-----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, Tb+dhqQEVzIUeRKfDrct6KVi6oR8/tjeMr13+ZrdW45xmATT4MPr4jYz4LUOvaJO P7hiTMg1yu/0IRHs8of+rQ== 0000772406-95-000101.txt : 19951119 0000772406-95-000101.hdr.sgml : 19951119 ACCESSION NUMBER: 0000772406-95-000101 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIRRUS LOGIC INC CENTRAL INDEX KEY: 0000772406 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 770024818 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17795 FILM NUMBER: 95590927 BUSINESS ADDRESS: STREET 1: 3100 W WARREN AVE CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5106238300 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1995 Commission file Number 0-17795 CIRRUS LOGIC, INC. (Exact name of registrant as specified in its charter.) CALIFORNIA 77-0024818 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3100 West Warren Avenue, Fremont, CA 94538 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (510) 623-8300 Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The number of shares of the registrant's common stock, no par value, was 63,140,364 as of September 30, 1995. Part 1. Financial Information Item 1. Financial Statements CIRRUS LOGIC, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
Quarter Ended Two Quarters Ended Sept. 30, Oct. 1, Sept. 30, Oct. 1, 1995 1994 1995 1994 --------- --------- --------- --------- Net sales $317,820 $202,211 $618,089 $387,208 Costs and expenses: Cost of sales 176,494 113,715 354,183 210,342 Research and development 54,540 37,212 108,490 75,242 Selling, general and administrative 38,365 29,222 76,429 58,136 Non-recurring costs - 3,856 - 3,856 Merger costs - 2,418 - 2,418 --------- --------- --------- --------- Total costs and expenses 269,399 186,423 539,102 349,994 Income from operations 48,421 15,788 78,987 37,214 Interest and other income (expense), net (193) 2,257 2,433 3,681 --------- --------- --------- --------- Income before provision for income taxes 48,228 18,045 81,420 40,895 Provision for income taxes 15,191 5,607 25,646 12,882 --------- --------- --------- --------- Net income $33,037 $12,438 $55,774 $28,013 ========= ========= ========= ========= Net income per common and common equivalent share $0.47 $0.20 $0.80 $0.44 ========= ========= ========= ========= Weighted average common and common equivalent shares outstanding 70,997 63,206 69,386 63,473 ========= ========= ========= ========= See Notes to the Unaudited Consolidated Condensed Financial Statements.
CIRRUS LOGIC, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands)
Sept. 30, April 1, 1995 1995 (Unaudited) --------- --------- ASSETS Current assets: Cash and cash equivalents $118,092 $106,882 Short-term investments 44,654 80,144 Accounts receivable, net 207,091 161,333 Inventories 151,142 103,642 Other current assets 83,671 27,931 --------- --------- Total current assets 604,650 479,932 Property and equipment, net 145,871 100,244 Joint venture manufacturing agreement, net 48,569 49,935 Investment in joint venture 13,800 13,800 Deposits and other assets 35,603 29,623 --------- --------- $848,493 $673,534 ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $235,375 $162,002 Accrued salaries and benefits 28,714 32,508 Obligations under equipment loans and capital leases, current portion 14,967 11,481 Income taxes payable 17,507 22,322 --------- --------- Total current liabilities 296,563 228,313 Obligations under equipment loans and capital leases, non-current 40,671 26,205 Commitments and contingencies Shareholders' equity: Capital stock 320,210 283,741 Retained earnings 191,049 135,275 --------- --------- Total shareholders' equity 511,259 419,016 --------- --------- $848,493 $673,534 ========= ========= See Notes to the Unaudited Consolidated Condensed Financial Statements.
CIRRUS LOGIC, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Two Quarters Ended Sept. 30, Oct. 1, 1995 1994 --------- --------- Cash flows from operations: Net income $55,774 $28,013 Adjustments to reconcile net income to net cash flows from operations: Depreciation and amortization 27,627 16,894 Net change in operating assets and liabilities (69,542) (18,063) --------- --------- Net cash flows provided by operations 13,859 26,844 --------- --------- Cash flows from investing activities: Purchase of short-term investments (112,568) (186,853) Proceeds from sale of short-term investments 148,058 105,832 Additions to property and equipment (64,521) (18,739) Increase in deposits and other assets (12,924) (12,173) --------- --------- Net cash flows used by investing activities (41,955) (111,933) --------- --------- Cash flows from financing activities: Proceeds from issuance of common stock 21,948 5,603 Short-term borrowing 41,000 - Borrowings on equipment loans 23,615 3,510 Principal payments on capital leases and loans (6,257) (5,579) Repayment of short-term borrowing (41,000) - --------- --------- Net cash flows provided by financing activities 39,306 3,534 --------- --------- Increase (decrease) in cash and cash equivalents 11,210 (81,555) Cash and cash equivalents - beginning of period 106,882 193,825 --------- --------- Cash and cash equivalents - end of period $118,092 $112,270 ========= ========= Supplemental disclosure of cash flow information: Interest paid $1,586 $1,151 Income taxes paid $15,769 $8,646 Tax benefit of stock option exercises $14,692 $ - Equipment purchased under capitalized leases $594 $6,849 See Notes to the Unaudited Consolidated Condensed Financial Statements.
CIRRUS LOGIC, INC. NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. Basis of Presentation The Consolidated Condensed Financial Statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company, the financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, operating results and cash flows for those periods presented. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements, and notes thereto for the year ended April 1, 1995, included in the Company's 1995 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year. 2. Cash Equivalents and Investments At September 30, 1995, the Company's cash equivalents and short-term investments consisted primarily of U.S. Government Treasury and agency securities, commercial paper, auction preferred stock, municipal bonds and certificates of deposit. Cash equivalents and short-term investments held at September 30, 1995 approximate fair market value. 3. Inventories Inventories are comprised of the following: Sept. 30, April 2, 1995 1995 --------- --------- (In thousands) Work-in-process $ 119,030 $ 84,920 Finished goods 32,112 18,722 --------- --------- Total $ 151,142 $ 103,642 ========= ========= 4. Income Taxes The Company provides for income taxes during interim reporting periods based upon an estimate of the annual effective tax rate. Such estimate reflects an effective tax rate lower than the federal statutory rate primarily because of certain foreign operations taxed at lower rates. 5. Net Income Per Common and Common Equivalent Share Net income per common and common equivalent share is based on the weighted average common shares outstanding and dilutive common equivalent shares (using the treasury stock or modified treasury stock method, whichever applies). Common equivalent shares include stock options and warrants. Dual presentation of primary and fully diluted earnings per share is not shown on the face of the income statement because the differences are insignificant. 6. Contingencies During September 1995, Crystal Semiconductor Corporation, a wholly owned subsidiary of the Company, settled a suit alleging infringement of a patent. The settlement did not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows. On May 7, 1993, the Company was served with two shareholder class action lawsuits filed in the United States District Court for the Northern District of California. The lawsuits, which name the Company and several of its officers and directors as defendants, allege violations of the federal securities laws in connection with the announcement by Cirrus Logic of its financial results for the quarter ended March 31, 1993. The complaints do not specify the amounts of damages sought. The Company believes that the allegations of the complaints are without merit, and the Company intends to vigorously defend itself. The Company believes that the ultimate resolution of this matter will not have a material adverse effect on its financial position, results of operations, or cash flows. On November 7 and 8, 1995 three shareholder class action lawsuits were filed in the United States District Court for the Northern District of California against the Company and several of its officers and directors. The lawsuits allege violations of the federal securities laws in connection with the announcement by Cirrus Logic on November 7, 1995 that a major customer discontinued orders for the Company's 32-bit products. The complaints do not specify the amounts of damages sought. The Company believes that the allegations of the complaints are without merit, and the Company intends to vigorously defend itself. The Company believes that the ultimate resolution of this matter will not have a material adverse effect on its financial position, results of operations, or cash flows. 7. Proposed Public Offerings On October 23, 1995, the Company announced that it intended to conduct a registered public offering of Common Stock and convertible notes. In light of market conditions, the Company is reconsidering its financing alternatives and may decide to revise or cancel its plans for the offering announced on October 23, 1995. 8. Joint Venture Agreements and Manufacturing Contract During September 1994, the Company and IBM completed a series of agreements pertaining to joint manufacturing. In January 1995, under the terms of the agreements, a new joint venture (MiCRUS) began manufacturing semiconductor wafers for each parent company. In January 1995, MiCRUS leased approximately $145 million of wafer fabrication and infrastructure equipment pursuant to a lease guaranteed jointly and severally by the Company and IBM. As part of the initial agreement, Cirrus Logic committed to pay $36 million as a cash contribution. In addition, Cirrus Logic and IBM each committed to provide MiCRUS with approximately $100 million of additional capital equipment, primarily through lease financing, of which the final $30 million will be provided by the Company in the fourth quarter of fiscal 1996. In March 1995, IBM and the Company agreed to a $120 million expansion of MiCRUS, of which Cirrus Logic committed to provide $60 million in financing. The Company expects to use equipment leases to fulfill its financing commitment. This expansion is expected to be in full production in fiscal 1997. In addition, in October 1995, the Company committed to provide a further $198 million to fund a second expansion of MiCRUS and to support the migration to 0.35 micron process technology. Of this amount the Company expects to spend $33 million in cash for facilities and to provide equipment lease guarantees for the balance. IBM may elect to provide up to half of the $198 million of the Company's commitment in order to obtain up to half of the additional wafer capacity from the MiCRUS expansion. In October 1995, the Company also concluded agreements with AT&T to form a joint venture to build additional wafer production capacity in an existing facility in Orlando, Florida owned by AT&T. The agreements with AT&T obligate the Company to provide $420 million in financing. The Company expects to finance $280 million of this amount through leasing equipment and subleasing it to the joint venture, or by guaranteeing leases entered into by the joint venture. Of the $140 million balance, the Company will contribute $35 million in installments over a three-year period and pay $105 million in installments over a four-year period. The payment of $105 million will be charged to the Company's cost of sales over the life of the venture based upon the ratio of current units of production to current and anticipated future units of production. The Company expects to enter into a volume purchase agreement with TSMC under which the Company expects to make advance payments to TSMC of approximately $118 million, one-half in calendar 1997 and one-half in calendar 1998. The Company also has concluded an agreement with UMC which requires the Company to make a total $90 million equity investment during fiscal 1996 and 1997. The Company estimates that its total financial obligations for the IBM, AT&T, UMC and TSMC transactions (excluding future wafer purchases) may total $225 million in the remainder of fiscal 1996, $600 million in fiscal 1997 and $200 million in the following three years. The Company intends to obtain the necessary capital through a combination of equity and/or debt financing, equipment lease financing, lease guarantees and cash generated from operations. In addition, the Company estimates that capital expenditures for its own facilities, testing and other equipment may total $500 to $600 million through fiscal 2000. The Company expects to finance seventy to eighty percent of these capital expenditures through lease financing. There can be no assurance that financing will be available or, if available, will be on satisfactory terms. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This information should be read along with the unaudited consolidated condensed financial statements and the notes thereto included in Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended April 1, 1995, contained in the Annual Report to Shareholders. On June 1, 1995, the Board of Directors approved a two-for-one split of the Company's Common Stock. Shareholders of record as of June 19, 1995 received certificates reflecting the additional shares. These certificates were distributed on July 17, 1995. All references to the number of shares of Common Stock, warrants and options to purchase shares of Common Stock, weighted average common and common equivalent shares outstanding, and share prices have been restated to reflect the two-for-one split. Overview Historically, the majority of the wafers used by the Company have been merchant wafers manufactured by outside suppliers. The Company believes that it is currently the world's largest purchaser of merchant wafers. In recent periods, the merchant wafer market has been unable to meet market demand. This has increased the cost of merchant wafers, negatively affecting the Company's gross margins and, at times, preventing the Company from purchasing enough wafers to meet the demand for its products. In response to these conditions and its rapid growth, the Company has embarked upon a strategy to increase its sources of wafer supplies by taking additional ownership interests in wafer manufacturing operations. The Company has formed joint ventures, one with IBM and one with AT&T, to own and operate wafer fabs. The Company is also entering into agreements to increase its committed supply of merchant wafers from foundries located in Asia, and the Company intends to continue to seek additional committed wafer supplies through similar or other arrangements. The Company's continued investment in manufacturing capacity will require the Company to make substantial expenditures over the next several years. In connection with the Company's agreements to increase its committed wafer supplies through the MiCRUS joint venture, the joint venture with AT&T, an investment in a new company being formed by United Microelectronics Corporation (UMC), an expected volume purchase agreement with Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC), and its internal capital expansion program, the Company expects that it must make capital contributions or cash investments totalling up to $570 million, and must obtain or guarantee up to $1,055 million in capital equipment lease financing through fiscal 2000. In addition, significant additional expenditures and financing guarantees by the Company will be required if it makes arrangements with other companies to increase its wafer supply. Results of Operations The following table discloses the percentages that income statement items are to net sales and the percentage change in the dollar amounts for the same items compared to the similar period in the prior fiscal year.
Percentage of Net Sales Percentage of Net Sales Quarter Ended Two Quarters Ended ------------------- ------------------- Sept. 30, Oct. 1, Percent Sept. 30, Oct. 1, Percent 1995 1994 change 1995 1994 change --------- --------- --------- --------- --------- --------- Net sales 100% 100% 57% 100% 100% 60% Gross margin 44% 44% 60% 43% 46% 49% Research and development 17% 18% 47% 18% 19% 44% Selling, general and administrative 12% 14% 31% 12% 15% 31% Non-recurring costs - 2% -100% - 1% -100% Merger costs - 1% -100% - 1% -100% Income from operations 15% 8% 207% 13% 10% 112% Income before income taxes 15% 9% 167% 13% 11% 99% Income taxes 5% 3% 171% 4% 3% 99% Net income 10% 6% 166% 9% 7% 99%
Net Sales Net sales for the second quarter of fiscal 1996 were $317.8 million, an increase of 57% from the $202.2 million reported for the second quarter of fiscal 1995. Net sales for the first two quarters of fiscal 1996 were $618.1 million, an increase of 60% over the $387.2 million reported for the same period of fiscal 1995. This increase was largely due to an increase in sales of graphics, audio, mass storage and wireless communications products. Graphics and mass storage product revenue grew because of an increase in unit sales to the desktop personal computer market segment. Audio product sales grew because of an increase in sales of 16-bit audio codec products. Wireless communications product sales grew because of an increase in sales of and wireless communications chips and Cellular Digital Packet Data (CDPD) base stations. For the second and first two quarters of fiscal 1996, export sales (including sales to U.S.-based customers with manufacturing plants overseas) were 58% and 59%, respectively, of total sales compared to 54%, for the corresponding periods in fiscal 1995. The Company's sales are currently denominated primarily in U.S. dollars. The Company may purchase hedging instruments to reduce short-term foreign currency related to trade receivables denominated in foreign currencies. No customer accounted for 10% or more of sales during either the second or first two quarters of fiscal 1996 or fiscal 1995. Gross Margin The gross margin was 44% in the second quarter of fiscal 1996, compared to 44% for the second quarter of fiscal 1995. The gross margin was 43% in the first two quarters of fiscal 1996, compared to 46% for the same period of fiscal 1995. Although the gross margin percentage was comparable in the second quarter of fiscal 1996 and 1995, the factors influencing the percentage were diverse. In fiscal 1996, the gross margin percentage increased as a result of lower manufacturing costs for wafers produced by MiCRUS. In fiscal 1995, the gross margin declined because of start-up expenses related to the production ramp of CDPD base station equipment, and charges to fully reserve audio component inventories for a certain multimedia customer. The decline in the gross margin percentage for the first two quarters of fiscal 1996 compared to fiscal 1995 was mostly the result of higher wafer costs caused by an increase in wafer prices for merchant wafers, an insufficient supply of 0.6 micron wafers which made necessary the use of less cost effective 0.8 micron wafers to meet expanded unit shipments, expediting expenses related to premiums paid to suppliers to increase production of the Company's products, lower yields on new products ramping into production, and lower selling prices on certain graphics and audio parts. The decline in gross margin for the period was partially offset by lower manufacturing costs for wafers produced by MiCRUS in the second quarter. Research and Development Research and development expenditures increased $17.3 million over the second quarter of fiscal 1995 to $54.5 million in the second quarter of fiscal 1996. The expenditures in the second quarter and the first two quarters of fiscal 1996 were approximately 17% and 18%, respectively, of net sales compared to 18% and 19%, respectively, in the comparable periods of fiscal 1995. Expenses increased in absolute amounts as the Company continues to invest in new product development. The Company intends to continue making substantial investments in research and development and expects these expenditures will continue to increase in absolute amounts. Selling, General and Administrative Expenses Selling, general and administrative expenses represented approximately 12% of net sales in the second quarter and the first two quarters of fiscal 1996, compared to 14% and 15%, respectively, in the corresponding periods in fiscal 1995. The absolute spending increase in fiscal 1996 reflects increased direct expenses for the expanding sales force, increased marketing expenses for promotions and advertising, and increased administrative and legal expenses. The Company expects these expenses to increase in absolute terms during the remainder of fiscal 1996. Income Taxes The Company's effective tax rate was 31.5% for the second quarter and first two quarters of fiscal 1996, as against 31.1% and 31.5% for the comparable periods in fiscal 1995. The 31.5% annual effective tax rate is less than the U.S. federal statutory rate primarily because certain foreign earnings are taxed at lower rates. Liquidity and Capital Resources During the first two quarters of fiscal 1996, the Company generated approximately $13.9 million of cash and cash equivalents in its operating activities, compared to approximately $26.8 million during the first two quarters of fiscal 1995. The decrease was primarily caused by the net change in operating assets and liabilities, offset somewhat by increased income from operations and an increase in the non-cash effect of depreciation and amortization. During the first two quarters of fiscal 1996, $42.0 million in cash was used in investing activities compared to $111.9 million used in investing activities during the same period last fiscal year. Short-term investments were the principal investing activities generating or using cash along with additions to property and equipment. During the first two quarters of fiscal 1996, $39.3 million in cash was provided by financing activities compared to $3.5 million during the same period last fiscal year. Borrowings on equipment loans and proceeds from the issuance of Common Stock were the principal financing activities generating cash. The Company has a bank line of credit for up to a maximum of $65 million available through December 1995, at the bank's prime rate. As of September 30, 1995, there were no outstanding extensions of credit under this facility other than a stand-by letter of credit in the amount of $10 million. Cash, cash equivalents and short-term investments decreased $24.3 million from $187 million at April 1, 1995, to $162.7 million at September 30, 1995. During the same period accounts receivable and inventories increased $45.8 million and $47.5 million, respectively, and accounts payable, accrued salaries and benefits, income taxes payable and other accrued liabilities increased $64.8 million. The Company believes accounts receivable and inventories will increase. The increases in accounts receivable, inventory, accounts payable and accrued liabilities are associated with the growth in the Company's operations. During September 1994, the Company and IBM completed a series of agreements pertaining to joint manufacturing. In January 1995, under the terms of the agreements, a new joint venture (MiCRUS) began manufacturing semiconductor wafers for each parent company. In January 1995, MiCRUS leased approximately $145 million of wafer fabrication and infrastructure equipment pursuant to a lease guaranteed jointly and severally by the Company and IBM. As part of the initial agreement, Cirrus Logic committed to pay $36 million as a cash contribution. In addition, Cirrus Logic and IBM each committed to provide MiCRUS with approximately $100 million of additional capital equipment, primarily through lease financing, of which the final $30 million will be provided by the Company in the fourth quarter of fiscal 1996. In March 1995, IBM and the Company agreed to a $120 million expansion of MiCRUS, of which Cirrus Logic committed to provide $60 million in financing. The Company expects to use equipment leases to fulfill its financing commitment. This expansion is expected to be in full production in fiscal 1997. In addition, in October 1995, the Company committed to provide a further $198 million to fund a second expansion of MiCRUS and to support the migration to 0.35 micron process technology. Of this amount the Company expects to spend $33 million in cash for facilities and to provide equipment lease guarantees for the balance. IBM may elect to provide up to half of the $198 million of the Company's commitment in order to obtain up to half of the additional wafer capacity from the MiCRUS expansion. In October 1995, the Company also concluded agreements with AT&T to form a joint venture to build additional wafer production capacity in an existing facility in Orlando, Florida owned by AT&T. The agreements with AT&T obligate the Company to provide $420 million in financing. The Company expects to finance $280 million of this amount through leasing equipment and subleasing it to the joint venture, or by guaranteeing leases entered into by the joint venture. Of the $140 million balance, the Company will contribute $35 million in installments over a three-year period and pay $105 million in installments over a four-year period. The payment of $105 million will be charged to the Company's cost of sales over the life of the venture based upon the ratio of current units of production to current and anticipated future units of production. The Company also has concluded an agreement with UMC which requires the Company to make a total $90 million equity investment during fiscal 1996 and 1997. The Company expects to enter into a volume purchase agreement with TSMC under which the Company expects to make advance payments to TSMC of approximately $118 million, one-half in 1997 and one-half in 1998. The Company estimates that its total financial obligations for the IBM, AT&T, UMC and TSMC transactions (excluding future wafer purchases) may total $225 million in the remainder of fiscal 1996, $600 million in fiscal 1997 and $200 million in the following three years. The Company intends to obtain the necessary capital through a combination of equity and/or debt financing, equipment lease financing, lease guarantees and cash generated from operations. In addition, the Company estimates that capital expenditures for its own facilities, testing and other equipment may total $500 to $600 million through fiscal 2000. The Company expects to finance seventy to eighty percent of these capital expenditures through lease financing. There can be no assurance that financing will be available or, if available, will be on satisfactory terms. On October 23, 1995, the Company announced that it intended to conduct a registered public offering of Common Stock and convertible notes. In light of market conditions, the Company is reconsidering its financing alternatives and may decide to revise or cancel its plans for the offering announced on October 23, 1995. The Company's future capital requirements include financing the growth of working capital items such as accounts receivable and inventory and the purchase of manufacturing and test equipment. In addition, the Company is continuing to pursue other potential transactions to satisfy its future production requirements, including equity investments in, loans to or joint ventures with wafer manufacturing companies and acquisition or construction of wafer fabrication facilities. The Company has acquired technology companies in the past and may do so in the future. Such potential transactions may require substantial capital resources, which may require the Company to seek additional debt or equity financing. Future Operating Results Quarterly Fluctuations On November 7, 1995, the Company announced that a major customer of the Company reduced its orders for certain graphics and audio chips, as a result of the customer's forecasted demand and the current inventories of Cirrus Logic products held by that customer and its subcontractors. The Company expects this will reduce the rate of revenue growth for the current quarter ending December 30, 1995, and that the operating profits for the quarter ending December 30, 1995 are likely to decrease by 10 to 15 percent as compared with the prior quarter ended September 30, 1995. The Company's quarterly revenues and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. The Company's quarterly operating results are affected by a wide variety of factors, many of which are outside of the Company's control, including but not limited to, the Company's ability to introduce new products and technologies on a timely basis, changes in product mix or fluctuations in manufacturing costs which affect the Company's gross margins, market acceptance of the Company's and customers' products, sales timing, the level of orders which are received and can be shipped in a quarter, the cyclical nature of both the semiconductor industry and the markets addressed by the Company's products, product obsolescence, price erosion, and competitive factors. The Company's future operating results also will depend in part on economic conditions in the United States and the worldwide markets that the Company serves. Any unfavorable changes in the above or other factors could adversely affect the Company's operating results. The Company must order wafers and build inventory well in advance of product shipments. Because the Company's markets are volatile and subject to rapid technology and price changes, there is a risk that the Company will forecast incorrectly and produce excess or insufficient inventories of particular products. This inventory risk is heightened because many of the Company's customers place orders with short lead times and because sales to these customers have increased as a percentage of total sales. To the extent the Company produces excess or insufficient inventories of particular products, the Company's revenues and earnings could be adversely affected. Customer lead times for certain display graphics and audio products, which had lengthened in the fourth quarter of fiscal 1995 and the first quarter of fiscal 1996 have now shortened to levels previously experienced by the Company. Accordingly, in the third quarter of fiscal 1996, a significant portion of the Company's revenues from desktop graphics is dependent on sales to customers who place orders with short lead times for delivery in this quarter. The Company's products are in various stages of their product life cycles. The Company's success is highly dependent upon its ability to develop complex new products, to introduce them to the marketplace ahead of the competition, and to have them selected for design into products of leading systems manufacturers. These factors have become increasingly important to the Company's results of operations because the rate of change in the markets served by the Company continues to accelerate. Since product life cycles are continually becoming shorter, revenues may be affected quickly if new product introductions are delayed or if the Company's products are not designed into the Company's customers' successive generation of products. Of particular importance is the timely completion and introduction of key graphics and audio products currently in various stages of development. Any delay in the introduction of such products could have a material adverse effect on the Company's results of operations during the second half of fiscal 1996 and fiscal 1997. The Company's gross margins also will depend on the Company's success at introducing new products quickly and effectively because the gross margins of semiconductor products decline as competitive products are introduced. Also, the Company must deliver product to customers according to customer schedules. If delays occur, then revenues and gross margins for current and follow-on products may be affected as customers may shift to competitors to meet their requirements. There can be no assurance that the Company will continue to compete successfully because of these factors. As is common in the semiconductor industry, the Company frequently ships more product in the third month of each quarter than in either of the first two months of the quarter, and shipments in the third month are higher at the end of that month. This pattern is likely to continue. The concentration of sales in the last month of the quarter may cause the Company's quarterly results of operations to be more difficult to predict. Moreover, a disruption in the Company's production or shipping near the end of a quarter could materially reduce the Company's revenues for that quarter. Issues Relating to Manufacturing and Manufacturing Investment Most of the Company's wafers are currently manufactured to the Company's specifications by outside merchant wafer suppliers. Although the Company has increased its future wafer supplies from manufacturing joint ventures, the Company expects to continue to purchase a majority of its wafers from, and to be reliant upon, outside merchant wafer suppliers for at least the next two years. The Company also uses other outside vendors to package the wafer die into integrated circuits (ICs). The Company's reliance on these outside suppliers involves several risks, including the absence of adequate guaranteed capacity, the possible unavailability of or delays in obtaining access to certain process technologies, and reduced control over delivery schedules, manufacturing yields and costs. The Company may be particularly sensitive to these risks because its merchant wafer suppliers are currently producing at or near their full scheduled capacity. In addition, the Company's flexibility to move production of any particular product from one wafer manufacturing facility to another can be limited in that such a move can require significant re-engineering, which can lead to a delay of several quarters in accessing available capacity. This in turn can result in periods of time in which production is constrained even though capacity is available at one or more wafer manufacturing facilities. The Company's results of operations could be adversely affected if new suppliers are not qualified in time to meet production requirements or if particular suppliers are unable to provide a sufficient and timely supply of product, whether because of capacity constraints, unexpected disruptions at the plants, or other reasons, or if the Company is forced to purchase wafers from higher cost suppliers or to pay expediting charges to obtain additional supply, or if the Company's test facilities are disrupted for an extended period of time. Certain of the Company's products are manufactured using 0.6 micron CMOS process technology. Industry demand for this process technology is strong. The Company believes that there will continue to be a shortage of manufacturing capacity to produce wafers using this process, at least through the remainder of fiscal 1996. In addition, the Company believes there is a shortage of assembly capacity for packaging wafer die. Since the Company does not have guaranteed manufacturing commitments from most vendors, there is a risk that these vendors could suddenly decide not to supply wafers or package die. Because of this supply shortage, there is an increased risk that certain products will not be readily available for sale according to customer schedules and a risk that the Company's costs will increase. Net sales and gross margin could be adversely affected by the supply shortage, which could be exacerbated if vendors encounter delivery problems. Net sales and gross margin also could be adversely affected if the Company receives orders for large volumes of products to be shipped within short periods and if the Company's product testing capacity is not adequate to process such volumes. The Company's results of operations also could be adversely affected if the Company's suppliers are subject to injunctions arising from alleged violations of third party intellectual property rights. The enforcement of such an injunction could impede a supplier's ability to provide wafers or packaging services to the Company. The Company's sales have been constrained by its inability to obtain sufficient sources of wafer supply to meet customer demand. To expand its wafer supplies, the Company has entered into and continues to consider various transactions, including joint venture agreements to own and operate wafer fabrication facilities, increased use of "take or pay" contracts that commit the Company to purchase specified quantities of wafers over extended periods, and equity investments in, loans to or other credit supports for wafer manufacturing companies in exchange for guaranteed production. The Company has entered into manufacturing joint venture agreements with IBM and AT&T and expects to enter into a new long- term volume purchase agreement with TSMC. The Company is increasing its committed wafer production through these and other joint ventures and take or pay contracts in order to address the expectation that its wafer needs will continue to grow. If, as is possible, the forecasted demand does not materialize, then the Company's committed wafer production could exceed its needs. In such event, if the joint ventures and other suppliers are not able to sell their wafer output to other customers, then the Company will have to bear higher costs in the form of unutilized overhead in the case of the joint ventures or monetary penalties in the case of the take or pay contracts. The Company expects to continue purchasing a substantial number of merchant wafers, although the number of suppliers it uses may diminish. The decrease in the number of suppliers used by the Company could adversely affect the Company's ability to obtain wafers from third party suppliers in the event the Company faces unanticipated shortfalls in supply. If the MiCRUS and AT&T joint ventures are able to produce wafers at or below prices generally prevalent in the market, the Company will benefit. If, however, either of these ventures, or any other joint venture into which the Company enters, is not able to produce wafers at competitive prices, the Company's results of operations will be materially adversely affected. The process of beginning production at and increasing volume with the joint ventures inevitably involves risks, and there can be no assurance that the manufacturing costs of such ventures will be competitive. Additional risks include the timely development of products, unexpected disruptions to the manufacturing process, the difficulty of maintaining quality and consistency, particularly at the smaller submicron levels, dependence on equipment suppliers and technological obsolescence. As a participant in manufacturing joint ventures and as an investor in the company being formed by UMC, the Company also will share in the risks encountered by wafer manufacturers generally, including being subject to a variety of foreign, federal, state and local governmental regulations related to the discharge and disposal of toxic, volatile or otherwise hazardous materials used in the manufacturing process. Any failure by the Company to control the use of, or to restrict adequately the discharge of, hazardous materials by the joint ventures under present or future regulations could subject it to substantial liability or could cause the manufacturing operations to be suspended. In addition, the Company could be held financially responsible for remedial measures if any of the joint venture manufacturing facilities were found to be contaminated whether or not the Company or the joint venture was responsible for such contamination. The Company will not be in direct control of the joint ventures or of the wafer manufacturing companies in which it invests. The Company is dependent on its joint venture partners for the operation of the new manufacturing facilities, including the hiring of qualified management. In addition, the manufacturing processes and policies undertaken by each manufacturing joint venture may not be optimized to meet the Company's specific needs and products. If the joint ventures are unable to manage the operations effectively, their ability to implement state-of-the- art manufacturing processes, to produce wafers at competitive costs, and to produce sufficient output could be adversely affected. Also, the Company's joint venture partners may enter into contractual or licensing agreements with third parties, or may be subject to injunctions arising from alleged violations of third party intellectual property rights, which could restrict the joint venture from producing certain of the Company's products or from producing with certain processes. Consequently, the Company's results of operations could be adversely affected. The increase in the Company's wafer supply arrangements could strain the Company's management and engineering resources. This strain on resources could be exacerbated by the geographic distances between the Company's and the various wafer production facilities. There can be no assurance that the Company will be able to hire additional management, engineering and other personnel as needed, to manage its expansion programs effectively and to implement new production capacity in a timely manner and within budget. The Company believes other manufacturers are also expanding or planning to expand their fabrication capacity over the next several years. There can be no assurance that the industry's expansion of wafer production will not lead to overcapacity. If this were to occur, the market price for wafers sold by third party foundries could decline, and the wafers produced by the Company's joint ventures could become more costly relative to prevailing market prices. In connection with the financing of its expansion, the Company may borrow money. Such indebtedness could cause the Company's principal and interest obligations to increase substantially. Moreover, as a consequence of existing and planned wafer supply related transactions, the Company's obligations under guarantees, investment commitments and take or pay arrangements also will increase substantially. The degree to which the Company will be leveraged could adversely affect the Company's ability to obtain additional financing for working capital, acquisitions or other purposes and could make it more vulnerable to industry downturns and competitive pressures. The Company's ability to meet its debt service and other obligations will be dependent upon the Company's future performance, which will be subject to financial, business and other factors affecting the operations of the Company, many of which are beyond its control. The Company's results of operations are subject to increasing manufacturing risks as the Company continues to upgrade wafer production using complex, smaller geometry processes. As the Company increases its source of wafer supply through joint ventures, equity investments and other arrangements, it expects it will decrease its flexibility to reduce the amount of wafers it is committed to purchase and that its fixed manufacturing costs as a percentage of overall costs of sales may increase. As a result, the operating results of the Company will be more sensitive to fluctuations in revenues and to the cyclical nature of the semiconductor industry. Dependence on PC Market Sales of most of the Company's products depend largely on sales of personal computers (PCs). The Company believes that a slowdown in sales in the PC market would adversely affect the Company's sales and earnings. The growth in the PC market and the growth in the market share enjoyed by the Company's PC OEM customers was exceptionally