-----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, BVyjgJinVho5MuKQ+PgepFkIXtFJRswyTZrKMgE7PcPamHiOPb4fM7R05grqeejy 0/13n7MEWbV5A/itlVfnVQ== 0000772406-97-000040.txt : 19970320 0000772406-97-000040.hdr.sgml : 19970320 ACCESSION NUMBER: 0000772406-97-000040 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19970318 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIRRUS LOGIC INC CENTRAL INDEX KEY: 0000772406 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 770024818 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-23553 FILM NUMBER: 97558835 BUSINESS ADDRESS: STREET 1: 3100 W WARREN AVE CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5106238300 S-1 1 As filed with the Securities and Exchange Commission on March 18, 1997 REGISTRATION NO. 33- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ---------------- 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, California 94538 (510) 623-8300 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Michael L. Hackworth President and Chief Executive Officer CIRRUS LOGIC, INC. 3100 West Warren Avenue Fremont, California 94538 (510) 623-8300 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------- Copies to: Arthur Schneiderman Michael Danaher Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 (415) 493-9300 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ______ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ______ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
=============================================================================================================== Proposed Proposed Proposed maximum maximum maximum offering offering aggregate Amount of Amount of Title of each class of amount to be price per offering offering registration securities to be registered registered unit price (1) price fee - -------------------------------------------------------------------------------------------------------------- 6% Convertible Subordinated $ 280,725,000 100% $ 280,725,00 $ 280,725,000 $ 85,068.1 Notes due December 15, 2003 . . - -------------------------------------------------------------------------------------------------------------- Common Stock, no par 11,591,219 value . . . . . . . . . . . . . shares (2) - - - - ===============================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(i) of the Securities Act of 1933, as amended. (2) Such number represents the number of shares of Common Stock as are initially issuable upon conversion of the 6% Convertible Subordinated Notes due December 15, 2003 registered hereby and, pursuant to Rule 416 under the Securities Act of 1933, as amended, such indeterminate number of shares of Common Stock as shall be required for issuance upon conversion of the Notes being registered hereunder. Pursuant to Rule 457(i), no registration fee is required. -------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. PROSPECTUS Subject to Completion, Dated March 18, 1997 Cirrus Logic, Inc. U.S. $280,725,000 6% Convertible Subordinated Notes due December 15, 2003 and Shares of Common Stock Issuable Upon Conversion Thereof ------------------------------------ This Prospectus relates to $280,725,000 aggregate principal amount of 6% Convertible Subordinated Notes due December 15, 2003 (the "Notes") of Cirrus Logic, Inc. (the "Company") sold otherwise than in reliance on Regulation S (the "Registrable Notes") under the Securities Act of 1933, as amended (the "Securities Act"), and the shares of Common Stock, no par value of the Company, ("Common Stock") issuable upon the conversion of the Registrable Notes (the "Conversion Shares"). The Registrable Notes registered hereby were issued and sold on December 12, 1996 (the "Original Offering") in transactions exempt from the registration requirements of the Securities Act, to persons reasonably believed by Goldman, Sachs & Co., Salomon Brothers Inc, J.P. Morgan Securities Inc., and Robertson, Stevens & Company LLC, as the initial purchasers (the "Initial Purchasers") of the Registrable Notes, to be "qualified institutional buyers" (as defined by Rule 144A under the Securities Act) or other institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under Regulation D of the Securities Act). An additional $19,275,000 aggregate amount of Notes were issued by the Company in the Original Offering and sold by the Initial Purchasers in compliance with the provisions of Regulation S under the Securities Act. The Registrable Notes and the Common Stock issuable upon conversion thereof may be offered and sold from time to time by the holders named herein or by their transferees, pledgees, donees or their successors (collectively, the "Selling Securityholders") pursuant to this Prospectus. The Registration Statement of which this Prospectus is a part has been filed with the Securities and Exchange Commission pursuant to a registration rights agreement dated as of December 12, 1996 (the "Registration Agreement") between the Company and the Initial Purchasers, entered into in connection with the Original Offering. The Registrable Notes are convertible at the option of the holder into shares of Common Stock of the Company (at any time on or after March 18, 1997 and prior to redemption or maturity, at a conversion rate of 41.2903 shares per $1,000 principal amount of Registrable Notes), subject to adjustment under certain circumstances. Interest on the Registrable Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 1997. On March 14, 1997, the closing price of the Common Stock, which is quoted on the Nasdaq National Market under the symbol "CRUS," was $12.3125 per share. --------------------------- THE NOTES AND THE COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS." ----------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS ____________, 1997 The Registrable Notes are unsecured general obligations of the Company and are subordinated in right of payment to all existing and future Senior Indebtedness (as defined in the Indenture). See "Description of the Notes--Subordination." The Registrable Notes will mature on December 15, 2003, and may be redeemed, at the option of the Company, in whole or in part, at any time on or after December 16, 1999 at the redemption prices set forth herein plus accrued interest. Each holder of Registrable Notes will have the right to cause the Company to repurchase all of such holder's Registrable Notes, payable in cash or, at the Company's option, in Common Stock, in the event the Common Stock is no longer publicly traded or in certain circumstances involving a Change of Control (as defined in the Indenture). The Registrable Notes and the Conversion Shares may be offered by the Selling Securityholders from time to time in transactions (which may include block transactions in the case of the Conversion Shares) on any exchange or market on which such securities are listed or quoted, as applicable, in negotiated transactions, through a combination of such methods of sale, or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices. The Selling Securityholders may effect such transactions by selling the Registrable Notes or Conversion Shares directly or to or through broker-dealers, who may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Registrable Notes or Conversion Shares for whom such broker-dealers may act as agents or to whom they may sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Company will not receive any of the proceeds from the sale of the Registrable Notes or Conversion Shares by the Selling Securityholders. The Company has agreed to pay all expenses incident to the offer and sale of the Registrable Notes and Conversion Shares offered by the Selling Securityholders hereby, except that the Selling Securityholders will pay all underwriting discounts and selling commissions, if any. See "Plan of Distribution." The Registrable Notes have been designated for trading on the PORTAL Market. Registrable Notes sold pursuant to this Prospectus are not eligible for trading on the PORTAL Market. The Selling Securityholders will receive all of the net proceeds from the sale of the Registrable Notes and the Common Stock issuable upon conversion of the Registrable Notes and will pay all underwriting discounts and selling commissions, if any, applicable to the sale of the Registrable Notes and the Common Stock issuable upon conversion of the Registrable Notes. The Company is responsible for payment of all other expenses incident to the offer and sale of the Registrable Notes and the Common Stock issuable upon conversion of the Registrable Notes. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy and information statements, and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy and information statements, and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the regional offices of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy statements and other information can also be inspected at the offices of the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a World Wide Web site that contains reports, proxy and information statements, and other information that are filed through the Commission's Electronic Data Gathering, Analysis and Retrieval System. This Web site can be accessed at http://www.sec.gov. The Company has filed with the Commission a Registration Statement on Form S-1 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the Registrable Notes and Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company, the Registrable Notes and the Common Stock, reference is made to the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. Copies of the Registration Statement, including all exhibits thereto, may be obtained from the Commission's principal office in Washington, D.C. upon payment of the fees prescribed by the Commission, or may be examined without charge at the offices of the Commission described above. Cirrus Logic(R) and the Cirrus Logic logo are registered trademarks of the Company. Crystal Semiconductor(TM) and SmartAnalog(TM) are trademarks of Crystal Semiconductor Corporation. This Prospectus also uses trademarks of companies other than the Company and its subsidiaries. SUMMARY The following summary information is qualified in its entirety by the detailed information and financial information incorporated by reference herein appearing elsewhere in this Prospectus. This Prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. When used in this Prospectus, the words "believes," "intends," "anticipates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include the timing and acceptance of new product introductions, the actions of the Company's competitors and business partners, and those discussed under the caption "Risk Factors." THE COMPANY Cirrus Logic, Inc., ("Cirrus Logic" or the "Company") is a leading manufacturer of integrated circuits for the personal computer, telecommunications and consumer electronics markets. The Company has developed a broad portfolio of products and technologies for multimedia, including graphics, video and audio, mass storage, including magnetic hard disk and CD-ROM, communications and data acquisition. Cirrus Logic targets large existing markets that are undergoing major product or technology transitions as well as emerging markets that forecast high growth. The Company applies its analog, digital and mixed-signal design capabilities, software and systems-level engineering expertise to create highly integrated solutions that enable its customers to differentiate their products and reduce their time to market. These solutions are implemented in products that include advanced integrated circuits ("ICs") and related software and subsystem modules. Cirrus Logic was incorporated under the laws of California on February 3, 1984, as the successor to a research corporation which had been incorporated in Utah in 1981. The Company's principal executive offices are located at 3100 West Warren Avenue, Fremont, California 94538 and its telephone number is (510) 623-8300. THE OFFERING Securities Offered . . . . . $280,725,000 aggregate principal amount of 6% Convertible Subordinated Notes due December 15, 2003, issued under an indenture (the "Indenture") between the Company and State Street Bank and Trust Company as Trustee ("Trustee") and Common Stock issuable upon conversion thereof. Issuer . . . . . . . . . . . Cirrus Logic, Inc., a California corporation. Interest Payment Date. . . . Interest on the Registrable Notes is payable semiannually on June 15 and December 15 of each year, commencing June 15, 1997. Conversion Rate. . . . . . . 41.2903 shares per U.S. $1,000 principal amount of Registrable Notes (equivalent to a conversion price of approximately U.S. $24.219 per share), subject to adjustment. Conversion Rights. . . . . . The Registrable Notes are convertible at any time on or after March 18, 1997 and prior to the close of business on the maturity date, unless previously redeemed or repurchased, at the conversion rate set forth above. Holders of Registrable Notes called for redemption or repurchase will be entitled to convert the Registrable Notes up to, but not including or after, the date fixed for redemption or repurchase, as the case may be. See "Description of Registrable Notes -- Conversion Rights." Subordination. . . . . . . . The Registrable Notes are subordinated in right of payment to all existing and future Senior Indebtedness (as defined) of the Company and effectively subordinated to all liabilities of the Company's subsidiaries. As of December 28, 1996, the Company had approximately $141 million of indebtedness and other liabilities that constituted Senior Indebtedness including approximately $41 million of letters of credit. As of December 28, 1996, the Company's subsidiaries had approximately $316 million of indebtedness and other liabilities (including trade payables and indebtedness and other liabilities of the Company's manufacturing joint ventures and excluding intercompany liabilities) as to which the Registrable Notes have been effectively subordinated. Approximately $52 million of this amount is also included in the amount of the Company's outstanding Senior Indebtedness as of December 28, 1996, as set forth above. The Indenture does not restrict the incurrence of additional Senior Indebtedness or other indebtedness by the Company or any subsidiary. The Company anticipates incurring significant additional obligations, which may include Senior Indebtedness, for its manufacturing program. See "Business -- Manufacturing" and "Risk Factors -- Liquidity and Capital Requirements" and "-- Leverage and Subordination." Optional Redemption. . . . . The Registrable Notes are redeemable at the option of the Company, in whole or in part, at any time on or after December 16, 1999 at the redemption prices set forth herein plus accrued interest to the redemption date. See "Description of Registrable Notes -- Redemption." Repurchase at Option . . . . Upon a Change in Control (as defined), of Holders Upon a holders of the Registrable Notes will Change in Control have the right, subject to certain conditions and restrictions, to require the Company to purchase all or part of their Registrable Notes at 100% of the principal amount thereof, plus accrued interest to the repurchase date. The repurchase price is payable in cash or, at the option of the Company but subject to the satisfaction of certain conditions on the part of the Company, in shares of Common Stock (valued at 95% of the average closing bid prices of the Common Stock for the five trading days preceding the second trading day prior to the repurchase date). See "Description of Registrable Notes -- Repurchase at Option of Holders Upon a Change in Control." Use of Proceeds. . . . . . . The Company will not receive any of the proceeds from the sale of any of the Registrable Notes or the Common Stock issuable upon conversion thereof. Events of Default. . . . . . Events of default include: (a) failure to pay principal of or premium, if any, on any Note when due, whether or not such payment is prohibited by the subordination provisions of the Notes and the Indenture; (b) failure to pay any interest on any Note when due, continuing for 30 days, whether or not such payment is prohibited by the subordination provisions of the Notes and the Indenture; (c) default in the Company's obligation to provide notice of a Change in Control (as defined); (d) failure to perform any other covenant of the Company in the Indenture, continuing for 60 days after written notice as provided in the Indenture (except that if such failure is capable of being cured and the Company commences efforts to cure such failure within such 60 day period, such failure shall not be considered an event of default for an additional 60 days so long as the Company is diligently pursuing the cure); (e) any indebtedness for money borrowed by the Company in an outstanding principal amount in excess of $20,000,000 is not paid at final maturity or upon acceleration thereof and such default in payment or acceleration is not cured or rescinded within 30 days after written notice as provided in the Indenture; and (f) certain events of bankruptcy, insolvency or reorganization. See "Description of Registrable Notes -- Events of Default." Registration Rights. . . . . Upon any failure by the Company to comply with certain of its obligations under the Registration Agreement, additional interest will be payable on the Registrable Notes. RISK FACTORS In addition to the other information included in this Prospectus, the following risk factors should be carefully considered in evaluating an investment in the Registrable Notes offered hereby and the shares of Common Stock issuable upon conversion thereof. This Prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements as a result of various risks and uncertainties, including those summarized below. Recent Operating Losses The Company's quarterly revenue 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, economic conditions and overall market demand in the United States and worldwide, the Company's ability to introduce new products and technologies on a timely basis, the ability of the Company to utilize fully the capacity of its manufacturing joint ventures and the ability of such joint ventures to produce wafers on a timely and competitive basis, changes in product mix, pricing decisions, fluctuations in manufacturing costs which affect the Company's gross margins, declines in market demand for 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. Any unfavorable changes in the above or other factors could adversely affect the Company's operating results. In addition, as a result of the Company's decision to expand its wafer supply sources by, among other things, taking direct ownership interests in wafer manufacturing ventures, the Company's operating results will be more sensitive to fluctuations in revenues. 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. The Company experienced operating losses in the last half of fiscal 1996 and the first half of fiscal 1997. The Company took a number of actions in response to these losses. The Company instituted a program to streamline operations and reduce costs, part of which involved a ten percent reduction in force in the fourth quarter of fiscal 1996. The Company also made a strategic decision to focus on the Company's core competencies in the multimedia, mass storage and communications markets, to increase the engineering and marketing resources devoted to product development in these areas, and to divest or shut-down divisions and programs which do not fit within these core competencies. Nevertheless, there is no assurance that the Company will regain the levels of profitability that it has achieved in the past or that losses will not occur in the future. Liquidity and Capital Requirements The semiconductor industry is extremely capital intensive. To remain competitive, the Company believes it must continue to invest in advanced wafer manufacturing and in test equipment. Investments will be made in the various external manufacturing arrangements and its own facilities. The Company intends to obtain most of the necessary capital through direct or guaranteed equipment lease financing and the balance through debt and/or equity financing, and cash generated from operations. There can be no assurance that financing will be available or, if available, will be on satisfactory terms. Failure to obtain adequate financing would restrict the Company's ability to expand its manufacturing infrastructure, to make other investments in capital equipment, and to pursue other initiatives. There can be no assurance that the Company will be able to generate net cash from operations in future periods and its ability to do so is subject to a number of risks and uncertainties, including those summarized herein under "Risk Factors." Leverage and Subordination The Company is highly leveraged. In connection with the Original Offering, the Company incurred $300 million of indebtedness, increasing the Company's total debt to approximately $392 million and resulting in a ratio of total debt to equity (expressed as a percentage) of approximately 86 percent, as of December 28, 1996. In addition, as of December 28, 1996, the Company has (i) guaranteed or is directly liable for payments under operating leases payable over lease terms ranging from five to seven years and aggregating approximately $777 million and (ii) guaranteed approximately $7 million of capitalized leases. Moreover, the Company expects to incur substantial additional direct or guaranteed lease obligations in connection with its manufacturing joint ventures. See "Liquidity and Capital Requirements." For fiscal 1996 the Company's earnings were insufficient to cover fixed charges by approximately $47.1 million. Fixed charges exclude the interest factor associated with operating leases of the Company's MiCRUS and Cirent Semiconductor joint ventures and the interest associated with capitalized leases of the Company's MiCRUS joint venture. On a pro forma basis, had the amount of such interest factor been included in such fixed charges, the Company's earnings would have been insufficient to cover fixed charges for fiscal 1996 and the three quarters ended December 28, 1996 by approximately $66.5 million and $7.1 million, respectively (assuming the Cirent Semiconductor leases were entered into at the beginning of each such period). The degree to which the Company is leveraged could (i) adversely affect its ability to obtain additional financing for itself or its joint ventures, (ii) make it more vulnerable to general economic and market conditions, industry downturns and competitive pressures, (iii) impair its ability to respond to technological changes, and (iv) result in the dedication of a significant amount of any cash generated from operating activities to the payment of debt service and other financing obligations, thereby reducing funds available for operations, its existing manufacturing joint ventures and future business opportunities, including those described under "Business -- Company Strategy." The Company's ability to meet its debt service and other obligations will be dependent on the Company's future performance which will be subject to financial, business and other factors affecting operations of the Company, many of which are beyond its control. The Registrable Notes are unsecured and subordinated in right of payment in full to all existing and future Senior Indebtedness of the Company. As a result of such subordination, in the event of the Company's liquidation or insolvency, payment default with respect to Senior Indebtedness, a covenant default with respect to Designated Senior Indebtedness (as defined), or upon acceleration of the Registrable Notes due to an event of default, the assets of the Company will be available to pay obligations on the Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Registrable Notes then outstanding. The Registrable Notes are obligations exclusively of the Company. Since the operations of the Company are partially conducted through subsidiaries, the cash flow and the consequent ability to service debt, including the Registrable Notes, of the Company, are partially dependent upon the earnings of its subsidiaries and the distribution of those earnings to, or upon loans or other payments of funds by those subsidiaries to, the Company. The payment of dividends and the making of loans and advances to the Company by its subsidiaries may be subject to statutory or contractual restrictions, are dependent upon the earnings of those subsidiaries and are subject to various business considerations. Any right of the Company to receive assets of any of its subsidiaries upon their liquidation or reorganization (and the consequent right of the holders of the Registrable Notes to participate in those assets) will be effectively subordinated to the claims of that subsidiary's creditors (including trade creditors), except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subordinate to any security interests in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company. The Indenture does not prohibit or limit the incurrence of Senior Indebtedness or the incurrence of other indebtedness and other liabilities by the Company or its subsidiaries. The incurrence of additional indebtedness and other liabilities by the Company or its subsidiaries could adversely affect the Company's ability to pay its obligations on the Notes. The Company expects from time to time to incur additional indebtedness and other liabilities, including Senior Indebtedness, and also expects that its subsidiaries will from time to time incur additional indebtedness and other liabilities. In particular, the Company anticipates incurring significant obligations, which may include additional Senior Indebtedness, in connection with its manufacturing program. See "-- Leverage and Subordination," "Business -- Manufacturing" and "Description of Registrable Notes -- Subordination." Risks Associated with Manufacturing and Supply Arrangements In recent years the Company has pursued a strategy to increase its committed wafer supplies through direct ownership interests in manufacturing ventures and committed wafer supply agreements. See "Business -- Manufacturing." Although these arrangements increase the Company's sources of wafer supply, they also have the effect of reducing the Company's flexibility to reduce the amount of wafers it is committed to purchase and increasing the Company's fixed manufacturing costs as a percentage of overall costs of sales. As a result, the operating results of the Company are becoming more sensitive to fluctuations in revenues. In the case of the Company's joint ventures, overcapacity or underutilization results in underabsorbed fixed cost, which adversely affects gross margins and earnings. The Company incurred such charges at its MiCRUS facility for failing to purchase sufficient wafers in the last two quarters of fiscal 1996 and the second quarter of fiscal 1997. In the case of the Company's contracts with semiconductor foundries, the Company must pay contractual penalties if it fails to purchase its minimum commitments. Moreover, the Company will benefit from the MiCRUS and Cirent Semiconductor joint ventures only if they are able to produce wafers at or below prices generally prevalent in the market. If, however, either of these ventures 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 ability of the Company to forecast demand for a mix of products that fully utilize facility capacity, 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, 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 a manufacturing venture to control the use of, or to restrict adequately the discharge of, hazardous materials by the venture 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 the joint venture management and/or its joint venture partners for the operation of the new manufacturing facilities, including the hiring of qualified personnel. 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 using particular manufacturing processes or producing certain products. Certain of the Company's wafer supply arrangements involve facilities outside the United States and therefore entail the risks associated with foreign operations. See "Risk Factors -- Foreign Operations; Currency Fluctuations." 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 facilities 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 additional overcapacity. If this were to occur, the market price for wafers sold by third party foundries could further decline, and the wafers produced by the Company's joint ventures could become more costly relative to prevailing market prices. As part of its strategy to expand its sources of wafer supply, the Company entered into volume purchase agreements with Taiwan Semiconductor Manufacturing Co. Ltd. ("TSMC") under which the Company is committed to purchase a fixed minimum number of wafers at market prices and TSMC guaranteed to supply certain quantities. Under one of these agreements, the Company has agreed to make advance payments to TSMC of approximately $118 million. The parties have been reevaluating these arrangements, and, although no written agreement has been concluded, the Company believes that the requirement for advance payments may be replaced by long-term purchase commitments. Under the agreements, if the Company does not purchase the committed amounts, it may be required to pay penalties. In addition, in the fall of 1995, the Company entered into agreements with United Microelectronics Corporation ("UMC"), a Taiwanese company, that provide that UMC will form a new corporation to be called United Silicon, Inc. to build a wafer fabrication facility and to manufacture and sell wafers, wafer die and packaged integrated circuits. The agreements contemplated that the Company's total investment would be approximately $88 million, in exchange for which the Company would receive 15% of the equity of United Silicon, Inc. as well as the right (but not the obligation) to purchase up to 18.75% of the wafer output of the new facility at fair market prices. The Company made $20.6 million of this investment in the fourth quarter of fiscal 1996. The Company does not expect to make additional scheduled investments. Should the Company not make any additional investments, the Company's ultimate equity holding would be substantially less than 15% and the Company would not retain rights to guaranteed capacity. In such case, it is possible that the venture could be restructured which potentially could adversely affect the value of the Company's investment. Dependence on Vendors for Wafer Supply and Assembly 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 purchase a substantial portion of its wafers from, and to be reliant upon, outside merchant wafer suppliers for at least the next two years although the number of suppliers it uses may diminish. A decrease in the volume of wafers ordered or 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. The Company also uses other outside vendors to package the wafer die into ICs. The Company's reliance on these outside suppliers involves several risks, including the absence of adequate availability of certain packaging technologies, and less control over delivery schedules, manufacturing yields and costs. There is no assurance that the Company will not encounter difficulties with its outside vendors that affect the Company's results of operations in the future. Although wafer and packaging supplies in general are expected to be sufficient to meet expected demand in the near future, the Company's results of operations could be adversely affected if particular suppliers are unable to provide a sufficient and timely supply of product, whether because of raw materials shortages, capacity constraints, unexpected disruptions at the plants, delays in qualifying other suppliers 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. 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, components or packaging services to the Company. 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 may take several quarters. These efforts also dilute the engineering resources assigned to new product development and adversely affect new product development schedules. Accordingly, production may be constrained even though capacity is available at one or more wafer manufacturing facilities. In addition, the Company could encounter supply shortages if sales grow substantially. Any supply shortage could adversely affect sales and operating profit. 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. Dependence on PC Market and PC Manufacturers Sales of most of the Company's products depend largely on sales of personal computers ("PCs"). Reduced growth in the PC market could affect the financial health of the Company as well as its customers. Moreover, as a component supplier to PC original equipment manufacturers ("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. In addition, many of the Company's products are used in PCs for the consumer market, and the consumer PC market is more volatile than other segments of the PC market. Other integrated circuit ("IC") makers, including Intel Corporation, have expressed their interest in integrating through hardware functions, adding through special software functions, or kitting components to provide some multimedia or communications features into or with the central microprocessor or in mediaprocessor products. Successful integration of these functions could substantially reduce the Company's opportunities for IC sales in these areas. A number of PC OEMs buy products directly from the Company and also buy motherboards, add-in boards or modules from suppliers who in turn buy products from the Company. Accordingly, 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 motherboard, add-in board or module manufacturers, the Company may not be fully informed as to the extent or even the fact of its indirect dependence on any particular PC OEM, and, therefore, may be unable to assess the risk of such indirect dependence. The PC market is intensely price competitive. The PC manufacturers in turn put pressure on the price of all PC components, and this pricing pressure is expected to continue. Rapid Technological Change; Dependence on New Products Most of the markets in which the Company operates are characterized by rapid technological change and frequent introduction of new technology leading to more complex and powerful products. The result is a cyclical environment with short product life cycles, price erosion and high sensitivity to overall business conditions. In addition, substantial capital and research and development investment is required for products and processes to keep up with the rapid pace of technological change. 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 system 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, market shares and revenues may be affected quickly if new product introductions are delayed, if the Company's products are not designed into successive generations of products of the Company's customers or if the customer's products are not successful in the market. The Company's gross margins also will depend on the Company's success at introducing and ramping production of new products quickly and effectively because the gross margins of semiconductor products decline as competitive products are introduced. In fiscal 1996, for example, gross margins for certain graphics and audio products and certain older fax/data/modem products declined in response to the announcement and introduction of newer products by the Company and its competitors. Also, the Company must deliver products to customers according to customer schedules. Delays in new product introductions could affect revenues and gross margins for current and follow-on products if customers shift to competitors to meet their requirements. Risks Associated with Display Graphics Market The Company continues to experience intense competition in the sale of graphics products. Several competitors have introduced products and adopted pricing strategies that have increased competition in the desktop graphics market, and new competitors continue to enter the market. These competitive factors affected the Company's market share, gross margins, and earnings in the third quarter of fiscal 1997 and are likely to affect revenues and gross margins for graphics accelerator products in the future. The PC graphics market today consists primarily of two-dimensional ("2D") graphics accelerators, and 2D graphics accelerators with video features. Three-dimensional ("3D") graphics acceleration is expected to become an important capability in late fiscal 1997 and fiscal 1998, primarily in PC products for the consumer marketplace. Several competitors are already in production of 3D accelerators. During the second quarter of fiscal 1997, the Company introduced and began shipping its first RAMBUS DRAM ("RDRAM")-based 3D accelerator for the mainstream PC market. The Company is striving to bring additional products with 3D acceleration to market, but there is no assurance that it will succeed in doing so in a timely manner. If these additional products are not brought to market in a timely manner or do not address the market needs or cost or performance requirements, then the Company's graphics market share and sales will be adversely affected. Revenues from the sale of graphics products in fiscal 1998 are also likely to be significantly dependent on the success of the Company's current DRAM-based 2D graphics/video accelerators and the Company's SGRAM-based 2D graphics/video accelerators. Risks Associated with Multimedia Audio Market 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. Pricing pressures have forced a transition from multi-chip solutions to products that integrate the Codec, controller and synthesis into a single IC. The Company's revenues from the sale of audio products in fiscal 1998 are likely to be significantly affected by the success of its recently introduced fully- integrated, single-chip audio ICs. Moreover, aggressive competitive pricing pressures have adversely affected and may continue to adversely affect the Company's revenues and gross margins from the sale of single-chip audio ICs. In addition, the introduction of new audio products from the Company's competitors, the introduction of mediaprocessors and the introduction of MMX processors with multimedia features by Intel Corporation could adversely affect revenues and gross margins from the sale of the Company's audio products. Three-dimensional spatial effects audio is expected to become an important feature in late fiscal 1997 and in fiscal 1998, primarily in products for the consumer marketplace. The Company has begun shipping such products. If the Company's spatial effects audio products do not meet the cost or performance requirements of the market, revenues from the sale of audio products would be adversely affected. Risks Associated with Mass Storage Market The disk drive market has historically been characterized by a small number of disk drive manufacturers and by periods of rapid growth followed by periods of oversupply and contraction. Growth in the mass storage market is directly affected by growth in the PC market. Disk drive manufacturers often build inventories during periods of anticipated growth, which results in excess inventories when growth slows. As a result, suppliers to the disk drive industry have experienced 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. In addition, consolidation in the disk drive industry has reduced the number of customers for the Company's mass storage products and increased the risk of large fluctuations in demand. The Company believes that excess inventories of CD-ROMs held by its customers limited sales of the Company's mass storage products in the second quarter of fiscal 1997 and limited sales of the Company's optical disk drive products in the third quarter of fiscal 1997. Revenues from mass storage products in the fourth quarter of fiscal 1997 and fiscal 1998 are likely to depend heavily on the success of certain 3.5-inch disk drive products selected for use by various customers, which in turn depends upon obtaining timely customer qualification of the new products and upon bringing the products into volume production timely and cost-effectively. The Company's revenues from mass storage products are dependent on the successful introduction by its customers of new disk drive products. Recent efforts by certain of the Company's customers to develop their own ICs for mass storage products could in the future reduce demand for the Company's mass storage products, which could have an adverse effect on the Company's revenues and gross margins from such products. In addition, in response to the current market trend towards integrating hard disk controllers with microcontrollers, the Company's revenues and gross margins from its mass storage products will be dependent on the Company's ability to introduce such integrated products in a commercially competitive manner. Risks Associated with Communications Market Most of the Company's revenues from communications products are expected to derive from sales of voice/data/fax modem chip sets. The market for these products is intensely competitive, and competitive pricing pressures have affected and are likely to continue to affect the average selling prices and gross margins from this product line. The success of the Company's products will depend not only on the products themselves but also on the degree and timing of market acceptance of new performance levels developed by U.S. Robotics, which will be supported by the Company's new products, and the development of standards with regard to these new performance levels. Moreover, as a relatively new entrant to this market, the Company may be at a competitive disadvantage to suppliers who have long- term customer relationships, have greater market share or have greater financial resources. In addition, the introduction of new modem products from the Company's competitors, the introduction of mediaprocessors and the introduction of MMX processors with multimedia features by Intel Corporation could adversely affect revenues and gross margins from the sale of the Company's modem products. Product Performance Risks The greater integration of functions and complexity of operation of the Company's products 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. Inventory Risk; Shortened Customer Lead Times 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, particularly for certain graphics and audio products. In the third quarter of fiscal 1996, these factors caused the Company to produce excess inventories of particular products, and the Company's revenues and earnings were adversely affected. In addition, the Company's minimum commitments under its joint ventures may result in the Company producing inventory in excess of current and short-term demand in order to avoid incurring charges for underutilization. These factors increase not only the inventory risk but also the difficulty of forecasting quarterly operating results. Moreover, 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. The concentration of sales in the last month of the quarter contributes to the difficulty in predicting the Company's quarterly revenues and results of operations. Competition The Company's business is intensely competitive and is characterized by new product cycles, 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. See "-- Dependence on PC Market and PC Manufacturers." Intellectual Property Risks 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 its customers. 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 such lawsuits could divert a significant portion of the Company's financial and management resources. Managing Change The Company has experienced rapid change involving acquisitions and divestitures, changes in the number of employees, growth in the scope and geographic area of its operations, and involvement in manufacturing joint ventures. These changes have resulted in new and increased responsibilities for management personnel and have placed added pressures on the Company's operating and financial systems. In the fourth quarter of fiscal 1996, the Company began implementing a program to streamline operations and improve its internal management systems. The Company must continue to improve its operational, financial and management systems and must continue to integrate new employees and new operations, such as the Cirent Semiconductor joint venture. If the Company is unable to manage change effectively or hire or retain qualified personnel, the Company's business and results of operations could be materially adversely affected. See "Business -- Employees." Foreign Operations; Currency Fluctuations 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 change 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. Dependence on Key Personnel The Company's success depends to a significant extent 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. See "Business -- Employees." Limitations on Repurchase of Registrable Notes The Company's ability to repurchase Registrable Notes upon the occurrence of a Change in Control is subject to limitations. There can be no assurance that the Company would have the financial resources, or would be able to arrange financing, to pay the repurchase price for all the Registrable Notes that might be delivered by Holders of Registrable Notes seeking to exercise the repurchase right. Moreover, although under the Indenture the Company may elect, subject to satisfaction of certain conditions, to pay the repurchase price for the Registrable Notes using shares of Common Stock, the terms of the Company's existing revolving credit facility prohibit the repurchase of Notes by the Company or its subsidiaries in cash or any other form of payment including shares of Common Stock, and the Company's ability to purchase Registrable Notes may be limited or prohibited by the terms of any future borrowing arrangements, including Senior Indebtedness existing at the time of a Change in Control. The Company's ability to repurchase Notes with cash may also be limited by the terms of its subsidiaries, borrowing arrangements due to dividend restrictions. Any failure by the Company to repurchase the Registrable Notes when required following a Change in Control would result in an Event of Default under the Indenture whether or not such repurchase is permitted by the subordination provisions of the Indenture. Any such default may, in turn, cause a default under Senior Indebtedness of the Company. Moreover, the occurrence of a Change in Control would result in an Event of Default under the Company's existing revolving credit facility and may cause an event of default under the terms of other Senior Indebtedness of the Company. As a result, in each case, any repurchase of the Registrable Notes would, absent a waiver, be prohibited under the subordination provisions of the Indenture until the Senior Indebtedness is paid in full. In addition, the Company's repurchase of Registrable Notes as a result of the occurrence of a Change in Control may be prohibited or limited by, or create an event of default under, the terms of agreements related to borrowings which the Company may enter into from time to time, including agreements relating to Senior Indebtedness. See "Description of Registrable Notes -- Repurchase at Option of Holders Upon a Change in Control." Absence of Public Market for the Registrable Notes The Registrable Notes were issued in December 1996 to a small number of institutional buyers. The Registrable Notes issued in reliance on 144A have been designated for trading on the PORTAL Market. Registrable Notes sold pursuant to the Registration Statement of which this Prospectus forms a part are no longer eligible for trading on the PORTAL Market. The Registration Statement of which this Prospectus forms a part is filed pursuant to the Registration Agreement, which does not obligate the Company to keep the Registration Statement effective after the third anniversary of the date when the Registration Statement is declared effective or, if earlier, the date when all the Registrable Notes and the Common Stock issuable on conversion thereof covered by the Registration Statement have been sold pursuant to the Registration Statement or may be resold without registration by persons that are not affiliates of the Company pursuant to Rule 144(k) under the Securities Act. The Company does not intend to apply for listing of the Registrable Notes on any securities exchange or to seek approval for quotation through any automated quotation system. The Initial Purchasers have advised the Company that they intend to make a market in the Registrable Notes. The Initial Purchasers are not obligated, however, to make a market in the Registrable Notes and any such market making may be discontinued at any time in the sole discretion of the Initial Purchasers without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Registrable Notes. Possible Volatility of Registrable Notes and Stock Price The Company anticipates that its quarterly revenues and operating results will fluctuate substantially from quarter to quarter as a result of a wide variety of factors, many of which are outside of the Company's control, including, but not limited to, economic conditions and overall market demand in the United States and worldwide, the Company's ability to introduce new products and technologies on a timely basis, the ability of the Company to utilize fully the capacity of its manufacturing joint ventures and the ability of such joint ventures to produce wafers on a timely and competitive basis, changes in product mix, pricing decisions, fluctuations in manufacturing costs which affect the Company's gross margins, declines in market demand for the Company's and its 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, which may have a significant impact on the market price of Registrable Notes and the Common Stock into which they are convertible. The trading price of the Common Stock has been, and the trading price of the Registrable Notes and the Common Stock into which they are convertible may continue to be, subject to wide fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, announcements concerning new products, strategic relationships or technological innovations by the Company or its competitors, general conditions in the computer industry and other events or facts. In recent years the stock market in general, and the shares of technology companies in particular, have experienced extreme price fluctuations. This volatility has had a substantial effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance. These broad market fluctuations may adversely affect the market price of the Registrable Notes and Common Stock. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Registrable Notes or the Common Stock issuable upon conversion thereof by the Selling Securityholders. MARKET PRICES AND DIVIDEND POLICY The Company's Common Stock is traded on the Nasdaq National Market under the symbol "CRUS." The following table shows for the periods indicated the high and low sales prices for the Common Stock. High Low ------ ------ Fiscal year ended April 1, 1995 First quarter $19.07 $14.00 Second quarter 17.35 12.69 Third quarter 15.57 10.63 Fourth quarter 19.13 11.50 Fiscal year ended March 30, 1996 First quarter 33.69 17.06 Second quarter 59.63 31.00 Third quarter 55.50 19.75 Fourth quarter 26.38 17.13 Fiscal year ended March 31, 1997 First quarter 25.13 16.88 Second quarter 21.88 13.38 Third quarter 24.13 15.75 Fourth quarter (through March 14, 1997) 17.11 12.31 At March 13, 1997, there were approximately 2,456 holders of record of the Company's Common Stock. The Company has not paid cash dividends on its Common Stock and presently intends to continue a policy of retaining any earnings for reinvestment in its business. CAPITALIZATION The following table sets forth the unaudited consolidated capitalization of the Company as of December 28, 1996. December 28, 1996 (in thousands) ------------------ Obligations under equipment loans and capital leases (including current portion of $28,540) $ 91,760 Convertible subordinated notes 300,000 Shareholders' equity: Convertible preferred stock, no par value; 5,000,000,000 shares authorized, none issued - Common stock, no par value, 140,000,000 shares authorized, 65,649,776 shares issued and outstanding(1) 349,165 Retained earnings 104,795 ------------------ Total shareholders' equity 453,960 ------------------ Total capitalization $ 845,720 ================== (1) Does not include (i) 12,387,090 shares of Common Stock issuable upon conversion of the Notes; (ii) 15,399,553 shares of Common Stock reserved for issuance under the Company's stock option plans, under which options to purchase 13,793,288 shares were outstanding as of December 28, 1996, at a weighted average exercise price of $17.3951 per share, and (iii) 610,161 shares reserved for issuance under the Company's 1989 Employee Stock Purchase Plan. Summary Consolidated Financial Data (Amounts in thousands, except per share data and ratios)
Three Quarters Ended Fiscal Year (1) --------------------- ------------------------------------------------------- Dec. 30, Dec. 28, 1992 1993 1994 1995 1996 1995 1996 ---------- ---------- ---------- ---------- ----------- ---------- ---------- Operations Data: Net sales $217,574 $356,478 $557,299 $889,022 $1,146,945 $913,872 $704,237 Cost of sales 110,599 193,759 298,582 512,509 774,350 551,456 434,890 ---------- ---------- ---------- ---------- ----------- ---------- ---------- Gross profit 106,975 162,719 258,717 376,513 372,595 362,416 269,347 Operating expenses: Research and development 41,833 73,447 126,632 165,622 238,791 168,576 179,537 Selling, general and administrative 39,459 54,924 91,887 126,666 165,267 119,476 92,977 Gain on sale of assets - - - - - - (18,922) Restructuring costs - - - - 11,566 - - Non-recurring costs - - - 3,856 1,195 1,195 - Merger costs 2,455 3,400 - 2,418 - - - ---------- ---------- ---------- ---------- ----------- ---------- ---------- Operating income (loss) 23,228 30,948 40,198 77,951 (44,224) 73,169 15,755 Gain on sale of equity investment - - 13,682 - - - - Foreign currency transaction gains - - - 4,999 - - - Interest and other income, net 3,700 3,207 4,280 9,129 7,652 5,230 3,784 Interest expense (1,842) (1,610) (2,196) (2,441) (5,151) (2,236) (11,562) ---------- ---------- ---------- ---------- ----------- ---------- ---------- Income (loss) before provision for income taxes and cumulative effect of accounting change 25,086 32,545 55,964 89,638 (41,723) 76,163 7,977 Provision (benefit) for income taxes 8,801 12,321 18,146 28,236 (5,540) 23,990 2,274 ---------- ---------- ---------- ---------- ----------- ---------- ---------- Income (loss) before effect of accounting change 16,285 20,224 37,818 61,402 (36,183) 52,173 5,703 Cumulative effect as of March 31, 1993, of change in method of accounting for income taxes - - 7,550 - - - - ---------- ---------- ---------- ---------- ----------- ---------- ---------- Net income (loss) $16,285 $20,224 $45,368 $61,402 ($36,183) $52,173 $5,703 ========== ========== ========== ========== =========== ========== ========== Income (loss) per common and common equivalent share before cumulative effect of accounting change $0.33 $0.39 $0.67 $0.96 ($0.58) $0.75 $0.09 Cumulative effect of accounting change per common and common equivalent share - - .13 - - - - ---------- ---------- ---------- ---------- ----------- ---------- ---------- Net income (loss) per common and common equivalent share $0.33 $0.39 $0.80 $0.96 ($0.58) $0.75 $0.09 ========== ========== ========== ========== =========== ========== ========== Weighted average common and common equivalent shares outstanding 49,180 52,424 56,402 63,680 62,761 69,437 66,382 Ratio of earnings to fixed charges (2) 9.5x 12.1x 14.7x 17.3x N/A 13.3x 2.1x
At Fiscal Year End (1) As of ------------------------------------------------------- Dec. 28, 1992 1993 1994 1995 1996 1996 ---------- ---------- ---------- ---------- ----------- ---------- Balance Sheet Data: Working capital $76,291 $98,500 $273,527 $251,619 $182,643 $465,088 Total assets 172,070 258,292 517,931 673,534 917,577 1,133,721 Obligations under equipment loans and capital leases, including current portion 13,560 18,094 19,145 26,205 71,829 91,760 Convertible debt - - - - - 300,000 Shareholders' equity 108,928 143,416 344,315 419,016 428,666 453,960 (1) Before fiscal 1994, the Company's fiscal year end was March 31. During the first quarter of fiscal 1994, the Company changed its reporting period from a 12 month year ending March 31 to a fiscal year of 52 or 53 weeks ending on the Saturday closest to March 31. Fiscal 1994 ended on April 2, 1994, fiscal 1995 ended on April 1, 1995 and fiscal 1996 ended on March 29, 1996. (2) For the purposes of calculating the ratio of earnings to fixed charges, (i) earnings consist of consolidated income (loss) before provision for income taxes and cumulative effect of accounting change plus fixed charges and (ii) fixed charges consist of interest expense incurred, including capital leases, amortization of interest costs and the portion of rental expense under leases deemed by the Company to be representative of the interest factor. Earnings were not sufficient to cover fixed charges for fiscal 1996 by approximately $41.7 million. Fixed charges exclude interest on capitalized leases and the interest factor associated with operating leases of the Company's MiCRUS joint venture, estimated at $1.8 million, $8.9 million, $5.2 million and $11.0 million for fiscal 1995 and 1996, and the three quarters ended December 30, 1995 and December 28, 1996, respectively, which are guaranteed by the Company or as to which the Company is otherwise liable. Had such charges been included, the ratio of earnings to fixed charges for fiscal 1995 and the three quarters ended December 30, 1995 and December 28, 1996 would have been 13.1x, 7.1x, and 1.2x, respectively. In addition, the deficiency of earnings to cover fixed charges for fiscal 1996 would have been $50.6 million. During the third quarter of fiscal 1997, the Company's Cirent joint venture entered into leases to finance $253 million of equipment, under which the Company is a co-lessee and guarantor. On a pro forma basis to include the Cirent leases as if they were outstanding from the beginning of fiscal 1996, the ratio of earnings to fixed charges for the three quarters ended December 30, 1995 would have been 3.4x and the deficiency of earnings to cover fixed charges for fiscal 1996 and the three quarters ended December 28, 1996 would have been approximately $66.5 million and $7.1 million, respectively.
