<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 19, 1996
$400,000,000 [LOGO OF AMD INC
ADVANCED MICRO DEVICES, INC. APPEARS HERE]
11% SENIOR SECURED NOTES DUE 2003
The 11% Senior Secured Notes due 2003 (the "Senior Secured Notes") offered
hereby (the "Offering") are being issued by Advanced Micro Devices, Inc., a
Delaware corporation ("AMD" or the "Company").
Interest on the Senior Secured Notes will accrue at the rate of 11% per
annum, payable semi-annually in arrears on February 1 and August 1 of each
year, commencing February 1, 1997, to the holders of record on the immediately
preceding January 15 and July 15, respectively. Except as set forth in
"Description of Senior Secured Notes--Repurchase at the Option of Holders,"
the Company will not be required to make mandatory redemption or sinking fund
payments with respect to the Senior Secured Notes. The Senior Secured Notes
will not be redeemable at the Company's option prior to August 1, 2001.
Thereafter, the Senior Secured Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices set forth herein, plus accrued
and unpaid interest through the redemption date. In the event of a Change of
Control, the holders of the Senior Secured Notes will have the right to
require the Company to purchase their Senior Secured Notes at a price equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of purchase. See "Description of Senior Secured Notes."
The Company has entered into an agreement with three commercial banks which
provides for a new $400.0 million term loan and revolving credit facility (the
"New Credit Agreement"). Prior to January 1, 1997, the Indenture will limit
the aggregate borrowings which can be made under the New Credit Agreement to
$250.0 million. The Senior Secured Notes will be senior secured indebtedness
of the Company and will rank senior in right of payment to all subordinated
interests of the Company and pari passu with the Company's senior borrowings,
including the New Credit Agreement. The Senior Secured Notes and borrowings
under the New Credit Agreement will be secured by one or more Deeds of Trust
and Security Agreements representing a first priority security interest,
subject to the terms of an Intercreditor and Collateral Agency Agreement, in
substantially all of the Company's real property, plant and equipment at its
950,000 square foot integrated circuit manufacturing facility located in
Austin, Texas. The Senior Secured Notes will be effectively subordinated to
all indebtedness and other liabilities and commitments (including trade
payables and lease obligations) of the Company's subsidiaries. Any right of
the Company to receive assets of any of its subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the holders of the
Senior Secured Notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's 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 in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company. As of June 30, 1996, the
indebtedness (including trade payables and lease obligations) of the Company's
subsidiaries was $53.8 million. See "Description of Senior Secured Notes."
The Senior Secured Notes will be represented by one or more Global Notes
registered in the name of a nominee of The Depository Trust Company, as
depositary (the "Depositary"). Beneficial interests in the Senior Secured
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary (with respect to its participants'
interests) and its participants. Except as described herein, the Senior
Secured Notes in certificated form will not be issued in exchange for Global
Notes. Settlement for the Senior Secured Notes will be made in immediately
available funds. The Senior Secured Notes in global form will trade in the
Depositary's Same-Day Funds Settlement System until maturity, and secondary
market trading activity for the Senior Secured Notes will therefore settle in
immediately available funds. See "Description of Senior Secured Notes."
Approximately $150.0 million of the net proceeds of the Offering will be
used to prepay the Company's existing four-year term bank loan. The remaining
net proceeds will be used for general corporate purposes. See "Use of
Proceeds."
SEE "RISK FACTORS" BEGINNING ON PAGE S-10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN CONNECTION WITH
AN INVESTMENT IN THE SENIOR SECURED NOTES.
THE SENIOR SECURED NOTES 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 SUPPLEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- -----------------------------------------------------------------------------------------
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Senior Secured Note........... 100.000% 2.125% 97.875%
Total............................. $400,000,000 $8,500,000 $391,500,000
- -----------------------------------------------------------------------------------------
</TABLE>
(1)Plus accrued interest, if any, from the date of issuance.
(2)See "Underwriting" for indemnification arrangements with the Underwriters.
(3)Before deducting expenses payable by the Company estimated at $3,000,000.
The Senior Secured Notes are being offered by Donaldson, Lufkin & Jenrette
Securities Corporation and BA Securities, Inc. (collectively, the
"Underwriters"), subject to prior sale, when, as and if delivered to and
accepted by them, and subject to various prior conditions, including the right
to reject any order in whole or in part. It is expected that delivery of the
Senior Secured Notes will be made in New York, New York through the facilities
of The Depository Trust Company on or about August 13, 1996, against payment
therefor in immediately available funds.
DONALDSON, LUFKIN & JENRETTE BA SECURITIES, INC.
SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS AUGUST 8, 1996
<PAGE>
LOGO
[AERIAL PHOTOGRAPH OF AMD'S FAB 25 ADVANCED SEMICONDUCTOR MANUFACTURING
FACILITY IN AUSTIN, TEXAS, AS WELL AS CERTAIN OTHER NONCOLLATERAL AMD FACILITIES
ADJACENT TO THE PROPERTY.]
AMD's Fab 25 advanced semiconductor manufacturing facility located in Austin,
Texas. Also shown are certain other noncollateral AMD facilities adjacent to
the property, including Fab 10, as well as property and buildings not owned by
AMD.
AMD, the AMD logo, and combinations thereof are trademarks of Advanced Micro
Devices, Inc. Am486, MACH and Nx586 are registered trademarks of AMD. K86, K86
RISC SUPERSCALAR, AMD-K5, AMD-K6, SLAC, Am29000 and Nx686 are trademarks of
AMD. Microsoft, MS-DOS, Windows and WindowsNT are registered trademarks of
Microsoft Corporation. When used in this Prospectus Supplement, the term logic
circuits includes bipolar digital logic and memory circuits.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR
SECURED NOTES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
Cautionary Statement Regarding Forward Looking Statements. The statements in
this Prospectus Supplement that are forward looking are based on current
expectations and involve numerous risks and uncertainties that could cause
actual results to differ materially. The forward looking statements include the
expectations of the Company regarding the future of the integrated circuit
industry; the strategies of the Company; the development, validation,
certification, introduction, market acceptance and pricing of K86(TM) products;
the future impact of the Company's acquisition of NexGen, Inc.; future business
prospects for microprocessor and Flash memory products and other product lines;
the Company's future commitment to research and development; planned build-out
and expected capability of Fab 25; and projects which are proposed or under
construction in Japan, Germany and China. For a discussion of the factors that
could cause actual results to differ materially, see "Risk Factors" and such
other risks and uncertainties as are detailed in AMD's Securities and Exchange
Commission reports and filings. The following summary is qualified in its
entirety by the more detailed information and financial statements appearing
elsewhere or incorporated by reference in this Prospectus Supplement.
THE COMPANY
AMD, founded in 1969, is one of the largest United States-based semiconductor
manufacturers, based on sales to third parties, with manufacturing facilities
and sales offices throughout the world. AMD's products include a wide variety
of industry-standard integrated circuits ("ICs") which are used in many diverse
product applications, such as telecommunications equipment, data and network
communications equipment, consumer electronics, personal computers ("PCs") and
workstations. AMD's customers include leading electronics manufacturers such as
AT&T, Compaq, Hewlett-Packard, IBM, LM Erickson, Motorola and Siemens, each of
which was among AMD's top eleven customers in 1995. AMD is a New York Stock
Exchange listed company with an equity market capitalization of over $1.5
billion as of August 1, 1996. For the twelve-month period ended June 30, 1996,
AMD's net sales and EBITDA (as defined herein) were approximately $2.2 billion
and $181.0 million, respectively.
The IC market has grown dramatically over the past ten years, driven
primarily by the demand for electronic business and consumer products. Today,
ICs are used in virtually all products involving electronics, including
personal computers and related peripherals, voice and data communications and
networking products, fax and copy machines, home entertainment equipment,
industrial control equipment and automobiles. The global demand for ICs has
grown at a compound annual rate of 23% (in terms of dollar sales) from 1986
through 1995 based upon figures reported in Worldwide Semiconductor Trade
Statistics ("WSTS") published by the Semiconductor Industry Association. The
Company believes that the IC market will continue to grow, due to the
continuing worldwide demand for electronic business and consumer products. The
global IC market is projected by WSTS to grow at a compound annual rate of 13%
(in terms of dollar sales) from 1995 through 1999.
The market for ICs can be divided into separate markets for digital and
analog devices. AMD participates primarily in the market for digital ICs. In
1995, as reported by WSTS, $109 billion, or 87%, of the worldwide IC market
consisted of digital ICs. The three principal types of digital ICs used in most
electronic systems are: (i) memory circuits, (ii) logic circuits and (iii)
microprocessors. Memory circuits are used to store data and programming
instructions; logic circuits are employed to manage the interchange and
manipulation of digital signals within a system; and microprocessors are used
for control and computing tasks. In 1995, as reported by WSTS, the $109 billion
digital integrated circuit market was segmented as follows: $53 billion of
memory circuits, $23 billion of logic circuits and $33 billion of
microprocessors. AMD participates in all three segments of the digital IC
market through, collectively, its Communications and Components Group ("CCG"),
its Programmable Logic Division ("PLD") and its Computation Products Group
("CPG"). AMD believes that it is
S-3
<PAGE>
a leading manufacturer of ICs in the Flash memory, communications and
networking, and programmable logic device markets.
CCG products ($1,220.6 million, or 50%, of 1995 net sales) include Flash
memory devices, erasable programmable read-only memories ("EPROMs"), voice and
data communications products and embedded processors. CCG provides a variety of
connectivity solutions which include ICs used in central office switches, PBX
equipment, voice and data terminals and local area network infrastructure
equipment. CCG's memory products are primarily Flash memory devices and EPROMs
used in a wide range of applications such as PCs, workstations, peripherals,
cellular telephones, instrumentation, PBX equipment, avionics and a variety of
other equipment where programmed data storage is needed. The Company does not
produce any dynamic random access memory ("DRAM") products, the largest and
most commodity oriented segment of the memory market. CCG's communications
products are used in cellular telephones, central office switching equipment
and networking equipment. CCG's embedded processor products are used in
applications which include high-performance laser printer controllers, high-
resolution graphics controllers, communications controllers and accelerator
cards. CCG net sales grew at a compound annual rate of 12% during the period
from 1991 through 1995, driven primarily by increased demand for CCG's Flash
memory devices.
PLD products ($255.9 million, or 10%, of 1995 net sales) are high speed
programmable logic devices which are used in a wide range of electronic
systems, including communications equipment, computers, peripherals,
instrumentation, industrial control and military systems. Programmable logic
devices are standard logic products produced in a "blank" state that can be
custom configured into specific logic circuits by programming the devices with
electrical signals. Programmable logic devices give designers the ability to
create their own custom logic circuits quickly and decrease time to market for
new products. PLD net sales grew at a compound annual rate of 44% during the
period from 1991 through 1995, driven primarily by the improved operating
performance of programmable logic devices.
CPG products ($991.8 million, or 40%, of 1995 net sales) include
microprocessors and input/output ("I/O") and network products. The majority of
CPG's net sales are derived from Microsoft(R) Windows(R) compatible
microprocessors which are used primarily in personal computers. Today these
products include the Am486(R) and AMD-K5(TM) products and in the future will
include the AMD-K6(TM) and subsequent generations of microprocessors. For the
six months ended June 30, 1996, CPG's net sales decreased to $229.7 million
from $612.4 million for the same period in 1995 due to lower Am486
microprocessor sales and limited AMD-K5 microprocessor sales. The Company
recently began shipping 100 megahertz ("MHz") AMD-K5 products in volume and
intends to begin volume shipments of AMD-K6 microprocessors in the first half
of 1997, although no assurance of such shipments can be given. The Company
anticipates that the AMD-K5 microprocessor, which was introduced relatively
late in the life cycle of fifth generation microprocessor products, will be a
transitional product, unlikely to result in the levels of revenue realized from
the Am486 microprocessor. CPG also supplies products for connecting personal
computers to local area networks used for networking and Internet applications
as well as products that work with central processing units to manage selected
I/O system functions such as keyboards, printers, mass storage applications,
communications and networking devices. CPG net sales grew at a compound annual
rate of 27% during the period from 1991 through 1995, driven primarily by
demand for Microsoft Windows compatible microprocessors. CPG net sales declined
62% in the six months ended June 30, 1996, from the same period in 1995.
AMD's strategy is to continue to improve its process technologies used in the
production of integrated circuits; to build high volume integrated circuit
manufacturing facilities which use these technologies; and to design products
that are targeted at high volume markets with the potential to produce high
margin revenues for the Company and that can be manufactured at its facilities.
As part of this strategy, AMD has invested over $3.4 billion in capital
expenditures and research and development over the past five years. The
majority of these expenditures have been made on advanced manufacturing process
technology and manufacturing facilities, including Fab 25, the Company's state-
of-the-art manufacturing facility. The high volume product markets
S-4
<PAGE>
targeted by the Company include Flash memory, communications and networking
products, programmable logic devices and Microsoft Windows compatible
microprocessors.
In the third quarter of 1995, AMD commenced manufacturing at Fab 25, its
newest manufacturing facility, located in Austin, Texas ("Fab 25"). Fab 25 was
recognized as one of the best integrated circuit manufacturing facilities in
the world for 1995 by Semiconductor International magazine. Fab 25, primarily
dedicated to the production of the Company's microprocessor products, has over
950,000 overall square feet and includes 86,700 square feet of clean room
space, which the Company believes makes it one of the largest integrated
circuit manufacturing facilities in the United States. As presently equipped,
Fab 25 is capable of producing approximately 2,000 eight-inch semiconductor
wafers per week. AMD has invested over $860.0 million in the Fab 25 Complex (as
defined herein) as of June 30, 1996, and currently expects to have invested
over $1.2 billion by the end of 1997 and over $1.6 billion by the end of 1999,
although the Company is not obligated to make such further investments. Fab 25
is planned to be capable of producing approximately 6,000 eight inch
semiconductor wafers per week when operating at full capacity in 2000, although
there can be no assurance that Fab 25 will achieve this capability level. The
Fab 25 Complex includes ancillary buildings for ultrapure water production,
chemical supply, stock and gowning, and facility support (collectively, the
"Fab 25 Complex"). The Senior Secured Notes and the New Credit Agreement will
be secured by substantially all of the Company's real property, plant and
equipment at the Fab 25 Complex.
AMD also has three other integrated circuit manufacturing facilities in
Austin, Texas, which, in the aggregate, contain 66,000 square feet of clean
room space. AMD is planning to construct a new microprocessor manufacturing
facility in Dresden, Germany through an Unrestricted Subsidiary (as defined
herein). AMD and Fujitsu Limited ("Fujitsu") are parties to a joint venture,
Fujitsu AMD Semiconductor Limited, an Unrestricted Subsidiary pursuant to the
terms of the Indenture ("FASL" or the "FASL Unrestricted Subsidiary"), which
owns and operates a Flash memory integrated circuit manufacturing facility in
Aizu-Wakamatsu, Japan. FASL is currently constructing a second Flash memory
device manufacturing facility at the same location. The Company's Submicron
Development Center (the "SDC"), in Sunnyvale, California, which has 42,500
square feet of clean room space, commenced operations in the fourth quarter of
1990. The SDC's primary purpose is to develop advanced manufacturing
technologies for Flash memory devices, programmable logic devices and
microprocessors.
AMD has sales offices worldwide and has manufacturing and assembly and
testing facilities in Sunnyvale, California; Austin, Texas; Bangkok, Thailand;
Penang, Malaysia; and Singapore. AMD is planning to construct a new test and
assembly facility in Suzhou, China.
AMD's executive offices and corporate headquarters are located at One AMD
Place, Sunnyvale, California 94086, and its telephone number is (408) 732-2400.
S-5
<PAGE>
THE OFFERING
Issuer...................... Advanced Micro Devices, Inc.
Securities Offered.......... $400.0 million aggregate principal amount of 11%
Senior Secured Notes due 2003.
Maturity.................... August 1, 2003.
Interest Payment Dates...... Interest on the Senior Secured Notes will accrue
at the rate of 11% per annum, payable semi-
annually in arrears on February 1 and August 1 of
each year, commencing on February 1, 1997, to
holders of record on the immediately preceding
January 15 and July 15, respectively (whether or
not a business day). See "Description of Senior
Secured Notes--Principal, Maturity and Interest."
Mandatory Redemption........ Except as set forth in "Description of Senior
Secured Notes--Repurchase at the Option of
Holders," the Company will not be required to
make mandatory redemption or sinking fund
payments with respect to the Senior Secured
Notes.
Optional Redemption......... The Senior Secured Notes will not be redeemable
at the Company's option prior to August 1, 2001.
Thereafter, the Senior Secured Notes will be
subject to redemption at the option of the
Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the
redemption prices set forth herein, plus accrued
and unpaid interest through the redemption date.
See "Description of Senior Secured Notes--
Optional Redemption."
Security.................... The Senior Secured Notes will be secured by a
first priority security interest, subject to the
terms of the Intercreditor Agreement (as defined
herein), in substantially all of the Company's
real property, plant and equipment at the Fab 25
Complex, subject to Permitted Liens (as defined
herein), and excluding, among other things,
inventory, accounts receivable and the proceeds
thereof (collectively, the "Collateral"). The
Collateral also includes proceeds resulting from
an Event of Loss (as defined herein) or a
Collateral Asset Sale (as defined herein) pending
application thereof. Pursuant to the terms of the
Intercreditor Agreement, the net proceeds of any
disposition of the Collateral following default
will be distributed in proportion to the
principal amounts outstanding under the New
Credit Agreement (as defined herein) and the
Senior Secured Notes. No appraisals of any of the
Collateral have been prepared by or on behalf of
the Company in connection with the sale of the
Senior Secured Notes. The value of the Collateral
at any time will depend on market and other
economic conditions, including the availability
of suitable buyers for the Collateral. In no
event will debt (including capital lease
obligations relating to Fab 25) secured by the
Collateral exceed $650.0 million in principal
amount on or before January 1, 1997, or $800.0
million thereafter less, under certain
circumstances, any permanent reduction in the
obligations and commitments under the New Credit
Agreement. See "Description of Collateral," "The
Intercreditor Agreement" and "Description of
Senior Secured Notes--Security."
Ranking..................... The Senior Secured Notes will be senior secured
indebtedness of the Company ranking pari passu in
right of payment with all other senior
borrowings, including the borrowings under the
New Credit Agreement. Any right of the Company to
receive assets of any of its subsidiaries upon
the latter's liquidation or reorganization (and
the consequent right of the holders of the Senior
Secured Notes to participate in those assets)
will be effectively subordinated to the claims of
that subsidiary's creditors, except to the extent
that the Company is itself recognized as a
creditor of such subsidiary, in
S-6
<PAGE>
which case the claims of the Company would still
be subordinate to any security in the assets of
such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company. As
of June 30, 1996, the indebtedness (including
trade payables and lease obligations) of the
Company's subsidiaries (excluding the FASL
Unrestricted Subsidiary) was $53.8 million. See
"Description of Senior Secured Notes--Ranking."
Intercreditor Agreement..... The security will be held by IBJ Schroder Bank &
Trust Company, as a collateral agent (the
"Collateral Agent"), for the benefit of United
States Trust Company of New York, as trustee (the
"Trustee") for the further benefit of the holders
of the Senior Secured Notes, and for the Banks,
as defined in the New Credit Agreement (the
"Banks"). The Intercreditor Agreement allows the
Trustee and Bank of America NT&SA, as agent for
the Banks (the "Bank Agent"), to instruct the
Collateral Agent to take certain actions under
certain circumstances, such as exercising
remedies under the security documents. Whether
the holders of the Senior Secured Notes or the
Banks control those instructions will depend on
both the relative principal amounts outstanding
of the Senior Secured Notes and loans under the
New Credit Agreement, and the type of action
which the Collateral Agent is instructed to take.
Under certain circumstances, while the New Credit
Agreement is outstanding and there is no Event of
Default under the Indenture, the Bank Agent,
acting alone, may respond in certain specified
circumstances to certain ministerial requests of
the Company relating to the Collateral. See "The
Intercreditor Agreement."
Change of Control........... In the event of a Change of Control (as defined
herein) the holders of the Senior Secured Notes
will have the right to require the Company to
purchase their Senior Secured Notes at a price
equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest to the
date of purchase. See "Description of Senior
Secured Notes--Repurchase at the Option of
Holders--Change of Control."
Certain Covenants........... The Indenture (as defined herein) pursuant to
which the Senior Secured Notes will be issued
will contain certain covenants that, among other
things, will restrict under certain circumstances
the ability of the Company and its Restricted
Subsidiaries (as defined herein) to (i) declare
or pay dividends; (ii) purchase or redeem capital
stock, warrants, options or other rights to
acquire capital stock; (iii) redeem subordinated
indebtedness; (iv) make certain investments; (v)
designate any Restricted Subsidiary to be an
Unrestricted Subsidiary (as defined herein); (vi)
incur additional indebtedness; (vii) issue any
shares of Disqualified Stock (as defined herein)
or preferred stock; (viii) incur liens; (ix)
create encumbrances or restrictions on the
ability of any Restricted Subsidiary of the
Company to pay dividends and other payments to
the Company; (x) merge or consolidate with any
other person; (xi) sell, transfer or lease its
assets; (xii) except under certain conditions,
sell or otherwise transfer any portion of its
equity in any Wholly Owned Restricted Subsidiary
(as defined herein); (xiii) enter into
transactions with affiliates; or (xiv) amend,
modify or change in certain respects the New
Credit Agreement. In addition, the Indenture and
the Deeds of Trust will require the Company to
maintain certain insurance policies covering the
Collateral and to provide certain reports to the
holders of the Senior Secured Notes. The
Collateral Documents will contain certain further
covenants relating to the Collateral. As of the
Issue Date (as defined herein), the Company's
Dresden, Germany Unrestricted Subsidiary and the
S-7
<PAGE>
FASL Unrestricted Subsidiary will be designated
Unrestricted Subsidiaries (as defined herein).
Under certain circumstances, the Company will be
able to designate current or future subsidiaries
as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to most of the
covenants set forth in the Indenture.
Transactions between the Company and such
Unrestricted Subsidiaries will remain subject to
the covenants set forth in the Indenture.
Events of Default........... Events of default with respect to the Senior
Secured Notes will include, subject to certain
qualifications and exceptions, (i) failure to pay
principal of or premium, if any, or interest on
the Senior Secured Notes; (ii) breach of certain
provisions of the Indenture (in certain cases,
after the giving of notice); (iii) default or
event of default under the New Credit Agreement
or other indebtedness under certain circumstances
involving a failure to pay principal of or
premium, if any, or interest on such indebtedness
or resulting in the acceleration the New Credit
Agreement or such indebtedness; (iv) failure by
the Company or its subsidiaries to pay final
judgments aggregating in excess of $50.0 million;
(v) material breach by the Company of any
representation and warranty set forth in the
Collateral Documents (as defined herein); (vi)
material default by the Company in the
performance of any covenant set forth in the
Collateral Documents; (vii) repudiation by the
Company of its obligations under the Collateral
Documents; (viii) the unenforceability of the
Collateral Documents against the Company for any
reason; and (ix) certain events of bankruptcy and
insolvency with respect to the Company or certain
of its subsidiaries. See "Description of Senior
Secured Notes--Events of Default and Remedies."
Use of Proceeds............. Approximately $150.0 million of the net proceeds
will be used to prepay the Company's existing
four-year term bank loan. The balance,
approximately $238.5 million, will be used for
general corporate purposes.
THE NEW CREDIT AGREEMENT
On July 19, 1996, the Company entered into a $400.0 million term loan and
revolving credit agreement, which was amended on August 7, 1996 (as amended,
the "New Credit Agreement"), with Bank of America NT&SA, ABN AMRO Bank N.V. and
Canadian Imperial Bank of Commerce (the "Banks"), replacing the Company's
existing unsecured, and currently unused, $250.0 million revolving line of
credit and its unsecured $150.0 million four-year term loan. The Company will
use a portion of the proceeds of the Offering to repay the existing $150.0
million term loan. The New Credit Agreement provides for a $150.0 million
three-year secured revolving line of credit (which can be extended for one
additional year, subject to approval of the Banks) and a $250.0 million four-
year secured term loan which is available to the Company for a period of six
months after the effective date of the New Credit Agreement (July 19, 1996) and
which the Company expects to utilize fully. Borrowings under the New Credit
Agreement are subject to the issuance of the Senior Secured Notes. All
indebtedness under the New Credit Agreement will be secured by the Deeds of
Trust and Security Agreements representing a first priority security interest,
subject to the terms of the Intercreditor Agreement, in the Fab 25 Complex. Net
proceeds of any disposition of the Collateral following default would be
distributed in proportion to the principal amounts outstanding under the New
Credit Agreement and the Senior Secured Notes. Prior to January 1, 1997, the
Indenture will limit the aggregate borrowings which can be made under the New
Credit Agreement to $250.0 million. See "Description of Collateral," "The
Intercreditor Agreement" and "The New Credit Agreement."
S-8
<PAGE>
SUMMARY AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
TWELVE
SIX MONTHS ENDED MONTHS
FISCAL YEARS ENDED --------------------- ENDED
-------------------------------------------------------- JULY 2, JUNE 30, JUNE 30,
1991 1992 1993 1994 1995 1995 1996 1996
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales.............. $1,226,649 $1,514,489 $1,648,280 $2,155,453 $2,468,379 $1,266,248 $ 999,289 $2,201,420
Gross profit........... 567,825 768,003 858,716 1,141,864 1,051,372 644,658 250,775 657,489
Operating income
(loss)................ 97,756 257,362 282,392 469,035 222,200 232,753 (122,847) (133,400)
Net income (loss)...... 133,171 233,619 208,356 270,942 216,326 164,982 (9,345) 41,999
OTHER FINANCIAL DATA:
CCG net sales.......... $ 789,762 $ 779,661 $ 865,249 $ 830,957 $1,220,604 $ 535,054 $ 638,456 $1,324,006
PLD net sales.......... 59,588 105,159 163,116 186,511 255,930 118,755 131,148 268,323
CPG net sales.......... 377,299 629,669 619,915 1,137,985 991,845 612,439 229,685 609,091
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Total net sales....... 1,226,649 1,514,489 1,648,280 2,155,453 2,468,379 1,266,248 999,289 2,201,420
EBITDA(1).............. 255,323 411,045 459,219 686,700 486,875 346,849 40,958 180,984
Depreciation and amor-
tization.............. 157,567 153,683 176,827 217,665 264,675 114,096 163,805 314,384
Capital expendi-
tures(2).............. 137,536 223,634 390,493 586,473 650,322 342,203 205,989 514,108
Net interest expense
(income)(3)........... 17,341 7,132 (4,949) (10,627) (8,416) (2,141) 1,544 (4,731)
PRO FORMA DATA:
Net interest ex-
pense(3)(4)........... $ 24,085 $ 13,779 $ 18,525 $ 28,831
EBITDA/net interest ex-
pense................. 20.2x 25.2x 2.2x 6.3x
<CAPTION>
AT JUNE 30, 1996
AT FISCAL YEARS ENDED ---------------------
-------------------------------------------------------- PRO
1991 1992 1993 1994 1995 ACTUAL FORMA(5)
---------- ---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash(6)................ $ 312,006 $ 365,300 $ 496,620 $ 430,921 $ 509,665 $ 281,658 $ 520,158
Working capital........ 179,256 382,027 514,532 441,649 461,509 404,570 643,070
Total assets........... 1,304,773 1,453,768 1,944,953 2,525,721 3,078,467 2,845,025 3,095,025
Long-term debt(7)...... 48,238 22,213 90,066 75,752 214,965 201,922 451,922
Stockholders' equity... 787,727 1,044,369 1,351,806 1,797,354 2,102,462 2,071,355 2,071,355
</TABLE>
- --------
(1) EBITDA is defined as operating income (loss) of the Company and its
consolidated subsidiaries plus depreciation and amortization of the Company
and its consolidated subsidiaries. EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to service and
incur debt. EBITDA should not be considered by an investor as an
alternative to net income, as an indicator of the Company's operating
performance or as an alternative to the Company's cash flows from operating
activities as a measure of liquidity.
(2) Capital expenditures include capital leases incurred in the amounts of
$26.2 million, $0.1 million, $64.5 million, $34.2 million, $24.4 million,
$16.5 million, $0.3 million and $8.3 million for the fiscal years ended
1991, 1992, 1993, 1994 and 1995, the six months ended July 2, 1995 and June
30, 1996 and the twelve months ended June 30, 1996, respectively.
(3) Net interest expense (income) is defined as total interest incurred
(including all capitalized interest) less all interest income.
(4) Pro forma net interest expense is pro forma for the Offering and the
application of the net proceeds therefrom. Pro forma net interest expense
excludes any interest income on the excess cash proceeds of the Offering.
Giving effect to interest income from the excess net proceeds from the
Offering, pro forma net interest expense, assuming an interest rate of 5%
on the excess cash proceeds, would have been $6.0 million lower for the six
months ended July 2, 1995 and June 30, 1996, and $11.9 million lower for
the fiscal year ended December 31, 1995 and the twelve months ended June
30, 1996.
(5) The pro forma balance sheet data is pro forma for the Offering and the
application of the net proceeds therefrom.
(6) Cash includes cash, cash equivalents and short-term investments.
(7) Long-term debt includes capital lease obligations but excludes current
portions of both long-term debt and capital lease obligations.
S-9
<PAGE>
RISK FACTORS
Each prospective investor should carefully consider the following risk
factors in evaluating the Company before purchasing the Senior Secured Notes.
SENIOR SECURED NOTES
Leverage; Debt Restrictions. As of June 30, 1996, and for the twelve months
ended June 30, 1996, on a pro forma basis after giving effect to the sale of
the Senior Secured Notes and the anticipated use of approximately $150.0
million of the estimated net proceeds therefrom to prepay the Company's
existing four-year term bank loan, the Company would have had total
consolidated indebtedness, including capital lease obligations, of
approximately $491.5 million and a ratio of consolidated indebtedness to
stockholders' equity of approximately 0.24 to 1.0, and earnings would have
been insufficient to cover fixed charges by $83.3 million. See "Use of
Proceeds" and "Capitalization."
The Company's ability to make interest payments on the Senior Secured Notes
and to repay the Senior Secured Notes at maturity will be dependent on the
Company's future operating performance, which is itself dependent on a number
of factors, many of which are not within the Company's control.
The Company has substantial financial commitments with respect to its
Dresden, Germany Unrestricted Subsidiary and its FASL Unrestricted Subsidiary,
as those terms are defined below. The Indenture will permit the Company to
invest up to $500.0 million in the aggregate in its Dresden, Germany
Unrestricted Subsidiary, either as equity investments or loans, and to
purchase products manufactured at the Dresden facility at prices not in excess
of formula prices established in the Indenture. Similarly, the Indenture will
permit the Company to make up to $50.0 million of additional investments in
its FASL Unrestricted Subsidiary, to guarantee up to $175.0 million of
borrowings by such subsidiary and to purchase products manufactured by such
subsidiary at prices not in excess of formula prices in effect on the Issue
Date. In addition, the Company may invest in its Dresden, Germany Unrestricted
Subsidiary and its FASL Unrestricted Subsidiary such amounts as are permitted
under the restricted payment covenant contained in the Indenture. See
"Description of Senior Secured Notes--Certain Covenants--Restricted Payments"
and "Certain Material Agreements."
The documents governing the indebtedness of the Company expected to be
outstanding upon consummation of the Offering (including the New Credit
Agreement) will contain significant covenants that will limit the Company's
and its subsidiaries' ability to engage in various transactions and, in
certain cases, require satisfaction of specified financial performance
criteria. In addition, the occurrence of certain events (including, without
limitation, failure to comply with the foregoing covenants, material
inaccuracies of representations and warranties, certain defaults under or
acceleration of other indebtedness and events of bankruptcy or insolvency)
would, in certain cases after notice and grace periods, constitute events of
default permitting acceleration of such indebtedness. The limitations imposed
by the documents governing the outstanding indebtedness of the Company and its
subsidiaries will be substantial, and failure to comply with such limitations
could have a material adverse effect on the business, results of operations
and financial condition of the Company. See "The New Credit Agreement,"
"Description of Senior Secured Notes" and "Certain Material Agreements--
Dresden."
Risk of Not Realizing Collateral Value; Risk of Shared Collateral. No
appraisals of any of the Collateral have been prepared by, or on behalf of,
the Company in connection with the sale of the Senior Secured Notes. AMD has
invested over $860.0 million in the Fab 25 Complex as of June 30, 1996. The
proceeds from a sale of the Collateral in the event of a foreclosure would
depend on various factors at the time of the sale, including the strength of
the market for integrated circuits and general economic conditions, and
whether the Collateral could be sold intact as an integrated circuit
manufacturing facility or would have to be disassembled and sold in parts,
which would likely result in significantly lower proceeds than the Company's
investment. The Collateral is currently dedicated to the production of
microprocessors. Because significant time and expense would be required to
reconfigure Fab 25 to produce ICs other than microprocessors or logic ICs, the
proceeds from a sale of the Collateral in a foreclosure would likely be lower
if few or none of the parties interested in purchasing the Collateral intended
to utilize the Collateral to produce microprocessors or logic ICs. The Company
does not believe that an integrated circuit manufacturing facility has ever
been sold in a foreclosure sale, which makes the likely results of such a
foreclosure sale more difficult to predict. Accordingly, there can be no
assurance that the
S-10
<PAGE>
proceeds of any sale of the Collateral following a default would be sufficient
to satisfy the aggregate amounts due on the Senior Secured Notes and
outstanding under the New Credit Agreement. If such proceeds were not
sufficient to repay all such amounts, holders of the Senior Secured Notes (to
the extent not repaid from the proceeds of the sale of the Collateral) would
have only an unsecured claim against the Company's remaining assets. See
"Description of Collateral." In addition, the ability of holders of Senior
Secured Notes to realize upon the Collateral may be subject to certain federal
bankruptcy law limitations in the event of a bankruptcy involving the Company.
See "Description of Senior Secured Notes--Certain Bankruptcy Limitations." The
Intercreditor Agreement allows the Trustee and Bank of America NT&SA, as agent
for the Banks (the "Bank Agent"), to instruct the Collateral Agent to take
certain actions under certain circumstances, such as exercising remedies under
the Collateral Documents. Whether the holders of the Senior Secured Notes or
the Banks control those instructions will depend on both the relative
principal amounts outstanding of the Senior Secured Notes and loans under the
New Credit Agreement, and the type of action which the Collateral Agent is
instructed to take. There can be no assurance that the holders of the Senior
Secured Notes will represent a sufficient number of votes to control
instructions to the Collateral Agent. See "The Intercreditor Agreement."
Risks in Connection with an Event of Loss Affecting Collateral. The Senior
Secured Notes are intended to be secured by liens on substantially all of the
Company's real property, plant and equipment at the Fab 25 Complex, including
any insurance or condemnation proceeds resulting from an Event of Loss (as
herein defined) with respect to the Collateral. Such proceeds will be held in
an account with the Collateral Agent pending expenditure by the Company or
until used to redeem all or a portion of the Senior Secured Notes and to
prepay amounts outstanding under the New Credit Agreement pursuant to the
terms of the Intercreditor Agreement. There is no statutory or otherwise
clearly established method for perfecting a security interest in such an
account under the law applicable to the Security Agreement, which is the
applicable Collateral Document. Consequently, no assurance can be given that
the holders of the Senior Secured Notes will obtain the benefit of a valid and
perfected security interest in any insurance or condemnation proceeds
resulting from an Event of Loss.
Change of Control Provisions. Upon the occurrence of a Change of Control, at
any time, the Company will be required to offer to repurchase each holder's
Senior Secured Notes at a repurchase price equal to 101% of the aggregate
principal amount thereof. There can be no assurance that the Company will have
the financial resources to effect any such repurchase. See "Description of
Senior Secured Notes--Repurchase at the Option of Holders--Change of Control."
Operating Subsidiaries; Structural Subordination. Certain operations of the
Company are conducted through subsidiaries, including its Dresden, Germany
Unrestricted Subsidiary and its FASL Unrestricted Subsidiary. Except to the
extent the Company may itself be a creditor with recognized claims against its
subsidiaries, the claims of creditors of the subsidiaries will have priority
with respect to the assets and earnings of the subsidiaries over the claims of
creditors of the Company, including holders of the Senior Secured Notes, even
though subsidiary obligations do not constitute senior indebtedness of the
Company. As of June 30, 1996, the indebtedness (including trade payables and
capital lease obligations) of the Company's subsidiaries (excluding the FASL
Unrestricted Subsidiary) was $53.8 million. See "Description of Senior Secured
Notes--Ranking" and "Certain Material Agreements."
MICROPROCESSOR PRODUCTS
Intel Dominance. Intel Corporation ("Intel") has long held a dominant
position in the market for microprocessors used in PCs. Intel's dominant
market position has to date allowed it to set x86 microprocessor standards and
thus dictate the type of product the market requires of Intel's competitors.
In addition, Intel's financial strength has enabled it to reduce prices on its
microprocessor products within a short period of time following their
introduction, which reduces the margins and profitability of its competitors.
AMD believes that the process technologies used in the fabrication of the
Company's microprocessors are currently somewhat behind those of Intel. The
Company expects Intel to continue to invest heavily in research and
development and new manufacturing facilities and to maintain its dominant
position through advertising campaigns designed to
S-11
<PAGE>
engender brand loyalty to Intel among PC purchasers. In addition to its
dominant microprocessor market share, Intel also dominates the PC platform in
other manners. For example, Intel has obtained a dominant market share in
sales of 64-bit or Pentium-class core logic chip sets, has emerged as the
world's largest motherboard manufacturer, has become a significant
manufacturer of personal computers, incorporating Intel microprocessors, chip
sets, motherboards and other Intel-designed components for resale by third-
party original equipment manufacturers ("OEMs") under such OEMs' names, and
has purchased an equity interest in Phoenix Technologies Ltd., a company which
has a significant share of the market for BIOS software (basic input/output
system software encoded in read-only memory which controls access to devices
connected to a PC, such as the monitor and the serial communications port).
The Company does not have the financial resources to compete with Intel on
such a large scale. As long as Intel remains in this dominant position, its
product introduction schedule, product pricing strategy and customer brand
loyalty may continue to have a material adverse effect on the Company, as they
have had in the past.
As Intel has expanded its role in designing and setting standards for PC
systems, many PC OEMs have reduced their system development expenditures and
have begun to purchase microprocessors in conjunction with chip sets or in
assembled motherboards. In marketing its microprocessors to these OEMs and
dealers, AMD is dependent upon companies other than Intel for the design and
manufacture of core-logic chip sets, motherboards, BIOS software and other
components. In recent years, these third-party designers and manufacturers
have lost market share to Intel. In addition, these companies are able to
produce chip sets, motherboards, BIOS software and other components to support
each new generation of Intel's microprocessors only to the extent that Intel
makes its related proprietary technology available. Any delay in the
availability of such technologies would make it increasingly difficult for
them to retain or regain market share. To compete with Intel in this market in
1996 and beyond, the Company intends to form closer relationships with third-
party designers and manufacturers of core-logic chip sets, motherboards, BIOS
software and other components, expand its chip set and system design
capabilities, and sell a portion of the Company's processors along with chip
sets and license system designs incorporating the Company's processors and
products resulting from AMD's relationships with such third party designers
and manufacturers to OEMs. There can be no assurance, however, that such
efforts by the Company will be successful. The Company expects that as Intel
introduces future generations of microprocessors, chip sets and motherboards,
the design of chip sets and higher level board products which support Intel
microprocessors will become increasingly dependent on the Intel microprocessor
design and may become incompatible with non-Intel PC systems. If the
infrastructure of third-party designers and manufacturers which supports non-
Intel PC platforms were to fail to continue to support the Company's products
or to offer products competitive with Intel's, the Company could experience
difficulties marketing its microprocessors, which could have a material
adverse effect on the Company.
Dependence on New AMD Microprocessor Products. Am486 microprocessor products
contributed a significant portion of AMD's revenues, profits and margins in
1994 and 1995. AMD expects Am486 microprocessor revenues, profits and margins
in 1996 to be significantly below those of 1995. As the product life cycle of
fourth-generation x86 products declines, AMD's ability to maintain or expand
its current levels of revenues from microprocessor products, and its ability
to benefit fully from the substantial financial commitments it has made to
process technologies and integrated circuit manufacturing facilities dedicated
to the production of microprocessors, will depend upon its success in
developing and marketing in a timely manner its next generations of
microprocessor products, the K86 RISC Superscalar(TM) products. See "--
Manufacturing--Process Technology" and "--Manufacturing--Commitments to
Facilities Dedicated to Specific Products." The Company recently began
shipping its first K86 products including the 100 MHz AMD-K5 products which
are designed to be competitive with the Pentium, Intel's fifth generation
microprocessor. The Company anticipates that the AMD-K5 microprocessor, which
was introduced relatively late in the life cycle of fifth generation
microprocessor products, will be a transitional product, unlikely to result in
the levels of revenue for the Company realized from the Am486 microprocessor.
The Company's AMD-K5 products have not, to date, achieved substantial market
acceptance, which has had and continues to have a material adverse effect on
the Company. The Company acquired NexGen, Inc. ("NexGen") in January 1996, in
part, to accelerate the introduction of its microprocessor products,
particularly its sixth generation products. The Company is modifying
S-12
<PAGE>
NexGen's sixth-generation design using AMD's design, verification and
manufacturing technologies. With these changes, AMD intends to develop and
produce the AMD-K6 microprocessor. AMD does not expect any sales of the AMD-K6
products in 1996. The Company intends to begin volume shipments of the AMD-K6
products in the first half of 1997, although no assurance can be given that
such shipments will occur. The Company's production and sales plans for K86
microprocessors, including the AMD-K6 microprocessor, are subject to numerous
risks and uncertainties, including the timing of the introduction of future
AMD-K5 products and of AMD-K6 products, the possibility that volume shipments
of the AMD-K6 microprocessor may be delayed due to the time required to verify
operating systems and application software compatibility, the development of
market acceptance for the AMD-K5 and the AMD-K6 products particularly with
leading OEMs of PCs, the effects of marketing and pricing strategies adopted
by Intel, the possible adverse effects of existing and future customer
inventory levels, the pace at which the Company is able to ramp production of
fifth and sixth generation microprocessors in Fab 25, the possibility that
products newly introduced by the Company may be found to be defective,
possible adverse conditions in the personal computer market and unexpected
interruptions in the Company's manufacturing operations. A failure of the
Company's K86 products, particularly the AMD-K6, to be timely introduced or
achieve market acceptance, would have a material adverse effect on the
Company.
Dependence on Market Acceptance of x86 Standard and Dominance of
Windows. Customer acceptance of AMD's K86 products will depend upon the
continued demand for x86-based personal computers, including the continued
development of application software programs for such computers. There can be
no assurance of the continued acceptance of the x86 standard or that software
developers will continue to develop software compatible with this standard.
AMD's K86 products will face competition not only from x86 products
manufactured by Intel and others but also from products based upon an
increasing number of different architectures which have been developed or are
under development by Hewlett-Packard, IBM, Motorola, Silicon Graphics, Sun
Microsystems, Digital Equipment Corporation and other manufacturers of
integrated circuits. Several of these manufacturers, such as Motorola, Digital
Equipment Corporation, Silicon Graphics and Sun Microsystems, produce
microprocessors which are designed to be compatible with such operating
systems as WindowsNT(R) and UNIX but not with Windows(R). Currently, as a
result of the dominance of the Windows operating system, which operates with
x86 based PCs, AMD is able to market its microprocessors without significant
competition from these manufacturers. AMD would lose much of this advantage if
the Microsoft Windows operating system should be displaced as the dominant
operating system software by one or more other systems, such as WindowsNT or
UNIX. A reduction in the market acceptance of either the x86 standard or the
Windows operating system could have a material adverse effect on the Company.
Compatibility Certifications. For its future generations of K86
microprocessors, AMD intends to obtain Windows and Windows 95 certifications
from Microsoft and other appropriate certifications from recognized testing
organizations. A failure to obtain certification from Microsoft would prevent
the Company from describing and labeling its K86 microprocessors as Microsoft
Windows compatible. This could substantially impair the Company's ability to
market the products and could have a material adverse effect on the Company.
Acquisition of NexGen. AMD believes that its acquisition of NexGen is
important to the development and introduction of its K86 products,
particularly the AMD-K6 microprocessor. Achieving the anticipated benefits of
the acquisition will depend in part upon whether the integration of the two
companies' businesses is accomplished in an efficient and effective manner,
and there can be no assurance that this will occur. The inability of
management to integrate the operations of the two companies successfully could
have a material adverse effect on the Company. In addition, as commonly occurs
with mergers of technology companies, aggressive competitors may undertake
formal initiatives during the integration phase to attract customers and to
recruit key employees through various incentives. AMD has acquired and is
currently developing new technologies to manufacture its sixth generation
microprocessor which will utilize NexGen's sixth generation design as modified
by AMD. A costly reconfiguration of its facilities may be required to
implement these new technologies. There can be no assurance that AMD will be
successful in implementing these new technologies
S-13
<PAGE>
even with a reconfiguration of its facilities. If the new technologies cannot
be successfully implemented or if AMD encounters other difficulties in
manufacturing its sixth generation microprocessors, such an event would have a
material adverse effect on the Company.
Fluctuation in PC Market. Since most of AMD's microprocessor products are
used in personal computers and related peripherals, AMD's future growth is
closely tied to the performance of the PC industry. The Company could be
materially and adversely affected by industry-wide fluctuations in the PC
marketplace in the future.
Possible Rights of Others. Prior to its acquisition by AMD, NexGen granted
limited manufacturing rights regarding certain of its current and future
microprocessors, including the Nx586(R) and Nx686(TM), to IBM and Compaq. The
Company does not intend to produce any NexGen products as it is the Company's
position that its forthcoming AMD-K6 products are AMD products and not NexGen
products. There can be no assurance that neither IBM nor Compaq will seek to
establish rights with respect to the products. If either IBM or Compaq or both
were deemed to have rights to produce AMD's AMD-K6 products for their own use
and IBM were deemed to have the right to produce limited volumes of such
products for sale to third parties, such production could reduce the potential
market for microprocessor products produced by AMD, the profit margin
achievable with respect to such products, or both.
