<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
--------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-7882
------------------------------------------
ADVANCED MICRO DEVICES, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-1692300
- -------------------------------- ------------------------------------
State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization
One AMD Place
P. O. Box 3453
Sunnyvale, California 94088-3453
- ------------------------------------------ ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 732-2400
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
The number of shares of $0.01 par value common stock outstanding as of August 1,
1996: 135,202,701.
-----------
<PAGE>
ADVANCED MICRO DEVICES, INC.
- ----------------------------
INDEX
- -----
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
--------------------- --------
<S> <C> <C> <C>
Item 1. Financial Statements
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 3
Condensed Consolidated Balance Sheets--
June 30, 1996 and December 31, 1995 4
Condensed Consolidated Statements of
Cash Flows-- Six Months Ended June
30, 1996 and July 2, 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 9
Part II. Other Information
-----------------
Item 1. Legal Proceedings 29
Item 4. Submission of Matters to a Vote of
Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 31
Signature 32
---------
</TABLE>
2
<PAGE>
I. FINANCIAL INFORMATION
---------------------
ITEM 1.
-------
FINANCIAL STATEMENTS
--------------------
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
- ----------------------
3
<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 4
- ----------------------
<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 5
- ----------------------
<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):
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
==========
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.
6
<PAGE>
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>
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 Form 10-Q, 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:
7
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
July 2, 1995 July 2, 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>
8
<PAGE>
Item 2. 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; the planned sale of the Senior Secured
Notes (as defined below); the description of the New Credit Agreement (as
defined below); future business prospects for microprocessors, Flash memory
device products and other product lines; the development, validation,
certification, introduction, market acceptance and pricing of the K86(TM)
products; the impact of the Company's acquisition of NexGen, Inc. (NexGen);
the Company's commitment to research and development; the planned build-
out of Fab 25; external financing plans and financial instruments; and the
proposed Dresden and FASL II manufacturing facilities. FASL II is the
second Flash memory device wafer fabrication facility to be built by the
Company's manufacturing joint venture with Fujitsu Limited, Fujitsu AMD
Semiconductor Limited ("FASL"). See "Financial Condition" and "Risk
Factors" below, as well as such other risks and uncertainties as are
detailed in the Company's Securities and Exchange Commission reports and
filings 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 the attached
Condensed Consolidated Financial Statements and Notes thereto, and with the
Company's 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. On January 17, 1996, the Company
acquired 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.
Am486 and Nx586 are registered trademarks of AMD.
K86, K86 RISC SUPERSCALAR, AMD-K5, AMD-K6, SLAC, and Nx686 are trademarks
of AMD.
Windows and WindowsNT are registered trademarks of Microsoft Corporation.
9
<PAGE>
RESULTS OF OPERATIONS
---------------------
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(R) 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.
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(TM) 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.
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.
10
<PAGE>
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 micro-
processors, 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(TM) 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
revenues for the Company achieved by the Am486 microprocessor. The Company
believes that the success of the Company's fifth generation microprocessor
products during the remainder of 1996 will depend on market acceptance of
the Company's 100 megahertz ("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(TM) 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.
Gross margins were 17 percent for the second quarter of 1996 as compared to
51 percent for the same period in 1995 and 32 percent for the first quarter
of 1996. For the six month period ended June 30, 1996, gross margins
decreased to 25 percent from 51 percent 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 at its newest manufacturing facility, located in Austin, Texas
("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.
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.
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
11
<PAGE>
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.
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, 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 construction of Fab 25.
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 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 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
12
<PAGE>
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. 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 $72.8 million
at March 31, 1996.
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 counterparties 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.
13
<PAGE>
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.
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 continue to make significant capital investments
through the remainder of 1996, including an estimated $215.0 million for
Fab 25 and $75.0 million related to the proposed Dresden submicron
integrated circuit manufacturing facility, as described below. During the
six months ended June 30, 1996, the Company made capital investments of
approximately $108.0 million in Fab 25.
The Company 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 Facility, through a wholly owned
subsidiary or through a wholly owned intermediate holding company, as
appropriate (the "German Subsidiary"), 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 $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
German Subsidiary will construct, own and operate the Dresden Facility, but
the Company, as sole shareholder of the German Subsidiary, will control it.
The German 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.
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The German 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 German 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 German Subsidiary to Dresdner Bank AG in connection with the
syndicated loan. The Company will commit to provide the German Subsidiary
an additional $100.0 million to $150.0 million, depending on the outcome of
negotiations with Dresdner Bank AG, for the German Subsidiary's use with
respect to the German 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 German 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.
The Company 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, the Company (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 German
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 (the Company'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 German Subsidiary or the destruction
or abandonment of the Dresden Facility); (3) cause the German 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
German 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 German Subsidiary to fund cost overruns,
exceeding certain amounts, in constructing the Dresden Facility.
In the event AMD agrees to purchase products from the German Subsidiary,
the Indenture ("Indenture") under which Senior Secured Notes of the Company
will be issued as described below provides that such purchases must occur
at prices that
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would provide the Company with a minimum contribution margin as defined in
the Indenture.
No assurance can be given that the Company 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 the Company 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 German Subsidiary.
The Company's total cash investment in FASL was $160.4 million at the end
of the second quarter of 1996 and at the end of 1995. No additional cash
investment is currently planned for the remainder of 1996. In March of
1996, FASL began construction of 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 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.
The Company is currently offering for sale $400.0 million of Senior Secured
Notes (the "Offering") due August 1, 2003 under its shelf registration
statement declared effective by the Securities and Exchange Commission on
May 17, 1994. The Offering is being underwritten by Donaldson, Lufkin &
Jenrette Securities Corporation and BA Securities, Inc. It is presently
anticipated that the closing of the Offering will occur during the week of
August 12, 1996. Upon the sale of the Senior Secured Notes, the Company
will have fully utilized its existing shelf registration statement.
