Net operating losses		234,284			299,028
Research and development and other tax credits		55,932			68,145
Other		780			—

Total deferred income tax assets		521,345			638,474
Deferred income tax liabilities:
Other		—			(485	)

Total deferred income tax liabilities		—			(485	)
Less valuation allowance		(518,287	)		(629,004	)

Net deferred income tax assets	$	3,058		$	8,985

The Company records a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized. The net decrease in valuation allowance for the year ended December 31, 2007 resulted primarily from implementation of FIN 48, involving an analysis of reserves for fixed assets, net operating losses and research and development credits. The ultimate realization of the deferred tax assets depends upon future taxable income during periods in which the temporary differences become deductible. With the exception of the deferred tax assets of certain non-U.S. subsidiaries, based on historical losses and projections for making future taxable income over the periods that the deferred tax assets are deductible, the Company believes that it is more likely than not that it will not realize the benefit of the deferred tax assets, and accordingly, has provided a full valuation allowance. At December 31, 2007, the valuation allowance relates primarily to deferred tax assets in the United States, United Kingdom and France.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s effective tax rate differs from the U.S. Federal statutory income tax rate as follows:


	Years Ended
	December 31,			December 31,			December 31,
	2007			2006			2005

U.S. Federal statutory income tax rate		35.00	%		(35.00	)%		(35.00	)%
Difference between U.S. and foreign tax rates		(45.46	)		(15.87	)		3.14
Recognition of tax credits		(46.59	)		(5.32	)		(3.59	)
Net operating loss and future deductions not currently benefited		40.95			79.57			46.44
Provision for tax settlements and withholding taxes		26.10			9.38			8.35
Release of income taxes previously accrued		—			—			(39.21	)
Other		4.04			1.09			(0.97	)

Effective tax provision (benefit) rate		14.04	%		33.85	%		(20.84	)%

The income tax expense recorded for 2007 and 2006 resulted primarily from taxes incurred by the Company’s profitable foreign subsidiaries and an increase in tax reserves related to certain U.S. Federal, state and foreign tax liabilities offset by the recognition of tax credits in foreign jurisdictions.

The significant components of the net income tax benefit recorded for 2005 are attributed to the release of $24,581 in tax reserves resulting from the conclusion of an audit in Germany for the tax years 1999 through 2002 and from the expiration of a statute of limitations offset by income tax provisions recorded in the Company’s profitable foreign subsidiaries.

At December 31, 2007, there was no provision for U.S. income tax for undistributed earnings of approximately $509,085 as it is currently the Company’s intention to reinvest these earnings indefinitely in operations outside the U.S. If repatriated, these earnings could result in a tax expense of approximately $82,102 at the current U.S. Federal statutory tax rate of 35%, subject to available net operating losses and other factors. Subject to limitation, tax on undistributed earnings may also be reduced by foreign tax credits that may be generated in connection with the repatriation of earnings.

At December 31, 2007, the Company had net operating loss carry forwards in non-U.S. jurisdictions of approximately $318,190. These loss carry forwards expire in different periods starting in 2008. The Company also had U.S. Federal and state net operating loss carry forwards of approximately $514,262 and $600,903, respectively, at December 31, 2007. These loss carry forwards expire in different periods from 2008 through 2028. The Company also has U.S. Federal and state tax credits of approximately $47,869 at December 31, 2007 that will expire beginning in 2008.

On January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). Under FIN 48, the impact of an uncertain income tax position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Upon review of the Company’s reserves, there were no changes to its reserves for uncertain tax positions upon adoption. At the adoption date of January 1, 2007 and at December 31, 2007, the Company had $176,309 and $166,180 respectively of unrecognized tax benefits, all of which would affect its income tax expense if recognized. The following is a roll-forward of the

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Company’s gross unrecognized tax benefits associated with the Company’s uncertain tax positions for the period January 1, 2007 to December 31, 2007:


	Totals
	(In thousands)

Balance at January 1, 2007	$	176,309
Tax Positions Related to Current Year:
Additions		13,141
Tax Positions Related to Prior Year:
Reductions		(21,017	)
Settlements		(2,253	)

Balance at December 31, 2007	$	166,180

Management does not believe that it is reasonably possible that any issues will occur in the next 12 months to cause a material change in unrecognized tax benefits. The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. Management regularly assesses the Company’s tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which the Company does business.

The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2000 through 2007 tax years generally remain subject to examination by federal and most state tax authorities. For insignificant foreign jurisdictions, the 2003 through 2007 tax years generally remain subject to examination by their respective tax authorities.

In 2005, the Internal Revenue Service (“IRS”) completed its audit of the Company’s U.S. income tax returns for the years 2000 and 2001 and has proposed various adjustments to these income tax returns, including carry back adjustments to 1996 and 1999. In January 2007, after subsequent discussions with the Company, the IRS revised their proposed adjustments for these years. In May 2007, the IRS completed its audit of the Company’s U.S. income tax returns for the years 2002 and 2003 and has proposed various adjustments to these income tax returns. The Company has protested all of these proposed adjustments and is currently working through the matters with the IRS Appeals Division.

In addition the Company has a tax audit in progress in a U.S. state and various other foreign jurisdictions

While the Company believes the resolution of these matters will not have a material adverse impact on its results of operations, cash flows or financial position, the outcome is subject to uncertainty. The Company recognizes tax liabilities based upon our estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations. Income taxes and related interest and penalties due for potential adjustments may result from the resolution of these examinations, and examinations of open U.S. federal, state and foreign tax years.

The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of January 1, 2007, the Company had approximately $30,866 of accrued interest and/or penalties related to uncertain tax positions, which increased by $6,948 during 2007 resulting in an ending balance of $37,814 for the year ended December 31, 2007.

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 12	PENSION PLANS

The Company sponsors defined benefit pension plans that cover substantially all French and German employees. Plan benefits are provided in accordance with local statutory requirements. Benefits are based on years of service and employee compensation levels. The plans are unfunded. Pension liabilities and charges to expense are based upon various assumptions, updated quarterly, including discount rates, future salary increases, employee turnover, and mortality rates.

Retirement Plans consist of two types of plans. The first plan type provides for termination benefits paid to employees only at retirement, and consists of approximately one to five months of salary. This structure covers the Company’s French employees. The second plan type provides for defined benefit payouts for the remaining employee’s post-retirement life, and covers the Company’s German employees.

Effective December 31, 2006, the Company adopted the provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” which requires that the funded status of defined-benefit postretirement plans be recognized on the Company’s consolidated balance sheets, and changes in the funded status to be reflected in accumulated other comprehensive income of unrecognized actuarial gains or losses, prior service costs or credits and transition assets or obligations that had previously been deferred under the reporting requirements of SFAS No. 87, SFAS No. 106 and SFAS No. 132(R). Companies with publicly traded equity securities are required to disclose the information required by SFAS No. 158 for fiscal years ending after December 15, 2006. The following table reflects the effects of the adoption of SFAS No. 158 on the consolidated balance sheet on December 31, 2006:


	Pre SFAS No.					Post SFAS No.
	158 Adoption		Adjustments			158 Adoption

Deferred tax assets, long-term	$	7,716	$	249		$	7,965

Total assets	$	1,818,290	$	249		$	1,818,539

Accrued pension liabilities, current	$	477	$	653		$	1,130

Accrued pension liabilities, long-term	$	48,843	$	3,127		$	51,970

Deferred tax liability, long-term	$	416	$	69		$	485

Accumulated other comprehensive income	$	110,837	$	(3,600	)	$	107,237

Total liabilities and stockholders’ equity	$	1,818,290	$	249		$	1,818,539

The aggregate net pension expense relating to the two plan types are as follows:


	Years Ended
	December 31,		December 31,		December 31,
	2007		2006		2005
	(In thousands)

Service costs-benefits earned during the period	$	2,622	$	3,013	$	2,380
Interest cost on projected benefit obligation		2,530		2,318		2,096
Amortization of actuarial loss		123		589		115

Net pension cost	$	5,275	$	5,920	$	4,591

Distribution of pension costs:
Continuing operations	$	5,275	$	5,597	$	4,088
Discontinued operations		—		323		503

Net pension cost	$	5,275	$	5,920	$	4,591

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The change in projected benefit obligation during the years ended December 31, 2007 and 2006 and the accumulated benefit obligation at December 31, 2007 and 2006, were as follows:


	December 31,			December 31,
	2007			2006
	(In thousands)

Projected benefit of obligation at beginning of the year	$	52,945		$	52,993
Service cost		2,622			2,831
Interest cost		2,530			2,189
Actuarial gains		(10,223	)		(5,923	)
Benefits paid		(716	)		(564	)
Foreign currency exchange rate changes		5,421			1,419

Projected benefit obligation at end of the year	$	52,579		$	52,945

Accumulated benefit obligation at end of the year	$	44,884		$	47,808

As the defined benefit plans are unfunded, the liability recognized on the consolidated balance sheets as of December 31, 2007 was $52,579, of which $1,664 is included in accrued and other liabilities and $50,915 is included in other long-term liabilities. The liability recognized on the consolidated balance sheets as of December 31, 2006 was $52,945, of which $975 is included in accrued and other liabilities and $51,970 is included in other long-term liabilities.

Actuarial assumptions used to determine benefit obligations for the plans were as follows:


	Years Ended
	December 31,			December 31,			December 31,
	2007			2006			2005

Assumed discount rate		5.5-5.7	%		4.6	%		4.0-4.3	%
Assumed compensation rate of increase		2.0-4.0	%		2.0-4.0	%		2.0-4.0	%

The discount rate is based on the quarterly average yield for euro treasuries with a duration of 30 years, plus a supplement for corporate bonds (euro, AA rating). The discount rate utilized by the Company for 2007 increased to between 5.5% to 5.7% from 4.6% in 2006.

Future estimated expected benefit payments over the next ten years are as follows:


Years Ending December 31:
	(In thousands)

2008	$	1,664
2009		1,481
2010		1,462
2011		1,879
2012		1,707
2013 through 2017		12,950

	$	21,143

The Company’s pension liability represents the present value of estimated future benefits to be paid. With respect to the Company’s unfunded plans in Europe, during 2007, changes in the discount rate and an increase in inflation rate assumptions and an adjustment for retirement age used to calculate the present value of the pension liability resulted in a decrease in pension liability of $10,223 for the year ended December 31, 2007, compared to a decrease in the pension liability of $5,923 in the year ended December 31, 2006. This resulted in a benefit, net of tax,

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of $6,861 and $561, which was credited to accumulated other comprehensive income in stockholders’ equity in the years ended December 31, 2007 and 2006, respectively, in accordance with SFAS No. 158.

The net pension cost for 2008 is expected to be approximately $5,271. Cash funding for benefits paid was $716 in the year ended December 31, 2007. Cash funding for benefits to be paid for 2008 is expected to be approximately $1,664. The long-term portion of the accumulated benefit obligation liability is included in other long-term liabilities, while the current portion is included in accrued and other liabilities.

Amounts recognized in accumulated other comprehensive income consist of the following:


	December 31,			December 31,
	2007			2006
	(In thousands)

Net actuarial loss (gain)	$	(1,180	)	$	5,680
Prior service cost		5			6

	$	(1,175	)	$	5,686

Net actuarial losses of $54 are expected to be recognized as a component of net periodic pension benefit cost during 2008 and are included in accumulated other comprehensive income in the consolidated statement of shareholders’ equity and comprehensive income (loss) as of December 31, 2007.

Executive Deferred Compensation Plan

The Atmel Executive Deferred Compensation Plan is a non-qualified deferred compensation plan allowing certain executives to defer a portion of their salary and bonus. Participants are credited with returns based on the allocation of their account balances among mutual funds. The Company utilizes an investment advisor to control the investment of these funds and the participants remain general creditors of the Company. Distributions from the plan commence in the quarter following a participant’s retirement or termination of employment. The Company accounts for the Executive Deferred Compensation Plan in accordance with EITF No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested” (“EITF No. 97-14”). In accordance with EITF No. 97-14, the liability associated with the other diversified assets is being marked to market with the offset being recorded as compensation expense, primarily selling, general and administrative expense, to the extent there is an increase in the value, or a reduction of operating expense, primarily selling, general and administrative expense, to the extent there is a decrease in value. The other diversified assets are marked to market with the offset being recorded as other income (expense), net.

At December 31, 2007 and 2006, the Company’s deferred compensation plan assets totaled $3,828 and $3,715, respectively, and are included in other current assets on the consolidated balance sheets and the corresponding deferred compensation plan liability at December 31, 2007 and 2006, totaled $3,911 and $3,771, respectively, and are included in other current liabilities on the consolidated balance sheets.

401(k) Tax Deferred Savings Plan

The Company maintains a 401(k) Tax Deferred Savings Plan for the benefit of qualified employees who are primarily U.S. based, and matches each eligible employee’s contribution up to a maximum of five hundred dollars. The Company’s matching contribution was $668, $656 and $688 for 2007, 2006 and 2005, respectively.


Note 13	OPERATING AND GEOGRAPHICAL SEGMENTS

The Company designs, develops, manufactures and sells a wide range of semiconductor integrated circuit products. The segments represent management’s view of the Company’s businesses and how it allocates Company resources and measures performance of its major components. In addition, each segment comprises product families with similar requirements for design, development and marketing. Each segment requires different design,

100

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

development and marketing resources to produce and sell semiconductor integrated circuits. Atmel’s four reportable segments are as follows:


	•	Application specific integrated circuit (“ASIC”) segment includes custom application specific integrated circuits designed to meet specialized single-customer requirements for their high performance devices in a broad variety of applications. This segment also encompasses a range of products which provide security for digital data, including smart cards for mobile phones, set top boxes, banking and national identity cards. The Company also develops customer specific ASICs, some of which have military applications. This segment also includes products with military and aerospace applications.

	•	Microcontrollers segment includes a variety of proprietary and standard microcontrollers, the majority of which contain embedded nonvolatile memory and integrated analog peripherals. This segment also includes products with military and aerospace applications.

	•	Nonvolatile Memories segment consists predominantly of serial interface electrically erasable programmable read-only memory (“SEEPROM”) and serial interface Flash memory products. This segment also includes parallel interface Flash memories as well as mature parallel interface EEPROM and EPROM devices. This segment also includes products with military and aerospace applications.

	•	Radio Frequency (“RF”) and Automotive segment includes products designed for the automotive industry. This segment produces and sells wireless and wired devices for industrial, consumer and automotive applications and it also provides foundry services which produce radio frequency products for the mobile telecommunications market.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates segment performance based on revenues and income or loss from operations excluding charges for grant repayments, asset impairment charges (recovery), restructuring charges and loss on sale and other charges. Interest and other income (expenses), net, nonrecurring gains and losses, foreign exchange gains and losses and income taxes are not measured by operating segment.

The Company’s wafer manufacturing facilities fabricate integrated circuits for segments as necessary and their operating costs are reflected in the segments’ cost of revenues on the basis of product costs. Because segments are defined by the products they design and sell, they do not make sales to each other. The Company does not allocate assets by segment, as management does not use asset information to measure or evaluate a segment’s performance. Certain product families have been reassigned between the ASIC and Microcontroller segments to improve organizational efficiency and reflect the way management evaluates segment performance. As a result, prior period net revenues and income from operating segments have been reclassified to conform to the current year presentation of operating segment information.

101

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information about Reportable Segments


				Micro-		Nonvolatile			RF and
	ASIC			Controllers		Memories			Automotive		Total
	(In thousands)

Year ended December 31, 2007
Net revenues from external customers	$	495,815		$	458,228	$	376,675		$	308,519	$	1,639,237
Segment income (loss) from operations		(21,132	)		27,718		40,015			18,778		65,379
Year ended December 31, 2006
Net revenues from external customers	$	501,698		$	408,394	$	375,319		$	385,476	$	1,670,887
Segment income (loss) from operations		(51,476	)		59,008		32,062			19,775		59,369
Year ended December 31, 2005
Net revenues from external customers	$	534,223		$	276,771	$	393,055		$	357,058	$	1,561,107
Segment income (loss) from operations		(90,638	)		40,210		(10,896	)		4,053		(57,271	)

Amounts for the years ended December 31, 2006 and 2005 have been adjusted to reflect the divestiture of the Company’s Grenoble, France, subsidiary in July 2006. In 2006 and 2005, net revenues related to this subsidiary and included in Discontinued Operations totaled $79,871 and $114,608, respectively. These amounts were previously reported in the Company’s ASIC operating segment. See Note 18 for further discussion.

Reconciliation of Segment Information to Consolidated Statements of Operations


	Years Ended
	December 31,			December 31,			December 31,
	2007			2006			2005
	(In thousands)

Total segment income (loss) from operations	$	65,379		$	59,369		$	(57,271	)
Unallocated amounts:
Charges for grant repayments		(1,464	)		(30,034	)		—
Asset impairment recovery (charges)		1,057			(82,582	)		(12,757	)
Restructuring charges		(13,239	)		(8,729	)		(4,483	)
Loss on sale and other charges		—			—			(13,199	)

Consolidated income (loss) from operations	$	51,733		$	(61,976	)	$	(87,710	)

102

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

See Notes 14, 15, 16 and 17 for further discussion of charges for grant repayments, asset impairment charges (recovery), restructuring charges and loss on sale and other charges, respectively. Geographic sources of net revenues for each of the years ended December 31, 2007, 2006 and 2005 were as follows:


	Years Ended
	December 31,		December 31,		December 31,
	2007		2006		2005
	(In thousands)

United States	$	219,541	$	241,379	$	210,399
Germany		227,311		192,278		144,893
France		154,866		168,047		138,960
United Kingdom		33,844		29,042		24,594
Japan		90,767		57,576		49,671
China, including Hong Kong		375,544		352,437		356,868
Singapore		153,102		257,312		271,616
Rest of Asia-Pacific		208,005		206,901		198,709
Rest of Europe		155,455		151,887		147,103
Rest of the World		20,802		14,028		18,294

Total net revenues	$	1,639,237	$	1,670,887	$	1,561,107

Locations of long-lived assets as of December 31, 2007 and 2006 were as follows:


	December 31,		December 31,
	2007		2006
	(In thousands)

United States	$	137,334	$	159,998
Germany		34,337		30,733
France		268,358		285,469
United Kingdom		106,651		108,510
Asia-Pacific		28,541		19,915
Rest of Europe		17,756		12,095

Total	$	592,977	$	616,720

No single customer accounted for more than 10% of net revenues in the years ended December 31, 2007, 2006 and 2005, respectively.

At December 31, 2006, long-lived assets totaling $35,040, which were classified as held for sale, and excluded from the table above, were located in the United States.

Net revenues are attributed to countries based on delivery locations.


Note 14	CHARGES FOR GRANT REPAYMENTS

In the fourth quarter of 2006, the Company announced its intention to close its design facility in Greece and sell its manufacturing facility in North Tyneside, United Kingdom. The Company recorded a charge of $30,034 in the fourth quarter of 2006 associated with the expected repayment of subsidy grants previously received and recognized related to grant agreements with government agencies at these locations. The proceeds of the subsidy grants were originally recorded as either a reduction of cost of revenues or research and development expense when they were recognized during the period from 2001 to 2006. In 2007, the Company recorded additional accrued interest of $1,464 related to the expected grant repayments. All of these charges have been included in “Charges for Grant

103

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Repayments” in the consolidated statements of operations. The Company previously recognized the subsidy grant benefits, which are subject to repayment, by year as follows:


				Research
Years Ended		Cost of		and Development
December 31,		Revenues		Expenses		Total
(In thousands)

	2006	$	6,607	$	302	$	6,909
	2005		6,483		940		7,423
	2004		4,181		409		4,590
	2003		—		2,143		2,143
	2002		—		2,086		2,086
	2001		—		543		543

		$	17,271	$	6,423	$	23,694

Charges for grant repayments for the years ended December 31, 2007 and 2006 are as follows:


	Years Ended
	December 31,		December 31,
	2007		2006
	(In thousands)

Grant benefits previously recognized	$	—	$	23,694
Accrued interest		1,464		1,908
Impact of foreign exchange		—		4,432

Total charges for grant repayments	$	1,464	$	30,034

As of December 31, 2007 and 2006, the Company also had $18,814 and $17,613, respectively, of unrecognized grant benefits that are subject to repayment. As a result, at December 31, 2007, the total liability for grant benefits, which are subject to repayment was $50,312, of which $39,519 was recorded in accounts payable, and $10,793 in accrued and other liabilities. The Company repaid $39,519 in February 2008.


Note 15	ASSET IMPAIRMENT CHARGES (RECOVERY)

Under Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”) the Company assesses the recoverability of long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the Company may not be able to recover the asset’s carrying amount. The Company measures the amount of impairment of such long-lived assets by the amount by which the carrying value of the asset exceeds the fair market value of the asset, which is generally determined based on projected discounted future cash flows or appraised values. The Company classifies long-lived assets to be disposed of other than by sale as held and used until they are disposed, including assets not available for immediate sale in their present condition. The Company reports assets and liabilities to be disposed of by sale under the caption of “held for sale” and recognizes those assets and liabilities on the condensed consolidated balance sheet at the lower of carrying amount or fair value, less cost to sell. Assets classified as held for sale are not depreciated.

North Tyneside, United Kingdom, and Heilbronn, Germany, Facilities

The Company acquired the North Tyneside, United Kingdom, facility in September 2000, including an interest in 100 acres of land and the fabrication facility of approximately 750,000 square feet, for $100,000. The Company has the right to acquire title to the land in 2016 for a nominal amount. The Company sold 40 acres in 2002 for $13,900. The Company recorded an asset impairment charge of $317,927 in the second quarter of 2002 to write-down the carrying value of equipment in the fabrication facilities in North Tyneside, United Kingdom, to its estimated fair value, based on management’s best estimates considering a number of factors.

104

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In December 2006, the Company announced its decision to sell its wafer fabrication facilities in North Tyneside, United Kingdom, and Heilbronn, Germany, in an effort to increase manufacturing efficiencies by better utilizing remaining wafer fabrication facilities, while reducing future capital expenditure requirements. Following the announcement of its intention to sell the North Tyneside facility in the fourth quarter of 2006, the Company assessed the fair market value of the facility compared to the carrying value recorded. The fair value of North Tyneside was determined using a market-based valuation technique and estimated future cash flows. The Company recorded a net impairment charge of $72,277 in the quarter ended December 31, 2006 related to the write-down of long lived assets to their estimated fair values, less costs to dispose of the assets. The Company classified assets of the North Tyneside facility with a net book value of $88,757 (excluding cash and inventory, which would not be included in any sale of the facility) as assets held-for-sale on the consolidated balance sheet as of December 31, 2006.

On October 8, 2007, the Company entered into definitive agreements to sell certain wafer fabrication equipment and land and buildings at North Tyneside to TSMC and Highbridge for a total of approximately $124,000. The disposal group previously classified as held for sale included all assets (excluding cash and inventory) and liabilities of the North Tyneside legal entity. Upon entering into the agreements noted above, we determined that certain equipment and all of the related liabilities were no longer included in the disposal group as they were not being acquired or assumed by the buyer. As a result, the Company reassessed whether the assets to be sold in this transaction continued to meet the criteria for classification as held for sale as of September 30, 2007. The Company concluded that the assets to be sold under the above agreements were no longer available for immediate sale in their present condition as the terms of the these agreements require us to perform significant additional steps, including the dismantling, decommissioning and testing of the wafer fabrication equipment before TSMC will accept transfer of title of the purchased equipment, as well as the delivery of a vacated building to Highbridge. The Company had previously expected to sell the assets in the form of the transfer of the legal entity and then enter into a further supply agreement for product wafers with the buyer. However, the agreements noted above require termination of production efforts in order to deliver assets in the condition specified by the buyers. The Company has determined that it needs to continue to operate the facility in order to build sufficient inventory as a result of the closure of the North Tyneside facility, and therefore cannot deliver the assets to be sold in the conditions specified in the sales agreements until production activity is concluded, which occurred in February 2008. In accordance with SFAS No. 144, the Company determined in the third quarter of 2007 that the assets to be sold to TSMC and Highbridge did not meet the criteria for assets held for sale and were reclassified as held and used, and measured at the lower of their adjusted carrying amounts or fair values less cost to sell as of December 31, 2007. The Company received proceeds of $42,951 from Highbridge for the closing of the real property portion of the transaction in November 2007 and a gain on the sale of the real property will be recognized upon us vacating the facility. The gain on the sale of fabrication equipment will be recognized when such equipment is transferred to and accepted by TSMC in the first two quarters of 2008.

In accordance with SFAS No. 144, these assets are reported individually at the lower of their respective carrying amount before they were initially classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had these assets been continuously classified as held and used or the fair value at the date of the subsequent decision not to sell. As a result of this reclassification, the Company recorded a credit of $1,057 related to the recovery of previous impairment charges recorded for these assets in 2006. This credit is included within Asset Impairment Recovery on the consolidated statements of operations.

The Heilbronn, Germany, facility did not meet the criteria for classification as held for sale as of December 31, 2007 and 2006, due to uncertainties relating to the likelihood of completing the sale within the next twelve months. Long-lived assets of this facility at December 31, 2007 and 2006 were classified as held and used. After an assessment of expected future cash flows generated by the Heilbronn, Germany facility, the Company concluded that no impairment existed in the years ended December 31, 2007 and 2006.

105

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Irving, Texas, Facility

The Company acquired its Irving, Texas, wafer fabrication facility in January 2000 for $60,000 plus $25,000 in additional costs to retrofit the facility after the purchase. Following significant investment and effort to reach commercial production levels, the Company decided to close the facility in 2002 and it has been idle since then. Since 2002, the Company recorded various impairment charges, including $3,980 during the quarter ended December 31, 2005. In the quarter ended December 31, 2006, the Company performed an assessment of the market value for this facility based on management’s estimate, which considered a current offer from a willing third party to purchase the facility, among other factors, in determining fair market value. Based on this assessment, an additional impairment charge of $10,305 was recorded.

The Company classified the assets of Irving, Texas, facility of $35,040 as held for sale during the quarter ended December 31, 2006. The Irving facility did not qualify as discontinued operations as it is an idle facility and does not constitute a component of an entity in accordance with SFAS No. 144.

On May 1, 2007, the Company sold its Irving, Texas, wafer fabrication facility for $36,500 in cash ($34,714, net of selling costs). The sale of the facility included 39 acres of land, the fabrication facility building and related offices, and remaining equipment. An additional 17 acres of undeveloped land was retained by the Company and is currently offered for sale. No significant gain or loss was recorded upon the sale of the facility.

The following table summarizes the asset impairment charges (recovery) included in the consolidated statements of operations for the years ended December 31, 2007, 2006 and 2005:


	Years Ended
	December 31,			December 31,		December 31,
	2007			2006		2005
	(In thousands)

North Tyneside, United Kingdom	$	(1,057	)	$	72,277	$	—
Irving, Texas		—			10,305		3,980
Colorado Springs, Colorado		—			—		8,777

Total asset impairment charges (recovery)	$	(1,057	)	$	82,582	$	12,757


Note 16	RESTRUCTURING CHARGES

The following table summarizes the activity related to the accrual for restructuring charges detailed by event for the years ended December 31, 2007, 2006 and 2005.


	January 1,								Currency		December 31,
	2007		Charges/						Translation		2007
	Accrual		(Credits)			Payments			Adjustment		Accrual
	(In thousands)

Third quarter of 2002
Termination of contract with supplier	$	8,896	$	(3,071	)	$	(4,233	)	$	—	$	1,592
Fourth quarter of 2006
Employee termination costs		7,490		3,305			(9,959	)		488		1,324
Fourth quarter of 2007
Employee termination costs		—		12,441			—			318		12,759
Other exit related costs		—		564			(564	)		—		—

Total 2007 activity	$	16,386	$	13,239		$	(14,756	)	$	806	$	15,675	(1)


(1)		$15,675 is recorded in accrued and other liabilities, which is expected to be paid prior to December 31, 2008.

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Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	January 1,							December 31,
	2006							2006
	Accrual		Charges		Payments			Accrual
	(In thousands)

Third quarter of 2002
Termination of contract with supplier	$	9,833	$	—	$	(937	)	$	8,896
Third quarter of 2005
Employee termination costs		1,246		—		(1,246	)		—
Fourth quarter of 2005
Employee termination costs		1,223		—		(1,223	)		—
First quarter of 2006
Employee termination costs		—		151		(151	)		—
Fourth quarter of 2006
Employee termination costs		—		8,578		(1,088	)		7,490

Total 2006 activity	$	12,302	$	8,729	$	(4,645	)	$	16,386	(2)


(2)		$8,511 is recorded in accrued and other liabilities and $7,875 is recorded in other long-term liabilities.