strong during fiscal 1995 and the first two quarters of fiscal 1996. However, the PC market could decline or experience slower growth either because of slackening consumer demand, because PC manufacturers are constrained by shortages of required parts, or otherwise, or the Company's PC OEM customers could experience lower sales or slower growth. This could lead to an inventory correction by the PC and peripheral device manufacturers, which could result in a decline in the Company's revenues or rate of revenue growth and a decline in net income. As a component supplier to PC OEMs and to peripheral device manufacturers, the Company is likely to experience a greater magnitude of fluctuations in demand than the Company's customers themselves experience. A downturn in the PC market could also affect the financial health of a number of the Company's customers, which could affect the Company's ability to collect outstanding accounts receivable from these customers. Sales of the Company's products may become increasingly dependent on key customers, including Intel, who supply motherboards to PC manufacturers, and on PC manufacturers associated with the consumer marketplace. A number of PC OEMs buy products directly from the Company and also buy motherboards from Intel or other suppliers who in turn buy products from the Company. This increases the risk that a significant portion of the Company's sales may depend directly or indirectly on the sales to a particular PC OEM. Since the Company cannot track sales by the motherboard manufacturers, this also increases the likelihood that the Company may not be fully informed of its indirect dependence on any particular PC OEM. Increasing dominance of the PC motherboard or PC market by any one customer increases the risks that the Company could experience intensified pressure on product pricing and unexpected changes in customer orders. Moreover, the Company's production schedules are based not only on customer orders, but also on forecasted demand. These issues may contribute to increasing volatility in the Company's PC-related products, and thus may increase the risk of rapid changes in revenues, margins, and earnings. Furthermore, the intense price competition in the PC industry is expected to continue to put pressure on the price of all PC components. Other IC makers, including Intel, have expressed their interest in integrating some multimedia or communications functions into their microprocessor products. Successful integration of these functions could reduce the Company's opportunities for IC sales in these areas. Issues Relating to Graphics Products Two-dimensional ("2D") graphics accelerators have replaced graphics controllers as the mainstream PC graphics product. The market is now changing to require accelerated CD-ROM video playback along with accelerated graphics and, eventually, 3D acceleration capability. The Company is striving to bring products to market for these needs, but there is no assurance that it will succeed in doing so in a timely manner. If the market for these products does not develop or is delayed, or if these products are not brought to the market in a timely manner or do not address the market needs or cost or performance requirements, then net sales would be adversely affected. Currently, the Company continues to experience intense competition in the sale of graphics products. If competitors are successful in supplanting the Company's products, the Company's market share may not be sustainable and net sales, gross margin, and earnings would be adversely affected. The Company has a large share of the market for desktop graphics controllers and graphics accelerators. The Company believes that it is unlikely to increase its market share further, and that future growth in revenues from desktop graphics products is likely only if the size of the market continues to increase or if competitors fail or are delayed in introducing new products. Several competitors have recently introduced products and adopted pricing strategies that have increased competition in the desktop graphics market and put additional pressure on prices and gross margins. These factors may adversely affect revenues and gross margins for graphics accelerator products. The Company has preliminary design wins for certain graphics products scheduled to begin shipping in the fourth quarter of fiscal 1996. Although the Company has conducted extensive simulation of the product designs, the Company and its customers have not completed testing and evaluation of the products. If the first units were to perform poorly in the evaluation, key customers could decide not to use these products in their own designs rather than to risk delaying their own product introductions. In such event, revenues from the sale of graphics products in the fourth quarter of fiscal 1996 and in the following quarters could be materially adversely affected. Issues Relating to Audio Products Most of the Company's revenues in the multimedia audio market derive from the sales of 16-bit audio codecs and integrated 16-bit codec plus controller solutions for the consumer PC market. The consumer PC market is more volatile than other segments of the PC market. The Company currently maintains a substantial market share in multimedia PCs. Further increases in revenues from these products are likely to depend on growth of the PC market, continuing adoption of multimedia audio in consumer and business PCs and selection of the Company's multimedia products by add-in card manufacturers and PC OEM's. If competitors succeeded in supplanting the Company's multimedia audio products at any of these customers, the Company's market share could decline suddenly and materially. Due to the heavy concentration of multimedia PCs in the consumer market, to be successful, an audio product must be compatible with the new and existing software games that dominate consumer multimedia PC usage. These games typically require 16-bit audio, a SoundBlaster compatible audio controller and FM synthesis emulation. Due to the price sensitive nature of the consumer PC market, the market is moving from multi-chip solutions to solutions that provide the codec, controller and synthesis integrated into a single IC. If the Company is unable to provide or is late to market with these highly integrated solutions, or if its solutions are not compatible with new and existing software, the Company could lose market share. Revenues from the sale of audio products in the second half of fiscal 1996 and in fiscal 1997 are likely to be significantly affected by the success of a recently announced fully-integrated, single-chip audio IC. The product has not yet passed customer qualification and acceptance. If the product is not qualified and accepted by customers in time for volume shipments in the second half of fiscal 1996, revenues and gross margins from the sale of audio products could be significantly impaired. Issues Relating to Mass Storage Market The disk drive market has historically been characterized by a relatively small number of disk drive manufacturers and by periods of rapid growth followed by periods of oversupply and contraction. As a result, suppliers to the disk drive industry experience large and sudden fluctuations in product demand. Furthermore, the price competitive nature of the disk drive industry continues to put pressure on the price of all disk drive components. The Company's mass storage revenues are derived primarily from sales of disk drive controllers and more recently, from read channel chips and CD-ROM drive controllers. Future mass storage revenues will be heavily dependent on the acceptance and qualification of new generations of controllers and read channel chips by the Company's customers. Recently the disk drive industry has become more consolidated. Such consolidation, which is continuing, reduces the number of customers for the Company's mass storage products and may increase the desire of customers to source their components internally. Revenues from the sale of mass storage products could be affected in various ways if the proposed merger between Seagate and Conner Peripherals is concluded. In the short term, a combined Seagate/Conner entity could elect to eliminate overlapping disk drive product offerings. Such a development could sharply reduce or increase its demand for the Company's ICs depending on whether the discontinued disk drive products do or do not use the Company's ICs. Such a development also would increase the risk that the Company builds excess inventory of ICs for the disk drives that are suddenly discontinued or builds insufficient inventory and is unable to meet demand for ICs for the disk drives that are retained. In the long term, the greater size of the combined entity may increase its ability to rely on internal sourcing of components, which could reduce demand for the Company's products. Revenues from the sale of mass storage products also could be affected by the recent introduction of Windows 95, which has created some uncertainty in the market place regarding the timing of demand for disk drive storage capacity by end users. If disk drive manufacturers incorrectly forecast consumer demand, they may make sudden and dramatic changes in disk drive product mix, which increases the risk that the Company will produce excess or insufficient inventories of various products. Issues Relating to Wireless and other Communication Products Sales of the Company's Cellular Digital Packet Data ("CDPD") products commenced during the quarter ended October 1, 1994. Since that time the Company's subsidiary, PCSI, has sold over 3,500 base stations to customers building CDPD communications infrastructure in anticipation of a developing market for CDPD wireless data services. Future CDPD revenues will depend primarily on the sale of subscriber units, modules and components. If the CDPD market does not develop, or the Company's CDPD products are not competitive with those being introduced by other suppliers, then future revenues and earnings would be adversely affected. Sales of digital cordless phone products, which were developed by PCSI for the Japanese Personal Handyphone System ("PHS") market, will depend upon the establishment of infrastructure and services which are beyond PCSI's control. If PCSI is unsuccessful or delayed in developing next generation chip sets for the PHS market, future chip set sales could decline rapidly. All sales are being conducted through the Company's Japanese marketing partners which limits the Company's gross margins for its PHS products. The Company's development of new technology in the wireless communications business faces major challenges and risks which could adversely affect the Company's results of operations. Continued investment in research and development in technology for which a market does not emerge could adversely affect the Company's net sales, gross margin and earnings. Moreover, investment in technology which proves incompatible with market standards could impede the Company's ability to participate in such markets. In addition, the timing and direction of the future market development in this area could depend heavily on the decisions of government regulators, which are subject to significant delays and are outside of the Company's control. The Company's competitors in wireless markets include some of the world's largest, most successful and most technologically advanced companies and there is no assurance that the Company will be able to compete successfully. The Company currently derives significant revenues from the sale of fax/data/modem ICs, predominantly for the v.32bis standard. The fax/data/modem market is transitioning to the higher performance v.34 standard. If the Company is not successful in its efforts to develop a v.34 product for sampling before the end of the fourth fiscal quarter of 1996, revenues and gross margins for the sale of fax/data/modem ICs in subsequent quarters could be significantly impaired. Intellectual Property Matters The greater integration of functions and complexity of operation of the Company's products also increase the risk that latent defects or subtle faults could be discovered by customers or end users after volumes of product have been shipped. If such defects were significant, the Company could incur material recall and replacement costs for product warranty. The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. The Company and certain of its customers from time to time have been notified that they may be infringing certain patents and other intellectual property rights of others. In addition, customers have been named in suits alleging infringement of patents by customer products. Certain components of these products have been purchased from the Company and may be subject to indemnification provisions made by the Company to the customers. The Company has not been named in any such suits. Although licenses are generally offered in situations where the Company or its customers are named in suits alleging infringement of patents or other intellectual property rights, there can be no assurance that litigation will not be commenced in the future regarding patents, mask works, copyrights, trademarks, trade secrets, or indemnification liability, or that any licenses or other rights can be obtained on acceptable terms. Because successive generations of the Company's products tend to offer an increasing number of functions, there is a likelihood that more of these claims will occur as the products become more highly integrated. The Company cannot accurately predict the eventual outcome of any suit or other alleged infringement of intellectual property. An unfavorable outcome occurring in any such suit, could have an adverse effect on the Company's future operations and/or liquidity. Furthermore, efforts of defending the Company against future lawsuits, if any, could divert a significant portion of the Company's financial and management resources. Foreign Operations and Markets Because many of the Company's subcontractors and several of the Company's key customers, which customers collectively account for a significant percentage of the Company's revenues, are located in Japan and other Asian countries, the Company's business is subject to risks associated with many factors beyond its control. International operations and sales may be subject to political and economic risks, including political instability, currency controls, exchange rate fluctuations, and changes in import/export regulations, tariff and freight rates. Although the Company buys hedging instruments to reduce its exposure to currency exchange rate fluctuations, the Company's competitive position can be affected by the exchange rate of the U.S. dollar against other currencies, particularly the Japanese yen. In addition, various forms of protectionist trade legislation have been proposed in the United States and certain other countries. Any resulting changes in current tariff structures or other trade and monetary policies could adversely affect the Company's international operations. There can be no assurance that the political and economic risks to which the Company is subject will not result in customers of the Company defaulting on payments due to the Company or in the reduction of potential purchases of the Company's products. Competition The Company's business is intensely competitive and is characterized by price erosion and rapid technological change. Competition typically occurs at the design stage, where the customer evaluates alternative design approaches that require integrated circuits. Because of shortened product life cycles and even shorter design-in cycles, the Company's competitors have increasingly frequent opportunities to achieve design wins in next generation systems. In the event that competitors succeed in supplanting the Company's products, the Company's market share may not be sustainable and net sales, gross margin, and earnings would be adversely affected. Competitors include major domestic and international companies, many of which have substantially greater financial and other resources than the Company with which to pursue engineering, manufacturing, marketing and distribution of their products. Emerging companies are also increasing their participation in the market, as well as customers who develop their own integrated circuit products. Competitors include manufacturers of standard semiconductors, application specific integrated circuits and fully customized integrated circuits, including both chip and board-level products. The ability of the Company to compete successfully in the rapidly evolving area of high-performance integrated circuit technology depends significantly on factors both within and outside of its control, including but not limited to, success in designing, manufacturing and marketing new products, wafer supply, protection of Company products by effective utilization of intellectual property laws, product quality, reliability, ease of use, price, diversity of product line, efficiency of production, the pace at which customers incorporate the Company's integrated circuits into their products, success of the customers' products and general economic conditions. Also the Company's future success depends, in part, upon the continued service of its key engineering, marketing, sales, manufacturing, support and executive personnel, and on its ability to continue to attract, retain and motivate qualified personnel. The competition for such employees is intense, and the loss of the services of one or more of these key personnel could adversely affect the Company. Because of this and other factors, past results may not be a useful predictor of future results. Part II. Other Information Item 1. Legal Proceedings During September 1995, Crystal settled a suit alleging infringement of a patent. The settlement did not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows. On November 7 and 8, 1995 three shareholder class action lawsuits were filed in the United States District Court for the Northern District of California against the Company and several of its officers and directors. The lawsuits allege violations of the federal securities laws in connection with the announcement by Cirrus Logic on November 7, 1995 that a major customer discontinued orders for the Company's 32-bit products. The complaints do not specify the amounts of damages sought. The Company believes that the allegations of the complaints are without merit, and the Company intends to vigorously defend itself. The Company believes that the ultimate resolution of this matter will not have a material adverse effect on its financial position, results of operations, or cash flows. Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit 3.1 Articles of Incorporation of Registrant, as amended * Exhibit 10.25 General Partnership Agreement dated as of October 23, 1995 between the Company and AT&T. * Exhibit 10.26 Joint Venture Formation Agreement dated as of October 23, 1995 between the Company and AT&T. * Exhibit 10.27 Foundry Venture Agreement dated as of September 29, 1995 between the Company and United Microelectronics Corporation ("UMC"). * Exhibit 10.28 Written Assurances Re Foundry Venture Agreement dated as of September 29, 1995 between the Company and UMC. * Exhibit 10.29 Foundry Capacity Agreement dated as of September 29, 1995 between the Company and UMC. Exhibit 11 Statement re: Computation of Earnings per share Exhibit 27 Financial Data Schedule * Portions have been filed separately with the Commission in reliance on Rule 24b-2 and the Registrant's request for confidential treatment. b. Reports on Form 8-K None. CIRRUS LOGIC, INC. SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CIRRUS LOGIC, INC. (Registrant) November 13, 1995 /s/ Sam S. Srinivasan Date Sam S. Srinivasan Senior Vice President, Finance and Administration, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) November 13, 1995 /s/ Michael L. Hackworth Date Michael L. Hackworth President, Chief Executive Officer and Director (Principal Executive Officer) EX-3.1 2 ARTICLES OF INCORPORATION, AS AMENDED [ARTICLE] 5 [MULTIPLIER] 1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CIRRUS LOGIC, INC. Michael L. Hackworth and Sam S. Srinivasan certify that: 1. They are the President and Secretary, respectively, of CIRRUS LOGIC, INC., a California corporation. 2. The Articles of Incorporation of this corporation, as amended, shall be amended and restated to read in their entirety as follows: I The name of this corporation is CIRRUS LOGIC, INC. II The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III Section 1 Authorized Shares This corporation is authorized to issue two classes of stock designated "Common Stock" and "Preferred Stock," respectively. The total number of shares which this corporation is authorized to issue is 85,282,345. The number of shares of Common Stock which this corporation is authorized to issue is 70,000,000 shares. The number of shares of Preferred Stock which this corporation is authorized to issue is 15,282,345 shares. Upon the effectiveness of these Amended and Restated Articles of Incorporation, every two and one-half shares of Common Stock outstanding immediately prior thereto shall be combined and converted into one share of Common Stock and every two and one-half shares of Preferred Stock outstanding immediately prior thereto shall be combined and converted into one share of Preferred Stock. Section 2 Preferred Stock The Preferred Stock may be issued from time to time in one or more series. Subject to Section 3 of this Article III, the Board of Directors of this corporation is authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issuance of shares of that series, to determine the designation and par value of any series, and to fix the number of shares of any series. Section 3 Series A, Series B, Series C, Series D and Series E Preferred Stock Five series of Preferred Stock designated Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, consisting of 606,145 shares, 4,145,267 shares, 2,151,723 shares, 1,179,210 shares and 2,200,000 shares, respectively, are hereby authorized, which shares shall have the rights, privileges, and preferences set forth below. (a) Dividends. The holders of shares of the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be entitled to receive dividends, out of any funds legally available therefor, prior and in preference to any declaration or payment of any dividend or other distribution (payable other than in Common Stock of this corporation) on the Common Stock of this corporation at the rate of $0.03125 per annum on each outstanding share of Series A Preferred Stock, $0.11875 per annum on each outstanding share of Series B Preferred Stock, $0.163 per annum on each outstanding share of Series C Preferred Stock, $0.2445 per annum on each outstanding share of Series D Preferred Stock and $0.36675 per annum on each outstanding share of Series E Preferred Stock, if and when declared by the Board of Directors; provided, however, that no dividend shall be declared and paid on any series of Preferred Stock unless a dividend is declared and paid on all series of Preferred Stock. In addition, the holders of shares of the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be entitled to receive the same cash dividends per share as paid per share of Common Stock, if and as declared by the Board of Directors, based upon the number of shares into which the shares of Series A, Series B, Series C, Series D and Series E Preferred Stock are convertible pursuant to Section 3(c) below. Such preferential dividends shall be non-cumulative. (b) Liquidation Preference (1) Distribution to Holders of Preferred Stock. In the event of any liquidation, dissolution, or winding up of the corpo- ration, either voluntary or involuntary, the holders of Series A, Series B, Series C, Series D and Series E Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the corporation to the holders of the Common Stock by reason of their ownership thereof, an amount equal to the sum of (i) all declared but unpaid dividends on each share of the Series A, Series B, Series C, Series D and Series E Preferred Stock, respectively and (ii) $0.625 with respect to each share of Series A Preferred Stock, $1.821 with respect to each share of Series B Preferred Stock, $2.50 with respect to each share of Series C Preferred Stock, $3.75 with respect to each share of Series D Preferred Stock, and $5.625 with respect to each share of Series E Preferred Stock. (2) Distribution of Limited Assets and Funds. If the assets and funds thus distributed among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock are insufficient to permit the payment to such holders of the full preferential amount specified in Section 3(b)(1) of this Article III, then all of such assets and funds of this corporation legally available for distribution shall be distributed ratably among the holders of the Series A, Series B, Series C, Series D and Series E Preferred Stock in proportion to their liquidation preferences of $0.625, $1.821, $2.50, $3.75 and $5.625, respectively, per share. (3) Distribution to Holders of Common Stock. After the holders of Series A, Series B, Series C, Series D and Series E Preferred Stock have received the amounts specified in Section 3(b)(1) of this Article III, the holders of Common Stock of the corporation (including any Common Stock obtained upon conversion of Series A, Series B, Series C, Series D and Series E Preferred Stock prior to the distribution to holders of Series A, Series B, Series C, Series D and Series E Preferred Stock pursuant to Section 3(b)(1) of this Article III) shall be entitled to receive, on a pro rata basis (in proportion to the number of shares of Common Stock then held by each of such holders), all remaining assets of the corporation legally available for distribution. (4) Merger or Sale Included in Liquidation. A consoli- dation or merger of this corporation with or into any other corpo- ration or corporations, or a sale of all or substantially all of the assets of this corporation, shall be deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 3(b). (c) Conversion. The holders of Series A, Series B, Series C, Series D and Series E Preferred Stock shall have the following conversion rights ("Conversion Rights"): (1) Conversion Rights (i) Voluntary Conversion. Subject to Section 3(c)(3) of this Article III, each share of Series A, Series B, Series C, Series D and Series E Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of this corporation or any transfer agent for the Series A, Series B, Series C, Series D or Series E Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $0.48475 by the Conversion Price (as last adjusted and then currently in effect) for the Series A Preferred Stock, by dividing $1.821 by the Conversion Price (as last adjusted and then currently in effect) for the Series B Preferred Stock, by dividing $2.50 by the Conversion Price (as last adjusted and then currently in effect) for the Series C Preferred Stock, by dividing $3.75 by the Conversion Price (as last adjusted and then currently in effect) for the Series D Preferred Stock and by dividing $5.625 by the Conversion Price (as last adjusted and then currently in effect) for the Series E Preferred Stock. As of the date hereof, the Conversion Price per share at which shares of Common Stock shall initially be issuable upon conversion of shares of Series A Preferred Stock shall be $0.48475, upon conversion of the Series B Preferred Stock shall be $1.821, upon conversion of the Series C Preferred Stock shall be $2.50, upon conversion of the Series D Preferred Stock shall be $3.75 and upon conversion of the Series E Preferred Stock shall be $5.625; provided, however, that after the date hereof such Conversion Prices shall be subject to adjustment as set forth in Section 3(c)(3) and 3(c)(4) of this Article III. By such conversion, the converting holder relinquishes any and all rights or entitlements to any dividends that may have been declared under Section 3(a) of this Article III but have not been paid, and no such dividends shall thereafter be or become due or payable. (ii) Automatic Conversion. Each share of Series A, Series B, Series C and Series D Preferred Stock shall be automatically converted into Common Stock at the then-applicable Conversion Price immediately prior to the closing of an underwritten public offering of the Common Stock of the corporation at a per-share offering price to the public of not less than $7.50 per share (appro- priately adjusted for any subsequent stock splits or combinations) and a total offering price to the public of not less than $5,000,000. Each share of Series E Preferred Stock shall be automatically converted into Common Stock at the then-applicable Conversion Price (i) immediately prior to the closing of an underwritten public offering of the Common Stock of the corporation at a per-share offering price to the public of not less than $10.00 per share (appropriately adjusted for any subsequent stock splits or combinations) and a total offering price to the public of greater than $7,500,000 or (ii) if at any time after 150 days after the initial public offering of this corporation's Common Stock (or, if earlier, after the termination of the lock-up agreements between Shareholders of this corporation and the corporation's underwriters in such offering) the market price of the Common Stock equals or exceeds $10.00 for twenty (20) consecutive days. For this purpose, "market price" shall be the mean of the bid and asked prices of the Common Stock for such date, as reported in the Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) System) or, if the Common Stock is listed on a stock exchange (including the NASDAQ National Market System), the closing price on such exchange on such date, as reported in the Wall Street Journal. (2) Mechanics of Conversion. Before any holder of Series A, Series B, Series C, Series D or Series E Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of this corporation or of any transfer agent for the Series A, Series B, Series C, Series D or Series E Preferred Stock, and shall give written notice by mail, postage prepaid, to this corporation at its principal corporate office, of the election to convert the same. Such election shall be effective upon receipt by the corporation of such written notice and certificate. This corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of the Series A, Series B, Series C, Series D or Series E Preferred Stock a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of receipt of such notice and of the shares of Series A, Series B, Series C, Series D or Series E Preferred Stock to be converted, and the holder of shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. If the conversion is in connection with an underwritten offer of securities in accordance with the provisions of Section 3(c)(1)(ii) of this Article III, then the corporation shall give written notice of such offering to each holder of Series A, Series B, Series C, Series D and Series E Preferred Stock, and all rights of such holder with respect to his ownership of Series A, Series B, Series C, Series D and Series E Preferred Stock shall cease upon the effectiveness of such conversion, except his right to receive a certificate representing the shares of Common Stock so issued upon such conversion upon surrender of such holder's cer- tificate representing his Series A, Series B, Series C, Series D or Series E Preferred Stock. In the event of such automatic conversion, the holders of shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on the effective date of such conversion. (3) Conversion Price Adjustments for all Preferred Stock. The Conversion Price of the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be subject to adjustment from time to time as follows: (i) Stock Dividend or Split. If the number of shares of Common Stock outstanding at any time after the filing date of these Restated Articles is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, effective upon the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend, subdivision, or split-up, the Conversion Price for the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series A, Series B, Series C, Series D and Series E Preferred Stock shall be increased in proportion to such increase of outstanding shares of Common Stock. (ii) Reverse Stock Split. If the number of shares of Common Stock outstanding at any time after the filing date of these Restated Articles is decreased by a combination of the outstanding shares of Common Stock, then, effective upon the record date of such combination, the Conversion Price for the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of Series A, Series B, Series C, Series D and Series E Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock. (iii) Recapitalization or Reorganization. If any capital reorganization or reclassification of the capital stock of the corporation, or any consolidation or merger of the corporation with another corporation, or any sale of all or substantially all the assets of the corporation to another corporation is effected, then, as a condition of such reorganization, reclassification, con- solidation, merger, or sale, lawful and adequate provision shall be made whereby the holders of Series A, Series B, Series C, Series D and Series E Preferred Stock shall thereafter have the right to acquire and receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the corporation immediately theretofore receivable upon conversion of the Series A, Series B, Series C, Series D and Series E Preferred Stock, such shares of stock, securities, or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore issuable upon conversion of the Series A, Series B, Series C, Series D and Series E Preferred Stock had such reorganization, reclassification, consolidation, merger, or sale not taken place. In any such case, appropriate provision shall be made with respect to the rights and interests of the holders of Series A, Series B, Series C, Series D and Series E Preferred Stock so that the provisions hereof (including without limitation provisions for adjustment of the number of shares issuable upon conversion of the Series A, Series B, Series C, Series D and Series E Preferred Stock) shall thereafter be applicable, as nearly as may be practicable, in relation to any shares of stock, securities, or assets thereafter deliverable upon conversion of the Series A, Series B, Series C, Series D or Series E Preferred Stock. (4) Conversion Price Adjustments for Series B, Series C, Series D and Series E Preferred Stock. (i) Special Definitions. For purposes of this Section 3(c)(4), the following definitions shall apply: (A) "Additional Shares of Common" shall mean all shares of Common Stock issued (or, pursuant to Section 3(c)(4)(iii) of this Article III, deemed to be issued) by the corporation after the Reference Date, other than: (a) shares of Common Stock issued or issuable upon conversion of shares of Series A, Series B, Series C, Series D or Series E Preferred Stock; (b) up to 1,434,444 shares of Common Stock (net of repurchases) issued or issuable after April 23, 1987 to directors, officers, employees, consultants, sales representatives and distributors of the corporation pursuant to any agreement, option plan, purchase plan, or any other incentive program for directors, officers, employees, consultants, sales representatives or distributors (collectively, the "Plans") approved by the corporation's Board of Directors; (c) shares of Common Stock issued or issuable as a stock dividend, split, or reverse split under the provisions of Section 3(c)(3) of this Article III; (d) shares of Common Stock issued or issuable as any dividend or distribution on Series A, Series B, Series C, Series D or Series E Preferred Stock; and (e) shares of Common Stock issued or issuable by way of a dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common by the foregoing clauses (a), (b), (c) and (d) or by this clause (e) or on shares of Common Stock so excluded. (B) "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock and Series A, Series B, Series C, Series D and Series E Preferred Stock) or other securities convertible into or exchangeable for Common Stock. (C) "Options" shall mean rights, options, or warrants to subscribe for, purchase, or otherwise acquire either Common Stock or Convertible Securities. (D) "Reference Date" shall mean the date on which these Restated Articles are filed." (ii) No Adjustment of Conversion Price. No adjustment in the Conversion Price of a particular share of Series B, Series C, Series D or Series E Preferred Stock shall be made in respect of the issuance of Additional Shares of Common unless the consideration per share for an Additional Share of Common issued or deemed to be issued by the corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issuance, for such share of Series B, Series C, Series D or Series E Preferred Stock. (iii) Deemed Issuance of Additional Shares of Common Stock. (A) Options and Convertible Securities. If the corporation at any time or from time to time after the Reference Date issues any Options or Convertible Securities or fixes a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, upon the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common issued as of the time of such issuance or, in case such a record date has been fixed, as of the close of business on such record date; provided, however, that Additional Shares of Common shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 3(c)(4)(v) of this Article III) for such Additional Shares of Common would be less than the Conversion Price of a particular share of Series B, Series C, Series D or Series E Preferred Stock in effect on the date of and immediately prior to such issuance or such record date, and provided further that in any such case in which Additional Shares of Common are deemed to be issued: (a) no further adjustment in the Conversion Price shall be made upon the subsequent issuance of securities upon the exercise of such Options or conversion or exchange of such Convertible Securities; (b) if such Options or Convertible Securities by their terms provide, with the passage of time or other- wise, for any increase in the consideration payable to the corpo- ration, or for any decrease in the number of shares of Common Stock issuable, upon the exercise, conversion, or exchange thereof, then the Conversion Price computed upon the original issuance thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; and (c) no readjustment pursuant to clause (b) above shall have the effect of increasing the Conversion Price to an amount that exceeds the lower of (i) the Conversion Price on the original adjustment date, or (ii) the Conversion Price that would have resulted from any issuance of Additional Shares of Common between the original adjustment date and such readjustment date. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. If the corporation issues Additional Shares of Common (including Additional Shares of Common deemed to be issued pursuant to Section 3(c)(4)(iii) of this Article III) without consideration or for a consideration per share less than the Conversion Price of a particular share of Series B, Series C, Series D or Series E Preferred Stock in effect on the date of and immediately prior to such issuance, then such Conversion Price shall be reduced, concurrently with such issuance, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, (i) the numerator of which is the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock that the aggregate consideration received by the corporation for the total number of Additional Shares of Common so issued would purchase at such Conversion Price, and (ii) the denominator of which is the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of such Additional Shares of Common so issued; provided, however, that, for the purposes of this Section 3(c)(4)(iv), all shares of Common Stock issuable upon conversion of outstanding shares of Series B, Series C, Series D and Series E Preferred Stock and outstanding Convertible Securities shall be deemed to be outstanding, and immediately after any Additional Shares of Common are deemed issued pursuant to Section 3(c)(4)(iii) of this Article III, such Additional Shares of Common shall be deemed to be outstanding. (v) Determination of Consideration. For purposes of this Section 3(c)(4), the consideration received by the corporation for the issuance of any Additional Shares of Common shall be computed as follows: (A) Cash and Property: Such consideration shall: (a) insofar as it consists of cash, be computed as the aggregate amount of cash received by the corporation excluding amounts paid or payable for accrued interest or accrued dividends; (b) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issuance, as determined in good faith by the corporation's Board of Directors; and (c) if Additional Shares of Common are issued together with other shares or securities or other assets of the corporation for consideration that covers both, be the proportion of such consideration so received, computed as provided in clauses (a) and (b) above, as determined in good faith by the corporation's Board of Directors. (B) Options and Convertible Securities. The consideration per share received by the corporation for Additional Shares of Common deemed to have been issued pursuant to Section 3(c)(4)(iii)(A), relating to Options and Convertible Securities, shall be determined by dividing: (a) the total amount, if any, received or receivable by the corporation as consideration for the issuance of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities; by (b) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (5) No Impairment. The corporation shall not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, merger, dissolution, issuance or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this corporation. The corporation shall, at all times in good faith, assist in carrying out of all the provisions of this Section 3(c) and in taking all such action as may be necessary or appropriate to protect the Conversion Rights of the holders of Series A, Series B, Series C, Series D and Series E Preferred Stock against impairment. (6) No Fractional Shares; Certificate of Adjustment. (i) No Fractional Shares. No fractional shares shall be issuable upon the conversion of shares of Series A, Series B, Series C, Series D or Series E Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. If any fractional interest in a share of Common Stock would, except for the provisions of this Section 3(c)(6)(i), be deliverable upon conversion of any of the shares of Series A, Series B, Series C, Series D or Series E Preferred Stock, then the corporation shall pay to the holders of such converted stock an amount in cash equal to the current market value of such fractional interest. (ii) Certificate of Adjustment. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 3(c), the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each applicable holder of Series A, Series B, Series C, Series D and Series E Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon written request at any time from any holder of Series A, Series B, Series C, Series D or Series E Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price in effect at the time, and (C) the number of shares of Common Stock and the amount, if any, of other property that, at the time, would be received upon the conversion of such Series A, Series B, Series C, Series D or Series E Preferred Stock. (7) Notices of Record Date. If the corporation takes a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution or any right to subscribe for, purchase, or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, then the corporation shall mail to each holder of Series A, Series B, Series C, Series D and Series E Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, or right and the amount and character of such dividend, distribution, or right. (8) Reservation of Stock Issuable Upon Conversion. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Series A, Series B, Series C, Series D and Series E Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A, Series B, Series C, Series D and Series E Preferred Stock. If at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the conversion of all then-outstanding shares of Series A, Series B, Series C, Series D and Series E Preferred Stock, then the corporation shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as is sufficient for such purpose. (9) Notices. Any notice required by the provisions of this Section 3(c) to be given to the holders of shares of Series A, Series B, Series C, Series D or Series E Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the corporation. (d) Voting Rights. The holder of each share of Series A, Series B, Series C, Series D and Series E Preferred Stock shall have the right to one vote for each share of Common Stock then issuable upon conversion of the Series A, Series B, Series C, Series D and Series E Preferred Stock into Common Stock as provided in Section 3(c) of this Article III. With respect to such vote, such holder (i) shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, (ii) shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the corporation, and (iii) shall be entitled to vote, together with holders of Common Stock, upon any question affecting the management and affairs of the corporation. The Common Stock and Preferred Stock shall vote together and not as separate classes, except as otherwise provided by law and except as provided in Section 3(e) of this Article III. (e) Protective Provisions. For so long as at least 3,000,000 shares (subject to adjustment for stock splits) of Preferred Stock are outstanding, the corporation shall not do any of the following without first obtaining the designated shareholder approval (by vote or written consent, as provided by law): (1) alter or change the rights, preferences, or privileges of the shares of Series A, Series B, Series C, Series D or Series E Preferred Stock so as to materially adversely affect the shares of Series A, Series B, Series C, Series D or Series E Preferred Stock without the approval of a majority of the then-outstanding shares of each series of the Series A, the Series B, the Series C and the Series D Preferred Stock and without the approval of at least sixty percent (60%) of the then-outstanding shares of Series E Preferred Stock; (2) increase the authorized number of shares of Series A, Series B, Series C, Series D or Series E Preferred Stock without the approval of a majority of the then-outstanding shares of each series of the Series A, the Series B, the Series C and the Series D Preferred Stock and without the approval of at least sixty percent (60%) of the then-outstanding shares of Series E Preferred Stock; (3) create any new class or series of stock having a preference over or on parity with the Series A, Series B, Series C, Series D or Series E Preferred Stock with respect to dividends or upon liquidation without the approval of a majority of the then-outstanding shares of Preferred Stock; (4) do any act or thing that would result in taxation of the holders of shares of Preferred Stock under Section 305 of the Internal Revenue Code of 1986 (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended) without the approval of a majority of the then-outstanding shares of Preferred Stock; or (5) consolidate, merge or sell all or substantially all of the assets of the Company, where the shareholders of the corporation own interests in the continuing or surviving entity representing 50 percent or less of the voting power in the continuing or surviving entity, and where upon the occurrence of any such consolidation, merger or sale, the holders of shares of Series E Preferred Stock would receive greater than $3.75 per share but less than $5.625 per share (approximately adjusted for any stock splits or combinations), without first obtaining the approval of at least sixty percent (60%) of the then-outstanding shares of Series E Preferred Stock. (f) Status of Converted Shares. In the event any shares of Preferred Stock shall be converted pursuant to the terms hereof, the shares so converted shall not revert to the status of authorized but unissued shares, but instead shall be cancelled and shall not be re-issuable by the corporation. IV Section 1. Limitation of Directors' Liability. The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. Section 2. Indemnification of Directors and Officers. The corporation is authorized to indemnify the directors and officers of the corporation to the fullest extent permissible under California law. Section 3. Repeal or Modification. Any repeal or modification of the foregoing provisions of this Article IV by the shareholders of the corporation shall not adversely affect any right or protection of a director or officer of the corporation existing at the time of such repeal or modification. 3. The foregoing amendment and restatement of this corpora- tion's Articles of Incorporation has been duly approved by the Board of Directors of this corporation. 4. The foregoing amendment and restatement of this corpora- tion's Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Sections 902 and 903 of the Corporations Code. The total number of outstanding shares of the corporation as of the record date for approval hereof was 5,102,544 shares of Common Stock, 1,515,312 shares of Series A Preferred Stock, 10,363,116 shares of Series B Preferred Stock, 5,109,281 shares of Series C Preferred Stock, 2,948,000 shares of Series D Preferred Stock and 4,888,887 shares of Series E Preferred Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than fifty percent (50%) of the shares of Common Stock, more than fifty percent (50%) of the shares of each of the Series A, Series B, Series C and Series D Preferred Stock, and at least sixty percent (60%) of the shares of Series E Preferred Stock. The undersigned further declare under penalty of perjury that the matters set forth in this certificate are true of their own knowledge. Executed in Milpitas, California on May 26, 1989. /s/ Michael L. Hackworth Michael L. Hackworth, President /s/ Sam S. Srinivasan Sam S. Srinivasan, Secretary CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CIRRUS LOGIC, INC. MICHAEL L. HACKWORTH and SAM S. SRINIVASAN, certify that: 1. They are the President and Chief Executive Officer, and the Senior Vice President, Finance and Administration, Chief Financial Officer, Treasurer and Secretary, respectively, of CIRRUS LOGIC, INC., a California corporation. 2. Article III of the Amended and Restated Articles of Incorporation of this corporation is amended to read in its entirety as follows: "III Section 1 Authorized Shares This corporation is authorized to issue two classes of stock designated "Common Stock" and "Preferred Stock," respectively. The total number of shares which this corporation is authorized to issue is 145,000,000. The number of shares of Common Stock which this corporation is authorized to issue is 140,000,000 shares. The number of shares of Preferred Stock which this corporation is authorized to issue is 5,000,000 shares. Upon the amendment of this Article III as set forth herein, each one (1) outstanding share of Common Stock shall be split up and divided into two (2) shares of Common Stock. Section 2 Preferred Stock The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of this corporation is authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issuance of shares of that series, to determine the designation and par value of any series, and to fix the number of shares of any series." 3. The foregoing amendment of the Amended and Restated Articles of Incorporation was duly approved by the Board of Directors at its meeting held on June 1, 1995, at which a quorum was present and acting throughout. 4. Article III, Section 3(f) of the Corporation's Amended and Restated Articles of Incorporation filed May 30, 1989 provides that in the event any shares of Preferred Stock are converted pursuant to the terms of said Articles, such shares shall not revert to the status of authorized but unissued shares and instead shall be cancelled and shall not be re-issuable by the Corporation. Because all authorized shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred Stock were outstanding and were converted pursuant to the Articles, and because 5,000,000 shares of authorized but unissued and undesignated shares of Preferred Stock remain authorized under the Articles, and because the only other changes which have been made hereby to the Amended and Restated Articles of Incorporation: (i) effect a two-for-one stock split of the Common shares, (ii) increase the authorized number of Common Shares, (iii) reduce the authorized number of Preferred Shares and (iv) eliminate the statement of the rights, preferences, privileges, and restrictions of each designated series of Preferred Stock acquired by the Corporation, shareholder approval of this amendment is not required pursuant to Sections 510(b) and 902(c) of the California Corporations Code. 5. Pursuant to Section 110(c) of the California Corporations Code, the foregoing amendment of the Amended and Restated Articles of Incorporation of this corporation shall become effective at the close of business on June 19, 1995. 6. Each of the undersigned declares under penalty of perjury under the laws of the State of California that the matters set forth in the foregoing certificate are true of his own knowledge. Executed at Fremont, California on June 5, 1995. /s/ Michael L. Hackworth Michael L. Hackworth, President and Chief Executive Officer /s/ Sam S. Srinivasan Sam S. Srinivasan, Senior Vice President, Finance and Administration, Chief Financial Officer, Treasurer and Secretary EX-10.25 3 GENERAL PARTNERSHIP AGREEMENT DATED AS OF OCTOBER 23, 1995 BETWEEN THE COMPANY AND AT&T. [ARTICLE] 5 [MULTIPLIER] 1 CONFIDENTIAL TREATMENT REQUESTED [*] Denotes information for which confidential treatment has been requested. Confidential portions omitted have been filed separately with the Commission. GENERAL PARTNERSHIP AGREEMENT (this "Agreement"), dated as of _____ __, 1996, between ATOR Corp., a New York corporation (the "AT&T Partner"), and Ciror, Inc., a California corporation (the "Cirrus Partner"). The AT&T Partner and the Cirrus Partner are sometimes referred to herein as the "Partners" or individually as a "Partner." WHEREAS, the parties hereto desire to enter into a cooperative arrangement with respect to the expansion and operation of certain wafer fabrication facilities for the purpose of processing silicon wafers; and WHEREAS, the parties hereto consider it mutually beneficial to establish a partnership (the "Partnership") and the parties hereto are parties to a Joint Venture Formation Agreement, dated as of October __,1995 (the "Joint Venture Agreement"). NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree, subject to the conditions contained herein, as follows: ARTICLE I DEFINITIONS 1.01. Definitions. For the purpose hereof, the following terms will have the following meanings: "Additional Capital Contributions" will have the meaning set forth in Section 3.05 hereof. "Adjusted Capital Account Deficit" means, with respect to any Partner, the deficit balance, if any, in the Capital Account (as hereinafter defined) of such Partner as of the end of the relevant Fiscal Year (as hereinafter defined), after giving effect to the following adjustments: (a) credit to such Capital Account any amounts which such Partner is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations (as hereinafter defined); and (b) debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of the Regulations. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and will be interpreted consistently therewith. "Affiliate" means any Person, directly or indirectly controlled by, controlling or under common control with (as hereinafter defined) another Person (as hereinafter defined); "controlled by, controlling or under common control with" means the power to direct the management and policies of a Person, whether through the ownership of voting securities, by agreement or otherwise. "Board of Governors" will have the meaning set forth in Section 6.01 hereof. "Capital Account" means, with respect to each Partner, the account maintained for each Partner on the books of account for the Partnership in accordance with the provisions of Section 3.02 hereof (which Capital Account will be adjusted as otherwise required by Section 1.704-1(b) of the Regulations). "Chairman of the Board of Governors" has the meaning set forth in Section 7.01 hereof. "Code" means the United States Internal Revenue Code of 1986, codified at Title 26 of the United States Code, as amended from time to time (or any corresponding provisions of succeeding law). "Depreciation" means for each Fiscal Year (as hereinafter defined) of the Partnership, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except that if the Gross Asset Value (as hereinafter defined) of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation will be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation will be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Partners. "Extended Term" will have the meaning set forth in Article XI hereof. "Fiscal Year" means (i) the period commencing on the effective date of this Agreement and ending on December 31, (ii) any subsequent twelve (12) month period commencing on January 1, and (iii) any portion of the period described in the immediately preceding clause (ii) for which the Partnership is required to allocate Profits (as hereinafter defined), Losses (as hereinafter defined) and other items of Partnership income, gain, loss, deduction or credit pursuant to Article VIII hereof. "GPL" will have the meaning set forth in Section 2.01 hereof. "Governor" or "Governors" will have the meaning set forth in Section 6.02 hereof. "Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (a) The initial Gross Asset Value of any asset contributed by a Partner to the Partnership will be the gross fair market value of such asset, as determined by the Partners; (b) The Gross Asset Values of all Partnership assets will be adjusted to equal their respective gross fair market values, as determined by the Partners, as of the following times: (i) the acquisition of an additional Partnership interest by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for a Partnership interest; and (iii) the liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations; provided, however, that, except as otherwise provided herein, adjustments pursuant to the immediately preceding clauses (i) and (ii) will be made only if the Partners reasonably determine that such adjustments are necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; (c) The Gross Asset Value of any Partnership asset distributed to any Partner will be adjusted to equal the gross fair market value of such asset on the date of distribution as determined by the Partners; (d) The Gross Asset Values of Partnership assets will be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Section 734(b) or Section 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations and Section 7.04 hereof; provided, however, that Gross Asset Values will not be adjusted pursuant to this paragraph (d) to the extent the Partners determine that an adjustment pursuant to paragraph (b) hereof is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d); and (e) If the Gross Asset Value of an asset has been determined or adjusted pursuant to the immediately preceding subparagraph (a), (b) or (d), such Gross Asset Value will thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses (as hereinafter defined). "Hedge/Swap Transaction" means any transaction which is a rate hedge/swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, interest rate option, forward foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross- currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of any of the foregoing) or any combination of the foregoing. "IRS" means the United States Internal Revenue Service. "Initial Capital" will have the meaning set forth in Section 3.01 hereof. "Land" will have the meaning set forth in the Lease. "Nonrecourse Deductions" has the meaning set forth in Section 1.704-2(b)(1) of the Regulations. The amount of Nonrecourse Deductions for a Fiscal Year of the Partnership will be determined according to the provisions of Section 1.704-2(c) of the Regulations. "Nonrecourse Liability" has the meaning set forth in Section 1.704-2(b)(3) of the Regulations. "Partner Nonrecourse Debt" has the meaning set forth in Section 1.704-2(b)(4) of the Regulations. "Partner Nonrecourse Debt Minimum Gain" means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations. "Partner Nonrecourse Deductions" has the meaning set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations. "Partnership Minimum Gain" has the meaning set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations. "Percentage Interests" means the respective interests of the Partners as shown on Schedule A attached hereto. "Premises" will have the meaning set forth in the Lease. "Profits and Losses" means, for each Fiscal Year, an amount equal to the Partnership's taxable income or loss for such Fiscal Year, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code will be included in taxable income or loss), with the following adjustments: (a) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition will be added to such taxable income or loss; (b) Any expenditures of the Partnership described in Section 705(a)(2)(B) of the Code or treated as Code Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(iv)(i) of the Regulations, and not otherwise taken into account in computing Profits and Losses pursuant to this definition, will be subtracted from such taxable income or loss; (c) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to paragraph (b) or (c) of the definition of "Gross Asset Value", the amount of such adjustment will be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses; (d) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes will be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (e) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there will be taken into account Depreciation for such Fiscal Year or other period; (f) To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or Section 743(b) of the Code is required pursuant to Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner's interest in the Partnership, the amount of such adjustment will be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and will be taken into account for purposes of computing Profits or Losses; and (g) Notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 8.02 hereof will not be taken into account in computing Profits and Losses. The amounts of the items of Partnership income, gain, loss, or deduction available to be specially allocated pursuant to Section 8.02 hereof will be determined by applying rules analogous to those set forth in the immediately preceding subparagraphs (a) through (f). "Purchasing Partner or Partners" will have the meaning set forth in Section 5.03 hereof. "Regulations" means Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Regulatory Allocation" will have the meaning set forth in Section 8.02 hereof. "Schedule of Authorizations" will have the meaning set forth in Section 7.07 hereof. "Selling Partner" will have the meaning set forth in Section 5.03 hereof. "Tax Matters Partner" will have the meaning set forth in Section 10.03 hereof. 1.02. Capitalized Terms. Capitalized terms used but not defined herein will have the respective meanings assigned to them in the Joint Venture Agreement. ARTICLE II FORMATION 2.01. Formation. The Partners hereby form the Partnership pursuant to the provisions of the General Partnership Law of the State of New York (the "GPL") and upon the terms and subject to the conditions of this Agreement. The rights and liabilities of the Partners will be, except as herein otherwise expressly provided, as provided in the GPL. Neither Partner will have the power or authority to bind the other Partner except as specifically provided in this Agreement. Neither the Partnership (in the case of either Partner) nor any Partner (in the case of any other Partner) will be responsible or liable for any activity, liability, indebtedness or obligation of any Partner incurred prior to the execution of this Agreement or following the termination of this Agreement, except as to the joint responsibilities, liabilities, indebtedness and obligations incurred after the date hereof, and only pursuant to, and as limited by, the terms of the Joint Venture Agreement or the Material Agreements. 2.02. Name. The name of the Partnership will be "[AT&T/Cirrus]". ARTICLE III CAPITAL 3.01. Initial Capital. (a) The initial capital (the "Initial Capital") of the Partnership will be the sums of cash or the agreed fair market value of the property (or combination of cash and property) contributed to the Partnership by the Partners in such amounts or value as are set out opposite the name of each of the Partners on Schedule A attached hereto and incorporated herein by this reference. 3.02. Capital Accounts. A Capital Account will be established for each Partner. (a) To each Partner's Capital Account there will be credited such Partner's capital contributions, such Partner's distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Section 8.02 hereof, and the amount of any Partnership liabilities assumed by such Partner or which are secured by any Property distributed to such Partner; (b) To each Partner's Capital Account there will be debited the amounts of cash and the Gross Asset Value of any Property distributed to such Partner pursuant to any provision of this Agreement, such Partner's distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Section 8.02 hereof and the amount of any liabilities of such Partner assumed by the Partnership or which are secured by any Property contributed by such Partner to the Partnership; (c) In the event any Partnership interest is transferred in accordance with the terms of this Agreement, the transferee will succeed to the Capital Account of the transferor to the extent it relates to the transferred Partnership interest; (d) In determining the amount of any liability for purposes of paragraphs (a) and (b) hereof, there will be taken into account Section 752(c) of the Code and any other applicable provisions of the Code and Regulations; and (e) The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Section 1.704-1(b) of the Regulations, and will be interpreted and applied in a manner consistent with such Regulations. In the event the Partners will determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities that are secured by contributed or distributed Property or which are assumed by the Partnership or one or more of the Partners), are computed in order to comply with such Regulations, the Partners may make such modification, provided that it is not likely to have a material effect on the amounts distributable to any Partner pursuant to Section 9.02 of the Agreement upon the dissolution of the Partnership. The Partners also will (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership's balance sheet, as computed for book purposes in accordance with Section 1.704-1(b)(2)(iv)(g) of the Regulations, and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Section 1.704-1(b) of the Regulations. 3.03. Admissions of New Partners. New Partners may be admitted to the Partnership as partners in the Partnership with the unanimous written consent of the existing Partners. A new Partner must agree to be bound by the terms and provisions of this Agreement, as amended. Upon admission, a new Partner will have all rights and duties of a Partner of the Partnership. 3.04. Interest. No interest will be paid or credited to the Partners on their Capital Accounts or upon any undistributed profits left on deposit with the Partnership. 3.05. Additional Capital Contributions. (a) Except as otherwise provided in this Section 3.05, no Partner will be required to make additional capital contributions ("Additional Capital Contributions") to the Partnership. However, the Partners authorize the Partnership to receive additional capital contributions from the Partners and the Partnership may solicit Additional Capital Contributions from the Partners, in an amount and in such proportions from the Partners as is authorized by the unanimous vote of the Partners. The Partners acknowledge and agree that they will vote in favor of such solicitation and receipt of Additional Capital Contributions to the extent of the capital requirements specified in the Annual Plan. (b) Notwithstanding the provisions of paragraph (a) of this Section 3.05, upon receipt of at least five (5) business days written notice from the Board of Governors, [*] will make Additional Capital Contributions from time to time [ * ] , up to an aggregate amount equal to the lesser of: (i)[*]; or (ii)[*]. ARTICLE IV PARTNERS 4.01. Matters Requiring the Consent of the Partners; Restrictions on Actions by the Partners. (a) Matters Requiring the Consent of the Partners. No action may be taken by or on behalf of the Partnership in connection with any of the following matters without the prior written consent of each Partner: (i) approval of the initial Annual Plan; (ii) any amendments, waivers or other changes to this Agreement; (iii) changes to the composition of the Board of Governors (i.e., the number of Governors to be nominated by each Partner); (iv) a change in fiscal year of the Partnership; (v) the incurrence of any indebtedness that increases the total indebtedness of the Partnership above the level existing at the end of the prior fiscal year, excluding indebtedness for short-term trade financing, unless included in the Annual Plan; (vi) the winding up, dissolution or liquidation of the Partnership in a manner other than as contemplated by the terms of this Agreement; (vii) the extension of the term of the Partnership's existence beyond its initial or any extended term; (viii) the merger, reorganization, consolidation of the Partnership or other form of business combination with respect to the Partnership; (ix) any change in the objects or purposes of the Partnership or the scope of its activities; (x) the approval of any transactions between the Partnership and any Partners not specifically provided for in the Annual Plan; (xi) with respect to the Partnership, (a) the acquisition of or investment in any corporation, partnership, or joint venture with any person, (b) the creation of any direct or indirect subsidiary of the Partnership, or (c) the acquisition or sale of assets in a single transaction or series of transactions (other than as set forth in the Preliminary Implementation Plan, the Implementation Plan or the Annual Plan); (xii) with respect to the Partnership, (a) the voluntary commencement of any proceeding or the voluntary filing of any petition seeking relief under Title 11 of the United States Code, as amended from time to time, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (b) the consent to the institution of, or the failure to contest in a timely and appropriate manner, any involuntary proceeding or any involuntary filing of any petition of the type described in the immediately preceding clause (a), (c) the application for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for it or for a substantial portion of its property or assets, (d) the filing of an answer admitting the material allegations of a petition filed against it in any such proceeding, (f) the making of a general assignment for the benefit of creditors, (g) the admission in writing of its inability to, or the failure generally, to pay its debts as they become due, or (h) the taking of any action for the purpose of effecting any of the foregoing; (xiii) the admission of another partner to the Partnership; and (xiv) any other matters with respect to which applicable law requires the approval of more than a majority vote of the Partners. (b) Restrictions on Actions by the Partners. Neither Partner may without the prior written consent of the other Partner: (i) confess a judgment against the Partnership; (ii) except as otherwise provided by this Agreement, the Joint Venture Agreement or the Material Agreements, make any agreement on behalf of or otherwise purport to bind the other Partner or the Partnership; (iii) do any act, or fail to take any act, in contravention of this Agreement, the Joint Venture Agreement or the Material Agreements; (iv) except as contemplated by this Agreement, the Joint Venture Agreement, or the Material Agreements, dispose of the Business; (v) assign the property of the Partnership in trust for creditors or on the assignee's promise to pay any indebtedness of the Partnership; (vi) submit a Partnership claim or liability to arbitration or reference, except as contemplated by this Agreement, the Joint Venture Agreement, or the Material Agreements; (vii) settle, waive, release or initiate any claim, demand, action, suit, or other proceeding by or against the Partnership; or (viii) incur any indebtedness in connection with, or otherwise engage in, any Hedge/Swap Transaction; provided, however, if the AT&T Partner consents to incurring any indebtedness in connection with, or otherwise engaging in, a Hedge/Swap Transaction, the Partnership must also receive the written consent of the Treasurer of AT&T Corp., an Assistant Treasurer of AT&T Corp., or a Treasury Manager of AT&T Corp. designated by the Treasurer of AT&T Corp., prior to incurring any such indebtedness or engaging in any such Hedge/Swap Transaction; and further provided that if the Cirrus Partner consents to incurring any indebtedness in connection with, or otherwise engaging in, a Hedge/Swap Transaction, the Partnership must also receive such consents, if any, as may be required by applicable Cirrus financing policies then in existence, prior to incurring any such indebtedness or engaging in any such Hedge/Swap Transaction. 4.02. Actions by the Partners; Meetings; Quorum; Majority. Each Partner will designate one person who will be authorized to act on behalf of such Partner in connection with the consents or approvals required pursuant to Section 4.01, provided that all such acts on behalf of a Partner will be in writing. Each Partner will notify the other Partner or Partners of the identity of such person, or any replacement thereof, pursuant to the terms of Section 14.01 of the Joint Venture Agreement. Each Partner agrees to provide any consent or approval required under Section 4.01 hereof, or to indicate that such consent or approval will not be provided, within twenty (20) days of written request of the other Partner of the Partnership. 4.03. Other Ventures. The parties hereto acknowledge and agree that the Partners, or any of them, may engage in other flows. ====== any rights in and to any independent venture or activity or the income or profits derived therefrom. ARTICLE V TRANSFER OF PARTNERS' INTERESTS 5.01. Personal Property; Transferee's Interest. Subject to the provisions of the Joint Venture Agreement with respect to disposal of a Partner's interest in the Partnership, the interest of each Partner is personal property and may be transferred only in accordance with the terms of Section 5.02 hereof. If all the Partners other than the Partner proposing to dispose of its interest agree to a proposed transfer by unanimous written consent, but do not agree by unanimous written consent to admit the transferee as a Partner such transferee will have no right to participate in the management of the business and affairs of the Partnership or to become a Partner and will only be entitled to receive the share of profits or other compensation by way of income and the return of contributions, to which the transferor Partner would otherwise be entitled. If the transfer is approved by the other Partners by unanimous written consent and the admission of the transferee as a Partner is also approved by unanimous written consent, such transferee will have all the rights and powers and be subject to all the restrictions and liabilities of its assignor, will have the right to participate in the management of the business and affairs of the Partnership and will become a substituted Partner. 5.02. Restrictions on Transfer. Unless the non-transferring Partner agrees, or the Partners agree by unanimous written consent, to the contrary, no Partner may transfer, assign,pledge or otherwise dispose of its interest in the Partnership, except to such other Partner or Partners. 5.03. Buy/Sell. (a) In the event a Partner wishes to dispose of its interest pursuant to Section 5.02 hereof or upon termination of this Agreement, the Partner wishing to dispose of its interest in the Partnership will notify the non-transferring Partner or Partners who will be under no obligation to acquire the interest, nor to permit the sale to a third party who is not then a Partner. In the event a Partner wishes or Partners wish to purchase the interest of another Partner it or they will notify such other Partner who will be under no obligation to sell such interest. If a Partner wishes to dispose of its interest and the other Partner or Partners wishes to purchase the interest (the "Purchasing Partner or Partners"), the Purchasing Partner or Partners will acquire the interest from the transferring Partner (the "Selling Partner") at an agreed upon price, or if no price can be agreed upon, the fair market value of such interest as determined by an independent qualified appraiser appointed by the Purchasing Partner or Partners and the Selling Partner. If they cannot agree on an appraiser, the Purchasing Partner or Partners, on the one hand, and the Selling Partner, on the other hand, will each choose an appraiser and the two appraisers will choose one additional appraiser. The fair market value of the interest of the Selling Partner will be determined by the three appraisers or, if they cannot agree, will be the average of the three appraisers' valuation. At the consummation of the sale of the interest in the Partnership of the Selling Partner, the fair market value of the Selling Partner's interest will be paid in cash or in the form of a promissory note with such terms, interest rates, payment amounts and other terms as will be mutually agreed upon by the Selling Partner and the Purchasing Partner or Partners. (b) The Partners hereby agree that in the event of a sale pursuant to this Section 5.03: (i) for purposes of this Section 5.03 only, the interest in the Partnership of the AT&T Partner will be deemed to include the AT&T Assets, the other assets of AT&T Corp. and the AT&T Partner comprising OR2, OR1, and the Premises and the Land; (ii) for purposes of this Section 5.03 only, the interest in the Partnership of the Cirrus Partner will be deemed to include the Cirrus Assets and the other assets of Cirrus and the Cirrus Partner comprising OR2; and (iii) such sale will be consummated as soon as reasonably practicable. In the event of any such sale, the Selling Partner will use its reasonable best efforts to cause all leases and other agreements covering the AT&T Assets, if the AT&T Partner is the Selling Partner, or the Cirrus Assets, if the Cirrus Partner is the Selling Partner, to be assigned to the Purchasing Partner or the third-party purchaser, as the case may be, and the Purchasing Partner or the third-party purchaser, as the case may be, will assume all obligations under any such leases and other agreements. The parties hereto acknowledge and agree that AT&T and its Affiliates may, in its or their sole discretion, enter into transactions, agreements, understandings or arrangements with respect to the Premises and/or the Land , including but not limited to those which may give rise to sales, over-leases, mortgages, security interests, liens or encumbrances; provided, however, that in the event of any such transactions, agreements, understandings or arrangements, the Lease will not be terminated other than in accordance with the terms thereof. ARTICLE VI GOVERNORS 6.01. The Board of Governors. (a) Upon the terms and subject to the conditions of this Agreement and the provisions of the GPL, the Partners acknowledge and agree that complete and exclusive power to direct and control the Partnership is delegated hereby to the governing committee of five persons appointed as provided in this Article VI (the "Board of Governors"). The Partnership will be operated on a day to day basis by its officers and employees, governed by the Board of Governors. (b) The Governors may exercise all powers of the Partnership and do all such lawful acts and things as are not by the GPL or this Agreement directed or required to be exercised or done by the Partners. Following proper notice therefor, a vote of the Board of Governors will be required with respect to the following matters and will be conducted in accordance with the terms of this Agreement: (i) amendments to the Annual Plan, including periodic updates and amendments thereto (as set forth in Section 3.02 of the Joint Venture Agreement) and approval of the annual operating and capital budgets of the Partnership; (ii) expenditures which, in the aggregate, for any transaction or series of related transactions, are in excess of [ * ] if such expenditures were not approved in the Annual Plan; (iii) execution of any agreement involving payments in excess of [ * ] over its term or having a term longer than one (1) year if such agreement was not approved in the Annual Plan; (iv) approval of limits of authority for officers of the Partnership if such limits were not set forth in the Annual Plan; (v) borrowing (including the provision of any guarantee) in excess of borrowings authorized pursuant to the Annual Plan and any encumbering of assets of the Partnership not provided for in the Annual Plan; (vi) the amendment or modification of the Bonus Plan; and (vii) any other matters which by the terms hereof are reserved to the Board of Governors. (c) Each Governor will be obliged to devote only as much of his or her time to the Partnership's business as will be reasonably required in light of the Partnership's business and objectives. A Governor will perform his or her duties as a Governor in good faith, in a manner he or she reasonably believes to be in the best interests of the Partnership, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. (d) Subject to the provisions of this Agreement, the Board of Governors is authorized and directed, as soon as practicable, to delegate to the President and Chief Executive Officer responsibility for the day to day operation of the Business. 6.02. Members of the Board of Governors; Voting; etc. (a) The AT&T Partner will nominate three persons to serve on the Board of Governors, which nominees will be reasonably acceptable to Cirrus. The Cirrus Partner will nominate two persons to serve on the Board of Governors, which nominees will be reasonably acceptable to AT&T. Neither Partner will unreasonably withhold its consent to the election of the nominees of the other Partner or Partners. All such persons elected by the Partners to serve on the Board of Governors are referred to in this Agreement collectively as the "Governors" and individually as a "Governor." Each Governor will, at all times, be an employee or officer of his or her nominating Partner or of its Affiliates. The Partners hereby elect those persons identified on Schedule B attached hereto to be the initial Governors. (b) Each Partner will be entitled to name an alternate person (who will be reasonably satisfactory to the other Partner) to serve in the place of any Governor appointed by such Partner should any such Governor not be able to attend a meeting or meetings. (c) Each Governor or alternate person will serve at the pleasure of the appointing Partner and may be removed as such, with or without cause, and his or her successor appointed, by the appointing Partner. (d) Each Partner will bear any cost incurred by any Governor designated by it to serve on the Board of Governors, and no member of the Board of Governors will be entitled to compensation from the Partnership for serving in such capacity. (e) Each Partner will notify the other Partner or Partners and the Partnership of the name, business address and business telephone and facsimile numbers of each Governor and each alternate person and such Partner will promptly notify the other Partner or Partners and the Partnership of any change in such Partner's appointments or of any change in any such address or numbers. (f) For purposes of any approval or action taken by the Board of Governors, each member of the Board of Governors will have one vote. A majority of the votes eligible to be cast at any meeting will be required for purposes of approving any action to be taken by the Board of Governors at such meeting; provided, however, that a majority of the votes eligible to be cast at a meeting required for purposes of approving the matters described in Sections 6.01(b)(i) through 6.01(b)(vi) hereof must include the vote of at least one (1) Governor appointed by the AT&T Partner and one (1) Governor appointed by the Cirrus Partner are present. (g) At any meeting of the Board of Governors, a Governor, in the absence of another Governor appointed by the same Partner or an alternate person serving in the place of such absent Governor, may cast the vote such absent Governor would otherwise be entitled to cast. (h) The quorum necessary for any meeting of the Board of Governors will be those members entitled to cast a majority of the votes held by the members of the Board of Governors; provided, however, that a quorum necessary for approval by the Board of Governors of the matters described in Sections 6.01(b)(i) through 6.01(b)(vi) hereof must include at least one (1) Governor appointed by the AT&T Partner and one (1) Governor appointed by the Cirrus Partner are present. A quorum will be deemed not to be present at any meeting for which notice was not properly given under Section 6.01(c) hereof, unless the member or members as to whom such notice was not properly given attend such meeting without protesting the lack of notice or duly execute and deliver a written waiver of notice or a written consent to the holding of such meeting. (i) Any action by a Governor of the Board of Governors in such Governor's capacity as such will, so far as the Partners are concerned, be deemed to have been duly authorized by the Partner that appointed such Governor; provided, however, that any such action will not be deemed to be an approval, consent or agreement of such Partner for any purposes of this Agreement (including under Section 4.01 hereof), for which approval, consent or agreement must be separately obtained in writing. (j) Each appointment by a Partner to the Board of Governors will remain in effect until the Partner making such appointment notifies the other Partner of a change in such appointment. A Governor may resign from his or her position as a Governor at any time by notice to the Partners. Such resignation will be effective as set forth in such notice. The resignation or removal of a member of the Board of Governors will not invalidate any act of such member taken before the giving of such written notice of the removal or resignation of such member. 