CONSOLIDATED SUPPLEMENTARY FINANCIAL DATA (Amounts in thousands except per share amounts) (Unaudited)
Fiscal years by quarter ----------------------------------------------------------------------------------------------------- 1995 1996 1997 ------------------------------------ ------------------------------------ --------------------------- 1st 2nd 3rd 4th 1st 2nd 3rd * 4th ** 1st 2nd + 3rd ++ -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Operating summary: Net sales $184,997 $202,211 $228,599 $273,215 $300,269 $317,820 $295,783 $233,073 $214,898 $236,030 $253,309 Cost of sales 96,627 113,715 135,658 166,509 177,689 176,494 197,273 222,894 132,407 145,870 156,613 Gain on sale of assets - - - - - - - - - (6,913) (12,009) Restructuring costs - - - - - - - 11,566 - - - Non-recurring costs - 3,856 - - - - 1,195 - - - - Merger costs - 2,418 - - - - - - - - - Operating (loss) income 21,426 15,788 19,725 21,012 30,566 48,421 (5,818)(117,393) (9,295) 7,690 17,360 Income (loss) before income taxes 22,850 18,045 21,142 27,601 33,192 48,228 (5,257)(117,886) (10,636) 4,194 14,419 Net (loss) income $15,575 $12,438 $14,482 $18,907 $22,737 $33,037 ($3,601)($88,356) ($7,605) $2,998 $10,310 Net (loss) income per common and common equivalent share $0.24 $0.20 $0.23 $0.29 $0.34 $0.47 ($0.06) ($1.38) ($0.12) $0.05 $0.16 Weighted average common and common equivalent shares outstanding 63,740 63,206 63,300 64,472 67,775 70,997 63,273 63,813 64,159 64,776 66,460 * In the third quarter of fiscal 1996, cost of sales increased as a result of a charge of approximately $33 million for inventory written down for lower-than-anticipated shipments of and demand for graphics, core logic and other products and a $5 million charge for anticipated payments for underutilization of capacity at its MiCRUS joint venture. ** In the fourth quarter of fiscal 1996, cost of sales increased as a result of charge for general market conditions and the transition to new product releases. Also, there is a restructuring charge related to the streamlining of operations. = During August 1996, the Company completed the sale of the PicoPower product line to National Semiconductor, Inc. The Company received approximately $17.6 million in cash for the PicoPower product line. In connection with the transaction, the Company recorded a gain of approximately $6.9 million. ++ During December 1996, the Company completed the sale to ADC Telecommunications Inc. of the PCSI product group that produced CDPD (Cellular Digital Packet Data) base station equipment for wireless service providers, and developed pACT (personal Air Communications Technology) base stations for AT&T Wireless Services Inc. The Company received approximately $20.8 million in cash for the group. In connection with the transaction, the Company recorded a gain of approximately $12.0 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Discussion and Analysis contains forward-looking statements. Such statements are subject to certain risks and uncertainties, including those discussed below and in Risk Factors, that could cause actual results to differ materially from the Company's expectations. Readers are cautioned not to place undue reliance on any forward-looking statements, as they reflect management's analysis only as of the date hereof. 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 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. During the first quarter of fiscal 1994, the Company changed its reporting period from a 12 month year ending March 31 to a fiscal year of 52 or 53 weeks ending on the Saturday closest to March 31. Accordingly, fiscal years 1996, 1995 and 1994 ended on March 30, 1996, April 1, 1995 and April 2, 1994, respectively. Quarterly Results of Operations During fiscal 1997, the Company implemented a strategy of focusing on the markets for multimedia (graphics, video and audio), mass storage and communications. As part of this strategy, the Company divested non-core business units and eliminated projects that did not fit within its core markets. At the same time, the Company also implemented a program to manage costs and streamline operations. Nevertheless, there is no assurance that the Company will regain the levels of profitably that it has achieved in the past or that losses will not occur in the future. 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 Three Quarters Ended ------------------- Dec. 28, Dec. 30, Percent 1996 1995 change --------- --------- --------- Net sales 100% 100% -23% Gross margin 38% 40% -26% Research and development 25% 18% 7% Selling, general and administrative 13% 13% -22% Gain on sale of assets -3% 0% N/A Non-recurring costs 0% 0% -100% Income from operations 2% 8% -78% Income before income taxes 1% 8% -90% Provision for income taxes 0% 3% -91% Net income 1% 6% -89%
Net Sales Net sales for the first three quarters of fiscal 1997 were $704.2 million, a decrease of 23% from the $913.9 million reported for the comparable period of fiscal 1996. Sales of graphics, audio, mass storage and fax/modem products decreased in the first three quarters of fiscal 1997 over the comparable periods in fiscal 1996. For the first three quarters of fiscal 1997, export sales (including sales to U.S.-based customers with manufacturing plants overseas) were 62% of total sales compared to 58% for the corresponding period in fiscal 1996. The Company's sales are currently denominated primarily in U.S. dollars. The Company may enter into foreign currency forward exchange and option contracts to hedge certain of its foreign currency exposures. Sales to one customer were approximately 10% of net sales during the first three quarters of fiscal 1997. No other customers accounted for 10% or more of sales during the first three quarters of fiscal 1997 or fiscal 1996. Gross Margin The gross margin was 38% in the first three quarters of fiscal 1997, compared to 40% for the first three quarters of fiscal 1996. The gross margin decline for the first three quarters in fiscal 1997 was the result, in part, of sales of older products with prices lower relative to prices for those same parts in the first three quarters of fiscal 1996. The gross margin was also reduced by under-loading charges in the second quarter of fiscal 1997 from the MiCRUS facility. Research and Development The expenditures in the first three quarters of fiscal 1997 were approximately 25% of net sales compared to 18% in the comparable period of fiscal 1996. As a result of the Company concentrating new product development on projects in its core markets, expenses primarily related to reduced headcount reduced the absolute amount compared to the comparable period of fiscal 1996. Selling, General and Administrative Expenses Selling, general and administrative expenses represented approximately 13% of net sales in the first three quarters of fiscal 1997 compared 13% in the corresponding period in fiscal 1996. The dollar amount of such expenses decreased as a result of reductions in compensation expenses, marketing expenses for promotions and advertising, and administrative expenses. Gain on Sale of Assets During August 1996, the Company completed the sale of the PicoPower product line to National Semiconductor, Inc. The Company received approximately $17.6 million in cash for the PicoPower product line. In connection with the transaction, the Company recorded a gain of approximately $6.9 million. During December 1996, the Company completed the sale to ADC Telecommunications Inc. of the PCSI product group that produced CDPD (Cellular Digital Packet Data) base station equipment for wireless service providers, and developed pACT (personal Air Communications Technology) base stations for AT&T Wireless Services Inc. The Company received approximately $20.8 million in cash for the group. In connection with the transaction, the Company recorded a gain of approximately $12.0 million. During January 1997, the Company completed the sale of PCSI's Wireless Semiconductor Products group's assets to Rockwell International for $18.1 million cash. This group provided digital cordless chip solutions for PHS (Personal Handyphone System) and DECT (Digital European Cordless Telecommunications) as well two-way messaging chip solutions for pACT (personal Air Communications Technology). Income Taxes The Company's effective tax rate was 28.5% for first three quarters of fiscal 1997, as against 31.5% for the comparable period of fiscal 1996. The 28.5% estimated annual effective tax rate is less than the U.S. federal statutory rate of 35%, and less than the effective tax rate of 31.5% for the first three quarters of fiscal 1996, primarily because of foreign operating results which are taxed at rates other than the U.S. statutory rate, federal and state research tax credits, and state investment tax credits. Annual Operating Results Results of operations for fiscal 1996 were materially adversely affected by several factors that occurred during the third and fourth quarters. First, revenues from the sale of graphics and audio products declined in the third and fourth quarters of fiscal 1996 from the levels in the second quarter of fiscal 1996. This decline was caused by slower than expected growth in the home PC market, by dramatically reduced demand from customers for certain graphics, audio, and PicoPower Pentium VL-bus core logic products and for certain other products, and by softer than expected business conditions in Taiwan. Second, the slower than expected sales resulted in substantial amounts of excess inventory of graphics and audio products. This in turn caused the Company to record inventory write-offs and write-downs during both the third and fourth quarters of fiscal 1996. Also, the Company provided additional amounts for underutilization of capacity at its MiCRUS joint venture. Third, because new graphics, audio and fax/modem products were being introduced, the value of the older products declined substantially. The Company liquidated some of the older inventory during the fourth quarter of fiscal 1996. Fourth, the Company incurred a restructuring charge in the fourth quarter of fiscal 1996 as a result of streamlining its operations. Net Sales Net sales for fiscal 1996 were $1,146.9 million, an increase of 29% over the $889.0 million for fiscal 1995 and 106% over the $557.3 million for fiscal 1994. The net sales increase in fiscal 1996 compared to fiscal 1995 was the result of growth in sales during the first three quarters of fiscal 1996 offset somewhat by a decline during the fourth quarter of fiscal 1996. Sales of mass storage and wireless communication products increased in each of the first three quarters of fiscal 1996 but declined in the fourth quarter of fiscal 1996 against the third quarter of fiscal 1996. Net sales of graphics and audio products for the first three quarters of fiscal 1996 increased over the comparable period of fiscal 1995, but declined in the third and fourth quarters of fiscal 1996 against the second quarter of fiscal 1996. Net sales of graphics and wireless communication products declined in the fourth quarter of fiscal 1996 over the fourth quarter of fiscal 1995. The net sales increase in fiscal 1995 compared to 1994 was largely due to an increase in sales of graphics, audio, mass storage and wireless communications products. Graphics and mass storage product revenue grew as a result of an increase in unit sales to the desktop personal computer market segment. Audio product sales grew as a result of an increase in sales of 16-bit audio codec products. Wireless communications product sales grew primarily because of Cellular Digital Packet Data (CDPD) base station installations, beginning in the second quarter of fiscal 1995. Export sales, principally in Asia, including sales to overseas operations of domestic corporations, were approximately $647 million in fiscal 1996 compared to approximately $497 million in fiscal 1995 and approximately $323 million in fiscal 1994. The Company's sales are currently denominated in U.S. dollars and Japanese yen. The Company may purchase hedging instruments to reduce short-term foreign currency exposure related to certain cash and trade receivables denominated in Japanese yen. In fiscal 1996 and 1995, no single customer accounted for 10% or more of net sales. Sales to International Business Machines Corporation (IBM) were approximately 10% of net sales in fiscal 1994. Gross Margin The gross margin percentage was 32.5% in fiscal 1996, compared to 42.4% and 46.4% in fiscal 1995 and 1994, respectively. During fiscal 1996, the gross margin percentage declined from 40.8% in the first quarter to a low of 4.4% in the fourth fiscal quarter. The gross margin percentage decreased as a result of charges for inventory written down for lower-than-anticipated shipments of and demand for graphics, audio, core logic and other products and charges for underutilization of capacity at the MiCRUS joint venture. The decline in the gross margin percentage was also 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, audio and fax/modem products. During fiscal 1995, the gross margin percentage declined from a high of 47.8% in the first fiscal quarter to a low of 39.1% in the fourth fiscal quarter. During fiscal 1994, the gross margin percentage increased from a low of 38.0% in the first fiscal quarter to 48.5% in the fourth fiscal quarter. The decline in the gross margin percentage for fiscal 1995 compared to fiscal 1994 was mostly the result of expediting expenses related to premiums paid to suppliers to increase production of the Company's products, higher wafer costs caused by the increased use of more expensive suppliers, low yield on several new products ramping into production, and lower selling prices on certain graphics and audio parts. Exacerbating the gross margin decline was the 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. The decrease in the gross margin percentage for fiscal 1995 compared to fiscal 1994 was tempered by a $10 million charge to cost of sales in the first quarter of fiscal 1994 as a result of decreased demand for certain of the Company's low-end mass storage products. One-time royalty revenue of approximately $3 million was included in net sales in the first quarter of fiscal 1995. But, offsetting this royalty revenue was an increased inventory reserve as a result of decreased forecasted demand for certain of the Company's 16-bit audio codecs. Research and Development Expenses Research and development expenses expressed as a percentage of net sales were 20.8%, 18.6% and 22.7% in fiscal 1996, 1995 and 1994, respectively. Such expenses increased in absolute dollars in all of the fiscal years, as the Company continues to invest in new product development. During fiscal 1994, research and development expenses increased at a greater rate than net sales. Therefore, the amount as a percentage of net sales declined in fiscal 1995. 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 14.4%, 14.2% and 16.5% in fiscal 1996, 1995 and 1994, respectively. In fiscal 1994, such expenses increased at a rate greater than sales. Therefore, the amount as a percentage of net sales declined in fiscal 1995. The absolute spending increase in fiscal 1996 and 1995 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 fiscal 1997. Restructuring Costs In the fourth quarter of fiscal 1996, as a result of decreased demand for the Company's products for use in personal computers, which accounts for more than 80% of the Company's revenue, management reviewed the various operating areas of the business and took certain steps to bring operating expenses and capacity in line with demand. These actions resulted in a pre-tax restructuring charge of approximately $11.6 million. The principal actions in the restructuring involved the consolidation of support infrastructure and the withdrawal from an unprofitable product line and reduction of planned production capacity. This resulted in the elimination of approximately 320 positions from the manufacturing, research and development, sales and marketing and administrative departments. The Company estimates the annual savings from reduced salaries, benefits, and other expenses will be approximately $17 million. The major components of the restructuring charges were $7.6 million of employee separation costs and $4.0 million of costs primarily associated with the scaling back of certain capacity commitments. The implementation of this plan commenced during the fourth quarter of fiscal 1996 and the cash outlays occurred mainly in the first half of fiscal 1997. Non-recurring and Merger Costs In the third quarter of fiscal 1996, non-recurring costs were approximately $1.2 million associated with the planned formation of the new joint venture (Cirent Semiconductor) with Lucent Technologies (formerly AT&T Microelectronics). In the second quarter of fiscal 1995, non-recurring and merger costs were approximately $6.3 million. Non-recurring costs of $3.9 million were primarily associated with the acquisition of technology and marketing rights and the remaining minority interest in a subsidiary, and the formation of the MiCRUS joint venture with IBM. Merger costs of approximately $2.4 million for the August 1994 combination of Cirrus Logic and PicoPower included one-time costs for charges related to the combination of the two companies, financial advisory services, and legal and accounting fees. Interest Income Interest income and other, net in fiscal 1996 was $7.7 million compared to $9.1 million in fiscal 1995 and $4.3 million in fiscal 1994. The decrease in fiscal 1996 over fiscal 1995 was primarily the result of a decrease in the amount of short-term investments. The increase in fiscal 1995 over fiscal 1994 was primarily the result of increased cash and cash equivalents and short-term investments principally resulting from the stock offering in February 1994. Foreign Currency Transaction Gains During the fourth quarter of fiscal 1995, the Company recorded foreign currency transaction gains of approximately $5.0 million. These gains occurred because of a decline in the U.S. dollar against the Japanese yen and the impact of this decline on certain yen denominated assets. Transaction gains and losses were not material in fiscal 1996 and 1994. Gain on Sale of Investment During fiscal 1991 and 1992, the Company invested approximately $1.7 million in Media Vision Technology, Inc. (Media Vision) stock. The investment was accounted for by the cost method and represented an approximate six percent interest in Media Vision. In April 1993, the Company sold approximately 16% of its original investment in Media Vision in an underwritten public offering. In October 1993, the Company sold approximately 60% of its original investment in Media Vision in the open market. In connection with the sales, the Company recorded gains of $2.5 million and $11.2 million in the first and third quarters of fiscal 1994, respectively. Income Taxes The benefit for income taxes was 13.3% in fiscal 1996 compared to a provision for income taxes of 31.5% and 32.4% in fiscal 1995 and 1994, respectively. The fiscal 1996 benefit rate of 13.3% is different from the fiscal 1995 rate and from the U.S. statutory rate primarily because of foreign operating results which are taxed at rates other than the U.S. statutory rate. The fiscal 1995 rate declined from the fiscal 1994 rate primarily because of a decrease in state income taxes due to benefits from investment tax credits. The fiscal 1995 31.5% effective tax rate is less than the U.S. statutory rate primarily because of the research and development tax credit and certain foreign earnings taxed at lower rates. The fiscal 1994 effective tax rate is comprised of a 33.3% annual effective tax rate and a $500,000 non-recurring benefit in the quarter ended October 2, 1993. This benefit is caused by increased deferred tax assets and a larger prior year research and development tax credit as a result of federal tax legislation in August 1993. Cumulative Effect of Change in Accounting for Income Taxes Effective April 1, 1993, the Company changed its method of accounting for income taxes to the liability method required by Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." As permitted by SFAS No. 109, prior period's financial statements have not been restated. The change had no material effect on income before provision for income taxes for the fiscal year ended April 2, 1994. However, the cumulative effect as of March 31, 1993 of adopting SFAS No. 109 increased net income by approximately $7.6 million. The Company has considered available evidence supporting the realizability of net deferred tax assets including carrybacks, future reversal of temporary differences, and future taxable income exclusive of temporary differences in the carryforward period of loss and credit carryforwards. Based on these factors and the Company's prior earnings history, the Company has determined that it is more likely than not that the deferred tax assets will be realized. The realizability of the deferred tax asset will be evaluated on a quarterly basis. Liquidity and Capital Resources During December 1996, the Company completed an offering of $300 million of convertible subordinated notes. The notes bear interest at six percent, mature in December 2003, and are convertible into shares of the Company's common stock at $24.2188 per share. In addition during the third quarter of fiscal 1997, a $250 million lease package was completed, with Cirrus Logic as guarantor, to finance the advanced fab equipment for the Cirent Semiconductor manufacturing joint venture. The Company generated approximately $13.7 million of cash and cash equivalents in its operating activities during the first three quarters of fiscal 1997 as compared to generating approximately $53.3 million during the first three quarters of fiscal 1996. The decrease in cash generated from operations was primarily caused by the reduction in net income and the non-cash effect of the gain on sale of assets offset somewhat by an increase in the non-cash effect of depreciation and amortization and the net change in operating assets and liabilities. The Company used $166.6 million in cash in investing activities during the first three quarters of fiscal 1997, and $103.5 million during the comparable period of fiscal 1996. The Company reduced short-term investment activities and additions to property and equipment and increased investing in joint venture manufacturing agreements and joint ventures in fiscal 1997 over fiscal 1996. The cash used in fiscal 1997 was reduced somewhat by the proceeds from sale of assets. Financing activities provided $210.7 million in cash during the first three quarters of fiscal 1997 and $80.7 million during the comparable period of fiscal 1996. The increase was primarily the result of the proceeds from the convertible subordinated notes issued in December 1996, offset by the repayment of short-term debt. As of December 28, 1996, the Company has a commitment for a bank line of credit for borrowings up to a maximum of $150 million expiring on October 31, 1999, at the banks' prime rate plus one-half percent. As of December 28, 1996, no borrowings were outstanding under the line. Borrowings are secured by cash, accounts receivable, inventory, intellectual property, and stock in the Company's subsidiaries. Use of the line is limited to the borrowing base as defined by accounts receivable. Terms of the agreement include satisfaction of certain financial ratios, minimum tangible net worth, cash flow, and leverage requirements as well as a prohibition against the payment of a cash dividend without prior bank approval. The semiconductor industry is extremely capital intensive. To remain competitive, the Company believes it must continue to invest in advanced wafer manufacturing and in test equipment. Investments will be made in the various external manufacturing arrangements and its own facilities. The Company intends to obtain most of the necessary capital through direct or guaranteed equipment lease financing and the balance through debt and/or equity financing, and cash generated from operations. There can be no assurance that financing will be available or, if available, will be on satisfactory terms. Failure to obtain adequate financing would restrict the Company's ability to expand its manufacturing infrastructure, to make other investments in capital equipment, and to pursue other initiatives. Factors Affecting Future Operating Results 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 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, economic conditions and overall market demand in the United States and worldwide, the Company's ability to introduce new products and technologies on a timely basis, changes in product mix, fluctuations in manufacturing costs which affect the Company's gross margins, declines in market demand for the Company's and its 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 operating results in the rest of fiscal 1997 and 1998 are likely to be affected by these factors as well as others. 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. Such inventory imbalances have occurred in the past and in fact contributed significantly to the Company's operating losses in fiscal 1996. These factors increase not only the inventory risk but also the difficulty of forecasting quarterly operating results. Moreover, 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. The concentration of sales in the last month of the quarter contributes to difficulty in predicting the Company's quarterly revenues and results of operations. 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 system manufacturers. Both revenues and margins may be affected quickly if new product introductions are delayed or if the Company's products are not designed into successive generations of products of the Company's customers. 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. Issues Relating to Manufacturing and Manufacturing Investment In the first three quarters of fiscal 1997, manufacturing supply exceeded demand for certain of the Company's products. One consequence was the Company incurred charges at its MiCRUS facility for failing to purchase sufficient wafers, negatively impacting gross margins. Although the Company believes that its efforts to increase its source of wafer supply through joint ventures (MiCRUS with IBM and Cirent Semiconductor with Lucent Technologies) and other arrangements have significant potential benefits to the Company, there are also risks, some of which materialized in the third and fourth quarter of fiscal 1996 and the second quarter of fiscal 1997. These arrangements reduce the Company's flexibility to reduce the amount of wafers it is committed to purchase and increase the Company's fixed manufacturing costs as a percentage of overall costs of sales. As a result, the operating results of the Company are becoming more sensitive to fluctuations in revenues. In the case of the Company's joint ventures, overcapacity results in underabsorbed fixed cost, which adversely affects gross margins and earnings. In the case of the Company's "take or pay" contracts with foundries, the Company must pay contractual penalties if it fails to purchase its minimum commitments. Moreover, the Company will benefit from the MiCRUS and Cirent Semiconductor joint ventures only if they are able to produce wafers at or below prices generally prevalent in the market. If, however, either of these ventures 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 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. Certain provisions of the MiCRUS and Cirent Semiconductor agreements may cause the termination of the joint venture in the event of a change in control of the Company. Such provisions could have the effect of delaying, deferring or preventing a change of control of the Company. In connection with the financing of its operations, the Company has borrowed money and entered into substantial equipment lease obligations and is likely to expand such commitments in the future. Such indebtedness could cause the Company's principal and interest obligations to increase substantially. The degree to which the Company is 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. An inability to obtain financing to meet these obligations could cause the Company to default on such obligations. Although the Company has increased its future wafer supplies from the MiCRUS and Cirent Semiconductor joint ventures, the Company expects to continue to purchase portions 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. The Company's results of operations could be adversely affected in the future, and has been in the past, if particular suppliers are unable to provide a sufficient and timely supply of product, whether because of raw material shortages, capacity constraints, unexpected disruptions at the plants, delays in qualifying new suppliers or other reasons, or if the Company is forced to purchase wafers or packaging 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. Because of the concentration of sales at the end of each quarter, 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. Production may be constrained even though capacity is available at one or more wafer manufacturing facilities because of the difficulty of moving production from one facility to another. Any supply shortage could adversely affect sales and operating profits. The greater integration of functions and complexity of operations 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. Dependence on PC Market Sales of most of the Company's products depend largely on sales of personal computers (PCs). Reduced growth in the PC market could affect the financial health of the Company as well as its customers. Moreover, 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. In addition, many of the Company's products are used in PCs for the consumer market, and the consumer PC market is more volatile than other segments of the PC market. Other IC makers, including Intel Corporation, have expressed their interest in integrating through hardware functions, adding through special software functions, or kitting components to provide some multimedia or communications features into or with their microprocessor products. Successful integration of these functions could substantially reduce the Company's opportunities for IC sales in these areas. A number of PC OEMs buy products directly from the Company and also buy motherboards, add-in boards or modules from suppliers who in turn buy products from the Company. Accordingly, 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 motherboard, add-in board or module manufacturers, the Company may not be fully informed as to the extent or even the fact of its indirect dependence on any particular PC OEM, and, therefore, may be unable to assess the risk of such indirect dependence. The PC market is intensely price competitive. The PC manufacturers in turn put pressure on the price of all PC components, and this pricing pressure is expected to continue. Issues Relating to Graphics Products The Company continues to experience intense competition in the sale of graphics products. Several competitors introduced products and adopted pricing strategies that have increased competition in the desktop graphics market, and new competitors continue to enter the market. These competitive factors affected the Company's market share, gross margins, and earnings in the third quarter of fiscal 1997 and are likely to affect revenues and gross margins for graphics accelerator products in the future. The PC graphics market today consists primarily of two-dimensional ("2D") graphics accelerators, and 2D graphics accelerators with video features. Market demand for three-dimensional ("3D") graphics acceleration began to grow in the third quarter of fiscal 1997 and is expected to grow stronger in the fourth quarter of fiscal 1997 and fiscal 1998, primarily in PC products for the consumer marketplace. Several competitors are already in production of 3D accelerators. During the second quarter of fiscal 1997, the Company introduced and began shipping its first RAMBUS DRAM ("RDRAM")-based 3D accelerator for the mainstream PC market. The Company is striving to bring additional products with 3D acceleration to market, but there is no assurance that it will succeed in doing so in a timely manner. If these additional products, which were available for sampling during the fourth quarter of fiscal 1997, are not brought to market in a timely manner or do not address the market needs or cost or performance requirements, then the Company's graphics market share and sales will be adversely affected. Revenues from the sale of graphics products in fiscal 1998 are also likely to be significantly dependent on the success of the Company's current DRAM-based 2D graphics/video accelerators and the Company's newly introduced SGRAM-based 2D graphics/video accelerators. 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. Pricing pressures have forced a transition from multi-chip solutions to products that integrate the Codec, controller and synthesis into a single IC. The Company's revenues from the sale of audio products in the fourth quarter of fiscal 1997 are likely to be significantly affected by the success of its recently introduced fully-integrated, single-chip audio ICs. Moreover, aggressive competitive pricing pressures have adversely affected and may continue to adversely affect the Company's revenues and gross margins from the sale of single-chip audio ICs. In addition, the introduction of new audio products from the Company's competitors, the introduction of mediaprocessors and the introduction of MMX processors with multimedia features by Intel Corporation could adversely affect revenues and gross margins from the sale of the Company's audio products. Three-dimensional spatial effects audio is expected to become an important feature in the fourth quarter of fiscal 1997 and in fiscal 1998, primarily in products for the consumer marketplace. The Company has begun shipping such products. If the Company's spatial effects audio products do not meet the cost or performance requirements of the market, revenues from the sale of audio products would be adversely affected. 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. Growth in the mass storage market is directly affected by growth in the PC market. Furthermore, the price competitive nature of the disk drive industry continues to put pressure on the price of all disk drive components. In addition, consolidation in the disk drive industry has reduced the number of customers for the Company's mass storage products and increased the risk of large fluctuations in demand. The Company believes that excess inventories held by its customers limited sales of the Company's mass storage products in the second quarter of fiscal 1997 and limited sales of the Company's optical disk drive products in the third quarter of fiscal 1997. Revenues from mass storage products in the fourth quarter of fiscal 1997 and fiscal 1998 are likely to depend heavily on the success of certain 3.5 inch disk drive products selected for use by various customers, which in turn depends upon obtaining timely customer qualification of the new products and upon bringing the products into volume production timely and cost-effectively. The Company's revenues from mass storage products are dependent on the successful introduction by its customers of new disk drive products. Recent efforts by certain of the Company's customers to develop their own ICs for mass storage products could in the future reduce demand for the Company's mass storage products, which could have an adverse effect on the Company's revenues and gross margins from such products. In addition, in response to the current market trend towards integrating hard disk controllers with microcontrollers, the Company's revenues and gross margins from its mass storage products will be dependent on the Company's ability to introduce such integrated products in a commercially competitive manner. Issues Relating to Communications Market Most of the Company's revenues from communications products are expected to derive from sales of voice/data/fax modem chip sets. The market for these products is intensely competitive, and competitive pricing pressures have affected and are likely to continue to affect the average selling prices and gross margins from this product line. The success of the Company's products will depend not only on the products themselves but also on the degree and timing of market acceptance of new performance levels developed by U.S. Robotics, which will be supported by the Company's new products, and the development of standards with regard to these new performance levels. Moreover, as a relatively new entrant to this market, the Company may be at a competitive disadvantage to suppliers who have long-term customer relationships, have greater market share or have greater financial resources. In addition, the introduction of new modem products from the Company's competitors, the introduction of media processors and the introduction of MMX processors with multimedia features by Intel Corporation could adversely affect revenues and gross margins from the sale of the Company's modem products. Intellectual Property Matters 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 or other intellectual property rights 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 its customers. 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 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. 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. Competition The Company's business is intensely competitive and is characterized by new product cycles, 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. BUSINESS This Prospectus contains forward-looking statements within the meaning of the Private Securities Reform Litigation Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. Such risks and uncertainties include the timing and acceptance of new product introductions, the actions of the Company's competitors and business partners, and those discussed below in Management's Discussion & Analysis. Cirrus Logic is a leading manufacturer of integrated circuits for the personal computer, telecommunications and consumer electronics markets. The Company has developed a broad portfolio of products and technologies for multimedia, including graphics, video and audio, mass storage, including magnetic hard disk and CD-ROM, communications and data acquisition. Cirrus Logic targets large existing markets that are undergoing major product or technology transitions as well as emerging markets. The Company applies its analog, digital and mixed-signal design capabilities, software and systems-level engineering expertise to create highly integrated solutions that enable its customers to differentiate their products and reduce their time to market. These solutions are implemented in products that include advanced ICs and related software and subsystem modules. The Company's customers include most of the top manufacturers of personal computers ("PCs") and PC-related equipment, including Acer, Apple, Compaq, Hewlett-Packard, IBM, NEC, Packard Bell and Toshiba. The Company also serves most of the major disk drive manufacturers, including Fujitsu, Quantum, Seagate and Western Digital. The Company believes that, in the PC multimedia market, it is a leading supplier of graphics accelerators and 16-bit audio Codecs, and that, in the mass storage market, it is a leading supplier of disk drive controllers, disk drive read channel ICs and CD-ROM controllers. The Company also is a leading supplier of PC CardBus host adaptors for portable computers, and the Company has recently introduced advanced ICs for V.34 bis voice/fax/data modems and LAN controllers for PC applications. During fiscal 1997, the Company has introduced a number of new products in its core markets. Within the multimedia segment, in September 1996 the Company introduced its first Laguna RDRAM-based 3D graphics accelerator ICs, and in the second quarter of fiscal 1997 the Company began production of single-chip audio solutions that integrate audio Codec, controller and FM music synthesis and provide 3D spatial sound effects. Within the mass storage segment, the Company began production of a new generation of its single-chip digital PRML read-channel chips. These products have been designed into systems by Seagate, Quantum and Western Digital. The Company also introduced its first controller for recordable/erasable CD drives, with increased playback speeds (up to 18x) and increased record speeds (up to 8x). Historically, the Company relied for its wafer manufacturing needs upon "merchant wafers" manufactured by outside suppliers. The Company is currently one of the world's largest purchasers of merchant wafers. In response to its rapid growth, and in an effort to gain more control over its wafer supply, the Company has also been pursuing a strategy to expand its wafer supply sources by taking direct ownership interests in wafer manufacturing joint ventures. The Company believes such joint ventures provide important competitive advantages, including: (i) assured wafer capacity, (ii) wafer costs potentially lower than the cost of merchant wafers, particularly during periods in which the industry is capacity constrained, and (iii) early access to advanced process technology from industry leaders. In 1994, the Company and IBM formed MiCRUS, a manufacturing joint venture that produces wafers for both companies. MiCRUS began operations in 1995 and is now engaged in a second expansion. In addition, in July 1996, the Company and Lucent Technologies (formerly AT&T Microelectronics) formed Cirent Semiconductor, a manufacturing joint venture that will produce wafers for both companies. Cirent Semiconductor is scheduled to begin operations in calendar 1997. Both the MiCRUS and the Cirent Semiconductor joint ventures require the Company to provide or guarantee substantial equipment financing. In November 1996, the Company completed a lease financing of approximately $253 million of equipment for its Cirent Semiconductor joint venture. Of this amount, approximately $127 million has been released to reimburse the Company for equipment which had already been purchased and the remainder has been committed for future equipment purchases. In addition, the Company has long-term volume purchase agreements with Taiwan Semiconductor Manufacturing Co., Ltd. The Company believes that it will continue to rely on merchant wafer suppliers for a substantial portion of its wafer requirements for at least the next two years. From fiscal 1992 through fiscal 1996 the Company grew rapidly, with revenues increasing from $218 million to $1.15 billion as a result of internal growth and acquisitions. During this period, the Company launched programs to pursue a variety of market opportunities within the PC, communications and consumer electronics markets. In early 1996, however, the Company determined that the breadth of its programs was diverting engineering and management resources from products for the Company's core markets. Accordingly, the Company adopted and began implementing a strategy of focusing on the markets for multimedia (graphics, video and audio), mass storage and communications. As part of this strategy, the Company has been divesting non-core business units and eliminating projects that do not fit within its core markets. At the same time, the Company has been implementing an aggressive program to manage costs and streamline operations. During the second quarter of fiscal 1997, the Company sold its PicoPower core business unit to National Semiconductor Corporation and sold its solid state flash memory controller product line to Lexar Microsystems, Inc. In November 1996, the Company sold the Wireless Infrastructure Group of its PCSI subsidiary to ADC Telecommunications, Inc. for approximately $23 million. Background Integrated circuits have become pervasive and are found in products ranging from consumer electronics to automobiles. The PC industry is the largest source of demand for IC's. PC unit shipments for 1995 were estimated at 58 million and are continuing to grow, although the rate of growth in 1996 declined from that experienced in 1994 and 1995. The market also has expanded to include a broad array of portable products from notebook computers to pocket organizers and hand-held personal computing and communications devices. In addition, the average IC content per machine has increased as CD-ROM drives, 16-bit stereo sound, 64-bit graphics accelerators, network access and fax/modem/voicemail/speakerphones have become increasingly standard. The vast majority of personal computers shipped today rely on microprocessors from a single source. With the same processor technology available across the spectrum of PC products, the primary distinguishing characteristics of today's leading PCs have become the graphics, video, audio, mass storage, and communications capabilities and, in portable computers, weight, form factor (size), screen quality and battery life. PC functionality is controlled by increasingly complex subsystems, or "computers within the computer," whose features, performance and cost characteristics are largely determined by their semiconductor components. Cirrus Logic has developed one of the industry's broadest portfolios of products and technology to address the multimedia, communications, and mass storage applications that are among the primary features used by PC manufacturers to differentiate their products. Semiconductor vendors to the PC market must provide high levels of innovation and must contend with increasingly short product lives and extreme cost pressures. The first product to market that provides a desired new functionality may earn attractive margins, but prices fall rapidly once comparable competitive products are available. These trends create substantial opportunity for semiconductor suppliers but demand that a broad set of skills be brought together within a single entity. The cost pressures, the performance requirements and the drive to smaller form factors have led to higher levels of integration, as circuit boards containing many chips are replaced by one- or two-chip solutions. Higher integration in turn requires designers to combine analog and digital functions into mixed-signal circuits, to combine disparate functions into single ICs, and to apply increasing levels of systems and software expertise. As the capabilities of the PC continue to evolve, the core technologies of the computing, communications, and consumer electronics markets have begun to converge. For example, consumer audio and video electronics markets, traditionally based on analog components, are now transitioning to digital technologies similar to those developed for multimedia audio and video in the PC. This convergence of technologies provides the opportunity for companies developing advanced products for PCs to leverage their research and development investments to serve the communications and consumer electronics markets. In addition, the transition of these markets from analog to digital technologies also may create significant additional demand for IC capacity, since digital designs require larger semiconductors and, consequently, more wafer capacity. ICs produced with newer, smaller physical dimensions for the circuitry are substantially smaller and less expensive and provide higher performance than ICs with the same functionality produced with older generation technology. For this reason, the demand for lower cost and higher performance ICs has forced the semiconductor industry to adopt increasingly advanced manufacturing processes. Most ICs for the markets served by the Company are now manufactured using 0.8, 0.6 and 0.5 micron processes. The Company believes that the next generation PCs are likely to require that ICs be manufactured with processes of 0.35 micron or smaller. Historically, wafers produced with the most advanced process technology have often been in short supply, and the Company anticipates demand may exceed the supply of 0.35 micron and smaller wafers for the first two to three years after those technologies become widely used in the Company's markets. Company Strategy The Company's goal is to reinforce its position as a leading supplier of ICs and related products to the personal computer market, and to leverage its technology and product positions to expand beyond the personal computer arena into communications and consumer electronics markets. Key elements of the Company's strategy include the following: Focus on Multimedia, Mass Storage and Communications The Company made a strategic decision in early 1996 to focus product development and marketing resources on product lines and market segments in the areas of multimedia (graphics, video and audio), mass storage and communications. The Company has found its greatest successes in these markets and the Company believes that these markets will hold important opportunities both within and beyond the personal computer market. In addition, the Company continues to support its development activities in data acquisition products, which serves as a technology driver for mixed-signal capabilities that are used across all of the Company's product lines. The Company has been divesting or closing down units and product activities that do not fit within these areas of focus and increasing engineering resources devoted to product development within its core markets. Develop Opportunities for Integration Within its areas of focus the Company's products often span multiple functions. For example, in the multimedia market, Cirrus Logic is the only semiconductor company which currently has significant product offerings and market share in both graphics/video and audio. Similarly, in the mass storage market the Company is the only vendor with significant product offerings and market share in both hard-disk controllers and read-channels. The Company believes that its breadth of technology within each market area will facilitate the Company's effort to seek higher levels of integration and feature and performance enhancements. Leverage Ownership of Wafer Supply Sources The Company expects to continue making significant investments in wafer manufacturing joint ventures, including the MiCRUS joint venture with IBM and the Cirent Semiconductor joint venture with Lucent Technologies, with the goal of obtaining more than one-half of its total wafer supply from such sources. The Company believes such joint ventures can provide important competitive advantages, including: (i) assured wafer capacity, (ii) wafer costs potentially lower than the cost of merchant wafers, particularly during periods in which the industry is capacity constrained, and (iii) early access to advanced process technology from industry leaders. For example, MiCRUS is producing wafers using a dense 0.5 micron process technology, and Cirent Semiconductor is scheduled to begin with 0.35 micron and migrate to 0.25 micron process technology. Capitalize on Convergence of Existing Technologies The communications and consumer electronics markets have been transitioning from analog to digital electronics. As this transition continues, the Company believes that the technological capabilities it has developed for the personal computer market are becoming increasingly applicable to these other markets. The Company seeks opportunities which are characterized by the convergence of technologies it already has in place or in development. The Company has recently introduced central processor products with integrated peripheral functions for Internet appliances and hand-held computing and communications devices. The Company will seek to continue increasing its participation in the communications and consumer electronics markets. Markets and Products Cirrus Logic targets large existing markets that are undergoing major product or technology transitions, as well as emerging markets that have forecasts of high growth. The Company applies its analog, digital, and mixed- signal design capabilities, systems-level engineering and software expertise to create highly integrated solutions that enable its customers to differentiate their products and reduce their time to market. These solutions are implemented primarily in ICs and related software, but may also include subsystem modules and system equipment. Within the major growth markets represented by personal computers, communications and consumer electronics, the Company's products address key system-level applications including multimedia (graphic, video, and audio), magnetic and optical mass storage, communications, and hand-held and portable computing and communication devices. The Company's data acquisition products, which target a variety of industrial and other applications, serve as a technology driver for mixed-signal capabilities that are used across all of the Company's product lines. Multimedia The Company offers a broad range of multimedia products, comprising primarily graphics, video, and audio integrated circuits and software. These products bring TV-quality video and CD-quality stereo audio to multimedia applications for PCs, workstations, video conferencing and consumer electronics. The Company's customers in the multimedia market are predominantly PC OEMs, as well as some of the leading add-in board makers. For the first three quarters of fiscal 1997, major OEM customers included Acer, Compaq, Hewlett-Packard, IBM, NEC, Packard Bell and Toshiba, and add-in board customers included Aztech Systems, Creative Labs, and STB Systems. PC Graphics and Video The Company is a leading supplier of graphics accelerators and integrated graphics/video accelerators for desktop and portable PCs. Significant revenues come from the Company's families of 64-bit DRAM-based desktop graphics accelerators for cost-sensitive and mainstream PCs. These products are implemented in several pin-compatible families which offer a range of price/performance solutions for OEMs and graphics board makers. The Company expects the following to be the most important of its graphics and video products in calendar 1997.
Description Key Features Status ----------- ------------ ------ 64-bit DRAM-based Economical 2D graphics, high quality In production. VisualMedia quality video, video port, single Accelerators single video window. 64-bit SGRAM-based High performance 2D graphics, Sampling. VisualMedia two video windows. Accelerators 64-bit RDRAM-based High performance 2D and 3D Multiple products In VisualMedia graphics, multiple video windows. production. AGP (Advanced Accelerators Graphics Port) versions expected to sample in first quarter of calendar 1997. 64-bit DRAM-based Economical 2D graphics, single In production. VisualMedia video window, high resolution LCD Accelerators for panel support, low power operation. Notebook PCS
In the desktop PC markets, Cirrus Logic was the first vendor to introduce a cost-effective, single-chip integrated graphics/video product for mainstream PCS. These products are sold primarily to PC OEMs to be placed directly on the PC motherboard. The Company has recently introduced the new family of VisualMedia Accelerators which provide high performance 64-bit graphics using RDRAM technology, with multiple simultaneous windows of video on screen. The Company has also recently begun shipping its first 3D graphics product intended for the mainstream PC market. Cirrus Logic is also among the leading suppliers of graphics chips for portable PCS. The Company's products include high performance graphics controllers using 64-bit EDO DRAM accelerator architectures, as well as cost- effective 32-bit controllers for sub-notebook PCS. The Company has developed proprietary techniques for achieving high-quality images on various resolution LCD panels, for simultaneous display on LCDs and CRT monitors, and for low- voltage and mixed-voltage design for power sensitive applications. Audio The Company offers a wide array of audio products for multimedia computers. These highly integrated chips and software bring CD-quality sound and studio quality composition and mixing capabilities to PCS and workstations. The Company is a leading supplier of 16-bit stereo Codecs for PCS. These mixed-signal devices use the Company's delta sigma technology to provide high quality audio input and output functions for PC audio products including those that offer SoundBlaster, AdLib and Microsoft Sound compatibility. The Company also offers chips that provide PCS with audio decompression and FM and wavetable sound/music synthesis. The Company's leading audio product is now a highly integrated single-chip audio product that integrates Codec, SoundBlaster and FM synthesis emulation functions. The Company has recently begun production of products which provide special effects audio technology, allowing PC games players to perceive sound as coming from various points around them in a 3-D space. The following are expected to be the most important of the Company's PC audio products in calendar 1997.
Description Key Features Status ----------- ------------ ------ Integrated audio Single chip audio Codec, controller In production. solution and FM music synthesis. Highest audio quality. Integrated audio Single-chip with SRS or Qsound spatial In production. with 3D sound effects audio. Two products.
Consumer Products The Company currently offers over 60 products for the consumer high- fidelity audio market. Product features include analog/digital and digital/analog conversion and MPEG audio decompression. The products provide digital high-fidelity audio record and playback for high end professional recordings audiophile quality stereo systems, set-top audio decoders, digital audio tape ("DAT"), CD players, Compact Disk Interactive ("CDI") and automotive stereo systems. Customers include Philips, Nokia and Sony. The Company also currently offers PC graphics controller ICs which can output to standard televisions. These products are being used by customers to develop products which are hybrids between conventional PCS and TVs, including Internet appliances. Mass Storage The Company supplies chips that perform the key electronics functions contained in advanced magnetic and optical disk drives. Since pioneering the IDE (integrated drive electronics) standard for embedded disk drive controllers in 1986, the Company has helped facilitate the development of higher capacity 3.5-inch disk drives for desktop computers and workstations and 2.5-inch, 1.8-inch and 1.3-inch form factor drives for portable computers. The Company continues to be a leading supplier of controllers to the disk drive market. In fiscal 1996, the Company continued its strategy of expanding its opportunity in the disk drive electronics market by offering solutions in the areas of read channel and motion control electronics. The Company's mass storage customers include Fujitsu, Quantum, Seagate, Sony, Toshiba and Western Digital. The following mass storage products are expected to be the most important in the near term horizon:
Descriptions Key Features Status ------------ ------------ ------ Advanced Architecture Advanced data handling and error-detection/ In production. PC AT and SSI Disk correction capabilities for data integrity Controllers in high performance hard disk drives. Multiple products. Digital PRML Read Single-chip digital read/write channel In production. Channels solutions. Proprietary algorithms allow more data per disk. Multiple products. Single-chip ATAPI CD-ROM High data rates (up to 20x speeds), and In production. Controllers hardware error detection/correction capabilities for simplified firmware development. Multiple products. SCSI and ATAPI CD-R High integration and performance (up to 18x Sampling. (Recordable CD) read and 8x recording).Handles both CD-R Controllers and CD-Erasable formats. Advanced automation for simplified firmware developments. Two products.
The Company offers a broad family of magnetic storage controller products for the AT IDE, PC-Card, Small Computer System Interface ("SCSI") and high-speed SCSI-2 interface standards. To achieve the high recording densities required by smaller disk drives, the Company has pioneered a number of controller innovations, including 88-bit Reed-Solomon error correction, zone-bit recording and split-data fields. The Company began volume shipments of its magnetic storage read channel products in fiscal 1995, and was the first merchant supplier to provide key data-detection technology known as partial-response, maximum-likelihood ("PRML") for 3.5-inch and small form factor drives. Based on the Company's CMOS mixed-signal technology and its proprietary SofTarget approach to PRML, these devices substantially increase the amount of data that can be stored on a disk platter using existing industry-standard head and media technology. In fiscal 1995, Cirrus Logic began production of its first CD-ROM controller product, with Sony Corporation as a development partner and major customer. The Company has since introduced a second and, recently, a third generation of CD-ROM controller products. In the first quarter of fiscal 1997 the Company's CD-ROM controllers were used by Optics Storage Pte. Ltd. in the industry's first 12X speed CD-ROM drive, and more recent products support CD-ROM speeds of up to 20X. In the second quarter of fiscal 1997 the Company introduced its first controller products for recordable/erasable CD drives. Communications The Company has expanded its offerings of communications products, which now include modem, local area network and Internet products. The following communications products are expected to be the most important in calendar 1997:
Description Key Features Status ------------ ------------ ------ V.34+ FastPath modem Highly integrated voice/data/fax In production. modem chip sets offering 33.6 Kbps performance. Multiple products. V.70, V.80, 56Kbps and Further developments within family V.70 and V.80 sampling. ISDN FastPath modems roadmap to support voice and data, 56Kbps and ISDN in video conferencing, and high-speed development. lines. Multiple products. Multi-line Serial I/O Extensive family of intelligent In production. Controllers multi-line input/output devices, reducing processor overhead burden in communications equipment. Multiple products. PC-Card, Card Bus Host Market-leading product line for In production. Adapters expansion card slots in notebook computers. Multiple products. Local Area Network Highest level of integration for In production. Controllers simplified design of local area network controllers for motherboards and interface cards. Two products.
The Company introduced the industry's first two-chip intelligent fax/data/voice modem in 1992. The Company subsequently introduced several high- performance chip sets with enhanced features for error correction and data compression, speakerphone capability, and portable computer PC-CardBus applications. The high level of integration made these products particularly popular for small form factor PCMCIA cards. The Company believes that during calendar year 1995 it was one of the top three vendors of fax/data/modem chips worldwide. The Company also offers host-adapter products for the PC market. The Company believes it is the leading supplier of host adapter chips for the PC-Card (formerly called PCMCIA) standard and for Card Bus. These controllers allow for credit card sized modules to be plugged into the computer to expand its functionality in areas such as solid-state memory, hard disks, fax/modems, networks, and, most recently multimedia audio. The Company also provides serial and parallel I/O devices that allow multi-channel, multi-protocol communications. These devices are used in remote access equipment and terminal servers, communications servers, routers, single board computers, laser printers and workstations. Customers include Cisco, Compaq, Motorola, Xylogics and Xyplex. The Company is a leading supplier of monolithic T-1 line interface transceivers for telecommunications equipment, with more than 40 part types in production, and CMOS Ethernet local area network line interface circuits. The Company produces the industry's most highly integrated mixed-signal Ethernet controller IC. Customers for these products include Acer, Alcatel, Cisco, Compaq, IBM, Motorola, Northern Telecom and Samsung. During fiscal 1996, the Company began producing wireless infra-red ("IR") communications components which combine the functions of a serial communications with an IR port for PC, portable and pocket computer, and hand-held remote controller applications. Data Acquisition Through its subsidiary, Crystal Semiconductor, Cirrus Logic has established a broad line of analog-to-digital converters consisting of general- purpose and low-frequency measurement devices. These circuits use a combination of self-calibrating digital correction and delta sigma architectures to improve accuracy and eliminate expensive discrete analog components. The product family includes more than 100 products used in industrial automation, instrumentation, medical, military and geophysical applications. The technology developed for the Company's data acquisition products is the foundation of the mixed-signal technology used throughout Cirrus Logic. Emerging Product Opportunities The Company is also engaged in developing and is producing high- integration system-on-a-chip solutions for dedicated Internet appliances and Network Computers, and for hand-held and ultra-portable computing and communications appliances such as Personal Digital Assistants and Personal Communicators. The Company is currently manufacturing two mixed signal products for the hand held market. Among other features, they integrate touch screen, audio, temperature and battery measurement and modem Codec capabilities. The Company provides an integrated CPU/Peripheral IC for Internet appliances such as Oracle's "Network Computer." The Company has developed highly integrated products for hand-held computing and communications devices, and is working with Apple Computer and others for their next generations of such products. The Company's products in this market incorporate a CPU core licensed from Advanced RISC Machines (ARM) Limited. Manufacturing Historically, the Company relied for its wafer manufacturing needs upon merchant wafers manufactured by outside suppliers. The Company believes it is currently one of the world's largest purchasers of merchant wafers. The Company has also been pursuing a strategy to expand its wafer supply sources by taking direct ownership interests in wafer manufacturing ventures. In much of 1994 and 1995, the merchant market was unable to meet demand, and the Company's merchant wafer suppliers sought to limit the proportion of wafers they sold to any single customer, which further restricted the Company's ability to buy wafers. Wafer shortages increased the Company's supply costs and at times prevented the Company from meeting the market demand for its own products. In response to its rapid growth, and to historical and anticipated supply shortages, the Company has been pursuing a strategy to expand its wafer supply sources by taking direct ownership interests in wafer manufacturing joint ventures. In 1994, the Company and IBM formed MiCRUS, a manufacturing joint venture that produces wafers for both companies. MiCRUS began operations in 1995 and is now engaging in a second expansion. In addition, in July 1996, the Company and Lucent Technologies (formerly AT&T Microelectronics) formed Cirent Semiconductor, a manufacturing joint venture that will produce wafers for both companies. Cirent Semiconductor began operations in the fourth quarter of fiscal 1997. The Company believes that it will continue to rely on merchant wafer suppliers for a substantial portion of its wafer requirements for at least the next two years. The Company's manufacturing strategy is intended to provide the following benefits: Assured Capacity. The first goal is to secure a capacity base to provide improved control over wafer supplies, particularly during periods of heightened industry-wide demand. Advantageous Cost Structure. Wafers produced by joint ventures such as MiCRUS are potentially less expensive than merchant wafers. Increasing its supply of wafers from such joint ventures may help the Company achieve lower manufacturing costs than its competitors. Access to Leading Process Technologies. By partnering with world class manufacturers such as IBM and Lucent Technologies, the Company can access leading process technologies which allows it to reduce product cost, increase performance and increase functionality. In addition to its wafer supply arrangements, the Company currently contracts with third party assembly vendors to package the wafer die into finished products. The Company qualifies and monitors assembly vendors using procedures similar in scope to those used for wafer procurement. Assembly vendors provide fixed-cost-per-unit pricing, as is common in the semiconductor industry. The Company maintains its own staff for production, engineering and testing. The Company's manufacturing division currently employs approximately 800 persons. This division qualifies and monitors suppliers' production processes, participates in process development, package development and process and product characterization, tests finished wafers and packaged units and maintains quality standards. MiCRUS MiCRUS, which was established in 1994, produces wafers using IBM's wafer processing technology, and is currently focusing on CMOS wafers with 0.5 micron process technology. MiCRUS leases an existing IBM facility in East Fishkill, New York. IBM and Cirrus Logic own 52% and 48%, respectively, of MiCRUS. The terms of the joint venture initially entitle each Company to purchase 50% of the MiCRUS output. If one company fails to purchase its full entitlement, the shortfall may be purchased by the other company or, under limited circumstances, offered to third parties. However, if the wafers cannot be sold elsewhere, the company that failed to purchase its full entitlement will be required to reimburse the joint venture for costs associated with underutilized capacity. In addition, to the extent that the facility fails to produce wafers at scheduled capacity, each company will be required to bear its proportionate share of the underabsorbed fixed costs. The joint venture has a remaining term of seven years. MiCRUS is managed by a six-member governing board of whom three are appointed by IBM, two are appointed by Cirrus Logic and one is the chief executive officer of MiCRUS. A $120 million expansion was completed in fiscal 1996. A second expansion, with a currently budgeted cost of $198 million, was agreed to in 1995 and is expected to be completed in 1998. The Company is providing all of the capital for the second expansion and, accordingly, will be entitled to all of the additional wafers produced and will be required to reimburse the joint venture for all of the additional costs associated with any underutilization of the capacity resulting from such expansion. In connection with the formation and expansion of the MiCRUS joint venture, the Company has incurred obligations to make equity contributions to MiCRUS, to pay MiCRUS for a manufacturing agreement and to guarantee equipment lease obligations incurred by MiCRUS. To date, the Company has made equity investments totaling $23.8 million. No additional equity investments are scheduled. However, the expansion of the MiCRUS production could require additional equity contributions by the Company. The manufacturing agreement payments total $71 million, of which $56 million has been paid, $7.5 million is due before the end of fiscal 1998 and $7.5 million is due to be paid in fiscal 1999. The manufacturing agreement payments are being charged to the Company's cost of sales over the original eight-year life of the venture based upon the ratio of current units of production to current and anticipated future units of production. MiCRUS will make payments to IBM in amounts equal to the manufacturing agreement payments made by the Company to MiCRUS. The equipment financings which have been completed or are committed total $381 million, of which $145 million was completed in fiscal 1995 and is guaranteed jointly and severally by IBM and the Company, $176 million has been completed in fiscal 1996 and fiscal 1997 and is guaranteed by the Company, and $60 million is scheduled to be completed before the end of fiscal 1997 and will be guaranteed by the Company. In addition, the Company currently intends to add an additional $60 million in equipment in fiscal 1998 and an additional $30 million in fiscal 1999 to expand MiCRUS production. The additional amounts would be financed by an equipment lease guaranteed by the Company. However, these additional expenditures have not been committed and could be reconsidered. Cirent Semiconductor Cirent Semiconductor will operate two wafer fabs in Orlando, Florida, both located in the same complex, which is leased from Lucent Technologies. Cirent Semiconductor is already operating the first fab, from which Lucent Technologies purchases all of the output at a price that covers all costs associated with that fab. The second fab has been built by Lucent Technologies and is expected to begin operations in calendar 1997. The second fab is scheduled to begin producing CMOS wafers using 0.35 micron processes licensed from Lucent Technologies, and to migrate to a 0.25 micron process. Lucent Technologies and Cirrus Logic each will be entitled to purchase one-half of the output of the second fab. If one company fails to purchase its full entitlement, the shortfall may be purchased by the other company or offered to third parties. However, if the wafers cannot be sold elsewhere, the company that failed to purchase its full entitlement will be required to reimburse Cirent Semiconductor for costs associated with underutilized capacity. In addition, to the extent that the facility fails to produce wafers at scheduled capacity, each company will be required to bear its proportionate share of the underabsorbed fixed costs. Cirent Semiconductor is owned 60% by Lucent Technologies and 40% by Cirrus Logic and is managed by a Board of Governors, of whom three are appointed by Lucent Technologies and two are appointed by Cirrus Logic. The joint venture has a term of ten years. In connection with the Cirent joint venture, the Company has committed to make equity contributions to Cirent Semiconductor, to make payments to Cirent Semiconductor for a manufacturing agreement and to guarantee and/or become a co-lessee under equipment lease obligations incurred by Cirent Semiconductor. The commitment for equity investment totals $34 million, of which $2 million has been paid, $3 million is due in the fourth quarter of fiscal 1997 and $29 million is due in fiscal 1998. The Company will account for these payments under the equity method. The manufacturing agreement payments total $105 million, of which $60 million has been paid, $25 million is due in the first quarter of fiscal 1998 and $20 million is due in fiscal 2000. These payments 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. Cirent Semiconductor will make payments to Lucent Technologies in amounts equal to the payments made by the Company to Cirent Semiconductor pursuant to the manufacturing agreement. The Company has committed to guarantee and/or become a co-lessee of leases covering up to $280 million of equipment for the Cirent Semiconductor joint venture. In November 1996, the Company guaranteed and became a co-lessee under a lease financing arrangement for up to $253 million of equipment of which $127 million has been used. The Company currently intends to enter into or guarantee an additional $20 million in lease financings sometime after fiscal 1998. Other Wafer Supply Arrangements Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC"). In 1993 and 1995, the Company entered into volume purchase agreements with TSMC. Under each agreement, the Company committed to purchase a fixed minimum number of wafers at market prices and TSMC guaranteed to supply certain quantities. The agreements expire in March 1997 and December 2001, respectively. Under the agreement entered into in 1995, the Company has agreed to make advance payments to TSMC of approximately $118 million, one-half in fiscal 1998 and one-half in fiscal 1999. The parties have been reevaluating these arrangements, and, although no written agreement has been concluded, the Company believes that the requirement for advance payments may be eliminated, to be replaced by long-term purchase commitments. Under both the 1993 and 1995 agreements, if the Company does not purchase the committed amounts, it may be required to pay a per wafer penalty for any shortfall not sold by TSMC to other customers. The Company estimates that under the remaining term of the 1993 agreement, it is obliged to purchase approximately $19 million of product. Over the term of the 1995 agreement, the Company estimates it must purchase approximately $790 million of product in order to receive full credit for the advance payments or avoid penalties if the requirement for advance payments is eliminated. United Microelectronics Corporation ("UMC"). In the fall of 1995, the Company entered into a foundry agreement and a foundry capacity agreement with UMC, a Taiwanese company. The agreements provide that UMC will form a new corporation under the laws of Taiwan, to be called United Silicon, Inc., and that United Silicon, Inc. will build a wafer fabrication facility and manufacture and sell wafers, wafer die and packaged integrated circuits. The agreements provide that United Silicon, Inc. will be funded in part with debt and equipment lease financing from UMC and in part with equity contributions from the Company and two other U.S. semiconductor companies. The agreements contemplated that the Company's total investment would be approximately $88 million, in exchange for which the Company would receive 15% of the equity of United Silicon, Inc. as well as the right (but not the obligation) to purchase up to 18.75% of the wafer output of the new facility at fair market prices. The Company paid $20.6 million in the fourth quarter of fiscal 1996. The Company does not expect to make the additional scheduled investment. Should the Company not make any additional investments, the Company's ultimate equity holding would be substantially less than 15% and the Company would not retain rights to guaranteed capacity. In such case, it is possible that the venture could be restructured which potentially could affect the value of the Company's investment. Patents, Licenses and Trademarks To protect its products, the Company relies heavily on trade secret, patent, copyright, mask work and trademark laws. The Company applies for patents and copyrights arising from its research and development activities and intends to continue this practice in the future to protect its products and technologies. The Company presently holds more than 220 registered U.S. patents, and in several instances holds corresponding international patents, and has applications pending for more than 475 U.S. patents. The Company has also licensed a variety of technologies from outside parties to complement its own research and development efforts. Research and Development Research and development efforts concentrate on the design and development of new products for each market and on the continued enhancement of the Company's design automation tools. The Company also funds certain advanced process technology development. Expenditures for research and development in fiscal 1996, 1995, and 1994 were $238.8 million, $165.6 million, and $126.6 million, respectively. The Company expects that it will continue substantial research and development spending for the foreseeable future. At September 28, 1996, the Company had 45% of its employees engaged in research and development activities. The Company's future success is highly dependent upon its ability to develop complex new products, to transfer new products to production in a timely fashion, to introduce them to the marketplace ahead of the competition and to have them selected for design into products of leading systems manufacturers. Competition Markets for the Company's products are highly competitive, and the Company expects that competition will increase. The Company competes with other semiconductor suppliers who offer standard semiconductors, application specific integrated circuits and fully customized integrated circuits, including both chip and board-level products. A few customers also develop integrated circuits that compete with the Company's products. The Company's competitive strategy has been to provide lower cost versions of existing products and new, more advanced products for customers' new designs. While no single company competes with the Company in all of the Company's product lines, the Company faces significant competition in each of its product lines. The Company expects to face additional competition from new entrants in each of its markets, which may include both large domestic and international semiconductor manufacturers and smaller, emerging companies. The principal competitive factors in the Company's markets include time to market; quality of hardware/software design and end-market systems expertise; price; product benefits that are characterized by performance, features, quality and compatibility with standards; access to advanced process and packaging technologies at competitive prices; and sales and technical support. Competition typically occurs at the design stage, where the customer evaluates alternative design approaches that require integrated circuits. Because its products have not been available from second sources, the Company generally does not face direct competition in selling its products to a customer once its integrated circuits have been designed into that customer's system. Nevertheless, 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. Sales, Marketing and Technical Support The Company's products are sold worldwide, and historically 50-65% of revenues have come from shipments to overseas destinations. The Company maintains an extensive sales force with a matrixed organization, which is intended to provide centralized coordination of worldwide strategic accounts, territory-based local support and coverage of smaller customers, and specialized selling of product lines with unique customer bases. The Company maintains a major account team and a direct domestic and international sales force for its PC-related products. The major account team services the top PC and disk drive manufacturers. The domestic sales force includes a network of regional direct sales offices located in California and in Colorado, Florida, Illinois, Massachusetts, North Carolina, Oregon, Pennsylvania, and Texas. International sales offices and organizations are located in Taiwan, Japan, Singapore, Korea, Hong Kong, the United Kingdom, Germany, Italy, France and Barbados. The Company supplements its direct sales force with sales representative organizations and distributors. Technical support staff are located at the sales offices and also at the Company's facilities in Fremont, California; Broomfield, Colorado; San Diego, California; Austin and Plano, Texas; Greenville, South Carolina; Raleigh, North Carolina; and Tucson, Arizona. The Company's Crystal subsidiary maintains a separate, smaller sales force for products sold to the industrial, and consumer electronics. In fiscal 1996 and 1995, no customer represented 10% or more of net sales. IBM accounted for approximately 10% of net sales in fiscal 1994. No other customer represented 10% or more of net sales in fiscal 1994. However, the loss of a significant customer or a significant reduction in such a customer's orders could have an adverse effect on the Company's sales. Export sales information is incorporated by reference from the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II hereof. The Company believes that the organization of its sales force has contributed to its level of success in attracting and maintaining major worldwide customers. A number of major customers together account for a significant portion of the Company's sales, although no single customer has represented 10% or more of net sales in either of the two most recent fiscal years. Backlog Sales are made primarily pursuant to standard short-term purchase orders for delivery of standard products. The quantity actually ordered by the customer, as well as the shipment schedules, are frequently revised to reflect changes in the customer's needs. Accordingly, the Company believes that its backlog at any given time is not a meaningful indicator of future revenues. Employees As of September 28, 1996, the Company had approximately 2,900 full-time equivalent employees, of whom 45% were engaged in research and product development, 29% in sales, marketing, general and administrative and 26% in manufacturing. The Company instituted a ten percent reduction in force in the fourth quarter of fiscal 1996. The Company's future success will depend, in part, on its ability to continue to attract, retain and motivate highly qualified technical, marketing, engineering and management personnel. None of the Company's employees is represented by any collective bargaining agreements, although Cirent Semiconductor is staffed by Lucent Technologies' employees who are represented by a union. The Company believes that its employee relations are good. Description of Properties The Company's principal facilities, located in Fremont, California, consist of approximately 480,000 square feet of office space leased pursuant to agreements which expire in 2006 through 2008 plus renewal options. This space is used for manufacturing, product development, sales, marketing and administration. Approximately 90,000 square feet of office space is subleased for the term of the lease, expiring in 2008. The Company's Austin, Texas facilities consist of approximately 350,000 square feet. Certain leases expire in July 1997 with two three-year options that could extend the term to July 2003. The other leases expire in 2005 and 2007. The Company's San Diego, California facility consists of approximately 153,000 square feet of office space leased pursuant to a lease that expires in 2006. The Company also has facilities located in Tucson, Arizona; Broomfield, Colorado; Nashua, New Hampshire; Raleigh, North Carolina; Greenville, South Carolina; King of Prussia, Pennsylvania; Fort Worth and Plano, Texas; Seattle, Washington; Pune, India; and Tokyo, Japan. The Company also leases sales and sales support offices in the United States in California, Colorado, Florida, Illinois, Massachusetts, Oregon, Pennsylvania and Texas and internationally in Taiwan, Japan, Singapore, Korea, Hong Kong, the United Kingdom, Germany, Italy, France and Barbados. The Company plans to add additional manufacturing and sales offices to support its growth. MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS NAME AGE POSITION WITH THE COMPANY SINCE - -------- --- ------------------------- ----- Michael L. Hackworth (1)(4) .... 56 President, Chief Executive Officer 1985 and Director Suhas S. Patil (1)(4) .......... 52 Chairman of the Board, Executive Vice 1984 President, Products and Technology, and Director Thomas F. Kelly................. 44 Executive Vice President, Finance and 1996 Administration, Chief Financial Officer and Treasurer George N. Alexy................. 48 Senior Vice President, Marketing 1987 Patrick V. Boudreau............. 55 Vice President, Human Resources 1996 Michael L. Canning.............. 55 President, Mass Storage Products Company 1985 William D. Caparelli............ 53 Senior Vice President, Worldwide Sales 1988 William W.Y. Chu................ 46 Office of the President, Product and 1992 and Customer Development, Graphics Company James H. Clardy................. 62 President, Crystal Semiconductor 1991 Robert V. Dickinson............. 55 Office of the President, Business 1992 Strategy and Operations, Graphics Company Robert F. Donohue............... 54 Vice President, Chief Legal Officer, 1996 General Counsel and Secretary Kenyon Mei...................... 51 Senior Vice President and General 1993 Manager, Personal Systems Division Edward C. Ross.................. 55 President, Worldwide Manufacturing Group 1995 Ronald K. Shelton............... 35 Vice President, Finance and Corporate 1996 Controller C. Gordon Bell (4).............. 62 Director 1990 D. James Guzy (1)(3)(4)......... 61 Director 1984 C. Woodrow Rea, Jr. (2)(3)(4)... 48 Director 1985 Walden C. Rhines (1)(3)......... 50 Director 1995 Robert H. Smith (2)(3).......... 60 Director 1990
- -------- (1) Member of the Executive Committee (2) Member of the Audit Committee (3) Member of the Compensation Committee (4) Member of the Nominating Committee Michael L. Hackworth (age 56), a founder of the Company, has served as President, Chief Executive Officer and a director since January 1985. He is also a director of Read-Rite Corporation. Suhas S. Patil (age 52), a founder of the Company, has served as Chairman of the Board and director since Cirrus Logic was founded in 1984. He served as Vice President, Research and Development until March 1990 when he became Executive Vice President, Products and Technology. He is also a director of Cybermedia, Inc. Thomas F. Kelly (age 44) joined the Company in March 1996 as Executive Vice President, Finance and Administration, Chief Financial Officer and Treasurer. He was Executive Vice President and Chief Financial Officer of Frame Technology Corporation from September 1993 to December 1995. Prior to Frame, he was Vice President and Chief Financial Officer of Analog Design Tools from September 1984 to July 1989, when it was acquired by Valid Logic, Vice President and Chief Financial Officer of Valid Logic through December 1991 and following the acquisition of Valid Logic by Cadence Design Systems, Inc., Senior Vice President of Cadence Design Systems, Inc. until July 1993. George N. Alexy (age 48) joined the Company in 1987 as Vice President, Marketing. In May 1993, he was promoted to Senior Vice President, Marketing. Previously, he was employed by Intel Corporation, most recently as Product Marketing Manager, High Performance Microprocessors. Patrick V. Boudreau (age 55) joined the Company in October 1996 as Vice President, Human Resources. He was Vice President, Human Resources for Fujitsu Microelectronics from 1995 to 1996. Prior to that, from 1989 to 1995, he was President of P.V.B. Associates, a management consulting and executive search firm, as well as Senior Vice President of Lazer-Tron Corporation. Michael L. Canning (age 55) joined the Company in 1985 as Vice President, Manufacturing and from 1990 to 1993 he was Executive Vice President, Operations. He is currently President, Mass Storage Products. Previously, he was employed by Teledyne Semiconductor as President and General Manager. William D. Caparelli (age 53) joined the Company in 1988 as Vice President, Worldwide Sales. In May 1993 he was promoted to Senior Vice President, Worldwide Sales. From 1985 to 1988, he served as Vice President, North American Sales, of VLSI Technology, Inc. William W. Y. Chu (age 46) was appointed President, Product and Customer Development of the Graphics Company, a division of the Company, in April 1996. He joined the Company as Vice President, Desktop Display Products in 1992 as a result of the merger with Acumos Incorporated where he was Vice President of Engineering from November 1991. Prior to that, he was Vice President of Engineering at Western Digital Imaging. James H. Clardy (age 62) is President of Crystal Semiconductor Corporation (Crystal) which merged with the Company in October 1991. In July 1993, he was appointed a corporate officer of the Company. Previously, he was Vice President of Sector Operations with Harris Semiconductor. Robert V. Dickinson (age 55) was appointed President, Business Strategy and Operations of the Graphics Company, a division of the Company, in April 1996. He joined the Company as Vice President, Japan Business Development in December 1992. Prior to that he was Vice President of Marketing and Business Planning, Micro Computer Products for Western Digital Corporation. Robert F. Donohue (age 54) joined the Company in May 1996 as Vice President, Chief Legal Officer, General Counsel and Secretary. He was Vice President, General Counsel and Secretary of Frame Technology Corporation from 1993 to 1996 and Vice President, General Counsel and Secretary of Cadence Design Systems, Inc. from 1989 through 1993. Kenyon Mei (age 51) joined the Company in 1985 as Vice President, Engineering. In May 1993, he was promoted to Senior Vice President, Engineering and General Manager, Personal Systems Business Unit. Edward C. Ross (age 55) joined the Company in September 1995 as President, Worldwide Manufacturing Group. He was President of Power Integrations from January 1989 to January 1995. Ronald K. Shelton (age 35) joined the Company in September 1996 as Vice President, Finance and Corporate Controller. From April 1992 to August 1996, he was Vice President, Finance and Administration and Chief Financial Officer of Alliance Semiconductor Corporation. He was Manager, Special Studies for Etec Systems, Inc. from April 1991 to March 1992. Prior to that, he was Audit Manager at Deloitte & Touche. C. Gordon Bell (age 62) has been a Senior Researcher with Microsoft Corporation since August 1995. He was a computer consultant from November 1991 until August 1995 and Chief Scientist for Stardent Computer, a manufacturer of high-performance graphic super-computers, from November 1987 until November 1991. D. James Guzy (age 61) has been President of Arbor Company, a Nevada limited partnership engaged in the electronics and computer industry, since 1969. He is also a director of Intel Corporation, Micro Component Technology, Inc., Novellus Systems, Inc., Davis Selected Advisors Group of Mutual Funds and Alliance Capital Management Technology Fund. C. Woodrow Rea (age 48) is a private investor. He was President and Chief Executive Officer and a director of Spectrian, a communications electronics company, from January 1992 until April 1996. From April 1984 to January 1992, he was a general partner of the New Enterprise Associates group of venture capital partnerships. He is also a director of Molecular Dynamics, Inc. Walden C. Rhines (age 50) has been President and Chief Executive Officer and a director of Mentor Graphics Corporation, a maker of electronic design automation products, since October 1993. Previously, he was Executive Vice President, Semiconductor Group at Texas Instruments, Inc., from May 1987 to October 1993. He is also a director of TriQuint Semiconductor. Robert H. Smith (age 60) has been Executive Vice President, Finance and Administration and Chief Financial Officer of Novellus Systems since October 1996. From June 1994 to September 1994, he was Chairman of the Board of Micro Component Technology, Inc., an equipment manufacturer. He was President of Maxwell Communication Corporation North America, a printing, publishing, telecommunications and information management company, from August 1988 to July 1990. There are no family relationships between any directors or executive officers of the Company. COMPENSATION OF DIRECTORS Non-employee directors are compensated as follows: a retainer of $4,000 shall be paid each quarter; a fee of $2,000 per day shall be paid for each regular or special meeting of the Board of Directors or committee meetings attended in person; a fee of $2,000 per day shall be paid for consulting services; and travel expenses will be reimbursed for any director who travels more than 50 miles to attend a meeting. During the Last Fiscal Year, consulting fees in the amounts of $250 and $1,000 were paid to directors Guzy and Bell, respectively, for Board of Directors related services performed at the request of the Board or the President. In addition, in January 1990 the Company adopted a Directors' Stock Option Plan (the "Directors' Plan"), which was approved by the shareholders in July 1990. Under the terms of the Directors' Plan, each non-employee director is automatically granted, on the date he or she first becomes a director, an initial option to purchase 20,000 shares and, on the date of his or her annual reelection to the Board, an additional option to purchase 5,000 shares. The exercise price of the automatic options is the fair market value of the Common Stock as determined by the closing price reported by the Nasdaq National Market on the date of grant. Options granted under the Directors' Plan have a five-year term and vest over four years; one quarter (1/4) of the shares vest one year from the date of grant and one forty-eighth (1/48th) of the total shares vest each month thereafter. On August 1, 1995, automatic options were granted to C. Gordon Bell, D. James Guzy, C. Woodrow Rea, Walden C. Rhines and Robert H. Smith to purchase 5,000 shares of Common Stock at an exercise price of $44.50 per share, the fair market value on the date of grant. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth the compensation earned during the fiscal years ended March 30, 1996, April 1, 1995 and April 2, 1994, by the Company's Chief Executive Officer, the four highest-paid executive officers and the former Senior Vice President, Finance and Administration.