	January 1,							December 31,
	2005							2005
	Accrual		Charges		Payments			Accrual
	(In thousands)

Third quarter of 2002
Termination of contract with supplier	$	10,919	$	—	$	(1,086	)	$	9,833
Third quarter of 2005
Employee termination costs		—		2,452		(1,206	)		1,246
Fourth quarter of 2005
Employee termination costs		—		2,031		(808	)		1,223

Total 2005 activity	$	10,919	$	4,483	$	(3,100	)	$	12,302

2007 Restructuring Activities

During 2007, the Company continued to implement the restructuring initiatives announced from 2002 to 2006 and in 2007, and recorded a net restructuring charge of $13,239, which consisted of the following:

The Company incurred restructuring charges related to the signing of definitive agreements in October 2007 to sell certain wafer fabrication equipment and real property at North Tyneside to Taiwan Semiconductor Manufacturing Company Limited (“TSMC”) and Highbridge Business Park Limited (“Highbridge”). As a result of this action, this facility will be closed and all of the employees of the facility will be terminated. During the fourth quarter of 2007, the Company recorded the following additional restructuring charges:


	•	Charges of $11,084 related to one-time severance costs for involuntary termination of employees. These employee severance costs were recorded in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”).

	•	Charges of $1,357 related to on-going severance costs for involuntary termination of employees. These employee severance costs were recorded in accordance with SFAS No. 112, “Employer’s Accounting for Post Employment Benefits — an amendment of FASB Statements No. 5 and 43” (“SFAS No. 112”).

	•	Charges of $564 related to other exit related costs, which were recorded in accordance with SFAS No. 146.

107

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In addition, the Company incurred the following in 2007:


	•	Charges of $2,050 related to severance costs for involuntary termination of employees. These employee severance costs were recorded in accordance with SFAS No. 146.

	•	Charges of $1,255 related to one-time minimum statutory termination benefits, including changes in estimates, recorded in accordance with SFAS No. 112.

	•	A credit of $3,071 related to the settlement of a long-term gas supply contract for which the accrual was $12,437, originally recorded in the third quarter of 2002. On May 1, 2007, in connection with the sale of the Irving, Texas facility, the Company paid $5,600 to terminate this contract, of which $1,700 was reimbursed by the buyer of the facility. The remaining balance of $1,592 is expected to be paid upon the commencement of volume manufacturing activity by the buyer in 2008.

Further, in 2007, the Company paid $9,959 related to employee termination costs recorded in 2007 and 2006.

2006 Restructuring Activities

In the first quarter of 2006, the Company incurred $151 in restructuring charges primarily comprised of severance and one-time termination benefits.

In the fourth quarter of 2006, the Company announced a restructuring initiative to focus on high growth, high margin proprietary product lines and optimize manufacturing operations. This restructuring plan will impact approximately 300 employees across multiple business functions. The charges directly relating to this initiative consist of the following:


	•	$6,897 in one-time minimum statutory termination benefits recorded in accordance with SFAS No. 112. These costs related to the termination of employees in Europe.

	•	$1,681 in one-time severance costs related to the involuntary termination of employees, primarily in manufacturing, research and development and administration. These benefits costs were recorded in accordance with SFAS No. 146.

In 2006, the Company paid $1,239 related to employee termination costs recorded in 2006.

2005 Restructuring Activities

Beginning in the third quarter of 2005, the Company began to implement cost reduction initiatives to further align its cost structure to industry conditions, targeting high labor costs and excess capacity. Pursuant to this, during 2005, the Company recorded a restructuring $4,483 of one-time involuntary termination severance benefits costs related to the termination of 193 employees primarily in manufacturing, research and development and administration.

In 2005, the Company paid $2,014 related to employee termination costs. In 2006, the Company paid the remaining $2,469 of the employee termination costs.

In 2006 and 2005, restructuring charges related to the Company’s Grenoble, France, subsidiary included in Results from Discontinued Operations totaled $193 and $338, respectively. See Note 18 for further discussion.


Note 17	LOSS ON SALE AND OTHER CHARGES

Nantes Fabrication Facility Sale

On December 6, 2005, the Company sold its Nantes, France fabrication facility, and the related foundry activities, to XbyBus SAS. The facility, which the Company had owned since 1998, comprised of five buildings totaling 131,000 square feet, capable of manufacturing BiCMOS, CMOS and non-volatile memory semiconductor

108

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

wafer technologies. The facility employed a total of 603 persons, of which 284 employees were retained by the Company and the remaining 319 manufacturing employees were transferred to XbyBus SAS upon completion of the sale.

The Company recorded $13,199 for loss on sale of assets and other charges in the year ended December 31, 2005 related to the sale of its Nantes fabrication facility. These charges consisted of the following:


	•	$10,585 associated with the loss on the sale of the Company’s Nantes fabrication facility, including the cost of transferring 319 employees to the buyer.

	•	$2,614 of building and improvements were removed from operations and written down to zero following relocation of certain manufacturing activities to Asia.

The Nantes facility was sold for an amount which approximated the net book value of assets sold less liabilities assumed plus an additional capital contribution made to XbyBus SAS. The liabilities assumed by XbyBus SAS totaled approximately 4,739 euros ($5,587), while the assets transferred totaled approximately 4,106 euros ($4,841), comprised of fixed assets with a net book value of 2,838 euros ($3,346) and inventory valued at 1,268 euros ($1,495); Atmel further agreed to make an additional cash contribution of 6,496 euros ($7,659) and incur additional closing costs of 3,115 euros ($3,673) primarily relating to the transfer of additional assets along with maintenance and clean-up costs to transfer the fabrication facility buildings. In total, the Company incurred a loss of 8,978 euros ($10,585) on the sale of the Nantes fabrication facility. Concurrent with the sale, the Company entered into a three-year supply agreement with a subsidiary of XbyBus SAS calling for the Company to purchase a minimum volume of wafers through fiscal year 2008. The supply agreement requires a minimum purchase of $58,777, of which $15,746 is still required over the remaining term of the agreement as of December 31, 2007. As a result of the significant continuing cash flows relating to this supply agreement, the Company did not meet the criteria to classify the results of operations of Nantes as discontinued operations.

The Nantes facility sale occurred in connection with the Company’s continuing efforts to consolidate its manufacturing operations, improve gross margins, and reduce operating costs.


Note 18	DISCONTINUED OPERATIONS

Grenoble, France, Subsidiary Sale

The Company’s consolidated financial statements and related footnote disclosures reflect the results of the Company’s Grenoble, France, subsidiary as Discontinued Operations, net of applicable income taxes, for all reporting periods presented.

In July 2006, Atmel completed the sale of its Grenoble, France, subsidiary to e2v technologies plc, a British corporation (“e2v”). On August 1, 2006, the Company received $140,000 in cash upon closing ($120,073, net of working capital adjustments and costs of disposition).

The Grenoble facility was originally acquired in May 2000 from Thomson-CSF, and performed the manufacturing of image sensors, as well as analog, digital and radio frequency ASICs.

In connection with the sale, Atmel agreed to provide certain technical support, foundry, distribution and other services extending up to four years following the completion of the sale, and in turn e2v has agreed to provide certain design and other services to Atmel extending up to 5 years following the completion of the sale. The financial statement impact of these agreements is not expected to be material to the Company. The ongoing cash flows between Atmel and e2v are not significant and as a result, the Company has no significant continuing

109

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

involvement in the operations of the subsidiary. Therefore, the Company has met the criteria in SFAS No. 144, which were necessary to classify the Grenoble, France, subsidiary as discontinued operations.

Included in other currents assets on the consolidated balance sheets is an outstanding receivable balance due from e2v of $989 and $24,843 as of December 31, 2007 and 2006, respectively, related to payments advanced to e2v to be collected from customers of e2v by Atmel. The transitioning of the collection of trade and other receivables on behalf of e2v is expected to be completed in 2008.

The following table shows the components of the gain from the sale of Discontinued Operations, net of taxes, recognized upon the sale:


	(In thousands)

Proceeds, net of working capital adjustments	$	122,610
Costs of disposition		(2,537	)

Net proceeds from the sale		120,073

Less:
Book value of net assets disposed of		(14,866	)
Cumulative translation adjustment effect		4,631

Gain on sale of discontinued operations, before income taxes		109,838
Provision for income taxes		(9,506	)

Gain on sale of discontinued operations, net of income taxes	$	100,332

The following table summarizes results from Discontinued Operations for the periods indicated included in the consolidated statement of operations:


	December 31,			December 31,
	2006			2005
	(In thousands)

Net revenues	$	79,871		$	114,608
Operating costs and expenses		57,509			91,838

Income from discontinued operations, before income taxes		22,362			22,770
Gain on sale of discontinued operations, before income taxes		109,838			—

Income from and gain on sale of discontinued operations		132,200			22,770
Less: provision for income taxes		(18,899	)		(6,494	)

Income from and gain on sale of discontinued operations, net of income taxes	$	113,301		$	16,276

Income from and gain on sale of discontinued operations, net of income taxes, per share:
Basic and diluted	$	0.23		$	0.03

Weighted-average shares used in basic and diluted income per share calculations		487,413			481,534


Note 19	NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is calculated by using the weighted-average number of common shares outstanding during that period. Diluted net income per share is calculated giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental

110

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

common shares issuable upon exercise of stock options, upon vesting of restricted stock, and convertible securities for all periods. No dilutive potential common shares were included in the computation of any diluted per share amount when a loss from continuing operations was reported by the Company. Income or loss from operations is the “control number” in determining whether potential common shares are dilutive or anti-dilutive.

A reconciliation of the numerator and denominator of basic and diluted net income (loss) per share for both continuing and discontinued operations is provided as follows:


	Years Ended
	December 31,		December 31,			December 31,
	2007		2006			2005
	(In thousands)

Income (loss) from continuing operations	$	47,885	$	(98,651	)	$	(49,627	)
Income from discontinued operations, net of provision for income taxes		—		12,969			16,276
Gain on sale of discontinued operations, net of provision for income taxes		—		100,332			—

Net income (loss)	$	47,885	$	14,650		$	(33,351	)

Weighted-average shares — basic		477,213		487,413			481,534
Incremental shares and share equivalents		4,524		—			—

Weighted-average shares — diluted		481,737		487,413			481,534

Net income (loss) share:
Basic
Income (loss) from continuing operations	$	0.10	$	(0.20	)	$	(0.10	)
Income from discontinued operations, net of provision for income taxes		—		0.02			0.03
Gain on sale of discontinued operations, net of provision for income taxes		—		0.21			—

Net income (loss) per share — basic	$	0.10	$	0.03		$	(0.07	)

Diluted
Income (loss) from continuing operations	$	0.10	$	(0.20	)	$	(0.10	)
Income from discontinued operations, net of income taxes		—		0.02			0.03
Gain on sale of discontinued operations, net of income taxes		—		0.21			—

Net income (loss) per share — diluted	$	0.10	$	0.03		$	(0.07	)

111

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes weighted-average securities which were not included in the “Weighted-average shares — diluted” used for calculation of diluted net income per share, as the impact of including them would have been anti-dilutive for these years:


	Years Ended
	December 31,			December 31,		December 31,
	2007			2006		2005
	(In thousands)

Employee stock options and restricted stock units outstanding		32,668			29,079		30,653
Incremental shares and share equivalents		(4,524	)		—		—

Incremental shares and share equivalents excluded from per share calculation		28,144			29,079		30,653

Common stock equivalent shares associated with:
Convertible notes due 2018		—			8		16
Convertible notes due 2021		—			1,310		4,875

Total weighted-average potential shares excluded from per share calculation		28,144			30,397		35,544

The calculation of dilutive or potentially dilutive common shares related to the Company’s convertible securities considers the conversion features associated with these securities. Conversion features were considered, as at the option of the holders, the 2018 and 2021 convertible notes are convertible at any time, into the Company’s common stock at the rate of 55.932 shares per $1 (one thousand dollars) principal amount and 22.983 shares per $1 (one thousand dollars) principal amount, respectively. In this scenario, the “if converted” calculations are based upon the average outstanding convertible note balance for the last 12 months and the respective conversion ratios. These convertible notes were redeemed in full in 2006.


Note 20	LEGAL AWARDS AND SETTLEMENTS

In 1996, the Company entered into a license agreement with LM Ericsson Telefon, AB covering its proprietary AVR microprocessor technology. In November 2003, the Company filed an arbitration complaint with the International Centre for Dispute Resolution against Ericsson and its subsidiary, Ericsson Mobile Platform (collectively, “Ericsson”) for breach of contract, fraud and misappropriation of trade secrets, among other claims, relating to such technology. In November 2005, the arbitration panel awarded the Company approximately $43,119 in damages and granted an injunction against certain activities of Ericsson. The Company received the payment from Ericsson for the award on December 21, 2005.


Note 21	INTEREST AND OTHER INCOME (EXPENSES), NET

Interest and other income (expenses), net, is summarized in the following table:


	Years Ended
	December 31,			December 31,			December 31,
	2007			2006			2005
	(In thousands)

Interest and other income	$	16,716		$	17,677		$	11,551
Interest expense		(12,351	)		(20,039	)		(29,594	)
Foreign exchange transaction losses		(389	)		(9,364	)		(1,306	)

Total	$	3,976		$	(11,726	)	$	(19,349	)

112

Atmel Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In 2006 and 2005, interest and other expenses, net related to the Company’s Grenoble, France, subsidiary and included in Discontinued Operations totaled $541 and $548, respectively (see Note 18 for further discussion).


Note 22	ACCELERATED SHARE REPURCHASE PROGRAM

On August 26, 2007, the Company entered into collared accelerated share repurchase program with each of Morgan Stanley & Co. Incorporated and Credit Suisse, New York Branch (the “dealers”) to repurchase up to an aggregate of $250,000 of its common stock. Pursuant to the terms of the transactions, the Company prepaid $125,000 to each dealer shortly after execution of the transactions, and the Company agreed to purchase up to $125,000 of its common stock from each dealer. The aggregate number of shares actually purchased was determined based on the volume weighted average share price of the Company’s common stock during a specified period of time, subject to certain provisions that established a minimum and maximum number of shares that may be repurchased by the Company. In September 2007, the dealers delivered an aggregate of 43,367 shares to the Company, which was the minimum number of shares to be repurchased by the Company. On November 5, 2007, the Company received approximately 2,774 additional shares from Morgan Stanley & Co. Incorporated and on November 13, 2007, the Company received approximately 2,782 additional shares from Credit Suisse, New York Branch. The total number of shares repurchased under the program was 48,923, which were retired. No additional shares are expected to be repurchased pursuant to the collared accelerated share repurchase program. The effective price per share of all shares repurchased under the program was $5.11.

The payment of $250,151 was included in the cash flows from financing activities in the Company’s consolidated statement of cash flow and was recorded as a reduction of common stock and additional paid-in capital in the Company’s consolidated balance sheet.


Note 23	SUBSEQUENT EVENTS

On February 6, 2008, the Company announced that it had entered into a definitive agreement for the purchase of Quantum Research Group Ltd. (“Quantum”), a developer of capacitive sensing IP and solutions for user interfaces. Under the terms of the agreement, the Company will pay approximately $88,000 in cash at closing and upon the satisfaction of certain contingencies over the next three years, certain Quantum shareholders may also receive up to an additional $42,000 in cash and the Company’s common stock, the ratio of which will be determined at closing. The acquisition of Quantum is expected to close in the first quarter of 2008, subject to customary closing conditions and regulatory approvals.

113

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Atmel Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows present fairly, in all material respects, the financial position of Atmel Corporation and its subsidiaries at December 31, 2007 and December 31, 2006 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company changed its method of accounting for stock-based compensation.

As discussed in Note 11 to the consolidated financial statements, effective January 1, 2007, the Company changed its method of accounting for uncertain tax positions.

As discussed in Note 12 to the consolidated financial statements, effective December 31, 2006, the Company changed its method of accounting for defined benefit pension plans.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

San Jose, California

February 29, 2008

114

Schedule II
ATMEL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2007, 2006 and 2005


	Balance at		Charged						Balance at
	Beginning		(Credited)			Deductions—			End
	of Year		to Expense			Write-offs			of Year
	(In thousands)

Allowance for doubtful accounts receivable:
Year ended December 31, 2007	$	3,605	$	(212	)	$	(282	)		3,111
Year ended December 31, 2006		3,944		106			(445	)		3,605
Year ended December 31, 2005		10,011		(5,575	)		(492	)		3,944

115

UNAUDITED QUARTERLY FINANCIAL INFORMATION

The following tables set forth a summary of the Company’s quarterly financial information for each of the four quarters in the years ended December 31, 2007 and 2006:


	First		Second		Third		Fourth
Year Ended December 31, 2007(1)	Quarter		Quarter		Quarter		Quarter
	(In thousands, except per share data)

Net revenues	$	391,313	$	404,247	$	418,097	$	425,580

Gross profit		139,937		141,642		149,034		149,618

Net income	$	28,940	$	678	$	16,553	$	1,714

Basic net income per share:
Net income	$	0.06	$	0.00	$	0.03	$	0.00

Weighted-average shares used in basic net income per share calculations		488,842		488,916		485,540		446,003

Diluted net income per share:
Net income	$	0.06	$	0.00	$	0.03	$	0.00

Weighted-average shares used in diluted net income per share calculations		494,198		494,244		489,791		449,136

116


	First			Second		Third		Fourth
Year Ended December 31, 2006(2)	Quarter			Quarter		Quarter		Quarter
	(In thousands, except per share data)

Net revenues	$	400,784		$	429,488	$	431,734	$	408,881

Gross profit		126,382			139,029		151,557		145,150

Income (loss) from continuing operations		(1,154	)		2,851		22,260		(122,608	)
Income from discontinued operations, net of income taxes		5,862			5,428		1,679		—
Gain on sale of discontinued operations, net of income taxes		—			—		100,332		—

Net income (loss)	$	4,708		$	8,279	$	124,271	$	(122,608	)

Basic net income (loss) per share:
Income (loss) from continuing operations	$	(0.00	)	$	0.01	$	0.04	$	(0.25	)
Income from discontinued operations, net of income taxes		0.01			0.01		0.00		—
Gain on sale of discontinued operations, net of income taxes		—			—		0.21		—

Net income (loss)	$	0.01		$	0.02	$	0.25	$	(0.25	)

Weighted-average shares used in basic net income (loss) per share calculations		485,576			486,928		488,303		488,844

Diluted net income (loss) per share:
Income (loss) from continuing operations	$	(0.00	)	$	0.01	$	0.05	$	(0.25	)
Income from discontinued operations, net of income taxes		0.01			0.01		0.00		—
Gain on sale of discontinued operations, net of income taxes		—			—		0.20		—

Net income (loss)	$	0.01		$	0.02	$	0.25	$	(0.25	)

Weighted-average shares used in diluted net income (loss) per share calculations		485,576			493,045		494,066		488,844


(1)		The Company recorded charges for grant repayments of $0.3 million and $1 million in the quarters ended December 31, 2007 and September 30, 2007, respectively. The Company recorded restructuring charges (credits) of $13 million, $1 million, $(3) million and $2 million in the quarters ended December 31, 2007, September 30, 2007, June 30, 2007 and March 31, 2007, respectively. The Company recorded asset impairment recovery of $0 and $1 million in the quarters ended December 31, 2007 and September 30, 2007.

(2)		The Company recorded charges for grant repayments of $30 million in the quarter ended December 31, 2006. The Company recorded restructuring charges of $9 million and $0.2 million in the quarters ended December 31, 2006 and March 31, 2006. The Company recorded asset impairment charges of $83 million in the quarter ended December 31, 2006.

117


ITEM 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*

Not applicable.


ITEM 9A.	*CONTROLS AND PROCEDURES*

Evaluation of Effectiveness of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, under the supervision of our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such terms are defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities and Exchange Act of 1934 (“Disclosure Controls”). Based on this evaluation our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K to ensure that information we are required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007. This evaluation was based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment using the criteria in Internal Control — Integrated Framework, we concluded that our internal control over financial reporting was effective as of December 31, 2007.

The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their report which appears in Item 8 of this Annual Report on Form 10-K.

Limitations on the Effectiveness of Controls

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Atmel have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

118


ITEM 9B.	*OTHER INFORMATION*

Not applicable.

PART III


ITEM 10.	*DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE MATTERS*

Except as set forth below, information required by this Item regarding directors, Section 16 filings and the Registrant’s Audit Committee is set forth under the captions “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance — Board Meetings and Committees — Audit Committee” in the Registrant’s definitive proxy statement for the Annual Meeting of Stockholders to be held on May 14, 2008 (the “2008 Proxy Statement”), and is incorporated herein by reference. Information regarding the Registrant’s executive officers is set forth at the end of Part I of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant.”

Code of Ethics/Standards of Business Conduct

It is our policy to conduct our operations in compliance with all applicable laws and regulations and to operate our business under the fundamental principles of honesty, integrity and ethical behavior. This policy can be found in our Standards of Business Conduct, which is applicable to all of our directors, officers and employees, and which complies with applicable SEC requirements and with NASDAQ’s listing standards.

Our Standards of Business Conduct is designed to promote honest and ethical conduct, the compliance with all applicable laws, rules and regulations and to deter wrongdoing. Our Standards of Business Conduct is also aimed at ensuring that information we provide to the public (including our filings with and submissions to the SEC) is accurate, complete, fair, relevant, timely and understandable. A copy of our Standards of Business Conduct can be accessed on our web site at www.atmel.com/ir/governance.asp. We intend to disclose future amendments to certain provisions of our Standards of Business Conduct, or waivers of such provisions granted to directors and executive officers, on our web site in accordance with applicable SEC and NASDAQ requirements.


ITEM 11.	*EXECUTIVE COMPENSATION*

Information required by this Item regarding compensation of the Registrant’s directors and executive officers is set forth under the captions “Executive Compensation,” “Executive Compensation — Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in the 2008 Proxy Statement and is incorporated herein by reference.


ITEM 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*

Information required by this Item regarding beneficial ownership of the Registrant’s Common Stock by certain beneficial owners and management of Registrant, as well as equity compensation plans, is set forth under the captions “Security Ownership” and “Equity Compensation Plan Information” in the 2008 Proxy Statement and is incorporated herein by reference.

119


ITEM 13.	*CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE*

Information required by this Item regarding certain relationships and related transactions with management and director independence is set forth under the caption “Certain Relationships and Related Transactions” and “Corporate Governance — Independence of Directors” in the 2008 Proxy Statement and is incorporated herein by reference.


ITEM 14.	*PRINCIPAL ACCOUNTING FEES AND SERVICES*

Information required by this Item regarding principal accounting fees and services is set forth under the caption “Ratification of Appointment of Independent Registered Public Accounting Firm — Fees of PricewaterhouseCoopers LLP Incurred by Atmel” in the 2008 Proxy Statement and is incorporated herein by reference.

120

PART IV


ITEM 15.	*EXHIBITS AND FINANCIAL STATEMENT SCHEDULES*

(a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K:

1. Financial Statements. See Index to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

2. Financial Statement Schedules. See Index to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

3. Exhibits. The following Exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K:


3	.1	Restated Certificate of Incorporation of Registrant (which is incorporated herein by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, Commission File No. 0-19032).
3	.2	Amended and Restated Bylaws of Registrant (which is incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on February 22, 2008).
3	.3	Certificate of Determination of Rights, Preferences and Privileges of Series A Preferred Stock (which is incorporated herein by reference to Exhibit A of Exhibit 1 to the Registrant’s Registration Statement on Form 8-A/12G/A (File No. 000-19032) filed on December 6, 1999).
4	.1	Amended and Restated Preferred Shares Rights Agreement dated as of October 18, 1999, between Atmel Corporation and BankBoston, N.A., a national banking association, including the Certificate of Determination, the form of Rights Certificate and the Summary of Rights (which is incorporated herein by reference to Exhibit 1 to the Registrant’s Registration Statement on Form 8-A/12G/A (File No. 000-19032) filed on December 6, 1999).
10	.1+	1986 Incentive Stock Option Plan, as amended, and forms of stock option agreements thereunder (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 (File No. 33-38882) declared effective on March 19, 1991).
10	.2+	1991 Employee Stock Purchase Plan, as amended (which is incorporated herein by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, Commission File No. 0-19032).
10	.3+	Form of Indemnification Agreement between Registrant and its officers and directors (which is incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19032).
10	.4+	2005 Stock Plan and forms of agreements thereunder (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on May 16, 2005).
10	.5+	Amendment to 2005 Stock Plan (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on July 31, 2007).
10	.6+	Employment Agreement dated as of August 6, 2006 between Registrant and Steven Laub (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on March 19, 2007).
10	.7+	Amendment to Employment Agreement dated as of March 13, 2007 between Registrant and Steven Laub (which is incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on March 19, 2007).
10	.8+	Stock Option Fixed Exercise Date Form (which is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on January 8, 2007).
10	.9+	Description of Amendment of Certain Option Agreements (which is incorporated herein by reference to Item 5.02 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on April 12, 2007).

121


10	.10+	Description of 2007 Executive Bonus Plan (which is incorporated herein by reference to item 5.02 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on August 31, 2007).
10	.11	Facility Agreement, dated as of March 15, 2006, by and among the Registrant, Atmel Sarl, Atmel Switzerland Sarl, the financial institutions listed therein, and Bank of America, N.A., as facility agent and security agent (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on March 21, 2006).
10	.12	Share Purchase Agreement, dated as of July 12, 2006, between e2v technologies SAS and Atmel Paris SAS (which is incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on July 13, 2006).
10	.13	Form of Collared Accelerated Share Repurchase Confirmation (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on August 27, 2007).
10	.14	Agreement for the Sale and Purchase of Property, dated October 8, 2007, by and among Atmel North Tyneside Limited, Atmel Corporation, Highbridge Business Park Limited and Highbridge Properties Plc.
10	.15	Agreement for the Sale and Purchase of Certain Assets, dated October 8, 2007, by and among Atmel North Tyneside Limited, Atmel Corporation, and Taiwan Semiconductor Manufacturing Company Limited.
10	.16	Agreement in Relation to the Removal of Equipment, dated October 8, 2007, by and among Atmel North Tyneside Limited, Atmel Corporation, Highbridge Business Park Limited, Highbridge Properties Plc., and Taiwan Semiconductor Manufacturing Company Limited.
10	.17+	Separation Agreement and Mutual Release dated as of November 16, 2007 between Registrant and Graham David Turner.
21	.1	Subsidiaries of Registrant.
23	.1	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
24	.1	Power of Attorney (included on the signature pages hereof).
31	.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
31	.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
32	.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


+		Indicates management compensatory plan, contract or arrangement.

(b)		Exhibits. See Item 15(a)(3) above.

(c)		Financial Statement Schedules. See Item 15(a)(2) above.

122

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

ATMEL CORPORATION


	By:	/s/ Steven Laub

Steven Laub

President and Chief Executive Officer

February 29, 2008

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steven Laub and Robert Avery, and each of them, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on February 29, 2008 on behalf of the Registrant and in the capacities indicated:


Signature				Title


/s/ Steven Laub Steven Laub				President, Chief Executive Officer and Director (principal executive officer)

/s/ Robert Avery Robert Avery				Vice President Finance and Chief Financial Officer (principal financial and accounting officer)

/s/ Tsung-Ching Wu Tsung-Ching Wu				Director

/s/ T. Peter Thomas T. Peter Thomas				Director

/s/ Dr. Chaiho Kim Dr. Chaiho Kim				Director

/s/ David Sugishita David Sugishita				Director

/s/ Papken Der Torossian Papken Der Torossian				Director

/s/ Jack L. Saltich Jack L. Saltich				Director

/s/ Charles Carinalli Charles Carinalli				Director

123

EXHIBIT INDEX


3	.1	Restated Certificate of Incorporation of Registrant (which is incorporated herein by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, Commission File No. 0-19032).
3	.2	Amended and Restated Bylaws of Registrant (which is incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on February 22, 2008).
3	.3	Certificate of Determination of Rights, Preferences and Privileges of Series A Preferred Stock (which is incorporated herein by reference to Exhibit A of Exhibit 1 to the Registrant’s Registration Statement on Form 8-A/12G/A (File No. 000-19032) filed on December 6, 1999).
4	.1	Amended and Restated Preferred Shares Rights Agreement dated as of October 18, 1999, between Atmel Corporation and BankBoston, N.A., a national banking association, including the Certificate of Determination, the form of Rights Certificate and the Summary of Rights (which is incorporated herein by reference to Exhibit 1 to the Registrant’s Registration Statement on Form 8-A/12G/A (File No. 000-19032) filed on December 6, 1999).
10	.1+	1986 Incentive Stock Option Plan, as amended, and forms of stock option agreements thereunder (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 (File No. 33-38882) declared effective on March 19, 1991).
10	.2+	1991 Employee Stock Purchase Plan, as amended (which is incorporated herein by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, Commission File No. 0-19032).
10	.3+	Form of Indemnification Agreement between Registrant and its officers and directors (which is incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 0-19032).
10	.4+	2005 Stock Plan and forms of agreements thereunder (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on May 16, 2005).
10	.5+	Amendment to 2005 Stock Plan (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on July 31, 2007).
10	.6+	Employment Agreement dated as of August 6, 2006 between Registrant and Steven Laub (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on March 19, 2007).
10	.7+	Amendment to Employment Agreement dated as of March 13, 2007 between Registrant and Steven Laub (which is incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on March 19, 2007).
10	.8+	Stock Option Fixed Exercise Date Form (which is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on January 8, 2007).
10	.9+	Description of Amendment of Certain Option Agreements (which is incorporated herein by reference to Item 5.02 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on April 12, 2007).
10	.10+	Description of 2007 Executive Bonus Plan (which is incorporated herein by reference to item 5.02 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on August 31, 2007).
10	.11	Facility Agreement, dated as of March 15, 2006, by and among the Registrant, Atmel Sarl, Atmel Switzerland Sarl, the financial institutions listed therein, and Bank of America, N.A., as facility agent and security agent (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on March 21, 2006).
10	.12	Share Purchase Agreement, dated as of July 12, 2006, between e2v technologies SAS and Atmel Paris SAS (which is incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on July 13, 2006).
10	.13	Form of Collared Accelerated Share Repurchase Confirmation (which is incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-19032) filed on August 27, 2007).
10	.14	Agreement for the Sale and Purchase of Property, dated October 8, 2007, by and among Atmel North Tyneside Limited, Atmel Corporation, Highbridge Business Park Limited and Highbridge Properties Plc.