6.03. Meetings, Notice, etc. (a) Meetings of the Board of Governors will be held at the principal offices of the Partnership or at such other place as may be determined by the Board of Governors. (b) Regular meetings of the Board of Governors will be held at least quarterly on such dates and at such times as will be determined by the Board of Governors. (c) Notice of any regular meeting or special meeting pursuant to paragraph (d) of this Section 6.03 will be given to each member and alternate member of the Board of Governors by the Partnership or any Partner at least ten business days prior to such meeting in the case of a meeting in person or at least five days prior to such meeting in the case of a meeting by conference telephone or similar communications equipment pursuant to paragraph (f) of this Section 6.03. (d) Special meetings of the Board of Governors may be called by any Governor by notice given in accordance with the notice requirements set forth in paragraph (c) of this Section 6.03, which notice will state the purpose or purposes for which such meeting is being called. No action may be taken and no business may be transacted at such special meeting which is not identified in such notice unless (a) such action or business is incidental to the action or business for which the special meeting is called or (b) such action or business does not materially adversely affect either Partner or the Partnership. (e) The actions taken by the Board of Governors at any meeting, however called and noticed, will be as valid as though taken at a meeting duly held after regular call and notice if (but not until), either before, at or after the meeting, any Governor as to whom it was improperly held duly executes and delivers a written waiver of notice or a written consent to the holding of such meeting; provided, however, that any Governor that is present at a meeting will be deemed to have received adequate notice thereof. A vote of the Board of Governors may be taken either in a meeting of the Board of Governors or by written consent of the Governors eligible to cast a majority of the votes on the Board of Governors without a meeting, which majority for a written consent will be required to include, at a minimum, one (1) member of the Board of Governors appointed by each Partner. (f) A meeting of the Board of Governors may be held by conference telephone or similar communications equipment by means of which all members participating in the meeting can be heard by all other participants. Any member of the Board of Governors may elect to participate in a meeting by conference telephone or similar communications equipment upon sufficient advance notice to permit arrangements therefor to be made. (g) The Board of Governors will, from time to time, elect one of the Governors to preside at its meetings. Such elected Governor is referred to herein as the "Chairman of the Board of Governors." The Board of Governors may establish reasonable rules and regulations to (a) require officers and employees to call meetings and perform other administrative duties, (b) limit the number and participation of observers, if any, and require such persons to observe confidentiality obligations and (c) otherwise provide for the keeping and distribution of minutes and internal Board of Governors governance matters not inconsistent with the terms of this Agreement. 6.04. Partners May Act. Notwithstanding anything to the contrary set forth in this Article VI, the Partners will retain all powers which may not be so delegated pursuant to the GPL and the powers specified in this Agreement, and further provided, that nothing in this Article VI will derogate from the power of the Partners, which is absolute, to agree in writing to cause the Partnership to act or refrain from acting as to any specific item or matter. ARTICLE VII OFFICERS 7.01. Number; Titles; Election; Term; Qualification. The officers of the Partnership will be a President and Chief Executive Officer (one person), one or more Vice Presidents (and, in the case of each Vice President with such descriptive title, if any, as the Governors will determine), a secretary, and a Treasurer and Chief Financial Officer (one person). The Partnership may also have a Chairman of the Board of Governors, one or more Assistant Treasurers, one or more Assistant Secretaries, and such other officers and such agents as the Governors may from time to time elect or appoint. The AT&T Partner will recommend a President and Chief Executive Officer and a Treasurer and Chief Financial Officer. The Partners will then elect a President and Chief Executive Officer and a Treasurer and Chief Financial Officer at the first meeting at which a quorum will be present or whenever a vacancy exists; provided that any such election will require the unanimous vote of the Partners. The President then, or from time to time thereafter, will recommend one or more other officers, and the Board of Governors will appoint such officers as they will deem advisable; provided that any such election will require the unanimous vote of the Governors. Each officer will hold office for the term for which he or she is elected or appointed and until his or her successor has been elected or appointed and qualified. Any person may hold any number of offices. No officer or agent need be a Governor. 7.02. Removal. Any officer or agent elected or appointed by the Governors may be removed by the unanimous vote of the Partners or the unanimous vote of the Governors whenever in their judgment the best interest of the Partnership will be served thereby. Election or appointment of any officer or agent will not of itself create contract rights. [*]. 7.03. Vacancies. Any vacancy occurring in any office of the Partnership may be filled by the unanimous vote of the Governors. 7.04. Authority. Officers will have such authority and perform such duties in the management of the Partnership as are provided in this Agreement or as may be determined by resolution of the Governors not inconsistent with the Regulations. 7.05. Compensation. The compensation, if any, of officers and agents will be fixed from time to time by the Governors; provided, that the Governors may by resolution delegate to any one or more officers of the Partnership the authority to fix such compensation. 7.06. Chairman. The Chairman of the Board of Governors will have such powers and duties as may be prescribed by the Governors. 7.07. President and Chief Executive Officer. Unless and to the extent that such powers and duties are expressly delegated to the Chairman of the Board of Governors by the Governors, the President will be the Chief Executive Officer of the Partnership and, subject to the supervision of the Governors and the Partners, will have general management and control of the business and property of the Partnership in the ordinary course of its business with all such powers with respect to such general management and control as may be reasonably incident to such responsibilities, including, but not limited to, the power to employ, discharge, or suspend employees and agents of the Partnership, and to suspend, with or without cause, any officer of the Partnership pending final action by the Governors with respect to continued suspensions, removal, or reinstatement of such officer. The President may, without limitation, agree upon and execute all division and transfer orders, bonds, contracts and other obligations in the name of the Partnership. The President will have, in addition to the powers and authorities normally incident to the office of president and the powers and duties set forth in this Agreement, the following authorities and accountabilities: (a) accountability to the Board of Governors to cause the Partnership to achieve its milestones, requirements and objectives as set forth in the Annual Plan or otherwise; (b) day to day administration of the operation of the Partnership and coordination of the subcontractors; (c) representing the Partnership in dealings with the Partners, their Affiliates and third parties; (d) proposing to the Board of Governors updates and amendments to the Annual Plan; (e) delegating authority pursuant to the Schedule of Authorizations (as hereinafter defined); and (f) managing the personnel resources of the Partnership within the parameters of the Annual Plan including appointment and removal of officers and personnel other than the officers appointed by the Board of Governors. The Board of Governors will adopt unanimously at or immediately following the execution and delivery of this Agreement, and may amend from time to time unanimously, the Schedule of Authorizations. As used herein, "Schedule of Authorizations" will mean a schedule of authorizations pursuant to which the President of the Partnership may act or delegate to other officers and employees of the Partnership authority to conduct the business of, and enter into transactions in the name of, the Partnership, consistent with this Agreement. 7.08. Vice Presidents. Each Vice President will have such powers and duties as may be prescribed by the Governors or as may be delegated from time to time by the President and (in the order as designated by the Governors, or in the absence of such designation, as determined by the length of time each has held the office of Vice President continuously) will exercise the powers of the President during the President's absence or inability to act. As between the Partnership and third parties, any action taken by a Vice President in the performance of the duties of the President will be conclusive evidence of the absence or inability to act of the President at the time such action was taken. 7.09. Treasurer and Chief Financial Officer. The Treasurer will have custody of the Partnership's funds and securities, will keep full and accurate accounts of receipts and disbursements, and will deposit all moneys and valuable effects in the name and to the credit of the Partnership in such depository or depositories as may be designated by the Governors. The Treasurer will be the chief financial officer of the Partnership. The Treasurer will audit all payrolls and vouchers of the Partnership, receive, audit, and consolidate all operating and financial statements of the Partnership and its various departments, will supervise the accounting and auditing practices of the Partnership, and will have charge of matters relating to taxation. Additionally, the Treasurer will have the power to endorse for deposit, collection, or otherwise all checks, drafts, notes, bills of exchange, and other commercial paper payable to the Partnership and to give proper receipts and discharges for all payments to the Partnership. The Treasurer will perform such other duties as may be prescribed by the Governors or as may be delegated from time to time by the president. 7.10. Assistant Treasurers. Each Assistant Treasurer will have such powers and duties as may be prescribed by the Board of Governors or as may be delegated from time to time by the President. The Assistant Treasurers (in the order as designated by the Governors or, in the absence of such designation, as determined by the length of time each has held the office of Assistant Treasurer continuously) will exercise the powers of the treasurer during that officer's absence or inability to act. As between the Partnership and third parties, any action taken by an Assistant Treasurer will be conclusive evidence of the absence or inability to act of the Treasurer at the time such action was taken. 7.11. Secretary. The Secretary will maintain minutes of all meetings of the Governors, of any committee, and of the Partners, or consent in lieu of such minutes in the Partnership's minute books, and will cause notice of such meetings to be given when requested by any person authorized to call such meetings. The Secretary may sign with the president, in the name of the Partnership, all contracts of the Partnership and affix the seal of the Partnership thereto. The Secretary will have charge of the certificate books, transfer records, ledgers, and such other books and papers as the Governors may direct, all of which will at all reasonable times be open to inspection by any Governor at the office of the Partnership during business hours. The Secretary will perform such other duties as may be prescribed by the Governors or as may be delegated from time to time by the president. 7.12. Assistant Secretaries. Each Assistant Secretary will have such powers and duties as may be prescribed by the Governors or as may be delegated from time to time by the President. The Assistant Secretaries (in the order designated by the Governors or, in the absence of such designation, as determined by the length of time each has held the office of Assistant Secretary continuously) will exercise the powers of the secretary during that officer's absence or inability to act. As between the Partnership and third parties, any action taken by an Assistant Secretary in the performance of the duties of the Secretary will be conclusive evidence of the absence or inability to act of the Secretary at the time such action was taken. ARTICLE VIII ALLOCATION OF PROFITS AND LOSSES 8.01. Allocation of Profits and Losses. Subject to the provisions of Sections 8.02, 8.03 and 8.04 hereof, the Profits and Losses of the Partnership for each Fiscal Year will be allocated among the Partners in the following manner. (a) Profits will be allocated among the Partners in the following manner: (i) First, the Profits derived from, or attributable to, the operation of OR1 will be allocated to the AT&T Partner; and (ii) Second, the Profits derived from, or attributable to, the operation of OR2 will be allocated among the Partners pro rata in proportion to their Percentage Interests. (b) Losses will be allocated among the Partners in the following manner: (i) First, any Losses derived from, or attributable to, OR1 will be allocated to the AT&T Partner; and (ii) Second, in the event that [*] makes Additional Capital Contributions pursuant to Section 3.05(b) hereof, Losses derived from, or attributable to, OR2 will be allocated to the [*] in an amount equal to such additional Capital Contributions; and (iii) Third, any remaining Losses derived from, or attributable to, OR2 will be allocated to the Partners pro rata in proportion to their Percentage Interests. 8.02. Special Allocations. (a) Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Section 8.02, if there is a net decrease in Partnership Minimum Gain during any Fiscal Year of the Partnership, each Partner will be specially allocated items of Partnership income and gain for such Fiscal Year of the Partnership (and, if necessary, subsequent Fiscal Year of the Partnerships) in an amount equal to that Partner's share of the net decrease in Partnership Minimum Gain. These allocations will be determined in accordance with Section 1.704-2(f) of the Regulations. The items to be so allocated will be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 8.02(a) is intended to comply with the minimum gain charge back requirement in Section 1.704-2 of the Regulations and will be interpreted consistently therewith. Where such a minimum gain chargeback would cause a distortion in the economic arrangement of the Partners and it is not expected that the Partnership will have sufficient other income to correct that distortion, the Partnership will apply for a waiver of the minimum gain charge back requirement in accordance with Section 1.704-2(f) of the Regulations. (b) Partner Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Section 8.02, if there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse Debt during any Fiscal Year of the Partnership, each Partner that has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations, will be specially allocated items of Partnership income and gain for such Fiscal Year of the Partnership (and, if necessary, subsequent Fiscal Year of the Partnerships) in an amount equal to the portion of such Partner's share of the net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(4) of the Regulations. Allocations pursuant to the previous sentence will be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated will be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 8.02(b) is intended to comply with the minimum gain charge back requirement of Section 1.704-2(i)(4) of the Regulations and will be interpreted consistently therewith. In addition, rules consistent with the provisions of Section 1.704-2(f)(2), (3), (4) and (5) of the Regulations (including rules regarding a waiver of the type discussed in Section 8.02(a) hereof), will apply to the special allocation required by this Section 8.02(b). (c) Gross Income Allocation. In the event any Partner has an Adjusted Capital Account Deficit at the end of any Fiscal Year of the Partnership, such Partner will be specially allocated items of Partnership income and gain in the amount and in the manner necessary to eliminate the deficit as quickly as possible, provided that an allocation pursuant to this Section 8.02(c) will be made only and to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article VIII have been made as if Section 8.02(g) hereof and this Section 8.02(c) were not in this Agreement. The allocations contained in this Section 8.02(c) are intended to satisfy the "qualified income offset" provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and will be interpreted consistently therewith. (d) Section 754 Adjustment. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv) (m)(4) of the Regulations, to be taken into account in determining Capital Accounts as a result of a distribution to a Partner in complete liquidation of his interest in the Partnership, the amount of such adjustment to the Capital Accounts will be treated as an item of gain (if the adjustment increases the basis in the asset) or loss (if the adjustment decreases such basis) and such gain or loss will be specially allocated to the Partners in proportion to the Percentage Interest of each Partner in the event Section 1.702-1(b)(2)(iv)(m)(2) of the Regulations applies, or to the Partners to which such distribution was made in the event that Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations applies. (e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year of the Partnership or other period will be specially allocated among the Partners in proportion to their Percentage Interests. (f) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for any Fiscal Year of the Partnership or other period will be specially allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Section 1.704-2(i)(1) of the Regulations. (g) Curative Allocations. The allocations set forth in Sections 8.02(a) through (f) hereof (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Partners that, to the extent possible, all Regulatory Allocations will be offset either with Regulatory Allocations or with special allocations of other items of Partnership income, gain, loss or deduction pursuant to this Section 8.02(g). Therefore, notwithstanding any other provisions of this Article VIII (other than the Regulatory Allocations), the Partners will make such offsetting special allocations of Partnership income, gain, loss, or deduction in whatever manner they determine appropriate so that, after such offsetting allocations are made, each Partner's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Partner would have had if the Regulatory Allocations were not part of this Agreement and all Partnership items were allocated pursuant to Section 8.01 hereof. In exercising their discretion under this Section 8.02(g), the Partners will take into account future Regulatory Allocations under Section 8.02(a) and (b) hereof that, although not yet made, are likely to offset Regulatory Allocations made under Sections 8.02(e) and (f) hereof. 8.03. Other Allocation Rules. (a) The Partners are aware of the income tax consequences of the allocations made by this Article VIII and hereby agree to be bound by the provisions of this Article VIII in reporting their shares of partnership income and loss for income tax purposes. (b) Income and loss for financial reporting purposes will be allocated among the Partners in a manner consistent with the allocations of the Profits and Losses for federal income tax purposes and in accordance with the accounting standards set forth in Section 10.01 hereof. (c) For purposes of determining Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items will be determined on a daily, monthly, or other basis, as determined by the Partners using any permissible method under Section 706 of the Code and the Regulations thereunder. (d) Solely for purposes of determining a Partner's proportionate share of the "excess nonrecourse liabilities" of the Partnership within the meaning of Section 1.752-(3) of the Regulations, the Partners' interests in Partnership profits will be their respective Percentage Interests. (e) To the extent permitted by Section 1.704-2(h)(3) of the Regulations, the Partners will endeavor to treat distributions as having been made from the proceeds of Nonrecourse Liability or a Partner Nonrecourse Debt only to the extent that such distributions would cause or increase an Adjusted Capital Account Deficit for any Partner. 8.04. Code Section 704(c). (a) In accordance with Section 704(c) of the Code and the Regulations thereunder, items of income, gain, loss, and deduction with respect to any property (other than money) contributed to the capital of the Partnership will, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its initial Gross Asset Value. (b) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to the definition thereof, subsequent allocations of income, gain, loss, and deduction with respect to such asset will take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Section 704(c) of the Code and the Regulations thereunder. (c) Any elections or other decisions relating to such allocations will be made by the Partners in any manner that reasonably reflects the purpose and intention of this Agreement and are otherwise allowable under Section 1.704-3 of the Regulations. 8.05. Federal Income Tax. The parties hereto intend that the Partnership will be governed by the applicable provisions of Subchapter K, of Chapter 1, of the Code. 8.06. Allocation of Income and Loss in Respect of Transferred Interests. (a) If any interest in the Partnership is transferred, or upon the admission or withdrawal of a Partner, in accordance with the provisions of this Agreement during any calendar year, the income or loss attributable to such interest for such calendar year will be divided and allocated between the Partners based upon an interim closing of the Partnership's books or on a daily basis, as determined in the sole discretion of the Governors. For the purpose of accounting convenience and simplicity, the Partnership will treat a transfer of, or any increase or decrease in, an interest in the Partnership which occurs at any time during a semi-monthly period (commencing with the semi-monthly period including the date hereof) as having been consummated on the first day of such semi-monthly period, regardless of when during such semi-monthly period such transfer, increase, or decrease actually occurs (e.g., sales and dispositions made during the first 15 days of any month will be deemed to have been made on the first day of the month and sales and dispositions thereafter will be deemed to have been made on the 16th day of the month). Notwithstanding any provision above to the contrary, gain or loss of the Partnership realized in connection with a sale or other disposition of any of the assets of the Partnership will be allocated solely to the Partners owning interests in the Partnership as of the date such sale or other disposition occurs. 8.07. Reallocations Between the Partnership and a Partner. Any redistribution, reapportionment or reallocation of income, deductions, credits or allowances between the Partnership and a Partner (or Affiliate of such Partner) effected pursuant to Section 482 of the Code or any similar provision of state law (along with any penalties, charges, interest or additions relating thereto) with respect to any transaction between the Partnership and such Partner (or Affiliate of such Partner) will be allocated in full to such Partner. The Partner to which reallocations under this Section 8.07 are made (as well as such Partner's Affiliates) will indemnify and hold harmless the other Partner (as well as Affiliates of such Partner) from any effects (including any taxes, interest, penalties, charges or other additions) arising from any such redistributions, reapportionment or reallocation. If, as a result of any such redistribution, reapportionment or reallocation, the Capital Accounts of the Partners are not in the same proportion to each other as immediately prior to such redistribution, reapportionment or reallocation, the Capital Accounts will be adjusted to achieve such relative proportions using the mechanism specified in Section 9.05 hereof. ARTICLE IX DISTRIBUTIONS 9.01. Operating Distributions. The Partnership's cash available for distribution will, at such times as the Board of Governors deem advisable, be distributed among the Partners in such amounts as the Governors will unanimously determine. Except as otherwise expressly provided in this Agreement, such operating distributions will be allocated among the Partners as follows: (a) all operating distributions derived from the operation of OR1 will be paid to the AT&T Partner, and (b) all operating distributions derived from the operation of OR2 will be allocated among the Partners pro rata in proportion to their Percentage Interests. 9.02. Distribution on Dissolution and Liquidation. In the event of the dissolution and liquidation of the Partnership for any reason other than pursuant to Article V hereof or pursuant to the terms of the Joint Venture Agreement with respect to the transfer of the interest of a Partner in the Partnership to another Partner, after the payment of or provision for creditors pursuant to applicable law, the Partnership's assets will be distributed among the Partners in the following manner: (a) First, all assets related to OR1 shall be distributed to the AT&T Partner; and (b) Second, all remaining assets will be distributed to the Partners pro rata in accordance with their positive Capital Account balances in accordance with Regulation Section 1.704-1(b)(2)(ii)(b)(2) (after taking into account the distribution to the AT&T Partner of the assets related to OR1). To the extent consistent with the foregoing provisions of this Section 9.02, the Partnership's non-monetary assets will be distributed to the Partner which contributed such asset to the Partnership (or to the successor of such contributing Partner). In the event of the dissolution and liquidation of the Partnership pursuant to Article V hereof or pursuant to the terms of the Joint Venture Agreement with respect to the transfer of the interest of a Partner in the Partnership to another Partner, after the payment of or provision for creditors pursuant to applicable law, the Partnership's assets will be distributed to the Partner or the third party purchasing the interest of the Selling Partner. 9.03. Deemed Sale of Assets. For all purposes of this Agreement, any property (other than cash) that is distributed or to be distributed in kind to one or more Partners for a Fiscal Year, including without limitation all non-cash assets which will be deemed distributed immediately prior to the dissolution and winding up of the Partnership so as to permit the unrealized gain or loss inherent in such assets to be allocated to the Partners, or that is constructively distributed on termination of the Partnership pursuant to Section 708(b)(1)(B) of the Code and Section 9.04 hereof, will be deemed to have been sold for cash equal to its fair market value, and the unrealized gain or loss inherent in such assets will be treated as recognized gain or loss for purposes of determining the Profits and Loss of the Partnership to be allocated pursuant to Section 8.01 hereof for such Fiscal Year. 9.04. Deemed Termination. Any constructive termination of the Partnership pursuant to Section 708(b)(1)(B) of the Code will be deemed to be a winding up and termination of the Partnership pursuant to which: (a) all assets of the Partnership are deemed to have been sold as provided in Section 9.03 hereof, with the unrealized gain or loss inherent in such assets being allocated pursuant to Section 8.01 hereof, (b) the proceeds of the deemed sales being deemed distributed pursuant to Section 9.02 hereof, and (c) such assets being then deemed to have been recontributed to a new Partnership, and the Capital Accounts of the Partners will be adjusted appropriately to reflect such deemed termination, sale, distribution, and reconstitution. This Section 9.04 applies solely for purposes of adjusting Capital Accounts. 9.05. Distribution In the Event of a Reallocation. In the event of a reallocation of income from a Partner (or an Affiliate of a Partner) to the Partnership which is specially allocated to the affected Partner under Section 8.07 of this Agreement, the Partnership will (at the expense of the affected Partner) seek approval from the IRS to establish an appropriate account receivable from the affected Partner (or the Affiliate) under the principles of Rev. Proc. 65-17. Any payment of an account receivable established under the principles of Rev. Proc. 65-17 will, when received by the Partnership, be distributed to the affected Partner. In the event that no such account receivable is established, the Partnership will be deemed to have distributed an amount to the affected Partner equal to the income which was specially allocated to that Partner under Section 8.07 hereof. ARTICLE X ACCOUNTING AND RECORDS 10.01. Records and Accounting. The books and records of the Partnership will be kept on the accrual basis, will reflect all Partnership transactions and will be appropriate and adequate for the Partnership's business. The books and records of the Partnership will include separate accounts for the operations of, and activities associated with, OR1 and OR2. To the extent appropriate, all items of Profits and Losses will be allocated to either OR1 or OR2. All items of Profits and Losses which are shared or are not directly related to either OR1 or OR2 will be allocated between OR1 and OR2 in a reasonable and consistent manner. The fiscal year of the Partnership for financial reporting and for Federal income tax purposes will be the Fiscal Year. 10.02. Access to Accounting Records. All books and records of the Partnership will be maintained at any office of the Partnership or at the Partnership's principal place of business, and each Partner, and its duly authorized representatives, will have access to them at such office of the Partnership and the right to inspect and copy them at reasonable times. 10.03. Taxation. (a) Characterization. The Partners intend that the Partnership will be treated as a partnership for Federal, state, local and foreign income and franchise tax purposes and will take all reasonable action, including the amendment of this Agreement and the execution of other documents, as may be reasonably required to qualify for and receive treatment as a partnership for Federal income tax purposes. (b) Tax Matters Partner. The AT&T Partner will be the Tax Matters Partner of the Partnership within the meaning of Section 6231(a)(7) of the Code and will act in any similar capacity under applicable state, local or foreign law (in such capacity, the "Tax Matters Partner"). All reasonable expenses incurred by the AT&T Partner while acting in such capacity will be paid or reimbursed by the Partnership upon approval of the chief financial officer of the Partnership; provided, however, that with respect to any matter described in Section 8.07 hereof, the Partner to which is reallocated any item described in Section 8.07 hereof (whether or not such reallocation is adjusted, canceled or revoked by the IRS) will (i) pay or reimburse all expenses incurred by the AT&T Partner while acting in its capacity as the Tax Matters Partner in connection with such matter and (ii) pay or reimburse all out of pocket costs incurred by the Partnership in connection with such matter. (c) Tax Returns. (1) The Tax Matters Partner will prepare or cause the Accountants to prepare and file on a timely basis the Federal tax returns of the Partnership. The Tax Matters Partner will cause state, local and any other tax returns required to be filed by the Partnership to be prepared and filed on a timely basis. The Tax Matters Partner will consult with the Cirrus Partner regarding all non-ministerial decisions described in Section 9.05(c)(2)(iii) hereof. Any disagreement with respect to such consultation will be resolved in the manner described in Section 9.05(c)(3) hereof. No Partner will file any tax return that is inconsistent with the tax returns filed by the Partnership except as provided in Section 9.05(c)(3) hereof. (2) The Tax Matters Partner will take such action as may be reasonably necessary to constitute the Cirrus Partner as a "notice partner" within the meaning of Section 6231(a)(8) of the Code. The Tax Matters Partner will furnish to each Partner within five days (or within such shorter period as may be required by the appropriate statutory or regulatory provisions) (i) copies of all notices or other written communications received by the Tax Matters Partner form the IRS, (ii) written notice of all material communications the IRS has had with the tax Matters Partner and (iii) written notice of all non-ministerial decisions to be made regarding tax elections, tax returns, tax audits, tax litigation, tax settlements and other tax matters that may come to the attention of the Tax Matters Partner in its capacity as Tax Matters Partner. (3) The Tax Matters Partner will deliver to each other Partner a copy of all written materials (including tax returns) proposed to be filed with or submitted to the IRS or any other taxing authority at least thirty (30) days prior to the date such filing or submission is required to be made. If the Cirrus Partner does not notify the Tax Matters Partner of its objection to such filing or submission in writing before the fifteenth (15th) day before the date for such filing or submission, the Cirrus Partner will be considered to have approved such filing or submission. If the Cirrus Partner provides such timely notice of objection, the Cirrus Partner and the Tax Matters Partner will negotiate in good faith to reach agreement with respect to such filing or submission. If the Cirrus Partner and the Tax Matters Partner are unable to reach such an agreement within 30 days, the Cirrus Partner and the Tax Matters Partner will appoint a "Big Six" accounting firm (except any "Big Six" accounting firm that is an accountant of any of the AT&T Partner, the Cirrus Partner or the Partnership or any of their respective Affiliates) to determine the position that should be taken by the Partnership. Each Partner will retain the right to take a position inconsistent with such determination to the extent allowed under Section 6222 of the Code or comparable provisions of state or local law. (d) Tax Elections. The Governors will make the following elections on behalf of the Partnership: (i) to elect the calendar year as the Fiscal Year of the Partnership if permitted by applicable law; (ii) to elect a specified method of accounting; (iii) if requested by a Partner, to elect, in accordance with Sections 734, 743 and 754 of the Code and applicable regulations and comparable state law provisions, to adjust basis in the event any Partner's interest is transferred in accordance with this Agreement or any of the Partnership's property is distributed to any Partner; (iv) to elect to treat all organization and start-up costs of the Partnership as deferred expenses amortizable over 60 months under Sections 195 and 709 of the Code; and (v) To elect with respect to such other Federal, state and local tax matters as the Governors will agree upon from time to time. (e) Annual Tax Information. The Governors will cause the Partnership to deliver to each Partner all information necessary for the preparation of such Partner's Federal and state income tax returns. ARTICLE XI TERM; TERMINATION 11.01. Term; Termination. The term of the Partnership will begin on the date of this Agreement and will continue until the day immediately prior that same date ten years following the date of this Agreement (the "Initial Term"), unless terminated prior thereto: (a) in accordance with the provisions hereof; (b) by unanimous agreement of the Partners; (c) by the material breach of the Joint Venture Agreement or any of the Material Agreements which breach remains uncured in accordance with the terms of the Joint Venture Agreement or the Material Agreements, as the case may be; or (d) pursuant to the GPL. Notwithstanding the foregoing, the Partners may elect on or before two (2) years prior to the expiration of the Initial Term or any Extended Term (as hereinafter defined) to extend such term for an additional two (2) year period (each such two (2) year period being referred to herein as an "Extended Term"). If the Partners do not elect to extend the Initial Term as set forth in this Article XI, the provisions of Section 5.03 hereof will apply. ARTICLE XII DISSOLUTION OF THE PARTNERSHIP AND TERMINATION OF A PARTNER'S INTEREST 12.01. Dissolution. The Partnership will be dissolved upon the occurrence of any event which would cause or result in a dissolution of the Partnership under the GPL or otherwise, unless the Business is continued in accordance with the terms of the Joint Venture Agreement. ARTICLE XIII INDEMNIFICATION 13.01. Indemnity. Subject to the provisions of Section 13.04 hereof, the Partnership will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the Partnership, by reason of the fact that he or she or it is or was a Partner, Governor, director, officer, employee or agent of the Partnership, or is or was serving at the request of the Partnership as a Partner, Governor, director, officer, employee or agent of another limited liability company, corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him or it in connection with the defense or settlement of the action, suit or proceeding if he or she or it acted in good faith and in a manner which he or she or it reasonably believed to be in or not opposed to the best interests of the Partnership, and, with respect to a criminal action or proceeding, had no reasonable cause to believe his or her or its conduct was unlawful. 13.02. Indemnity for Actions By or In the Right of the Partnership. Subject to the provisions of Section 13.04 hereof, the Partnership will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the rights of the Partnership to procure a judgment in his or her or its favor by reason of the fact that he or she or it is or was a Partner, Governor, director, officer, employee or agent of the Partnership, or is or was serving at the request of the Partnership as a Partner, Governor, director, officer, employee or agent of another limited-liability Partnership, corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him or it in connection with the defense or settlement of the action, suit or proceeding if he or she or it acted in good faith and in a manner which he or she or it reasonably believed to be in or not opposed to the best interests of the Partnership. Indemnification may not be made for any claim, issue or matter as to which such person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the Partnership or for amounts paid in settlement to the Partnership, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnify for such expenses as the court deems proper. 13.03. Indemnity If Successful. The Partnership will indemnify a Partner, Governor, director, officer, employee or agent of the Partnership against expenses, including attorneys' fees, actually and reasonably incurred by him or it in connection with the defense of any action, suit or proceeding referred to in Sections 13.01 and 13.02 or in defense of any claim, issue or matter therein, to the extent that such person or entity has been successful on the merits. 13.04. Expenses. (a) Any indemnification under Sections 13.01 and 13.02, as well as the advance payment of expenses permitted under Section 13.05 unless ordered by a court or advanced pursuant to Section 13.05 below, must be made by the Partnership only as authorized in the specific case upon a determination that indemnification of the Partner, Governor, director, officer, employee or agent is proper in the circumstances. The determination must be made: (b) by the Partners by a majority of a quorum consisting of Partners who were not parties to the act, suit or proceeding; (c) if a majority of those Partners who were not parties to the act, suit or proceeding so order, by independent legal counsel in a written opinion; or (d) if a quorum consisting of Partners who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. 13.05. Advance Payment of Expenses. The expenses of Partners, Governors, officers, employees and agents incurred in defending a civil or criminal action, suit or proceeding may be paid by the Partnership as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the Partner, Governor, director, officer, employee or agent to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she or it is not entitled to be indemnified by the Partnership. The provisions of this subsection do not affect any rights to advancement of expenses to which personnel other than Partners, Governors, officers, employees or agents may be entitled under any contract or otherwise by law. 13.06. Other Arrangements Not Excluded. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this Article XIII: (a) does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the Certificate of Formation or any agreement, vote of the Partners or otherwise, for either an action in his or her or its official capacity or an action in another capacity while holding his or her or its office, except that indemnification, unless ordered by a court pursuant to Section 13.05 hereof, may not be made to or on behalf of any Partner or Governor if a final adjudication established that his or her or its acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action; and (b) continues for a person who has ceased to be a Partner, Governor, director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person, notwithstanding any amendment or subsequent modification of this Article XIII. ARTICLE XIV MISCELLANEOUS PROVISIONS 14.01. Complete Agreement. This Agreement, the Joint Venture Agreement and the Material Agreements constitute the complete and exclusive statement of the agreement among the Partners with respect to the subject matter contained herein and therein. This Agreement, the Joint Venture Agreement and the Material Agreements replace and supersede all prior agreements by and among the Partners with respect to the subject matter contained herein and therein. 14.02. Amendments. This Agreement may be amended only in writing by the Partners at a meeting or by written consent. 14.03. Applicable Law. The Certificate of Formation and this Agreement, and its application, will be governed exclusively by its terms and will be construed in accordance with the laws of the State of New York, without regard to its conflicts of laws principles. 14.04. Headings. The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provisions contained herein. 14.05. Severability. If any provision of this Agreement or the application thereof to any person or circumstance will be deemed invalid, illegal or unenforceable to any extent, the remainder of this Agreement and the application thereof will not be affected and will be enforceable to the fullest extent permitted by law. 14.06. Successors and Assigns. Each and all of the covenants, terms, provisions and agreements contained in this Agreement will be binding upon and inure to the benefit of the existing Partners, all new and substituted Partners, and their respective assignees, legal representatives, successors and assigns. 