Interest on the Senior Secured Notes will accrue at the rate of 11 percent
per annum and will be payable semi-annually in arrears on February 1 and
August 1 of each year, commencing February 1, 1997. Except as described
under "Asset Sales, Collateral Asset Sales and Events of Loss" and "Change
of Control" in the Indenture under which the Senior Secured Notes will be
issued, 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, at a premium.
On July 19, 1996, the Company entered into an agreement, which was amended
on August 7, 1996, with three commercial banks which provides for a new
$400.0 million term loan and revolving credit facility which will become
available concurrently with the sale of the Senior Secured Notes (as
amended, 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 New Credit Agreement will
replace the Company's existing unsecured, and currently unused, $250.0
million 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
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approval of the lending 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. 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 between the bank
lenders under the New Credit Agreement and the Indenture Trustee under the
Indenture pursuant to which the Senior Secured Notes will be issued, in
substantially all of the Company's real property, plant and equipment at
Fab 25 and ancillary buildings.
Assuming consummation of the Offering, the net proceeds to the Company from
the Offering, after deducting underwriting discounts and commissions and
estimated expenses of the Offering, are expected to be approximately $389.0
million. The Company intends to use $150.0 million of the net proceeds to
repay its existing four-year term bank loan which matures on January 5,
1999. The Company expects to use the balance of the net proceeds of
approximately $238.5 million for general corporate purposes.
As of June 30, 1996, the Company's available financial resources were (i)
$281.7 million of cash, cash equivalents, and short-term investments, (ii)
unsecured committed bank lines of credit of $250.0 million, and (iii)
short-term, unsecured uncommitted bank credit in the amount of $80.0
million.
Assuming consummation of the Offering and following the intended use of
$150.0 million of the net proceeds to repay the Company's existing $150.0
million four-year term loan, the Company's available financial resources,
as of June 30, 1996, would consist on a pro forma basis 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's present business plan envisions substantial outlays requiring
external capital financing which the Company intends to obtain from the
proceeds of the sale of the Senior Secured Notes and borrowings under the
New Credit Agreement. If the
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sale of the Senior Secured Notes is not consummated, the credit facilities
provided for in the New Credit Agreement will not become available to the
Company. There can be no assurance that the sale of the Senior Secured
Notes will be consummated. Failure to obtain the requisite external capital
financing could have a material adverse effect on the Company.
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.
RISK FACTORS
------------
The Company's business, results of operations and financial condition are
subject to the following risk factors:
Microprocessor Products
Intel Dominance. Intel Corporation ("Intel") has long held a dominant
position in the market for microprocessors used in personal computers
("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 manufac-
turing facilities and to maintain its dominant position through
advertising campaigns designed to 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
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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. 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
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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 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 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 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 to 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
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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 micro-
processors, 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 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
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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 German 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, FASL 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
integrated circuit manufacturing facility and ancillary buildings 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
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of specific product lines. In addition, the Company's German Subsidiary
currently plans to construct a semiconductor manufacturing facility, at an
estimated cost of $1.5 billion over 5 years, which will be dedicated to the
production of microprocessors. Significant time and expense would be
incurred were the Company to alter any of its facilities so that they could
be used to produce other integrated circuit 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.
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Other Risk Factors
Debt Restrictions. The New Credit Agreement contains, and the indenture
to be entered into in connection with the sale of the Senior Secured Notes
(the "Indenture") 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 the
indebtedness under the New Credit Agreement and the Indenture. The
limitations imposed by the New Credit Agreement and the Indenture will be
substantial, and failure to comply with such limitations could have a
material adverse effect on the Company.
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 by
Competitor of Existing PLD Software Supplier. 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 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
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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,
25
<PAGE>
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, 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.
26
<PAGE>
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 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
27
<PAGE>
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.
28
<PAGE>
II. OTHER INFORMATION
Item 1. Legal Proceedings
Advanced Micro Devices, Inc. v. Altera Corporation (Case No. C94-20567-RMW,
U.S. District Ct., San Jose, California). 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. On June 21, 1996, the jury returned a verdict favorable to
Altera. The Company has filed a motion seeking to set aside the verdict.
If the motion is denied, the parties have stipulated that the court, not a
jury, will decide which of the AMD patents-in-suit fall within the scope of
the license that the jury found. 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.
29
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on April
25, 1996. The following are the results of the voting on the
proposals submitted to stockholders at the annual meeting.
Proposal No. 1 - Election of Directors. The following
individuals were elected as directors:
<TABLE>
<CAPTION>
NAME FOR WITHHELD
<S> <C> <C>
W. J. Sanders III 106,104,973 3,739,496
Friedrich Baur 106,195,691 3,648,778
Charles M. Blalack 106,421,611 3,422,858
R. Gene Brown 106,467,916 3,376,553
S. Atiq Raza 105,997,932 3,846,537
Richard Previte 106,159,355 3,685,114
Joe L. Roby 105,704,564 4,139,905
Leonard Silverman 106,439,767 3,404,702
</TABLE>
Proposal No. 2 - The proposal to ratify the appointment of Ernst
& Young LLP, as the Company's independent auditors for the
current fiscal year was approved.
For: 109,136,095 Against: 384,768 Abstain: 323,606
Proposal No. 3 - The proposal to approve the 1996 Stock
Incentive Plan was approved.
For: 99,184,839 Against: 8,532,428 Abstain: 2,127,202
Proposal No. 4 - The proposal to approve the 1996 Executive
Incentive Plan was approved.
For: 104,105,617 Against: 3,623,044 Abstain: 2,115,808
Other - A proposal by the New York City Employees' Retirement
System ("NYCERS") requesting that the Board of Directors
establish a nominating committee consisting solely of
independent directors (as defined in the proposal) was not
properly brought before the annual meeting for a vote because a
representative of NYCERS failed to attend the meeting and offer
the proposal for consideration and approval. If the proposal had
been properly presented, it would have been defeated based upon
the shares of AMD's common stock present in person or
represented by proxy and entitled to vote at the annual meeting.