10	.15	Agreement for the Sale and Purchase of Certain Assets, dated October 8, 2007, by and among Atmel North Tyneside Limited, Atmel Corporation, and Taiwan Semiconductor Manufacturing Company Limited.
10	.16	Agreement in Relation to the Removal of Equipment, dated October 8, 2007, by and among Atmel North Tyneside Limited, Atmel Corporation, Highbridge Business Park Limited, Highbridge Properties Plc., and Taiwan Semiconductor Manufacturing Company Limited.
10	.17+	Separation Agreement and Mutual Release dated as of November 16, 2007 between Registrant and Graham David Turner.
21	.1	Subsidiaries of Registrant.
23	.1	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
24	.1	Power of Attorney (included on the signature pages hereof).
31	.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
31	.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
32	.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


+		Indicates management compensatory plan, contract or arrangement.

EX-10.14 2 f38449exv10w14.htm EXHIBIT 10.14 exv10w14

Exhibit 10.14

Agreement treated as exchanged
a.m./p.m.,
Law Society Formula

Ref:
on behalf of
the Seller/Buyer

DATED 8 OCTOBER 2007

ATMEL NORTH TYNESIDE LIMITED

and

ATMEL CORPORATION

and

HIGHBRIDGE BUSINESS PARK LIMITED

and

HIGHBRIDGE PROPERTIES PLC

AGREEMENT FOR THE SALE AND PURCHASE

of the residue of the leasehold interests in
Land at Middle Engine Lane, Hadrian Business Park, Silverlink,
Wallsend, Newcastle Upon Tyne, NE28 9NZ

1. Tripartite agreement.
2. TP1.
3. Deeds of Covenant.
4. Deed of Assignment of Option.
5. Lease Back.
6. Conditional Option Agreement.

Lacon House
84 Theobald’s Road
London WC1X 8RW

Tel: +44 (0)20 7524 6000

CONTENTS


Clause	Subject matter	Page
1.	DEFINITIONS	2
2.	INTERPRETATION	7
3.	THE CONDITIONS	8
4.	SALE AND PURCHASE	8
5.	TITLE	8
6.	TITLE GUARANTEE	9
7.	MATTERS AFFECTING THE PROPERTY	9
8.	INSURANCE AND DAMAGE TO PROPERTY	10
9.	THE TRANSFER	10
10.	COMPLETION	10
11.	APPORTIONMENT OF PAYMENTS UNDER THE LEASE	12
12.	APPORTIONMENT OF RENTS UNDER THE OCCUPATIONAL LEASES	12
13.	EXCESS PROPERTY	12
14.	ARREARS UNDER THE OCCUPATIONAL LEASES	12
15.	VAT	13
16.	MANAGEMENT	13
17.	CAPITAL ALLOWANCES	14
18.	COSTS	14
19.	SUPPLY AND UTILITY AGREEMENTS	14
20.	LIMITATION OF LIABILITY	15
21.	BUYER’S REMEDIES	16
22.	ENTIRE AGREEMENT	16
23.	ANNOUNCEMENTS	17
24.	CONFIDENTIALITY	17
25.	CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999	18
26.	OTHER PROVISIONS	18
27.	ATMEL GUARANTOR	19
28.	HIGHBRIDGE GUARANTOR	19
SCHEDULE 1	The Occupational Leases	22
SCHEDULE 2	Form of an election in accordance with section 198 of the Capital Allowances Act 2001	24
SCHEDULE 3	Chattels List	26
SCHEDULE 4	Form of Deed of assignment of Option Agreement	27
SCHEDULE 5	Form of Deed of Covenant for Phase I and Phase II	28
SCHEDULE 6	Lease Back	29
SCHEDULE 7	Transfers	30
SCHEDULE 8	Conditional Option Agreement	31

AGREEMENT FOR SALE AND PURCHASE OF PROPERTY

DATE 8 OCTOBER 2007

PARTIES

(1)		ATMEL NORTH TYNESIDE LIMITED (incorporated and registered in England and Wales under company number 4018730), the registered office of which is at Lacon House, Theobald’s Road, London WC1X 8RW (the “Seller”);

(2)		ATMEL CORPORATION incorporated and registered in the State of Delaware, the principal place of business of which is at 2325 Orchard Parkway, San Jose, California 95131, United States of America (the “Atmel Guarantor”);

(3)		HIGHBRIDGE BUSINESS PARK LIMITED (incorporated and registered in England and Wales under company number 3493084), the registered office of which is at 131 Edgware Road, London W2 2AP (the“Buyer”); and

(4)		HIGHBRIDGE PROPERTIES PLC (incorporated and registered in England and Wales under company number 02244773) the registered office of which is at 131 Edgware Road, London W2 2AP (the “Highbridge Guarantor”).

IT IS AGREED AS FOLLOWS:

DEFINITIONS

1.1

In this Agreement the following definitions apply:

“Agreement”

means this agreement for the sale and purchase of the Property made and entered into as of 8 October 2007 by and among the Seller, the Buyer, the Atmel Guarantor and the Highbridge Guarantor;

“Arrears”

means the amounts due (if any) from the Tenants up to but excluding the Completion Date (but which have not been received by the Seller or its agents as cleared funds before the Completion Date);

“Asset Agreement”

means the agreement of even date herewith for the sale and purchase of certain assets to be entered into between the Seller, Atmel Guarantor and Taiwan Semiconductor Manufacturing Company Limited;

“Business Day”

means a day other than Saturday, Sunday or a day on which banks are authorised to close in London;

“Buyer’s Solicitors”

means Macfarlanes of 10 Norwich Street, London, EC4A 1BD (Ref: Rachel Booth);

“Chattels”

means the items listed in Schedule 3 to this Agreement;

“Claim”

means, (i) with respect to the Seller or the Atmel Guarantor, a claim by the Buyer against the Seller or the Atmel Guarantor under, or for a breach of, any of the provisions of this Agreement or under, or for a breach of, any of the provisions of any of the Related Agreements including without limitation any indemnity claim under clause 19; and (ii) with respect to the Buyer or the Highbridge Guarantor and for the purposes of clauses 20.1 and 20.3, a claim by the Seller against the Buyer or the Highbridge Guarantor under, or for a breach of any of the provisions of this Agreement or under, or for a breach of, any of the provisions of any of the Related Agreements including without limitation any indemnity claim under clause 16.2, other than any claim or claims associated with or arising from the Highbridge Activities and the costs and expenses related thereto as set forth in clause 26.1 to which no limitation shall apply;

“Closing Conditions”

shall have the meaning set forth in clause 10.1;

“Completion”

means the completion of the sale of the Property and the Chattels in accordance with clause 10;

“Completion Date”

shall have the meaning set forth in clause 10.1;

“Completion Long Stop Date”

means 10 January 2008;

“Conditional Option Agreement”

means a conditional option agreement to be entered into between the Seller and the Buyer in the form annexed at Schedule 8;

“Condition Satisfaction Notice”

means the notice served by the Seller advising that the Tri-Partite Agreement has become unconditional pursuant to clause 3.3 thereof;

“Conditions”

means the conditions in Part 1 of the Standard Commercial Property Conditions (Second Edition);

“Contract Rate”

means four per cent above the base lending rate of HSBC Bank plc;

“Deed of Assignment”

means a deed of assignment of the option agreement dated 29 March 1996, in the form annexed at Schedule 4;

“Deeds of Covenant”

means the deeds of covenant in the form annexed at Schedule 5 in relation to Phase I and Phase II of the Property;

“Escrow Agreement”

means the agreement of even date herewith relating to an escrow account for the sale and purchase of the Assets to be entered into among the Seller, Taiwan Semiconductor Manufacturing Company Limited and JP Morgan;

“Excess Property”

means the land located near the parking area to the office building which is currently the subject of the Sandalbeech Contract;

“Highbridge Activities”

means any works performed and all other action taken by either the Buyer, or the Highbridge Guarantor, or any of the employees, contractors, consultants, representatives or agents of the Buyer or the Highbridge Guarantor, related to demolition, redevelopment and other works or activities in, on and around the Property after the earlier of (i) the Long Stop Date (or if earlier, by the expiry or termination of the Lease Back) and (ii) the date that the Seller no longer occupies the Property or a portion thereof;

“Knowledge” or “Know”

in respect to any matter in question the actual knowledge of any director of the Seller, having made reasonable enquiry of Craig Mclnnes;

“Lease Back”

means the lease (from which the security of tenure provisions of the Landlord and Tenant Act 1954 are excluded) in the form annexed at Schedule 6 to be entered into between (1) the Buyer and (2) the Seller for the period from and including the Completion Date to the Long Stop Date;

“Leases”

means:

	(a)		an underlease dated 29 March 1996 and made between (1) Tyne and Wear Development (Land) Company Limited (2) Abbey National March Leasing (6) Limited and (3) The Council of the Borough of North Tyneside; and

	(b)		an underlease dated 29 March 1996 and made between (1) Tyne and Wear Development (Land) Company Limited (2) Siemens Plc and (3) The Council of the Borough of North Tyneside;

“Long Stop Date”

means 31 May 2008;

“Occupational Leases”

means the leases and letting agreements listed in Schedule 1;

“Pending Title Documents”

means:

	(a)		the deed of variation/deed of surrender to be entered into between the Seller and the Buyer as required by part (b) of the Title Condition as defined in the Sandalbeech Contract;

	(b)		the transfer to be entered into between the Seller and Sandalbeech Limited pursuant to the terms of the Sandalbeech Contract; and

	(c)		the deed of rectification to be entered into between the Seller and the Buyer in relation to the incorrect reference to colours in the transfer dated 15 October 2002 between the Seller and the Buyer.

“Phase I”

means the part of the Property registered at the Land Registry under title number TY319520;

“Phase II”

means the part of the Property registered at the Land Registry under title number TY319516;

“Property”

means the leasehold property known as Land at Middle Engine Lane, Hadrian Business Park, Silverlink, Wallsend, Newcastle upon Tyne NE28 9NZ as demised by the Leases and registered at the Land Registry under title numbers TY319516 and TY319520 including all buildings and erections thereon but excluding the Excess Property;

“Purchase Price”

means twenty one million pounds (£21,000,000) (exclusive of VAT);

“Related Agreements”

means all the agreements between or among any of the parties made in connection with or contemplation of this Agreement and the Transaction contemplated in this Agreement, including without limitation the Asset Agreement, the Tri-Partite Agreement, the Escrow Agreement, the Lease Back, the Conditional Option Agreement and the Share Sale Agreement;

“Sandalbeech Contract”

means the contract dated 15 November 2006 between (1) Atmel North Tyneside Limited, (2) Sandalbeech Limited and (3) Honda Motor Europe Limited;

“Schedule of Condition”

means a full and detailed photographic schedule of condition fully and completely detailing the condition of the Property;

“Seller’s Solicitors”

means Nabarro of Lacon House, 84 Theobald’s Road, London WC1X 8RW (Reference: PD/AEB/SHJ/A1794/00016);

“Share Sale Agreement”

means the agreement of even date for the sale and purchase of the entire issued share capital in each of Atmel North Tyneside Contractor One Limited and Atmel North Tyneside Developer One Limited entered into between the Seller and the Buyer;

“Tenants”

means the tenants under the Occupational Leases;

“Transaction”

means the transaction or series of transactions contemplated under this Agreement and the Related Agreements;

“Transfer”

means the transfer of the Property from the Seller to the Buyer in the forms annexed at Schedule 7;

“Tri-Partite Agreement”

means the agreement of even date herewith by and among (1) the Buyer, (2) the Seller, (3) Taiwan Semiconductor Manufacturing Company Limited (4) the Atmel Guarantor and (5) the Highbridge Guarantor;

“Utility Agreements”

means the agreements in relation to electricity, gas, water, foul water and surface drainage, heating, ventilation and air-conditioning, smoke and fumes, signals, telecommunications (excluding calls), satellite and data communications and all other utilities;

“VAT”

means value added tax and/or any similar tax from time to time replacing it or performing a similar fiscal function.

1.2

Words and phrases defined in the Conditions have the same meaning in this Agreement, unless they have been defined in clause 1.1.

INTERPRETATION

2.1

In this Agreement:

2.1.1		the contents page(s) and clause headings are for convenience only and do not affect its construction;

2.1.2		words denoting the singular include the plural and the other way round;

2.1.3		words denoting one gender include each gender and all genders; and

2.1.4		general words shall not be given a restrictive meaning by reason of their being preceded or followed by words indicating a particular class or examples of acts, matters or things.

2.2

In this Agreement, unless otherwise specified or the context otherwise requires, a reference to:

2.2.1		a person is to be construed to include a reference to any individual, firm, partnership, company, corporation, association, organisation or trust (in each case whether or not having a separate legal personality);

2.2.2		a party is a reference to a party to this Agreement;

2.2.3		a document, instrument or agreement (including, without limitation, this Agreement) is a reference to any such document, instrument or agreement as modified, amended, varied, supplemented or novated from time to time;

2.2.4		a clause or schedule is a reference to a clause of or schedule to this Agreement and a reference to this Agreement includes its schedules, exhibits and all other attachments hereto;

2.2.5		a paragraph is a reference to a paragraph of the schedule in which the reference appears;

2.2.6		any phrase introduced by the term “include”, “including”, “in particular” or any similar expression will be construed as illustrative and will not limit the sense of the words preceding or following that term;

2.2.7		a provision of any statute, statutory provision, EC directive or other legislation is to be construed as a reference to such provision as amended or re-enacted or as its application is modified from time to time (whether before or after the date of this Agreement) and shall include a reference to any provision of which it is a re-enactment (whether with or without modification) and to any orders, regulations, instruments or other subordinate legislation (and relevant codes of practice) made under the relevant statute or other legislation except to the extent that any amendment or re-enactment coming into force after the date of this Agreement would increase or extend the liability of any party to any other person under this Agreement;

2.2.8

writing shall include any mode of reproducing words in a legible and permanent form.

THE CONDITIONS

3.1		This Agreement incorporates the Conditions except to the extent that they are varied or excluded by or are inconsistent with the terms set out in this Agreement.

3.2		Condition 1.3.2 is varied by the addition of the words “at the address and with the reference (if any) stated in the agreement” after the words “party’s conveyancer”.

3.3		Condition 1.3.3 does not apply and the following wording is substituted for it “Transmission by fax is a valid means of giving a notice or delivering a document where delivery of the original document is not essential provided all relevant parts of the document or notice are received by the intended recipient in a legible state.” Conditions 1.3.5(c) and 1.3.7(e) do not apply to this Agreement.

3.4		Conditions 1.2 and 3.2.1 do not apply to this Agreement.

SALE AND PURCHASE

4.1		Concurrently with the execution of this Agreement, the Seller shall deliver, or cause to be delivered, to the Buyer the Tri-Partite Agreement, duly executed by the Seller.

4.2		Concurrently with the execution of this Agreement, the Buyer shall deliver, or cause to be delivered to the Seller the Tri-Partite Agreement, duly executed by the Buyer.

4.3		Effective as of the Completion Date, the Seller shall sell and the Buyer shall buy the Property for the unexpired residue of the term of years granted by the Leases for the Purchase Price and the Chattels in accordance with this Agreement.

4.4		On Completion:

4.4.1		the Buyer shall grant and the Seller shall accept the Lease Back;

4.4.2		the Buyer shall enter into the Deeds of Covenant;

4.4.3		the parties shall enter into the Deed of Assignment;

4.4.4		the parties shall enter into the Conditional Option Agreement referred to at clause 13; and

4.4.5		the parties shall enter into the Transfer.

TITLE

5.1

The Seller is registered at the Land Registry as proprietor of the Property with title absolute, and the Buyer, having received from the Seller before the date of this Agreement a copy of the Leases and a copy of the entries subsisting on the registers as at 21 August 2007 and of the title plans of the Property and copies or abstracts of any documents noted on the titles and copies of the Occupational Leases, the Buyer shall accept the Seller’s title without further enquiry or requisition other than in relation to any matters arising from pre-completion corporate and property searches.

5.2

The Buyer shall not raise any objection to any provision in the Leases not corresponding with any provision in any superior lease.

TITLE GUARANTEE

6.1

The Seller shall transfer the Property with full title guarantee subject to the following modifications:

6.1.1		the covenant set out in section 3(1) of the Law of Property (Miscellaneous Provisions) Act 1994 shall not extend to the words “and could not reasonably be expected to” in that section;

6.1.2		the Seller shall not be liable under any of the covenants set out in section 3(2) of the Law of Property (Miscellaneous Provisions) Act 1994; and

6.1.3		the Seller shall not be liable under any of the covenants set out in section 3 or section 4 of the Law of Property (Miscellaneous Provisions) Act 1994 for the consequences of any breach of the terms of the Leases relating to the state or condition of the Property and the Seller and the Buyer shall apply to the Registrar to enter a note on the register that the operation of those covenants has been so limited.

6.2

Conditions 6.6.2 and 6.6.3 do not apply to this Agreement.

MATTERS AFFECTING THE PROPERTY

7.1

The Seller having disclosed all such matters of which it has Knowledge, the Property is sold subject to, and where applicable, with the benefit of:

7.1.1		the rents reserved by the Leases and the obligations and conditions on the tenant contained or referred to in the Leases;

7.1.2		the matters contained or referred to in the registers as at 21 August 2007 maintained by the Land Registry and the matters subject to which the Leases were granted and the Pending Title Documents;

7.1.3		the obligations and rights contained in the Occupational Leases;

7.1.4		all matters discoverable by inspection of the Property before the date of this Agreement;

7.1.5		all matters relating to the Property which the Seller does not Know about or does not have reason to Know about as of the Completion Date;

7.1.6		entries in any public register (whether made before or after the date of this Agreement);

7.1.7		public requirements and any matters arising by virtue of any legislation;

7.1.8		any unregistered interests which fall within any of the paragraphs of Schedule 3 of the Land Registration Act 2002 (when read together with paragraphs 7 to 13 of Schedule 12 of that Act);

7.1.9		all matters disclosed or which would be disclosed by searches or as a result of enquiries (formal or informal, and whether made in person, in writing or orally) made by or for the Buyer or which a prudent buyer ought to make,

and otherwise free from incumbrances.

7.2		The Buyer will be deemed to take the Property with full knowledge of the matters subject to which the Property is sold, and shall not make any requisition or claim in respect of any of them save in respect of any matters arising from pre-completion corporate and property searches.

7.3		Conditions 3.1.1 and 3.1.2 do not apply to this Agreement.

INSURANCE AND DAMAGE TO PROPERTY

8.1		The Seller shall insure the Property until the Completion Date.

8.2		The Seller shall not be responsible for any deficiency in the amount insured or inadequacy of the risks covered but the Seller shall increase the amount or extent of the cover at the request and sole cost of the Buyer if the insurers agree.

8.3		If before the Completion Date, the Property suffers loss or damage, the Seller shall pay to the Buyer on the Completion Date the amount of any policy monies for such loss or damage which the Seller has received so far as they are not applied in reinstating or repairing the Property and if no final payment has been received by the Seller by the Completion Date, the Seller shall assign to the Buyer, at the Buyer’s expense, all rights to claim for such loss or damage under the policy and pending execution of the assignment, the Seller will hold any policy monies received for such loss or damage in trust for the Buyer.

8.4		Condition 7 does not apply to this Agreement.

8.5		In the event of any damage to the Property, (whether by a risk which is covered by insurance or not), the Buyer shall have no right to rescind this Agreement.

THE TRANSFER

9.1		The Seller shall not be required to transfer the Leases otherwise than as a whole and to the Buyer at the Purchase Price. For the avoidance of doubt, the transfer of the Leases will not occur until the Seller receives the Purchase Price in accordance with clause 10.3.

9.2		The Buyer shall, at its own cost execute the Transfer as a deed in duplicate and shall deliver the duplicate to the Seller’s Solicitors on the Completion Date.

9.3		The Transfer will be in the form of the draft annexed to this Agreement at Schedule 7.

9.4		Conditions 6.2 and 6.3 do not apply to this Agreement.

10.

COMPLETION

10.1

Completion of the sale and purchase of the Property and the Chattels is conditional upon:

10.1.1		the Seller serving the Condition Satisfaction Notice prior to the Completion Long Stop Date; and

10.1.2		the removal of entry 6 and 8 subsisting on the Charges Register of title number TY319520 as at 21 August 2007.

		(together being the “Closing Conditions”).

10.2		The Seller shall use reasonable endeavours to procure the removal of entry 6 and 8 subsisting on the Charges Register of title number TY319520 as at 21 August 2007.

10.3		If prior to the Completion Long Stop Date the Closing Conditions are not satisfied and Completion has not occurred, the Seller or the Buyer may terminate this Agreement by giving written notice to the other whereupon this Agreement shall terminate with immediate effect and the Seller and the Buyer shall have no rights or obligations whatsoever pursuant to or under this Agreement or any of the Related Agreements.

10.4		Completion shall take place on the second Business Day following servicing of the Condition Satisfaction Notice pursuant to clause 3.3 of the Tri-Partite Agreement (the “Completion Date”). On the Completion Date, the Buyer shall pay the Purchase Price to the Seller in full by direct credit and wire transfer of immediately available funds from the Buyer’s Solicitors’ client account to the Seller’s Solicitors’ client account.

10.5		Conditions 8.1.1, 8.2 and 8.3.2(a) do not apply.

10.6		Condition 8.1.2 is varied by the deletion of the words “after 2 p.m.” and the addition of the words “by the bank account specified by the Seller’s Solicitors for the purpose after 1.30pm”, in their place and by the addition of the words “(as amended or supplemented by this agreement)” after the words “8.3 and 9.3”.

10.7		Condition 8.1.3(b) is varied by the deletion of 1.30p.m. as the stipulated time and the substitution of 12 noon.

10.8		Upon Completion the Seller shall deliver or procure to be delivered to the Buyer the following:

10.8.1		the original of this Agreement duly executed by an authorised representative of the Seller;

10.8.2		the original Transfer duly executed by the Seller;

10.8.3		the original Lease Back duly executed by the Seller;

10.8.4		originals (or where originals are not available copies) of the title and tenancy documents;

10.8.5		the original Deed of Assignment duly executed by the Seller; and

10.8.6		the original Conditional Option Agreement duly executed by the Seller pursuant to clause 13.

10.9

Upon Completion the Buyer shall deliver or procure to be delivered to the Seller the following:

10.9.1		the original of this Agreement duly executed by the Buyer;

10.9.2		the original Transfer duly executed by the Buyer;

10.9.3		the original Lease Back duly executed by the Buyer;

10.9.4		the original Deeds of Covenant duly executed by the Buyer;

10.9.5		the original Deed of Assignment duly executed by the Buyer; and

10.9.6		the original Conditional Option Agreement duly executed by the Buyer pursuant to clause 13.

11.		APPORTIONMENT OF PAYMENTS UNDER THE LEASE

		There will be no apportionment of any rent due under the Leases.

12.		APPORTIONMENT OF RENTS UNDER THE OCCUPATIONAL LEASES

		There will be no apportionment of any rent, service charge or other sums received by the Seller under the Occupational Leases until the Completion Date and the Seller shall be entitled to receive and retain all such rent, service charge or other sums up until the Completion Date. With effect from and including the Completion date, the Buyer shall be fully entitled to receive and retain all such rent, service charge or other sums under the Occupational Leases and the Seller shall transfer and assign to the Buyer all rights and obligations under such Occupational Leases as of the Completion Date.

13.		EXCESS PROPERTY

13.1		The Buyer will use reasonable endeavours to assist the Seller in satisfying parts (b) and (c) of the Title Condition as defined in the Sandalbeech Contract.

13.2		The parties will enter into the Conditional Option Agreement relating to the Excess Property on the Completion Date in the form of the draft annexed at Schedule 8.

13.3		If the Sandalbeech Contract is determined and the Buyer falls to exercise the option pursuant to clause 4 of the Conditional Option Agreement, the Buyer shall forthwith enter into a deed with the Seller in substantially the form contained at Annexure “C” of the Sandalbeech Contract save for the following amendments:

13.3.1		the Buyer shall be substituted as the first party to the deed; and

13.3.2		the Seller shall be substituted as the second party to the deed; and

13.3.3		all references in the deed to the first and second parties to the deed shall be amended accordingly; and

13.3.4		the reference to “Buyer” in clause 3.2 in the deed shall be amended to the Seller.

14.

ARREARS UNDER THE OCCUPATIONAL LEASES

14.1		This clause applies if and only if any sums are Arrears.

14.2		Neither the Seller or the Buyer shall be obliged to pay or allow to the other on Completion any Arrears in respect of the period after the Completion Date.

14.3		The Seller shall have all rights to the Arrears.

14.4		If the Buyer receives any sum from a Tenant (or any guarantor of a Tenant) in respect of any Arrears it shall as soon as reasonably practicable pay that sum to the Seller.

14.5		The Seller shall be entitled to a sum equal to:

14.5.1		all VAT in respect of which the Seller has issued or is obliged to issue a VAT invoice; and

14.5.2		all Arrears.

14.6

Conditions 8.3.7 and 8.3.8 do not apply to this Agreement.

15.

VAT

15.1

The Buyer will pay to the Seller an amount equal to the VAT on the Purchase Price (subject to the Seller providing the Buyer with a valid VAT invoice) on the date which is the earlier of:

15.1.1		three (3) Business Days before the last date on which the Seller is required to account to HM Revenue & Customs for that VAT without incurring a liability to any interest, penalty or surcharge; and

15.1.2		three (3) Business Days after the Buyer has recovered that VAT from HM Revenue & Customs through its VAT return.

15.2

Condition 1.4 does not apply to this Agreement.

16.

MANAGEMENT

16.1

The Seller shall manage the Property until the Completion Date in accordance with the principles of good estate management. The Seller shall not, without the Buyer’s written consent, not to be unreasonably withheld or delayed or given subject to any unreasonable condition:

16.1.1		grant or agree to grant any lease, tenancy or occupational licence of the Property;

16.1.2		agree to terms for, or the form of, any lease, tenancy, occupational licence or consent relating to the Property;

16.1.3		grant or agree to grant any licence or consent under any Occupational Lease;

16.1.4		agree to any reviewed rent under any Occupational Lease;

16.1.5		accept or agree to accept a surrender of any tenancy created by an Occupational Lease;

16.1.6		commence any proceedings against a tenant (except in connection with any sums due but unpaid under an Occupational Lease) or serve any notice or schedule of dilapidations on any tenant nor take any steps pursuant to the Landlord and Tenant Act 1954 or the subsequent negotiation of any renewal lease;

16.2		The Buyer shall indemnify the Seller against any claim for breach of duty made against the Seller under the Landlord and Tenant Act 1988, or under any Occupational Lease, in respect of any matter which the Buyer is obliged to refer to the Seller under the terms of clause 16.1, and the claim arises as a result of any act, default or omission of the Buyer or any objection or condition made by the Buyer.

16.3		The Seller will use reasonable endeavours to complete the Occupational Leases referred to at numbers 26 and 28 of Schedule 1 on terms that are contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954.

16.4		The Seller will, at the Buyer’s cost, assist the Buyer in supplying background information as to the occupation by Silverlink Software Limited of Room 1, Level 1; Room 8, Level 1 and Room 9/10 Level 1 of the office building on the Property as referred to at number 27 of Schedule 1 including, where practicable, statutory declarations.

17.

CAPITAL ALLOWANCES

17.1		In this clause “Elected Plant” means plant and machinery (within the meaning of the Capital Allowances Act 2001 (“CAA”)) which constitutes fixtures and on which the Seller has claimed or will claim capital allowances and in respect of which it has to bring a disposal value into the computation of its corporation or income tax (as the case may be) by reason of this sale.

17.2		In this clause “Office” means that part of the Property subject to the Occupational Leases and “Factory” means all of the Property except for the Office.

17.3		The Seller and the Buyer agree that the part of the Purchase Price attributable to the Elected Plant in the Factory is one pound (£1).