14.07. Assignment. Except to the extent permitted under Article V hereof, the rights and obligations under this Agreement may not be assigned by any party to any person; provided, however, the AT&T Partner may assign this Agreement and its rights and obligations hereunder in connection with any transaction effecting the Restructuring and any such assignment will release the AT&T Partner of its obligations and liabilities under this Agreement. Any other attempted assignment in contravention of this provision will be void. IN WITNESS WHEREOF, this Agreement has been duly executed by or on behalf of each of the parties hereto as of the date first above written. ATOR CORP. By: Name: Title: CIROR, INC. By: Name: Title: SCHEDULE A Schedule of Initial Capital Contributions PARTNER'S NAME INITIAL CAPITAL CONTRIBUTION PERCENTAGE INTEREST [*] [*] SCHEDULE B Initial Governors EX-10.26 4 JOINT VENTURE FORMATION AGREEMENT DATED AS OF OCTOBER 23, 1995 BETWEEN THE COMPANY AND AT&T. [ARTICLE] 5 [MULTIPLIER] 1 CONFIDENTIAL TREATMENT REQUESTED [*] Denotes information for which confidential treatment has been requested. Confidential portions omitted have been filed separately with the Commission. JOINT VENTURE FORMATION AGREEMENT (this "Agreement"), dated as of October 23, 1995, by and among AT&T Corp., a New York Corporation ("AT&T"), ATOR Corp., a New York corporation (the "AT&T Partner"), Cirrus Logic, Inc., a California corporation ("Cirrus"), and Ciror, Inc., a California corporation (the "Cirrus Partner"). WHEREAS, the parties hereto desire to enter into a cooperative arrangement with respect to the expansion and operation of certain wafer fabrication facilities for the purpose of processing silicon wafers; and WHEREAS, the parties hereto consider it mutually beneficial to establish a general partnership (the "Partnership") and the AT&T Partner and the Cirrus Partner are entering into the GP Agreement (as defined in Section 1.01 hereof) concurrently herewith. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree, subject to the conditions contained herein, as follows: ARTICLE I DEFINITIONS 1.01. Definitions. For the purpose hereof, the following terms will have the following meanings: "AAA" will have the meaning set forth in Section 13.02 hereof. "Affiliate" means any Person, directly or indirectly controlled by, controlling or under common control with (as hereinafter defined) another Person (as hereinafter defined); "controlled by, controlling or under common control with" means the power to direct the management and policies of a Person, whether through the ownership of voting securities, by agreement or otherwise. "Annual Plan" means the initial annual plan of the Partnership substantially in the form attached hereto as Appendix I, and as amended in accordance with Article VI of the GP Agreement (as hereinafter defined). "AT&T" will have the meaning set forth in the preamble hereto. "AT&T Assets" means the capital equipment and other assets which the AT&T Partner will cause to be leased, transferred, sold or otherwise delivered to the Partnership. "AT&T Employee Services and Staffing Agreement" means the AT&T Employee Services and Staffing Agreement between the AT&T Partner and the Partnership substantially in the form attached hereto as Exhibit A. "AT&T Financial Statements" will have the meaning set forth in Section 8.04 hereof. "AT&T Group" will have the meaning set forth in Section 11.01 hereof. "AT&T Partner" will have the meaning set forth in the preamble hereto. "AT&T Employee" means the Loaned Employees (as defined in the AT&T Employee Services and Staffing Agreement) and the Production Employees (as defined in the AT&T Employee Services and Staffing Agreement). "Authorized Representative" will have the meaning set forth in Section 4.01 hereof. "Board of Governors" means the Board of Governors of the Partnership as set forth in the GP Agreement. "Bonus Plan" will have the meaning set forth in Section 4.06 hereof. "Business" means the business of the Partnership in the operation of certain wafer fabrication facilities in accordance with the terms of the Annual Plan, for the purpose of processing silicon wafers and such other activities as may be desirable and proper in the furtherance thereof. "Buy-Out Options" will have the meaning set forth in Section 10.03 hereof. "Cirrus" will have the meaning set forth in the preamble hereto. "Cirrus Assets" means the capital equipment and other assets which the Cirrus Partner will cause to be leased, delivered, sold or otherwise transferred to the Partnership. "Cirrus Employee Services and Staffing Agreement" means the Cirrus Employee Services and Staffing Agreement which may be entered into between the Cirrus Partner and the Partnership upon substantially similar terms and conditions as the AT&T Employee Services and Staffing Agreement. "Cirrus Financial Statements" will have the meaning set forth in Section 9.04 hereof. "Cirrus Group" will have the meaning set forth in Section 11.01 hereof. "Cirrus Partner" will have the meaning set forth in the preamble hereto. "Cirrus Employee" means an employee of Cirrus or an Affiliate of Cirrus loaned to the Partnership pursuant to the Cirrus Employee Services and Staffing Agreement. "Claim" or "Claims" will have the meaning set forth in Section 11.01 hereof. "Closing" means the closing of the transactions contemplated hereby and referred to in Section 7.01 hereof. "Closing Date" will have the meaning set forth in Section 7.01 hereof. "Committee" will have the meaning set forth in Section 4.01 hereof. "Confidential Information" will have the meaning set forth in Section 6.01 hereof. "Deadlock" will have the meaning set forth in Section 13.01 hereof. "Dispute" will have the meaning set forth in Section 13.01 hereof. "Environmental Consultants" will have the meaning set forth in Section 4.09 hereof. "Environmental Report" will have the meaning set forth in Section 4.09 hereof. "Environmental Policy" will have the meaning set forth in the Lease. "First Representatives" will have the meaning set forth in Section 13.02. "GAAP" means generally accepted accounting principles consistently applied. "GP Agreement" means the General Partnership Agreement between the AT&T Partner and the Cirrus Partner substantially in the form attached hereto as Exhibit B. "Hazardous Materials" will have the meaning set forth in the Lease (as hereinafter defined). "Hazardous Materials Laws" will have the meaning set forth in the Lease. "Implementation Plan" will have the meaning set forth in Section 4.01 hereof. "Independent Accountant" means the firm of independent certified public accountants retained by AT&T from time to time which will act as auditor for the Partnership as provided in Section 12.01. "Intellectual Property" will have the meaning set forth in Section 4.03 hereof. "LCCP Rules" will have the meaning set forth in Section 13.03. "Land" will have the meaning set forth in the Lease. "Landlord" will have the meaning set forth in the Lease. "Lease" means the Lease between AT&T and the Partnership substantially in the form attached hereto as Exhibit C. "Employees" means the AT&T Employees and the Cirrus Employees. "Material Agreements" means the following related agreements: (i) the GP Agreement; (ii) the AT&T Employee Services and Staffing Agreement; (iii) if entered into, the Cirrus Employee Services and Staffing Agreement; (iv) the Lease; (v) the Patent License Agreement (as hereinafter defined); (vi) the Technical Transfer Agreement (as hereinafter defined); and (vii) the Wafer Supply Agreement (as hereinafter defined). "OR1" will have the meaning set forth in Section 4.01 hereof. "OR2" will have the meaning set forth in Section 4.01 hereof. "Owner" will have the meaning set forth in Section 6.01 hereof. "Partnership" will have the meaning set forth in the preamble hereto. "Patent License Agreement" means the Patent License Agreement between the AT&T Partner and the Partnership which will be consistent with the terms of the Term Sheet set forth at Exhibit D hereto. "Person" means any individual, partnership, association, joint stock company, joint venture, corporation, trust, unincorporated organization or government, or agency or political subdivision thereof. "Pre-Existing Contamination" will mean all past or present actions, activities, circumstances, conditions, events or incidents in, at, on or under the Land or the Premises, including, without limitation, the release, emission, discharge or disposal of any Hazardous Materials, in each such case as specifically identified in the Environmental Report. "Preliminary Implementation Plan" will have the meaning set forth in Section 2.01 hereof. "Premises" will have the meaning set forth in the Lease. "Recipient" will have the meaning set forth in Section 6.01 hereof. "Restructuring" will mean the strategic restructuring of AT&T announced September 20, 1995. "Second Representatives" will have the meaning set forth in Section 13.02. "Structural Components" will have the meaning set forth in the Lease. "[*]" will have the meaning set forth in Section 10.03 hereof. "Technical Transfer Agreement" means the Technical Transfer Agreement between the AT&T Partner and the Partnership substantially in the form attached hereto as Exhibit E. "Wafer Supply Agreement" means the Wafer Supply Agreement by and among the AT&T Partner, the Cirrus Partner and the Partnership substantially in the form attached hereto as Exhibit F. ARTICLE II FORMATION OF THE JOINT VENTURE 2.01. Formation of the Partnership. Following the execution and delivery of this Agreement and in no event less than sixty (60) days prior to the Closing Date, the AT&T Partner and the Cirrus Partner will cause the formation of the Partnership as a general partnership under the laws of the State of New York in accordance with the terms of the written plan set forth as Appendix II hereto (the "Preliminary Implementation Plan") for the orderly start-up of the Partnership's business and pursuant to this Agreement and the GP Agreement. 2.02. Expenses. Each of the parties hereto will bear the fees and expenses of its respective counsel, accountants and experts and all other costs and expenses incurred by it incident to the negotiation, preparation, execution and delivery of this Agreement and the Material Agreements; provided, however, expenses relating to the formation of the Partnership, including but not limited to taxes, fees, registration charges, notarial expenses, fees and expenses relating to required governmental or regulatory approvals for the formation of the Partnership will be paid by the Partnership. ARTICLE III SCOPE AND OBJECTIVES; ANNUAL PLAN 3.01. Purpose. (a) The purpose of the Partnership will be to operate the Business. (b) The parties hereto expressly acknowledge that the Partnership is being formed solely for the limited purpose set forth in Section 3.01(a) above and agree that none of the parties hereto has any obligation to the others or to the Partnership to bring business opportunities to the Partnership or to any of the other parties hereto and are each free to take advantage of such opportunities on their own or with third parties; provided, however, that none of the parties hereto will take any action or fail to take any action which would reasonably cause a material adverse effect to the Business or the Partnership. The parties hereto further recognize that each of them is incurring a portion of the risk of, and expects to realize a portion of the return from, the Partnership through this Agreement and one or more of the Material Agreements, and the parties hereto expressly acknowledge and agree that this Agreement and the Material Agreements are fair and reasonable to the Partnership and to each of the parties hereto in light of the totality of the facts and circumstances. 3.02. Annual Plan. (a) The Annual Plan sets forth the objectives of the Partnership for the period beginning on [*] and ending on [*]. The Board of Governors will review and update the Annual Plan [*]. On or before [ * ] of each fiscal year of the Partnership commencing [ * ], the Board of Governors will, in accordance with the terms of Article VI of the GP Agreement, ratify or amend the information set forth in the Annual Plan for the [*] and include in the amended Annual Plan information and objectives for the fiscal year next succeeding the last year then covered by the Annual Plan. In the event that the Board of Governors are unable to agree on such amendment in accordance with the terms of Article VI of the GP Agreement, the information and objectives for the fiscal year next succeeding the last year then covered by the Annual Plan will be those of the last year then covered by the Annual Plan. (b) Each of the AT&T Partner and the Cirrus Partner acknowledges that the Annual Plan will represent as of the Closing Date their collective best views as to the matters described therein. Each of the AT&T Partner and the Cirrus Partner agrees, and agrees to cause its Affiliates, to cooperate with any of the other parties hereto (and their Affiliates) and with the Partnership and to use its reasonable best efforts to promote the success of the Partnership in attaining the objectives set forth in the Annual Plan. The parties hereto covenant and agree not to take any action or fail to take any action which would reasonably cause a material adverse effect to the Business or the Partnership. 3.03. Concurrence. Each of the parties hereto agrees that it will vote and otherwise act and in all respects use its best efforts and take all such steps as may be within its power so as to comply, to cause its Affiliates to comply, and to cause the Partnership to comply with and act in a manner in order to fully effect the transactions contemplated hereby. ARTICLE IV OPERATION OF THE BUSINESS 4.01. Implementation Committee. As of the date hereof, each of AT&T and Cirrus have designated [*] individuals to represent them as members of an Implementation Committee (the "Committee"), the purpose of which will be to finalize a mutually acceptable written plan (the "Implementation Plan") for the orderly start-up of the Partnership's business, which will be based substantially upon the Preliminary Implementation Plan. Each of the AT&T Partner and the Cirrus Partner will designate a representative (an "Authorized Representative"), who will (i) be acceptable to the other parties hereto, (ii) not be a member of the Committee, (iii) be responsible for causing the transactions contemplated by the Implementation Plan to be effected on behalf of AT&T or Cirrus, as the case may be, and (iv) have been delegated authority to enter into binding commitments on its behalf with respect to matters covered by the Implementation Plan. Each party hereto agrees to cooperate and to cause its Affiliates to cooperate with the Committee in support of its effort to develop the Implementation Plan in a manner which is consistent with positioning the Partnership to attain the objectives of the Annual Plan. The Implementation Plan will be based substantially on the Preliminary Implementation Plan and will include: (a) a timetable for AT&T's construction of the infrastructure and clean room required to house and support an [*] silicon wafer fabrication facility ("OR2") with capacity of approximately [*] wafer starts per month at an approximate cost of $[*], specifying the respective rights of the AT&T Partner and the Cirrus Partner to inspect, modify (or cause to be modified) and approve such construction; (b) details of the capital equipment and other assets located at AT&T's current facility at Orlando ("OR1") which the AT&T Partner will cause to be provided to the Partnership; (c) (i) a detailed summary of the financing plan for the AT&T Assets, (ii) a detailed summary of the financing plan for the Cirrus Assets and (iii) details of the provision to the Partnership of approximately $[*] of AT&T Assets and approximately $[*] of Cirrus Assets; and (d) details of the technology, technology development and other intellectual property which the AT&T Partner will cause to be transferred or licensed, as the case may be, to the Partnership pursuant to the Technical Transfer Agreement and the Patent License Agreement. The Preliminary Implementation Plan will be effective from the date hereof to and including the date of execution and delivery of the Implementation Plan. The Implementation Plan will be effective from the date of the execution and delivery thereof to and including the Closing Date. Not later than [*] days after the execution and delivery of this Agreement, the AT&T Partner and the Cirrus Partner will execute the Implementation Plan. No member of the Implementation Committee will have the authority or power to bind any party hereto unless separately agreed to in writing by the Authorized Representative of such party. The members of the Implementation Committee (as provided in the immediately preceding sentence) and the Authorized Representatives will have authority to act on behalf of AT&T or Cirrus, as the case may be, until the later of (a) formation of the Partnership and election of the Board of Governors or (b) the Closing Date. 4.02. Financing of Capital Equipment; Delivery of Capital Equipment. [ * ] Each of the AT&T Partner and the Cirrus Partner covenant and agree (a) to cause the AT&T Assets and the Cirrus Assets, respectively, to be leased, delivered, sold or otherwise transferred to the Partnership in accordance with the terms of the Implementation Plan and (b) to cooperate with each other and their respective Affiliates, and to cause their respective advisors to cooperate with each other, in structuring such lease, delivery, sale or other transfer to minimize any adverse accounting and tax implications on any of AT&T, Cirrus, and their respective Affiliates which might arise as a result of such lease, delivery, sale or other transfer. 4.03. Intellectual Property. The AT&T Partner will cause AT&T to license or transfer, as the case may be, certain technology, technology development and other intellectual property (the "Intellectual Property") to the Partnership pursuant to, and for the consideration specified in, the Technical Transfer Agreement and the Patent License Agreement. [*]. 4.04. Operation of Plant and Business. On and after the Closing Date, the Partnership will conduct the Business in accordance with this Section 4.04. (a) Location. The Partnership will be located in Orlando, Florida. On the Closing Date, the AT&T Partner will cause AT&T to, and the Partnership will, execute and deliver the Lease. (b) Operation. (i) The Partnership will operate OR1 solely for the benefit and for the account of the AT&T Partner. The AT&T Partner will purchase the output of OR1 upon the terms and subject to the conditions of the Wafer Supply Agreement. The parties hereto acknowledge and agree that in no event will the operation of OR1 be conducted in such a manner as to directly result in a material adverse effect to the capacity, cost structure or performance of OR2. (ii) The Partnership will operate OR2 for the mutual benefit of the AT&T Partner and the Cirrus Partner. The AT&T Partner and the Cirrus Partner will purchase the output of OR2 upon the terms and subject to the conditions of the Wafer Supply Agreement. (iii) Operation of the Partnership will be in accordance with the terms of the Annual Plan. The Partnership will cause OR1 and OR2 to process wafers at the direction of the AT&T Partner and the Cirrus Partner with respect to their respective share of OR1 and OR2 capacity, consistent with the Annual Plan and pursuant to the terms of the Wafer Supply Agreement, as long as such operations do not adversely affect the capacity, cost structure or performance of the manufacturing capabilities of OR2. (c) Costs. (i) OR1. [*] costs, charges, capital equipment and working capital directly and indirectly associated with OR1 will be paid by [*] pursuant to the cost allocations appearing in the Annual Plan. Unless otherwise agreed to by the parties hereto,[*] costs, charges, capital equipment and working capital directly associated with a periodic wind-down or one-time shutdown of OR1 will be paid by [*]. (ii) (a) OR2 - Working Capital. The working capital required with respect to OR2 will be provided [*] by [*]. (b) OR2 - Technology. [*] costs with respect to the development of technology in accordance with the "technology roadmap" specified in the Annual Plan will be paid by [*]; provided, however, that the cost of any variant to such technology will be paid by [*]. All such wafers required for the development or variation of technology will be provided from the portion of OR2 output to which [*] is entitled under the Wafer Supply Agreement. (d) Profits. All profits and excess cash flow attributable to OR1 will be distributed to the AT&T Partner in accordance with the terms of the GP Agreement. All profits and excess cash flow attributable to OR2 will be distributed to the AT&T Partner and the Cirrus Partner in accordance with the terms of the GP Agreement. (e) Borrowings. The Partnership may enter into such credit facilities as are specified in the Annual Plan. 4.05. Procurement of Administrative and Support Services. The AT&T Partner and the Cirrus Partner acknowledge and agree that either of the AT&T Partner or the Cirrus Partner may provide such administrative or support services as the Partnership may reasonably request, in which event such services will be provided at such costs as the AT&T Partner and the Cirrus Partner may mutually agree. 4.06. Personnel. (a) The initial organization chart of the Partnership and the headcount forecast, by category of employee and position title, are set forth in the Annual Plan. AT&T will make available to the Partnership, upon the terms and subject to the conditions set forth in the AT&T Employee Services and Staffing Agreement, the AT&T Employees. Cirrus may make available to the Partnership, upon the terms and subject to the conditions set forth in the Cirrus Employee Services and Staffing Agreement, the Cirrus Employees. The parties hereto covenant and agree that the Employees will be qualified to perform services in all of the positions shown in the headcount forecast of the Partnership and any other positions which the Board of Governors will, from time to time, designate to be held by Employees. (b) AT&T will review with Cirrus, and obtain Cirrus' prior consent (such consent not to be unreasonably withheld) to, personnel changes, reassignments or relocation of the persons occupying the [*] positions which will be identified by Cirrus at or prior to the Closing in accordance with the principles set forth at Appendix III hereto. Other than with respect to the persons referenced in the immediately preceding sentence, AT&T agrees to limit reassignment or relocation of the AT&T Employees in accordance with the principles set forth at Appendix III hereto. (c) The Employees will be compensated as provided in the AT&T Employee Services and Staffing Agreement and the Cirrus Employee Services and Staffing Agreement, as the case may be. (d) The Partnership will adopt and implement a bonus plan (the "Bonus Plan"), the material terms of which are set forth at Appendix IV hereto. The Bonus Plan may be amended or modified in accordance with the terms of Article VI of the GP Agreement. The Bonus Plan has the goal of encouraging Employees to cause the manufacture of products by the Partnership at a cost and defect rate and in a time frame in each case better than that specified in the Annual Plan. The Bonus Plan will specify that bonuses are to be calculated based upon the complete fiscal year operation of the Partnership. [*] As more specifically set forth in the Bonus Plan, in order to be entitled to such bonuses, Employees (i) must have been assigned by AT&T or Cirrus, as the case may be, to the Partnership, for the minimum time period set forth in the Bonus Plan and (ii) must be engaged by the Partnership on the date such bonuses are paid. (e) Neither party hereto will, during the employment of a Employee and during the [*] period following termination of any such Employee, directly or indirectly, hire or attempt to recruit or hire, as an employee, consultant, agent or representative, such Employee if such Employee was a Employee of the other party hereto. Notwithstanding the foregoing, an attempt to recruit or hire by either party hereto will not include advertisements, general employment searches and internal job posting systems which are not specifically directed to the Employees of the other party hereto. 4.07. Culture. The parties hereto agree to use their reasonable best efforts to cause the creation of an "entrepreneurial culture" within the Partnership. 4.08. Financing. From the date hereof to the Closing Date, each of AT&T and Cirrus will use its reasonable best efforts to secure such funds or financing as may be necessary to effect the transactions contemplated hereby. Each of AT&T or the AT&T Partner, on the one hand, and Cirrus or the Cirrus Partner, on the other hand, will pay such interest carrying costs as may accrue with respect to the AT&T Assets or the Cirrus Assets, respectively. No later than [ * ] prior to the Closing, each of AT&T and Cirrus will have delivered evidence to each other of the availability of funds or financing as may be necessary to effect the transactions contemplated by the Implementation Plan to occur at or prior to the Closing Date. 4.09. Environmental Matters. As soon as reasonably practicable following the execution and delivery of this Agreement, AT&T and Cirrus will select a mutually acceptable nationally recognized environmental consulting firm (the "Environmental Consultants") to conduct a "Phase II" survey of the Land and the Premises and to draft and deliver a report with respect thereto (the "Environmental Report"). The Environmental Report will be delivered no later than January 1, 1996 or as soon as practicable thereafter to allow for the results of any required research or laboratory testing. AT&T covenants and agrees to remediate or otherwise correct, in accordance with the recommendations of the Environmental Consultants, and in compliance with Hazardous Materials Laws, all Pre-Existing Contamination that constitutes a violation of Hazardous Materials Laws. Notwithstanding the foregoing, AT&T covenants and agrees to comply with all recommendations of the Environmental Consultants to the extent that such recommendations comply with Hazardous Materials Laws. 4.10. Employee Matters. (a) (i) If the presence of Hazardous Materials in, on, under or about the Premises is (x) willfully caused by a natural person employed or retained by AT&T or any Affiliate of AT&T (other than the Partnership and other than the Landlord; provided, however, that this exclusion will not release AT&T from any liability under this Section 4.10(a) (I) as an entity acting other than as the Landlord) or any Agent of AT&T and such natural person is not acting on the instruction of any natural person employed or retained by Cirrus or (y) is caused by the instruction of any natural person employed or retained by AT&T or any Affiliate of AT&T (other than the Partnership and other than the Landlord; provided, however, that this exclusion will not release AT&T from any liability under this Section 4.10(a) (I) as an entity acting other than as the Landlord) or any Agent of AT&T, regardless of whether such instruction is followed by any natural person employed or retained by AT&T or any natural person employed or retained by Cirrus, and such presence of Hazardous Materials results in contamination or deterioration of air, water or soil resulting in a level of contamination or deterioration greater than the levels established as acceptable by any governmental agency having jurisdiction over such contamination or deterioration, then AT&T will promptly take any and all action necessary to investigate and remediate such contamination or deterioration if required by Hazardous Materials Laws or as a condition to the issuance or continuing effectiveness of any governmental approval which relates to the use of the Premises or any part thereof. (ii) If the presence of Hazardous Materials in, on, under or about the Premises is (x) willfully caused by a natural person employed or retained by Cirrus or any Affiliate of Cirrus (other than the Partnership) or any Agent of Cirrus and such natural person is not acting on the instruction of any natural person employed or retained by AT&T or (y) is caused by the instruction of any natural person employed or retained by Cirrus or any Affiliate of Cirrus (other than the Partnership) or any Agent of Cirrus, regardless of whether such instruction is followed by any natural person employed or retained by AT&T or any natural person employed or retained by Cirrus, and such presence of Hazardous Materials results in contamination or deterioration of air, water or soil resulting in a level of contamination or deterioration greater than the levels established as acceptable by any governmental agency having jurisdiction over such contamination or deterioration, then Cirrus will promptly take any and all action necessary to investigate and remediate such contamination or deterioration if required by Hazardous Materials Laws or as a condition to the issuance or continuing effectiveness of any governmental approval which relates to the use of the Premises or any part thereof. (b) (i) AT&T will make or cause to be made all repairs to the Structural Components, and all repairs with respect to any other damage or destruction to the Premises, to the extent that any such repairs result from (i) the willful act or omission of any natural person employed or retained by AT&T without having been instructed to so act or omit to act by any natural person employed or retained by Cirrus or (ii) the issuance of any instruction by any natural person employed or retained by AT&T, regardless of whether such instruction is followed by any natural person employed or retained by AT&T or any natural person employed or retained by Cirrus. (ii) Cirrus will make or cause to be made all repairs to the Structural Components, and all repairs with respect to any other damage or destruction to the Premises, to the extent that any such repairs result from (i) the willful act or omission of any natural person employed or retained by Cirrus without having been instructed to so act or omit to act by any natural person employed or retained by AT&T or (ii) the issuance of any instruction by any natural person employed or retained by Cirrus, regardless of whether such instruction is followed by any natural person employed or retained by AT&T or any natural person employed or retained by Cirrus. (iii) Notwithstanding anything to the contrary contained in Article XI hereof, in the event of an insurable loss, neither of AT&T or Cirrus, as the case may be, will be liable for repairs in an amount greater than the Landlord's deductible under applicable insurance policies. ARTICLE V MANAGEMENT; RIGHTS AND OBLIGATIONS OF THE PARTIES 5.01. Management; Rights and Obligations of the Parties. The Partnership will be managed, and the AT&T Partner and the Cirrus Partner will have the rights and obligations, as set forth in the GP Agreement. The members of the Board of Governors will be elected in accordance with the terms of the GP Agreement. The officers of the Partnership will be appointed in accordance with the terms of the GP Agreement. ARTICLE VI CONFIDENTIALITY 6.01. Confidential Information Defined. "Confidential Information" means all marketing, technical or business information created by the Partnership or disclosed by a party hereto (the "Owner") to another party hereto(the "Recipient") which is confidential, proprietary and/or not generally available to the public. Information provided in tangible form will be clearly marked "Confidential Information". Any technical information, including but not limited to circuit layout, design, or software, embedded in any device will be deemed to be Confidential Information notwithstanding the absence of any marking on such device. Information provided orally will be considered Confidential Information if it is identified by the Owner as Confidential Information at the time of oral disclosure and the Owner summarizes such Confidential Information in a writing provided to the Recipient within 20 (twenty) days following such oral disclosure. 6.02. Treatment of Confidential Information. Unless otherwise contemplated by this Agreement or the Material Agreements, (a) Confidential Information provided by the Owner will remain the property of the Owner and (b) no rights by license or otherwise in any information will be granted solely by the disclosure of Confidential Information. During the term hereof, and for a period of three (3) years following the termination hereof, the Recipient will, and will cause its Affiliates to, keep confidential and will not disclose, and will cause its Affiliates not to disclose, to third parties the Confidential Information received from or made available by the Owner. The Recipient will not use and will cause its Affiliates not to use such Confidential Information for any purpose other than the performance of its obligations under this Agreement or any of the Material Agreements to which it is a party. At the conclusion of such three (3) year period, written Confidential Information will be returned to the Owner or destroyed as the Owner may elect, and no copies, extracts or other reproductions will be retained by the Recipient. All documents, memoranda, notes and other writings whatsoever prepared by the Recipient which contain Confidential Information will be returned to the Owner or destroyed at the Owner's request. 6.03. Excluded Information. Notwithstanding the foregoing provisions of this Article VI, "Confidential Information" will not include, and the Recipient will have no obligation with respect to, any such information which: (a) is already known to the Recipient as of the date hereof; (b) is or becomes publicly known, through publication, inspection of a product, or otherwise, and through no negligence or other wrongful act of the Recipient; (c) is received by the Recipient from a third party without similar restriction and without breach hereof; (d) is independently developed by the Recipient; or (e) is furnished to a third party by the Owner without a similar restriction on the third party's rights. 6.04. Notice Prior to Disclosure. If the Recipient (or its Affiliate) is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, the Recipient will promptly notify the Owner of such request or requirement so that the Owner may seek an appropriate protective order or waive compliance with the provisions of this Section 6.04. If, in the absence of a protective order or the receipt of a waiver hereunder, the Recipient (or any of its Affiliates) is, in the written opinion of the Recipient's counsel, compelled to disclose the Confidential Information or else stand liable for contempt or suffer other censure or significant penalty, the Recipient (or its Affiliate) may disclose only so much of the Confidential Information to the party compelling disclosure as is required by law. The Recipient will exercise (and will cause its Affiliate to exercise) reasonable efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded to Confidential Information. 6.05. Agreements Confidential. Except as disclosure may be required by law, the material terms and conditions of this Agreement and the Material Agreements, and all Exhibits, Schedules, Appendices, attachments and amendments hereto and thereto will be deemed to be "Confidential Information" and treated in accordance with the provisions of this Article VI. To the extent that such disclosure is required by law, the parties hereto will not disclose the terms and conditions of this Agreement and the Material Agreements, and all Exhibits, Schedules, Appendices, attachments and amendments hereto and thereto which the parties hereto deem to be proprietary; provided, however, in no event will such disclosure fail to satisfy the requirements of law which mandate such disclosure. ARTICLE VII CLOSING 7.01. Closing Date. The Closing will be held on or before [ * ] (the "Closing Date") at 10:00 a.m. local time at the offices of AT&T, 131 Morristown Road, Basking Ridge, NJ, or at such other date, time and place as the parties hereto will mutually agree. Notwithstanding the foregoing, the transactions contemplated hereby will be deemed to be effective as of 12:01 a.m. on the Closing Date. 7.02. Conditions to the Obligations of Cirrus. The obligation of Cirrus and the Cirrus Partner to consummate the transactions contemplated hereby is subject to and conditioned upon the satisfaction of each of the following conditions, any or all of which may be waived in writing in whole or in part by Cirrus and the Cirrus Partner: (a) The representations and warranties of AT&T and AT&T Partner contained in Article VIII and will be true and correct at and as of the Closing Date as though such representations and warranties were made at and as of such Closing Date. (b) AT&T and the AT&T Partner will have performed and complied in all material respects with all agreements, covenants and conditions on its part required by this Agreement to be performed or complied with at or prior to the Closing Date. (c) On and prior to the Closing Date, no party to the transactions contemplated hereby nor any of its Affiliates will have received any notice of any threatened litigation or regulatory proceeding being instituted or contemplated, and no such litigation or proceedings will be pending, which challenge the legality hereof or the transactions contemplated hereby or would have, individually or in the aggregate, a material adverse effect on the transactions contemplated hereby. (d) All approvals of applications to public authorities, federal, foreign, state or local, the granting of which is necessary for the consummation of the transactions contemplated hereby, will have been obtained and be satisfactory to counsel to Cirrus. (e) Cirrus will have received an opinion of counsel to AT&T, who may be an employee of AT&T, dated the Closing Date, in a form reasonably acceptable to counsel to Cirrus. (f) All milestones to be achieved by AT&T set forth in the Implementation Plan will have been completed. (g) All material obligations of AT&T set forth in the Implementation Plan will have been discharged. 7.03. Conditions to Closing of AT&T. The obligation of AT&T and the AT&T Partner to consummate the transactions contemplated hereby is subject to and conditioned upon the fulfillment of each of the following conditions, any of which may be waived in writing in whole or in part by AT&T and the AT&T Partner: (a) The representations and warranties of Cirrus and the Cirrus Partner contained in Article IX will be true and correct at and as of the Closing Date as though such representations and warranties were made at and as of such Date. (b) Cirrus and the Cirrus Partner will have performed and complied in all material respects with all agreements, covenants and conditions on its part required by this Agreement to be performed or complied with prior to or at the Closing Date. (c) On or prior to the Closing Date, no party to the transactions contemplated hereby nor any of their Affiliates will have received any notice of any threatened litigation or regulatory proceeding being instituted or contemplated, and no such litigation or proceedings will be pending, which challenge the validity or legality hereof or the transactions contemplated hereby or could have, individually or in the aggregate, a material adverse effect on the transactions contemplated hereby. (d) All approvals of applications to public authorities, federal, foreign, state or local, the granting of which is necessary for the consummation of the transaction contemplated hereby, will have been obtained and be satisfactory to counsel to AT&T. (e) AT&T will have received an opinion of counsel for Cirrus dated the Closing Date, in a form reasonably acceptable to counsel to AT&T. (f) All milestones to be achieved by Cirrus set forth in the Implementation Plan will have been completed. (g) All material obligations of Cirrus set forth in the Implementation Plan will have been discharged. 7.04. Actions and Deliveries at Closing. At or prior to the Closing: (a) The AT&T Partner and the Cirrus Partner will take all of the actions required by them as partners in the Partnership in order for the Partnership to perform the actions required on its part by this Article VII and will cause their nominees to the Board of Governors to vote for the approval of such actions of the Partnership; (b) the AT&T Partner and the Cirrus Partner will make the initial capital contributions to the Partnership as set forth in the GP Agreement; (c) AT&T and the AT&T Partner will deliver to Cirrus and the Cirrus Partner the certificates and documents contemplated by Section 7.02 and 7.05 hereof; (d) Cirrus and the Cirrus Partner will deliver to AT&T and the AT&T Partner the certificates and documents contemplated by Section 7.03 and 7.05 hereof; (e) the Partnership, AT&T, Cirrus, the AT&T Partner, the Cirrus Partner and the other parties to the Material Agreements will execute and deliver original counterparts of the Material Agreements; and (f) the parties hereto will execute and deliver such other documents, instruments, certificates or other items as a party will reasonably request to be delivered at the Closing in connection with the transactions contemplated herein. 7.05. Certificates. Each of the parties hereto will furnish to the other party such certificates of such party's officers or others and such other documents to evidence fulfillment of the conditions set forth in this Article VII as the other party may reasonably request. ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF AT&T AND THE AT&T PARTNER AT&T and the AT&T Partner jointly and severally represent and warrant to Cirrus and the Cirrus Partner as follows: 8.01. Organization and Authority. Each of AT&T and the AT&T Partner is a corporation duly organized and validly existing under the laws of the State of New York, and has requisite power and authority (corporate and other) to own its properties and to carry on its business as now being conducted. Each of AT&T and the AT&T Partner has full power to execute and deliver this Agreement and the Material Agreements and to consummate the transactions contemplated hereby and thereby. 8.02. Authorization. (a) The execution and delivery of this Agreement and the Material Agreements by AT&T and the AT&T Partner, and the documents and agreements provided for herein and therein, and the consummation by AT&T and the AT&T Partner of all transactions contemplated hereby or thereby, have been duly authorized by all requisite corporate action. This Agreement and the Material Agreements and all such other agreements and written obligations entered into and undertaken in connection with the transactions contemplated hereby or thereby to which each of AT&T and the AT&T Partner is a party, constitute or will constitute following the execution and delivery thereof valid and legally binding obligations of AT&T and the AT&T Partner, enforceable against them in accordance with their respective terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, reorganization and other laws affecting generally the enforcement of the rights of creditors and subject to a court's discretionary authority with respect to the granting of a decree ordering specific performance or other equitable remedies; (b) The execution, delivery and performance by AT&T and the AT&T Partner of this Agreement and the Material Agreements, as the case may be, and the documents and agreements provided for herein and therein, and the consummation by AT&T and the AT&T Partner of the transactions contemplated hereby and thereby, will not, with or without the giving of notice or the passage of time or both: (i) violate the provisions of any applicable law; (ii) violate the provisions of the Certificate of Incorporation or by-laws (each as amended from time to time) of AT&T or the AT&T Partner or any resolution of its directors or shareholders; and (iii) violate any judgment, decree, order or award of any court, governmental agency or arbitrator; or (iv) conflict with or result in the breach or termination of any material term or provision of, or constitute a default under, or cause any acceleration under, any license, permit, concession, franchise, indenture, mortgage, lease, equipment lease, contract, permit, deed of trust or other instrument or agreement by which AT&T or the AT&T Partner is or may be bound; and (c) Each of AT&T and the AT&T Partner is not precluded by the terms of any contract, agreement or other instrument by which either of them is bound from entering into this Agreement and the Material Agreements, and the documents and agreements provided for herein or therein or the consummation by AT&T and the AT&T Partner of the transactions contemplated hereby and thereby. 