MANUFACTURING
Underutilized Capacity. The Company's manufacturing facilities are currently
underutilized as a result of reduced demand for certain of the Company's
products and may remain so until the Company has developed new products and
such products have achieved market acceptance. The Company's operations
related to microprocessors are particularly affected by this situation. The
underutilization of the Company's manufacturing facilities is having, and
could continue to have, a material adverse effect on the Company. The Company
plans to increase its manufacturing capacity by making significant capital
investments in Fab 25 and in its Dresden, Germany Unrestricted Subsidiary
which will construct an integrated circuit manufacturing facility, which is
presently intended to be dedicated to the production of microprocessors and
other advanced logic products. In addition, its FASL Unrestricted Subsidiary
plans to construct a second Flash memory device manufacturing facility. There
can be no assurance that the industry projections regarding future growth in
the markets for integrated circuits upon which the Company is basing its
strategy of increasing its manufacturing capacity will prove to be accurate.
If demand for the Company's products does not increase, the underutilization
of the Company's manufacturing facilities will likely increase and have a
material adverse effect on the Company.
Process Technology. Manufacturers of integrated circuits are constantly
seeking to improve the process technologies used to manufacture their
products. In order to remain competitive, the Company must make continuing
substantial investments in improving its process technologies. In particular,
the Company has made and continues to make significant research and
development investments in the technologies and equipment used in the
fabrication of its microprocessor products and by FASL in the fabrication of
Flash memory devices. Portions of these investments might not be recoverable
if the Company's K86 microprocessors fail to gain market acceptance or if the
market for its Flash memory products should significantly deteriorate. This
could have a material adverse effect on the Company. In addition, any
inability of the Company to remain competitive with respect to process
technology could have a material adverse effect on the Company.
Commitments to Facilities Dedicated to Specific Products. The Company has
made and plans to continue to make substantial capital investments in
integrated circuit manufacturing facilities dedicated to the production of
specific product lines. AMD has invested over $860.0 million in the Fab 25
Complex as of June 30, 1996, and currently expects to have invested over $1.2
billion by the end of 1997 and over $1.6 billion by the end of 1999, although
the Company is not obligated to make such further investments. Fab 25 is
currently dedicated to the production of Microsoft Windows compatible
microprocessors. Other facilities of the Company are also dedicated to the
production of specific product lines. In addition, the Company's Dresden,
Germany Unrestricted Subsidiary currently plans to construct a semiconductor
manufacturing facility, at an estimated cost of $1.5 billion over five years,
which will be dedicated to the production of microprocessors. Significant time
and
S-14
<PAGE>
expense would be incurred were the Company to alter any of its facilities so
that they could be used to produce other IC products. Any such alteration,
resulting from a need to respond to changes in the markets for the Company's
products or otherwise, could have a material adverse effect on the Company.
Manufacturing Constraints. While the Company's manufacturing facilities are
currently underutilized, there have been situations in the past in which the
Company's manufacturing facilities were inadequate to enable the Company to
meet demand for certain of its products. In addition to having its own
fabrication facilities, AMD has foundry arrangements for the production of its
products by third parties. Any inability of AMD to generate sufficient
manufacturing capabilities to meet demand, either in its own facilities or
through foundry or similar arrangements with others, could have a material
adverse effect on the Company.
Manufacturing Interruptions. Any substantial interruption with respect to
any of AMD's manufacturing operations, either as a result of a labor dispute,
equipment failure or other cause, could have a material adverse effect on the
Company. The Company may also be materially adversely affected by fluctuations
in manufacturing yields.
Essential Manufacturing Materials. Certain of the raw materials used by AMD
in the manufacture of its products are available from a limited number of
suppliers. For example, several types of the integrated circuit packages
purchased by AMD, as well as by the majority of other companies in the
semiconductor industry, are principally supplied by Japanese companies.
Shortages could occur in various essential materials due to interruption of
supply or increased demand in the industry. If AMD were unable to procure
certain of such materials from any source, it would be required to reduce its
manufacturing operations which could have a material adverse effect on the
Company.
International Manufacturing. Nearly all product assembly and final testing
of AMD's products are performed at its manufacturing facilities in Penang,
Malaysia; Singapore; and Bangkok, Thailand; or by subcontractors in Asia.
Foreign manufacturing entails political and economic risks, including
political instability, expropriation, currency controls and fluctuations,
changes in freight and interest rates, and loss or modification of exemptions
for taxes and tariffs. For example, if AMD were unable to assemble and test
its products abroad, or if air transportation between the United States and
AMD's overseas facilities were disrupted, there could be a material adverse
effect on the Company.
OTHER RISK FACTORS
Importance of Flash Memory Device Business; Recent Pricing Weakness. The
market for Flash memory devices has recently experienced rapid growth and is
likely to become increasingly competitive as additional manufacturers
introduce competitive products and production capacity in the industry
increases. The Company's primary competition with respect to Flash memory
devices is Intel. A substantial portion of the Company's revenues are derived
from sales of Flash memory devices, and the Company expects that this will
continue to be the case. In the first quarter of 1996, the Company experienced
declines in the selling prices of Flash memory devices, and in the second
quarter, both demand for the products and their selling prices declined. There
can be no assurance that the Company will be able to maintain its market share
in Flash memory devices or that price declines may not accelerate as the
market develops and as new competitors emerge. A decline in the Company's
Flash memory device business could have a material adverse effect on the
Company.
Dependence on Third Party for PLD Software; Possible Acquisition of Existing
PLD Software Supplier by Competitor. Customers utilizing programmable logic
devices must use special software packages, generally provided by the
suppliers of the programmable logic devices, to program the programmable logic
devices. AMD currently provides its programmable logic device customers with
software which it licenses from MINC, Inc. ("MINC"), an unaffiliated company,
and is dependent upon MINC for the software and continuing improvements in the
software. Recently, AMD has been advised orally by MINC that it intends to
enter into an agreement to be acquired by one of the Company's major
competitors in the market for programmable logic devices. Such an acquisition
could have an adverse effect on the existing relationship between the Company
and MINC, as a result of which the Company might seek to develop its own
software internally or to license alternative software from another third
party. No assurance can be given that the Company would be successful
S-15
<PAGE>
in either endeavor. An inability of AMD to continue to obtain appropriate
software and improvements from MINC, to license alternative software from
another third party, or to develop its own software internally could adversely
affect AMD's PLD business, including the timing of new or improved product
introductions, which could have a material adverse effect on the Company.
Technological Change and Industry Standards. The market for AMD's products
is generally characterized by rapid technological developments, evolving
industry standards, changes in customer requirements, frequent new product
introductions and enhancements, short product life cycles and severe price
competition. The establishment of industry standards is a function of market
acceptance. Currently accepted industry standards may change at any time.
AMD's success depends substantially upon its ability, on a cost-effective and
timely basis, to continue to enhance its existing products and to develop and
introduce new products that take advantage of technological advances and
adhere to evolving industry standards. An unexpected change in one or more of
the technologies related to its products, in market demand for products based
on a particular technology or in accepted industry standards could have a
material adverse effect on the Company. There can be no assurance that AMD
will be able to develop new products in a timely and satisfactory manner to
address new industry standards and technological changes, or to respond to new
product announcements by others, or that any such new products will achieve
market acceptance.
Product Incompatibility. While AMD submits its products to rigorous internal
and external testing, there can be no assurance that AMD's products will be
compatible with all industry standard software and hardware. Any inability of
AMD's customers to achieve such compatibility or compatibility with other
software or hardware after AMD's products are shipped in volume could have a
material adverse effect on the Company. There can be no assurance AMD will be
successful in correcting any such compatibility problems that are discovered
or that such corrections will be acceptable to customers or made in a timely
manner. In addition, the mere announcement of an incompatibility problem
relating to the Company's products could have a material adverse effect on the
Company.
Competition. The integrated circuit industry is intensely competitive and,
historically, has experienced rapid technological advances in product and
system technologies together with substantial price reductions in maturing
products. After a product is introduced, prices normally decrease over time as
production efficiency and competition increase, and a successive generation of
products is developed and introduced for sale. Technological advances in the
industry result in frequent product introductions, regular price reductions,
short product life cycles and increased product capabilities that may result
in significant performance improvements. Competition in the sale of integrated
circuits is based upon performance, product quality and reliability, price,
adherence to industry standards, software and hardware compatibility,
marketing and distribution capability, brand recognition, financial strength
and ability to deliver in large volumes on a timely basis.
In each particular market in which it participates, the Company faces
competition from different groups of companies. AMD, Fujitsu and Intel are the
world's largest producers of Flash memory devices. Sharp and Atmel Corporation
are also participants in the market. With respect to CCG's other product
lines, the Company's primary competitors are: SGS Thomson and Texas
Instruments with respect to EPROMs; Siemens, NEC, LM Erickson, Alcatel and
other large producers of voice communications equipment with respect to line
cards; National Semiconductor, 3Com and Intel with respect to networking
products; and Motorola, Intel, Texas Instruments and SGS Thomson with respect
to embedded processors. In PLD's market, the Company's principal competitors
are Altera, Lattice Semiconductor and other smaller companies focused on
programmable logic device development and production. With respect to
microprocessors, Intel holds a dominant position which has to date allowed it
to set x86 microprocessor standards and thus dictate the type of product the
market requires of Intel's competitors. See "--Microprocessor Products--Intel
Dominance." The Company's principal competitors with respect to the network
and I/O products include: National Semiconductor, Intel, 3Com, Digital
Equipment Corporation, Fujitsu and Seeq with respect to Ethernet local area
network products; and Western Digital and Hyundai with respect to SCSI disk
host controllers.
Fluctuations in Operating Results. AMD's operating results are subject to
substantial quarterly and other fluctuations due to a variety of factors,
including the effects of competition with Intel in the microprocessor
industry, competitive pricing pressures, anticipated decreases in unit average
selling prices of AMD's products,
S-16
<PAGE>
fluctuations in manufacturing yields, availability and cost of products from
AMD's suppliers, the gain or loss of significant customers, new product
introductions by AMD or its competitors, changes in the mix of products sold
and in the mix of sales by distribution channels, market acceptance of new or
enhanced versions of AMD's products, seasonal customer demand, the timing of
significant orders and the timing and extent of product development costs. In
addition, operating results could be adversely affected by general economic
and other conditions affecting the timing of customer orders, a downturn in
the market for PCs, and order cancellations or rescheduling. AMD's customers
may change delivery schedules or cancel orders without significant penalty.
Many of the factors listed above are outside of AMD's control. These factors
are difficult to forecast, and these or other factors could materially
adversely affect AMD's quarterly or annual operating results.
Order Revision and Cancellation Policies. AMD manufactures and markets a
standard line of products. Sales are made primarily pursuant to purchase
orders for current delivery, or agreements covering purchases over a period of
time, which are frequently subject to revision and cancellation without
penalty. As a result, AMD must commit resources to the production of products
without having received advance purchase commitments from customers. Any
inability to sell products to which it had devoted significant resources could
have a material adverse effect on the Company. Distributors typically maintain
an inventory of AMD's products. Pursuant to the Company's agreements with the
distributors, AMD protects its distributors' inventory of AMD's products
against price reductions as well as products that are slow moving or have been
discontinued. These agreements, which may be canceled by either party on a
specified notice, generally contain a provision for the return of AMD's
products in the event the agreement with the distributor is terminated. The
price protection and return rights AMD offers to its distributors may
materially adversely affect the Company.
Key Personnel. AMD's future success depends upon the continued service of
numerous key engineering, manufacturing, sales and executive personnel. There
can be no assurance that AMD will be able to continue to attract and retain
qualified personnel necessary for the development and manufacture of its
products. Loss of the service of, or failure to recruit, key engineering
design personnel could be significantly detrimental to AMD's product
development programs or otherwise have a material adverse effect on the
Company.
Product Defects. One or more of AMD's products may possibly be found to be
defective after AMD has already shipped such products in volume, requiring a
product replacement, recall, or a software fix which would cure such defect
but impede performance. Product returns could impose substantial costs on AMD
and have a material adverse effect on the Company.
Intellectual Property Rights; Potential Litigation. Although AMD attempts to
protect its intellectual property rights through patents, copyrights, trade
secrets and other measures, there can be no assurance that AMD will be able to
protect its intellectual property adequately or that competitors will not be
able to develop similar technology independently. There can be no assurance
that any patent applications that AMD may file will be issued or that foreign
intellectual property laws will protect AMD's intellectual property rights.
There can be no assurance that any patent licensed by or issued to AMD will
not be challenged, invalidated or circumvented or that the rights granted
thereunder will provide competitive advantages to AMD. Furthermore, there can
be no assurance that others will not independently develop similar products,
duplicate AMD's products or design around the patents issued to or licensed by
AMD.
From time to time, AMD has been notified that it may be infringing
intellectual property rights of others. If any such claims are asserted
against AMD, AMD may seek to obtain a license under the third party's
intellectual property rights. AMD could decide, in the alternative, to resort
to litigation to challenge such claims. Such challenges could be extremely
expensive and time consuming and could materially adversely affect the
Company. For example, for many years the Company was involved in intellectual
property litigation with Intel which was settled in 1995. The litigation
required substantial resources of the Company. No assurance can be given that
all necessary licenses can be obtained on satisfactory terms, or that
litigation may always be avoided or successfully concluded.
Environmental Regulations. The failure to comply with present or future
governmental regulations related to the use, storage, handling, discharge or
disposal of toxic, volatile or otherwise hazardous chemicals used in
S-17
<PAGE>
the manufacturing process could result in fines being imposed on AMD,
suspension of production, alteration of AMD's manufacturing processes or
cessation of operations. Such regulations could require AMD to acquire
expensive remediation equipment or to incur other expenses to comply with
environmental regulations. Any failure by AMD to control the use, disposal or
storage of, or adequately restrict the discharge of, hazardous substances
could subject AMD to future liabilities and could have a material adverse
effect on the Company.
International Sales. AMD derives a substantial portion of its revenues from
its subsidiaries located in Europe and Asia. AMD's international sales
operations entail political and economic risks, including expropriation,
currency controls, exchange fluctuations, changes in freight rates and changes
in rates for taxes and tariffs.
Domestic and International Economic Conditions. AMD's business is subject to
general economic conditions, both in the United States and abroad. A
significant decline in economic conditions in any significant geographic area
could have a material adverse effect upon the Company.
Volatility of Stock Price; Ability to Access Capital. Based on the trading
history of its stock, AMD believes factors such as quarterly fluctuations in
AMD's financial results, announcements of new products by AMD or its
competitors and general conditions in the semiconductor industry have caused
and are likely to continue to cause the market price of AMD common stock to
fluctuate substantially. Technology company stocks in general have experienced
extreme price and volume fluctuations that often have been unrelated to the
operating performance of the companies. This market volatility may adversely
affect the market price of AMD's common stock and consequently limit the
Company's ability to raise capital. In addition, an actual or anticipated
shortfall in revenue, gross margins or earnings from securities analysts'
expectations could have an immediate effect on the trading price of AMD common
stock in any given period.
Earthquake Danger. AMD's corporate headquarters, a portion of its
manufacturing facilities, assembly and research and development activities and
certain other critical business operations are located near major earthquake
fault lines. The Company could be materially adversely affected in the event
of a major earthquake.
S-18
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the Senior Secured Notes offered hereby after
deducting underwriting discounts and commissions and estimated expenses of the
Offering are expected to be approximately $388.5 million. The Company will use
approximately $150.0 million of the net proceeds to prepay its existing four-
year term bank loan which matures on January 5, 1999, and bears interest at a
floating rate (6.6% as of August 1, 1996). The Company expects to use the
balance of the net proceeds (approximately $238.5 million) for general
corporate purposes.
Simultaneously with the closing of the Offering, the Company will become
entitled to borrow under the New Credit Agreement, which provides for a term
loan of up to $250.0 million and a revolving loan facility in the amount of
$150.0 million which, together with the Senior Secured Notes, will be secured
by the Collateral. Prior to January 1, 1997, the Indenture will limit the
aggregate borrowings which can be made under the New Credit Agreement to
$250.0 million. See "Risk Factors--Senior Secured Notes--Risk of Not Realizing
Collateral Value; Risk of Shared Collateral," "Description of Collateral,"
"The Intercreditor Agreement" and "The New Credit Agreement."
S-19
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1996, and as adjusted to give effect to (i) the sale of
the Senior Secured Notes offered by the Company, (ii) the receipt by the
Company of the estimated net proceeds therefrom and (iii) the repayment of the
Company's existing $150.0 million term loan with a portion of such proceeds.
This table should be read in conjunction with the attached Supplemental
Consolidated Financial Statements of the Company and the related notes thereto
and Management's Discussion and Analysis of Results of Operations and
Financial Condition included elsewhere in this Prospectus Supplement. See "The
New Credit Agreement" for information concerning the term loan and revolving
credit facility to be available under the New Credit Agreement
contemporaneously with the closing of the Offering.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
AS
ACTUAL ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash (1)................................................. $ 281,658 $ 520,158
========== ==========
Short-term debt (2)...................................... $ 39,617 $ 39,617
========== ==========
Long-term debt (3):
11% Senior Secured Notes............................... $ -- $ 400,000
Existing bank term loan................................ 150,000 --
New Credit Agreement (4)............................... -- --
Other.................................................. 51,922 51,922
---------- ----------
Total long-term debt................................. 201,922 451,922
Stockholders' equity:
Common stock, $0.01 par value:
Authorized--250,000,000 shares; issued and
outstanding--135,028,165 shares (5)................... 1,404 1,404
Capital in excess of par value.......................... 936,475 936,475
Retained earnings....................................... 1,133,476 1,133,476
---------- ----------
Total stockholders' equity........................... 2,071,355 2,071,355
---------- ----------
Total capitalization..................................... $2,273,277 $2,523,277
========== ==========
</TABLE>
- --------
(1) Cash includes cash, cash equivalents and short-term investments.
(2) Short-term debt includes borrowings and current portions of both long-term
debt and capital lease obligations.
(3) Long-term debt includes capital lease obligations and excludes current
portions of both long-term debt and capital lease obligations.
(4) The Company expects to borrow $250.0 million under the term loan
provisions of the New Credit Agreement within six months of the Issue
Date. Prior to January 1, 1997, the Indenture will limit the aggregate
borrowings which can be made under the New Credit Agreement to $250.0
million.
(5) Does not include 5,014,861 shares of common stock reserved for issuance
under outstanding options and warrants.
S-20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA AND
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth selected statement of income data, other
financial data and balance sheet data for the Company. The selected statement
of income data for the fiscal years ended 1993, 1994 and 1995 and selected
balance sheet data at fiscal years ended 1994 and 1995 are derived from
supplemental consolidated financial statements of the Company which have been
audited by Ernst & Young LLP, the Company's independent auditors. The selected
statement of income data for the fiscal years ended 1991 and 1992 and selected
balance sheet data at fiscal years ended 1991, 1992 and 1993 are derived from
unaudited supplemental consolidated financial statements of the Company. The
selected statement of income data and balance sheet data for the six months
ended July 2, 1995 and June 30, 1996 are derived from unaudited condensed
consolidated financial statements of the Company. Other financial data for all
fiscal years and six month periods are derived from the audited financial
statements, the unaudited financial statements or the books and records of the
Company. The unaudited condensed consolidated financial statements of the
Company include all adjustments, consisting of normal recurring accruals,
which the Company considers necessary for a fair presentation of its financial
position at the end of, and the results of its operations for, these periods.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the full year ended
December 29, 1996. The data should be read in conjunction with the Company's
Supplemental Consolidated Financial Statements and the Notes thereto, included
elsewhere in this Prospectus Supplement. On January 17, 1996, the Company
acquired NexGen in a transaction accounted for as a pooling of interests. All
financial data of the Company for the periods presented has been
supplementally prepared to give retroactive effect to the merger with NexGen.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED -----------------------
---------------------------------------------------------- JULY 2, JUNE 30,
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- -----------
STATEMENT OF INCOME DATA: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $1,226,649 $1,514,489 $1,648,280 $2,155,453 $2,468,379 $1,266,248 $ 999,289
Expenses:
Cost of sales.......... 658,824 746,486 789,564 1,013,589 1,417,007 621,590 748,514
Research and
development........... 223,651 237,679 279,412 295,326 416,521 202,569 187,548
Marketing, general and
administrative........ 246,418 272,962 296,912 377,503 412,651 209,336 186,074
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,128,893 1,257,127 1,365,888 1,686,418 2,246,179 1,033,495 1,122,136
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. 97,756 257,362 282,392 469,035 222,200 232,753 (122,847)
Litigation settlement... -- -- -- (58,000) -- -- --
Interest income and
other, net............. 57,007 18,913 16,931 17,134 32,465 14,033 51,098
Interest expense........ (21,592) (17,677) (4,398) (4,410) (3,059) (1,079) (3,793)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes and equity in
joint venture.......... 133,171 258,598 294,925 423,759 251,606 245,707 (75,542)
Provision (benefit) for
income taxes........... -- 24,979 85,935 142,232 70,206 81,840 (31,723)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before equity in
joint venture.......... 133,171 233,619 208,990 281,527 181,400 163,867 (43,819)
Equity in net income
(loss) of joint
venture................ -- -- (634) (10,585) 34,926 1,115 34,474
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 133,171 $ 233,619 $ 208,356 $ 270,942 $ 216,326 $ 164,982 $ (9,345)
========== ========== ========== ========== ========== ========== ==========
OTHER FINANCIAL DATA:
CCG net sales........... $ 789,762 $ 779,661 $ 865,249 $ 830,957 $1,220,604 $ 535,054 $ 638,456
PLD net sales........... 59,588 105,159 163,116 186,511 255,930 118,755 131,148
CPG net sales........... 377,299 629,669 619,915 1,137,985 991,845 612,439 229,685
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total net sales....... 1,226,649 1,514,489 1,648,280 2,155,453 2,468,379 1,266,248 999,289
EBITDA(1)............... 255,323 411,045 459,219 686,700 486,875 346,849 40,958
Depreciation and
amortization........... 157,567 153,683 176,827 217,665 264,675 114,096 163,805
Capital expenditures
(2).................... 137,536 223,634 390,493 586,473 650,322 342,203 205,989
Net interest expense
(income)(3)............ 17,341 7,132 (4,949) (10,627) (8,416) (2,141) 1,544
Ratio of earnings to
fixed charges(4)....... 4.7x 8.9x 15.8x 22.7x 9.4x 17.2x --
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(4)........... 3.6x 6.6x 9.1x 12.6x 9.4x 17.1x --
<CAPTION>
AT FISCAL YEARS ENDED
---------------------------------------------------------- AT JUNE 30,
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------- -----------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash(5)................. $ 312,006 $ 365,300 $ 496,620 $ 430,921 $ 509,665 $ 281,658
Working capital......... 179,256 382,027 514,532 441,649 461,509 404,570
Total assets............ 1,304,773 1,453,768 1,944,953 2,525,721 3,078,467 2,845,025
Long-term debt(6)....... 48,238 22,213 90,066 75,752 214,965 201,922
Stockholders' equity.... 787,727 1,044,369 1,351,806 1,797,354 2,102,462 2,071,355
</TABLE>
- -------
(1) EBITDA is defined as operating income (loss) of the Company and its
consolidated subsidiaries plus depreciation and amortization of the
Company and its consolidated subsidiaries. EBITDA is presented because it
is a widely accepted financial indicator of a company's ability to service
and incur debt. EBITDA should not be considered by an investor as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to the Company's cash flows from
operating activities as a measure of liquidity.
(2) Capital expenditures include capital leases incurred in the amounts of
$26.2 million, $0.1 million, $64.5 million, $34.2 million, $24.4 million,
$16.5 million and $0.3 million for the fiscal years ended 1991, 1992,
1993, 1994 and 1995 and the six months ended July 2, 1995 and June 30,
1996, respectively.
(3) Net interest expense (income) is defined as total interest incurred
(including all capitalized interest) less all interest income.
(4) For purposes of computing the ratio of earnings to fixed charges and the
ratio of earnings to combined fixed charges and preferred stock dividends,
fixed charges consist of interest expense on long-term debt and capital
leases, amortization of deferred financing costs and that portion of
rental expense deemed to be representative of interest. Earnings consist
of income before income taxes and equity in joint venture, plus fixed
charges. For the six months ended June 30, 1996, earnings were
insufficient to cover fixed charges by $77.9 million, and no preferred
stock was outstanding. On a pro forma basis, assuming $150.0 million of
the net proceeds from the Offering were used to extinguish existing debt
of the Company in a refinancing, the ratio of earnings to fixed charges
would have been 8.0x and the ratio of earnings to combined fixed charges
and preferred stock dividends would have been 8.0x for the year ended
December 31, 1995. For the six months ended June 30, 1996, on a pro forma
basis, earnings would have been insufficient to cover fixed charges by
$81.1 million.
(5) Cash includes cash, cash equivalents and short-term investments.
(6) Long-term debt includes capital lease obligations but excludes current
portions of both long-term debt and capital lease obligations.
S-21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Cautionary Statement Regarding Forward Looking Statements. The statements in
this Management's Discussion and Analysis of Results of Operations and
Financial Condition that are forward looking are based on current expectations
and beliefs and involve numerous risks and uncertainties that could cause
actual results to differ materially. The forward looking statements include
estimates of 1996 gross margin, operating results, capital expenditures and
adequacy of resources to fund operations and capital investments;
microprocessor and Flash memory device business and prospects; external
financing plans and financial instruments; and proposed Dresden and FASL II
manufacturing facilities. See "Risk Factors" for a discussion of the factors
that could cause the actual results to differ materially from the forward
looking statements.
The following discussion should be read in conjunction with: (i) the
Supplemental Consolidated Financial Statements and Notes thereto at December
31, 1995 and December 25, 1994, and for each of the three years in the period
ended December 31, 1995; and (ii) the Unaudited Condensed Consolidated
Financial Statements and Notes thereto at June 30, 1996 and July 2, 1995, and
for the three-month and six-month periods ended June 30, 1996 and July 2, 1995
appearing elsewhere in the Prospectus Supplement. On January 17, 1996, the
Company acquired NexGen, Inc. ("NexGen") in a transaction accounted for as a
pooling of interests. All financial data and footnote information of the
Company, including the Company's previously issued financial statements for
the periods discussed herein, have been restated to give retroactive effect to
the merger with NexGen.
RESULTS OF OPERATIONS
Net Sales. Net sales were $455.1 million for the second quarter of 1996 as
compared to $638.9 million for the same period in 1995 and $544.2 million for
the first quarter of 1996. For the six month period ended June 30, 1996, net
sales decreased to $999.3 million from $1,266.2 million for the comparable
period in 1995. Net sales decreased in the second quarter of 1996 and for the
six month period ended June 30, 1996 as compared to the corresponding periods
in 1995 primarily due to a decline in Am486 microprocessor sales, as both unit
volume and average selling prices decreased significantly. Net sales in the
second quarter of 1996 decreased from the immediately prior quarter primarily
due to a decline in Flash memory device sales, as both unit volume and average
selling prices declined, and secondarily due to a continued decline in Am486
microprocessor sales caused by a continued decline in average selling prices.
Net sales were $1.6 billion, $2.2 billion and $2.5 billion in 1993, 1994 and
1995, respectively. The increase in 1994 was due to substantial growth in
Am486 microprocessor sales. The increase in 1995 was primarily attributable to
substantial growth in Flash memory sales and secondarily due to an increase in
sales of communications products, the combination of which more than offset a
decline in microprocessor sales.
Communications and Components Group ("CCG") net sales were $290.1 million
for the second quarter of 1996 as compared to $279.4 million for the same
period in 1995 and $348.3 million for the first quarter of 1996. For the six
month period ended June 30, 1996, CCG net sales increased to $638.5 million
from $535.1 million for the comparable period in 1995. CCG net sales increased
in the second quarter of 1996 as compared to the same period in 1995 due to
higher unit shipments of communications products. CCG net sales in the second
quarter of 1996 decreased from the immediately prior quarter primarily due to
sales declines in Flash memory devices, which constitute a significant portion
of CCG net sales, and secondarily due to a decline in unit shipments of other
CCG products, slightly offset by increases in sales of SLIC and SLAC devices.
CCG net sales increased in the six month period ended June 30, 1996 as
compared to the corresponding period in 1995 due to increased unit shipments
of Flash memory devices and communications products. The market for the
Company's Flash memory devices in 1996 has been characterized by increasing
competition from all major manufacturers, falling prices, and weak unit
demand. There can be no assurance that these trends will not continue or
accelerate.
CCG net sales were $865 million, $831 million and $1,221 million in 1993,
1994 and 1995, respectively, representing a decrease of 4 percent from 1993 to
1994 and an increase of 47 percent from 1994 to 1995. The decrease in 1994 was
due to competition from Intel in the Flash memory market, which caused lower
Flash
S-22
<PAGE>
pricing. Net sales of Flash memory devices increased from 1994 to 1995,
primarily due to growth in unit shipments and secondarily due to a change in
product mix resulting in higher average selling prices. During 1995, Flash
memory devices contributed a significant portion of the Company's revenues and
profits. Revenues from communication products rose from 1994 to 1995 primarily
due to growth in the Ethernet family of products. In 1995, EPROM sales
decreased as compared to 1994 due to comparable declines in both unit
shipments and average selling prices.
Programmable Logic Division ("PLD") net sales were $61.6 million for the
second quarter of 1996 as compared to $61.4 million for the same period in
1995 and $69.6 million for the first quarter of 1996. For the six month period
ended June 30, 1996, PLD net sales increased to $131.1 million from $118.8
million for the comparable period in 1995. PLD net sales in the second quarter
of 1996 decreased from the immediately prior quarter due to decreased unit
shipments and declines in average selling prices, principally involving simple
programmable logic devices. The Company believes this decline is attributable
to decreased market demand in the simple and complex programmable logic
market. Net sales in the six month period ended June 30, 1996 increased as
compared to the corresponding period in 1995 due to increased unit shipments
of complex programmable logic devices, which have higher average selling
prices than simple programmable logic devices. PLD net sales were $163
million, $187 million and $256 million in 1993, 1994 and 1995, respectively,
representing an increase of 14 percent from 1993 to 1994 and an increase of 37
percent from 1994 to 1995. The increases from 1993 through 1995 were primarily
due to higher unit shipments.
Computation Products Group ("CPG") net sales were $103.4 million for the
second quarter of 1996 as compared to $298.1 million for the same period in
1995 and $126.3 million for the first quarter of 1996. For the six month
period ended June 30, 1996, CPG net sales decreased to $229.7 million from
$612.4 million for the comparable period in 1995. The decline in CPG net sales
was in each case due to increased market acceptance of higher performance
fifth generation microprocessors from Intel Corporation, coupled with the
Company's delay in introducing competitive fifth generation microprocessors.
The market for fourth generation microprocessors, including the Company's
Am486 microprocessor, has continued to decline as the product life cycle is
ending and the Company anticipates that the decline in Am486 microprocessor
unit demand and average selling prices will continue and may accelerate during
the remainder of 1996. The Company's fifth generation microprocessor, the AMD-
K5 microprocessor, was introduced relatively late in the life cycle of fifth
generation products. As such, the Company believes the AMD-K5 microprocessor
will be a transitional product and will be unlikely to result in the levels of
revenue for the Company realized from the Am486 microprocessor. The Company
believes that the success of its fifth generation microprocessor products
during the remainder of 1996 will depend on market acceptance of the Company's
100 MHz AMD-K5 product and the ability of the Company to develop and introduce
on a timely basis subsequent higher performance fifth generation
microprocessors. The Company does not expect any sales of the AMD-K6 products
in 1996. The Company intends to begin volume shipments of the AMD-K6 products
in the first half of 1997, although no assurance can be made that such
shipments will occur.
CPG net sales were $620 million, $1,138 million and $992 million in 1993,
1994 and 1995, respectively, representing an increase of 84 percent from 1993
to 1994 and a decrease of 13 percent from 1994 to 1995. The sales increase in
1994 was due to increased average selling price and unit sales for the Am486
microprocessor. In 1995, Am486 microprocessor sales decreased slightly from
the prior year, primarily due to average selling price declines, partially
offset by increases in unit sales.
Gross Margin. Gross margins were 17% for the second quarter of 1996 as
compared to 51% for the same period in 1995 and 32% for the first quarter of
1996. For the six month period ended June 30, 1996, gross margins decreased to
25% from 51% for the comparable period in 1995. The decline in gross margins
was in each case due to lower sales, underutilization of the Company's high
fixed cost production facilities, particularly Fab 25, and provisions against
higher than expected Flash memory device inventory levels. These factors may
contribute to further declines in gross margins during the remainder of 1996.
Gross margin was 52 percent, 53 percent and 43 percent in 1993, 1994 and 1995,
respectively. The increase in gross margin from 1993 to 1994 was primarily
attributable to increased sales from higher margin Am486 products. The four
main factors contributing to the decrease in gross margin in 1995 compared to
1994, in order of significance, were first, Am486 price declines; second,
increased purchases by the Company of Flash memory devices from FASL at
S-23
<PAGE>
prices higher than the costs of similar products manufactured internally;
third, negative gross margins, inventory and manufacturing loss accruals
associated with significantly reduced demand for NexGen products; and fourth,
the transition of Fab 25 costs from research and development to cost of sales
when production commenced in September 1995. The impact of gross margin
declines caused by purchases of FASL products during 1995 was mostly offset by
the Company's share of FASL income.
Research and Development. Research and development expenses were $92.8
million for the second quarter of 1996 as compared to $105.7 million for the
same period in 1995 and $94.8 million for the first quarter of 1996. For the
six month period ended June 30, 1996, research and development expenses
decreased to $187.5 million from $202.6 million for the comparable period in
1995. The decline in research and development expenses was in each case due to
a recategorization of Fab 25 expenses from research and development to cost of
sales as Fab 25 commenced production in the third quarter of 1995. Research
and development expenses were $279 million, $295 million and $417 million for
1993, 1994 and 1995, respectively. The increase from 1993 to 1994 was
primarily due to increased spending on microprocessor development. The
increase from 1994 to 1995 was primarily due to higher Fab 25 research and
development expenses and secondarily due to increased microprocessor
development costs.
Marketing, General and Administrative. Marketing, general and administrative
expenses were $83.1 million for the second quarter of 1996 as compared to
$106.6 million for the same period in 1995 and $103.0 million for the first
quarter of 1996. For the six month period ended June 30, 1996, marketing,
general and administrative expenses decreased to $186.1 million from $209.3
million for the comparable period in 1995. Marketing, general and
administrative expenses in the second quarter of 1996 decreased from the
immediately prior quarter primarily due to non-recurring costs associated with
the NexGen merger in the first quarter of 1996. The decline in marketing,
general and administrative expenses was in each other case due to the
cessation of promotional expenses associated with NexGen's products, which the
Company no longer offers. Marketing, general and administrative expenses were
$297 million, $378 million and $413 million in 1993, 1994 and 1995,
respectively. The increase from 1993 to 1994 was mainly due to increased legal
expenses and microprocessor advertising expenses. The increase from 1994 to
1995 was primarily attributable to promotional expenses for the sale of
NexGen's Nx586 and other related products, and secondarily to higher
advertising expenses.
Operating Losses (Income). The Company incurred operating losses of $100.5
million for the second quarter of 1996 as compared to operating income of
$110.7 million for the same period in 1995 and operating losses of $22.3
million for the first quarter of 1996. For the six month period ended June 30,
1996, operating losses were $122.8 million as compared to operating income of
$232.8 million for the comparable period in 1995. The decline in operating
income was in each case due to lower sales and underutilization of the
Company's high fixed cost production facilities, particularly Fab 25. The
Company can give no assurance of any improvement in its operating results in
the third quarter of 1996.
Interest Income and Other; Interest Expense. Interest income and other, net
was $23.0 million for the second quarter of 1996 as compared to $7.0 million
for the same period in 1995 and $28.1 million for the first quarter of 1996.
For the six month period ended June 30, 1996, interest income and other, net
increased to $51.1 million from $14.0 million for the comparable period in
1995. The Company's quarter and six-month results for the periods ended June
30, 1996 include pre-tax gains of $16.3 million and $41.0 million,
respectively, resulting from the sales of equity investments. Interest expense
was $1.8 million for the second quarter of 1996 as compared to $0.5 million
for the same period in 1995 and $2.0 million for the first quarter of 1996.
For the six month period ended June 30, 1996, interest expense increased to
$3.8 million from $1.1 million for the comparable period in 1995. Interest
expense increased in all periods of 1996 from 1995 due to lower capitalized
interest mainly related to the completion of the first phase of the
construction of Fab 25. Interest income and other, net was $17 million, $17
million and $32 million in 1993, 1994 and 1995, respectively. The increase
from 1994 to 1995 is primarily due to a realized gain of approximately $3
million from equity securities sold during 1995. In 1994, interest income and
other, net included a net charge of approximately $5 million resulting from
the securities class action lawsuit and stockholders' derivative action
settlements, and a gain from the damages award in an arbitration proceeding
with Intel Corporation. Interest expense was $4.4 million, $4.4 million and
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$3.1 million in 1993, 1994 and 1995, respectively. Interest expense in 1995
decreased from 1994 due to higher capitalized interest mainly related to the
construction of Fab 25.
Income Taxes. During the second quarter of 1996 the Company recorded a tax
credit of $31.7 million. This results in an effective tax rate (benefit) of
approximately 40 percent for the quarter and year-to-date reflecting the
benefit of operating loss carrybacks to prior years. The income tax rate was
33 percent in both the second quarter and the first six months of 1995. The
income tax rate was approximately 29, 34 and 28 percent in 1993, 1994 and
1995, respectively. Differences in the effective tax rates are primarily
attributable to proportionate differences in the benefit of low tax foreign
income, lower state taxes in 1995 and available tax credits in 1993.
Net Losses (Income). The Company incurred net losses of $34.7 million, or
$0.26 per share, for the second quarter of 1996 as compared to net income of
$80.7 million, or $0.59 per share fully diluted, for the same period in 1995
and net income of $25.3 million, or $0.18 per share fully diluted, for the
first quarter of 1996. For the six month period ended June 30, 1996, net
losses were $9.3 million, or $0.07 per share, as compared to net income of
$165.0 million, or $1.21 per share fully diluted, for the comparable period in
1995.
International Sales and Related Financial Instruments. International sales
were 53 percent of net sales in the second quarter of 1996 as compared to 58
percent for the same period in 1995 and 52 percent for the first quarter of
1996. For the six month period ended June 30, 1996, international sales
decreased to 52 percent of net sales from 57 percent for the comparable period
in 1995. Approximately 17 percent of the Company's net sales were denominated
in foreign currencies in the first six months of 1996. International sales
were 54, 55, and 56 percent of total sales in 1993, 1994 and 1995,
respectively. During 1995, approximately 17 percent of the Company's net sales
were denominated in foreign currencies. The Company does not have sales
denominated in local currencies in those countries which have highly
inflationary economies. (A highly inflationary economy is defined in
accordance with the Statement of Financial Accounting Standards No. 52 as one
in which the cumulative inflation over a three-year consecutive period
approximates 100 percent or more.) The impact on the Company's operating
results from changes in foreign currency rates individually and in the
aggregate has not been material.
The Company enters into foreign exchange forward contracts to buy and sell
currencies as economic hedges of the Company's foreign net monetary asset
position including the Company's liabilities for products purchased from FASL.
In 1995 and 1996, these hedging transactions were denominated in lira, yen,
French franc, Deutsche mark, and pound sterling. The maturities of these
contracts are generally short-term in nature. The Company believes its foreign
exchange contracts do not subject the Company to material risk from exchange
rate movements because gains and losses on these contracts are designed to
offset losses and gains on the net monetary asset position being hedged. Net
foreign currency gains and losses have not been material. As of June 30, 1996,
the Company had approximately $36.5 million (notional amount) of foreign
exchange forward contracts as compared to $37 million (notional amount) at
December 31, 1995 (see Notes 3, 4 and 5 to the Supplemental Consolidated
Financial Statements).
The Company has engaged in interest rate swaps primarily to reduce its
interest rate exposure by changing a portion of the Company's interest rate
obligation from a floating rate to a fixed rate basis. At June 30, 1996, the
net outstanding notional amount of interest rate swaps was $165.0 million, of
which $125.0 million will mature in 1996 and $40.0 million will mature in
1997. Gains and losses related to these interest rate swaps have been
immaterial.
The Company primarily addresses market risk by participating as an end user
in various derivative markets to manage its exposure to interest and foreign
currency exchange rate fluctuations. The conterparties to the Company's
foreign exchange forward contracts and interest rate swaps consist of a number
of major, high credit quality, international financial institutions. The
Company does not believe that there is significant risk of nonperformance by
these counterparties because the Company monitors the credit ratings of such
counterparties, and reduces the financial exposure by limiting the amount of
agreements entered into with any one financial institution.
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Other. In 1995, the Financial Accounting Standards Board released the
Statement of Financial Accounting Standards 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. The Company adopted SFAS 121 in the first
quarter of 1996 and it did not have a material impact on the Company's
financial condition 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 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards 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 condition or results of operation.
FINANCIAL CONDITION
The Company's working capital balance decreased to $404.6 million at June
30, 1996, from $480.2 million at March 31, 1996 and from $461.5 million at
December 31, 1995 primarily due to continued capital spending, particularly on
Fab 25. The Company's operations required the use of $50.0 million in cash for
the six months ended June 30, 1996. The Company's cash, cash equivalents and
short-term investments balance was approximately $281.7 million at June 30,
1996, compared to $409.3 million at March 31, 1996 and $509.7 million at
December 31, 1995. Cash, cash equivalents, and short-term investments
increased by $79 million from 1994 to 1995. This increase was primarily
attributable to a $150 million term loan obtained in January of 1995 offset by
NexGen's cash used in operations. The $545 million of cash generated from
operating activities in 1995 was used to fund investments in property, plant,
and equipment to expand manufacturing capacity, primarily related to Fab 25.
The Company's capital investments and its recent operating performance have
resulted in significant negative cash flow and the Company anticipates
negative cash flow through the remainder of 1996. The Company is continuing to
make substantial capital investments in its process technology and
manufacturing capacity based, in part, upon Company and industry projections
regarding future growth in the market for integrated circuits. The Company
plans to make significant capital investments through the remainder of 1996.
The Company made capital investments of approximately $108.0 million in Fab 25
during the first six months of 1996 and plans to make additional capital
investments of an estimated $215.0 million in Fab 25 during the remainder of
1996.
The Company is currently planning to build a submicron wafer fabrication
facility in Dresden, Germany, at an estimated cost of approximately $1.5
billion over five years. The German federal and state governments will provide
financial assistance to the facility through grants and allowances, loan
guarantees, and interest subsidies. At June 30, 1996, the Company was engaged
in negotiating substantially all of the agreements relating to the
construction, operation and financing of the facility which are expected to
require the Company to make cash investments and loans, in the aggregate
amount of approximately $350.0 million over the next four years and to
undertake related contingent obligations which are anticipated to range from
$100.0 million to $200.0 million. See "Certain Material Agreements--Dresden."
At June 30, 1996, the Company's 1996 capital plans included an estimated
investment of $75.0 million for the new facility in Dresden.
As of June 30, 1996, and as of December 31, 1995, the Company's total cash
investment in FASL was $160.4 million. No additional cash investment is
currently planned for the remainder of 1996. In March of 1996, FASL began
construction of a second Flash memory fab, FASL II, at a site contiguous to
the existing FASL facility in Aizu-Wakamatsu, Japan. The facility is expected
to cost approximately $1.1 billion when fully equipped. Capital expenditures
for FASL II construction are expected to be funded by the cash anticipated to
be
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generated from FASL operations and, if necessary, bank borrowings by FASL.
However, in the event that FASL is unable to secure the necessary funds for
FASL II, AMD may be required to contribute cash or guarantee third-party loans
in proportion to its percentage interest in FASL. The planned FASL II costs
are denominated in yen and, therefore, are subject to change due to foreign
exchange rate fluctuations. See "Certain Material Contracts--FASL."
The Company has entered into the $400.0 million New Credit Agreement, to be
available upon the consummation of the Offering, replacing the Company's
existing unsecured, and currently unused, $250.0 million revolving line of
credit and its outstanding unsecured $150.0 million four-year term loan. Prior
to January 1, 1997, the Indenture will limit the aggregate borrowings which
can be made under the New Credit Agreement to $250.0 million. The Company will
use a portion of the proceeds of the Offering to repay the existing $150.0
million four-year term loan. The New Credit Agreement provides for a $150.0
million three-year secured revolving line of credit (which can be extended for
one additional year, subject to approval of the Banks) and a $250.0 million
four-year secured term loan which is available to the Company for a period of
six months after the effective date of the New Credit Agreement (July 19,
1996) and which the Company expects to utilize fully. Borrowings under the New
Credit Agreement are subject to the issuance of the Senior Secured Notes among
other conditions. All indebtedness under the New Credit Agreement will be
secured, together with the Senior Secured Notes, by the Deeds of Trust and
Security Agreements representing a first priority security interest, subject
to the terms of the Intercreditor Agreement, in the Collateral.
Upon the sale of the Senior Secured Notes and following the use of
approximately $150.0 million of the net proceeds of such sale to repay the
Company's existing $150.0 million four-year term loan, the Company's available
financial resources, as of June 30, 1996 pro forma for the Offering, will
consist of (i) $520.2 million of cash, cash equivalents and short-term
investments, (ii) the undrawn $150.0 million three-year secured and revolving
line of credit discussed above, (iii) the undrawn $250.0 million secured term
loan discussed above and (iv) short-term, unsecured uncommitted bank credit in
the amount of $80.0 million.
The Company's current capital plan and requirements are based on the
availability of financial resources and various product-mix, selling-price,
and unit-demand assumptions and are, therefore, subject to revision. The
Company believes that current cash balances, together with cash flows,
including anticipated external financing provided by the Offering and the New
Credit Agreement, will be sufficient to fund operations and capital
investments currently planned for the remainder of 1996.
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Cautionary Statement Regarding Forward Looking Statements. The statements in
this Prospectus Supplement that are forward looking are based on current
expectations and involve numerous risks and uncertainties that could cause
actual results to differ materially. The forward looking statements include
the expectations of the Company regarding the future of the integrated circuit
industry; the strategies of the Company; the development, validation,
certification, introduction, market acceptance and pricing of K86 products;
the future impact of the Company's acquisition of NexGen; future business
prospects for microprocessor and Flash memory products and other product
lines; the Company's future commitment to research and development; planned
build-out and expected capability of Fab 25; and projects which are proposed
or under construction in Japan, Germany and China. For a discussion of the
factors that could cause actual results to differ materially, see "Risk
Factors" and such other risks and uncertainties as are detailed in AMD's
Securities and Exchange Commission reports and filings.
