Joint Venture Formation Agreement Dated As Of October 23, 1995

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 an ...