17.4		On the Completion Date the Seller and the Buyer shall each hand the other a signed election under section 198 of the CAA in respect of the Elected Plant in the Factory in the form set out in Schedule 2.

17.5		The Seller and the Buyer will work together in good faith to agree the part of the Purchase Price which is to be attributed to the Elected Plant in the Office, it being acknowledged that such apportionment should not be such as would give rise to a balancing charge on the Seller if such a balancing charge would give rise to a UK tax liability. Any costs incurred in this exercise will be for the account of the Buyer (but, the Seller shall not incur any such costs without the Buyer’s consent). As soon as such apportionment is agreed the Seller and the Buyer shall each hand the other a signed election under section 198 of the CAA 2001 in respect of the Elected Plant in the Office with an apportionment of the agreed amount to that Elected Plant. If the Seller and the Buyer cannot agree this apportionment within a year of the Completion Date then the Seller and the Buyer shall each hand the other a signed election under section 198 of the CAA 2001 in respect of the Elected Plant in the Office with an apportionment of £1 to that Elected Plant.

18.

COSTS

18.1		The relevant party shall reimburse the other for any costs (including reasonable and proper legal costs) which the other incurs on or after the Completion Date in respect of any steps taken to enforce or complete this Agreement, including the preparation and service of any notice to complete.

18.2		Any obligation to pay costs includes an obligation to pay associated disbursements and other fees and expenses and includes an obligation to pay an amount equal to VAT on such costs, disbursements, fees and expenses which is irrecoverable by the party incurring the costs.

19.

SUPPLY AND UTILITY AGREEMENTS

19.1

The Seller shall terminate all supply and utility agreements relating to the Property as of the Long Stop Date (or if earlier by the expiry or termination of the Lease Back) unless otherwise required by the Buyer and the Seller and shall meet all costs, liabilities and expenses thereby arising. If so required by the Buyer, the Seller (at the Seller’s cost) shall give all

		reasonable assistance in procuring the transfer to or novation by the Buyer of all or any of such supply and/or utility agreements.

19.2		In relation to the Utility Agreements, in the event that the Seller has not terminated any such Utility Agreements (in breach of its obligations in clause 19.1) as of the Long Stop Date (or if earlier by the expiry or termination of the Lease Back) and the Buyer is charged by the utility service provider for amounts payable under those agreements, the Seller shall indemnify the Buyer for the difference between (i) the amount payable under such agreement for the period between the Long Stop Date (or if earlier the expiry or termination of the Lease Back) and the date of termination of such agreement and (ii) the amount of actual usage applicable to the period between the Long Stop Date (or if earlier the expiry or termination of the Lease Back) and the date of termination of such agreement.

20.

LIMITATION OF LIABILITY

20.1		Maximum amount of liability

		Subject to the other terms of this Agreement, the combined, cumulative, aggregate, joint liability of the Seller and the Atmel Guarantor (for the avoidance of doubt the cumulative and aggregate liability of the Seller plus the cumulative and aggregate liability of the Atmel Guarantor) for all Claims (as defined in this Agreement) or otherwise under this Agreement shall not exceed the Purchase Price. Subject to the other terms of this Agreement, the combined, cumulative, aggregate, joint liability of the Buyer and the Highbridge Guarantor (for the avoidance of doubt the cumulative and aggregate liability of the Buyer plus the cumulative and aggregate liability of the Highbridge Guarantor) for all Claims shall not exceed £5,000,000.

20.2		Time limits

		No Claim shall be made against any party hereto unless notice in writing is given to the other parties and the Claim is brought against such other parties within three years from the date of this Agreement and legal proceedings have been issued and served on such other parties within six months after the date of such notice (the “Expiration Date”). Provided that any Claim pending on the Expiration Date for which a notice has been given within three years from the date hereof may continue to be asserted against the Seller notwithstanding that legal proceedings have not been issued and served on the Seller before the Expiration Date as a consequence of losses not having been actually incurred before such date for a period of six months following the Expiration Date.

20.3		No special loss

		In no event shall Atmel, the Atmel Guarantor, Highbridge or the Highbridge Guarantor have any liability under any Claim under this Agreement to the extent that such Claim constitutes punitive, incidental or special loss or damages, and/or losses or damages related to or arising from any loss of profits or opportunity, delay or change in valuation of any real property or other asset.

20.4		No double recovery

		No party shall be entitled to recover damages or otherwise obtain payment, reimbursement or restitution under this Agreement more than once in respect of the same loss or liability (other than a recurring loss or liability).

20.5		Non-applicability in the event of fraud

		The exclusions and limitations set out in this clause 20 shall not apply in relation to Claims which are the consequence of fraud or wilful misconduct by the Seller or the Buyer (as the case may be).

21.

BUYER’S REMEDIES

21.1		The Buyer’s rights and remedies in respect of any Claim shall be limited to damages for breach of contract and as set forth in clause 20. The Buyer shall not be entitled to rescind or terminate this Agreement or any of the documents referred to in it or to recover damages in tort. The Buyer confirms and acknowledges that at the date of this Agreement it has no reason to believe that the Seller has failed to exercise due care in the preparation of responses to the Commercial Property Standard Enquiries and pre-contract enquiries made by the Seller’s Solicitors.

21.2		Nothing in this Agreement shall operate to reduce any party’s common law duty to mitigate any loss giving rise to any Claim and the parties shall be under a duty so to mitigate.

21.3		The Buyer’s and the Highbridge Guarantor’s sole rights and remedies for matters relating to the environment are those set out in the Tri-Partite Agreement.

22.

ENTIRE AGREEMENT

22.1		The parties acknowledge that this Agreement, the Related Agreements and any document annexed to them contain all the express terms of the agreement between them for the sale and purchase of the Property and the Chattels and all other matters contemplated therein and supersede any previous agreement or undertaking between or among the parties in relation to the sale and purchase of the Property and the Chattels and such other matters.

22.2		The Buyer and the Highbridge Guarantor acknowledges that except for the written replies made by the Seller’s Solicitors to the formal written pre-agreement enquiries made by the Buyer’s Solicitors, they have not relied on, or taken into account, any statement or representation made by or on behalf of the Seller (whether written or oral) in deciding to enter into this Agreement.

22.3		Condition 9.1.1 is varied to read, “If any plan or statement in the contract or in the written replies made by the Seller’s Solicitors to any formal written enquiry raised by the Buyer’s Solicitors before the date of this Agreement is or was misleading or inaccurate due to any error or omission the remedies available are as follows”.

22.4		Nothing in this clause will operate to limit or exclude any liability for fraud.

23.

ANNOUNCEMENTS

23.1		Subject to clause 23.2, each of the parties undertakes that it shall not make any announcement or issue any circular or other publicity relating to the existence or subject matter of this Agreement without it being approved in writing by the other parties as to its content, form and manner of publication (such approval not to be unreasonably withheld or delayed). The parties shall consult together upon the form of any such announcement or circular in relation to the subject matter of this Agreement and each of the other parties shall promptly provide such information and comment as the party making the announcement or sending out the circular may from time to time reasonably request.

23.2		Any party shall be permitted to make announcements relating to the existence or subject matter of this Agreement without it being approved in writing by the other parties if and to the extent:

23.2.1		required by law; or

23.2.2		required by any securities exchange or regulatory or governmental body to which any parties are subject or submit, wherever situated.

24.

CONFIDENTIALITY

24.1		Subject to clauses 24.2, 24.3 and 24.4, the parties each undertake to treat as confidential, and not to disclose or use, directly or indirectly, for its own or any other person’s benefit, all information obtained as a result of entering into or performing this Agreement which relates either to the provisions of, or negotiations relating to, this Agreement or to the business or affairs of the other parties.

24.2		A party may disclose information which is subject to clause 24.1 to its professional advisers, auditors and bankers.

24.3		A party may disclose information which is subject to clause 24.1 if and to the extent:

24.3.1		required by law;

24.3.2		required by any securities exchange or regulatory or governmental body to which any party is subject or submits, wherever situated, including;

24.3.3		required to vest the full benefit of this Agreement in that party or expressly contemplated by this Agreement;

24.3.4		the information has come into the public domain through no fault of that party;

24.3.5		the information was already known to the relevant party at the time it was disclosed to it or otherwise obtained by it;

24.3.6		the person to whom it relates has given their consent in writing; or

24.3.7		required to meet its obligations in relation to any information and consultation committee but only after agreement with the other parties,

		and any information to be disclosed pursuant to clause 24.3.1 or 24.3.2 shall be disclosed only after prior consultation with the other party.

24.4

If Completion shall not take place, the Buyer shall immediately return or procure the return of all books, accounts, records or other documents and information of any nature and in whatever form relating to the Seller, the Property or the Seller’s business and operations which shall have been made available to it by or on behalf of the Seller.

25.		CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

		Nothing in this Agreement confers any rights on any person under the Contracts (Rights of Third Parties) Act 1999 but this does not affect any right or remedy of any person which exists or is available apart from that act.

26.

OTHER PROVISIONS

26.1		Costs

		Except as otherwise stated in this Agreement and any documents referred to in it, each of the parties shall pay its own costs and expenses (including legal fees and VAT (if any)) incurred by it in connection with the negotiation, preparation and execution of this Agreement and all other documents referred to in it and the completion of the transactions contemplated by this Agreement. Notwithstanding the foregoing, the Buyer or the Highbridge Guarantor shall reimburse and pay on demand any and all legal costs and expenses (including fees of counsel and court costs) incurred by the Seller or the Atmel Guarantor in defending or responding to any claim associated with or arising from the Highbridge Activities.

26.2		Variation

		No variation of this Agreement shall be effective unless made in writing and signed by or on behalf of each of the parties.

26.3		Construction

		The parties have participated jointly in the drafting and negotiation of this Agreement. This Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favouring or disfavouring any party by virtue of the authorship of any of the provisions herein.

26.4		Counterparts

		This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and which shall together constitute one and the same agreement.

26.5		Law and jurisdiction

		This Agreement and all disputes or claims arising out of or in connection with it shall be governed by and construed in accordance with English law and the parties submit to the non exclusive jurisdiction of the Courts of England.

27.

ATMEL GUARANTOR

27.1		In consideration of the Buyer and the Highbridge Guarantor entering into this Agreement, the Atmel Guarantor unconditionally and irrevocably guarantees to the Buyer the observance and performance by the Seller of the Seller’s obligations to the Buyer under this Agreement and under the Share Sale Agreement and agrees to pay any sum that becomes due and payable (but remains unpaid by the Seller) which the Seller becomes liable to pay to the Buyer under this Agreement.

27.2		The obligations of the Atmel Guarantor under clause 27.1 above shall not be impaired by:

27.2.1		any extension of time, forbearance or concession by the Buyer in taking steps to enforce the terms of this Agreement; or

27.2.2		any disclaimer of this Agreement by a liquidator or trustee in bankruptcy of the Seller.

27.3

The guarantee contained in this clause 27 shall be a continuing guarantee and shall remain in full force and effect until all the Seller’s obligations to the Buyer under this Agreement have been duly performed or sums that have become due and payable to the Seller (but remain unpaid by the Seller) have been paid, whether by the Seller or the Atmel Guarantor.

28.

HIGHBRIDGE GUARANTOR

28.1		In consideration of the Seller and the Atmel Guarantor entering into this Agreement, the Highbridge Guarantor unconditionally and irrevocably guarantees to the Seller the observance and performance by the Buyer of the Buyer’s obligations to the Seller under this Agreement and agrees to pay any sum that becomes due and payable (but remains unpaid by the Buyer) which the Buyer becomes liable to pay to the Seller under this Agreement.

28.2		The obligations of the Highbridge Guarantor under clause 28.1 above shall not be impaired by:

28.2.1		any extension of time, forbearance or concession by the Seller in taking steps to enforce the terms of this Agreement; or

28.2.2		any disclaimer of this Agreement by a liquidator or trustee in bankruptcy of the Buyer.

28.3

The guarantee contained in this clause 28.1 shall be a continuing guarantee and shall remain in full force and effect until all the Buyer’s obligations to the Seller under this Agreement have been duly performed or sums that have become due and payable to the Buyer (but remain unpaid by the Buyer) have been paid, whether by the Buyer or the Highbridge Guarantor.

29.

NOTICES

29.1

Any party may give any notice or other communication under or in connection with this Agreement by letter, facsimile transmission or electronic mail addressed to the other party. The address for service of each party shall be the address set forth in clause 29.3 or such other address for service as the addressee may from time to time notify to the other parties for the purposes of this clause.

29.2

Any such communication will be deemed to be served:

29.2.1		if personally delivered, at the time of delivery and, in proving service, it shall be sufficient to produce a receipt for the notice signed by or on behalf of the addressee;

29.2.2		if by letter, at noon on the tenth Business Day after such letter was posted (or, in the case of airmail, five Business Days after such letter was posted) and, in proving service, it shall be sufficient to prove that the letter was properly stamped first class (or airmail), addressed and delivered to the postal authorities;

29.2.3		if by overnight courier (such as Federal Express or DHL), on the third Business Day after such courier was dispatched, and in proving service, it shall be sufficient to produce a tracking number or a receipt confirmation indicating that the courier was dispatched and received by the recipient;

29.2.4		if by facsimile transmission, at noon on the Business Day after the day of transmission and, in proving service, it shall be sufficient to produce a transmission report from the sender’s facsimile machine indicating that the facsimile was sent in its entirety to the recipient’s facsimile number; and

29.2.5		if by electronic mail, at noon on the Business Day after such communication was sent and, in proving service, it shall be sufficient to produce a computer print out indicating that the message was sent to the recipient’s electronic mail address as set forth in clause 29.3.

29.3

Details of each party for service of notice are as follows:


		Name				Atmel North Tyneside Limited (Seller)
		Address:				c/o Atmel Corporation
						2325 Orchard Parkway
						San Jose, California 95131
						USA
		Fax no:				001 408 436 4111
		Electronic mail address:				Preutens@atmel.com and
						nyamaguchi@atmel.com
		Tel no:				001 408 441 0311
		Attention:				Chief Legal Officer

		Name:				Highbridge Business Park Limited (Buyer)
		Address:				131 Edgware Road,
						London W2 2AP
						England, UK
		Fax no:				+44 20 7494 9493
		Electronic mail address:
		Tel no:				+44 20 7494 9401
		Attention:				Guy Marsden

		Name:				Atmel Corporation (Atmel Guarantor)
		Address:				2325 Orchard Parkway
						San Jose, California 95131
						USA
		Fax no:				001 408 436 4111
		Electronic mail address:				preutons@atmel.com and
						nyamaguchi@atmel. com
		Tel no:				001 408 441 0311
		Attention:				Chief Legal Officer

		Name:				Highbridge Properties plc


		Address:				131 Edgware Road,
						London W2 2AP
						England, UK

		Fax no:				44 20 7494 9493
		Electronic mail address:				piet@nfl.co.uk
		Tel no:				+44 20 7494 9401
		Attention:

30.

SCHEDULE OF CONDITION

30.1		Not later than 4 weeks from the date of this Agreement, the Seller and the Buyer shall jointly instruct GVA Grimley to prepare the Schedule of Condition. The Seller and the Buyer shall each bear half of the costs of the preparation of the Schedule of Condition.

30.2		The Schedule of Condition shall be annexed to the Lease Back at Schedule 3.


Signed by Steven Laub	)
duly authorised to sign	)
on behalf of	)	/s/ Steven Laub
ATMEL NORTH TYNESIDE LIMITED:	)

Signed by Steven Laub	)
duly authorised to sign	)
on behalf of	)	/s/ Steven Laub
ATMEL CORPORATION:	)

Signed by Piet Pulford	)
duly authorised to sign	)
on behalf of	)	/s/ Piet Pulford
HIGHBRIDGE BUSINESS PARK LIMITED:	)

Signed by Guy Marsden	)
duly authorised to sign	)
on behalf of	)	/s/ Guy Marsden
HIGHBRIDGE PROPERTIES PLC	)

EX-10.15 3 f38449exv10w15.htm EXHIBIT 10.15 exv10w15

Exhibit 10.15

Herbert Smith

8 OCTOBER 2007

AGREEMENT

for the sale and purchase of certain assets of

ATMEL NORTH TYNESIDE LIMITED

by and among

TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED,

ATMEL NORTH TYNESIDE LIMITED,

and

ATMEL CORPORATION

TABLE OF CONTENTS


Clause	Headings	Page
1.	DEFINITIONS		1
2.	INTERPRETATION		5
3.	CONDITION		6
4.	SALE AND PURCHASE		6
5.	CONSIDERATION		7
6.	ESCROW RELEASE		9
7.	PRE-SIGNING DELIVERIES		9
8.	POST-SIGNING COVENANTS		10
9.	EMPLOYEES		13
10.	HEALTH AND SAFETY		13
11.	GUARANTEE		14
12.	VAT		14
13.	WARRANTIES BY THE SELLER		17
14.	WARRANTIES BY THE PURCHASER		17
15.	WARRANTIES BY THE GUARANTOR		17
16.	LIMITATION OF LIABILITY		17
17.	REMEDIES		20
18.	THIRD PARTY CLAIMS		20
19.	ANNOUNCEMENTS		21
20.	CONFIDENTIALITY		21
21.	OTHER PROVISIONS		22
22.	NOTICES		24
23.	LAW AND JURISDICTION		25
SCHEDULE 1 - WARRANTIES BY THE SELLER			27
SCHEDULE 2 - WARRANTIES BY THE PURCHASER			28
SCHEDULE 3 - WARRANTIES BY THE GUARANTOR			29
SCHEDULE 4 - TOOLS			30


Clause	Headings	Page
SCHEDULE 5 - SPARE PARTS			31
SCHEDULE 6 - RETAINED EQUIPMENT			32
SCHEDULE 7 - TOOL DELIVERY PROGRAMME			33
SCHEDULE 8 - PRE-SIGNING DELIVERIES			36
SCHEDULE 9 - VAT EVIDENCE			37
SCHEDULE 10 - AGREED FORM DOCUMENTS			38
SCHEDULE 11 - SELLER’S BANK ACCOUNT			39
SCHEDULE 12 - PURCHASER’S BANK ACCOUNT			40

AGREEMENT FOR SALE AND PURCHASE OF CERTAIN ASSETS

DATE 8 OCTOBER 2007

PARTIES

(1)		TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED (incorporated in Taiwan, Republic of China) the registered office/principal place of business of which is at 8 Li-Hsin 6 Road, Hsinchu Science Park, Hsinchu, Taiwan ROC 300-77 (the “Purchaser”)

(2)		ATMEL NORTH TYNESIDE LIMITED (incorporated and registered in England and Wales under company number 04018730 the registered office of which is at Lacon House, Theobald’s Road, London WC1X 8RW (the “Seller”); and

(3)		ATMEL CORPORATION (incorporated in the State of Delaware) the principal place of business of which is at 2325 Orchard Parkway, San Jose, California 95131, USA (the “Guarantor”).

IT IS AGREED AS FOLLOWS:

1.		DEFINITIONS

		In this Agreement, the following definitions apply:

		“Accepted Non-Compliant Tool” means any Tool which is a Failed Tool but which the Purchaser has accepted pursuant to Schedule 7 on the basis of the Reduced Tool Price and which has become a Purchaser’s Tool upon such acceptance;

		“Accepted Repaired Tool” means any Tool which is a Failed Tool that is a Critical Tool but which the Purchaser has accepted pursuant to paragraph 10(c) of Schedule 7;

		“Accepted Tool” means a Tool which has met or exceeded the Equipment Condition Baseline in the Equipment Acceptance Test in accordance with Schedule 7;

		“Accessories” means the ancillary systems related to the Tools as delivered by the original equipment manufacturer for such Tools and that are in Seller’s possession; for each Tool, “Accessories” include at least one complete pump set and may also include, without limitation, generators, chillers, heaters, gas cabinets, local scrubbers, pumping lines, O3 generators and O3 destructors;

		“Agreed Form” means in a form agreed by and signed by or on behalf of the applicable Party or Parties;

		“Agreed Level” shall have the meaning attributed to it in Schedule 7;

		“Appointed ECB Tester” means an appropriately qualified employee of the Seller or the Guarantor;

		“Appointed ECB Witness” means an appropriately qualified employee of the Purchaser;

		“Assets” means the Tools, Accessories, Manuals and Spare Parts;

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		“Business Day” means a day other than Saturday, Sunday or a day on which banks are authorised to close in London;

		“Claim” means a claim by the Purchaser against the Seller or the Guarantor under any provision of this Agreement, for breach of any of the Warranties or breach of any other provision of this Agreement, or under, or for a breach of, any provision of any of the Related Agreements, or a claim by the Seller or the Guarantor against Purchaser under, or for a breach of, any provision of this Agreement, or under, or for a breach of, any provision of any of the Related Agreements (as the context may require);

		“Completion” means the time at which (i) the Condition is satisfied pursuant to Clause 3 and (ii) the Transaction is then consummated;

		“Condition” shall have the meaning attributed to it in Clause 3;

		“Consumables” means all consumables relating to the Tools, including but not limited to quartzware, targets, gases, chemicals and other supplies;

		“Consumed Spare Parts” means any Spare Parts are consumed and used by the Seller between the date of this Agreement and the Production End Date;

		“Critical Tool” means any Tool identified as a Critical Tool in the Tool List;

		“ECB Plan” shall have the meaning attributed to it in Schedule 7;

		“Effective Date” means the date on which this Agreement becomes unconditional following the satisfaction of the Condition;

		“Employees” means the persons employed by the Seller immediately prior to the date hereof and any further persons employed by the Seller immediately before the Tri-Partite Agreement becomes unconditional under the terms therein;

		“Equipment Acceptance Test” shall have the meaning set forth in Schedule 7;

		“Equipment Condition Baseline” means the objectively measurable condition of each Tool as referred to in Schedule 7;

		“Escrow Account” means the interest bearing deposit account details of which are set forth in the Escrow Agreement in the name of JP Morgan Chase whereby the Seller and the Purchaser which account shall be established and regulated in accordance with the Escrow Agreement;

		“Escrow Agent” means JP Morgan Chase as appointed pursuant to the Escrow Agreement;

		“Escrow Agreement” means the joint escrow account agreement in Agreed Form relating to the Escrow Account to be entered into and effective on or around the date hereof;

		“Escrow Interest” shall have the meaning attributed to it in Clause 5.2;

		“Escrow Release Amount” shall have the meaning attributed to it in Clause 6.2;

		“Fab” means the facility for the production and manufacture of semiconductor and related products located at the Premises;

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		“Failed Tool” is a Tool which fails to meet the Equipment Condition Baseline in an Equipment Acceptance Test carried out pursuant to Schedule 7;

		“Final Escrow Release Date” means the date on which the final payments are made from the Escrow Account pursuant to the Escrow Agreement;

		“Final Spare Parts Inventory” shall have the meaning attributed to it in Clause 5.5;

		“Governmental Entity” means any supranational, national, international, state, municipal, local or foreign government, any instrumentality, subdivision, court, administrative agency or commission or other governmental authority or instrumentality;

		“Guarantor’s Warranties” means the warranties made by the Guarantor in this Agreement.

		“Initial Spare Parts Inventory” shall have the meaning attributed to it in Clause 5.5;

		“Joint Escrow Instructions” shall be any joint instructions of the Purchaser and the Seller to the Escrow Agent for release and payment of any amount to the Seller or the Purchaser from the Escrow Account in the form set forth in Schedule 2 to the Escrow Agreement;

		“Last Spare Parts Transfer Date” shall have the meaning set forth in Clause 5.5;

		“Law” means any law, statute, order, code, ordinance, regulation, rule, policy, guidance, interpretation of the law or administrative practice of any Governmental Entity;

		“Liens” means any mortgage, pledge, lien, encumbrance, hypothecation, security interest or other security agreement or security arrangement;

		“Long Stop Date” means 31 May 2008;

		“Losses” means claims, losses, damages, liabilities and reasonable costs and expenses;

		“Manuals” means any and all documents, references, and guides in the Seller’s possession that explain or describe (the operation or maintenance of the Tools;

		“Non Specific Spare Part” shall have the meaning set forth in Clause 5.4.2;

		“Non Specific Spare Part Price” shall have the meaning set forth in Clause 5.4.2;

		“OEM” means the original equipment manufacturer of any relevant Tool;

		“Overrun” means that the Purchaser’s Tools remain on the Premises after the Tool Removal Completion Date;

		“Parties” means, collectively, the Seller, the Purchaser and the Guarantor;

		“Party” means, individually, the Seller, the Purchaser or the Guarantor, as the case may be;

		“Payment Date” means the last Business Day of the month following the first Transfer Date and each last Business Day of each month thereafter until the Final Escrow Release Date.

- 3 -

		“Premises” means leasehold property known as Land at Middle Engine Lane, Hadrian Business Park, Silverlink, Wallsend, Newcastle Upon Tyne, NE28 9NZ registered at the Land Registry under title numbers TY319516 and TY319520, including all buildings and erections thereon, but excluding the plot of land located near the parking area to the office building which is subject to the contract dated 15 November 2006 among (i) the Seller, (ii) Sandalbeech Limited and (iii) Honda Motor Europe Limited;

		“Production End Date” means 31 December 2007 (or such other date as may be agreed between the Purchaser and the Seller in writing);

		“Purchase Price” shall have the meaning attributed to it in Clause 4.1;

		“Purchaser’s Bank Account” means the bank account with the details set forth in Schedule 12 attached hereto.

		“Purchaser’s Solicitors” means Simmons & Simmons of CityPoint, One Ropemaker Street, London EC2Y 9SS;

		“Purchaser’s Tools” means any Tool risk in and title to which has been transferred to the Purchaser on the relevant Transfer Date;

		“Purchaser’s Warranties” means the warranties made by the Purchaser in this Agreement.

		“Reduced Critical Tool Price” shall have the meaning attributed to it in Schedule 7;

		“Reduced Tool Price” shall have the meaning attributed to it in Schedule 7;

		“Rejected Tool” means any Tool that the risk in or title to such Tool remains with the Seller and does not pass to the Purchaser pursuant to this Agreement;

		“Related Agreements” means the Tri-Partite Agreement and the Escrow Agreement;

		“Retained Equipment” means all items of machinery, tools and any other assets set forth in the list in Schedule 6 together with all other equipment and assets of whatever nature found on the Premises as of the date hereof but excluding any Tools, Spare Parts, Accessories and Manuals;

		“Sellers’ Solicitors” means Herbert Smith of Exchange House, Primrose Street, London EC2A 2HS;

		“Seller’s Bank Account” means the bank account with the details set forth in Schedule 11 attached hereto;

		“Seller’s Warranties” means the warranties made by the Seller in this Agreement;

		“Spare Parts” means the stock of spare parts for the Tools set forth in Schedule 5, which schedule shall be audited, amended and updated pursuant to the terms set forth in Clause 5.5;

		“Spare Parts Transfer Date” shall have the meaning set forth in Clause 4.5;

		“Third Party Claim” shall have the meaning attributed to it in Clause 18;

		“Threshold Cost” shall have the meaning attributed to it in Schedule 7;

- 4 -

		“Tool List” means the list of Tools set forth in Schedule 4;

		“Tool Price” means the part of the Purchase Price apportioned to each Tool and all of its related Spare Parts, Accessories and Manuals, as set forth opposite that Tool in Schedule 4;

		“Tool Removal Completion Date” means 30 April 2008 (or such other date as may he agreed between the Purchaser and the Seller in writing);

		“Tool Removal Start Date” means a date after the date of this Agreement that is no later than 1 January 2008 (or such other date as may be agreed between the Purchaser and the Seller in writing);

		“Tools” means the equipment and tools of the Seller which are listed in Schedule 4 (and which definition shall not include Purchaser’s Tools);

		“Total Consumed Spare Parts” shall have the meaning attributed to it in Clause 5.6;

		“Total Consumed Spare Parts Value” shall have the meaning attributed to it in Clause 5.6;

		“Transaction” means the transaction or series of transactions contemplated in this Agreement and the Tri-Partite Agreement;

		“Transfer Date” for any Tool means the date on which risk in and title to such Tool is passed to the Purchaser as set forth in Schedule 7;

		“Transfer Regulations” means The Transfer of Undertakings (Protection of Employment) Regulations 2006;

		“Tri-Partite Agreement” means the agreement of even date herewith by and among the Purchaser, the Seller, the Guarantor, Highbridge Business Park Limited and Highbridge Properties Plc;

		“VAT” means United Kingdom value added tax; and

		“VATA” means the Value Added Tax Act 1994.

2.		INTERPRETATION

2.1		In this Agreement:

	2.1.1		the contents page(s) and clause headings are for convenience only and do not affect its construction;

	2.1.2		words denoting the singular include the plural and the other way round;

	2.1.3		words denoting one gender include each gender and all genders;

	2.1.4		general words shall not be given a restrictive meaning by reason of their being preceded or followed by words indicating a particular class or examples of acts, matters or things; and

	2.1.5		references to time and dates shall be references to the local time and the date in London, United Kingdom.