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ---------------------- ------------ SECURITIES ALL OTHER SALARY BONUS UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) OPTIONS (#) ($)(2)(3) --------------------------- ---- ------- --------- ------------ ------------ Michael L. Hackworth 1996 397,488 -- -- 313,078 President and Chief 1995 375,000 1,073,980 300,000 1,000 Executive Officer 1994 313,721 570,604 400,000 1,000 Sam S. Srinivasan (4) 1996 235,956 -- 60,000 274,458(5) Senior Vice President, 1995 222,600 461,496 108,000 1,000 Finance and Administration, 1994 201,048 278,959 97,250 1,000 Chief Financial Officer, Treasurer and Secretary Suhas S. Patil 1996 270,504 -- 70,000 213,383 Chairman, Executive Vice 1995 255,200 713,186 70,000 1,000 President, Products and 1994 213,885 390,532 200,000 1,000 Technology Douglas J. Bartek (4) 1996 269,325 -- 50,000 160,258 President, Visual and Systems 1995 249,400 494,771 50,000 1,000 Interface 1994 210,132 388,612 148,000 1,000 William D. Caparelli 1996 223,418 -- 36,000 167,556(6) Senior Vice President, 1995 205,062 415,511 36,000 1,000 Worldwide Sales 1994 182,044 224,790 63,750 1,000 George N. Alexy 1996 231,504 -- 50,000 133,093 Senior Vice President, 1995 218,400 439,878 50,000 1,000 Marketing 1994 199,298 250,772 89,750 1,000
- -------- (1) Amounts shown are before salary reductions resulting from employee contributions to the Cirrus Logic, Inc. 401(k) Profit Sharing Plan. (2) Under the terms of the Senior Executive Variable Compensation Plan ("SEVCP"), in the first and second quarters of fiscal 1996, partial payment of the performance bonus based on each quarter's performance was made to Mr. Hackworth, Mr. Srinivasan, Dr. Patil, Mr. Bartek, Mr. Caparelli and Mr. Alexy in the amounts of $312,078, $139,759, $212,383, $159,258, $106,556 and $132,093, respectively. Such amounts have been reported in the "All Other Compensation" column. At year end, no bonuses were payable for fiscal 1996 due to the loss in the third and fourth quarters. Consequently, the amounts advanced to participants in the SEVCP in the first and second quarters of fiscal 1996 are being treated as short-term loans and such amounts shall be withheld from any future payment under the SEVCP to the Named Executive Officers and all other participants in the SEVCP. See "Employment Agreements and Certain Transactions." Employees who are no longer with the Company, including Mr. Srinivasan and Mr. Bartek, will not be required to repay amounts paid to them under the SEVCP. (3) Additional amounts included in the "All Other Compensation" column for the Last Fiscal Year are matching contributions by the Company of $1,000 with respect to each Named Executive Officer under the 401(k) plan. (4) See "Employment Agreements and Certain Transactions" for further information regarding agreements with Mr. Srinivasan and Mr. Bartek. (5) Also includes $100,000 forgiven on an outstanding loan and $33,699 for tax gross-up on the related interest. (6) Includes a special commission payment of $60,000 related to fiscal 1995 sales. Option Grants in Last Fiscal Year The following table provides information with respect to options granted in the Last Fiscal Year to the Named Executive Officers.
INDIVIDUAL GRANTS ---------------------- POTENTIAL REALIZABLE % OF TOTAL VALUE AT ASSUMED NUMBER OF OPTIONS ANNUAL RATES OF STOCK SECURITIES GRANTED TO PRICE APPRECIATION UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM OPTIONS IN FISCAL PRICE EXPIRATION --------------------- NAME GRANTED (1) YEAR (2) ($/SH) DATE 5% ($)(3) 10% ($)(3) - ---- ---------- ---------- -------- ---------- ---------- ---------- Michael L. Hackworth.... -- -- -- -- -- -- Sam S. Srinivasan... 60,000 1.96% $35.125 07/18/05 $1,325,395 $3,358,812 Suhas S. Patil........ 70,000 2.29% $35.125 07/18/05 $1,546,295 $3,918,614 Douglas J. Bartek....... 50,000 1.63% $35.125 07/18/05 $1,104,496 $2,799,010 William D. Caparelli.... 36,000 1.18% $35.125 07/18/05 $ 795,237 $2,015,287 George N. Alexy........ 50,000 1.63% $35.125 07/18/05 $1,104,496 $2,799,010
- -------- (1) All options were granted under the 1987 Stock Option Plan and have exercise prices equal to the fair market value of the Company's Common Stock on the date of grant. All options vest on July 18, 1999. The Compensation Committee has the discretion and authority to amend and reprice the outstanding options. To date, the Company has not repriced any options. (2) Based on 3,061,175 options granted under all option plans to employees during the Last Fiscal Year. (3) Potential realizable value is based on an assumption that the market price of the stock appreciates at the stated rate, compounded annually, from the date of grant until the end of the 10-year term of the option. These values are calculated based on requirements promulgated by the Securities and Exchange Commission and do not reflect the Company's estimate or projection of future stock price. Actual gains, if any, on stock option exercises will be dependent on the future performance of the Common Stock. Aggregate Option Exercises in Last Fiscal Year And Fiscal Year End Option Values The following table provides information with respect to option exercises in the Last Fiscal Year by the Named Executive Officers and the value of their unexercised options at Fiscal Year End.
NUMBER OF SECURITIES UNDERLYING VALUE OF VALUE OF UNEXERCISED UNEXERCISED UNEXERCISED SHARES OPTIONS AT IN-THE-MONEY OPTIONS ACQUIRED FISCAL YEAR AT FISCAL YEAR ON VALUE END (#)(2) END ($)(2)(3) EXERCISE REALIZED ---------------- --------------------- NAME (#) ($)(1) VESTED UNVESTED VESTED UNVESTED - ---- -------- ---------- ------- -------- ---------- ---------- Michael L. Hackworth.... -- -- 494,169 145,831 $4,183,307 $1,024,193 Sam S. Srinivasan... 87,753 $3,030,822 16,667 161,250 $ 165,628 $1,041,359 Suhas S. Patil........ -- -- 217,508 192,492 $1,985,302 $1,182,511 Douglas J. Bartek....... 37,400 $1,561,451 22,600 138,000 $ 152,900 $ 925,750 William D. Caparelli.... 69,524 $2,657,328 37,353 82,873 $ 371,195 $ 609,581 George N. Alexy........ 5,000 $ 123,750 215,502 119,248 $2,612,649 $ 889,089
- -------- (1) Market value of the shares on date of exercise, less the exercise price. (2) All options are immediately exercisable, but shares issued upon exercise are subject to vesting restrictions. Accordingly, there were no unexercisable options outstanding at fiscal year end. (3) Value is based on fair market value of the Company's common stock of $18.625 per share on March 29, 1996 (the last trading day of the Last Fiscal Year), less the exercise price. LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS The Company's Restated Articles of Incorporation, as amended (the "Articles"), of the Company limits the liability of a director to the Company or its shareholders for monetary damages to the fullest extent permissible under California law, and authorizes the Company to provide indemnification to its agents (including officers and directors), subject to the limitations of the California Corporations Code set forth below. The Company's Bylaws, as amended further provide for indemnification of corporate agents to the maximum extent permitted by the California Corporations Code. Section 317 of the California Corporations Code authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers who are parties or are threatened to be made parties to any proceeding (with certain exceptions) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation. The provision does not extend to acts or omissions of a director in his capacity as an officer. Further, the provision has no effect on claims arising under federal or state securities laws and does not affect the availability of injunctions and other equitable remedies available to the Company's shareholders for any violation of a director's fiduciary duty to the Company or its shareholders. Although the validity and scope of the legislation underlying the provision have not yet been interpreted to any significant extent by the California courts, the provision may relieve directors of monetary liability to the Company for grossly negligent conduct, including conduct in situations involving attempted takeovers of the Company. The Company has entered into indemnification agreements with each of its officers and directors. These agreements indemnify them against certain potential liabilities that may arise as a result of their service to the Company, and provide for certain other protection. The Company also maintains insurance policies which insure its officers and directors against certain liabilities. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS Sam S. Srinivasan retired from the Company in April 1996. The Company entered into a Retirement Agreement with Mr. Srinivasan in connection therewith. Under the retirement agreement, Mr. Srinivasan received a lump-sum payment equal to one year's salary, $235,956, plus forgiveness of an outstanding loan and tax reimbursement therefore totaling $410,281. Mr. Srinivasan's stock options vested through September 30, 1996. In addition, Mr. Srinivasan had a consulting agreement to provide services to the Company for a transition period of three months. The Company has entered into an agreement with Douglas J. Bartek who resigned from his position of President, Visual and Systems Interface Company on April 19, 1996 to assume the CEO position of a divested operation. Under the agreement, Mr. Bartek received a lump-sum payment equal to one year's salary, $264,368. He has agreed to provide consulting services to the Company for a period of up to one year. During the consulting period, certain stock options held by Mr. Bartek vest based on the attainment of specific goals as stated in the consulting agreement and he may receive relocation benefits in connection with the divested operation. STOCK OPTION PLANS The 1990 Directors' Stock Option Plan The 1990 Directors' Stock Option Plan (the "Directors' Plan") was adopted by the Board of Directors in January 1990 and approved by the shareholders in July 1990. A total of 185,000 shares of Common Stock are reserved for issuance thereunder. The Directors' Plan is administered by non-employee Directors of the Board of Directors. Each Outside Director is automatically granted an initial option to purchase 10,000 shares of Common Stock upon the date such person first becomes a Director, and, upon his or her annual reelection to the Board, an additional option to purchase 2,500 shares of Common Stock. Grants of Special Options are made at the discretion of the Board. All options granted under the Directors' Plan are nonstatutory stock options. Options granted under the Directors' Plan have a term of five years and are exercisable only while the Outside Director remains an Outside Director of the Company or within seven (7) months of the date the Outside Director ceases to serve as a Director. The exercise price of Automatic Options is 100% of the fair market value per share on the date of grant of the option. The exercise price of the Special Option is determined by the Board. Automatic Options are immediately exercisable and subject to repurchase by the Company as to any unvested shares upon cessation of status as an Outside Director. Special Options are subject to vesting as determined by the Board of Directors and approved by the shareholders. In the event of a liquidation or dissolution of the Company, all options will terminate immediately before consummation of such event. In the event of a proposed sale of all or substantially all of the assets of the Company, or merger of the Company with or into another corporation, all options shall be assumed or equivalent options shall be substituted, by such successor corporation or a parent or subsidiary of such successor corporation. The Board of Directors may amend, alter, suspend or discontinue the Directors' Plan; provided, however, that the terms of Automatic Options may not be amended more than once in any six-month period. The grant of options under the Directors' Plan is determined by the Directors' Plan with respect to Automatic Options and is subject to the individual director's election, appointment or reelection to the Board. The grant of Special Options is at the discretion of the Board of Directors and the approval of the shareholders of the Company. 1996 Stock Plan The Company's 1996 Stock Plan (the "Stock Plan") provides for the granting of employees of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and for the granting to employees, directors and consultants of nonstatutory stock options and stock purchase rights ("SPRs"). The Stock Plan was approved by the Board of Directors in May 1996 and the stockholders in August 1996. Unless terminated sooner, the Stock Plan will automatically terminate ten years from approval date. A total of 2,500,000 shares are currently authorized for issuance under the Stock Plan. The Stock Plan may generally be administered by the Board of Directors or by a committee appointed by the Board of Directors (" the Committee"). Options and SPRs granted under the Stock Plan are generally not transferable by the optionee. Options granted under the Stock Plan must generally vest and become exercisable over four years. In the case of SPRs, unless the Board or the Committee determines otherwise, the Company's grant shall be subject to a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment. The purchase price for shares repurchased pursuant to the Restricted Stock Purchase Agreement is the original price paid by the purchaser and may be repaid by cancellation of any indebtedness of the purchaser to the Company. The exercise price of all incentive stock options granted under the Stock Plan must be at least equal to the fair market value of the Common Stock on the date of grant. The exercise price of nonstatutory stock options and SPR's granted to under the Stock Plan is determined by the Board or the Committee. In order to preserve the Company's ability to deduct the compensation income associated with options granted to certain executive officers of the Company and comply with the limitations imposed on such grants by Section 162(m) of the Internal Revenue Code, the Stock Plan provides that no employee may be granted, in any fiscal year of the Company, options to purchase more than 400,000 shares of Common Stock. In connection with an employee's initial employment, however, such employee may be granted options to purchase to up to an additional 800,000 shares of Common Stock under the Stock Plan. Options granted under the Stock Plan must generally be exercised within 30 days of the end of the optionee's status as an employee or consultant of the Company, or in no event later than the ten years from the date of grant of such option. Participation in the Stock Plan is voluntary and dependent on each eligible employee's election to participate. The Stock Plan provides that, in the event of a merger of the Company with or into another corporation or a sale of substantially all the Company's assets, each option or SPR shall be assumed or an equivalent option substituted by the successor corporation. If the outstanding options or SPRs are not assumed or substituted with an equivalent option of the successor corporation, the optionee shall fully vest in and have the right to exercise the option or SPR as to all of the optioned stock, including the shares as to which it would not otherwise have been vested and be exercisable. In the event an option or SPR becomes exercisable in full in the event of a merger or sale of assets, the Committee shall notify the optionee that the option or SPR shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the option or SPR will terminate upon the expiration of such. EMPLOYEE STOCK PURCHASE PLAN 1989 Employee Stock Purchase Plan The Company's 1989 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in March 1989 and approved by the stockholders in August 1996. A total of 3,400,000 shares of Common Stock has been reserved for issuance under the Purchase Plan, which is intended to qualify under Section 423 of the Internal Revenue Code. The Purchase Plan is implemented by consecutive and non-overlapping offering periods that begin every six months. The first offering period commenced on June 8, 1989, and terminated on December 31, 1989. Subsequent offering periods were every six month period thereafter. Since the Compensation Committee has the power to change the duration of the future offering periods, on May 24, 1994 the offering periods were amended to coincide with the accounting and payroll schedules and include thirteen pay periods per offering. Accordingly, the changed offering period ended on June 29, 1996. The next offering period commenced on June 30, 1996 and terminated on January 14, 1997. The Purchase Plan is administered by the Compensation Committee of the Board of Directors. The Purchase Plan permits eligible employees to Purchase Common Stock through payroll deductions; provided, however that immediately after the grant of such option, the employee would not own more than five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or its subsidiaries (including stock issuable upon exercise of options held by him or her) and such grant would not exceed more than $25,000 of stock (determined at the fair market value of the shares at the time the option is granted) in any calendar year. The price of the of stock purchased under the Purchase Plan is 85% of the lower of the fair market value of the Common stock at the beginning of the offering period or at the end of the relevant purchase period. Employees may end their participation at any time with at least fifteen (15) days notice prior to the end of an offering period, and they will be paid their payroll deductions to date. Participation ends automatically upon the termination of employment with the Company. Participation in the Purchase Plan is voluntary and dependent on each eligible employee's election to participate. The Purchase Plan provides that, in the event of a merger of the Company with or into another corporation or a sale of substantially all the Company's assets, the Board of Directors shall shorten the offering period then in progress such that the employees' rights to purchase stock under the Purchase Plan are exercised prior to the merger or sale of assets. The Purchase Plan will terminate in March 2009, unless terminated earlier by the Board. EMPLOYEE BENEFIT PLANS The Company and its subsidiaries have adopted 401(k) Profit Sharing Plans (the "Plans") covering substantially all of their qualifying domestic employees. Under the Plans, employees may elect to reduce their current compensation by up to 15% subject to annual limitations, and have the amount of such reduction contributed to the Plans. The Plans permit, but do not require, additional discretionary contributions by the Company on behalf of all participants. During fiscal 1996, 1995 and 1994, the Company and its subsidiaries matched employee contributions up to various maximums per plan for a total of approximately $2,111,000, $1,849,000 and $1,290,000, respectively. The Company intends to continue the contributions in fiscal 1997 and 1998. THE EXECUTIVE VARIABLE COMPENSATION PLAN The Company established the Executive Variable Compensation Plan (the "EVCP")in 1990. In August 1995, the Company shareholders approved the EVCP in order to qualify payments under the terms of the plan as performance-based compensation under Section 162(m) of the Internal Revenue Code, which permits a Company to deduct more than $1 million of compensation paid to the executive officers named in the summary compensation table in the proxy statement (the "Covered Employees") under certain performance-based compensation plans that are approved by shareholders. The plan is administered by the Compensation Committee of the Board of Directors (the "Committee"), subject to ratification by the Board of Directors. The individuals who are eligible to participate in the EVCP are the executive officers and other key employees of Cirrus Logic who are or who may become Covered Employees. Under the EVCP, participants are eligible to receive bonus payments based upon the attainment and certification of performance measures pre-established by the Committee. EVCP payments are generally made in cash as soon as is practicable following determination of the amount of the bonus payment. The primary performance measures for the plan are corporate profitability and growth as measured by certain performance measures and financial ratios. The impact of any acquisitions or mergers during the plan year will be excluded from the performance measures. Participants who have primary responsibility for a business unit of the Company may be measured on business unit performance measures, in place of some or all of the corporate performance measures. The Committee may terminate, suspend or amend the EVCP, so long as shareholder approval has been obtained if required in order for awards to qualify as "performance-based compensation" under Section 162(m) of the Code. Under present federal income tax law, participants will realize ordinary income equal to the amount of the award received in the year of receipt, and the Company will receive a corresponding deduction for the amount constituting ordinary income to the participant at the same time the participant recognizes that ordinary income, provided that the EVCP satisfies the requirements of Section 162(m) of the Code. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the fiscal year ended March 30, 1996, the Compensation Committee of the Board of Directors consisted of directors Rea, Rhines and Smith. No executive officer of the Company served on the compensation committee of another entity or on any other committee of the board of directors of another entity performing similar functions during the Last Fiscal Year. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information known to the Company regarding the beneficial ownership of the Company's Common Stock as of March 30, 1996 by (i) each shareholder known to the Company to be a beneficial owner of more than 5% of the Company's Common Stock; (ii) each director; (iii) each of the Named Executive Officers and (iv) all current executive officers and directors of the Company as a group. Unless otherwise indicated in the footnotes, the beneficial owner has sole voting and investment power with respect to the securities beneficially owned, subject only to community property laws, if applicable.
NUMBER OF BENEFICIAL OWNER SHARES (1) PERCENT ---------------- ---------- ------- Merrill Lynch Asset Management, L. P. (2)(3) ............. 6,317,000 9.88% P.O. Box 9011 Princeton, NJ 08543 Suhas S. Patil (4)........................................ 1,301,657 2.04 Michael L. Hackworth (5).................................. 1,213,784 1.90 George N. Alexy (6)....................................... 520,259 * David L. Lyon (7)......................................... 338,568 * Douglas J. Bartek (8)..................................... 247,953 * William D. Caparelli (9).................................. 205,566 * D. James Guzy (10)........................................ 182,782 * Sam S. Srinivasan (11).................................... 93,398 * C. Gordon Bell (12)....................................... 45,000 * C. Woodrow Rea, Jr. (13).................................. 26,000 * Walden C. Rhines (14)..................................... 25,000 * Robert H. Smith (15)...................................... 12,500 * All current executive officers and directors as a group (19 Persons) (16)........................................ 5,583,437 8.73%
- -------- * Less than 1% (1) All options are immediately exercisable, but shares issued upon exercise of unvested options are subject to vesting restrictions. Accordingly, all outstanding options are exercisable within sixty (60) days of the Date. See "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values" table for vested and unvested shares. (2) As reported in the most recent filings with the Securities and Exchange Commission. (3) Merrill Lynch & Co., Inc. shares voting and dispositive power with respect to 6,317,000 shares with Merrill Lynch Group, Inc., Princeton Services, Inc., Merrill Lynch Asset Management, L.P. and Merrill Lynch Growth Fund for Investment and Retirement. (4) Includes (i) 480,000 shares issuable upon exercise of options held by Dr. Patil exercisable within sixty (60) days of March 30, 1996 and (ii) 73,400 shares held by family members and trusts for the benefit of family members, with respect to which Dr. Patil disclaims beneficial ownership. (5) Includes 940,000 shares issuable upon exercise of options held by Mr. Hackworth exercisable within sixty (60) days of March 30, 1996. (6) Includes 384,750 shares issuable upon exercise of options held by Mr. Alexy exercisable within sixty (60) days of March 30, 1996. (7) Includes 199,372 shares issuable upon exercise of options held by Dr. Lyon exercisable within sixty (60) days of March 30, 1996. (8) Includes 73,266 shares issuable upon exercise of options held by Mr. Bartek exercisable within sixty (60) days of March 30, 1996. (9) Includes 156,226 shares issuable upon exercise of options held by Mr. Caparelli exercisable within sixty (60) days of March 30, 1996. (10) Includes 25,000 shares issuable upon exercise of options held by Mr. Guzy exercisable within sixty (60) days of March 30, 1996. Also includes 132,782 shares held by Arbor Company, of which Mr. Guzy is President and may therefore be deemed to be the beneficial owner. (11) Includes 66,667 shares issuable upon exercise of options held by Mr. Srinivasan exercisable within sixty (60) days of March 30, 1996. (12) Includes 20,000 shares issuable upon exercise of options held by Dr. Bell exercisable within sixty (60) days of March 30, 1996. (13) Includes 25,000 shares issuable upon exercise of options held by Mr. Rea exercisable within sixty (60) days of March 30, 1996. (14) Includes 25,000 shares issuable upon exercise of options held by Mr. Rhines exercisable within sixty (60) days of March 30, 1996. (15) Includes 12,500 shares issuable upon exercise of options held by Mr. Smith exercisable within sixty (60) days of March 30, 1996. (16) Includes 3,342,766 shares issuable upon exercise of options held by executive officers and directors exercisable within sixty (60) days of March 30, 1996. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Sam S. Srinivasan retired from the Company in April 1996. The Company entered into a Retirement Agreement with Mr. Srinivasan in connection therewith. Under the retirement agreement, Mr. Srinivasan received a lump- sum payment equal to one year's salary, $235,956, plus forgiveness of an outstanding loan and tax reimbursement therefor totaling $410,281. Mr. Srinivasan's stock options vested through September 30, 1996. In addition, Mr. Srinivasan has a consulting agreement to provide services to the Company for a transition period of three months. The Company has entered into an agreement with Douglas J. Bartek who resigned from his position of President, Visual and Systems Interface Company on April 19, 1996 to assume the CEO position of a divested operation. Under the agreement, Mr. Bartek received a lump-sum payment equal to one year's salary, $264,368. He has agreed to provide consulting services to the Company for a period of up to one year. During the consulting period, certain stock options held by Mr. Bartek will vest based on the attainment of specific goals as stated in the consulting agreement and he may receive relocation benefits in connection with the divested operation. Under the terms of the Senior Executive Variable Compensation Plan ("SEVCP"), in the first and second quarters of fiscal 1996, partial payment of the performance bonus based on each quarter's performance was made to Mr. Hackworth, Mr. Srinivasan, Dr. Patil, Mr. Bartek, Mr. Caparelli and Mr. Alexy in the amounts of $312,078, $139,759, $212,383, $159,258, $106,556 and $132,093, respectively. At year end, no bonuses were payable for fiscal 1996 due to the loss in the third and fourth quarters. Consequently, the amounts advanced to participants in the SEVCP in the first and second quarters of fiscal 1996 are being treated as short-term loans and such amounts shall be withheld from any future payment under the SEVCP to the Named Executive Officers and all other participants in the SEVCP. No interest will be charged on these loans. However, imputed interest will be added to each participant's income. Employees who are no longer with the Company will not be required to repay the amounts advanced to them under the SEVCP. LEGAL PROCEEDINGS 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 complaint are without merit. Between November 7 and November 21, 1995, five shareholder class action lawsuits were filed in the United States District Court for the Northern District of California against the Company and several of its officers and directors. A consolidated amended complaint was filed on February 20, 1996 and an amended consolidated supplemental complaint was filed on May 3, 1996. This complaint alleges that certain statements made by defendants during the period from July 23, 1995 through December 21, 1995 were false and misleading and in violation of the federal securities laws. The complaint does not specify the amounts of damages sought. The Company believes that the allegations of the complaint are without merit. On February 21, 1996, a shareholder class action lawsuit was filed in the Superior Court of California in and for the County of Alameda against the Company and numerous fictitiously named defendants alleged to be officers or agents of the Company. An amended complaint, which added certain of the Company's officers and directors as defendants, was filed on April 18, 1996. On October 28, 1996, an identical class action lawsuit was filed in the same court by the same plaintiffs' lawyers on behalf of an additional plaintiff. These lawsuits allege that certain statements made by the Company and the individual defendants during the period from October 1, 1995 through February 14, 1996 were false and misleading and violated California state common and statutory law. The complaints do not specify the amounts of damages sought. The Company believes that the allegations of the complaints are without merit. On September 16, 1996, a shareholder derivative lawsuit was filed in the United States District Court for the Northern District of California against the Company and several of its officers and directors. The complaint alleges the individual defendants breached their fiduciary duties to the Company between July 26, 1995 and February 13, 1996. The complaint does not specify the amounts of damages sought. The Company believes the allegations in the complaint are without merit, and the Company intends to defend itself vigorously. On December 12, 1996, the Company signed a Memorandum of Understanding of Settlement with plaintiffs' counsel in the federal class action lawsuits. If approved, the agreement would settle all pending securities claims against the Company for an aggregate sum of $31.3 million, exclusive of interest, $2.3 million of which would be contributed by the Company with the remainder being contributed by the Company's insurers. The proposed settlement is expected to include amendment of the federal class action filed in 1995 to include claims pending in state court with the intent that the settlement would have the effect of extinguishing the state court claims. The proposed settlement is subject to a number of contingencies, including the agreement to reach and execute a definitive agreement and court approval. If for any reason the settlement is not approved, or if for any reason the extinction of the state claims is not approved, the Company intends to defend itself vigorously. Based on its assessment of the cases and the availability of insurance, the Company believes that, even if the settlement is not approved, the likelihood is remote that the ultimate resolution of these matters will have a material adverse effect on its financial position, results of operations or cash flows. However, there can be no certainty or assurance as to the outcome of any litigation process. The foregoing forward-looking statements with respect to the proposed settlement are dependent on certain risks and uncertainties including such factors, among others, as the ability to reach and execute a definitive agreement, the securing of court approval, the running of all relevant periods for objection of appeals, and the state court's recognition of the order on the settlement. DESCRIPTION OF CAPITAL STOCK As of December 28, 1996, the authorized capital stock of the Company consisted of 140,000,000 shares of Common Stock, no par value, and 5,000,000 shares of Preferred Stock, no par value. Common Stock The holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the shareholders, except that upon giving the legally required notice, shareholders may cumulate their votes in the election of directors. Subject to preferences that may be applicable to any outstanding Preferred Stock, the holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior liquidation rights of Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are fully paid and non-assessable. Preferred Stock The Preferred Stock is authorized but unissued. The Board of Directors has the authority to issue the undesignated Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued shares of undesignated Preferred Stock and to fix the number of shares constituting any series and the designations of such series, without any further vote or action by the shareholders. Although it has no intention to do so, the Board of Directors, without shareholder approval, can issue Preferred Stock with voting and conversion rights which could adversely affect the voting power of the holders of Common Stock. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company. DESCRIPTION OF THE REGISTRABLE NOTES The Registrable Notes have been issued under an indenture, dated as of December 15, 1996, between the Company and State Street Bank and Trust Company, as Trustee (the "Indenture"). The following summaries of certain provisions of the Registrable Notes and the Indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of the Registrable Notes and the Indenture, including the definitions therein of certain terms that are not otherwise defined in this Prospectus. Wherever particular provisions or defined terms of the Indenture (or of the form of Registrable Note that is a part thereof) are referred to, such provisions or defined terms are incorporated herein by reference. General The Registrable Notes are unsecured general obligations of the Company subordinate in right of payment to certain other obligations of the Company as described under "--Subordination," and convertible into Common Stock as described under "--Conversion Rights." The Registrable Notes will mature on December 15, 2003, unless earlier redeemed at the option of the Company or repurchased by the Company at the option of the holder upon the occurrence of a Change in Control (as defined). The Registrable Notes bear interest from the most recent date that interest has been paid, or if no interest has been paid, from December 18, 1996, at 6% per annum. Interest is payable semi-annually on June 15 and December 15, commencing on June 15, 1997, to holders of record at the close of business on the preceding June 1 and December 1, respectively. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal will be payable, and the Registrable Notes may be presented for conversion, registration of transfer and exchange, without service charge, at the office of the Company maintained by the Company for such purposes in New York, New York, which shall initially be the office or agency of the Trustee in New York, New York. The Indenture does not contain any financial covenants or any restrictions on the payment of dividends, the repurchase of securities of the Company or the incurrence of Senior Indebtedness or other indebtedness. The Indenture contains no covenants or other provisions to afford protection to holders of Notes in the event of a highly leveraged transaction or a change in control of the Company except to the extent described under "-- Repurchase at Option of Holders Upon a Change in Control" below. Conversion Rights The Holder of any Registrable Note will have the right at the Holders option, to convert any portion of the principal amount of any Registrable Note that is an integral multiple of $1,000 into shares of Common Stock at any time on or after March 18, 1997 and prior to the close of business on the maturity date, unless previously redeemed or repurchased, at a conversion rate of 41.2903 shares of Common Stock per $1,000 principal amount of Notes (the "Conversion Rate") (equivalent to a conversion price of approximately $24.219 per share of Common Stock), subject to adjustment as described below. The right to convert a Registrable Note called for redemption or submitted for repurchase will terminate at the close of business on the last Business Day prior to the Redemption Date or Repurchase Date for such Registrable Note, as the case may be. (Section 12.1) The right of conversion attaching to any Registrable Note may be exercised by the Holder by delivering the Registrable Note at the office or agency of the Trustee in the Borough of Manhattan, The City of New York, accompanied by a duly signed and completed notice of conversion. Such notice of conversion can be obtained from the Trustee. Beneficial owners of interests in a Registered Global Note may exercise their right of conversion by delivering to The Depository Trust Company ("DTC") the appropriate instruction form for conversion pursuant to DTC's conversion program. Such notice of conversion can be obtained at the office of any Conversion Agent. The conversion date will be the date on which the Registrable Note and the duly signed and completed notice of conversion are so delivered. As promptly as practicable on or after the conversion date, the Company will issue and deliver to the Trustee a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share; such certificate will be sent by the Trustee to the Conversion Agent for delivery to the Holder. Such shares of Common Stock issuable upon conversion of the Registrable Notes, in accordance with the provisions of the Indenture, will be fully paid and nonassessable and will rank pari passu with the other shares of Common Stock of the Company outstanding from time to time. Any Registrable Note surrendered for conversion during the period from the close of business on any Regular Record Date to the opening of business on the next succeeding Interest Payment Date (except Registrable Notes (or portions thereof) called for redemption on a Redemption Date or repurchaseable on a Repurchase Date occurring, in either case, within such period (including any Registrable Notes (or portions thereof) called for redemption on a Redemption Date or submitted for repurchase on a Repurchase Date that is a Regular Record Date or Interest Payment Date, as the case may be)) must be accompanied by payment of an amount equal to the interest payable on such Interest Payment Date on the principal amount of Registrable Notes being surrendered for conversion. The interest payable on such Interest Payment Date with respect to any Registrable Note (or portion thereof, if applicable) which has been called for redemption on a Redemption Date, or is repurchaseable on a Repurchase Date, occurring, in either case, during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (including any Notes (or portions thereof) called for redemption on a Redemption Date or submitted for repurchase on a Repurchase Date that is a Regular Record Date or Interest Payment Date, as the case may be), which Note (or portion thereof, if applicable) is surrendered for conversion during such period (or on the last Business Day prior to the Regular Record Date or Interest Payment Date in the case of a Registrable Note (or portions thereof) called for redemption or submitted for repurchase on a Regular Record Date or Interest Payment Date, as the case may be), shall be paid to the Holder of such Registrable Note being converted in an amount equal to the interest that would have been payable on such Registrable Note if such Registrable Note had been converted as of the close of business on such Interest Payment Date. The interest payable on such Interest Payment Date in respect of any Registrable Note (or portion thereof, as the case may be) which has not been called for redemption on a Redemption Date, or is not eligible for repurchase on a Repurchase Date, occurring, in either case, during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date, which Registrable Note (or portion thereof, as the case may be) is surrendered for conversion during such period, shall be paid to the Holder of such Registrable Note as of such Regular Record Date. Interest payable in respect of any Registrable Note surrendered for conversion on or after an Interest Payment Date shall be paid to the Holder of such Registrable Note as of the next preceding Regular Record Date, notwithstanding the exercise of the right of conversion. As a result of the foregoing provisions, Holders that surrender Registrable Notes for conversion on a date that is not an Interest Payment Date will not receive any interest for the period from the Interest Payment Date next preceding the date of conversion to the date of conversion or for any later period, even if the Registrable Notes are surrendered after a notice of redemption (except for the payment of interest on Registrable Notes called for redemption on a Redemption Date or submitted for repurchase on a Repurchase Date between a Regular Record Date and the Interest Payment Date to which it relates (including any Registrable Notes (or portions thereof) called for redemption on a Redemption Date or submitted for repurchase on a Repurchase Date that is a Regular Record Date or Interest Payment Date, as the case may be), as provided above). No other payment or adjustment for interest, or for any dividends in respect of Common Stock, will be made upon conversion. Holders of Common Stock issued upon conversion will not be entitled to receive any dividends payable to holders of Common Stock as of any record time or date before the close of business on the conversion date. No fractional shares will be issued upon conversion but, in lieu thereof, an appropriate amount will be paid in cash by the Company based on the market bid price of Common Stock at the close of business on the day of conversion. (Sections 2.2, 3.7, 12.2 and 12.3) A Holder delivering a Registrable Note for conversion will not be required to pay any taxes or duties in respect of the issue or delivery of Common Stock on conversion but will be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue or delivery of the Common Stock in a name other than that of the Holder of the Registrable Note. Certificates representing shares of Common Stock will not be issued or delivered unless all taxes and duties, if any, payable by the Holder have been paid. The Conversion Rate is subject to adjustment in certain events, including, without duplication: (a) dividends (and other distributions) payable in Common Stock on shares of Common Stock of the Company, (b) the issuance to all holders of Common Stock of rights, options or warrants entitling them to subscribe for or purchase Common Stock at less than the then Current Market Price of such Common Stock (determined as provided in the Indenture) as of the record date for shareholders entitled to receive such rights, options or warrants (provided that the Conversion Rate will be readjusted to the extent any such rights, options or warrants are not exercised prior to the expiration thereof), (c) subdivisions, combinations and reclassifications of Common Stock, (d) distributions to all holders of Common Stock of evidences of indebtedness of the Company, shares of capital stock, cash or assets (including securities, but excluding those dividends, rights, options, warrants and distributions referred to above or dividends and distributions paid exclusively in cash), (e) distributions consisting exclusively of cash (excluding any cash portion of distributions referred to in (d) above) to all holders of Common Stock in an aggregate amount that, combined together with (i) other such all-cash distributions made within the preceding 12 months in respect of which no adjustment has been made and (ii) any cash and the fair market value of other consideration payable in respect of any tender offer by the Company or any of its subsidiaries for Common Stock concluded within the preceding 12 months in respect of which no adjustment has been made exceeds 12.5% of the Company's market capitalization (for this purpose being the product of the Current Market Price per share of the Common Stock on the record date for such distribution times the number of shares of Common Stock outstanding) on such date, and (f) the successful completion of a tender offer made by the Company or any of its subsidiaries for Common Stock which involves an aggregate consideration that, together with (i) any cash and other consideration payable in a tender offer by the Company or any of its subsidiaries for Common Stock expiring within the 12 months preceding the expiration of such tender offer in respect of which no adjustment has been made and (ii) the aggregate amount of any such all-cash distributions referred to in (e) above to all holders of Common Stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 12.5% of the Company's market capitalization on the expiration of such tender offer. The Company reserves the right to make such reductions in the Conversion Rate in addition to those required in the foregoing provisions as it considers to be advisable in order that any event treated for United States federal income tax purposes as a dividend of stock or stock rights will not be taxable to the recipients. No adjustment of the Conversion Rate will be required to be made until the cumulative adjustments amount to 1.0% or more of the Conversion Rate. (Section 12.4) The Company will compute any adjustments to the Conversion Rate pursuant to this paragraph and will give notice by mail to Holders of the Registrable Notes of any adjustments. (Section 12.5) In case of any consolidation or merger of the Company with or into another Person or any merger of another Person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of the Common Stock), or in case of any sale, transfer or lease of all or substantially all of the assets of the Company, each Registrable Note then outstanding will, without the consent of the Holder of any Registrable Note, become convertible only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale, transfer or lease by a holder of the number of shares of Common Stock into which such Registrable Note was convertible immediately prior thereto (assuming such holder of Common Stock failed to exercise any rights of election and that such Note was then convertible). (Section 12.11) The Company from time to time may increase the Conversion Rate by any amount for any period of at least 20 days, in which case the Company shall give at least 15 days' notice of such increase, if the Board of Directors has made a determination that such increase would be in the best interests of the Company, which determination shall be conclusive. No such increase shall be taken into account for purposes of determining whether the closing price of the Common Stock exceeds the Conversion Price by 105% in connection with an event which otherwise would be a Change in Control. (Section 12.4) If at any time the Company makes a distribution of property to its stockholders which would be taxable to such stockholders as a dividend for United States federal income tax purposes (e.g., distributions of evidences of indebtedness or assets of the Company, but generally not stock dividends on common stock or rights to subscribe for common stock) and, pursuant to the anti-dilution provisions of the Indenture, the number of shares into which Registrable Notes are convertible is increased, such increase may be deemed for federal income tax purposes to be the payment of a taxable dividend to Holders of Registrable Notes. See "United States Taxation -- United States Holders -- Dividends." Subordination The payment of the principal of, premium, if any, and interest on the Registrable Notes (including any Liquidated Damages (as defined)) and any amounts payable upon the redemption or the repurchase of the Registrable Notes will be subordinated in right of payment to the extent set forth in the Indenture to the prior payment in full of the principal of, premium, if any, interest and other amounts in respect of all Senior Indebtedness of the Company. "Senior Indebtedness" is defined in the Indenture to mean: the principal of (and premium, if any) and interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) on, and all fees and other amounts payable in connection with, the following, whether absolute or contingent, secured or unsecured, due or to become due, outstanding on the date of the Indenture or thereafter created, incurred or assumed: (a) indebtedness of the Company evidenced by credit or loan agreements, notes, bonds, debentures, or other written obligations, (b) all obligations of the Company for money borrowed, (c) all obligations of the Company evidenced by a note or similar instrument given in connection with the acquisition of any businesses, properties or assets of any kind, (d) obligations of the Company as lessee (i) under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles and (ii) under other leases for facilities, equipment or related assets, whether or not capitalized, entered into or leased after the date of the Indenture for financing purposes (as determined by the Company), (e) obligations of the Company under interest rate and currency swaps, caps, floors, collars, hedge agreements, forward contracts, or similar agreements or arrangements, (f) all obligations of the Company with respect to letters of credit, bankers' acceptances or similar facilities, (g) all obligations of the Company issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable arising in the ordinary course of business), (h) all obligations of the type referred to in clauses (a) through (g) above of another Person and all dividends of another Person, the payment of which, in either case, the Company has assumed or guaranteed, or for which the Company is responsible or liable, directly or indirectly, jointly or severally, as obligor, guarantor or otherwise, or which is secured by a lien on property of the Company, and (i) renewals, extensions, modifications, replacements, restatements and refundings of, or any indebtedness or obligation issued in exchange for, any such indebtedness or obligation described in clauses (a) through (h) of this paragraph; provided, however, that Senior Indebtedness shall not include the Registrable Notes or any such indebtedness or obligation if the terms of such indebtedness or obligation (or the terms of the instrument under which, or pursuant to which it is issued) expressly provided that such indebtedness or obligation is not superior in right of payment to the Registrable Notes. No payment on account of principal of, premium, if any, or interest on (including any Liquidated Damages), or the redemption or the repurchase of, the Registrable Notes may be made by the Company if (i) a default in the payment of principal, premium, if any, or interest (including a default under any repurchase or redemption obligation) or other amounts with respect to any Senior Indebtedness occurs and is continuing beyond the applicable grace period or (ii) any other event of default occurs and is continuing with respect to Designated Senior Indebtedness (as defined below) that permits the holders thereof to accelerate the maturity thereof, and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company, a holder of such Designated Senior Indebtedness or other person permitted to give such notice under the Indenture. Payments on the Registrable Notes may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in the case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received. No new period of payment blockage may be commenced unless and until (i) 365 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest on the Registrable Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. "Designated Senior Indebtedness" means the Company's obligations under the Credit Agreement (as defined) and any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Indebtedness shall be "Designated Senior Indebtedness" for purposes of the Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). (Sections 1.1 and 13.2) In addition, upon any acceleration of the principal due on the Registrable Notes as a result of an Event of Default or payment or distribution of assets of the Company to creditors upon any dissolution, winding up, liquidation or reorganization, whether voluntary or involuntary, marshaling of assets, assignment for the benefit of creditors, or in bankruptcy, insolvency, receivership or other similar proceedings of the Company, all principal, premium, if any, and interest or other amounts due on all Senior Indebtedness must be paid in full before the Holders of the Registrable Notes are entitled to receive any payment. (Sections 13.2 and 13.3) By reason of such subordination, in the event of insolvency, creditors of the Company who are holders of Senior Indebtedness may recover more, ratably, than the Holders of the Registrable Notes, and such subordination may result in a reduction or elimination of payments to the Holders of the Registrable Notes. In addition, the Registrable Notes will be structurally subordinated to all indebtedness and other liabilities (including trade payables and lease obligations) of the Company's subsidiaries, as any right of the Company to receive any assets of its subsidiaries upon their liquidation or reorganization (and the consequent right of the Holders of the Registrable Notes to participate in those assets) will be effectively subordinated to the claims of that subsidiary's creditors (including trade creditors and lessors), except to the extent that the Company itself is recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subordinate to any security interest in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company. As of December 28, 1996, the Company had approximately $141 million of indebtedness and other liabilities that constituted Senior Indebtedness, including approximately $41 million of letters of credit. As of December 28, 1996, the Company's subsidiaries had approximately $316 million of indebtedness and other liabilities (including trade payables and indebtedness and other liabilities of the Company's manufacturing joint ventures and excluding intercompany liabilities) as to which the Registrable Notes have been effectively subordinated. Approximately $45 million of this amount is also included in the amount of the Company's outstanding Senior Indebtedness as of December 28, 1996, as set forth above. The Indenture does not limit the Company's or its subsidiaries' ability to incur Senior Indebtedness or any other indebtedness or liabilities. The Company expects from time to time to incur additional indebtedness and other liabilities, including Senior Indebtedness, and also expects that its subsidiaries will from time to time incur additional indebtedness and other liabilities. In particular, the Company anticipates incurring significant obligations, which may include additional Senior Indebtedness, in connection with its manufacturing program. See "Risk Factors -- Leverage and Subordination" and Business -- Manufacturing." Redemption The Registrable Notes may not be redeemed at the option of the Company prior to December 16, 1999. On and after December 16, 1999, the Registrable Notes may be redeemed, in whole or in part, at the option of the Company, at the redemption prices specified below, upon not less than 20 nor more than 60 days' prior notice as provided under "-- Notices" below. The redemption price (expressed as a percentage of principal amount) is as follows for the 12-month periods beginning on December 15 of the following years (or December 16, in the case of 1999): Year Redemption Price ------- ----------------- 1999 . . . . . . . . . . . . . . . 103.429% 2000 . . . . . . . . . . . . . . . 102.571 2001 . . . . . . . . . . . . . . . 101.714 2002 . . . . . . . . . . . . . . . 