30
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits 10.11 Advanced Micro Devices, Inc. 1996 Stock
Incentive Plan, filed as Exhibit 99 to the
Corporation's Form S-8 Registration
Statement (No. 333-04797) filed on May 30,
1996, is hereby incorporated by reference.
10.14(b) 1996 Executive Incentive Plan
10.37 1995 Stock Plan of NexGen, Inc.
(assumed by Advanced Micro Devices,
Inc.) as amended.
27.1 Financial Data Schedule
(b). Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter
for which this report is filed:
1. Current Report on Form 8-K dated April 1, 1996 reporting
under Item 5 - Other Events - lower than expected first
quarter earnings.
2. Current Report on Form 8-K dated April 9, 1996 reporting
under Item 5 - Other Events - first quarter earnings.
3. Current Report on Form 8-K dated June 19, 1996 reporting
under Item 5 - Other Events - Supplemental Consolidated
Financial Statements.
4. Current Report on Form 8-K dated June 20, 1996 reporting
under Item 5 - Other Events - lower than expected second
quarter earnings.
31
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED MICRO DEVICES, INC.
Date: August 7, 1996 By: /s/ Geoffrey Ribar
----------------- ------------------
Geoffrey Ribar
Vice President and
Corporate Controller
Signing on behalf of the
registrant and as the principal
accounting officer
32
<PAGE>
EXHIBIT INDEX
-------------
Exhibits
--------
10.11 Advanced Micro Devices, Inc. 1996 Stock Incentive Plan, filed
as Exhibit 99 to the Corporation's Form S-8 Registration
Statement (No. 333-04797) filed on May 30, 1996, is hereby
incorporated by reference.
10.14(b) 1996 Executive Incentive Plan
10.37 1995 Stock Plan of NexGen, Inc. (assumed by Advanced Micro
Devices, Inc.) as amended.
27.1 Financial Data Schedule
<PAGE>
EXHIBIT 10.14(b)
ADVANCED MICRO DEVICES, INC.
EXECUTIVE INCENTIVE PLAN
FEBRUARY, 1996
1. PURPOSES
The purposes of the Advanced Micro Devices, Inc. (AMD) Executive Incentive Plan
are to motivate the Company's key employees to improve stockholder value by
linking a portion of their cash compensation to the Company's financial
performance, reward key employees for improving the Company's financial
performance, and help attract and retain key employees.
2. DEFINITIONS
A. "Award" means any cash incentive payment made under the Plan.
B. "Code" means the Internal Revenue Code of 1986, as amended.
C. "Committee" means the Compensation Committee of AMD's Board of Directors,
or such other committee designated by that Board of Directors, which is
authorized to administer the Plan under Section 3 hereof. The Committee
shall be comprised solely of directors who are outside directors under
Section 162(m) of the Code.
D. "Company" means AMD and any corporation or other business entity of which
AMD (i) directly or indirectly has an ownership interest of 50% or more,
or (ii) has a right to elect or appoint 50% or more of the board of
directors or other governing body.
E. "Key Employee" means any employee of the Company whose performance the
Committee determines can have a significant effect on the success of the
Company.
F. "Participant" means any Key Employee to whom an Award is granted under the
Plan.
G. "Plan" means this Plan, which shall be known as the AMD Executive Incentive
Plan.
3. ADMINISTRATION
A. The Plan shall be administered by the Committee. The Committee shall have
the authority to:
<TABLE>
<S> <C>
(i) interpret and determine all questions of policy and expediency pertaining to
the Plan;
(ii) adopt such rules, regulations, agreements and instruments as it deems necessary
for its proper administration;
(iii) select Key Employees to receive Awards;
(iv) determine the terms of Awards;
(v) determine amounts subject to Awards (within the limits prescribed in the Plan);
(vi) determine whether Awards will be granted in replacement of or as alternatives
to any other incentive or compensation plan of the Company or an acquired
business unit;
(vii) grant waivers of Plan or Award conditions (other than Awards intended to
qualify under Section 162(m) of the Code);
(viii) accelerate the payment of Awards (but with respect to Awards intended to
qualify under Section 162(m) of the Code, only as permitted under that
Section);
(ix) correct any defect, supply any omission, or reconcile any inconsistency in the
Plan, any Award or any Award notice;
(x) take any and all other actions it deems necessary or advisable for the proper
administration of the Plan;
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(xi) adopt such Plan procedures, regulations, subplans and the like as it deems are
necessary to enable Key Employees to receive Awards; and
(xii) amend the Plan at any time and from time to time, provided however that no
amendment to the Plan shall be effective unless approved by the Company's
stockholders, to the extent such stockholder approval is required under Section
162(m) of the Code with respect to Awards which are intended to qualify under
that Section.
</TABLE>
B. The Committee may delegate its authority to grant and administer Awards to
a separate committee; however, only the Committee may grant and administer
Awards which are intended to qualify as performance-based compensation
under Section 162(m) of the Code.
4. ELIGIBILITY
Only Key Employees as designated by the Committee are eligible to become
Participants in the Plan.
5. PERFORMANCE GOALS
A. The Committee shall establish performance goals applicable to a particular
fiscal year (or performance period) prior to its start, provided, however,
that such goals may be established after the start of the fiscal year (or
performance period) but while the outcome of the performance goal is
substantially uncertain if such a method of establishing performance goals
is permitted under proposed or final regulations issued under Code Section
162(m).
B. Each performance goal applicable to a fiscal year shall identify one or
more business criteria of the Company and/or any business unit that are to
be monitored during the fiscal year (or performance period), such as:
. Net income . Stockholder return
. Earnings per share . Revenue
. Return on investment . Revenue growth
. Operating income . Market share
. Strategic positioning programs . Return on net assets
. Cash flow . Return on equity
. New product releases
C. The Committee shall determine the target level of performance that must be
achieved with respect to each criterion that is identified in a
performance goal in order for a performance goal to be treated as
attained.