- 5 -

2.2

In this Agreement, unless otherwise specified or the context otherwise requires, a reference to:

	2.2.1		any reference to this Agreement includes the schedules, exhibits and other attachments to it each of which forms part of this Agreement for all purposes;

	2.2.2		a person is to be construed to include a reference to any individual, firm, partnership, company, corporation, association, organisation or trust (in each case whether or not having a separate legal personality);

	2.2.3		a document, instrument or agreement (including, without limitation, this Agreement) is a reference to any such document, instrument or agreement as modified, amended, varied, supplemented or novated from time to time;

	2.2.4		a clause or schedule (whether or not capitalised) is a reference to a clause of or schedule to this Agreement and a reference to this Agreement includes its schedules, exhibits and all other attachments hereto;

	2.2.5		a paragraph is a reference to a paragraph of the schedule in which the reference appears;

	2.2.6		any phrase introduced by the term “include”, “including”, “in particular” or any similar expression will be construed as illustrative and will not limit the sense of the words preceding or following that term;

	2.2.7		a provision of any statute, statutory provision, European Community directive or other legislation is to be construed as a reference to such provision as amended or re-enacted or as its application is modified from time to time (whether before or after the date of this Agreement) and shall include a reference to any provision of which it is a re-enactment (whether with or without modification) and to any orders, regulations, instruments or other subordinate legislation (and relevant codes of practice) made under the relevant statute or other legislation except to the extent that any amendment or re-enactment coming into force after the date of this Agreement would increase or extend the liability of any Party to any other person under this Agreement; and

	2.2.8		writing shall include any mode of reproducing words in a legible and permanent form.

3.		CONDITION

		The sale and purchase of the Assets under this Agreement and the consummation of the Transaction are conditional on the Tri-Partite Agreement becoming unconditional subject to the condition therein being satisfied (the “Condition”).

4.		SALE AND PURCHASE

4.1		The Seller shall sell and transfer and the Purchaser shall purchase, free from Liens the legal and beneficial title to the Assets for an aggregate consideration of US$82,000,000 (eighty two million US dollars) (the “Purchase Price”) on the terms and subject to the conditions set forth in this Agreement.

- 6 -

4.2		Risk in and title to the Tools shall pass to the Purchaser at the Premises on the relevant Transfer Date, each such Transfer Date to take place in accordance with the procedure set forth in Schedule 7.

4.3		Risk in and title to the Accessories and Manuals relating to any Tool shall pass to the Purchaser at the Premises simultaneously with the transfer of risk in and title to the relevant Tool.

4.4		Risk in and title to the Spare Parts which relate and are specific to any Tool (as identified pursuant to Clause 4.2 and the audit of Spare Parts set forth in Clause 5.5) shall pass to the Purchaser at the Premises simultaneously with the transfer of risk in and title to the relevant Tool.

4.5		Risk in and title to the Non Specific Spare Parts shall pass to the Purchaser at the Premises at the time of the removal of such Spare Parts by the Purchaser following the Production End Date (the “Spare Parts Transfer Date”).

4.6		For the avoidance of doubt the sale and purchase of the Assets and the Transaction shall not include the Retained Equipment and no title to such Retained Equipment shall pass as a result of the Transaction or this Agreement, the Tri-Partite Agreement, the Escrow Agreement or any other document referred thereto.

5.		CONSIDERATION

5.1		Subject to adjustment in accordance with the other provisions of this Clause 5, the consideration for the sale and purchase of the Assets as contemplated herein shall be the Purchase Price (apportioned as set forth in Schedule 4) which shall be paid in cash as set forth in this Clause 5.

5.2		Within seven days of the date hereof the Purchaser shall pay by wire transfer in immediately available funds the full amount of the Purchase Price into the Escrow Account. Interest on the monies standing to the credit from time to time of the Escrow Account (“Escrow Interest”) shall accrue for the benefit of the Purchaser, but the Purchaser agrees that such Escrow Interest shall be paid or disbursed in accordance with the provisions in the Escrow Agreement.

5.3		The fees of the Escrow Agent being US$3,000 shall be borne equally by the Seller and the Purchaser.

5.4		Within 45 days following the date hereof the Purchaser and the Seller shall verify and agree the allocation of the Purchase Price as set out in Schedule 4 as follows:

	5.4.1		a Tool Price shall be determined for each Tool and all related Accessories, Manuals and Spare Parts;

	5.4.2		a price (a “Non Specific Spare Part Price”) shall be determined for and allocated to each Spare Part which is not specific to any Tool (a “Non Specific Spare Part”);

	5.4.3		the Tool Price for any Tool, and all related Accessories, Manuals and Spare Parts may be nil. The Non Specific Spare Part Price for any Non Specific Spare Part shall be nil;

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5.4.4

the aggregate of all Tool Prices and Non Specific Spare Part Prices shall not exceed the Purchase Price.

5.5		Within 45 days of the date of this Agreement, in order to identify the Spare Parts to be transferred to the Purchaser, the Seller shall perform an audit of its inventory of the Spare Parts and amend, update or make any corrections to Schedule 5 as necessary and appropriate (the “Initial Spare Parts Inventory”) and shall submit such Initial Spare Parts Inventory to the Purchaser for review. Such Initial Spare Parts Inventory shall inter alia determine all Non Specific Spare Parts and all Non Specific Spare Parts Prices. The Seller shall review and maintain its record of inventory of Spare Parts on each Transfer Date or Spare Parts Transfer Date and update Schedule 5 as necessary and appropriate, to take into account all spare parts (including Non Specific Spare Parts) as have been transferred to the Purchaser on any Transfer Date or Spare Parts Transfer Date and any Consumed Spare Parts. On the “Last Spare Parts Transfer Date” (being the date on which risk in and title to the last remaining Spare Parts on the Initial Spare Parts Inventory shall pass to the Purchaser and which shall be the later of the last Transfer Date or the last Spare Parts Transfer Date) the Seller shall perform a final audit of its inventory of Spare Parts and produce a final version of Schedule 5 containing the inventory of Spare Parts as of such Last Spare Parts Transfer Date, which shall specify all the Spare Parts (including all Non Specific Spare Parts) which were transferred to the Purchaser and all Consumed Spare Parts (the “Final Spare Parts Inventory”) and shall submit such Final Spare Parts Inventory to the Purchaser for review.

5.6		At the time of the Final Spare Parts Inventory, the Seller and the Purchaser shall determine (i) the aggregate number of Consumed Spare Parts by reference to all of the revised and updated versions of Schedule 5 and the difference (if any) between the Initial Spare Parts Inventory and the Final Spare Parts Inventory (the “Total Consumed Spare Parts”), and (ii) the aggregate value for the Total Consumed Spare Parts (the “Total Consumed Spare Parts Value”), which shall be an amount calculated by multiplying (a) the number of Total Consumed Spare Parts by (b) the market value for each unit of Consumed Spare Parts as determined by the Seller.

5.7		The Seller shall, at the discretion of the Purchaser, either (a) pay an amount to the Purchaser equal to the Total Consumed Spare Parts Value (which shall for these purposes include instructing the Escrow Agent to release from and pay out of the Escrow Account monies to the Purchaser) or (b) provide the Purchaser with spare parts identical in all material respects to the Consumed Spare Parts, in either case in accordance with such mechanics as the Parties shall agree between them acting reasonably.

5.8		If any Accepted Non-Compliant Tools become Purchaser’s Tools the aggregate Purchase Price and the relevant Tool Price shall be deemed to be reduced by the difference between the relevant Tool Price and the Reduced Tool Price paid by the Purchaser.

5.9		On the relevant Transfer Date relating to any Tool, the Tool Price for such Tool and all related Accessories, Manuals and Spare Parts shall be finally agreed by the Parties as the Tool Price determined pursuant to this Clause 5.

5.10		The Parties agree and acknowledge that no Tool Price may be changed, amended or redetermined following such Transfer Date, and such Tool Price shall be final and binding on the Parties for all purposes.

5.11		The aggregate Purchase Price shall be reduced by the aggregate of the Tool Prices relating to each Rejected Tool.

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6.		ESCROW RELEASE

6.1		The Purchaser and the Seller shall use all reasonable endeavours to procure that the relevant part of the Purchase Price due to the Seller on each Payment Date is released from, and paid out of, the Escrow Account to the Seller in the manner set forth below.

6.2		Four Business Days prior to any Payment Date, the Seller shall inform the Purchaser of the amount of the Purchase Price due to the Seller on the relevant Payment Date (the “Escrow Release Amount”), such amount having been calculated by taking into account the following:

	6.2.1		all Tools (including Accepted Non-Compliant Tools) which have become Purchaser’s Tools, plus

	6.2.2		all Spare Parts, Accessories and Manuals that relate to such Tools,

	6.2.3		all Non Specific Spare Parts which have been transferred to the Purchaser; and

	6.2.4		the relevant Tool Price and Non Specific Spare Part Price attributable toe ach of the foregoing as calculated or determined in accordance with Clause 5;

		in the period commencing on the date falling four Business Days prior to the previous Payment Date, or, only in the case of the first Payment Date, the Tool Removal Start Date, and ending on the date falling four Business Days prior to the relevant Payment Date (both dates inclusive).

6.3		Within four Business Days after the Tool Removal Completion Date, or in the event of an Overrun within four Business Days after the Long Stop Date, the Seller shall inform the Purchaser of the amount of the Total Consumed Spare Parts to be deducted from any Escrow Release Amount, such amount having been calculated pursuant to Clause 5.5.

6.4		Except in the event of manifest error the Purchaser shall agree to the Escrow Release Amount.

6.5		One Business Day prior to the relevant Payment Date each of the Seller and the Purchaser shall serve a counterpart of a Joint Escrow Instructions to the Escrow Agent in the Agreed Form containing the instruction to release from, and to pay out of, the Escrow Account to the Seller the Escrow Release Amount on the relevant Payment Date by electronic wire transfer of funds for same day value.

6.6		Subject to all amounts due to the Seller (including but not limited to any part of the Purchase Price) under this Agreement having been paid in full and credited to the Seller’s designated account, within 30 days after the Long Stop Date, the Purchaser shall be entitled to unilaterally instruct the Escrow Agent to release from, and pay out of, the Escrow Account to the Purchaser, the entire amount standing to the credit of the Escrow Account as at that date together with the Escrow Interest.

7.		PRE-SIGNING DELIVERIES

		The Parties acknowledge respective receipt (on or prior to the date hereof) of each of the deliveries listed in Schedule 8 to this Agreement.

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8.		POST-SIGNING COVENANTS

8.1		Equipment Condition Baseline

		For each Tool, the Equipment Condition Baseline shall be established and the ECB Plan shall be jointly agreed upon, as set forth in Schedule 7.

8.2		Tool Shutdown and Removal

	8.2.1		The Seller and the Purchaser have agreed that the Tools shall be shutdown, disconnected and line-capped by the Seller and then removed from the Premises by the Purchaser in accordance with Schedule 7.

	8.2.2		The Seller shall be responsible for the shutdown, disconnection and line-capping of the Tools prior to the relevant Transfer Date, and all costs, liabilities and expenses incurred in or related to such shutdown, disconnection and line-capping of the Tools shall be borne by the Seller.

	8.2.3		Subject to the Seller’s obligations set forth in Clause 10 below, the Purchaser shall be responsible for removing and shall remove the Purchaser’s Tools, Spare Parts (excluding the Consumed Spare Parts), Accessories and Manuals on or following the relevant Transfer Date and all costs, liabilities and expenses incurred in or related to removing the Purchaser’s Tools, Spare Parts (excluding the Consumed Spare Parts), Accessories and Manuals, including but not limited to costs and expenses of removing, packing, crating, exporting and shipping the Tools, shall be borne by the Purchaser.

	8.2.4		The Seller agrees to use all reasonable endeavours to procure that in accordance with Schedule 7:

	(A)		the first Tool shall have been disconnected, line-capped and made available for removal by the Purchaser by no later than 1 January 2008;

	(B)		50 per cent (by number) of the Tools shall have been disconnected, line-capped and made available for removal by the Purchaser by no later than 1 February 2008; and

	(C)		all of the Tools shall have been disconnected, line-capped and made available for removal by the Purchaser by no later than 15 February 2008.

	8.2.5		Without prejudice to Clause 8.2.4, the Purchaser and the Seller shall undertake to procure that, in accordance with Schedule 7, all of the Tools shall have become Purchaser’s Tools or Rejected Tools, as the case may be, by the Tool Removal Completion Date, or in the event of an Overrun by the Long Stop Date.

	8.2.6		If any Tools remain in the Premises on the Tool Removal Completion Date, in order to permit the Purchaser and the Seller to complete the steps set forth in Schedule 7, during the Overrun Period, the Seller shall provide to the Purchaser reasonable access to and space within the Fab, as well as office space for housing the Purchaser’s employees and contractors.

	8.2.7		In the event of an Overrun, the Seller and the Purchaser agree to apportion the Overrun Fee (as defined below) between them on the following basis:

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	(A)		For the purposes of this Clause 8.2.7, the following terms have the meanings set forth below:

			“Extension Period” means any period of time following the Long Stop Date during which the Purchaser and the Seller may continue to occupy the Premises for the purposes of, inter alia, performing any works and activities (including removing the Tools from the Premises) under the Tri-Partite Agreement;

			“Overrun Fee” means the costs and expenses of renting the Premises and maintaining all utilities at the Premises during the Overrun Period, which shall include, without limitation, electricity, gas, water, foul water and surface drainage, heating, ventilation and air-conditioning, smoke and fumes, signals, telecommunications (excluding calls), satellite and data communications and all other utilities;

			“Overrun Period” means the period commencing on the date immediately following the Tool Removal Completion Date and ending at the close of business on the Long Stop Date or the last day of the Extension Period if applicable, and includes, for the avoidance of doubt, a Business Day and each day that is not a Business Day;

			“Purchaser Overrun” means an Overrun caused by or resulting from the Purchaser’s delay in removing or failure to remove all of the Purchaser’s Tools from the Premises by the Tool Removal Completion Date;

			“Purchaser Overrun Day” means, in the event of a Purchaser Overrun, each day or part of a day following the Tool Removal Completion Date that the Purchaser has failed to remove all of the Purchaser’s Tools in accordance with this Agreement;

			“Purchaser Overrun Fee” means the amount calculated by multiplying (i) the Overrun Fee by (ii) Purchaser’s Portion;

			“Purchaser Overrun Reduced Fee” means the amount calculated by multiplying (i) the Overrun Fee by (ii) Purchaser’s Reduced Portion;

			“Purchaser’s Portion” means the ratio, (i) the numerator of which is the total number of Purchaser Overrun Days, and (ii) the denominator of which is the total number of days during the Overrun Period;

			“Purchaser’s Reduced Portion” means the ratio, (i) the numerator of which is the amount equal to the total number of Purchaser Overrun Days minus the total number of Seller Overrun Days, and (ii) the denominator of which is the total number of days during the Overrun Period; and

			“Seller Overrun” means an Overrun caused by or resulting from the Seller’s delay in satisfying or failure to satisfy the requirements set forth under Clause 8.2.4(A), 8.2.4(B) or 8.2.4(C) above (each, a “Milestone,” and each date referred to in a Milestone, a “Milestone Date”); and

			“Seller Overrun Day” means, in the event of a Seller Overrun, each day or part of a day following a Milestone Date that the Seller has failed to meet the relevant Milestone; provided, however, that when the Seller

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meets the relevant Milestone, the day on which the Milestone is met and each subsequent day thereafter before the next Milestone shall not be considered to be a Seller Overrun Day.

	(B)		During the Overrun Period, the Seller shall be responsible for paying the total amount of the Overrun Fee to the respective utility service providers (or the landlord of the Premises as the case may be); provided, that the Purchaser shall be responsible for and shall reimburse and pay the Seller for any Purchaser Overrun Fee; provided, further, that in the event that a Purchaser Overrun is caused by or results from a Seller Overrun, the Purchaser shall be responsible for and shall reimburse and pay the Seller for the Purchaser Overrun Reduced Fee. If at any time the Purchaser Overrun Reduced Fee shall be a negative number by reason of the number of Seller Overrun Days exceeding the Purchaser Overrun Days, the Purchaser shall have no obligation to reimburse or pay the Seller under this Clause 8.2.7(B).

	(C)		As soon as practicable after the date of the last Purchaser’s Tool to be removed from the Premises and in any event no later than the Long Stop Date, or in the event of an Extension Period the last day of occupancy of the Premises, the Purchaser Overrun Fee or the Purchaser Overrun Reduced Fee, as the case may be, shall be payable to the Seller in cash by wire transfer of immediately available funds to the Seller’s Bank Account.

8.3

Production End Date

8.3.1

The Purchaser agrees and accepts that:

	(A)		in respect of any Assets the Seller may at its own cost continue to use such Assets for its production and operations until the earlier of the Production End Date or the Transfer Date relating to such Assets and during such time the Seller shall use and maintain any Tools used in a manner consistent with the Seller’s current practices as of the date hereof; provided that, if and to the extent that the Seller intends to use the Assets after the Production End Date, it shall notify the Purchaser in advance;

	(B)		subject to Seller’s obligations in Clauses 5 as regards Consumed Spare Parts, the Seller may use and consume any and all Spare Parts relating to any such Tools in connection with its production and operations; and/or

	(C)		the Seller may use and consume any and all Consumables in connection with its production and operations and the Seller shall have no obligation or liability to the Purchaser (i) to replace, provide or make available any Consumables, or (ii) to reimburse or pay to the Purchaser in connection with the Seller’s use and consumption of the Consumables.

8.4

Effect of Transfer Date or Tool Removal Completion Date

8.4.1

In respect of any Tools from the date of this Agreement until the earlier of (i) the Tool Removal Completion Date (or in the event of an Overrun, the Long Stop Date, or in the event of an Extension Period, the last day of the Extension Period) and (ii) the Transfer Date relating to such Tools, the Seller undertakes to the Purchaser that the Seller shall:

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	(A)		maintain the Tools in a manner consistent with the Seller’s current practices as of the date hereof; and

	(B)		not sell, transfer or otherwise dispose of, or agree to sell, transfer or otherwise dispose of, or grant or agree to grant any option in respect of any of the Tools (excluding any Rejected Tools) or any right or interest in them (other than pursuant to this Agreement).

8.5		Procurement of Spare Parts

		If pursuant to Schedule 7 the Seller is required to procure any spare part or other items for the repair, replace or refurbish and/or maintenance of any Failed Tool, the Purchaser shall provide reasonable assistance and cooperation to the Seller to ensure that such part is sourced and delivered as soon as reasonably possible and at a reasonable cost to the Seller.

8.6		Insurance

		For the period from:

	8.6.1		the date of this Agreement up to and including the Effective Date, the Seller shall provide at its own cost the same level of insurance coverage as maintained at the Premises and on the Tools as at the date of this Agreement; and

	8.6.2		the Effective Date up to and including the Tool Removal Completion Date, or in the event of an Overrun, up to and including the Long Stop Date, or in the event of an Extension Period, up to and including the last day of the Extension Period, the Seller shall provide at its own cost such commercially reasonable level of insurance coverage for the Premises and the Tools as is reasonably satisfactory to the Purchaser.

9.		EMPLOYEES

		It is acknowledged and agreed by each of the Parties that the Transfer Regulations will not apply to the sale and purchase of the Tools under this Agreement and that accordingly no Employees will transfer to the Purchaser as a result of this Agreement and the Transaction.

10.		HEALTH AND SAFETY

10.1		From the date of this Agreement until the Tool Removal Completion Date, or in the event of an Overrun until the Long Stop Date, the Seller agrees to maintain the clean room in a manner consistent with current practices as of the date hereof.

10.2		From the date of this Agreement until the Tool Removal Completion Date, or in the event of an Overrun until the Long Stop Date, or in the event of an Extension Period, until the last day of the Extension Period:

10.2.1

in the event of any accident, damage or injury occurring at the Premises as a result of shutdown or removal of the Tools as contemplated herein, the Seller shall implement and follow its emergency response procedures existing as of the date of this Agreement; and

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10.2.2

the Purchaser shall be subject to and shall comply with all security, access, environmental, health, safety and emergency response procedures of the Seller existing as of the date of this Agreement.

11.		GUARANTEE

11.1		In consideration of the Purchaser entering into this Agreement at the request of the Guarantor, as the Guarantor hereby acknowledges, the Guarantor unconditionally and irrevocably guarantees to the Purchaser the observance and performance by the Seller of the Seller’s obligations to the Purchaser under this Agreement and agrees to pay any sum that become due and payable (but remains unpaid by the Seller) which the Seller becomes liable to pay to the Purchaser under this Agreement.

11.2		The obligations of the Guarantor under Clause 11.1 above shall not be impaired by:

	11.2.1		any extension of time, forbearance or concession by the Purchaser in taking steps to enforce the terms of this Agreement;

	11.2.2		any disclaimer of this Agreement by a liquidator or trustee in bankruptcy of the Seller; or

	11.2.3		the administration, insolvency or liquidation of the Seller.

11.3		The guarantee contained in Clause 11.1 shall be a continuing guarantee and shall remain in full force and effect until all the Seller’s obligations to the Purchaser under this Agreement have been duly performed or sums that have become due and payable to the Purchaser (but remain unpaid by the Seller) have been paid, whether by the Seller or the Guarantor.

12.		VAT

12.1		Except where otherwise specified, an obligation to pay any sum under this contract includes an obligation to pay VAT properly due on that sum or any part of it (against delivery of a VAT invoice), and all sums payable under this contract are exclusive of VAT payable on them.

12.2		The Purchaser and the Seller intend and expect that the sale of the Assets will be a zero rated export of goods under section 30 VATA.

12.3		The Purchaser warrants that it is not a taxable person for the purposes of VATA and does not have a place of business in the UK from which taxable supplies are made.

12.4		The Purchaser shall ensure that the Purchaser’s Tools, the Spare Parts (excluding the Consumed Spare Parts), Accessories and Manuals are exported to a destination outside the European Community within 3 months from the earliest of:

	12.4.1		the Purchaser’s Tools, the Spare Parts (excluding the Consumed Spare Parts), Accessories and Manuals being made available to the Purchaser pursuant to Schedule 7; and

	12.4.2		the date that the Purchase Price payable in respect of the Purchaser’s Tools, the Spare Parts (excluding the Consumed Spare Parts), Accessories and Manuals transferred on that Transfer Date is released from the Escrow Account pursuant to the Joint Escrow Instructions; or

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12.4.3

in relation to any Accepted Non-Compliant Tools (including Accessories and Manuals associated with such Accepted Non-Compliant Tools), the date that the Reduced Tool Price is paid by the Purchaser;

(the “Time Period”), and shall, within the Time Period, provide the Seller with:

	(A)		two items on either the “Official Evidence” list or the “Commercial Transport Evidence” list set forth in Schedule 9 which shall be interpreted in accordance with HM Revenue & Customs Notice 703 — VAT: Export of goods from the United Kingdom; and

	(B)		any further information or documentation reasonably requested by the Seller to enable the Seller to treat the supply of the Purchaser’s Tools, the Spare Parts (excluding the Consumed Spare Parts), Accessories and Manuals as a zero-rated supply.

12.5		If the Purchaser fails to export the Purchaser’s Tools, the Spare Parts (excluding the Consumed Spare Parts), Accessories and Manuals or provide the evidence of export as required by Clause 12.4 above within the Time Period or if, for any other reason, the sale of any of the Assets is subject to VAT at the standard rate, then the Purchaser shall pay to the Seller, within four Business Days from the expiry of the Time Period, VAT at the standard rate on the Purchase Price payable in respect of such Assets together with any interest, penalty, surcharge or other sum demanded by HM Revenue & Customs (“Penalties”). The Purchaser shall pay reasonable professional costs and expenses the Seller may incur in relation to such VAT and Penalties, provided that the Seller gives the Purchaser reasonable notice prior to incurring such costs and expenses, and, subject to Clause 12.6 and so far as permitted by Law, permits the Purchaser to control any appeal or related proceedings, provided that (a) the Purchaser shall first indemnify and secure the Seller to their satisfaction against all losses (including any Penalties), costs, interest, damages and expenses which the Seller may so incur, (b) the Seller shall be entitled to participate in any such appeal or related proceedings at its own cost and expense (including legal counsel’s fees and costs of investigation), and (c) the Purchaser shall not agree to any settlement or compromise of, or an entry of any judgment arising from, any such appeal or related proceedings except with the prior written consent of the Seller , such consent not to be unreasonably withheld or delayed.

12.6		At the Purchaser’s cost, the Seller shall take or cause to be taken any action as reasonably requested or that is reasonably necessary or appropriate to give effect to the provisions of this Clause 12 provided that such action is consistent with the following provisions of this Clause 12.6.

	12.6.1		The Seller shall notify the Purchaser of any enquiry by HM Revenue & Customs into the transactions contemplated under this Agreement, and of any determination or assessment by HM Revenue & Customs in respect of the same.

	12.6.2		At the Purchaser’s cost, the Seller shall take such action and give such information and assistance to give effect to the provisions of this Clause 12 as is reasonably requested by the Purchaser or that is reasonably necessary or appropriate to give effect to its provisions. For the avoidance of doubt, the Purchaser shall be entitled to require the Seller by written notice to avoid, resist or appeal any determination or assessment by HM Revenue & Customs that VAT is due in relation to the transactions contemplated under this Agreement provided that:

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	(A)		the Seller shall not he obliged to appeal against any determination or assessment if, having given the Purchaser notice of such determination, the Purchaser has not, by the earlier of 14 days from receipt by the Seller of such notice, and 7 days prior to the expiry of any time for appeal, received instructions in writing from the Purchaser to do so; and

	(B)		the Seller shall not be obliged to comply with any request of the Purchaser which involves contesting any determination or assessment before any tribunal, court or other appellate body unless they have been advised in writing by leading VAT counsel instructed by agreement between the Purchaser and the Vendor (or failing agreement to be selected at the instance of either party by the President for the time being of the General Council of the Bar of England and Wales) at the expense of the Purchaser that an appeal against the assessment will, on the balance of probabilities, be successful and a copy of such advice has been provided to the Seller; and

	(C)		the Seller shall not be obliged to take any action which in the reasonable opinion of the Seller is likely to:

	(1)		increase a liability to tax of any company in the group of companies of which the Seller is for the time being a member; or

	(2)		interfere with the normal course of business of any such company; or

	(3)		materially prejudice such company’s relationship with HM Revenue and Customs.

	12.6.3		If either the Seller is not obliged to take any action pursuant to any of the clauses 12.6.2(A), (B) or (C) or the Purchaser fails to respond to any written request for instructions from the Seller within 10 days of such request, the Seller shall be free to satisfy or settle the relevant enquiry, determination or assessment on such terms as it may in its absolute discretion think fit and such satisfaction or settlement shall be without prejudice to any liability of the Purchaser under this Agreement.

	12.6.4		The action which the Purchaser may request under this clause 12.6 shall include (without limitation) the Seller applying to postpone (so far as legally possible) the payment of any tax but shall not include allowing the Purchaser to take on or take over the conduct of any proceedings of whatsoever nature arising in connection with the determination or assessment in question.

	12.6.5		Notwithstanding anything in the Agreement, the Seller shall not be obliged to take any steps under this clause 12.6 unless the Purchaser shall first indemnify and secure the Seller to their satisfaction against all losses (including any Penalties), costs, interest, damages and expenses which the Seller may so incur.

12.7

If the Purchaser fails to pay any amount in respect of VAT when due to be paid to the Seller pursuant to this Agreement, the Purchaser shall in addition pay interest on it at the rate of four per cent (4%) above the Bank of England base rate from the date that such payment was payable until the date that the Purcahser makes actual payment to the Seller.

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12.8		If the Purchaser fails in any respect to comply with its obligations under this Clause 12 as a direct or indirect result of which HM Revenue & Customs impose any interest, penalty or surcharge on the Seller then the Purchaser shall immediately on demand pay to the Seller an amount equal to such interest, penalty or surcharge, and shall pay to the Seller an amount equal to any reasonable professional costs the Seller incurs in connection with the imposition.

12.9		To the extent that any sale pursuant to this Agreement is not a zero rated export of goods under section 30 VATA, the Seller or the Guarantor agrees to provide reasonable assistance and information, at the Purchaser’s cost, as the Purchaser shall reasonably require in seeking to reclaim any VAT charge to it under the terms of this Agreement from HM Revenue & Customs.

13.		WARRANTIES BY THE SELLER

13.1		The Seller warrants to the Purchaser in the terms of the statements set forth in Schedule 1 as at the date of this Agreement.

13.2		The Seller acknowledges and accepts that the Purchaser in entering into this Agreement has relied on the Seller’s Warranties.

13.3		Each of the Seller’s Warranties shall be construed as a separate and independent provision.

13.4		The Seller’s Warranties are given subject to matters fairly disclosed.

14.		WARRANTIES BY THE PURCHASER

14.1		The Purchaser warrants to the Seller in the terms of the statements set forth in Schedule 2 as at the date of this Agreement.