8.03. Litigation. There are no actions, suits, investigations or other proceedings pending or, to the knowledge of AT&T or the AT&T Partner, threatened, there is no order, judgment or decree of any court or governmental agency, and to the knowledge of AT&T or the AT&T Partner no facts or circumstances exist, which could reasonably be expected to give rise to a claim, action, suit or proceeding which could materially and adversely affect the Partnership or the transactions contemplated hereby and by the Material Agreements. 8.04. Financial Information. AT&T has previously delivered or will deliver prior to the Closing Date to Cirrus the financial statements set forth in the Reports on Form 10-K for the years ended December 31, 1994 and December 31, 1995, and the Reports on Form 10-Q for the quarters ended September 30, 1995 and March 31, 1996 (collectively referred to herein as the "AT&T Financial Statements"). The AT&T Financial Statements present fairly in all material respects the financial position and results of operations of AT&T as of the dates and for the periods indicated thereon and are in conformity with GAAP, consistently applied, except that the financial statements set forth in the Reports on Form 10-Q for the quarters ended September 30, 1995 and March 31, 1996 are subject to normal year-end adjustments and any other adjustments described therein, and do not contain all of the footnote disclosures required by GAAP. 8.05. Other Representations and Warranties. Certain representations and warranties of AT&T and the AT&T Partner are made and set forth in the Material Agreements. Such representations and warranties are incorporated herein by reference and made a part hereof. ARTICLE IX REPRESENTATIONS AND WARRANTIES OF Cirrus AND THE CIRRUS PARTNER Cirrus and the Cirrus Partner jointly and severally represent and warrant to AT&T and the AT&T Partner as follows: 9.01. Organization and Authority. Each of Cirrus and the Cirrus Partner is a corporation duly organized and validly existing under the laws of the State of California, and has requisite power and authority (corporate and other) to own its properties and to carry on its business as now being conducted. Each of Cirrus and the Cirrus Partner has full power to execute and deliver this Agreement and the Material Agreements and to consummate the transactions contemplated hereby and thereby. 9.02. Authorization. (a) The execution and delivery of this Agreement and the Material Agreements by Cirrus and the Cirrus Partner, and the documents and agreements provided for herein and therein, and the consummation by Cirrus and the Cirrus Partner of all transactions contemplated hereby or thereby, have been duly authorized by all requisite corporate action. This Agreement and the Material Agreements and all such other agreements and written obligations entered into and undertaken in connection with the transactions contemplated hereby or thereby to which each of Cirrus and the Cirrus Partner is a party, constitute or will constitute following the execution and delivery thereof valid and legally binding obligations of Cirrus and the Cirrus Partner, enforceable against them in accordance with their respective terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, reorganization and other laws affecting generally the enforcement of the rights of creditors and subject to a court's discretionary authority with respect to the granting of a decree ordering specific performance or other equitable remedies; (b) The execution, delivery and performance by Cirrus and the Cirrus Partner of this Agreement and the Material Agreements, as the case may be, and the documents and agreements provided for herein and therein, and the consummation by Cirrus and the Cirrus Partner of the transactions contemplated hereby and thereby, will not, with or without the giving of notice or the passage of time or both: (i) violate the provisions of any applicable law; (ii) violate the provisions of the Articles of Incorporation or by-laws (each as amended from time to time) of Cirrus or the Cirrus Partner or any resolution of its directors or shareholders; (iii) violate any judgment, decree, order or award of any court, governmental agency or arbitrator; or (iv) conflict with or result in the breach or termination of any material term or provision of, or constitute a default under, or cause any acceleration under, any license, permit, concession, franchise, indenture, mortgage, lease, equipment lease, contract, permit, deed of trust or other instrument or agreement by which Cirrus or the Cirrus Partner is or may be bound. (c) Each of Cirrus and the Cirrus Partner is not precluded by the terms of any contract, agreement of other instrument by which either of them is bound from entering into this Agreement and the Material Agreements, and the documents and agreements provided for herein or therein or the consummation by Cirrus and the Cirrus Partner of the transactions contemplated hereby and thereby. 9.03. Litigation. There are no actions, suits, investigations or other proceedings pending or, to the knowledge of Cirrus and the Cirrus Partner, threatened, there is no order, judgment or decree of any court or governmental agency, and to the knowledge of Cirrus or the Cirrus Partner no facts or circumstances exist, which could reasonably be expected to give rise to a claim, action, suit or proceeding which could materially and adversely affect the Partnership or the transactions contemplated hereby and by the Material Agreements. 9.04. Financial Information. Cirrus has previously delivered or will deliver prior to the Closing Date to AT&T the financial statements set forth in the Report on Form 10-K for the year ended April 1, 1995 and the Reports on Form 10-Q for the quarters ended July 1, 1995, September 30, 1995 and December 30, 1995 (collectively referred to herein as the "Cirrus Financial Statements"). The Cirrus Financial Statements present fairly in all material respects the financial position and results of operations of Cirrus as of the dates and for the periods indicated thereon and are in conformity with GAAP, consistently applied, except that the financial statements set forth in the Reports on Form 10-Q for the quarters ended July 1, 1995, September 30, 1995 and December 30, 1995 are subject to normal year-end adjustments and any other adjustments described therein, and do not contain all of the footnote disclosures required by GAAP. 9.05. Other Representations and Warranties. Certain representations and warranties of Cirrus and the Cirrus Partner are made and set forth in the Material Agreements. Such representations and warranties are incorporated herein by reference and made a part hereof. ARTICLE X TERM AND TERMINATION 10.01. Term. Unless extended by agreement of the parties hereto, this Agreement will terminate (a) in accordance with the provisions of this Article X or (b) upon termination of the GP Agreement in accordance with the terms thereof. Upon such termination, the parties hereto agree to take all of the actions required to liquidate and dissolve to the Partnership in an orderly manner. 10.02. Termination Prior to the Closing Date. This Agreement may be terminated and the transactions herein contemplated may be abandoned as follows: (a) By consent of the parties hereto at any time on or prior to the Closing Date; or (b) By AT&T or the AT&T Partner if any of the conditions provided for in Section 7.03 hereof will not have been met, or not have been waived in writing by AT&T and the AT&T Partner, prior to or on the Closing Date; or (c) By Cirrus or the Cirrus Partner if any of the conditions provided for in Section 7.02 hereof will not have been met, or not have been waived in writing by Cirrus and the Cirrus Partner, prior to or on the Closing Date; provided, however, that if the Closing has not occurred and this Agreement has not been earlier terminated, or extended by agreement of the parties hereto, this Agreement will terminate on [ * ]. If this Agreement is terminated as provided herein, then no party hereto will have any liability or further obligation to any other party hereto, except as stated in Section 2.02 and Article VI hereof, and except that nothing herein will relieve any party from liability for any breach hereof prior to such termination. Notwithstanding anything to the contrary contained in this Agreement, in the event that any party hereto willfully fails to consummate the transactions contemplated by this Agreement required to have been consummated on or prior to the Closing Date, any other party hereto may seek any and all available remedies in a court of competent jurisdiction with respect to liability therefor. 10.03. Termination Following the Closing Date; Events of Default; Remedies. (a) For purposes of this Agreement, each of the events in Section 10.03(b) hereof will constitute an "Event of Default" hereunder. For purposes of this Agreement, the party hereto giving rise to the Event of Default is referred to herein as the "Defaulting Partner" and the party not giving rise to the Event of Default is referred to herein as the "Non-Defaulting Partner". If an Event of Default occurs, the remedies for such Event of Default will be as set forth in Section 10.03(b) hereof with respect to such Event of Default; provided, however, that no Event of Default will give rise to the remedies set forth in Section 10.03(b) hereof unless such Event of Default is continuing without resolution following the procedures set forth in Section 10.03(c) hereof. The remedies provided herein are cumulative and will not preclude the assertion by any party hereto of any other rights or seeking any other remedies otherwise available against the other party hereto (including but not limited to damages, specific performance and injunctive or other equitable relief). (b) Events of Default and the remedies therefor are as follows: (i) A party hereto becomes insolvent (however such insolvency may be evidenced) or makes a general assignment for the benefit of creditors; in such event, the Non-Defaulting Partner may elect to terminate this Agreement upon written notice and in the event of such election to terminate will also elect in such notice one of the following options (such options collectively being referred to herein as the "Buy-Out Options"): a. The Non-Defaulting Partner will purchase the interest in the Partnership of the Defaulting Partner. Following such notice, the Defaulting Partner will sell its interest in the Partnership to the Non-Defaulting Partner for an agreed upon price, or if no price can be agreed upon, the fair market value of such interest as determined by an independent qualified appraiser appointed by the Defaulting Partner and the Non-Defaulting Partner. If they cannot agree on an appraiser, the Non-Defaulting Partner and the Defaulting Partner will each choose an appraiser and the two appraisers will choose one additional appraiser. The fair market value of the interest of the Defaulting Partner will be determined by the three appraisers or, if they cannot agree, will be the average of the three appraisers' valuation. At the consummation of the sale of the interest in the Partnership of the Defaulting Partner, the fair market value of the Defaulting Partner's interest will be paid in cash or in the form of a promissory note with such terms, interest rates, payment amounts and other terms as will be mutually agreed upon by the Non-Defaulting Partner and the Defaulting Partner; or b. The Non-Defaulting Partner will sell its interest in the Partnership to the Defaulting Partner or, subject to the consent limitations set forth in subsections (b)(v) and (vi) below, to a third party; or c. The Non-Defaulting Partner and the Defaulting Partner will take all actions required to dissolve the Partnership. (ii) A petition in bankruptcy, or for any relief under any law relating to the relief of debtors, readjustment of indebtedness, reorganization, composition or extension will be filed, or any proceeding will be instituted under any such law, by or against a party hereto; in such event, the Non-Defaulting Partner may elect to terminate this Agreement upon written notice and in the event of such election to terminate will also elect one of the Buy-Out Options. (iii) Any governmental authority or any court at the instance thereof will take possession of all or substantially all of the property of, or assume control over the affairs or operations of, or a receiver will be appointed for all or substantially all of the property of, or a writ or order of attachment or garnishment will be issued or made against all or any substantial part of the property of, a party hereto; in such event, the Non-Defaulting Partner may elect to terminate this Agreement upon written notice and in the event of such election to terminate will also elect one of the Buy-Out Options. (iv) Any party's failure to fund working capital obligations of the Partnership following the Closing Date or make any payments required under this Agreement or any of the Material Agreements following the Closing Date; in such event, the Non-Defaulting Partner will have the option to increase its share of OR2's Wafer (as defined in the Wafer Supply Agreement) capacity in an amount equal to [*]. Illustrating by way of example but not of limitation, if the Non-Defaulting Partner was entitled to [*] of the capacity of OR2 prior to invocation of the [*], the Non-Defaulting Partner would be entitled to [*] of the capacity of OR2 following invocation of the [*]. The [*] will be subject to the following limitations: (a) the [*] will continue for so long as the Event of Default remains uncured and for [ * ] thereafter; (b) the Non-Defaulting Partner will purchase Wafers subject to the [*] at [*] of the consideration payable for such Wafers in the absence of the [*] and the Defaulting Partner will pay to the Partnership [*] of the consideration payable for such Wafers in the absence of the [*], in each case pursuant to the terms of the Wafer Supply Agreement, for so long as the [*] is in effect; (c) the [*] may not be imposed with respect to the continuation of an Event of Default during the period that such Event of Default remains uncured; (d) the [*] will be limited to a maximum of [*] of the total capacity of OR2, and the [*] will at all times be based on total capacity of OR2 (and not the capacity of OR2 remaining after any application of any [*]). (v) A change in the beneficial ownership or voting control of more than [ * ] percent ([ * ]%) of the equity securities of Cirrus, the Cirrus Partner or the Integrated Circuits Group of AT&T Microelectronics such that after the change the same are owned directly or indirectly by one Person (or any Affiliate of such Person), the merger or consolidation of Cirrus, the Cirrus Partner or the Integrated Circuits Group of AT&T Microelectronics with or into any person or entity which is not an Affiliate of such party, or the sale of all or substantially all of the assets of Cirrus, the Cirrus Partner or the Integrated Circuit Division of AT&T Microelectronics; in such event, the Non-Defaulting Partner may, subject to the following, terminate this Agreement upon written notice and in the event of such election to terminate will also elect one of the Buy-Out Options: (a) The foregoing will not apply to any change of control pursuant to any transaction effecting the Restructuring; and (b) Demonstration by the Non-Defaulting Partner, exercising its reasonable business judgment, that such change of control is unacceptable. (vi) The material breach by any party hereto of any other provision of this Agreement or any of the Material Agreements (other than the failure to make payments hereunder or thereunder and other than a breach of the Lease); in such event, the Non-Defaulting Partner may elect to terminate this Agreement upon written notice and in the event of such election to terminate will also elect one of the Buy-Out Options; provided, however, that if the Non-Defaulting Partner elects option (a) of the Buy-Out Options, the fair market value determined by the appraisers, and therefore the amount paid by the Non-Defaulting Partner for the interest in the Partnership of the Defaulting Partner, will be [ * ]; and provided, further, that any sale to a third party pursuant to option (b) of the Buy-Out Options will be subject to the consent of the Defaulting Party, such consent not to be unreasonably withheld. [ * ] (c) The parties hereto will follow the following procedures in connection with the foregoing: (i) Notice. If an event occurs which, if uncured, would give rise to an Event of Default, the Non-Defaulting Partner will give a notice to the Defaulting Partner specifying in reasonable detail such event, and the Defaulting Partner will have [ * ] after receipt of such notice to cure such event. In the absence of such cure, an Event of Default will be deemed to have occurred as of the first date of the occurrence of such event. Notwithstanding anything to the contrary contained in this Agreement, the procedures set forth in this Section 10.03 will commence and continue during the [ * ] cure period. (ii) Consultation/Mediation/Arbitration. The parties will attempt to resolve the event through consultation and mediation in accordance with the provisions of Section 13.02(b) hereof (even during the [ * ] cure period described in the immediately preceding subsection (i)), but any mediation pursuant to Section 13.02(b) hereof will occur within [ * ] after selection of the mediator, or such other period to which the parties may otherwise agree. If the event giving rise to the Event of Default specified in sections (b)(i) through (iv) of this Section 10.03 remains uncured following the [ * ] cure period, the Non-Defaulting Partner may invoke the applicable remedies specified in section (b) of this Section 10.03. If the event giving rise to the Event of Default specified in sections (b)(v) or (vi) of this Section 10.03 remains uncured following the [ * ] cure period, the parties hereto will pursue resolution of the matter pursuant to the procedures for mediation and arbitration set forth in Article XIII hereof. No failure by a party to provide notice as set forth in this Section 10.03(c) with respect to a breach hereof or a default by any other party will constitute a waiver of the former party's right to enforce any provision hereof or to take action with respect to such breach or default or any subsequent breach or default. (iii) Arbitration. If the event remains unresolved following exhaustion of the procedures set forth in the immediately preceding subsection (ii), the event will be subject to the arbitration provisions set forth in Section 13.02(c) hereof. (d) The parties hereto hereby agree that in the event of a sale pursuant to this Section 10.03: (i) for purposes of this Section 10.03 only, the interest in the Partnership of AT&T will be deemed to include the AT&T Assets, the other assets of AT&T and the AT&T Partner comprising OR2, OR1, the Premises and the Land; (ii) for purposes of this Section 10.03 only, the interest in the Partnership of Cirrus will be deemed to include the Cirrus Assets and the other assets of Cirrus and the Cirrus Partner comprising OR2; and (iii) such sale will be consummated as soon as reasonably practicable following the occurrence of the Event of Default and the election of option (a) or (b) of the Buy-Out Options by the Non-Defaulting Partner. In the event of any such sale in which the AT&T Partner is the Partner selling its interest in the Partnership, AT&T will use its reasonable best efforts to cause all leases and other agreements covering the AT&T Assets to be assigned to the Partner or third-party purchasing such interest, and the Partner or third-party purchasing such interest will assume all obligations under any such leases and other agreements. In the event of any such sale in which the Cirrus Partner is the Partner selling its interest in the Partnership, Cirrus will use its reasonable best efforts to cause all leases and other agreements covering the Cirrus Assets to be assigned to the Partner or third-party purchasing such interest, and the Partner or third-party purchasing such interest will assume all obligations under any such leases and other agreements. The parties hereto acknowledge and agree that AT&T and its Affiliates may, in its or their sole discretion, enter into transactions, agreements, understandings or arrangements with respect to the Premises and/or the Land, including but not limited to those which may give rise to sales, over leases, mortgages, security interests, liens or encumbrances; provided, however, that in the event of any such transactions, agreements, understandings or arrangements, the Lease will not be terminated other than in accordance with the terms thereof. (e) Notwithstanding anything to the contrary contained in this Article X, the parties hereto agree that a Deadlock will not result in an Event of Default or be subject to arbitration hereunder and will be resolved in accordance with the procedures contained in Sections 13.02 and 3.02(a) hereof. 10.04. Continuing Obligations of the Parties. Notwithstanding the termination of this Agreement pursuant to Section 10.03, (i) each of the Material Agreements will continue or terminate in accordance with its terms, (ii) each party hereto agrees, and agrees to cause its Affiliates, to continue for [ * ] transition period, or if shorter as may be agreed to by the parties hereto and thereto, as the case may be, for their remaining terms, such agreements and arrangements between the Partnership and such party or its Affiliate with respect to the furnishing of products, premises or services as may then be in existence and (iii) each party hereto agrees to provide for such transition period the reasonable assistance, on terms and conditions to be agreed upon, of such party and its Affiliates in effecting an orderly transition of the Partnership's business. Unless otherwise agreed to in writing by the parties hereto and their Affiliates which are parties to the Material Agreements, the transition period under clauses (ii) and (iii) of this Section 10.04 will not extend for more than [ * ] following the consummation of a sale pursuant to Section 10.03. 10.05. Survival. All representations and warranties will survive the Closing Date and any investigation at any time made by or on behalf of any party until the third anniversary of the Closing Date. All covenants and agreements made by the parties hereto or pursuant hereto or in any other agreement, instrument or document delivered in connection herewith, including, but not limited to, the Material Agreements, will survive the Closing Date. ARTICLE XI INDEMNIFICATION 11.01. Agreement to Indemnify. (a) Upon the terms and subject to the conditions of this Article XI, AT&T and the AT&T Partner (the "AT&T Group") hereby agrees to indemnify: (i) Cirrus and the Cirrus Partner (the "Cirrus Group") from and against any liabilities or damages resulting to the Cirrus Group by reason or resulting from any inaccuracy in, or any breach of, any representation or warranty, covenant or agreement of the AT&T Group contained in or made pursuant to this Agreement or in or made pursuant to the Material Agreements, except as otherwise specified therein; and (ii) the Landlord from and against any liabilities or damages resulting to the Landlord by reason or resulting from any matter or the existence of any condition described in Section 4.10(a)(i) and 4.10(b)(i) hereof. (b) Upon the terms and subject to the conditions of this Article XI, the Cirrus Group hereby agrees to indemnify: (i) the AT&T Group from and against any liabilities or damages resulting to the AT&T Group by reason or resulting from any inaccuracy in, or any breach of, any representation or warranty, covenant or agreement of the Cirrus Group contained in or made pursuant to this Agreement or in or made pursuant to the Material Agreements, except as otherwise specified therein; and (ii) the Landlord from and against any liabilities or damages resulting to the Landlord by reason or resulting from any matter or the existence of any condition described in Section 4.10(a)(ii) and 4.10(b)(ii) hereof. (c) Each matter for which the AT&T Group or the Cirrus Group has agreed to provide indemnification pursuant to Section 11.01(a) or 11.01(b) hereof is hereinafter referred to as a "Claim" and collectively as "Claims". 11.02. Conditions of Indemnification. The obligations and liabilities of the AT&T Group, on the one hand, and the Cirrus Group, on the other hand, under Section 11.01 hereof with respect to Claims will be subject to the following terms and conditions: (a) The person seeking indemnification (the "Indemnified Party") will give the person providing indemnification (the "Indemnifying Party") prompt notice of any such Claim, which notice will set forth the details of the Claim and the specific provisions of this Agreement relating thereto, and the Indemnifying Party will undertake the defense thereof by representatives chosen by it. The notice will set forth the details of the Claim and the specific provisions of this Agreement relating thereto. (b) The Indemnified Party will make available to the Indemnifying Party all records or other materials reasonably requested by it for its use in contesting any Claim and will cooperate fully with the Indemnifying Party in the defense of all such Claims. (c) If the Indemnifying Party, within a reasonable time after notice of any such Claim, fails to defend the Indemnified Party, the Indemnified Party (upon further notice to the Indemnifying Party) will have the right to undertake the defense, compromise or settlement of such Claim on behalf of and for the account and risk of the Indemnifying Party, subject to the right of the Indemnifying Party to assume the defense of such Claim at any time prior to settlement, compromise or final determination thereof. (d) Anything in this Section 11.02 to the contrary notwithstanding, (i) if there is a reasonable probability that a Claim may materially and adversely affect the Indemnified Party other than as a result of money damages or other money payments, the Indemnified Party will have the right to defend, compromise or settle such Claim; provided, however, that no settlement which would require indemnification by the Indemnifying Party will be entered into without the consent of the Indemnifying Party, which consent will not be unreasonable withheld or delayed, and (ii) the Indemnifying Party, will not settle or compromise any Claim or consent to the entry of any judgment which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such Claim. (e) The AT&T Group will have no obligation to indemnify for liabilities or damages under Section 11.01(a)(i) hereof and the Cirrus Group will have no obligation to indemnify for liabilities or damages under Section 11.01(b)(i) hereof unless and until the aggregate of their respective liabilities or damages exceeds $[*], and in no event will the amount payable pursuant to the AT&T Group's obligation to indemnify for liabilities or damages under Section 11.01(a)(i) hereof or the amount payable pursuant to the Cirrus Group's obligation to indemnify for liabilities or damages under Section 11.02(b)(i) exceed $[*]. (f) No loss, damage or expense will be deemed to have been sustained by an Indemnified Party under this Article XI to the extent of (i) any tax savings realized by such Indemnified Party with respect thereto or (ii) any proceeds received by such Indemnified Party from any insurance policies with respect thereto; provided, however, that the parties hereto acknowledge and agree that no party will be required pursuant to this Article XI to mitigate liabilities or damages by seeking tax savings or insurance proceeds. ARTICLE XII AUDITORS; ACCOUNTING MATTERS 12.01. Independent Accountant. The Partnership will retain Coopers & Lybrand as its initial Independent Accountant. In the event that AT&T or its successors or assigns does not appoint Coopers & Lybrand as its independent public accountant, the Partnership will retain such other independent public accountant as AT&T or its successors or assigns may appoint. 12.02. Financial Statements. The Partnership will maintain at its principal office books, records and reports pertaining to all operations and reflecting, in accordance with the accounting standard prescribed in this Section 12.02, all receipts and expenditures of the Partnership and as otherwise required by applicable law. The financial statements and books and records of the Partnership will be maintained in accordance with GAAP. The year-end financial statements of the Partnership will be audited by the Independent Accountant. The Independent Accountant will submit to the Partnership its report(s) on the financial statements of the Partnership and the schedules with respect thereto prepared in accordance with GAAP and in such form and substance as to allow consolidation of the Partnership's financial statements with the financial statements of AT&T. 12.03. Reports. As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter of the Partnership during the first fiscal year of the Partnership, and within thirty (30) days after the end of each fiscal quarter of the Partnership thereafter, the Partnership will provide to each party hereto an unaudited consolidated balance sheet and profit and loss statement of the Partnership and its subsidiaries, if any, and a cash flow statement for such period prepared in accordance with GAAP. As soon as available and in any event within ninety (90) days after the close of the first fiscal year of the Partnership, and within sixty (60) days after the close of each fiscal year of the Partnership thereafter, the Partnership will provide each party hereto with a consolidated balance sheet and profit and loss statement of the Partnership and its subsidiaries, if any, and a cash flow statement as at the end of and for the fiscal year, reviewed (but not audited) by the Independent Accountant, prepared in accordance with GAAP. 12.04. Fiscal Year. The Partnership's fiscal year will be the calendar year unless otherwise designated at a general meeting of the members of the Partnership. ARTICLE XIII NOTICE OF DEADLOCK OR DISPUTE; DISPUTE RESOLUTION; ARBITRATION [ * ] ARTICLE XIV MISCELLANEOUS 14.01. Notices. Any notice to be given under this Agreement will be deemed to have been duly given upon receipt when in writing and delivered in person, by facsimile transmission, by telex or by courier, addressed as follows: (a) If to AT&T or the AT&T Partner: AT&T Corp. 555 Union Boulevard Allentown, PA 18103 Attention: Paul Mostek Facsimile: 610-712-5336 with a copy to: AT&T Corp. AT&T Microelectronics Two Oak Way Berkeley Heights, NJ 07922 Attention: Law Department Facsimile: 908-771-4582 (b) If to Cirrus or the Cirrus Partner: Cirrus Logic, Inc. 3100 West Warren Avenue Fremont, CA 94538-6423 Attention: Ed Ross Facsimile: 510-226-2230 with a copy to: Wilson, Sonsini, Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304-1050 Attention: Arthur F. Schneiderman, Esq. Facsimile: 415-493-6811 (c) If to the Partnership: Addressed to the Partnership as Named in the General Partnership Agreement 9333 South John Young Parkway Orlando, FL with a copy to: AT&T Corp. 555 Union Boulevard Allentown, PA 18103 Attention: Paul Mostek Facsimile: 610-712-5336 and with an additional copy to: Cirrus Logic, Inc. 3100 West Warren Avenue Fremont, CA 94538-6423 Attention: Ed Ross Facsimile: 510-226-2230 Any party or the Partnership may change its address provided above for the purpose hereof by giving written notice to the other party hereto of such change in the manner hereinabove provided. 14.02. Governing Law. This Agreement and all questions of its interpretation will be construed in accordance with the laws of the State of New York without regard to its principles of conflicts of laws. 14.03. Assignment. Except to the extent permitted under Article X hereof, the rights and obligations under this Agreement may not be assigned by any party to any person; provided, however, AT&T may assign this Agreement and its rights and obligations hereunder in connection with any transaction effecting the Restructuring and any such assignment will release AT&T of its obligations and liabilities hereunder. Any other attempted assignment in contravention of this provision will be void. 14.04. Limitation of Liability. Notwithstanding anything to the contrary contained herein, none of the parties hereto or their respective Affiliates will be liable for the incidental, indirect, special or consequential damages of the other party hereto or its Affiliates. THEREFORE, THE PARTIES HERETO (INCLUDING FOR THIS PURPOSE THEIR AFFILIATES) EXPRESSLY ACKNOWLEDGE AND AGREE THAT THEY WILL NOT BE LIABLE FOR EACH OTHER'S INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS OR LOST REVENUES) UNDER THIS AGREEMENT OR THE MATERIAL AGREEMENTS, REGARDLESS OF WHETHER SUCH LIABILITY ARISES IN TORT, CONTRACT, BREACH OF WARRANTY, INDEMNIFICATION OR OTHERWISE. 14.05. Further Assurances. The parties hereto and the Partnership will, from time to time and without further consideration, execute and deliver such other documents and instruments of transfer, conveyance and assignment and take such further action as the other may reasonably require to effect the transactions contemplated hereby. 14.06. Entire Agreement. This Agreement and the Material Agreements, together with all Exhibits, Schedules, Appendices and attachments hereto and thereto, represent the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes any prior agreement or understanding, written or oral, that the parties hereto may have had, except for that certain letter agreement between AT&T and Cirrus dated May 5, 1995. 14.07. Amendments. Any modification, amendment, or waiver of any provision hereof will be effective if, but only if, in writing and signed in person or by an authorized representative of each party against whom enforcement of such modification, amendment or waiver is sought. 14.08. Captions. The title headings of the respective articles and sections hereof are inserted for convenience and will not be deemed to be a part hereof or considered in construing this Agreement. 14.09. Severability. If any article, section or paragraph, or part thereof, hereof, or any agreement or document appended hereto or made a part hereof is invalid, ruled illegal by any court of competent jurisdiction, or unenforceable under present or future laws effective during the term hereof, then it is the intention of the parties hereto that the remainder of the Agreement, or any agreement or document appended hereto or made a part hereof, will not be affected thereby unless the deletion of such provision will cause this Agreement to become materially adverse to any party in which case the parties hereto will negotiate in good faith such changes to this Agreement as will best preserve for the parties hereto the benefits and obligations of such provision. 14.10. Counterparts. This Agreement may be executed in two or more counterparts, and by each party on the same or different counterparts, but all of such counterparts will together constitute one and the same instrument. 14.11. Waivers. No failure by a party to take any action with respect to a breach hereof or a default by any other party will constitute a waiver of the former party's right to enforce any provision hereof or to take action with respect to such breach or default or any subsequent breach or default. Waiver by any party of any breach or failure to comply with any provision hereof by a party will not be construed as, or constitute, a continuing waiver of such provision, or a waiver of any other breach of or failure to comply with any other provision hereof. 14.12. Public Announcements. No party hereto will, without the approval of both AT&T and Cirrus, make any press release or other public announcement or response to an inquiry initiated by the press concerning the terms of the transactions contemplated by this Agreement or any of the Material Agreements, except as and to the extent that any such party will be so obligated by law, in which case both AT&T and Cirrus will be so advised and the parties hereto will use their best efforts to cause a mutually agreeable release or announcement to be made. If either party hereto receives any inquiries with respect to this Agreement or the transactions contemplated hereby, such party may address such inquiry to the extent required by law; provided, however, in no event will such party disclose Confidential Information in the course of such disclosure, except as otherwise permitted in accordance with Article VI hereof. The parties hereto will cooperate in making public announcements concerning this Agreement immediately following the date of its execution by all parties hereto and immediately following the Closing Date. Nothing in this Section 14.12 will be construed to restrict the Partnership from conducting its marketing, advertising, public relations and related activities. 14.13. No Agency. This Agreement will not constitute either party hereto as the legal representative or agent of the other, nor will either party hereto have the right or authority, to assume, create or incur any liability or obligation, express or implied, against, in the name of, or on behalf of the other party hereto, or the Partnership. 14.14. No Third Party Beneficiaries. Nothing expressed or mentioned in this Agreement is intended or will be construed to give any person other than the parties hereto, the Partnership and their respective successors and permitted assigns any legal or equitable right, remedy or claim under or in respect hereof or any provision herein contained. IN WITNESS WHEREOF, this Agreement has been duly executed by or on behalf of each of the parties hereto as of the date first above written. AT&T CORP. By: Name: Title: ATOR CORP. By: Name: Title: CIRRUS LOGIC, INC. By: Name: Title: CIROR, INC. By: Name: Title: Appendix Relocation Positions; Relocation Principles 1. Ten Positions: AT&T will obtain prior consent from Cirrus, such consent not to be unreasonably withheld, for relocation of employees staffing jobs identified in the list to be provided by Cirrus at or prior to the Closing. In the event that such relocation is initiated by an employee rather than by AT&T, Cirrus will provide its consent to such relocation, which relocation will occur within ninety (90) days of notice by AT&T. In the event of a proposed relocation, AT&T will identify a replacement for such relocated employee prior to seeking Cirrus' approval for such relocation. 2. Other AT&T Employees: Reassignment will be limited in accordance with the terms of the Annual Plan. EX-10.27 5 FOUNDRY VENTURE AGREEMENT DATED AS OF SEPTEMBER 29, 1995 BETWEEN THE COMPANY AND UNITED MICROELECTRONICS CORPORATION ("UMC"). [ARTICLE] 5 [MULTIPLIER] 1 FOUNDRY VENTURE AGREEMENT This Foundry Venture Agreement ("Foundry Venture Agreement") is entered into as of September 29, 1995, by and between Cirrus Logic, Inc., a corporation with its headquarters in California ("Cirrus") and United Microelectronics Corporation, a corporation organized under the laws of the Republic of China ("UMC"). Cirrus understands that UMC is in discussions with others who are interested in participating in FabVen. Cirrus agrees that UMC may commit to such others (collectively referred to in this Foundry Venture Agreement as "OtherVen") in such amounts as UMC deems appropriate, subject to the commitments made to Cirrus hereunder, and provided further that each OtherVen must commit in writing to comply with and be bound by this Foundry Venture Agreement as if specifically named as a Venturer herein. Notwithstanding such OtherVen, Cirrus will be fully bound by and is committed to the terms of this Foundry Venture Agreement. Cirrus, OtherVen and UMC (collectively "the Venturers") agree: 1. PURPOSE AND FORMATION OF VENTURE 1.1 Subject to the Technology Transfer and License Agreement and the Foundry Capacity Agreement referred to in paragraphs 3 and 5 below (collectively, the "Venture Agreements"), the Venturers each commit to form and invest in a corporation to be formed under the laws of the Republic of China ("R.O.C.") for purposes of engaging in the business of providing integrated circuit foundry services, making and selling integrated circuits in wafer, die and packaged form as generally described in the FabVen Business Plan referred to in paragraph 1.4 below. 1.2 UMC will arrange the formalities of submission to the Administration of the Science Based Industrial Park for approval of and then for incorporation of the corporation contemplated under this Foundry Venture Agreement, using a name mutually agreeable to the Venturers (for purposes of this Foundry Venture Agreement, the corporation contemplated under this Foundry Venture Agreement shall be referred to as "FabVen."). All reasonable expenses, up to a maximum of USD [*] (exclusive of fees to be paid to the government), incurred by UMC pursuant to this paragraph 1.2 with respect to such incorporation shall be subject to reimbursement by FabVen if the FabVen shares contemplated under Paragraph 4 are not issued to UMC as described below. 1.3 Subject to the terms of the Venture Agreements, FabVen shall engage in the business of foundry services, and develop and improve processing and manufacturing techniques in order to improve its competitiveness in the foundry area. 1.4 UMC will submit to the Science Based Industrial Park a written business plan (the "FabVen Business Plan") for the operations and for the capital structure and expenditures of FabVen; this FabVen Business Plan is subject to approval by the Administration of the Science Based Industrial Park; and, subject to the conditions of confidentiality in Paragraph 9.7 below, will be made available to the Venturers. As part of the FabVen Business Plan, the Venturers contemplate FabVen will apply for "tax holiday" and/or other favorable tax treatment under R.O.C. law. 2. INITIAL OPERATIONS 2.1 The Venturers generally contemplate the Building and Construction Schedule for FabVen as shown in Attachment A and the Production and Business Schedule for FabVen as shown in Attachment B. 2.2 Under mutually agreeable written terms to be negotiated between UMC and FabVen, FabVen shall lease from UMC the land generally described in Attachment C, and commonly known as UMC's Module C, located at No. 3 Li-Hsin Road Science Based Industrial Park, Hsin Chu City, Taiwan, R.O.C. (a) The Venturers contemplate that except as agreed by them in writing, the terms of this lease will be at the market rate which would be negotiated between a lessor and lessee dealing with one another at arms length in the context of an independent lease and not based on some other business relationship. (b) Without limiting the foregoing, any and all services and supplies (including without limitation power, water, gas and/or materials) will not be part of such lease, and will be the subject of such terms as may be negotiated by FabVen. (c) The lease term for Module C will be for an initial period of five years, and FabVen will have the right to extend the lease for up to two additional five year periods under terms to be stated in the lease agreement. FabVen will occupy the land for this Module as its principal place of business, and will utilize this land for its production facility. 2.3 The Venturers shall each cooperate to build out this land as FabVen's production facility as quickly and efficiently as commercially reasonable, provided however that this Paragraph 2.3 shall not impose any obligation to provide additional funding beyond that expressly required under this Foundry Venture Agreement. 