100.857 and thereafter is equal to 100% of the principal amount, in each case together with accrued interest to the date of redemption. (Sections 2.2, 11.1, 11.5, 11.7) No sinking fund is provided for the Registrable Notes. Payment and Conversion The principal of Registrable Notes will be payable in U.S. dollars, against surrender thereof at the office or agency of the Trustee in the Borough of Manhattan, The City of New York, by dollar check drawn on, or by transfer to a dollar account (such transfer to be made only to Holders of an aggregate principal amount of Registrable Notes in excess of U.S. $2,000,000). Payment of any installment of interest on Registrable Notes will be made to the Person in whose name such Registrable Notes (or any predecessor Registrable Note) is registered at the close of business on the June 1 or the December 1 (whether or not a Business Day) immediately preceding the relevant Interest Payment Date (a "Regular Record Date"). Payments of such interest will be made by a dollar check mailed to the Holder at such Holder's registered address or, upon application by the Holder thereof to the Trustee not later than the applicable Regular Record Date, by transfer to a dollar account (such transfer to be made only to Holders of an aggregate principal amount of Notes in excess of U.S. $2,000,000). No transfer to a dollar account will be made unless the Trustee has received written wire instructions not less than 15 days prior to the relevant payment date. (Section 2.2) Any payment on the Registrable Notes due on any day which is not a Business Day need not be made on such day, but may be made on the next succeeding Business Day with the same force and effect as if made on such due date, and no interest shall accrue on such payment for the period from and after such date. "Business Day", when used with respect to any place of payment, place of conversion or any other place, as the case may be, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in such place of payment, place of conversion or other place, as the case may be, are generally authorized or obligated by law or executive order to close; provided, however, that a day on which banking institutions in San Jose, California, Boston, Massachusetts, New York, New York or London, England are generally authorized or obligated by law or executive order to close shall not be a Business Day for certain purposes. (Sections 1.1 and 2.2) Registrable Notes may be surrendered for conversion at the office or agency of the Trustee in the Borough of Manhattan, The City of New York. Registrable Notes surrendered for conversion must be accompanied by appropriate notices and any payments in respect of interest or taxes, as applicable, as described above under "-- Conversion Rights". (Sections 2.2 and 12.2) The Company has initially appointed the Trustee as Paying Agent and Conversion Agent. The Company may at any time terminate the appointment of any Paying Agent or Conversion Agent and appoint additional or other Paying Agents and Conversion Agents, provided that until the Registrable Notes have been delivered to the Trustee for cancellation, or moneys sufficient to pay the principal of, premium, if any, and interest on the Registrable Notes have been made available for payment and either paid or returned to the Company as provided in the Indenture, it will maintain an office or agency in the Borough of Manhattan, The City of New York for surrender of Registrable Notes for conversion, which shall initially be an office or agency of the Trustee as provided in the Indenture. Notice of any such termination or appointment and of any change in the office through which any Paying Agent or Conversion Agent will act will be given in accordance with "-- Notices" below. (Section 10.2) All moneys deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of principal of, premium, if any, or interest on any Registrable Notes which remain unclaimed at the end of two years after such payment has become due and payable will be repaid to the Company, and the Holder of such Registrable Note will thereafter look only to the Company for payment thereof. (Section 10.3). Repurchase at Option of Holders Upon a Change in Control If a Change in Control (as defined) occurs, each Holder of Registrable Notes shall have the right, at the Holder's option, to require the Company to repurchase all of such Holder's Registrable Notes not theretofore called for redemption, or any portion of the principal amount thereof that is $1,000 or an integral multiple of $1,000 in excess thereof, on the date (the "Repurchase Date") that is 45 days after the date of the Company Notice (as defined), at a price equal to 100% of the principal amount of the Registrable Notes to be repurchased, together with interest accrued to the Repurchase Date (the "Repurchase Price"). (Section 14.1) The Company may, at its option, in lieu of paying the Repurchase Price in cash, pay the Repurchase Price in Common Stock valued at 95% of the average of the closing bid prices of the Common Stock for the five trading days immediately preceding the second trading day prior to the Repurchase Date; provided that payment may not be made in Common Stock unless the Company satisfies certain conditions with respect to such payment prior to the Repurchase Date as provided in the Indenture. (Sections 14.1 and 14.2) Within 30 days after the occurrence of a Change in Control, the Company is obligated to give to all Holders of the Registrable Notes notice, as provided in the Indenture (the "Company Notice"), of the occurrence of such Change in Control and of the repurchase right arising as a result thereof, or, at the request of the Company on or before the 15th day after the occurrence, the Trustee shall give the Company Notice. The Company must also deliver a copy of the Company Notice to the Trustee. To exercise the repurchase right, a Holder of Registrable Notes must deliver on or before the 30th day after the date of the Company Notice irrevocable written notice to the Trustee of the Holder's exercise of such right, together with the Registrable Notes with respect to which the right is being exercised. (Section 14.3) A "Change in Control" shall be deemed to have occurred at such time after the original issuance of the Registrable Notes as there shall occur: (i) the acquisition by any Person (including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in elections of directors, other than any such acquisition by the Company, any subsidiary of the Company or any employee benefit plan of the Company; or (ii) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company, or any sale or transfer of all or substantially all of the assets (other than to a wholly-owned Subsidiary of the Company) of the Company to any other Person (other than (a) any such transaction pursuant to which the holders of 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in elections of directors immediately prior to such transaction have, directly or indirectly, at least 50% or more of the total voting power of all shares of capital stock of the continuing or surviving corporation entitled to vote generally in elections of directors of the continuing or surviving corporation immediately after such transaction and (b) a merger (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of capital stock of the Company or (y) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of common stock); provided, however, that a Change in Control shall not be deemed to have occurred if either (a) the closing price per share of the Common Stock for any five trading days within the period of 10 consecutive trading days ending immediately after the later of the Change in Control or the public announcement of the Change in Control (in the case of a Change in Control under clause (i) above) or the period of 10 consecutive trading days ending immediately before the Change in Control (in the case of a Change in Control under clause (ii) above) shall equal or exceed 105% of the Conversion Price of the Registrable Notes in effect on each such trading day, or (b) all of the consideration (excluding cash payments for fractional shares and cash payments made pursuant to dissenters' appraisal rights) in a merger or consolidation constituting the Change in Control described in clause (i) and/or clause (ii) above consists of shares of common stock traded on a national securities exchange or quoted on the Nasdaq National Market (or will be so traded or quoted immediately following the Change in Control) and as a result of such transaction or transactions the Notes become convertible solely into such common stock. The "Conversion Price" is equal to $1,000 divided by the Conversion Rate. "Beneficial Owner" shall be determined in accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act, as in effect on the date of execution of the Indenture. "Person" includes any syndicate or group which would be deemed to be a "person" under section 13(d)(3) of the Exchange Act. (Section 14.4) Rule 13e-4 under the Exchange Act requires the dissemination of certain information to security holders in the event of an issuer tender offer and may apply in the event that the repurchase option becomes available to Holders of the Registrable Notes. The Company will comply with this rule to the extent applicable at that time. The Company may, to the extent permitted by applicable law, at any time purchase Registrable Notes in the open market or by tender at any price or by private agreement. Any Registrable Note so purchased by the Company may, to the extent permitted by applicable law and subject to restrictions contained in the Purchase Agreement, be reissued or resold or may, at the Company's option, be surrendered to the Trustee for cancellation. Any Registrable Notes surrendered as aforesaid may not be reissued or resold and will be canceled promptly. The foregoing provisions would not necessarily afford Holders of the Registrable Notes protection in the event of highly leveraged or other transactions involving the Company that may adversely affect Holders. The Company's ability to repurchase Notes upon the occurrence of a Change in Control is subject to limitations. There can be no assurance that the Company would have the financial resources, or would be able to arrange financing, to pay the Repurchase Price for all the Notes that might be delivered by Holders of Notes seeking to exercise the repurchase right. Moreover, although under the Indenture the Company may elect, subject to satisfaction of certain conditions, to pay the repurchase price for the Notes using shares of Common Stock, [the terms of the existing Company's Credit Agreement prohibit the repurchase of Notes by the Company or its subsidiaries in cash or any other form of payment including shares of Common Stock], and the Company's ability to repurchase Notes may be limited or prohibited by the terms of any future borrowing arrangements, including Senior Indebtedness existing at the time of a Change in Control. The Company's ability to repurchase Notes with cash may also be limited by the terms of its subsidiaries' borrowing arrangements due to dividend restrictions. Any failure by the Company to repurchase the Notes when required following a Change in Control would result in an Event of Default under the Indenture whether or not such repurchase is permitted by the subordination provisions of the Indenture. (Section 5.1) Any such default may, in turn, cause a default under Senior Indebtedness of the Company. Moreover, the occurrence of a Change in Control would result in an event of default under the Company's Credit Agreement and may cause an event of default under terms of other Senior Indebtedness of the Company. As a result, in each case, any repurchase of the Notes would, absent a waiver, be prohibited under the subordination provisions of the Indenture until the Senior Indebtedness is paid in full. In addition, the Company's repurchase of Notes as a result of the occurrence of a Change in Control may be prohibited or limited by, or create an event of default under, the terms of agreements related to borrowings which the Company may enter into from time to time, including agreements relating to Senior Indebtedness. See "-- Subordination" and "Risk Factors -- Leverage and Subordination." Mergers and Sales of Assets by the Company The Company may not consolidate with or merge into any other Person (in a transaction in which the Company is not the surviving corporation) or convey, transfer, sell or lease its properties and assets substantially as an entirety to any Person, unless (a) the Person formed by such consolidation or into or with which the Company is merged or the Person to which the properties and assets of the Company are so conveyed, transferred, sold or leased shall be a corporation, limited liability company, partnership or trust organized and existing under the laws of the United States, any State thereof or the District of Columbia and, if other than the Company, shall expressly assume the payment of the principal of, premium, if any, and interest on the Notes and the performance of the other covenants of the Company under the Indenture, and (b) immediately after giving effect to such transaction, no Event of Default, and no event that after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing. (Section 7.1) Events of Default The following will be Events of Default under the Indenture: (a) failure to pay principal of or premium, if any, on any Note when due, whether or not such payment is prohibited by the subordination provisions of the Notes and the Indenture; (b) failure to pay any interest (including any Liquidated Damages) on any Note when due, continuing for 30 days, whether or not such payment is prohibited by the subordination provisions of the Notes and the Indenture; (c) failure to provide a Company Notice in the event of a Change in Control, whether or not the payment of the Repurchase Price is prohibited by the subordination provisions of the Notes and the Indenture; (d) failure to perform any other covenant of the Company in the Indenture, continuing for 60 days (plus an additional 60 days in the case of defaults subject to cure, provided the Company commences such cure within the initial 60 days and is diligently pursuing such cure) after written notice as provided in the Indenture; (e) any indebtedness for money borrowed by the Company in an outstanding principal amount in excess of $20,000,000 is not paid at final maturity or upon acceleration thereof and such default in payment or acceleration is not cured or rescinded within 30 days after written notice as provided in the Indenture; and (f) certain events of bankruptcy, insolvency or reorganization. (Section 5.1) Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. (Section 6.3) Subject to compliance with all rules or laws and the Indenture, the Holders of a majority in aggregate principal amount of the Outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. (Section 5.12) If an Event of Default (other than as specified in clause (f) above) shall occur and be continuing, either the Trustee or the Holders of at least 25% in principal amount of the Outstanding Notes may accelerate the maturity of all Notes; provided, however, that after such acceleration but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of Outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of principal of the Notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in the Indenture. If an Event of Default as specified in clause (f) above occurs and is continuing, then the principal of, and accrued interest on, all the Notes shall ipso facto become immediately due and payable without any declaration or other act on the part of the Holders of the Notes or the Trustee. (Section 5.2) For information as to waiver of defaults, see "-- Meetings, Modification and Waiver." No Holder of any Registrable Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default and the Holders of at least 25% in aggregate principal amount of the Outstanding Notes shall have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as trustee, and the Trustee shall not have received from the Holders of a majority in aggregate principal amount of the Outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. (Section 5.7) However, such limitations do not apply to a suit instituted by a Holder of a Registrable Note for the enforcement of payment of the principal of, premium, if any, or interest on such Registrable Note (including Liquidated Damages, if any) on or after the respective due dates expressed in such Registrable Note or of the right to convert such Registrable Note in accordance with the Indenture. (Section 5.8) The Company will be required to furnish to the Trustee annually a statement as to the performance by the Company of certain of its obligations under the Indenture and as to any default in such performance. (Section 10.9) Meetings, Modification and Waiver The Indenture contains provision for convening meetings of the Holders of Notes to consider matters affecting their interests. (Article IX) Certain limited modifications of the Indenture may be made without the necessity of obtaining the consent of the Holders of the Notes. Other modifications and amendments of the Indenture may be made, and certain past defaults by the Company may be waived, either (i) with the written consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time Outstanding or (ii) by the adoption of a resolution, at a meeting of Holders of the Notes at which a quorum is present, by the Holders of the lesser of (a) not less than a majority in aggregate principal amount of the Notes at the time Outstanding and (b) at least 66 2/3% in aggregate principal amount of the Notes represented at such meeting. However, no such modification or amendment may, without the consent of the Holder of each Outstanding Note affected thereby, (a) change the Stated Maturity of the principal of, or any installment of interest on, any Note, (b) reduce the principal amount of, or the premium, if any, or interest on, any Note, (c) reduce the amount payable upon a redemption or mandatory repurchase, (d) modify the provisions with respect to the repurchase right of the Holders in a manner adverse to the Holders, (e) change the place or currency of payment of principal of, premium, if any, or interest on, any Note (including any payment of Liquidated Damages or the Redemption Price or the Repurchase Price in respect of such Note), (f) impair the right to institute suit for the enforcement of any payment on or with respect to any Note, (g) modify the obligation of the Company to maintain an office or agency in New York City, (h) except as otherwise permitted or contemplated by provisions concerning consolidation, merger, conveyance, transfer, sale or lease of all or substantially all of the property and assets of the Company, adversely affect the right of Holders to convert any of the Notes other than as provided in the Indenture, (i) modify the subordination provisions in a manner adverse to the Holders of the Notes, (j) reduce the above-stated percentage of Outstanding Notes necessary to modify or amend the Indenture, (k) reduce the percentage of aggregate principal amount of Outstanding Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults, (l) reduce the percentage in aggregate principal amount of Outstanding Notes required for the adoption of a resolution or the quorum required at any meeting of Holders of Notes at which a resolution is adopted, (m) modify the obligation of the Company to deliver information required under Rule 144A to permit resales of Notes and Common Stock issuable upon conversion thereof in the event the Company ceases to be subject to certain reporting requirements under the United States securities laws or (n) modify the obligations of the Company not to resell the Notes and to use its reasonable efforts to prevent its affiliates from reselling the Notes. (Sections 8.2 and 5.13). The quorum at any meeting called to adopt a resolution will be Persons holding or representing a majority in aggregate principal amount of the Notes at the time Outstanding and, at any reconvened meeting adjourned for lack of a quorum, 25% of such aggregate principal amount. (Section 9.4) The Holders of a majority in aggregate principal amount of the Outstanding Notes may waive compliance by the Company with certain restrictive provisions of the Indenture by written consent or by the adoption of a resolution at a meeting. (Section 10.13) The Holders of a majority in aggregate principal amount of the Outstanding Notes also may waive any past default under the Indenture, except a default in the payment of principal, premium, if any, or interest, by written consent. (Section 5.13) Registration Rights In connection with the Original Offering, the Company entered into a registration rights agreement with the Initial Purchasers (the "Registration Agreement") pursuant to which the Company agreed to, at the Company's expense for the benefit of the Holders of the Registrable Notes and the shares of Common Stock issuable upon conversion thereof (together, the "Registrable Securities"), (i) file with the Commission within 90 days after the date of original issuance of the Registrable Notes, a registration statement (the "Shelf Registration Statement") covering resales of the Registrable Securities, (ii) use reasonable efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act within 180 days after the date of original issuance of the Registrable Notes and (iii) use reasonable efforts to keep effective the Shelf Registration Statement until three years after the date of the original issuance of the Registrable Notes or such earlier date as all Registrable Securities shall have been disposed of or on which all Registrable Securities held by persons that are not affiliates of the Company may be resold without registration pursuant to Rule 144(k) under the Securities Act (the "Effectiveness Period"). The Company will be permitted to suspend the use of this Prospectus which is part of this Shelf Registration Statement in connection with the sales of the Registrable Securities during certain periods of time under certain circumstances relating to pending corporate developments, public filing with the Commission and other events. The Company will provide to each holder of Registrable Securities copies of this Prospectus that is a part of this Shelf Registration Statement, notify each holder when this Shelf Registration Statement has become effective and take certain other actions as are required to permit public resales of the Registrable Securities. A holder of Registrable Securities that sells such Registrable Securities pursuant to this Shelf Registration Statement will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Agreement, including certain indemnification obligations. In the event that this Shelf Registration Statement ceases to be effective for more than 90 days or the Company suspends the use of this Prospectus which is a part hereof for more than 90 days, whether or not consecutive, during any 12-month period then the interest rate borne by Registrable Notes will increase by an additional one-half of one percent (0.50%) per annum from the 91st day of the applicable 12-month period this Shelf Registration Statement ceases to be effective or the Company suspends the use of this Prospectus which is a part thereof, as the case may be, until the earlier of such time as (i) this Shelf Registration Statement or another Shelf Registration Statement again becomes effective, (ii) the use of the related Prospectus ceases to be suspended or (iii) the Effectiveness Period expires. Registrable Securities that have been sold pursuant to this Shelf Registration Statement or Rule 144 prior to the occurrence of a Registration Default will not be entitled to Liquidated Damages. Book-Entry; Delivery and Form; Global Certificates The Registrable Notes may be represented by one or more fully registered global notes (the "Global Note") as well as Registrable Notes in definitive form registered in the name of individual purchasers or their nominees. Each such Global Note will be deposited upon issuance with, or on behalf of, DTC and registered in the name of DTC or its nominee (the "Global Note Registered Owner") or will remain in the custody of the Trustee pursuant to a FAST Balance Certificate Agreement between DTC and the Trustee. Except as set forth below, the Global Note may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. DTC is a limited purpose trust company organized under the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participant organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. Pursuant to procedures established by DTC, (i) upon deposit of the Global Note, DTC will credit the accounts of Participants with portions of the principal amount of the Global Note and (ii) ownership of such interests in the Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Note). The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer Registrable Notes will be limited to that extent. Except as described below, owners of interests in the Global Note will not have Registrable Notes registered in their names, will not receive physical delivery of Registrable Notes in definitive form and will not be considered the registered owners thereof under the Indenture for any purpose. None of the Company, the Trustee, nor any agent of the Company or the Trustee will have any responsibility or liability for (i) any aspect of DTC's records or any Participant's records relating to or payments made on account of beneficial ownership interests in the Global Note, or for maintaining, supervising or reviewing any of DTC's records or any Participant's records relating to the beneficial ownership interests in the Global Note or (ii) any other matter relating to the actions and practices of DTC's or any of its Participants. Payments in respect of the principal of, premium, if any, and interest on any Registrable Notes registered in the name of the Global Note Registered Owner on any relevant record date will be payable by the Trustee to the Global Note Registered Owner in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the person in whose names the Registrable Notes, including the Global Note, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company, the Trustee, nor any agent of the Company or the Trustee has nor will have any responsibility or liability for the payment of such amounts to beneficial owners of the Registrable Notes or for any other matter relating to actions or practices of DTC or any of its Participants. The Company understands that DTC's current practice, upon receipt of any payment in respect of securities such as the Registrable Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security as shown on the records of DTC (unless DTC has reason to believe it will not receive payment on such payment date). Payments by the Participants and the Indirect Participants to the beneficial owners of Registrable Notes will be governed by standing instructions and customary practices and will be the responsibility of Participants or the Indirect Participant, and the beneficial owners and not the responsibility of the DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Registrable Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from the Global Note Registered Owner for all purposes. So long as DTC, or its nominee, is the registered owner or holder of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Registrable Notes represented by such Global Note for all purposes under the Indenture and the Registrable Notes. No beneficial owner of an interest in a Global Note will be able to transfer the interest except in accordance with DTC's applicable procedures, in addition to those provided for under the Indenture. Transfers between Participants in DTC will be effected in the ordinary way in accordance with DTC rules. The Company expects that DTC will take any action permitted to be taken by a holder of Registrable Notes (including the presentation of Registrable Notes for exchange as described below) only at the direction of one or more Participants to whose account the DTC interests in a Global Note is credited and only in respect of such portion of the aggregate principal amount of the Registrable Notes as to which such Participant or Participants has or have given such direction. Although the Company expects that DTC will agree to the foregoing procedures in order to facilitate transfers of interests in a Global Note among Participants of DTC, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC or its Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations. If DTC is at any time unwilling or unable to continue as a depositary for a Global Note and a successor depositary is not obtained, the Company will issue definitive certificated Registrable Notes in exchange for a Global Note. Such definitive certificated Registrable Notes shall be registered in names of the owners of the beneficial interests in the Global Note as provided by the Participants. Notes issued in definitive certificated form will be fully registered, without coupons, in minimum denominations of $1,000 and integral multiples of $1,000 above that amount. Upon issuance of Registrable Notes in definitive certificated form, the Trustee is required to register the Registrable Notes in the name of, and cause the Registrable Notes to be delivered to, the person or persons (or the nominee thereof) identified as the beneficial owner as DTC shall direct. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Company believes to be reliable, but the Company takes no responsibility for the accuracy thereof. Transfer and Exchange A holder may transfer or exchange Registrable Notes in accordance with the Indenture. The Registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Registrable Note selected for redemption. Also, the Company is not required to transfer or exchange any Registrable Note for a period of 15 days before a selection of Registrable Notes to be redeemed. The registered holder of a Registrable Note will be treated as the owner of it for all purposes. Title The Company, the Trustee, any Paying Agent and any Conversion Agent may treat the registered owner (as reflected in the Security Register) of any Registrable Note as the absolute owner thereof (whether or not such Note shall be overdue) for the purpose of making payment and for all other purposes. (Section 2.2) Notices Notice to Holders of the Registrable Notes will be given by mail to the addresses of such Holders as they appear in the Security Register. Such notices will be deemed to have been given on the date of such mailing. (Sections 1.1 and 1.6) Notice of a redemption of Registrable Notes will be given at least once not less than 20 nor more than 60 days prior to the redemption date (which notice shall be irrevocable) and will specify the redemption date. Replacement of Notes Registrable Notes that become mutilated, destroyed, stolen or lost will be replaced by the Company at the expense of the Holder upon delivery to the Trustee of the Registrable mutilated Notes or evidence of the loss, theft or destruction thereof satisfactory to the Company and the Trustee. In the case of a lost, stolen or destroyed Registrable Note, indemnity satisfactory to the Trustee and the Company may be required at the expense of the Holder of such Registrable Note before a replacement Note will be issued. (Section 3.6) Governing Law The Indenture and the Notes will be governed by and construed in accordance with the laws of the State of New York, United States of America. (Section 1.11) The Trustee In case an Event of Default shall occur (and shall not be cured), the Trustee will be required to use the degree of care of a prudent person in the conduct of his own affairs in the exercise of its powers. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the Holders of Registrable Notes, unless they shall have offered to the Trustee reasonable security or indemnity. (Sections 6.1 and 6.3) Notes Issued in Reliance upon Regulation S The Notes issued in the Original Offering in reliance upon Regulation S (the "Regulation S Notes") are not being registered pursuant to the Registration Statement of which this Prospectus forms a part. The Regulation S Notes issued under the Indenture are governed by substantially similar terms as the Registrable Notes, except with respect to certain mechanical provisions relating to form and denomination, payment and conversion, redemption for taxation reasons and payments of additional amounts. For a complete description of the terms and conditions of the Regulation S Notes, see the detailed provisions of the Indenture. UNITED STATES TAXATION The following is a summary of certain material United States federal income and estate tax considerations relating to the purchase, ownership and disposition of the Notes and of Common Stock into which Notes may be converted, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury Regulations promulgated or proposed thereunder ("Treasury Regulations"), judicial authority and current administrative rulings and practice, all of which are subject to change, possibly on a retroactive basis. This summary deals only with holders that will hold Registrable Notes and Common Stock into which Registrable Notes may be converted as "capital assets" (within the meaning of Section 1221) and does not address tax considerations applicable to investors that may be subject to special tax rules, such as banks, tax-exempt organizations, insurance companies, dealers in securities or currencies, persons that will hold Registrable Notes as a position in a hedging transaction, "straddle" or "conversion transaction" for tax purposes, or persons that have a "functional currency" other than the U.S. dollar. This summary discusses the tax considerations applicable to the initial purchasers of the Registrable Notes who purchase the Registrable Notes at their "issue price" as defined in Section 1273 of the Code and does not discuss the tax considerations applicable to subsequent purchasers of the Registrable Notes. The Company has not sought any ruling from the Internal Revenue Service ("IRS") with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions. INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY. United States Holders As used herein, the term "United States Holder" means the beneficial owner of a Note or Common Stock that for United States federal income tax purposes is (i) a citizen or resident of the United States, (ii) treated as a domestic corporation or domestic partnership, or (iii) an estate or trust that is subject to United States federal income taxation on a net income basis in respect of the Registrable Notes or Common Stock. Payment of Interest Interest on a Note generally will be includable in the income of a United States Holder as ordinary income at the time such interest is received or accrued, in accordance with such Holder's method of accounting for United States federal income tax purposes. The Registrable Notes will not have original issue discount. Sale, Exchange or Redemption of the Notes Upon the sale, exchange or redemption of a Registrable Note, a United States Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash proceeds and the fair market value of any property received on the sale, exchange or redemption (except to the extent such amount is attributable to accrued interest income, which is taxable as ordinary income) and (ii) such Holder's adjusted tax basis in the Registrable Note. A United States Holder's adjusted tax basis in a Registrable Note generally will equal the cost of the Registrable Note to such Holder, less any principal payments received by such Holder. Such capital gain or loss will be long-term capital gain or loss if the United States Holder's holding period in the Registrable Note is more than one year at the time of sale, exchange or redemption. Conversion of the Notes A United States Holder generally will not recognize any income, gain or loss upon conversion of a Registrable Note into Common Stock, except with respect to cash received in lieu of a fractional share of Common Stock. Such Holder's tax basis in the Common Stock received on conversion of a Registrable Note will be the same as such Holder's adjusted tax basis in the Registrable Note at the time of conversion (reduced by any basis allocable to a fractional share interest), and the holding period for the Common Stock received on conversion will generally include the holding period of the Registrable Note converted. Cash received in lieu of a fractional share of Common Stock upon conversion will be treated as a payment in exchange for the fractional share of Common Stock. Accordingly, the receipt of cash in lieu of a fractional share of Common Stock generally will result in capital gain or loss (measured by the difference between the cash received for the fractional share and the United States Holder's adjusted tax basis in the fractional share). Dividends The amount of any distribution by the Company in respect of the Common Stock will be equal to the amount of cash and the fair market value, on the date of distribution, of any property distributed. Generally, distributions will be treated as a dividend, subject to tax as ordinary income, to the extent of the Company's current or accumulated earnings and profits, then as a tax-free return of capital to the extent of the Holder's tax basis in the Common Stock and thereafter as gain from the sale of exchange of such stock. In general, a dividend distribution to a corporate United States Holder will qualify for the 70% dividends received deduction if the Holder owns less than 20% of the voting power and value of the Company's stock (other than any non-voting, non-convertible, non-participating preferred stock). A corporate United States Holder that owns 20% or more of the voting power and value of the Company's stock (other than any non-voting, non-convertible, non-participating preferred stock) generally will qualify for an 80% dividends received deduction. The dividends received deduction is subject, however, to certain holding period, taxable income and other limitations. If at any time (i) the Company makes a distribution of cash or property to its stockholders or purchases Common Stock and such distribution or purchase would be taxable to such stockholders as a dividend for United States federal income tax purposes (e.g., distributions of evidences of indebtedness or assets of the Company, but generally not stock dividends or rights to subscribe for Common Stock) and, pursuant to the anti-dilution provisions of the Indenture, the Conversion Rate of the Registrable Notes is increased, or (ii) the Conversion Rate of the Registrable Notes is increased at the discretion of the Company, such increase in Conversion Rate may be deemed to be the payment of a taxable dividend to United States Holders of Registrable Notes (pursuant to Section 305 of the Code). Such Holders of Registrable Notes could therefore have taxable income as a result of an event pursuant to which they received no cash or property. Sale of Common Stock Upon the sale or exchange of Common Stock, a United States Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash and the fair market value of any property received upon the sale or exchange and (ii) such Holder's adjusted tax basis in the Common Stock. Such capital gain or loss will be long-term if the United States Holder's holding period in the Common Stock is more than one year at the time of the sale or exchange. A United States Holder's basis and holding period in Common Stock received upon conversion of a Registrable Note are determined as discussed above under "-- Conversion Rights". Information Reporting and Backup Withholding Tax In general, information reporting requirements will apply to payments of principal, premium, if any, and interest on a Registrable Note, payments of dividends on Common Stock, payments of the proceeds of the sale of a Registrable Note and payments of the proceeds of the sale of Common Stock to certain noncorporate United States Holders. The payor will be required to withhold backup withholding tax at the rate of 31% if (a) the payee fails to furnish a taxpayer identification number ("TIN") to the payor or establish an exemption from backup withholding, (b) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (c) there has been a notified payee underreporting with respect to interest, dividends or original issue discount described in Section 3406(c)of the Code or (d) there has been a failure of the payee to certify under the penalty of perjury that the payee is not subject to backup withholding under the Code. Any amounts withheld under the backup withholding rules from a payment to a United States Holder will be allowed as a credit against such Holder's United States federal income tax and may entitle the Holder to a refund, provided that the required information is furnished to the IRS. SELLING SECURITYHOLDERS The Registrable Notes offered hereby were originally issued by the Company and sold by the Initial Purchasers, in a transaction exempt from the registration requirements of the Securities Act, to persons reasonably believed by such initial purchaser to be "qualified institutional buyers" (as defined in Rule 144A under the Securities Act), or other institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. An additional $19,275,000 aggregate principal amount of Notes were issued in the Original Offering by the Company and sold by the Initial Purchasers in compliance with the provisions of Regulation S under the Securities Act. The Selling Securityholders (which term includes their transferees, pledgees, donees or their successors) may from time to time offer and sell pursuant to this Prospectus any or all of the Registrable Notes and Common Stock issued upon conversion of the Registrable Notes. The following table sets forth information with respect to the Selling Securityholders and the respective principal amounts of Registrable Notes beneficially owned by each Selling Securityholder that may be offered pursuant to this Prospectus. Such information has been obtained from the Selling Securityholders. None of the Selling Securityholders has, or within the past three years has had, any position, office or other material relationship with the Company or any of its predecessors or affiliates, except as noted below. Because the Selling Securityholders may offer all or some portion of the Registrable Notes or the Common Stock issuable upon conversion thereof pursuant to this Prospectus, no estimate can be given as to the amount of the Registrable Notes or the Common Stock issuable upon conversion thereof that will be held by the Selling Holders upon termination of any such sales. In addition, the Selling Securityholders identified below may have sold, transferred or otherwise disposed of all or a portion of their Registrable Notes since the date on which they provided the information regarding their Registrable Notes in transactions exempt from the registration requirements of the Securities Act. From time to time, Goldman, Sachs & Co. or its affiliate provided, and they continue to provide, investment banking services to the Company, for which they received or will receive customer fees. None of the other Selling Securityholders has had any position, office or other materials relationship with the Company or its affiliates within the last three years.
PRINCIPAL AMOUNT OF NUMBER OF SHARES OF COMMON STOCK REGISTRABLE NOTES ---------------------------------- BENEFICIALLY OFFERED SELLING OWNED AND BENEFICIALLY SECURITYHOLDER NAME OFFERED HEREBY OWNED (1) (2) HEREBY (2) - ---- ---------------- -------------- --------------- [TO BE ADDED BY AMENDMENT] Any other holder of Registrable Notes or future transferee from any such holder (3)(4). . . . ---------------- -------------- --------------- Total . . . . . . . . . . . . ================ ============== =============== - --------------
* Less than 1%. (1) Includes shares of Common Stock issuable upon conversion of the Registrable Notes. (2) Assumes a conversion price of $24.219 per share, and a cash payment in lieu of any fractional share interest; such conversion price is subject to adjustment as described under "Description of the Notes - - Conversion." Accordingly the number of shares of Common Stock issuable upon conversion of the Registrable Notes may increase or decrease from time to time. Under the terms of Indenture, fractional shares will not be issued upon conversion of the Registrable Notes; cash will be paid in lieu of fractional shares, if any. (3) Information concerning other Registrable Note Selling Securityholders will be set forth in Prospectus Supplements from time to time, if required. (4) Assumes that any other holders of Registrable Notes or any future transferee from any such holder does not beneficially own any Common Stock other than the Common Stock issuable upon conversion of the Notes at the initial conversion rate. The preceding table has been prepared based upon the information furnished to the Company by State Street Bank and Trust Company of California, as trustee (the "Trustee") for the Notes, and by The Depository Trust Company ("DTC"). The Selling Securityholders identified above may have sold, transferred or otherwise disposed of, in transactions exempt from the registration requirements of the Securities Act, all or a portion of their Notes since the date on which the information in the preceding table is presented. Information concerning the Selling Securityholders may change from time to time and any such changed information will be set forth in supplements to this Prospectus if and when necessary. Because the Selling Securityholders may offer all or some of the Notes that they hold and/or Conversion Shares pursuant to the offering contemplated by this Prospectus, no estimate can be given as to the amount of the Notes or Conversion Shares that will be held by the Selling Securityholders upon the termination of this offering. See "Plan of Distribution." Information concerning the Selling Securityholders may change from time to time and any such changed information will be set forth in supplements to this Prospectus if and when necessary. In addition, the per share conversion price, and therefore the number of shares issuable upon conversion of the Registrable Notes, is subject to adjustment under certain circumstances. Accordingly, the aggregate principal amount of Registrable Notes and the number of shares of Common Stock issuable upon conversion thereof offered hereby may increase or decrease. PLAN OF DISTRIBUTION The Registrable Notes and Common Stock offered hereby may be sold from time to time to purchasers directly by the Selling Securityholders. Alternatively, the Selling Securityholders may from time to time offer the Registrable Notes and Common Stock to or through underwriters, broker/dealers or agents, who may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Securityholders or the purchasers of Registrable Notes and Common Stock for whom they may act as agents. The Selling Securityholders and any underwriters, broker/dealers or agents that participate in the distribution of Registrable Notes and Common Stock may be deemed to be "underwriters" within the meaning of the Securities Act and any profit on the sale of Registrable Notes and Common Stock by them and any discounts, commissions, concessions or other compensation received by any such underwriter, broker/dealer or agent may be deemed to be underwriting discounts and commissions under the Securities Act. The Registrable Notes and Common Stock offered hereby may be sold from time to time in one or more transactions at fixed prices, at prevailing market prices at the time of sale, any varying prices determined at the time of sale or at negotiated prices. The sale of the Registrable Notes and the Common Stock issuable upon conversion thereof may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registrable Notes or the Common Stock may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or in the over-the-counter market or (iv) through the writing of options. At the time a particular offering of the Registrable Notes and the Common Stock is made, a Prospectus Supplement, if required, will be distributed which will set forth the aggregate amount and type of Registrable Notes and Common Stock being offered and the terms of the offering, including the name or names of any underwriters, broker/dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Securityholders and any discounts, commissions or concessions allowed or reallowed or paid to broker/dealers. To comply with the securities laws of certain jurisdictions, if applicable, the Registrable Notes and Common Stock will be offered or sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain jurisdictions the Registrable Notes and Common Stock may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or any exemption from registration or qualification is available and is complied with. The Selling Securityholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, which provisions may limit the timing of purchases and sales of any of the Registrable Notes and Common Stock by the Selling Securityholders. The foregoing may affect the marketability of the Registrable Notes and the Common Stock. Pursuant to the Registration Agreement, all expenses of the registration of the Registrable Notes and Common Stock will be paid by the Company, including, without limitation, Commission filing fees and expenses of compliance with state securities or "blue sky" laws; provided, however, that the Selling Securityholders will pay all underwriting discounts and selling commissions, if any. The Selling Securityholders will be indemnified by the Company against certain civil liabilities, including certain liabilities under the Securities Act, or will be entitled to contribution in connection therewith. LEGAL MATTERS The validity of the Registrable Notes and the Common Stock being offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. EXPERTS The consolidated financial statements and schedule of Cirrus Logic, Inc. at March 30, 1996 and April 1, 1995 and for each of the three years in the period ended March 30, 1996, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ______________________________ CIRRUS LOGIC, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors ANNUAL FINANCIAL STATEMENTS Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements QUARTERLY FINANCIAL STATEMENTS Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Cirrus Logic, Inc. We have audited the accompanying consolidated balance sheets of Cirrus Logic, Inc. as of March 30, 1996 and April 1, 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cirrus Logic, Inc. at March 30, 1996 and April 1, 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 30, 1996, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in fiscal 1994 the Company changed its method of accounting for income taxes. /s/Ernst & Young LLP San Jose, California April 24, 1996, except for the second paragraph of Note 8, as to which the date is April 30, 1996; and the third paragraph of Note 14, as to which the date is June 27, 1996. ANNUAL FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF OPERATIONS (Thousands, except per share amounts)
Fiscal years ended --------------------------------- March 30, April 1, April 2, 1996 1995 1994 ----------- ---------- ---------- Net sales $1,146,945 $889,022 $557,299 Operating costs and expenses: Cost of sales 774,350 512,509 298,582 Research and development 238,791 165,622 126,632 Selling, general and administrative 165,267 126,666 91,887 Restructuring costs 11,566 - - Non-recurring costs 1,195 3,856 - Merger costs - 2,418 - ----------- ---------- ---------- Total operating costs and expenses 1,191,169 811,071 517,101 ----------- ---------- ---------- Operating (loss) income (44,224) 77,951 40,198 Foreign currency transaction gains - 4,999 - Gain on sale of equity investment - - 13,682 Interest income and other, net 7,652 9,129 4,280 Interest expense (5,151) (2,441) (2,196) ----------- ---------- ---------- (Loss) income before income taxes and cumulative effect of accounting change (41,723) 89,638 55,964 (Benefit) provision for income taxes (5,540) 28,236 18,146 ----------- ---------- ---------- (Loss) income before cumulative effect of accounting change (36,183) 61,402 37,818 Cumulative effect as of March 31, 1993, of change in method of accounting for income taxes - - 7,550 ----------- ---------- ---------- Net (loss) income ($36,183) $61,402 $45,368 =========== ========== ========== (Loss) income per common and common equivalent share before cumulative effect of accounting change ($0.58) $0.96 $0.67 Cumulative effect of accounting change per common and common equivalent share - - 0.13 ----------- ---------- ---------- Net (loss) income per common and common equivalent share ($0.58) $0.96 $0.80 =========== ========== ========== Weighted average common and common equivalent shares outstanding 62,761 63,680 56,402 =========== ========== ========== See accompanying notes.
CONSOLIDATED BALANCE SHEETS (Thousands)
March 30, April 1, 1996 1995 --------- --------- Assets Current assets: Cash and cash equivalents $155,979 $ 66,718 Short-term investments 19,279 120,308 Accounts receivable, less allowance for doubtful accounts of $13,174 in 1996 and $9,439 in 1995 133,718 161,333 Inventories 134,502 103,642 Deferred tax assets 52,662 20,767 Payments for joint venture equipment to be leased 94,683 - Other current assets 4,004 7,164 --------- --------- Total current assets 594,827 479,932 --------- --------- Property and equipment, at cost: Machinery and equipment 247,390 148,753 Furniture and fixtures 15,293 12,825 Leasehold improvements 21,044 11,757 --------- --------- 283,727 173,335 Less accumulated depreciation and amortization (113,479) (73,091) --------- --------- Property and equipment, net 170,248 100,244 Manufacturing agreements, net of accumulated amortization of $3,921 in 1996 and $65 in 1995 and investment in joint ventures 104,463 63,735 Deposits and other assets 48,039 29,623 --------- --------- $917,577 $673,534 ========= =========
Liabilities and Shareholders' Equity Current liabilities: Short-term borrowing $80,000 $ - Accounts payable 214,299 140,445 Accrued salaries and benefits 41,845 32,508 Current maturities of long-term debt and capital lease obligations 26,575 11,481 Income taxes payable 20,863 22,322 Other accrued liabilities 28,602 21,557 --------- --------- Total current liabilities 412,184 228,313 --------- --------- Capital lease obligations 6,258 9,602 Long-term debt 65,571 16,603 Other long-term 4,898 - Commitments and contingencies Shareholders' equity: Convertible preferred stock, no par value; 5,000 shares authorized, none issued - - Common stock, no par value, 140,000 shares authorized, 63,951 shares issued and outstanding in 1996 and 60,594 in 1995 329,574 283,741 Retained earnings 99,092 135,275 --------- --------- Total shareholders' equity 428,666 419,016 --------- --------- $917,577 $673,534 ========= ========= See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands)
Fiscal Years Ended -------------------------------- March 30, April 1, April 2, 1996 1995 1994 ---------- ---------- ---------- Cash flows from operating activities: Net (loss) income ($36,183) $61,402 $45,368 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 64,301 34,329 26,315 Compensation related to the issuance of certain employee stock options 820 3,109 641 Gain on sale of equity investment - - (13,682) Cumulative effect of accounting change - - (7,550) Changes in operating assets and liabilities: Accounts receivable 27,615 (76,448) (20,163) Inventories (30,860) (24,837) (28,850) Payments for joint venture equipment to be leased (94,683) - - Deferred tax and other current assets (28,735) (3,650) (6,751) Accounts payable 73,854 51,494 25,531 Accrued salaries and benefits 9,337 8,351 11,401 Income taxes payable 15,209 3,262 10,058 Other accrued liabilities 7,045 8,093 7,535 ---------- ---------- ---------- Net cash provided by operating activities 7,720 65,105 49,853 ---------- ---------- ---------- Cash flows from investing activities: Purchase of available-for-sale investments (175,139) (234,065) (211,367) Proceeds from available-for-sale investments 228,092 187,900 200,332 Purchase of held-to-maturity investments (10,444) (158,748) - Proceeds from held-to-maturity investments 57,144 133,688 - Proceeds from sale of equity investment - - 14,753 Manufacturing agreements and investment in joint ventures (44,604) (63,800) - Additions to property and equipment (127,802) (47,313) (35,677) Increase in deposits and other assets (32,140) (19,429) (7,725) ---------- ---------- ---------- Net cash used by investing activities (104,893) (201,767) (39,684) ---------- ---------- ---------- Cash flows from financing activities: Borrowings on long-term debt 74,973 13,292 6,673 Payments on long-term debt (10,798) (8,688) (6,726) Payments on capital lease obligations (4,051) (3,919) (3,330) Borrowings on short-term debt 121,000 - 10,000 Payments on short-term debt (41,000) - (10,000) Issuance of common stock in public offering, net of issuance costs - - 136,025 Proceeds from sale and leaseback of property and equipment 13,067 - - Increase in other long-term 4,898 - - Issuance of common stock, net of issuance costs and repurchases 28,345 8,870 15,428 ---------- ---------- ---------- Net cash provided by financing activities 186,434 9,555 148,070 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 89,261 (127,107) 158,239 Cash and cash equivalents at beginning of year 66,718 193,825 35,586 ---------- ---------- ---------- Cash and cash equivalents at end of year $155,979 $66,718 $193,825 ========== ========== ========== Non-cash investing and financing activities: Equipment purchased under capital leases $594 $6,849 $6,158 Tax benefit of stock option exercises 16,668 1,320 3,437 Cash payments for: Interest 4,358 2,464 2,181 Income taxes 17,612 24,974 12,750 See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Three Years Ended March 30, 1996 (Thousands)
Common Stock --------------------- Retained Shares Amount Earnings Total ---------- ---------- ---------- ---------- Balance, March 31, 1993 49,966 $114,911 $28,505 $143,416 Issuance of stock in public offering (net of issuance costs of $7,362) 6,940 136,025 --- 136,025 Issuance of stock by PicoPower 506 5,028 --- 5,028 Issuance of stock under stock plans and other, net of repurchases 1,810 10,400 --- 10,400 Compensation related to the issuance of certain employee options --- 641 --- 641 Net income --- --- 45,368 45,368 Tax benefit of stock option exercises --- 3,437 --- 3,437 ---------- ---------- ---------- ---------- Balance, April 2, 1994 59,222 270,442 73,873 344,315 Issuance of stock under stock plans and other, net of repurchases 1,372 8,870 --- 8,870 Compensation related to the issuance of certain employee options --- 3,109 --- 3,109 Net income --- --- 61,402 61,402 Tax benefit of stock option exercises --- 1,320 --- 1,320 ---------- ---------- ---------- ---------- Balance, April 1, 1995 60,594 283,741 135,275 419,016 Issuance of stock under stock plans and other, net of repurchases 3,357 28,345 --- 28,345 Compensation related to the issuance of certain employee options --- 820 --- 820 Net loss --- --- (36,183) (36,183) Tax benefit of stock option exercises --- 16,668 --- 16,668 ---------- ---------- ---------- ---------- Balance, March 30, 1996 63,951 $329,574 $99,092 $428,666 ========== ========== ========== ========== See accompanying notes.