14.2		The Purchaser acknowledges and accepts that the Seller in entering into this Agreement has relied on the Purchaser’s Warranties.

14.3		Each of the Purchaser’s Warranties shall be construed as a separate and independent provision.

15.		WARRANTIES BY THE GUARANTOR

15.1		The Guarantor warrants to the Seller in the terms of the statements set forth in Schedule 3 as at the date of this Agreement.

15.2		The Guarantor acknowledges and accepts that the Seller in entering into this Agreement has relied on the Guarantor’s Warranties.

15.3		Each of the Guarantor’s Warranties shall be construed as a separate and independent provision.

16.		LIMITATION OF LIABILITY

16.1		Maximum amount of liability

16.1.1

The combined, cumulative, aggregate, joint liability of the Seller and the Guarantor (for the avoidance of doubt the cumulative, aggregate, liability of the Seller plus

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			the cumulative, aggregate, liability of the Guarantor) for all Claims shall not exceed the Purchase Price (as amended in accordance with Clause 5); and

	16.1.2		The cumulative, aggregate liability of the Purchaser for all Claims shall not exceed US$10 million.

16.2		De Minimis

		No Party shall have any liability in respect of a Claim unless the liability agreed or determined in respect of the Claim (excluding related interest and costs) exceeds US$25,000 (twenty five thousand US dollars)

16.3		Minimum amount of aggregate liability

		No Party shall have any liability in respect of a Claim unless the aggregate liability agreed or determined (excluding related interest and costs) in respect of all Claims exceeding US$25,000 (twenty five thousand US dollars) per Claim as referred to in Clause 16.2 exceeds US$100,000 (one hundred thousand US dollars) provided that if such aggregate liability exceeds US$100,000 (one hundred thousand US dollars), then the Party subject to such Claim shall be liable for the whole of the liability.

16.4		Time limits

		Any claims made by a Party against another Party hereunder shall be made promptly when the claiming Party becomes aware of the basis for or circumstances that may give rise to a Claim. No Party shall have any liability or obligation with respect to any Claim if its defence of the Claim is materially prejudiced because it received late notice or no notice of the Claim from the claiming Party. No Claim shall be made against a Party unless notice in writing is given to the other Party or Parties by the claiming Party in accordance with the notice provisions under Clause 22 of this Agreement on or before the date falling six months after the Tool Removal Completion Date, or in the event of an Overrun, the Long Stop Date, or in the event of an Extension Period, the last day of any Extension Period. A Claim in respect of which notice is given in accordance with this Clause shall, if it has not previously been satisfied, settled or withdrawn, be deemed to have been withdrawn and be barred and unenforceable unless legal proceedings have been issued and served on the other Parties in respect of such Claim within six months after the date of such notice or, where the Claim is based on a contingent liability, within six months after such liability ceases to be contingent.

16.5		Exclusion of Claims

16.5.1

No Party shall have any liability in respect of any Claim in relation to any matter:

	(A)		fairly disclosed by such Party, with sufficient detail to identify the nature of and extent of the matters so disclosed;

	(B)		actually known by the other Party or Parties prior to the date of this Agreement;

	(C)		which would not have occurred but for any act, omission or transaction on or after the date of this Agreement by or with the consent of the other Party or Parties.

16.5.2

The Purchaser specifically acknowledges and agrees that it shall have no Claim against the Seller or the Guarantor on any account whatsoever in relation to the

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Assets or Consumables (whether on account of its state or condition, fitness for purpose or otherwise) save as provided in Schedule 7.

16.6		No special loss

		No Party shall have liability under a Claim to the extent that such Claim constitutes punitive, incidental or special loss or damages, or losses or damages related to or arising from any loss of profits, opportunity costs or financing costs, delay or change in valuation of any real property or other asset.

16.7		Contingent Claims

		No Party shall have liability in respect of any Claim which is based upon a liability which is contingent only unless and until such contingent liability becomes an actual liability and is due and payable.

16.8		No other warranties or covenants

	16.8.1		The Purchaser acknowledges and agrees that it has made its own inquiry and investigation into, and, based thereon, has formed an independent judgment concerning the Transaction, and the Purchaser has been furnished with or given sufficient access to such information about the Assets, the Consumables, the Seller and its operations and other information relevant to the Transaction.

	16.8.2		The Purchaser acknowledges that, except as expressly set forth in this Agreement, there are no warranties of any kind, express or implied, by the Seller or any other affiliated companies of the Seller, including, without limitation, the Guarantor.

	16.8.3		Notwithstanding anything to the contrary contained herein, no Party shall have any liability in respect of any liability or loss:

	(A)		to the extent that it arises or is increased as a result of the passing of, or a change in, any Law, interpretation of the Law or administrative practice of any Governmental Entity, after the date of this Agreement;

	(B)		if it would not have arisen but for any act, omission, transaction or arrangement carried out at the request of or with the written consent of the other Party; or

	(C)		to the extent that it relates to any liability or loss for which the other Party or any of its affiliates makes recovery whether by contribution, indemnity or insurance (except that no Party shall be required to make a claim under any insurance policy ahead of any Claim against the other Party if such insurance claim will result in a material increase of that Party’s insurance premiums).

16.9		No double recovery

		A Party is not entitled to recover damages or otherwise obtain payment, reimbursement or restitution under this Agreement more than once in respect of the same loss or liability (other than a recurring loss or liability).

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16.10		Non-applicability in the event of fraud or wilful misconduct

		The exclusions and limitations set forth in this Clause 16 shall not apply in relation to Claims which are the consequence of fraud or wilful misconduct by any Party.

17.		REMEDIES

17.1		A Party’s rights and remedies in respect of any Claim shall be limited only to damages for breach of contract and as set forth in Clause 16. A Party shall not be entitled to (i) rescind or terminate this Agreement, the Tri-Partite Agreement, the Escrow Agreement or any of the documents referred thereto, (ii) void or otherwise challenge consummation of the Transaction or any portion thereof, or (iii) recover damages in tort, including pursuant to a claim for misrepresentation.

17.2		Nothing in this Agreement shall operate to reduce any Party’s common law duty to mitigate any loss giving rise to any Claim and for the avoidance of doubt each Party shall be under a duty so to mitigate.

17.3		The Purchaser agrees to waive any right or remedy which the Purchaser may have against any Employee, consultant, representative, advisor or agent of the Seller or the Guarantor in connection with any representation, warranty, agreement or statement by any such person in relation to the Transaction, this Agreement, the Tri-Partite Agreement, the Escrow Agreement and any other document to be delivered or executed in connection therewith. The Seller agrees to waive any right or remedy which the Seller may have against any employee, consultant, representative, advisor or agent of the Purchaser in connection with any representation, warranty, agreement or statement by any such person in relation to the Transaction, this Agreement, the Tri-Partite Agreement, the Escrow Agreement and any other document to be delivered or executed in connection therewith.

18.		THIRD PARTY CLAIMS

		A Party (the “Indemnifying Party”) shall promptly notify the other Parties of any claims against the Indemnifying Party brought or threatened by any person (including any Governmental Entity) in respect of which the Indemnifying Party is or may be liable for Losses under this Agreement (each, a “Third Party Claim”). The Party receiving such notice (the “Indemnified Party”) may at its election undertake and conduct the defence of such Third Party Claim with legal counsel that it selects, and the Indemnifying Party shall be entitled to participate in at its own cost and expense (including legal counsel’s fees and costs of investigation), but not to determine, control or conduct, the defence of such Third Party Claim. If the Indemnified Party has assumed the defence of a Third Party Claim, the Indemnifying Party shall not be liable for any costs and expenses (including legal counsel’s fees and costs of investigation) subsequently incurred by the Indemnified Party in connection with the defence of the Third Party Claim. The Indemnified Party shall not agree to any settlement or compromise of, or an entry of any judgment arising from, any such Third Party Claim except with the prior written consent of the Indemnifying Party, such consent not to be unreasonably withheld or delayed, even if such settlement or compromise gives the claimant or the plaintiff to the Indemnifying Party a release from liability in respect of such Third Party Claim.

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19.		ANNOUNCEMENTS

19.1		Subject to Clause 19.2, each of the Parties undertakes that it shall not make any announcement or issue any circular or other publicity relating to the existence or subject matter of this Agreement without it being approved in writing by the other Parties as to its content, form and manner of publication (such approval not to be unreasonably withheld or delayed). The Parties shall consult together upon the form of any such announcement or circular in relation to the subject matter of this Agreement and each of the other Parties shall promptly provide such information and comment as the Party making the announcement or sending out the circular may from time to time reasonably request.

19.2		Any Party shall be permitted to make announcements relating to the existence or subject matter of this Agreement without it being approved in writing by the other Parties if and to the extent:

	19.2.1		required by Law; or

	19.2.2		required by any securities exchange or regulatory or any other Governmental Entity to which any Party is subject or submits, wherever situated.

19.3		Nothing in this Clause 19 shall prohibit the Purchaser from engaging in private discussions with select potential buyers for some but not all of the Purchaser’s Tools at any time after the Condition has been satisfied provided that any such private discussion is limited to the make, model, specification and general performance data of the relevant Purchaser’s Tools and does not involve the use of any public advertising.

20.		CONFIDENTIALITY

20.1		Subject to Clauses 20.2 and 20.3, the Seller, the Guarantor and the Purchaser each undertake to treat as confidential, and not to disclose or use, directly or indirectly, for its own or any other person’s benefit, all information obtained as a result of entering into or performing this Agreement which relates either to the provisions of, or negotiations relating to, this Agreement or to the business or affairs of the any Party.

20.2		A Party may disclose information which is subject to Clause 20.1 to its employees, professional advisers, auditors, and bankers.

20.3		A Party may disclose information which is subject to Clause 20.1 if and to the extent:

	20.3.1		required by Law;

	20.3.2		required by any securities exchange or regulatory or any other Governmental Entity to which any Party is subject or submits, wherever situated;

	20.3.3		required to vest the full benefit of this Agreement in that Party or expressly contemplated by this Agreement;

	20.3.4		the information has come into the public domain through no fault of that party;

	20.3.5		the information was already known to the relevant party at the time it was disclosed to it or otherwise obtained by it; or

	20.3.6		the Party to whom it relates has given their consent in writing;

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and any information to be disclosed pursuant to Clauses 20.3.1 or 20.3.2 shall be disclosed so far as is reasonably practicable only after prior consultation with each of the other Parties.

21.		OTHER PROVISIONS

21.1		Costs

		Except as otherwise stated in this Agreement and any documents referred to in it, each of the Parties shall pay its own costs and expenses (including legal fees and VAT (if any)) incurred by it in connection with the negotiation, preparation and execution of this Agreement and all other documents referred to in it and the Transaction.

21.2		Deductions and Withholdings

	21.2.1		For the purposes of this Clause 21.2:

			A “UK Tax Paying Company” shall mean, a company incorporated in England and Wales, and resident for tax purposes, carrying on business and subject to corporation tax, in the United Kingdom of Great Britain & Northern Ireland; and

			the Seller shall be entitled in its absolute discretion:

	(A)		to assess whether or not any deductions or withholdings are required by law and whether or not such deductions or withholdings would have been required had the Purchaser been a UK Tax Paying Company;

	(B)		to assess (the extent to which an amount paid or due to the Purchaser under this Agreement would have been subject to UK corporation tax had the Purchaser been a UK Tax Paying Company; and

in both cases, to treat the Purchaser accordingly.

21.2.2		Except as expressly provided in this Agreement, any amount payable under this Agreement shall be paid free and clear of all deductions, withholdings, counter-claims or set-off whatsoever, save only as may be required by Law.

21.2.3		If, subject to Clause 21.2.1, any deductions or withholdings would be required by law to be made from any sums payable by the Seller to the Purchaser, the Seller shall be obliged to pay the Purchaser such amount as would, after the deduction or withholding has been made, leave the Purchaser with the same amount as it would have been entitled to receive in the absence of such requirement to make a deduction or withholding, unless the Seller would not have had to make such deductions or withholdings had the Purchaser been a UK Tax Paying Company.

21.2.4		If the Seller would be required by law to make a deduction or withholding as is referred to in Clause 21.2.3, the Seller shall:

	(A)		make such deduction or withholding;

	(B)		account for the full amount deducted or withheld to the relevant authority in accordance with applicable law; and

	(C)		provide to the Purchaser the original, or a certified copy, of a receipt or other documentation evidencing the above.

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21.2.5

If, subject to Clause 21.2.1, any amount paid or due to the Purchaser under this Agreement would be a taxable receipt of the Purchaser, then the amount so paid or due (the “Net Amount”) shall be increased to an amount which, after subtraction of the amount of any tax on such increased amount which arises, or would but for the availability of any relief arise, shall equal the Net Amount provided that if any payment is initially made on the basis that the amount is not taxable in the hands of the Purchaser and it is subsequently determined that it is, or vice versa, appropriate adjustments shall be made between the Purchaser and the Seller and provided further that the amount paid or due shall not be increased to the extent that such increase would not have been necessary had the Purchaser been a UK Tax Paying Company.

21.3		Further assurance

		Each of the Parties shall, at its own expense, do, execute and perform all further acts, deeds, documents and things as may be reasonably requested from time to time in order to implement all the provisions of this Agreement and to transfer the legal and beneficial title to the Assets in accordance with this Agreement.

21.4		Variation

		Except for Schedule 5, which may be amended by the Seller pursuant to Clause 5.4 hereof, no variation of this Agreement shall be effective unless made in writing and signed by or on behalf of each of the Parties.

21.5		Construction

		The Parties have participated jointly in the drafting and negotiation of this Agreement. This Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favouring or disfavouring any Party by virtue of the authorship of any of the provisions herein.

21.6		Entire agreement

	21.6.1		This Agreement and the Related Agreements contain the entire agreement in relation to the matters contemplated by this Agreement and supersede any previous agreements or undertakings between or among the Parties in relation to such matters.

	21.6.2		Each of the Parties acknowledges that in entering into this Agreement it has not relied on any representation, warranty or undertaking not set forth in this Agreement and that (in the absence of fraud) it will not have any right or remedy arising out of any such representation, warranty or undertaking.

21.7

Waivers and remedies

	21.7.1		No failure or delay to exercise, or other relaxation or indulgence granted in relation to, any power, right or remedy under this Agreement shall operate as a waiver of it or impair or prejudice it nor shall any single or partial exercise or waiver of any power, right or remedy preclude its further exercise or the exercise of any other power, right or remedy.

	21.7.2		All rights of any person contained in this Agreement are in addition to all rights vested or to be vested in it pursuant to common law or statute.

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21.8		Severability

		Each of the provisions of this Agreement is distinct and severable from the others and if at any time one or more of such provisions is or becomes invalid, unlawful or unenforceable (whether wholly or to any extent), the validity, lawfulness and enforceability of the remaining provisions (or the same provision to any other extent) shall not in any way be affected or impaired.

21.9		Successors

		This Agreement shall be binding on and enure to the benefit of each Party and its lawful successors.

21.10		Assignment

		None of the Parties shall be entitled to assign or transfer any of its rights or benefits under this Agreement.

21.11		Third party rights

		Nothing in this Agreement confers any rights on any person under the Contracts (Rights of Third Parties) Act 1999 but this does not affect any right or remedy of any person which exists or is available apart from that Act.

21.12		Counterparts

		This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and which shall together constitute one and the same Agreement.

22.		NOTICES

22.1		Each party may give any notice or other communication under or in connection with this Agreement by letter, facsimile transmission or electronic mail addressed to the other Party. The address for service of each Party shall be the address set forth in Clause 22.3 or such other address for service as the addressee may from time to time notify to the other Parties for the purposes of this Clause.

22.2		Any such communication will be deemed to be served:

	22.2.1		if personally delivered, at the time of delivery and, in proving service, it shall be sufficient to produce a receipt for the notice signed by or on behalf of the addressee;

	22.2.2		if by letter, at noon on the tenth Business Day after such letter was posted (or, in the case of airmail, five Business Days after such letter was posted) and, in proving service, it shall be sufficient to prove that the letter was properly stamped first class (or airmail), addressed and delivered to the postal authorities;

	22.2.3		if by overnight courier (such as Federal Express or DHL), on the third Business Day after such courier was dispatched, and in proving service, it shall be sufficient to produce a tracking number or a receipt confirmation indicating that the courier was dispatched and received by the recipient;

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	22.2.4		if by facsimile transmission, at noon on the Business Day after the day of transmission and, in proving service, it shall be sufficient to produce a transmission report from the sender’s facsimile machine indicating that the facsimile was sent in its entirety to the recipient’s facsimile number; and

	22.2.5		if by electronic mail, at noon on the Business Day after such communication was sent and, in proving service, it shall be sufficient to produce a computer print out indicating that the message was sent to the recipient’s electronic mail address.

22.3

Details of each Party for service of notice are as follows:


		Name:		Atmel North Tyneside Limited (Seller)
		Address:		C/o Atmel Corporation
				2325 Orchard Parkway
				San Jose, California 95131
				USA

		Fax no:		+1 408 436 4111
		Electronic mail address:		preutens@atmel.com and nyamaguchi@atmel.com
		Tel no:		+ 1408 441 0311
		Attention:		Chief Legal Officer

		Name:		Taiwan Semiconductor Manufacturing Company
		Address:		Limited (Purchaser)
				8 Li-Hsin 6 Road
				Hsinchu Science Park
				Hisinchu, Taiwan ROC

		Fax no:		+886-3-567-8689
		Electronic mail address:		Dick Thurston@tsmc.com
		Tel no:		+886-3-568-2002
		Attention:		Office of the General Counsel

		Name:		Atmel Corporation (Guarantor)
		Address:		2325 Orchard Parkway
				San Jose, California 95131
				USA

		Fax no:		+1 408 436 4111
		Electronic mail address:		preutens@atmel.com and nyamaguchi@atmel.com
		Tel no:		+1 408 441 0311
		Attention:		Chief Legal Officer

23.		LAW AND JURISDICTION

23.1		This Agreement and all disputes or claims arising out of or in connection with it shall be governed by, and construed in accordance with, English law.

23.2		Each Party hereby irrevocably submits to the exclusive jurisdiction of the courts of England and Wales in relation to any claim, dispute or difference concerning this Agreement and any matter arising therefrom.

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23.3		Each of the Parties agrees that without preventing any other mode of service, any document in action (without limitation) may be served on any Party by being delivered to or left for that Party at its address for service of notices under Clause 22; or (a) in the case of the Purchaser, by being delivered to its agent in accordance with Clause 23.3, marked, for so long as such agent is Simmons & Simmons, “For the urgent attention of the Managing Partner, Corporate Department”, and (b) in the case of the Seller or the Guarantor, by being delivered to their agent in accordance with Clause 23.4.

23.4		The Purchaser irrevocably appoints Simmons & Simmons of One Ropemaker Street, London EC2Y 9SS, United Kingdom, fax number +44 (0)20 7628 2070, as its agent to receive on its behalf in England or Wales service of any proceedings arising out of or in connection with this Agreement. Such service shall be deemed completed on delivery to such agent (whether or not it is forwarded to and received by the Purchaser) and shall be valid until such time as each of the Seller and the Guarantor has received prior written notice that such agent has ceased to act as agent pursuant to this Clause. If for any reason such agent ceases to be able to act as agent or no longer has an address in England or Wales, the Purchaser shall forthwith appoint a substitute acceptable to the Seller and the Guarantor (each acting reasonably) and deliver to the Seller and the Guarantor the new agent’s name, address and fax number within England and Wales.

23.5		As soon as reasonably practicable following signing, and in any event no later than ten Business Days following signing of this Agreement, each of the Seller and the Guarantor shall appoint an agent acceptable to the Purchaser (acting reasonably) and deliver to the Purchaser such agent’s name, address and fax number within England and Wales to receive on its behalf in England or Wales service of any proceedings arising out of or in connection with this Agreement. Such service shall be deemed completed on delivery to such agent (whether or not it is forwarded to and received by the Seller or the Guarantor (as the case may be)) and shall be valid until such time as the Purchaser has received prior written notice that such agent has ceased to act as agent pursuant to this Clause. If for any reason such agent ceases to be able to act as agent or no longer has an address in England or Wales, each of the Seller and the Guarantor shall forthwith appoint a substitute acceptable to the Purchaser (acting reasonably) and deliver to the Purchaser the new agent’s name, address and fax number within England and Wales.

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AS WITNESS of which this Agreement has been duly signed on the date written at the beginning of this Agreement.


Signed by Steven Laub	)
a director or officer duly authorised	)
for and on behalf of ATMEL NORTH	)	/s/ Steven Laub
TYNESIDE LIMITED	)	Director/Officer
Signature of witness: /s/ Walt Lifsey
Name (in BLOCK CAPITALS): WALT LIFSEY
Address:

Signed by Steven Laub	)
a director or officer duly authorised	)
for and on behalf of ATMEL	)	/s/ Steven Laub
CORPORATION	)	Director/Officer

Signature of witness: /s/ Walt Lifsey

Name (in BLOCK CAPITALS): WALT LIFSEY

Address:

[Signature Page to Asset Sale Agreement]


Signed by C.C. Wei	)
a director or officer duly authorised	)
for and on behalf of TAIWAN	)
SEMICONDUCTOR	)
MANUFACTURING COMPANY	)	/s/ C.C. Wei
LIMITED	)	Authorised Officer

[Signature Page to Asset Sale Agreement]

EX-10.16 4 f38449exv10w16.htm EXHIBIT 10.16 exv10w16

Exhibit 10.16

Herbert Smith

8 OCTOBER 2007

AGREEMENT

in relation to the removal of equipment from
premises at Middle Engine Lane, Hadrian
Business Park, Silverlink, Wallsend,
Newcastle Upon Tyne, NE28 9NZ

by and among

ATMEL NORTH TYNESIDE LIMITED,
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED,

HlGHBRIDGE BUSINESS PARK LIMITED,

ATMEL CORPORATION

and

HIGHBRIDGE PROPERTIES PLC

TABLE OF CONTENTS


Clause	Headings	Page
1.	DEFINITIONS		2
2.	INTERPRETATION		6
3.	CONDITION		7
4.	ATMEL’S OBLIGATIONS TO HIGHBRIDGE		8
5.	PRE-REMOVAL PROCEDURES		8
6.	ENVIRONMENTAL OBJECTIVE		9
7.	ATMEL ENVIRONMENTAL WORKS AND INDEMNITY		10
8.	TSMC INDEMNITY		12
9.	HIGHBRIDGE RESPONSIBILITY AND INDEMNITY		13
10.	FINAL TOOL REMOVAL		13
11.	HIGHBRIDGE RELEASE		13
12.	EMPLOYEES		13
13.	GUARANTEES		14
14.	LIMITATION OF LIABILITY		15
15.	REMEDIES		15
16.	OTHER PROVISIONS		15
17.	NOTICES		18
18.	LAW AND JURISDICTION		20
SCHEDULE 1 - CONSULTANTS			21
SCHEDULE 2 - M W ZANDER PROPOSAL			22
SCHEDULE 3 - TOOLS			23

THIS AGREEMENT is made this 8th day of October 2007

BETWEEN:

(1)		ATMEL NORTH TYNESIDE LIMITED (incorporated and registered in England and Wales under company number 04018730 the registered office of which is at Lacon House, Theobalds Road, London WC1X 8RW (“Atmel”);

(2)		TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED (incorporated in Taiwan, Republic of China) the registered office/principal place of business of which is at 8 Li-Hsin 6 Road, Hsinchu Science Park, Hsinchu, Taiwan ROC 300-77 (“TSMC”);

(3)		HIGHBRIDGE BUSINESS PARK LIMITED (incorporated and registered in England and Wales under company number 3493084), the registered office of which is at 131 Edgware Road, London, W2 2AP (“Highbridge”);

(4)		ATMEL CORPORATION (incorporated in the State of Delaware) the principal place of business of which is at 2325 Orchard Parkway, San Jose, California 95131, USA (“Atmel Guarantor”); and

(5)		HIGHBRIDGE PROPERTIES PLC (incorporated and registered in England and Wales under company number 02244773), the registered office of which is at 131 Edgware Road, London, W2 2AP(the “Highbridge Guarantor”).

WHEREAS:

(A)		all capitalized terms used in this Agreement are defined in Clause 1 below, and all capitalized terms used herein but not defined herein shall have the meanings attributed thereto in the Asset Agreement or the Property Agreement as the case may be;

(B)		Atmel, the Atmel Guarantor, Highbridge and the Highbridge Guarantor are parties to an agreement of even date herewith for the sale and purchase of the residue of the leasehold interests in the Premises;

(C)		Atmel, the Atmel Guarantor and TSMC are parties to an agreement of even date herewith for the sale and purchase of certain assets of Atmel;

(D)		pursuant to the Asset Agreement, TSMC has agreed to remove the TSMC Tools from the Premises on the terms set forth herein;

(E)		Atmel has agreed to remove the Atmel Tools from the Premises on the terms set forth herein;

(F)		the Parties have agreed to regulate the removal of TSMC Tools and the Atmel Tools from the Premises and apportion liability for such removal as between the Parties on the terms set forth herein;

(G)		the Atmel Guarantor has agreed to guarantee the obligations of Atmel under this Agreement; and

(H)		the Highbridge Guarantor has agreed to guarantee the obligations of Highbridge under this Agreement.