D. The Committee may base performance goals on one or more of the foregoing
business criteria. In the event performance goals are based on more than
one business criterion, the Committee may determine to make Awards upon
attainment of the performance goal relating to any one or more of such
criteria, provided the performance goals, when established, are stated as
alternatives to one another at the time the performance goal is
established.
6. AWARDS
A. Awards may be made on the basis of Company and/or business unit
performance goals and formulas determined by the Committee. During any
fiscal year of the Company, no Participant shall receive an Award of more
$5,000,000.
B. The Committee, in its discretion, may reduce or eliminate a Participant's
Award at any time before it is paid, whether or not calculated on the
basis of pre-established performance goals or formulas.
2
<PAGE>
C. The payment of an Award requires that the Participant be on the Company's
payroll as of the last day of the fiscal year (or performance period). The
Committee may make exceptions to this requirement in the case of
retirement, death or disability, as determined by the Committee in its
sole discretion.
D. The Company shall withhold all applicable federal, state, local and
foreign taxes required by law to be paid or withheld relating to the
receipt or payment of any Award.
E. At the discretion of the Committee, payment of an Award or any portion
thereof may be deferred until a time established by the Committee.
Deferrals shall be unfunded and shall be made in accordance with
guidelines established by the Committee to ensure that such deferrals
comply with applicable requirements of the Code and its regulations.
Deferrals shall be initiated by the delivery of a written, irrevocable
election by the Participant to the Committee or its nominee. Such election
shall be made prior to the date specified by the Committee. The Committee
may also credit earnings on cash payments that are deferred and set the
rates of such interest.
7. GENERAL
A. The Plan shall become effective as of January 1, 1996, subject to
stockholder approval of the Plan prior to January 1, 1996 or within twelve
months thereafter.
B. Any rights of a Participant under the Plan shall not be assignable by such
Participant, by operation of law or otherwise, except by will or the laws
of descent and distribution. No Participant may create a lien on any funds
or rights to which he or she may have an interest under the Plan, or which
is held by the Company for the account of the Participant under the Plan.
C. Participation in the Plan shall not give any Key Employee any right to
remain in the employ of the Company. Further, the adoption of this Plan
shall not be deemed to give any Key Employee or other individual the right
to be selected as a Participant or to be granted an Award.
D. To the extent any person acquires a right to receive payments from the
Company under this Plan, such rights shall be no greater than the rights
of an unsecured creditor of the Company.
E. The Plan shall be governed by and construed in accordance with the laws of
the State of California.
F. The Board may amend or terminate the Plan (i) at any time and for any
reason subject to stockholder approval and (ii) at any time and for any
reason if and to the extent the Plan's qualification under Section 162(m)
of the Code would not be adversely affected.
3
<PAGE>
EXHIBIT 10.37
1995 STOCK PLAN OF NEXGEN, INC.
-------------------------------
(As Amended Effective April 25, 1996)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE..................................... 1
SECTION 2. DEFINITIONS................................................... 1
SECTION 3. ADMINISTRATION................................................ 4
(a) Committee Membership............................................ 4
(b) Committee Procedures............................................ 5
(c) Committee Responsibilities...................................... 5
SECTION 4. ELIGIBILITY................................................... 6
(a) General Rules................................................... 6
(b) Outside Directors............................................... 6
(c) Ten-Percent Stockholders........................................ 8
(d) Attribution Rules............................................... 8
(e) Outstanding Stock............................................... 8
SECTION 5. STOCK SUBJECT TO PLAN......................................... 8
(a) Basic Limitation................................................ 8
(b) Additional Shares............................................... 9
SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES....................... 9
(a) Stock Purchase Agreement........................................ 9
(b) Duration of Offers and Nontransferability of Rights............. 9
(c) Purchase Price.................................................. 9
(d) Withholding Taxes............................................... 9
(e) Restrictions on Transfer of Shares.............................. 10
SECTION 7. TERMS AND CONDITIONS OF OPTIONS............................... 10
(a) Stock Option Agreement.......................................... 10
(b) Number of Shares................................................ 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(c) Exercise Price.................................................. 10
(d) Withholding Taxes............................................... 10
(e) Exercisability.................................................. 11
(f) Term............................................................ 11
(g) Nontransferability.............................................. 11
(h) No Rights as a Stockholder...................................... 11
(i) Modification, Extension and Renewal of Options.................. 11
(j) Restrictions on Transfer of Shares.............................. 12
SECTION 8. PAYMENT FOR SHARES............................................ 12
(a) General Rule.................................................... 12
(b) Surrender of Stock.............................................. 12
(c) Exercise/Sale................................................... 12
(d) Exercise/Pledge................................................. 13
(e) Services Rendered............................................... 13
(f) Promissory Note................................................. 13
SECTION 9. ADJUSTMENT OF SHARES.......................................... 13
(a) General......................................................... 13
(b) Reorganizations................................................. 14
(c) Reservation of Rights........................................... 14
SECTION 10. SECURITIES LAWS.............................................. 14
SECTION 11. NO RETENTION RIGHTS.......................................... 14
SECTION 12. DURATION AND AMENDMENTS...................................... 15
(a) Term of the Plan................................................ 15
(b) Right to Amend or Terminate the Plan............................ 15
(c) Effect of Amendment or Termination.............................. 15
</TABLE>
<PAGE>
1995 STOCK PLAN OF NEXGEN, INC.
-------------------------------
SECTION 1. ESTABLISHMENT AND PURPOSE.
- --------- -------------------------
The Plan was adopted by the Board of Directors of NexGen, Inc. (the "NexGen
Board") on March 12, 1995, thereafter amended by the NexGen Board on May 10,
1995 and December 8, 1995. Effective upon the merger of NexGen, Inc. with and
into Advanced Micro Devices, Inc. ("AMD") on January 17, 1996, AMD assumed the
Plan as the successor to NexGen. The AMD Board of Directors amended the Plan on
February 7, 1996 and April 25, 1996. The purpose is to offer to selected
employees, consultants and promotional representatives an opportunity to acquire
a proprietary interest in the success of the Company, or to increase such
interest, by purchasing Shares of the Company's Common Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory Options
as well as ISOs intended to qualify under section 422 of the Code.