CIRRUS LOGIC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business and Major Customer Information Cirrus Logic, Inc. (the "Company") operates principally in a single industry segment. The Company is a leading manufacturer of advanced integrated circuits for the desktop and portable computing, telecommunications, industrial, and consumer electronics markets. The Company applies its system-level expertise in analog and digital design to innovate highly integrated, software-rich solutions. Cirrus Logic offers a broad portfolio of products including highly integrated chips, software, evaluation boards, manufacturing kits, subsystem modules and telecommunications system equipment. The Company performs its own wafer and product testing, engineering support and quality and reliability assurance, and uses joint ventures and subcontractors to manufacture wafers and assemble products. The Company also sells Cellular Digital Packet Data (CDPD) base stations to cellular telephone companies. This equipment enables the wireless communications technologies necessary to develop the markets for advanced integrated circuits. In fiscal 1996 and 1995, no customer accounted for 10% or more of net sales. In fiscal 1994, one customer comprised 10% of net sales. No other customer represented 10% or more of the Company's net sales during these periods. Export sales, principally in Asia, including sales to overseas operations of domestic corporations, represented 56%, 56% and 58% of net revenues in fiscal 1996, 1995 and 1994, respectively. There are no restrictions on the transfer of funds in international markets. Basis of Presentation 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 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. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. Accounts denominated in foreign currencies have been remeasured in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation," using the U.S. dollar as the functional currency. Translation adjustments relating to Cirrus Logic K.K., whose functional currency is the Japanese yen, have not been material. During the first quarter of fiscal 1994, the Company changed its reporting period from a 12 month year ending March 31 to a fiscal year of 52 or 53 weeks ending on the Saturday closest to March 31. Cash Equivalents and Investments Cash equivalents consist primarily of over-night deposits, commercial paper, U.S. Government Treasury instruments, and money market funds with original maturities of three months or less at date of purchase. Short-term investments have original maturities greater than three months and consist of U.S. Government Treasury instruments, money market preferred stock, auction preferred stock, municipal bonds, certificates of deposit and commercial paper. Securities Held-to-Maturity and Available-for-Sale Management determines the appropriate classification of certain debt and equity securities at the time of purchase as either held-to-maturity, trading or available-for-sale and reevaluates such designation as of each balance sheet date. Held-to-maturity securities are stated at cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, as well as any interest on the securities, is included in interest income and other, net. Held-to-maturity securities include only those securities the Company has the positive intent and ability to hold to maturity. Securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity, if material. Realized gains and losses, declines in value judged to be other than temporary, and interest on available-for-sale securities are included in interest income and other, net. Foreign Exchange Contracts The Company may enter into foreign currency forward exchange and option contracts to hedge certain of its foreign currency exposures. The Company's accounting policies for these instruments are based on the Company's designation of such instruments as hedging transactions. The criteria the Company uses for designating an instrument as a hedge include its effectiveness in exposure reduction and one-to-one matching of the derivative financial instrument to the underlying transaction being hedged. Gains and losses on foreign currency exchange and option contracts that are designated and effective as hedges of existing transactions are recognized in income in the same period as losses and gains on the underlying transactions are recognized and generally offset. Gains and losses on currency option contracts that are designated and effective as hedges of transactions, for which a firm commitment has been attained, are deferred and recognized in income in the same period that the underlying transactions are settled. The Company generally does not require collateral from counterparties. During fiscal 1996, the Company purchased foreign currency forward exchange contracts to hedge certain yen denominated inventory purchases. In addition, during fiscal 1996, the Company purchased foreign currency option contracts to hedge certain yen denominated net balance sheet accounts and sales. As of March 30, 1996, the Company had five foreign currency option contracts outstanding denominated in Japanese yen for approximately $76,022,000. The contracts expire through June 1996. While the contract amounts provide one measure of the volume of the transactions outstanding at March 30, 1996, they do not represent the amount of the Company's exposure to credit risk. The Company's exposure to credit risk (arising from the possible inability of the counterparties to meet the terms of their contracts) is generally limited to the amount, if any, by which the counterparties' obligations exceed the obligations of the Company. During fiscal 1995, the Company recorded approximately $4,999,000 of foreign currency transaction gains pertaining to the remeasurement of certain unhedged balance sheet accounts denominated in Japanese yen. Transaction gains and losses were not material in fiscal 1996 and 1994. Inventories The Company applies the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market principle to value its inventories. One of the factors the Company consistently evaluates in application of this principle is the extent to which products are accepted into the marketplace. By policy, the Company evaluates market acceptance based on known business factors and conditions by comparing forecasted customer unit demand for the Company's products over a specific future period or demand horizon to quantities on hand at the end of each accounting period. On a quarterly and annual basis, inventories are analyzed on a part-by-part basis. Inventory quantities on hand in excess of forecasted demand, as adjusted by management, are considered to have reduced market value and, therefore, the cost basis is adjusted from standard cost to the lower of cost or market. Typically, market value for excess or obsolete inventories is considered to be zero. The short product life cycles and the competitive nature of the industry are factors considered in the estimation of customer unit demand at the end of each quarterly accounting period. Inventories are comprised of the following (in thousands): March 30, April 1, 1996 1995 --------- --------- Work-in-process $ 69,244 $ 84,920 Finished goods 65,258 18,722 --------- --------- $ 134,502 $ 103,642 ========= ========= Property and Equipment Property and equipment is recorded at cost. Depreciation and amortization is provided on a straight-line basis over estimated useful lives ranging from three to five years, or over the life of the lease for equipment under capitalized leases, if shorter. Leasehold improvements are amortized over the term of the lease or their estimated useful life, whichever is shorter. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and trade accounts receivable. By policy, the Company places its investments only with high credit quality financial institutions and, other than U.S. Government Treasury instruments, limits the amounts invested in any one institution or in any type of instrument. Almost all of the Company's trade accounts receivable are derived from sales to manufacturers of computer systems and subsystems. The Company performs ongoing credit evaluations of its customers' financial condition and limits its exposure to accounting losses by limiting the amount of credit extended whenever deemed necessary and generally does not require collateral. Revenue Recognition Revenue from product sales direct to customers is recognized upon shipment. Certain of the Company's sales are made to distributors under agreements allowing certain rights of return and price protection on products unsold by distributors. Accordingly, the Company defers revenue and gross profit on such sales until the product is sold by the distributors. Non-recurring and Merger Costs In the third quarter of fiscal 1996, non-recurring costs were approximately $1.2 million associated with the planned formation of the new joint venture with Lucent Technologies. In the quarter ended October 1, 1994, non-recurring and merger costs were approximately $6.3 million. Non-recurring costs of $3.9 million were primarily associated with the acquisition of certain technology and marketing rights and the remaining minority interest in a subsidiary, and the formation of the MiCRUS joint venture with International Business Machines Corporation (IBM). Merger costs of approximately $2.4 million for the August 1994, combination of Cirrus Logic and PicoPower included one-time costs for charges related to the combination of the two companies, financial advisory services, and legal and accounting fees. Income Taxes During fiscal 1994, the Company implemented SFAS No. 109, "Accounting for Income Taxes," effective as of the beginning of the year. The cumulative effect of this accounting change, a result of recognizing tax benefits which had been unrecognized prior to April 1, 1993, increased net income for fiscal 1994 by $7,550,000, or $0.13 per share. There was no effect on income before income taxes from the adoption of SFAS No. 109. Advertising Expense The cost of advertising is expensed as incurred. Advertising costs were not significant in fiscal 1996, 1995, and 1994. 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, as required). Common equivalent shares include dilutive stock options and warrants when appropriate. Dual presentation of primary and fully diluted income per share is not shown on the face of the statements of operations because the differences are insignificant. Impact of Recently Issued Accounting Standards In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standard No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. SFAS 121 is effective for fiscal years beginning after December 15, 1995. Adoption of SFAS 121 is not expected to have a material impact on the Company's financial position or results of operations. The Company accounts for its stock option plans and its employee stock purchase plan in accordance with provisions of the Accounting Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." In October 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based Compensation." SFAS 123 provides an alternative to APB 25 and is effective for fiscal years beginning after December 15, 1995. The Company expects to continue to account for its employee stock plans in accordance with the provisions of APB 25. Accordingly, SFAS 123 is not expected to have any material impact on the Company's financial position or results of operations. Financial Presentation Certain prior year amounts on the Consolidated Financial Statements have been reclassified to conform to the fiscal 1996 presentation. 2. FINANCIAL INSTRUMENTS Fair Values of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Investment securities and other non-current marketable equity securities: The fair values for marketable debt and equity securities are based on quoted market prices. Commercial and standby letters of credit: The fair values of commercial and standby letters of credit are based on quoted market prices. Foreign currency exchange and option contracts: The fair values of the Company's foreign currency exchange forward and option contracts are estimated based on quoted market prices of comparable contracts, adjusted through interpolation where necessary for maturity differences. Short-term debt: The fair value of short-term debt approximates cost because of the short period of time to maturity. Long-term debt: The fair value of long-term debt is estimated based on current interest rates available to the Company for debt instruments with similar terms and remaining maturities. The carrying amounts and fair values of the Company's financial instruments at March 30, 1996 are as follows (in thousands): Carrying Amount Fair Value --------------- ---------- Cash and cash equivalents $ 155,979 $ 155,979 Investment securities: U.S. Government Treasury instruments 12,085 12,024 U.S. Government Agency instruments 4,256 4,257 Municipal bonds 4,314 4,325 Short-term debt (80,000) (80,000) Long-term debt (current portion) (22,460) (22,090) Long-term debt (65,571) (63,023) Currency options - 48 Letters of credit 44,431 44,431 The carrying amounts and fair values of the Company's financial instruments at April 1, 1995 are as follows (in thousands): Carrying Amount Fair Value --------------- ---------- Cash and cash equivalents $ 66,718 $ 66,718 Investment securities: U.S. Government Treasury instruments 56,723 56,729 U.S. Government Agency instruments 7,868 7,866 Municipal auction preferred stock 11,000 11,000 Auction preferred stock 18,000 18,000 Commercial paper 5,904 5,904 Certificates of deposit 1,997 1,997 Municipal bonds 18,816 18,743 Long-term debt (23,856) (23,856) Investments The following is a summary of available-for-sale and held- to-maturity securities at March 30, 1996 (in thousands): Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value -------- ------ ------ -------- Available-for-Sale: U.S. Government Treasury instruments $ 8,190 $ - $ 60 $ 8,130 U.S. Government Agency instruments 4,022 - - 4,022 Commercial paper 4,263 4,263 -------- ------ ------ -------- Total $ 16,475 $ - $ 60 $ 16,415 ======== ====== ====== ======== Held-to-Maturity: U.S. Government Treasury instruments $ 3,895 $ - $ 1 $ 3,894 U.S. Government Agency instruments 2,235 1 - 2,236 Municipal bonds 4,314 11 - 4,325 -------- ------ ------ -------- Total $ 10,444 $ 12 $ 1 $ 10,455 ======== ====== ====== ======== Available-for-sale and held-to-maturity securities have the following contracted maturities at March 30, 1996 (in thousands): Available-for-sale Held-to-maturity ------------------ ---------------- Less than one year $ 8,285 $ 9,068 One to two years 8,190 1,376 ------------------ ---------------- Total $ 16,475 $ 10,444 ================== ================ The following is a summary of available-for-sales and held- to-maturity securities at April 1, 1995 (in thousands): Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value -------- ------ ------ -------- Available-for-Sale: Municipal auction preferred stock $ 11,000 $ - $ - $ 11,000 U.S. Government Treasury instruments 13,395 35 - 13,430 U.S. Government Agency instruments 8,858 2 - 8,860 Commercial paper 13,301 - - 13,301 Municipal bonds 9,966 - 4 9,962 Auction preferred stock 18,000 - - 18,000 -------- ------ ------ -------- Total $ 74,520 $ 37 $ 4 $ 74,553 ======== ====== ====== ======== Held-to-Maturity: U.S. Government Treasury instruments $ 47,273 $ 16 $ 4 $ 47,285 U.S. Government Agency instruments 1,000 - 4 996 Commercial paper 10,874 42 - 10,916 Certificates of deposit 1,997 - - 1,997 Municipal bonds 8,850 - 69 8,781 -------- ------ ------ -------- Total $ 69,994 $ 58 $ 77 $ 69,975 ======== ====== ====== ======== Held-to-maturity securities have contracted maturities of less than one year at April 1, 1995. Available-for-sale securities have the following contracted maturities at April 1, 1995 (in thousands): Less than one year $ 65,668 One to two years 8,852 --------- Total $ 74,520 ========= The following is a reconciliation of the investment categories to the balance sheet classification at March 30, 1996 (in thousands): Cash and Cash Short-term Long-term Equivalents Investment Investment Total ----------- ----------- ---------- --------- Cash $ 149,715 $ - $ - $ 149,715 Available-for-sale securities 6,264 10,211 - 16,475 Held-to-maturity securities - 9,068 1,376 10,444 ----------- ----------- ---------- --------- Total $ 155,979 $ 19,279 $ 1,376 $ 176,634 =========== =========== ========== ========= The following is a reconciliation of the investment categories to the balance sheet classification at April 1, 1995 (in thousands): Cash and Cash Short-term Equivalents Investment Total ----------- ----------- --------- Cash $ 42,512 $ - $ 42,512 Available-for-sale securities 11,356 63,164 74,520 Held-to-maturity securities 12,850 57,144 69,994 ----------- ----------- --------- Total $ 66,718 $ 120,308 $ 187,026 =========== =========== ========= 3. USE OF ESTIMATES AND CONCENTRATIONS OF OTHER RISKS The Company's financial statements are prepared in accordance with generally accepted accounting principles which requires the use of management estimates. These estimates are impacted, in part, by the following risks and uncertainties: Inventories. The Company produces inventory based on orders received and forecasted demand. 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. Demand will differ from forecasts and such difference may have a material effect on actual results of operations. Dependence on PC Market. Sales of most of the Company's products depend largely on sales of personal computers (PCS). 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 as a result of changes in the customers' market share. 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. 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. In addition, many of the Company's products are used in PCS for the consumer market, and the consumer PC market is more volatile than other segments of the PC market. 4. JOINT VENTURES AND MANUFACTURING SUPPLY AGREEMENTS MiCRUS 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 called MiCRUS, began manufacturing semiconductor wafers for each parent company using IBM's submicron wafer processing technology. MiCRUS leased an existing 175,000 square-foot IBM facility located at the Hudson Valley Research Park in East Fishkill, New York. Focusing initially on manufacturing CMOS wafers with line widths in the 0.6 to 0.5 micron range, MiCRUS was in volume production of both IBM and Cirrus Logic products by the end of fiscal 1996. IBM and Cirrus Logic own 52% and 48% of MiCRUS, respectively. The term of the joint venture, set for nine years, may be extended by mutual accord. Activities of the joint venture are focused on the manufacture of semiconductor wafers, and do not encompass direct product licensing or product exchanges between the Company and IBM. The Company has a commitment to use 50% of the manufacturing capacity of MiCRUS. To the extent the Company does not use its share of the manufacturing capacity, it must pay a charge to MiCRUS for the cost of such underutilized capacity. During fiscal 1996, the Company recorded charges to cost of sales of approximately $14 million for the underutilization of capacity. In January 1995, MiCRUS leased approximately $145 million of wafer fabrication and infrastructure equipment pursuant to an operating lease with a third party and guaranteed jointly and severally by the Company and IBM. The Company believes that any risk of loss from this guarantee is remote. As part of the initial agreement, the Company committed to $36 million as an equity contribution. In addition, Cirrus Logic and IBM each agreed to provide MiCRUS with approximately $100 million of additional capital equipment, through lease financing. In fiscal 1995 and 1996, Cirrus Logic paid $63.8 million and $14.0 million, respectively for the joint venture investment and the manufacturing agreement. Manufacturing agreement payments of $56 million are being charged to the cost of production over the life of the venture based upon the ratio of current units of production to current and anticipated future units of production. In fiscal 1996, the Company amortized approximately $3.9 million of the manufacturing agreement payments. The joint venture is accounted for on the equity method. During fiscal 1996, the Company purchased $77.1 million of manufactured wafers from MiCRUS. As of March 30, 1996, the Company had $7.4 million of accounts payable related to wafers purchased from MiCRUS. In March 1995, the Company and IBM agreed to a $120 million expansion of MiCRUS, of which Cirrus Logic is committed to provide $60 million in financing. The Company expects to use lease financing to fulfill its commitment. This expansion is expected to be in full production in fiscal 1997. In October 1995, the Company committed to fund a second expansion of MiCRUS. The cost of this expansion is anticipated to be approximately $198 million of which the Company expects to spend $33 million in cash for facilities. The remaining commitment is expected to be funded with lease financing, all of which will be guaranteed by the Company. As of March 30, 1996, the Company has purchased approximately $94.7 million of manufacturing equipment for MiCRUS that the Company expects to sell to a leasing company that will in turn lease the equipment to MiCRUS. As of March 30, 1996, the Company is contingently liable for MiCRUS equipment leases which have remaining payments of approximately $229 million, payable through fiscal 2002. Lucent Technologies In October 1995, the Company entered an agreement with Lucent Technologies to form a joint venture (Cirent Semiconductor) to build additional wafer production capacity in an existing Orlando, Florida facility owned by Lucent Technologies. The formation of the joint venture is pending completion of equipment lease financing to be provided by the Company and formation of the joint venture partnership. The facility will manufacture wafers using submicron wafer process technology licensed from Lucent Technologies. Cirent Semiconductor, which will have a term of 10 years, will be owned 60% by Lucent Technologies and 40% by Cirrus Logic and will be managed by a Board of Governors, of whom three will be appointed by Lucent Technologies and two will be appointed by Cirrus Logic. The joint venture will operate two wafer fabs, both located in the same complex, which will be leased from Lucent Technologies. One of these fabs is already in operation and the other will be built by Lucent Technologies. The new fab is expected to begin operations in fiscal 1998. Lucent Technologies will purchase all of the output from the existing fab at a price that covers all costs associated with that fab. Lucent Technologies and Cirrus Logic each will be entitled to purchase one-half of the output of the new fab. If one company fails to purchase its full entitlement, the shortfall may be purchased by the other company or offered to third parties. However, if the wafers cannot be sold elsewhere, the company that failed to purchase its full entitlement will be required to reimburse Cirent Semiconductor for costs associated with underutilized capacity. The agreement with Lucent Technologies obligates 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 equity in installments over a three-year period and pay $105 million for a manufacturing agreement in installments over a four-year period. The manufacturing agreement payments of $105 million, of which $10 million was paid in fiscal 1996, 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 will account for Cirent Semiconductor under the equity method. United Microelectronics Corporation ("UMC") In October 1995, the Company entered into a foundry agreement and a foundry capacity agreement with UMC, a Taiwanese company. Under terms of the agreements, a new corporation, United Silicon, Inc., will be formed under the laws of Taiwan for the purpose of manufacturing and selling integrated circuits in wafer, die, and packaged form. United Silicon, Inc. will build a wafer fabrication facility which will be funded in part with equity investments from the Company and two other U.S. semiconductor companies and in part with debt and equipment lease financing from UMC. The Company's investment, which is denominated in New Taiwanese dollars, will total approximately $88 million and will represent a 15% equity interest in United Silicon, Inc. In the fourth quarter of fiscal 1996, the Company paid $20.6 million. The remaining equity investment will be made in fiscal 1997. In exchange for the Company's investment, the Company will have the right, but not the obligation, to purchase a portion of the capacity of the new manufacturing facility at fair market prices. In addition, each party will have the right of first refusal regarding capacity not fully utilized by other investors. United Silicon, Inc. is expected to begin production in fiscal 1998. Under terms of the agreements, the board of directors of United Silicon, Inc. will consist of seven members. UMC will appoint a majority of the directors and the Company will appoint one director. The obligations of the Company are conditional upon approval of United Silicon, Inc. by governmental authorities. In addition, the Company has initiated discussions with UMC regarding rescheduling or postponing the Company's remaining commitments under the agreements. Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC") In fiscal 1993 and fiscal 1996, the Company entered into volume purchase agreements with TSMC. Under each agreement, the Company committed to purchase a fixed minimum number of wafers at market prices and TSMC guaranteed to supply certain quantities. The agreements expire in March 1997 and December 2001, respectively. Under the agreement entered into in fiscal 1996, the Company has agreed to make advance payments to TSMC of approximately $118 million, one-half in fiscal 1998 and one-half in fiscal 1999. Under both the fiscal 1993 and 1996 agreements, if the Company does not purchase the committed amount, it may be required to pay a per wafer penalty for any shortfall not sold by TSMC to other customers. The Company estimates that under the remaining term of the fiscal 1993 agreement, it is obliged to purchase approximately $37 million of product. Over the term of the fiscal 1996 agreement, the Company estimates it must purchase approximately $790 million of product in order to fully realize the advance payments required. During fiscal 1996 and 1995, the Company purchased approximately $37.2 million and $17.4 million, respectively, of product under the 1993 supply agreement and none under the 1996 agreement. 5. INVESTMENTS During fiscal years 1991 and 1992, the Company invested approximately $1,660,000 in Media Vision, Inc. (Media Vision) Preferred Stock. The investment was accounted for by the cost method and represented an approximate six percent interest in Media Vision. In fiscal 1994, the Company sold approximately 76% of its original investment in Media Vision in an initial public offering in April 1993 and in October 1993 in the open market. The Company realized a gain of $13,682,000 on these sales in fiscal year 1994. 6. OBLIGATIONS UNDER CAPITAL LEASES The Company has capital lease agreements for machinery and equipment as follows (in thousands): March 30, April 1, 1996 1995 ---------- ---------- Capitalized cost $ 20,076 $ 18,798 Accumulated amortization (11,385) ( 8,482) ---------- ---------- Total $ 8,691 $ 10,316 ========== ========== Amortization expense on assets capitalized under capital lease obligations is included in depreciation and amortization. The lease agreements are secured by the leased property. Future minimum lease payments under capital leases for the following fiscal years, together with the present value of the net minimum lease payments as of March 30, 1996, are (in thousands): 1997 $ 5,103 1998 3,406 1999 2,294 2000 672 --------- Total minimum lease payments 11,475 Less amount representing interest ( 1,102) --------- Present value of net lease payments 10,373 Less current maturities ( 4,115) --------- Capital lease obligations $ 6,258 ========= 7. LONG-TERM DEBT Long-term debt consists of the following (in thousands): March 30, April 1, 1996 1995 --------- --------- Installment notes with interest rates ranging from 6.18% to 9.08% $ 87,531 $ 23,356 Installment purchase contract with officer of subsidiary 500 500 Less current maturities (22,460) (7,253) --------- --------- Long-term debt $ 65,571 $ 16,603 ========= ========= Principal payments for the following fiscal years are (in thousands): 1997 $ 22,460 1998 21,384 1999 19,748 2000 16,989 2001 6,615 Thereafter 835 -------- Total $ 88,031 ======== At March 30, 1996, installment notes are secured by machinery and equipment with a net book value of $79,211,000 ($18,940,000 at April 1, 1995). 8. BANK ARRANGEMENTS As of March 30, 1996, the Company had a commitment for a bank line of credit up to a maximum of $135,000,000, expiring on April 30, 1996, at the bank's prime rate (8.25% at March 30, 1996). The Company had $80,000,000 outstanding under the line at March 30, 1996. Terms of the arrangement require compliance with certain covenants including the maintenance of certain financial ratios, minimum tangible net worth and profitable operations on a quarterly basis as well as a prohibition against the payment of cash dividends without prior bank approval. The Company was not in compliance with certain financial ratios and the profitability covenant as of March 30, 1996. In April 1996, the Company secured financing under a new commitment and paid all amounts outstanding under this line. In April 1996, the Company completed a new commitment for a bank line of credit for borrowings up to a maximum of $200,000,000 expiring on July 31, 1997, at the banks' prime rate plus one-half percent. The borrowings are secured by cash, accounts receivable, inventory, certain purchased equipment, intellectual property, and stock in the Company's subsidiaries. Use of the line is limited to the borrowing base as defined by a combination of accounts receivable and certain purchased equipment. As of March 30, 1996, the Company's borrowing base, as defined, under this line would have been limited to approximately $100 million, net of certain outstanding letters of credit. Terms of the agreement include satisfaction of certain financial ratios, minimum tangible net worth, cash flow, and leverage requirements as well as a prohibition against the payment of a cash dividend without prior bank approval. The Company has outstanding letters of credit with banks which are denominated in Japanese yen totaling approximately $431,000 at March 30, 1996. Such letters of credit secure inventory purchases. The Company has separate standby letters of credit of approximately $15,600,000 with wafer vendors to secure inventory purchases. In addition, the Company has a separate standby letter of credit of approximately $28,400,000 with a leasing company to secure lease payments under equipment leases the leasing company has with MiCRUS (see note 4) which are guaranteed by the Company. 9. COMMITMENTS Facilities and Equipment Under Operating Lease Agreements The Company leases its facilities and certain equipment under operating lease agreements, some of which have renewal options. Certain of these arrangements provide for lease payment increases based upon future fair market rates. The aggregate minimum future rental commitments under all operating leases for the following fiscal years are (in thousands): 1997 $ 10,192 1998 9,572 1999 9,231 2000 9,348 2001 9,046 Thereafter 48,187 --------- Total minimum lease payments $ 95,576 ========= Total rent expense was approximately $11,177,000, $10,242,000 and $6,264,000 for fiscal 1996, 1995 and 1994, respectively. 10. Restructuring Charges In the fourth quarter of fiscal 1996, as a result of decreased demand for the Company's products for use in personal computers, which accounts for more than 80% of the Company's revenue, management reviewed the various operating areas of the business and took certain steps to bring operating expenses and capacity in line with demand. These actions resulted in a pre-tax restructuring charge of approximately $11.6 million. The principal actions in the restructuring involved the consolidation of support infrastructure and the withdrawal from an unprofitable product line and reduction of planned production capacity. This resulted in the termination of approximately 320 positions from the manufacturing, research and development, sales and marketing and administrative departments. The Company estimates the annual savings from reduced salaries, benefits and other expenses will be approximately $17 million. The following sets forth the Company's restructuring accrual as of March 30, 1996 (in thousands): Severance and Capacity scale back related benefits and other costs Total ---------------- ------------------- -------- Restructuring cost $ 7,536 $ 4,030 $ 11,566 No payments were made for the restructuring during fiscal 1996. The Company expects that the restructuring accrual as of March 30, 1996 will result in cash payments, all of which will be made in fiscal 1997. 11. EMPLOYEE BENEFIT PLANS The Company and its subsidiaries have adopted 401(k) Profit Sharing Plans ("the Plans") covering substantially all of their qualifying domestic employees. Under the Plans, employees may elect to reduce their current compensation by up to 15%, subject to annual limitations, and have the amount of such reduction contributed to the Plans. The Plans permit, but do not require, additional discretionary contributions by the Company on behalf of all participants. During fiscal 1996, 1995 and 1994, the Company and its subsidiaries matched employee contributions up to various maximums per plan for a total of approximately $2,111,000, $1,849,000 and $1,290,000, respectively. The Company intends to continue the contributions in fiscal 1997. 12. SHAREHOLDERS' EQUITY Employee Stock Purchase Plan In March 1989, the Company adopted the 1989 Employee Stock Purchase Plan. As of March 30, 1996, 628,330 shares of Common Stock are reserved for future issuance. During fiscal 1996, 1995 and 1994, 593,820, 461,252 and 409,234 shares, respectively, were issued under the Employee Stock Purchase Plan. Stock Option Plans The Company has various stock option plans (the "Option Plans") under which officers, key employees, non-employee directors and consultants may be granted qualified and non- qualified options to purchase shares of the Company's authorized but unissued Common Stock. Options are generally priced at the fair market value of the stock on the date of grant. Options are exercisable immediately but unvested shares are held in escrow and are subject to repurchase at the original issuance price. Options currently expire no later than ten years from date of grant. In previous years, the Company also has issued non-qualified stock options to purchase a total of 664,156 shares at prices ranging from $0.06 to $6.50 per share, subject to a vesting schedule of three and one-half or four years and 23,000 shares as stock grants to employees at no cost which vest over five years. The Company recognizes as compensation expense the excess of the fair market value at the date of grant over the exercise price of such options and grants. The compensation expense is amortized ratably over the vesting period of the options. Additional information relative to stock option activity is as follows (in thousands): Outstanding Options Options -------------------- Available for Number of Aggregate Grant Shares Price ----------- ------- ---------- Balance, March 31, 1993 384 7,854 $ 55,369 Shares authorized for issuance 4,170 - - Options granted (4,200) 4,200 47,075 Options exercised - (1,360) (7,355) Options cancelled 292 (322) (3,125) ----------- ------- ---------- Balance, April 2, 1994 646 10,372 91,964 Shares authorized for issuance 4,796 - - Options granted (4,228) 4,228 57,574 Options exercised - (898) (3,337) Options cancelled 272 (314) (4,407) ----------- ------- ---------- Balance, April 1, 1995 1,486 13,388 141,794 Shares authorized for issuance 1,880 - - Options granted (3,086) 3,086 108,828 Options exercised - (2,704) (20,399) Options cancelled 529 (575) (9,900) ----------- ------- ---------- Balance, March 30, 1996 809 13,195 $ 220,323 =========== ======= ========== As of March 30, 1996, approximately 14,004,000 shares of Common Stock were reserved for issuance under the Option Plans. 13. INCOME TAXES (Loss) income before income taxes and cumulative effect of accounting change consists of (in thousands): 1996 1995 1994 ---------- --------- --------- United States $ (40,938) $ 57,541 $ 40,196 Foreign (785) 32,097 15,768 ---------- --------- --------- Total $ (41,723) $ 89,638 $ 55,964 ========== ========= ========= The (benefit) provision for income taxes consists of (in thousands): 1996 1995 1994 ---------- ---------- ---------- Federal Current $ 25,303 $ 27,829 $ 20,245 Prepaid (28,182) (2,180) (5,910) ---------- ---------- ---------- (2,879) 25,649 14,335 State Current 3,402 2,936 4,911 Prepaid (10,110) (1,308) (1,820) ---------- ---------- ---------- (6,708) 1,628 3,091 Foreign Current 4,047 959 720 ---------- ---------- ---------- Total $ ( 5,540) $ 28,236 $ 18,146 ========== ========== ========== The (benefit) provision for income taxes differs from the amount computed by applying the statutory federal rate to pretax income as follows: 1996 1995 1994 ------- ------- ------- Expected income tax (benefit) provision at the U.S. federal statutory rate (35.0%) 35.0% 35.0% (Benefit) provision for state income taxes, net of federal effect (10.5%) 1.4% 3.6% Foreign operating results taxed at rates other than the U.S. statutory rate 35.9% (3.0%) (3.4%) Research and development credits (flow-through method) (3.1%) (4.6%) (4.7%) Other (0.6%) 2.7% 1.9% ------- ------- ------- (Benefit) provision for income taxes (13.3%) 31.5% 32.4% ======= ======= ======= Under SFAS No. 109, deferred income tax assets and liabilities reflect the net tax effects of tax carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are (in thousands): March 30, April 1, 1996 1995 -------- -------- Deferred tax assets: Inventory valuation $ 25,817 $ 9,443 Accrued expenses and allowances 35,447 13,853 Net operating loss carryforwards 3,051 3,051 Research and development credit carryforwards 4,507 2,190 State investment tax credit carryforwards 4,042 - Other 2,690 2,077 -------- -------- Total deferred tax assets 75,554 30,614 -------- -------- Deferred tax liabilities: Depreciation 8,124 5,057 Other 4,501 920 -------- -------- Total deferred tax liabilities 12,625 5,977 -------- -------- Total net deferred tax assets $ 62,929 $ 24,637 ======== ======== The Company has research and development tax credit carryforwards for federal and state tax purposes of approximately $4.5 million, expiring from 2006 through 2011. The Company also has state investment tax credit carryforwards of approximately $4 million expiring in 2003. As a result of the 1993 PCSI merger, the Company has net operating loss carryforwards for federal tax purposes of approximately $8.5 million, expiring from 2002 through 2008. These net operating loss carryforwards are available to offset future consolidated taxable income only to the extent contributed by PCSI and are subject to an annual limitation of approximately $2.6 million because of the "change in ownership" rules under Section 382 of the Internal Revenue Code. 14. LEGAL MATTERS 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. Further, customers have been named in suits alleging infringement of patents by the 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 such situations, 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. While the Company cannot accurately predict the eventual outcome of these or any other such infringement matters, management believes that the likelihood of an outcome resulting in a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows is remote. 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 defendants' motions for summary judgment are currently scheduled for hearing on July 25, 1996. The Company believes the likelihood is remote that the ultimate resolution of this matter will have a material adverse effect on its financial position, results of operations or cash flows. Between November 7 and November 21, 1995, five shareholder class actions 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. A consolidated amended complaint was filed on February 20, 1996 and an amended consolidated supplemental complaint was filed on May 3, 1996. This complaint alleges that certain statements made by defendants during the period from July 23, 1995 through December 21, 1995 were false and misleading and in violation of the federal securities laws. The defendants' motion to dismiss the complaint are currently scheduled for hearing on August 30, 1996. The complaint does not specify the amounts of damages sought. The Company believes that the allegations of the complaint are without merit, and the Company intends to defend itself vigorously. The Company believes the likelihood is remote that the ultimate resolution of this matter will have a material adverse effect on its financial position, results of operations or cash flows. On February 21, 1996 a shareholder class action lawsuit was filed in the Superior Court of California in and for the County of Alameda against the Company and numerous fictitiously named defendants alleged to be officers or agents of the Company. An amended complaint, which added certain of the Company's officers and directors as defendants was filed on April 18, 1996. The lawsuit alleges that certain statements made by the Company and the fictitiously named defendants during the period from October 1, 1995 through February 14, 1996 were false and misleading and that the defendants breached their fiduciary duties in making such statements in violation of California State Common and Statutory law. The complaint does not specify the amounts of damages sought. The Company believes that the allegations of the complaint are without merit, and the Company intends to defend itself vigorously. The Company believes the likelihood is remote that the ultimate resolution of this matter will have a material adverse effect on its financial position, results of operations or cash flows. 15. SUBSEQUENT EVENT (unaudited) Subsequent to fiscal year end, the Company signed a memorandum of understanding with National Semiconductor, Inc. (National) for the sale of certain assets and obligations and all the intellectual property of the PicoPower product line for $18 million. In addition, related inventory will be purchased by National at a yet to be agreed to value. The transaction is subject to completion of due diligence procedures to be performed by National; the outcome of which may affect the ultimate proceeds and the gain from the sale, and/or the ultimate consummation of the sale transaction. QUARTERLY FINANCIAL STATEMENTS CIRRUS LOGIC, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Quarter Ended Three Quarters Ended -------------------- -------------------- Dec. 28, Dec. 30, Dec. 28, Dec. 30, 1996 1995 1996 1995 ---------- --------- ---------- --------- Net sales $253,309 $295,783 $704,237 $913,872 Costs and expenses and gain on sale of assets: Cost of sales 156,613 197,273 434,890 551,456 Research and development 59,828 60,086 179,537 168,576 Selling, general and administrative 31,517 43,047 92,977 119,476 Gain on sale of assets (12,009) - (18,922) - Non-recurring costs - 1,195 - 1,195 ---------- --------- ---------- --------- Total costs and expenses and gain on sale of assets 235,949 301,601 688,482 840,703 ---------- --------- ---------- --------- Income (loss) from operations 17,360 (5,818) 15,755 73,169 Interest and other (expense) income, net (2,941) 561 (7,778) 2,994 ---------- --------- ---------- --------- Income (loss) before provision (benefit) for income taxes 14,419 (5,257) 7,977 76,163 Provision (benefit) for income taxes 4,109 (1,656) 2,274 23,990 ---------- --------- ---------- --------- Net income (loss) $10,310 ($3,601) $5,703 $52,173 ========== ========= ========== ========= Net income (loss) per common and common equivalent share $0.16 ($0.06) $0.09 $0.75 ========== ========= ========== ========= Weighted average common and common equivalent shares outstanding 66,460 63,273 66,382 69,437 ========== ========= ========== ========= See Notes to the Unaudited Consolidated Condensed Financial Statements.
CIRRUS LOGIC, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands)
Dec. 28, March 30, 1996 1996 ----------- --------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 213,767 $155,979 Short-term investments 140,103 19,279 Accounts receivable, net 152,384 133,718 Inventories 128,034 134,502 Deferred tax assets 52,662 52,662 Payments for joint venture equipment to be leased 76,180 94,683 Other current assets 13,421 4,004 ----------- --------- Total current assets 776,551 594,827 Property and equipment, net 152,698 170,248 Manufacturing agreements, net and investments in joint ventures 154,095 104,463 Deposits and other assets 50,377 48,039 ----------- --------- $1,133,721 $917,577 =========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowing $ - $ 80,000 Accounts payable and accrued liabilities 219,047 242,901 Accrued salaries and benefits 23,879 41,845 Obligations under equipment loans and capital leases, current portion 28,540 26,575 Income taxes payable 39,997 20,863 ----------- --------- Total current liabilities 311,463 412,184 Obligations under equipment loans and capital leases, non-current 63,220 71,829 Other long-term 5,078 4,898 Convertible subordinated notes 300,000 - Commitments and contingencies Shareholders' equity: Capital stock 349,165 329,574 Retained earnings 104,795 99,092 ----------- --------- Total shareholders' equity 453,960 428,666 ----------- --------- $1,133,721 $917,577 =========== ========= See Notes to the Unaudited Consolidated Condensed Financial Statements.
CIRRUS LOGIC, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three Quarters Ended --------------------- Dec. 28, Dec. 30, 1996 1995 ----------- --------- Cash flows from operations: Net income $5,703 $52,173 Adjustments to reconcile net income to net cash flows from operations: Gain on sale of assets (18,922) - Depreciation and amortization 65,649 43,793 Net change in operating assets and liabilities (38,770) (42,622) ----------- --------- Net cash flows provided by operations 13,660 53,344 ----------- --------- Cash flows from investing activities: Proceeds from sale of assets 38,426 - Purchase of short-term investments (133,256) (260,944) Proceeds from sale of short-term investments 12,432 299,888 Additions to property and equipment (21,067) (106,215) Joint venture manufacturing agreements and investment in joint ventures (54,000) (16,000) Increase in deposits and other assets (9,138) (20,228) ----------- --------- Net cash flows used by investing activities (166,603) (103,499) ----------- --------- Cash flows from financing activities: Proceeds from issuance of convertible notes 290,640 - Proceeds from issuance of common stock 16,867 27,883 Borrowings on short-term debt 172,000 41,000 Borrowings on long-term debt 4,342 62,081 Payments on long-term debt and capital lease obligations (21,542) (9,269) Payments on short-term debt (252,000) (41,000) Increase in other long-term liabilities 424 - ----------- --------- Net cash flows provided by financing activities 210,731 80,695 ----------- --------- Increase in cash and cash equivalents 57,788 30,540 Cash and cash equivalents - beginning of period 155,979 66,718 ----------- --------- Cash and cash equivalents - end of period $213,767 $97,258 =========== ========= Supplemental disclosure of cash flow information: Interest paid $8,925 $2,569 Income taxes (refunded) paid ($19,148) $16,667 Equipment purchased under capitalized leases $10,556 $594 Tax benefit of stock option exercises $2,352 $15,463 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 except for the $2.3 million charge to other expense during the quarter ended December 28, 1996, related to the agreement in principle to settle all securities claims against the Company (see Note 8). These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements, and notes thereto for the year ended March 30, 1996, included in the Company's 1996 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. Inventories Inventories are comprised of the following: December 28, March 30, 1996 1996 --------- --------- (In thousands) Work-in-process $ 78,545 $ 69,244 Finished goods 49,489 65,258 --------- --------- Total $ 128,034 $ 134,502 ========= ========= 3. Gain on Sale of Assets During August 1996, the Company completed the sale of the PicoPower product line to National Semiconductor, Inc. The Company received approximately $17.6 million in cash for the PicoPower product line. In connection with the transaction, the Company recorded a gain of approximately $6.9 million. During December 1996, the Company completed the sale to ADC Telecommunications Inc. of the PCSI product group that produced CDPD (Cellular Digital Packet Data) base station equipment for wireless service providers, and developed pACT (personal Air Communications Technology) base stations for AT&T Wireless Services Inc. The Company received approximately $20.8 million in cash for the group. In connection with the transaction, the Company recorded a gain of approximately $12.0 million. During January 1997, the Company completed the sale of PCSI's Wireless Semiconductor Products assets to Rockwell International for $18.1 million in cash. This group provided digital cordless chip solutions for PHS (Personal Handyphone System) and DECT (Digital European Cordless Telecommunications) as well two-way messaging chip solutions for pACT (personal Air Communications Technology). 4. Bank Arrangements As of December 28, 1996, the Company has a commitment for a bank line of credit for borrowings up to a maximum of $150 million expiring on October 31, 1999, at the banks' prime rate plus one-half percent. As of December 28, 1996, no borrowings were outstanding under the line. Borrowings are secured by cash, accounts receivable, inventory, intellectual property, and stock in the Company's subsidiaries. Use of the line is limited to the borrowing base as defined by accounts receivable. Terms of the agreement include satisfaction of certain financial ratios, minimum tangible net worth, cash flow, and leverage requirements as well as a prohibition against the payment of a cash dividend without prior bank approval. 5. 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 foreign operating results which are taxed at rates other than the U.S. statutory rate, federal and state research tax credits, and state investment tax credits. 6. Net Income (Loss) Per Common and Common Equivalent Share Net income (loss) 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 when appropriate. During December 1996, the Company issued convertible subordinated notes. These securities are included in fully diluted earnings per share computations for the period outstanding under the "if converted" method. 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. 7. Convertible Subordinated Notes During December 1996, the Company completed an offering of $300 million of convertible subordinated notes. The notes bear interest at six percent, mature in December 2003, and are convertible into shares of the Company's common stock at $24.219 per share. Expenses associated with the offering of approximately $9.3 million are deferred and included in deposits and other assets. Such expenses are being amortized to interest expense over the term of the notes. 8. Commitments and Contingencies As of December 28, 1996, the Company is contingently liable for MiCRUS and Cirent equipment leases which have remaining payments of approximately $625 million, payable through fiscal 2002. During December 1996, the Company and certain of its current and former directors and officers, reached an agreement in principle which, if approved, would settle all pending securities claims against the Company for an aggregate sum of $31.3 million, exclusive of interest, $2.3 million of which will be paid by the Company with the remainder being paid by the Company's insurers. The Company recorded the $2.3 million as "other expense" in the quarter ended December 28, 1996. The proposed settlement would include the amendment of the federal class action filed in 1995 to include claims pending in the State court with the intent that the settlement would have the effect of extinguishing the State court claims. The proposed settlement is subject to a number of contingencies, including the agreement to and execution of a definitive agreement and court approval. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE N/A ===================================== ================================== No dealer, salesman or any other person has been authorized to give any information or to make any U.S. $280,750,000 representations other than those contained in this prospectus, in connection with the offer made by this CIRRUS LOGIC, INC. prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the corporation. 6% Convertible Subordinated Neither the delivery of this prospectus Notes Due December 15, 2003 nor any sale made hereunder shall, under any circumstances, create an implication that there has been no change in the affairs of the corporation since the date hereof. This prospectus does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not authorized to do so or to anyone to whom it is unlawful to make such offer or solicitation in such jurisdiction. -------------------- -------------------- TABLE OF CONTENTS PROSPECTUS -------------------- -------------------- Page ----- Available Information Documents Incorporated by Reference Summary The Company The Offering Risk Factors Ratio of Earnings to Fixed Charges Use of Proceeds Description of Registrable Notes United States Taxation Selling Securityholders Plan of Distribution Legal Matters Experts Glossary Index to Consolidated Financial Statements F-1 ____________, 1997 ===================================== ================================== PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses payable by the Registrant in connection with the sale and distribution of the securities being registered hereby. Normal commission expenses and brokerage fees are payable individually by the Selling Stockholders. All amounts are estimated except the Securities and Exchange Commission registration fee.
Amount ------------- SEC registration fee . . . . . . . . . . . . $ 85,068.00 Accounting fees and expenses . . . . . . . . 45,000.00 Legal fees and expenses . . . . . . . . . . 60,000.00 Printing expenses . . . . . . . . . . . . . 10,000.00 Trustee's Fees and Expenses . . . . . . . . . 10,000.00 Miscellaneous fees and expenses . . . . . . 19,932.00 ------------- Total . . . . . . . . . . . . . . . $ 230,000.00 =============
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 317 of the California General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers who are parties or are threatened to be made parties to any proceeding (with certain exceptions) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation. This limitation on liability has no effect on a director's liability (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) relating to any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of a serious injury to the corporation or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders, (vi) under Section 310 of the California General Corporation Law (concerning contracts or transactions between the corporation and a director) or (vii) under Section 316 of the California General Corporation Law (directors' liability for improper dividends, loans and guarantees). The provision does not extend to acts or omissions of a director in his capacity as an officer. Further, the provision has no effect on claims arising under federal or state securities laws and does not affect the availability of injunctions and other equitable remedies available to the Company's shareholders for any violation of a director's fiduciary duty to the Company or its shareholders. Although the validity and scope of the legislation underlying the provision have not yet been interpreted to any significant extent by the California courts, the provision may relieve directors of monetary liability to the Company for grossly negligent conduct, including conduct in situations involving attempted takeovers of the Company. In accordance with Section 317, the Restated Articles of Incorporation, as amended (the "Articles"), of the Company limits the liability of a director to the Company or its shareholders for monetary damages to the fullest extent permissible under California law, and authorizes the Company to provide indemnification to its agents (including officers and directors), subject to the limitations set forth above. The Company's By-Laws further provide for indemnification of corporate agents to the maximum extent permitted by the California General Corporation Law. Pursuant to the authority provided in the Articles, the Company has entered into indemnification agreements with each of its officers and directors, indemnifying them against certain potential liabilities that may arise as a result of their service to the Company, and providing for certain other protection. The Company also maintains insurance policies which insure its officers and directors against certain liabilities. The foregoing summaries are necessarily subject to the complete text of the statute, the Articles, the By-Laws and the agreements referred to above and are qualified in their entirety by reference thereto. Reference is made to the Underwriting Agreements included herein as exhibits to the Registration Statement for provisions regarding indemnification of the Company's officers, directors and controlling persons against liabilities, including liabilities under the Securities Act. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES During December 1996, the Company completed an offering of $300 million of convertible subordinated notes. The notes bear interest at six percent, mature in December 2003, and are convertible into shares of the Company's common stock at $24.219 per share. The notes were sold by the Company to Goldman, Sachs & Co., Salomon Brothers, Inc., J.P. Morgan & Co., and Robertson, Stephens & Company (the "Initial Purchasers"). The Initial Purchasers resold $280,725,000 of the Notes, in a transaction exempt from the registration requirements of the Securities Act, to persons reasonably believed by such initial purchaser to be "qualified institutional buyers" (as defined in Rule 144A under the Securities Act), or other institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. An additional $19,275,000 aggregate principal amount of Notes were issued in the Original Offering by the Company and sold by the Initial Purchasers in compliance with the provisions of Regulation S under the Securities Act. Aggregate discounts to the Initial Purchasers totalled $9,375,000. The net proceeds of the Offering to the Company, after deducting the discounts and offering expenses, were $289,700,000. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits Number Description of Document - ------ -------------------------------------------------------------- The following exhibits are filed as part of or incorporated by reference into this Form S-1: 3.1(8) Restated Articles of Incorporation of Registrant, as amended. 3.2(1) Form of Articles of Incorporation of Registrant. 3.3(1) Bylaws of Registrant, as amended. 4.1(1) Article III of Restated Articles of Incorporation of Registrant (See Exhibits 3.1 and 3.2). 4.2(11) Indenture dated as of December 15, 1996 6% Convertible Subordinated Notes. 4.3 Specimen Certificate of Common Stock of the Company (included in Exhibit 4.1). 4.4 Registration Rights Agreement, dated as of December 15, 1996, among the Registrant, Goldman, Sachs & Co., Salomon Brothers Inc., J.P. Morgan & Co., and Robertson, Stephens & Company. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 10.1(10) Amended 1987 Stock Option Plan. 10.2(10) Amended 1989 Employee Stock Purchase Plan. 10.3(1) Description of Executive Bonus Plan. 10.4(1) Fourth Amendment to Preferred Shares Purchase Agreements, Founders Registration Rights Agreements, and Warrant Agreements and Consent between the Registrant and certain shareholders of the Registrant dated May 15, 1987, as amended April 28, 1989. 10.5(1) Form of Indemnification Agreement. 10.6(1) License Agreement between Registrant and Massachusetts Institute of Technology dated December 16, 1987. 10.7(1) Lease between Prudential Insurance Company of America and Registrant dated June 1, 1986. 10.8(1) Lease between McCandless Technology Park, Milpitas, and Registrant dated March 31, 1989. 10.9(1) Agreement for Foreign Exchange Contract Facility between Bank of America National Trust and Savings Association and Registrant, dated April 24, 1989. 10.10(2) 1990 Directors Stock Option Plan and forms of Stock Option Agreement. 10.11(2) Lease between Renco Investment Company and Registrant dated December 29, 1989. 10.12(3) Loan agreement between First Interstate Bank of California and Silicon Valley Bank and Registrant, dated September 29, 1990. 10.13(2) Loan agreement between Orix USA Corporation and the Registrant dated April 23, 1990. 10.14(2) Loan agreement between USX Credit Corporation and Registrant dated December 28, 1989. 10.15(3) Loan agreement between Household Bank and Registrant dated September 24, 1990. 10.16(3) Loan agreement between Bank of America and Registrant dated March 29, 1991. 10.17(4) Equipment lease agreement between AT&T Systems Leasing Corporation and Registrant dated December 2, 1991. 10.18(4) Lease between Renco Investment Company and Registrant dated May 21, 1992. 10.19(5) Loan agreement between Deutsche Credit Corporation and Registrant dated March 30, 1993. 10.20(5) Lease between Renco Investment Company and Registrant dated February 28, 1993. 10.21(6) Lease between Renco Investment Company and Registrant dated May 4, 1994. 10.22(7) Participation Agreement dated as of September 1, 1994 among Registrant, International Business Machines Corporation, Cirel Inc. and MiCRUS Holdings Inc. 10.23(7) Partnership Agreement dated as of September 30, 1994 between Cirel Inc. and MiCRUS Holdings Inc. 10.24(8) Amended and Restated Credit Agreement between Registrant and Bank of America dated January 31, 1995. 10.25(9) General Partnership Agreement dated as of October 23, 1995 between the Company and AT&T. 10.26(9) Joint Venture Formation Agreement dated as of October 23, 1995 between the Company and AT&T. 10.27(9) Foundry Venture Agreement dated as of September 29, 1995 between the Company and United Microelectronics Corporation ("UMC"). 10.28(9) Written Assurances Re Foundry Venture Agreement dated as of September 29, 1995 between the Company and UMC. 10.29(9) Foundry Capacity Agreement dated as of September 29, 1995 between the Company and UMC. 10.30(10) Multicurrency Credit Agreement dated April 30, 1996 between the Company and the Bank of America and Other Banks. 10.31(11) Indenture dated as of December 15, 1996 6% Convertible Subrdinated Notes. 11.1 Statement Regarding Computation of Per Share Earnings. 12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Charges. 19.1(10) Proxy Statement to the 1996 Annual Meeting of Shareholders. 21.1(10) Subsidiaries of the Registrant 23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional. Corporation (included in Exhibit 5.1). 23.2 Consent of Ernst & Young LLP, independent auditors (See page II-___). 23.3 Consent of to be named in Registration Statement. 24.1 Power of Attorney (See page II-___). 25.1 Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 of a Corporation Designated to Act as Trustee on Form T-1. _______ * To be provided by amendment. (1) Incorporated by reference to Registration Statement No. 33-28583. (2) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended March 31, 1990. (3) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended March 31, 1991. (4) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended March 31, 1992. (5) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended March 31, 1993. (6) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended April 2, 1994. (7) Incorporated by reference to Registrant's Report on Form 10-Q/A for the quarterly period ended October 1, 1994. (8) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended April 1, 1995. (9) Incorporated by reference to Registrant's Report on Form 10-Q/A for the quarterly period ended September 30, 1995. (10) Incorporated by reference to Registrant's Report on Form 10-K for the fiscal year ended March 30, 1996. (11) Incorporated by reference to Registrant's Report on Form 10-Q/A for the quarterly period ended December 28, 1996.
* Filed herewith. (b) Financial Statement Schedules The following consolidated financial statement schedule is filed as part of this registration statement and should be read in conjunction with the consolidated financial statements. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Balance Charged to Balance at Beginning Costs and at Close Item of Period Expenses Deductions (1) of Period - ----------------------- ------------- ----------- ------------ ------------ (Amounts in thousands) 1994 Allowance for doubtful accounts $ 4,627 $ 3,688 ($ 78) $ 8,237 1995 Allowance for doubtful accounts $ 8,237 $ 4,631 ($3,429) $ 9,439 1996 Allowance for doubtful accounts $ 9,439 $ 4,094 ($ 359) $ 13,174 (1) Uncollectible accounts written off, net of recoveries All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements or notes thereto. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to the Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price, set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-offering amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that such a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in Act and will be governed by the final adjudication of such issue. CIRRUS LOGIC, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1933, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CIRRUS LOGIC, INC. (Registrant) /s/ Michael L. Hackworth Michael L. Hackworth President, Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Robert Donohue and Thomas Kelly, his or her true and lawful attorney-in-fact and agent, with full power of each to act alone, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post- effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE - --------- ----- ---- /s/ MICHAEL L. HACKWORTH President, Chief Executive Officer March 18, 1997 Michael L. Hackworth and Director (Principal Executive Officer /s/ SUHAS S. PATIL Chairman of the Board, Executive March 18, 1997 Suhas S. Patil Vice President, Products and Technology and Director /s/ THOMAS F. KELLY Executive Vice President, Chief March 18, 1997 Thomas F. Kelly Financial Officer and Treasurer (Principal Financial Officer) /s/ C. GORDON BELL Director March 18, 1997 C. Gordon Bell /s/ D. JAMES GUZY Director March 18, 1997 D. James Guzy /s/ C. WOODROW REA JR. Director March 18, 1997 C. Woodrow Rea Jr. /s/ WALDEN C. RHINES Director March 18, 1997 Walden C. Rhines /s/ ROBERT H. SMITH Director March 18, 1997 Robert H. Smith CIRRUS LOGIC, INC. REGISTRATION STATEMENT ON FORM S-1 INDEX TO EXHIBITS
Exhibit Number Description of Document - ------ -------------------------------------------------------------- 4.1* Indenture, dated as of December 15, 1996, between the Company and State Street Bank and Trust Company, as Trustee, including the form of Note. 4.2* Specimen Certificate of Common Stock of the Company. (Incorporated by reference to _______________________________________. 4.3* Registration Rights Agreement, dated as of December 15, 1996, among the Company, Goldman, Sachs & Co., Salomon Brothers Inc., J.P. Morgan & Co., and Robertson, Stephens & Company. 4.4 Restated Articles of Incorporation, filed with the Secretary of State of the State of California on ________, 19__. (Incorporated by reference to Exhibit ____ to the Company's Registration Statement on Form S-__ (file No. 33-______) filed _______, 19___.) 4.5 Bylaws of the Company, as amended and restated as of __________, 19____. (Incorporated by reference to Exhibit _____ to the Company's Form _____ for the ___________, 19______.) 5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation 12.1* Statement re computation of ratios. 21.1* Subsidiaries of Registrant. 23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1). 23.2* Consent of Ernst & Young LLP, independent auditors. 24.1* Power of Attorney (contained in II-5) 25.1* Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 of a Corporation Designated to Act as Trustee on Form T-1.