THE COMPANY
AMD, founded in 1969, is one of the largest United States-based
semiconductor manufacturers, based on sales to third parties, with
manufacturing facilities and sales offices throughout the world. AMD's
products include a wide variety of industry-standard integrated circuits which
are used in many diverse product applications such as telecommunications
equipment, data and network communications equipment, consumer electronics,
personal computers and workstations. AMD's customers include leading
electronics manufacturers such as AT&T, Compaq, Hewlett-Packard, IBM, LM
Erickson, Motorola and Siemens, each of which was among AMD's top eleven
customers in 1995. AMD is a New York Stock Exchange listed company with an
equity market capitalization of over $1.5 billion as of August 1, 1996. For
the twelve-month period ended June 30, 1996, AMD's net sales and EBITDA (as
defined herein) were approximately $2.2 billion and $181.0 million,
respectively.
INDUSTRY
The IC market has grown dramatically over the past ten years, driven
primarily by the demand for electronic business and consumer products. Today
ICs are used in virtually all products involving electronics, including
personal computers and related peripherals, voice and data communications
products, fax and copy machines, home entertainment equipment, industrial
control equipment and automobiles. The global demand for ICs has grown at a
compound annual rate of 23% (in terms of dollar sales) from 1986 through 1995
based upon figures reported by Worldwide Semiconductor Trade Statistics
("WSTS") published by the Semiconductor Industry Association. The Company
believes that the IC market will continue to grow, due to the continuing
worldwide demand for electronic business and consumer products. The global IC
market is projected by WSTS to grow at a compound annual rate of 13% (in terms
of dollar sales) from 1995 through 1999.
The market for ICs can be divided into separate markets for digital and ana-
log devices. AMD participates primarily in the market for digital ICs. In
1995, as reported by WSTS, $109 billion, or 87%, of the worldwide IC market
consisted of digital ICs. The three principal types of digital ICs used in
most electronic systems are: (i) memory circuits, (ii) logic circuits and
(iii) microprocessors. Memory is used to store data and programming instruc-
tions, logic is employed to manage the interchange and manipulation of digital
signals within a system, and microprocessors are used for control and comput-
ing tasks. In 1995, as reported by WSTS, the digital integrated semiconductor
market was segmented as follows: $53 billion in memory, $23 billion in logic
and $33 billion in microprocessors and microcontrollers. Set forth below is a
discussion of the principal segments of the digital IC market in which the
Company participates.
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THE MEMORY MARKET
Memory ICs store data or programs and are characterized as either volatile
or non-volatile. Volatile devices lose their stored information after
electrical power is shut off and non-volatile devices retain their stored
information. The three most significant categories of semiconductor memory are
dynamic random access memory ("DRAM") and static random access memory
("SRAM"), both of which are volatile memories, and non-volatile memory, which
includes read-only memory ("ROM"), Flash memory and EPROM devices. DRAM
provides large capacity "main" memory, and SRAM provides specialized high
speed memory. Flash and other non-volatile memory are used in applications in
which data must be retained after power is turned off. The Company does not
produce any DRAM products, the largest and most commodity oriented segment of
the memory market.
Demand for semiconductor memory devices in digital electronic systems has
grown dramatically over the last several years as a result of the increasing
importance of memory in determining system performance. As a result of this
trend, the Company believes that the percentage of total system costs
represented by memory devices has risen steadily over the past few years. WSTS
estimates that in 1995 the memory segment of the worldwide semiconductor
market was $53 billion, or 49%, of the total digital IC market. According to
WSTS, the overall memory market is expected to increase to approximately $77
billion by 1999, which represents a compound annual growth rate of over 9%.
Factors which have contributed to the increasing demand for memory devices
include the expanding unit sales of personal computers in the business and
consumer market segments; the increasing use of personal computers to perform
memory-intensive graphics and multimedia functions; the volume of memory
required to support faster microprocessors; the proliferation of increasingly
complex personal computer software; and the increasing performance
requirements of workstations, servers and networking and telecommunications
equipment.
The Company believes that Flash memory (in terms of dollar sales) will be
one of the fastest growing segments of the memory market, as an expanding
range of applications utilize Flash memory in the computer,
telecommunications, networking, consumer electronics, automotive, industrial
control and instrumentation industries. The ability of Flash memory devices to
be electrically rewritten to update parameters or system software provides
greater flexibility and ease of use than other non-volatile memory devices,
such as ROM or EPROM devices. Flash memory can be used to provide storage of
control programs and system-critical data in communication devices such as
cellular phones and routers (devices used to transfer data between local area
networks). Another common application for Flash memory is in PC cards, which
are inserted into notebook and subnotebook computers or personal digital
assistants to provide added data storage. The market for Flash memory devices,
as reported by Dataquest, was $1.8 billion in 1995 and is projected by
Dataquest to grow to $5.8 billion in 1999, which represents a compound annual
growth rate of 33%.
THE LOGIC MARKET
Logic circuits contain interconnected groupings of simple logical circuits
commonly described as "gates." Typically, complex combinations of individual
gates are required to implement the specialized logic circuits required for
digital systems applications. While system designers use a relatively small
number of standard ICs to meet their microprocessor and memory needs, they
require a wide variety of logic circuits in order to differentiate their
products from those of their competitors.
Logic circuits are found in a wide range of today's electronic systems,
including communications equipment, computers, peripherals, instrumentation,
industrial control and military systems. The logic market encompasses, among
other segments, standard transistor-transistor logic ("TTL"), custom-designed
application specific ICs ("ASICs"), which include conventional gate-arrays,
standard cells and full custom logic circuits, input/output ("I/O"),
communications, multimedia, networking and programmable logic devices. Logic
circuits are often classified by the number of gates per circuit, with TTL
circuits typically containing up to 100 gates. Conventional gate arrays and
custom logic circuits typically have up to several hundred thousand gates.
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Programmable logic devices typically have up to 20,000 gates but may have
fewer gates in specialized applications. According to WSTS, logic accounted
for approximately $23 billion, or 21%, of the worldwide digital IC market in
1995. The logic market is expected by WSTS to exceed $37 billion by 1999,
which represents a compound annual growth rate of 13% from 1995 through 1999.
Logic circuits are used extensively in networking and telecommunications
applications including Internet and intranet applications. Networking is a
method of connecting PCs to other PCs and closely related peripherals (e.g.,
printers), so that resources and information can be transferred and shared. In
large corporations today, most PCs are networked to improve productivity and
communication. Networking continues to spread to medium and small-sized
companies and could eventually make inroads into the home market. The Ethernet
standard is the most commonly used method for networking workstations, network
servers, personal computers and related peripheral devices. International Data
Corporation ("IDC") forecasts the number of networked PCs to grow from 91
million in 1995 to 249 million by 2000.
Telecommunications applications relate to the lines, switches, and routing
equipment required to provide connectivity among enterprises and homes that
are part of the public infrastructure. This infrastructure is owned and
operated by private companies such as AT&T and the regional Bell operating
companies in the U.S., and may be owned and operated by governments, private
companies, or some combination in other regions of the world. The
infrastructure for voice communications continues to expand throughout the
world, fueling demand for IC-based telecommunications line card solutions,
which convert signals from analog to digital for transmission, then convert
the signals back to analog on the receiving end. To perform these tasks, line
cards rely on integrated circuit logic products called SLICs (Subscriber Line
Interface Circuits) and SLAC(TM) subscriber line audio processing circuits.
Logic devices are also used extensively with respect to I/O applications,
which involve the sending and receiving of data from the central processing
unit ("CPU") of a PC to peripheral devices such as disk drives and printers,
and multimedia applications, which utilize combinations of sound, graphics,
animation and text.
Manufacturers of electronic systems are increasingly challenged to bring
differentiated products to market quickly. These competitive pressures
sometimes preclude the use of custom-designed ASICs, which generally entail
significant design costs and time delay. Standard logic products, an
alternative to custom designed ASICs, limit a manufacturer's flexibility to
adequately optimize and customize an end system. Programmable logic addresses
this inherent dilemma. Programmable logic devices are standard products,
purchased by systems manufacturers in a "blank" state, that can be custom
configured into many specific logic circuits by programming the device with
electrical signals. Programmable logic devices give system designers the
ability to quickly create their own custom logic circuits to provide product
differentiation and rapid time to market. Certain programmable logic products,
including the Company's, are reprogrammable, which means that the logic
configuration can be modified, if needed, after the initial logic programming.
A recent technology development, in-system programmability, extends the
flexibility of standard reprogrammable programmable logic devices by allowing
the system designer to configure and reconfigure the logic functions of the
programmable logic device with a standard 3 or 5-volt power supply without
removing the programmable logic devices from the system board.
Several common types of programmable logic devices currently coexist in the
marketplace, each offering customers a particular set of benefits. These
include simple programmable logic devices (less than 1,000 gates), complex
programmable logic devices ("CPLDs," up to 20,000 gates) and field
programmable gate arrays ("FPGAs," up to 100,000 gates). CPLDs are generally
preferred to FPGAs for control logic applications, such as state machines, bus
arbitration, encoders and decoders and sequences, and FPGAs are generally
preferred to CPLDs for register intensive and data path logic applications,
such as interface logic and arithmetic functions. The Company believes that a
substantial portion of programmable logic device customers utilize both CPLD
and FPGA architectures together to optimize overall system performance and
improve time-to-market for new products.
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THE MICROPROCESSOR MARKET
IBM introduced its first PC in 1981 containing a microprocessor based upon
the x86 instruction set developed by Intel and utilizing the Microsoft MS-
DOS(R) operating system. The so-called IBM-compatible computer has evolved
over the years with each successive generation of x86 microprocessors. Each
new generation of x86 microprocessors has delivered increased performance and
functionality while maintaining software, hardware and peripheral
compatibility for industry standard operating systems such as Microsoft MS-DOS
and Microsoft Windows. The microprocessor market is currently dominated by
Intel.
The microprocessor, an IC generally consisting of millions of transistors,
serves as the central processing unit, or "brain," of computer systems. The
microprocessor is typically the most critical component to the performance and
efficiency of a PC. The microprocessor is responsible for controlling data
flowing through the electronic system, manipulating such data as specified by
the hardware or software which controls the system. Microprocessors can be
divided into two broad categories: reduced instruction set computing ("RISC")
and complex instruction set computing ("CISC"). As compared to CISC
microprocessors, RISC microprocessors employ an architectural approach that
requires a smaller number of simplified instructions to perform the
microprocessors' internal operations. Developments in circuit design and very
large scale integration process technology have resulted in dramatic advances
in microprocessor performance over the past ten years. Today, the greatest
demand for microprocessors is from personal computer manufacturers and, in
particular, for microprocessors which are Microsoft Windows compatible and are
based on the x86 instruction set. Improvements in the performance
characteristics of microprocessors, coupled with decreases in production costs
resulting from advances in process technology, have broadened the market for
PCs and increased the demand for microprocessors.
Embedded processors are also an important segment of the microprocessor
market. Embedded processors are general purpose devices used to carry out a
single application with limited user interface and programmability. A system
designed around an embedded processor cannot usually be programmed by an end
user because the system is preprogrammed to execute a specific task. Key
markets for embedded processors include telecommunications, networking, office
automation, storage, automotive applications and industrial control.
WSTS estimates that in 1995 the microprocessor segment of the worldwide
semiconductor market, which includes embedded processors, was $33 billion, or
30%, of the total digital IC market. According to WSTS, the overall
microprocessor market is expected to increase to approximately $66 billion by
1999, which represents a compound annual growth rate of over 19% over the
period. The number of PCs utilizing the Microsoft MS-DOS or Windows operating
system sold annually has grown from approximately 300,000 units in 1982 to
approximately 58 million units in 1995 as reported by IDC. According to IDC,
worldwide PC unit shipments are expected to increase to approximately 104
million units by 1999, which represents a compound annual growth rate in
excess of 16% from 1995 through 1999.
The microprocessor business is characterized by short product life cycles,
intense price competition and rapid advances in product design and process
technology resulting in rapidly occurring product obsolescence. The early
stages of the life cycle of each generation of microprocessors is generally
characterized by high demand, prices and margins. Historically, as the product
life cycle progresses, prices and margins decrease rapidly and production
volume rapidly increases. Towards the end of the life cycle, as the life
cycles of one or more future generations of microprocessors are beginning,
prices and margins decline further and ultimately demand for the product
disappears.
The establishment of hardware and software standards for PCs and the
emergence of numerous PC suppliers have caused the PC industry to be extremely
competitive, with short product life cycles, limited product differentiation
and substantial price competition. To compete more effectively, many PC
suppliers have evolved from fully integrated manufacturers with proprietary
system designs to vendors focused on building brand recognition and
distribution capabilities. Many of these suppliers now rely either on Intel or
on third-party manufacturers for the major subsystems of their PCs, such as
the motherboard, and increasingly are outsourcing
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the design and manufacture of complete systems. The third-party suppliers of
these subsystems, based primarily in Asia, are focused on providing PCs and
motherboards that incorporate the latest trends in features and performance at
low prices. Increasingly, these third-party suppliers are also supplying fully
configured PC systems through alternative distribution channels.
COMPANY STRATEGY
AMD's strategy is to continue to improve its process technologies used in
the production of integrated circuits; to build high volume integrated circuit
manufacturing facilities which use these technologies; and to design products
that are targeted at high volume markets with the potential to produce high
margin revenues for the Company and that can be manufactured at its
facilities.
AMD's specific actions to implement the three elements of its strategy
include:
. Improved Process Technology. The Company is directing significant
resources to process technology research and development. AMD's
Submicron Development Center in Sunnyvale, California, is currently
devoted almost exclusively to the development of advanced process
technologies for Flash memory devices, programmable logic devices and
microprocessors.
. Advanced Manufacturing Facilities. The Company is making significant
capital investments in advanced integrated circuit manufacturing
facilities:
-- The Company continues to invest in the Fab 25 Complex, which is
currently dedicated to the production of microprocessors. AMD has
invested over $860.0 million in the Fab 25 Complex as of June 30,
1996, and currently expects to have invested over $1.2 billion by
the end of 1997 and $1.6 billion by the end of 1999, although the
Company is not obligated to make such further investments. Fab 25
was qualified for production in the third quarter of 1995.
-- The Company intends, through its Dresden, Germany Unrestricted
Subsidiary, to construct a new integrated circuit manufacturing
facility to be dedicated to microprocessors at an estimated cost of
$1.5 billion over five years. The Company expects that the Dresden
facility will begin manufacturing operations in 1999 with full
production to begin in 2002, although there can be no assurance that
this schedule will be met.
-- Through its FASL Unrestricted Subsidiary, the Company and Fujitsu
have constructed and are operating an advanced integrated circuit
manufacturing facility in Aizu-Wakamatsu, Japan, which is currently
dedicated to the production of Flash memory devices. The facility
began volume production in the first quarter of 1995. In the third
quarter of 1995, FASL approved construction of a second Flash memory
device manufacturing facility at a contiguous site.
. High Volume Products. AMD is concentrating its product design and
development resources in four areas: Flash memory devices,
communications and networking products, programmable logic devices and
microprocessors. The Company believes that each of these areas is a high
volume market with significant growth potential.
BUSINESS GROUPS
AMD participates in all three segments of the digital IC market--memory
circuits, logic circuits and microprocessors--through, collectively, its
Communications and Components Group, its Programmable Logic Division and its
Computation Products Group. The following table summarizes the products,
typical applications and certain major customers for each of AMD's product
groups.
S-32
<PAGE>
COMMUNICATIONS AND COMPONENTS GROUP ($1,220.6 million in net sales in
1995)(/1/)
<TABLE>
<CAPTION>
PRODUCTS TYPICAL APPLICATIONS MAJOR CUSTOMERS
-------- -------------------- ---------------
<C> <S> <C>
Flash memory devices Cellular phones and base AT&T/Lucent Technologies
stations
Telecom switching equipment Cisco Systems
LAN hubs and routers Hewlett-Packard
Automotive applications IBM
PC hard disk drives and BIOS LM Erickson
Printer controllers Motorola
Siemens
EPROM devices Cellular phones and base AT&T/Lucent Technologies
stations
Telecom switching equipment Hewlett-Packard
Automotive applications Motorola
PC hard disk drives and BIOS NEC
Printer controllers Siemens
Industrial machine controls
Communications products Telecom switching equipment 3Com
Set-top boxes AT&T/Lucent Technologies
Wireless telecom equipment Hewlett-Packard
Ethernet hubs LM Erickson
Line cards Siemens
Embedded processors Laser printers Apple Computer
Fax machines Compaq
PC hard disk drives Hewlett-Packard
LAN hubs and routers IBM
Lexmark
Siemens
PROGRAMMABLE LOGIC DIVISION ($255.9 million in net sales in 1995)(/1/)
<CAPTION>
PRODUCTS TYPICAL APPLICATIONS MAJOR CUSTOMERS
-------- -------------------- ---------------
<C> <S> <C>
Programmable logic devices Telecom equipment AT&T/Lucent Technologies
LAN hubs and routers Cisco Systems
PC hard disk drives Hewlett-Packard
PC add-on cards IBM
Printers NEC
Industrial machine controls
COMPUTATION PRODUCTS GROUP ($991.8 million in net sales in 1995)(/1/)
<CAPTION>
PRODUCTS TYPICAL APPLICATIONS MAJOR CUSTOMERS
-------- -------------------- ---------------
<C> <S> <C>
Microsoft Windows Personal computers Acer
compatible
microprocessors
I/O and network products Network interface cards (NICs) 3Com
Wireless communications Apple Computer
equipment
Multimedia integrated circuits Cisco Systems
PC I/O add-on cards Compaq
Hewlett-Packard
IBM
</TABLE>
- --------
(1) For the six months ended June 30, 1996, CCG's net sales were $638.5
million, PLD's net sales were $131.1 million, and CPG's net sales were
$229.7 million.
S-33
<PAGE>
COMMUNICATIONS AND COMPONENTS GROUP
Net sales for CCG have grown at a compound annual growth rate of 12% from
1991 through 1995, driven primarily by increased demand for CCG's Flash memory
devices.
Flash Memory. Flash memory devices are used in cellular telephones,
networking equipment and other applications which require memory to be
rewritten. Their ability to be rewritten electrically provides greater
flexibility and ease of use than EPROMs and other similar integrated circuits
which cannot be rewritten electrically. Communications companies use Flash
memory devices in cellular telephones and related equipment to enable users to
program and reprogram frequently called numbers and manufacturers to
preprogram other information. In networking applications, Flash memory devices
are used in hubs and routers to enable systems to store programmed and
reprogrammed Internet addresses and other routing information. The market for
Flash memory devices, as reported by Dataquest, was $1.8 billion in 1995 and
is projected by Dataquest to grow at a compound annual rate of 33% (in terms
of dollar sales) over the period from 1995 through 1999. In the first quarter
of 1996, the Company experienced declines in the selling prices of Flash
memory devices, and in the second quarter, both demand for the products and
their selling prices declined. See "Risk Factors--Importance of Flash Memory
Device Business; Recent Pricing Weakness" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
AMD, Fujitsu and Intel are the world's largest suppliers of Flash memory
devices. Based on 1995 market data reported by Dataquest, the Company believes
that it had a 27% global market share for Flash memory devices in 1995, which
the Company believes made it the second largest supplier, behind Intel. As a
result of the decline experienced by the Company in demand for its Flash
memory devices in the second quarter of 1996, the Company's Flash memory
device market share may decline in 1996.
The Company's principal customers for Flash memory devices include cellular
communications companies, such as Motorola and LM Erickson, and manufacturers
of networking equipment, such as Cisco Systems and Hewlett-Packard.
EPROMs. EPROMs represent an older generation of erasable programmable read-
only memory technology which is used primarily in the electronic equipment
industry. The devices are used in cellular phones and base stations,
telecommunication switching equipment, automotive applications, personal
computer hard disk drives and BIOS, printer controllers, industrial machine
controls and numerous other types of electronic equipment to store software
which controls the equipment's operation. The ability of EPROMs to be
programmed electrically enables equipment manufacturers to achieve shorter
time to market for new products than would be possible if they were required
to have specific integrated circuits manufactured containing their final
software programs rather than programming the software electronically onto
standard EPROM products. EPROMs are generally used in preference to more
expensive Flash memory devices where cost is a major issue in applications in
which it is not necessary to enable the end user to reprogram the information
stored on the integrated circuit.
The market for EPROMs is significantly smaller than the market for Flash
memory devices and is declining as EPROMs are replaced in various applications
by Flash memory devices. The Company sells its EPROM devices in relatively
small quantities to over 300 customers for use by electronic equipment
manufacturers. Based on 1995 market data reported by Dataquest, the Company
believes that it had a 12% market share in the global market for EPROMs in
1995, which the Company believes made it the third largest supplier.
Communications Products. The Company's communications products are used in
public and private communications infrastructure systems which support voice
and data communications and internetworking. Specifically, the products are
used in such equipment as central office switches, PBX equipment, voice/data
terminals, hubs, routers and equipment used to connect workstations and
personal computers in local area network infrastructure. Continuing growth in
these markets is expected as emerging nations construct their communications
infrastructures, developed nations upgrade their existing infrastructures to
utilize new technologies such as the Internet and intranets and new forms of
communications systems emerge and gain general acceptance.
S-34
<PAGE>
Among the Company's more significant products for the communications market
are its SLIC and SLAC subscriber line audio-processing circuit products. In
modern telephone communications systems, voice communications are generally
transmitted between the speaker and the central office switch in analog
format, but are switched and transmitted over longer distances in digital
format. The SLIC connects the user's telephone wire to the telephone company's
digital switching equipment. The SLAC is a coder/decoder which converts analog
voice signals to a digital format and back. In data communications, the
Company is a supplier of network infrastructure ICs for products including
Ethernet hubs and switches.
The Company's major customers for line cards include Siemens, NEC, LM
Erickson, Alcatel and other larger producers of voice communications
equipment. The Company's networking infrastructure products are sold to major
manufacturers in the networking industry, including 3Com, Cisco Systems and
Bay Networks. The Company believes that it is a leading manufacturer of ICs in
the communications and networking markets.
Embedded Processors. Embedded processors are general purpose devices,
consisting of an instruction control unit and an arithmetic and logic unit,
used to carry out a single application with limited user interface and
programmability. The Company offers a proprietary family of RISC processors,
known as its Am29000(R) products, which are used as embedded processors in
applications which include high-performance laser printer controllers, high-
resolution graphics controllers, communications controllers and accelerator
cards. Although the Company has discontinued development of new superscalar
versions of its Am29000 products, it continues to produce existing ones. The
Company's current product focus for embedded processors utilizes existing x86
microprocessor designs which are customized for specific applications. The
Company offers a line of C186 and C188 processors for use as embedded
processors in hard disk drives. In the future, the Company expects to offer
embedded processors based upon third and fourth generation x86 microprocessor
technology, the E86 family of processors, which are designed for use in hand-
held computers and voice and data communication devices.
The Company's major customers for embedded processors are Hewlett-Packard,
Lexmark, Apple Computer and Compaq, each of which uses the Company's Am29000
products in their laser printers, and IBM, which utilizes AMD's C186 and C188
controllers in its hard disk drives. The Company believes that its share of
the market for embedded processors is relatively small.
Other Products. The Company also offers a wide variety of older standard
products some of which are nearing the end of their product life cycles, are
sold into various different IC markets and require limited ongoing research
and development or capital expenditures.
PROGRAMMABLE LOGIC DIVISION
PLD's net sales in 1995 were $255.9 million. Net sales for PLD have grown at
a compound annual growth rate of 44% from 1991 through 1995, driven primarily
by increased industry demand for programmable logic devices.
The Company offers a full range of simple programmable logic devices and
complex programmable logic devices but does not participate in the market for
field programmable gate arrays. Programmable logic devices are used in
telecommunications equipment, network infrastructure, hard disk drives,
printers, industrial machine control and numerous other types of electronic
equipment by OEMs which seek to optimize the performance of their products by
custom configuring the logic IC while minimizing time-to-market through the
use of a standard logic product. The Company's programmable logic devices are
sold to a broad range of manufacturers of electronics systems. Based on 1995
market data reported by Pace Technologies, the Company believes that it had a
27% market share in the global market for simple and complex programmable
logic devices in 1995, which the Company believes made it the second largest
supplier, behind Altera.
Customers utilizing programmable logic devices must use special software
packages, generally provided by the suppliers of the programmable logic
devices, to program the programmable logic devices. AMD provides its
programmable logic device customers with software which it licenses from a
third party and is dependent upon the third party for the software and
continuing improvements in the quality of the software. No assurance can be
given that the Company will be able to maintain its existing relationship with
the third party. See "Risk Factors--Other Risk Factors--Dependence on Third
Party for PLD Software; Possible Acquisition of Existing PLD Software Supplier
by Competitor."
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<PAGE>
The Company is in the process of transferring its operations relating to the
design, development and marketing of programmable logic devices to a wholly
owned subsidiary dedicated solely to programmable logic devices. The
subsidiary will be a Restricted Subsidiary (as defined herein) and will rely
upon the Company for manufacturing services. The process of establishing a
dedicated programmable logic device sales force is nearly complete, with the
members of the sales force being drawn from the Company's existing sales
force. It is anticipated that the independent programmable logic device sales
force will begin operating as a separate unit in the third quarter of 1996.
COMPUTATION PRODUCTS GROUP
The Company's Computation Products Group is focused on Microsoft Windows
compatible microprocessors and input/output ("I/O") and network products
generally used in computer systems. CPG's net sales in 1995 were $991.8
million and in the first six months of 1996 were $229.7 million. Net sales for
CPG have grown at a compound annual growth rate of 27% from 1991 through 1995,
but decreased by 62% in the first six months of 1996 compared to the first six
months of 1995.
Microprocessors. The Company currently participates in the microprocessor
market through its fourth and fifth generation Microsoft Windows compatible
microprocessors. In recent years, the Company's most significant
microprocessor product has been the Am486 microprocessor, a fourth generation
CISC x86 microprocessor. AMD expects 1996 to be a transitional year in the
development of its next generation of microprocessor products. Am486
microprocessor sales have decreased significantly in 1996 due primarily to
decreases in unit sales and secondarily to average selling price declines.
Price and unit sales declines are anticipated to continue throughout 1996. The
Company, therefore, expects Am486 microprocessor revenues and profits in 1996
to be significantly below those of 1995 as the product life cycle of the
fourth generation x86 products declines. The Company's next generation of
microprocessor products, known as the K86 microprocessors, is based on
Superscalar RISC architecture. The K86 products are designed to be compatible
with high volume operating system software such as Windows, UNIX, DOS and
WindowsNT. At the end of the first quarter of 1996, the Company began
shipments of the AMD-K5 microprocessor, the first member of the K86 family,
and recently began shipping a 100 MHz version of the AMD-K5. This
microprocessor is a fifth generation, superscalar device that has been
certified as being fully compatible with the Microsoft Windows operating
system. The Company expects to ship enhanced versions of its AMD-K5
microprocessor in 1996. The AMD-K5 microprocessor was introduced relatively
late in the life cycle of fifth generation microprocessor products and is
unlikely to result in the levels of revenue for the Company realized from the
Am486 microprocessor. See "Risk Factors--Microprocessor Products--Dependence
on New AMD Microprocessor Products."
The Company acquired NexGen in January 1996 to accelerate the introduction
of AMD's microprocessor products, particularly its sixth generation products.
The Company is modifying NexGen's sixth-generation design using AMD's design,
verification and manufacturing technologies. With these changes, AMD will
develop and produce the AMD-K6 microprocessor, a superscalar device which is
intended to be equal in performance to Intel's single chip version of its
sixth generation product, the Pentium Pro, which is being designed by Intel
specifically for PCs and is expected to be introduced in late 1996 or early
1997. AMD does not expect any sales of the AMD-K6 products in 1996. The
Company intends to begin volume shipments of the AMD-K6 products in the first
half of 1997, although no assurance can be given that such shipments will
occur. AMD is also devoting substantial resources to the development of its
seventh generation Microsoft Windows compatible microprocessor.
Based on 1995 market data reported by Dataquest, the Company believes it
held a number two market share in the global market for microprocessors in
1995. However, Intel held a substantially larger market share and has long
held a dominant position in the market for microprocessors used in PCs. As a
result of the Company's relatively late introduction of a fifth generation
microprocessor product, the Company's microprocessor market share may decline
in 1996. Intel's dominance of this market poses significant risks to AMD. See
"Risk Factors--Microprocessor Products--Intel Dominance."
AMD's customers for microprocessors include numerous foreign and domestic
manufacturers of PCs and PC motherboards. AMD has, in the past, sold
microprocessors to Compaq, IBM and certain other leading PC
S-36
<PAGE>
OEMs. These companies do not currently purchase the Company's microprocessors,
and there can be no assurance that they will purchase the Company's future
microprocessor offerings, such as enhanced versions of the AMD-K5 and the AMD-
K6 microprocessors. A failure of the Company's K86 products, particularly the
AMD-K6 microprocessor, to achieve market acceptance, would have a material
adverse effect on the Company. See "Risk Factors--Microprocessor Products--
Dependence on Microprocessor Products" and "--Manufacturing--Process
Technology."
I/O and Network Products. The Company's network and I/O products are used
within personal computers to manage the connection of the personal computer to
local area networks and to manage selected input/output functions.
The Company supplies integrated circuits for business applications utilizing
the 10-megabit-per-second Ethernet local area network standard. The Company
offers a range of integrated circuits that work with central processing units
to manage selected input/output functions such as audio, small computer system
interface disk drive controllers and communications and networking devices.
The Company also supplies a range of products specially designed to add
additional functions, improve performance and reduce costs in computer
peripheral, interface or mass storage applications. These are generally
special-purpose products which are designed for a specific application. In the
case of some large customers, these products are tailored for specific
customers' needs.
The Company's primary customers for its Ethernet LAN products are Compaq,
Apple Computer and other PC OEMs. The Company's primary customer for I/O
products is Apple Computer. The Company's business in this area has recently
declined primarily due to a reduction in purchases by Apple Computer.
RESEARCH AND DEVELOPMENT; MANUFACTURING TECHNOLOGY
The Company's expenses for research and development in 1993, 1994 and 1995,
were $279.4 million, $295.3 million and $416.5 million, respectively. Such
expenses represented 17%, 14%, and 17% of net sales in 1993, 1994 and 1995,
respectively. The Company's expenses for research and development in the first
six months of 1996 were $187.5 million, which represented 19% of net sales for
the period. AMD's research and development expenses are charged to operations
as incurred. Most of AMD's research and development personnel are integrated
into the engineering staff.
Manufacturing technology is the key determinant in the improvement in
semiconductor products. Each new generation of process technology has resulted
in products with higher speed and greater performance produced at lower cost.
AMD continues to make significant infrastructure investments to enable the
Company to continue to achieve high volume, high reliability and low cost
production using leading edge process technology.
The Company's efforts concerning process technologies are focused in three
major areas: non-volatile memory technology used by Flash memory and EPROM
products; programmable logic technology used in the Company's programmable
logic products; and logic technology used by AMD's microprocessors, embedded
processors, I/O, networking and communications products. The Company's goals
are to increase density and improve product performance, to reduce the access
time for non-volatile memory products and to increase the clock speed for
microprocessor products.
COMPETITION
The IC industry is intensely competitive and, historically, has experienced
rapid technological advances in product and system technologies together with
substantial price reductions in maturing products. After a product is
introduced, prices normally decrease over time as production efficiency and
competition increase, and as a successive generation of products is developed
and introduced for sale. Technological advances in the industry result in
frequent product introductions, regular price reductions, short product life
cycles and increased product capabilities that may result in significant
performance improvements. Competition in the sale of ICs is based upon
performance, product quality and reliability, price, adherence to industry
standards, software and hardware
S-37
<PAGE>
compatibility, marketing and distribution capability, brand recognition,
financial strength and ability to deliver in large volumes on a timely basis.
In each particular market in which it participates, the Company faces
competition from different groups of companies. AMD, Fujitsu and Intel are the
world's largest producers of Flash memory devices. Sharp and Atmel Corporation
are also participants in the market. With respect to CCG's other product
lines, the Company's primary competitors are: SGS Thomson and Texas
Instruments with respect to EPROMs; Siemens, NEC, LM Erickson, Alcatel and
other large producers of voice communications equipment with respect to line
cards; National Semiconductor, 3Com and Intel with respect to networking
products; and Motorola, Intel, Texas Instruments and SGS Thomson with respect
to embedded processors. In PLD's market, the Company's principal competitors
are Altera, Lattice Semiconductor and other smaller companies focused on
programmable logic device development and production. With respect to
microprocessors, Intel holds a dominant position which has to date allowed it
to set x86 microprocessor standards and thus dictate the type of product the
market requires of Intel's competitors. See "Risk Factors--Microprocessor
Products--Intel Dominance." The Company's principal competitors with respect
to the network and I/O products include: National Semiconductor, Intel, 3Com,
Digital Equipment, Fujitsu and Seeq with respect to Ethernet local area
network products; and Western Digital and Hyundai with respect to SCSI disk
host controllers.
MANUFACTURING FACILITIES
The Company's integrated circuit manufacturing facilities are listed on the
chart set forth below:
<TABLE>
<CAPTION>
WAFER SIZE PRODUCTION CLEAN ROOM
FACILITY LOCATION (DIAMETER IN INCHES) TECHNOLOGY (IN MICRONS) (SQ. FT.)
----------------- ------------------- ---------------------- ----------
<S> <C> <C> <C>
Austin, TX
Fab 25...................... 8 0.35 86,700
Fab 15...................... 6 0.7 22,000
Fab 14...................... 6 0.8 22,000
Fab 10...................... 5 0.9 22,000
Aizu-Wakamatsu, Japan
FASL........................ 8 0.5 70,000
Sunnyvale, CA
SDC......................... 6 0.35 42,500
</TABLE>
Fab 25. In the third quarter of 1995, Fab 25, the Company's 950,000 square
foot submicron integrated circuit manufacturing facility in Austin, Texas, was
qualified for production. Fab 25 was recognized as one of the best integrated
circuit manufacturing facilities in the world for 1995 by Semiconductor
International magazine. The Company believes that its 86,700 square feet of
clean room space make Fab 25 one of the largest integrated circuit
manufacturing facilities in the United States. As presently equipped, Fab 25
is capable of producing approximately 2,000 8-inch semiconductor wafers per
week. AMD has invested over $860.0 million in the Fab 25 Complex as of June
30, 1996, and expects to have invested over $1.2 billion by the end of 1997
and over $1.6 billion by the end of 1999, although the Company is not
obligated to make such further investments. Fab 25 is planned to be capable of
producing approximately 6,000 8-inch semiconductor wafers per week when
operating at full capacity in 2000, although there can be no assurance that
Fab 25 will achieve this capability level. The Fab 25 Complex includes
ancillary buildings for ultrapure water production, chemical supply, stock and
gowning, and facility support. Fab 25 is dedicated to the production of
microprocessors. For additional information on Fab 25, see "Description of
Collateral."
Fab 15, Fab 14 and Fab 10. In addition to Fab 25, the Company operates three
other integrated circuit manufacturing facilities in Austin, Texas, referred
to by the Company as Fab 15, Fab 14 and Fab 10. Each such facility has
approximately 22,000 square feet of clean room area. These facilities produce
products for each of the Company's product groups.
FASL Joint Venture with Fujitsu. In 1993, AMD and Fujitsu formed a joint
venture, FASL, for the development and manufacture of integrated circuits.
Through FASL, an Unrestricted Subsidiary, the two
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<PAGE>
companies have constructed and are operating an advanced integrated circuit
manufacturing facility in Aizu-Wakamatsu, Japan, to produce Flash memory
devices and EPROMs. The facility began volume production in the first quarter
of 1995. FASL produces eight-inch semiconductor wafers and currently utilizes
0.5 micron processing technologies. A conversion to 0.35 micron technologies
is underway. The Company believes that, through FASL, it has a leadership
position in process technologies related to Flash memory devices. Currently,
the facility is dedicated to the production of Flash memory devices. In the
third quarter of 1995, FASL approved construction of a second Flash memory
integrated circuit manufacturing facility at a site contiguous to the existing
facility. Groundbreaking on the new facility occurred in the first quarter of
1996, and volume production is expected in 1998. The $1.1 billion in capital
expenditures planned for the construction of the second facility is expected
to be funded primarily by cash flows generated from FASL operations. There can
be no assurance that FASL's cash flows will be sufficient to complete the
project. If FASL's cash flows are not sufficient, AMD may be required to
contribute cash or guarantee third party loans. See "Certain Material
Agreements--FASL."
SDC. The Company's Submicron Development Center in Sunnyvale, California,
the SDC, commenced operations in the fourth quarter of 1990. The SDC's primary
purpose is to develop advanced manufacturing technologies for Flash memory
devices, programmable logic devices and microprocessors. It also engages in
limited production activity.
Planned Dresden Facility. The Company is currently planning to construct,
through its Dresden, Germany Unrestricted Subsidiary, an 875,000 square foot
submicron integrated circuit manufacturing and design facility in Dresden,
Germany, at a currently estimated cost of approximately $1.5 billion over the
next five years. See "Certain Material Agreements--Dresden."
Assembly and Testing. Nearly all product assembly and final testing are
performed at AMD's manufacturing facilities in Penang, Malaysia; Singapore;
and Bangkok, Thailand; or by subcontractors in Asia. The total square footage
of the Company's facilities in Penang, Singapore and Bangkok is 426,000 square
feet, 147,000 square feet and 157,000 square feet, respectively. In December
1995, AMD entered into an agreement to lease land in Suzhou, China, to be used
for the construction and operation of an additional test and assembly
facility.
MARKETING AND SALES
AMD's products are marketed and sold under the AMD(R) trademark. AMD employs
a direct sales force through its principal facilities in Sunnyvale,
California, and field sales offices throughout the United States and abroad
(primarily Europe and the Pacific Rim). The Company expects that during the
third quarter of 1996, a separate sales force dedicated to sales of
programmable logic devices will have been established as a part of the
Company's process of transferring its operations relating to the design,
development and marketing of programmable logic devices to a wholly-owned
subsidiary dedicated solely to programmable logic devices. AMD also sells its
products through third-party distributors and independent representatives in
both domestic and international markets pursuant to nonexclusive agreements.
The distributors also sell products manufactured by AMD's competitors,
including those products for which AMD is an alternate source. One of the
Company's distributors, Arrow Electronics, Inc., accounted for approximately
12% of 1995 net sales. No other distributor or OEM customer accounted for 10%
or more of net sales in 1995.
Distributors typically maintain an inventory of AMD's products. Pursuant to
the Company's agreements with distributors, AMD protects its distributors'
inventory of AMD's products against price reductions as well as products that
are slow moving or have been discontinued. These agreements, which may be
canceled by either party on a specified notice, generally contain a provision
for the return of AMD's products in the event the agreement with the
distributor is terminated. The price protection and return rights AMD offers
to its distributors may materially adversely affect the Company.
AMD derives a substantial portion of its revenues from its sales
subsidiaries located in Europe and the Pacific Rim. AMD subsidiaries have
offices in Australia, Belgium, Canada, China, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Scotland, Singapore, Sweden, Switzerland, Taiwan,
and the United Kingdom. The international sales force also works with
independent sales representatives and distributors in approximately
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<PAGE>
32 countries, including those where AMD has sales subsidiaries. AMD's
international sales operations entail political and economic risks, including
expropriation, currency controls, exchange fluctuations, changes in freight
rates, and changes in rates and exemptions for taxes and tariffs. See "Risk
Factors--Other Risk Factors--International Sales."
RAW MATERIALS
Certain of the raw materials used by the Company in the manufacture of its
products are available from a limited number of suppliers. For example,
several types of the integrated circuit packages purchased by AMD, as well as
by the majority of other companies in the semiconductor industry, are
principally supplied by Japanese companies. Shortages could occur in various
essential materials due to interruption of supply or increased demand in the
industry. If AMD were unable to procure such materials, it would be required
to reduce its manufacturing operations which could have a material adverse
effect upon its results of operations. To date, AMD has not experienced
significant difficulty in obtaining the necessary raw materials.
ENVIRONMENTAL REGULATIONS
The failure to comply with present and future governmental regulations
related to the use, storage, handling, discharge or disposal of toxic,
volatile or otherwise hazardous chemicals used in the manufacturing process
could result in fines being imposed on the Company, suspension of production,
alteration of the Company's manufacturing processes or cessation of
operations. Such regulations could require the Company to acquire expensive
remediation equipment or to incur other expenses to comply with environmental
regulations. Any failure by the Company to control the use, disposal or
storage of, or adequately restrict the discharge of, hazardous substances
could subject the Company to future liabilities and could have a material
adverse effect on the Company. See "Risk Factors--Other Risk Factors--
Environmental Regulations."
INTELLECTUAL PROPERTY AND LICENSING
AMD and its subsidiaries have been granted over 1,000 United States patents,
and over 1,100 patent applications are pending in the United States. In
certain cases, the Company has filed corresponding applications in foreign
jurisdictions. The Company expects to file future patent applications in both
the United States and abroad on significant inventions as it deems
appropriate.
On January 11, 1995, the Company and Intel reached an agreement to settle
all previously outstanding legal disputes between the two companies. As part
of the settlement, in December 1995, the Company signed a five-year,
comprehensive patent cross-license agreement with Intel which expires on
December 31, 2000. The agreement provides that after December 31, 1999, the
parties will negotiate in good faith a patent cross-license agreement to be
effective January 1, 2001. Effective January 1, 1996, the new agreement gives
the Company and Intel the rights to use each others' patents and certain
copyrights, including copyrights to the x86 instruction sets but excluding
other microprocessor microcode copyrights. The cross-license is royalty-
bearing for the Company's products that use certain Intel technologies. The
Company is required to pay Intel minimum non-refundable royalties during the
years 1997 through 2000.
In addition, AMD has entered into numerous cross-licensing and technology
exchange agreements with other companies under which it both transfers and
receives technology and intellectual property rights. Although the Company
attempts to protect its intellectual property rights through patents,
copyrights, trade secrets and other measures, there can be no assurance that
the Company will be able to protect its technology adequately or that
competitors will not be able to develop similar technology independently.
There can be no assurance that any patent applications that the Company may
file will be issued or that foreign intellectual property laws will protect
the Company's intellectual property rights. There can be no assurance that any
patent licensed by or issued to the Company will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
competitive advantages to the Company. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate the
Company's products or design around the patents licensed by or issued to the
Company.
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<PAGE>
From time to time, AMD has been notified that it may be infringing
intellectual property rights of others. If any such claims are asserted
against the Company, the Company may seek to obtain a license under the third
party's intellectual property rights. The Company could decide, in the
alternative, to resort to litigation to challenge such claims. Such challenges
could be extremely expensive and time consuming and could materially adversely
affect the Company. No assurance can be given that all necessary licenses can
be obtained on satisfactory terms, nor that litigation may always be avoided
or successfully concluded. See "Risk Factors--Other Risk Factors--Intellectual
Property Rights; Potential Litigation."
BACKLOG
AMD manufactures and markets standard lines of products. Consequently, a
significant portion of its sales are made from inventory on a current basis.
Sales are made primarily pursuant to purchase orders for current delivery, or
agreements covering purchases over a period of time, which are frequently
subject to revision and cancellation without penalty. Generally, in light of
current industry practice and experience, AMD does not believe that such
agreements provide meaningful backlog figures or are necessarily indicative of
actual sales for any succeeding period.
EMPLOYEES
On June 30, 1996, AMD and its subsidiaries employed approximately 12,500
employees, none of whom are represented by collective bargaining arrangements.
The Company believes that its relationships with its employees are generally
good.
PROPERTIES
AMD's principal engineering, manufacturing, warehouse and administrative
facilities comprise approximately 3.1 million square feet and are located in
Sunnyvale, California and Austin, Texas. Over 2.5 million square feet of this
space is in buildings owned by the Company.
The Company leases property containing two buildings with an aggregate of
approximately 360,000 square feet, located on 45.6 acres of land in Sunnyvale,
California ("One AMD Place"). These leases provide the Company with the option
to purchase One AMD Place for $40.0 million during the lease term. The lease
term ends in 1998. At the end of the lease term, the Company is obligated
either to purchase One AMD Place for $40.0 million or to arrange for its sale
to a third party with a guarantee of residual value of $40.0 million to the
seller. In 1993, the Company entered into a lease agreement for approximately
175,000 square feet located adjacent to One AMD Place (known as AMD Square) to
be used in connection with One AMD Place.
The Company also owns or leases facilities containing approximately 730,000
square feet for its operations in Malaysia, Singapore and Thailand. Of the
entire worldwide facilities owned or leased by the Company, approximately
580,000 square feet are currently vacant. In addition, approximately 180,000
square feet are currently vacant until the construction of Fab 25 is
completed. The Company has entered into an agreement to lease approximately 15
acres of land in Suzhou, China. The Company holds 74 undeveloped acres of land
in the Republic of Ireland. The Company also has an equity interest in 58
acres of land in Albuquerque, New Mexico.
AMD leases 34 sales offices in North America, six sales offices in Asia and
13 sales offices in Europe for its direct sales force. These offices are
located in cities in major electronics markets where concentrations of AMD's
customers are located.
Leases covering the Company's facilities expire over terms of generally one
to twenty years. The Company currently does not anticipate significant
difficulty in either retaining occupancy of any of its facilities through
lease renewals prior to expiration or through month-to-month occupancy, or
replacing them with equivalent facilities.
S-41
<PAGE>
MANAGEMENT
The executive officers, directors and certain other key employees of the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
W. J. Sanders III(1)................ 59 Chairman of the Board and Chief Executive
Officer
Richard Previte..................... 61 Director, President and Chief Operating Officer
S. Atiq Raza........................ 47 Director, Senior Vice President and Chief
Technical Officer
Marvin D. Burkett................... 53 Senior Vice President, Chief Financial and
Administrative Officer and Treasurer
Eugene D. Conner.................... 52 Senior Vice President, Operations
Stanley Winvick..................... 57 Senior Vice President, Human Resources
Stephen J. Zelencik................. 61 Senior Vice President and Chief Marketing
Executive
Thomas M. McCoy..................... 45 Vice President, General Counsel and Secretary
Dr. Friedrich Baur.................. 68 Director
Charles M. Blalack(1)(2)(3)......... 69 Director
Dr. R. Gene Brown(1)(2)(3).......... 63 Director
Joe L. Roby(1)(2)................... 56 Director
Dr. Leonard M. Silverman............ 56 Director
<CAPTION>
KEY EMPLOYEES
<S> <C> <C>
Vinod Dham.......................... 46 Group Vice President, Computation Products Group
Richard Forte....................... 52 Group Vice President, Communications and
Components Group, and President, Programmable
Logic Division
William T. Siegle................... 57 Chief Scientist and Group Vice President,
Technology Development Group
</TABLE>
- --------
(1)Member of the Nominating Committee of the Board of Directors.