The Plan is intended to comply in all respects with Rule 16b-3 (or its
successor) under the Exchange Act and shall be construed accordingly.
SECTION 2. DEFINITIONS.
- --------- -----------
(a) "Board of Directors" shall mean the Board of Directors of the Company,
------------------
as constituted from time to time.
(b) "Change in Control" shall mean the occurrence of either of the
-----------------
following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the beneficial owner (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such person
any securities acquired directly from the Company or any of its affiliates)
representing more than 20% of either the then outstanding shares of the
Common Stock of the Company or the combined voting power of the Company's
then outstanding voting securities;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors and any new
director (other than a director designated by a person who has entered into
an agreement or arrangement with the Company to effect a transaction
described in clause (i) or (iii) of this sentence) whose appointment,
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
appointment, election, or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board of
Directors;
(iii) there is consummated a merger or consolidation of the Company or a
Subsidiary thereof with or into any other corporation, other than a merger
or consolidation which would result in the holders of the voting securities
of the Company outstanding immediately prior thereto holding securities
which represent immediately after such merger or consolidation more than
50% of the combined voting power of the voting securities of either the
Company or the other entity which survives such merger or consolidation or
the parent of the entity which survives such merger or consolidation; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or there is consummated the sale or disposition
by the Company of all or substantially all of the Company's assets, other
than a sale or disposition by the Company of all or substantially all of
the Company's assets to an entity, at least 80% of the combined voting
power of the voting securities of which are owned by persons in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
Notwithstanding the foregoing (i) no "Change of Control" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the Common Stock
of the Company immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the Company immediately
prior to such transaction or series of transactions and (ii) "Change of Control"
shall exclude the acquisition of securities representing more than 20% of either
the then outstanding shares of the Common Stock of the Company or the combined
voting power of the Company's then outstanding voting securities by the Company
or any of its wholly owned Subsidiaries, or any trustee or other fiduciary
holding securities of the Company under an employee benefit plan now or
hereafter established by the Company.
-1-
<PAGE>
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" shall mean a committee of the Board of Directors, as
---------
described in Section 3(a).
(e) "Company" shall mean NexGen, Inc., a Delaware corporation, its parent
-------
corporation, or its successor.
(f) "Employee" shall mean:
--------
(i) Any individual who is a common-law employee of the Company or of
a Subsidiary;
(ii) An Outside Director; and
(iii) An independent contractor who performs services for the Company
or a Subsidiary and who is not a member of the Board of Directors.
Service as an Outside Director or independent contractor shall be considered
employment for all purposes of the Plan, except as provided in Section 4(a).
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(h) "Exercise Price" shall mean the amount for which one Share may be
--------------
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(i) "Fair Market Value" shall mean the market price of Stock, determined
-----------------
by the Committee as follows:
(i) If Stock was traded over-the-counter on the date in question but
was not traded on the Nasdaq system or the Nasdaq National Market System,
then the Fair Market Value shall be equal to the mean between the last
reported representative bid and asked prices quoted for such date by the
principal automated inter-dealer quotation system on which Stock is quoted
or, if Stock is not quoted on any such system, by the "Pink Sheets"
published by the National Quotation Bureau, Inc.;
(ii) If Stock was traded over-the-counter on the date in question and
was traded on the Nasdaq system or the Nasdaq National Market System, then
the Fair Market Value
-2-
<PAGE>
shall be equal to the last-transaction price quoted for such date by the
Nasdaq system or the Nasdaq National Market System;
(iii) If Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite-transactions report for such date; and
(iv) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.
(j) "IPO" means the initial offering of Stock to the public pursuant to a
---
registration statement filed with the Securities and Exchange Commission on Form
S-1.
(k) "ISO" shall mean an employee incentive stock option described in
---
section 422(b) of the Code.
(l) "Nonstatutory Option" shall mean a stock option not described in
-------------------
sections 422(b) or 423(b) of the Code.
(m) "Offeree" shall mean an individual to whom the Committee has offered
-------
the right to acquire Shares under the Plan (other than upon exercise of an
Option).
(n) "Option" shall mean an ISO or Nonstatutory Option granted under the
------
Plan and entitling the holder to purchase Shares.
(o) "Optionee" shall mean an individual who holds an Option.
--------
(p) "Outside Director" shall mean a member of the Board of Directors who
----------------
is not a common-law employee of the Company or of a Subsidiary.
(q) "Plan" shall mean this 1995 Stock Plan of NexGen, Inc., as it may be
----
amended from time to time.
(r) "Purchase Price" shall mean the consideration for which one Share may
--------------
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Committee.
(s) "Service" shall mean service as an Employee.
-------
(t) "Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 9 (if applicable).
-3-
<PAGE>
(u) "Stock" shall mean the Common Stock of the Company.
-----
(v) "Stock Option Agreement" shall mean the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(w) "Stock Purchase Agreement" shall mean the agreement between the
------------------------
Company and an Offeree who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(x) "Subsidiary" shall mean any corporation, if the Company and/or one or
----------
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
(y) "Total and Permanent Disability" shall mean that the Optionee is
------------------------------
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than one year.
(z) "Vesting Start Date," in the case of an Outside Director, shall mean
------------------
the latest of:
(i) The date of the IPO;
(ii) The earliest date when the Outside Director no longer holds
unexercisable options to purchase more than 10,000 Shares that were granted
to him or her by the Company prior to the IPO; or
(iii) The date when the Outside Director first joins the Board of
Directors.
SECTION 3. ADMINISTRATION.