* Filed herewith. EX-4.1 2 INDENTURE DATED AS OF DECEMBER 15, 1996 ________________________________________________ CIRRUS LOGIC, INC. ISSUER TO STATE STREET BANK AND TRUST COMPANY TRUSTEE ________________ INDENTURE Dated as of December 15, 1996 ________________ 6% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER 15, 2003 ________________________________________________ TABLE OF CONTENTS Page RECITALS OF THE COMPANY 1 ARTICLE I - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION 1 SECTION 1.1 Definitions. 1 SECTION 1.2 Compliance Certificates and Opinions 10 SECTION 1.3 Form of Documents Delivered to the Trustee 10 SECTION 1.4 Acts of Holders of Securities 11 SECTION 1.5 Notices, Etc., to Trustee and Company 12 SECTION 1.6 Notice to Holders of Securities; Waiver 13 SECTION 1.7 Effect of Headings and Table of Contents 13 SECTION 1.8 Successors and Assigns 13 SECTION 1.9 Separability Clause 13 SECTION 1.10 Benefits of Indenture 14 SECTION 1.11 Governing Law 14 SECTION 1.12 Legal Holidays 14 SECTION 1.13 Conflict with Trust Indenture Act 14 ARTICLE II - SECURITY FORMS 15 SECTION 2.1 Form Generally 15 SECTION 2.2 Form of Security 16 SECTION 2.3 Form of Certificate of Authentication 29 SECTION 2.4 Form of Conversion Notice 29 ARTICLE III - THE SECURITIES 31 SECTION 3.1 Title and Terms 31 SECTION 3.2 Denominations 31 SECTION 3.3 Execution, Authentication, Delivery and Dating 31 SECTION 3.4 Global Securities; Non-Global Securities 32 SECTION 3.5 Registration, Registration of Transfer and Exchange; Restrictions on Transfer 34 SECTION 3.6 Mutilated, Destroyed, Lost or Stolen Securities 37 SECTION 3.7 Payment of Interest; Interest Rights Preserved 38 SECTION 3.8 Persons Deemed Owners 39 SECTION 3.9 Cancellation 39 SECTION 3.10 Computation of Interest 39 SECTION 3.11 [Reserved] 39 SECTION 3.12 CUSIP Numbers 39 ARTICLE IV - SATISFACTION AND DISCHARGE 39 SECTION 4.1 Satisfaction and Discharge of Indenture 39 SECTION 4.2 Application of Trust Money 40 ARTICLE V - REMEDIES 41 SECTION 5.1 Events of Default 41 SECTION 5.2 Acceleration of Maturity; Rescission and Annulment 42 SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee 43 SECTION 5.4 Trustee May File Proofs of Claim 43 SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities 44 SECTION 5.6 Application of Money Collected 44 SECTION 5.7 Limitation on Suits 45 SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert 45 SECTION 5.9 Restoration of Rights and Remedies 45 SECTION 5.10 Rights and Remedies Cumulative 46 SECTION 5.11 Delay or Omission Not Waiver 46 SECTION 5.12 Control by Holders of Securities 46 SECTION 5.13 Waiver of Past Defaults 46 SECTION 5.14 Undertaking for Costs 46 SECTION 5.15 Waiver of Stay, Usury or Extension Laws 47 ARTICLE VI - THE TRUSTEE 47 SECTION 6.1 Certain Duties and Responsibilities 47 SECTION 6.2 Notice of Defaults 48 SECTION 6.3 Certain Rights of Trustee 48 SECTION 6.4 Not Responsible for Recitals or Issuance of Securities 49 SECTION 6.5 May Hold Securities, Act as Trustee Under Other Indentures 49 SECTION 6.6 Money Held in Trust 49 SECTION 6.7 Compensation and Reimbursement 50 SECTION 6.8 Corporate Trustee Required; Eligibility 50 SECTION 6.9 Resignation and Removal; Appointment of Successor 50 SECTION 6.10 Acceptance of Appointment by Successor 51 SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business 52 SECTION 6.12 Authenticating Agents 52 SECTION 6.13 Disqualification; Conflicting Interests 53 SECTION 6.14 Preferential Collection of Claims Against Company 53 ARTICLE VII - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE 54 SECTION 7.1 Company May Consolidate, Etc., Only on Certain Terms 54 SECTION 7.2 Successor Substituted 54 ARTICLE VIII - SUPPLEMENTAL INDENTURES 55 SECTION 8.1 Supplemental Indentures Without Consent of Holders of Securities 55 SECTION 8.2 Supplemental Indentures with Consent of Holders of Securities 56 SECTION 8.3 Execution of Supplemental Indentures 57 SECTION 8.4 Effect of Supplemental Indentures 57 SECTION 8.5 Reference in Securities to Supplemental Indentures 57 SECTION 8.6 Notice of Supplemental Indentures 57 ARTICLE IX - MEETINGS OF HOLDERS OF SECURITIES 57 SECTION 9.1 Purposes for Which Meetings May Be Called 57 SECTION 9.2 Call, Notice and Place of Meetings 58 SECTION 9.3 Persons Entitled to Vote at Meetings 58 SECTION 9.4 Quorum; Action 58 SECTION 9.5 Determination of Voting Rights; Conduct and Adjournment of Meetings 59 SECTION 9.6 Counting Votes and Recording Action of Meetings 59 ARTICLE X - COVENANTS 60 SECTION 10.1 Payment of Principal, Premium and Interest 60 SECTION 10.2 Maintenance of Offices or Agencies 60 SECTION 10.3 Money for Security Payments To Be Held in Trust 61 SECTION 10.4 [Reserved] 62 SECTION 10.5 Existence 62 SECTION 10.6 Maintenance of Properties 62 SECTION 10.7 Payment of Taxes and Other Claims 62 SECTION 10.8 Registration and Listing 62 SECTION 10.9 Statement by Officers as to Default 63 SECTION 10.10 Delivery of Certain Information 63 SECTION 10.11 Resale of Certain Securities 63 SECTION 10.12 Registration Rights 64 SECTION 10.13 Waiver of Certain Covenants 65 ARTICLE XI - REDEMPTION OF SECURITIES 65 SECTION 11.1 Right of Redemption 65 SECTION 11.2 Applicability of Article 65 SECTION 11.3 Election to Redeem; Notice to Trustee 66 SECTION 11.4 Selection by Trustee of Securities To Be Redeemed 66 SECTION 11.5 Notice of Redemption 66 SECTION 11.6 Deposit of Redemption Price 67 SECTION 11.7 Securities Payable on Redemption Date 67 SECTION 11.8 Securities Redeemed in Part 68 SECTION 11.9 Conversion Arrangement on Call for Redemption 68 ARTICLE XII - CONVERSION OF SECURITIES 68 SECTION 12.1 Conversion Privilege and Conversion Rate 68 SECTION 12.2 Exercise of Conversion Privilege 69 SECTION 12.3 Fractions of Shares 70 SECTION 12.4 Adjustment of Conversion Rate 71 SECTION 12.5 Notice of Adjustments of Conversion Rate 74 SECTION 12.6 Notice of Certain Corporate Action 75 SECTION 12.7 Company to Reserve Common Stock 75 SECTION 12.8 Taxes on Conversions 76 SECTION 12.9 Covenant as to Common Stock 76 SECTION 12.10 Cancellation of Converted Securities 76 SECTION 12.11 Provision in Case of Consolidation, Merger or Sale of Assets 76 SECTION 12.12 Responsibility of Trustee for Conversion Provisions 77 ARTICLE XIII - SUBORDINATION OF SECURITIES 77 SECTION 13.1 Securities Subordinate to Senior Indebtedness 77 SECTION 13.2 No Payment in Certain Circumstances; Payment Over of Proceeds Upon Dissolution, Etc. 78 SECTION 13.3 Prior Payment to Senior Indebtedness Upon Acceleration of Securities 79 SECTION 13.4 Payment Permitted If No Default 80 SECTION 13.5 Subrogation to Rights of Holders of Senior Indebtedness 80 SECTION 13.6 Provisions Solely to Define Relative Rights 80 SECTION 13.7 Trustee to Effectuate Subordination 81 SECTION 13.8 No Waiver of Subordination Provisions 81 SECTION 13.9 Notice to Trustee 81 SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating Agent 82 SECTION 13.11 Trustee Not Fiduciary for Holders of Senior Indebtedness 82 SECTION 13.12 Reliance by Holders of Senior Indebtedness on Subordination Provisions 82 SECTION 13.13 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights 82 SECTION 13.14 Article Applicable to Paying Agents 83 SECTION 13.15 Certain Conversions and Repurchases Deemed Payment 83 ARTICLE XIV - REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A CHANGE IN CONTROL 83 SECTION 14.1 Right to Require Repurchase 83 SECTION 14.2 Conditions to the Company's Election to Pay the 84 SECTION 14.3 Notices; Method of Exercising Repurchase Right, Etc. 84 SECTION 14.4 Certain Definitions 87 SECTION 14.5 Consolidation, Merger, etc 88 ARTICLE XV - HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY; NON-RECOURSE 89 SECTION 15.1 Company to Furnish Trustee Names and Addresses of Holders 89 SECTION 15.2 Preservation of Information 89 SECTION 15.3 No Recourse Against Others 89 SECTION 15.4 Reports by Trustee 89 SECTION 15.5 Reports by Company 90 ARTICLE XVI - IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS 90 SECTION 16.1 Indenture and Securities Solely Corporate Obligations 90 INDENTURE, dated as of December 15, 1996, between Cirrus Logic, Inc., a corporation duly organized and existing under the laws of the State of California, having its principal office at 3100 West Warren Avenue, Fremont, California 94538 (herein called the "Company"), and State Street Bank and Trust Company, a trust company duly organized and existing under the laws of The Commonwealth of Massachusetts, as Trustee hereunder (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its 6% Convertible Subordinated Notes due December 15, 2003 (herein called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when the Securities are executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. Further, all things necessary to duly authorize the issuance of the Common Stock of the Company issuable upon the conversion of the Securities, and to duly reserve for issuance the number of shares of Common Stock issuable upon such conversion, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION I.1 Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and (3) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder of a Security, has the meaning specified in Section 1.4. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Member" means any member of, or participant in, the Depositary. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of Euroclear and CEDEL, and of the Depositary for such Security, in each case to the extent applicable to such transaction and as in effect from time to time. "Authorized Newspaper" means a newspaper in the English language, customarily published on each Monday, Tuesday, Wednesday, Thursday and Friday, whether or not published on Saturdays, Sundays or holidays, and of general circulation in a Place of Payment. "Authenticating Agent" means any Person authorized pursuant to Section 6.12 to act on behalf of the Trustee to authenticate Securities. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Board Resolution" means a resolution duly adopted by the Board of Directors, a copy of which, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, shall have been delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, Place of Conversion or any other place, as the case may be, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in such Place of Payment, Place of Conversion or other place, as the case may be, are authorized or obligated by law or executive order to close; provided, however, that a day on which banking institutions in San Jose, California, Boston, Massachusetts or New York, New York are authorized or obligated by law or executive order to close shall not be a Business Day for purposes of Section 13.9. "CEDEL" means Cedel Bank, S.A. (or any successor securities clearing agency). "Change in Control" has the meaning specified in Section 14.4(2). "Closing Price Per Share" means, with respect to the Common Stock of the Company, for any day, (i) the closing bid price regular way on the Nasdaq National Market or, (ii) if the Common Stock is not quoted on the Nasdaq National Market, the reported last sales price regular way per share or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or (iii) if the Common Stock is not quoted on the Nasdaq National Market or listed or admitted to trading on any national securities exchange, the average of the closing bid prices in the over- the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. "Code" has the meaning specified in Section 2.1. "Commission" means the United States Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means the Common Stock, no par value per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 12.11, shares issuable on conversion or repurchase of Securities shall include only shares of Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; provided, however, that if at any time there shall be more than one such resulting class, the shares so issuable on conversion of Securities shall include shares of all such classes, and the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "common stock" includes any stock of any class of capital stock which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the issuer thereof and which is not subject to redemption by the issuer thereof. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Notice" has the meaning specified in Section 14.3. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its President or a Vice President, and by its principal financial officer, Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Constituent Person" has the meaning specified in Section 12.11. "Conversion Agent" means any Person authorized by the Company to convert Securities in accordance with Article XII. The Company has initially appointed the Trustee as its Conversion Agent pursuant to Section 10.2 hereof. "Conversion Price" has the meaning specified in Section 14.4(3). "Conversion Rate" has the meaning specified in Section 12.1. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered (which at the date of this Indenture is located at 2 International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Division (Cirrus Logic, Inc. 6% Convertible Subordinated Notes due December 15, 2003). "corporation" means a corporation, company, association, joint-stock company or business trust. "Credit Agreement " means that certain Amended and Restated Multicurrency Credit Agreement, dated as of October 31, 1996, by and among the Company, certain of the Company's subsidiaries, Bank of America National Trust and Savings Association, as Agent and Letter of Credit Issuing Bank, Morgan Guaranty Trust Company of New York and The Bank of Nova Scotia, as Co-Agents, and the other financial institutions party thereto, as arranged by BA Securities, Inc., as amended through the date hereof, as further amended, amended and restated, supplemented or otherwise modified from time to time. "Defaulted Interest" has the meaning specified in Section 3.7. "Depositary" means, with respect to any Registered Securities, a clearing agency that is registered as such under the Exchange Act and is designated by the Company to act as Depositary for such Registered Securities (or any successor securities clearing agency so registered). "Designated Senior Indebtedness" means the Company's obligations under the Credit Agreement and any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes of the Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). "Dollar" or "U.S. $" means a dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts. "DTC" means The Depository Trust Company, a New York corporation. "Euroclear" means the Euroclear Clearance System (or any successor securities clearing agency). "Event of Default" has the meaning specified in Section 5.1. "Exchange Act" means the United States Securities Exchange Act of 1934 (or any successor statute), as amended from time to time. "Exchange Date" means the date and day on which the Restricted Period expires. "Global Security" means a Registered Security that is registered in the Security Register in the name of a Depositary or a nominee thereof. "Holder" means the Person in whose name the Security is registered in the Security Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Initial Purchasers" means Goldman, Sachs & Co., Salomon Brothers Inc, J.P. Morgan Securities Inc. and Robertson, Stephens & Company LLC. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Liquidated Damages" has the meaning specified in Section 10.12. "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, exercise of the repurchase right set forth in Article XIV or otherwise. "Non-electing Share" has the meaning specified in Section 12.11. "Notice of Default" has the meaning specified in Section 5.1. "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the President or a Vice President and by the principal financial officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company and who shall be acceptable to the Trustee. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for the payment or redemption of which money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities, provided that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Securities which have been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (iv) Securities converted into Common Stock pursuant to Article XII; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities are present at a meeting of Holders of Securities for quorum purposes or have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such determination as to the presence of a quorum or upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company and, except as otherwise specifically set forth herein, such term shall include the Company if it shall act as its own Paying Agent. The Company has initially appointed the Trustee as its Paying Agent pursuant to Section 10.2 hereof. "Payment Blockage Notice" has the meaning specified in Section 13.2. "Person" means any individual, corporation, limited liability company, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Place of Conversion" has the meaning specified in Section 3.1. "Place of Payment" has the meaning specified in Section 3.1. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Purchase Agreement" means the Purchase Agreement, dated as of December 12, 1996, between the Company and the Initial Purchasers, as such agreement may be amended from time to time. "Record Date" means any Regular Record Date or Special Record Date. "Record Date Period" means the period from the close of business of any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Registered Security" means any Security issued in substantially the form set forth in Section 2.2 and registered in the Security Register. A Global Security is a Registered Security. "Registration Rights Agreement" has the meaning specified in Section 2.2. "Regular Record Date" for interest payable in respect of any Registered Security on any Interest Payment Date means the June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation D Securities" means the Securities sold by the Initial Purchasers in the initial offering contemplated by the Purchase Agreement in reliance on an exemption from the registration requirements of the Securities Act other than Rule 144A and Regulation S. "Regulation S" means Regulation S under the Securities Act (or any successor provision), as it may be amended from time to time. "Regulation S Certificate" means a certificate substantially in the form set forth in Annex A. "Regulation S Global Security" has the meaning specified in Section 2.1. "Regulation S Legend" means a legend substantially in the form of the legend required in the form of Security set forth in Section 2.2 to be placed upon a Regulation S Global Security. "Regulation S Securities" means all Securities required pursuant to Section 3.5(3) to bear a Regulation S Legend. Such term includes the Regulation S Global Security. "Representative" means the (a) indenture trustee or other trustee, agent or representative for any Senior Indebtedness or (b) with respect to any Senior Indebtedness that does not have any such trustee, agent or other representative, (i) in the case of such Senior Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting with the consent of the required persons necessary to bind such holders or owners of such Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness, the holder or owner of such Senior Indebtedness. "Repurchase Date" has the meaning specified in Section 14.1. "Repurchase Price" has the meaning specified in Section 14.1. "Responsible Officer", when used with respect to the Trustee, means any officer within the Corporate Trust Office of the Trustee and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge and familiarity with the particular subject. "Restricted Global Security" has the meaning specified in Section 2.1. "Restricted Period" means the period of 41 consecutive days beginning on and including the later of (i) the day on which Securities are first offered to persons other than distributors (as defined in Regulation S) in reliance on Regulation S and (ii) the last original issuance date of the Securities. "Restricted Securities" means all Securities required pursuant to Section 3.5(3) to bear any Restricted Securities Legend. Such term includes the Restricted Global Security. "Restricted Securities Certificate" means a certificate substantially in the form set forth in Annex B. "Restricted Securities Legend" means, collectively, the legends substantially in the forms of the legends required in the form of Security set forth in Section 2.2 to be placed upon each Restricted Security. "Rule 144A" means Rule 144A under the Securities Act (or any successor provision), as it may be amended from time to time. "Rule 144A Information" has the meaning specified in Section 10.10. "Rule 144A Securities" means the Securities purchased by the Initial Purchasers from the Company pursuant to the Purchase Agreement and resold by the Initial Purchasers, other than the Regulation D Securities and the Regulation S Securities. "Securities" has the meaning ascribed to it in the first paragraph under the caption "Recitals of the Company". "Securities Act" means the United States Securities Act of 1933 (or any successor statute), as amended from time to time. "Securities Act Legend" means a Restricted Securities Legend or a Regulation S Legend. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.5. "Senior Indebtedness" means the principal of (and premium, if any) and interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) on, and all fees and other amounts payable in connection with, the following, whether absolute or contingent, secured or unsecured, due or to become due, outstanding on the date of the Indenture or thereafter created, incurred or assumed: (a) indebtedness of the Company evidenced by credit or loan agreements, notes, bonds, debentures, or other written obligations, (b) all obligations of the Company for money borrowed, (c) all obligations of the Company evidenced by a note or similar instrument given in connection with the acquisition of any businesses, properties or assets of any kind, (d) obligations of the Company as lessee (i) under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles and (ii) under other leases for facilities, capital equipment and related operating assets, whether or not capitalized, entered into or leased after the date of this Indenture for financing purposes (as determined by the Company), (e) obligations of the Company under interest rate and currency swaps, caps, floors, collars, hedge agreements, forward contracts, or similar agreements or arrangements, (f) all reimbursement obligations of the Company with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of the Company, (g) all obligations of the Company issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable arising in the ordinary course of business), (h) all obligations of the type referred to in clauses (a) through (g) above of another Person and all dividends of another Person, the payment of which, in either case, the Company has assumed or guaranteed, or for which the Company is responsible or liable, directly or indirectly, jointly or severally, as obligor, guarantor or otherwise, or which is secured by a lien on property of the Company, and (i) renewals, extensions, modifications, replacements, restatements and refundings of, or any indebtedness or obligation issued in exchange for, any such indebtedness or obligation described in clauses (a) through (h) of this paragraph; provided, however, that Senior Indebtedness shall not include the Securities or any such indebtedness or obligation if the terms of such indebtedness or obligation (or the terms of the instrument under which, or pursuant to which it is issued) expressly provides that such indebtedness or obligation is not superior in right of payment to the Securities. "Shelf Registration Statement" has the meaning specified in Section 10.12. "Significant Subsidiary" means, with respect to any Person, a Subsidiary of such Person that would constitute a "significant subsidiary" as such term is defined under Rule 1-02 of Regulation S-X of the Commission. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Company pursuant to Section 3.7. "Stated Maturity", when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock or other similar interests in the corporation which ordinarily has or have voting power for the election of directors, or persons performing similar functions, whether at all times or only so long as no senior class of stock or other interests has or have such voting power by reason of any contingency. "Successor Security" of any particular Security means every Security issued after, and evidencing all or a portion of the same debt as that evidenced by, such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Surrender Certificate" means a certificate substantially in the form set forth in Annex D. "Trading Days" means (i) if the Common Stock is quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, days on which trades may be effected through such system; (ii) if the Common Stock is listed or admitted for trading on any national securities exchange, days on which such national securities exchange is open for business; or (iii) if the Common Stock is not listed or admitted for trading on any national securities exchange or quoted on the Nasdaq National Market or any other system of automated dissemination of quotation of securities prices, days on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "United States" means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction (its "possessions" including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands). "Unrestricted Securities Certificate" means a certificate substantially in the form set forth in Annex C. "Vice President", when used with respect to the Company, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". SECTION I.2 Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (including certificates provided for in Section 10.9) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION I.3 Form of Documents Delivered to the Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or any other Person stating that the information with respect to such factual matters is in the possession of the Company or such other Person, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION I.4 Acts of Holders of Securities. (1) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders of Securities may be embodied in and evidenced by (A) one or more instruments of substantially similar tenor signed by such Holders in person or by an agent or proxy duly appointed in writing by such Holders or (B) the record of Holders of Securities voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities duly called and held in accordance with the provisions of Article IX. Such action shall become effective when such instrument or instruments or record is delivered to the Trustee and, where it is hereby expressly required, to the Company. The Trustee shall promptly deliver to the Company copies of all such instruments and records delivered to the Trustee. Such instrument or instruments and record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders of Securities signing such instrument or instruments and so voting at such meeting. Proof of execution of any such instrument or of a writing appointing any such agent or proxy, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 9.6. (2) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. (3) The principal amount and serial number of any Registered Security held by any Person, and the date of his holding the same, shall be proved by the Security Register. (4) The fact and date of execution of any such instrument or writing and the authority of the Person executing the same may also be proved in any other manner which the Trustee deems sufficient; and the Trustee may in any instance require further proof with respect to any of the matters referred to in this Section 1.4. (5) The Company may set any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted by this Indenture to be given or taken by Holders. Promptly and in any case not later than ten days after setting a record date, the Company shall notify the Trustee and the Holders of such record date. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 15.1) prior to such first solicitation or vote, as the case may be. With regard to any record date, the Holders on such date (or their duly appointed agents or proxies), and only such Persons, shall be entitled to give or take, or vote on, the relevant action, whether or not such Holders remain Holders after such record date. Notwithstanding the foregoing, the Company shall not set a record date for, and the provisions of this paragraph shall not apply with respect to, any notice, declaration or direction referred to in the next paragraph. Upon receipt by the Trustee from any Holder of (i) any notice of default or breach referred to in Section 5.1(4), if such default or breach has occurred and is continuing and the Trustee shall not have given such a notice to the Company, (ii) any declaration of acceleration referred to in Section 5.2, if an Event of Default has occurred and is continuing and the Trustee shall not have given such a declaration to the Company, or (iii) any direction referred to in Section 5.12, if the Trustee shall not have taken the action specified in such direction, then, with respect to clauses (ii) and (iii), a record date shall automatically and without any action by the Company or the Trustee be set for determining the Holders entitled to join in such declaration or direction, which record date shall be the close of business on the tenth day (or, if such day is not a Business Day, the first Business Day thereafter) following the day on which the Trustee receives such declaration or direction, and, with respect to clause (i), the Trustee may set any day as a record date for the purpose of determining the Holders entitled to join in such notice of default. Promptly after such receipt by the Trustee of any such declaration or direction referred to in clause (ii) or (iii), and promptly after setting any record date with respect to clause (i), and as soon as practicable thereafter, the Trustee shall notify the Company and the Holders of any such record date so fixed. The Holders on such record date (or their duly appointed agents or proxies), and only such Persons, shall be entitled to join in such notice, declaration or direction, whether or not such Holders remain Holders after such record date; provided that, unless such notice, declaration or direction shall have become effective by virtue of Holders of the requisite principal amount of Securities on such record date (or their duly appointed agents or proxies) having joined therein on or prior to the 90th day after such record date, such notice, declaration or direction shall automatically and without any action by any Person be canceled and of no further effect. Nothing in this paragraph shall be construed to prevent a Holder (or a duly appointed agent or proxy thereof) from giving, before or after the expiration of such 90-day period, a notice, declaration or direction contrary to or different from, or, after the expiration of such period, identical to, the notice, declaration or direction to which such record date relates, in which event a new record date in respect thereof shall be set pursuant to this paragraph. In addition, nothing in this paragraph shall be construed to render ineffective any notice, declaration or direction of the type referred to in this paragraph given at any time to the Trustee and the Company by Holders (or their duly appointed agents or proxies) of the requisite principal amount of Securities on the date such notice, declaration or direction is so given. (6) Except as provided in Sections 5.12 and 5.13, any request, demand, authorization, direction, notice, consent, election, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (7) The provisions of this Section 1.4 are subject to the provisions of Section 9.5. SECTION I.5 Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, election, waiver or other Act of Holders of Securities or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder of Securities or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee and received at its Corporate Trust Office, Attention: Corporate Trust Department. (Cirrus Logic, Inc. 6% Convertible Subordinated Notes due December 15, 2003). (2) the Company by the Trustee or by any Holder of Securities shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing, mailed, first-class postage prepaid, or telecopied and confirmed by mail, first-class postage prepaid, or delivered by hand or overnight courier, addressed to the Company at 3100 West Warren Avenue, Fremont, California, 94538, Attention: Chief Financial Officer, or at any other address previously furnished in writing to the Trustee by the Company. Any request, demand, authorization, direction, notice, consent, election or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. SECTION I.6 Notice to Holders of Securities; Waiver. Except as otherwise expressly provided herein, where this Indenture provides for notice to Holders of Securities of any event, such notice shall be sufficiently given to Holders if in writing and mailed, first-class postage prepaid, to each Holder of a Security affected by such event, at the address of such Holder as it appears in the Security Register, not earlier than the earliest date and not later than the latest date prescribed for the giving of such notice. Neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Registered Security shall affect the sufficiency of such notice with respect to other Holders of Registered Securities. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification to Holders of Registered Securities as shall be made with the approval of the Trustee, which approval shall not be unreasonably withheld, shall constitute a sufficient notification to such Holders for every purpose hereunder. Such notice shall be deemed to have been given when such notice is mailed. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders of Securities shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION I.7 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION I.8 Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION I.9 Separability Clause. In case any provision in this Indenture or the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION I.10 Benefits of Indenture. Except as provided in the next sentence, nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors and assigns hereunder and the Holders of Securities, any benefit or legal or equitable right, remedy or claim under this Indenture. The provisions of Article XIII are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness. SECTION I.11 Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA. SECTION I.12 Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Repurchase Date or Stated Maturity of any Security or the last day on which a Holder of a Security has a right to convert his Security shall not be a Business Day at a Place of Payment or Place of Conversion, as the case may be, then (notwithstanding any other provision of this Indenture or of the Securities) payment of principal of, premium, if any, or interest on, or the payment of the Repurchase Price (whether the same is payable in cash or in shares of Common Stock) with respect to, or delivery for conversion of, such Security need not be made at such Place of Payment or Place of Conversion, as the case may be, on or by such day, but may be made on or by the next succeeding Business Day at such Place of Payment or Place of Conversion, as the case may be, with the same force and effect as if made on the Interest Payment Date, Redemption Date or Repurchase Date, or at the Stated Maturity or by such last day for conversion; provided, however, that in the case that payment is made on such succeeding Business Day, no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date, Repurchase Date, Stated Maturity or last day for conversion, as the case may be. SECTION I.13 Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Until such time as this Indenture shall be qualified under the Trust Indenture Act, this Indenture, the Company and the Trustee shall be deemed for all purposes hereof to be subject to and governed by the Trust Indenture Act to the same extent as would be the case if this Indenture were so qualified on the date hereof. ARTICLE II SECURITY FORMS SECTION II.1 Form Generally. The Securities shall be in substantially the form set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange, the Internal Revenue Code of 1986, as amended, and regulations thereunder (the "Code"), or as may, consistent herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. All Securities shall be Registered Securities. The Trustee's certificates of authentication shall be in substantially the form set forth in Section 2.3. Conversion notices shall be in substantially the form set forth in Section 2.4. Repurchase notices shall be substantially in the form set forth in Section 2.2. The Securities shall be printed, lithographed, typewritten or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any automated quotation system or securities exchange (including on steel engraved borders if so required by any securities exchange upon which the Securities may be listed) on which the Securities may be quoted or listed, as the case may be, all as determined by the officers executing such Securities, as evidenced by their execution thereof. Upon their original issuance, Rule 144A Securities shall be issued in the form of one or more Global Securities without interest coupons and shall be registered in the name of DTC, as Depositary, or its nominee and deposited with the Trustee, as custodian for DTC, for credit by DTC to the respective accounts of beneficial owners of the Securities represented thereby (or such other accounts as they may direct). Such Global Security, together with its Successor Securities which are Global Securities other than the Regulation S Global Security, are collectively herein called the "Restricted Global Security". Upon their original issuance, Regulation S Securities shall be issued in the form of one or more Global Securities without interest coupons and shall be registered in the name of DTC, as Depositary, or its nominee and deposited with the Trustee, as custodian for DTC for credit to the respective accounts at DTC of the depositaries for Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear, or CEDEL. Such Global Security, together with its Successor Securities which are Global Securities other than the Restricted Global Security, are collectively herein called the "Regulation S Global Security". Upon their original issuance, Regulation D Securities shall be issued as Registered Securities but not in the form of a Global Security or in any other form intended to facilitate book-entry trading in beneficial interests in such Securities. SECTION II.2 Form of Security. [FORM OF FACE] [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH RESTRICTED SECURITY OTHER THAN ANY RESTRICTED GLOBAL SECURITY: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL INVESTOR (I) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (III) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (B) BY SUBSEQUENT INVESTORS AS SET FORTH IN (A) ABOVE OR TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND IN EACH OF CASES (A) OR (B) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED STATES.] [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH RESTRICTED GLOBAL SECURITY: THE SECURITIES EVIDENCED BY THIS GLOBAL SECURITY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND SUCH SECURITIES AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THEIR CONVERSION MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL INVESTOR (I) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (III) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (B) BY SUBSEQUENT INVESTORS AS SET FORTH IN (A) ABOVE OR TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND IN EACH OF CASES (A) OR (B) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED STATES.] [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH GLOBAL SECURITY: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.] [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH GLOBAL SECURITY FOR WHICH THE DEPOSITORY TRUST COMPANY IS TO BE THE DEPOSITARY: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN THE INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.] [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH REGULATION S GLOBAL SECURITY: THE SECURITIES EVIDENCED BY THIS GLOBAL SECURITY (OR ITS PREDECESSOR) WERE ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES LAWS. TERMS USED ABOVE HAVE THE MEANINGS GIVEN THEM IN REGULATION S UNDER THE SECURITIES ACT.] CIRRUS LOGIC, INC. 6% CONVERTIBLE SUBORDINATED NOTE DUE DECEMBER 15, 2003 No. _____________ U.S. $ _____ [IF RESTRICTED GLOBAL SECURITY - CUSIP NO. 172755AA8] [IF REGULATION S GLOBAL SECURITY - CUSIP NO. U1717DAA8] [IF REGULATION D SECURITY - CUSIP NO. 172755AB6] CIRRUS LOGIC, INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor Person under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to _______________, or registered assigns, the principal sum of _____________ United States Dollars (U.S.$ _____) [if this Security is a Global Security, then insert -- (which principal amount may from time to time be increased or decreased to such other principal amounts (which, taken together with the principal amounts of all other Outstanding Securities, shall not exceed $300,000,000 in the aggregate at any time) by adjustments made on the records of the Trustee hereinafter referred to in accordance with the Indenture)] on December 15, 2003 and to pay interest thereon, from December 18, 1996, or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, semi-annually in arrears on June 15 and December 15 in each year (each, an "Interest Payment Date"), commencing June 15, 1997, at the rate of 6% per annum, until the principal hereof is due, and at the rate of 6% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Except as otherwise provided in the Indenture, any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Company, notice whereof shall be given to Holders of Registered Securities not less than 10 days prior to the Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any automated quotation system or securities exchange on which the Securities may be quoted or listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payments of principal shall be made upon the surrender of this Security at the option of the Holder at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company as may be designated by it for such purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, or at such other offices or agencies as the Company may designate, by United States Dollar check drawn on, or transfer to, a United States Dollar account (such a transfer to be made only to a Holder of an aggregate principal amount of Registered Securities in excess of U.S.$2,000,000, and only if such Holder shall have furnished wire instructions in writing to the Trustee no later than 15 days prior to the relevant payment date). Payment of interest on this Security may be made by United States Dollar check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register, or, upon written application by the Holder to the Security Registrar setting forth wire instructions not later than the relevant Record Date, by transfer to a United States Dollar account (such a transfer to be made only to a Holder of an aggregate principal amount of Registered Securities in excess of U.S.$2,000,000 and only if such Holder shall have furnished wire instructions in writing to the Trustee no later than 15 days prior to the relevant payment date). Except as specifically provided herein and in the Indenture, the Company shall not be required to make any payment with respect to any tax, assessment or other governmental charge imposed by any government or any political subdivision or taxing authority thereof or therein. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof or an Authenticating Agent by the manual signature of one of their respective authorized signatories, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this Security to be duly executed under its corporate seal. Dated: [Date of Authentication] CIRRUS LOGIC, INC. [Corporate Seal] By: Name: Title: Attest: Name: Title: [FORM OF REVERSE] This Security is one of a duly authorized issue of securities of the Company designated as its "6% Convertible Subordinated Notes due December 15, 2003" (herein called the "Securities"), limited in aggregate principal amount to U.S. $300,000,000, issued and to be issued under an Indenture, dated as of December 15, 1996 (herein called the "Indenture"), between the Company and State Street Bank and Trust Company, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Indebtedness and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. As provided in the Indenture and subject to certain limitations therein set forth, Registered Securities are exchangeable for a like aggregate principal amount of Registered Securities of any authorized denominations as requested by the Holder surrendering the same upon surrender of the Registered Security or Registered Securities to be exchanged, at the Corporate Trust Office of the Trustee. The Trustee upon such surrender by the Holder will issue the new Registered Securities in the requested denominations. No sinking fund is provided for the Securities. The Securities are subject to redemption at the option of the Company at any time on or after December 16, 1999, in whole or in part, upon not less than 20 nor more than 60 days' notice to the Holders prior to the Redemption Date at the following Redemption Prices (expressed as percentages of the principal amount) for the twelve-month period beginning on December 15 of the following years (or December 16, in the case of 1999): Year Redemption Price 1999 103.429 % 2000 102.571 2001 101.714 2002 100.857 and thereafter at a Redemption Price equal to 100% of the principal amount, together, in each case, with accrued interest to the Redemption Date; provided, however, that interest installments on Registered Securities whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. In the event of a redemption of the Securities, the Company will not be required (a) to register the transfer or exchange of Registered Securities for a period of 15 days immediately preceding the date notice is given identifying the serial numbers of the Securities called for such redemption or (b) to register the transfer or exchange of any Registered Security, or portion thereof, called for redemption. Notice to the Holders will be given not less than 20 nor more than 60 days prior to the Redemption Date as provided in the Indenture. In any case where the due date for the payment of the principal of, premium, if any, interest, or Liquidated Damages on any Security or the last day on which a Holder of a Security has a right to convert his Security shall be, at any Place of Payment or Place of Conversion, as the case may be, a day on which banking institutions at such Place of Payment or Place of Conversion are authorized or obligated by law or executive order to close, then payment of principal, premium, if any, interest, or Liquidated Damages, or delivery for conversion of such Security need not be made on or by such date at such place but may be made on or by the next succeeding day at such place which is not a day on which banking institutions are authorized or obligated by law or executive order to close, with the same force and effect as if made on the date for such payment or the date fixed for redemption or repurchase, or by such last day for conversion, and no interest shall accrue on the amount so payable for the period after such date. Subject to and upon compliance with the provisions of the Indenture, the Holder of this Security is entitled, at his option, at any time on or after the 90th day following the last original issue date of the Securities and on or before the close of business on December 15, 2003, or in case this Security or a portion hereof is called for redemption or the Holder hereof has exercised his right to require the Company to repurchase this Security or such portion hereof, then in respect of this Security until and including, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the Business Day prior to the Redemption Date or the Repurchase Date, as the case may be, to convert this Security (or any portion of the principal amount hereof that is an integral multiple of U.S.$1,000, provided that the unconverted portion of such principal amount is U.S.$1,000 or any integral multiple of U.S.$1,000 in excess thereof) into fully paid and nonassessable shares of Common Stock of the Company at an initial Conversion Rate of 41.2903 shares of Common Stock for each U.S. $1,000 principal amount of Securities (or at the current adjusted Conversion Rate if an adjustment has been made as provided in the Indenture) by surrender of this Security, duly endorsed or assigned to the Company or in blank and, in case such surrender shall be made during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (except if this Security or portion thereof has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date occurring, in either case, during such period and is surrendered for such conversion during such period (including any Securities or portions thereof called for redemption on a Redemption Date or submitted for repurchase on a Repurchase Date that is a Regular Record Date or an Interest Payment Date, as the case may be)), also accompanied by payment in New York Clearing House or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted, and also the conversion notice hereon duly executed, to the Company at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company, subject to any laws or regulations applicable thereto and subject to the right of the Company to terminate the appointment of any Conversion Agent (as defined below) as may be designated by it for such purpose in the Borough of Manhattan, The City of New York, or at such other offices or agencies as the Company may designate (each a "Conversion Agent"), provided, further, that if this Security or portion hereof has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date occurring, in either case, during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such succeeding Interest Payment Date (including any Securities or portions thereof called for redemption on a Redemption Date or submitted for repurchase on a Repurchase Date that is a Regular Record Date or an Interest Payment Date, as the case may be) and is surrendered for conversion during such period (or on the last Business Day prior to the Regular Record Date or Interest Payment Date in case of any Security (or portion thereof) called for redemption on a Redemption Date or submitted for repurchase on a Repurchase Date on a Regular Record Date or Interest Payment Date, as the case may be), then the Holder of this Security who converts this Security or a portion hereof during such period will be entitled to receive the interest accruing hereon from the Interest Payment Date next preceding the date of such conversion to such succeeding Interest Payment Date and shall not be required to pay such interest upon surrender of this Security for conversion. Subject to the provisions of the preceding sentence and, in the case of a conversion after the close of business on the Regular Record Date next preceding any Interest Payment Date and on or before the close of business on such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security of record as of such Regular Record Date) to receive the related installment of interest to the extent and under the circumstances provided in the Indenture, no cash payment or adjustment is to be made on conversion for interest accrued hereon from the Interest Payment Date next preceding the day of conversion, or for dividends on the Common Stock issued on conversion hereof. The Company shall thereafter deliver to the Holder the fixed number of shares of Common Stock (together with any cash adjustment, as provided in the Indenture) into which this Security is convertible and such delivery will be deemed to satisfy the Company's obligation to pay the principal amount of this Security. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest (calculated to the nearest 1/100th of a share) the Company shall pay a cash adjustment as provided in the Indenture. The Conversion Rate is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations or mergers to which the Company is a party (other than a consolidation or merger that does not result in any reclassification, conversion, exchange or cancellation of the Common Stock) or the conveyance, transfer, sale or lease of all or substantially all of the property and assets of the Company, the Indenture shall be amended, without the consent of any Holders of Securities, so that this Security, if then Outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of the number of shares of Common Stock of the Company into which this Security could have been converted immediately prior to such consolidation, merger, conveyance, transfer, sale or lease (assuming such holder of Common Stock is not a Constituent Person, failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of Non-electing Shares and further assuming, if such consolidation, merger, conveyance, transfer, sale or lease occurs prior to 90 days following the last original issue date of the Securities, that the Security was convertible at the time of such occurrence at the Conversion Rate specified above as adjusted from the issue date of such Security to such time as provided in the Indenture). No adjustment in the Conversion Rate will be made until such adjustment would require an increase or decrease of at least one percent of such rate, provided that any adjustment that would otherwise be made will be carried forward and taken into account in the computation of any subsequent adjustment. Subject to certain limitations in the Indenture, at any time when the Company is not subject to Section 13 or 15(d) of the United States Securities Exchange Act of 1934, as amended, upon the request of a Holder of a Restricted Security or the holder of shares of Common Stock issued upon conversion thereof, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder of Restricted Securities or such holder of shares of Common Stock issued upon conversion of Restricted Securities, or to a prospective purchaser of any such security designated by any such Holder or holder, as the case may be, to the extent required to permit compliance by such Holder or holder with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), in connection with the resale of any such security. "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto). If this Security is a Registrable Security, then the Holder of this Security [if this Security is a Global Security, then insert -- (including any Person that has a beneficial interest in this Security)] and the Common Stock of the Company issuable upon conversion hereof is entitled to the benefits of a Registration Rights Agreement (subject to the provisions thereof), dated as of December 18, 1996, executed by the Company (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, the Company has agreed for the benefit of the Holders from time to time of the Registrable Securities (as defined in the Indenture) that it will, at its expense, (a) within 90 days after December 18, 1996 (the "Issue Date") of the Securities, file a shelf registration statement (the "Shelf Registration Statement") with the Commission with respect to resales of the Registerable Securities, (b) use its reasonable efforts to cause such Shelf Registration Statement to be declared effective by the Commission within 180 days after the Issue Date of the Securities, and (c) use its reasonable efforts to maintain such Shelf Registration Statement effective under the Securities Act of 1933, as amended, until the third annual anniversary of the Issue Date or such earlier date as is provided in the Registration Rights Agreement (the "Effectiveness Period"). The Company will be permitted to suspend the use of the prospectus which is part of the Shelf Registration Statement during certain periods of time as provided in the Registration Rights Agreement. If (i) on or prior to 90 days following the Issue Date of the Securities, a Shelf Registration Statement has not been filed with the Commission, or (ii) on or prior to the 180th day following the Issue Date of the Securities, such Shelf Registration Statement is not declared effective (each, a "Registration Default"), additional interest ("Liquidated Damages") will accrue on this Restricted Security from and including the day following such Registration Default to but excluding the day on which such Registration Default has been cured. Liquidated Damages will be paid semi-annually in arrears, with the first semi-annual payment due on the first Interest Payment Date in respect of the Restricted Securities following the date on which such Liquidated Damages begin to accrue, and will accrue at a rate per annum equal to an additional one-quarter of one percent (0.25%) of the principal amount of the Restricted Securities to and including the 90th day following such Registration Default and at a rate per annum equal to one-half of one percent (0.50%) thereof from and after the 91st day following such Registration Default. Pursuant to the Registration Rights Agreement, in the event that the Shelf Registration Statement ceases to be effective during the Effectiveness Period for more than 90 days or the Company suspends the use of the prospectus which is a part thereof for more than 90 days, whether or not consecutive, during any 12-month period, then the interest rate borne by the Restricted Securities shall increase by an additional one- half of one percent (0.50%) per annum from the 91st day of the applicable 12-month period such Shelf Registration Statement ceases to be effective or such prospectus continues to be suspended to but excluding the day on which (i) the Shelf Registration Statement again becomes effective, (ii) the use of the related prospectus ceases to be suspended or (iii) the Effectiveness Period expires. Whenever in this Security there is a reference, in any context, to the payment of the principal of, premium, if any, or interest on, or in respect of, any Security, such mention shall be deemed to include mention of the payment of Liquidated Damages payable as described in the preceding paragraph to the extent that, in such context, Liquidated Damages are, were or would be payable in respect of such Security and express mention of the payment of Liquidated Damages (if applicable) in any provisions of this Security shall not be construed as excluding Liquidated Damages in those provisions of this Security where such express mention is not made. [If this Security is a Registrable Security and the Holder of this Security [if this Security is a Global Security, then insert-- (including any Person that has a beneficial interest in this Security)] elects to sell this Security pursuant to the Shelf Registration Statement then, by its acceptance hereof, such Holder of this Security agrees to be bound by the terms of the Registration Rights Agreement relating to the Registrable Securities which are the subject of such election.] If a Change in Control occurs, the Holder of this Security, at the Holder's option, shall have the right, in accordance with the provisions of the Indenture, to require the Company to repurchase this Security (or any portion of the principal amount hereof that is an integral multiple of $1,000, provided that the portion of the principal amount of this Security to be Outstanding after such repurchase is at least equal to U.S.$1,000) for cash at a Repurchase Price equal to 100% of the principal amount thereof plus interest accrued to the Repurchase Date. At the option of the Company, the Repurchase Price may be paid in cash or, subject to the conditions provided in the Indenture, by delivery of shares of Common Stock having a fair market value equal to the Repurchase Price. For purposes of this paragraph, the fair market value of shares of Common Stock shall be determined by the Company and shall be equal to 95% of the average of the Closing Prices Per Share for the five consecutive Trading Days immediately preceding the second Trading Day prior to the Repurchase Date. Whenever in this Security there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Security shall not be construed as excluding the Repurchase Price so payable in those provisions of this Security when such express mention is not made; provided, however, that, for the purposes of the second succeeding paragraph, such reference shall be deemed to include reference to the Repurchase Price only to the extent the Repurchase Price is payable in cash. [The following paragraph shall appear in each Registered Security that is not a Global Security: In the event of redemption, repurchase or conversion of this Security in part only, a new Registered Security or Registered Securities for the unredeemed, unrepurchased or unconverted portion hereof will be issued in the name of the Holder hereof.] [The following paragraph shall appear in each Global Security: In the event of a deposit or withdrawal of an interest in this Security, including an exchange, transfer, redemption, repurchase or conversion of this Security in part only, the Trustee, as custodian of the Depositary, shall make an adjustment on its records to reflect such deposit or withdrawal in accordance with the Applicable Procedures.] The indebtedness evidenced by this Security is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company, and this Security is issued subject to such provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. If an Event of Default shall occur and be continuing, the principal of all the Securities, together with accrued interest to the date of declaration, may be declared due and payable in the manner and with the effect provided in the Indenture. Upon payment (i) of the amount of principal so declared due and payable, together with accrued interest to the date of declaration, and (ii) of interest on any overdue principal and, to the extent permitted by applicable law, overdue interest, all of the Company's obligations in respect of the payment of the principal of and interest on the Securities shall terminate. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with either (a) the written consent of the Holders of a majority in principal amount of the Securities at the time Outstanding, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the lesser of (i) the Holders of not less than a majority in principal amount of Outstanding Securities and (ii) the Holders of 66-2/3% in principal amount of the Outstanding Securities represented and entitled to vote at such meeting. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security or such other Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default, the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of the Securities Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof, premium, if any, or interest (including Liquidated Damages) or additional interest hereon on or after the respective due dates expressed herein or for the enforcement of the right to convert this Security as provided in the Indenture. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest (including Liquidated Damages) and additional interest on this Security at the times, places and rate, and in the coin or currency, herein prescribed or to convert this Security as provided in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of Registered Securities is registrable on the Security Register upon surrender of a Registered Security for registration of transfer at the Corporate Trust Office of the Trustee or at such other office or agency of the Company as may be designated by it for such purpose in the Borough of Manhattan, The City of New York (which shall initially be an office or agency of the Trustee), or at such other offices or agencies as the Company may designate, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing, and thereupon one or more new Registered Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees by the Registrar. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to recover any tax or other governmental charge payable in connection therewith. Prior to due presentation of a Registered Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Registered Security is registered, as the owner thereof for all purposes, whether or not such Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse for the payment of the principal (and premium, if any) or interest on this Security and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of consideration for the issue hereof, expressly waived and released. The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York, United States of America. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Security, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - TEN ENT - as tenants by the entireties (Cust) JT TEN - as joint tenants with right of Custodian ____ under Uniform survivorship and not as tenants (Minor) in common Gifts to Minors Act ________ (State) Additional abbreviations may also be used though not in the above list. ELECTION OF HOLDER TO REQUIRE REPURCHASE (1) Pursuant to Section 14.1 of the Indenture, the undersigned hereby elects to have this Security repurchased by the Company. (2) The undersigned hereby directs the Trustee or the Company to pay it or __________________ an amount in cash or, at the Company's election, Common Stock valued as set forth in the Indenture, equal to 100% of the principal amount to be repurchased (as set forth below), plus interest accrued to the Repurchase Date, as provided in the Indenture. Dated: Signature(s) Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1943. Signature Guaranteed Principal amount to be repurchased (an integral multiple of U.S. $1,000): Remaining principal amount following such repurchase (not less than U.S. $1,000): NOTICE: The signature to the foregoing Election must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. SECTION II.3 Form of Certificate of Authentication. The Trustee's certificate of authentication shall be in substantially the following form: This is one of the Securities referred to in the within- mentioned Indenture. STATE STREET BANK AND TRUST COMPANY as Trustee By: Authorized Signatory SECTION II.4 Form of Conversion Notice. CONVERSION NOTICE The undersigned Holder of this Security hereby irrevocably exercises the option to convert this Security, or any portion of the principal amount hereof (which is an integral multiple of U.S. $1,000, provided that the unconverted portion of such principal amount is U.S. $1,000 or any integral multiple of U.S. $1,000 in excess thereof) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that such shares, together with a check in payment for any fractional share and any Securities representing any unconverted principal amount hereof, be delivered to and be registered in the name of the undersigned unless a different name has been indicated below. If shares of Common Stock or Securities are to be registered in the name of a Person other than the undersigned, (a) the undersigned will pay all transfer taxes payable with respect thereto and (b) signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. Any amount required to be paid by the undersigned on account of interest accompanies this Security. Dated: Signature(s) If shares or Registered Securities are to be registered in the name of a Person other than the Holder, please print such Person's name and address: Name Address Social Security or other Taxpayer Identificati on Number, if any If only a portion of the Securities is to be converted, please indicate: 1. Principal amount to be converted: U.S. $___________ 2. Principal amount and denomination of Registered Securities representing unconverted principal amount to be issued: Amount: U.S. $ Denominat ions: U.S. $ (any integral multiple of U.S. $1,000, provided that the unconverte d portion of such principal amount is U.S. $1,000 or any integral multiple of U.S. $1,000 in excess thereof) [Signature Guaranteed] SECTION 2.5 Form of Assignment. For value received hereby sell(s), assign(s) and transfer(s) unto (Please insert social security or other identifying number of assignee) the within Security, and hereby irrevocably constitutes and appoints as attorney to transfer the said Security on the books of the Company, with full power of substitution in the premises. Dated: Signature(s) Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad- 15 under the Securities Exchange Act of 1934. ARTICLE III THE SECURITIES SECTION III.1 Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to U.S. $300,000,000, except for Securities authenticated and delivered in exchange for, or in lieu of, other Securities pursuant to Section 3.4, 3.5, 3.6, 8.5, 11.8, 12.2 or 14.3(6). The Securities shall be known and designated as the "6% Convertible Subordinated Notes due December 15, 2003" of the Company. Their Stated Maturity shall be December 15, 2003 and they shall bear interest on their principal amount from December 18, 1996, payable semi-annually in arrears on June 15 and December 15 in each year, commencing June 15, 1997, at the rate of 6% per annum until the principal thereof is due and at the rate of 6% per annum on any overdue principal and, to the extent permitted by law, on any overdue interest; provided, however, that payments shall only be made on a Business Day as provided in Section 1.12. The principal of, premium, if any, and interest on the Securities shall be payable as provided in the form of Securities set forth in Section 2.2, and the Repurchase Price, whether payable in cash or in shares of Common Stock, shall be payable at such places as are identified in the Company Notice given pursuant to Section 14.3 (any city in which any Paying Agent is located being herein called a "Place of Payment"). The Registrable Securities are entitled to the benefits of a Registration Rights Agreement as provided by Sections 2.2 and 10.12. The Securities are entitled to the payment of Liquidated Damages and additional interest as provided by Section 10.12. The Securities shall be redeemable at the option of the Company at any time on or after December 16, 1999, in whole or in part, as provided in Article XI and in the form of Securities set forth in Section 2.2. The Securities shall be convertible as provided in Article XII (any city in which any Conversion Agent is located being herein called a "Place of Conversion"). The Securities shall be subordinated in right of payment to Senior Indebtedness of the Company as provided in Article XIII. The Securities shall be subject to repurchase by the Company at the option of the Holders as provided in Article XIV. SECTION III.2 Denominations. The Securities shall be issuable only in registered form, without coupons, in denominations of U.S. $1,000 and integral multiples of U.S. $1,000 in excess thereof. SECTION III.3 Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its President or one of its Vice Presidents, under a facsimile of its corporate seal reproduced thereon attested by its Chief Financial Officer, Secretary or one of its Assistant Secretaries. Any such signature may be manual or facsimile. Securities bearing the manual or facsimile signature of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee or to its order for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and make available for delivery such Securities as in this Indenture provided and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. SECTION III.4 Global Securities; Non-Global Securities. (1) Global Securities (i) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated by the Company for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (ii) Subject to the provisions of Sections 3.4 and 3.5, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered as such under the Exchange Act or announces an intention permanently to cease business or does in fact do so or (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security. (iii) If any Global Security is to be exchanged for other Securities or canceled in whole, it shall be surrendered by or on behalf of the Depositary or its nominee to the Trustee, as Security Registrar, for exchange or cancellation, as provided in this Article III. If any Global Security is to be exchanged for other Securities or canceled in part, or if another Security is to be exchanged in whole or in part for a beneficial interest in any Global Security, in each case, as provided in Section 3.5, then either (A) such Global Security shall be so surrendered for exchange or cancellation, as provided in this Article III, or (B) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or canceled, or equal to the principal amount of such other Security to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate adjustment made on the records of the Trustee, as Security Registrar, whereupon the Trustee, in accordance with the Applicable Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon any such surrender or adjustment of a Global Security, the Trustee shall, subject to Section 3.5(3) and as otherwise provided in this Article III, authenticate and deliver any Securities issuable in exchange for such Global Security (or any portion thereof) to or upon the order of, and registered in such names as may be directed by, the Depositary or its authorized representative. Upon the request of the Trustee in connection with the occurrence of any of the events specified in the preceding paragraph, the Company shall promptly make available to the Trustee a reasonable supply of Securities that are not in the form of Global Securities. The Trustee shall be entitled to rely upon any order, direction or request of the Depositary or its authorized representative which is given or made pursuant to this Article III if such order, direction or request is given or made in accordance with the Applicable Procedures. (iv) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Article III or otherwise, shall be authenticated and delivered in the form of, and shall be, a registered Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof, in which case such Registered Security shall be authenticated and delivered in definitive, fully registered form, without interest coupons. (v) The Depositary or its nominee, as registered owner of a Global Security, shall be the Holder of such Global Security for all purposes under the Indenture and the Registered Securities, and owners of beneficial interests in a Global Security shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner's beneficial interest in a Global Security will be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Agent Members and such owners of beneficial interests in a Global Security will not be considered the owners or holders thereof. (2) Non-Global Securities Regulation D Securities shall be initially issued as Registered Securities in definitive, fully registered form, without interest coupons, shall initially be registered in such names and be in such authorized denominations as the Initial Purchasers shall designate and shall bear the legends required hereunder. The Company will make available to the Trustee a reasonable supply of Registered Securities in definitive form. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and make available for delivery, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Registered Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Registered Securities may determine, as evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 10.2, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION III.5 Registration, Registration of Transfer and Exchange; Restrictions on Transfer. (1) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Registered Securities and of transfers of Registered Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Registered Securities and transfers and exchanges of Registered Securities as herein provided. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.2 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. At the option of the Holder, and subject to the other provisions of this Section 3.5, Securities may be exchanged for other Securities of any authorized denomination and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at any such office or agency. Whenever any Securities are so surrendered for exchange, and subject to the other provisions of this Section 3.5, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and subject to the other provisions of this Section 3.5, entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. No service charge shall be made to a Holder for any registration of transfer or exchange of Securities except as provided in Section 3.6, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 8.5, 11.8, 12.2 or 14.3 (other than where the shares of Common Stock are to be issued or delivered in a name other than that of the Holder of the Security) not involving any transfer and other than any stamp and other duties, if any, which may be imposed in connection with any such transfer or exchange by the United States or any political subdivision thereof or therein, which shall be paid by the Company. In the event of a redemption of the Securities, the Company will not be required (a) to register the transfer of or exchange Securities for a period of 15 days immediately preceding the date notice is given identifying the serial numbers of the Securities called for such redemption or (b) to register the transfer of or exchange any Security, or portion thereof, called for redemption. (2) Certain Transfers and Exchanges. Notwithstanding any other provision of this Indenture or the Securities, transfers and exchanges of Securities and beneficial interests in a Global Security of the kinds specified in this Section 3.5(2) shall be made only in accordance with this Section 3.5(2). (i) Restricted Global Security to Regulation S Global Security. If the owner of a beneficial interest in the Restricted Global Security wishes at any time to transfer such interest to a Person who wishes to acquire the same in the form of a beneficial interest in the Regulation S Global Security, such transfer may be effected only in accordance with the provisions of this Clause (2)(i) and Clause (2)(v) below and subject to the Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) an order given by the Depositary or its authorized representative directing that a beneficial interest in the Regulation S Global Security in a specified principal amount be credited to a specified Agent Member's account and that a beneficial interest in the Restricted Global Security in an equal principal amount be debited from another specified Agent Member's account and (B) a Regulation S Certificate, satisfactory to the Trustee and duly executed by the owner of such beneficial interest in the Restricted Global Security or his attorney duly authorized in writing, then the Trustee, as Security Registrar but subject to Clause (2)(v) below, shall reduce the principal amount of the Restricted Global Security and increase the principal amount of the Regulation S Global Security by such specified principal amount as provided in Section 3.4(1)(iii). (ii) Regulation S Global Security to Restricted Global Security. If the owner of a beneficial interest in the Regulation S Global Security wishes at any time to transfer such interest to a Person who wishes to acquire the same in the form of a beneficial interest in the Restricted Global Security, such transfer may be effected only in accordance with this Clause (2)(ii) and subject to the Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) an order given by the Depositary or its authorized representative directing that a beneficial interest in the Restricted Global Security in a specified principal amount be credited to a specified Agent Member's account and that a beneficial interest in the Regulation S Global Security in an equal principal amount be debited from another specified Agent Member's account and (B) if such transfer is to occur during the Restricted Period, a Restricted Securities Certificate, satisfactory to the Trustee and duly executed by the owner of such beneficial interest in the Regulation S Global Security or his attorney duly authorized in writing, then the Trustee, as Security Registrar, shall reduce the principal amount of the Regulation S Global Security and increase the principal amount of the Restricted Global Security by such specified principal amount as provided in Section 3.4(1)(iii). (iii) Restricted Non-Global Security to Restricted Global Security or Regulation S Global Security. If the Holder of a Restricted Security (other than a Global Security) wishes at any time to transfer all or any portion of such Restricted Security to a Person who wishes to take delivery thereof in the form of a beneficial interest in the Restricted Global Security or the Regulation S Global Security, such transfer may be effected only in accordance with the provisions of this Clause (2)(iii) and Clause (2)(v) below and subject to the Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) such Restricted Security as provided in Section 3.5(1) and instructions satisfactory to the Trustee directing that a beneficial interest in the Restricted Global Security or Regulation S Global Security in a specified principal amount not greater than the principal amount of such Security be credited to a specified Agent Member's account and (B) a Restricted Securities Certificate, if the specified account is to be credited with a beneficial interest in the Restricted Global Security, or a Regulation S Certificate, if the specified account is to be credited with a beneficial interest in the Regulation S Global Security, in either case satisfactory to the Trustee and duly executed by such Holder or his attorney duly authorized in writing, then the Trustee, as Security Registrar but subject to Clause (2)(v) below, shall cancel such Restricted Security (and issue a new Restricted Security in respect of any untransferred portion thereof) as provided in Section 3.5(1) and increase the principal amount of the Restricted Global Security or the Regulation S Global Security, as the case may be, by the specified principal amount as provided in Section 3.4(1)(iii). (iv) Exchanges between Global Security and Non- Global Security. A beneficial interest in a Global Security may be exchanged for a Security that is not a Global Security as provided in Section 3.4, provided that, if such interest is a beneficial interest in the Restricted Global Security, or if such interest is a beneficial interest in the Regulation S Global Security and such exchange is to occur during the Restricted Period, then such interest shall be exchanged for a Restricted Security (subject in each case to Section 3.5(3)). A Security that is not a Global Security may be exchanged for a beneficial interest in a Global Security only if such exchange occurs in connection with a transfer effected in accordance with Clause (2)(iii) above. (v) Regulation S Global Security to be Held Through Euroclear or CEDEL during Restricted Period. The Company shall use its best efforts to cause the Depositary to ensure that, until the expiration of the Restricted Period, beneficial interests in the Regulation S Global Security may be held only in or through accounts maintained at the Depositary by Euroclear or CEDEL (or by Agent Members acting for the account thereof), and no person shall be entitled to effect any transfer or exchange that would result in any such interest being held otherwise than in or through such an account; provided that this Clause (2)(v) shall not prohibit any transfer or exchange of such an interest in accordance with Clause (2)(ii) or (iv) above. (3) Securities Act Legends. Rule 144A Securities, Regulation D Securities and their respective Successor Securities shall bear the applicable Restricted Securities Legend, and the Regulation S Securities and their Successor Securities shall bear a Regulation S Legend, subject to the following: (i) subject to the following Clauses of this Section 3.5(3), a Security or any portion thereof which is exchanged, upon transfer or otherwise, for a Global Security or any portion thereof shall bear the Securities Act Legend borne by such Global Security while represented thereby; (ii) subject to the following Clauses of this Section 3.5(3), a new Security which is not a Global Security and is issued in exchange for another Security (including a Global Security) or any portion thereof, upon transfer or otherwise, shall bear the Securities Act Legend borne by such other Security, provided that, if such new Security is required pursuant to Section 3.5(2)(iv) to be issued in the form of a Restricted Security, it shall bear a Restricted Securities Legend and, if such new Security is so required to be issued in the form of a Regulation S Security, it shall bear a Regulation S Legend; (iii) any Securities which are sold or otherwise disposed of pursuant to an effective registration statement under the Securities Act (including the Shelf Registration Statement), together with their Successor Securities shall not bear a Securities Act Legend; the Company shall inform the Trustee in writing of the effective date of any such registration statement registering the Securities under the Securities Act and shall notify the Trustee at any time when prospectuses need not be delivered with respect to Securities to be sold pursuant to such registration statement. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the aforementioned registration statement; (iv) at any time after the Securities may be freely transferred without registration under the Securities Act or without being subject to transfer restrictions pursuant to the Securities Act, a new Security which does not bear a Securities Act Legend may be issued in exchange for or in lieu of a Security (other than a Global Security) or any portion thereof which bears such a legend if the Trustee has received an Unrestricted Securities Certificate, satisfactory to the Trustee and duly executed by the Holder of such Security bearing a Securities Act Legend or his attorney duly authorized in writing, and after such date and receipt of such certificate, the Trustee shall authenticate and deliver such new Security in exchange for or in lieu of such other Security as provided in this Article III; (v) a new Security which does not bear a Securities Act Legend may be issued in exchange for or in lieu of a Security (other than a Global Security) or any portion thereof which bears such a legend if, in the Company's judgment, placing such a legend upon such new Security is not necessary to ensure compliance with the registration requirements of the Securities Act, and the Trustee, at the direction of the Company, shall authenticate and deliver such a new Security as provided in this Article III; and (vi) notwithstanding the foregoing provisions of this Section 3.5(3), a Successor Security of a Security that does not bear a particular form of Securities Act Legend shall not bear such form of legend unless the Company has reasonable cause to believe that such Successor Security is a "restricted security" within the meaning of Rule 144, in which case the Trustee, at the direction of the Company, shall authenticate and deliver a new Security bearing a Restricted Securities Legend in exchange for such Successor Security as provided in this Article III. (4) Neither the Trustee, the Paying Agent nor any of their agents shall (i) have any duty to monitor compliance with or with respect to any federal or state or other securities or tax laws or (ii) have any duty to obtain documentation on any transfers or exchanges other than as specifically required hereunder. SECTION III.6 Mutilated, Destroyed, Lost or Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there be delivered to the Company and to the Trustee: (1) evidence to their satisfaction of the destruction, loss or theft of any Security, and (2) such security or indemnity as may be satisfactory to the Company and the Trustee to save each of them and any agent of either of them harmless, then, in the absence of actual notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion, but subject to any conversion rights, may, instead of issuing a new Security, pay such Security, upon satisfaction of the conditions set forth in the preceding paragraph. Upon the issuance of any new Security under this Section 3.6, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto (other than any stamp and other duties, if any, which may be imposed in connection therewith by the United States or any political subdivision thereof or therein, which shall be paid by the Company) and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section 3.6 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and such new Security shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 3.6 are exclusive and shall preclude (to the extent lawful) all other rights and remedies of any Holder with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION III.7 Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security, the date of the proposed payment and the Special Record Date, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. The Special Record Date for the payment of such Defaulted Interest shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at such Holder's address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section and Section 3.5, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Interest on any Security which is converted in accordance with Section 12.2 during a Record Date Period shall be payable in accordance with the provisions of Section 12.2. SECTION III.8 Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 3.7) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION III.9 Cancellation. All Securities surrendered for payment, redemption, repurchase, registration of transfer or exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee. All Securities so delivered to the Trustee shall be canceled promptly by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section 3.9. The Trustee shall dispose of all canceled Securities in accordance with applicable law and its customary practices in effect from time to time. SECTION III.10 Computation of Interest. Interest on the Securities (including any Liquidated Damages and additional interest) shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION III.11 [Reserved]. SECTION III.12 CUSIP Numbers. The Company in issuing Securities may use "CUSIP" numbers (if then generally in use) in addition to serial numbers, if so, the Trustee shall use such CUSIP numbers in addition to serial numbers in notices of redemption and repurchase as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such CUSIP numbers either as printed on the Securities or as contained in any notice of a redemption or repurchase and that reliance may be placed only on the serial or other identification numbers printed on the Securities, and any such redemption or repurchase shall not be affected by any defect in or omission of such CUSIP numbers. ARTICLE IV SATISFACTION AND DISCHARGE SECTION IV.1 Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of conversion, or registration of transfer or exchange, or replacement of Securities herein expressly provided for and any right to receive Liquidated Damages as provided in the form of Securities set forth in Section 2.2 and the Company's obligations to the Trustee pursuant to Section 6.7), and the Trustee, at the expense of the Company, shall execute proper instruments in form and substance satisfactory to the Trustee acknowledging satisfaction and discharge of this Indenture, when (1) either (i) all Securities theretofore authenticated and delivered (other than (A) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (B) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (ii) all such Securities not theretofore delivered to the Trustee or its agent for cancellation (other than Securities referred to in clauses (A) and (B) of clause (1)(i) above) (a) have become due and payable, or (b) will have become due and payable at their Stated Maturity within one year, or (c) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of clause (a), (b) or (c) above, has deposited or caused to be deposited with the Trustee as trust funds (immediately available to the Holders in the case of clause (a)) in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal, premium, if any, and interest (including any Liquidated Damages) to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (iii) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (iv) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7, the obligations of the Company to any Authenticating Agent under Section 6.12, the obligation of the Company to pay Liquidated Damages, if money shall have been deposited with the Trustee pursuant to clause (1)(ii) of this Section 4.1, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 and the obligations of the Company and the Trustee under Section 3.5 and Article XII shall survive. Funds held in trust pursuant to this Section are not subject to the provisions of Article XIII. SECTION IV.2 Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 and in accordance with the provisions of Article XIII shall be held in trust for the sole benefit of the Holders and not be subject to the subordination provisions of Article XIII, and such monies shall be applied by the Trustee, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent, to the Persons entitled thereto, of the principal, premium, if any, and interest for whose payment such money has been deposited with the Trustee. All moneys deposited with the Trustee pursuant to Section 4.1 (and held by it or any Paying Agent) for the payment of Securities subsequently converted shall be returned to the Company upon Company Request. ARTICLE V REMEDIES SECTION V.1 Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article XIII or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of the principal of or premium, if any, on any Security at its Maturity; or (2) default in the payment of any interest (including any Liquidated Damages) upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days; or (3) failure by the Company to give the Company notice in accordance with Section 14.3; or (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in the performance or breach of which is specifically dealt with elsewhere in this Section), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; provided, however, that if such default or breach is capable of being cured and the Company commences efforts to cure such default or breach within such 60 day period, such default or breach shall not be considered an "Event of Default" hereunder for an additional 60 days so long as the Company is diligently pursuing the cure; or (5) any indebtedness under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company (an "Instrument") with a principal amount then outstanding in excess of U.S. $20,000,000, whether such indebtedness now exists or shall hereafter be created, is not paid at final maturity of any Instrument (either at its stated maturity or upon acceleration thereof), and such indebtedness is not discharged, or such acceleration is not rescinded or annulled, within a period of 30 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such default to be cured or waived or such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; or (6) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (7) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or similar relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action. SECTION V.2 Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.1(6) or 5.1(7)) occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may, subject to the provisions of Article XIII, declare the principal of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable. If an Event of Default specified in Section 5.1(6) or 5.1(7) occurs, the principal of, and accrued interest on, all the Securities shall, subject to the provisions of Article XIII, ipso facto become immediately due and payable without any declaration or other Act of the Holder or any act on the part of the Trustee. At any time after such declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article V provided, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all overdue interest on all Securities, (ii) the principal of and premium, if any, on any Securities which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate borne by the Securities, (iii) to the extent permitted by applicable law, interest upon overdue interest at a rate of 6% per annum, and (iv) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the nonpayment of the principal of, and any premium and interest on, Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13. No rescission or annulment referred to above shall affect any subsequent default or impair any right consequent thereon. SECTION V.3 Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest (including any Liquidated Damages) on any Security when it becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of or premium, if any, on any Security at the Maturity thereof, the Company will, upon demand of the Trustee but subject to the provisions of Article XIII pay to it, for the benefit of the Holders of such Securities the whole amount then due and payable on such Securities for principal and interest (including any Liquidated Damages) and interest on any overdue principal and premium, if any, and, to the extent permitted by applicable law, on any overdue interest (including any Liquidated Damages), at a rate of 6% per annum, and in addition thereto, such further amount as shall be sufficient to cover the reasonable costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION V.4 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or the creditors of either, the Trustee (irrespective of whether the principal of, and any interest on, the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (1) to file and prove a claim for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Securities and take such other actions, including participating as a member, voting or otherwise, of any official committee of creditors appointed in such matter, and to file such other papers or documents, in each of the foregoing cases, as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders of Securities allowed in such judicial proceeding, and (2) to collect and receive any moneys or other property payable or deliverable on any such claim and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder of Securities to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder of a Security in any such proceeding; provided, however, that the Trustee may, on behalf of such Holders, vote for the election of a trustee in bankruptcy or similar official. SECTION V.5 Trustee May Enforce Claims Without Possession of Securities All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which judgment has been recovered. SECTION V.6 Application of Money Collected. Subject to Article XIII, any money collected by the Trustee pursuant to this Article V shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium, if any, or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.7; SECOND: To the payment of the amounts then due and unpaid for principal of, premium, if any, or interest on, the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal, premium, if any, and interest, respectively; and THIRD: Any remaining amounts shall be repaid to the Company. SECTION V.7 Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION V.8 Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert. Notwithstanding any other provision in this Indenture, but subject to the provisions of Article XIII, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of, premium, if any, and (subject to Section 3.7) interest (including Liquidated Damages, if any) on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on the Redemption Date or Repurchase Date, as the case may be), and to convert such Security in accordance with Article XII, and to institute suit for the enforcement of any such payment and right to convert, and such rights shall not be impaired without the consent of such Holder. SECTION V.9 Restoration of Rights and Remedies. If the Trustee or any Holder of a Security has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders of Securities shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and such Holders shall continue as though no such proceeding had been instituted. SECTION V.10 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION V.11 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article V or by law to the Trustee or to the Holders of Securities may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or (subject to the limitations contained in this Indenture) by the Holders of Securities as the case may be. SECTION V.12 Control by Holders of Securities. The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION V.13 Waiver of Past Defaults. The Holders, either (i) through the written consent of not less than a majority in principal amount of the Outstanding Securities or (ii) by the adoption of a resolution at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the lesser of (i) the Holders of not less than a majority in principal amount of Outstanding Securities and (ii) the Holders of at least 66-2/3% in principal amount of the Outstanding Securities represented at such meeting, may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (A) in the payment of the principal of, premium, if any, or interest on any Security, or (B) in respect of a covenant or provision hereof which under Article VIII cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION V.14 Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.14 shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder of any Security for the enforcement of the payment of the principal of, premium, if any, or interest on any Security on or after the respective Stated Maturity or Maturities expressed in such Security (or, in the case of redemption or repurchase, on or after the Redemption Date or Repurchase Date, as the case may be) or for the enforcement of the right to convert any Security in accordance with Article XII. SECTION V.15 Waiver of Stay, Usury or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, usury or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede by reason of such law the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VI THE TRUSTEE SECTION VI.1 Certain Duties and Responsibilities. (1) Except during the continuance of an Event of Default, (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture, but not to verify the contents thereof. (2) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (3) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that (i) this paragraph (3) shall not be construed to limit the effect of paragraph (1) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and (iv) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (4) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION VI.2 Notice of Defaults. Within 90 days after the occurrence of any default hereunder as to which the Trustee has received written notice, the Trustee shall give to all Holders of Securities, in the manner provided in Section 1.6, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Security the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders; and provided, further, that in the case of any default of the character specified in Section 5.1(4), no such notice to Holders of Securities shall be given until at least 60 days after the occurrence thereof or, if applicable, the cure period specified therein. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION VI.3 Certain Rights of Trustee. Subject to the provisions of Section 6.1: (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document, but the Trustee may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION VI.4 Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities (except the Trustee's certificates of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture, of the Securities or of the Common Stock issuable upon the conversion of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION VI.5 May Hold Securities, Act as Trustee Under Other Indentures. The Trustee, any Authenticating Agent, any Paying Agent, any Conversion Agent or any other agent of the Company or the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Conversion Agent or such other agent. The Trustee may become and act as trustee under other indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding in the same manner as if it were not Trustee hereunder. SECTION VI.6 Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION VI.7 Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee (and its directors, officers, employees and agents) for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs, expenses and reasonable attorneys' fees of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(6) or Section 5.1(7), the expenses (including the reasonable charges of its counsel) and the compensation for the services are intended to constitute expenses of the administration under any applicable Federal or state bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the termination of this Indenture or the earlier resignation or removal of the Trustee. SECTION VI.8 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such, having a combined capital and surplus of at least U.S. $50,000,000, subject to supervision or examination by federal or state authority, and in good standing. The Trustee or an Affiliate of the Trustee shall maintain an established place of business in the Borough of Manhattan, The City of New York. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article and a successor shall be appointed pursuant to Section 6.9. SECTION VI.9 Resignation and Removal; Appointment of Successor. (1) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.10. (2) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (3) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and the Company. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the removed Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (4) If at any time: (i) the Trustee shall cease to be eligible under Section 6.8 and shall fail to resign after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or (ii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 5.14, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (5) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee and shall comply with the applicable requirements of this Section and Section 6.10. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.10, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner required by this Section and Section 6.10, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (6) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders of Securities in the manner provided in Section 1.6. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION VI.10 Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be eligible under this Article. SECTION VI.11 Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee (including the trust created by this Indenture), shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION VI.12 Authenticating Agents. The Trustee may, with the consent of the Company, appoint an Authenticating Agent or Agents acceptable to the Company with respect to the Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon exchange or substitution pursuant to this Indenture. Securities authenticated by an Authenticating Agent shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder, and every reference in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be subject to acceptance by the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent and subject to supervision or examination by government or other fiscal authority. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.12, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section 6.12. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section 6.12, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.12, the Trustee may appoint a successor Authenticating Agent which shall be subject to acceptance by the Company. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section 6.12. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 6.12. If an Authenticating Agent is appointed with respect to the Securities pursuant to this Section 6.12, the Securities may have endorsed thereon, in addition to or in lieu of the Trustee's certification of authentication, an alternative certificate of authentication in the following form: This is one of the Securities referred to in the within- mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee By: As Authenticating Agent By: Authorized Signatory SECTION VI.13 Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION VI.14 Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). ARTICLE VII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION VII.1 Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease all its properties and assets substantially as an entirety to any Person unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged, or the Person which acquires by conveyance or transfer, or which leases the properties and assets of the Company substantially as an entirety, shall be a corporation, limited liability company, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of, premium, if any, and interest (including Liquidated Damages, if any) on all of the Securities as applicable, and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Article XII; (2) immediately after giving effect to such transaction, no Event of Default, and no event that after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with, together with any documents required under Section 8.3. SECTION VII.2 Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into any other Person or any conveyance, transfer or lease of all or substantially all the properties and assets of the Company in accordance with Section 7.1, the successor Person formed by such consolidation or into or with which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE VIII SUPPLEMENTAL INDENTURES SECTION VIII.1 Supplemental Indentures Without Consent of Holders of Securities. Without the consent of any Holders of Securities the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants and obligations of the Company herein and in the Securities as permitted by this Indenture; or (2) to add to the covenants of the Company for the benefit of the Holders of Securities or to surrender any right or power herein conferred upon the Company; or (3) to secure the Securities; or (4) to make provision with respect to the conversion rights of Holders of Securities pursuant to Section 12.11 or to make provision with respect to the repurchase rights of Holders of Securities pursuant to Section 14.5; or (5) to make any changes or modifications to this Indenture necessary in connection with the registration of any Registrable Securities under the Securities Act as contemplated by Section 10.12, provided, such action pursuant to this clause (5) shall not adversely affect the interests of the Holders of Securities; or (6) to comply with the requirements of the Trust Indenture Act or the rules and regulations of the Commission thereunder in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act, as contemplated by this Indenture or otherwise; or (7) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee; or (8) subject to Section 13.12, to make any change in Article XIII that would limit or terminate the benefits available to any holder of Senior Indebtedness under such Article; or (9) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein or which is otherwise defective, or to make any other provisions with respect to matters or questions arising under this Indenture as the Company and the Trustee may deem necessary or desirable, provided such action pursuant to this clause (9) shall not adversely affect the interests of the Holders of Securities in any material respect. Upon Company Request, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and subject to and upon receipt by the Trustee of the documents described in Section 8.3 hereof, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained. SECTION VIII.2 Supplemental Indentures with Consent of Holders of Securities. With either (i) the written consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by the Act of said Holders delivered to the Company and the Trustee, or (ii) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the lesser of (i) the Holders of not less than a majority in principal amount of the Outstanding Securities and (ii) the Holders of 66-2/3% in principal amount of the Outstanding Securities represented at such meeting, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities under this Indenture; provided, however, that no such supplemental indenture shall, without the consent or affirmative vote of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount of, or the premium, if any, or the rate of interest payable thereon (including Liquidated Damages), or reduce the amount payable upon a redemption or mandatory repurchase, or change the place or currency of payment of the principal of, premium, if any, or interest on any Security (including any payment of Liquidated Damages or Redemption Price or Repurchase Price in respect of such Security) or impair the right to institute suit for the enforcement of any payment in respect of any Security on or after the Stated Maturity thereof (or, in the case of redemption or any repurchase, on or after the Redemption Date or Repurchase Date, as the case may be) or, except as permitted by Section 12.11, adversely affect the right to convert any Security as provided in Article XII, or modify the provisions of this Indenture with respect to the subordination of the Securities in a manner adverse to the Holders; or (2) reduce the requirements of Section 9.4 for quorum or voting, or reduce the percentage in principal amount of the Outstanding Securities the consent of whose Holders is required for any such supplemental indenture or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture; or (3) modify the obligation of the Company to maintain an office or agency in the Borough of Manhattan, The City of New York, pursuant to Section 10.2; or (4) modify any of the provisions of this Section or Section 5.13 or 10.13, except to increase any percentage contained herein or therein or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; or (5) modify the provisions of Article XIV in a manner adverse to the Holders; or (6) modify any of the provisions of Section 10.10 in a manner adverse to the Holders or Section 10.11. It shall not be necessary for any Act of Holders of Securities under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION VIII.3 Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Sections 6.1 and 6.3) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, and that such supplemental indenture has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION VIII.4 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder appertaining thereto shall be bound thereby. SECTION VIII.5 Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Company and the Trustee, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION VIII.6 Notice of Supplemental Indentures. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 8.2, the Company shall give notice to all Holders of Securities of such fact, setting forth in general terms the substance of such supplemental indenture, in the manner provided in Section 1.6. Any failure of the Company to give such notice, or any defect therein, shall not in any way impair or affect the validity of any such supplemental indenture. ARTICLE IX MEETINGS OF HOLDERS OF SECURITIES SECTION IX.1 Purposes for Which Meetings May Be Called. A meeting of Holders of Securities may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities. SECTION IX.2 Call, Notice and Place of Meetings. (1) The Trustee may at any time call a meeting of Holders of Securities for any purpose specified in Section 9.1, to be held at such time and at such place in the Borough of Manhattan, The City of New York, as the Trustee shall determine. Notice of every meeting of Holders of Securities, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 1.6, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (2) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 10% in principal amount of the Outstanding Securities shall have requested the Trustee to call a meeting of the Holders of Securities for any purpose specified in Section 9.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities in the amount specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York, for such meeting and may call such meeting for such purposes by giving notice thereof as provided in paragraph (1) of this Section. SECTION IX.3 Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Holders of Securities, a Person shall be (i) a Holder of one or more Outstanding Securities, or (ii) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION IX.4 Quorum; Action. The Persons entitled to vote a majority in principal amount of the Outstanding Securities shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities, be dissolved. In any other case, the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting (subject to repeated applications of this sentence). Notice of the reconvening of any adjourned meeting shall be given as provided in Section 9.2(1), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage of the principal amount of the Outstanding Securities which shall constitute a quorum. Subject to the foregoing, at the reconvening of any meeting adjourned for a lack of a quorum, the Persons entitled to vote 25% in principal amount of the Outstanding Securities at the time shall constitute a quorum for the taking of any action set forth in the notice of the original meeting. At a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid, any resolution and all matters (except as limited by the proviso to Section 8.2 and except to the extent Section 10.13 requires a different vote) shall be effectively passed and decided if passed or decided by the lesser of (i) the Holders of not less than a majority in principal amount of Outstanding Securities and (ii) the Persons entitled to vote not less than 66-2/3% in principal amount of Outstanding Securities represented and entitled to vote at such meeting. Any resolution passed or decisions taken at any meeting of Holders of Securities duly held in accordance with this Section shall be binding on all the Holders of Securities whether or not present or represented at the meeting. The Trustee shall, in the name and at the expense of the Company, notify all the Holders of Securities of any such resolutions or decisions pursuant to Section 1.6. SECTION IX.5 Determination of Voting Rights; Conduct and Adjournment of Meetings. (1) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities in regard to proof of the holding of Securities and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 1.4 and the appointment of any proxy shall be proved in the manner specified in Section 1.4 or by having the signature of the Person executing the proxy guaranteed by any bank, broker or other eligible institution participating in a recognized medallion signature guarantee program. (2) The Trustee shall, by an instrument in writing, appoint a temporary chairman (which may be the Trustee) of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 9.2(1), in which case the Company or the Holders of Securities calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting. (3) At any meeting, each Holder of a Security or proxy shall be entitled to one vote for each U.S. $1,000 principal amount of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security or proxy. (4) Any meeting of Holders of Securities duly called pursuant to Section 9.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting, and the meeting may be held as so adjourned without further notice. SECTION IX.6 Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Holders of Securities shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amounts at Stated Maturity and serial numbers of the Outstanding Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 9.2 and, if applicable, Section 9.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE X COVENANTS SECTION X.1 Payment of Principal, Premium and Interest. The Company covenants and agrees that it will duly and punctually pay the principal of and premium, if any, and interest (including Liquidated Damages, if any) on the Securities in accordance with the terms of the Securities and this Indenture. The Company will deposit or cause to be deposited with the Trustee, no later than the opening of business on the date of the Stated Maturity of any Security or no later than the opening of business on the due date for any installment of interest, all payments so due, which payments shall be in immediately available funds on the date of such Stated Maturity or due date, as the case may be. SECTION X.2 Maintenance of Offices or Agencies. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where the Securities may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion, redemption or repurchase and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated or appointed by the Trustee. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office or the office or agency of the Trustee in the Borough of Manhattan, The City of New York. The Company may at any time and from time to time vary or terminate the appointment of any such agent or appoint any additional agents for any or all of such purposes; provided, however, that until all of the Securities have been delivered to the Trustee for cancellation, or moneys sufficient to pay the principal of, premium, if any, and interest on the Securities have been made available for payment and either paid or returned to the Company pursuant to the provisions of Section 10.3, the Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment and conversion, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee, and notice to the Holders in accordance with Section 1.6, of the appointment or termination of any such agents and of the location and any change in the location of any such office or agency. The Company hereby initially designates the Trustee as Paying Agent, Security Registrar and Conversion Agent, and each of the Corporate Trust Office of the Trustee and the office or agency of the Trustee in the Borough of Manhattan, The City of New York (which shall initially be State Street Bank and Trust Company, N.A., an Affiliate of the Trustee located at 61 Broadway, Concourse Level, Corporate Trust Window, New York, New York 10006), one such office or agency of the Company for each of the aforesaid purposes. SECTION X.3 Money for Security Payments To Be Held in Trust. If the Company shall act as its own Paying Agent, it will, on or before each due date of the principal of, premium, if any, or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal, premium, if any, or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and the Company will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, no later than the opening of business on each due date of the principal of, premium, if any, or interest on any Securities, deposit with the Trustee a sum in funds immediately payable on the payment date sufficient to pay the principal, premium, if any, or interest so becoming due, such sum to be held for the benefit of the Persons entitled to such principal, premium, if any, or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of any failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of, premium, if any, or interest on Securities for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that in the event that the Securities were not held in global form at maturity, the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper in each Place of Payment, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION X.4 [Reserved]. SECTION X.5 Existence. Subject to Article VII, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION X.6 Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Significant Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Significant Subsidiary and not disadvantageous in any material respect to the Holders. SECTION X.7 Payment of Taxes and Other Claims. The Company will pay or discharge, or cause to be paid or discharged, before the same may become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or any Significant Subsidiary or upon the income, profits or property of the Company or any Significant Subsidiary, (ii) all claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon the property of the Company or any Significant Subsidiary, and (iii) all stamps and other duties, if any, which may be imposed by the United States or any political subdivision thereof or therein in connection with the issuance, transfer, exchange or conversion of any Securities or with respect to this Indenture; provided, however, that, in the case of clauses (i) and (ii), the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (A) if the failure to do so will not, in the aggregate, have a material adverse impact on the Company, or (B) if the amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION X.8 Registration and Listing. Prior to the Exchange Date, the Company (i) will effect all registrations with, and obtain all approvals by, all governmental authorities that may be necessary under any United States Federal or state law (including the Securities Act, the Exchange Act and state securities and Blue Sky laws) before the shares of Common Stock issuable upon conversion of Securities may be lawfully issued and delivered, and qualified or listed as contemplated by clause (ii) (it being understood that the Company shall not be required to register the Securities under the Securities Act, except pursuant to the Registration Rights Agreement referred to in Section 10.12); and (ii) will qualify the shares of Common Stock required to be issued and delivered upon conversion of Securities, prior to such issuance or delivery, for quotation on the Nasdaq National Market or, if the Common Stock is not then quoted on the Nasdaq National Market, list the Common Stock on each national securities exchange on which outstanding Common Stock is listed or quoted at the time of such delivery. Nothing in this Section will limit the application of Section 10.12. SECTION X.9 Statement by Officers as to Default. The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. The Company will deliver to the Trustee, forthwith upon becoming aware of any default in the performance or observance of any covenant, agreement or condition contained in this Indenture, or any Event of Default, an Officers' Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto. Any notice required to be given under this Section 10.9 shall be delivered to the Trustee at its Corporate Trust Office. SECTION X.10 Delivery of Certain Information. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a Holder of a Restricted Security or the holder of shares of Common Stock issued upon conversion thereof, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder of Restricted Securities or such holder of shares of Common Stock issued upon conversion of Restricted Securities, or to a prospective purchaser of any such security designated by any such Holder or holder, as the case may be, to the extent required to permit compliance by such Holder or holder with Rule 144A under the Securities Act (or any successor provision thereto) in connection with the resale of any such security; provided, however, that the Company shall not be required to furnish such information in connection with any request made on or after the date which is three years from the later of (i) the date such a security (or any such predecessor security) was last acquired from the Company or (ii) the date such a security (or any such predecessor security) was last acquired from an "affiliate" of the Company within the meaning of Rule 144 under the Securities Act (or any successor provision thereto). "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto). SECTION X.11 Resale of Certain Securities. During the period beginning on the last date of original issuance of the Securities and ending on the date that is three years from such date (or such shortened period under Rule 144(K) under the Securities Act or any successor rule), the Company will not, and will use reasonable efforts not to permit any of its subsidiaries or other "affiliates" (as defined under Rule 144 under the Securities Act or any successor provision thereto) controlled by the Company to, resell (i) any Securities which constitute "restricted securities" under Rule 144 or (ii) any securities into which the Securities have been converted under this Indenture which constitute "restricted securities" under Rule 144, that in either case have been reacquired by any of them. The Trustee shall have no responsibility in respect of the Company's performance of its agreement in the preceding sentence. SECTION X.12 Registration Rights. The Company agrees that the Holders from time to time of Registrable Securities (as defined below) are entitled to the benefits of a Registration Rights Agreement, dated as of December 18, 1996 (the "Registration Rights Agreement"), executed by the Company. Pursuant to the Registration Rights Agreement, the Company has agreed for the benefit of the holders from time to time of the Registrable Securities that it will, at its expense, (i) within 90 days after the Issue Date (as defined below) of the Securities, file a shelf registration statement (the "Shelf Registration Statement") with the Commission with respect to resales of the Registrable Securities, (ii) use its reasonable efforts to cause such Shelf Registration Statement to be declared effective by the Commission within 180 days after Issue Date of the Securities and (iii) use its reasonable efforts to maintain such Shelf Registration Statement effective under the Securities Act until the third annual anniversary of the Issue Date or such earlier date as is provided in the Registration Rights Agreement (the "Effectiveness Period"). The Company will be permitted to suspend the use of the prospectus which is a part of the Shelf Registration Statement during certain periods of time as provided in the Registration Rights Agreement. If (i) on or prior to 90 days following the Issue Date of the Securities, a Shelf Registration Statement has not been filed with the Commission, or (ii) on or prior to the 180th day following the Issue Date of the Securities, such Shelf Registration Statement is not declared effective (each, a "Registration Default"), additional interest ("Liquidated Damages") will accrue on the Restricted Securities from and including the day following such Registration Default to but excluding the day on which such Registration Default has been cured. Liquidated Damages will be paid semi-annually in arrears, with the first semi-annual payment due on the first Interest Payment Date in request of the Restricted Securities following the date on which such Liquidated Damages begin to accrue, and will accrue at a rate per annum equal to an additional one-quarter of one percent (0.25%) of the principal amount of the Restricted Securities to and including the 90th day following such Registration Default and at a rate per annum equal to one-half of one percent (0.50%) thereof from and after the 91st day following such Registration Default. Pursuant to the Registration Rights Agreement, in the event that the Shelf Registration Statement ceases to be effective during the Effectiveness Period for more than 90 days or the Company suspends the use of the prospectus which is a part thereof for more than 90 days, whether or not consecutive, during any 12-month period, then the interest rate borne by the Restricted Securities shall increase by an additional one- half of one percent (0.50%) per annum on the 91st day of the applicable 12-month period such Shelf Registration Statement ceases to be effective or such prospectus continues to be suspended to but excluding the day on which (i) the Shelf Registration Statement becomes effective, (ii) the use of the related prospectus ceases to be suspended or (iii) the Effectiveness Period expires. Whenever in this Indenture there is mentioned, in any context, the payment of the principal of, premium, if any, or interest on, or in respect of, any Security, such mention shall be deemed to include mention of the payment of Liquidated Damages provided for in this Section to the extent that, in such context, Liquidated Damages are, were or would be payable in respect thereof pursuant to the provisions of this Section and express mention of the payment of Liquidated Damages (if applicable) in any provisions hereof shall not be construed as excluding Liquidated Damages in those provisions hereof where such express mention is not made. For the purposes of the Registration Rights Agreement: "Registrable Securities" means all or any portion of the Restricted Securities issued from time to time under this Indenture and the shares of Common Stock issuable upon conversion of such Restricted Securities except any such Restricted Security or share of Common Stock issuable upon conversion thereof which (i) has been effectively registered under the Securities Act and sold in a manner contemplated by the Shelf Registration Statement, (ii) has been transferred in compliance with Rule 144 under the Securities Act (or any successor provision thereto) or is transferable pursuant to paragraph (k) of such Rule 144 (or any successor provision thereto) or (iii) has been resold in compliance with Regulation S under the Securities Act (or any successor thereto) and does not constitute the unsold allotment of a distributor within the meaning of Regulation S under the Securities Act, or (iv) otherwise has been transferred and a new Security or share of Common Stock not subject to transfer restrictions under the Securities Act has been delivered by or on behalf of the Company in accordance with Section 3.5(2); and "Issue Date" means December 18, 1996. If a Security, or the shares of Common Stock issuable upon conversion of a Security, is a Registrable Security, and the Holder thereof elects to sell such Registrable Security pursuant to the Shelf Registration Statement then, by its acceptance thereof, the Holder of such Registrable Security will have agreed to be bound by the terms of the Registration Rights Agreement relating to the Registrable Securities which are the subject of such election. For the purposes of the Registration Rights Agreement, the term "Holder" includes any Person that has a beneficial interest in any Restricted Global Security or any beneficial interest in a global security representing shares of Common Stock issuable upon conversion of a Security. SECTION X.13 Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or conditions set forth in Sections 10.5 to 10.7, inclusive (other than a covenant or condition which under Article VIII cannot be modified or amended without the consent of the Holder of each Outstanding Security affected), if before the time for such compliance the Holders shall, through the written consent of, or the adoption of a resolution at a meeting of Holders of the Outstanding Securities at which a quorum is present by, not less than a majority in principal amount of the Outstanding Securities, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee or any Paying or Conversion Agent in respect of any such covenant or condition shall remain in full force and effect. ARTICLE XI REDEMPTION OF SECURITIES SECTION XI.1 Right of Redemption. The Securities may be redeemed in accordance with the provisions of the form of Securities set forth in Section 2.2. SECTION XI.2 Applicability of Article. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of the Securities or this Indenture, shall be made in accordance with such provision and this Article XI. SECTION XI.3 Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of any of the Securities, the Company shall, at least 30 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee in writing of such Redemption Date. SECTION XI.4 Selection by Trustee of Securities To Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected by the Trustee within five Business Days after it receives the notice described in 11.3, from the Outstanding Securities not previously called for redemption, by such method as the Trustee may deem fair and appropriate. If any Registered Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed may be treated by the Trustee as Outstanding for the purpose of such selection. The Trustee shall promptly notify the Company and each Security Registrar in writing of the securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION XI.5 Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 1.6 to the Holders of Securities to be redeemed not less than 20 nor more than 60 days prior to the Redemption Date, and such notice shall be irrevocable. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, and accrued interest, if any, (3) if less than all Outstanding Securities are to be redeemed, the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities which will be outstanding after such partial redemption, (4) that on the Redemption Date the Redemption Price, and accrued interest, if any, will become due and payable upon each such Security to be redeemed, and that interest thereon shall cease to accrue on and after said date, (5) the Conversion Rate, the date on which the right to convert the Securities to be redeemed will terminate and the places where such Securities, may be surrendered for conversion, and (6) the place or places where such Securities, are to be surrendered for payment of the Redemption Price and accrued interest, if any. In case of a partial redemption, the notice shall specify the serial and CUSIP numbers (if any) and the portions thereof called for redemption and that transfers and exchanges may occur on or prior to the Redemption Date. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name of and at the expense of the Company. Notice of redemption of Securities to be redeemed at the election of the Company received by the Trustee shall be given by the Trustee to each Paying Agent in the name of and at the expense of the Company. SECTION XI.6 Deposit of Redemption Price. On or prior to the Redemption Date, the Company shall deposit with the Trustee (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money (which shall be in immediately available funds on such Redemption Date) sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date other than any Securities called for redemption on that date which have been converted prior to the date of such deposit. If any Security called for redemption is converted, any money deposited with the Trustee or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any Predecessor Security to receive interest as provided in the last paragraph of Section 3.7) be paid to the Company on Company Request or, if then held by the Company, shall be discharged from such trust. SECTION XI.7 Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price, including accrued interest) such Securities shall cease to bear interest. Upon surrender of any Security for redemption in accordance with said notice such Security shall be paid by the Company at the Redemption Price together with accrued and unpaid interest to the Redemption Date; provided, however, that installments of interest on Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 3.7. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal amount of, premium, if any, and, to the extent permitted by applicable law, accrued interest on such Security shall, until paid, bear interest from the Redemption Date at a rate of 6 % per annum and such Security shall remain convertible until the Redemption Price of such Security (or portion thereof, as the case may be) shall have been paid or duly provided for. SECTION XI.8 Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at the Corporate Trust Office or an office or agency of the Company designated for that purpose pursuant to Section 10.2 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Registered Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. SECTION 11.9 Conversion Arrangement on Call for Redemption. In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities by an agreement with one or more investment bankers or other purchasers (the "Purchasers") to purchase such securities by paying to the Trustee in trust for the Holders, on or before the Redemption Date, an amount not less than the applicable Redemption Price, together with interest accrued to the Redemption Date, of such Securities. Notwithstanding anything to the contrary contained in this Article XI, the obligation of the Company to pay the Redemption Price, together with interest accrued to the Redemption Date, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such Purchasers. If such an agreement is entered into (a copy of which shall be filed with the Trustee prior to the close of business on the Business Day immediately prior to the Redemption Date), any Securities called for redemption that are not duly surrendered for conversion by the Holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, and consistent with any agreement or agreements with such Purchasers, to be acquired by such Purchasers from such Holders and (notwithstanding anything to the contrary contained in Article XII) surrendered by such Purchasers for conversion, all as of immediately prior to the close of business on the Redemption Date (and the right to convert any such Securities shall be extended though such time), subject to payment of the above amount as aforesaid. At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it to the Holders in the same manner as it would monies deposited with it by the Company for the redemption of Securities. Without the Trustee's prior written consent, no arrangement between the Company and such Purchasers for the purchase and conversion of any Securities shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Securities between the Company and such purchasers, including the costs and expenses, including reasonable legal fees, incurred by the Trustee in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture. ARTICLE XII CONVERSION OF SECURITIES SECTION XII.1 Conversion Privilege and Conversion Rate. Subject to and upon compliance with the provisions of this Article, at the option of the Holder thereof, any Security may be converted into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100th of a share) of Common Stock of the Company at the Conversion Rate, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall commence on the 90th day after the last original issuance date of the Securities and expire at the close of business on December 15, 2003, subject, in the case of conversion of any Global Security, to any Applicable Procedures. In case a Security or portion thereof is called for redemption at the election of the Company or the Holder thereof exercises his right to require the Company to repurchase the Security, such conversion right in respect of the Security, or portion thereof so called, shall expire at the close of business on the Business Day prior to the Redemption Date or the Repurchase Date, as the case may be, unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be (in each case subject as aforesaid to any Applicable Procedures with respect to any Global Security). The rate at which shares of Common Stock shall be delivered upon conversion (herein called the "Conversion Rate") shall be initially 41.2903 shares of Common Stock for each U.S. $1,000 principal amount of Securities. The Conversion Rate shall be adjusted in certain instances as provided in this Article XII. SECTION XII.2 Exercise of Conversion Privilege. In order to exercise the conversion privilege, the Holder of any Security to be converted shall surrender such Security, duly endorsed in blank, at any office or agency of the Company maintained for that purpose pursuant to Section 10.2, accompanied by a duly signed conversion notice substantially in the form set forth in Section 2.4 stating that the Holder elects to convert such Security or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted. Each Security surrendered for conversion (in whole or in part) during the Record Date Period shall (except in the case of any Security or portion thereof which has been called for redemption on a Redemption Date, or is repurchasable on a Repurchase Date, occurring, in either case, within such Record Date Period (including any Securities or portions thereof called for redemption on a Redemption Date or submitted for repurchase on a Repurchase Date that is a Regular Record Date or an Interest Payment Date, as the case may be)) be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Security (or part thereof, as the case may be) being surrendered for conversion. The interest so payable on such Interest Payment Date with respect to any Security (or portion thereof, if applicable) which has been called for redemption on a Redemption Date, or is repurchasable on a Repurchase Date, occurring, in either case, during the Record Date Period (including any securities or portions thereof called for redemption on a Redemption Date or submitted for repurchase on a Repurchase Date that is a Regular Record Date or Interest Payment Date, as the case may be), which Security (or portion thereof, if applicable) is surrendered for conversion during the Record Date Period (or on the last Business Day prior to the Regular Record Date or Interest Payment Date in the case of any Security (or portion thereof, as the case may be) called for redemption on a Redemption Date or submitted for repurchase on a Repurchase Date on such Regular Record Date or Interest Payment Date, as the case may be) shall be paid to the Holder of such Security being converted in an amount equal to the interest that would have been payable on such Security if such Security had been converted as of the close of business on such Interest Payment Date. The interest so payable on such Interest Payment Date in respect of any Security (or portion thereof, as the case may be) which has not been called for redemption on a Redemption Date, or is not eligible for repurchase on a Repurchase Date, occurring, in either case, during the Record Date Period, which Security (or portion thereof, as the case may be) is surrendered for conversion during the Record Date Period, shall be paid to the Holder of such Security as of such Regular Record Date. Interest payable in respect of any Security surrendered for conversion on or after an Interest Payment Date shall be paid to the Holder of such Security as of the next preceding Regular Record Date, notwithstanding the exercise of the right of conversion. Except as provided in this paragraph and subject to the last paragraph of Section 3.7, no cash payment or adjustment shall be made upon any conversion on account of any interest accrued from the Interest Payment Date next preceding the conversion date, in respect of any Security (or part thereof, as the case may be) surrendered for conversion, or on account of any dividends on the Common Stock issued upon conversion. The Company's delivery to the Holder of the number of shares of Common Stock (and cash in lieu of fractions thereof, as provided in this Indenture) into which a Security is convertible will be deemed to satisfy the Company's obligation to pay the principal amount of the Security. Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the conversion date, the Company shall issue and deliver to the Trustee, for delivery to the Holder, a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 12.3. All shares of Common Stock delivered upon such conversion of Restricted Securities shall bear restrictive legends substantially in the form of the legends required to be set forth on the Restricted Securities pursuant to Section 3.5 and shall be subject to the restrictions on transfer provided in such legends. Neither the Trustee nor any agent maintained for the purpose of such conversion shall have any responsibility for the inclusion or content of any such restrictive legends on such Common Stock; provided, however, that the Trustee or any agent maintained for the purpose of such conversion shall have provided, to the Company or to the Company's transfer agent for such Common Stock, prior to or concurrently with a request to the Company to deliver such Common Stock, written notice that the Securities delivered for conversion are Restricted Securities. In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Registered Security or Securities of authorized denominations in an aggregate principal amount equal to the unconverted portion of the principal amount of such Security. A Security may be converted in part, but only if the principal amount of such Security to be converted is any integral multiple of U.S. $1,000 and the principal amount of such security to remain Outstanding after such conversion is equal to U.S. $1,000 or any integral multiple of $1,000 in excess thereof. If shares of Common Stock to be issued upon conversion of a Restricted Security, or Registered Securities to be issued upon conversion of a Restricted Security in part only, are to be registered in a name other than that of the beneficial owner of such Restricted Security, then such Holder must deliver to the Conversion Agent a Surrender Certificate, dated the date of surrender of such Restricted Security and signed by such beneficial owner, as to compliance with the restrictions on transfer applicable to such Restricted Security. Neither the Trustee nor any Conversion Agent, Registrar or Transfer Agent shall be required to register in a name other than that of the beneficial owner, shares of Common Stock or Securities issued upon conversion of any such Restricted Security not so accompanied by a properly completed Surrender Certificate. SECTION XII.3 Fractions of Shares. No fractional shares of Common Stock shall be issued upon conversion of any Security or Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof) so surrendered. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Security or Securities (or specified portions thereof), the Company shall calculate and pay a cash adjustment in respect of such fraction (calculated to the nearest 1/100th of a share) in an amount equal to the same fraction of the Closing Price Per Share at the close of business on the day of conversion. SECTION XII.4 Adjustment of Conversion Rate. The Conversion Rate shall be subject to adjustments from time to time as follows: (1) In case the Company shall pay or make a dividend or other distribution on Common Stock payable in shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. If, after any such date fixed for determination, any dividend or distribution is not in fact paid, the Conversion Rate shall be immediately readjusted, effective as of the date the Board of Directors determines not to pay such dividend or distribution, to the Conversion Rate that would have been in effect if such determination date had not been fixed. For the purposes of this paragraph (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (2) In case the Company shall issue rights, options or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section 12.4) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights, options or warrants (other than any rights, options or warrants that by their terms will also be issued to any Holder upon conversion of a Security into shares of Common Stock without any action required by the Company or any other Person), the Conversion Rate in effect at the opening of business on the day following the date fixed for such determination shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. If, after any such date fixed for determination, any such rights, options or warrants are not in fact issued, or are not exercised prior to the expiration thereof, the Conversion Rate shall be immediately readjusted, effective as of the date such rights, options or warrants expire, or the date the Board of Directors determines not to issue such rights, options or warrants, to the Conversion Rate that would have been in effect if the unexercised rights, options or warrants had never been granted or such determination date had not been fixed, as the case may be. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights, options or warrants in respect of shares of Common Stock held in the treasury of the Company. (3) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class of capital stock, or other property (including securities, but excluding (i) any rights, options or warrants referred to in paragraph (2) of this Section, (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section) the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section 12.4) of the Common Stock on the date fixed for such determination less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution filed with the Trustee) of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. If, after any such date fixed for determination, any such distribution is not in fact made, the Conversion Rate shall be immediately readjusted, effective as of the date the Board of Directors determines not to make such distribution, to the Conversion Rate that would have been in effect if such determination date had not been fixed. (5) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed as part of a distribution referred to in paragraph (4) of this Section) in an aggregate amount that, combined together with (I) the aggregate amount of any other cash distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (5) has been made and (II) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration payable in respect of any tender offer by the Company or any of its subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to paragraph (6) of this Section 12.4 has been made (the "combined cash and tender amount") exceeds 12.5% of the product of the current market price per share (determined as provided in paragraph (8) of this Section 12.4) of the Common Stock on the date for the determination of holders of shares of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date (the "aggregate current market price"), then, and in each such case, immediately after the close of business on such date for determination, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section) of the Common Stock on the date fixed for such determination less an amount equal to the quotient of (x) the excess of such combined cash and tender amount over such aggregate current market price divided by (y) the number of shares of Common Stock outstanding on such date for determination and (ii) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 12.4) of the Common Stock on such date for determination. (6) In case a tender offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (I) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender offer, of consideration payable in respect of any other tender offer by the Company or any Subsidiary for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this paragraph (6) has been made and (II) the aggregate amount of any cash distributions to all holders of the Company's Common Stock within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to paragraph (5) of this Section has been made (the "combined tender and cash amount") exceeds 12.5% of the product of the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section 12.4) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate immediately prior to close of business on the date of the Expiration Time by a fraction (i) the numerator of which shall be equal to (A) the product of (I) the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section 12.4) on the date of the Expiration Time multiplied by (II) the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time less (B) the combined tender and cash amount, and (ii) the denominator of which shall be equal to the product of (A) the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section 12.4) as of the Expiration Time multiplied by (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time less the number of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares"). (7) The reclassification of Common Stock into securities including other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 12.11 applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and "the date fixed for such determination" within the meaning of paragraph (4) of this Section), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 12.4). (8) For the purpose of any computation under paragraphs (2), (4), (5) or (6) of this Section 12.4, the current market price per share of Common Stock on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Prices Per Share for the five consecutive Trading Days selected by the Company commencing not more than 10 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex" date with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "'ex' date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution. (9) No adjustment in the Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such rate; provided, however, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (10) The Company may make such increases in the Conversion Rate, for the remaining term of the Securities or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 12.4, as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes. The Company shall have the power to resolve any ambiguity or correct any error in this paragraph (10) and its actions in so doing shall, absent manifest error, be final and conclusive. (11) Notwithstanding the foregoing provisions of this Section, no adjustment of the Conversion Rate shall be required to be made (a) upon the issuance of shares of Common Stock pursuant to any present or future plan for the reinvestment of dividends or (b) because of a tender or exchange offer of the character described in Rule 13e-4(h)(5) under the Exchange Act or any successor rule thereto. (12) To the extent permitted by applicable law, the Company from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during such period, and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive; provided, however, that no such reduction shall be taken into account for purposes of determining whether the Closing Price Per Share of the Common Stock exceeds the Conversion Price by 105% in connection with an event which would otherwise be a Change of Control pursuant to Section 14.4. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Company shall give notice of the reduction to the Holders in the manner provided in Section 1.6 at least fifteen (15) days prior to the date the increased Conversion Rate takes effect, and such notice shall state the increased Conversion Rate and the period during which it will be in effect. SECTION XII.5 Notice of Adjustments of Conversion Rate. Whenever the Conversion Rate is adjusted as herein provided: (1) the Company shall compute the adjusted Conversion Rate in accordance with Section 12.4 and shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall promptly be filed with the Trustee and with each Conversion Agent; and (2) upon each such adjustment, a notice stating that the Conversion Rate has been adjusted and setting forth the adjusted Conversion Rate shall be required, and as soon as practicable after it is required, such notice shall be provided by the Company to all Holders in accordance with Section 1.6. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate or the information and calculations contained therein, except to exhibit the same to any Holder of Securities desiring inspection thereof at its office during normal business hours. SECTION XII.6 Notice of Certain Corporate Action. In case: (1) the Company shall declare a dividend (or any other distribution) on its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 12.4; or (2) the Company shall authorize the granting to all or substantially all of the holders of its Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any reclassification of the Common Stock of the Company, or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or of the conveyance, sale, transfer or lease of all or substantially all of the assets of the Company; or (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 10.2, and shall cause to be provided to all Holders in accordance with Section 1.6, at least 20 days (or 10 days in any case specified in clause (1) or (2) above) prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. Neither the failure to give such notice or the notice referred to in the following paragraph nor any defect therein shall affect the legality or validity of the proceedings described in clauses (1) through (4) of this Section 12.6. If at the time the Trustee shall not be the conversion agent, a copy of such notice shall also forthwith be filed by the Company with the Trustee. The Company shall cause to be filed at the Corporate Trust Office and each office or agency maintained for the purpose of conversion of Securities pursuant to Section 10.2, and shall cause to be provided to all Holders in accordance with Section 1.6, notice of any tender offer by the Company or any Subsidiary for all or any portion of the Common Stock at or about the time that such notice of tender offer is provided to the public generally. SECTION XII.7 Company to Reserve Common Stock. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of Securities, the full number of shares of Common Stock then issuable upon the conversion of all Outstanding Securities. SECTION XII.8 Taxes on Conversions. Except as provided in the next sentence, the Company will pay any and all taxes and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. SECTION XII.9 Covenant as to Common Stock. The Company agrees that all shares of Common Stock which may be delivered upon conversion of Securities, upon such delivery, will have been duly authorized and validly issued and will be fully paid and nonassessable and, except as provided in Section 12.8, the Company will pay all taxes, liens and charges with respect to the issue thereof. SECTION XII.10 Cancellation of Converted Securities. All Securities delivered for conversion shall be delivered to the Trustee or its agent to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 3.9. SECTION XII.11 Provision in Case of Consolidation, Merger or Sale of Assets. In case of any consolidation or merger of the Company with or into any other Person, any merger of another Person with or into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any conveyance, sale, transfer or lease of all or substantially all of the assets of the Company, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then Outstanding shall have the right thereafter, during the period such Security shall be convertible as specified in Section 12.1, to convert such Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by a holder of the number of shares of Common Stock of the Company into which such Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Common Stock of the Company (i) is not a Person with which the Company consolidated or merged with or into or which merged into or with the Company or to which such conveyance, sale, transfer or lease was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (ii) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer, or lease is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this Section 12.11 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non- electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-electing Shares), and further assuming, if such consolidation, merger, conveyance, transfer, sale or lease occurs prior to the 90th day following the last original issue date of the Securities, that the Security was convertible at the time of such occurrence at the Conversion Rate specified in Section 12.1 as adjusted from the issue date of such Security to such time as provided in this Article XII. Such supplemental indenture shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section 12.11 shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. Notice of the execution of such a supplemental indenture shall be given by the Company to the Holder of each Security as provided in Section 1.6 promptly upon such execution. Neither the Trustee nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any such supplemental indenture relating either to the kind or amount of shares of stock or other securities or property or cash receivable by Holders of Securities upon the conversion of their Securities after any such consolidation, merger, conveyance, transfer, sale or lease or to any such adjustment, but may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, an Opinion of Counsel with respect thereto, which the Company shall cause to be furnished to the Trustee upon request. SECTION XII.12 Responsibility of Trustee for Conversion Provisions. The Trustee, subject to the provisions of Section 6.1, and any Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the Conversion Rate, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same, or whether a supplemental indenture need be entered into. Neither the Trustee, subject to the provisions of Section 6.1, nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind or amount) of any Common Stock, or of any other securities or property or cash, which may at any time be issued or delivered upon the conversion of any Security; and it or they do not make any representation with respect thereto. Neither the Trustee, subject to the provisions of Section 6.1, nor any Conversion Agent shall be responsible for any failure of the Company to make or calculate any cash payment or to issue, transfer or deliver any shares of Common Stock or share certificates or other securities or property or cash upon the surrender of any Security for the purpose of conversion; and the Trustee, subject to the provisions of Section 6.1, and any Conversion Agent shall not be responsible for any failure of the Company to comply with any of the covenants of the Company contained in this Article. ARTICLE XIII SUBORDINATION OF SECURITIES SECTION XIII.1 Securities Subordinate to Senior Indebtedness. The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article (subject to the provisions of Article IV), the indebtedness represented by the Securities and the payment of the principal of, or premium, if any, or interest (including Liquidated Damages, if any) on, each and all of the Securities (including, but not limited to, the Redemption Price with respect to the Securities to be called for redemption in accordance with Article XI or the Repurchase Price with respect to Securities submitted for repurchase in accordance with Article XIV, are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness. SECTION XIII.2 No Payment in Certain Circumstances; Payment Over of Proceeds Upon Dissolution, Etc. No payment shall be made with respect to the principal of, or premium, if any, or interest (including Liquidated Damages, if any) on the Securities (including, but not limited to, the Redemption Price with respect to the Securities to be called for redemption in accordance with Article XI or the Repurchase Price with respect to Securities submitted for repurchase in accordance with Article XIV), except payments and distributions made by the Trustee as permitted by Section 13.9, if: (i) a default in the payment of principal, premium, if any, or interest (including a default under any repurchase or redemption obligation) or other amounts with respect to any Senior Indebtedness occurs and is continuing (or, in the case of Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Senior Indebtedness) unless and until such default shall have been cured or waived or shall have ceased to exist; or (ii) a default, other than a payment default, on any Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a Representative of Designated Senior Indebtedness or the Company. If the Trustee receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until (A) at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice, and (B) all scheduled payments of principal, premium, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Company may and shall resume payments on and distributions in respect of the Notes upon the earlier of: (1) the date upon which the default is cured or waived or ceases to exist, or (2) in the case of a default referred to in clause (ii) above, 179 days pass after notice is received if the maturity of such Designated Senior Indebtedness has not been accelerated, unless this Article XIII otherwise prohibits the payment or distribution at the time of such payment or distribution. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of the Company, then and in any such event the holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness in cash before the Holders of the Securities are entitled to receive any payment on account of principal of (or premium, if any) or interest (including any Liquidated Damages) on the Securities or on account of the purchase, redemption or other acquisition of Securities, and to that end the holders of Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, which may be payable or deliverable in respect of the Securities in any such case, proceeding, dissolution, liquidation or other winding up or event. In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, securities or other property, before all Senior Indebtedness is paid in full, and if such fact shall, at or prior to the time of such payment or distribution, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. For purposes of this Article only, the words "cash, securities or other property" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, which shares of stock or securities are subordinated in right of payment to all then outstanding Senior Indebtedness to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article VII shall not be deemed a dissolution, winding up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or which acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article VII. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company, in the case of the Trustee, or the Trustee, in the case of such Holder. SECTION XIII.3 Prior Payment to Senior Indebtedness Upon Acceleration of Securities. In the event of the acceleration of the Securities because of an Event of Default, no payment or distribution shall be made to the Trustee or any holder of Securities in respect of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Securities (including, but not limited to, the Redemption Price with respect to the Securities called for redemption in accordance with Article XI or the Repurchase Price with respect to the Securities submitted for repurchase in accordance with Article XIV), except payments and distributions made by the Trustee as permitted by Section 13.9, until all Senior Indebtedness has been paid in full in cash or other payment satisfactory to the holders of Senior Indebtedness or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of the acceleration, and the Trustee shall promptly notify the Bank of America National Trust and Savings Association, as Agent under the Credit Agreement (or any successor agent thereunder of which it has received prior written notice) of such acceleration, in each case at the address set forth in the notice from the Agent (or successor agent) to the Trustee as being the address to which the Trustee should send its notice pursuant to this Section 13.3, unless, in each case, there are no payment obligations of the Company thereunder and all obligations thereunder to extend credit have been terminated or expired; provided, however that if the Trustee has not received such notice address from such Agent (or successor Agent) it need not send such notice. SECTION XIII.4 Payment Permitted If No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except during the pendency of any case, proceeding, dissolution, liquidation or other winding up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Company referred to in Section 13.2, or during the circumstances referred to in the first paragraph of Section 13.2, or under the conditions described in Section 13.3, from making payments at any time of principal of (and premium, if any) or interest on the Securities, or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of (and premium, if any) or interest on the Securities or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment would have been prohibited by the provisions of this Article. SECTION XIII.5 Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. SECTION XIII.6 Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (i) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of (and premium, if any) and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (ii) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (iii) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION XIII.7 Trustee to Effectuate Subordination. Each holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION XIII.8 No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder of any Senior Indebtedness, or by any non- compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION XIII.9 Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a Representative or a holder of Senior Indebtedness (including, without limitation, a holder of Designated Senior Indebtedness) and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 6.1, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 13.9 prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest (including Liquidated Damages, if any) on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within one Business Day prior to such date. Notwithstanding anything in this Article XIII to the contrary, nothing shall prevent any payment by the Trustee to the Holders of monies deposited with it pursuant to Section 4.1, and any such payment shall not be subject to the provisions of Section 13.2 or 13.3. Subject to the provisions of Section 6.1, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a Representative or a holder of Senior Indebtedness (including, without limitation, a holder of Designated Senior Indebtedness) to establish that such notice has been given by a Representative or a holder of Senior Indebtedness (including, without limitation, a holder of Designated Senior Indebtedness). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION XIII.10 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 6.1, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION XIII.11 Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. SECTION XIII.12 Reliance by Holders of Senior Indebtedness on Subordination Provisions. Each Holder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness, and no amendment or modification of the provisions contained herein shall diminish the rights of such holders of Senior Indebtedness unless such holders shall have agreed in writing thereto. SECTION XIII.13 Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.7. SECTION XIII.14 Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 13.13 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION XIII.15 Certain Conversions and Repurchases Deemed Payment. For the purposes of this Article only, (i) the issuance and delivery of junior securities upon conversion of Securities in accordance with Article XII or upon the repurchase of Securities in accordance with Article XIV shall not be deemed to constitute a payment or distribution on account of the principal of or premium or interest (including Liquidated Damages, if any) on Securities or on account of the purchase or other acquisition of Securities, and (ii) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 12.3), property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal of such Security. For the purposes of this Section, the term "junior securities" means (a) shares of any stock of any class of the Company and securities into which the Securities are convertible pursuant to Article XII and (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article XII or to exchange such Security for Common Stock in accordance with Article XIV if the Company elects to satisfy the obligations under Article XIV by the delivery of Common Stock. ARTICLE XIV REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A CHANGE IN CONTROL SECTION XIV.1 Right to Require Repurchase. In the event that a Change in Control (as hereinafter defined) shall occur, then each Holder shall have the right, at the Holder's option, but subject to the provisions of Section 14.2, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such Holder's Securities not theretofore called for redemption, or any portion of the principal amount thereof that is equal to U.S. $1,000 or any integral multiple of U.S. $1,000 in excess thereof (provided that no single Security may be repurchased in part unless the portion of the principal amount of such Security to be Outstanding after such repurchase is equal to U.S. $1,000 or integral multiples of U.S. $1,000 in excess thereof), on the date (the "Repurchase Date") that is 45 days after the date of the Company Notice (as defined in Section 14.3) at a purchase price equal to 100% of the principal amount of the Securities to be repurchased plus interest accrued to the Repurchase Date (the "Repurchase Price"); provided, however, that installments of interest on Securities whose Stated Maturity is on or prior to the Repurchase Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 3.7. Such right to require the repurchase of the Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article IV, unless a Change in Control shall have occurred prior to such discharge. At the option of the Company, the Repurchase Price may be paid in cash or, subject to the fulfillment by the Company of the conditions set forth Section 14.2, by delivery of shares of Common Stock having a fair market value equal to the Repurchase Price. Whenever in this Indenture (including Sections 2.2, 3.1, 5.1(1) and 5.8) there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Indenture shall not be construed as excluding the Repurchase Price in those provisions of this Indenture when such express mention is not made; provided, however, that for the purposes of Article XIII such reference shall be deemed to include reference to the Repurchase Price only to the extent the Repurchase Price is payable in cash. SECTION XIV.2 Conditions to the Company's Election to Pay the Repurchase Price in Common Stock. The Company may elect to pay the Repurchase Price by delivery of shares of Common Stock pursuant to Section 14.1 if and only if the following conditions shall have been satisfied: (1) The shares of Common Stock deliverable in payment of the Repurchase Price shall have a fair market value as of the Repurchase Date of not less than the Repurchase Price. For purposes of Section 14.1 and this Section 14.2, the fair market value of shares of Common Stock shall be determined by the Company and shall be equal to 95% of the average of the Closing Prices Per Share for the five consecutive Trading Days immediately preceding the second Trading Day prior to the Repurchase Date; (2) The Repurchase Price shall be paid only in cash in the event any shares of Common Stock to be issued upon repurchase of Securities hereunder (i) require registration under any federal securities law before such shares may be freely transferrable without being subject to any transfer restrictions under the Securities Act upon repurchase and if such registration is not completed or does not become effective prior to the Repurchase Date, and/or (ii) require registration with or approval of any governmental authority under any state law or any other federal law before such shares may be validly issued or delivered upon repurchase and if such registration is not completed or does not become effective or such approval is not obtained prior to the Repurchase Date; (3) Payment of the Repurchase Price may not be made in Common Stock unless such stock is, or shall have been, approved for quotation on the Nasdaq National Market or listed on a national securities exchange, in either case, prior to the Repurchase Date; and (4) All shares of Common Stock which may be issued upon repurchase of Securities will be issued out of the Company's authorized but unissued Common Stock and, will upon issue, be duly and validly issued and fully paid and non-assessable and free of any preemptive rights. If all of the conditions set forth in this Section 14.2 are not satisfied in accordance with the terms thereof, the Repurchase Price shall be paid by the Company only in cash. SECTION XIV.3 Notices; Method of Exercising Repurchase Right, Etc. (1) Unless the Company shall have theretofore called for redemption all of the Outstanding Securities, on or before the 30th day after the occurrence of a Change in Control, the Company or, at the request and expense of the Company on or before the 15th day after such occurrence, the Trustee, shall give to all Holders of Securities, in the manner provided in Section 1.6, notice (the "Company Notice") of the occurrence of the Change of Control and of the repurchase right set forth herein arising as a result thereof. The Company shall also deliver a copy of such notice of a repurchase right to the Trustee. Each notice of a repurchase right shall state: (i) the Repurchase Date, (ii) the date by which the repurchase right must be exercised, (iii) the Repurchase Price, and whether the Repurchase Price shall be paid by the Company in cash or by delivery of shares of Common Stock, (iv) a description of the procedure which a Holder must follow to exercise a repurchase right, and the place or places where such Securities, are to be surrendered for payment of the Repurchase Price and accrued interest, if any, (v) that on the Repurchase Date the Repurchase Price, and accrued interest, if any, will become due and payable upon each such Security designated by the Holder to be repurchased, and that interest thereon shall cease to accrue on and after said date, (vi) the Conversion Rate then in effect, the date on which the right to convert the principal amount of the Securities to be repurchased will terminate and the place or places where such Securities may be surrendered for conversion, and (vii) the place or places that the Security certificate with the Election of Holder to Require Repurchase as specified in Section 2.2 shall be delivered, and if the Security is a Restricted Securities Certificate the place or places that the Surrender Certificate required by Section 14.3(9) shall be delivered. No failure of the Company to give the foregoing notices or defect therein shall limit any Holder's right to exercise a repurchase right or affect the validity of the proceedings for the repurchase of Securities. If any of the foregoing provisions or other provisions of this Article XIV are inconsistent with applicable law, such law shall govern. (2) To exercise a repurchase right, a Holder shall deliver to the Trustee on or before the 30th day after the date of the Company Notice (i) written notice of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of the Securities to be repurchased (and, if any Security is to repurchased in part, the serial number thereof, the portion of the principal amount thereof to be repurchased and the name of the Person in which the portion thereof to remain Outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby, and, in the event that the Repurchase Price shall be paid in shares of Common Stock, the name or names (with addresses) in which the certificate or certificates for shares of Common Stock shall be issued, and (ii) the Securities with respect to which the repurchase right is being exercised. Such written notice shall be irrevocable, except that the right of the Holder to convert the Securities with respect to which the repurchase right is being exercised shall continue until the close of business on the Business Day prior to the Repurchase Date. (3) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the Trustee the Repurchase Price in cash or shares of Common Stock, as provided above, for payment to the Holder on the Repurchase Date or, if shares of Common Stock are to be paid, as promptly after the Repurchase Date as practicable, together with accrued and unpaid interest to the Repurchase Date payable with respect to the Securities as to which the purchase right has been exercised; provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Regular Record Date. (4) If any Security (or portion thereof) surrendered for repurchase shall not be so paid on the Repurchase Date, the principal amount of such Security (or portion thereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate of 6% per annum, and each Security shall remain convertible into Common Stock until the principal of such Security (or portion thereof, as the case may be) shall have been paid or duly provided for. (5) Any Security which is to be repurchased only in part shall be surrendered to the Trustee (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (6) Any issuance of shares of Common Stock in respect of the Repurchase Price shall be deemed to have been effected immediately prior to the close of business on the Repurchase Date and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such repurchase shall be deemed to have become on the Repurchase Date the holder or holders of record of the shares represented thereby; provided, however, that any surrender for repurchase on a date when the stock transfer books of the Company shall be closed shall constitute the Person or Persons in whose name or names the certificate or certificates for such shares are to be issued as the record holder or holders thereof for all purposes at the opening of business on the next succeeding day on which such stock transfer books are open. No payment or adjustment shall be made for dividends or distributions on any Common Stock issued upon repurchase of any Security declared prior to the Repurchase Date. (7) No fractions of shares shall be issued upon repurchase of Securities. If more than one Security shall be repurchased from the same Holder and the Repurchase Price shall be payable in shares of Common Stock, the number of full shares which shall be issuable upon such repurchase shall be computed on the basis of the aggregate principal amount of the Securities so repurchased. Instead of any fractional share of Common Stock which would otherwise be issuable on the repurchase of any Security or Securities, the Company will deliver to the applicable Holder its check for the current market value of such fractional share. The current market value of a fraction of a share is determined by multiplying the current market price of a full share by the fraction, and rounding the result to the nearest cent. For purposes of this Section, the current market price of a share of Common Stock is the Closing Price Per Share of the Common Stock on the Trading Day immediately preceding the Repurchase Date. (8) Any issuance and delivery of certificates for shares of Common Stock on repurchase of Securities shall be made without charge to the Holder of Securities being repurchased for such certificates or for any tax or duty in respect of the issuance or delivery of such certificates or the securities represented thereby; provided, however, that the Company shall not be required to pay any tax or duty which may be payable in respect of (i) income of the Holder or (ii) any transfer involved in the issuance or delivery of certificates for shares of Common Stock in a name other than that of the Holder of the Securities being repurchased, and no such issuance or delivery shall be made unless and until the Person requesting such issuance or delivery has paid to the Company the amount of any such tax or duty or has established, to the satisfaction of the Company, that such tax or duty has been paid. (9) If shares of Common Stock to be delivered upon repurchase of a Security are to be registered in a name other than that of the beneficial owner of such Security, then such Holder must deliver to the Trustee a Surrender Certificate, dated the date of surrender of such Restricted Security and signed by such beneficial owner, as to compliance with the restrictions on transfer applicable to such Restricted Security. Neither the Trustee nor any Registrar or Transfer Agent or other agents shall be required to register in a name other than that of the beneficial owner shares of Common Stock issued upon repurchase of any such Restricted Security not so accompanied by a properly completed Surrender Certificate. (10) All Securities delivered for repurchase shall be delivered to the Trustee to be canceled at the direction of the Trustee, which shall dispose of the same as provided in Section 3.9. SECTION XIV.4 Certain Definitions. For purposes of this Article XIV, (1) the term "beneficial owner" shall be determined in accordance with Rule 13d-3, as in effect on the date of the original execution of this Indenture, promulgated by the Commission pursuant to the Exchange Act; (2) a "Change in Control" shall be deemed to have occurred at the time, after the original issuance of the Securities, of: (i) the acquisition by any Person (including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the elections of directors (any shares of voting stock of which such person or group is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage), other than any such acquisition by the Company, any Subsidiary of the Company or any employee benefit plan of the Company existing on the date of this Indenture; or (ii) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company, or any sale or transfer of all or substantially all of the assets (other than to a wholly-owned subsidiary of the Company) of the Company to any other Person (other than (a) any such transaction pursuant to which the holders of 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in elections of directors immediately prior to such transaction have, directly or indirectly, at least 50% or more of the total voting power of all shares of capital stock of the continuing or surviving corporation entitled to vote generally in elections of directors of the continuing or surviving corporation immediately after such transaction and (b) a merger (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of capital stock of the Company or (y) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of common stock); provided, however, that a Change in Control shall not be deemed to have occurred if either (a) the Closing Price Per Share of the Common Stock for any five Trading Days within the period of 10 consecutive Trading Days ending immediately after the later of the Change in Control or the public announcement of the Change in Control (in the case of a Change in Control under clause 14.4(2)(i) above) or the period of 10 consecutive Trading Days ending immediately before the Change in Control (in the case of a Change in Control under clause 14.4(2) (ii) above) shall equal or exceed 105% of the Conversion Price of the Securities in effect on each such Trading Day, or (b) all of the consideration (excluding cash payments for fractional shares and cash payments made pursuant to dissenters' appraisal rights) in a merger or consolidation constituting the Change in Control described in clause 14.4(2)(i) and/or clause 14.4(2) (ii) above consists of shares of common stock traded on a national securities exchange or quoted on the Nasdaq National Market (or will be so traded or quoted immediately following the Change in Control) and as a result of such transaction or transactions the Securities become convertible solely into such common stock. (3) the term "Conversion Price" shall equal U.S. $1,000 divided by the Conversion Rate; and (4) for purposes of Section 14.4(2)(i), the term "person" shall include any syndicate or group which would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act, as in effect on the date of the original execution of this Indenture. SECTION XIV.5 Consolidation, Merger, etc. In the case of any consolidation, conveyance, sale, transfer or lease of all or substantially all of the assets of the Company to which Section 12.11 applies, in which the Common Stock of the Company is changed or exchanged as a result into the right to receive shares of stock and other securities or property or assets (including cash) which includes shares of Common Stock of the Company or common stock of another Person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such shares of stock and other securities, property and assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the Person formed by such consolidation or resulting from such merger or combination or which acquires the properties or assets (including cash) of the Company, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of Holders to cause the Company to repurchase the Securities following a Change in Control, including without limitation the applicable provisions of this Article XIV and the definitions of the Common Stock and Change in Control, as appropriate, and such other related definitions set forth herein as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply in the event of a subsequent Change of Control to the common stock and the issuer thereof if different from the Company and Common Stock of the Company (in lieu of the Company and the Common Stock of the Company). ARTICLE XV HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY; NON-RECOURSE SECTION XV.1 Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (1) semi-annually, not more than 15 days after the Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities as of such Regular Record Date, and (2) at such other times as the Trustee may reasonably request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that no such list need be furnished so long as the Trustee is acting as Security Registrar. SECTION XV.2 Preservation of Information. (1) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 15.1 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list, if any, furnished to it as provided in Section 15.1 upon receipt of a new list so furnished. (2) After this Indenture has been qualified under the Trust Indenture Act, the rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (3) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION XV.3 No Recourse Against Others. An incorporator or any past, present or future director, officer, employee or stockholder, as such, of the Company or any subsidiary shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Holder shall waive and release all such liability. Such waiver and release shall be part of the consideration for the issue of the Securities. SECTION XV.4 Reports by Trustee. (1) After this Indenture has been qualified under the Trust Indenture Act, the Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (2) After this Indenture has been qualified under the Trust Indenture Act, a copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange. SECTION XV.5 Reports by Company. After this Indenture has been qualified under the Trust Indenture Act, the Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE XVI IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 16.1 Indenture and Securities Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or interest on any Security and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer, or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Securities. _____________________ This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. CIRRUS LOGIC, INC. By Name: Title: Attest: ______________________________ Name: Title: STATE STREET BANK AND TRUST COMPANY, as Trustee By Name: Title: Attest: _______________________________ Name: Title: ANNEX A -- Form of Regulation S Certificate REGULATION S CERTIFICATE (For transfers pursuant to 3.5(2)(i), (iii) and (v) of the Indenture) State Street Bank and Trust Company 2 International Place 4th Floor Boston, Massachusetts 02110 Re: 6% Convertible Subordinated Notes due December 15, 2003 of Cirrus Logic, Inc. (the "Securities") Reference is made to the Indenture, dated as of December 15 , 1996 (the "Indenture"), from Cirrus Logic, Inc. (the "Company") to State Street Bank and Trust Company, as Trustee. Terms used herein and defined in the Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Regulation S Security. In connection with such transfer, the Owner hereby certifies that, unless such transfer is being effected pursuant to an effective registration statement under the Securities Act, it is being effected in accordance with Rule 904 or Rule 144 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: (1) Rule 904 Transfers. If the transfer is being effected in accordance with Rule 904: (A) the Owner is not a distributor of the Securities, an affiliate of the Company or any such distributor or a person acting on behalf of any of the foregoing; (B) the offer of the Specified Securities was not made to a person in the United States; (C) either: (i) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States, or (ii) the transaction is being executed in, on or through the facilities of the Eurobond market, as regulated by the Association of International Bond Dealers, or another designated offshore securities market and neither the Owner nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; (D) no directed selling efforts have been made in the United States by or on behalf of the Owner or any affiliate thereof; (E) if the Owner is a dealer in securities or has received a selling concession, fee or other remuneration in respect of the Specified Securities, and the transfer is to occur during the Restricted Period, then the requirements of Rule 904(c)(1) have been satisfied; and (F) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. (2) Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (A) the transfer is occurring after a holding period of at least two years (computed in accordance with paragraph (d) of Rule 144) has elapsed since the date the Specified Securities were acquired from the Company or from an affiliate (as such term is defined in Rule 144) of the Company, whichever is later, and is being effected in accordance with the applicable amount, manner of sale and notice requirements of paragraphs (e), (f) and (h) of Rule 144; or (B) the transfer is occurring after a period of at least three years has elapsed since the date the Specified Securities were acquired from the Company or from an affiliate (as such term is defined in Rule 144) of the Company, whichever is later, and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers. Dated: (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) ANNEX B -- Form of Restricted Securities Certificate RESTRICTED SECURITIES CERTIFICATE (For transfers pursuant to 3.5(2)(ii), (iii), (iv) and (v) of the Indenture) State Street Bank and Trust Company 2 International Place 4th Floor Boston, Massachusetts 02110 Re: 6% Convertible Subordinated Notes due December 15, 2003 of Cirrus Logic, Inc. (the "Securities") Reference is made to the Indenture, dated as of December 15, 1996 (the "Indenture"), from Cirrus Logic, Inc. (the "Company") to State Street Bank and Trust Company, as Trustee. Terms used herein and defined in the Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $_____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Restricted Security. In connection with such transfer, the Owner hereby certifies that, unless such transfer is being effected pursuant to an effective registration statement under the Securities Act, it is being effected in accordance with Rule 144A or Rule 144 under the Securities Act and all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as: (1) Rule 144A Transfers. If the transfer is being effected in accordance with Rule 144A: (A) the Specified Securities are being transferred to a person that the Owner and any person acting on its behalf reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A, acquiring for its own account or for the account of a qualified institutional buyer; and (B) the Owner and any person acting on its behalf have taken reasonable steps to ensure that the Transferee is aware that the Owner may be relying on Rule 144A in connection with the transfer; and (2) Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (A) the transfer is occurring after a holding period of at least two years (computed in accordance with paragraph (d) of Rule 144) has elapsed since the date the Specified Securities were acquired from the Company or from an affiliate (as such term is defined in Rule 144) of the Company, whichever is later, and is being effected in accordance with the applicable amount, manner of sale and notice requirements of paragraphs (e), (f) and (h) of Rule 144; or (B) the transfer is occurring after a period of at least three years has elapsed since the date the Specified Securities were acquired from the Company or from an affiliate (as such term is defined in Rule 144) of the Company, whichever is later, and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers. Dated: (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) ANNEX C -- Form of Unrestricted Securities Certificate UNRESTRICTED SECURITIES CERTIFICATE (For removal of Securities Act Legends pursuant to 3.5(3)) State Street Bank and Trust Company 2 International Place 4th Floor Boston, Massachusetts 02110 Re: 6% Convertible Subordinated Notes due December 15, 2003 of Cirrus Logic, Inc. (the "Securities") Reference is made to the Indenture, dated as of December 15 , 1996 (the "Indenture"), from Cirrus Logic, Inc. (the "Company") to State Street Bank and Trust Company, as Trustee. Terms used herein and defined in the Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $_____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be exchanged for Securities bearing no Securities Act Legend pursuant to Section 3.5(3) of the Indenture. In connection with such exchange, the Owner hereby certifies that the exchange is occurring after a period of at least three years has elapsed since the date the Specified Securities were acquired from the Company or from an affiliate (as such term is defined in Rule 144) of the Company, whichever is later, and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. The Owner also acknowledges that any future transfers of the Specified Securities must comply with all applicable securities laws of the states of the United States and other jurisdictions. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers. Dated: (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) ANNEX D -- Form of Surrender Certificate In connection with the certification contemplated by Section 12.2 or 14.3(9) relating to compliance with certain restrictions relating to transfers of Restricted Securities, such certification shall be provided substantially in the form of the following certificate, with only such changes thereto as shall be approved by the Company and Goldman, Sachs & Co.: "CERTIFICATE CIRRUS LOGIC, INC. 6% CONVERTIBLE NOTES DUE DECEMBER 15, 2003 This is to certify that as of the date hereof with respect to U.S. $________ principal amount (as defined in the Indenture) of the above-captioned securities surrendered on the date hereof (the "Surrendered Securities") for registration of transfer, or for conversion or repurchase where the securities issuable upon such conversion or repurchase are to be registered in a name other than that of the undersigned Holder (each such transaction being a "transfer"), the undersigned Holder (as defined in the Indenture) certifies that the transfer of Surrendered Securities associated with such transfer complies with the restrictive legend set forth on the face of the Surrendered Securities for the reason checked below: _______ The transfer of the Surrendered Securities complies with Rule 144 under the United States Securities Act of 1933, as amended (the "Securities Act"); or _______ The transfer of the Surrendered Securities complies with Rule 144A under the Securities Act; or _______ The transfer of the Surrendered Securities complies with Rule 904 under the Securities Act. _______ The transfer of the Surrendered Securities has been made to an institution that is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act in a transaction exempt from the registration requirements of the Securities Act. [Name of Holder] ____________________ Dated: ____________, ____*" *To be dated the date of surrender EX-4.2 3 RIGHTS AGREEMENT DATED AS OF DECEMBER 15, 1996 Cirrus Logic, Inc. 6% Convertible Subordinated Notes due December 15, 2003 Registration Rights Agreement Dated as of December 18, 1996 Goldman, Sachs & Co., Salomon Brothers Inc, J.P. Morgan Securities Inc., Robertson, Stephens & Company LLC, c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 Ladies and Gentlemen: Cirrus Logic, Inc., a Delaware corporation (the "Company"), proposes to issue and sell to Goldman, Sachs & Co., Salomon Brothers Inc, J.P. Morgan Securities Inc. and Robertson Stephens & Company LLC (the "Purchasers") upon the terms set forth in a purchase agreement dated December 12, 1996 (the "Purchase Agreement") between the Purchasers and the Company, its 6% Convertible Subordinated Notes due December 15, 2003. As an inducement to the Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchasers thereunder, the Company agrees with the Purchasers, (i) for the benefit of the Purchasers and (ii) for the benefit of the Holders (as defined below) from time to time of the Registrable Securities (as defined below), including the Purchasers, as follows: 1. Definitions. Capitalized terms used herein without definition shall have their respective meanings set forth in or pursuant to the Purchase Agreement or the Offering Circular, dated December 12, 1996, in respect of the Securities. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "Affiliate" of any specified Person means any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with such specified Person. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agreement" shall mean this Registration Rights Agreement as the same may be amended, supplemented or modified from time to time in accordance with the terms hereof. "Commission" means the United States Securities and Exchange Commission. "Common Stock" means the Common Stock, no par value, of the Company and any other shares of common stock as may constitute "Common Stock" for purposes of the Indenture. "DTC" means The Depository Trust Company. "Effectiveness Period" has the meaning set forth in Section 2(b) hereof. "Electing Holder" shall mean, with respect to any Shelf Registration Statement, a Holder electing to sell Registrable Securities thereunder. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder. "Holder" shall mean any person that is the record owner of Registrable Securities (and includes any person that has a beneficial interest in any Registrable Security in book-entry form). "Indenture" the Indenture, dated as of December 15, 1996, between the Company and the Trustee thereunder, pursuant to which the Securities are being issued, as amended, modified or supplemented from time to time in accordance with the terms thereof. "Issue Date" means December 23, 1996. "Liquidated Damages" has the meaning set forth in Section 2(c). "Managing Underwriters" means the investment banker or investment bankers and manager or managers that shall administer an underwritten offering, if any, as set forth in Section 6 hereof. "Person" shall mean an individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Prospectus" means the prospectus included in any Shelf Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities. "Registration Default" has the meaning set forth in Section 2(c) hereof. "Rule 144" shall mean Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule or regulation. "Rule 144A" shall mean Rule 144A promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule or regulation. "Rule 415" shall mean Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule or regulation. "Rule 430A" shall mean Rule 430A promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule or regulation. "Restricted Securities" shall mean all Securities required pursuant to Section 3.5(3) of the Indenture to bear any Restricted Securities Legend (as defined in the Indenture). "Registrable Security" shall mean any Restricted Security and any share of Common Stock issuable upon conversion thereof except any such Restricted Security or share of Common Stock which (i) has been effectively registered under the Securities Act and sold in a manner contemplated by the Registration Statement, (ii) has been transferred in compliance with Rule 144 under the Securities Act (or any successor provision thereto), or is transferable pursuant to paragraph (k) of such Rule 144 (or any successor provision thereto), (iii) has been resold in compliance with Regulation S under the Securities Act (or any successor thereto) and does not constitute the unsold allotment of a distributor within the meaning of Regulation S under the Securities Act, or (iv) has otherwise been transferred and a new Security or share of Common Stock not subject to transfer restrictions under the Securities Act has been delivered by or on behalf of the Company in accordance with Section 3.5(2) of the Indenture. "Securities" shall mean the $250,000,000 aggregate principal amount of 6% Convertible Subordinated Notes due December 15, 2003 of the Company being issued pursuant to the Indenture (together with up to $50,000,000 aggregate principal amount of such Convertible Subordinated Notes if, and to the extent, the Purchasers' over allotment option is exercised). "Securities Act" means the United States Securities Act of 1933, as amended and the rules and regulations promulgated thereunder. "Shelf Registration" means a registration effected pursuant to Section 2 hereof. "Shelf Registration Statement" means a shelf registration statement of the Company pursuant to the provisions of Section 2 hereof filed with the Commission which covers some or all of the Registrable Securities, as applicable, on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the Commission, amendments and supplements to such registration statement, including post- effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Special Counsel" means any special counsel to the Holders, determined as provided in Section 4 hereof. "Trust Indenture Act" has the meaning set forth in Section 1.1 of the Indenture. "Trustee" the Trustee under the Indenture. "underwriter" means any underwriter of Registrable Securities in connection with an offering thereof under a Shelf Registration Statement. 2. Shelf Registration. (a) The Company shall, within 90 calendar days following the Issue Date of the Securities, file with the Commission a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement and, thereafter, shall use its reasonable efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act within 180 calendar days after the Issue Date; provided, however, that no Holder shall be entitled to have the Registrable Securities held by it covered by such Shelf Registration unless such Holder is in compliance with Section 3(m) hereof. (b) The Company shall use its reasonable efforts: (i) To keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of three years from the Issue Date or such shorter period that will terminate upon the earliest of the following: (A) when all the Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement, (B) when all shares of Common Stock issued upon conversion of any such Securities that had not been sold pursuant to the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement and (C) when there shall cease to be outstanding Registrable Securities (in any such case, such period being called the "Effectiveness Period"); and (ii) After the effectiveness of the Shelf Registration Statement, promptly upon the request of any Holder, to take any action reasonably necessary to register the sale of any Registrable Securities of such Holder and to identify such Holder as a selling securityholder. The Company shall be deemed not to have used its reasonable efforts to keep the Shelf Registration Statement effective during the requisite period if the Company voluntarily takes any action that would result in Holders of Registrable Securities covered thereby not being able to offer and sell any such Registrable Securities during that period, unless (i) such action is required by applicable law, (ii) the continued effectiveness of the Shelf Registration Statement would require the Company to disclose a material financing, acquisition or other corporate transaction, and the Board of Directors shall have determined in good faith that such disclosure is not in the reasonable interests of the Company and its Common Stockholders, or (iii) the Board of Directors shall have determined in good faith that there is a valid business purpose for such suspension, and (x), in the case of clause (i) above, the Company thereafter promptly complies with the requirements of paragraph 3(i) below and (y) in the case of clauses (ii) and (iii) above, the Company complies with its obligations, if any, to pay Liquidated Damages. (c) (1) If (i) on or prior to 90 days following Issue Date a Shelf Registration Statement has not been filed with the Commission or (ii) on or prior to the 180th day following the Issue Date, such Shelf Registration Statement is not declared effective (each, a "Registration Default"), additional interest ("Liquidated Damages") will accrue on the Restricted Securities from and including the date following such Registration Default until such time as such Shelf Registration Statement is filed or such Shelf Registration Statement is declared effective, as the case may be. Liquidated Damages will be paid semi-annually in arrears, with the first semi-annual payment due on the first Interest Payment Date under the Indenture following the date on such Liquidated Damages begin to accrue, and will accrue at a rate per annual equal to an additional one-quarter of one percent (0.25%) of the principal amount, to and including the 90th day following such Registration Default and one-half of one percent (0.50%) thereof from and after the 91st day following such Registration Default. In the event that Shelf Registration Statement ceases to be effective for more than 90 days or the Company suspends the use of the prospectus which is a part thereof for more than 90 days, whether or not consecutive, during any 12-month period, then the interest rate borne by Restricted Securities will increase by an additional one-half of one percent (0.50%) per annum from the 91st day of the applicable 12-month period such Shelf Registration Statement ceases to be effective or the Company suspends the use of the prospectus which is a part thereof, as the case may be, until the earlier of such time as (i) the Shelf Registration Statement again becomes effective, (ii) the use of the related prospectus ceases to be suspended or (iii) the Effectiveness Period expires. Following the cure of all Registration Defaults relating to any Restricted Securities, the accrual of Liquidated Damages with respect to such Restricted Securities will cease (without in any way limiting the effect of any subsequent Registration Default). In no event shall the Company be required to pay Liquidated Damages in excess of the applicable maximum amount of one-half of one percent (0.50%) set forth above, regardless of whether one or multiple Registration Defaults exist. (2) Liquidated Damages on the Restricted Securities shall be paid by the Company to the Holders on each Interest Payment Date (as defined in the Indenture) in the same manner as for interest on such Restricted Securities as provided in the form of Securities set forth in Section 2.2 of the Indenture. (3) All of the Company's obligations set forth in this Section 2(c) which are unsatisfied to any extent with respect to any Restricted Security at the time such security ceases to be a Restricted Security shall survive until such time as all such obligations with respect to such security have been satisfied in full (notwithstanding the earlier termination of this Agreement). (4) Any payments due and payable pursuant to this Section 2(c) shall be subordinated to Senior Indebtedness (as defined in the Indenture) to the extent and in the manner set forth in Article XIII of the Indenture. (5) The rights of the Holders to Liquidated Damages as set forth in this Section 2(c) is not intended to be exclusive of any other right or remedy, and shall be in addition to every other right and remedy given hereunder or under the Indenture or now or hereafter existing at law or in equity or otherwise. 3. Registration Procedures. In connection with any Shelf Registration Statement, the following provisions shall apply: (a) The Company shall furnish to the Special Counsel and Holders (if requested), prior to the filing thereof with the Commission, a copy of any Shelf Registration Statement, and each amendment thereof and each amendment or supplement, if any, to the Prospectus included therein and shall use its reasonable efforts to reflect in each such document, when so filed with the Commission, such comments as the Special Counsel and Holders reasonably may propose. (b) The Company shall take such action as may be necessary so that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto (and each report or other document incorporated therein by reference in each case) complies in all material respects with the Securities Act and the Exchange Act, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Shelf Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. (c) (1) The Company shall advise the Purchasers and, in the case of clause (i), the Holders and, if requested by the Purchasers or any such Holder, confirm such advice in writing: (i) when a Shelf Registration Statement and any amendment thereto has been filed with the Commission and when the Shelf Registration Statement or any post effective amendment thereto has become effective; and (ii) of any request by the Commission for amendments or supplements to the Shelf Registration Statement or the Prospectus included therein or for additional information. (2) The Company shall advise the Electing Holders and, if requested by any such Electing Holder, confirm such advice in writing of: (i) the issuance by the Commission of any stop order suspending effectiveness of the Shelf Registration Statement or the initiation of any proceedings for that purpose; (ii) the receipt by the Company of any notification with respect to the suspension of the qualification of the securities included therein for sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iii) the happening of any event that requires the making of any changes in the Shelf Registration Statement or the Prospectus so that, as of such date, the Shelf Registration Statement and the Prospectus do not contain an untrue statement of a material fact and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading (which advice shall be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made). (d) The Company shall use its reasonable efforts to prevent the issuance, and if issued to obtain the withdrawal, of any order suspending the effectiveness of any Shelf Registration Statement at the earliest possible time. (e) The Company shall furnish to the Special Counsel and each Electing Holder (if requested) with respect to a Shelf Registration Statement, without charge, at least one copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Electing Holder so requests in writing, all reports, other documents and exhibits (including those incorporated by reference). (f) The Company shall, during the Effectiveness Period, deliver to each Electing Holder with respect to a Shelf Registration Statement, without charge, as many copies of the Prospectus (including each preliminary Prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Electing Holder may reasonably request, and the Company consents (except during the continuance of any event described in Section 3(c)(2)(iii)) to the use of the Prospectus or any amendment or supplement thereto by each of the Electing Holders in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto during the Effectiveness Period. (g) Prior to any offering of Registrable Securities pursuant to any Shelf Registration Statement, the Company shall register or qualify or cooperate with the Special Counsel and Electing Holders in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Electing Holders reasonably request in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Registrable Securities covered by such Shelf Registration Statement; provided, however, that in no event shall the Company be obligated to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to so qualify but for this Section 3(g), (ii) file any general consent to service of process in any jurisdiction where it is not as of the date hereof then so subject or (iii) subject itself to taxation in any jurisdiction if it is not so subject. (h) Unless any Registrable Securities shall be in book-entry only form, the Company shall cooperate with the Electing Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to any Shelf Registration Statement free of any restrictive legends and in such permitted denominations and registered in such names as Electing Holders may request in connection with the sale of Registrable Securities pursuant to such Shelf Registration Statement. (i) Upon the occurrence of any event contemplated by paragraph 3(c)(2)(iii) above, the Company shall promptly prepare a post-effective amendment to any Shelf Registration Statement or an amendment or supplement to the related Prospectus or file any other required document so that, as thereafter delivered to purchasers of the Registrable Securities included therein, the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Company notifies the Electing Holders of the occurrence of any event contemplated by paragraph 3(c)(2)(iii) above, the Electing Holders shall suspend the use of the Prospectus until the requisite changes to the Prospectus have been made. (j) Not later than the effective date of any Shelf Registration Statement hereunder, the Company shall provide a CUSIP number for the Securities registered under such Shelf Registration Statement. (k) The Company shall use its reasonable efforts to comply with all applicable rules and regulations of the Commission and shall make generally available to their securityholders or otherwise provide in accordance with Section 11(a) of the Securities Act as soon as practicable after the effective date of the applicable Shelf Registration Statement an earnings statement satisfying the provisions of Section 11(a) of the Securities Act. (l) The Company shall cause the Indenture and the Securities to be qualified under the Trust Indenture Act in a timely manner; and in connection with such qualification, the Company shall cooperate with the Trustee under the Indenture and the Holders (as defined in the Indenture) to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the Trust Indenture Act; and the Company shall execute and use all reasonable efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner. (m) The Company may require each Electing Holder with respect to a Shelf Registration Statement to furnish to the Company such information regarding the Electing Holder and the distribution of Registrable Securities held by such Electing Holder as may be required by applicable law or regulation for inclusion in such Shelf Registration Statement (including, without limitation, the information required by Item 507 of Regulation S-K of the Securities Act), and the Company may exclude from such registration the Registrable Securities of any Electing Holder that fails to furnish such information within a reasonable time after receiving such request. (n) The Company shall enter into such customary agreements (including underwriting agreements in customary form) to take all other appropriate actions in order to expedite or facilitate the registration or the disposition of the Registrable Securities, and in connection therewith, if an underwriting agreement is entered into pursuant to an underwritten offering in accordance with the provisions of Section 6, cause the same to contain indemnification provisions and procedures substantially identical to those set forth in Section 5 (or such other provisions and procedures acceptable to the Managing Underwriters, if any) with respect to all parties to be indemnified pursuant to Section 5. (o) The Company shall make reasonably available for inspection by one representative of the Electing Holders designated in writing by the Holders of a majority of the Registrable Securities to be registered thereunder, any underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney, accountant or other agent retained by such representative or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries; (p) The Company shall cause the Company's officers, directors and employees to make reasonably available for inspection all relevant information reasonably requested by such representative or any such underwriter, attorney, accountant or agent in connection with any such Shelf Registration Statement, in each case, as is customary for similar due diligence examinations; provided, however, that any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by such representative, any Holders or any such underwriter, attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; (q) The Company will use its reasonable efforts to cause the Common Stock issuable upon conversion of the Securities to be admitted for quotation on the Nasdaq National Market or other stock exchange or trading system on which the Common Stock primarily trades on or prior to the effective date of any Shelf Registration Statement hereunder. (r) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including, without limitation, by (A) such Rules or By-Laws, including Schedule E thereto, shall so require, engaging a "qualified independent underwriter" (as defined in Schedule E) to participate in the preparation of the Shelf Registration Statement relating to such Registrable Securities and to exercise usual standards of due diligence in respect thereto, (B) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (C) providing such information to such broker- dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Fair Practice of the NASD. (s) The Company shall use its reasonable efforts to take all other steps necessary to effect the registration, offering and sale of the Registrable Securities covered by the Shelf Registration Statement contemplated hereby. 4. Registration Expenses. Except as otherwise provided in Section 6, the Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 2 and 3 hereof and shall bear or reimburse the Electing Holders for the reasonable fees and disbursements of a Special Counsel designated by the Company. For purposed of this Agreement, the Company initially appoints Shearman & Sterling as Special Counsel; provided that the Holders of a majority of the Registrable Securities covered by the Shelf Registration Statement have the right pursuant to this Agreement to substitute another firm of counsel as Special Counsel under this Agreement. 5. Indemnification and Contribution. (a) In connection with any Shelf Registration Statement, the Company shall indemnify and hold harmless each Electing Holder, each underwriter who participates in an offering of Registrable Securities, each person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each of their respective directors, officers, employees, trustees and agents, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, including any amounts paid in settlement of any investigation, litigation, proceeding or claim, joint or several, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Shelf Registration Statement (or any amendment thereto) covering Registrable Securities, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, that the Company shall not be liable under this clause (i) for any settlement of any action effected without its written consent, which consent shall not be unreasonably withheld; and (ii) against any and all expenses whatsoever, as incurred (including reasonable fees and disbursements of counsel chosen by the Electing Holders, such Electing Holder or any underwriter (except to the extent otherwise expressly provided in Section 5(c) hereof)), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) of this Section 5(a); provided that this indemnity shall not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by such Electing Holder or any underwriter in writing expressly for use in the Shelf Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). Any amounts advanced by the Company to an indemnified party pursuant to this Section 5 as a result of such losses shall be returned to the Company if it shall be finally determined by such a court in a judgment not subject to appeal or final review that such indemnified party was not entitled to indemnification by the Company. (b) Each Electing Holder shall agree, severally and not jointly, to indemnify and hold harmless the Company, each underwriter who participates in an offering of Registrable Securities and the other Electing Holders and each of their respective directors, officers (including each officer of the Company who signed the Shelf Registration Statement), employees, trustees and agents and each Person, if any, who controls the Company, any underwriter or any other Electing Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Section 5(a)(i) and (ii) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Shelf Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Electing Holder expressly for use in the Shelf Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto); provided, however, that, no such Electing Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Electing Holder from the sale of Registrable Securities pursuant to the Shelf Registration Statement. (c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, enclosing a copy of all papers served on such indemnified party, but failure to so notify an indemnifying party shall not relieve it of any liability which it may have to the indemnified party otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. If an indemnifying party so elects within a reasonable time after receipt of such notice, such indemnifying party, jointly with any other indemnifying party, may assume the defense of such action with counsel chosen by it and approved by the indemnified party or parties defendant in such action, provided that if any such indemnified party reasonably determines that there may be legal defenses available to such indemnified party which are different from or in addition to those available to such indemnifying party or that representation of such indemnifying party and any indemnified party by the same counsel would present a conflict of interest, then such indemnifying party or parties shall not be entitled to assume such defense. If an indemnifying party is not entitled to assume the defense of such action as a result of the proviso to the preceding sentence, counsel for such indemnifying party shall be entitled to conduct the defense of such indemnifying party and counsel for each indemnified party or parties shall be entitled to conduct the defense of such indemnified party or parties. If an indemnifying party assumes the defense of an action in accordance with and as permitted by the provisions of this paragraph, such indemnifying party shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from its own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. (d) In order to provide for just and equitable contribution in circumstances in which the indemnity provision agreement provided for in this Section 5 is for any reason held to be unavailable to the indemnified parties although applicable in accordance with its terms, the Company, and the Electing Holders shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and the Electing Holders, as incurred; provided that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of such fraudulent misrepresentation. As between the Company, on the one hand, and the Electing Holders, on the other hand, such parties shall contribute to such aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect the relative fault of the Company, on the one hand, and the Electing Holders, on the other hand, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Electing Holders, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by or on behalf of the Electing Holders, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Purchasers agree, and the Electing Holders shall agree, that it would not be just and equitable if contribution pursuant to this Section 5 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the relevant equitable considerations. For purposes of this Section 5(d), each director, officer, employee, trustee, agent and Person, if any, who controls a Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Holder, and each director, officer, employee, trustee and agent of the Company, and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company. No party shall be liable for contribution with respect to any action, suit, proceeding or claim settled without its written consent. (e) The Company may require, as a condition to including any Registrable Securities in any Registration Statement filed and to entering into any underwriting agreement with respect thereto, that the Company shall have received an undertaking reasonably satisfactory to it from the holder of such Registrable Securities and from each underwriter named in any such underwriting agreement, severally and not jointly, to comply with the provisions of paragraphs (a) through (d) of this Section 5. 6. Underwritten Offering. The Electing Holders who desire to do so may sell Registrable Securities in an underwritten offering. In any such underwritten offering, the investment banker or bankers and manager or managers that will administer the offering will be selected by, and the underwriting arrangements with respect thereto will be approved by the Holders of a majority of the Registrable Securities to be included in such offering; provided, however, that (i) such investment bankers and managers and underwriting arrangements must be reasonably satisfactory to the Company and (ii) the Company shall not be obligated to arrange for more than one underwritten offering during the Effectiveness Period. No Holder may participate in any underwritten offering contemplated hereby unless such Holder (a) agrees to sell such Holder's Registrable Securities in accordance with any approved underwriting arrangements, (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such approved underwriting arrangements and (c) at least 20% of the outstanding Registrable Securities are included in such underwritten offering. The Holders participating in any underwritten offering shall be responsible for any expenses customarily borne by selling securityholders, including underwriting discounts and commissions and fees and expenses of counsel to the selling securityholders and shall reimburse the Company for the fees and disbursements of their counsel, their independent public accountants and any printing expenses incurred in connection with such underwritten offerings. Notwithstanding the foregoing or the provisions of Section 6(a) hereof, upon receipt of a request from the Managing Underwriter or a representative of Holders of a majority of the Registrable Securities outstanding to prepare and file an amendment or supplement to the Shelf Registration Statement and Prospectus in connection with an underwritten offering, the Company may delay the filing of any such amendment or supplement for up to 90 days if the Company in good faith has a valid business reason for such delay. The Company shall in connection with an underwritten offering in accordance with the provisions of this Section: (a) The Company shall, if requested, promptly include or incorporate in a Prospectus supplement or post- effective amendment to a Shelf Registration Statement, such information as the Managing Underwriters administering an underwritten offering of Registrable Securities registered thereunder reasonably request to be included therein and to which the Company does not reasonably object and shall make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after they are notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment; (b) make such representations and warranties to the Electing Holders and the underwriters in form, substance and scope as are customarily made by the Company to underwriters in primary underwritten offerings and covering matters, including, but not limited to, those set forth in the Purchase Agreement; (c) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters) addressed to each Electing Holder and the underwriters covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Electing Holders and underwriters (it being agreed that the matters to be covered by such opinion or written statement by such counsel delivered in connection with such opinions shall include in customary form, without limitation, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, including the documents incorporated by reference therein, of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading); (d) obtain "cold comfort" letters and updates thereof from the independent public accountants of the Company (and, if necessary, any other independent public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Shelf Registration Statement), addressed to each Electing Holder and the underwriters in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (e) deliver such documents and certificates as may be reasonably requested by any such Electing Holders and the Managing Underwriters, including those to evidence compliance with Section 3(i) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. 7. Miscellaneous. (a) Other Registration Rights. The Company may grant registration rights that would permit any Person that is a third party the right to piggy-back on any Shelf Registration Statement, provided that if the Managing Underwriter, if any, of such offering delivers an opinion to the Electing Holders that the total amount of securities which they and the holders of such piggy-back rights intend to include in any Shelf Registration Statement is so large as to materially adversely affect the success of such offering (including the price at which such securities can be sold), then only the amount, the number or kind of securities to be offered for the account of holders of such piggy-back rights will be reduced to the extent necessary to reduce the total amount of securities to be included in such offering to the amount, number or kind recommended by the Managing Underwriter prior to any reduction in the amount of Registrable Securities to be included. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Goldman, Sachs & Co. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telex, telecopier, or air courier guaranteeing overnight delivery: (1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 7(c); (2) if to the Purchasers, initially at the address set forth in the Purchase Agreement; (3) if to the Company, initially at its address set forth in the Purchase Agreement; and (4) if to the Special Counsel, the address given by such Special Counsel to the Company in accordance with the provisions of this Section 7(c). All such notices and communications shall be deemed to have been duly given when received. The Purchasers or the Company by notice to the other may designate additional or different addresses for subsequent notices or communications. (d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and the Holders, including, without the need for an express assignment or any consent by the Company thereto, subsequent Holders of Registrable Securities. The Company hereby agrees to extend the benefits of this Agreement to any Holder of Registrable Securities and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto. (e) Counterparts. This agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any provisions relating to conflicts of laws. (h) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. Please confirm that the foregoing correctly sets forth the agreement between the Company and you. Very truly yours, By: Name: Title: The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. Goldman, Sachs & Co. Salomon Brothers Inc J.P. Morgan Securities Inc. Robertson, Stephens & Company LLC By: (Goldman, Sachs & Co.) EX-5.1 4 OPINION OF WILSON SONSINI GOODRICH & ROSATI EXHIBIT 5.1 Wilson Sonsini Goodrich & Rosati Professional Corporation 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304-1050 TELEPHONE 415-493-9300 FACSIMILE 415-493-6811 WWW.WSGR.COM March 18, 1997 Cirrus Logic, Inc. 3100 W. Warren Avenue Fremont, CA 94538 Re: Cirrus Logic, Inc. Registration Statement on Form S-1 ----------------------------------------------------- Ladies and Gentlemen: We have examined the Registration Statement on Form S-1 to be filed by Cirrus Logic, Inc. (the "Company") with the Securities and Exchange Commission on March 18, 1997 (the "Registration Statement") in connection with the registration under the Securities Act of 1933, as amended, of 11,591,219 shares of Common Stock of the Company upon conversion of $280,750,000 aggregate principal amount of 6% Convertible Subordinate Notes (the "Registrable Notes") of the Company due December 15, 2003 (equal to a conversion rate of 41.2903 shares per $1000 principal amount of Registrable Notes). It is our opinion that, upon completion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of Shares, and upon the completion of the proceedings being taken in order to permit such transactions to be carried out in accordance with securities laws of various states, where required, the Shares, when issued and sold in the manner referred to in the Registration Statement, will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the Prospectus constituting a part thereof, and any amendment thereto. Very truly yours, /s/ WILSON, SONSINI, GOODRICH & ROSATI Professional Corporation EX-11 5 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)
Three Quarters Ended Fiscal Year ------------------------- -------------------------------------- December 30, December 28, 1994 1995 1996 1995 1996 ------------ ------------ ------------ ------------ ------------ Primary: Weighted average shares outstanding 51,838 59,708 62,761 62,409 64,704 Dilutive common stock equivalents: Common stock options, using treasury stock or modified treasury stock method 4,558 3,964 N/A 7,020 1,678 Common stock warrants, using treasury stock or modified treasury stock method 6 8 N/A 8 - ------------ ------------ ------------ ------------ ------------ Common and common equivalent shares used in the calculation of net income (loss) per share 56,402 63,680 62,761 69,437 66,382 ============ ============ ============ ============ ============ Net income (loss) $45,368 61,402 (36,183) $52,173 $5,703 Net income (loss) per share $0.80 $0.96 ($0.58) $0.75 $0.09 ============ ============ ============ ============ ============ Fully diluted: Weighted average shares outstanding 51,838 59,708 62,761 62,409 64,704 Dilutive common stock equivalents: Common stock options, using treasury stock or modified treasury stock method 4,978 4,096 N/A 7,528 2,309 Convertible subordinated debt, using the "if converted" method - - - - N/A Common stock warrants, using treasury stock or modified treasury stock method 8 8 N/A 9 - ------------ ------------ ------------ ------------ ------------ Common and common equivalent shares used in the calculation of net income (loss) per share 56,824 63,812 62,761 69,946 67,013 ============ ============ ============ ============ ============ Net income (loss) $45,368 $61,402 ($36,183) $52,173 $5,703 Net income (loss) per share $0.80 $0.96 ($0.58) $0.75 $0.09 ============ ============ ============ ============ ============
EX-12.1 6 STATEMENT RE: COMPUTATION OF RATIOS [ARTICLE] 5 [MULTIPLIER] 1,000 Exhibit 12.1 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Three Quarters Ended Fiscal Year --------------------- ------------------------------------------------- Dec. 30, Dec. 28, 1992 1993 1994 1995 1996 1995 1996 --------- --------- --------- --------- --------- ---------- ---------- Income (loss) before income taxes $25,086 $32,545 $55,964 $89,638 ($41,723) $73,169 $15,755 Fixed charges (1) 2,946 2,931 4,075 5,514 8,504 5,935 14,587 --------- --------- --------- --------- --------- ---------- ---------- Total earnings and fixed charges 28,032 35,476 60,039 95,152 (33,219) 79,104 30,342 Fixed charges (1) 2,946 2,931 4,075 5,514 8,504 5,935 14,587 Ratio of earnings to fixed charges (2) 9.5x 12.1x 14.7x 17.3x N/A 13.3x 2.1x ========= ========= ========= ========= ========= ========== ========== ADJUSTED FOR MiCRUS FIXED CHARGES: Fixed charges (3) 7,284 17,401 11,088 25,585 Ratio of earnings to fixed charges (4) 13.1x N/A 7.1x 1.2x ========= ========= ========== ========== ADJUSTED FOR MiCRUS AND CIRENT FIXED CHARGES: Fixed charges (5) 33,236 22,965 37,462 Ratio of earnings to fixed charges (6) N/A 3.4x N/A ========= ========== ==========
____________________ (1) Fixed charges consist of interest expense incurred, including capital leases, amortization of interest costs and the portion of rental expense under operating leases deemed by the Company to be representative of the interest factor. (2) Earnings were inadequate to cover fixed charges for fiscal 1996 by approximately $41.7 million. (3) Fixed charges consist of interest expense incurred, including capital leases, amortization of interest costs and the portion of rental expense under operating leases deemed by the Company to be representative of the interest factor and interest on capitalized leases and the interest factor associated with operating leases of the Company's MiCRUS joint venture. (4) Earnings would have been inadequate to cover fixed charges for fiscal 1996 by approximately $50.6 million. (5) Fixed charges consist of interest expense incurred, including capital leases, amortization of interest costs and the portion of rental expense under operating leases deemed by the Company to be representative of the interest factor and interest on capitalized leases and the interest factor associated with operating leases of the Company's MiCRUS joint venture and on a pro forma basis including the Cirent leases as if they were outstanding from the beginning of fiscal 1996. (6) Earnings would have been inadequate to cover fixed charges for fiscal 1996 and the three quarters ended December 28, 1996 by approximately $66.5 million and $7.1 million, respectively. EX-21.1 7 SUBSIDIARIES OF REGISTRANT [ARTICLE] 5 [MULTIPLIER] 1,000 EXHIBIT 21.1 CIRRUS LOGIC INC. SUBSIDIARIES OF REGISTRANT Acumos Incorporated (California) Cirel Inc. (California) Ciror, Inc. (California) Cirrus Logic Holdings, Inc. (California) Cirrus Logic International Ltd. (Bermuda) Cirrus Logic International SARL (France) Cirrus Logic Korea Co., LTD. (Korea) Cirrus Logic, GmBh. (Germany) Cirrus Logic, K.K. (Japan) Cirrus Logic, Software India, Pvt. Ltd. (India) Cirrus Logic (U.K.) Limited (United Kingdom) Crystal Semiconductor Corporation (Delaware) Pacific Communications Sciences, Inc. (Delaware) EX-23.1 8 EX-23.1 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 24, 1996, (except for the second paragraph of Note 8, as to which the date is April 30, 1996, and the third paragraph of Note 14, as to which the date is June 27, 1996) in the Registration Statement (Form S-1) and related Prospectus of Cirrus Logic, Inc. for the registration of $280,750,000 principal amount of its 6% Convertible Subordinated Notes due December 15, 2003 and 11,591,219 shares of its common stock. Our audit also included the consolidated financial statement schedule of Cirrus Logic, Inc. listed in Item 16(b). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP San Jose, California March 18, 1997 EX-25.1 9 EX 25.1 EXHIBIT 25.1 Conformed Copy SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ---------------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ---------------------- STATE STREET BANK AND TRUST COMPANY (Exact name of trustee as specified in its charter) Massachusetts 04-1867445 (Jurisdiction of incorporation (I.R.S. Employer or organization if not a U.S. Identification No.) national bank) 225 Franklin Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) John R. Towers, Esq. Senior Vice President and Corporate Secretary 225 Franklin Street Boston, Massachusetts 02110 Tel: (617) 654-3253 (Name, address and telephone number of agent for service) _____________________ CIRRUS LOGIC, INC. (Exact name of obligor as specified in its charter) CALIFORNIA 77-0024818 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 3100 West Warren Avenue Fremont, California 94538 (510) 623-8300 (Zip Code) (Address of principal executive offices) _____________________ 6% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER 15, 2003 (Title of Indenture Securities) General Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervisory authority to which it is subject. Department of Banking and Insurance of The Commonwealth of Massachusetts, 100 Cambridge Street, Boston, Massachusetts. Board of Governors of the Federal Reserve System, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Trustee is authorized to exercise corporate trust powers. Item 2. Affiliations with Obligor. If the Obligor is an affiliate of the trustee, describe each such affiliation. The obligor is not an affiliate of the trustee or of its parent, State Street Boston Corporation. (See note on page 2.) Item 3. through Item 15. Not applicable. Item 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. 1. A copy of the articles of association of the trustee as now in effect. A copy of the Articles of Association of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 2. A copy of the certificate of authority of the trustee to commence business, if not contained in the articles of association. A copy of a Statement from the Commissioner of Banks of Massachusetts that no certificate of authority for the trustee to commence business was necessary or issued is on file with the Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 3. A copy of the authorization of the trustee to exercise corporate trust powers, if such authorization is not contained in the documents specified in paragraph (1) or (2), above. A copy of the authorization of the trustee to exercise corporate trust powers is on file with the Securities and Exchange Commission as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 4. A copy of the existing by-laws of the trustee, or instruments corresponding thereto. A copy of the by-laws of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 4 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Eastern Edison Company (File No. 33-37823) and is incorporated herein by reference thereto. 5. A copy of each indenture referred to in Item 4. if the obligor is in default. Not applicable. 6. The consents of United States institutional trustees required by Section 321(b) of the Act. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor or any underwriter for the obligor, the trustee has relied upon information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer furnished to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company, a corporation organized and existing under the laws of The Commonwealth of Massachusetts, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston and The Commonwealth of Massachusetts, on March 6, 1997. STATE STREET BANK AND TRUST COMPANY By: ______________________________________ E. Decker Adams Vice President EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed registration by Cirrus Logic, Inc. of its 6% Convertible Subordinated Debentures, we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY By: _____________________________________ E. Decker Adams Vice President Dated: March 6, 1997 EXHIBIT 7 Consolidated Report of Condition of State Street Bank and Trust Company of Boston, Massachusetts and foreign and domestic subsidiaries, a state banking institution organized and operating under the banking laws of this commonwealth and a member of the Federal Reserve System, at the close of business September 30, 1996, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act and in accordance with a call made by the Commissioner of Banks under General Laws, Chapter 172, Section 22(a). Thousands of ASSETS Dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ..... 1,385,597 Interest-bearing balances .............................. 6,205,892 Securities .................................................. 8,693,549 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge subsidiary .................... 5,707,012 Loans and lease financing receivables: Loans and leases, net of unearned income ............... 4,352,939 Allowance for loan and lease losses .................... 71,421 Loans and leases, net of unearned income and allowances. 4,281,518 Assets held in trading accounts ............................. 702,030 Premises and fixed assets ................................... 364,550 Other real estate owned ..................................... 1,100 Investments in unconsolidated subsidiaries .................. 65,775 Customers' liability to this bank on acceptances outstanding. 36,351 Intangible assets ........................................... 71,688 Other assets................................................. 835,647 Total assets ................................................ 28,350,709 =========== LIABILITIES Deposits: In domestic offices ................................... 8,283,786 Noninterest-bearing .............................. 6,040,773 Interest-bearing ................................. 2,243,013 In foreign offices and Edge subsidiary ................ 9,309,212 Noninterest-bearing .............................. 53,213 Interest-bearing ................................. 9,255,999 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge subsidiary ................... 7,014,421 Demand notes issued to the U.S. Treasury and Trading Liabilities ........................................ 698,705 Other borrowed money ....................................... 690,865 Bank's liability on acceptances executed and outstanding ... 37,357 Other liabilities .......................................... 695,718 Total liabilities .......................................... 26,730,064 EQUITY CAPITAL Common stock ............................................... 29,931 Surplus .................................................... 277,023 Undivided profits .......................................... 1,311,920 Cumulative foreign currency translation adjustments ....... 1,771 Total equity capital ....................................... 1,620,645 Total liabilities and equity capital ....................... 28,350,709 ============ I, Rex S. Schuette, Senior Vice President and Comptroller of the above named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Rex S. Schuette We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. David A. Spina Marshall N. Carter Charles F. Kaye 5 . A copy of each indenture referred to in Item 4. if the obligor is in default. Not applicable. 6. The consents of United States institutional trustees required by Section 321(b) of the Act. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor or any underwriter of the obligor, the trustee has relied upon the information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company, a corporation duly organized and existing under the laws of The Commonwealth of Massachusetts, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston and The Commonwealth of Massachusetts, on March 6, 1997. STATE STREET BANK AND TRUST COMPANY By: /s/ E. Decker Adams E. Decker Adams Vice President EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed registration by Cirrus Logic, Inc. of its 6% Convertible Subordinated Debentures we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY By: /s/ E. Decker Adams E. Decker Adams Vice President Dated: March 6, 1997 -----END PRIVACY-ENHANCED MESSAGE-----