3. TECHNOLOGY TRANSFER AND MANAGERIAL SUPPORT Promptly after FabVen's formation, UMC and FabVen will enter into a mutually agreeable Technology Transfer and License Agreement pursuant to which UMC will transfer to FabVen for use in FabVen facilities the Licensed Process (as defined in the Technology Transfer and License Agreement) and related manufacturing know-how. The execution of the Technology Transfer and License Agreement is an essential aspect of the relationship contemplated under this Foundry Venture Agreement. 4. INVESTMENT COMMITMENTS & STOCK PURCHASE AND SHAREHOLDER AGREEMENTS & REPRESENTATION ON BOARD OF DIRECTORS 4.1 The Venturers will purchase shares in FabVen as follows: (a) The total capital of FabVen shall be USD $1 Billion: USD $600 million will be by investment in standard shares, and, as may be approved by the FabVen board of directors, USD $400 million (plus any other additional capital required) will be by way of participation in UMC credit facilities and/or bank loans, and/or will be by way of other debt and/or equity to the extent such other debt and equity is approved in writing by each of the Venturers. Notwithstanding anything to the contrary, (i) UMC shall not be required to provide participation on behalf of FabVen in UMC's credit facilities in any amount in excess of USD $400 million, and (ii) provided further that, to the extent demanded by the lender and subject to the requirements of the law, UMC shall guarantee such bank loans made directly to FabVen but only so long as and to the extent that the total FabVen capital financed by way of participation in credit facilities, bank loans, debt and/or such other equity (excluding the investment stated in the table of paragraph 4.1(b) below) is less than and/or equal to USD $410 million. (b) The Venturers will invest according to the following table: Standard share % $ investment represented by standard share (USD millions) Technical share % Cirrus 15% $90M 0% OtherVen TBD% $TBD 0% UMC, UMC Affiliates* FabVen employees, UMC employees** & R.O.C. financial institutions 40% $240M 15% Total shareholding 85% $510M 15% *For purposes of this Foundry Venture Agreement, "UMC Affiliates" shall mean those entities: (i) nominated by UMC and approved by the Venturers in writing, (ii) which UMC directly and/or indirectly controls, and/or (iii) in which UMC directly or indirectly owns a majority interest. **UMC employees who intend to become (and who later become) regular employees of FabVen will be among the FabVen shareholders pursuant to this table. The UMC employees and the eligible FabVen employees shall be required to pay the value shown in this table for their standard shares. (c) The Venturers shall pay in cash for their standard shares as follows: (i) twenty-five percent (25%) to be paid in full on the later of September 15, 1995, or when the appropriate governmental approvals for the formation of FabVen have been obtained; (ii) fifty percent (50%) to be paid in full on or before the start of clean room construction; and (iii) the remainder, twenty-five percent (25%), to be paid in full on or before the start of fab production ramp-up. (d) Subject to the requirements of law and pursuant to the applicable statutory and regulatory rules, the standard shares of the Venturers, of the UMC Affiliates, of the UMC employees, and of the FabVen employees as shown in paragraph 4.1(b) above shall vest upon payment for the shares involved; UMC's technical shares shall vest upon completion of first silicon for any process licensed from UMC having feature sizes of 0.35u or less; the shares of UMC Affiliates (to the extent fully paid) shall be issued as UMC requests; and the shares of UMC and UMC Affiliates shall be transferrable amongst UMC and UMC Affiliates without the necessity of FabVen's, Cirrus's, and/or OtherVen's prior written consent. (e) The Venturers' shares shall be common stock, and, to the fullest extent allowable under the law, will be registered in any public offering by FabVen, provided that with respect to such shares, each Venturer (and all UMC Affiliates holding such shares) must follow and comply with all requirements of R.O.C. law and of the Taiwan Securities and Exchange Commission and of the Taiwan Securities Exchange, including, without limitation, with respect to stand-still, lock-up, and/or other requirements. (f) Until FabVen completes a successful offering of its shares on a recognized securities exchange, the shares of the Venturers (and of UMC Affiliates holding such shares) in FabVen will not be transferable in any manner whatsoever except with the written consent of the Venturers, provided however that any Venturer may transfer its entire right, title and interest in FabVen (including its proportionate right of first refusal for foundry capacity, the "Foundry Rights") and other rights under the Foundry Venture Agreement and/or Venture Agreements: (i) once but only to the extent and only as part of a transfer of all or substantially all of the assets, business and/or ownership of that Venturer to a transferee subject, with respect to the Foundry Rights, to the terms of paragraph 4.1(f)(iii) below; and/or (ii) once to or between itself and any of its subsidiaries in which, at the time of such transfer, the transferring Venturer owns at least 50%. Notwithstanding anything to the contrary: (iii) the Foundry Rights when and if transferred pursuant to Paragraph 4.1(f)(i) above shall only be exercisable with respect to the manufacture of products which the transferring Venturer at the time of such transfer was selling, was designing (as reflected in contemporaneous documents) or was contemplating designing and selling (as demonstrated in its then written business plan(s)), and all future revisions and more highly integrated versions of such products. (iv) if prior to the completion of a public offering of FabVen securities on a recognized securities exchange, any Venturer (or UMC Affiliate holding such shares) wishes and/or attempts to transfer its shares in FabVen (other than as allowed by Paragraph 4.1(f)(i) and/or 4.1(f)(ii)) pursuant to any Court or other order or law, or as a result of any nonconsensual action by any authority with jurisdiction, the shares involved will be subject to a right of first refusal as follows: (aa) the other Venturers (the "eligible other Venturers") will have the right to purchase the shares involved at their then fair market value as determined by a mutually agreeable independent appraiser; (bb) each such eligible other Venturer will have the right to purchase such shares on a pro rata basis as determined by the ratio of their respective shareholding percentages (which, absent any previously permitted transfers, would be as shown in the table in Paragraph 4.1(b) above); (cc) if any such eligible other Venturer elects not to exercise any portion or all of such right of first refusal within 30 days of the independent appraisal, such portion of such right of first refusal will be subject to exercise by the other eligible other Venturer, and the shares involved will be subject to a right of such other eligible other Venturer to purchase on the same terms as outlined above; and (dd) if the other eligible other Venturer does not commit to purchase such shares within 60 days of the independent appraisal, all rights under this Paragraph 4.1(f)(iv) will expire as to such unpurchased shares. (g) Subject to the requirements of and to the extent permissible under R.O.C. law, to the extent that FabVen wishes to offer any equity beyond the USD $600 million referred to in Paragraph 4.1(a) above, each Venturer shall have the right of first refusal to participate in such offering in proportion to its then current respective shareholding. 4.2 The parties shall in good faith after execution of this Foundry Venture Agreement enter into negotiations regarding audit and information rights to be provided to the Venturers, in order to, among other things, make timely public disclosure of information about FabVen's profits, losses, and/or other financial information reasonably required, in the view of such Venturer's counsel and accountants, to be disclosed separately, in conjunction with, or consolidated into, such Venturer's public quarterly, annual and/or other reports. Such rights shall at a minimum be sufficient for such Venturers to timely comply with their public reporting obligations, but shall not require FabVen to pay for and/or incur the expenses of such matters. In the event the parties do not reach agreement on such rights by December 15, 1995, the extent of such rights will be decided conclusively by Price Waterhouse & Co. (Taipei office) and a nationally recognized independent accounting firm nominated by Cirrus and OtherVen. If the aforesaid accounting firms fail to decide such rights by January 30, 1996, the matter shall be resolved by binding arbitration on an expedited basis. 5. FOUNDRY CAPACITY & COMMITMENTS Each Venturer's obligations under Paragraphs 1 to 5 of this Foundry Venture Agreement shall be conditioned upon entry by the Venturer into a Foundry Capacity Agreement with FabVen (the "Foundry Capacity Agreement") and none of the obligations of the Venturer or of FabVen under those sections shall be binding until such time as it enters such a Foundry Capacity Agreement. The terms of the Articles of Incorporation and Bylaws of FabVen shall be consistent with the terms of this Foundry Venture Agreement, and the Venture Agreements. 6. TERMINATION OF RIGHTS & PRIVILEGES 6.1 Subject to Paragraph 6.2 below, any one or more of the Venturers and/or FabVen (collectively "the Parties") shall have the right to terminate the rights of any other Party under this Foundry Venture Agreement and/or the Venture Agreements by giving written notice of termination to that other Party at any time upon or after: (a) the filing by the other Party of a petition in bankruptcy or insolvency; (b) any adjudication that the other Party is bankrupt or insolvent; (c) the filing by the other Party of any petition or answer seeking reorganization, readjustment or arrangement of its business under any law relating to bankruptcy or insolvency; (d) the appointment of a receiver for all or substantially all of the property of the other Party; (e) the making by the other Party of any assignment for the benefit of creditors; or, (f) the institution of any proceeding for the liquidation or winding up of the other Party's business or for the termination of its corporate charter. Notwithstanding anything to the contrary, no termination under this Paragraph 6.1 as to such other Party shall affect the rights of any other Venturer under this Foundry Venture Agreement and/or the Venture Agreements. 6.2 (a) Termination pursuant to Paragraph 6.1 above shall be effective immediately upon delivery of the written notice, or in the case of airmail notice, four days after dispatch, pursuant to Paragraph 8 below. (b) Upon termination as to a Venturer under Paragraph 6.1 above, any shares held by that Venturer shall be subject to purchase by the remaining Venturers pursuant to Paragraph 4.1(f)(iv) above. (c) Except as permitted in paragraph 4.1(f), no Venturer may transfer its interest or right in FabVen in any manner to any competitor of UMC or to any entity in the business of fabricating integrated circuits except under terms (i) in which such Venturer first relinquishes and releases all rights to FabVen capacity under this and any and all other agreements, and (ii) in which such entity and/or competitor expressly consents in writing that they have no such interest or right to such capacity. 6.3 FabVen will undertake its reasonable best efforts to implement the Technology Road Map attached as Attachment B, and to achieve the goals described in the FabVen Business Plan. In addition, and subject to the terms of this Foundry Venture Agreement and the Venture Agreements, FabVen will cooperate with each Venturer in a commercially reasonable manner to qualify products of such Venturer under the processes involved. 7. DISPUTE RESOLUTION 7.1 The Venturers and FabVen shall cooperate and attempt in good faith to resolve any and all disputes arising out of and/or relating to this Foundry Venture Agreement and/or any of the Venture Agreements. Without limiting the foregoing, within thirty days of a written demand to meet to resolve such a dispute, senior management with the authority to negotiate and resolve the issues shall meet in the State of Hawaii or in some other mutually agreeable location to discuss the issues, from time to time during the forty-five day period following such demand (or longer if agreeable to the Venturers involved) as reasonably requested by any party involved, and such senior management will attempt to resolve the dispute. 7.2 Any such disputes relating to and/or arising out of this Foundry Venture Agreement and/or any of the Venture Agreements which cannot be so resolved will be decided exclusively by binding arbitration under procedures which ensure efficient and speedy resolution. Such an arbitration may be commenced by FabVen and/or any Venturer involved in the dispute (i) after the expiration of the forty-five day period following the written demand to meet to resolve the dispute pursuant to Paragraph 7.1 above, and/or (ii) at such earlier time as any Party involved repudiates and/or refuses to continue with its obligations to negotiate in good faith. 7.3 The arbitration hearing will be before a panel of three neutral, independent arbitrators. The arbitration hearing will be conducted in the State of Hawaii, and will be in the English language (with translations and interpretations as reasonable for the presentation of evidence and/or conduct of the arbitration). Notwithstanding anything to the contrary, any party may apply to any court of competent jurisdiction for interim injunctive relief as may be allowed under applicable law with respect to irreparable harm which cannot be avoided and/or compensated by such arbitration proceedings, without breach of this Paragraph 7 and without any abridgment of the powers of the arbitrators. 7.4 The arbitration will be conducted under the Rules of the Asia Pacific Arbitration Center. Notwithstanding anything to the contrary: (a) the arbitrators will have no power to order discovery; and (b) the arbitrators shall require pre-hearing exchange of documentary evidence to be relied upon by each of the respective parties in their respective cases in chief, and pre-hearing exchange of briefs, witness lists and summaries of expected testimony. 7.5 The arbitrators will make their decision in writing; and their decision will be binding upon the Venturers and FabVen and it may be entered by any court having jurisdiction. 8. NOTICES All notices required or permitted to be given under this Foundry Venture Agreement and/or any of the Venture Agreements shall be in writing and be deemed as given when delivered, or in the case of airmail, four days after dispatch, and shall be addressed as follows and dispatched by personal delivery, by airmail letter in any post office in the U.S. or in Taiwan, or by facsimile: If to Cirrus: Cirrus Logic, Inc. 3100 West Warren Ave. Fremont, CA 94538 Attention: President fax (408) 249-4210; fon (408) 249-4594 If to UMC: United Microelectronics Corporation No. 13 Innovation Road I Science Based Industrial Park Hsin Chu City, Taiwan, R.O.C. Attention: John Hsuan, President fax (035) 774-767; fon (035) 782-258 If to FabVen: FabVen No. 3 Li-Hsin Road Science Based Industrial Park Hsin Chu City, Taiwan, R.O.C. Attention: President fax (035) ; fon (035) Any Venturer and/or FabVen may at any time give written notice of a change of its address to the others. 9. MISCELLANEOUS 9.1 No Party shall be liable to the others with respect to the failure or delay in the performance of any obligation under this Foundry Venture Agreement and/or any of the Venture Agreements for the time of and to the extent that such failure is caused by or the result of war, fire, flood, earthquake, acts of god or any causes beyond the reasonable control of the Venturers and/or FabVen. 9.2 No Party shall be liable to the others (i) for any special, incidental, indirect or consequential damages; (ii) for increased costs of obtaining substitute goods or services to the extent such increased costs are in excess of those amounts which such Party would have been entitled to receive for the goods and services involved had it properly performed; (iii) for loss of use, opportunity, market potential, and/or profit, on any theory (whether contract, tort, from third party claims or otherwise). 9.3 Except as expressly stated above and in Paragraphs 9.5 and/or 9.13 below and/or in the Venture Agreements, no Party makes any warranties or representations (express, implied or statutory), and there are no other warranties, representations, or indemnities, and THE PARTIES EXPRESSLY DISCLAIM ALL SUCH OTHER WARRANTIES, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE. Without limiting the foregoing, except as expressly stated in this Foundry Venture Agreement and/or in any of the Venture Agreements (these "Agreements"), there are no other representations and/or warranties concerning the subject matter of such Agreements, and/or relating to FabVen of any sort or manner, and each Party expressly agrees that it is not relying upon any such other representations and/or warranties. Each Party has consulted with counsel concerning such Agreements and FabVen, and enters into these Agreements with full advice and understanding and accepting the risks involved. 9.4 Notwithstanding anything to the contrary (whether in the Venture Agreements or elsewhere), nothing contained in this Foundry Venture Agreement, in the Venture Agreements, and/or in the FabVen Business Plan shall be or be construed as: (a) a warranty or representation as to the validity, utility, suitability or economic viability of this opportunity or of any intellectual property or technology except as expressly stated in paragraph 9.5 below, in Paragraph 9 of the Technology Transfer and License Agreement, and/or in Paragraphs 5 and/or 7 of the Foundry Capacity Agreement; (b) a warranty or representation that any manufacture, sales, use or other disposition of products to be manufactured by FabVen will be free from infringement of patents, utility models and/or design patents other than those under which licenses have been granted hereunder and/or except as expressly stated in paragraph 9.5 below, and/or in Paragraph 7 of the Foundry Capacity Agreement; (c) a warranty or representation that FabVen will be successful, that FabVen will realize and/or fulfill any of its Business Plans, that FabVen will go public or return profit to the Parties, or that the Parties will recover their investments (for purposes of this Paragraph 9.4(c), any covenant or obligation in these Agreements shall not be eliminated and/or excluded by reason of it also being part of the FabVen Business Plan, nor shall this Paragraph 9.4(c) absolve FabVen from efforts required under these Agreements to implement the FabVen Business Plan); (d) conferring any right to the other Parties to use in advertising, publicity, or otherwise, any trademark, trade name or names of any Party, or any contraction, abbreviation or simulation thereof; and/or (e) conferring by implication, estoppel or otherwise, upon any Party any license or other right under any class or type of patent, utility model or design patent except the licenses and rights expressly granted under the Venture Agreements. 9.5 (a) Each Venturer represents and warrants to the other Venturers and to FabVen that all technology, processes, masks and other information transferred by that Venturer pursuant to the terms of this Foundry Venture Agreement and/or the Venture Agreements, and/or its respective foundry relationship with FabVen shall be free from any claims of infringement or violation of valid and enforceable trade secret, trademark, copyright, and/or mask work rights of others; and that Venturer shall defend, indemnify and hold the other Venturers and FabVen harmless from and against any claims to the contrary, provided however that such indemnifying Venturer shall receive (i) prompt written notification of any claim for which it is providing indemnification under this Paragraph 9.5, (ii) the right to assume, in a prompt fashion, sole control of the defense or settlement of such claim (provided that the indemnifying Venturer cannot commit any other Venturer and/or FabVen to the payment of sums), and (iii) reasonable assistance from the indemnified party or parties, at the indemnifying Venturer's request and expense and provided further that if the indemnifying Venturer assumes sole control of the defense of such claim, the indemnified party may, at its expense, participate in such defense. (b) FabVen represents and warrants to the Venturers that all technology, processes, masks and other information transferred by it (in products or otherwise) or used by it in any process employed in the fabrication of products pursuant to the terms of this Foundry Venture Agreement and/or the Venture Agreements, and/or under its respective foundry relationships with the Venturers shall be free from any claims of infringement or violation of valid and enforceable trade secret, trademark, copyright, and/or mask work rights of others; and FabVen shall defend, indemnify and hold the Venturers harmless from and against any claims to the contrary, provided however that FabVen shall receive (i) prompt written notification of any claim for which it is providing indemnification under this Paragraph 9.5, (ii) the right to assume, in a prompt fashion, sole control of the defense or settlement of such claim (provided that FabVen cannot commit any Venturer to the payment of sums), and (iii) reasonable assistance from the indemnified party or parties, at FabVen's request and expense, and provided further that if FabVen assumes sole control of the defense of such claim, the indemnified party may, at its expense, participate in such defense. 9.6 The obligations of the Parties under Paragraphs 1 to 5 above shall be subject to and conditioned upon funding of FabVen by the Venturers and upon approval of the formation of FabVen and of its operation at Module C by all required governmental authorities, including without limitation, the Science Based Industrial Park Administration, but the obligations under the other Paragraphs of this Agreement shall not be so conditioned. UMC shall cooperate with FabVen in securing such approvals within the time contemplated under the schedule of Attachment A. The obligations and responsibilities of the Venturers and FabVen under Paragraphs 6 to 9 shall survive the expiration and/or termination of this Foundry Venture Agreement. 9.7 (a) For purposes of these Agreements, "Confidential Information" shall mean: (i) any information disclosed by one party to another pursuant to or in connection with these Agreements which is in written, graphic, machine readable or other tangible form and is marked confidential, proprietary, or in some other manner to indicate its confidential nature; and (ii) any information orally disclosed by one party to another pursuant to or in connection with these Agreements provided that such information is designated as confidential at the time of disclosure and reduced to a writing delivered to the receiving party within thirty days of the oral disclosure and detailing the confidential information involved. (b) Each party shall treat as confidential all Confidential Information provided by any other party, shall not use or disclose such Confidential Information except as contemplated in these Agreements and then only subject to written confidentiality agreements at least as protective as those stated in this Foundry Venture Agreement. Without limiting the above, each party shall use at least the same procedures and degree of care which it uses to prevent the disclosure of its confidential information of like importance and shall in no event use less than reasonable procedures and a reasonable degree of care. Notwithstanding the above, no party shall have obligations with respect to Confidential Information of any other party which: (i) Such party shows was generally known and available to the public at the time it was disclosed, or becomes generally known and available to the public through no fault of the receiver prior to the use and or disclosure of such information by the receiver; (ii) Such party shows was known to the receiver without obligation of confidentiality at the time of disclosure as shown by written evidence in existence at the time of disclosure; (iii) Is disclosed with the prior written consent of the discloser; (iv) Such party shows becomes known to the receiver without obligations of confidentiality; or (v) Is disclosed pursuant to the order or requirement of any court, agency, or other governmental body having jurisdiction; provided, however, that, prior to any such disclosure pursuant to paragraphs 9.7(b)(v) above, the Party seeking disclosure shall notify the others and take all reasonable actions in an effort to minimize the nature and extent of such disclosure. (c) Each party agrees that the terms of these Agreements and the FabVen Business Plan shall be treated as Confidential Information and not disclosed, provided however that any and all parties may disclose the terms and conditions of these Agreements and the FabVen Business Plan in confidence to its legal counsel, accountants, banks, and financing sources and their advisers, or pursuant to written confidentiality agreements having terms at least as restrictive as those this Paragraph 9.7 in connection with an actual or proposed merger or acquisition, and/or in connection with the enforcement of its rights under this Foundry Venture Agreement (d) Notwithstanding anything to the contrary, and subject to the exceptions of Paragraph 9.7(b): (i) any Confidential Information disclosed to UMC by a Venturer which is marked "UMC only" (or similarly) may be used and disclosed by UMC solely in connection with preparing and submitting the FabVen Business Plan and applications for governmental approvals relating to FabVen but may not otherwise be disclosed by UMC to FabVen or to any other Venturer; (ii) any Confidential Information disclosed to UMC and/or to FabVen which is marked as "FabVen Internal Only" may be disclosed by UMC to FabVen, but may not be disclosed by FabVen to any other Venturer; and (iii) any Confidential Information disclosed to a Venturer which is not marked "UMC Only" and/or "FabVen Internal Only" (or similarly) may be disclosed to FabVen and/or to any Venturer. (e) Without limiting the foregoing, in order to facilitate exchanges of Confidential Information amongst themselves, the Venturers contemplate they may negotiate and execute one or more mutually satisfactory non-disclosure agreements. (f) The obligations of this Paragraph 9.7 shall survive the expiration or termination of this Foundry Venture Agreement and the Venture Agreements for a period of three (3) years after the last of them to expire and/or terminate. In the event of any breach of this covenant, the Venturers and FabVen shall promptly discuss and cooperate in good faith with respect to measures to mitigate any harmful effect of such breach and with respect to possible compensation to the injured party. 9.8 This Foundry Venture Agreement and the Venture Agreements are written only in the English language, which language shall be controlling in all respects, and all versions in any other language shall be for accommodation only and shall not be binding upon the Venturers. All communications to be made or given pursuant to such Agreements shall be in the English language, except as may be required under applicable law. 9.9 This Foundry Venture Agreement and the Foundry Capacity Agreement and matters connected with performance under any one or more of them shall be interpreted and construed in all respects in accordance with the laws of the State of California, provided however that all matters connected with the purchase and formalities of stock and ownership interests in FabVen and the Technology Transfer and License Agreement shall be interpreted and construed in all respects in accordance with the laws of Taiwan, the Republic of China, all without regard to that body of law which pertains to conflicts and/or choice of law and excluding the UN Convention on Contracts for International Sales of Goods. 9.10 If any provision of this Foundry Venture Agreement and/or the Venture Agreements is held wholly or partially unenforceable for any reason, such unenforceability shall not affect the enforceability of the remaining provisions of such Agreements, and all provisions of such Agreements shall be construed so as to preserve enforceability. 9.11 (a) The terms and conditions contained in the FabVen Business Plan, this Foundry Venture Agreement and/or the Venture Agreements and the documents attached thereto (the "Plan and Agreements") shall supersede all previous communications, understandings, representations and/or agreements, oral and/or written, between the Venturers with respect to the subject matter hereof; (b) There are no other such agreements, understandings and/or writings except as stated above; (c) No agreement or understanding varying, modifying or extending the terms and/or conditions of such Plan and Agreements, nor any custom, practice, course of dealing or conduct of the parties, shall be binding upon any Venturer unless in writing and signed by a duly authorized officer or representative of each Party to be bound; provided however that a Venturer and FabVen may agree to ordering procedures which are established by them pursuant to mutual agreement; and (d) Except as expressly allowed under this Foundry Venture Agreement, no party may transfer or assign its rights or delegate its duties under this Agreement, except with the written consent of all the Parties to the agreement involved. 9.12 No licenses, other than the licenses expressly granted under these Agreements, are granted under these Agreements, by implication, estoppel or otherwise. Nothing in these Agreements shall be construed as conferring any license, right to use or other right with respect to any trademark or trade name of any party. Each party may make reasonable reference by name to any other party provided that the written consent of that other has been obtained in advance. 9.13 (a) The failure of any party to enforce, or the delay by any party in enforcing any of its rights under these Agreements shall not be deemed a waiver or a containing waiver of such rights or a modification of these Agreements, and such party may, within the time provided by applicable law, commence appropriate proceedings to enforce any and/or all such rights. (b) The section headings in these Agreements are for convenience only and do not define or limit nor shall they be used to construe the content of such sections. (c) Each party expressly represents and warrants that it is free to enter into these Agreements and that such party has not made and will not make any creations or commitments in conflict with the provisions of these Agreements, or which reasonably might interfere with the full and complete performance of such party's obligations under these Agreements. Each party further represents and warrants that these Agreements, and the performance of its respective obligations under these Agreements, and the consummation of the transactions contemplated under these Agreements have been duly authorized and approved by all necessary action, and all necessary consents or permits have been obtained, and neither the execution of these Agreements nor the performance of the party's respective obligations under these agreements will violate any term or provision of any valid contract or agreement to which such party is subject and/or by which such party is bound. No further actions or consents are necessary to make these Agreements valid binding contracts, enforceable against the respective parties in accordance with their terms. 9.14 Nothing in this Foundry Venture Agreement and/or in the Venture Agreements shall be deemed to create a general or limited partnership or an agency relationship between the Venturers and/or FabVen, and the Venturers and FabVen are independent companies. The Venturers intend to become shareholders of FabVen and thereafter purchase products manufactured from FabVen in an arm's length vendor-purchaser relationship, and, in the case of FabVen and UMC, in an arm's length vendor-purchaser, lessor-lessee, and licensor-licensee relationship. No party shall be entitled to act on behalf of and/or to bind any one or more of the others. 9.15 The Venturers will cause FabVen to execute promptly after its formation the Foundry Capacity Agreement, Technology Transfer and License Agreement, and this Foundry Venture Agreement, to confirm FabVen's agreement to abide by the terms in such agreements which are binding upon FabVen. IN WITNESS WHEREOF, the Venturers have caused this Foundry Venture Agreement to be signed below by their respective duly authorized officers. Cirrus Logic, Inc. _____/s/ Michael Hackworth__________ Michael Hackworth, President UNITED MICROELECTRONICS CORPORATION _____/s/ John Hsuan__________________ John Hsuan, President ACCORDING TO SECTION 232.304 OF REGULATION S-T, THE FOLLOWING NARRATIVE DESCRIPTIONS REPRESENT A GOOD-FAITH EFFORT TO FAIRLY AND ACCURATELY DESCRIBE THE FOUR GRAPHICAL IMAGES ATTACHED TO THE PAPER FORMAT OF THIS AGREEMENT: "JV FAB BUILDING-UP SCHEDULE" This graphical image represents the project schedule for building up the new fabrication facility and for producing wafers from this facility. The time-line represented in the graphical image begins at August 1995 and ends at December 1997. The milestones represented on this graphical image are the following: "Establish Company," "The New Fab Building Construction, "Facility Installation," "Clean Room Installation," "Equipment Ordering," "Equipment Installation," "Pilot Wafer Start," and "Production Ramp-up Start." The time-lines for each milestone are confidential information for which Confidential Treatment has been requested. Confidential portions omitted have been filed with the Commission. "PRODUCTION RAMP-UP SCHEDULE" This line graph represents the projected wafer output versus time for the new venture. The abscissa of the line graph represents time, beginning at July 1997 and ending at January 2000. The ordinate of the line graph represents wafer output of the new venture. Therefore, the line graph represents the projected wafer output of the new venture versus time. The values on the ordinate are confidential information for which Confidential Treatment has been requested. The values of the line graph also are confidential information for which Confidential Treatment has been requested. Confidential portions omitted have been filed with the Commission. "TECHNOLOGY ROAD MAP" This graphical image represents the project schedule for decreasing the production line-widths of the new fabrication facility. The time-line represented in the graphical image begins at the first quarter of 1997 and ends at the fourth quarter of 1998. The major milestones represented on this graphical image are the following: "0.4 to 0.5 micrometers," "0.35 micrometers," and "0.25 to 0.3 micrometers." The minor milestones under each major milestone represent different process technologies projected for each line-width under the new venture; and each is confidential information for which Confidential Treatment has been requested. The time-lines for each milestone are also confidential information for which Confidential Treatment has been requested. Confidential portions omitted have been filed with the Commission. "FABRICATION FACILITY LAYOUT" This graphical image represents the plat of the research park in which the new fabrication facility is located. The plat is written in Chinese. In English, the plat shows the location of Modules C and D with respect to two major roads and with respect to each other. EX-10.28 6 WRITTEN ASSURANCES RE FOUNDRY VENTURE AGREEMENT DATED AS OF SEPTEMBER 29, 1995 BETWEEN THE COMPANY AND UMC. [ARTICLE] 5 [MULTIPLIER] 1 [*] Denotes information for which confidential treatment has been requested. Confidential portions omitted have been filed separately with the Commission. UNITED MICROELECTRONICS CORPORATION No. 13 Innovation Road I Science Based Industrial Park Hsin Chu City, Taiwan, R.O.C. telephone (035) 782-258; facsimile (035) 774-767 September 13, 1995 WRITTEN ASSURANCES RE: FOUNDRY VENTURE AGREEMENT At the suggestion of several venturers, UMC is pleased to confirm in writing the following points concerning the Foundry Venture Agreement and the Foundry Capacity Agreement. Where these commitments require the consent of FabVen, UMC will exercise its influence and commit best faith efforts to secure that consent. 1. ALL VENTURERS ARE OFFERED EQUAL TERMS As stated in the Foundry Venture Agreement, the terms of investment and of wafer purchases to each Venturer under the Foundry Venture Agreement and under the Foundry Capacity Agreement are the same, except for the percentages of ownership and capacity rights of each Venturer [capacity rights for Venturers are equal to [*] times the percentage of ownership]; provided however that Venturers who commit to a minimum of [*]% will have the right to appoint a representative to a seat on the board of directors for the initial three year term. 2. ACCESS TO BOARD MEETINGS & BOARD MEMBERS Subject to the obligations of Confidentiality imposed under the Foundry Venture Agreement, the Foundry Capacity Agreement, and/or the Technology Transfer and License Agreement ("Venture Agreements"), and to the requirements of law, each Venturer will be given reasonable notice of meetings of the board of directors of FabVen, and the opportunity to have a representative attend such meetings and communicate at such meetings with the board members in connection with matters concerning FabVen. 3. MEMBERSHIP ON FABVEN BOARD--FIRST THREE YEARS AND BEYOND The board of directors of FabVen will be comprised of seven members. Of these seven members, four will be appointed by UMC for an initial three year term, one will be appointed by the R.O.C. financial institutions which invest in FabVen for an initial three year term, and the other two board members will be appointed for an initial three year term by the Venturers other than UMC under procedures to be mutually agreed upon by such Venturers, provided that any Venturer who holds at least [*]% of the shares of FabVen will be entitled to appoint one of such other two board members. After the initial three year term, the board will be elected by the shareholders pursuant to R.O.C. law in the manner provided in the bylaws. 4. STRATEGIC ACTIONS SUBJECT TO SPECIAL BOARD APPROVALS Subject to the other requirements of the law, and for so long as the Venturer involved remains in compliance with all payment obligations under the Foundry Venture Agreement and such Venturer retains at least [*] of the ownership percentage in FabVen as listed in Paragraph 4.1 of the Foundry Venture Agreement, all board actions directly deciding strategic technical issues [including without limitation, the type of process technology (such as that used in the manufacture of logic, SRAM, DRAM, EPROM, EEPROM, and/or FLASH) to be developed, implemented and/or offered by FabVen, the amendment of the Technical Transfer and License Agreement, and/or the transfer or licensing of technology developed by FabVen to others (except as contemplated under the Technology Transfer and License Agreement)] shall not be effective unless and until approved by at least one of the board members designated by the Venturers other than UMC, and (ii) all board actions authorizing liquidation of FabVen, merger of FabVen, sale of all or substantially all of FabVen or of FabVen's assets, and/or the offering of any equity (except pursuant to a public offering of FabVen shares on a recognized securities exchange) shall not be effective unless and until approved by both board members designated by the non-UMC Venturers under the terms of the Foundry Venture Agreement. 5. NO UNAUTHORIZED CHANGES TO TECHNOLOGY ROADMAP For so long as the Venturer involved remains in compliance with all payment obligations under the Foundry Venture Agreement and such Venturer retains at least [*] of the ownership percentage as listed in Paragraph 4.1 of the Foundry Venture Agreement, FabVen shall not make any material changes to the Technology Road Map as shown in Attachment A which affect such Venturer's existing and/or planned production without the consent of that Venturer. 6. CONDITIONAL "PUT" RIGHT To the extent that FabVen fails (i) to qualify silicon manufactured with [*] and [*] processes each having a minimum of 0.35 feature sizes under a test vehicle to be agreed upon by FabVen, UMC and a majority of the Venturers other than UMC (including without limitation, a test vehicle from a Venturer, provided that such qualification under a test vehicle from a Venturer is commercially reasonable and within industry standards) ("First Qualification") on or before the end of December 31, 1998, and/or (ii) to achieve the ability to manufacture a minimum of [*] wafer outs per month for such [*] process and [*] wafer outs per month for such [*] process on or before December 31, 1998 for reasons attributable to UMC, FabVen and/or the Licensed Processes, the Venturers (one or more of them) will have the option to sell their shares (and their corresponding rights to capacity in FabVen) to UMC for the total amount they paid for such shares by sending written demand to UMC as follows: (a) No such demand shall be effective unless it is made on or before April 1, 1999; and (b) Within ninety days of such written demand from the Venturer involved, UMC will buy the shares (and capacity rights) involved, and/or arrange another buyer willing to purchase such shares (and capacity rights) under the terms and conditions as stated in this heading. 7. RELEASE OF SHARE TRANSFER RESTRICTION IF NO PUBLIC OFFERING To the extent that FabVen does not offer its shares in a public offering on a recognized securities exchange on or before December 31, 2006, and notwithstanding anything to the contrary, each Venturer other than UMC will have the right to transfer its entire right and interests in FabVen as follows: (a) The Venturer wishing to transfer ("Transferring Venturer") shall send the other Venturers (including UMC) written notice of its intention to transfer, stating in such notice the general terms and payment contemplated by such Transferring Venturer; (b) Within thirty days (the "Transfer Notice Period") of such notice, any one or more such other Venturers may send a written offer to purchase such Transferring Venturer's interest under terms to be stated in the written offer [for purposes of this Paragraph, each other Venturer making such an offer shall be referred to as the "Offering Venturer'']; (c) If no other Venturer makes such an offer within the Transfer Notice Period, then, subject to subpart (g) below, the Transferring Venturer shall be allowed to transfer its entire interest and ownership in FabVen to other purchasers. (d) If any Offering Venturer makes such an offer within the Transfer Notice Period, the Transferring Venturer and the Offering Venturer will negotiate in good faith concerning each such offer for not less than thirty days (the "Transfer Negotiation Period"). (e) If by the end of the Transfer Negotiation Period and despite such negotiations, the Transferring Venturer has not reached agreement with the Offering Venturer(s) for sale of the Transferring Venturer's interest, then, subject to this Paragraph (and all of its subparts), the Transferring Venturer shall be allowed to transfer its entire interest and ownership in FabVen to other purchasers. (f) Notwithstanding anything to the contrary, no Transferring Venturer shall be allowed to accept from any third party any offer with price and terms, taken together, which are less favorable than last offered in writing by an Offering Venturer during the Transfer Notice and/or Transfer Negotiation Periods, unless such Transferring Venturer first offers the same price terms to such Offering Venturer in writing, and allows such Offering Venturer ten business days to accept or reject such price and terms. (g) Except as permitted in paragraph 4.1(f) of the Foundry Venture Agreement and/or in Paragraph 15 of this Written Assurance, no Venturer may transfer its interest or right in FabVen under this paragraph or otherwise in any manner to any competitor of UMC or to any entity in the business of fabricating integrated circuits except under terms (i) in which such Venturer first relinquishes and releases all rights to FabVen capacity and to designate membership on the FabVen board of directors under this and any and all other agreements, and (ii) in which such entity and/or competitor expressly consents in writing that they have no such interest or right to such capacity and/or designation. 