- --------- --------------
(a) Committee Membership. The Plan shall be administered by the
--------------------
Committee. The Committee shall consist of two or more members of the Board of
Directors who meet the requirements established from time to time by:
(i) The Securities and Exchange Commission for plans intended to
qualify for exemptions under Rule 16b-3 (or its successor) under the
Exchange Act; and
(ii) The Internal Revenue Service for plans intended to qualify for
an exemption under section 162(m)(4)(C) of the Code.
-4-
<PAGE>
An Outside Director shall not fail to meet such requirements solely because he
or she receives the Nonstatutory Options described in Section 4(b). The Board
of Directors may appoint a separate committee, consisting of one or more members
of the Board of Directors who need not meet such requirements. Such committee
may administer the Plan with respect to Employees who are not officers or
directors of the Company, may grant Shares and Options under the Plan to such
Employees and may determine the timing, number of Shares and other terms of such
grants.
(b) Committee Procedures. The Board of Directors shall designate one of
--------------------
the members of the Committee as chairman. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.
(c) Committee Responsibilities. Subject to the provisions of the Plan,
--------------------------
the Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(iv) To determine when Shares are to be awarded or offered for sale
and when Options are to be granted under the Plan;
(v) To select the Offerees and Optionees;
(vi) To determine the number of Shares to be offered to each Offeree
or to be made subject to each Option;
(vii) To prescribe the terms and conditions of each award or sale of
Shares, including (without limitation) the Purchase Price, and to specify
the provisions of the Stock Purchase Agreement relating to such award or
sale;
(viii) To prescribe the terms and conditions of each Option,
including (without limitation) the Exercise Price, to determine whether
such Option is to be classified as an ISO or as a Nonstatutory Option, and
to specify the provisions of the Stock Option Agreement relating to such
Option;
(ix) To amend any outstanding Stock Purchase Agreement or Stock
Option Agreement, subject to applicable legal
-5-
<PAGE>
restrictions and to the consent of the Offeree or Optionee who entered into
such agreement;
(x) To prescribe the consideration for the grant of each Option or
other right under the Plan and to determine the sufficiency of such
consideration; and
(xi) To take any other actions deemed necessary or advisable for the
administration of the Plan.
All decisions, interpretations and other actions of the Committee shall be final
and binding on all Offerees, all Optionees, and all persons deriving their
rights from an Offeree or Optionee. No member of the Committee shall be liable
for any action that he or she has taken or has failed to take in good faith with
respect to the Plan, any Option, or any right to acquire Shares under the Plan.
SECTION 4. ELIGIBILITY.
- --------- -----------
(a) General Rules. Only Employees (including, without limitation,
-------------
independent contractors who are not members of the Board of Directors) shall be
eligible for designation as Optionees or Offerees by the Committee. In
addition, only Employees who are common-law employees of the Company or a
Subsidiary shall be eligible for the grant of ISOs. Employees who are Outside
Directors shall only be eligible for the grant of the Nonstatutory Options
described in Subsection (b) below.
(b) Outside Directors. Any other provision of the Plan notwithstanding,
-----------------
Outside Directors shall not participate in the Plan after February 7, 1996,
although Options granted to Outside Directors prior to such date shall continue
to be governed by the Plan as in effect prior to February 7, 1996.
(c) Ten-Percent Stockholders. An Employee who owns more than 10 percent
------------------------
of the total combined voting power of all classes of outstanding stock of
the Company or any of its Subsidiaries shall not be eligible for the grant
of an ISO unless:
(i) The Exercise Price is at least 110 percent of the Fair Market
Value of a Share on the date of grant; and
(ii) Such ISO by its terms is not exercisable after the expiration of
five years from the date of grant.
(d) Attribution Rules. For purposes of Subsection (c) above, in
-----------------
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for such Employee's brothers, sisters, spouse,
ancestors and lineal descendants. Stock owned, directly or indirectly, by or
for a corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or
-6-
<PAGE>
beneficiaries. Stock with respect to which such Employee holds an option shall
not be counted.
(e) Outstanding Stock. For purposes of Subsection (c) above, "outstanding
-----------------
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall not include shares authorized for issuance
under outstanding options held by the Employee or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
- --------- ---------------------
(a) Basic Limitation. Shares offered under the Plan shall be authorized
----------------
but unissued Shares or treasury Shares. The aggregate number of Shares which
is issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed 2,250,741 Shares; provided that the number of Shares
which is issued under the Plan upon exercise of ISOs shall in no event exceed
1,200,000 Shares during the entire term of the Plan. All limitations under this
Subsection (a) shall be subject to adjustment pursuant to Section 9. The number
of Shares which are subject to Options or other rights outstanding at any time
under the Plan shall not exceed the number of Shares which then remain available
for issuance under the Plan. The Company, during the term of the Plan, shall at
all times reserve and keep available sufficient Shares to satisfy the
requirements of the Plan.
(b) Additional Shares. In the event that any outstanding option granted
-----------------
under this Plan or the 1987 Employee Stock Plan of NexGen, Inc. (the "Prior
Plan") for any reason expires or is cancelled or otherwise terminated, the
Shares allocable to the unexercised portion of such option shall become
available for the purposes of this Plan. In the event that Shares issued under
this Plan or the Prior Plan are reacquired by the Company pursuant to a
forfeiture provision, a right of repurchase or a right of first refusal, such
Shares shall become available for the purposes of this Plan.
SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES.
- --------- ---------------------------------------
(a) Stock Purchase Agreement. Each award or sale of Shares under the Plan
------------------------
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Offeree and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject
to any other terms and conditions which are not inconsistent with the Plan and
which the Committee deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights. Any right to
---------------------------------------------------
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Offeree within 30 days after the grant of such right was
communicated to the
-7-
<PAGE>
Offeree by the Committee. Such right shall not be transferable and shall be
exercisable only by the Offeree to whom such right was granted.
(c) Purchase Price. The Purchase Price of Shares to be offered under the
--------------
Plan shall not be less than the par value of such Shares. Subject to the
preceding sentence, the Purchase Price shall be determined by the Committee at
its sole discretion. The Purchase Price shall be payable in a form described
in Section 8.