IT IS AGREED as follows:

1.		DEFINITIONS

		In this Agreement, the following definitions apply:

		“Agreement” means this agreement in relation to the removal of equipment from the Premises by and among Atmel, TSMC, Highbridge, the Atmel Guarantor, and the Highbridge Guarantor;

		“Asset Agreement” means the agreement of even date herewith for the sale and purchase of the Assets to be entered into between Atmel, Atmel Guarantor and TSMC;

		“Atmel Invitees” means any affiliate, employee, invitee, licensee, consultant contractor, agent or representative of Atmel or the Atmel Guarantor;

		“Atmel Plan” shall have the meaning attributed to it in Clause 7,4 of this Agreement;

		“Atmel Tools” means all tools, accessories, spare parts, and all other equipment and assets located at the Premises other than the TSMC’s Tools, which Atmel and TSMC intend to transfer to TSMC in accordance with the Asset Agreement;

		“Atmel Tool Removal” means the removal of all Atmel Tools from the Premises by Atmel;

		“Atmel Works” shall have the meaning attributed to it in Clause 7.3 of this Agreement;

		“Baseline Environmental Condition” means the presence of Hazardous Materials in soil and/or groundwater at or under the Premises as identified in the Baseline Environmental Investigation;

		“Baseline Environmental Investigation” means the report of the Phase II environmental site assessment and investigation of the Premises performed by Cundall Johnson and Partners LLP as of 22 August 2007 and agreed to by the Parties hereto as being definitive, as between them, of the environmental condition of the soil and groundwater as of 22 August 2007, including as to whether Atmel could be required to undertake Remedial Action;

		“Business Day” means a day other than Saturday, Sunday or a day on which banks are authorised to close in London or Taipei;

		“CDM Regulations” shall have the meaning attributed to it in Clause 5.3 of this Agreement;

		“Closing” shall have the meaning attributed to it in Clause 3.3 of this Agreement;

		“Closing Date” shall mean the date upon which the Closing occurs under Clause 3.3;

		“Condition” shall have the meaning attributed to it in Clause 3.1 of this Agreement;

		“Condition Satisfaction Notice” shall have the meaning attributed to it in Clause 3.3 of this Agreement;

		“Conditional Option” means the Conditional Option Agreement of even date herewith to be entered into between Atmel and Highbridge relating to the plot of land being retained by

		Atmel (located near the parking area to the office building) which is subject to the contract dated 15 November 2006 among (i) Atmel, (ii) Sandalbeech Limited and (iii) Honda Motor Europe Limited;

		“Consultant” means M W Zander, and each of Atmel and Highbridge shall use all reasonable endeavours to jointly select and appoint M W Zander after the date hereof at Atmel’s cost with respect to the Oversight and Monitoring Services only, on the basis of the Consultant Proposal; provided, however, that if Atmel and Highbridge (both acting reasonably) jointly decide not to accept or agree to the Consultant Proposal and any other terms and conditions, including, without limitation, any such terms in the Consultant Contract, as required by M W Zander, Atmel and Highbridge (both acting reasonably) may (i) jointly select and appoint any other expert listed in Schedule 1 and (ii) jointly seek to accept and agree to another proposal and other terms and conditions, including, without limitation, any such terms in the Consultant Contract, submitted by such other expert;

		“Consultant Contract” means the agreement by and among the Consultant, Atmel and Highbridge to be entered after the date hereof, which shall set forth the terms of Oversight and Monitoring Services to be provided by Consultant at the Premises at Atmel’s cost with respect to the Oversight and Monitoring Services, such terms to be agreed by Atmel and Highbridge acting reasonably and to include professional indemnity coverage for the Consultant of not less than £5,000,000;

		“Consultant Proposal” means the proposal submitted by M W Zander at or about the date hereof and attached hereto as Schedule 2 subject to any amendments that Atmel and Highbridge shall agree (both acting reasonably), and if M W Zander is not jointly selected or appointed by Atmel and Highbridge, any other proposal submitted by another Consultant and agreed by Atmel and Highbridge (both acting reasonably);

		“Employees” means the persons employed by Atmel immediately before the date hereof and any further persons employed by Atmel on and prior to the Long Stop Date (or expiry of the Extension if applicable);

		“Environmental Laws” means any Laws or legal requirements applicable to the Premises relating to pollution or protection of the environment including laws, regulations, code, ordinances, rules, orders, policies or guidelines relating to emissions, discharges, releases or the presence of Hazardous Materials, decontamination or decommissioning of equipment and other items containing Hazardous Materials, or otherwise relating to the manufacture, processing, registration, distribution, labelling, recycling, use, treatment, storage, disposal, transport or handling of Hazardous Materials including for the avoidance and doubt any such laws or legal requirements relating to town and country planning;

		“Escrow Agreement” means the agreement of at or about the date hereof relating to an escrow account for the sale and purchase of the Assets to be entered into among Atmel, TSMC and JP Morgan;

		“Extension Period” shall have the meaning attributed to it in Clause 7.3 of this Agreement;

		“Governmental Entity” means any supranational, national, international, state, municipal, local or foreign government, any instrumentality, subdivision, court, administrative agency or commission or other governmental authority or instrumentality;

		“Hazardous Materials” means any substance which alone or in combination with any other substance is capable of giving rise to harm or damage to property, the environment, man or any other organism supported by the environment including but not limited to chemicals, pollutants, contaminants, wastes, toxic substances (including asbestos and asbestos containing materials), hazardous materials, hazardous substances, hazardous waste, radioactive and biological materials, noxious chemicals and gases, petroleum and petroleum products and polychlorinated biphenyls;

		“Highbridge Invitees” means any affiliate, employee, invitee, licensee, consultant contractor, agent or representative of Highbridge or the Highbridge Guarantor but not including Atmel, TSMC, the Atmel Invitees or the TSMC Invitees;

		“Highbridge Lender” means the Royal Bank of Scotland plc or, if not chosen by Highbridge to provide finance for this Transaction, such other lender as Highbridge may notify to Atmel in writing;

		“Highbridge Plan” shall have the meaning attributed to it in Clause 7.4 of this Agreement;

		“Laws” means any law, statute, order, code, ordinance, regulation, rule, policy, guidance and interpretation of the law or administrative practice of any Governmental Entity;

		“Lease Back” means the agreement of even date herewith for the lease of the Premises by Highbridge to Atmel effective as of the Closing Date;

		“Long Stop Date” means 31 May 2008;

		“Losses” means claims, losses, damages, liabilities and reasonable costs and expenses but excluding in all cases punitive, incidental, special losses or damages and losses or damages related to or arising from any loss of profits, opportunity costs, delay, or change in valuation of any real property or other asset;

		“Net Amount” shall have the meaning attributed to it in Clause 16.11 of this Agreement;

		“Overrun” means that the TSMC Tools or the Atmel Tools remain on the Premises after the Tool Removal Completion Date;

		“Oversight and Monitoring Services” means the services comprising the project management, oversight and monitoring of (i) the implementation of the Pre-Removal Procedures; (ii) the carrying out of Removal; (iii) removal of those bulk chemicals and gases which would otherwise have been used in the manufacture of semiconductor wafers or has been used by Atmel and/or the Atmel Invitees in the decommissioning process; and (iv) the purging of all supply lines from storage locations to “point of use”;

		“Parties” means, collectively, Atmel, TSMC, Highbridge, the Atmel Guarantor and the Highbridge Guarantor;

		“Party” means, individually, Atmel, TSMC, Highbridge, the Atmel Guarantor or the Highbridge Guarantor, as the case may be;

		“Pre-Removal Procedures” means the operations and procedures in relation to the operation, testing, shutdown, disconnection, and line-capping of all TSMC Tools and Atmel Tools;

		“Premises” means leasehold premises known as Land at Middle Engine Lane, Hadrian Business Park, Silverlink, Wallsend, Newcastle Upon Tyne, NE28 9NZ registered at the Land Registry under title numbers TY319516 and TY319520, including all buildings and erections thereon, but excluding the plot of land located near the parking area to the office building which is subject to the contract dated 15 November 2006 among (i) Atmel, (ii) Sandalbeech Limited, and (iii) Honda Motor Europe Limited;

		“Procedures” means, collectively, the Pre-Removal Procedures, the Atmel Tool Removal and the TSMC Tool Removal;

		“Property Agreement” means the agreement of even date herewith for the sale and purchase of the Premises to be entered into between Atmel, Atmel Guarantor, Highbridge and the Highbridge Guarantor;

		“Related Agreements” means all the agreements between or among any of the Parties made in connection with or contemplation of this Agreement and the Transaction contemplated in this Agreement, including without limitation the Asset Agreement, the Property Agreement, the Escrow Agreement, the Lease Back, the Conditional Option and the Share Sale Agreement;

		“Remedial Action” means remediation work that is requisite under the Environmental Laws;

		“Remediation Plan” shall have the meaning attributed to it in Clause 7.4 of this Agreement;

		“Removal” means the removal of all Tools from the Premises before the Long Stop Date or the expiration of the Extension Period as applicable, which shall include the TSMC Tool Removal and Atmel Tool Removal;

		“Reportable Claim” shall have the meaning attributed to it in Clause 7.1 of this Agreement;

		“Reportable Event” shall have the meaning attributed to it in Clause 7.1 of this Agreement;

		“Reporting Notice” shall have the meaning attributed to it in Clause 7.1 of this Agreement;

		“Revised Environmental Condition” means the presence of Hazardous Materials in soil and/or groundwater at or under the Premises as identified in the Revised Environmental Investigation;

		“Revised Environmental Investigation” means the report of the updated Phase II environmental site assessment and investigation of the Premises to be commissioned by, and at the cost of, Atmel and performed by Cundall Johnson and Partners LLP at, or as soon as possible after, the Tool Removal Completion Date, or in the event of an Overrun, the Long Stop Date, to identify any adverse change from, and adopting the same assessment methodologies as, the Baseline Environmental Investigation, including as to whether Atmel could be required to undertake Remedial Action;

		“Share Sale Agreement” means the agreement of even date for the sale and purchase of the entire issued share capital in each of Atmel North Tyneside Contractor One Limited

		and Atmel North Tyneside Developer One Limited entered into between Atmel and Highbridge;

		“Tool Removal Completion Date” means 30 April 2008 (or such other date on which the Removal has been completed);

		“Tool Removal Start Date” means the earliest date after the Closing Date on which the first of the TSMC Tools are made available by Atmel for removal from the Premises and in any case shall be no later than 1 January 2008;

		“Tools” means the TSMC Tools and Atmel Tools as listed in Schedule 3 attached hereto;

		“TSMC Invitees” shall have the meaning attributed to it in Clause 5.2 of this Agreement;

		“TSMC Invitees” shall have the meaning attributed to it in Clause 5.2 of this Agreement;

		“TSMC Tools” means the tools, accessories, spare parts, and other equipment and assets located at the Premises which will be purchased by TSMC from Atmel on or following the Closing Date in accordance with the Asset Agreement;

		“TSMC Tool Removal” means the removal of all TSMC Tools from the Premises;

		“Transaction” means the transaction or series of transactions contemplated under this Agreement and the Related Agreements;

		“Transfer Regulations” means The Transfer of Undertakings (Protection of Employment) Regulations 2006; and

		“UK Tax Paying Company” shall have the meaning attributed to it in Clause 16.11 of this Agreement.

2.		INTERPRETATION

2.1		In this Agreement:

	2.1.1		the contents page(s) and clause headings are for convenience only and do not affect its construction;

	2.1.2		words denoting the singular include the plural and the other way round;

	2.1.3		words denoting one gender include each gender and all genders;

	2.1.4		general words shall not be given a restrictive meaning by reason of their being preceded or followed by words indicating a particular class or examples of acts, matters or things; and

	2.1.5		references to “indemnify” and “indemnifying” any person against any liability or circumstance include indemnifying that person against all Losses from time to time directly made, suffered or incurred by that person as a consequence of or which would not have arisen but for that liability or circumstance, but shall exclude any and all punitive, incidental, or special losses or damages, or losses or damages related to or arising from any loss of profits or opportunity, delay, or change in valuation of any real property or other asset and where any payment to be made under any indemnity is subject to any tax such payment shall be made on an after tax basis.

2.2

In this Agreement, unless otherwise specified or the context otherwise requires, a reference to:

	2.2.1		any reference to this Agreement (whether or not capitalised) includes the schedules, exhibits and other attachments to it each of which forms part of this Agreement for all purposes;

	2.2.2		a person is to be construed to include a reference to any individual, firm, partnership, company, corporation, association, organisation or trust (in each case whether or not having a separate legal personality);

	2.2.3		a document, instrument or agreement (including, without limitation, this Agreement) is a reference to any such document, instrument or agreement as modified, amended, varied, supplemented or novated from time to time;

	2.2.4		a clause or schedule (whether or not capitalised) is a reference to a clause of or schedule to this Agreement and a reference to this Agreement includes its schedules, exhibits and all other attachments hereto;

	2.2.5		a paragraph is a reference to a paragraph of the schedule in which the reference appears;

	2.2.6		any phrase introduced by the term “include”, “including”, “in particular” or any similar expression will be construed as illustrative and will not limit the sense of the words preceding or following that term;

	2.2.7		a provision of any statute, statutory provision, EC directive or other legislation is to be construed as a reference to such provision as amended or re-enacted or as its application is modified from time to time (whether before or after the date of this Agreement) and shall include a reference to any provision of which it is a re- enactment (whether with or without modification) and to any orders, regulations, instruments or other subordinate legislation (and relevant codes of practice) made under the relevant statute or other legislation except to the extent that any amendment or re-enactment coming into force after the date of this Agreement would increase or extend the liability of any Party to any other person under this Agreement; and

	2.2.8		writing shall include any mode of reproducing words in a legible and permanent form; and

	2.2.9		dates and times are references to local dates and times in London, England, UK.

CONDITION

3.1

This Agreement, together with all rights and obligations under it or the enforcement thereof (with the exception of Clauses 3, and 14 to 18 inclusive which shall have full force and effect from the date hereof), and completion of all the Related Agreements and the Transaction, will be conditional upon Atmel having complied with its procedural obligations to inform and consult with appropriate representatives of Atmel’s employees in relation to the impact that the Transaction may have on those employees (the “Condition”).

3.2		Atmel shall use all reasonable endeavours to satisfy or procure the satisfaction of the Condition as expeditiously as possible following the date hereof.

3.3		Within two Business Days following the satisfaction of the Condition, Atmel shall serve notice on all the Parties advising that the Condition has been satisfied (the “Condition Satisfaction Notice”). On the date two Business Days following service of such notice on all Parties, this Agreement and the Related Agreements, together with all rights and obligations under them or the enforcement thereof, shall become unconditional and have full force and effect (the “Closing”). With respect to Highbridge, Atmel shall procure, before the Closing, (a) the removal of entry 6 and 8 subsisting on the Charges Register of title number TY319520 as at 21 August 2007, and (b) letter of reliance from Cundall Johnson and Partners LLP confirming professional indemnity coverage of £5,000,000. At the Closing, (i) the Purchase Price under the Asset Agreement shall be available for release from escrow pursuant to the terms thereof and the Escrow Agreement, and (ii) the Property Agreement shall be completed, including (without limitation) payment of the purchase price to Atmel pursuant to the terms thereof.

4.		ATMEL’S OBLIGATIONS TO HIGHBRIDGE

4.1	Atmel undertakes to Highbridge that Atmel will procure at Atmel’s cost (i) the implementation of the Pre-Removal Procedures; (ii) the carrying out of the Removal; (iii) removal of those bulk chemicals and gases which would otherwise have been used in the manufacture of semiconductor wafers or has been used by Atmel and/or the Atmel Invitees in the decommissioning process; (iv) the purging of all supply lines from storage locations to “point of use”; and (iv) the delivery by the Consultant of the Oversight and Monitoring Services in accordance with the Consultant Contract, in all cases:

	4.1.1	in compliance with all statutory requirements, including the CDM Regulations;

	4.1.2	in a good and workmanlike, proper and professional manner;

	4.1.3	so that Atmel delivers the environmental objectives referred to in Clause 6 including promptly and adequately cleaning up any spillages at the Premises as soon as reasonably practicable after their occurrence; and

	4.1.4	so as to avoid any environmental impact and to minimise any damage to the Premises other than as contemplated under Clause 6.1.5.

4.2		Provided that Atmel complies with the relevant instructions and recommendations of the Consultant, Highbridge acknowledges and agrees that residual chemicals within plumbing, ductwork and drains will remain after purging and equipment decommissioning and that Atmel has no responsibility or liability for such residual contamination whatsoever.

5.		PRE-REMOVAL PROCEDURES

5.1		Without prejudice to the generality of Clause 4 as to Atmel’s obligations to Highbridge, Atmel shall be responsible for the Pre-Removal Procedures, and TSMC shall be responsible for removing the TSMC Tools from the Premises, both as set forth in Clause 8.2 of the Asset Agreement.

5.2		Subject to the terms of the Lease Back and this Agreement, Highbridge hereby acknowledges and agrees that (i) Atmel shall he permitted to carry out Pre-Removal Procedures and Removal at the Premises, and (ii) TSMC shall be permitted to carry out the

		TSMC Tool Removal, in each case until the Long Stop Date or to expiry of the Extension Period if applicable. For the purposes of carrying out TSMC Tool Removal and inspection, Highbridge and Atmel shall provide to TSMC, its employees, contractors, consultants and invitees (the “TSMC Invitees”), at no charge to TSMC up to and including the Long Stop Date, or the expiration of the Extension Period if applicable, reasonable access to and space within the Premises, as well as office space for housing the TSMC Invitees, which is estimated to require approximately 10,000 square feet. TSMC shall be subject to and shall comply with all security, access, environmental, health, safety and emergency response procedures of Atmel existing as of the date of this Agreement.

5.3		The Parties agree that Atmel and Highbridge shall jointly engage, at Atmel’s cost, the Consultant to provide Oversight and Monitoring Services until the Long Stop Date or the expiration of the Extension Period if applicable. Atmel shall negotiate and finalise the Consultant Contract, which shall be approved by Highbridge (such approval not to be unreasonably withheld or delayed), and pursuant to the terms thereof, shall, inter alia, require that the Consultant comply with applicable statutory obligations under the Construction (Design and Management) Regulations 2007 (the “CDM Regulations”).

5.4		Atmel and Highbridge may consult with TSMC as to the terms of the Consultant Contract for the Consultant and the Oversight and Monitoring Services.

5.5		At all times prior to the Long Stop Date, Atmel shall ensure that the Consultant receives reasonable comments made by Highbridge or TSMC in connection with any aspect of the Oversight and Monitoring Services, and shall request that the Consultant gives reasonable consideration to such comments and feedback in the course of the execution of the Oversight and Monitoring Services.

6.		ENVIRONMENTAL OBJECTIVE

6.1		The Parties agree that the objective of the Oversight and Monitoring Services is to ensure that during the carrying out of (a) the Pre-Removal Procedures and (b) the Removal:

	6.1.1		there are or will be procedures in place to minimise the likelihood of any release, spillage or escape of Hazardous Materials to air or to soil and groundwater and that compliance with these procedures is overseen and monitored;

	6.1.2		such procedures are performed in compliance with applicable statutory obligations under the Laws of England and Wales, including the CDM Regulations;

	6.1.3		the Pre-Removal Procedures and Removal are conducted in a safe manner and in accordance with the requirements of all Laws, including Environmental Laws and in accordance with any applicable requirements of any Governmental Entity;

	6.1.4		any release, spillage or escape of Hazardous Materials to air is, as necessary, immediately addressed in accordance with appropriate emergency response procedures in place at the Premises as at the date hereof;

	6.1.5		no extraordinary damage occurs to the fab portion of the Premises where manufacturing of semiconductors takes place and no building damage occurs to the offices at the Premises as a result of the Procedures (other than reasonable wear and tear); and

6.1.6

no additional contamination of soil and/or groundwater is created or, in the event of an incident resulting in the same that remedial works are implemented as soon as practicable to restore the Premises to substantially the same state as the Baseline Environmental Condition such that no Remedial Action is required.

6.2		The Parties agree that the Baseline Environmental Condition and the Revised Environmental Investigation are deemed to be final, conclusive and binding on the Parties and that the Revised Environmental Investigation shall, as between and among them, be final, conclusive and binding upon the Parties as to any adverse changes to soil and groundwater at or under the Premises as between the Baseline Environmental Condition and the Revised Environmental Condition.

6.3		Atmel shall procure production and delivery as soon as is reasonably practicable after the Tool Removal Completion Date, or in the event of an Overrun, the Long Stop Date of:

	6.3.1		to both TSMC and Highbridge, the Revised Environmental Investigation; and

	6.3.2		to Highbridge, a letter of reliance from Cundall Johnson and Partners LLP confirming professional indemnity coverage of £5,000,000.

7.		ATMEL ENVIRONMENTAL WORKS AND INDEMNITY

7.1		The Parties agree that if, notwithstanding the procedures in place, there is a release, spillage or escape of Hazardous Materials during the Pre-Removal Procedures and/or Removal or other environmental condition or other circumstances before the Long Stop Date or the expiration of the Extension Period if applicable that may result in or give rise to a potential or actual Loss (a “Reportable Event”):

	7.1.1		Highbridge shall provide Atmel and the Atmel Invitees such access to the Premises, and extend such other reasonable cooperation (such cooperation to be provided at Atmel’s cost and expense and at Atmel’s request) to undertake any works and other action to restore the condition of the Premises to the Baseline Environmental Condition;

	7.1.2		As soon as is practicable after Highbridge or TSMC becomes aware of a Reportable Event, such Party shall give prompt notice of such Reportable Event (a “Reporting Notice”) to Atmel.A Reporting Notice must describe the Reportable Event in reasonable detail and must indicate the amount (estimated, if necessary and to the extent feasible) of the Loss that has been or may be suffered by a Party;

	7.1.3		Atmel has the right to assume and control the defence of any claim that may arise from or relate to the Reportable Event (a “Reportable Claim”) with counsel selected by the Atmel Guarantor. While Atmel has assumed the defence of a Reportable Claim as provided in this Clause 7.1.3, Atmel shall not be liable for any legal costs and expenses subsequently incurred by the other Parties (other than the Atmel Guarantor) in connection with the defence of the Reportable Claim save for any reasonable legal costs and expenses incurred because other Parties have been joined in the Reportable Claim as a co-defendant and a named party before Atmel assumes and takes control of the defence. Highbridge or TSMC, as the case may be, has the right to participate in (but not control), at its own expense, the defence of any Reportable Claim which Atmel has assumed and taken control as provided herein and Atmel shall keep Highbridge and TSMC

			fully informed of the progress of the Reportable Claim and shall consider the reasonable requests of Highbridge or TSMC in respect of the Reportable Claim; and

	7.1.4		Highbridge and TSMC shall, promptly after giving a Reporting Notice at Atmel’s cost and expense, use all reasonable endeavours to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with Atmel in connection with any Reportable Claim.

7.2		Subject to the other terms of this Agreement, Atmel agrees to indemnify Highbridge against all Losses actually incurred or suffered by Highbridge (i) as a result of any adverse change from the Baseline Environmental Condition identified in the Revised Environmental Investigation requiring Remedial Action, and (ii) in relation to any release, spillage or escape of Hazardous Materials on the Premises during the Procedures.

7.3		In the event that an adverse change is identified under Clause 7.2 above, Atmel shall be entitled, at its own cost and expense, to undertake as soon as is reasonably practicable, any works and take other action to restore the condition of the Premises to the Baseline Environmental Condition and/or remediate any such release, spillage or escape in an appropriate manner in accordance with good industry practice and shall promptly give written notice to Highbridge that it has had to commence such works and, in any event no later than seven Business Days of such commencement If such works and other activities on the Premises (including but not limited to Removal) result in a delay in Atmel or TSMC vacating the Premises on or before the Long Stop Date, upon request by Atmel, from the Long Stop Date, Highbridge will grant Atmel and those properly authorised by Atmel (including without prejudice to the foregoing, TSMC) licence to enter the Premises for a period of 3 months from the Long Stop Date (the “Extension Period”). During the Extension Period, Atmel shall as soon as is reasonably practicable after the Long Stop Date complete all works and take other action, at its own cost and expense, through a contractor or otherwise (with suitable warranties and professional indemnity coverage being obtained, from any contractor appointed, for Highbridge and the Highbridge Lender), to take Remedial Action, facilitate the Removal and perform any and all other acts to satisfy its obligations under this Clause 6 (such works and activities by Atmel or its contractors collectively referred to herein as the “Atmel Works”).

7.4		If at any time it is determined that the Atmel Works shall take longer than the Extension Period, Atmel shall notify Highbridge as soon as is reasonably practicable and (i) Highbridge and Atmel (both acting reasonably and without delay) shall jointly instruct the Consultant to identify the environmental condition or conditions to be rectified and develop a plan to implement Remedial Action as required under this Clause 7 (the “Remediation Plan”); (ii) Highbridge shall cause a contractor of its choice to provide an estimate of the cost and time within which that contractor can reasonably complete the Remediation Plan (the “Highbridge Plan”) and inform Atmel and its contractor of such estimated cost and time; and (iii) Atmel or a contractor of its choice shall provide an estimate of the cost and time with which Atmel or its contractor can complete the Remediation Plan (the “Atmel Plan”) and inform Highbridge of such estimated cost and time.

7.5		If the Highbridge Plan can be performed at a comparable or lower cost and in a lesser time than the Atmel Plan, Highbridge shall have the right to (a) engage a contractor (with suitable warranties and professional indemnity coverage being obtained for Atmel), at Atmel’s cost, to undertake the works and take such actions as described in the Remediation

		Plan, (b) terminate the right of access (which shall result in a concurrent termination of TSMC’s right to access the Premises), and (c) begin demolishing, redevelopment and other related work; provided that if the Atmel Plan can be performed at a comparable or lower cost and in a lesser time than the Highbridge Plan, then (x) Highbridge shall not undertake the works set forth in the Remediation Plan, (y) Atmel shall have the right to undertake such works and take such actions set forth in the Remediation Plan (with suitable warranties and professional indemnity coverage being obtained for Highbridge and the Highbridge Lender), and (z) Highbridge will grant Atmel and those properly authorised by Atmel (including without prejudice to the foregoing TSMC) licence to enter the Premises for the period up to and ending on the date that the works and actions set forth in the Remediation Plan are completed. If the Highbridge Plan is to be performed by Highbridge pursuant to the foregoing sub-Clause 7.5(a), Atmel shall have the right to monitor the progress of and supervise and otherwise propose direction as to the performance of the Remediation Plan in accordance with the Highbridge Plan. If the Atmel Plan is to be performed by Atmel pursuant to the foregoing sub-Clause 7.5(y), Highbridge shall have the right to monitor the progress of and supervise and otherwise propose direction as to the performance of the Remediation Plan in accordance with the Atmel Plan.

7.6		The Parties hereby agree that any Extension Period or right of access to the Premises granted by Highbridge under this Clause 7 shall be on such terms as exclude the security of tenure provisions of the Landlord and Tenant Act 1954).

7.7		At anytime after the Tool Removal Completion Date, and in the event of an Overrun anytime after the Long Stop Date, Highbridge shall be entitled, at its own cost, to engage Cundall Johnson and Partners LLP to conduct another Phase II environmental site assessment and investigation of the Premises.

7.8		Notwithstanding the foregoing, under either the Highbridge Plan or the Atmel Plan, at all times before the Long Stop Date or the expiration of the Extension Period or the completion of the Remediation Plan, if applicable, TSMC is to be afforded reasonable rights of access to the Premises in order to carry out the TSMC Tool Removal.

7.9		Notwithstanding anything to the contrary herein Atmel shall not be liable for and shall have no obligation to indemnify or pay for any Losses incurred or suffered by Highbridge as a result of and to the extent of:

	7.9.1		any environmental condition that is not required or could not have been required by a Governmental Entity, either as at the date hereof or at any time prior to the Long Stop Date, to be investigated, removed or otherwise remedied pursuant to any Environmental Law not in force and applicable as at the Long Stop Date; and

	7.9.2		any environmental condition to the extent exacerbated or otherwise worsened by any of Highbridge or the Highbridge Invitees.

8.		TSMC INDEMNITY

		Subject to the other terms of this Agreement, TSMC agrees to indemnify Atmel against all Losses actually incurred or suffered by Atmel in relation to any release, spillage or escape of Hazardous Materials to soil and/or groundwater and/or on the Premises where such release, spillage or escape arises or results from any action or omission by TSMC or any of the TSMC Invitees related to or in connection with TSMC Tool Removal, including any Losses that Atmel is liable to pay to Highbridge pursuant to sub-Clause 7.2 above.

9.		HIGHBRIDGE RESPONSIBILITY AND INDEMNITY

9.1		Subject to the other terms of this Agreement, Highbridge accepts that, as between or among the Parties, as from the date of the Revised Environmental Investigation, it has all responsibility and liability for Hazardous Materials at, in or under the Premises.

9.2		Subject to the other terms of this Agreement, Highbridge agrees to indemnify Atmel against any and all Losses actually incurred or suffered by Atmel as a result of (i) Hazardous Materials at any time at in or under the Premises, and (ii) any works performed and all other action taken by Highbridge or any of the Highbridge Invitees including but not limited to demolition, redevelopment and other activities in on or around the Premises, in both cases (x) as from the date of the Revised Environmental Investigation and (y) excluding anything for which Atmel shall indemnify under Clause 7.

10.		FINAL TOOL REMOVAL

10.1		TSMC undertakes to Highbridge to procure the completion of the TSMC Tool Removal as soon as reasonably practicable, but in any event by the Long Stop Date.

10.2		Atmel undertakes to Highbridge to procure completion of the Removal as soon as reasonably practicable, but in any event by the Long Stop Date.

11.		HIGHBRIDGE RELEASE

		Highbridge agrees that without prejudice to any rights that have already arisen thereunder, the indemnity in Clause 7.2 above shall terminate to the extent that (i) the Revised Environmental Investigation confirms that there have been no adverse changes since the Baseline Environmental Investigation or (ii) with respect to any release, spillage or escape of Hazardous Materials on the Premises, the works and actions set forth in the Remediation Plan shall be performed in accordance with Clauses 7.4 and 7.5 above.

12.		EMPLOYEES

12.1		It is acknowledged by each of the Parties that the Transfer Regulations should not apply to this Agreement or any of the transactions contemplated in it or the Related Agreements and that accordingly no Employees will transfer to Highbridge or TSMC as a result of the Closing or any of the Related Agreements.

12.2		Notwithstanding the acknowledgement set forth in Clause 12,1, Atmel shall indemnify each of Highbridge and TSMC from and against any Losses that it actually incurs or suffers by reason of any claim, action or proceeding made by any Employee or person who is or has been, or purports to be or have been, employed by Atmel under the Transfer Regulations in connection with this Transaction;

12.3		Each of TSMC and Highbridge shall as soon as reasonably practicable notify Atmel if it receives or becomes aware of any claim, action or demand against it, made or threatened by any person in respect of which Atmel is or may be liable for Losses under Clause 12.2 (each, an “Employment Related Claim”). Atmel may at its election, and at its own cost and expense undertake and conduct the defence of such Employment Related Claim with legal counsel selected by Atmel. Each of TSMC and Highbridge shall be entitled to participate in at its own cost and expense (including legal counsel’s fees and costs of investigation), but not to determine, control or conduct, the defence of such Employment Related Claim. If time has assumed the defence of an Employment Related Claim, Atmel

		shall not be liable for any costs and expenses (including legal counsel’s fees and costs of investigation) subsequently incurred by TSMC or Highbridge in connection with the defence of the Employment Related Claim. TSMC or Highbridge shall not agree to any settlement or compromise of, or an entry of any judgment arising from, any such Employment Related Claim except with the prior written consent of Atmel, even if such settlement or compromise given by the claimant or the plaintiff to Atmel constitutes a release from liability in respect of such Employment Related Claim.

12.4		If Atmel does not take conduct of the defence of any Employment Related Claim pursuant to Clause 12.3, then Atmel shall give to each of Highbridge and TSMC all reasonable cooperation, assistance and information which may be reasonably required by either of them in relation to such Employment Related Claim; and

12.5		If any contract of employment of any Employee or former Employee has effect, or is alleged to have effect, following Closing as if originally made between Highbridge or TSMC and that Employee, Highbridge and/or TSMC may terminate the employment of such person.

12.6		Atmel shall indemnify each of Highbridge and/or TSMC against all Losses actually incurred by Highbridge or TSMC, as applicable, arising out of the termination of employment of any person by Highbridge and/or TSMC (as the case may be) in accordance with Clause 12.5 and against any sum payable to or in respect of that person in connection with the period up to the date of termination of employment.