(2)Member of the Audit Committee of the Board of Directors.
(3)Member of the Compensation Committee of the Board of Directors.
W.J. SANDERS III - Mr. Sanders is Chairman of the Board and Chief Executive
Officer of AMD. Mr. Sanders co-founded the Company in 1969. He is also a
director of Donaldson, Lufkin & Jenrette, Inc., the parent company of
Donaldson, Lufkin & Jenrette Securities Corporation. Mr. Sanders co-founded
several prominent industry groups including the Semiconductor Industry
Association, the Santa Clara Manufacturing Group, the Semiconductor Research
Corporation, Sematech and the Microelectronics and Computer Technology
Corporation.
RICHARD PREVITE - Mr. Previte is President and Chief Operating Officer of
AMD. Prior to his election as President in 1990, Mr. Previte served as
Executive Vice President and Chief Operating Officer from 1989 to 1990, Chief
Financial Officer and Treasurer of the Company from shortly after its founding
in 1969 until 1989, and Chief Administrative Officer and Secretary of the
Company from 1986 to 1989.
S. ATIQ RAZA - Mr. Raza is Senior Vice President and Chief Technical Officer
of AMD. Prior to joining the Company, Mr. Raza was the Chairman, Chief
Executive Officer, President and Secretary of NexGen and held those positions
from 1991 until it was acquired by the Company on January 17, 1996. From
September 1988 until January 1991, Mr. Raza served as NexGen's Executive Vice
President responsible for engineering, marketing and prototype manufacturing.
He was a member of NexGen's Board of Directors since August 1989 and was
elected Chairman of the Board in May 1994. In addition, in December 1995, Mr.
Raza became a member of the Board of Directors of Paradigm Technology, Inc.
S-42
<PAGE>
MARVIN D. BURKETT - Mr. Burkett is the Senior Vice President, Chief
Financial and Administrative Officer and Treasurer of AMD. Mr. Burkett was
Controller of the Company from 1972 until 1989.
EUGENE D. CONNER - Mr. Conner is Senior Vice President, Operations of AMD.
Mr. Conner joined the Company in 1969 and was elected an executive officer in
1981.
STANLEY WINVICK - Mr. Winvick is the Senior Vice President, Human Resources
of AMD. Mr. Winvick had been Vice President, Human Resources since 1980.
STEPHEN J. ZELENCIK - Mr. Zelencik is Senior Vice President and Chief
Marketing Executive of AMD. Mr. Zelencik joined the Company in 1970.
THOMAS M. MCCOY - Mr. McCoy is Vice President, General Counsel and Secretary
to AMD. Prior to joining the Company in 1995, Mr. McCoy was with the law firm
of O'Melveny & Myers where he had been a partner since 1985.
DR. FRIEDRICH BAUR - Dr. Baur has been President and Managing Partner of MST
Beteiligungs and Unternehmensberatungs GmbH, a German consulting firm, since
1990. Beginning in 1953, Dr. Baur held a variety of positions of increasing
responsibility with Siemens AG, retiring in 1982 as Executive Vice President
and a Managing Director. He also represented Siemens on the Board of Directors
of AMD from 1978 until 1982. From 1982 to 1990, Dr. Baur was Chairman of the
Board of Zahnradfabrik Friedrichshafen AG, a publicly traded German company.
CHARLES M. BLALACK - Mr. Blalack is Chairman of the Board and Chief
Executive Officer of Blalack and Company, an investment banking firm and a
member of the NASD. From 1970 until 1991, Mr. Blalack was Chief Executive
Officer of Blalack-Loop, Inc., also an investment banking firm and member of
the NASD. Prior to that, he was founder, chairman and chief executive officer
of BW & Associates, an investment banking firm and member of the NYSE. Mr.
Blalack was a member of the Board of Directors of Monolithic Memories, Inc.
until it was acquired by the Company in 1987. Mr. Blalack is currently a
member of the Board of Directors of GranCare, Inc.
DR. R. GENE BROWN - Dr. Brown is a private investor and management
consultant. Dr. Brown is also a Managing Director of Putnam, Hayes & Bartlett,
Inc., an economic consulting firm. From 1961 to 1968, Dr. Brown was a full-
time professor in the graduate schools of business at Harvard, then Stanford
University. From 1968 to 1974, Dr. Brown was Vice President of Corporate
Development for Syntex Corporation, and from 1974 to 1976, President of
Berkeley BioEngineering.
JOE L. ROBY - Mr. Roby is the President, Chief Operating Officer and a
director of Donaldson, Lufkin & Jenrette, Inc. ("DLJ"), a diversified
financial services company and the parent company of Donaldson, Lufkin &
Jenrette Securities Corporation. Mr. Roby has been a member of the Board of
Directors of DLJ since 1989. He was appointed President of DLJ in February
1996. Prior to his appointment as the Chief Operating Officer of DLJ in
November 1995, Mr. Roby was the Chairman of the Banking Group of Donaldson,
Lufkin & Jenrette Securities Corporation, a position he had held since 1989.
In addition, Mr. Roby is a member of the Board of Directors of Sybron
International Corporation.
DR. LEONARD M. SILVERMAN - Dr. Silverman is Dean of the School of
Engineering of the University of Southern California, and has held that
position since 1984. He was elected to the National Academy of Engineering in
1988, and is a Fellow of the Institute of Electrical and Electronic Engineers.
Dr. Silverman also served on the Board of Directors of Tandon Corporation from
1988 to 1993 and is currently a member of the Board of Directors of Diodes,
Inc.
VINOD DHAM - Mr. Dham is Group Vice President, Computation Products Group of
AMD. Prior to joining the Company, Mr. Dham was Executive Vice President and
Chief Operating Officer of NexGen and held those
S-43
<PAGE>
positions from May 1995, until it was acquired by the Company on January 17,
1996. Before joining NexGen, Mr. Dham was Vice President of the Microprocessor
Products Group and General Manager of the Pentium Processor Division at Intel.
Mr. Dham was employed by Intel from July 1979, to April 1995.
RICHARD FORTE - Mr. Forte is Group Vice President, Communications and
Components Group and President, Programmable Logic Division of AMD. Mr. Forte
joined the Company in 1986. Prior to joining the Company, Mr. Forte was Vice
President of Monolithic Memories, Inc., from 1986 until it was acquired by the
Company in 1987.
WILLIAM T. SIEGLE - Mr. Siegle is Chief Scientist and Group Vice President,
Technology Development Group of AMD. Mr. Siegle joined the Company and was
elected Vice President and Chief Scientist in 1990. Prior to joining the
Company, Mr. Siegle was Director of the Advanced Technology Center for IBM in
East Fishkill, New York.
S-44
<PAGE>
DESCRIPTION OF COLLATERAL
The Senior Secured Notes and amounts outstanding under the New Credit
Agreement will be secured by a first priority security interest, subject to
the terms of the Intercreditor Agreement, in substantially all of the
Company's real property, plant and equipment at the Fab 25 Complex, subject to
Permitted Liens, and excluding, among other things, inventory, accounts
receivable and proceeds of inventory and accounts receivable (collectively,
the "Collateral"). That portion of the Collateral consisting of interests in
real property and improvements thereon to be pledged to the Collateral Agent
will be pledged by means of one or more deeds of trust (the "Deeds of Trust").
The remaining Collateral will be pledged pursuant to one or more security
agreements, which may be incorporated in the Deeds of Trust (the "Security
Agreements," and together with the Deeds of Trust, the "Collateral
Documents"). The Collateral will also include insurance and condemnation
proceeds from any Event of Loss or Collateral Asset Sale (each as defined
herein). Pursuant to the Intercreditor Agreement, the Indenture and the New
Credit Agreement, all such proceeds not expended by the Company as provided in
the Indenture must be used by the Company to make an offer to repurchase all
or a portion of the Senior Secured Notes and to prepay amounts outstanding
under the New Credit Agreement, in proportion to the principal amounts
outstanding under the Senior Secured Notes and the New Credit Agreement,
respectively. Following default and acceleration of the indebtedness
outstanding under the Senior Secured Notes and the New Credit Agreement, all
such proceeds (net of certain costs of enforcement) must be applied to the
payment of indebtedness outstanding under the Senior Secured Notes and the New
Credit Agreement in proportion to the principal amounts outstanding
thereunder. See "The Intercreditor Agreement" and "The New Credit Agreement."
The preceding description of the Collateral Documents does not purport to be
complete and is qualified in its entirety by reference to the Collateral
Documents. Copies of the Collateral Documents will be filed with the
Securities and Exchange Commission as exhibits to a Current Report on Form 8-K
and will be available as set forth under "Available Information."
The Fab 25 Complex is located on an approximately 52 acre site in Austin,
Texas, and contains an integrated circuit manufacturing facility of over
950,000 square feet, including approximately 86,700 square feet of clean room
space as well as common utility facilities and an administration building. The
Fab 25 Complex also contains an electrical substation, an industrial waste
neutralization facility, an ultrapure water production facility and parking
facilities, all of which are owned by AMD. A nitrogen generation facility
located within the Fab 25 Complex is owned and operated by Air Products, Inc.,
an unaffiliated supplier of nitrogen and other gases used in the fabrication
processes of AMD at the Fab 25 Complex.
The Deeds of Trust will also initially cover an additional parcel of land
consisting of approximately 34.5 acres adjacent to the Fab 25 Complex (the
"Adjacent Parcel") but not the buildings (Fab 15, Fab 14 and Fab 10) located
on the Adjacent Parcel or the related fixtures and equipment. The Adjacent
Parcel will initially be covered by the Deeds of Trust only because it has not
been platted as a separate legal parcel. The Company intends to submit an
application for replatting the Adjacent Parcel as a separate legal parcel to
the City of Austin and anticipates that final action will be taken on this
application within six months or less from the date of its submission. If the
replatting is approved, the Collateral Agent, on behalf of the holders of the
Senior Secured Notes and the Banks, will be obligated by the Deeds of Trust to
release the Adjacent Parcel from the lien of the Deeds of Trust upon
completion of the replatting. Upon such release, the Adjacent Parcel will no
longer be subject to the Deeds of Trust. Consequently, purchasers of the
Senior Secured Notes should not consider the Adjacent Parcel as part of the
Collateral securing the Senior Secured Notes.
Prior to the closing of the Offering, AMD will lease the Adjacent Parcel to
a wholly owned subsidiary of AMD (the "Leasing Subsidiary") for a period of 99
years for nominal rent. The Leasing Subsidiary will also have an option to buy
the Adjacent Parcel for a nominal consideration. The Leasing Subsidiary may
sublease the Adjacent Parcel back to AMD, and the lease and any sublease will
be recorded in the Travis County Real Property Records immediately prior to
the Deeds of Trust, so that the lease will be prior in interest to the Deeds
of Trust and will remain in force in the event of a foreclosure under the
Deeds of Trust.
S-45
<PAGE>
The lease of the Adjacent Parcel is being entered into so that if the Deeds
of Trust are foreclosed prior to replatting being completed, or if replatting
cannot be accomplished, AMD will retain use of the Adjacent Parcel. Because of
the length of the term of the lease and the nominal rent, AMD's (or the
Leasing Subsidiary's) retained interest in the Adjacent Parcel will be
practically equivalent to outright ownership of the Adjacent Parcel. Under the
lease, the Leasing Subsidiary is obligated to pay taxes and all other expenses
of the Adjacent Parcel. AMD will indemnify the Collateral Agent, the Banks,
the Bank Agent, the Trustee and the holders of the Senior Secured Notes for
any losses caused by the Leasing Subsidiary failing to comply with insurance,
tax, maintenance and environmental compliance covenants in the lease.
In connection with the lease of the Adjacent Parcel, necessary easements
will be created for utilities and services between the Fab 25 Complex and the
Adjacent Parcel. Those easements are for the purposes of potable water supply,
premises fire water storage and distribution, natural gas distribution,
wastewater discharge system, premises drainage and stormwater detention,
parking, driveways, electrical services, nitrogen pipelines, transport of
industrial wastewater and transport of de-ionized water from the reverse
osmosis de-ionized water production facilities, telephone and fiber optic
lines and other related easements.
The Deeds of Trust will include customary provisions regarding Events of
Default, which may include, among others, the occurrence of an "Event of
Default" under either the New Credit Agreement or the Indenture; the
abandonment of the property; certain defaults relating to other liens; the
granting of any material easement, dedication or restriction affecting the
property; certain events affecting the enforceability of the Collateral
Documents and various related documents; the destruction of improvements on
the property without funds available for reconstruction; and the condemnation
of any material portion of the property as described in the Deeds of Trust.
In connection with the closing of the Offering, the Company will be required
to provide a mortgagee's title insurance policy (the "Mortgagee Title Policy")
in favor of the Collateral Agent, in the amount of at least $212.0 million,
covering the liens on the real estate portions of the Collateral. Because a
survey of the Fab 25 Complex may not be completed prior to the closing of the
Offering, the Mortgagee Title Policy may contain an exception to coverage for
any title defects which would be disclosed by a survey (the "Survey
Exception"). The Company does not believe that any such defects of a material
nature exist. The New Credit Agreement requires the Company to obtain a survey
of the Fab 25 Complex by September 1, 1996, and promptly thereafter, to use
reasonable efforts to remove the Survey Exception and to correct any matters
disclosed by the survey to which there is reasonable objection.
S-46
<PAGE>
THE INTERCREDITOR AGREEMENT
Upon the closing of the Offering, United States Trust Company of New York
(the "Trustee"), Bank of America NT&SA, as agent for the Banks under the New
Credit Agreement (the "Bank Agent"), and IBJ Schroder Bank & Trust Company
(the "Collateral Agent"), as collateral agent for the Bank Agent on behalf of
the Banks and the Trustee on behalf of the holders of the Senior Secured
Notes, will enter into an Intercreditor and Collateral Agency Agreement (the
"Intercreditor Agreement"). The following summary of certain provisions of the
Intercreditor Agreement does not purport to be complete and is qualified in
its entirety by reference to the final Intercreditor Agreement. A copy of the
final Intercreditor Agreement will be filed with the Securities and Exchange
Commission as an exhibit to a Current Report on Form 8-K and will be available
as set forth under "Available Information."
Pursuant to the terms of the Intercreditor Agreement, the Collateral Agent
will be appointed as agent for the Bank Agent and the Trustee and will hold
the liens and security interests in the Collateral granted pursuant to the
Collateral Documents with sole authority to exercise remedies under the
Collateral Documents. The Collateral Agent will agree to act as beneficiary
under the Deeds of Trust and as secured party under the Security Agreements,
to follow the instructions provided to it under the Intercreditor Agreement,
and to carry out certain other duties.
The Intercreditor Agreement will set out the relative rights and
responsibilities of the Banks and the Trustee with respect to the Collateral
and their respective rights to instruct the Collateral Agent. After payment of
certain costs of enforcement, any proceeds of the disposition of Collateral
after an Event of Default are to be distributed in proportion to the principal
amounts outstanding under the New Credit Agreement and the Senior Secured
Notes. Any proceeds resulting from an Event of Loss or Collateral Asset Sale
which are not expended by the Company as provided in the Indenture are to be
applied to the prepayment of amounts outstanding under the New Credit
Agreement and to make an Excess Proceeds Offer (as defined herein) with
respect to the Senior Secured Notes in proportion to the respective principal
amounts outstanding. See "Description of Senior Secured Notes--Repurchase at
the Option of Holders--Asset Sales, Collateral Asset Sales and Events of
Loss."
Either the Bank Agent, after receipt of instructions from the Banks, voting
as a class, or the Trustee, after receipt of instructions from the holders of
the Senior Secured Notes, voting as a class, may, after the obligations
outstanding under the New Credit Agreement and the Senior Secured Notes have
been accelerated, instruct the Collateral Agent generally to realize upon the
Collateral and protect the interests of the Banks and the holders of Senior
Secured Notes, all as expeditiously as possible. Upon receipt of notice of
acceleration of the Senior Secured Notes, the Banks will be required to
accelerate the indebtedness under the New Credit Agreement, and upon receipt
of notice of acceleration of the indebtedness under the New Credit Agreement,
the holders of the Senior Secured Notes will be required to accelerate the
Senior Secured Notes. The Collateral Agent will only exercise remedies under
the Collateral Documents after both the Banks and the holders of the Senior
Secured Notes have accelerated their indebtedness. Aside from that general
instruction and instructions in certain exceptional situations discussed
below, all instructions to the Collateral Agent are to be made pursuant to the
vote of the holders of a majority of the aggregate indebtedness outstanding
under the New Credit Agreement and the Senior Secured Notes voting as a single
class; provided that either the Banks or the holders of the Senior Secured
Notes may, by vote of their class, delegate to any subset of the class the
right to further vote 100% of their class's principal amount. Both the Banks
and the holders of the Senior Secured Notes, each voting as a class, must
agree to any material amendments to the Collateral Documents, amendment to the
Intercreditor Agreement, or release of any Collateral other than as
contemplated by the Collateral Documents. So long as the New Credit Agreement
is outstanding and no Event of Default has occurred and is continuing under
the Indenture, the Bank Agent acting alone may respond in certain specified
circumstances to certain ministerial requests of the Company relating to the
Collateral.
Prior to the closing of the Offering, the Company will enter into a separate
agreement with the Collateral Agent (the "Collateral Agent Agreement") which
will obligate the Company to compensate the Collateral Agent for its services
under the Intercreditor Agreement and to provide the Collateral Agent with
certain indemnities. The Intercreditor Agreement will provide that, if the
Company should fail to make any payments due under the Collateral Agent
Agreement, the Collateral Agent may apply proceeds of disposition of
Collateral to the satisfaction of such obligations. The Collateral Agent may
resign or be removed and replaced under certain circumstances set forth in the
Intercreditor Agreement.
S-47
<PAGE>
THE NEW CREDIT AGREEMENT
On July 19, 1996, the Company entered into a credit agreement, which was
amended on August 7, 1996 (as amended, the "New Credit Agreement"), with Bank
of America NT&SA, as administrative agent (in such capacity, the "Bank Agent")
and lender, ABN AMRO Bank N.V., as syndication agent and lender, and Canadian
Imperial Bank of Commerce, as documentation agent and lender (such banks, in
their capacity as lenders, the "Banks"), pursuant to which the Banks have
committed to provide to the Company, subject to the conditions contained
therein, $400.0 million in aggregate principal amount of senior secured credit
facilities. Under the terms of the New Credit Agreement, the Banks are
permitted to assign or sell participations in their respective commitments and
outstandings in respect of the New Credit Agreement to other qualified
lenders.
The following is a summary of certain provisions of the New Credit Agreement
and is qualified in its entirety by reference to the New Credit Agreement and
other definitive agreements and instruments, copies of which will be filed
with the Securities and Exchange Commission as exhibits to a Current Report on
Form 8-K and will be available as set forth under "Available Information."
Capitalized terms used herein that are undefined shall have the meanings
assigned to them in the New Credit Agreement.
The New Credit Agreement establishes a three-year revolving credit facility
in an aggregate principal amount of up to $150.0 million at any one time
outstanding (the "Revolver") and a four-year term loan facility available in
one drawdown or in multiple draws up to an aggregate principal amount of
$250.0 million (the "Term Loan"). With the approval of each of the Banks, the
Company may obtain a one-year extension of the Revolver (for a fourth year of
availability) by making a request for the extension during the period which is
sixty days prior to the first anniversary of the closing of the Offering. All
borrowings in respect of the Revolver will mature and be due and payable on
the third or fourth anniversary of the closing of the Offering (in 1999 or
2000), as the case may be. The Company will be required to repay the Term Loan
in eight equal quarterly installments, beginning three months after the second
anniversary of the closing of the Offering. Prior to January 1, 1997, the
Indenture will limit the aggregate amount which the Company can borrow under
the Revolver and the Term Loan to $250.0 million.
Aggregate borrowings outstanding under the Revolver are limited to the
lesser of $150.0 million or 70% of the Company's consolidated net accounts
receivable outstanding from time to time (other than receivables of the
Company's Dresden, Germany Unrestricted Subsidiary and its FASL Unrestricted
Subsidiary). Any portion of the amount committed by the Banks for the Term
Loan which is not utilized by the Company within six months of the effective
date of the New Credit Agreement (July 19, 1996) shall be canceled and no
longer available. The Company intends to utilize the Term Loan fully within
such period. The Company expects to use borrowings under the New Credit
Agreement for general corporate purposes.
Interest on borrowings under the New Credit Agreement will accrue and be
payable at LIBOR (the London Interbank Offered Rate for 1, 2, 3 or 6 month
dollar deposits as quoted by Bank of America NT&SA, as the Reference Bank) or
at the Base Rate (the higher of Bank of America NT&SA's Reference Rate or 0.5%
above the latest Federal Funds Rate), at the option of the Company, plus an
Applicable Margin. Pursuant to the New Credit Agreement, the Applicable Margin
for LIBOR or the Base Rate will be determined from time to time based on the
credit rating assigned to the Senior Secured Notes by Moody's (the "Moody's
Rating") and the credit rating assigned to the Company's senior unsecured
indebtedness by S&P plus one rating increment (the "S&P Adjusted Rating") as
indicated below.
<TABLE>
<CAPTION>
DEBT RATINGS OFFSHORE BASE
ADJUSTED S&P/MOODY'S RATE MARGIN RATE MARGIN
-------------------- ----------- -----------
<S> <C> <C>
BBB/Baa2 or above....................... 0.625% 0
BBB-/Baa3............................... 1.125% 0
BB+/Ba1................................. 1.500% .25%
BB/Ba2.................................. 1.750% .50%
BB-/Ba3................................. 2.000% .75%
B+/B1 or below.......................... 2.500% 1.25%
</TABLE>
S-48
<PAGE>
If the Moody's Rating and the S&P Adjusted Rating indicate different levels
for the Applicable Margin, (i) the lower of the two levels shall be the
Applicable Margin if the two levels are consecutive, and (ii) the average of
the two levels shall be the Applicable Margin if they are not consecutive. If
only the Moody's Rating or the S&P Adjusted Rating, but not both, is
available, the Applicable Margin corresponding to such available rating shall
apply. Initially, the Applicable Margin is set at 1.75 percent for LIBOR and
0.50 percent for the Base Rate. Interest determined on the basis of LIBOR will
be payable at the end of each interest period, but not less often than
quarterly in arrears, and at maturity; and interest determined on the basis of
the Base Rate will be payable quarterly in arrears and at maturity.
All indebtedness of the Company under the New Credit Agreement will be
secured by a first priority lien and security interest in the Fab 25 Complex
and, initially, the Adjacent Parcel, pursuant to the Deeds of Trust and
Security Agreements. See "Description of Collateral." This first priority
position will be shared pro rata with the holders of the Senior Secured Notes
and the relative rights and obligations of the holders of the Senior Secured
Notes and the Banks with respect to the Collateral will be set forth in the
Intercreditor Agreement. See "The Intercreditor Agreement."
The obligations of the Banks to advance funds under the New Credit Agreement
will be subject to the satisfaction of various conditions which, with various
qualifications and exceptions, include (i) the satisfaction of the Bank Agent
and each Bank with the form and substance of the Senior Secured Notes, the
Indenture and evidence of funding thereunder; (ii) execution of the
Intercreditor Agreement in form and substance satisfactory to the Banks; (iii)
execution of the other Collateral Documents; (iv) completion of actions to
create and perfect the lien on the Collateral and document the status of the
lien as a first priority lien; (v) issuance of a satisfactory title insurance
policy in favor of the Collateral Agent; (vi) acceptance by the Banks and the
Bank Agent of an environmental site assessment; (vii) execution by CIBC Inc.
and the Company of an amendment to an existing agreement of guarantee in favor
of CIBC Inc. conforming certain financial covenants therein to the covenants
in the New Credit Agreement and consenting to the New Credit Agreement and the
Senior Secured Notes; (viii) payment of the Company's existing $150.0 million
term loan and termination of the related loan commitment and its existing
currently unused $250.0 million revolving line of credit; (ix) opinions of
counsel; and (x) payment of various fees related to the New Credit Agreement,
as well as other conditions customary in agreements of this type.
The Company is subject to certain affirmative and negative covenants
contained in the New Credit Agreement, including, without limitation,
covenants that restrict, subject to specified exemptions, (a) the incurrence
of additional indebtedness and other obligations, (b) merger or consolidation
with any other person, (c) asset sales, (d) loans and investments, (e)
granting of liens to secure any other indebtedness, (f) redemption or
prepayment of any of the Senior Secured Notes, except in connection with
refinancings of the Senior Secured Notes or mandatory redemption of the Senior
Secured Notes connected with pro rata prepayment of the indebtedness under the
New Credit Agreement, (g) modification of the terms of the Senior Secured
Notes, (h) engaging in certain transactions with affiliates, and (i)
declaration or payments of dividends or distributions on the Company's capital
stock. Certain of these covenants will be more restrictive than those in favor
of the holders of the Senior Secured Notes as described herein and as set
forth in the Indenture. In addition, the New Credit Agreement requires that
the Company maintain certain specified financial covenants, including a
modified quick ratio (defined as the ratio of the sum of cash and unencumbered
short-term investments plus net trade accounts and certain other receivables
to current liabilities), certain levels of tangible net worth, a ratio of
total liabilities to tangible net worth, and a minimum fixed charge coverage
ratio. Such financial covenants are determined on a consolidated basis but
without including either the FASL Unrestricted Subsidiary or the Dresden,
Germany Unrestricted Subsidiary in such consolidation except to any extent
that the Company or any of its Restricted Subsidiaries may be obligated with
respect to the indebtedness or obligations of the Dresden, Germany
Unrestricted Subsidiary. The New Credit Agreement requires the Company to
deliver to the Bank Agent and each Bank a third party review and valuation of
the Fab 25 Complex satisfactory to the Banks and the Bank Agent by September
1, 1996.
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Upon the occurrence of any event or circumstance (including any Event of
Loss as defined in the New Credit Agreement) which results in a required
prepayment or redemption of Senior Secured Notes, the Company will be required
to prepay indebtedness under the New Credit Agreement in an amount
proportionate with the amount of the Senior Secured Notes prepaid or redeemed.
For the purposes of the New Credit Agreement, the term Event of Loss is
defined to mean any of various events relating to the Collateral such as its
destruction, damage, condemnation or seizure.
Events of default with respect to the New Credit Agreement include, subject
to certain qualifications and exceptions, failure to make any payment of
principal or interest due thereunder, breach of any representation or warranty
made therein by the Company, failure to perform or observe any covenant of the
Company set forth therein or in any related loan document, the
unenforceability of any provision of the Collateral Documents, default with
respect to other indebtedness or obligations of the Company under certain
circumstances, failure of the Company to pay final judgments aggregating $50.0
million or more, the occurrence of any Material Adverse Effect or Change of
Control as those terms are defined therein, certain events of bankruptcy and
insolvency with respect to the Company or any of its Restricted Subsidiaries
and other customary events of default. The occurrence of an event of default
under the Indenture will also be an event of default under the New Credit
Agreement. Occurrence of any such events of default could result in
termination of the lending commitments of the Banks, acceleration of the
Company's obligations under the New Credit Agreement and foreclosure on the
Collateral, with material adverse results to the holders of the Senior Secured
Notes. See "Description of Senior Secured Notes."
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DESCRIPTION OF SENIOR SECURED NOTES
The following description of the particular terms of the Senior Secured
Notes offered hereby supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Debt
Securities set forth in the Prospectus, to which reference is hereby made.
GENERAL
The Senior Secured Notes will be issued pursuant to an Indenture between the
Company and United States Trust Company of New York, as trustee (the
"Trustee"). The terms of the Senior Secured Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Senior
Secured Notes are subject to all such terms, and holders of Senior Secured
Notes (the "Holders") are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of
the Indenture does not purport to be complete and is qualified in its entirety
by reference to the Indenture, including the definitions therein of certain
terms used below. A copy of the final form of the Indenture will be filed with
the Securities and Exchange Commission as an exhibit to a Current Report on
Form 8-K and will be available as set forth under "--Additional Information."
The Senior Secured Notes and the amounts outstanding under the New Credit
Agreement will be secured by a first priority lien on the Collateral, subject
to the terms of the Intercreditor Agreement. See "Description of Collateral"
and "The Intercreditor Agreement." The definitions of certain terms used in
the following summary are set forth below under "--Certain Definitions."
RANKING
The Senior Secured Notes will rank senior in right of payment to all
subordinated Indebtedness of the Company. The Senior Secured Notes will rank
pari passu in right of payment with all senior borrowings, including
borrowings under the New Credit Agreement.
The Senior Secured Notes will be effectively subordinated to all
indebtedness and other liabilities and commitments (including trade payables
and lease obligations) of the Company's Subsidiaries. Any right of the Company
to receive assets of any of its Subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the Senior Secured
Notes to participate in those assets) will be effectively subordinated to the
claims of that Subsidiary's 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 in the assets
of such Subsidiary and any indebtedness of such Subsidiary senior to that held
by the Company. As of June 30, 1996, the indebtedness (including trade
payables and lease obligations) of the Company's subsidiaries (excluding the
FASL Unrestricted Subsidiary) was $53.8 million.
As of the Issue Date, the Company's Dresden, Germany Unrestricted Subsidiary
and the FASL Unrestricted Subsidiary will be designated Unrestricted
Subsidiaries. Under certain circumstances, the Company will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to most of the covenants set
forth in the Indenture.
SECURITY
The Senior Secured Notes and the amounts outstanding under the New Credit
Agreement will be secured by a first priority security interest, subject to
the terms of the Intercreditor Agreement, in the Collateral. See "Description
of Collateral" and "The Intercreditor Agreement."
So long as no Default or Event of Default shall have occurred and be
continuing, and subject to certain terms and conditions in the Indenture, the
Intercreditor Agreement and the Collateral Documents, the Company will be
entitled to use the Collateral in a manner consistent with normal business
practices. Upon the occurrence and during the continuance of an Event of
Default, the Collateral Agent may sell the Collateral or any part thereof in
accordance with the terms of the Collateral Documents and the Intercreditor
Agreement. All funds
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distributed under the Collateral Documents and received by the Collateral
Agent for the benefit of the Holders of the Senior Secured Notes and the Banks
under the New Credit Agreement shall be distributed by the Collateral Agent in
accordance with the provisions of the Intercreditor Agreement. See "The
Intercreditor Agreement."
Under the terms of the Intercreditor Agreement, the Holders of the Senior
Secured Notes and the Banks under the New Credit Agreement will determine the
circumstances and manner in which the Collateral shall be disposed of,
including, but not limited to, the determination of whether to release all or
any portion of the Collateral from the Liens created by the Collateral
Documents and whether to foreclose on the Collateral following an Event of
Default. Moreover, upon the full and final payment and performance of all
Obligations of the Company under the Indenture and the Senior Secured Notes,
all Obligations of the Company to the Banks under the New Credit Agreement,
and all Obligations of the Company to the Collateral Agent, the Collateral
Documents shall terminate and the Collateral shall be released. In addition,
in the event that any of the Collateral is sold and the Net Proceeds are
applied in accordance with the terms of the covenant entitled "--Repurchase at
the Option of Holders--Asset Sales, Collateral Asset Sales and Events of
Loss," the Collateral Agent shall release the Liens in favor of the Collateral
Agent in the assets sold; provided, that the Collateral Agent shall have
received from the Company an Officers' Certificate that such Net Proceeds have
been or will be so applied.
The Collateral Documents and the Indenture will provide that the Net
Proceeds of all Collateral Asset Sales shall be promptly and without any
commingling deposited with the Collateral Agent subject to a charge in favor
of the Collateral Agent for the benefit of the Holders and the Banks under the
New Credit Agreement until applied as permitted under the covenant described
under "--Repurchase at the Option of Holders--Asset Sales, Collateral Asset
Sales and Events of Loss." Amounts so paid to the Collateral Agent shall be
invested or released in accordance with the provisions of the Indenture and
the Collateral Documents.
No appraisals of any of the Collateral have been prepared by or on behalf of
the Company in connection with the sale of the Senior Secured Notes. The value
of the Collateral at any time will depend on market and other economic
conditions, including the availability of suitable buyers for the Collateral.
See "Risk Factors--Risk of Not Realizing Collateral Value; Risk of Shared
Collateral."
The release of any Collateral from the terms of the Collateral Documents
pursuant to the terms thereof will not be deemed to impair the security under
the Indenture in contravention of the provisions thereof and of the Collateral
Documents if and to the extent the Collateral is released pursuant to the
terms of the Indenture and the Collateral Documents. To the extent applicable,
the Company shall comply with Section 314(d) of the Trust Indenture Act.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Collateral Agent to repossess and dispose of the Collateral
upon the occurrence of an Event of Default is likely to be impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by
or against the Company prior to or possibly even after the Collateral Agent
has repossessed and disposed of the Collateral. Under applicable federal
bankruptcy laws, secured creditors are prohibited from repossessing their
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such a debtor, without bankruptcy court approval. Moreover,
applicable federal bankruptcy laws generally permit the debtor to continue to
retain and to use collateral even though the debtor is in default under the
applicable debt instruments; provided generally that the secured creditor is
given "adequate protection." The meaning of the term "adequate protection" may
vary according to circumstances, but it is intended in general to protect the
value of the secured creditor's interest in the collateral and may include
cash payments or the granting of additional security, if and at such times as
the court in its discretion determines, for any diminution in the value of the
collateral as a result of the stay of repossession or disposition or any use
of the collateral by the debtor during the pendency of the bankruptcy case. In
view of the lack of a precise definition of the term "adequate protection" and
the broad discretionary powers of a bankruptcy court, it is impossible to
predict if payments under the Senior Secured Notes would be made following
commencement of and during a bankruptcy case,
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whether or when the Collateral Agent could repossess or dispose of the
Collateral or whether or to what extent Holders of the Senior Secured Notes
would be compensated for any delay in payment or loss of value of the
Collateral through the requirement of "adequate protection." Furthermore, in
the event the bankruptcy court determines the value of the Collateral is not
sufficient to repay all amounts due on the Senior Secured Notes, the Holders
of the Senior Secured Notes would hold "undersecured claims." Applicable
federal bankruptcy laws do not permit the payment and/or accrual of interest,
costs and attorneys' fees for "undersecured claims" during the debtor's
bankruptcy case.
PRINCIPAL, MATURITY AND INTEREST
The Senior Secured Notes will be limited in aggregate principal amount to
$400.0 million and will mature on August 1, 2003. Interest on the Senior
Secured Notes will accrue at the rate of 11% per annum, payable semi-annually
in arrears on February 1 and August 1 of each year, commencing on February 1,
1997, to Holders of record on the immediately preceding January 15 and July 15
(whether or not a business day). Interest on the Senior Secured Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
The Senior Secured Notes will be payable as to principal, premium, if any,
and interest at the office or agency of the Company maintained for such
purpose in the City and State of New York or, at the option of the Company,
such payment may be made by check mailed to the Holders of the Senior Secured
Notes at their respective addresses set forth in the register of Holders of
Senior Secured Notes; provided, however, that all payments with respect to the
Global Note and definitive Senior Secured Notes the Holders of which have
given wire transfer instructions to the Company at least 10 business days
prior to the applicable payment date will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the Trustee maintained for
such purpose. The Senior Secured Notes will be issued in minimum denominations
of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Senior Secured Notes will not be redeemable at the Company's option
prior to August 1, 2001. Thereafter, the Senior Secured Notes will be subject
to redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on August 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.......................................................... 105.500%
2002.......................................................... 102.750%
</TABLE>
SELECTION AND NOTICE
If less than all of the Senior Secured Notes are to be redeemed at any time,
selection of Senior Secured Notes for redemption will be made by the Trustee
in compliance with the requirements of the principal national securities
exchange, if any, on which the Senior Secured Notes are listed, or, if the
Senior Secured Notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided that no Senior
Secured Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Senior Secured Notes to
be redeemed at its registered address. If any Senior Secured Note is to be
redeemed in part only, the notice of redemption that relates to such Senior
Secured Note shall state the portion of the principal amount thereof to be
redeemed. A new Senior Secured Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Senior Secured Note. On and after the
redemption date, interest ceases to accrue on Senior Secured Notes or portions
of them called for redemption.
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MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Senior Secured Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Senior Secured
Notes will have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Senior
Secured Notes pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest thereon to the date of
purchase (the "Change of Control Payment"). Within ten days following any
Change of Control, the Company will mail a notice to each Holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase Senior Secured Notes pursuant to the procedures
required by the Indenture and described in such notice. The Company will
comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Senior
Secured Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Senior Secured Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with
the Paying Agent an amount equal to the Change of Control Payment in respect
of all Senior Secured Notes or portions thereof so tendered and (3) deliver or
cause to be delivered to the Trustee the Senior Secured Notes so accepted
together with an Officers' Certificate stating the aggregate principal amount
of Senior Secured Notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Holder of Senior Secured Notes so
tendered the Change of Control Payment for such Senior Secured Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Senior Secured Note equal in principal amount
to any unpurchased portion of the Senior Secured Notes surrendered, if any;
provided that each such new Senior Secured Note will be in a principal amount
of $1,000 or an integral multiple thereof. The Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Senior Secured Notes to
require that the Company repurchase or redeem the Senior Secured Notes in the
event of a takeover, recapitalization or similar transaction.
The exercise by the Holders of Senior Secured Notes of their right to
require the Company to repurchase the Senior Secured Notes would cause a
default under other senior indebtedness, even if the Change of Control itself
does not, due to the financial effect of such repurchases on the Company.
Certain events which would constitute a Change of Control under the provisions
described above would constitute an event of default under the New Credit
Agreement. In addition, the Company's ability to pay cash to the Holders of
Senior Secured Notes upon a repurchase may be limited by the Company's then
existing financial resources.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Senior Secured Notes validly tendered and not
withdrawn under such Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act); (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any
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merger or consolidation) the result of which is that any "person" becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act), directly or indirectly, of more than 35% of the voting
stock of the Company, or (iv) the first day on which a majority of the members
of the Board of Directors of the Company are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Senior Secured Notes
to require the Company to repurchase such Senior Secured Notes as a result of
a sale, lease, transfer, conveyance or other disposition of less than all of
the assets of the Company and its Subsidiaries taken as a whole to another
Person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
Asset Sales, Collateral Asset Sales and Events of Loss
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any Asset Sale unless (i) the
Company or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets, Equity Interests or other property issued or sold or
otherwise disposed of (evidenced by an Officers' Certificate delivered to the
Trustee certifying as to (x) such value, (y) the consideration received
(including the value of any non-cash consideration) and (z) if the assets,
Equity Interests or other property disposed of equals or exceeds $25.0 million
in fair market value, a resolution of the Board of Directors approving such
Asset Sale and acknowledging the values set forth in (x) and (y) above) and
(ii) at least 75% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of cash or Cash Equivalents;
provided that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet), of the Company or any
Subsidiary (other than contingent liabilities and liabilities that are by
their terms subordinated to the Senior Secured Notes) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability and
(y) any notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are immediately converted by
the Company or such Restricted Subsidiary into cash or Cash Equivalents (to
the extent of the cash or Cash Equivalents received), shall be deemed to be
cash for purposes of this provision.
Within 24 months after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply, or may cause the applicable Restricted Subsidiary to
apply, such Net Proceeds to (i) the acquisition by the Company of all of the
Capital Stock of any Person in the same or a substantially similar line of
business as that conducted by the Company or any of its Subsidiaries as of the
Issue Date, (ii) the making of a capital expenditure, (iii) the acquisition of
other long-term Tangible Assets, (iv) the permanent reduction of amounts
outstanding under the New Credit Agreement (and to correspondingly reduce
commitments with respect thereto) and (v) the making of a Restricted Strategic
Investment which is a Permitted Investment. Pending the final application of
any such Net Proceeds, the Company shall hold such Net Proceeds in the form of
cash or Cash Equivalents. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will
be deemed to constitute "Excess Proceeds" and shall be applied to make an
Excess Proceeds Offer in accordance with the terms described below.
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in a Collateral Asset Sale
unless (a) such Collateral Asset Sale involves the Collateral in its entirety,
or, if such Collateral Asset Sale involves less than all of the Collateral (a
"Partial Collateral Asset Sale"), such Partial Collateral Asset Sale involves
a single Collateral Asset Sale with a fair market value at the time of
consummation of such Collateral Asset Sale not exceeding $2.0 million and is
not part of a series of Collateral
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Asset Sales in any twelve month period with an aggregate value (measured as of
the time of consummation of such sales) exceeding $10.0 million in the
aggregate; (b) the Company receives consideration in respect of and
concurrently with such Collateral Asset Sale at least equal to the fair market
value of such Collateral; (c) with respect to each such Collateral Asset Sale,
the Company delivers an Officers' Certificate to the Trustee dated no more
than 15 days prior to the date of consummation of the relevant Collateral
Asset Sale, certifying that (i) such sale complies with clauses (a) and (b)
above and (ii) if the fair market value of the Collateral being sold exceeds
$25.0 million, the fair market value of such Collateral was determined in good
faith by the Board of Directors of the Company (whose determination, if the
Collateral Asset Sale involves the Collateral in its entirety, was based on
the opinion of a nationally recognized qualified independent appraiser
prepared contemporaneously with such Collateral Asset Sale and which opinion,
in such case, will be attached to the Officers' Certificate) as evidenced by
copies of a resolution of the Board of Directors of the Company adopted in
respect of and concurrently with such Collateral Asset Sale; (d) 100% of such
consideration is in cash or Cash Equivalents; and (e) the Net Proceeds
therefrom shall be paid directly by the purchaser thereof to the Collateral
Agent, pursuant to the applicable security document, as additional Collateral.
In the case of a Partial Collateral Asset Sale, the Company, within ninety
(90) days from the date of consummation of a Partial Collateral Asset Sale,
may apply all of the Net Proceeds therefrom to purchase or otherwise invest in
Replacement Collateral. Any such Net Proceeds not so applied shall constitute
"Excess Proceeds" and shall be applied (a) to make an Excess Proceeds Offer,
in accordance with the terms of the last paragraph of this covenant, and (b)
to repay and permanently reduce the obligations under the New Credit
Agreement, in each case, in proportion to the respective principal amounts
outstanding thereunder. In the case of a Collateral Asset Sale other than a
Partial Collateral Asset Sale all of the Net Proceeds therefrom shall
constitute "Excess Proceeds" and shall be applied to make an Excess Proceeds
Offer in accordance with the terms described below, and to repay and
permanently reduce the obligations under the New Credit Agreement in
proportion to the respective principal amounts outstanding thereunder.
The Indenture will provide that if the Company suffers an Event of Loss, (a)
the Net Proceeds therefrom shall be paid directly by the party providing such
Net Proceeds to the Collateral Agent, pursuant to the applicable Collateral
Document, as additional Collateral and (b) the Company shall take such
actions, at its sole expense, as may be required to ensure that the Collateral
Agent, pursuant to the applicable security document, has from the date of such
deposit a first ranking Lien (subject to Permitted Liens) on such Net Proceeds
pursuant to the terms of the applicable Collateral Document. As any portion or
all of the Net Proceeds from any such Event of Loss are received by the
Collateral Agent, the Company may apply all of such amount or amounts, as
received, together with all interest earned thereon, individually or in
combination, (i) to purchase or otherwise invest in Replacement Collateral or
(ii) to restore the relevant Collateral. In the event that the Company elects
to restore the relevant Collateral pursuant to the foregoing clause (ii),
within six months of receipt of such Net Proceeds from an Event of Loss, the
Company shall (x) give the Trustee irrevocable written notice of such election
and (y) enter into a binding commitment to restore such Collateral, a copy of
which shall be supplied to the Trustee, and shall have 24 months from the date
of such binding commitment to complete such restoration, which shall be
carried out with due diligence. Any such Net Proceeds not so applied shall
constitute "Excess Proceeds" and shall be applied (a) to make an Excess
Proceeds Offer in accordance with the terms of the last paragraph of this
covenant, and (b) to prepay and permanently reduce the obligations under the
New Credit Agreement, in each case, in proportion to the principal amounts
outstanding thereunder.
Under the terms of the Indenture, in the event that the Company decides
pursuant to the foregoing provisions to apply any portion of the Net Proceeds
from a Collateral Asset Sale or an Event of Loss to purchase or otherwise
invest in Replacement Collateral, (i) the Company shall deliver an Officers'
Certificate to the Trustee dated no more than 30 days prior to the date of
consummation of the relevant investment in Replacement Collateral, certifying
that the purchase price for the amount of the investment in Replacement
Collateral does not exceed the fair market value of such Replacement
Collateral and, if the fair market value of such Replacement Collateral
exceeds $25.0 million, certifying that the fair market value of such
Replacement Collateral was determined in good faith by the Board of Directors
of the Company and was based on the opinion of a nationally recognized
qualified independent appraiser attached to the Officers' Certificate, adopted
in respect
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of and concurrently with the investment in such Replacement Collateral; (ii)
the Trustee will instruct the Collateral Agent to release such certified
purchase price to the Company, free of the Lien of the Collateral Documents;
and (iii) the Company shall take such actions, at its sole expense, as shall
be required to permit the Collateral Agent, pursuant to the applicable
Collateral Document, to release such Net Proceeds, together with any interest
thereon, from the Lien of the applicable Collateral Document and to ensure
that the Collateral Agent has, from the date of such purchase or investment, a
first ranking Lien (subject to Permitted Liens on such Collateral) on such
Replacement Collateral under the applicable Collateral Document.