(d) Withholding Taxes. As a condition to the award, sale or vesting of
-----------------
Shares, the Offeree shall make such arrangements as the Committee may require
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that arise in connection with such Shares. The Committee may permit
the Offeree to satisfy all or part of his or her tax obligations related to such
Shares by having the Company withhold a portion of any Shares that otherwise
would be issued to him or her or by surrendering any Shares that previously were
acquired by him or her. The Shares withheld or surrendered shall be valued at
their Fair Market Value on the date when taxes otherwise would be withheld in
cash. The payment of taxes by assigning Shares to the Company, if permitted by
the Committee, shall be subject to such restrictions as the Committee may
impose, including any restrictions required by rules of the Securities and
Exchange Commission.
(e) Restrictions on Transfer of Shares. Any Shares awarded or sold under
----------------------------------
the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Purchase Agreement and shall apply in addition to any general
restrictions that may apply to all holders of Shares.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS.
- --------- -------------------------------
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
----------------------
be evidenced by a Stock Option Agreement executed by the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the
----------------
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance
-8-
<PAGE>
with Section 9. Options granted to any Optionee in a single calendar year shall
in no event cover more than 400,000 Shares, subject to adjustment in accordance
with Section 9. The Stock Option Agreement shall also specify whether the
Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price of an ISO shall not be less than 100 percent
of the Fair Market Value of a Share on the date of grant, except as otherwise
provided in Section 4(c). The Exercise Price of a Nonstatutory Option shall
not be less than the par value of a Share. Subject to the preceding two
sentences, the Exercise Price under any Option shall be determined by the
Committee at its sole discretion. The Exercise Price shall be payable in a form
described in Section 8.
(d) Withholding Taxes. As a condition to the exercise of an Option, the
-----------------
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state, local or foreign withholding tax obligations that may arise in connection
with the disposition of Shares acquired by exercising an Option. The Committee
may permit the Optionee to satisfy all or part of his or her tax obligations
related to the Option by having the Company withhold a portion of any Shares
that otherwise would be issued to him or her or by surrendering any Shares that
previously were acquired by him or her. Such Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
The payment of taxes by assigning Shares to the Company, if permitted by the
Committee, shall be subject to such restrictions as the Committee may impose,
including any restrictions required by rules of the Securities and Exchange
Commission.
(e) Exercisability. Each Stock Option Agreement shall specify the date
--------------
when all or any installment of the Option is to become exercisable. The vesting
of any Option shall be determined by the Committee at its sole discretion. If
the employment of any Optionee who is a common law employee of the Company is
terminated by the Company for any reason other than Misconduct or if applicable,
by Constructive Termination, within one year after a Change of Control has
occurred, then all Options held by such Optionee shall become fully vested for
exercise upon the date of termination, irrespective of the vesting provisions of
the Optionee's Stock Option Agreement. For purposes of this paragraph, the
following definitions apply: (i) "Change of Control" shall have the meaning
assigned by Section 2(b) of the Plan unless a different meaning is defined in an
Optionee's Stock Option Agreement; (ii) "Misconduct" shall mean the commission
of an act of theft, embezzlement, fraud, dishonesty, breach of fiduciary duty to
the Company or any of its Subsidiaries (as determined by the Board of
Directors), the deliberate disregard of the rules of the Company or any of its
Subsidiaries, any unauthorized disclosure of any of the trade secrets or
confidential information of the Company or any of its Subsidiaries, engaging in
any conduct which constitutes unfair competition with the Company or any of its
Subsidiaries, the inducement of any customer of the Company or any of its
Subsidiaries to break any contract with the Company or any of its Subsidiaries,
or the inducement of any principal for whom the Company or any of its
Subsidiaries acts as agent to terminate such agency relationship; and (iii)
"Constructive Termination" shall mean a resignation by an Optionee who has been
elected by the Board of Directors as a corporate officer of the Company due to
diminution of or adverse change in the circumstances of the Optionee's
employment with the Company, as determined in good faith by the Optionee,
including, without limitation, reporting relationships, job description, duties,
responsibilities, compensation, perquisites, office or location of employment.
Constructive Termination shall be communicated by written notice to the Company,
and such termination shall be deemed to occur on the date such notice is
delivered to the Company.
A Stock Option Agreement may also provide for accelerated exercisability
in the event of the Optionee's death, Total and Permanent Disability, retirement
or upon other events.
(f) Term. Each Stock Option Agreement shall specify the term of the
----
Option. The term of an ISO shall not exceed 10 years from the date of grant,
except as otherwise provided in Section 4(c). Subject to the preceding
sentence, the Committee at its sole discretion shall determine when an Option is
to expire. A Stock Option Agreement may provide that the Option will expire
-9-
<PAGE>
before the end of its normal term in the event that the Optionee's Service
terminates.
(g) Nontransferability. During an Optionee's lifetime, such Optionee's
------------------
Option(s) shall be exercisable only by him or her and shall not be transferable.
In the event of an Optionee's death, such Optionee's Option(s) shall not be
transferable other than by will, by written beneficiary designation or by the
laws of descent and distribution.
(h) No Rights as a Stockholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustments shall be made, except as provided
in Section 9.
(i) Modification, Extension and Renewal of Options. Within the
----------------------------------------------
limitations of the Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) in return for the grant of new Options at the same or a
different price. The foregoing notwithstanding, no modification of an Option
shall, without the consent of the Optionee, impair such Optionee's rights or
increase his or her obligations under such Option.
(j) Restrictions on Transfer of Shares. Any Shares issued upon exercise
----------------------------------
of an Option may be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the
applicable Stock Option Agreement and shall apply in addition to any general
restrictions that may apply to all holders of Shares.
SECTION 8. PAYMENT FOR SHARES.