12.7		Atmel may, by written request, control and take over conduct of all proceedings and/or negotiations of whatsoever nature arising in connection with any Employment Related Claim which is subject to this indemnity provided that Atmel shall:

	12.7.1		upon request provide all available information and copies of all correspondence and documentation relating to such Employment Related Claim; and

	12.7.2		inform Highbridge and TSMC as to the status of any such Employment Related Claim, including but not limited to matters regarding avoiding, disputing, resisting, appealing, compromising or defending the claim, and take reasonable account of their representations.

13.		GUARANTEES

13.1		In consideration of Atmel entering into this Agreement at the request of the Atmel Guarantor, the Atmel Guarantor guarantees to each of TSMC and Highbridge the discharge by Atmel of its obligations in full to TSMC and Highbridge, respectively, under this Agreement and any Related Agreement, and promises to pay each sum which Atmel is liable to pay to TSMC and Highbridge, respectively, under this Agreement if Atmel fails to do so.

13.2		In consideration of Highbridge entering into this Agreement at the request of the Highbridge Guarantor, the Highbridge Guarantor guarantees to each of TSMC and Atmel the discharge by Highbridge of its obligations in full to TSMC and Atmel, respectively, under this Agreement and any Related Agreement, and promises to pay each sum which Highbridge is liable to pay to TSMC and Atmel, respectively, under this Agreement if Highbridge fails to do so.

14.		LIMITATION OF LIABILITY

14.1		TSMC agrees that the cumulative, aggregate, joint liability of Atmel and the Atmel Guarantor (for the avoidance of doubt the cumulative and aggregate, liability of Atmel plus the cumulative and aggregate liability of the Atmel Guarantor) for all claims of whatever nature under or in connection with this Agreement or any of the Transactions shall be subject to the limitations set out in the Asset Agreement.

14.2		Atmel agrees that the cumulative, aggregate liability of TSMC for all claims of whatever nature under or in connection with this Agreement or any of the Transactions shall be subject to the limitations set out in the Asset Agreement.

14.3		Highbridge agrees that the cumulative, aggregate, joint liability of Atmel and the Atmel Guarantor (for the avoidance of doubt the cumulative and aggregate liability of Atmel plus the cumulative and aggregate liability of the Atmel Guarantor) for all claims of whatever nature under or in connection with this Agreement or any of the Transactions shall be subject to the limitations set out in the Property Agreement.

14.4		Atmel agrees that the cumulative, aggregate, joint liability of Highbridge and the Highbridge Guarantor (for the avoidance of doubt the cumulative and aggregate liability of Highbridge plus the cumulative and aggregate liability of the Highbridge Guarantor) for all claims of whatever nature under or in connection with this Agreement or any of the Transactions shall be subject to the limitations set out in the Property Agreement.

15.		REMEDIES

15.1		Each of the Parties’ rights and remedies in respect of any claims under this Agreement shall be limited only to damages for breach of contract and as set forth in Clause 14.

15.2		The Parties shall not be entitled to (i) rescind or terminate this Agreement, the Related Agreements or any other document referred to in this Agreement or in the Related Agreements, (ii) void or otherwise challenge consummation of the Transaction or any portion thereof, or (iii) recover damages in tort.

15.3		Nothing in this Agreement shall operate to reduce any Party’s common law duty to mitigate any loss giving rise to any claim under this Agreement and for the avoidance of doubt each Party shall be under a duty so to mitigate.

15.4		Each Party agrees to waive any right or remedy which that Party may have against any employee, consultant, representative, advisor or agent of another Party in connection with any representation, warranty, agreement or statement by any such person in relation to the Transaction, this Agreement, the Related Agreements and any other document to be delivered or executed in connection therewith, provided that such waiver shall not affect its rights against any Party under this Agreement.

16.		OTHER PROVISIONS

16.1		Costs

		Except as otherwise stated in this Agreement and any documents referred to in it, each of the Parties shall pay its own costs and expenses (including legal fees and VAT (if any)) incurred by it in connection with the negotiation, preparation and execution of this Agreement and all other documents referred to in it and the completion of the Transaction.

16.2		Variation

		No variation of this Agreement shall be effective unless made in writing (which for this purpose shall not include e-mail or other electronic communication) and signed by or on behalf of each of the Parties.

16.3		No special loss

		Atmel, the Atmel Guarantor or TSMC shall have no liability under any claim under this Agreement to the extent that such claim constitutes punitive, incidental, special loss or damages, or losses or damages related to or arising from any loss of profits, opportunity costs, delay or change in valuation of any real property or other asset.

16.4		Waivers and remedies

		No failure or delay to exercise, or other relaxation or indulgence granted in relation to, any power, right or remedy under this Agreement shall operate as a waiver of it or impair or prejudice it nor shall any single or partial exercise or waiver of any power, right or remedy preclude its further exercise or the exercise of any other power, right or remedy.

16.5		Severability

		Each of the provisions of this Agreement is distinct and severable from the others and if at any time one or more of such provisions is or becomes invalid, unlawful or unenforceable (whether wholly or to any extent), the validity, lawfulness and enforceability of the remaining provisions (or the same provision to any other extent) shall not in any way be affected or impaired.

16.6		Successors

		This Agreement shall be binding on and enure to the benefit of each Party and its lawful successors.

16.7		Assignment

		None of the Parties shall be entitled to assign or transfer any of its rights or benefits under this Agreement.

16.8		Third party rights

		Nothing in this Agreement confers any rights on any person under the Contracts (Rights of Third Parties) Act 1999.

16.9		Counterparts

		This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and which shall together constitute one and the same Agreement.

16.10		Announcements

		No Party shall release any announcement or despatch any announcement or circular, relating to this Agreement unless the form and content of such announcement or circular have been submitted to, and or agreed by, the other Parties. Nothing in this Clause 15.11 shall prohibit any Party from making any announcement, consulting with any person

		(including any employees) or despatching any circular as required by Law or the rules of any listing authority or recognised investment exchange or any other regulatory body.

16.11		Deductions and Withholdings

	16.11.1		Except as expressly provided in this Agreement, every payment payable by any Party, the “payer”, to another Party, the “payee”, under this Agreement shall be made in full without any set-off or counterclaim howsoever arising and shall be free and clear of, and without deduction of, or withholding for or on account of, any amount, save only as may be required by Law.

	16.11.2		For the purposes of this Clause 16.11:

			“UK Tax Paying Company” shall mean, a company incorporated in England and Wales, and resident for tax purposes, carrying on business and subject to corporation tax, in the United Kingdom of Great Britain & Northern Ireland; and

			the payer shall be entitled in its absolute discretion, acting reasonably:

	(A)		to assess whether or not any deductions or withholdings are required by law and whether or not such deductions or withholdings would have been required had the payee been a UK Tax Paying Company;

	(B)		to assess the extent to which an amount paid or due to the payee under this Agreement would have been subject to UK corporation tax had the payee been a UK Tax Paying Company; and

			in both cases, to treat the payee accordingly.

	16.11.3		If, subject to this Clause 16.11, any deductions or withholdings would be required by Law to be made from any sums payable by the payer to the payee, such payer shall be obliged to pay the payee such amount as would, after the deduction or withholding has been made, leave the payee with the same amount as it would have been entitled to receive in the absence of such requirement to make a deduction or withholding, unless the payer would not have had to make such deductions or withholdings had the payee been a UK Tax Paying Company.

	16.11.4		If the payer would be required by law to make a deduction or withholding as is referred to in this Clause 16.11, the payer shall:

	(A)		make such deduction or withholding;

	(B)		account for the full amount deducted or withheld to the relevant authority in accordance with applicable law; and

	(C)		provide to the payee the original, or a certified copy, of a receipt or other documentation evidencing the above.

16.11.5

If, subject to this Clause 16.11, any amount paid or due to the payee under this Agreement would be a taxable receipt of the payee, then the amount so paid or due (the “Net Amount”) shall be increased to an amount which, after subtraction of the amount of any tax on such increased amount which arises, or would but for the availability of any relief arise, shall equal the Net Amount provided that if any payment is initially made on the basis that the amount is not taxable in the hands

of the payee and it is subsequently determined that it is, or vice versa, appropriate adjustments shall be made between the payee and the payer and provided further that the amount paid or due shall not be increased to the extent that such increase would not have been necessary had the payee been a UK Tax Paying Company.

16.12		Further assurance

		Each Party shall, at its own expense, do, execute and perform all further acts, deeds, documents and things as may be reasonably requested from time to time in order to implement the Transaction contemplated by this Agreement and the Related Agreements.

16.13		Entire Agreement

	16.13.1		As between Atmel, TSMC and the Atmel Guarantor this Agreement together with the Asset Agreement and any documents referred to in those agreements (but excluding the Property Agreement, the Lease Back, the Conditional Option and any other agreement to which TSMC is not a party) contain the entire agreement in relation to the matters contemplated in those agreements and supersede any previous agreements between or among the Parties in relation to such matters.

	16.13.2		As between Atmel, Highbridge, the Highbridge Guarantor and the Atmel Guarantor this Agreement together with the Property Agreement, the Lease Back, the Conditional Option and the Share Sale Agreement and any documents referred to in those agreements (but excluding the Asset Agreement and any other agreement to which Highbridge is not a party) contain the entire agreement in relation to the matters contemplated in those agreements and supersede any previous agreements between or among the Parties in relation to such matters.

	16.13.3		Each of the Parties acknowledges that in entering into this Agreement it has not relied on any representation, warranty or undertaking not set out in this Agreement or any of the Related Agreements (as the case may be) and that (in the absence of fraud or wilful misconduct by the Party giving such representation, warranty or undertaking) it will not have any right or remedy arising out of any such representation, warranty or undertaking.

17.		NOTICES

17.1		Each Party may give any notice or other communication under or in connection with this Agreement by letter, facsimile transmission or electronic mail addressed to the other Party. The address for service of each Party shall be the address set forth in Clause 17.3 or such other address for service as the addressee may from time to time notify to the other Party for the purposes of this Clause.

17.2		Any such communication will be deemed to be served:

	17.2.1		if personally delivered, at the time of delivery and, in proving service, it shall be sufficient to produce a receipt for the notice signed by or on behalf of the addressee;

	17.2.2		if by letter, at noon on the tenth Business Day after such letter was posted (or, in the case of airmail, five Business Days after such letter was posted) and, in proving service, it shall be sufficient to prove that the letter was properly stamped first class (or airmail), addressed and delivered to the postal authorities;

	17.2.3		if by overnight courier (such as Federal Express or DHL), on the third Business Day after such courier was dispatched, and in proving service, it shall be sufficient to produce a tracking number or a receipt confirmation indicating that the courier was dispatched and received by the recipient;

	17.2.4		if by facsimile transmission, at noon on the Business Day after the day of transmission and, in proving service, it shall be sufficient to produce a transmission report from the sender’s facsimile machine indicating that the facsimile was sent in its entirety to the recipient’s facsimile number; and

	17.2.5		if by electronic mail, at noon on the Business Day after such communication was sent and, in proving service, it shall be sufficient to produce a computer print out indicating that the message was sent to the recipient’s electronic mail address as set forth in Clause 16.3.

17.3

Details of each Party for service of notice are as follows:


Name:		Atmel North Tyneside Limited (Atmel)
Address:		c/o Atmel Corporation
		2325 Orchard Parkway
		San Jose, California 95131
		USA

Fax no:		+1 408 436 4111
Electronic mail address:		preutens@atmel.com and
		nyamaguchi@atmel.com
Tel no:		+1 408 441 0311
Attention:		Chief Legal Officer

Name:		Taiwan Semiconductor Manufacturing Company
Address:		Limited (TSMC)
		8 Li-Hsin 6 Road
		Hsinchu Science Park
		Hsinchu, Taiwan ROC

Fax no:		+886-3-567-8689
Electronic mail address:		Dick Thurston@tsmc.com
Tel no:		+886-3-568-2002
Attention:		Office of the General Counsel

Name:		Highbridge Business Park Limited (Highbridge)
Address:		131 Edgware Road,
		London W2 2AP
		England, UK

Fax no:		+44 20 7494 9493
Electronic mail address:		guy@nlf.co.uk
Tel no:		+44 20 7494 9401
Attention:		Guy Marsden


Name:		Atmel Corporation (Atmel Guarantor
Address:		2325 Orchard Parkway
		San Jose, California 95131
		USA

Fax no:		+1 408 436 4111
Electronic mail address:		preutens@atmel.com and
		nyamaguchi@atmel.com
Tel no:		+1 408 441 0311
Attention:		Chief Legal Officer

Name:		Highbridge Properties plc
Address:		131 Edgware Road,
		London W2 2AP
		England, UK

Fax no:		44 20 7494 9493
Electronic mail address:		piet@nlf.co.uk; guy@nlf.co.uk
Tel no:		+44 20 7494 9401
Attention:		Piet Pulford or Guy Marsden

18.		LAW AND JURISDICTION

18.1		This Agreement and all disputes or claims arising out of or in connection with it shall be governed by, and construed in accordance with, the law of England and Wales.

18.2		Each Party hereby irrevocably submits to the non-exclusive jurisdiction of the courts of England and Wales in relation to any claim, dispute or difference concerning this Agreement and any matter arising therefrom.

18.3		Each of the Parties agrees that, without preventing any other mode of service, any document in action (without limitation) may be served on any Party by being delivered to or left for that Party at its address for service of notices under Clause 17.

AS WITNESS of which this Agreement has been duly signed on the date written at the beginning of this Agreement.


Signed by Steven Laub		)
a director or officer duly authorised for		)
and on behalf of ATMEL NORTH		)	/s/ Steven Laub
TYNESIDE LIMITED		)	Director/Officer
		)

Signature of witness:	/s/ Walt Lifsey

Name (in BLOCK CAPITALS):	WALT LIFSEY

Address:

Signed by Steven Laub		)
a director or officer duly authorised for		)
and on behalf of ATMEL		)	/s/ Steven Laub
CORPORATION		)	Director/Officer
		)
Signature of witness:	/s/ Walt Lifsey

Name (in BLOCK CAPITALS):	WALT LIFSEY

Address:

[Signature Page to Tripartite Agreement]


Signed by C.C. Wei	)
a director or officer duly authorised for	)
and on behalf of TAIWAN	)
SEMICONDUCTOR	)
MANUFACTURING COMPANY	)	/s/ C.C. Wei
LIMITED	)	Officer
	)

[Signature Page to Tripartite Agreement]


Signed by Piet Pulford	)
a director or officer duly authorised for	)
and on behalf of HIGHBRIDGE	)	/s/ Piet Pulford
BUSINESS PARK LIMITED	)	Director/Officer

Signed by Piet Pulford	)
a director or officer duly authorised for	)
and on behalf of	)	/s/ Piet Pulford
HIGHBRIDGE PROPERTIES PLC	)	Director/Officer

[Signature Page to Tripartite Agreement]

EX-10.17 5 f38449exv10w17.htm EXHIBIT 10.17 exv10w17

Exhibit 10.17

ATMEL CORPORATION
SEPARATION AGREEMENT AND MUTUAL RELEASE

This Separation Agreement and Mutual Release (“Agreement”) is made by and between Atmel Switzerland Sarl (the “Company”) and Graham David Turner (“Employee”) (collectively, the “Parties” or individually, a “Party”).

BACKGROUND

Effective January 1, 2000, the Parties entered into an employment agreement (the “Employment Agreement”). Employee voluntarily resigned from the Company effective October 31, 2007. The Parties wish to amend and clarify certain provisions of the Employment Agreement.

AGREEMENT

1. Resignation. The Parties acknowledge and agree that Employee voluntarily terminated his employment with the Company effective as of October 31, 2007 (the “Separation Date”).

2. Non-Competition. In lieu of the Non-Competition provisions set forth in Article 12 of the Employment Agreement, the Parties agree that for the period commencing on the Separation Date and ending on the one (1) year anniversary of the Separation Date (the “Non-Competition Period”), Employee will not:

(a) provide services, directly or indirectly, be it as an individual, an employee, a consultant, an advisor, a director, or a manager, to a Non-Competition Company (as defined below); or

(b) start his own business, which would directly or indirectly compete with the microcontroller business of Company, Atmel Corporation (“Atmel”) or any affiliate business of Atmel.

For purposes of this Agreement, a “Non-Competition Company” means any of the following companies, including their successors and their subsidiaries worldwide: (i) Microchip Technology Inc., (ii) Freescale Semiconductor, Inc., (iii) NXP Semiconductors, (iv) Renesas Technology Corp., (v) STMicroelectronics, or (vi) Texas Instruments, Inc.

3. Consideration. As consideration for Employee entering into this Agreement and maintaining his compliance with his obligations hereunder, the Parties agree as follows:

(a) Salary Continuation. Subject to Section 3(b) below, during the Non-Competition Period, the Company shall continue to pay Employee his annual base salary, as in effect on the Separation Date, in accordance with the Company’s regular payroll policies, subject to applicable withholding requirements (the “Salary Continuation Payments”). For the avoidance of doubt, annual base salary shall not include bonus payments, gratuities, or other fringe benefits includable in income.

(b) Early Termination of Salary Continuation Payments. Salary Continuation Payments shall cease immediately if Employee either:

(i) violates the Non-Competition provision set forth in Section 2; or otherwise

(ii) during the Non-Competition Period, provides services, directly or indirectly, be it as an individual, an employee, a consultant, an advisor, a director, or a manager, to any company or other entity.

Page 1 of 5

(c) Bonus. Employee will be entitled to the bonus he would have earned during calendar year 2007, prorated for the period of time from the start of such calendar year until the Separation Date; provided that payment of such bonus will be made at the same time as bonuses for such calendar year are paid out to other executives of the Company.

4. Benefits. Employee understands that, except as provided for herein or as required by applicable law, Employee’s participation in all Company benefits and incidents of employment with the Company, shall cease on the Separation Date.

5. Payment of Salary and Receipt of All Benefits. Employee acknowledges and represents that, other than the consideration set forth in this Agreement, the Company has paid or provided all salary, wages, bonuses, accrued vacation/paid time off, housing allowances, relocation costs, interest, severance, outplacement costs, fees, reimbursable expenses, commissions, stock, stock options, vesting, and any and all other benefits and compensation due to Employee.

6. Relocation Expenses. Company will reimburse Employee’s documented, reasonable and actually incurred expenses (i.e., airfare and the costs of shipping Employee’s personal furnishings) to relocate Employee and the members of Employee’s direct family living with Employee at the time of such relocation, from Switzerland to the United Kingdom; provided, that (a) Company shall not be obligated to pay a total of more than U.S.$50,000.00 under this Section 6, (b) such relocation expenses are incurred within fifteen (15) months after the Separation Date, and (c) such expenses have not been, and will not be, paid by a third party (e.g. in connection with Employee being hired by such third party).

7. Release of Claims. Employee agrees that the foregoing consideration represents settlement in full of all outstanding obligations owed to Employee by the Company, Atmel, or any affiliate business of Atmel, and the current and former officers, directors, employees, agents, investors, attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, divisions, and subsidiaries, and predecessor and successor corporations and assigns of the Company, Atmel, or any affiliate business of Atmel (collectively, the “Releasees”). Employee, on his own behalf and on behalf of his respective heirs, family members, executors, agents, and assigns, hereby and forever releases the Releasees from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim, complaint, charge, duty, obligation, or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Employee may possess against any of the Releasees arising from any omissions, acts, facts, or damages that have occurred up until and including the Effective Date of this Agreement, including, without limitation:

(a) any and all claims relating to or arising from Employee’s employment relationship with the Company and the termination of that relationship;

(b) any and all claims relating to, or arising from, Employee’s right to purchase, or actual purchase of shares of stock of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;

(c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;

Page 2 of 5

(d) any and all claims arising out of any applicable laws and regulations relating to employment or employment discrimination;

(e) any claim for any loss, cost, damage, or expense arising out of any dispute over the non- withholding or other tax treatment of any of the proceeds received by Employee as a result of this Agreement; and

(f) any and all claims for attorneys’ fees and costs.

Employee agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred under this Agreement.

8. Non-Solicitation and Non-Hire. Employee agrees that for a period of twelve (12) months immediately following the Effective Date of this Agreement, Employee shall not directly or indirectly solicit to leave their employment at the Company, or hire, any of the Company’s employees.

9. No Pending or Future Lawsuits. Employee represents that he does not currently have, and does not in the future intend to bring, any lawsuits, claims, or actions pending in his name, or on behalf of any other person or entity, against the Company or any of the other Releasees.

10. Confidentiality. Employee reaffirms and agrees to observe and abide by the terms of the confidentiality provision set forth in Article 11 of his Employment Agreement. Employee’s signature below constitutes his certification that he has returned all documents and other items provided to Employee by the Company, Atmel, or any affiliate business of Atmel, developed or obtained by Employee in connection with his employment with the Company, or otherwise belonging to the Company, Atmel, or any affiliate business of Atmel. In addition, Employee confirms having destroyed on his own data processing equipment all electronically stored confidential data belonging to the Company, Atmel, or any affiliate business of Atmel. Employee agrees to keep the terms and conditions of the Employment Agreement and this Agreement confidential except to the extent that such terms and conditions are publicly disclosed by Company or Atmel.

11. No Cooperation and Non-Disparagement. Employee agrees not to act in any manner that might damage the business or reputation of any of the Releasees. Employee agrees to refrain from any disparagement, defamation, libel, or slander of any of the Releasees, and agrees to refrain from any tortious interference with the contracts and relationships of any of the Releasees. Employee shall direct any inquiries by potential future employers to the Company’s human resources department.

12. Breach. Employee acknowledges and agrees that any material breach of this Agreement, or of any provision of the Employment Agreement preserved under this Agreement shall entitle the Company and/or Atmel immediately to recover and/or cease providing the consideration provided to Employee under this Agreement, except as provided by law.

13. Costs and Attorney Fees. The Parties shall each bear their own costs, attorneys’ fees, and other fees incurred in connection with the preparation of this Agreement; provided that the prevailing Party in an action to enforce the Agreement shall be entitled to recover its costs and expenses, including reasonable attorneys’ fees, incurred in connection with such an action.

14. Indemnification. Employee agrees to indemnify and hold harmless the Company and Atmel from and against any and all loss, costs, damages, or expenses, including, without limitation, attorneys’ fees or expenses incurred by the Company or Atmel arising from (a) any action or proceeding that may be commenced, prosecuted or threatened by Employee or for Employee’s benefit, contrary to the provisions of this Agreement, or (b) the breach of this Agreement by Employee, or (c) any false representation made herein by Employee.

Page 3 of 5

15. Authority. Each Party represents and warrants they each have the authority to execute and make this Agreement binding on the Parties.

16. No Representations. Employee represents that he was advised, and had the opportunity, to consult with an attorney, and has carefully read and understands the scope and effect of the provisions of this Agreement. Employee has not relied upon any representations or statements made by the Company, Atmel or any other Releasee that are not specifically set forth in this Agreement. Employee acknowledges that he is familiar with the principle that a general release does not extend to claims that the releaser does not know or suspect to exist in his favor at the time of executing the release, which, if known by him, must have materially affected his settlement with the releasee. Employee acknowledges that this Agreement supersedes and replaces any and all prior agreements and understandings concerning the subject matter of this Agreement and Employee’s relationship with the Company and that this Agreement represents the entire understanding of the Parties with concerning this Agreement and the termination of the Employee’s employment with the Company with the exception of any provision of the Employment Agreement preserved under this Agreement.

17. Severability. In the event that any provision or any portion of any provision hereof or any surviving agreement made a part hereof becomes or is declared by a court of competent jurisdiction or arbitrator to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision or portion of provision. Should this Agreement or Section 1 hereof for any reason whatsoever be void or rescinded, the Company’s consent hereto shall be interpreted as a notice of termination with effect as of October 31, 2007 without any payments being due to Employee other than under mandatory statutory law and/or the Employment Agreement.

18. No Oral Modification. This Agreement may only be amended in a writing signed by the Parties hereto.

19. Governing Law. This Agreement shall be governed by the Laws of Switzerland, in particular art. 319 et seq. of the Swiss Code of Obligations.

20. Effective Date. Each Party has seven (7) days after that Party signs this Agreement to revoke it. This Agreement will become effective on the eighth (8th) day after Employee signed this Agreement, so long as it has been signed by the Parties and has not been revoked by either Party before that date (the “EffectiveDate”).

21. Counterparts. This Agreement may be executed in counterparts and by facsimile, and each counterpart and facsimile shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned.

22. Voluntary Execution of Agreement. Employee understands and agrees that he executed this Agreement voluntarily, without any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of his claims against the Company and any of the other Releasees. Employee acknowledges that:

(a) he has read this Agreement;

(b) he has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of his own choice or has elected not to retain legal counsel;

(d) he is fully aware of the legal and binding effect of this Agreement.

Page 4 of 5

IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.


		ATMEL SWITZERLAND SARL
Dated:	11/16/07	By:	/s/ Steve Lanb
		Name:	Steve Lanb
		Title:	Director


		GRAHAM DAVID TURNER, an individual
Dated:	9^th November 2007	/s/ Graham David Turner

		Graham David Turner

Page 5 of 5

EX-21.1 6 f38449exv21w1.htm EXHIBIT 21.1 exv21w1

Exhibit 21.1

ATMEL CORPORATION SUBSIDIARIES

The following are the subsidiaries of Atmel Corporation:

ACP Test Company, Inc., a Philippine corporation
APT Property Investments, Inc., a Philippine corporation
Atmel Asia Limited, a Hong Kong corporation
Atmel B.V., a Netherlands corporation
Atmel Duisburg GmbH, a German corporation
Atmel Europe SARL, a French limited liability company
Atmel France S.A.S., a French corporation
Atmel FSC, Inc., a Barbadian corporation
Atmel Germany GmbH, a German corporation
Atmel Hellas A.E., a Greek corporation
Atmel Holding GmbH, a German corporation
Atmel Holdings, Inc., a California corporation
Atmel Irving LLC, a California limited liability company
Atmel Italia Srl, an Italian corporation
Atmel Japan K.K., a Japanese corporation
Atmel Korea Pte. Ltd., a Korean corporation
Atmel Management Pte. Ltd., a Singapore corporation
Atmel Munich GmbH, a German corporation
Atmel Nantes S.A., a French corporation
Atmel Nederland B.V., a Dutch corporation
Atmel Nordic AB, a Swedish corporation
Atmel North Tyneside Limited, a United Kingdom corporation
Atmel Norway AS, a Norwegian corporation
Atmel OY, a Finnish corporation
Atmel Paris S.A.S., a French corporation
Atmel Research, a Cayman Islands corporation
Atmel Roma Srl, an Italian corporation
Atmel Romania S.R.L., a Romanian limited liability company
Atmel Rousset S.A.S., a French corporation
Atmel San Jose LLC, a California limited liability company
Atmel SARL, A French limited liability company
Atmel Sarl, a Swiss corporation
Atmel Singapore Pte. Limited, a Singaporean corporation
Atmel Smartcard ICS Limited, a United Kingdom corporation
Atmel Switzerland Sarl, a Swiss corporation
Atmel Taiwan Limited, a Taiwanese corporation
Atmel Texas LP, a Texas limited partnership
Atmel U.K. Holdings Limited, a United Kingdom corporation
Atmel U.K. Limited, a United Kingdom corporation
Dream S.A., a French corporation
Facility Service GmbH, a German corporation
Temic Semiconductor Test Inc., a Philippine corporation
TSPIC Corporation, a Philippine corporation

EX-23.1 7 f38449exv23w1.htm EXHIBIT 23.1 exv23w1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-39925, 33-93662, 333-15823, 333-71881, 333-88203 and 333-107899) of Atmel Corporation of our report dated February 29, 2008 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

San Jose, California
February 29, 2008

EX-31.1 8 f38449exv31w1.htm EXHIBIT 31.1 exv31w1

Exhibit 31.1

CERTIFICATIONS

I, Steven Laub, certify that:

1. I have reviewed this Annual Report on Form 10-K of Atmel Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: February 29, 2008	/s/ STEVEN LAUB
	Steven Laub
	President and Chief Executive Officer

EX-31.2 9 f38449exv31w2.htm EXHIBIT 31.2 exv31w2

Exhibit 31.2

CERTIFICATIONS

I, Robert Avery, certify that:

1. I have reviewed this Annual Report on Form 10-K of Atmel Corporation;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: February 29, 2008	/s/ ROBERT AVERY
	Robert Avery
	Vice President Finance and Chief Financial Officer

EX-32.1 10 f38449exv32w1.htm EXHIBIT 32.1 exv32w1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven Laub, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Atmel Corporation on Form 10-K for the fiscal year ended December 31, 2007 (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Atmel Corporation.



February 29, 2008	By:	/s/ STEVEN LAUB
		Steven Laub
		Chief Executive Officer

EX-32.2 11 f38449exv32w2.htm EXHIBIT 32.2 exv32w2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert Avery, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Atmel Corporation on Form 10-K for the fiscal year ended December 31, 2007 (i) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Atmel Corporation.



February 29, 2008	By:	/s/ ROBERT AVERY
		Robert Avery
		Vice President Finance and Chief Financial Officer

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