When the aggregate amount of Excess Proceeds exceeds $25.0 million, the
Company will be required to make an offer to all Holders of Senior Secured
Notes (an "Excess Proceeds Offer") to purchase Senior Secured Notes at an
offer price in cash in an amount equal to 101% of the principal amount thereof
plus accrued and unpaid interest thereon to the date of purchase. Excess
Proceeds will be applied (a) to make an Excess Proceeds Offer and (b) to repay
and permanently reduce amounts outstanding under the New Credit Agreement, in
each case, in proportion to the respective principal amounts outstanding
thereunder. To the extent that the aggregate amount of Senior Secured Notes
tendered pursuant to an Excess Proceeds Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes pursuant to the Asset Sale covenant contained in the
Indenture. If the aggregate principal amount of Senior Secured Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Senior Secured Notes to be purchased on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
CERTAIN COVENANTS
The Indenture will contain, among other things, the following covenants:
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to the Company or any Wholly Owned Restricted Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or such Restricted Subsidiary (except for (a)
up to an aggregate of $2.0 million used to make fractional payments in the
event of a merger or reverse stock split involving the Equity Interests of the
Company or its Restricted Subsidiaries and (b) the cashless exercise of stock
options or warrants issued by the Company); (iii) make any principal payment
on, or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Senior Secured Notes, except (a) at
final maturity or (b) retirement of existing issues of debt securities by
application of the proceeds from the sale of the Senior Secured Notes, (iv)
make any Restricted Investment (provided that (a) an Investment (other than
any direct or indirect loan or Guarantee referred to in clause (b) or (c)) by
the Company or a Restricted Subsidiary of up to $350.0 million in the Dresden,
Germany Unrestricted Subsidiary; (b) a direct or indirect loan by the Company
or a Restricted Subsidiary to its Dresden, Germany Unrestricted Subsidiary
(including a Guarantee and any payment of such Guarantee) in an amount not to
exceed $150.0 million and (c) any Guarantee arising from the Company's or any
Restricted Subsidiary's commitments or obligations with respect to the
Dresden, Germany Unrestricted Subsidiary or any guarantee of any obligation
(other than Indebtedness) of the Dresden, Germany Unrestricted Subsidiary
(but, in each case, not the payment thereof), shall not be deemed to be a
Restricted Investment; provided that no more than $225.0 million shall be
invested or loaned by the Company pursuant to subclauses (a) and (b) above in
any four consecutive quarters) or (v) designate any Restricted Subsidiary to
be an Unrestricted Subsidiary (all such payments and other actions set forth
in clauses (i) through (v) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
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(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the Issue Date (excluding Restricted Payments permitted pursuant to
subclauses (i) and (ii) of the next succeeding paragraph), is less than the
sum of (i) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the Issue Date to the end of the
Company's most recently ended fiscal quarter for which financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net
cash proceeds received by the Company from the issue or sale since the
Issue Date of Equity Interests of the Company or of debt securities of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the Issue Date is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost
of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) 50% of any cash dividends received by the Company or
a Wholly Owned Restricted Subsidiary after the date of the Indenture from
an Unrestricted Subsidiary of the Company (excluding any cash dividends
from the Dresden, Germany Unrestricted Subsidiary in an amount equal to the
sum of (a) any Investment by the Company in the Dresden, Germany
Unrestricted Subsidiary provided for in clause (iv)(a) of the first
paragraph of this section and (b) any loan by the Company in the Dresden,
Germany Unrestricted Subsidiary provided for in clause (iv)(b) of the first
paragraph of this section).
Provided that no Event of Default shall have occurred and be continuing, the
foregoing provisions will not prohibit (i) the payment of any dividend within
60 days after the date of declaration thereof, if at said date of declaration
such payment would have complied with the provisions of the Indenture; (ii)
the redemption, repurchase, retirement or other acquisition of any Equity
Interests of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock) or
the substantially concurrent conversion of such Equity Interests for other
Equity Interests of the Company (other than Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (iii) the making of any principal
payment on, or the purchase, redemption, defeasance or other acquisition or
retirement for value of any subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock) or the
substantially concurrent conversion of such Indebtedness into Equity Interests
of the Company (other than Disqualified Stock); provided that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause
(c)(ii) of the preceding paragraph; (iv) an Investment by the Company of up to
$50.0 million in the Company's FASL Unrestricted Subsidiary and the making of
a Guarantee (but not the payment of such Guarantee) by the Company of up to
$175.0 million of the FASL Unrestricted Subsidiary's Indebtedness; (v) any
payments by the Company required pursuant to the terms of the CIBC Guarantee;
and (vi) Restricted Payments in an aggregate amount not to exceed $10.0
million.
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The Company may designate any Restricted Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default and if, immediately
after giving effect to such designation on a pro forma basis, the Company
would be in compliance with this covenant. For purposes of making such
determination, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greatest of (x) the
net book value of the Investments at the time of such designation, (y) the
fair market value of such Investments at the time of such designation and (z)
the original fair market value of such Investments at the time they were made.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced, in the case of Restricted Payments (other than cash)
with a fair market value in excess of $25.0 million, by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) on the date of the Restricted Payment of the asset(s) proposed to be
transferred by the Company or such Subsidiary, as the case may be, pursuant to
the Restricted Payment. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments"
were computed, which calculations may be based upon the Company's latest
available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture will provide that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided, however, that the Company or any of its Restricted
Subsidiaries may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock is issued would have been at least 2.5 to
1, determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company of the Indebtedness represented by the
Senior Secured Notes;
(ii) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness, provided such Indebtedness does not exceed, as of the date
of determination, 50% of Company Book Value less (a) the principal amount
outstanding under the Senior Secured Notes, less (b) the Obligations
outstanding under the New Credit Agreement and less (c) the aggregate
amount of outstanding Indebtedness of the Company or any Restricted
Subsidiary previously incurred pursuant to this clause (ii); provided,
however, under no circumstances shall the aggregate amount of Indebtedness
outstanding (x) under the Senior Secured Notes, (y) incurred and
outstanding under the New Credit Agreement and (z) pursuant to outstanding
Capital Lease Obligations relating to property or equipment at the Fab 25
Complex exceed, in the aggregate, (A) $650.0 million on or before January
1, 1997 and (B) $800.0 million thereafter, in each case, less any permanent
reduction in the obligations and commitments of the Company under the New
Credit Agreement as provided under "Repurchase at the Option of Holders--
Asset Sales, Collateral Asset Sales and Events of Loss;"
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
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(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations (other than
Capital Lease Obligations relating to property or equipment at the Fab 25
Complex covered by subclause (ii) above), mortgage financings or purchase
money obligations, in each case incurred for the purpose of financing all
or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Restricted Subsidiary, in an aggregate principal amount not to exceed
$100.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Wholly Owned Restricted Subsidiaries; provided, however, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinate to the payment in full of all Obligations with respect to the
Senior Secured Notes and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Wholly Owned Restricted Subsidiary and
(B) any sale or other transfer of any such Indebtedness to a Person that is
not either the Company or a Wholly Owned Restricted Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Restricted Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
managing (a) foreign currency risk or (b) interest rate risk with respect
to any floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding;
(viii) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(ix) a Guarantee by the Company of up to $175.0 million of the FASL
Unrestricted Subsidiary's Indebtedness;
(x) a Guarantee by the Company pursuant to clause (iv)(b) of the first
paragraph of the covenant described above under "Certain Covenants--
Restricted Payments;" or
(xi) any Lien on Equity Interests of the Dresden, Germany Unrestricted
Subsidiary permitted pursuant to clause (xvi) of the definition of
"Permitted Liens."
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
consensual restriction on the ability of any Restricted Subsidiary to (i)(a)
pay dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay
any indebtedness owed to the Company or any of its Restricted Subsidiaries,
(ii) make loans or advances to the Company or any of its Restricted
Subsidiaries or (iii) sell, lease or transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries, except (in each case)
for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the Issue Date, (b) the Indenture, the
Senior Secured Notes and the
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Collateral Documents, (c) the New Credit Agreement, (d) applicable law, (e)
any instrument governing Indebtedness or Capital Stock of a Person acquired by
the Company or any Restricted Subsidiary as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or than the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (f)
by reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business
that impose restrictions of the nature described in clause (iii) above on the
property so acquired, or (h) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are in the good faith judgment of the Board of
Directors of the Company (as evidenced by a resolution thereof set forth in an
Officers' Certificate delivered to the Trustee) no more restrictive with
respect to such dividend and other payment restrictions than those contained
in the agreements governing the Indebtedness being refinanced.
Consolidation, Merger or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into or wind-up into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions, to any Person unless (i) the Company is the surviving
corporation or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia; (ii) the Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Senior Secured Notes, the Indenture and the Collateral Documents
pursuant to a supplemental indenture or other documents or instruments in form
reasonably satisfactory to the Trustee under the Senior Secured Notes and the
Indenture; (iii) immediately after such transaction, no Default or Event of
Default exists under the Indenture or the Collateral Documents; and (iv)
except in the case of a merger of the Company with or into a Wholly Owned
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will have Consolidated Net Worth immediately after
the transaction (but prior to any purchase accounting adjustments resulting
from such transaction) equal to or greater than the Consolidated Net Worth of
the Company immediately preceding the transaction and (B) will, at the time of
such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted
Subsidiaries
The Indenture will provide that the Company (i) will not, and will not
permit any Wholly Owned Restricted Subsidiary of the Company to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly
Owned Restricted Subsidiary of the Company to any Person (other than the
Company or a Wholly Owned Restricted Subsidiary of the Company), unless (a)
such transfer, conveyance, sale, lease or other disposition is of all the
Capital Stock of such Wholly Owned Restricted Subsidiary and (b) the cash Net
Proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with the covenant described above under the caption
"Redemption at the Option of Holders--Asset Sales, Collateral Asset Sales and
Events of Loss" and (ii) will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company. Notwithstanding the foregoing, nothing in this
covenant shall prohibit (x) the Company from selling more than
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35% of its Equity Interest in any Wholly Owned Restricted Subsidiary in
connection with the Initial Public Offering of such Wholly Owned Restricted
Subsidiary, provided 100% of the net proceeds from such Initial Public
Offering received by the Company are in the form of cash and all such proceeds
are applied in accordance with the covenant described above under the caption
"Redemption at the Option of Holders--Asset Sales, Collateral Asset Sales and
Events of Loss" or (y) the issuance and exchange of Equity Interests (other
than Disqualified Stock) of the Company's PLD Subsidiary (as defined herein)
in connection with the merger of the PLD Subsidiary with or into any Person,
provided (a) at the time of such merger, the Consolidated Cash Flow of the PLD
Subsidiary for the Company's most recently ended four full fiscal quarters for
which financial statements are available represents less than 10% of the
Consolidated Cash Flow of the Company for the same period, (b) the Company and
the PLD Subsidiary shall enter into a written agreement providing that the
product transfer pricing in effect following such merger shall be no less
favorable to the Company than the product transfer pricing in effect during
the period set forth in (a) above, and (c) the Fixed Charge Coverage Ratio for
the period set forth in (a) above would have been 2.5 to 1, determined on a
pro forma basis, as if such merger had occurred at the beginning of such
period.
Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, a resolution adopted by the majority of the
disinterested non-employee directors of the Board of Directors approving such
Affiliate Transaction or series of related Affiliate Transactions and set
forth in an Officers' Certificate certifying that such Affiliate Transaction
or series of related Affiliate Transactions comply with clause (i) above and
(b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate payments of or loans in the principal amount
of $25.0 million or more, an opinion as to the fairness to the Company or such
Restricted Subsidiary of such Affiliate Transaction or series of related
Affiliate Transactions from a financial point of view issued by an independent
financial advisor of national standing. Notwithstanding the foregoing, the
following transactions shall not be deemed Affiliate Transactions: (1) any
purchases of products by the Company from the FASL Unrestricted Subsidiary on
terms no less favorable to the Company than those determined pursuant to
transfer pricing in effect on the Issue Date; (2) any purchases of wafers from
the Dresden, Germany Unrestricted Subsidiary such that the sale of the
products produced from such wafers have a Contribution Margin (as defined
herein) of no less than 50%; (3) any employee compensation arrangement entered
into by the Company or any of its Restricted Subsidiaries in the ordinary
course of business and consistent with the past practice of the Company or
such Restricted Subsidiary; (4) transactions between or among the Company
and/or any of its Restricted Subsidiaries or (5) purchases of Equity Interests
(other than Disqualified Stock) by any stockholder of the Company (or an
Affiliate of a stockholder of the Company) from the Company or any Restricted
Subsidiary; provided that such Equity Interests do not bear cash dividends.
For purposes of this covenant, "Contribution Margin" shall mean the margin
determined by dividing (a) the net cash revenue realized by the Company from
the sale of such products less the cash cost to the Company of the wafer
utilized in the production of such products divided by (b) the net cash
revenue realized by the Company from the sale of such products.
New Credit Agreement
The Indenture will provide that, for so long as any Senior Secured Notes are
outstanding, the Company will not amend, modify or change in any manner the
terms of the New Credit Agreement as in effect on the Issue Date, if any such
amendment, modification or change (i) changes (to earlier dates) the dates
upon which principal and interest are due thereon; (ii) alters the redemption
or prepayment provisions thereof; (iii) alters the provisions thereof relating
to dispositions of Collateral; or (iv) alters the provisions thereof to the
extent the Trustee is an express third party beneficiary.
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Insurance
The Indenture will provide that the Company shall at all times provide,
maintain, and keep in full force, or cause to be provided, maintained and kept
in full force, at no expense to the Collateral Agent, the Trustee or the
Holders of the Senior Secured Notes, policies of insurance for the Collateral
in an amount of not less than 100% of the full insurable value of the
Collateral with a deductible of not more than $1.0 million per occurrence,
and, if issued by companies, associations or organizations licensed to do
business in the state of California, having a rating in Best's Key Rating
Guide of not less than B+:VII, and otherwise consistent with the Company's
then existing generally applicable risk management policies, covering such
casualties, risks, perils, liabilities and other hazards as are customary for
improvements similar to the improvements in the general geographic area in
which the improvements are located. All such policies of insurance required by
the terms of the Indenture shall contain an endorsement or agreement by the
insurer that any loss shall be payable in accordance with the terms of such
policy notwithstanding any act or negligence of the Company or any party
holding under the Company which might otherwise result in forfeiture of said
insurance and the further agreement of the insurer waiving all rights of
setoff, counterclaim or deductions against the Company.
Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Senior Secured Notes are outstanding, the Company will furnish to
the Holders of Senior Secured Notes all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Senior Secured Notes; (ii) default in payment when due of the principal of or
premium, if any, on the Senior Secured Notes; (iii) failure by the Company to
comply with the provisions described under the captions "--Repurchase at the
Option of Holders--Change of Control," "--Repurchase at the Option of
Holders--Asset Sales, Collateral Asset Sales and Events of Loss," "--
Restricted Payments" or "--Incurrence of Indebtedness and Issuance of
Preferred Stock;" (iv) failure by the Company for 60 days after notice to
comply with any of its other agreements in the Indenture or the Senior Secured
Notes; (v) default or event of default under the New Credit Agreement or 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 or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the Issue Date,
which default (a) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $10.0 million or more; (vi) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $50.0 million, which judgments are not paid,
discharged or stayed for a period of 30 days; (vii) material breach by the
Company of any representation or warranty set forth in the Collateral
Documents, or a material default by the Company in the performance of any
covenant set forth in the Collateral Documents, or repudiation by the Company
of its obligations under the
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Collateral Documents or the unenforceability of the Collateral Documents
against the Company for any reason; and (viii) certain events of bankruptcy or
insolvency with respect to the Company, the FASL Unrestricted Subsidiary or
any Significant Subsidiary or group of Subsidiaries (not including the
Dresden, Germany Unrestricted Subsidiary).
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Senior Secured
Notes may declare all the Senior Secured Notes to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company, the FASL Unrestricted Subsidiary or any Significant Subsidiary or
group of Subsidiaries (not including the Dresden, Germany Unrestricted
Subsidiary) that, taken together, would constitute a Significant Subsidiary,
all outstanding Senior Secured Notes will become due and payable without
further action or notice. Holders of the Senior Secured Notes may not enforce
the Indenture or the Senior Secured Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the then outstanding Senior Secured Notes may direct the Trustee in its
exercise of any trust or power. Pursuant to the Intercreditor Agreement, the
Holders of a majority of the Senior Secured Notes may delegate to a committee
of such Holders the rights to vote with respect to instructions to be given to
the Collateral Agent. The Trustee may withhold from Holders of the Senior
Secured Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest)
if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Senior Secured Notes
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by the Indenture and law upon the acceleration of the Senior Secured
Notes.
The Holders of a majority in aggregate principal amount of the Senior
Secured Notes then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Senior Secured Notes waive any existing Default or Event
of Default and its consequences under the Indenture except a continuing
Default or Event of Default in the payment of interest on, or the principal
of, the Senior Secured Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Secured Notes
("Legal Defeasance") except for (i) the rights of Holders of outstanding
Senior Secured Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Senior Secured Notes when such payments
are due from the trust referred to below, (ii) the Company's obligations with
respect to the Senior Secured Notes concerning issuing temporary Senior
Secured Notes, registration of Senior Secured Notes, mutilated, destroyed,
lost or stolen Senior Secured Notes and the maintenance of an office or agency
for payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Senior Secured Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Senior Secured Notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Secured Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding Senior Secured Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Senior Secured Notes are being defeased to maturity or to a
particular redemption date; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the outstanding
Senior Secured Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the Holders of the outstanding Senior Secured
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date
of such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound; (vi) the Company
must have delivered to the Trustee an opinion of counsel to the effect that
after the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; (vii) the Company must
deliver to the Trustee an Officers' Certificate stating that the deposit was
not made by the Company with the intent of preferring the Holders of Senior
Secured Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or
others; and (viii) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Secured 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 Senior Secured Note selected for redemption. Also, the Company is
not required to transfer or exchange any Senior Secured Note for a period of
15 days before a selection of Senior Secured Notes to be redeemed.
The registered Holder of a Senior Secured Note will be treated as the owner
of it for all purposes.
BOOK-ENTRY, DELIVERY AND FORM
The Senior Secured Notes will be represented by one or more fully registered
global notes (collectively, the "Global Note"). The Global Note will be
deposited upon issuance with, or on behalf of, The Depository Trust Company,
as Depositary (the "Depositary") and registered in the name of the Depositary
or a nominee of the Depositary (the "Global Note Registered Owner"). Except as
set forth below, the Global Note may be transferred, in whole and not in part,
only to another nominee of the Depositary or to a successor of the Depositary
or its nominee.
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The Depositary has advised the Company that the Depositary is a limited-
purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the
clearance and settlement of transactions in those securities between the
Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers
(including the Underwriters), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's systems 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 the Depositary 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 the Depositary are recorded on the records of the Participants and
Indirect Participants.
The Depositary has also advised the Company that, pursuant to procedures
established by it (i) upon deposit of the Global Note, the Depositary will
credit the accounts of Participants designated by the Underwriters 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 the
Depositary (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 the Senior Secured Notes will be limited
to that extent.
Except as provided below, owners of interests in the Global Note will not
have Senior Secured Notes registered in their names, will not receive physical
delivery of the Senior Secured Notes in definitive form and will not be
considered the registered owners or holders thereof under the Indenture for
any purpose.
Payments in respect of the principal of and premium, if any, and interest on
any Senior Secured Notes registered in the name of the Global Note Registered
Owner 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 persons in whose
names the Senior Secured 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 or will have any
responsibility or liability for (i) any aspect of the Depositary'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 the Depositary'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 the Depositary
or any of its Participants. The Depositary has advised the Company that its
current practice, upon receipt of any payment in respect of securities such as
the Senior Secured 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 the
Depositary. Payments by the Participants and the Indirect Participants to the
beneficial owners of the Senior Secured Notes will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility
of the Depositary, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by the Depositary or any of its
Participants in identifying the beneficial owners of the Senior Secured Notes,
and the Company and Trustee may conclusively rely on and will be protected in
relying on instructions from the Global Note Registered Owner for all
purposes.
The Global Note is exchangeable for definitive Senior Secured Notes (i) if
the Depositary notifies the Company that it is unwilling or unable to continue
as Depositary of the Global Note and the Company thereupon fails to appoint a
successor Depositary, (ii) if the Company, at its option, notifies the Trustee
in writing that it elects to cause the issuance of the Senior Secured Notes in
definitive registered form, or (iii) if there shall have occurred and be
continuing an Event of Default or any event which after notice or lapse of
time or both would
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be an Event of Default with respect to the Senior Secured Notes. Such
definitive Senior Secured Notes shall be registered in the names of the owners
of the beneficial interests in the Global Note as provided by the
Participants. Upon issuance of the Senior Secured Notes in definitive form,
the Trustee is required to register the Senior Secured Notes in the name of,
and cause the Senior Secured Notes to be delivered to, the person or persons
(or the nominee thereof) identified as the beneficial owners as the Depositary
shall direct.
Settlement for purchases of beneficial interests in the Global Note upon the
original issuance thereof will be required to be made by wire transfer in
immediately available funds. Payments in respect of the Senior Secured Notes
represented by the Global Note (including principal, premium, if any, and
interest) will be made by wire transfer in immediately available funds to the
accounts specified by the Global Note Registered Owner. With respect to the
definitive Senior Secured Notes, the Company will make all payments of
principal, premium, if any, and interest by wire transfer in immediately
available funds to the accounts specified by the Holders thereof or, if no
such account is specified, by mailing a check to such Holder's registered
address. Secondary trading in long-term notes of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the
beneficial interests in the Global Note are expected to trade in the
Depositary's Same-Day Funds Settlement System, in which secondary market
trading activity in those beneficial interests would be required by the
Depositary to settle in immediately available funds. There is no assurance as
to the effect, if any, that settlement in immediately available funds would
have on trading activity on such beneficial interests.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Senior Secured Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the Senior Secured
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Senior
Secured Notes), and any existing default or compliance with any provision of
the Indenture or the Senior Secured Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding Senior
Secured Notes (including consents obtained in connection with a tender offer
or exchange offer for Senior Secured Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Secured Notes held by a non-consenting Holder):
(i) reduce the principal amount of Senior Secured Notes whose Holders must
consent to an amendment, supplement or waiver, (ii) reduce the principal of or
change the fixed maturity of any Senior Secured Note or alter the provisions
with respect to the redemption of the Senior Secured Notes (other than
provisions relating to the covenants described above under the caption "--
Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Senior Secured Note, (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the Senior Secured Notes (except a rescission of acceleration of
the Senior Secured Notes by the Holders of at least a majority in aggregate
principal amount of the Senior Secured Notes and a waiver of the payment
default that resulted from such acceleration), (v) make any Senior Secured
Note payable in money other than that stated in the Senior Secured Notes, (vi)
make any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Senior Secured Notes to receive payments
of principal of or premium, if any, or interest on the Senior Secured Notes,
(vii) waive a redemption payment with respect to any Senior Secured Note
(other than a payment required by one of the covenants described above under
the caption "--Repurchase at the Option of Holders"), (viii) release the Lien
of the Collateral Agent in any of the Collateral other than pursuant to the
terms of the Indenture or the Collateral Documents, or (ix) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Secured Notes, the Company and the Trustee may amend or supplement the
Indenture or the Senior Secured Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Senior Secured Notes in addition
to or in place of certificated Senior Secured Notes, to provide for the
assumption of the Company's obligations to Holders of Senior Secured Notes in
the case of a merger or consolidation, to make any change that would provide
any
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additional rights or benefits to the Holders of Senior Secured Notes or that
does not adversely affect the legal rights under the Indenture or the
Collateral Documents of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Senior
Secured Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in
the conduct of his own affairs. 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 Holder of Senior Secured Notes, unless such
Holder shall have offered to the Trustee security and indemnity satisfactory
to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus Supplement and Prospectus may obtain a
copy of the Indenture without charge by writing to Advanced Micro Devices,
Inc., One AMD Place, Sunnyvale, California 94088-3453, Attention: Assistant
Corporate Secretary.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"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 purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of
a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback)
other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption "--Change of
Control" and/or "--Consolidation, Merger or Sale of Assets" and not by the
provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Company or any of its Restricted Subsidiaries of Equity Interests of any of
the Company's Restricted
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Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions, (a) that have a fair market
value in excess of $5.0 million or (b) for net proceeds in excess of $5.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the
Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary,
(iii) a Collateral Asset Sale, (iv) a Restricted Payment that is permitted by
the covenant described above under the caption "--Restricted Payments," (v)
the sale or exchange of equipment with an aggregate value not to exceed $50.0
million at any one time provided such equipment has been replaced by equipment
of equal or greater value within 45 days of such sale or exchange, (vi) the
transfer of assets by the Company or a Restricted Subsidiary to the Dresden,
Germany Unrestricted Subsidiary provided such transfer is not a Restricted
Payment described above under the caption "--Restricted Payments;" (vii) the
transfer of assets from the Company or a Restricted Subsidiary to the FASL
Unrestricted Subsidiary provided such transfer would be permitted pursuant to
the covenant described above under the caption "--Restricted Payments," (viii)
any sale and leaseback transaction with respect to equipment so long as the
equipment which is the subject of such transaction is acquired for the purpose
of effecting such transaction and the sale and leaseback of such equipment
occurs no later than 120 days following the original acquisition of such
equipment and the lease is a Capital Lease Obligation and (ix) any transfer of
the Equity Interests of the Dresden, Germany Unrestricted Subsidiary pursuant
to the Lien described in item (xvi) of the definition of "Permitted Liens"
will not be deemed to be Asset Sales.
"Banks" means the Bank of America NT&SA, ABN AMRO Bank N.V. and Canadian
Imperial Bank of Commerce, as lenders under the New Credit Agreement, and any
other lenders from time to time under the New Credit Agreement.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means, (i) securities issued or fully guaranteed or
insured by the United States Government or any agency thereof having
maturities of not more than 12 months from the date of acquisition; (ii)
certificates of deposit, time deposits, Eurodollar time deposits, repurchase
agreements, reverse repurchase agreements, or bankers' acceptances, having in
each case a tenor of not more than 12 months, issued by any Bank, or by any
U.S. commercial bank or any branch or agency of a non-U.S. bank licensed to
conduct business in the U.S. having combined capital and surplus of not less
than $100,000,000 and whose short-term securities are rated at least A-1 by
S&P or at least P-1 by Moody's; (iii) taxable and tax-exempt commercial paper
of an issuer rated at least A-1 by S&P or at least P-1 by Moody's and in
either case having a tenor of not more than 270 days; (iv) medium term notes
of an issuer rated at least AA by S&P or at least Aa2 by Moody's and having a
remaining term of not more than 12 months after the date of acquisition by the
Company or its Subsidiaries; (v) municipal notes and bonds which are rated at
least SP-1 or AA by S&P or at least MIG-2 or Aa by Moody's with tenors of not
more than 12 months; (vi) investments in taxable or tax-exempt money market
funds with assets greater than $500,000,000 and whose assets have average
maturities less than or equal to 180 days and are rated at least A-1 by S&P or
at least P-1 by Moody's; or (vii) money market preferred instruments of an
issuer rated at least A-1 by S&P or at least P-1 by Moody's with tenors of not
more than 12 months.
"CIBC Guarantee" means the Third Amended and Restated Guaranty, dated as of
August 21, 1995, by the Company in favor of CIBC, Inc. relating to the Land
Lease, dated as of September 22, 1992, and the Building Lease, dated as of
September 22, 1992, between CIBC, Inc., as lessor, and a Wholly Owned
Restricted Subsidiary of the Company, as lessee, for the Company's
headquarters, in each case as amended as of the Issue Date.
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"Collateral" means the real and other property at Fab 25 described in the
Deeds of Trust and all other property and assets that from time to time secure
the Senior Secured Notes pursuant to the applicable Collateral Documents,
including any Replacement Collateral.
"Collateral Asset Sale" means any direct or indirect sale, conveyance,
lease, transfer or other disposition, including, without limitation, by means
of an amalgamation, merger, consolidation or similar transaction (each, a
"Disposition"), or a series of related Dispositions by the Company or any of
its Restricted Subsidiaries involving the Collateral, other than (i) the sale
of machinery, equipment, furniture, apparatus, tools or implements or other
similar property that may be defective or may have become worn out or obsolete
or no longer used or useful in the operation of Fab 25, the aggregate fair
market value of which does not exceed $10.0 million in any year or (ii) the
sale or exchange of equipment in an alteration or improvement at Fab 25 with
an aggregate value not to exceed $25.0 million at any one time provided such
equipment has been replaced by equipment of equal or greater value within 45
days of such sale or exchange. A Collateral Asset Sale shall not include the
requisition of title to or the seizure, condemnation, forfeiture or casualty
of any Collateral.
"Company Book Value" means, as of the date of determination, (i) the
Company's total assets less (ii) the Company's Intangible Assets less (iii)
all of the Company's liabilities, in each case determined on a consolidated
basis in accordance with GAAP; provided, however, in calculating Company Book
Value the assets, Intangible Assets and liabilities of the Dresden, Germany
Unrestricted Subsidiary shall be excluded.
"Collateral Documents" means, collectively, the Deeds of Trust, the Security
Agreements and the Intercreditor Agreement or any other agreements,
instruments, financing statements or other documents that evidence, set forth
or limit the Lien of the Collateral Agent in the Collateral.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such
Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit
or bankers' acceptance financings, and net payments (if any) pursuant to
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash charges (excluding any such non-cash charge to the extent that
it represents an accrual of or reserve for cash charges in any future period
or amortization of a prepaid cash expense that was paid in a prior period) of
such Person and its Restricted Subsidiaries for such period to the extent that
such depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, in each case, on a consolidated basis
and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income
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of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition shall be excluded, (iv) the cumulative
effect of a change in accounting principles shall be excluded and (v) the Net
Income of any Unrestricted Subsidiary shall be excluded, whether or not
distributed to the Company or any of its Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the Issue Date in
the book value of any asset owned by such Person or a consolidated Subsidiary
of such Person, (y) all investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries (except, in each case,
Permitted Investments), and (z) all unamortized debt discount and expense and
unamortized deferred charges as of such date, all of the foregoing determined
in accordance with GAAP.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Senior Secured Notes mature.
"Dresden, Germany Unrestricted Subsidiary" means, together, AMD Saxony
Manufacturing GmbH and any corporation wholly owned by the Company (other than
directors' qualifying shares) and formed under the laws of a jurisdiction
other than one of the United States of America which holds 100% of the equity
in AMD Saxony Manufacturing GmbH.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Loss" means (i) the loss or destruction of or damage to any
Collateral, (ii) the condemnation, seizure, confiscation, requisition of the
use or taking by exercise of the power of eminent domain or otherwise of any
Collateral or (iii) any consensual settlement in lieu of any event listed in
clause (ii), in each case whether in a single event or a series of related
events, that results in Net Proceeds from all sources in excess of $10.0
million.
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries (other than Indebtedness under the New Credit Agreement) in
existence on the Issue Date, until such amounts are repaid.
"FASL Unrestricted Subsidiary" means Fujitsu AMD Semiconductor Limited, a
joint venture between the Company and Fujitsu.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations) and (ii) the consolidated
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interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, and (iii) any interest expense on Indebtedness
of another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries, other than the Lien described under clause (xvi) of
the definition of "Permitted Liens," whether or not such Guarantee or Lien is
called upon, and (iv) the product of (a) all cash dividend payments (and non-
cash dividend payments in the case of a Person that is a Restricted
Subsidiary) on any series of preferred stock of such Person, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person
and its Restricted Subsidiaries for such period. In the event that the Company
or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems
any Indebtedness (other than revolving credit borrowings) or issues preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event
for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the
proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable
to discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness. Notwithstanding the foregoing, a Guarantee shall not include any
commitments or obligations by the Company or its Restricted Subsidiaries
relating to its Dresden, Germany Unrestricted Subsidiary until such time as
such commitments or obligations relate to Indebtedness of the Dresden, Germany
Unrestricted Subsidiary.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements, interest rate collar agreements and other agreements or
arrangements designed to protect such Person or any Subsidiary of such Person
against fluctuations in interest rates, and (ii) foreign exchange forward
contracts, foreign currency options and other agreements or arrangements
entered into by such Person in the ordinary course of business for the purpose
of managing risks associated with receivables on the balance sheet of such
Person or any Subsidiary of such Person denominated in foreign currencies.
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"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any Indebtedness of any
other Person.
"Initial Public Offering" means the first sale of securities of a Person to
an underwriter for reoffering to the public.
"Intangible Asset" means (to the extent included in the Company's assets)
(i) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within 12 months after the acquisition of such business) subsequent to the
Issue Date in the book value of any assets owned by the Company or a
consolidated Subsidiary of the Company, (ii) all investments as of such date
in unconsolidated Subsidiaries of the Company and in Persons which are not
Subsidiaries of the Company (except, in each case, Permitted Investments) and
(iii) all unamortized debt discounts and expense, unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, organization and developmental expenses and other intangible
items, all of the foregoing as determined in accordance with GAAP.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that (a) an acquisition of assets, Equity Interests or other
securities by the Company for consideration consisting of common equity
securities of the Company and (b) any loan or loans by the Company or its
Subsidiaries to any employee in an aggregate amount less than $1.0 million
shall not be deemed to be an Investment. If the Company or any Subsidiary of
the Company sells or otherwise disposes of any Equity Interests of any direct
or indirect Subsidiary of the Company such that, after giving effect to any
such sale or disposition, such Person is no longer a Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of.
"Issue Date" means the date on which the Senior Secured Notes are originally
issued.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction); provided, however, that the express subordination by the
Company or any Restricted Subsidiary of any direct or indirect loan to the
Dresden, Germany Unrestricted Subsidiary permitted pursuant to the covenant
described above under the caption "Restricted Payments" shall not be deemed a
Lien.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale or Collateral Asset Sale
(including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries and
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(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but
not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale or Collateral
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale or
Collateral Asset Sale), net of the direct costs relating to such Asset Sale or
Collateral Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax
sharing arrangements), amounts required to be applied to the repayment of
Indebtedness (other than the Senior Secured Notes) secured by a Lien on the
asset or assets that were the subject of such Asset Sale or Collateral Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"New Credit Agreement" means that certain Credit Agreement, dated as of July
19, 1996, among the Banks and the Company providing for a $150.0 million
secured revolving line of credit and a $250.0 million secured term loan, as
amended or modified from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other
than the Senior Secured Notes being offered hereby) of the Company or any of
its Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and (iii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of the Company or any
of its Restricted Subsidiaries (other than a Lien on Equity Interests of the
Dresden, Germany Unrestricted Subsidiary permitted pursuant to clause (xvi) of
the definition of "Permitted Liens"). Notwithstanding the foregoing, (a) a
commitment or obligation of the Company or any Restricted Subsidiary to
support the Dresden, Germany Unrestricted Subsidiary shall be Non-Recourse
Debt unless such commitment or obligation constitutes a Guarantee; (b) any
direct or indirect loan by the Company or any Restricted Subsidiary to the
Dresden, Germany Unrestricted Subsidiary permitted pursuant to the covenant
described above under the caption "Restricted Payments" shall be deemed Non-
Recourse Debt of the Dresden, Germany Unrestricted Subsidiary; and (c) any
Guarantee by the Company or any Restricted Subsidiary of Indebtedness of the
Dresden, Germany Unrestricted Subsidiary permitted pursuant to subclause
(iv)(b) of the first paragraph of the covenant described above under the
caption "Restricted Payments" shall not, alone, cause any such Indebtedness of
the Dresden, Germany Unrestricted Subsidiary to cease to be Non-Recourse Debt
of the Dresden, Germany Unrestricted Subsidiary.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any Subsidiary of the
Company in a Person, if as a result of such Investment (a) such Person becomes
a Wholly Owned Restricted Subsidiary of the Company or (b) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company; (iv) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--
Asset Sales, Collateral Asset Sales and Events of Loss;" and (v) any
Restricted Strategic Investment; provided the aggregate amount of such
Restricted Strategic Investment and all other outstanding Restricted Strategic
Investments at such time does not exceed the sum of (a) $50.0 million, plus
(b) the amount of any cash gain (after taking into effect disposition costs)
on any Restricted Strategic Investments sold for cash or otherwise liquidated
or repaid for cash, less (c) the amount of any loss (after taking into effect
disposition costs) on any Restricted Strategic Investments sold or otherwise
liquidated or repaid.
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"Permitted Liens" means (i) Liens on Collateral securing the Senior Secured
Notes and amounts outstanding under the New Credit Agreement that are
permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of
the Company; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens to secure Indebtedness permitted by
clause (iv) of the second paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock" covering only the assets
acquired with such Indebtedness; (vii) Liens existing on the Issue Date;
(viii) the renewal, extension or replacement of Liens securing Indebtedness
extended, refinanced, renewed, replaced, defeased or refunded with Permitted
Refinancing Debt pursuant to clause (v) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock;" (ix) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (x) easements, rights-of-
way, restrictions and other similar encumbrances incurred in the ordinary
course of business which, in the aggregate, are not substantial in amount, and
which do not in any case materially detract from the value of the property
subject thereto or interfere with the ordinary conduct of the businesses of
the Company and its Subsidiaries; (xi) Liens incurred in the ordinary course
of business of the Company or any Restricted Subsidiary of the Company with
respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially
detract from the value of the property or materially impair the use thereof in
the operation of business by the Company or such Restricted Subsidiary; (xii)
Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries; (xiii) Liens arising solely by virtue of any
statutory or common law provision relating to banker's liens, rights of set-
off or similar rights and remedies as to deposit accounts or other funds
maintained with a creditor depository institution; provided that (a) such
deposit account is not a dedicated cash collateral account and is not subject
to restrictions against access by the Company in excess of those set forth by
regulations promulgated by the Board of Governors of the Federal Reserve
System, or any authority succeeding to any of its principal functions, and (b)
such deposit account is not intended by the Company or any Restricted
Subsidiary to provide collateral to the depository institution; (xiv) Liens on
any assets, Equity Interests or other property of the Company or any
Restricted Subsidiary (other than Collateral) securing Indebtedness of the
Company or any Restricted Subsidiary permitted pursuant to clause (ii) of the
second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock," provided that (a) such Indebtedness ranks pari
passu in right of payment with the Senior Secured Notes and (b) with respect
to any such Lien securing Indebtedness pursuant to the New Credit Agreement,
all payments due under the Indenture and the Senior Secured Notes are secured
on an equal and ratable basis with the Indebtedness so secured until such time
as such Indebtedness is no longer secured by a Lien; (xv) Liens securing
Permitted Refinancing Debt used to pay the Obligations of the Company under
the CIBC Guarantee; and (xvi) any Lien on Equity Interests of the Dresden,
Germany Unrestricted Subsidiary.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness (including the CIBC Guarantee but excluding all other Guarantees)
of the Company or any of its Restricted Subsidiaries; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced,
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renewed, replaced, defeased or refunded; (iii) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated
in right of payment to the Senior Secured Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Senior Secured Notes on terms
at least as favorable to the Holders of Senior Secured Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"PLD Subsidiary" means any Restricted Subsidiary, whether formed before or
after the Issue Date, to operate the business currently operated by the
Company's Programmable Logic Division.
"Replacement Collateral" means, at any relevant date in connection with a
Collateral Asset Sale or Event of Loss, assets used in the Company's business
other than the Collateral, which on such date (i) constitute similar assets to
Collateral disposed of or destroyed and do not constitute Capital Stock of any
Person, (ii) are acquired by the Company at a purchase price which does not
exceed the fair market value of such Replacement Collateral (as determined in
the case of each of (i) and (ii), in good faith by the Board of Directors of
the Company, on the
basis of the written opinion of a qualified independent appraiser or financial
advisor prepared contemporaneously with such purchase) and made available to
the Collateral Agent, (iii) are free and clear of all Liens other than
Permitted Liens, and (iv) are subject to the Collateral Documents.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Strategic Investments" means one or more investments by the
Company or a Restricted Subsidiary after the Issue Date in the same or a
substantially related industry or line of business as that conducted by the
Company or any Subsidiary, or as that conducted by any customer or supplier of
the Company or any Subsidiary that would provide vertical integration with
such industry or line of business, as of the Issue Date, provided (a) such
investment is identified as such in a resolution of the Board of Directors set
forth in an Officer's Certificate delivered to the Trustee.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
Notwithstanding the foregoing, the Dresden, Germany Unrestricted Subsidiary
shall not be deemed a Significant Subsidiary for purposes of the Indenture.
"Subsidiary" means, with respect to any Person, (i) the FASL Unrestricted
Subsidiary, (ii) any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof) and (iii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"Tangible Assets" means any asset of the Company which is not an Intangible
Asset.
"Unrestricted Subsidiary" means (i) the Dresden, Germany Unrestricted
Subsidiary, (ii) the FASL Unrestricted Subsidiary, and (iii) any other
Subsidiary that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or
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understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any
of its Restricted Subsidiaries; and (e) has at least one director on its board
of directors that is not a director or executive officer of the Company or any
of its Restricted Subsidiaries and has at least one executive officer that is
not a director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described above under the caption
"Certain Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such
date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," the Company
shall be in default of such covenant). The Board of Directors of the Company
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock," (ii) no Default or Event of Default would be in
existence following such designation and (iii) such Obligation would be
allowed under the Restricted Payment covenant described above.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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CERTAIN MATERIAL AGREEMENTS
Set forth below are descriptions of certain material contractual
relationships of the Company relating to its FASL Unrestricted Subsidiary and
its Dresden, Germany Unrestricted Subsidiary.
FASL
In 1993, the Company and Fujitsu formed a joint venture, FASL, for the
development and manufacture of integrated circuits. Through FASL, the two
companies have constructed and are operating an advanced integrated circuit
manufacturing facility in Aizu-Wakamatsu, Japan, to produce Flash memory
devices and EPROMs. The facility began volume production in the first quarter
of 1995, and utilizes eight-inch wafer processing technologies capable of
producing products with geometries of 0.5 micron or smaller. Pursuant to the
terms of the joint venture, the Company and Fujitsu have each agreed not to
produce independently Flash memory devices and EPROM products with geometries
of 0.5 micron or smaller outside of the joint venture.
In the third quarter of 1995, FASL approved construction of a second Flash
memory integrated circuit manufacturing facility (FASL II) at a site
contiguous to the existing facility. Groundbreaking for FASL II occurred in
the first quarter of 1996. The $1.1 billion in capital expenditures planned
for the construction of FASL II are expected to be funded by cash anticipated
to be generated from FASL operations and, if necessary, bank borrowings by
FASL. However, in the event that FASL is unable to secure the necessary funds
for FASL II, the Company would be required to contribute cash or guarantee
third party loans in proportion to its 49.95% interest in FASL. The planned
FASL II costs are denominated in yen and, therefore, are subject to change due
to foreign exchange rate fluctuations. Certain terms in the Indenture limit
the amount and timing of the Company's investments in the FASL Unrestricted
Subsidiary. See "Description of Senior Secured Notes--Certain Covenants."
The Company purchases Flash memory devices produced by FASL at transfer
prices established by negotiation between the parties. The terms of the
Indenture provide that the purchase of products by the Company from FASL shall
be on terms no less favorable to the Company than those determined pursuant to
the transfer pricing in effect on the Issue Date. See "Description of Senior
Secured Notes--Transactions with Affiliates."
In connection with FASL, the Company and Fujitsu have entered into various
joint development, cross-license and investment arrangements. Accordingly, the
Company and Fujitsu are providing their product designs and process and
manufacturing technologies to FASL. In addition, both companies are
collaborating in developing manufacturing processes and designing integrated
circuits for FASL. The right of each company to use the licensed intellectual
property of the other with respect to certain products is limited to certain
geographic areas. Consequently, the Company's ability to sell Flash memory
products incorporating Fujitsu intellectual property, whether or not produced
by FASL, is also limited in certain territories, including the United Kingdom
and Japan. Fujitsu is likewise limited in its ability to sell Flash memory
devices incorporating the Company's intellectual property, whether or not
produced by FASL, in certain territories including the United States and
Europe, other than the United Kingdom and Ireland.
Dresden
AMD is currently planning to construct an 875,000 square foot submicron
integrated circuit manufacturing and design facility in Dresden, in the State
of Saxony, Germany (the "Dresden Facility") over the next five years at a
presently estimated cost in Deutsche marks equivalent to approximately $1.5
billion (under current exchange rates). It is presently intended that the
Dresden Facility will be dedicated to the production of microprocessors and
other advanced logic products. The governments of the Federal Republic of
Germany and the State of Saxony have agreed to provide financing assistance
for the Dresden Facility through grants and allowances in Deutsche marks in an
aggregate amount equivalent to approximately $350.0 million at current
exchange rates, interest subsidies in Deutsche marks in an aggregate amount
equivalent to approximately $200.0 million at current exchange rates, and loan
guarantees. Between 1996 and 1999, AMD currently intends to invest in the
Dresden, Germany Unrestricted Subsidiary (either directly or through a wholly
owned intermediate holding
S-78
<PAGE>
company, as appropriate) an aggregate amount in Deutsche marks which is
equivalent to approximately $350.0 million at current exchange rates; of this
amount, the Deutsche mark equivalent of approximately $150.0 million would be
invested in the form of equity and approximately $200.0 million would be
invested in the form of equity or subordinated loans. The Dresden, Germany
Unrestricted Subsidiary will construct, own and operate the Dresden Facility,
but AMD, as sole shareholder of the Dresden, Germany Unrestricted Subsidiary,
will control the Dresden, Germany Unrestricted Subsidiary. The Dresden,
Germany Unrestricted Subsidiary has signed an agreement to acquire the land
necessary to commence construction of the Dresden Facility for a purchase
price in Deutsche marks in an amount equivalent to approximately $10.0 million
at current exchange rates. The parcel consists of approximately 120 acres.
The Dresden, Germany Unrestricted Subsidiary is expected to incur
substantial project-related debt in the form of a syndicated Deutsche mark
bank loan in an aggregate amount up to approximately $1.1 billion at current
exchange rates, the terms of which loan are currently under discussion with
Dresdner Bank AG, as agent for the prospective lenders. No commitment has been
issued by Dresdner Bank AG regarding the syndicated loan. This loan will be
secured by the Dresden Facility and substantially all of the Dresden, Germany
Unrestricted Subsidiary's other assets, will be guaranteed as to payment of 65
percent of the principal and interest by the Federal Republic of Germany and
the State of Saxony and will be nonrecourse to the Company. The Company will
pledge all of the shares of the Dresden, Germany Unrestricted Subsidiary to
Dresdner Bank AG in connection with the syndicated loan. The Company will
commit to provide the Dresden, Germany Unrestricted Subsidiary an additional
$100.0 million to $150.0 million, depending on the outcome of negotiations
with Dresdner Bank AG, for the Dresden, Germany Unrestricted Subsidiary's use
with respect to the Dresden, Germany Unrestricted Subsidiary's syndicated loan
obligations. This obligation will expire once the Dresden Facility is
completed, after which time the Company has been requested by Dresdner Bank AG
to make available up to $100.0 million for the Dresden, Germany Unrestricted
Subsidiary to draw upon should it fail to meet certain financial covenants.
Assuming successful completion of negotiations, it is currently expected that
the initial draw down on the loan will be made in 1997. Construction of the
Dresden Facility is expected to commence in the first half of 1997 and initial
volume production is planned to begin in 1999.