- --------- ------------------
(a) General Rule. The entire Purchase Price or Exercise Price of Shares
------------
issued under the Plan shall be payable in lawful money of the United States of
America at the time when such Shares are purchased, except as follows:
(i) Stock Purchases. In the case of Shares sold under the terms of a
---------------
Stock Purchase Agreement subject to the Plan, payment shall be made only
pursuant to the express provisions of such Stock Purchase Agreement.
However, the Committee (at its sole discretion) may specify in the Stock
Purchase Agreement that payment may be made in one or both of the forms
described in Subsections (e) and (f) below.
(ii) ISOs. In the case of an ISO granted under the Plan, payment
----
shall be made only pursuant to the express provisions of the applicable
Stock Option Agreement. However, the Committee (at its sole discretion)
may specify in
-10-
<PAGE>
the Stock Option Agreement that payment may be made pursuant to Subsections
(b), (c), (d) or (f) below.
(iii) Nonstatutory Options. In the case of a Nonstatutory Option
--------------------
granted under the Plan, the Committee (at its sole discretion) may accept
payment pursuant to Subsections (b), (c), (d) or (f) below.
(b) Surrender of Stock. To the extent that this Subsection (b) is
------------------
applicable, payment may be made all or in part with Shares which have already
been owned by the Optionee or his or her representative for more than 12 months
and which are surrendered to the Company in good form for transfer. Such Shares
shall be valued at their Fair Market Value on the date when the new Shares are
purchased under the Plan.
(c) Exercise/Sale. To the extent that this Subsection (c) is applicable,
-------------
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
(d) Exercise/Pledge. To the extent that this Subsection (d) is
---------------
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to pledge Shares to a securities broker or
lender approved by the Company, as security for a loan, and to deliver all or
part of the loan proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(e) Services Rendered. To the extent that this Subsection (e) is
-----------------
applicable, Shares may be awarded under the Plan in consideration of services
rendered to the Company or a Subsidiary prior to the award. If Shares are
awarded without the payment of a Purchase Price in cash, the Committee shall
make a determination (at the time of the award) of the value of the services
rendered by the Offeree and the sufficiency of the consideration to meet the
requirements of Section 6(c).
(f) Promissory Note. To the extent that this Subsection (f) is
---------------
applicable, a portion of the Purchase Price or Exercise Price, as the case may
be, of Shares issued under the Plan may be payable by a full-recourse promissory
note, provided that (i) the par value of such Shares must be paid in lawful
money of the United States of America at the time when such Shares are
purchased, (ii) the Shares are security for payment of the principal amount of
the promissory note and interest thereon and (iii) the interest rate payable
under the terms of the promissory note shall be no less than the minimum rate
(if any) required to avoid the imputation of additional interest under the Code.
Subject to the foregoing, the Committee (at its sole
-11-
<PAGE>
discretion) shall specify the term, interest rate, amortization requirements (if
any) and other provisions of such note.
SECTION 9. ADJUSTMENT OF SHARES.
- --------- --------------------
(a) General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee shall make
appropriate adjustments in one or more of:
(i) The number of Shares available under Section 5 for future grants;
(ii) The limit set forth in Section 7(b);
(iii) The number of Nonstatutory Options to be granted to Outside
Directors under Section 4(b);
(iv) The number of Shares covered by each outstanding Option; or
(v) The Exercise Price under each outstanding Option.
(b) Reorganizations. In the event that the Company is a party to a merger
---------------
or other reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization. Such agreement may provide, without limitation,
for the assumption of outstanding Options by the surviving corporation or its
parent, for their continuation by the Company (if the Company is a surviving
corporation), for payment of a cash settlement equal to the difference between
the amount to be paid for one Share under such agreement and the Exercise Price,
or for the acceleration of their exercisability followed by the cancellation of
Options not exercised, in all cases without the Optionees' consent. Any
cancellation shall not occur until after such acceleration is effective and
Optionees have been notified of such acceleration.
(c) Reservation of Rights. Except as provided in this Section 9, an
---------------------
Optionee or Offeree shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any dividend or
any other increase or decrease in the number of shares of stock of any class.
Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or
-12-
<PAGE>
business structure, to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
SECTION 10. SECURITIES LAWS.
- ---------- ---------------
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.
SECTION 11. NO RETENTION RIGHTS.
- ---------- -------------------
Neither the Plan nor any Option shall be deemed to give any individual a
right to remain an employee or consultant of the Company or a Subsidiary. The
Company and its Subsidiaries reserve the right to terminate the service of any
employee or consultant at any time, with or without cause, subject to applicable
laws and a written employment agreement (if any).
SECTION 12. DURATION AND AMENDMENTS.
- ---------- -----------------------
(a) Term of the Plan. The Plan, as set forth herein, shall become
----------------
effective as of May 10, 1995. The Plan, if not extended, shall terminate
automatically on March 11, 2005. It may be terminated on any earlier date
pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may
------------------------------------
amend, suspend or terminate the Plan at any time and for any reason, except that
the provisions of Section 4(b) relating to the amount, price and timing of
grants to Outside Directors shall not be amended more than once in any six-month
period. An amendment of the Plan shall be subject to the approval of the
Company's stockholders only to the extent required by applicable laws or
regulations.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
----------------------------------
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 77,806
<SECURITIES> 203,852
<RECEIVABLES> 220,727
<ALLOWANCES> (11,036)
<INVENTORY> 175,837
<CURRENT-ASSETS> 872,511
<PP&E> 3,117,829
<DEPRECIATION> (1,436,709)
<TOTAL-ASSETS> 2,845,025
<CURRENT-LIABILITIES> 467,941
<BONDS> 0
0
0
<COMMON> 1,404
<OTHER-SE> 2,069,951
<TOTAL-LIABILITY-AND-EQUITY> 2,845,025
<SALES> 998,996
<TOTAL-REVENUES> 999,289
<CGS> 748,514
<TOTAL-COSTS> 748,514
<OTHER-EXPENSES> 373,622
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,793
<INCOME-PRETAX> (75,542)
<INCOME-TAX> (31,723)
<INCOME-CONTINUING> (9,345)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,345)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