8. TECHNOLOGY TRANSFER AND LICENSE CONDITION TO FIRST PAYMENT Notwithstanding anything to the contrary, the execution of the Technology Transfer and License Agreement in the form presented to the Venturers as of September 15, 1995 shall be a condition precedent to any payment of investment amounts pursuant to the Foundry Venture Agreement. 9. CLARIFICATION OF FAB RAMP-UP CONDITION TO THIRD INSTALLMENT Notwithstanding anything to the contrary, the milestone for the third investment payment milestone shall be on or before "fab production ramp-up" as that phrase is generally understood and interpreted in the industry. 10. USE OF INVESTMENT MONIES Unless otherwise agreed by each Venturer, FabVen will use all funds invested by the Venturers pursuant to paragraph 4.1 (b) of the Foundry Venture Agreement solely as outlined in and consistent with the FabVen Business Plan. 11. RIGHTS OF FIRST REFUSAL ON SUBSEQUENT OFFERINGS FabVen will provide the Venturers with notice reasonable under the circumstances in order to enable them to exercise their rights of first refusal in connection with equity offerings pursuant to paragraph 4.1(g) of the Foundry Venture Agreement. 12. VESTING OF TECHNICAL SHARES UMC's technical shares will not vest under paragraph 4.1(d) of the Foundry Venture Agreement until FabVen produces wafers with the 0.35 process (as that phrase is defined in general industry usage) with sufficient yield to be recognized as "production ready" within general industry usage. 13. AUDIT RIGHTS The specific wording of the provisions contemplated under paragraph 4.2 of the Foundry Venture Agreement with respect audit rights and financial information will be as stated by Price Waterhouse, with their commitment to prepare the reports as promptly as possible under the circumstances. The exact language for the audit rights will be modeled on whatever Price Waterhouse and the other accountants agree upon in connection with the joint venture announced with UMC, Alliance and S3. Currently, it is contemplated that the financials will be prepared in a manner consistent with that imposed on U.S. public companies for minority interests. 14. TERMS FOR RIGHTS OF FIRST REFUSAL UNDER PARAGRAPH 4.1(f)(iv) The rights of first refusal under Paragraph 4.1 (f)(iv) of the Foundry Venture Agreement are intended to extend to and benefit all other eligible Venturers. To avoid any ambiguity, 4.1 (f)(iv)(cc) and 4.1 (f)(iv)(dd) are to be interpreted as follows: (cc) if any such eligible other Venturer elects not to exercise any portion or all of such right of first refusal within 30 days of the independent appraisal, such portion of such right of first refusal will be subject to exercise by the other eligible other Venturers in proportion to their then existing shareholdings in FabVen, and the shares involved will be subject to a right of such other eligible other Venturers to purchase on the same terms as outlined above; and (dd) if any such other eligible other Venturer does not commit to purchase such shares within 60 days of the independent appraisal, all rights under this Paragraph 4.1 (f)(iv) will expire as to such unpurchased shares. 15. TRANSFERS OF SHARES AFTER PUBLIC OFFERING Nothing in Paragraph 6.2(c)(i) of the Foundry Venture Agreement or elsewhere shall prohibit a Venturer from offering and/or selling its shares in FabVen on the public market to a competitor of UMC, provided however that such competitor must relinquish all rights to representation and access to Board information under the Foundry Venture Agreement and under this Written Assurance, and provided that the restrictions of Paragraph 6.2(c)(ii) of the Foundry Venture Agreement and of Paragraph 7 of this Written Assurance shall still apply, and provided further that the other restrictions concerning transfers of capacity and reductions in capacity on a proportional basis with reductions in ownership will also apply. 16. TRANSFERS OF CAPACITY AMONGST VENTURERS Notwithstanding anything to the contrary, the Venturers in Module C may each transfer their respective capacities (whether or not previously forecast) as stated in Paragraph 2.1 of the Foundry Capacity Agreement to and between one another by written notice to FabVen and the other Venturers, provided that such written notice must state the capacity amounts so transferred and the months in which such transfer will apply and provided that FabVen's consent (which must not be unreasonably withheld) shall be required for a transfer of quantities previously committed under Paragraph 2.3(b) of the Foundry Capacity Agreement. To the extent that FabVen receives such written notices forty-five or more days prior to the beginning of each month in which such capacity is to be transferred, such capacity will be treated as if allocated to the Venturer to whom it has been transferred for all purposes for the period of the transfer involved, including, without limitation, for purposes of forecasts, commitments, and the right of FabVen to commit to others any capacity unexercised by the Venturers. 17. ONE YEAR WARRANTY The warranty period as stated in Paragraph 5.1 of the Foundry Capacity Agreement, and the claim period as stated in Paragraph 5.3 of the Foundry Capacity Agreement shall each be one year. 18. CLARIFICATION OF PARAGRAPH 5.4 OF THE FOUNDRY CAPACITY AGREEMENT The limitations of paragraph 5.4 of the Foundry Capacity Agreement are intended to limit the remedies under the Warranty provisions, Section 5 of the Foundry Capacity Agreement. Thus, the Paragraph will be understood and interpreted as follows: THIS PARAGRAPH 5.4 STATES THE ONLY AND EXCLUSIVE REMEDY FOR ANY AND ALL CLAIMS MADE AGAINST FABVEN UNDER THIS SECTION 5 OF THIS FOUNDRY CAPACITY AGREEMENT. 19. CONFIRMATION OF"COVER" REMEDY To the extent an intentional breach by FabVen of its obligations concerning wafer start and/or delivery under the Foundry Capacity Agreement results in a delay of more than 60 days in delivery of Wafers to a Venturer, then, notwithstanding anything to the contrary, at the election of the Venturer, FabVen will compensate such Venturer for reasonable damages of such Venturer in securing substitute or cover Wafers for those involved in the breach, subject to the limitation stated below. In addition, to the extent that FabVen breaches its warranties under Section 5 of the Foundry Capacity Agreement, and fails, for reasons attributable to a breach by FabVen or the Licensed Process to correct such breach after two successive attempts to do so, then, at the election of the Venturer, FabVen will compensate such Venturer for reasonable damages of such Venturer in securing substitute or cover Wafers for those involved in the breach, subject to the limitation stated below. Notwithstanding anything to the contrary, for purposes of this commitment in Paragraph 19 of this Written Assurance, the recoverable substitute and/or cover damages shall be (i) the reasonable and necessary costs to replace mask sets for the products involved, together with (ii) the difference between (aa) the price which the Venturer would have paid for the Wafers had FabVen fully performed (the "contract price"), and (bb) all direct and reasonable costs (up to a maximum of [*]% of the contract price) incurred by the Venturer in securing substitutes and/or cover. 20. LEASE TERM AND LEASEHOLD IMPROVEMENTS Notwithstanding anything to the contrary under any local real estate or other law, custom or practice, UMC will consider all investments, improvements and fixtures purchased by FabVen to be the property of FabVen, and UMC will not request higher rents under the lease of Module C as a result of any such investment, improvement and/or fixture. In addition, at the request of FabVen, UMC will negotiate in good faith with FabVen over additional extensions of the lease term beyond the fifteen year period contemplated under the Foundry Venture Agreement, and, to the extent that UMC retains the underlying right to do so, UMC will renew the lease to FabVen for the land of Module C for subsequent five year terms continuing until the term (or partial term) ending August 31, 2044. Without limiting the terms of the Foundry Venture Agreement, the lease rate for the land for Module C will be proportional to the amount paid by UMC to the Park Administration for the respective square footage involved, plus a reasonable amount to cover overhead directly related to the lease (not to exceed [*]% of the rate for the respective share). 21. CONTINUED ASSISTANCE BY UMC Notwithstanding anything to the contrary, UMC will continue to provide technical assistance to FabVen with respect to the Licensed Processes to the extent and for the period reasonably necessary to permit each Venturer to qualify its products on each Licensed Process which is suitable for the production of such products. In addition, UMC will make good faith efforts to improve and develop UMC technology so as to enable UMC to provide that technology to be provided to FabVen by UMC as shown in the Technology RoadMap. 22. CHOICE OF LAW--NO "HIDDEN" MEANINGS To the extent any aspect of Taiwan law purports to alter the express meaning of any term of the Technology Transfer and License Agreement, such term will not be governed by Taiwan law, but instead will be governed by California law so as to give effect to the express intention of the parties as stated in that agreement. 23. CONFIRMATION OF SCOPE OF LICENSE All licenses granted and/or to be granted under the Technology Transfer and License Agreement are intended to include rights to import, to offer to sell, and to otherwise dispose of Wafers, Die and product made using the Wafers made, together with all other rights stated. 24. NO KNOWN INFRINGEMENTS--UMC UMC represents and warrants to the Venturers and to FabVen that UMC has no actual knowledge that the Licensed Process (as defined in the Technology Transfer and License Agreement) infringes any Patent Claims (as defined below). 25. NO KNOWN INFRINGEMENTS--FABVEN FabVen represents to each of the Venturers that, to its or UMC's actual knowledge as of August 29, 1995, the technology, processes, masks and other information transferred or licensed to FabVen under the Technology Transfer and License Agreement or otherwise used in the manufacture of products pursuant to the terms of this Foundry Venture Agreement and/or the Venture Agreements will not infringe any valid patent rights enforceable under R.O.C. and/or U.S. law ("Patent Claims"), provided however that "Patent Claims" shall not include claims arising out of and/or in connection with patents licensed to UMC by third parties as of August 29, 1995. FabVen shall indemnify and hold harmless each of the Venturers from and against any such Patent Claims (i) to the extent arising out of a breach of this representation, and/or (ii) to the extent and proportional to any claim that such Venturer is liable as a direct and/or indirect result (aa) of its execution of this Foundry Venture Agreement or any of the Venture Agreements, and/or (bb) of its investment in FabVen and/or any actions under such agreements on any agency, express or implied partnership or joint venture, respondent superior, piercing the corporate veil, conspiracy or other legal theory whereby liability is asserted against such Venturer for or on account of actions of FabVen. Under no circumstances shall FabVen have any obligation under this Paragraph with respect to any Venturer who conspires and/or cooperates, other than pursuant to process of law, with the person raising the Patent Claim for which indemnity is sought, with respect to such Patent Claim. Notwithstanding anything to the contrary, and except for breaches of the representation of FabVen in the first sentence of this Paragraph, FabVen will not indemnify or hold any Venturer harmless from or against any Patent Claim to the extent arising out of the manufacture for such Venturer and/or the purchase, use and/or sale of products by that Venturer, provided however that with respect to such Patent Claims the Venturer shall be entitled to the same replace or refund remedy as is set forth in Paragraph 5.4 of the Foundry Capacity Agreement with respect to defectively manufactured product, provided however that unless otherwise agreed, replacement product shall not satisfy FabVen's obligations under this Paragraph 25 unless that replacement is non-infringing. 26. CLARIFICATION OF PURPOSE As is clear from the documents involved, FabVen shall be in the business of fabricating integrated circuits and developing related processes and know-how. In doing so, FabVen will sell Wafers to the Venturers and others as described in more detail in the Foundry Capacity Agreements. 27. CONFIRMATION OF COMMITMENTS BY FABVEN FabVen will undertake its reasonable best efforts to implement the Technology Road Map attached to the Foundry Venture Agreement as Attachment A, to achieve the goals described in the FabCo Business Plan, and to achieve the [*] wafer out minimums with respect to each of the [*] and the [*] processes described in Paragraph 6 above. In addition, and subject to the terms of this Foundry Venture Agreement, the Foundry Capacity Agreement and the Technology Transfer and License Agreement, FabVen will cooperate with each Venturer in a commercially reasonable manner to qualify products of such Venturer under the processes involved. 28. LIMITED DISCOVERY IN CONNECTION WITH ARBITRATION Notwithstanding anything to the contrary in the Foundry Venture Agreement, the arbitrators will have the power to require discovery in connection with any dispute within their jurisdiction pursuant to the Federal Rules of Civil Procedure to the extent they find such discovery necessary to achieve a fair and equitable result, and subject to reasonable orders from the arbitrators to minimize the burdens involved and to focus the discovery on those areas necessary. All reasonable costs of such discovery (including attorneys' fees) incurred by a party which prevails in the arbitration in connection with the issue involved in the discovery will be recoverable by that party against the party which requested the discovery. 29. CONFIRMATION OF OBLIGATIONS CONCERNING PROPRIETARY PROCESSES Without limiting the obligations under the confidentiality provisions of the Foundry Venture Agreement, and at the written request of a Venturer, FabVen will treat as confidential all processes provided by a Venturer which are designated by that Venturer ;as "Confidential" under the Foundry Venture Agreement, and, without the written consent of the Venturer which provided the process, FabVen shall not use or otherwise disclose any such process for any purpose other than the fabrication of Wafers for such Venturer. 30. RATIFICATION BY FABVEN UMC shall exert best faith efforts to have FabVen ratify in writing the commitments and obligations under this Written Assurance which apply to FabVen. 31. APPROPRIATE PUBLIC OFFERING ROADMAP Promptly upon incorporation of FabVen, the parties will use reasonable best efforts to pursue discussions with mutually acceptable investment bankers or other appropriate people to attempt to establish the appropriate roadmap to an initial public offering. 32. APPROPRIATE RESOLUTION MECHANISM FOR DISPUTES Promptly upon incorporation of FabVen, the parties will use reasonable best efforts to discuss and evaluate dispute and conflict resolution mechanisms and procedures in an attempt to anticipate and hopefully resolve matters. We request that each Venturer countersign this Written Assurance below to signify their approval and assent to its terms, and to confirm that we each will hold this Written Assurance as an integral and material part of our Foundry Venture Agreements. Yours sincerely, /s/ John Hsuan John Hsuan, President AGREED ON BEHALF OF Cirrus Logic, Inc Name of Venturer As of September 29, 1995 /s/ Michael Hackworth Authorized signature RATIFIED BY FABVEN Authorized signature EX-10.29 7 FOUNDRY CAPACITY AGREEMENT DATED AS OF SEPTEMBER 29, 1995 BETWEEN THE COMPANY AND UMC. [ARTICLE] 5 [MULTIPLIER] 1 [*] Denotes information for which confidential treatment has been requested. Confidential portions omitted have been filed separately with the Commission. FABVEN FOUNDRY CAPACITY AGREEMENT This Foundry Capacity Agreement ("Foundry Capacity Agreement") is entered into as of September __, 1995 ("the Effective Date") by and amongst FabVen, a Taiwan corporation having its principal place of business at No. 3 Li-Hsin Road, Science-Based Industrial Park, Hsin Chu City, Taiwan, R.O.C. ("FabVen"), United Microelectronics Corporation, a Taiwan corporation having its principal place of business at No. 13, Innovation Road 1, Science-Based Industrial Park, Hsin Chu City, Taiwan, R.O.C. ("UMC"), and Cirrus Logic, Inc., a corporation with its headquarters in California ("Cirrus"). 1. DEFINITIONS 1.1 "Foundry Products" and/or "Products" shall mean those integrated circuits designed and/or licensed by one or more of the Venturers and/or any of the subsidiaries of the Venturers which FabVen manufactures for sale by the specific Venturer involved under this Foundry Capacity Agreement. 1.2 "FabVen Production Capacity" and/or "Production Capacity" shall mean commercial production capacity in FabVen's facilities in quantities designated as 8-inch equivalent wafer starts during the month involved. 1.3 "Proprietary Information" shall for purposes of this Foundry Capacity Agreement have the same meaning as defined for Confidential Information under the Foundry Venture Agreement. 1.4 "Technology Transfer and License Agreement," "Foundry Venture Agreement," and "Foundry Venture Memorandum of Understanding" shall mean the agreements having those titles as entered by and between UMC and the other Venturers in connection with the business of FabVen. 1.5 "Venturers" shall mean Cirrus and UMC, and such others (collectively "OtherVen") as may be arranged by UMC to participate in the Foundry Venture Agreement and Foundry Capacity Agreement pursuant to the terms of paragraph 4.1(b) of the Foundry Venture Memorandum of Understanding, provided that each OtherVen must confirm in writing that they will be bound by and comply with the terms of this Foundry Capacity Agreement as if they were expressly named as a Venturer. Cirrus expressly consents to the participation of OtherVen, and such participation of OtherVen shall not in any manner relieve Cirrus of any obligations hereunder. 2. PRODUCTION OF FOUNDRY PRODUCTS 2.1 Subject to the terms of this Foundry Capacity Agreement, and for so long as such Venturer holds a minimum of [*] of their initial ownership percentage of FabVen, such Venturer will have the right of first refusal for FabVen Production Capacity in an amount up to the maximum respective percentages shown in the table below (each a "Production Capacity Percentage"): Venturer Production Capacity Percentage Cirrus [ * ] % OtherVen TBD% Provided however that during any period when any Venturer's total FabVen shareholding falls below [*] of their initial percentage of the total outstanding FabVen shares under the terms of the Foundry Venture Agreement, such Venturer's Production Capacity Percentage shall instead be equal to the percentage of the then total outstanding shares of FabVen then held by such Venturer. 2.2 During the first seven calendar days of each month during the term of this Foundry Capacity Agreement, FabVen will provide by facsimile to the Venturers written rolling forecasts of FabVen's anticipated Production Capacity for the next six full calendar months. These Production Capacity forecasts will not be commitments or representations that FabVen will achieve the quantities stated, but will be FabVen's best estimates of the quantities involved. 2.3 Subject to Paragraph 2.1, within fourteen calendar days of receipt of each Production Capacity forecast under Paragraph 2.2 above during the term of this Foundry Capacity Agreement, each Venturer will provide to FabVen by facsimile a written rolling forecast of its wafer capacity requirements from FabVen for the next six full calendar months ("forecast" and/or "six months wafer start requirements forecast"). (a) Each such forecast shall show the quantity of wafer starts and shall include the specific technology for the wafers listed. Each Venturer shall make good faith efforts to ensure that all such forecasts are reasonable estimates of their respective anticipated needs. Subject to this obligation, and except as expressly stated in this Paragraph 2.3, all such forecasts (and any responses to them) will be for planning purposes only, and will not create any obligation to purchase and/or sell Products. (b) Each such six months wafer start requirements forecast shall constitute a commitment by the Venturer to purchase a minimum of the following percentages of the amounts indicated in the forecast: Month in the forecast First month of forecast Second month of forecast Third month of forecast Fourth month of forecast Fifth month of forecast Sixth month of forecast Minimum percentage commitment for amounts forecast for that month [*]% [*]% [*]% [*]% [*]% [*]% (c) FabVen shall provide a written response to each six months wafer start requirements forecast within five (5) working days of FabVen's receipt of such forecast. Subject to the other terms of this Foundry Capacity Agreement, FabVen's response to each such forecast shall accept the forecast for the quantities in the first three months to the extent they are within the amounts allowed for the Venturer involved pursuant to Paragraph 2.1. FabVen's response may accept and/or reject in whole or in part any additional forecast quantities for those months. 2.4 Subject to Paragraphs 2.7 and 9.5 of this Foundry Capacity Agreement, to the extent that any forecast from any Venturer pursuant to Paragraph 2.3 fails to forecast the full "Production Capacity Percentage" of FabVen Production Capacity allocated to that Venturer under Paragraph 2.1 above during any one or more of the first [*] months of such forecast: (i) by sending prompt written notice of the amount involved to the Venturer affected, FabVen shall be entitled in its sole and complete discretion to enter commitments with others for such unexercised capacity for the applicable months and in the amounts not so exercised, and (ii) such Venturer will not have the right to require FabVen to provide that unexercised capacity to that Venturer in the month(s) involved. 2.5 Notwithstanding anything to the contrary, FabVen will have no obligation to offer additional capacity beyond that stated in Paragraphs 2.1, 2.3 and 2.4 above and/or Paragraph 2.7 below to any Venturer. Nevertheless, during the term of this Agreement, each Venturer shall be entitled to negotiate with FabVen for such capacity on the same basis as others are permitted to negotiate. 2.6 Each Venturer may exercise rights of first refusal for foundry capacity under this Foundry Capacity Agreement solely for Products, and not for the purpose of offering or providing foundry capacity to others. Except as expressly provided below and/or in the Foundry Venture Agreement, no Venturer may transfer and/or assign its rights to capacity under this Foundry Capacity Agreement. 2.7 The Venturers will discuss in good faith the capacity needs of one another with respect to FabVen facilities and Production Capacity. 2.8 Notwithstanding anything to the contrary, and in addition to any other remedies or rights, in the event of any delays in delivery, or any breach of any warranty provided by FabVen under Section 5, any affected Venturer may adjust forecasted and/or ordered Product amounts, and/or cancel orders for affected Products, without breach of any minimum commitment obligations hereunder to take into account the impact of such delay on the Venturer's need for affected Products. 3. PRICING AND DELIVERY 3.1 All purchases of foundry services by the Venturers pursuant to this Foundry Capacity Agreement will be subject to FabVen's standard terms and conditions and its usual business practices, subject to any contrary requirements expressly imposed pursuant to the terms of this Foundry Capacity Agreement. 3.2 Except as expressly provided in this Foundry Capacity Agreement, all purchases of foundry services by the Venturers during the term of this Agreement will be at fair market value and under fair market terms and conditions, as would be negotiated at arm's length in an independent foundry relationship, without regard to any preferences or privileges or other considerations whatsoever; provided however that if all Venturers consent in writing, FabVen may, prior to the completion of an offering of its shares on a recognized securities exchange, offer foundry service terms to the Venturers on such other terms as may be so expressly agreed. 3.3 For so long as the Venturer involved has a right to FabVen Production Capacity under Section 2.1 above, the prices and other purchase terms to such Venturer for foundry services from FabVen will be no less favorable than the prices and purchase terms which FabVen offers to any other entity for comparable processes and Products at comparable quantities; provided however that UMC shall not be entitled to any volume discount. 3.4 FabVen shall make its best efforts to achieve on-time delivery, and will make reasonable efforts to provide linear shipments. To the extent that FabVen complies with its commitments for wafer starts pursuant to the terms of this Foundry Capacity Agreement, and thereafter makes such efforts, FabVen shall not be liable to any Venturer for any delay in delivery. 4. RELIABILITY AND QUALITY 4.1 Subject to the terms of FabVen's standard Non-Disclosure Agreement (the terms of which will be no more onerous than as stated in the Foundry Venture Agreement), FabVen will provide, upon written request of a Venturer, its available reliability and quality data regarding Products for the purpose of maintaining consistent quality and reliability standards for such Products throughout the term of this Foundry Capacity Agreement. 4.2 FabVen shall give the Venturers advance written notice of any proposed change(s) ("Proposed Change Notice") in materials and/or to its existing manufacturing process, which, to the best of FabVen's knowledge, might affect the form, fit, performance, maintainability, operation, function, reliability, interface, interconnectability, compatibility, design rules, models, or size of the chips for Products. Such Proposed Change Notice shall describe the nature of the proposed change(s), including reasons for the change(s), the anticipated schedule for implementation of the change(s), and other relevant technical and logistic considerations, including without limitation quality and reliability data to the extent available. The Venturers shall approve or disapprove any such proposed change promptly, but in no event may any such change be disapproved later than five (5) business days after receipt of the Proposed Change Notice. If any Venturer disapproves such proposed change within the five business day period allowed, FabVen shall continue to manufacture and deliver to such Venturer unchanged Products in accordance with this Foundry Capacity Agreement for a minimum of six (6) months from the date FabVen issues the Proposed Change Notice. Upon the expiration of three months after the following Proposed Change Notice, FabVen, in its discretion and by then giving a minimum of three months prior written notice to the Venturer, may stop manufacture and delivery of the Product involved without liability. 4.3 Subject to the other terms of this Foundry Capacity Agreement, the Venturers reserve the right to make any changes they deem appropriate to the design of Products to be fabricated for them by FabVen, provided however that each such change must be documented by the Venturer through written change notices. Notwithstanding anything to the contrary, after process qualification runs for a particular Product have been made and approved by those involved, any changes to design, process or materials for such Products requested by the Venturer shall be subject to FabVen's consent (which will not be unreasonably withheld) and payment by the Venturer of applicable reasonable costs, if any, related to such change. 4.4 During the term of this Foundry Capacity Agreement, FabVen shall maintain fab and test lot traceability for Products manufactured hereunder. 4.5 FabVen will promptly after discovery advise the Venturers involved of defects and/or non-conformity in Products already shipped to and/or in lots currently in manufacture for such Venturer(s). During the term of this Foundry Capacity Agreement, FabVen will provide each Venturer with written quarterly quality assurance reports regarding Products manufactured on behalf of that Venturer. 4.6 Wafer acceptance will be subject to process control monitor acceptance criteria to be mutually agreed upon between FabVen and the applicable Venturer on a process-by-process basis. Minimum yield and low yield lot criteria will be negotiated between FabVen and the applicable Venturer on a Product-by-Product basis. 5. WARRANTY AND ACCEPTANCE 5.1 FabVen warrants that the Products delivered will be free from defects in material and workmanship for a period of sixty days following delivery by FabVen, and will be processed according to FabVen standard processing specifications as well as in accordance with any additional processing requirements for such Products as may be agreed-upon in writing by FabVen and the Venturer. FabVen warrants that the Venturer will acquire good title to the Products fee and clear of all liens, claims and encumbrances (other than liens, claims and encumbrances relating to alleged intellectual property infringement). 5.2 Upon receipt of written Stop Request, FabVen will immediately stop shipment of Products which are subject to a suspected failure to meet the criteria specified in Paragraph 5.1. If FabVen is responsible for such failure, or the Products in question are not in conformity with Paragraph 5.1, and FabVen is unable to correct it within forty-five (45) days of receipt of such a written Stop Request, then the Venturer involved may reject non-conforming Products which are subject to the failure, and, without penalty (including loss of capacity) cancel any then-committed but not yet shipped purchase order for such Products by sending written notice of cancellation to FabVen within seventy-five (75) days of the written Stop Request. Such a notice of cancellation shall be effective on receipt by FabVen. 5.3 Products which are the subject of warranty claims shall be returned in component form (removed from boards where applicable) to FabVen pursuant to FabVen standard return material authorization procedures. No warranty claim concerning Products, under this Foundry Capacity Agreement or otherwise, may be made more than four months after delivery by FabVen of the Products which are subject to the claim. 5.4 To the extent that any Product delivered under this Foundry Capacity Agreement fails to meet the warranties and/or requirements provided herein, and FabVen shall either (a) replace such Product not meeting the warranty with an equivalent number of replacement Products without charge, or (b) refund the payments made to FabVen for such Product, all within sixty (60) calendar days of receipt by FabVen of written notice from the Venturer of such non-conforming Products. The parties will discuss in good faith which of these two remedies is the most appropriate; provided however that if they cannot agree, FabVen shall have the option to choose in its sole discretion between the two remedies, and provided further that no refund and/or replacement shall be required unless the Products for which refund and/or replacement is sought are returned to FabVen pursuant to FabVen's return material authorization procedures. THIS PARAGRAPH 5.4 STATES THE ONLY AND EXCLUSIVE REMEDY FOR ANY AND ALL CLAIMS MADE AGAINST FABVEN UNDER THIS FOUNDRY CAPACITY AGREEMENT. 5.5 FabVen shall not be responsible for defects to the extent caused by assembly not performed by FabVen or by design or application, or by combination of Products with other components. 5.6 The exclusions and warranties in this Section 5 will survive the termination of this Foundry Capacity Agreement, and the exclusions and limitations of liability and of remedies shall apply notwithstanding any claim of a failure of any one or more remedies to accomplish their purpose. THE PARTIES EXPRESSLY WAIVE AND RELINQUISH ANY CONTRARY RIGHTS WITH RESPECT TO THE SUBJECT MATTER OF THIS SECTION 5 UNDER ANY APPLICABLE LAW, DECISION, AND/OR CUSTOM OR PRACTICE. 5.7 Upon written request from a Venturer and subject to satisfactory arrangements for payment to FabVen for the reasonable cost involved, FabVen will perform failure analysis of Products returned to FabVen pursuant to its standard return material authorization procedures. If such analysis shows the existence of material defects in breach of FabVen's warranties under this Foundry Capacity Agreement, FabVen will not be entitled to payment for the cost of the failure analysis concerning such defects for the specific Products which were subject to them. 5.8 If a Venturer requests FabVen to stop shipment of any Products which the Venturer is obligated to purchase pursuant to this Foundry Capacity Agreement, and the Products are subsequently determined in good faith by FabVen to have been processed in accordance with the requirements of this Foundry Capacity Agreement, FabVen shall be entitled to full payment for completed wafers and, in addition, for its reasonable direct costs for up to one month worth of work in progress. Under this Section 5.8, payment for completed wafers will be at the purchase order price, and payment for work in progress shall allow FabVen to recover all reasonable direct costs involved. All such payments will be paid in full within forty-five days of the date of FabVen's invoice for the amounts involved. 6. SHIPMENT AND TERMS OF PAYMENTS 6.1 Each Venturer guarantees the payment of any and all obligations accrued pursuant to purchase orders from such Venturer under this Foundry Capacity Agreement. Invoices for Products shall be paid at net forty-five (45) days after the end of the month of invoice date. Subject to contrary written agreement, invoices for Products delivered shall show the number of wafers and extended price in U.S. dollars. 6.2 FabVen shall deliver all Products to a freight forwarder in the R.O.C. as designated by the Venturer involved. Such delivery shall be F.O.B. (IncoTerms 1990) at FabVen's facility. 6.3 In the event that any payment under this Foundry Capacity Agreement becomes restricted for any reason, the party whose payment obligation is restricted agrees, at its own expense, to immediately take whatever steps or actions may be necessary to assure such payment. 7. REPRESENTATIONS AND WARRANTIES The Venturers and FabVen each represent and warrant that they have the right and power to enter into this Foundry Capacity Agreement, and adequate resources to fulfill their respective obligations hereunder. 8. TERM AND TERMINATION 8.1 This Foundry Capacity Agreement shall remain in effect until July 1, 2005, unless sooner terminated as provided herein. This Foundry Capacity Agreement may be terminated only as described below and/or in Paragraphs 6.1 and 6.2 of the Foundry Venture Agreement, the terms of which Paragraphs are incorporated by reference. 8.2 Without limiting the foregoing: (a) If any party fails to perform or violates any material obligation under Paragraph 6.1 of this Foundry Capacity Agreement or Paragraph 4.1(c) of the Foundry Venture Agreement, upon thirty (30) days' written notice to the breaching party specifying such default (the "Default Notice"), any non-breaching party affected by such failure and/or violation may terminate this Foundry Capacity Agreement as to its responsibilities and obligations as between FabVen and that particular non-breaching party, without liability (subject to paragraphs 8.3 and 8.4 below), unless: (i) The breach specified in the Default Notice has been cured within the thirty (30) day period, or if the breach is disputed, the amount in dispute is placed in a reasonably secure third party escrow account pending resolution of the dispute; or (ii) The default reasonably requires more than (30) days to correct (specifically excluding any failure to pay money), and the defaulting party has begun substantial corrective action to remedy the default within such thirty (30) day period and diligently pursues such action, in which event, termination shall not be effective unless sixty (60) days has expired from the date of the defaulting party's receipt of the Default Notice without such corrective action being completed and the default remedied. (b) In the event of a breach of a material provision of this Foundry Capacity Agreement, each of the non-breaching parties shall promptly provide in writing a detailed description of the breach to the extent it affects such party as well as any available information reasonably useful and/or necessary to enable a cure (the "Notice of Breach"). The breaching party shall meet with each such non-breaching party within seven (7) working days following receipt of this Notice of Breach, and shall submit a plan to cure the breach within twenty (20) days of receipt of such notice. The non-breaching party will accept or reject the plan in writing (giving written reasons in the event of rejection) within five days of receipt, provided however that no rejection of such a plan will be determinative as to whether a cure has been effectuated. 8.3 If a Venturer terminates this Foundry Capacity Agreement for any reasons stated in Paragraphs 8.1 and/or 8.2, FabVen will: (i) if so requested in writing by the Venturer involved cease all Production required by such Venturer's purchase orders under this Foundry Capacity Agreement; and (ii) if so requested by the Venturer involved otherwise complete and deliver all Products pursuant to such Venturer's purchase orders and invoice such Venturer for the Products. 8.4 If FabVen terminates this Agreement as to any Venturer pursuant to Section 8.1 and/or 8.2, FabVen shall be entitled to payment in full upon delivery of all completed Products manufactured to outstanding purchase orders issued by such Venturer under this Foundry Capacity Agreement, as well as to reimbursement for all reasonable direct costs incurred for up to one month's work then in progress for such Venturer. 8.5 FabVen and each Venturer will cooperate in connection with any issue raised by any one or more of them with respect to intellectual property rights of third parties. Without limiting the foregoing, upon written notice to the others, any Party hereto may suspend (i) performance of its obligations, (ii) exercise of its rights of first refusal with respect to capacity and/or (iii) providing capacity to the extent that such Party has reasonable concerns that its future performance in connection with such matters will subject it to claims by others with respect to such matters, provided however that no such suspension will affect any obligation to pay for Product delivered and/or manufactured prior to the date of written notice concerning such matters. In the event that FabVen exercises any of its rights pursuant to this Paragraph 8.5, FabVen will negotiate in good faith to minimize the liability of the Venturer involved to others. 9. PROPRIETARY RIGHTS All discoveries, improvements and inventions, conceived or first reduced to practice, as those terms are used before the U.S. Patent Office, in the performance of this Foundry Capacity Agreement solely by one party and without reliance upon Confidential Information or Proprietary Information of any other party shall be the sole and exclusive property of such party and such party shall retain any and all rights to file at its sole discretion any patent applications thereon. 10. MISCELLANEOUS 10.1 All terms and conditions of Paragraphs 7 to 9 inclusive of the Foundry Venture Agreement are incorporated by reference. 10.2 This Foundry Capacity Agreement shall become effective only upon execution by all parties and approval, to the extent necessary, by the Government of Taiwan. Each party agrees to make its best faith efforts to cooperate and to obtain such approval as soon as possible. 10.3 Nothing in this Foundry Capacity Agreement shall prohibit any Venturer from purchasing Products and/or foundry services from other suppliers nor, subject to Paragraph 2, prohibit FabVen from offering wafers and/or foundry services to others. 10.4 The provisions of Paragraph 3.4 and Paragraphs 5, 6, 7, 8, 9 and 10 shall survive the expiration and/or termination of this Foundry Capacity Agreement. ACCORDINGLY, each Party to this Foundry Capacity Agreement represents and warrants that the representatives signing on their respective behalf is authorized to enter into this Foundry Capacity Agreement and to bind that Party to its terms. CIRRUS LOGIC, INC. _____/s/ Michael Hackworth______________ UNITED MICROELECTRONICS CORPORATION _____/s/ John Hsuan___________________________________ FABVEN _________________________________________ EX-11 8 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS [ARTICLE] 5 [MULTIPLIER] 1,000 Part II. Other information, Item 6a. Exhibit 11 CIRRUS LOGIC, INC. STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share amounts)
Quarter Ended Two Quarters Ended Sept. 30, Oct. 1, Sept. 30, Oct. 1, 1995 1994 1995 1994 --------- --------- --------- --------- Primary: Weighted average shares outstanding 62,697 59,540 61,978 59,405 Dilutive common stock equivalents: Common stock options, using treasury stock or modified treasury stock method 8,300 3,660 7,397 4,062 Common stock warrants, using treasury stock or modified treasury stock method - 6 11 6 --------- --------- --------- --------- Common and common equivalent shares used in the calculation of net income per share 70,997 63,206 69,386 63,473 ========= ========= ========= ========= Net income $33,037 $12,438 $55,774 $28,013 ========= ========= ========= ========= Earnings per share $0.47 $0.20 $0.80 $0.44 ========= ========= ========= ========= Fully diluted: Weighted average shares outstanding 62,697 59,540 61,978 59,405 Dilutive common stock equivalents: Common stock options, using treasury stock or modified treasury stock method 8,848 3,660 8,159 4,062 Common stock warrants, using treasury stock or modified treasury stock method - 6 13 6 --------- --------- --------- --------- Common and common equivalent shares used in the calculation of net income per share 71,545 63,206 70,150 63,473 ========= ========= ========= ========= Net income $33,037 $12,438 $55,774 $28,013 ========= ========= ========= ========= Earnings per share $0.46 $0.20 $0.80 $0.44 ========= ========= ========= =========
EX-27 9 ARTICLE 5 FIN. DATA SCHEDULE FOR 2ND QTR 10-Q
5 1,000 Mar-30-1996 Apr-02-1995 Sep-30-1995 6-MOS 118,092 44,654 207,091 0 151,142 604,650 145,871 0 848,493 296,563 0 0 0 320,210 191,049 848,493 618,089 618,089 354,183 354,183 184,919 0 0 81,420 25,646 55,774 0 0 0 55,774 $0.80 $0.80
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