AMD is currently negotiating substantially all of the agreements relating to
the construction, operation and financing of the Dresden Facility. It is
presently expected that such agreements will be finalized during the fourth
quarter of 1996. The negotiations presently contemplate that, in addition to
the obligations discussed above, AMD (directly or indirectly) may be required
to agree to (1) return all federal and state government grants, allowances and
interest subsidies, or replace all such subsidies that are not made available,
if the Company or the Dresden, Germany Unrestricted Subsidiary fails to meet
certain material obligations to the Federal Republic of Germany or the State
of Saxony; (2) purchase the output of the Dresden Facility at transfer prices
to be set pursuant to specific formulas, except where the Dresden Facility is
operating at less than 75% capacity because of a lack of market demand for the
products being fabricated there (AMD's product purchase obligation can be
terminated once the syndicated loan has been repaid or under circumstances
relating to a change of control of the Dresden, Germany Unrestricted
Subsidiary or the destruction or abandonment of the Dresden Facility); (3)
cause the Dresden, Germany Unrestricted Subsidiary to undertake bona fide
research and development activities at the design center of the Dresden
Facility; (4) grant a non-exclusive license to the Dresden, Germany
Unrestricted Subsidiary to use, at the Dresden Facility and in products
manufactured at the Dresden Facility, intellectual property developed at the
Dresden design center; and (5) make equity contributions or subordinated loans
to the Dresden, Germany Unrestricted Subsidiary to fund cost overruns,
exceeding certain amounts, in constructing the Dresden Facility.
In the event AMD agrees to purchase products from the Dresden, Germany
Unrestricted Subsidiary, the Indenture provides that such purchases must occur
at prices that would provide AMD with a minimum contribution margin. See
"Description of Senior Secured Notes--Transactions with Affiliates."
No assurance can be given that AMD will be able to negotiate final
agreements relating to the construction, operation and financing of the
Dresden Facility on terms satisfactory to it, that the terms of any such
agreements will not be materially different from those described, or that the
financial exposure of AMD in connection with the Dresden Facility will not
materially exceed the proposed terms described herein. Certain terms in the
Indenture limit the amount and timing of the Company's investments in the
Dresden, Germany Unrestricted Subsidiary. See "Description of Senior Secured
Notes--Certain Covenants."
S-79
<PAGE>
CERTAIN TAX CONSIDERATIONS
The following summary describes the material United States federal income
tax consequences of the purchase, ownership and disposition of the Senior
Secured Notes to beneficial owners purchasing Senior Secured Notes at their
original issuance ("holders"). The following discussion is based on the
Internal Revenue Code of 1986, as amended (the "Code"), legislative history,
administrative pronouncements, judicial decisions and Treasury Regulations.
Changes to any of these sources following the date of this Prospectus
Supplement may alter the tax consequences described below. This summary does
not address all of the tax consequences that might be relevant to a holder
based upon that holder's particular circumstances or based upon special rules
applicable to a particular holder. Nor does this summary address (i) tax
consequences to holders treated as non-resident aliens, foreign corporations,
foreign partnerships or foreign estates or trusts for United States federal
income tax purposes or (ii) tax consequences to holders under the laws of any
state, local or foreign government or taxing authority. The following
discussion assumes that the Senior Secured Notes will be capital assets within
the meaning of Section 1221 of the Code in the hands of the holders.
Potential purchasers of the Senior Secured Notes should consult their own
tax advisors about the application of United States federal income tax laws to
their particular circumstances in addition to any tax consequences arising
under the laws of any state, local or foreign government or taxing authority.
RECOGNITION OF INTEREST INCOME
As a general matter, holders who report their income using the cash method
of accounting would take interest on the Senior Secured Notes into income when
actually or constructively received, and holders who use the accrual method of
accounting would take such interest into income when the right to receive it
is fixed and the amount is determinable with reasonable accuracy.
SALE OR EXCHANGE OF SENIOR SECURED NOTES
A holder will generally recognize gain or loss upon the sale or exchange
(including retirement) of a Senior Secured Note equal to the difference
between the amount realized in the transaction (excluding any amount
constituting accrued but unpaid interest) and the holder's adjusted basis in
the Senior Secured Note. As a general matter, a holder's tax basis will be
equal to the holder's cost for the Senior Secured Note less any principal
payments received. To the extent attributable to accrued but unpaid interest,
the amount realized by the holder will be treated as a payment of interest.
Any other gain or loss generally will be capital gain or loss and will be
long-term capital gain or loss if the Senior Secured Notes have been held for
more than one year at the time of such sale or exchange.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain requirements with respect to information reporting to the Internal
Revenue Service apply to payments of interest (including original issue
discount, if any) and principal to certain non-corporate holders. Similar
requirements apply with respect to the proceeds of sales by non-corporate
holders of the Senior Secured Notes prior to their maturity. In addition, a
backup withholding tax of 31% applies if a non-corporate holder fails to
provide certain information, including a taxpayer identification number.
Backup withholding does not apply to payments made to certain exempt
recipients, including corporations and tax-exempt organizations. Amounts
withheld pursuant to the backup withholding rules are allowed as a refund or a
credit against United States federal income tax, provided that certain
required information is provided to the Internal Revenue Service.
S-80
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") between the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and BA Securities, Inc. (the "Underwriters"), the
Underwriters have agreed, severally and not jointly, to purchase from the
Company, and the Company has agreed to sell to the Underwriters, the principal
amounts of Senior Secured Notes set forth opposite their names below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
SENIOR SECURED
UNDERWRITER NOTES
----------- --------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation........ $360,000,000
BA Securities, Inc......................................... 40,000,000
------------
Total.................................................... $400,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to certain conditions precedent. The Underwriting
Agreement also provides that the Company will indemnify the Underwriters and
their controlling persons against certain liabilities and expenses in
connection with the offer and sale of the Senior Secured Notes, including
liabilities under the Securities Act, and to contribute to payments that the
Underwriters may be required to make in respect thereof. The nature of the
Underwriters' obligations is such that they are committed to purchase all of
the Senior Secured Notes if any of the Senior Secured Notes are purchased.
The Underwriters propose initially to offer the Senior Secured Notes
directly to the public at the public offering price set forth on the cover
page of this Prospectus Supplement and to certain dealers at such price less a
concession not to exceed 0.4% of the principal amount of the Senior Secured
Notes. The Underwriters may allow, and such dealers may reallow, discounts not
in excess of 0.25% of the principal amount of the Senior Secured Notes to
certain other dealers. After the initial public offering of the Senior Secured
Notes, the offering price, the concession and reallowance and other selling
terms may be changed by the Underwriters.
There is currently no public market for the Senior Secured Notes offered
hereby. The Company does not plan to apply for the listing of the Senior
Secured Notes on a national securities exchange or seek the admission thereof
to trading in the National Association of Securities Dealers Automated
Quotation System. The Company has been advised by the Underwriters that,
following completion of the initial offering of the Senior Secured Notes, the
Underwriters presently intend to make a market in the Senior Secured Notes;
however, the Underwriters are not obligated to do so, and any market-making
activities with respect to the Senior Secured Notes may be discontinued at any
time without notice. In addition, such market-making activities will be
subject to the limits imposed by the Securities Act and the Exchange Act.
Therefore, there can be no assurance as to the liquidity of, or the trading
market for, the Senior Secured Notes or that an active public market for the
Senior Secured Notes will develop.
Bank of America NT&SA, an affiliate of BA Securities, Inc., will be the
agent and a lender under the New Credit Agreement. BA Securities, Inc. will
receive an arrangement fee pursuant to the New Credit Agreement. Approximately
$150.0 million of the net proceeds of the Offering will be used to repay the
Company's existing four-year term bank loan, under which Bank of America NT&SA
is a lender. Bank of America NT&SA has from time to time extended credit to
the Company and certain of its subsidiaries and may do so in the future. In
connection with such credit facilities, Bank of America NT&SA may also act as
agent, and Bank of America NT&SA or BA Securities, Inc. may act as arranger.
S-81
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Senior Secured Notes will be
passed upon by Bronson, Bronson & McKinnon LLP, San Francisco, California,
counsel for the Company, Fulbright & Jaworski, L.L.P., Houston, Texas, counsel
for the Company as to certain matters of Texas law, Dewey Ballantine, New
York, New York, counsel for the Company as to certain matters of New York law
and for the Underwriters by Latham & Watkins, San Francisco, California.
EXPERTS
The consolidated financial statements of AMD at December 31, 1995 and
December 25, 1994 and for each of the three years in the period ended December
31, 1995 incorporated by reference in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report incorporated by reference
therein, and are incorporated by reference herein in reliance upon such report
upon the authority of such firm as experts in accounting and auditing.
The supplemental consolidated financial statements of AMD at December 31,
1995 and December 25, 1994 and for each of the three years in the period ended
December 31, 1995, included in this Prospectus Supplement, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included herein. Such financial statements are included herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
S-82
<PAGE>
PROSPECTUS
[LOGO OF ADVANCED MICRO DEVICES, INC]
Advanced Micro Devices, Inc.
$400,000,000
Debt Securities
Preferred Stock
Depositary Shares
Common Stock
Warrants to Purchase Stock
Advanced Micro Devices, Inc. (the "Company"), directly or through agents,
dealers or underwriters designated from time to time, may offer, issue and
sell, together or separately, up to $400,000,000 in the aggregate of (a)
secured or unsecured debt securities (the "Debt Securities") of the Company,
which may be either senior debt securities (the "Senior Debt Securities"),
senior subordinated debt securities (the "Senior Subordinated Debt
Securities") or subordinated debt securities (the "Subordinated Debt
Securities"), (b) shares of preferred stock, par value $0.10 per share (the
"Preferred Stock"), of the Company in one or more series, (c) depositary
shares of the Company (the "Depositary Shares") evidencing fractions of shares
of Preferred Stock, (d) shares of common stock, par value $0.01 per share (the
"Common Stock"), of the Company, and (e) warrants to purchase Common Stock
(the "Warrants"), or any combination of the foregoing, either individually or
as units consisting of one or more of the foregoing, each on terms to be
determined at the time of sale. The Debt Securities may be issued as
exchangeable and/or convertible Debt Securities exchangeable for or
convertible into shares of Common Stock, Preferred Stock or any other
Security. The Preferred Stock may also be exchangeable for and/or convertible
into shares of Common Stock, Preferred Stock or any other Security. The Debt
Securities, the Preferred Stock, the Depositary Shares, the Common Stock and
the Warrants are collectively referred to herein as the "Securities."
When a particular series of Securities is offered (the "Offered
Securities"), a supplement to this Prospectus (each a "Prospectus Supplement")
will be delivered with this Prospectus. For Debt Securities, the Prospectus
Supplement will set forth with respect to such series (the "Offered Debt
Securities"): the designation (including whether senior, senior subordinated
or subordinated and whether convertible or exchangeable); the nature and terms
of the security for any secured Offered Debt Securities; aggregate principal
amount; authorized denominations; maturity; rate or rates (or method of
determining the same) and the time or times of payment of any interest; the
purchase price; any optional or mandatory redemption provisions; any sinking
fund provisions; provisions relating to any conversion or exchange feature of
the Offered Debt Securities; and any other specific terms of the Offered Debt
Securities. For Preferred Stock and Depositary Shares, the Prospectus
Supplement will set forth with respect to such series (the "Offered Preferred
Stock" or the "Offered Depositary Shares"): aggregate number of shares
offered; the public offering price; designation, rights, preferences and
limitations, including rate or rates (or method of determining the same) and
the time or times of payment of dividends; voting rights, if any; liquidation
preference; any conversion, exchange, redemption or sinking fund provisions;
and any other specific terms of the Offered Preferred Stock or the Offered
Depositary Shares. In addition, with respect to the Offered Depositary Shares,
the Prospectus Supplement will set forth the fraction of a share of Preferred
Stock represented by each of the Offered Depositary Shares. For Common Stock,
the Prospectus Supplement will set forth the terms of the offering and sale.
For Warrants, the Prospectus Supplement will set forth with respect to such
series (the "Offered Warrants"): offering price, exercise price, duration,
detachability, call provisions and any other specific terms of the Offered
Warrants.
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 Securities may be sold directly by the Company, through agents
designated from time to time or to or through underwriters or dealers. The
Company reserves the sole right to accept, and together with its agents, from
time to time, to reject in whole or in part any proposed purchase of
Securities to be made directly or through agents. See "Plan of Distribution."
If any such agents or underwriters are involved in the sale of any Securities,
the names of such agents or underwriters and any applicable fees, commissions
or discounts will be set forth in the applicable Prospectus Supplement.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by the applicable Prospectus Supplement.
The date of this Prospectus is July 19, 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
Advanced Micro Devices, Inc. (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 statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at the public reference room of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the public
reference facilities in the New York Regional Office, Seven World Trade
Center, 13th Floor, New York, New York 10048, and Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained at prescribed rates by
writing to the Securities and Exchange Commission, Public Reference Section,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
can also be inspected at the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company under the Securities Act of
1933, as amended, with respect to the Securities offered hereby. This
Prospectus does not contain all the information included in such Registration
Statement, certain items of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Securities offered hereby, reference is made to the
Registration Statement and the exhibits thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
are incorporated herein by reference: (a) Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, filed pursuant to Section 13 of the
Exchange Act; (b) Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, filed pursuant to Section 13 of the Exchange Act; (c) Current
Reports on Form 8-K dated January 5, 1996, January 10, 1996, January 12, 1996,
January 17, 1996, April 1, 1996, April 9, 1996, June 19, 1996, and June 20,
1996, filed pursuant to Section 13 of the Exchange Act; and (d) the
description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A filed September 14, 1979.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering covered by this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein, or contained in
this Prospectus, shall be deemed to be modified or superseded for purposes of
the Registration Statement or this Prospectus to the extent that a statement
contained herein or in any other document subsequently filed with the
Commission which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of any such person,
a copy of any or all of the foregoing documents incorporated herein by
reference other than exhibits to such documents (unless such exhibits are
specifically incorporated by
2
<PAGE>
reference in such documents). Requests should be directed to: Assistant
Corporate Secretary, Advanced Micro Devices, Inc., One AMD Place, Sunnyvale,
California 94086 (telephone: (408) 732-2400). The information relating to the
Company contained in this Prospectus does not purport to be comprehensive and
should be read together with the information contained in the documents
incorporated or deemed to be incorporated by reference herein.
THE COMPANY
Advanced Micro Devices, Inc. ("AMD" or the "Company"), a Delaware
corporation, was founded in 1969, became a publicly held company in 1972 and
since 1979 has been listed on the New York Stock Exchange ("NYSE") with the
trading symbol of AMD. The Company designs, develops, manufactures and markets
complex monolithic integrated circuits for use by manufacturers of a broad
range of electronic equipment and systems.
The Company has sales offices worldwide, and has manufacturing or testing
facilities in Sunnyvale, California; Austin, Texas; Bangkok, Thailand; Penang,
Malaysia; and Singapore. Its executive offices and corporate headquarters are
located at One AMD Place, Sunnyvale, California 94086, and its telephone
number is (408) 732-2400.
USE OF PROCEEDS
Except as otherwise provided in the Prospectus Supplement, the net proceeds
from the sale of Securities offered hereby will be used for general corporate
purposes, which may include the reduction of outstanding indebtedness, working
capital increases and capital expenditures.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
RATIO OF EARNINGS TO FIXED CHARGES:
The following table sets forth the ratios of earnings to fixed charges for
the Company for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED QUARTER ENDED
- ----------------------------------------------------------------- ------------------
DECEMBER 29, DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 31, APRIL 2, MARCH 31,
1991 1992 1993 1994 1995 1995 1996
- ------------ ------------ ------------ ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
4.7x 8.9x 15.8x 22.7x 9.4x 17.9x 1.4x
</TABLE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS:
The following table sets forth the ratios of earnings to combined fixed
charges and preferred stock dividends for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED QUARTER ENDED
- ----------------------------------------------------------------- ------------------
DECEMBER 29, DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 31, APRIL 2, MARCH 31,
1991 1992 1993 1994 1995 1995 1996
- ------------ ------------ ------------ ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
3.6x 6.6x 9.1x 12.6x 9.4x 17.8x 1.4x
</TABLE>
The ratio of earnings to fixed charges has been computed by dividing
earnings by fixed charges. The ratio of earnings to fixed charges and
preferred stock dividends has been computed by dividing earnings by the sum of
fixed charges and preferred stock dividend requirements. Earnings consist of
income before income taxes, amortization of capitalized interest plus fixed
charges other than capitalized interest. Fixed charges consist of interest on
all indebtedness, amortization of debt issuance costs and the portion of
rental expense representative of interest.
On a pro forma basis, assuming $150.0 million of Offering proceeds at an
assumed interest rate of 9 3/4% were used to extinguish existing debt of the
Company in a refinancing, the ratio of earnings to fixed charges would have
been 8.5x and 1.2x for the year ended December 31, 1995 and the three months
ended March 31, 1996, respectively, and the ratio of earnings to combined
fixed charges and preferred stock dividends would have been 8.5x and 1.9x for
the respective periods.
3
<PAGE>
GENERAL DESCRIPTION OF SECURITIES
The Company, directly or through agents, dealers or underwriters designated
from time to time, may offer, issue and sell, together or separately, up to
$400,000,000 in the aggregate of (a) secured or unsecured debt securities (the
"Debt Securities") of the Company, which may be senior debt securities (the
"Senior Debt Securities"), senior subordinated debt securities (the "Senior
Subordinated Debt Securities") or subordinated debt securities (the
"Subordinated Debt Securities"), (b) shares of preferred stock, par value
$0.10 per share (the "Preferred Stock"), of the Company in one or more series,
(c) depositary shares of the Company (the "Depositary Shares") evidencing
fractions of shares of Preferred Stock, (d) shares of common stock, par value
$0.01 per share (the "Common Stock") of the Company, and (e) warrants to
purchase Common Stock (the "Warrants"), or any combination of the foregoing,
either individually or as units consisting of one or more of the foregoing,
each on terms to be determined at the time of sale. The Debt Securities may be
issued as exchangeable and/or convertible Debt Securities exchangeable for or
convertible into shares of Common Stock, Preferred Stock or any other
Security. The Preferred Stock may also be exchangeable for and/or convertible
into shares of Common Stock, Preferred Stock or any other Security. The Debt
Securities, the Preferred Stock, the Depositary Shares, the Common Stock and
the Warrants are collectively referred to herein as the "Securities."
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities offered by any Prospectus Supplement
and the extent, if any, to which such general provisions do not apply to the
Debt Securities so offered will be described in the Prospectus Supplement
relating to such Debt Securities.
Debt Securities may be issued from time to time in series under an
indenture, and one or more indentures supplemental thereto (collectively, the
"Indenture"), between the Company and a trustee to be identified in the
applicable Prospectus Supplement (the "Trustee"). The terms of the Debt
Securities will include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (the "TIA") as
in effect on the date of the Indenture. The Debt Securities will be subject to
all such terms, and potential investors in the Debt Securities are referred to
the Indenture and the TIA for a statement thereof. The following summary of
certain provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. A copy of the proposed form
of Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. As used under this caption, unless the
context otherwise requires, Offered Debt Securities shall mean the Debt
Securities offered by this Prospectus and the accompanying Prospectus
Supplement.
GENERAL
The Indenture will provide for the issuance of Debt Securities in series and
will not limit the principal amount of Debt Securities which may be issued
thereunder.
The applicable Prospectus Supplement or Prospectus Supplements will describe
the following terms of the series of Offered Debt Securities in respect of
which this Prospectus is being delivered: (1) the title of the Offered Debt
Securities; (2) whether the Offered Debt Securities are Senior Debt
Securities, Senior Subordinated Debt Securities or Subordinated Debt
Securities or any combination thereof; (3) any limit upon the aggregate
principal amount of the Offered Debt Securities; (4) the date or dates on
which the principal of the Offered Debt Securities is payable; (5) the rate or
rates at which the Offered Debt Securities will bear interest, if any, or the
manner in which such rate or rates are determined; (6) the date or dates from
which any such interest will accrue, the interest payment dates on which any
such interest on the Offered Debt Securities will be payable and the record
dates for the determination of holders to whom interest is payable; (7) the
obligation of the Company, if any, to redeem, purchase or repay the Offered
Debt Securities, in whole or in part, pursuant to any sinking fund or
4
<PAGE>
analogous provisions or at the option of the holders and the price or prices
at which and the period and periods within which and the terms and conditions
upon which the Offered Debt Securities shall be redeemed, purchased or repaid
pursuant to such obligation; (8) the right of the Company, if any, to redeem,
purchase or repay the Offered Debt Securities, in whole or in part, and the
price or prices at which and the period or periods within which and the terms
and conditions upon which the Offered Debt Securities may be redeemed,
purchased or repaid; (9) the place or places where the principal of and any
interest on the Offered Debt Securities will be payable; (10) the
denominations in which any Offered Debt Securities will be issuable, if other
than denominations of U.S. $1,000 and any integral multiple thereof; (11) if
other than the principal amount thereof, the portion of the principal amount
of the Offered Debt Securities of the series which will be payable upon
declaration of the acceleration of the maturity thereof; (12) any addition to
or change in the covenants which apply to the Offered Debt Securities; (13)
any Events of Default with respect to the Offered Debt Securities, if not
otherwise set forth under "Events of Default;" (14) whether the Offered Debt
Securities will be issued in whole or in part in global form; the terms and
conditions, if any, upon which such global Offered Debt Securities may be
exchanged in whole or in part for other individual securities, and the
depositary for such Offered Debt Securities; (15) the terms and conditions, if
any, upon which the Offered Debt Securities may be exchanged for or converted
into other securities or property; (16) the nature and terms of the security
for any secured Offered Debt Securities; and (17) any other terms of the
Offered Debt Securities, which terms shall not be inconsistent with the
provisions of the Indenture.
Debt Securities may be issued at a discount from their principal amount
("Original Issue Discount Securities"). Federal income tax considerations and
other special considerations applicable to any such Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Debt Securities may be issued in bearer form, with or without coupons.
Federal income tax considerations and other special considerations applicable
to bearer securities will be described in the applicable Prospectus
Supplement.
Unless otherwise indicated in this Prospectus or a Prospectus Supplement,
the Debt Securities will be unsecured and will not have the benefit of any
covenants that limit or restrict the Company's business or operations, the
pledging of the Company's assets or the incurrence of indebtedness by the
Company.
STATUS OF DEBT SECURITIES
The Senior Debt Securities will be unsubordinated obligations of the Company
and will rank on a parity with all other unsecured and unsubordinated
indebtedness of the Company.
The obligations of the Company pursuant to Senior Subordinated Debt
Securities will be subordinate and junior in right of payment, to the extent
and in the manner set forth in the Indenture, to all Senior Indebtedness of
the Company. Except to the extent set forth in the Prospectus Supplement,
"Senior Indebtedness" of the Company is defined to mean the principal of, and
premium, if any, and any interest (including interest accruing subsequent to
the commencement of any proceeding for the bankruptcy or reorganization of the
Company under any applicable bankruptcy, insolvency or similar law now or
hereafter in effect) on (a) all indebtedness of the Company whether heretofore
or hereafter incurred (i) for borrowed money or (ii) incurred in connection
with the acquisition by the Company or a subsidiary of assets other than in
the ordinary course of business, for the payment of which the Company is
liable directly or indirectly by guarantee, letter of credit, obligation to
purchase or acquire or otherwise, or the payment of which is secured by a
lien, charge or encumbrance on assets acquired by the Company, (b) amendments,
modifications, renewals, extensions and deferrals of any such indebtedness,
and (c) any indebtedness issued in exchange for any such indebtedness (clauses
(a) through (c) hereof being collectively referred to herein as "Debt");
provided, however, that the following will not constitute Senior Indebtedness
with respect to Senior Subordinated Debt Securities: (1) any Debt as to which,
in the instrument evidencing such Debt or pursuant to which such Debt was
issued, it is expressly provided that such Debt is subordinate in right of
payment to all Debt of the Company not expressly subordinated to such Debt;
(2) any Debt which by its terms refers explicitly to the Senior Subordinated
Debt Securities and states that such
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Debt shall not be senior in right of payment; and (3) any Debt of the Company
in respect of the Senior Subordinated Debt Securities or any Subordinated Debt
Securities. The Company will not issue Debt which is subordinated in right of
payment to any other Debt of the Company and which is not expressly made pari
passu with, or subordinate and junior in right of payment to, the Senior
Subordinated Debt Securities.
The obligations of the Company pursuant to Subordinated Debt Securities will
be subordinate in right of payment to all Senior Indebtedness of the Company
and to any Senior Subordinated Debt Securities; provided, however, that the
following will not constitute Senior Indebtedness with respect to Subordinated
Debt Securities: (1) any Debt as to which, in the instrument evidencing such
Debt or pursuant to which such Debt was issued, it is expressly provided that
such Debt is subordinate in right of payment to all Debt of the Company not
expressly subordinated to such Debt; and (2) any Debt of the Company in
respect of Subordinated Debt Securities and any Debt which by its terms refers
explicitly to the Subordinated Debt Securities and states that such Debt shall
not be senior in right of payment.
No payment pursuant to the Senior Subordinated Debt Securities or the
Subordinated Debt Securities, as the case may be, may be made unless all
amounts of principal, premium, if any, and interest then due on all applicable
Senior Indebtedness of the Company shall have been paid in full or if there
shall have occurred and be continuing beyond any applicable grace period a
default in any payment with respect to any such Senior Indebtedness, or if
there shall have occurred any event of default with respect to any such Senior
Indebtedness permitting the holders thereof to accelerate the maturity
thereof, or if any judicial proceeding shall be pending with respect to any
such default. However, the Company may make payments pursuant to the Senior
Subordinated Debt Securities or the Subordinated Debt Securities, as the case
may be, if a default in payment or an event of default with respect to the
Senior Indebtedness permitting the holder thereof to accelerate the maturity
thereof has occurred and is continuing and judicial proceedings with respect
thereto have not been commenced within a certain number of days of such
default in payment or event of default. Upon any distribution of the assets of
the Company upon dissolution, winding-up, liquidation or reorganization, the
holders of Senior Indebtedness of the Company will be entitled to receive
payment in full of principal, premium, if any, and interest (including
interest accruing subsequent to the commencement of any proceeding for the
bankruptcy or reorganization of the Company under any applicable bankruptcy,
insolvency or similar law now or hereafter in effect) before any payment is
made on the Senior Subordinated Debt Securities or Subordinated Debt
Securities, as applicable. By reason of such subordination, in the event of
insolvency of the Company, holders of Senior Indebtedness of the Company may
receive more, ratably, and holders of the Senior Subordinated Debt Securities
or Subordinated Debt Securities, as applicable, having a claim pursuant to the
Senior Subordinated Debt Securities or Subordinated Debt Securities, as
applicable, may receive less, ratably, than the other creditors of the
Company. Such subordination will not prevent the occurrence of any Event of
Default in respect of the Senior Subordinated Debt Securities or the
Subordinated Debt Securities.
CONVERSION RIGHTS
The terms, if any, on which Debt Securities of a series may be exchanged for
or converted into shares of Common Stock, Preferred Stock or any other
Security will be set forth in the Prospectus Supplement relating thereto.
EXCHANGE, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, payment
of principal, premium, if any, and any interest on the Debt Securities will be
payable, and the exchange of and the transfer of Debt Securities will be
registrable, at the office of the Trustee or at any other office or agency
maintained by the Company for such purpose subject to the limitations of the
Indenture. Unless otherwise indicated in the applicable Prospectus Supplement,
the Debt Securities will be issued in denominations of U.S. $1,000 or integral
multiples thereof. No service charge will be made for any registration of
transfer or exchange of the Debt Securities, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge imposed in connection therewith.
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SECURED DEBT SECURITIES
The terms, if any, on which Debt Securities of a series may be secured will
be set forth in the Prospectus Supplement relating thereto. The terms of the
Company's current credit agreements generally prohibit the Company from
encumbering its assets. With certain limited exceptions, so long as these
provisions are in effect, the Company may not issue secured Debt Securities
without having first obtained modifications or waivers of these provisions.
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in the form of one or more
Global Securities that will be deposited with a depositary or its nominee
identified in the applicable Prospectus Supplement. In such a case, one or
more Global Securities will be issued in a denomination or aggregate
denominations equal to the portion of the aggregate principal amount of
Outstanding Debt Securities of the series to be represented by such Global
Security or Securities. Each Global Security will be deposited with such
depositary or nominee or a custodian therefor and will bear a legend regarding
the restrictions on exchanges and registration of transfer thereof referred to
below and any such other matters as may be provided for pursuant to the
applicable Indenture.
Notwithstanding any provision of the Indenture or any Debt Security
described herein, no Global Security may be transferred to, or registered or
exchanged for Debt Securities registered in the name of, any Person other than
the depositary for such Global Security or any nominee of such depositary, and
no such transfer may be registered, unless (i) the depositary has notified the
Company that it is unwilling or unable to continue as depositary for such
Global Security or has ceased to be qualified to act as such as required by
the applicable Indenture, (ii) the Company executes and delivers to the
Trustee an order that such Global Security shall be so transferable,
registrable and exchangeable, and such transfers shall be registrable, or
(iii) there shall exist such circumstances, if any, as may be described in the
applicable Prospectus Supplement. All Debt Securities issued in exchange for a
Global Security or any portion thereof will be registered in such names as the
depositary may direct.
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Global Security will be
described in the applicable Prospectus Supplement. The Company expects that
the following provisions will apply to depositary arrangements.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited
with or on behalf of a depositary will be represented by a Global Security
registered in the name of such depositary or its nominee. Upon the issuance of
such Global Security, and the deposit of such Global Security with or on
behalf of the depositary for such Global Security, the depositary will credit,
on its book-entry registration and transfer system, the respective principal
amounts of the Debt Securities represented by such Global Security to the
accounts of institutions that have accounts with such depositary or its
nominee ("participants"). The accounts to be credited will be designated by
the underwriters or agents of such Debt Securities or by the Company, if such
Debt Securities are offered and sold directly by the Company. Ownership of
beneficial interests in such Global Security will be limited to participants
or persons that may hold interests through participants. Ownership of
beneficial interests by participants in such Global Security will be shown on,
and the transfer of that ownership interest will be effected only through,
records maintained by the depositary or its nominee for such Global Security.
Ownership of beneficial interests in such Global Security by persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
certificated form. The foregoing limitations and such laws may impair the
ability to transfer beneficial interests in such Global Securities.
So long as the depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Unless otherwise
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specified in the applicable Prospectus Supplement, owners of beneficial
interests in such Global Security will not be entitled to have Debt Securities
of the series represented by such Global Security registered in their names,
will not receive or be entitled to receive physical delivery of Debt
Securities of such series in certificated form and will not be considered the
holders thereof for any purposes under the Indenture. Accordingly, each person
owning a beneficial interest in such Global Security must rely on the
procedures of the depositary and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a holder under the Indenture. The Company understands
that under existing industry practices, if the Company requests any action of
holders or an owner of a beneficial interest in such Global Security desires
to give any notice or take any action a holder is entitled to give or take
under the Indenture, the depositary would authorize the participants to give
such notice or take such action, and participants would authorize beneficial
owners owning through such participants to give such notice or take such
action or would otherwise act upon the instructions of beneficial owners
owning through them.
Notwithstanding any other provisions to the contrary in the Indenture, the
rights of the beneficial owners of the Debt Securities to receive payment of
the principal and premium, if any, of and interest on such Debt Securities, on
or after the respective due dates expressed in such Debt Securities, or to
institute suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
beneficial owners.
Principal of and any interest on a Global Security will be payable in the
manner described in the applicable Prospectus Supplement.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of a percentage of the holders of
outstanding Debt Securities, may not consolidate with or merge into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its property or assets to any person unless (a) the Company is the
surviving corporation or the entity or the person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made is a corporation organized and existing under the laws of the United
States, any state thereof or the District of Columbia; (b) the entity or
person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Debt Securities and the Indenture; and
(c) immediately prior to and after the transaction no Default or Event of
Default exists.
COVENANTS OF THE COMPANY
The applicable Prospectus Supplement will describe any material covenants in
respect of a series of Offered Debt Securities. Other than the covenants of
the Company included in the Indenture as described above or as described in
the applicable Prospectus Supplement, there are no covenants or provisions in
the Indenture that may afford holders protection in the event of a highly
leveraged transaction or leveraged buyout involving the Company.
EVENTS OF DEFAULT
Unless otherwise specified in the applicable Prospectus Supplement, the
following will constitute Events of Default under the Indenture with respect
to Debt Securities of any series: (a) failure to pay any interest on any Debt
Security of that series when due, and the Default continues for 30 days; (b)
failure to pay principal of any Debt Security of that series when due and
payable at maturity, upon redemption or otherwise; (c) an Event of Default, as
defined in the Debt Securities of that series, occurs and is continuing, or
the Company fails to comply with any of its other agreements in the Debt
Securities of that series or in the Indenture with respect to that series and
the Default continues for the period and after the notice provided therein;
and (d) certain events of bankruptcy, insolvency or reorganization. If an
Event of Default with respect to outstanding Debt Securities of
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any series (other than an Event or Default relating to certain events of
bankruptcy, insolvency or reorganization) shall occur and be continuing,
either the Trustee or the holders of at least 25% in principal amount of the
outstanding Debt Securities of that series by notice to the Company and the
Trustee, as provided in the Indenture, may declare the unpaid principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities, such lesser amount as may be specified in the terms of that
series) of and any accrued interest on all Debt Securities of that series to
be due and payable immediately. However, at any time after a declaration of
acceleration with respect to Debt Securities of any series has been made, but
before a judgment or decree based on such acceleration has been obtained, the
holders of a majority in principal amount of the outstanding Debt Securities
of that series may, under certain circumstances, rescind and annul such
acceleration. For information as to waiver of defaults, see "Modification and
Waiver" below.
The Indenture will provide that, subject to the duty of the Trustee during
an Event of Default to act with the required standard of care, the Trustee
will be under no obligation to exercise any of its rights or powers under the
applicable Indenture at the request or direction of any of the holders, unless
such holders shall have offered to the Trustee reasonable security or
indemnity. Subject to certain provisions, including those requiring security
or indemnification of the Trustee, the holders of a majority in principal
amount of the outstanding Debt Securities of any series 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, with respect to the Debt Securities of that series.
The Company will be required to furnish to the Trustee under the Indenture
annually a statement as to the performance by the Company of its obligations
under that Indenture and as to any default in such performance.
MODIFICATION AND WAIVER
Subject to certain exceptions, the Company and the Trustee may supplement or
amend the Indenture or the Debt Securities with the written consent of the
holders of a majority in principal amount of the then outstanding Debt
Securities of each series affected by the amendment with each series voting as
a separate class. The holders of a majority in principal amount of the then
outstanding Debt Securities of any series may also waive compliance in a
particular instance by the Company with any provision of the Indenture with
respect to the Debt Securities of that series; provided, however, that without
the consent of each holder of Debt Securities affected, an amendment or waiver
may not (i) reduce the percentage of the principal amount of Debt Securities
whose holders must consent to an amendment or waiver; (ii) reduce the rate or
change the time for payment of interest on any Debt Security; (iii) reduce the
principal of or change the fixed maturity of any Debt Security, or alter the
redemption provisions with respect thereto; (iv) make any Debt Security
payable in money other than that stated in the Debt Security; (v) make any
change in the provisions concerning waivers of Default or Events of Default by
holders or the rights of holders to recover the principal of or interest on
any Debt Security; or (vi) waive a default in the payment of the principal of,
or interest on, any Debt Security, except as otherwise provided in the
Indenture. The Company and the Trustee may amend the Indenture or the Debt
Securities without notice to or the consent of any holder of a Debt Security:
(i) to cure any ambiguity, defect or inconsistency; (ii) to comply with the
Indenture's provisions with respect to successor corporations; (iii) to comply
with any requirements of the Commission in connection with the qualification
of the Indenture under the TIA; (iv) to provide for Debt Securities in
addition to or in place of certificated Debt Securities; (v) to add to, change
or eliminate any of the provisions of the Indenture in respect of one or more
series of Debt Securities, provided, however, that any such addition, change
or elimination (A) shall neither (1) apply to any Debt Security of any series
created prior to the execution of such amendment and entitled to the benefit
of such provision, nor (2) modify the rights of a holder of any such Debt
Security with respect to such provision, or (B) shall become effective only
when there is no outstanding Debt Security of any series created prior to such
amendment and entitled to the benefit of such provision; (vi) to make any
change that does not adversely affect in any material respect the interests of
the holders of any series of Debt Securities; or (vii) to establish additional
series of Debt Securities as permitted by the Indenture.
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Subject to certain exceptions, the holders of a majority in principal amount
of the then outstanding Debt Securities of any series, by notice to the
Trustee, may waive an existing Default or Event of Default and its
consequences with respect to the Debt Securities of that series except a
Default or Event of Default in the payment of the principal of or interest on
any Debt Security.
TERMINATION OF THE COMPANY'S OBLIGATIONS UNDER THE DEBT SECURITIES AND THE
INDENTURE
Except as otherwise described below, the Company may terminate its
obligations under the Debt Securities of any series and the Indenture with
respect to that series if:
(a) all Debt Securities of that series previously authenticated and
delivered (other than destroyed, lost or stolen Debt Securities which have
been replaced or Debt Securities of that series which are paid or Debt
Securities of that series for whose payment money or securities has
theretofore been held in trust and thereafter repaid to the Company) have
been delivered to the Trustee for cancellation and the Company has paid all
sums payable by it under the Indenture with respect to such series; or
(b) (1) the Debt Securities of that series mature within one year or all
of them are to be called for redemption within one year after arrangements
satisfactory to the Trustee for giving notice of redemption; and
(2) the Company irrevocably deposits in trust with the Trustee during
such one-year period, under the terms of an irrevocable trust agreement in
form and substance satisfactory to the Trustee, as trust funds solely for
the benefit of the holders of Debt Securities of that series for that
purpose, money or U.S. Government Obligations, or a combination thereof,
with the U.S. Government Obligations maturing as to principal and interest
in such amounts and at such times as are sufficient, without consideration
of any reinvestment of such interest, to pay principal of and interest on
the Debt Securities of that series to maturity or redemption, as the case
may be, and to pay all other sums payable by it under the Indenture; or
(c) (1) the Company irrevocably deposits in trust with the Trustee under
the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds solely for the benefit of the
holders of Debt Securities of that series for that purpose, money or U.S.
Government Obligations, or a combination thereof, with the U.S. Government
Obligations maturing as to principal and interest in such amounts and at
such times as are sufficient, without consideration of any reinvestment of
such interest, to pay principal of and interest on the Debt Securities of
that series to maturity or redemption, as the case may be;
(2) The Company shall have delivered to the Trustee either (A) a ruling
directed to the Trustee received from the Internal Revenue Service to the
effect that the holders of the Debt Securities of that series will not
recognize income, gain or loss for federal income tax purposes as a result
of the Company's exercise of its option under this clause (c) and will be
subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such option had not been
exercised, or (B) an opinion of counsel to the same effect as the ruling
described in subclause (A) above accompanied by a ruling to that effect
published by the Internal Revenue Service, unless there has been a change
in the applicable federal income tax law since the date of the Indenture
such that a ruling from the Internal Revenue Service is no longer required;
(3) The Company has paid or caused to be paid all sums then payable by
the Company under the Indenture; and
(4) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel, each stating that all conditions precedent provided
for in this clause (c) relating to termination of obligations of the
Company have been complied with.
The Company's obligations under sections of the Indenture relating to the
registrar and the paying agent, their obligations, the maintenance of a list
of holders, transfers of Debt Securities, replacement of securities, payment
(together with payment obligations under the Debt Securities of that series),
compensation and indemnity of the Trustee (Section 7.07), replacement of the
Trustee and repayment to the Company of excess
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money held by the Trustee or the paying agent (Section 8.03), shall survive
until the Debt Securities of that series are no longer outstanding.
Thereafter, and after any discharge pursuant to clause (a) above, only the
Company's obligations in Sections 7.07 and 8.03 of the Indenture shall
survive. If the ruling from the Internal Revenue Service or opinion of counsel
referred to in clause (c)(2) above is based on or assumes that the Company's
payment obligations under the Indenture or its payment obligations under the
Debt Securities will continue (or is silent with respect thereto), then such
discharge shall constitute only a "covenant defeasance" and, consequently, the
Company shall remain liable for the payment of the Debt Securities of that
series. However, if and when a ruling from the Internal Revenue Service or
opinion of counsel referred to in clause (c)(2) above is able to be provided
specifically without regard to, and not in reliance upon, the continuance of
the Company's payment obligations under the Indenture and its payment
obligations under the Debt Securities of that series, then the Company's
payment obligations under the Indenture and the Debt Securities of that series
shall cease upon delivery to the Trustee of such ruling or opinion of counsel
and compliance with the other conditions precedent provided for in clause (c)
above relating to the satisfaction and discharge of the Indenture. In such a
case (a "legal defeasance") holders would be able to look only to the trust
fund for payment of principal or interest on the Debt Securities.
REGARDING THE TRUSTEE
The Company intends that the Trustee with respect to the first series of
Debt Securities will be United States Trust Company of New York, and its
address is 114 West 47th Street, New York, New York 10036. Other Trustees may
be designated for any subsequent series of Debt Securities. The Indenture and
provisions of the TIA incorporated by reference therein contain certain
limitations on the rights of the Trustee, should it become a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim, as security or
otherwise. The Trustee and its affiliates engage in, and will be permitted to
continue to engage in, other transactions with the Company and its affiliates;
provided, however, that if it acquires any conflicting interest (as defined),
it must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding Debt
Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee. The TIA and the Indenture provide that in case an Event of Default
shall occur (and be continuing), the Trustee will be required, in the exercise
of its rights and powers, to use the degree of care and skill of a prudent man
in the conduct of his own affairs. Subject to such provision, 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 the Debt Securities of any
series issued thereunder, unless thay have offered to the Trustee indemnity
satisfactory to it.
DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Company's Certificate of Incorporation (the "Certificate of Incorporation"),
and the certificate of designations (a "Certificate of Designations") relating
to each series of the Preferred Stock which will be filed with the Commission
and incorporated by reference in the Registration Statement of which this
Prospectus is a part at or prior to the time of the issuance of such series of
the Preferred Stock.
GENERAL
The authorized capital stock of the Company consists of 250,000,000 shares
of Common Stock, $0.01 par value per share, and 1,000,000 shares of preferred
stock, $0.10 par value per share ("preferred stock of the
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Company," which term, as used herein, includes the Preferred Stock offered
hereby). As of July 11, 1996, the Company had 135,371,034 shares of Common
Stock outstanding, of which 340,694 shares were owned by the Company as
treasury stock. See "Description of Common Stock." As of July 15, 1996, the
Company had no shares of preferred stock outstanding.
Under the Certificate of Incorporation, the Board of Directors of the
Company is authorized without further stockholder action to provide for the
issuance of up to 1,000,000 shares of preferred stock of the Company, in one
or more series, with such voting powers, full or limited, and with such
designations, preferences and relative participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, as
shall be stated in the resolution or resolutions providing for the issue of a
series of such stock adopted, at any time or from time to time, by the Board
of Directors of the Company (as used herein the term "Board of Directors of
the Company" includes any duly authorized committee thereof).
As described under "Description of Depositary Shares," the Company may, at
its option, elect to offer Depositary Shares evidenced by depositary receipts
(the "Depositary Receipts"), each representing a fraction (to be specified in
the Prospectus Supplement relating to the particular series of the Preferred
Stock) of a share of the particular series of the Preferred Stock issued and
deposited with a depositary, in lieu of offering full shares of such series of
the Preferred Stock.
The Preferred Stock shall have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference
is made to the Prospectus Supplement relating to the particular series of the
Preferred Stock offered thereby for specific terms, including: (i) the
designation and stated value per share of such Preferred Stock and the number
of shares offered; (ii) the amount of liquidation preference per share; (iii)
the initial public offering price at which such Preferred Stock will be
issued; (iv) the dividend rate (or method of calculation), the dates on which
dividends shall be payable and the dates from which dividends shall commence
to cumulate, if any; (v) any redemption or sinking fund provisions; (vi) any
conversion or exchange rights; (vii) whether the Company has elected to offer
Depositary Shares as described below under "Description of Depositary Shares;"
and (viii) any additional voting, dividend, liquidation, redemption, sinking
fund and other rights, preferences, privileges, limitations and restrictions.
The Preferred Stock will, when issued, be fully paid and nonassessable and
will have no preemptive rights. The rights of the holders of each series of
the Preferred Stock will be subordinate to those of the Company's general
creditors.
DIVIDEND RIGHTS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of
funds of the Company legally available therefor, cash dividends on such dates
and at such rates as set forth in, or as are determined by the method
described in, the Prospectus Supplement relating to such series of the
Preferred Stock. Such rate may be fixed or variable or both. Each such
dividend will be payable to the holders of record as they appear on the stock
books of the Company (or, if applicable, the records of the Depositary (as
hereinafter defined) referred to under "Description of Depositary Shares") on
such record dates, fixed by the Board of Directors of the Company, as
specified in the Prospectus Supplement relating to such series of Preferred
Stock.
Such dividends may be cumulative or noncumulative, as provided in the
Prospectus Supplement relating to such series of Preferred Stock. If the Board
of Directors of the Company fails to declare a dividend payable on a dividend
payment date on any series of Preferred Stock for which dividends are
noncumulative, then the right to receive a dividend in respect of the dividend
period ending on such dividend payment date will be lost, and the Company will
have no obligation to pay any dividend for such period, whether or not
dividends on such series are declared payable on any future dividend payment
dates. Dividends on the shares of each series of Preferred Stock for which
dividends are cumulative will accrue from the date on which the Company
initially issues shares of such series.
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The terms of the Company's current credit agreement prohibit the Company
from paying cash dividends on its capital stock, other than mandatory current
dividend payments to the holders of the shares of Preferred Stock which are
currently outstanding. So long as the provision is in effect, the Company may
not offer Preferred Stock with dividend rights without having first obtained a
modification or waiver of this provision.
Unless otherwise specified in the applicable Prospectus Supplement, so long
as the shares of any series of the Preferred Stock are outstanding, unless (i)
full dividends (including if such Preferred Stock is cumulative, dividends for
prior dividend periods) have been paid or declared and set apart for payment
on all outstanding shares of the Preferred Stock of such series and all other
classes and series of preferred stock of the Company (other than Junior Stock,
as defined below) and (ii) the Company is not in default or in arrears with
respect to the mandatory or optional redemption or mandatory repurchase or
other mandatory retirement of, or with respect to any sinking or other
analogous funds for, any shares of Preferred Stock of such series or any
shares of any other preferred stock of the Company of any class or series
(other than Junior Stock, as defined below), the Company may not declare any
dividends on any shares of Common Stock of the Company or any other stock of
the Company ranking as to dividends or distributions of assets junior to such
series of Preferred Stock (the Common Stock and any such other stock being
herein referred to as "Junior Stock"), or make any payment on account of, or
set apart money for, the purchase, redemption or other retirement of, or for a
sinking or other analogous fund for, any shares of Junior Stock or make any
distribution in respect thereof, whether in cash or property or in obligations
of stock of the Company, other than in Junior Stock which is neither
convertible into, nor exchangeable or exercisable for, any securities of the
Company other than Junior Stock.
LIQUIDATION PREFERENCES
Unless otherwise specified in the applicable Prospectus Supplement, in the
event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of each series of the Preferred Stock
will be entitled to receive out of the assets of the Company available for
distribution to stockholders, before any distribution of assets is made to the
holders of Common Stock or any other shares of stock of the Company ranking
junior as to such distribution to such series of the Preferred Stock, the
amount set forth in the Prospectus Supplement relating to such series of the
Preferred Stock. If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the amounts payable with respect to
the Preferred Stock of any series and any other shares of preferred stock of
the Company (including any other series of the Preferred Stock) ranking as to
any such distribution on a parity with such series of the Preferred Stock are
not paid in full, the holders of the Preferred Stock of such series and of
such other shares of preferred stock of the Company will share ratably in any
such distribution of assets of the Company in proportion to the full
respective preferential amounts to which they are entitled. After payment to
the holders of the Preferred Stock of each series of the full preferential
amounts of the liquidating distribution to which they are entitled, unless
otherwise provided in the applicable Prospectus Supplement, the holders of
each such series of the Preferred Stock will be entitled to no further
participation in any distribution of assets by the Company.
REDEMPTION
A series of the Preferred Stock may be redeemable, in whole or from time to
time in part, at the option of the Company, and may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon terms,
at the times and at the redemption prices set forth in the Prospectus
Supplement relating to such series. Shares of the Preferred Stock redeemed by
the Company will be restored to the status of authorized but unissued shares
of preferred stock of the Company.
In the event that fewer than all of the outstanding shares of a series of
the Preferred Stock are to be redeemed, whether by mandatory or optional
redemption, the number of shares to be redeemed will be determined by lot or
pro rata (subject to rounding to avoid fractional shares) as may be determined
by the Company or by any other method as may be determined by the Company in
its sole discretion to be equitable. From and after the redemption date
(unless default is made by the Company in providing for the payment of the
redemption price plus accumulated and unpaid dividends, if any) dividends will
cease to accumulate on the
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shares of the Preferred Stock called for redemption and all rights of the
holders thereof (except the right to receive the redemption price plus
accumulated and unpaid dividends, if any) will cease.
Unless otherwise specified in the applicable Prospectus Supplement, so long
as any dividends on shares of any series of the Preferred Stock or any other
series of preferred stock of the Company ranking on a parity as to dividends
and distribution of assets with such series of the Preferred Stock are in
arrears, no shares of any such series of the Preferred Stock or such other
series of preferred stock of the Company will be redeemed (whether by
mandatory or optional redemption) unless all such shares are simultaneously
redeemed, and the Company will not purchase or otherwise acquire any such
shares; provided, however, that the foregoing will not prevent the purchase or
acquisition of such shares pursuant to a purchase or exchange offer made on
the same terms to holders of all such shares outstanding.
CONVERSION AND EXCHANGE RIGHTS
The terms, if any, on which shares of Preferred Stock of any series may be
exchanged for or converted into shares of Common Stock, or another series of
Preferred Stock, or any other Security will be set forth in the Prospectus
Supplement relating thereto. Such terms may include provisions for conversion,
either mandatory, at the option of the holder, or at the option of the
Company, in which case the number of shares of Common Stock, the shares of
another series of Preferred Stock or the amount of any other securities to be
received by the holders of Preferred Stock would be calculated as of a time
and in the manner stated in the Prospectus Supplement.
VOTING RIGHTS
Except as indicated in a Prospectus Supplement relating to a particular
series of the Preferred Stock, or except as required by applicable law, the
holders of the Preferred Stock will not be entitled to vote for any purpose.
DESCRIPTION OF DEPOSITARY SHARES
The following description sets forth certain general terms and provisions of
the Depositary Shares to which any Prospectus Supplement may relate. The
particular terms of the Depositary Shares offered by any Prospectus Supplement
and the extent, if any, to which such general provisions do not apply to the
Depositary Shares so offered will be described in the Prospectus Supplement
relating to such Depositary Shares.
Depositary Shares may be issued from time to time under a Deposit Agreement
(the "Deposit Agreement") between the Company and a depositary (the
"Depositary") to be identified in the applicable Prospectus Supplement. The
terms of the Depositary Shares will be stated in the Deposit Agreement. A copy
of the proposed form of Deposit Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
GENERAL
The Company may, at its option, elect to offer fractional shares of
Preferred Stock rather than full shares of Preferred Stock. In the event such
option is exercised, the Company will issue to the public receipts for
Depositary Shares ("Depositary Receipts"), each of which will represent a
fraction (to be set forth in the Prospectus Supplement relating to a
particular series of the Preferred Stock) of a share of a particular series of
the Preferred Stock as described below.
The shares of any series of the Preferred Stock represented by Depositary
Shares will be deposited under the Deposit Agreement which will be a separate
agreement among the Company, a bank or trust company selected by the Company
to act as the Depositary and the holders from time to time of the Depositary
Receipts. Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share will in general be entitled to all the rights and preferences
of the Preferred Stock represented thereby (including dividend, voting,
redemption
14
<PAGE>
and liquidation rights), in proportion to the applicable fraction of a share
of Preferred Stock represented by such Depositary Share.
The Depositary Shares relating to any series of the Preferred Stock will be
evidenced by Depositary Receipts issued pursuant to the related Deposit
Agreement. Depositary Receipts will be distributed to those persons purchasing
such Depositary Shares in accordance with the terms of the offering made by
the related Prospectus Supplement.
Upon surrender of Depositary Receipts at the office of the Depositary and
upon payment of the charges provided in the Deposit Agreement and subject to
the terms thereof, a holder of Depositary Receipts is entitled to have the
Depositary deliver to such holder the whole shares of Preferred Stock and any
money or other property represented by the Depositary Shares evidenced by the
surrendered Depositary Receipts. Owners of Depositary Shares will be entitled
to receive only whole shares of Preferred Stock. In no event will fractional
shares of Preferred Stock be distributed by the Depositary.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Stock to the record holders
of Depositary Receipts relating to such Preferred Stock in proportion, insofar
as practicable, to the respective numbers of Depositary Shares evidenced by
such Depositary Receipts held by such holders on the relevant record date. The
Depositary will distribute only such amount, however, as can be distributed
without attributing to any holder of Depositary Receipts a fraction of one
cent, and any balance not so distributed will be added to and treated as part
of the next sum received by the Depositary for distribution to record holders
of Depositary Receipts then outstanding.
In the event of a distribution other than in cash, the Depositary will
distribute such amounts of the securities or property received by it as are,
as nearly as practicable, in proportion to the respective numbers of
Depositary Shares evidenced by the Depositary Receipts held by such holders on
the relevant record date, unless the Depositary determines that it is not
feasible to make such distribution, in which case the Depositary may, with the
approval of the Company, adopt such method as it deems equitable and
practicable for the purpose of effecting such distribution, including the sale
of such securities or property and distribution of the net proceeds from such
sale to such holders.
The Deposit Agreement will also contain provisions relating to the manner in
which any subscription or similar rights offered by the Company to holders of
the Preferred Stock shall be made available to holders of Depositary Receipts.
The amount distributed in all of the foregoing cases will be reduced by any
amounts required to be withheld by the Company or the Depositary on account of
taxes and governmental charges.
REDEMPTION OF DEPOSITARY SHARES
If a series of the Preferred Stock represented by Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the
proceeds received by the Depositary resulting from the redemption, in whole or
in part, of such series of the Preferred Stock held by the Depositary. The
Depositary will mail notice of redemption within a specified period prior to
the date fixed for redemption to the record holders of the Depositary Receipts
evidencing the Depositary Shares to be so redeemed at their respective
addresses appearing in the Depositary's books. The redemption price per
Depositary Share will be equal to the applicable fraction of the redemption
price per share payable with respect to such series of the Preferred Stock
plus all money and other property, if any, payable with respect to such
Depositary Share, including all amounts payable by the Company in respect of
any accumulated but unpaid dividends. Whenever the Company redeems shares of
Preferred Stock held by the Depositary, the Depositary will redeem as of the
same redemption date the number of Depositary Shares representing the shares
of Preferred Stock so redeemed. If less than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected by lot or
pro rata as may be determined by the Depositary.
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<PAGE>
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of Depositary Receipts evidencing such Depositary Shares will cease,
except the right to receive the moneys payable upon such redemption and any
money or other property to which such holders were entitled upon such
redemption upon surrender to the Depositary of the Depositary Receipts
evidencing such Depositary Shares.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Depositary will mail the information contained
in such notice of meeting to the record holders of the Depositary Receipts
evidencing the Depositary Shares relating to such Preferred Stock. Each record
holder of such Depositary Receipts on the record date (which will be the same
date as the record date for the Preferred Stock) will be entitled to instruct
the Depositary as to the exercise of the voting rights pertaining to the
number of shares of the Preferred Stock represented by the Depositary Shares
evidenced by such holder's Depositary Receipts. The Depositary will endeavor,
insofar as practicable, to vote the number of shares of the Preferred Stock
represented by all Depositary Shares as to which any particular voting
instructions are received, and the Company will agree to take all action which
may be deemed necessary by the Depositary in order to enable the Depositary to
do so. The Depositary will abstain from voting shares of the Preferred Stock
to the extent it does not receive specific instructions from the holders of
Depositary Receipts evidencing Depositary Shares representing such Preferred
Stock.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares relating to
any series of Preferred Stock and any provision of the related Deposit
Agreement may at any time and from time to time be amended by agreement
between the Company and the Depositary. However, any amendment which imposes
or increases any fees, taxes or charges upon holders of Depositary Shares or
Depositary Receipts relating to any series of Preferred Stock (other than
taxes and other governmental charges, fees and other expenses payable by such
holders as stated in the relevant Prospectus Supplement) or which otherwise
prejudices any substantial existing right to such holders will not take effect
as to outstanding Depositary Shares until the expiration of 90 days after
notice of such amendment has been mailed to the record holders of outstanding
Depositary Shares.
Whenever directed by the Company, the Depositary will terminate the Deposit
Agreement by mailing notice of such termination to the owners of all
outstanding Depositary Shares at least 60 days prior to the date of
termination. The Depositary may likewise terminate the Deposit Agreement at
any time 60 days after the Depositary shall have delivered to the Company a
written notice of its election to resign and if a successor depositary shall
not theretofore have been appointed and accepted its appointment. If any
Depositary Shares remain outstanding after the date of termination, the
Depositary thereafter will discontinue the transfer of Depositary Receipts,
will suspend the distribution of dividends to the owners thereof, and will not
give any further notices (other than notice of such termination) or perform
any further acts under the Deposit Agreement except that the Depositary will
continue (i) to collect dividends on the Preferred Shares and any other
distributions with respect thereto and (ii) to deliver Preferred Shares
together with such dividends and distributions, and the net proceeds of any
sales of rights, preferences, privileges or other property, without liability
for interest, in exchange for Depositary Shares surrendered. At any time after
the expiration of two years from the date of termination, the Depositary may
sell the Preferred Shares then held by it, at public or private sales, at such
place or places and upon such terms as it deems proper and may thereafter hold
the net proceeds of any sale, together with any money and other property then
held by it, without liability for interest, for the pro rata benefit of the
owners of Depositary Shares which shall not theretofore have been surrendered.
The Company does not intend to terminate the Deposit Agreement or to permit
the resignation of the Depositary without appointing a successor depositary.
GENERAL
The Depositary will make available for inspection by holders of Depositary
Shares all reports and communications from the Company which are delivered to
the Depositary and made generally available to the holders of Preferred Stock.
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The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial deposit of
the Preferred Stock and the initial issuance of the Depositary Receipts
evidencing the Depositary Shares, any redemption of the Preferred Stock and
any withdrawals of Preferred Stock by the holders of Depositary Shares.
Holders of Depositary Shares will pay transfer and other taxes and
governmental charges and such other charges as are expressly provided in the
Deposit Agreement to be for their accounts.
The Deposit Agreement will contain provisions relating to adjustments in the
fraction of a share of Preferred Stock represented by a Depositary Share in
the event of a change in stated value, split-up, combination or other
reclassification of the Preferred Stock or upon any recapitalization, merger
or sale of substantially all of the assets of the Company.
Neither the Depositary nor the Company will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and
the Depositary under the Deposit Agreement are limited to performance in good
faith of their duties thereunder and they are not obligated to prosecute or
defend any legal proceeding in respect of any Depositary Shares or Preferred
Stock unless satisfactory indemnity is furnished. They may rely upon advice of
or information from counsel, accountants or other persons believed to be
competent and on documents believed to be genuine.
The Depositary and the Depositary's agents may own and deal in any class of
securities of the Company and its affiliates and in Depositary Shares. The
Depositary may also act as transfer agent or registrar of any of the
securities of the Company and its affiliates, may loan money to the Company
and its affiliates and may engage in any other business with or for the
Company and its affiliates.
The Depositary may at any time resign or be removed by the Company,
effective upon the acceptance by its successor of its appointment.
DESCRIPTION OF COMMON STOCK
The Company has authority to issue 250,000,000 shares of Common Stock, par
value $0.01 per share, and 1,000,000 shares of preferred stock, $0.10 par
value per share. As of July 11, 1996, the Company had 135,371,034 shares of
Common Stock outstanding, of which 340,694 shares were owned by the Company as
treasury stock. As of July 15, 1996, the Company had no shares of preferred
stock outstanding. The holders of Common Stock are entitled to one vote per
share on all matters to be voted on by stockholders, including the election of
directors. Stockholders are not entitled to cumulative voting rights, and,
accordingly, the holders of a majority of the shares voting for the election
of directors can elect the entire Board if they choose to do so and, in that
event, the holders of the remaining shares will not be able to elect any
person to the Board of Directors.
The holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors, in its
discretion, from funds legally available therefor and subject to prior
dividend rights of holders of any shares of preferred stock which may be
outstanding. However, the terms of the Company's current credit agreement
prohibit the Company from paying cash dividends on its Common Stock. Upon
liquidation or dissolution of the Company subject to prior liquidation rights
of the holders of preferred stock, the holders of Common Stock are entitled to
receive on a pro rata basis the remaining assets of the Company available for
distribution. Holders of Common Stock have no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. All outstanding shares of Common Stock
are, and all shares being offered by this Prospectus will be, fully paid and
not liable to further calls or assessment by the Company.
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DESCRIPTION OF WARRANTS
The following description sets forth certain general terms and provisions of
the Warrants to which any Prospectus Supplement may relate. The particular
terms of the Warrants offered by any Prospectus Supplement and the extent, if
any, to which such general provisions do not apply to the Warrants so offered
will be described in the Prospectus Supplement relating to such Warrants.
Any Warrants offered pursuant to this Prospectus will be warrants to
purchase shares of Common Stock. The following statements with respect to the
Warrants are summaries of, and subject to, the detailed provisions of a
warrant agent agreement ("Warrant Agent Agreement") to be entered into by the
Company and a warrant agent to be selected at the time of issue (the "Warrant
Agent") which Warrant Agent Agreement may include or incorporate by reference
standard warrant provisions substantially in the form of the Standard Common
Stock Warrant Agent Provisions filed as an exhibit to the Registration
Statement.
GENERAL
The Warrants, evidenced by warrant certificates (the "Warrant
Certificates"), may be issued under the Warrant Agent Agreement independently
or together with any other Securities offered by any Prospectus Supplement and
may be attached to or separate from such other Securities. If Warrants are
offered, the related Prospectus Supplement will describe the terms of the
Warrants, including the following: (1) the offering price, if any; (2) the
number of shares of Common Stock purchasable upon exercise of one Warrant and
the initial price at which such shares may be purchased upon exercise; (3) the
date on which the right to exercise the Warrants shall commence and the date
on which such right shall expire; (4) federal income tax consequences; (5)
call provisions, if any; (6) the antidilution provisions of the Warrants; and
(7) any other terms of the Warrants. The shares of Common Stock issuable upon
exercise of the Warrants will, when issued in accordance with the Warrant
Agent Agreement, be fully paid and nonassessable.
EXERCISE OF WARRANTS
Warrants may be exercised by surrendering to the Warrant Agent the Warrant
Certificate signed by the warrantholder, or its duly authorized agent,
indicating the warrantholder's election to exercise all or a portion of the
Warrants evidenced by the Warrant Certificate. Surrendered Warrant
Certificates shall be accompanied by payment of the aggregate exercise price
of the Warrants to be exercised, as set forth in the related Prospectus
Supplement, which payment may be made in the form of cash or a check equal to
the exercise price. A certificate or certificates evidencing duly exercised
Warrants will be delivered by the Warrant Agent to the transfer agent for the
Common Stock. Upon receipt thereof, the transfer agent shall deliver or cause
to be delivered to, or upon the written order of, the exercising
warrantholder, a certificate representing the number of shares of Common Stock
purchased. If fewer than all of the Warrants evidenced by any Warrant
Certificate are exercised, the Warrant Agent shall deliver to the exercising
warrantholder a new Warrant Certificate or Warrant Certificates representing
the unexercised Warrants.
ANTIDILUTION PROVISIONS
The exercise price payable and the number of shares of Common Stock
purchasable upon the exercise of each Warrant will be subject to adjustment in
certain events, including the issuance of a stock dividend to holders of
Common Stock or a split, reverse stock split, combination, subdivision or
reclassification of Common Stock. In lieu of adjusting the number of shares of
Common Stock purchasable upon exercise of each Warrant, the Company may elect
to adjust the number of Warrants. No adjustments in the number of shares
purchasable upon exercise of the Warrants will be required until cumulative
adjustments require an adjustment of at least 1% thereof. The Company may, at
its option, reduce the exercise price at any time. No fractional shares will
be issued upon exercise of Warrants, but the Company will pay the cash value
of any fractional shares otherwise issuable. Notwithstanding the foregoing, in
case of any consolidation, merger, or sale or conveyance of the property of
the Company as an entirety or substantially as an entirety, the holder of each
outstanding Warrant
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shall have the right to the kind and amount of shares of stock and other
securities and property (including cash) receivable by a holder of the number
of shares of Common Stock into which such Warrants were exercisable
immediately prior thereto.
NO RIGHTS AS STOCKHOLDERS
Holders of Warrants will not be entitled, by virtue of being such holders,
to vote, to consent, to receive dividends, to receive notice as stockholders
with respect to any meeting of stockholders for the election of directors of
the Company or any other matter, or to exercise any rights whatsoever as
stockholders of the Company.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale
of Securities will be named in the applicable Prospectus Supplement. The
Company has reserved the right to sell Securities directly to investors on its
own behalf in those jurisdictions where and in such manner as it is authorized
to do so.
Underwriters may offer and sell Securities at a fixed price or prices, which
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Company
or underwriters also may offer and sell Securities in exchange for one or more
of its outstanding issues of the Securities or other securities. The Company
also may, from time to time, authorize dealers, acting as the Company's
agents, to offer and sell Securities upon the terms and conditions as are set
forth in the applicable Prospectus Supplement. In connection with the sale of
Securities, underwriters may receive compensation from the Company in the form
of underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions
or commissions allowed by underwriters to participating dealers, will be set
forth in the applicable Prospectus Supplement. Dealers and agents
participating in the distribution of Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions. Underwriters, dealers and agents may
be entitled, under agreements entered into with the Company, to
indemnification against and contribution toward certain civil liabilities
including liabilities under the Securities Act of 1933.
Securities may also be offered and sold, if so indicated in the Prospectus
Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or
otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as agents for the Company. Any remarketing firm will
be identified and the terms of its agreement, if any, with the Company and its
compensation will be described in the Prospectus Supplement. Remarketing firms
may be entitled under agreements which may be entered into with the Company to
indemnification against and contribution toward certain liabilities under the
Securities Act of 1933, and may be customers of, engage in transactions with
or perform services for the Company in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will authorize
dealers acting as the Company's agents to solicit offers by certain
institutions to purchase the Securities from the Company at the public
offering price set forth in the applicable Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract
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will be for an amount not less than, and the aggregate principal amount of the
Securities sold pursuant to Contracts shall not be less nor more than, the
respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases not be subject to the approval of the Company. Contracts
will not be subject to any conditions except (i) the purchase by an
institution of the Securities covered by its Contract shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject, and (ii) if the Securities are being
sold to underwriters, the Company shall have sold to such underwriters the
total principal amount of such Securities less the principal amount thereof
covered by Contracts.
LEGAL MATTERS
Certain legal matters with respect to the Offered Securities will be passed
upon by Bronson, Bronson & McKinnon LLP, San Francisco, California, counsel
for the Company, and for any agents or underwriters by Latham & Watkins, San
Francisco, California.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in the Company's Annual Report (Form 10-K) for the year ended
December 31, 1995, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The supplemental consolidated financial statements of the Company appearing
in the Company's Current Report on Form 8-K dated June 19, 1996, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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ADVANCED MICRO DEVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S>
Report of Ernst & Young LLP, Independent Auditors................................... F-2
Supplemental Consolidated Statements of Income for the Three Years Ended December
31, 1995........................................................................... F-3
Supplemental Consolidated Balance Sheets as of December 31, 1995 and December 25,
1994............................................................................... F-4
Supplemental Consolidated Statements of Stockholders' Equity
for the Three Years Ended December 31, 1995........................................ F-5
Supplemental Consolidated Statements of Cash Flows
for the Three Years Ended December 31, 1995........................................ F-6
Notes to Supplemental Consolidated Financial Statements............................. F-7
Condensed Consolidated Statements of Operations--Quarters ended June 30, 1996 and
July 2, 1995 and Six Months Ended June 30, 1996 and July 2, 1995................... F-26
Condensed Consolidated Balance Sheets--June 30, 1996 and December 31, 1995.......... F-27
Condensed Consolidated Statements of Cash Flows--Six Months Ended June 30, 1996
and July 2, 1995................................................................... F-28
Notes to Condensed Consolidated Financial Statements................................ F-29
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Advanced Micro Devices, Inc.
We have audited the supplemental consolidated balance sheets of Advanced
Micro Devices, Inc. (formed as a result of the consolidation of Advanced Micro
Devices, Inc. and NexGen, Inc.) as of December 31, 1995 and December 25, 1994
and the related supplemental consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1995. The supplemental consolidated financial statements give
retroactive effect to the merger of Advanced Micro Devices, Inc. and NexGen,
Inc. on January 17, 1996, which has been accounted for using the pooling-of-
interests method as described in the notes to the supplemental consolidated
financial statements. These supplemental financial statements are the
responsibility of the management of Advanced Micro Devices, Inc. Our
responsibility is to express an opinion on these supplemental 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 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, based on our audits, the supplemental financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Advanced Micro Devices, Inc. at December 31, 1995 and
December 25, 1994, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, after
giving retroactive effect to the merger of NexGen, Inc., as described in the
notes to the supplemental consolidated financial statements, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
San Jose, California
April 30, 1996
F-2
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED DECEMBER 31, 1995
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................. $2,468,379 $2,155,453 $1,648,280
Expenses:
Cost of sales........................... 1,417,007 1,013,589 789,564
Research and development................ 416,521 295,326 279,412
Marketing, general, and administrative.. 412,651 377,503 296,912
---------- ---------- ----------
2,246,179 1,686,418 1,365,888
---------- ---------- ----------
Operating income.......................... 222,200 469,035 282,392
Litigation settlement..................... -- (58,000) --
Interest income and other, net............ 32,465 17,134 16,931
Interest expense.......................... (3,059) (4,410) (4,398)
---------- ---------- ----------
Income before income taxes and equity in
joint venture............................ 251,606 423,759 294,925
Provision for income taxes................ 70,206 142,232 85,935
---------- ---------- ----------
Income before equity in joint venture..... 181,400 281,527 208,990
Equity in net income (loss) of joint
venture.................................. 34,926 (10,585) (634)
---------- ---------- ----------
Net income................................ 216,326 270,942 208,356
Preferred stock dividends................. 10 10,350 10,350
---------- ---------- ----------
Net income applicable to common
stockholders............................. $ 216,316 $ 260,592 $ 198,006
========== ========== ==========
Net income per common share:
Primary................................. $ 1.59 $ 2.06 $ 1.65
========== ========== ==========
Fully diluted........................... $ 1.57 $ 2.02 $ 1.64
========== ========== ==========
Shares used in per share calculation:
Primary................................. 136,208 126,674 119,925
Fully diluted........................... 137,815 134,142 127,167
</TABLE>
See accompanying notes
F-3
<PAGE>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, AND DECEMBER 25, 1994
(THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................... $ 126,316 $ 117,997
Short-term investments............................. 383,349 312,924
----------- -----------
Total cash, cash equivalents, and short-term
investments................................... 509,665 430,921
Accounts receivable, net of allowance for doubtful
accounts of $15,618 in 1995, and $10,469 in 1994.. 284,238 345,546
Inventories:
Raw materials.................................... 29,494 23,097
Work-in-process.................................. 68,827 74,892
Finished goods................................... 57,665 35,514
----------- -----------
Total inventories.............................. 155,986 133,503
Deferred income taxes.............................. 147,489 105,238
Prepaid expenses and other current assets.......... 40,564 46,370
----------- -----------
Total current assets........................... 1,137,942 1,061,578
Property, plant, and equipment:
Land............................................... 28,851 28,820
Buildings and leasehold improvements............... 893,646 500,530
Equipment.......................................... 1,843,662 1,456,512
Construction in progress........................... 180,742 492,792
----------- -----------
Total property, plant, and equipment........... 2,946,901 2,478,654
Accumulated depreciation and amortization.......... (1,305,267) (1,209,813)
----------- -----------
Property, plant, and equipment, net.............. 1,641,634 1,268,841
Investment in joint venture.......................... 176,821 124,588
Other assets......................................... 122,070 70,714
----------- -----------
$ 3,078,467 $ 2,525,721
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks............................. $ 26,770 $ 32,459
Accounts payable................................... 241,916 159,939
Accrued compensation and benefits.................. 106,347 105,604
Accrued liabilities................................ 103,404 85,912
Litigation settlement.............................. -- 58,000
Income tax payable................................. 56,297 53,795
Deferred income on shipments to distributors....... 100,057 83,800
Current portion of long-term debt and capital lease
obligations....................................... 41,642 40,420
----------- -----------
Total current liabilities...................... 676,433 619,929
Deferred income taxes................................ 84,607 32,686
Long-term debt and capital lease obligations, less
current portion..................................... 214,965 75,752
Commitments and contingencies........................ -- --
Stockholders' equity:
Capital stock:
Serial preferred stock (redeemed March 13, 1995),
par value $.10; 1,000,000 shares authorized;
345,000 shares issued and 344,862 shares
outstanding in 1994............................. -- 34
Common stock, par value $.01; 250,000,000 shares
authorized; 132,182,019 shares issued and
outstanding in 1995, and 121,919,102 in 1994.... 1,050 959
Capital in excess of par value..................... 908,989 871,200
Retained earnings.................................. 1,192,423 925,161
----------- -----------
Total stockholders' equity..................... 2,102,462 1,797,354
----------- -----------
$ 3,078,467 $ 2,525,721
=========== ===========
</TABLE>
See accompanying notes
F-4
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1995
(THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ ---------------
NUMBER NUMBER CAPITAL IN TOTAL
OF OF WARRANT EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT VALUATION PAR VALUE EARNINGS EQUITY
------- --------- ------- ------ --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 27, 1992....... 12,580 $ 53,119 89,976 $1,122 $-- $ 532,674 $ 457,454 $1,044,369
Issuance of preferred
stock.................. 3,842 21,725 -- -- -- -- -- 21,725
Issuance of common
stock.................. -- -- 106 73 -- -- -- 73
Valuation of warrants... -- -- -- -- 533 -- -- 533
Issuance of shares:
Employee stock plans... -- -- 3,218 31 -- 19,408 -- 19,439
Fujitsu Limited........ -- -- 1,000 10 -- 22,952 -- 22,962
Compensation recognized
under employee stock
plans.................. -- -- -- -- -- 1,313 -- 1,313
Income tax benefits
realized from employee
stock option
exercises.............. -- -- -- -- -- 43,386 -- 43,386
Preferred stock
dividends.............. -- -- -- -- -- -- (10,350) (10,350)
Net income.............. -- -- -- -- -- -- 208,356 208,356
------- --------- ------- ------ ---- --------- ---------- ----------
December 26, 1993....... 16,422 74,844 94,300 1,236 533 619,733 655,460 1,351,806
Issuance of common
stock.................. -- -- 4,676 316 -- 65,170 -- 65,486
Issuance of shares:
Employee stock plans... -- -- 1,970 19 -- 16,911 -- 16,930
Fujitsu Limited........ -- -- 1,000 10 -- 22,625 -- 22,635
Compensation recognized
under employee stock
plans.................. -- -- -- -- -- 1,971 -- 1,971
Conversion of preferred
stock to common stock.. (16,078) (74,810) 19,973 3 -- 106,199 -- 31,392
Income tax benefits
realized from employee
stock option
exercises.............. -- -- -- -- -- 37,433 -- 37,433
Preferred stock
dividends.............. -- -- -- -- -- -- (10,350) (10,350)
Reincorporation into a
Delaware Corporation... -- -- -- (625) -- 625 -- --
Net income.............. -- -- -- -- -- -- 270,942 270,942
Unrealized gain from
available-for-sale
investments............ -- -- -- -- -- -- 9,109 9,109
------- --------- ------- ------ ---- --------- ---------- ----------
December 25, 1994....... 344 34 121,919 959 533 870,667 925,161 1,797,354
Changes in NexGen's
stockholders' equity in
the six months ended
June 30, 1995.......... 18,161 93,548 (24,530) 352 -- (171,994) 23,803 (54,291)
Issuance of preferred
stock.................. 1,376 12,653 -- -- -- -- -- 12,653
Issuance of common
stock.................. -- -- 4,542 271 -- 65,340 -- 65,611
Issuance of shares:
Employee stock plans... -- -- 2,283 22 -- 23,518 -- 23,540
Compensation recognized
under employee stock
plans.................. -- -- -- -- -- 2,483 -- 2,483
Conversion of preferred
stock to common stock.. (19,881) (106,235) 26,823 71 -- 103,663 -- (2,501)
Reincorporation into a
Delaware Corporation... -- -- (33) (625) -- 625 -- --
Warrants exercised...... -- -- 1,178 -- (533) 533 -- --
Income tax benefits
realized from employee
stock option
exercises.............. -- -- -- -- -- 15,189 -- 15,189
Preferred stock
dividends.............. -- -- -- -- -- -- (10) (10)
Redemption of
stockholder rights
plan................... -- -- -- -- -- (1,035) -- (1,035)
Net income.............. -- -- -- -- -- -- 216,326 216,326
Unrealized gain from
available-for-sale
investments and
translation adjustment
for joint venture...... -- -- -- -- -- -- 27,143 27,143
------- --------- ------- ------ ---- --------- ---------- ----------
December 31, 1995....... -- $ -- 132,182 $1,050 $-- $ 908,989 $1,192,423 $2,102,462
======= ========= ======= ====== ==== ========= ========== ==========
</TABLE>
See accompanying notes
F-5
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1995
(THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 216,326 $ 270,942 $ 208,356
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 264,675 217,665 176,827
Accrual for litigation settlement....... -- 58,000 --
Net (gain) loss on sale of property,
plant, and equipment................... 2,152 276 (2,943)
Write-down of property, plant, and
equipment.............................. 611 2,230 366
Net gain realized on sale of available-
for-sale securities.................... (2,707) -- --
Compensation recognized under employee
stock plans............................ 2,483 1,971 1,313
Undistributed (income) loss of joint
venture................................ (34,926) 10,585 634
Changes in operating assets and
liabilities:
Net (increase) decrease in
receivables, inventories, prepaid
expenses, and other assets........... 19,548 (128,914) (57,628)
Payment of litigation settlement...... (58,000) -- --
Net increase in deferred income
taxes................................ (925) (32,543) (30,304)
Increase in income tax payable........ 11,772 61,910 70,502
Net increase in payables and accrued
liabilities.......................... 124,058 63,737 72,131
--------- ----------- ---------
Net cash provided by operating activities... 545,067 525,859 439,254
--------- ----------- ---------
Cash flows from investing activities:
Purchase of property, plant, and
equipment................................ (625,900) (552,271) (325,981)
Proceeds from sale of property, plant, and
equipment................................ 4,834 2,058 4,648
Purchase of available-for-sale
securities............................... (817,888) (56,328) (4,934)
Proceeds from sale of available-for-sale
securities............................... 756,373 4,849 --
Purchase of held-to-maturity debt
securities............................... (648,012) (1,245,167) (715,487)
Proceeds from maturities of held-to-
maturity debt securities................. 642,229 1,416,431 566,773
Investment in joint venture............... (18,019) (139,175) (3,160)
--------- ----------- ---------
Net cash used in investing activities....... (706,383) (569,603) (478,141)
--------- ----------- ---------
Cash flows from financing activities:
Proceeds from borrowings.................. 246,345 42,025 17,528
Payments on capital lease obligations and
other debt............................... (142,937) (70,288) (22,616)
Proceeds from issuance of stock........... 101,804 136,443 64,692
Expenses for conversion of preferred stock
and redemption of stockholder rights..... (3,536) -- --
Payments of preferred stock dividends..... (10) (10,350) (10,350)
--------- ----------- ---------
Net cash provided by financing activities... 201,666 97,830 49,254
--------- ----------- ---------
Net increase in cash and cash equivalents... 40,350 54,086 10,367
Cash and cash equivalents at beginning of
year....................................... 85,966 63,911 53,544
--------- ----------- ---------
Cash and cash equivalents at end of year.... $ 126,316 $ 117,997 $ 63,911
========= =========== =========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest (net of amounts capitalized)... $ 2,541 $ 4,125 $ 2,462
========= =========== =========
Income taxes............................ $ 60,329 $ 111,704 $ 44,433
========= =========== =========
Non-cash financing activities:
Equipment capital leases................ $ 24,422 $ 34,202 $ 64,512
========= =========== =========
Conversion of preferred stock to common
stock.................................. $ 270,328 $ 106,201 $ --
========= =========== =========
</TABLE>
See accompanying notes
F-6
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
1. NATURE OF OPERATIONS
AMD is a semiconductor manufacturer with manufacturing facilities in the
U.S. and Asia, and sales offices throughout the world. Focusing on the
personal and networked computing and communications markets, AMD is a global
company that derives more than half of its revenues from international sales,
mainly in Europe and Asia. The Company provides programmable products in
concert with applications solutions to the manufacturers of equipment for
personal and networked computation and communications.
2. BUSINESS COMBINATION
On January 17, 1996, the Company acquired NexGen, Inc. ("NexGen") in a tax-
free reorganization in which NexGen was merged directly into the Company. The
Company has exchanged approximately 29.3 million shares of AMD common stock
and has reserved 4.3 million shares to be exchanged for NexGen options and
warrants assumed by the Company. The 33.6 million total shares to be exchanged
represent eight-tenths (0.8) of a share of the common stock of AMD for each
share of the common stock of NexGen outstanding or subject to an assumed
warrant or option. The merger has been accounted for under the pooling-of-
interests method.
The supplemental consolidated financial statements have been prepared to
give retroactive effect to the merger of NexGen with and into AMD on January
17, 1996. Generally accepted accounting principles prescribe giving effect to
a consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation.
The accompanying supplemental consolidated financial statements do not extend
through the date of the consummation, however, they will become the historical
consolidated financial statements of the Company after financial statements
covering the date of consummation of the business combination are issued.
Prior to its merger with AMD, NexGen reported on a fiscal year ending June
30. In the accompanying supplemental consolidated financial statements and the
notes thereto, NexGen's financial position and operating results as of and for
the years ended June 30, 1994 and 1995 were combined with AMD's financial
position and operating results as of and for the years ended December 26, 1993
and December 25, 1994, respectively. NexGen's financial position and operating
results for 1995, which were restated to a December 31, 1995 year end, were
combined with AMD's financial position and operating results as of and for the
year ended December 31, 1995. Accordingly, NexGen's operating results for the
six months ended June 30, 1995 were duplicated in each of the years ended
December 25, 1994 and December 31, 1995. NexGen's revenues and net loss for
that six month period were $19.9 million and $34.4 million, respectively.
Consolidated stockholders' equity has been reduced by $54.3 million, which
represents NexGen's net stockholders' equity activity for the six months ended
June 30, 1995 in order to eliminate the duplication of stockholders' equity
activity during that period. As a result of the combination of NexGen's
financial position as of June 30, 1995 with the financial position of AMD as
of December 25, 1994, the beginning cash and cash equivalents balance in the
accompanying 1995 supplemental consolidated statements of cash flows does not
equal the December 25, 1994 cash and cash equivalents balance.
A reconciliation of net sales, net income (loss), and net income per common
share of the Company, as previously reported, NexGen and combined, including
the NexGen income tax benefit, is as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales:
AMD, as previously reported................. $2,429,724 $2,134,659 $1,648,280
NexGen...................................... 38,655 20,794 --
---------- ---------- ----------
Combined.................................... $2,468,379 $2,155,453 $1,648,280
========== ========== ==========
</TABLE>
F-7
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net Income (Loss):
AMD, as previously reported..................... $300,521 $305,266 $228,781
NexGen.......................................... (126,727) (45,795) (23,708)
NexGen income tax benefit....................... 42,532 11,471 3,283
-------- -------- --------
Combined........................................ $216,326 $270,942 $208,356
======== ======== ========
Net Income Per Common Share (Primary):
AMD, as previously reported..................... $ 2.85 $ 3.02 $ 2.30
======== ======== ========
Combined........................................ $ 1.59 $ 2.06 $ 1.65
======== ======== ========
Net Income Per Common Share (Fully Diluted):
AMD, as previously reported..................... $ 2.81 $ 2.92 $ 2.24
======== ======== ========
Combined........................................ $ 1.57 $ 2.02 $ 1.64
======== ======== ========
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. The Company uses a 52- to 53-week fiscal year ending on the
last Sunday in December, which resulted in a 53-week year ended December 31,
1995. This compares with a 52-week fiscal year for 1994 and 1993, which ended
on December 25 and 26, respectively.
Principles of Consolidation. The supplemental consolidated financial
statements include the accounts of the Company and its subsidiaries. Upon
consolidation, all significant intercompany accounts and transactions are
eliminated. Also included in the financial statements of the Company, under
the equity method of accounting, is the Company's 49.95 percent investment in
Fujitsu AMD Semiconductor Limited (FASL).
Foreign Currency Translation. The U.S. dollar is the functional currency for
the Company's wholly-owned foreign subsidiaries. Translation adjustments,
resulting from the process of translating foreign currency financial
statements into U.S. dollars, are included in operations. The functional
currency of the Company's unconsolidated joint venture is the Japanese yen.
Translation adjustments relating to the translation of these statements have
not been material, and therefore, are not disclosed as a separate component of
stockholders' equity.
Cash Equivalents. Cash equivalents consist of financial instruments which
are readily convertible to cash and have original maturities of three months
or less at the time of acquisition.
Investments. The Company classifies its marketable debt and equity
securities into held-to-maturity and available-for-sale categories in
accordance with the provisions of the Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), "Accounting for Certain Instruments in Debt
and Equity Securities." In accordance with the FASB staff Special Report, "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities," the Company chose to reclassify, as of
December 31, 1995, all cash equivalents and short-term investments that were
classified as held-to-maturity at that time from held-to-maturity to
available-for-sale. Securities classified as available-for-sale are reported
at fair market value with the related unrealized gains and losses included in
retained earnings. Realized gains and losses and declines in value of
securities judged to be other than temporary are included in interest income
and other, net. Interest and dividends on all securities are included in
interest income and other, net.
Investments with maturities between three and twelve months are considered
short-term investments. Short-term investments consist of money market auction
preferred stocks and debt securities such as commercial paper, time deposits,
certificates of deposit, bankers' acceptances, and marketable direct
obligations of the United States Treasury.
F-8
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
Foreign Exchange Forward Contracts. Foreign exchange forward contracts are
used to hedge the Company's net monetary asset positions in its foreign
subsidiaries and the Company's liabilities for products purchased from FASL.
Realized gains and losses from these hedges are included in operations.
Premiums and discounts, if any, are amortized over the life of the contract
and included in operations.
Foreign Currency Options. Foreign currency options are used to hedge firm
commitments with respect to the Company's joint venture (FASL) investment.
Realized gains and losses from these hedges are deferred and included in other
assets or accrued liabilities, respectively. They are recognized in operations
in the same period as the hedged transactions. Premiums and discounts, if any,
are amortized over the life of the contract and included in operations.
Interest Rate Swaps. The Company enters into interest rate swaps primarily
to reduce its interest rate exposure by changing a portion of the Company's
interest rate exposure from a floating rate to a fixed rate basis. The
differential between fixed and floating rates to be paid or received is
accrued and recognized as an adjustment to interest expense. Accordingly, the
related amount payable to or receivable from counterparties is included in
other current assets or accrued liabilities.
Inventories. Inventories are stated principally at standard cost adjusted to
approximate the lower of cost (first-in, first-out method) or market (net
realizable value).
Property, Plant, and Equipment. Property, plant, and equipment is stated at
cost. Depreciation and amortization are provided principally on the straight-
line basis over the estimated useful lives of the assets for financial
reporting purposes and on accelerated methods for tax purposes. Estimated
useful lives for financial reporting purposes are as follows: machinery and
equipment 3 to 5 years; buildings up to 26 years; and leasehold improvements
are the shorter of the remaining terms of the leases or the estimated economic
useful lives of the improvements.
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards 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.
Deferred Income on Shipments to Distributors. A portion of sales is made to
distributors under terms allowing certain rights of return and price
protection on unsold merchandise held by the distributors. These agreements
can be canceled by either party upon written notice, at which time the Company
generally repurchases unsold inventory. Accordingly, recognition of sales to
distributors and related gross profits are deferred until the merchandise is
resold by the distributors.
Advertising Expenses. The Company accounts for advertising costs as expense
in the period in which they are incurred. Advertising expense for 1995, 1994,
and 1993 was approximately $44 million, $32 million, and $22 million,
respectively.
Net Income Per Common Share. Primary net income per common share is based
upon weighted average common and dilutive common equivalent shares outstanding
using the treasury stock method. Dilutive common equivalent shares include
stock options, warrants, and restricted stock. Fully diluted net income per
common share is computed using the weighted average common and dilutive common
equivalent shares outstanding, plus other dilutive shares outstanding which
are not common equivalent shares. Other dilutive shares which are not common
equivalent shares include convertible preferred stock and convertible notes.
F-9
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
All share information has been adjusted on a retroactive basis herein to
give effect to the merger with NexGen and the conversion of NexGen shares on a
0.8 to one share of AMD common stock.
Employee Stock Plans. 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 1995, the Financial Accounting Standards Board
released the Statement of Financial Accounting Standards 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.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.
Year-End Adjustments (Unaudited). The Company made certain year-end
adjustments in 1995, resulting from changes in estimates related to the Nx586
product which was developed by NexGen. These adjustments were material to the
results of the fourth quarter. These adjustments, related to accounts
receivable and inventory, were charged primarily to net sales and cost of
sales and reduced operating income by approximately $51.7 million.
4. FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
As part of the Company's asset and liability management, the Company enters
into various types of transactions that involve financial instruments with
off-balance-sheet risk. These instruments are entered into in order to manage
financial market risk, including interest rate and foreign exchange risk. The
notional values, carrying amounts, and fair values are tabled below.
Foreign exchange forward contracts
The Company enters into foreign exchange forward contracts to buy and sell
currencies as economic hedges of its net monetary asset positions in its
foreign subsidiaries and liabilities for products purchased from FASL. The
hedging transactions in 1995 were denominated in lira, yen, French franc,
deutsche mark, and pound sterling. The maturities of these contracts are
generally less than six months.
Foreign currency options
The joint venture (FASL) investments are denominated in yen, and therefore,
are subject to exposure due to fluctuations in yen exchange rates. Thus, the
Company hedges its exposures on certain firm commitments relating to the FASL
investment with foreign currency options denominated in yen. The maturities of
these options are generally less than six months. No foreign currency options
were outstanding as of December 31, 1995.
Interest rate swaps
The Company engaged in interest rate swaps primarily to reduce its interest
rate exposure on its term loan and on a building lease obligation by changing
a portion of the Company's interest rate obligation from a floating
F-10
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
rate to a fixed rate basis without exchanges of the underlying notional
amounts. The fixed interest rates are based on one to five year swap rates,
and the floating interest rates are based on three or six months LIBOR. These
interest rate swaps will mature in 1996 and 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The estimates of fair value were obtained using prevailing financial market
information as of December 31, 1995. In certain instances where judgment is
required in estimating fair value, price quotes were obtained from certain of
the Company's counterparty financial institutions.
<TABLE>
<CAPTION>
1995 1994
------------------------- -----------------------
NOTIONAL CARRYING FAIR NOTIONAL CARRYING FAIR
AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
-------- -------- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest rate instruments:
Swaps..................... $190,000 $(518) $(1,694) $ 40,000 $(518) $228
Foreign exchange
instruments:
Foreign exchange forward
contracts................ 36,670 (102) (102) 32,651 536 536
Foreign currency options.. -- -- -- 12,662 -- (200)
</TABLE>
FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The carrying value of short-term debt approximates fair value due to its
short-term maturity. The fair value of long-term debt was estimated using
discounted cash flow analysis based on estimated interest rates for similar
types of borrowing arrangements.
The carrying amounts and estimated fair values of the Company's other
financial instruments are as follows:
<TABLE>
<CAPTION>
1995 1994
----------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Short-term debt:
Notes payable............................. $ 26,770 $ 26,770 $32,459 $32,459
Long-term debt (excluding capital leases)... 179,301 180,920 33,433 32,755
</TABLE>
F-11
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE
The following is a summary of held-to-maturity and available-for-sale
securities included in cash and cash equivalents and short-term investments as
of December 31, 1995 and December 25, 1994.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY AVAILABLE-FOR-SALE
1995 1994 1994
------------------ ---------------- ------------------
(THOUSANDS)
<S> <C> <C> <C>
Certificates of
deposit................ $ 15,002 $ 4,997 $ --
Treasury notes.......... 10,437 -- 14,348
Federal agency notes.... 14,065 -- --
Security repurchase
agreements............. 53,370 50,800 17,998
Commercial paper........ 14,914 24,760 --
Other debt securities... 434 1,672 --
-------- -------- -------
Total cash
equivalents.......... $108,222 $ 82,229 $32,346
======== ======== =======
Certificates of
deposit................ $ 70,551 $ 95,342 $ 3,716
Municipal notes and
bonds.................. 52,256 -- --
Corporate notes......... 37,898 101,850 --
Treasury notes.......... 60,989 44,877 15,997
Commercial paper........ 46,656 14,442 --
Money market auction
preferred stocks....... 114,999 36,700 --
-------- -------- -------
Total short-term
investments.......... $383,349 $293,211 $19,713
======== ======== =======
</TABLE>
On November 15, 1995, the FASB staff issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with provisions in that Special Report,
the Company chose to reclassify cash equivalents and short-term investments
from held-to-maturity to available-for-sale. At the date of the transfer, the
amortized cost of those securities was approximately $480.7 million. Since the
securities transferred on December 31, 1995 are short-term in nature, changes
in market interest rates did not have a significant impact on the fair value
of these securities. The net unrealized gain on these securities was
immaterial.
The available-for-sale equity securities that the Company held, included in
other assets, had a cost and fair value of $14.5 million and $75.1 million,
respectively, as of December 31, 1995, and a cost and fair value of $9.4
million and $18.5 million, respectively, as of December 25, 1994. At December
31, 1995, the total net unrealized holding gain on these equity securities,
net of tax, was approximately $42.5 million, of which $33.4 million was
recorded in 1995. The entire, net of tax, unrealized holding gain is included
in retained earnings.
As of December 31, 1995, the Company did not own any securities classified
as trading.
5. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents, short-term investments,
trade receivables, and financial instruments used in hedging activities.
The Company places its cash equivalents and short-term investments with high
credit quality financial institutions and, by policy, limits the amount of
credit exposure with any one financial institution. Investments in time
deposits and certificates of deposit are acquired from banks having combined
capital, surplus, and undistributed profits of not less than $200 million.
Investments in commercial paper and money market auction
F-12
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
preferred stocks of industrial firms and financial institutions are rated A1,
P1 or better, investments in tax-exempt securities including municipal notes
and bonds are rated AA, Aa or better, and investments in repurchase agreements
must have securities of the type and quality listed above as collateral.
Concentrations of credit risk with respect to trade receivables are limited
because a large number of geographically diverse customers make up the
Company's customer base, thus spreading the trade credit risk. The Company
controls credit risk through credit approvals, credit limits, and monitoring
procedures. The Company performs in-depth credit evaluations of all new
customers and requires letters of credit, bank guarantees and advance
payments, if deemed necessary. Bad debt expenses have not been material.
The counterparties to the agreements relating to the Company's foreign
exchange and interest rate instruments consist of a number of major, high
credit quality, international financial institutions. The Company does not
believe that there is significant risk of nonperformance by these
counterparties because the Company monitors the credit ratings of such
counterparties, and limits the financial exposure and the amount of agreements
entered into with any one financial institution. While the notional amounts of
financial instruments are often used to express the volume of these
transactions, the potential accounting loss on these transactions if all
counterparties failed to perform is limited to the amounts, if any, by which
the counterparties' obligations under the contracts exceed the obligations of
the Company to the counterparties.
6. CONCENTRATIONS OF OTHER RISKS
Products. Microprocessor products and Flash memory devices contributed a
significant portion of the Company's revenues and profits in 1995. The Company
expects that its ability to maintain or expand its current levels of revenues
and profits in the future will depend upon, among other things, its success in
developing and marketing, in a timely manner, its next generation of
microprocessor products, the K86 RISC SUPERSCALAR(TM) products, and future
generations of Flash memory devices.
Markets. The markets for the Company's products are characterized by rapid
technological developments, evolving industry standards, changes in customer
requirements, frequent new product introductions and enhancements, and short
product life cycles. The market for microprocessors and Flash memory devices
is primarily dependent upon the market for personal computers (PC). From time
to time, the PC industry has experienced significant downturns, often in
connection with, or in anticipation of, declines in general economic
conditions. These downturns have been characterized by diminished product
demand, production overcapacity, and resultant accelerated erosion of average
selling prices. The Company's business could be materially and adversely
affected by industry-wide fluctuations in the PC marketplace in the future.
Inventories. Given the volatility of the market, the Company makes inventory
provisions for potentially excess and obsolete inventory based on backlog and
forecasted demand. However, such backlog demand is subject to revisions,
cancellations, and rescheduling. Actual demand will inevitably differ from
such anticipated demand, and such differences may have a material effect on
the financial statements.
Customers. The Company markets and sells its products primarily to a broad
base of customers comprised of Distributors and Original Equipment
Manufacturers (OEM's) of computation and communication equipment. One of the
Company's distributors, Arrow Electronics, Inc., accounted for approximately
12 percent of 1995 net sales. No other Distributor or OEM customer constituted
10 percent or more of net sales in 1995.
International Operations. The Company derives more than half of its revenues
from international sales. However, only a portion of the Company's
international sales were denominated in foreign currencies. Further, the
Company does not have any sales denominated in the local currencies of those
countries which have highly inflationary economies.
F-13
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
Nearly all product assembly and final testing of the Company's products are
performed at its manufacturing facilities in Penang, Malaysia; Singapore; and
Bangkok, Thailand; or by subcontractors in Asia. Wafer fabrication of certain
products is performed at foundries in Asia. FASL wafer fabrication facilities
are located in Aizu-Wakamatsu, Japan. Foreign manufacturing entails political
and economic risks, including political instability, expropriation, currency
controls and fluctuations, changes in freight and interest rates, and
exemptions for taxes and tariffs. For example, if the Company were unable to
assemble and test its products abroad, or if air transportation between the
United States, the Company's overseas facilities and customers worldwide were
disrupted, there could be a material adverse effect on the Company's
operations.
Materials. Certain of the raw materials used by the Company in the
manufacture of its products are available from a limited number of suppliers.
For example, several types of integrated circuit packages purchased by the
Company, as well as by the majority of other companies in the semiconductor
industry, are principally supplied by Japanese companies. Shortages could
occur in various essential materials due to interruption of supply or
increased demand in the industry. If the Company were unable to procure
certain of such materials, it would be required to reduce its manufacturing
operations, which could have a material adverse effect upon its results of
operations.
7. SERIAL PREFERRED STOCK
In March 1987, the Company sold 345,000 shares of Convertible Exchangeable
Preferred Stock, $.10 par value. Dividends were payable quarterly in arrears
at an annual rate of $30 per share (6 percent) cumulative from the date of
original issue. The preferred stock was redeemable for cash at any time at the
option of the Company, in whole or in part, at prices declining to $500 per
share at March 15, 1997, plus unpaid dividends. The preferred stock was
convertible at any time at the option of the holder into common stock at the
initial conversion rate of 19.873 common shares for each preferred share.
On February 10, 1995, the Company called all outstanding shares of its
preferred stock for redemption on March 13, 1995, at a redemption price of
$509.00 per share, plus $7.30 of accrued and unpaid dividends. Prior to the
redemption date, 343,427 shares of preferred stock were surrendered for
conversion which resulted in the issuance of 6,824,694 shares of the Company's
common stock. Pursuant to previous arrangements, on March 14, 1995, the
Company sold 28,518 shares of its common stock to certain institutions and
used the proceeds to fund the redemption of 1,435 shares of preferred stock
which were not converted.
NexGen's 19,536,328 shares of Convertible Preferred Stock issued and
outstanding as of May 24, 1995 were converted into 19,970,328 shares of its
Common Stock in conjunction with its initial public offering on May 24, 1995.
As of June 30, 1994, 13,583,459 shares of Convertible Preferred Stock were
issued and outstanding.
8. STOCKHOLDER RIGHTS PLAN
In February 1990, the Company adopted a stockholder rights plan and declared
a dividend distribution of preferred stock purchase rights at the rate of one
right for each share of common stock held as of the close of business on
February 20, 1990. The rights were not exercisable, or transferable apart from
the common stock, until certain events occurred. The rights were redeemable at
any time at the option of the Company.
On May 3, 1995, the Company redeemed all its preferred stock purchase rights
for a redemption price of $.01 per right (approximately $1 million) paid on
May 24, 1995, to the holders of the Company's common stock as of the
redemption date.
F-14
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
9. WARRANTS
On May 24, 1995, the effective date of NexGen's initial public offering, all
previously issued preferred series warrants were converted into warrants to
purchase common stock. All outstanding warrants are held by related parties.
The following summarizes the warrants outstanding as of December 31, 1995:
<TABLE>
<CAPTION>
WARRANT HOLDER WARRANTS WARRANT PRICE
-------------- --------- -------------
<S> <C> <C>
Warrants issued in connection with Promissory Notes
and
Preferred Stock Offering............................. 493,280 $0.63-$9.38
Warrants issued in connection with consulting
services............................................. 280,000 $5.00
Warrants issued to sales agent........................ 682,392 $5.00-$9.38
Total warrants issued and outstanding as of December
31, 1995............................................. 1,455,672 $0.63-$9.38
</TABLE>
For the year ended December 31, 1995 warrants previously issued to purchase
1,364,000 shares of common stock were exercised on a cashless basis for
1,178,010 shares of common stock. Warrants for an additional 540 shares of
common stock are claimed to be outstanding by certain warrant holders. All
warrants are currently exercisable at December 31, 1995.
10. INCOME TAXES
Provision for income taxes consists of:
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- -------
(THOUSANDS)
<S> <C> <C> <C>
Current:
U.S. Federal................................... $58,683 $154,448 $83,574
U.S. State and Local........................... 1,855 13,001 3,640
Foreign National and Local..................... 10,594 7,350 2,332
Deferred:
U.S. Federal................................... 1,295 (29,733) (5,206)
U.S. State and Local........................... (3,167) (2,820) 1,798
Foreign National and Local..................... 946 (14) (203)
------- -------- -------
Provision for income taxes....................... $70,206 $142,232 $85,935
======= ======== =======
</TABLE>
Tax benefits resulting from the exercise of nonqualified stock options and
the disqualifying disposition of shares acquired under the Company's incentive
stock option and stock purchase plans reduced taxes currently payable as shown
above by $15.2 million, $37.4 million, and $43.4 million in 1995, 1994, and
1993, respectively. Such benefits were credited to capital in excess of par
value when realized.
F-15
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
Under SFAS No. 109, deferred income taxes reflect the net tax effects of tax
carryforwards and temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Company's deferred tax
assets and liabilities as of December 31, 1995, December 25, 1994, and
December 26, 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss
carryovers............... $ 62,796 $ 30,840 $ 21,820
Deferred distributor
income................... 40,583 31,396 31,349
Inventory reserves........ 29,665 18,809 14,935
Accrued expenses not
currently deductible..... 35,639 39,467 21,799
Federal and state tax
credit carryovers........ 6,249 2,873 30,888
Other..................... 49,850 39,081 27,569
--------- -------- --------
Total deferred tax
assets................. 224,782 162,466 148,360
Less: valuation
allowance................ (33,386) (14,445) (43,335)
--------- -------- --------
Net deferred tax
assets................. 191,396 148,021 105,025
--------- -------- --------
Deferred tax liabilities:
Depreciation.............. (109,141) (59,614) (44,886)
Other..................... (19,373) (15,855) (20,154)
--------- -------- --------
Total deferred tax
liabilities............ (128,514) (75,469) (65,040)
--------- -------- --------
Net deferred tax assets..... $ 62,882 $ 72,552 $ 39,985
========= ======== ========
</TABLE>
Approximately $26.4 million of the 1993 valuation allowance for deferred tax
assets, attributable to stock option deductions, was credited to equity upon
realization in 1994.
Pretax income from foreign operations was approximately $60.6 million in
1995, $45.7 million in 1994, and $40.0 million in 1993.
As of December 31, 1995, the Company has net operating loss carryovers of
approximately $179.4 million for federal income tax purposes. The federal
carryovers expire on various dates through 2009. No significant state
carryforwards exist due to the capitalization of research and development
expenditures for state purposes and state statutory limitations on the amount
of net operating losses which may be carried forward to subsequent years.
Under the Tax Reform Act of 1986, the amounts of and the benefit from net
operating losses that can be carried forward may be limited in certain
circumstances. Because of changes in ownership greater than 50 percent,
realization of the Company's net operating loss carryforwards incurred prior
to July 1992 and January 1996 may be subject to annual limitations of
approximately $3.9 million and $27.3 million, respectively. These annual
limitations should result in the availability of all carryforwards by the year
2004.
F-16
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
The following is a reconciliation between statutory federal income taxes and
the total provision for income taxes:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- ---------------
TAX RATE TAX RATE TAX RATE
-------- ---- -------- ---- --------- ----
(THOUSANDS EXCEPT PERCENT)
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax
provision................... $ 88,062 35.0% $148,316 35.0% $ 103,224 35.0%
State taxes net of federal
benefit..................... 216 0.1 6,601 1.6 3,535 1.2
Tax exempt Foreign Sales
Corporation income.......... (6,848) (2.7) (8,955) (2.1) (7,236) (2.5)
Tax credits utilized......... -- -- -- -- (5,004) (1.7)
Foreign income at other than
U.S. rates.................. (11,503) (4.6) (9,633) (2.3) (10,398) (3.5)
Other........................ 279 0.1 5,903 1.4 1,814 0.6
-------- ---- -------- ---- --------- ----
$ 70,206 27.9% $142,232 33.6% $ 85,935 29.1%
======== ==== ======== ==== ========= ====
</TABLE>
No provision has been made for income taxes on approximately $264.6 million
of cumulative undistributed earnings of certain foreign subsidiaries because
it is the Company's intention to permanently invest such earnings. If such
earnings were distributed, additional taxes of $92.6 million would accrue.
The Company's Far East assembly and test plants in Singapore and Thailand
are operated under various tax holidays which expire in whole or in part
during 1996 and 1998. Possible extensions of the holiday period, as well as
other tax incentives, are anticipated to result in minimal tax liabilities in
these countries through 1998. The net impact of these tax holidays was an
increase in net income of approximately $6.2 million ($0.04 per share) in
1995.
11. DEBT
The Company has certain debt agreements that contain provisions regarding
restrictions on cash dividends, maintenance of specified working capital and
net worth levels, and specific financial ratio requirements. At December 31,
1995, the Company was in compliance with all restrictive covenants of such
debt agreements and all retained earnings was restricted as to payments of
cash dividends on common stock.
Significant elements of uncommitted, unsecured revolving lines of credit
are:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
(THOUSANDS EXCEPT PERCENT)
<S> <C> <C>
Total lines of credit........................ $ 345,801 $ 378,182
Portion of lines of credit available to
foreign subsidiaries........................ 95,801 128,182
Amounts outstanding at year-end:
Short-term................................. 26,770 32,459
Short-term borrowings:
Average daily borrowings................... 29,666 33,449
Maximum amount outstanding at any month-
end....................................... 36,105 35,384
Weighted monthly average interest rate..... 4.19% 4.32%
Average interest rate on amounts
outstanding at year-end................... 4.41% 4.42%
</TABLE>
Interest on foreign and short-term domestic borrowings is negotiated at the
time of the borrowing.
F-17
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
Information with respect to the Company's long-term debt and capital lease
obligations at year-end is:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(THOUSANDS)
<S> <C> <C>
Term loan with variable interest at 7.06% at December 31,
1995 payable quarterly through 1998...................... $150,000 $ --
10%-11% Convertible notes payable due on March 1, 1996.... 1,774 2,500
Promissory notes with principal and 6.88% interest payable
annually through
January 2000, secured by a partnership interest.......... 10,276 11,946
12% Note payable due on June 1, 1996...................... 10,000 10,000
Mortgage with principal and 9.88% interest payable in
monthly installments through April 2007.................. 2,167 2,382
Obligations under capital leases.......................... 77,306 82,739
Obligations secured by equipment.......................... 4,990 6,482
Other..................................................... 94 123
-------- --------
256,607 116,172
Less: current portion..................................... (41,642) (40,420)
-------- --------
Long-term debt and capital lease obligations, less current
portion.................................................. $214,965 $ 75,752
======== ========
</TABLE>
On January 5, 1995, the Company obtained a $150 million single term four-
year loan with a consortium of eight commercial banks. The loan has a floating
interest rate based on the three months LIBOR and requires quarterly interest
payments with the principal to be paid at the end of the term in 1998. The
interest rate on the loan at December 31, 1995 was 7.06 percent.
For each of the next five years and beyond, long-term debt and capital lease
obligations are:
<TABLE>
<CAPTION>
LONG-TERM
DEBT CAPITAL
(PRINCIPAL ONLY) LEASES
---------------- -------
(THOUSANDS)
<S> <C> <C>
1996............................................. $ 15,420 $27,304
1997............................................. 3,802 26,255
1998............................................. 154,033 21,532
1999............................................. 2,326 6,949
2000............................................. 2,493 1,182
Beyond 2000...................................... 1,227 --
-------- -------
Total.......................................... 179,301 83,222
Less: Amount representing interest............... -- 5,916
-------- -------
Total at present value......................... $179,301 $77,306
======== =======
</TABLE>
Obligations under the lease agreements are collateralized by the assets
leased. Total assets leased were approximately $141.9 million and $131.7
million at December 31, 1995 and December 25, 1994, respectively. Accumulated
amortization of these leased assets was approximately $95.6 million and $60.5
million at December 31, 1995 and December 25, 1994, respectively.
F-18
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
12. INTEREST EXPENSE & INTEREST INCOME AND OTHER, NET
INTEREST EXPENSE
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Interest expense............................... $ 21,102 $12,704 $11,482
Interest capitalized........................... (18,043) (8,294) (7,084)
-------- ------- -------
$ 3,059 $ 4,410 $ 4,398
======== ======= =======
</TABLE>
In 1995, interest expense primarily consisted of interest payments on the
$150 million four-year term loan the Company entered into on January 5, 1995;
and interest capitalized primarily related to the construction of Fab 25.
INTEREST INCOME AND OTHER, NET
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Interest income................................... $29,518 $23,331 $16,431
Other income (loss)............................... 2,947 (6,197) 500
------- ------- -------
$32,465 $17,134 $16,931
======= ======= =======
</TABLE>
In 1995, other income (loss) primarily consisted of the $2.7 million
realized gain on an equity investment in Seeq Corporation. In 1994, other
income (loss) primarily consisted of the $33 million settlement cost related
to the class action lawsuits and stockholders' derivative action offset by an
$18 million gain resulting from an award of damages in the arbitration
proceedings with Intel. Also included in other income (loss) for all years
presented is the net gain (loss) on the sale of assets.
13. FOREIGN AND DOMESTIC OPERATIONS
The Company is currently engaged in a single line of business: The design,
development, manufacture, and sale of programmable products in concert with
applications solutions to the manufacturers of equipment for personal and
networked computation and communications.
Operations outside the United States include both manufacturing and sales.
Manufacturing subsidiaries are located in Malaysia, Singapore, and Thailand.
Sales subsidiaries are in Europe and Asia.
F-19
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
The following is a summary of operations by entities within geographic areas
for the three years ended December 31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
North America........................... $1,780,240 $1,544,844 $1,174,410
Europe.................................. 491,293 483,632 343,600
Asia.................................... 196,846 126,977 130,270
---------- ---------- ----------
$2,468,379 $2,155,453 $1,648,280
========== ========== ==========
Transfers between geographic areas
(eliminated in consolidation):
North America........................... $ 743,117 $ 563,303 $ 444,378
Asia.................................... 396,158 323,050 277,496
---------- ---------- ----------
$1,139,275 $ 886,353 $ 721,874
========== ========== ==========
Operating income:
North America........................... $ 164,549 $ 423,027 $ 243,015
Europe.................................. 18,922 15,860 8,376
Asia.................................... 38,729 30,148 31,001
---------- ---------- ----------
$222,200 $ 469,035 $ 282,392
========== ========== ==========
Identifiable assets:
North America........................... $2,636,675 $2,170,099 $1,663,199
Europe.................................. 85,664 120,070 88,003
Asia.................................... 463,530 361,144 312,529
Eliminations............................ (107,402) (125,592) (118,778)
---------- ---------- ----------
$3,078,467 $2,525,721 $1,944,953
========== ========== ==========
U.S. export sales:
Asia.................................... $ 485,625 $ 436,120 $ 314,268
Europe.................................. 206,328 126,752 109,226
---------- ---------- ----------
$ 691,953 $ 562,872 $ 423,494
========== ========== ==========
</TABLE>
Sales to unaffiliated customers are based on the location of the Company's
subsidiary. Transfers between geographic areas consist of products and
services that are sold at amounts generally above cost and are consistent with
governing tax regulations. Operating income is total sales less operating
expenses. Identifiable assets are those assets used in each geographic area.
Export sales are United States foreign direct sales to unaffiliated customers
primarily in Europe and Asia.
14. EMPLOYEE BENEFIT PLANS
Stock Option Plans. The Company has several stock option plans under which
key employees have been granted incentive (ISOs) and nonqualified (NSOs) stock
options to purchase the Company's common stock. Generally, options are
exercisable within four years from the date of grant and expire five to ten
years after the date of grant. ISOs granted under the plans have exercise
prices of not less than 100 percent of the fair market value of the common
stock at the date of grant. Exercise prices of NSOs may not be less than 50
percent of the fair market value of the common stock at the date of grant. At
December 31, 1995, 3,101 employees, including 161 employees originally from
NexGen, were eligible and participating in the plans.
F-20
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
The following is a summary of stock option exercises:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Aggregate exercise price.......................... $15,195 $10,355 $14,066
Options exercised................................. 2,313 2,218 2,855
</TABLE>
A summary of the stock option plans at December 31, 1995 and December 25,
1994 is shown below.
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Options:
Outstanding at beginning of year....................... 14,825 13,957
Granted................................................ 4,327 4,389
Canceled............................................... (510) (376)
Exercised.............................................. (2,313) (2,218)
--------- ---------
Outstanding at end of year........................... 16,329 15,752
========= =========
Exercisable at beginning of year....................... 8,784 7,848
Exercisable at end of year............................. 10,374 9,711
Available for grant at beginning of year............... 3,386 1,419
Available for grant at end of year..................... 751 3,150
Aggregate exercise price of options outstanding at end
of year............................................... $ 269,953 $ 211,437
Average exercise price of options outstanding at end of
year.................................................. $ 16.53 $ 13.42
</TABLE>
Stock Appreciation Rights Plans. The Company maintains three stock
appreciation rights plans under which stock appreciation rights (SARs) either
have been or may be granted to key employees. The number of SARs exercised
plus common stock issued under the stock option plans may not exceed the
number of shares authorized under the stock option plans. SARs may be granted
in tandem with outstanding stock options, in tandem with future stock option
grants, or independently of any stock options. Generally, the terms of SARs
granted under the plans are similar to those of options granted under the
stock option plans, including exercise prices, exercise dates, and expiration
dates. To date, the Company has granted only limited SARs, which become
exercisable only in the event of certain changes in control of the Company.
Stock Purchase Plan. The Company has a stock purchase plan that allows
participating employees to purchase, through payroll deductions, shares of the
Company's common stock at 85 percent of the fair market value at specified
dates. At December 31, 1995, 6,723 employees were eligible to participate in
the plan and 482,182 common shares remained available for issuance under the
plan. Beginning in 1995, NexGen had a stock purchase plan that allowed
participating employees to purchase shares of NexGen's common stock at 85
percent of the fair market value at specified dates. At December 31, 1995, 161
employees were eligible to participate in the plan and 365,504 common shares
remained available for issuance under the plan. A summary of stock purchased
under these plans is shown below.
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(THOUSANDS EXCEPT
EMPLOYEE PARTICIPANTS)
<S> <C> <C> <C>
Aggregate purchase price......................... $ 11,457 $ 8,115 $ 6,413
Shares purchased................................. 501 412 387
Employee participants............................ 2,825 1,941 1,684
</TABLE>
F-21
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
Profit Sharing Program. The Company has a profit sharing program to which
the Board of Directors has authorized semiannual contributions. Profit sharing
contributions were $44.7 million in 1995, $57.0 million in 1994, and $33.9
million in 1993.
Retirement Savings Plan. The Company has a retirement savings plan, commonly
known as a 401(k) plan, that allows participating United States employees to
contribute from 1 percent to 15 percent of their pre-tax salary subject to
I.R.S. limits. The Company makes a matching contribution calculated at 50
cents on each dollar of the first 3 percent of participant contributions, to a
maximum of 1.5 percent of eligible compensation. The Company's contributions
to the 401(k) plan were $4.3 million, $3.7 million, and $3.2 million for 1995,
1994, and 1993, respectively. There are four investment funds in which each
employee may invest contributions in whole percentage increments. NexGen had a
401(k) plan which allowed employees to contribute from one percent to ten
percent of their pre-tax salary subject to I.R.S. limits. NexGen did not match
employee contributions.
Restricted Stock Award Plan. The Company established the 1987 restricted
stock award plan under which up to two million shares of common stock may be
issued to employees, subject to terms and conditions determined at the
discretion of the Board of Directors. The Company entered into agreements to
issue 226,427, 180,000, and 19,000 shares in 1995, 1994, and 1992,
respectively. To date, agreements covering 212,212 shares have been canceled
without issuance and 1,252,964 shares have been issued pursuant to prior
agreements. At December 31, 1995, agreements covering 436,427 shares were
outstanding under the plan and 310,609 shares remained available for future
awards. Outstanding awards vest under varying terms within five years.
15. COMMITMENTS
The Company leases certain of its facilities under agreements which expire
at various dates through 2011. The Company also leases certain of its
manufacturing and office equipment for terms ranging from one to six years.
Rent expense was $37.2 million, $32.4 million, and $32.3 million in 1995,
1994, and 1993, respectively.
For each of the next five years and beyond, noncancelable long-term
operating lease obligations and commitments to purchase manufacturing supplies
and services are as follows:
<TABLE>
<CAPTION>
OPERATING PURCHASE
LEASES COMMITMENTS
--------- -----------
(THOUSANDS)
<S> <C> <C>
1996................................................ $29,955 $23,492
1997................................................ 23,150 4,868
1998................................................ 17,781 4,868
1999................................................ 11,717 4,868
2000................................................ 11,144 3,797
Beyond 2000......................................... 11,503 27,900
</TABLE>
Included in 1996 purchase commitments is $18.4 million for Nx586 inventory.
The Company has fully reserved for these commitments. See footnote 3, year end
adjustments.
The operating lease of the Company's corporate sales and marketing facility
expires in December 1998. The Company has the option of extending the lease
agreement or purchasing the building for $40 million. The Company may also
consider alternative financing arrangements.
At December 31, 1995, the Company had commitments of approximately $93
million for the construction or acquisition of additional property, plant, and
equipment.
F-22
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
The Company is currently planning to build a submicron wafer fabrication and
design facility in Dresden, Germany at an estimated cost of approximately $1.5
billion over 5 years. The German federal and state governments will provide
financing assistance to the facility through grants and allowances, loan
guarantees, and loan interest subsidies. As of December 31, 1995, the Company
had commitments to make cash investments and loans, in aggregate, in this
facility amounting to approximately $350 million over the next 4 years.
In December 1995, the Company signed a five-year, comprehensive patent
cross-license agreement with Intel. The cross-license is royalty-bearing for
the Company's products that use certain Intel technologies. The Company is
required to pay Intel minimum non-refundable royalties during the years from
1997 to 2000.
16. INVESTMENT IN JOINT VENTURE
In 1993, the Company and Fujitsu Limited established a joint venture,
Fujitsu AMD Semiconductor Limited (FASL), to manufacture Flash memory devices.
The Company's share of FASL is 49.95 percent and the investment is being
accounted for under the equity method. In 1995, the Company invested an
additional $18.0 million in FASL, and the Company's share of FASL net income
during 1995 was $34.9 million, net of income taxes of approximately $18.8
million. At December 31, 1995, the adjustment related to the translation of
the FASL financial statements into U.S. dollars resulted in a decrease of
approximately $6.2 million to the investment in FASL.
Pursuant to a cross-equity provision between AMD and Fujitsu Limited, the
Company purchased $12.7 million of Fujitsu Limited shares, with certain resale
restrictions. Under the same provision, Fujitsu Limited has purchased 2
million shares of AMD common stock, and is required to purchase an additional
2.5 million shares over the next several years, for a total investment not to
exceed $100 million. No purchases were made in 1995.
The following is condensed unaudited financial data of FASL:
<TABLE>
<CAPTION>
THREE YEARS ENDED
DECEMBER 31, 1995
(UNAUDITED)
----------------------------
1995 1994 1993
--------- --------- -------
(THOUSANDS)
<S> <C> <C> <C>
Net sales.................................... $ 252,069 $ -- $ --
Operating income (loss)...................... 117,411 (32,203) (1,772)
Net income (loss)............................ 107,563 (32,293) (1,772)
<CAPTION>
DECEMBER 31, 1995,
AND
DECEMBER 25, 1994
(UNAUDITED)
-------------------
1995 1994
--------- ---------
(THOUSANDS)
<S> <C> <C>
Current assets............................... $ 161,810 $ 10,907
Non-current assets........................... 326,252 263,380
Current liabilities.......................... 107,524 29,362
Non-current liabilities...................... 284 60
</TABLE>
17. CONTINGENCIES
I. LITIGATIONS
A. Class Action Lawsuits. On November 3 and 15, 1995, two class action
lawsuits were filed, purportedly on behalf of purchasers of the Company's
stock from April 11, 1995, to September 25, 1995, alleging
F-23
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
that the Company and various of its officers and directors violated sections
of the Securities Exchange Act of 1934 Rule 10b-5 promulgated thereunder by
issuing allegedly false and misleading statements concerning the development
and production of the AMD-K5(TM). The complaints seek damages in an
unspecified amount. Based upon information presently known to management, the
Company does not believe that the ultimate resolution of these lawsuits will
have a material adverse effect upon the financial condition or results of
operations of the Company.
B. AMD v. Altera Corporation. This litigation, which began in 1994, involves
multiple claims and counterclaims for patent infringement relating to the
Company's and Altera Corporation's programmable logic devices. Based upon
information presently known to management, the Company does not believe that
the ultimate resolution of this lawsuit will have a material adverse effect
upon the financial condition or results of operations of the Company.
C. Thorn EMI North America, Inc. v. AMD. This litigation was filed in 1995
and alleged that AMD infringed a patent owned by Thorn EMI North America, Inc.
relating to the processes used by AMD to manufacture microprocessors. The
litigation was settled and has been dismissed. The settlement will not have a
material adverse effect upon the financial condition or results of operations
of the Company.
II. SEC INVESTIGATION
The Securities and Exchange Commission (SEC) began an informal investigation
of the Company in 1993 concerning the Company's disclosures relating to the
development of microcode for one of its Am486 products. The Company has been
cooperating fully with the SEC. Based upon information presently known to
management, the Company does not believe that the ultimate resolution of the
investigation will have a material adverse effect upon the financial condition
or results of operations of the Company.
III. ENVIRONMENTAL MATTERS
Clean-Up Orders. Since 1981, the Company has discovered, investigated, and
begun remediation of three sites where releases from underground chemical
tanks at its facilities in Santa Clara County, California adversely affected
the groundwater. The chemicals released into the groundwater were commonly in
use in the semiconductor industry in the wafer fabrication process prior to
1979. At least one of the released chemicals (which is no longer used by the
Company) has been identified as a probable carcinogen.
In 1991, the Company received four Final Site Clean-up Requirements Orders
from the California Regional Water Quality Control Board, San Francisco Bay
Region ("RWQCB") relating to the three sites. One of the orders named the
Company as well as TRW Microwave, Inc. and Philips Semiconductors Corporation.
Another of the orders named the Company as well as National Semiconductor
Corporation.
The three sites in Santa Clara County are on the National Priorities List
(Superfund). If the Company fails to satisfy federal compliance requirements
or inadequately performs the compliance measures, the government (a) can bring
an action to enforce compliance, or (b) can undertake the desired response
actions itself and later bring an action to recover its costs, and penalties,
which is up to three times the costs of clean-up activities, if appropriate.
With regard to certain claims related to this matter the statute of
limitations has been tolled.
The Company has computed and recorded the estimated environmental liability
in accordance with applicable accounting rules and has not recorded any
potential insurance recoveries in determining the estimated costs of the
clean-up. The amount of environmental charges to earnings has not been
material during the last three fiscal years. The Company believes that the
potential liability, if any, in excess of amounts already accrued
F-24
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1995, DECEMBER 25, 1994, AND DECEMBER 26, 1993
with respect to the foregoing environmental matters will not have a material
adverse effect on the financial condition or results of operations of the
Company.
IV. OTHER MATTERS
The Company is a defendant or plaintiff in various other actions which arose
in the normal course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
financial condition or results of operations of the Company.
18. SHELF REGISTRATION STATEMENT
On May 25, 1994, the Securities and Exchange Commission declared effective
the Company's shelf registration statement covering up to $400 million of its
securities, which may be either debt securities, preferred stock, depositary
shares representing fractions of shares of preferred stock, common stock,
warrants to purchase common stock, or any combination of the foregoing which
the Company may offer from time to time in the future. The nature and terms of
the securities will be established at the time of their sale. The Company may
offer the securities through underwriters to be named in the future, through
agents or otherwise. The net proceeds of any offering will be used for general
corporate purposes, which may include the reduction of outstanding
indebtedness, working capital increases, and capital expenditures. To date,
the Company has not offered or sold any securities registered under the $400
million registration statement.
F-25
<PAGE>
ADVANCED MICRO DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
---------------------- -----------------------
JULY 2, JULY 2,
JUNE 30, 1995 JUNE 30, 1995
1996 (RESTATED)* 1996 (RESTATED)*
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales...................... $ 455,077 $638,867 $ 999,289 $1,266,248
Expenses:
Cost of sales................ 379,779 315,905 748,514 621,590
Research and development..... 92,768 105,695 187,548 202,569
Marketing, general, and
administrative.............. 83,063 106,602 186,074 209,336
--------- -------- ---------- ----------
555,610 528,202 1,122,136 1,033,495
--------- -------- ---------- ----------
Operating income (loss)........ (100,533) 110,665 (122,847) 232,753
Interest income and other,
net........................... 23,039 6,975 51,098 14,033
Interest expense............... (1,812) (501) (3,793) (1,079)
--------- -------- ---------- ----------
Income (loss) before income
taxes and equity in joint
venture....................... (79,306) 117,139 (75,542) 245,707
Provision (benefit) for income
taxes......................... (31,723) 39,016 (31,723) 81,840
--------- -------- ---------- ----------
Income (loss) before equity in
joint venture................. (47,583) 78,123 (43,819) 163,867
Equity in net income of joint
venture....................... 12,911 2,529 34,474 1,115
--------- -------- ---------- ----------
Net income (loss).............. (34,672) 80,652 (9,345) 164,982
Preferred stock dividends...... -- -- -- 10
--------- -------- ---------- ----------
Net income (loss) applicable to
common stockholders........... $ (34,672) $ 80,652 $ (9,345) $ 164,972
========= ======== ========== ==========
Net income (loss) per common
share......................... $ (.26) $ .59 $ (.07) $ 1.24
========= ======== ========== ==========
Shares used in per share
calculation................... 135,266 136,950 134,487 132,722
========= ======== ========== ==========
</TABLE>
- --------
* Restated from previously released financial information to reflect the
January 1996 merger with NexGen, Inc., which has been accounted for under the
pooling-of-interests method.
See accompanying notes
F-26
<PAGE>
ADVANCED MICRO DEVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1995
1996 (AUDITED)
(UNAUDITED) (RESTATED)*
----------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 77,806 $ 126,316
Short-term investments............................ 203,852 383,349
---------- ----------
Total cash, cash equivalents, and short-term
investments.................................. 281,658 509,665
Accounts receivable, net.......................... 209,691 284,238
Inventories:
Raw materials................................... 31,924 29,494
Work-in-process................................. 99,683 68,827
Finished goods.................................. 44,230 57,665
---------- ----------
Total inventories............................. 175,837 155,986
Deferred income taxes............................. 141,089 147,489
Prepaid expenses and other current assets......... 64,236 40,564
---------- ----------
Total current assets.......................... 872,511 1,137,942
Property, plant, and equipment, at cost............. 3,117,829 2,946,901
Accumulated depreciation and amortization........... (1,436,709) (1,305,267)
---------- ----------
Property, plant, and equipment, net................. 1,681,120 1,641,634
Investment in joint venture......................... 187,881 176,821
Other assets........................................ 103,513 122,070
---------- ----------
$2,845,025 $3,078,467
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks............................ $ 11,878 $ 26,770
Accounts payable.................................. 177,240 241,916
Accrued compensation and benefits................. 57,178 106,347
Accrued liabilities............................... 96,916 103,404
Income tax payable................................ 3,000 56,297
Deferred income on shipments to distributors...... 93,990 100,057
Current portion of long-term debt and capital
lease obligations................................ 27,739 41,642
---------- ----------
Total current liabilities..................... 467,941 676,433
Deferred income taxes............................... 103,807 84,607
Long-term debt and capital lease obligations, less
current portion.................................... 201,922 214,965
Stockholders' equity:
Capital stock:
Common stock, par value......................... 1,404 1,050
Capital in excess of par value.................... 936,475 908,989
Retained earnings................................. 1,133,476 1,192,423
---------- ----------
Total stockholders' equity.................... 2,071,355 2,102,462
---------- ----------
$2,845,025 $3,078,467
========== ==========
</TABLE>
- --------
* Restated from previously released financial information to reflect the
January 1996 merger with NexGen, Inc., which has been accounted for under the
pooling-of-interests method.
See accompanying notes.
F-27
<PAGE>
ADVANCED MICRO DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JULY 2,
JUNE 30, 1995
1996 (RESTATED)*
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ (9,345) $ 164,982
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 163,805 114,096
Net (gain) loss on sale of property, plant, and
equipment.......................................... 678 (9)
Write-down of property, plant, and equipment........ 986 380
Net gain realized on sale of available-for-sale
securities......................................... (41,028) --
Compensation recognized under employee stock plans.. 1,403 1,467
Undistributed income of joint venture............... (34,474) (1,115)
Changes in operating assets and liabilities:
Net (increase) decrease in receivables,
inventories, prepaid expenses, and other assets.. 8,134 (63,677)
Payment of litigation settlement.................. -- (20,000)
Net (increase) decrease in deferred income taxes.. 25,600 (10,595)
Increase (decrease) in income tax payable......... (58,473) 68,078
Net increase (decrease) in payables and accrued
liabilities...................................... (107,325) 82,452
--------- ---------
Net cash provided by (used in) operating activities..... (50,039) 336,059
--------- ---------
Cash flows from investing activities:
Purchase of property, plant, and equipment............ (205,647) (325,695)
Proceeds from sale of property, plant, and equipment.. 1,248 1,400
Purchase of available-for-sale securities............. (351,631) (466,120)
Proceeds from sale of available-for-sale securities... 574,799 384,547
Purchase of held-to-maturity debt securities.......... -- (358,019)
Proceeds from maturities of held-to-maturity debt
securities........................................... -- 326,644
Investment in joint venture........................... -- (18,019)
--------- ---------
Net cash provided by (used in) investing activities..... 18,769 (455,262)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings.............................. 26,231 208,855
Payments on capital lease obligations and other debt.. (68,411) (84,660)
Proceeds from issuance of stock....................... 24,940 88,581
Redemption of preferred stock and stockholder rights.. -- (2,501)
Payments of preferred stock dividends................. -- (10)
--------- ---------
Net cash provided by (used in) financing activities..... (17,240) 210,265
--------- ---------
Net increase (decrease) in cash and cash equivalents.... (48,510) 91,062
Cash and cash equivalents at beginning of period........ 126,316 85,966
--------- ---------
Cash and cash equivalents at end of period.............. $ 77,806 $ 177,028
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the first six months for:
Interest (net of amounts capitalized)............... $ -- $ 2,541
========= =========
Income taxes........................................ $ 2,128 $ 24,010
========= =========
Non-cash financing activities:
Equipment capital leases............................ $ 342 $ 16,508
========= =========
Conversion of preferred stock to common stock....... $ -- $ 270,328
========= =========
</TABLE>
- --------
* Restated from previously released financial information to reflect the
January 1996 merger with NexGen, Inc., which has been accounted for under the
pooling-of-interests method.
See accompanying notes
F-28
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The results of operations for the interim periods shown in this report
are not necessarily indicative of results to be expected for the fiscal year.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature.
The Company uses a 52 to 53 week fiscal year ending on the last Sunday in
December. The quarters ended June 30, 1996 and July 2, 1995 included 13 weeks.
The six months ended June 30, 1996 and July 2, 1995 included 26 and 27 weeks,
respectively.
Certain prior year amounts on the Condensed Consolidated Financial
Statements have been reclassified to conform to the 1996 presentation.
2. The following is a summary of available-for-sale securities included in
cash and cash equivalents and short-term investments as of June 30, 1996 (in
thousands):
<TABLE>
<S> <C>
Cash equivalents
Treasury notes................................................... $ 2,017
Federal agency notes............................................. 28,197
Security repurchase agreements................................... 13,200
Commercial paper................................................. 5,000
Other debt securities............................................ 368
--------
Total cash equivalents......................................... $ 48,782
========
Short-term investments
Certificates of deposit.......................................... $ 25,597
Municipal notes and bonds........................................ 30,109
Corporate notes.................................................. 37,915
Treasury notes................................................... 62,790
Commercial paper................................................. 31,941
Money market auction preferred stocks............................ 15,500
--------
Total short-term investments................................... $203,852
========
</TABLE>
As of June 30, 1996, the Company held $11.8 million of available-for-sale
equity securities with a fair value of $17.8 million which are included in
other assets. The net unrealized gain on these equity securities is included
in retained earnings. During the second quarter and first six months of 1996,
the Company sold a portion of its available-for-sale equity securities and
realized pre-tax gains of $16.3 million and $41.0 million, respectively.
3. The primary net income per common share computation is based on the
weighted average number of common shares outstanding plus dilutive common
share equivalents. The primary net loss per common share computation excludes
common share equivalents as their effect on the net loss per share would be
anti-dilutive. In the first quarter of 1995, the Company called for redemption
of all outstanding shares of its Convertible Preferred Stock. As a result, all
of its outstanding preferred stock was either redeemed or converted to the
Company's common stock. Shares used in the per share computations are as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
---------------- ----------------
JUNE 30, JULY 2, JUNE 30, JULY 2,
1996 1995 1996 1995
-------- ------- -------- -------
(THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C>
Common shares outstanding................ 135,027 128,020 134,259 124,306
Employee stock plans..................... 239 6,759 228 6,453
Warrants................................. -- 2,171 -- 1,963
------- ------- ------- -------
135,266 136,950 134,487 132,722
======= ======= ======= =======
</TABLE>
F-29
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. On January 17, 1996, the Company acquired NexGen, Inc. (NexGen) in a
transaction accounted for as a pooling-of-interests. All financial data and
footnote information of the Company, including the Company's previously issued
financial statements for the periods presented in this Prospectus Supplement,
have been restated to include the historical financial information of NexGen
in accordance with generally accepted accounting principles.
Separate results of the combining entities for the quarter and six months
ended July 2, 1995 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
QUARTER ENDED JULY 2,
JULY 2, 1995 1995
------------- -----------
(THOUSANDS) (THOUSANDS)
<S> <C> <C>
Net sales:
AMD............................................. $626,214 $1,246,310
NexGen.......................................... 12,653 19,938
-------- ----------
$638,867 $1,266,248
======== ==========
Net income (loss):
AMD............................................. $ 97,029 $ 199,381
NexGen.......................................... (16,377) (34,399)
-------- ----------
$ 80,652 $ 164,982
======== ==========
</TABLE>
F-30
<PAGE>
[PHOTOGRAPH OF TWO EXAMPLES OF AMD'S [PHOTOGRAPH OF ONE OF AMD'S PCNET(TM) -
AM29LV800 8-MEGABIT FLASH MEMORY MOBILE SINGLE-CHIP MEDIA ACCESS
DEVICES.] CONTROLLERS FOR WIRELESS LAN
APPLICATIONS.]
AMD's Am29LV800 is a 3.0 volt-only, PCnet(TM)-Mobile is AMD's single-
8-megabit Flash memory device. chip media access controller for
wireless LAN applications.
[PHOTOGRAPH OF AMD TECHNICIAN WORKING IN CLEAN ROOM SPACE AT AMD'S FAB 25
MANUFACTURING FACILITY]
AMD uses advanced semiconductor manufacturing processes at its Fab 25
manufacturing facility.
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DO THEY CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
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TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Prospectus Supplement Summary............................................ S-3
Risk Factors............................................................. S-10
Use of Proceeds.......................................................... S-19
Capitalization........................................................... S-20
Selected Consolidated Financial Data and Ratio of Earnings to Fixed
Charges................................................................. S-21
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... S-22
The Company.............................................................. S-28
Management............................................................... S-42
Description of Collateral................................................ S-45
The Intercreditor Agreement.............................................. S-47
The New Credit Agreement................................................. S-48
Description of Senior Secured Notes...................................... S-51
Certain Material Agreements.............................................. S-78
Certain Tax Considerations............................................... S-80
Underwriting............................................................. S-81
Legal Matters............................................................ S-82
Experts.................................................................. S-82
PROSPECTUS
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
The Company.............................................................. 3
Use of Proceeds.......................................................... 3
Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed
Charges and Preferred Stock Dividends................................... 3
General Description of Securities........................................ 4
Description of Debt Securities........................................... 4
Description of Preferred Stock........................................... 11
Description of Depositary Shares......................................... 14
Description of Common Stock.............................................. 17
Description of Warrants.................................................. 18
Plan of Distribution..................................................... 19
Legal Matters............................................................ 20
Experts.................................................................. 20
PROSPECTUS SUPPLEMENT FINANCIAL STATEMENTS
Index to Consolidated Financial Statements............................... F-1
</TABLE>
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[LOGO]
ADVANCED MICRO DEVICES, INC.
$400,000,000
11% SENIOR SECURED NOTES
DUE 2003
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PROSPECTUS
SUPPLEMENT
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DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BA SECURITIES, INC.
AUGUST 8, 1996
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